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Edited Transcript of THERMAX.NSE earnings conference call or presentation 5-Feb-20 6:00am GMT

Q3 2020 Thermax Limited Earnings Call

Pune Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Thermax Limited earnings conference call or presentation Wednesday, February 5, 2020 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* M. S. Unnikrishnan

Thermax Limited - MD, CEO, Member of Executive Council & Executive Director

* Rajendran Arunachalam

Thermax Limited - Executive VP, Group CFO & Member of Executive Council

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Conference Call Participants

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* Abhishek Puri

Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power

* Bhavin Vithlani

* Bhoomika Nair

IDFC Securities Limited, Research Division - Security Analyst

* Kirthi K. Jain

Sundaram Mutual Fund - Research Analyst, Investment

* Manish Goyal

Enam Holdings Pvt. Ltd - Investment Analyst

* Renjith Sivaram

ICICI Securities Limited, Research Division - Assistant VP

* Renu Baid

IIFL Research - VP

* Umesh Raut

YES Securities (India) Limited - Senior Equity Research Analyst

* Varun Ginodia

AMBIT Capital Private Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Thermax Limited Q3 FY '20 Results Conference Call, hosted by IDFC Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Bhoomika Nair from IDFC Securities. Thank you, and over to you, ma'am.

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Bhoomika Nair, IDFC Securities Limited, Research Division - Security Analyst [2]

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Thank you, Zen. Good morning, everyone. On behalf of IDFC Securities, I would like to welcome you to the Q3 FY '20 Earnings Call of Thermax Limited. I have the management today being represented by Mr. M.S. Unnikrishnan, Managing Director and CEO; and Mr. Rajendran Arunachalam, Executive Vice President and Group CFO.

I'll now hand over the call to Mr. Unnikrishnan for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [3]

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Thanks a lot, Bhoomika. Warm welcome to all of you, as usual, for the cooperation and support and looking forward to a very fruitful con call.

Let me start on with the results for the quarter. I'll be restricting it only to the group numbers. And if there is any query later you should have, we'll certainly answer it also for stand-alone of Thermax. So for the quarter, Q3, our order booking has gone up by 9% to INR 1,606 crores from the last year's same quarter of INR 1,480 crores, and the -- which is 9% more. In a very difficult circumstances, this could be achieved basically at the back of an order that we received for flue gas desulfurization system from a private power producer of India.

At the revenue side, we are almost there, like, last year number, marginally lower at 2%, INR 1,402 crores, coming down to INR 1,381 crores. There were no specific project delays of the ones that we are executing, but the normal risk that you'll find, where customers will push you to complete the project on time, that kind of a pressure wasn't visible, nor were there are any specific areas where projects were -- payments were unduly delayed. So I can't blame the customers for the current year's marginal drop in the turnover. But overall sentiments being negative, there is no hurry from the market to complete the projects. That's a surmise on that front.

And we come to the EBITDA. Happy to repeat that at the EBITDA level, we are better off by 50 basis points, which is what you continue asking me when will you start at least reversing the trend of reduction in profitability. At the EBITDA level, it is better, though you may see that at the profitability level for PBT, there is a drop. Because in the current quarter we had to be accounting for an additional depreciation of the subsidiary TBWES, for which we had already purchased partner shares. And also, I would say that one of the divisions have not performed well, that's Danstoker. Not a surprise, but we're expecting a turnaround in the current quarter is getting shifted to the next quarter. That's about the results.

And just to give you -- since we have started reporting segment-wise, our order booking -- order intake, frankly, is lower for the Energy division -- energy group of -- segment of the company, but compensated substantially with the Environment business, where I mentioned that we had an FGD order. Otherwise, also, Environment segment seems to be looking up both for water as well as for air pollution control in the current quarter. I would presume that at least for the industrial FGDs and industrial water treatment, things should be continuing to be improving in the coming quarter as well as the year also.

Some more feedback in reporting back to you about some of the issues that we continue to be discussing about TBWES. Very happy to inform you that the factory is fully operational. And current quarter, we would have also had deferred tax adjustment to be done because we have adopted the lower tax brackets as a company which always had an effective tax rate of over 30%, 35%. China is -- last time I mentioned, we'll be closing the entire operations over there. It has already happened. The factory and the building is already sold off. And the machineries, some of them which were needed, along with the factory was sold as part of the deal. The remaining inventory -- usable inventory as well as machineries are already shifted back to India.

Danstoker. I mentioned to you that we have the new management in place. It has taken a little longer time than what we anticipated for the turnaround, but we are confident that going forward, it will be a profit-making entity. Happy to also inform you that Cooling division, which I reported earlier that had made losses, in the current quarter they have turned around and looking forward to also continuing to improve the performance of that particular business of the company.

Overall outlook, as we see it, yes, last -- Q3 was one specific quarter where very surprisingly we have seen the inquiry inflow itself and decision-making in the conventional consumer-facing industry also going down. We are hoping that post the budget, which doesn't carry any big bang announcement, but there's nothing negative to go in any way to subside the economy, there are positives available. Especially for the consumer-facing industry, specifically related to dairy industry, where milk production is going to be doubling in 2023. Allocation is already made in the budget. So should see a lot more improvement in the dairy and milk processing industry, which should be needing many of our products like standard boilers, water treatment plant, waste water treatment plant and also absorption chillers in some of the cases.

Equally, we are looking at cement industry starting to order because there is a higher allocation given for -- in the current budget for roads, both in rural area as well as in urban area and city connect roads also. So the cement utility in that area should at least improve, though all of us were expecting that there could be something in the offing from the budget related to real estate. Nothing of that kind is there, so -- because of which that sector we cannot comment on that. But based on the inquiries on hand, we are expecting that waste heat recovery based power generation -- captive power generation, there are sufficient number of inquiries, which can be concluded, may not be in Q4, but certainly going forward. And there are also 2 greenfield cement capacities under discussion. As they move forward, we'll be one of the contenders for taking the captive power.

To inform you, 1.5 years back I told you in a con call that cement companies are averse to going for coal-based captive power plant. But the current trend is that anybody who's going for a new plant is also putting up a coal-based captive power plant. We are seeing an improvement in the sponge iron industry, multiple inquiries. Earlier, it is small capacities, but now it has gone up for the first time in India to 600 tonnes per day and 750 tonnes per day. And the small competition may not be able to take on, so it should be auguring something good for our company.

Oil and gas, which I spoke about for the past 3 quarters, happy to report to you that they've really started placing orders. Multiple EPC orders got concluded, and a good number of them were picked up by Terra Projects maximum and 1 by L&T. Now the turn is going to be there for us because they order for the initial part of the construction and the utilities get ordered in the second lot. So we have submitted our offers and discussions are on. Will it get concluded in Q4? I may not be able to confirm right now, but it is in the offing. Between Q4 and then maybe Q1 somewhere, the first one should go on. There are 3 of them under discussion at various stages. One is the Barmer refinery, which has got captive power plant. For the first time in the public sector, they are going for a coal-based captive power generation. So we'll be an active player in that one also. Second is Panipat Refinery and Gujarat Refinery, where also we'll be participating.

Overall, from the budget, the only thing that I need to give which is relevant for the discussion is that the income tax tweaking the Finance Minister has done can have a positive impact. Because one of the things that all of us did complain earlier was that consumption has come down in the country and disposable income in the hands of the people who need to be investing is not available at all, barring the inflation. Imagine that if those who are in the tax bracket of above INR 5 lakhs per annum to INR 15 lakhs, in our opinion, the population of people which will fall in this category are early earners who have gotten to the industry or maybe at early stages of working. Those are the people who buy white goods, consumer items, affordable housing, automobiles. So for them, when they have even INR 1,000 additional in their hand per month or maybe INR 5,000, their EMI capability goes up. So this should certainly buck the trend of consumption, which should give a positive sentiment to the market and the delayed decision-making which is happening for the past quarter and a half should certainly come back to normalcy. We are one of the major beneficiaries of MSMEs and medium-sized companies and medium-sized projects of INR 100 crores to INR 500 crores coming back into that. So this is my overall take. We need to be waiting and watching both in the domestic market as well as the international market as to how economies are going to be performing.

Thanks a lot for listening to me. And I leave it to you to ask me specific questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [2]

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Sir, my first question is to understand a little bit more on the Energy segment of the business. You mentioned the inflow is there and backlog is there on a decline. So how should we look at the growth in this part of the portfolio in the next 12, 15 months? And the margin headwinds which were there from high cost -- project cost and lower margins on certain large projects, are those headwinds broadly behind with the completion of these projects? If you can share some insights here?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [3]

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Thanks a lot, Renu. Yes, I need to say that order intake certainly has come down for the quarter, but that is no indication that it may continue. We have also fairly strong presence for Energy segment outside India, not as much for Environment. So I'm expecting, going forward, the order intake should improve both from the standard products area as well as for the projects area. And the inquiry pipeline for projects, it is much better than what we were at the same time last year. Now conclusions were not happening in many sectors. As I mentioned about -- we used to talk about oil and gas sector for so many quarters. You personally have been party for multiple other discussions also other than the con call equivalent when you come with other people.

Inquiries are online. We have -- we're bidding for it. And as I mentioned about -- unlike earlier O&G projects, the steam generating plants here also are going to be coal fired, so which is not going to be a cup of tea for everybody participating. There are very limited companies who'll be qualified to do that, and your company is one among them. And certainly, we look forward to giving it a good fight and should be able to report about the results of that either in Q1 or beginning of Q2.

And similarly, the other 2 also, Panipat and Gujarat Refinery, both of them, we are prequalified. And there it's (inaudible) who are the consultants. So I'm looking forward to an international consultant preferring a company like Thermax than prequalification being given to smaller players. So there should be some positive news happening in that.

Similarly, we have international O&G projects also, which is stalled for a long time. Qatar, Abu Dhabi, Saudi Arabia again picking back. And there are inquiries for captive power plants, both in Southeast Asia and maybe South America and Africa. Progressively, they should start ordering out. So my outlook for the coming year is, project side of the business, which has taken a major beating in the current year in order intake, should report better numbers for the next year.

Then, on the standard products, which was a mainstay for the company's balance sheet, in the current quarter, it is lower. So I'm expecting that -- I mentioned some of the things in the opening remarks. I'm expecting that sentiment, which is absolutely negative, we are at the rock bottom right now, it has to progressively improve. So somebody who's a patient, there will be some convalescence period. So I'm not expecting reversal in one quarter. Certainly, it could be -- progressively, H2 should be a normal good quarter for standard products. This is about Energy segment.

Environment, we already have a fairly good carryforward in air pollution control. And the Lot 5 is going to be bidded now, and we have already an active participant. How many of them are we going to be bidding and winning? We will not bid for losses. Certainly, no. There's no strategy in that front. So we'll be bidding for a decent enough profit and we're able to get it. And I believe that the way the last bidding happened, many of those people who are outliers in negative profitability are out of the bidding circuit right now. It should improve. And some of them already have enough and more orders on hand in the Environment sector.

Water is an area where our order intake had not been good in the current year. There are -- because industries are not investing. So as the MSME level, medium-sized projects going to pick up for the Energy segment, Environment segment also should pick up -- the Water segment should also pick up over there. That's overall take down of it. And since you asked profitability, well, yes, in the current quarter or -- for the Energy, though the revenues are marginally lower than the previous year's same quarter, our profitability has improved for Energy segment. The PBT...

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Renu Baid, IIFL Research - VP [4]

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Right. Overall -- yes, exactly. My point on the margins from an annualized basis, if we look margins, can we expect now from next year as the share of mix improves and some of the low-cost projects are nearing completion. Can Energy segment margins be back to 8% to 9% levels? Or you think it is slightly more challenging in the current environment?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [5]

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On the orders available, no major improvement. Improvements are always there because we work towards improving. So that will be there. Major improvement will happen only if the orders that you're going to pick up of the book and bills for the next year is fairly large in number, if the competition were to be not bringing the prices down. And currently, I'm expecting a steady input cost, not that everything is going to skyrocket or come down. At the steady level, Thermax had been always able to improve. But if an unsteady stage were to prevail on XYZ reason, for example, say, in China, I'm sorry to say, the coronavirus issue were to be blowing out of proportion. Chinese are the stabilizers of steel price in the world. 80-plus percentage of our consumption is steel. So if that were to be happening, I'm sure all my friends in the steel industry in India are waiting for an opportunity to increase the prices. So such a thing will happen. I have orders on hand, and there are normal steel which we have to buy from the open market. So those kind of things we'll have to wait and watch. Though we will try to be improving, that's a promise, but I cannot guarantee it may happen going forward.

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Renu Baid, IIFL Research - VP [6]

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Sure. And sir, just 1 question for Rajendran sir. If you can share the split of inflows in backlog between Energy, Environment and Chemical for us?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [7]

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Are you looking for the quarter or for the year-to-date?

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Renu Baid, IIFL Research - VP [8]

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For the quarter?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [9]

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Okay. For the quarter, the order book for the Energy segment was INR 799 crores, for the Environment segment is INR 691 crores and Chemical is INR 117 crores. That's a total of INR 1,606 crores. And you wanted order balance split?

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Renu Baid, IIFL Research - VP [10]

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Yes.

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [11]

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Okay. So order balance is INR 3,734 crores for the Energy segment, INR 1,635 crores for the Environment segment and INR 69 crores for the Chemical segment.

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Operator [12]

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The next question is from the line Kirthi Jain from Sundaram Mutual Fund.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [13]

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You guys had a good performance amidst challenging times so congratulations for that. And my first question is with regard to Chemical segment. Sir, like -- despite opening a new facility, our business continues to be on a flattish trend. When we are going to see improvement on the top line side? And current quarter, we had seen a very sharp improvement on the margins for the Chemical. What has faded? Can it be sustained in the Chemical margin side?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [14]

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Thank you, Kirthi. First, on the Chemical, why the margins have improved in the current year? The mix of products that we sold in the current quarter had a fair high share of specialty chemicals where the margins are far better than the conventional. And going forward, can we repeat it? Our intention is to repeat. But to get new orders in specialty, it's a long drawn affair. Because already these are specialty means application-oriented chemicals, and this is all predominantly in Europe -- by us in America, and we are opening up the European market also. And displacing the current supplier, who naturally will be one of the largest chemical manufacturers in the world, is not an easy task, but we will ensure that it can only go up, it cannot come down. That's point number one.

And your next question was about the top line being almost flat. Yes, we have knowingly not taken orders because our Dahej factory had stability issues in the Q1 of last -- current year. So we started picking orders only in the Q2 onwards. Now it is open and available for us. Currently, we have our Dahej capacity gone all the way to -- near to 10,000 metric cube per annum. And similar capacity is available in our earlier plants also of Maharashtra. Put together at 20,000 metric cube being available and the current offtake needed for meeting of the target in the year would be something very close to 16,000 to 17,000 metric cube per annum. So we have surplus capacity available at this juncture. So that should help us.

Apart from the Phase II expansion at Dahej is ongoing, I'm expecting that would be completed by Q1 end in every possibility. And since we already learned how an automated plant needs to be run, I would presume the stability for the plant should be taking a quarter to 2 quarters more. So going forward, our capacity overall available for Thermax for resin will go up from the current maybe 20,000 to 32,000 metric cube per annum, which leaves a fairly large headroom for growth of the business. So market is available, capacity available. Now we need to be ensuring that we go and pick the orders. So if that happens, certainly, you can see a continuation of this.

There could be quarters where we may have more commodity manufacturing done than speciality because there is not an idle capacity. So there, the overall percentage margin may come down, but those are going -- our intention is to get all the new orders of specialty, but the market may not favor us every time. So that also you should be taking with a pinch of salt. Is that okay, Kirthi?

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [15]

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Yes, sir. So with this 32,000 metric cube, we should be reaching a turnover of INR 1,000 crores, roughly. We can reach, right, sir?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [16]

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With the existing capacity and the expansion that we've planned, for resins alone, we should be talking about maybe INR 650 crores because originally we were to be putting another expansion also, a Phase 3, which we're holding on for some time. Our plan is to take the resin to an INR 850 crore turnover is what we have planned with. For that, we'll be either needing to increase the capacity at Dahej beyond 22,000 or else our one more factory created, which is under discussion right now with the Board of the company. So we'll keep you informed about it. That is as far as the resin is concerned. But we also have performance chemicals business, which is growing. And it is almost touching INR 100-odd crores -- INR 150 crores total?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [17]

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INR 200 crores.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [18]

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INR 200 crores is going to be touched. So that is also an area where you don't need extra capacity to be created. And a couple of them can also have a breakout expansion possibility in the market.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [19]

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So sir, next year we should (multiple speakers)

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [20]

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INR 1,000 crores is possibility, overall capacity or maybe going forward, we can have. We can exceed INR 1,000 crores. Not immediately, but I'm talking progressively.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [21]

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So sir, next year we should expect improvement -- given the stabilization issues have been resolved, next year we should expect the improvement in Chemical business, sir, at least 15%, 20% kind of improvement?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [22]

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Percentage I will not bet on, but certainly it will be improving. It will be in double digits for sure. Will it be the number that you spoke about? Maybe we are also giving similar kind of targets. Let's wait and watch for it to be happening.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [23]

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Sir, on this O&M and Services business, how has been our progress in YTD basis? And how we are looking directionally to improve on the O&M, which can improve our profitability when greenfield activity is a little tight?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [24]

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O&M, we have combined our power O&M business, along with our other utility O&M. So it is getting a real focus. So there is a strong leadership available and strategy is being made available. There, frankly speaking, with the economy having taken a beating, many customers are looking forward to every O&M contract when you renegotiate to have a cost -- reduction in cost. So unless we are also able to match up with reducing our input cost, the margins may come down. So we already are resorting to digitization in that area. With that, customers aren't asking for so much of [warm board] is to be provided, then I'll only pay you so much, that change is also being seen as a possibility.

Happy to inform you that the utility side that you have brought it under the same umbrella has improved its profitability. Once it has come to a double digit, now we are wanting to expand it further. And most of the O&M currently is based in India. We want to move out of India. So we have got limited projects going on in isolated countries, like one in maybe Zambia, one Tanzania is going to happen or Nigeria we are negotiating. But we want to take it into the second home market for the company, which is Southeast Asia, in a bigger way. So that's something which we're trying for. So there is an absolute focus in the company related to operational maintenance.

And we never did operational maintenance for our larger boilers because the power division was doing it for captive power. But cutting off from that, if there is a customer wanting an O&M only for a larger boiler, we've started doing it. In that, we are able to do value-add also. So that also should be growing in.

Air pollution control did not have a service group itself. So we have created a service group in air pollution control with FGD orders happening because customers may need support. So there also, we should be able to see an improvement.

Water has already got more than 120 operation maintenance contracts, but it's just running contract. But we need to be in the realm of monitoring online happening. In many states, now they introduced online monitoring for effluent treatment plants, where the output results are directly connected with the pollution control office. So there is a role available for companies like Thermax. Earlier, it was just a mining contract. But today, there will be a capability also and competency to be added on -- along with mining. So there I'm expecting that, progressively, the states where they are very strict on implementation on effluent discharge, we should have a role to play. If I have to put all the rings together, I would say that we are headed for an improvement in the overall O&M business.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [25]

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Okay. So that should directionally also be a kicker to the margin, right, sir? Apart from the mix moving from product project, O&M business also moving, let's say, directionally, the margins should improve, right, sir, over a 1-year or 2-year time frame?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [26]

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Kirthi, that is a direction impact. I have instruction from the Board that the maximum focus should be there on the Service business, where O&M is one portion. There are also other factors like replacement in kind, spare parts, upgradation of plant, retrofitting and revamping, those kind of things are also being focused. So overall, I would say that earlier we had a target of achieving 15% of our top line to come from Services. And it is being upped -- I can't disclose the Board number, but certainly we are working towards improving that number.

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Operator [27]

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The next question is from the line of Renjith Sivaram from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [28]

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Sir, in the EBITDA margin, when we dwell a bit deeper, the raw mat to sales has increased while the other expenditure has come down. So anything -- any trend you are catching on that side? Or is there any onetime in that other expenditure?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [29]

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Sivaram, very good question that you had asked me. It's a quarterly impact right now because we are at the active stage of implementing some of the orders which I've earlier mentioned to you, which had cost overruns. Those costs are getting booked. I mentioned about a project in Gujarat and another one in northern part of India by the EPC group, which had major cost overruns. So those are the ones which are getting registered. So it should improve moving forward, not in a quarter. Those projects when it completes at least 90% of the supplies over, we should be able to see an improvement in that. Otherwise, I don't think there is any trend that needs to be looked into.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [30]

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And other expenditure, is there any one-off in that?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [31]

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There is no one-off income in the other expenses. I would say it is a stability of 2 of the factories which we had difficulty, one is in the southern part of India for the chiller, second for the chemicals. These 2 are one of the factors. And one more thing I need to say is that we were booking our assembly facility, port assembly expenses, as a part of other expenses only. It is not in the material or labor was coming in that. So since we have completed the Dangote assembly almost through, hardly anything left. It's only -- whatever left is only buying and selling like instrumentation and insulation. There could be an impact of that also. So it's a normalized rate now, let us say.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [32]

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Okay. And how about the subsidiaries? If you can let us know how much is Dangote's revenue or profitability for this quarter or 9 months? And how about the other subsidiaries? We are expecting some improvement from Poland.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [33]

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Well, project-wise, we don't normally give the numbers, Sivaram. But I can say that we have clocked a better number for Dangote than we expected at the -- when we concluded the order with efficiency improvement and a lot of cost reduction measures taken by the team. And the entire activity is completed at the port assembly. And as I mentioned, only items which -- around INR 138 crores to INR 140 crores worth of revenue recognition is left over, which we cannot do it immediately. It may get into even next year because these are items if you supply right now can have a problem related to weathering. Insulation, we'll do only at the last part. So only when they are ready with the refinery commissioning, we'll be supplying that balance portion.

So I would say that what we expected in Danstoker when we -- sorry, this order when we concluded, the Dangote, we have been able to manage it pretty well also. And certainly, Danstoker had been a let down in the current quarter also, but we are expecting that will turn around because we have a detailed plan completed, being monitored in the corporate office, so it should happen. I would say next quarter, still they may -- they will have a negative, but Q1 onwards, we should be able to talk about profitability for that also.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [34]

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And Southeast Asia?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [35]

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Southeast Asia, there are 2 factors. One is, when we pick orders and get it done in India, manufactured in India, which continues. That is for major -- that is for water, air pollution control and medium and large projects of the heating business. That continues to be profitable running from there. But for the factory that we set up, dedicated for the heating business of the company in Indonesia, current year order book had not been too good so far. So there are some rejigging that we need to be doing in that particular market to get more orders. And finalizations have not been too good over there also, in Indonesia. I expect an improvement in that also going forward. In fact, the 2 areas that we expect good improvement is Danstoker and the Indonesian edifice. Note that in Southeast Asia orders have come down, we are getting orders, but those are not manufacturable in the factory that we constructed over there because we can only make standard package boilers in that factory as of now, nor do we want to make it into a project kind of heating boilers. That we'll want to continue to supply from India. The balanced portion we will certainly have to do in Indonesia.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [36]

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Sir, lastly, this Lot 4, did we participate in the FGD or -- because pricing was good? So what was the reason?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [37]

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Lot 4, we bid, but then many of them went for rebidding, which is happening right now. In that -- well, I mean, since there was -- why did they go for a rebidding? Because budget of NTPC versus the prices available even for L1, L2 was much, much -- so far away from the budget. So they expected the price to come down. But we have done our costing with a lot of clarity that you cannot do the FGDs at the kind of price as we were expecting. So we stuck to our prices. There were a couple of them who were willing to reduce their price. They may know their reasons for reduction of price. So we haven't won anything in that. Currently, we are participating in Lot 5. It's already out in the market. We are participating actively in that front.

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Operator [38]

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The next question is from the line of Umesh Raut from Yes Securities.

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Umesh Raut, YES Securities (India) Limited - Senior Equity Research Analyst [39]

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Sir, my questions pertain to the Environment segment. So government has announced some major strength to the emission norm control for the power plants. So how do you see ordering -- FGD ordering, especially from the state side and private side, apart from NTPC, over the next 1 year?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [40]

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Umesh, I am expecting NTPC to conclude up to Lot 5 and there afterwards take a break and force for them to be executing these orders. It is quite visible that they are moving away from -- because the lots are getting concluded, they may have some more plants remaining. But they are now coming out with tenders for full plants. I believe 2 of them are in the offing, that is full power plants. And they need to be also finding the funds for putting up the plants, and they may want to see the costs of running this plant because there's some commitment that they have taken in their balance sheet related to the operation and maintenance cost for it, including consumables. Unless that is stabilized, they may not go for the rest of them is my current understanding. Of course, the government can insist upon they do that.

So like we mentioned, there are 2 sectors left out. One is a private sector, which is in deep trouble. So I don't expect -- all of them have asked for time extension. The government hasn't given it because the ruling is from NGT. So let's wait and watch. And for Thermax to participate in private industries, there are very limited customers whom we may want to be working with. So one such, we've already taken the order. As and when any other -- I can't reveal the name. Some of -- more can come in. And 1 or 2 of them are good for us to be dealing. So that is the second.

Third is the main sector, the state electricity boards. Well, barring 1 or 2, none of them have a balance sheet which can be leveraged any further. So unless there is a funding going because I know that it is spoken that there will be funding available, how much -- the entire power industry allocation by the Finance Minister is INR 22,000 crores. And how much of that is going to which state or all that, we'll have to wait and watch. If that state government's past is indicative of their ability to pay, then we may participate depending upon the terms of payment. So that's all what I can comment.

So I'm not expecting anything substantial to be happening in the next year, though there will be -- the Lot 5 part of that may shift into the next year, which we'll be actively participating. And private, we'll wait, I mean, who's going to come out. One has already come out that we have taken the order. 1 or 2, as I mentioned, if they come out, if they have a kind of parties with whom we can deal, we may go ahead for bidding for it also.

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Umesh Raut, YES Securities (India) Limited - Senior Equity Research Analyst [41]

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Okay. On working capital, sir, in your opening remark, you have mentioned that there is some stress in the channel still. So how do you see that is moving up in next 1 or 2 quarters?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [42]

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First and foremost, maybe I didn't communicate it well. What I mentioned about the channel is the inquiry flow, not the cash flow in that area. So there, there is no stress at all. On the contrary, in the current quarter, overall working capital utility has come down from INR 219 crores rupees to INR 177 crores. There is an improvement. Cash flows have improved. And that we are not borrowing. This is from our own money we are managing that way. So I don't expect -- because we won't take orders, so we'll not supply an equipment unless we are assured about the payments coming in that particular sector. But there will be a stress. What you told for India is correct, industry is correct also because NBFC problems are not resolved. Because of its availability, because a lot of this channel range of products, they do depend upon the local financing and NBFC financing, which is not going to be resolved. And there's nothing that is known to anyone of us. Barring the government wanting to introduce factoring in MSME area, and they did mention also certain numbers, we are yet to be disseminating it to understand how it can be helping us to sell more in that particular sector. That's the only information right now.

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Umesh Raut, YES Securities (India) Limited - Senior Equity Research Analyst [43]

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Okay. And sir, orders you talked about from the 2 refineries, one from the Panipat and second from the Gujarat, then how much of the addressable opportunity is there from -- for us from these 2 orders?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [44]

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Normally, the Indian capacities of refineries should fetch an opportunity between INR 500 crores to INR 750 crores per refinery. That, again, depends upon if they make it as part of an EPC. If it is an international company who's taken the EPC, they may prefer buying that item from their own country, but -- though people try for it. So that is where -- it can be up to INR 750 crores per refinery.

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Operator [45]

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(Operator Instructions) The next question is from the line of Varun Ginodia from AMBIT Capital.

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Varun Ginodia, AMBIT Capital Private Limited, Research Division - Research Analyst [46]

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My question is on the Environment segment. Can you throw some light on the execution there? We have seen revenue declining for last couple of quarters, 5% to 10% year-on-year. How do you see that trending going forward? And when does these FGD orders translate into revenues? And secondly, on the margin side for that segment, 4% to 5% is the kind of trajectory we have seen over the last 2 quarters. Do you see that going in the range of 6% to 7% over the coming quarters?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [47]

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Thanks, Varun. Environment segment, execution, there is no difficulty from our side. There are times when you are done in the water alone maybe INR 600 crore, INR 700 crore per year, whereas we have done much lower than the current year or we'll be doing. It is a lack of orders getting finalized in the market. When there's a decline in economy, despite all the pressures being put on them by the local pollution control authorities, people are weary about investing in that. So it is the reflection of that really. The carryforward orders were lower. Now we have 2 large orders for FGD, and we are gearing up for executing that. Our expectation is, between the Q2 and Q4 of next year, at least half of the revenues related to that should get recognized. Both the orders we have taken with profits, but I can't reveal because they're tendered items. The private, at least I would have told you, okay, it's a decent or indecent profit. But over here, there will be further tenders that you're going to be facing. So taken them as profitable orders.

Now can the margins lift up to 6% to 7%? Absolutely possible. It is possible. It is a -- see, when the market is bereft of orders, you will have very tough competition. It is not that we want to bring down the margin, but the competitors bring down. Automatically, the beneficiary is the market. So currently, where -- FGDs, there are orders available in the hands of most of the larger companies, and it's also consolidated, not that everybody and anybody is being allowed to be bidding. With the selective bidding allowed only, and some of them who have taken the orders in the earlier past with 30% retention, they're all worried about how they're going to run their balance sheet, will they have to spend money for -- fetch money for executing the projects. So there is some possibility going forward for improvement. And in my opinion, 6% to 7% is workable. We had worked at that kind of percentage in the earlier past. And will it happen in the next year or year after that? Let's wait and watch for that.

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Operator [48]

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The next question is from the line of Abhishek Puri from Axis Capital.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [49]

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And just quickly, sir, on the China business that we had done, provisions in the first 2 quarters of about INR 80-odd million -- INR 8-odd million, they should have led to improvement in the margins in the current quarter, since they are not there anymore. But our turnover is up, but the margins are lower in the Energy segment. So just trying to understand, are there any further provisions still there in the current quarter?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [50]

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No, actually, the revenues have come down. INR 1,134 crores was the last year's number. The current quarter is INR 1,103 crores, lower. The margin -- last year, the PBT on that was INR 61.3 crores. It has gone to INR 64.7 crores. But there is a valid reason. That's not China. It is Danstoker. Losses are also part of the Energy losses. That's the reason for it. And they are accounted for in the current quarter.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [51]

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I'm sorry, what will be the losses for -- at Danstoker now?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [52]

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Abhishek, I normally do not give you specific numbers of each of the entities or divisions. So it is a loss. It's almost a double-digit number, closer to that, something like that.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [53]

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Okay. Last year, we were looking at INR 29 crores loss, I think, if I'm not mistaken. And this year, we were looking at profitability in Danstoker. So 9 months, we are still running at a loss?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [54]

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That's correct. And here also, we ended at a substantially lower number than the last year.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [55]

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Okay. Okay. Fair enough. And secondly, on the FGD business, you mentioned that 50% of the revenues will be booked in the second half of the year. What are the execution time frames? And are you facing any delays in the supply chain? I mean we're hearing from the other producers that the equipment, which has to be imported from outside, is taking much longer than anticipated.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [56]

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You're right...

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [57]

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I'm just trying to understand the revenue recognition for you, although we have the orders, but how will that pan out?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [58]

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30 months is execution for both the projects that we have taken. So we are into almost 2 quarters over at the first one. Engineering is getting done. Engineering has to be approved before you start real procurement of the raw material. But the very important item is a very, very specialized, the most expensive, steel, currently available in the market is to be procured. Nobody makes that in India. There are 2 countries where you can buy it. And those for the -- both the projects we already concluded the order. There is one challenge all of us in the Lot 3 onwards are going to be facing in this, because for the Lot 1, many of them tried to make that in India because very expensive. So they were cobbling it up in India.

And to be precise, you'll have to make a sandwich of a material, steel and Hastelloy to be combined together. And using an explosive -- people are wanting to make it in India. But it is available in China in a very proper way. And most of the Indian companies who've taken orders in Lot 3 onwards, we including in the Lot 4, will have to be resorting to China. So will the current situation -- medical situation have an impact on that for supplies and delay the project? It's quite likely.

And in any case, please remember, the way most of the purchasers of this FGD will behave when they have to be putting a pollution control equipment versus a power generating equipment, there is no revenue accretion possible by putting an FGD. On the contrary, they'll be spending money from their pocket on CapEx, also on OpEx there afterwards the moment you commission it. So they are not going to be pushing to say that, okay, make up for the time loss. But the way things are moving for the earlier orders is an indicator that there could be a couple of quarters delayed because India is also learning how to approve a FGD. But we have the second batch of approvals going to come. So either NTPC or DVC equivalent will know what is usable for India. So I expect our engineering approvals to be faster.

And we are also not the kind of company that would take in the orders in the first lot. We should do a better engineering in comparison to our competitors. So that should go on. When I mentioned about second half of the current year, it's solely on account of the fact that I have factored in some time addition. But we are confident that we don't need 30 months, we can do it earlier also, provided the process could be faster.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [59]

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If I may ask on the strategy part of your consolidating factories and operations that you have been doing. How far the efforts are over? You said TBW has started and the Sri City has started fully. And also, you were giving VRS to employees in some of the older factories. And the -- also how the margins will be helped with digitization in the new factories or the automation in the new factories? If you can just touch upon that.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [60]

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TBWES is fully operational. In fact, we have got too much of capacity available to take any orders. But for that to be utilized, it's going to be taking a much longer period of time because the market has got to open up. If you were to see what has happened between 2002, 2003 to maybe 2010 in India or if there's similar kind of situation to be prevailing, we'll be very happy. We have got capacity available. That's point number one. On the new factories, digitization, very happy to note that Dahej factory, which is chemical factory, which was recently commissioned, is operating with far less manpower than what we're operating our earlier plants. Similarly, the absorption chiller factory, which is commissioned in Sri City, is also operating with unit manpower -- manpower per unit or so or substantially lower.

And TBWES' factory is a modern one, ideally meant for supercritical. When you make a conventional baby boiler, because supercritical, when you compare that with what we make over there are baby boilers, though it is very large for Indian market. We need to be tweaking many things in the factory, which is in the offing, because a factory which is inoperative, we converted that and started operating. So we are not intending to make process automation immediately. Once the order rate picks up, which is what I'm expecting next year onwards, we will do digitization of that plant also. But that will be an add. That's about it.

But be assured of the fact that, progressively, we'll be introducing digitization even in the old factories of the company, not with the intention of reduction of manpower alone, it is much more than that. Because rework reduction and histogram available, which will help us for product servicing in the future, because currently you have to refer to an old drawing and bunch to be lifted up to make a spare part of a boiler. But tomorrow, it can be on a click available. So our delivery periods can improve in some of those. All that -- those are the kind of benefits we'll be getting in the future, so -- because of which we already have a digitization program planned for each of the factories of the company. Is that okay, Abhishek?

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [61]

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Yes.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [62]

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Let me also appreciate you for the great reports you keep sending on the results. Analysis that you give is -- we really value it. So continue doing that good job.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [63]

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And look forward to hearing you in the next meet, along with the new MD.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [64]

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Yes, yes, of course we'll do that.

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Operator [65]

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The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

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Bhavin Vithlani, [66]

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Unni, could you speak about the change because I think first time in many decades that we have seen somebody who's going to lead Thermax has not been with the Thermax. Usually, we have seen people joining as management trainee and improving to the ranks of the top management.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [67]

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(technical difficulty) is a very, very suitable person, and I need to say that the NRC and the promoting family have taken extra pains and almost worked for a year to be selecting the most ideal candidate in every aspect in terms of experience. Because we are a conglomeration of product business, project business and service business. Let me assure you that the incumbent is trained in all 3 of them. And he has worked for a fairly long period in a sector very similar to ours. So he's got that experience. Project order conclusion experience, order experience in India itself of almost 7, 8 years is already available. In that aspect, I would say, everything is taken care of.

Next is -- there is a major transition expected in the market from -- for especially heavy engineering companies. You've seen the kind of company who couldn't make those changes in the developed world, what happened to many of them, including our own JV partner. You know what happened to some of them. So Thermax has also got to transform into a different kind of an orbit of business model changes and also different -- a lot more dependent upon international market than the domestic market. For the current size that we are in, the headroom available for growth in India, even if Indian economy were to grow back to the kind of percentages that we used to, we need to look outside. So these are the factors which compelled us and the Board and the promoters to look at somebody from outside rather than inside.

We have execution capability for our current businesses within. We have got order-obtaining capability from within. Margin improvement, of course, we have done it earlier, will be repeated. But will Thermax become -- earlier I did mention to some of you in one of the calls that what are our future plans for a decade? How to triple our current (inaudible) size of INR 5,500 crores to INR 17,000 crores. In that -- we are not looking at only this heavy engineering taking us to that. So a lot more of newer methods of managing the business has got to be thought through. So that is why we have to be resorting to getting somebody from outside. And be assured of the fact that it is going to be adding value to Thermax and lifting Thermax from what we are currently. We are, for a moment, not telling that there's anything wrong with us, but fundamentally we need to be accelerating some of this of global standard.

See, when you have -- we've crossed 30-plus percentage international income. I told that our 10-year plan is to take it to predominantly a 50-plus percentage international income. So those kind of things it would be better done at a faster pace with an external induction. And certainly, I mean promoters are going to be there actively involved the way they were going forward also. So certainly, if there is anything that we need to be watching on that will be taken care of also. Does that answer and does that make you happy, Bhavin?

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Bhavin Vithlani, [68]

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Yes. The second question is a little on the shorter term. Given that we have seen a drop in the order book, are you seeing visibility that we'll end the year with an order book which is similar to current levels or you see it slightly higher than the current levels? And this is more to do with the visibility on the revenue growth going into FY '21.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [69]

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I'm expecting if the next maybe -- how much -- how many days, 50-odd days -- 55 days panning out to be lucky for us, we should be talking about a number closer to what we were last year. That's our expectation. So I'm not expecting anything miraculously changing the opening number substantially. Take 5%, 10% here and there as where we'll be opening the new year. Based on the assumption that cement industry will order at least at the same level or a little more than the previous year in the country and international markets. Second, O&G, which is not present at all, which we talked about the last oil and gas expansion in the country in the PSU was the Cochin refinery, which happened maybe 5 years, 6 years back. (technical difficulty) available or refinery, we are one of the major players. Bharat, which was there in between. Sorry, you shouldn't -- I mean I shouldn't be misquoted otherwise.

Bharat [sets] transition. The largest beneficiary among the Indian companies was Thermax. So O&G is going to be ordering out with definitiveness and inquiries already in the market we're participating, and they don't have to be waiting for any funding to come from any agencies. All of them have sufficiently provided for. So I would imagine that next year, we should be able to do far better business because current year, projects in order intake have substantially dropped, both for EPC as well as for the boilers and heaters, which has now become TBWES. So there's been improvement in that area.

And then towards the second half of the current year, which we are undergoing, the sentiments within the country had been, I don't want to use a negative word for that, but I would say, very calibrated. Everybody is approaching possibly a level to say that I have capacity available or should I really go for. Though many have money with them, unleveraged balance sheet, cash available in the balance sheet, I'm expecting them to be also not idling the money and creating capacity in the second half. So overall, next year should be seeing an improved order intake. That's my take on that. And if I have a look at the international inquiries last year versus current year, at this point of time, we are better off. Now how will we conclude it and how will we get the LCs open because we will report the orders only when we have the LC in hand to orders. So that's about it. Is that okay, Bhavin?

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Operator [70]

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The next question is from the line of Manish Goel from Enam Holdings.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [71]

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Would it be possible to share the breakup between domestic and international in order intake and order book? And also, if you can give us some perspective as to -- you did mention international inquiries are better. If you can dwell more in terms of which are the segments or areas where you are probably seeing good inquiry pipeline?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [72]

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Rajendran, will you please help him out?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [73]

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On the order intake, you had wanted it for the quarter?

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [74]

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For the quarter and 9 months as well, please?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [75]

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Okay. I think I mentioned this on order intake for the consolidated...

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [76]

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I want domestic and international breakup.

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [77]

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All right. Okay. So domestic order intake for the quarter is a total of INR 1,050 crores. That includes our FGD order that we have informed. And then export order intake of about INR 266 crores.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [78]

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Okay. And for 9 months?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [79]

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9 months, it is INR 1,266 crores and INR 340 crores.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [80]

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No. No, that doesn't tally. I'm looking for overall order intake for 9 months, breakup, domestic and international.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [81]

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He gave you YTD.

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [82]

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I'll give you the YTD numbers. INR 3,205 crores for the domestic and international being INR 1,105 crores.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [83]

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In fact, the quarterly numbers what you gave also doesn't tally. If you can -- because we have order intake of INR 1,600 crores.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [84]

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That's correct.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [85]

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So the number what you shared is totaling to INR 1,300-odd crores.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [86]

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Our domestic order intake is INR 1,266 crores, international is INR 340 crores, taking it to INR 1,606 crores for the quarter. And for the YTD numbers, domestic is INR 3,205 crores and international is INR 1,104 crores, taking it to INR 4,309 crores. Is that okay?

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [87]

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Yes. And if you can share the order book breakup as well, please?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [88]

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Order book means the balance?

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [89]

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Balance -- order balance, breakup between domestic and international?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [90]

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Rajendran, do you have that?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [91]

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Yes, I think I have that. I think the balance is consolidated. I think it is INR 5,439 crores. The breakup is INR 4,000 crores for domestic and INR 1,400 crores for the exports.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [92]

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INR 4,027 crores and INR 1,412 crores, taking to INR 5,438 crores -- INR 5,439 crores, because I'm sure Manish is wanting an accounting number. Is that okay, Manish?

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [93]

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Yes. And, Unni, if you can just probably dwell more in terms of international outlook, in terms of areas and opportunities?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [94]

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First and foremost, we are expecting that Southeast Asian economies will perform the same way or even better. But I need to give a cautionary statement with the coronavirus right now, what is going to be the spread and control? But I'm keeping that totally aside. If I were to look at the inquiries available from countries like Indonesia, Philippines, Thailand, Vietnam, 4 countries specifically, are better than the previous year for the standard products. And there are also projects visible for conclusion, both for EPC and boilers -- larger boilers. So there, there is a positive enthusiasm in us, but -- which can be totally dampened in case if something were to happen. I mean all of us are worried about -- it shouldn't spread, and it shouldn't deter our impact on the business.

Middle East, last year at this point of time didn't have too many refinery expansions. We're seeing Qatar and Abu Dhabi and even Saudi, 2 of them. (inaudible) is already ordering out. So maybe we'll continue to be doing the balance portion. So 3 locations. And for a change, for the first time, we are also prequalified for Qatar. Now I'm not promising we will get orders there because first time we're trying for. There will be global competition.

In the refinery sector, because of the laxity of orders in the global market, there will be American competition, there will be European competition. All Indian and Asian will also be participating. So there, we will to really, really be competitive to be picking orders. Most of them will be negotiated, not tendered out. So there is an opening available. We're going to keep our costs really under control to ensure we're able to win in that area.

There are isolated inquiries from Africa and South America available for larger projects. Smaller ones are, of course, continuing on. So this is all about the project side.

On the product side, we see SAARC countries, especially Sri Lanka post election and Bangladesh, the way we are looking at the GDP growth, even exceeding India's percentage growth, inquiries are coming in. Nepal, that initial animosity against Indian products has now come down. We have been able to pick up even an EPC order in the recent past for a cement plant over there. That's an indication that they are again looking at Indians better. So SAARC could be a revival for standard products. And of course, our Southeast Asian countries should also give a lift for the product orders.

So overall, I need to admit that current year, we are also not so happy about the quantum of orders we've picked up so far. Even in good -- even if I were to get a bumper in the balance 55 days, we'll not be really happy about international order intake. And more for projects and less for products, but we should do in both areas better next year. So if the domestic market were to also turn around and international expectations, we should do a better order intake for the next year. Is that okay, Manish?

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [95]

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Yes,

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Operator [96]

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The next question is from the line of Kirthi Jain from Sundaram Mutual Fund.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [97]

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Sir, just you were telling about this Danstoker loss, which we had this quarter and next quarter, that will be reduced. So how much delta can it need in terms of the margins? Or anything you can tell us...

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [98]

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Total turnaround alone, a breakeven can mean an improvement of 50 basis points for the Energy segment, Rajendran?

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Rajendran Arunachalam, Thermax Limited - Executive VP, Group CFO & Member of Executive Council [99]

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Approximately that's...

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [100]

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Approximately that's the number. And if there is turnaround means, they don't remain breakeven, they become positive. And positive as much as they do, it will be up above that beyond. So that -- those are very small entity. It can make a difference to Thermax balance sheet on EBITDA, but at least maybe 30-plus basis points is what I'm looking forward to. That's a swing, if the real swing were to happen. But it will not happen in 1 year. One year, it could be breakeven plus -- it will be profitable. There afterwards, we need to do a lot more of things related to expanding our market reach. Total shifting of noncritical orders to fall in where there is a major cost arbitrage available and marketing in Eastern European countries where we could be much more competitive. So there are a couple of actions which we've already planned and are taking place. That should help us.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [101]

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Europe, like, businesses are shrinking in the European region. Like what is the mitigation in terms of the cost structure we are doing so that we are competitive and we are -- we try to remain profitable and not lose money, sir?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [102]

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First and foremost, we are in one of the most expensive countries for labor in the world, Denmark. And in that, they were making profit when we bought them over. So now we are going to move to another medium expensive countries. That is where we picked up the company in Poland, where there'll be a substantially high cost arbitrage available. And we're in the heavy engineering where labor intensity is much more than conventional automated, robotized kind of -- so that is the first item. As we mentioned about that market is going to be changing, we are already seeing it. Nowhere in the world other than in Europe will you find electric boilers reappearing. It used to happen maybe when I was a school student or maybe a child. It's coming back with the electricity becoming almost cheap, and people will want you to take electricity. So those are already indicators of one kind of a change. Decarbonization is something which could happen in that part of the world. So can we have products which may not need the carbon at all? One is electricity. Beyond that, even biomass, which is treated as green in developing world, the central -- the European countries may tomorrow say that they may not want to burn oil or gas also, then do we have a solution available. Currently, we need to say that we are -- we don't have a solution in our hand, that we'll be needing a lot more of innovation. And to make it also 24 -- solar is available, but solar heating, it is very expensive in comparison to the conventional ways of using fossil fuel. But in any case, be assured that we are not selling any qualified boilers which are almost getting banned in that part of the world. So there will be changes of that kind.

Next is your worry about, will manufacturing disappear from that part of the world? At least, Thermax is not a worry to say that, no. Countries are becoming very mindful of the employment creation needed in their respective countries. That will continue. Maybe do we need to have smaller facilities ensconced in each of the countries in boiler business? Will -- if that becomes a necessity, there are (inaudible) more plants available to be bought. That we will see as and when we get on to that. But as of now, our intention is to grow the business over there rather than getting unduly worried about what would happen because we're going to -- see, there is nothing which is predictable about this -- the way the market is going to be moving. Energy will be needed. Inputs of energy will be different. In that, do we have an ability to create that? And I think if -- there's one company who can do from India or even, I believe, we are capable of doing that also for Europe. So we're quite confident we should be able to manage it. But it's a very good question because, Kirthi, these are the kind of things that worries us in the world, forget about Europe alone, as to how the complexity of energy market is going to be shifting and how fast will it happen and what will be the impact on that -- on our business.

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Kirthi K. Jain, Sundaram Mutual Fund - Research Analyst, Investment [103]

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Sir, second question is on the -- one of -- during our AGM session, you had highlighted that sugar will be one of the promising area for FY '20, but nothing much has happened. How do you see FY '21 for the sugar CapEx? And how we will play that?

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [104]

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First and foremost, in the domestic market, there were sugar orders, which we've picked up also. And sugar, along with distillery, we've picked up spent wash orders also in the domestic market. What we have not been able to pick was what I pop those pills, in Thailand and Indonesia, new licenses are being issued for new sugar plants. Nobody has finalized any orders so far for us, so we have lost it. So I'm expecting that it will be in the market in the coming year, and some of that should come to us because we already have in sugar sector, in Thailand especially, orders executed in the past. It's fairly large in numbers that we have done. So as it picks up, we'll be one of the beneficiaries.

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Operator [105]

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Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Bhoomika Nair for her closing comments.

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Bhoomika Nair, IDFC Securities Limited, Research Division - Security Analyst [106]

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On behalf of IDFC Securities, I would like to thank the management to give us an opportunity and also all the participants for being on the call. Thank you very much, sir, and wish you all the best.

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M. S. Unnikrishnan, Thermax Limited - MD, CEO, Member of Executive Council & Executive Director [107]

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Thanks a lot, Bhoomika, and all other participants who are there for their continued support. And I'm sure you'll continue to support Thermax for the next quarter and there afterwards my successor, who I spoke about. And you will have a lot more similar kind of insight being given by him. Mine was more related to India and Indian economy, and you'll be able to get even a better perspective on the global markets from him. I look forward to your continued support. Thank you.

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Operator [108]

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Ladies and gentlemen, on behalf of IDFC Securities Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.