Thermax · tone and specificity signals across the available quarters.
Language signals
This particular project, we took the highest hit, which was INR 45 crore. This INR 45 crore is INR 30 crore in TBSPL and INR 15 crore in the in Thermax Limited. This INR 45 crore has been taken into account, not just for correcting some of the things we are doing in this quarter, but for future quarters as well.
FGD has been part of constant pain for us... we went through an extended audit of those businesses, those projects, and came to an understanding that while we have a lot of asks from which are change orders and all that, because of the delay in some of these projects, we will encounter additional site costs, and we will have to pay our vendors more than what we had originally envisioned.
We have said completely no to [full EPC projects]. Not only us, the entire industry has come back and said, 'We don't want to.' Also, there were a lot of risks on these projects relating to bank guarantees, payment terms, that had no sunset clauses, had no ends.
The impact is temporary. As the revenue clears, we will actually be able to deliver reasonably on the bottom line as well.
We have been saying it for some time. There was, of course, a big INR 56 crore impact from incentives that we received from the government. But even if I leave those aside, we have about 1.2% improvement in margins, which is entirely driven by basically not having as much bad stuff as we did last year.
What we are seeing overall, not just U.S., but U.S. and Europe, very aggressive pricing from China. And not only aggressive pricing from China, on top of that, seeing this impact of tariffs creates a bit of an issue. Not as much for Q2, because by the time some of the impact of the tariffs come, a lot of what we need to deliver, hopefully, will be out of the way.
In the form that the tenders are currently out, which means we are talking about single large orders of INR 4,000-6,000 crores in nature to be executed over multiple years with civil construction, all of that is not Thermax's play, and Thermax will not bid for those projects in the current form that exists.
In my understanding, not just Thermax, nobody in the sector so far has been able to deliver a plant entirely to the commitments with which those plants were set up.
We are willing to take technology risk, but the development of the project somewhere needs to happen. We continue to look at that space, but it's getting to the end of the rope, in my opinion.
This should be the kitchen sink. Yeah, plain and simple. What is left now is getting really, really small, and of what is left, a good chunk is getting delivered through Q3 and Q4, and the rest will get delivered next year.
In a year's period, probably INR 10,000 crore worth of projects that we said no to or bid at a price that we think we can make money, and it did not happen. That said, we know what we are good at.
I expect that in the second half of the year, we will report something that is north of 500 [trillion BTU] in TBWES. Q3, it was just below our reporting threshold, but we had a large international order from a Middle East customer for boilers for an upstream oil and gas customer, which is a very prestigious account, and it is a big breakthrough for us to enter one of the marquee names in the Middle East.
It was a difficult quarter, and the results were below our expectations. There were times in the quarter where we knew it was going to be tough, but the end result had some things that were surprising to me as well from a miss point of view.
In our estimate for next year, we have taken that in the second half of next year, we will start to take orders again. The industry makes a lot of sense for the country. But in the last six months, you would have seen nobody has made moves on any of their bigger projects because nobody can see how the economics will work given where things are.
The reason it is expensed and the reason it should be expensed is that we chose to take these in as orders, and we are executing them through as orders. The reverse was to invest it as R&D... but if we have this against a customer order, then it's fair that it should get expensed.
This quarter was okay, not great because on revenue and profitability, we should have done better.
In our estimate, at least for the next year, we are off from the 17% profitability that Chemicals was at. We are right now closer to trying to get the business to 13%-14% EBITDA.
I suspect, both in TBWES, and in cooling, in this coming year, we will be talking about increasing capacity and CapEx investments.
We missed on the orders front. I had committed that we would do better, and I thought we had a very good chance to reach 3,000 crores. Missing it by the amount that we did was a significant disappointment.
Clearly, we could have done things better, and we didn't have to spend so much to learn what we have. But it is also a company that puts its head down and works towards what we commit to making it happen.
What gives me confidence again is that we learn from our mistakes, and we put those into execution, and we are also investing heavily on the technology side and on the digital side that even the learning in newer areas is minimized.
We came good on our plans for revenue execution of jobs and recognizing revenue this quarter better than the prior quarters.
The general order book outlook both from a domestic perspective as well as on our international front is reasonably fair, reasonably robust.
We have been cautious on the margin front and that I think could apply here as well; we would be cautious to make sure that our margins bet are protected.