Thermax Ltd:Annual Report 2023-24 Analysis

Thermax Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Thermax was founded in 1966 by A.S. Bhathena as a small engineering company focused on boiler manufacturing.

Headquarters Location and Global Presence:

• Headquarters: Pune, India
• Global Presence: Thermax has a significant presence in Southeast Asia, Africa, the Middle East, Europe, and the Americas. They operate through subsidiaries, branch offices, and a network of authorized representatives.

Company Vision and Mission:

• Vision: Not publicly available in easily accessible formats, but the general understanding is to be a leading player in energy and environment solutions globally.
• Mission: To provide sustainable energy and environment solutions to its customers through innovative products and services.

Key Milestones in Their Growth Journey:

• Early Years: Focus on boiler manufacturing and energy efficiency solutions for Indian industries.
• Diversification: Expanded product portfolio to include absorption chillers, water and waste management solutions, and chemicals.
• Global Expansion: Established manufacturing facilities and sales offices in key international markets.
• Acquisitions: Acquired companies to strengthen its product offerings and market reach (e.g., Danstoker A/S, Boilers and Heaters division of Babcock & Wilcox North America).

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
• Ticker Symbol: THERMAX
• Market Capitalization: (This value needs to be updated with current market data from financial sources)

Recent Financial Performance Highlights:

(This section needs to be updated with information extracted from Thermax’s recent annual reports, investor presentations, and financial news. Include key figures like revenue, profit, growth rates, and order book.)

Management Team and Leadership Structure:

• Managing Director & CEO: Ashish Bhandari
• The company has a structured board of directors comprising executive and non-executive directors with expertise in various fields.

Any Notable Awards or Recognitions:

Thermax has received awards and recognition for its sustainability efforts, technological innovations, and corporate governance. (Specific awards need to be researched from company announcements and industry publications.)

Their Products #

Complete Product Portfolio with Categories:

• Energy: Boilers & Heaters, Absorption Cooling, Vapor Absorption Machines, Solar Products, Power Generation, Waste Heat Recovery Systems
• Environment: Air Pollution Control Equipment, Water & Wastewater Treatment Plants, Solid Waste Management
• Chemicals: Ion Exchange Resins, Specialty Chemicals, Construction Chemicals

Flagship or Signature Product Lines:

• Vapor Absorption Machines (VAMs): Thermax is known for its VAM technology for cooling and heating using waste heat or solar energy.
• Boilers: Offers a wide range of boilers including solid fuel fired, oil & gas fired, and waste heat recovery boilers.

Key Technological Innovations or Patents:

• Patents in absorption cooling technology, advanced boiler designs, and wastewater treatment processes.
• Focus on developing energy-efficient and environmentally friendly technologies.

Manufacturing Facilities and Production Capacity:

Thermax has multiple manufacturing facilities across India and internationally. (Specific details of locations and production capacities need to be researched from company reports.)

Quality Certifications and Standards:

ISO 9001, ISO 14001, OHSAS 18001 (or ISO 45001) certifications across various manufacturing facilities.

Any Unique Selling Propositions or Technological Advantages:

• Strong engineering capabilities and experience in providing integrated solutions.
• Focus on sustainable and environmentally friendly technologies.
• Ability to customize solutions to meet specific customer requirements.

Recent Product Launches or R&D Initiatives:

(This section needs to be updated with information from press releases, investor presentations, and news reports regarding new product launches and R&D efforts. Focus on areas like energy efficiency, emission control, and digitalization.)

Primary Customers #

Target Industries and Sectors:

• Refineries & Petrochemicals
• Steel
• Cement
• Textiles
• Food & Beverage
• Pharmaceuticals
• Commercial Buildings
• Power Plants

Geographic Markets (Domestic vs. International):

Thermax serves both domestic and international markets. A significant portion of revenue comes from India, but international markets are a key area of growth.

Major Client Segments:

Primarily focused on industrial and commercial clients.

Distribution Network and Sales Channels:

Direct sales force, authorized distributors, and channel partners.

Major Competitors #

Direct Competitors in India and Globally:

• India: Forbes Marshall, ISGEC Heavy Engineering, Walchandnagar Industries
• Globally: Cleaver-Brooks, Johnson Controls, Trane Technologies, Alfa Laval, Doosan Lentjes

Comparative Market Share Analysis:

(Market share data requires access to industry reports and financial analysis. Quantify Thermax’s position relative to key competitors.)

Competitive Advantages and Disadvantages:

• Advantages: Strong brand reputation, established customer base, diverse product portfolio, focus on sustainability.
• Disadvantages: Exposure to cyclical industries, competition from global players with larger scale.

How They Differentiate From Competitors:

• Emphasis on integrated solutions rather than just products.
• Focus on energy efficiency and environmental sustainability.
• Strong engineering and project management capabilities.

Industry Challenges and Opportunities:

• Challenges: Fluctuating commodity prices, increasing regulatory requirements, competition from low-cost manufacturers.
• Opportunities: Growing demand for energy-efficient and environmentally friendly solutions, increasing industrialization in developing countries, government incentives for renewable energy.

Market Positioning Strategy:

Thermax positions itself as a provider of sustainable energy and environment solutions with a focus on innovation, engineering excellence, and customer service.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expand its presence in key international markets.
• Invest in research and development to develop new and innovative products.
• Pursue strategic acquisitions to strengthen its product offerings and market reach.

Upcoming Products or Innovations:

(This information would come from official company statements. Focus on areas like renewable energy, energy storage, advanced wastewater treatment, and digitalization of operations.)

Sustainability Initiatives or ESG Commitments:

Thermax is committed to sustainability and has implemented various initiatives to reduce its environmental footprint. (Specific initiatives need to be researched from their sustainability reports and company communications. Include goals for carbon emission reduction, water conservation, and waste management.)

Industry Trends Affecting Their Business:

• Increasing adoption of renewable energy sources.
• Growing focus on energy efficiency and emissions control.
• Stringent environmental regulations.
• Digitalization and automation of industrial processes.

Long-Term Vision and Strategic Goals:

To be a leading global provider of sustainable energy and environment solutions, contributing to a cleaner and more efficient world.

Thermax Limited Financial Analysis: FY2023-24 #

3-Year Trend Analysis of Key Financial Metrics (Consolidated) #

• Revenue Growth: Revenue from operations has shown consistent growth, increasing by 15% in FY2023-24 and 32% in FY2022-23.
• Order Booking: Increased by 6.4% in FY2023-24, following a stronger 8.8% in FY2023.
• Profit After Tax (PAT): Grew by 43% for FY2023-24, representing continued profitability increase.
• Return on Equity (ROE): Improved to 15.5% in FY2023-24, up from 12% in FY2022-23.
• Earnings Per Share (EPS): Increased to Rs. 57.30 in FY2023-24, from 39.98, previous year.
• Cash and Cash Equivalent: Decrease of 14% from 1,131.58 in FY2023 to 975.32.

Business Segment Performance #

• Industrial Products:
  • FY2023-24 segment revenue constituted 41.9% of the Group’s gross operating revenue, increasing to Rs. 4,055 crore (up 22% from FY2022-23).
  • Segment profit for FY2023-24 was Rs. 397 crore, up from Rs. 274 crore in FY2022-23.
  • Order booking increased to Rs. 4,329 crore (up from Rs. 4,172 crore in FY2022-23).
  • Growth was driven by increased demand in metal, cement, and food & beverage sectors.
• Industrial Infra:
  • Accounted for 46% of the Group’s gross operating revenue in FY2023-24.
  • Operating revenue (net) stood at Rs. 4,455 crore (up 13% from Rs. 3,928 crore in FY2022-23).
  • Segment profit was Rs. 209 crore (down from Rs. 217 crore in FY2022-23).
  • Order booking increased to Rs. 4,100 crore (up from Rs. 3,779 crore in FY2022-23).
  • Revenue growth driven by carry-forward orders in the project business and new orders in TBSPL.
• Green Solutions:
  • Represented 5.2% of the Group’s gross operating revenue in FY2023-24.
  • Operating revenue (net) was Rs. 507 crore, up 40% from Rs. 363 crore in FY2022-23.
  • Segment profit significantly increased to Rs. 45 crore (from Rs. 15 crore in FY2022-23).
  • Order booking grew to Rs. 241 crore (up from Rs. 195 crore in FY2022-23).
  • New sites commissioned under TOESL and FEPL contributed to revenue growth.
• Chemical:
  • Constituted 6.9% of the Group’s gross operating revenue in FY2023-24.
  • Operating revenue was Rs. 663 crore (down 1% from Rs. 673 crore in FY2022-23).
  • Segment profit was Rs. 124 crore (up from Rs. 86 crore in FY2022-23).
  • Profit and profitability increased due to stabilized commodity costs and higher sales of specialty products.

Major Strategic Initiatives and Their Progress #

• Energy Transition Focus: Thermax repositioned itself as a “Trusted Partner in Energy Transition” in June 2023, expanding its portfolio with a greater focus on clean air, clean energy, clean water, and waste management, including solutions that use renewable energy sources.
• New Product: Many products have been introduced inline with strategy to innovate for energy transition to cater to the market’s changing requirements and offer strong value propositions to industrial customers, including hybrid heat pumps.
• New Partnerships: Thermax signed an agreement to acquire a 51% stake in TSA Process Equipments
• Green Hydrogen SBU: Established a dedicated Green Hydrogen strategic business unit (SBU) offering EPC solutions and planning build-own-operate (BOO) projects.
• Bio-CNG: Thermax Bioenergy Solutions Private Limited (TBSPL) secured 15+ orders across five states. Four commercial bio-CNG gas generation projects have been initiated.
• Digital Transformation: Continued investment in the EDGE Live platform for asset performance enhancement, expanding its features and technology.
• Capacity Expansion: New manufacturing plant for water and wastewater treatment solutions in Pune. Capacity enhancements at the Chinchwad plant for the Heating business.

Risk Landscape Changes #

• Increased Geopolitical Risks: Ongoing conflict in Europe and tensions in the Middle East, impacting the global economic situation. Specifically, the Red Sea crisis is highlighted as a risk, leading to higher freight/insurance costs and reduced shipment volumes.
• Climate Change Risks: Increasing emphasis on climate action and emission reduction targets presents both risks and opportunities, with restrictions and increased compliance related to conventional energy.
• Interest Rate Volatility: An increase in interest rates has been indicated to increase the total cost to customers of our capital products.

ESG Initiatives and Metrics #

• Environmental:
  • Carbon Emission Reduction: Achieved a 30.6% reduction in absolute emissions from the 2019 base year, exceeding the 2025 target. Carbon emission reduction is 13,754 tCO2e.
  • Renewable Energy: Increased renewable energy generation to 98,107 GJ. Procurement of renewable electricity for major manufacturing plants and installation of solar rooftop systems.
  • Water Management: Solapur plant achieved Water Positive certification. Water reuse and recycling reached 261,246 m³.
  • Waste Management: Elimination of single-use plastics across manufacturing operations. New water and wastewater treatment manufacturing plant designed for sustainability.
• Social:
  • Social Compact (SoCo): Launched phase 2, including a helpline and Yojana cards for migrant/informal workers in the ecosystem.
  • Community Facilitation Centers: TOESL inaugurated its first center in Sahibabad, Uttar Pradesh, to improve access to government welfare programs.
  • Worker Facilitation Centers (WFC): Facilitated awareness and access to government schemes for informal workers.
  • CSR Expenditure: Rs. 8.15 crore CSR expenditure, with focus on education and skill building.
• Governance:
  • Golden Peacock Award: Thermax won the ‘Golden Peacock Award’ for Excellence in ‘Corporate Governance’ in 2023.
  • Diversity and Inclusion: Efforts to improve the gender ratio in the workforce, reaching 9.4%, with a target of 15%.
  • Safety: LTIFR: Lost Time Injury Frequency rate is 0.24%.

Management Outlook #

• Positive Indian Economic Outlook: Expectation of continued growth in the Indian economy (7.2% in FY2025) driven by domestic demand and investment in manufacturing.
• Focus on Energy Transition: Thermax aims to continue building new capabilities as a partner for customers in their energy transition journey.
• Growth Anticipation: Based on an improved inquiry pipeline and a healthy macroeconomic climate in India, there is an anticipation of renewed growth in FY 2024-25.
• Bio-CNG Challenges: Acknowledges technology scale-up challenges in the bio-CNG space, particularly with rice straw conversion.
• Digital Platform Enhancement: Continuous investment in enhancing the EDGE Live digital platform.
• Strategic Partnerships: Active exploration of partnerships to expand the chemical business and accelerate growth opportunities, including in green hydrogen.
• New Products: Introduction of a range of new products such as electric heater, a reciprocating grate biomass-fired boiler, an enhanced multi-fuel fired solution, a hybrid heat pump, solid fuel fired thermic fluid heater, upgraded oil & gas fired steam boiler, multi-fuel flexible steam boiler, ultrafiltration membrane system, mechanical vapour recompression based ZLD, and gas purification and upgradation technology, to name a few.

Detailed Analysis #

Thermax Limited Financial Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(Rs. in crore)

Significant Changes in Major Line Items (>10% YoY) #

(Rs. in crore)

Working Capital Trends #

Analysis: #

The net working capital saw a marginal change of 4%.

Asset Quality Metrics #

Analysis: #

The impairment ratio for trade receivables is 14.56% for FY 2023-24, suggesting a need for monitoring, but also that impairment allowance has been reduced during the year.

Debt Structure and Maturity Profile #

Analysis: #

The Group’s debt structure consists of both non-current and current borrowings. The increase in non-current borrowings is related to long-term financing for projects. Current borrowings also increased, potentially to support working capital needs, which may be because of bio-CNG. Maturity profile needs closer examination of contractual payment terms (not fully disclosed)

Off-Balance Sheet Items #

Analysis: #

The Company has significant contingent liabilities, mainly tax disputes and claims. Additionally, corporate guarantees provided on behalf of subsidiaries represent a substantial off-balance sheet item. These should be monitored for potential crystallization into actual liabilities.

Revenue Breakdown by Segment/Geography with Growth Rates #

• Industrial Products: FY2023-24 revenue was Rs. 4,055 crore, up 22% from Rs. 3,338 crore in FY2022-23.
• Industrial Infra: FY2023-24 revenue was Rs. 4,455 crore, a 13% increase from Rs. 3,928 crore in FY2022-23.
• Green Solutions: FY2023-24 revenue was Rs. 507 crore, reflecting a 40% growth from Rs. 363 crore in FY2022-23.
• Chemical: FY2023-24 revenue was Rs. 663 crore, a 1% decrease, compared to Rs. 673 crore in FY2022-23.
• Geographical, Consolidated:
  • India: Rs. 7,189 Crore (FY23-24) vs Rs. 5,992 Crore, +20%.
  • International: Rs 2,048 Crore, no growth from Rs. 2,042 Crore, the previous year.

Cost Structure Analysis #

• Cost of Material Consumed: 55.98% of total revenue in FY2023-24, down from 57.17% in FY2022-23.
• Employee Benefit Expenses: Increased by 20% in FY2023-24, due to salary corrections, increments, and increased headcount.
• Other Expenses: Increased by 13% in FY 2023-24. Direct expenses (site expenses, contract labor charges) and warranty expenses were the primary drivers. Freight and forwarding charges were lower.

Margin Analysis #

• Segment Profit (PBIT before exceptional and unallocated overheads) Margins:
  • Industrial Products: 9.8% in FY2023-24, up from 8.2% in FY2022-23.
  • Industrial Infra: 4.7% in FY2023-24, down from 5.5% in FY2022-23.
  • Green Solutions: 8.9% in FY2023-24, up from 4.1% in FY2022-23.
  • Chemical: 18.7% in FY2023-24, up from 12.8% in FY2022-23.
• Consolidated Profit Before Tax (PBT) Margin (before exceptional items): 9% in FY2023-24, up from 7% in FY2022-23.
• Consolidated Net Profit Margin: Increased from 5.57% in FY22-23 to 6.89% in FY23-24.

Non-Recurring Items #

• FY2023-24 (Consolidated): Net exceptional gain of Rs. 75.49 crore, comprising a gain of Rs. 126.12 crore from the sale of a vacant plot of land and loss on provision of Rs 50.63 crore, related to a litigation.
• No such exceptional item during the last year.

EPS Analysis #

• Consolidated Basic EPS: Rs. 57.30 in FY2023-24, up from Rs. 39.98 in FY2022-23.
• Consolidated Diluted EPS: Rs. 57.28 in FY2023-24, up from Rs. 39.98 in FY2022-23.
• Standalone Basic EPS: 36.71

Cash Flow and Liquidity Analysis of Thermax Limited #

Operating, Investing, and Financing Cash Flow #

• OCF (Operating Cash Flow): FY24: 247.30 Cr, FY23: 459.56 Cr. Decrease attributed to increased execution activities, higher retention in project business, and lower customer advances.
• ICF (Investing Cash Flow): FY24: (509.21) Cr, FY23: (679.68) Cr. Continued investment activities. Major components include purchase and sale of property, plant, and equipment and investments.
• FCF (Financing Cash Flow): FY24: 285.40 Cr, FY23: 348.54 Cr.

Working Capital Management Efficiency #

• Debtors Turnover Ratio: FY24: 3.90, FY23: 4.18. Decrease indicates a slightly slower collection of receivables.
• Inventory Turnover Ratio: FY24: 8.34, FY23: 7.83. Increase indicates higher efficiency.
• Trade Payable Turnover Ratio: FY24: 4.23, FY23: 3.99. Higher ratio may reflect improved payment terms.

Capital Expenditure #

• Capex on carbon footprint reduction projects: FY24: 11.35 Cr, FY23: 4.10 Cr.

Dividend and Share Buyback #

• Dividend Declared Per Share: FY24: ₹12 (600%), FY23: ₹10 (500%). Increasing trend.
• Dividend Payout Ratio: FY24: 20.9%.
• Share Buyback: No share buyback activity is reported.

Debt Service Coverage #

• Debt Service Coverage Ratio: FY24: 1.60, FY23: 1.79, showing a decrease.
• Debt increased due to borrowings for construction of solar assets.

Liquidity Position #

• Current Ratio: FY24: 1.36, FY23: 1.38. Slight decrease, but current assets exceed current liabilities.
• Cash and Cash Equivalents: Increased to ₹486.58 Cr in FY24 from ₹452.82 Cr in FY23.
• Cash Conversion Cycle: Changes in inventory turnover, receivables turnover, and payables turnover can imply the changes.

Thermax Limited Financial Analysis: Key Ratios & Trends (FY22-FY24) #

Profitability Ratios #

• Return on Equity (ROE) (Consolidated): FY24: 14%, FY23: 12%, FY22: 9%. ROE shows a consistent increase over the three years.
• Profit Margin (Consolidated): FY24: 6.90% (Net Profit/Total Income), FY23: 5.47%, FY22: 5.05%. Profit margins are improving year-over-year.
• Operating Profit before exceptional item and unallocable overhead:
  • Industrial Products: FY24: 9.8%, FY23: 8.2%, FY22: 9.1%
  • Industrial Infra: FY24: 4.7%, FY23: 5.5%, FY22: 5.2%
  • Green Solution: FY24: 8.9%, FY23: 4.1%, FY22: -11.6%
  • Chemical: FY24: 18.7%, FY23: 12.9%, FY22: 15.7%
• EBITDA Margins (Consolidated): FY24: 9.2%, FY23: 7.91%, FY22: 8.89%. EBITDA margins have improved year-over-year.
• Gross Profit Margin (Consolidated): FY24: 42.83%, FY23: 44.02%, FY22: 44.83%

Liquidity Metrics #

• Current Ratio (Consolidated): FY24: 1.36, FY23: 1.38, FY22: 1.26. Current assets have marginally decreased as against current liabilities compared to last year.

Efficiency Ratios #

• Asset Turnover Ratio (Consolidated): FY24: 0.92 (Total Revenue/Total Assets), FY23: 0.92, FY22: 0.98. Indicates consistent asset utilization.
• Fixed Asset Turnover Ratio (Consolidated): FY24: 3.8, FY23: 4.8, FY22: 4.9
• Inventory Turnover Ratio (Consolidated): FY24: 8.53 (calculated from cost of materials, and change in inventory of finished goods and work in progress), FY23: 7.83, FY22: 7.93. Shows marginally improved inventory management during the year.
• Receivables Turnover Ratio (Consolidated): FY24: 3.8 (calculated from Total Revenue from operations with Total trade receivables), FY23: 4.18, FY22: 5.15. Indicates a slightly slower collection of receivables.

Leverage Metrics #

• Debt-to-Equity Ratio (Consolidated): FY24: 0.28, FY23: 0.21, FY22: 0.02. The Group is increasing its use of debt relative to equity.
• Interest Coverage Ratio (Consolidated): FY24: 10.15 (calculated from profit before exceptional items and finance cost as divided by finance cost), FY23: 16.84, FY22: 21.92. Decline in interest coverage indicates interest cost has increased significantly due to increase in borrowings.

Working Capital Ratios #

• Working Capital Turnover Ratio (Consolidated): FY24: 5.36, FY23: 4.83, FY22: 6.19. The group has improved in utilizing working capital to generate revenues during the year.

Key Takeaways & Potential Concerns #

• Increases in Debt/Equity ratio and Receivables Turnover period can be monitored closely.

Thermax Limited: Segment Performance Analysis (FY 2023-24) #

Revenue and Profitability by Segment #

Industrial Products #

• FY 2023-24 Revenue: Rs. 4,055 crore (21.5% increase from Rs. 3,338 crore in FY 2022-23)
• Segment Profit: Rs. 397 crore (44.9% increase from Rs. 274 crore in FY 2022-23)
• Order Booking: Rs. 4,329 crore (3.8% increase from Rs 4,172 crore in FY 2023)

Industrial Infra #

• FY 2023-24 Revenue: Rs. 4,455 crore (13.4% increase from Rs. 3,928 crore in FY 2022-23)
• Segment Profit: Rs. 209 crore (3.7% decrease from Rs 217 crore in FY 2022-23)
• Order Booking: Rs. 4,100 crore (8.5% increase from Rs 3,779 crore in FY 2023)

Green Solutions #

• FY 2023-24 Revenue: Rs. 507 crore (39.7% growth over Rs. 363 crore in FY 2022-23)
• Segment Profit: Rs. 45 crore (200% increase from Rs. 15 crore in FY 2022-23)
• Order Booking: Rs. 241 crore (23.6% increase from Rs 195 crore in FY 2023)

Chemical #

• FY 2023-24 Revenue: Rs. 663 crore (1.5% decrease compared to Rs. 673 crore in FY 2022-23)
• Segment Profit: Rs. 124 crore (44.2% increase from Rs. 86 crore in FY 2022-23)

Market Share and Competitive Position #

• Faces competition from large Indian and foreign players, and start-ups, especially in renewable energy and biofuels.
• Drives progress in clean air, clean energy, clean water, and chemical verticals through engineering and innovation.

Key Products/Services Performance #

Industrial Products #

• Heating business: Introduced new and upgraded products (Dynatherm, Shellmax Global Ultra, Thermopac Global).
• Cooling business: Launched a growth unit for energy-efficient products, including hybrid heat pumps.
• Water and Waste Solutions: Offers complete solutions for high-purity water requirements.

Industrial Infra #

• P&ES: Executed a project for Damodar Valley Corporation using FGD technology.
• TBWES: FlexiSource™ multi-fuel solution was recognized at the G20 summit.
• TBSPL: Secured multiple bio-CNG plant orders.

Chemical #

• Increased sales of speciality products.

Geographic Distribution and Market Penetration #

• Sales and service presence in 92 countries.

Industrial Products #

• Significant international orders from Southeast Asia, the Middle East, and Africa.
• Expanded presence in Southeast Asia, Africa, the Middle East, the Americas, and Europe.
• Inaugurated a new manufacturing facility in Indonesia.
• Efforts to expand business with waste biomass fuel in Europe.

Industrial Infra #

• TBWES focused on engineering services in Thailand.

Green Solutions #

• TOESL expanded to new industries in Karnataka.
• FEPL secured its first international order from the Philippines and commissioned a plant in Gujarat.

Operational Efficiency Metrics #

Industrial Products #

• Water and Waste Solutions business: Implemented nanotechnology-based painting and robotic welding.
• Added new manufacturing capacity for water and wastewater treatment solutions.

EDGE Live #

• Assisted customers in enhancing uptime and efficiency.

Overall #

• Carbon emission reduction of 13,754 tCO2e.
• Water reuse/recycling of 261,246 m3 (domestic).
• Focused on digital transformation to improve efficiency.

Growth Initiatives and Challenges #

Growth Initiatives #

• Focus on energy transition with new products and technologies.
• Expansion of build-own-operate (BOO) model for utility delivery services.
• Strategic partnerships and acquisitions (e.g., TSA Process Equipments).
• Development of digital platforms (Thermax EDGE®, EDGE Live®, City of Solutions).
• Expansion of manufacturing capabilities and capacities, including a new water and wastewater treatment plant.
• Development of new growth units (e.g., ZLD growth unit).
• International expansion and focus on select overseas markets.
• Focus on backward integration into biomass supply.
• Launch of leadership development programmes.

Challenges #

• Technology scale-up challenges in the bio-CNG space, particularly with rice straw.
• Stabilization of new bio-CNG plants.
• Dependence on government policies and regulations.
• Need to improve asset management in renewable energy.
• Need to increase gender diversity, particularly in operational and leadership roles.
• Competition from local and global players.
• High cost of capital for green and clean technology.

Thermax Limited: Segment-Wise Financial Analysis & Risk Assessment (FY 2023-24) #

Industrial Products Segment #

Strategic Risks #

• Severity: High. The segment faces competition, and reliance on specific industries (metals, cement, food & beverages) creates vulnerability to sector-specific downturns.
• Likelihood: Medium. Market fluctuations and evolving customer needs are ongoing.
• Trend: Stable, Yet dependent on the global and Indian macroeconomic situations.
• Mitigation Strategies: Diversification of product portfolio (new and upgraded products like Dynatherm, Shellmax Global Ultra, UPRG), geographic expansion, strategic partnerships, and investment in R&D.
• Control Effectiveness: Partially effective, as evidenced by new product launches but offset by continued reliance on core sectors.
• Potential Financial Impact: Revenue concentration risk is present. Segment revenue is 4055Cr, and order booking growth was slow.

Operational Risks #

• Severity: Medium. Supply chain disruptions and raw material price volatility can impact margins.
• Likelihood: Medium. Global supply chain issues and commodity price fluctuations are persistent.
• Trend: Improving. Material cost as a percentage of total revenue decreased from 57.17% in FY23 to 55.98% in FY24.
• Mitigation Strategies: Backward integration into biomass supply chain (TOESL), developing a robust Dealer Management System, and vendor sustainability workshops.
• Control Effectiveness: Partially effective, reflected in improved gross margins, though Jhagadia Chemical Plant construction is ongoing.
• Potential Financial Impact: Volatility in margins.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend Increasing, dependence on debt.
• Mitigation Startegies: Maintaining liquid assets.
• Control Effectivness: Monitored
• Potential Financial Impact: Profit before tax and interest is Rs. 397 crore

Compliance/Regulatory Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable
• Mitigation Strategies: Adherence to emission norms, proactive engagement with government bodies, focus on compliance.
• Control Effectiveness: High, demonstrated by multiple certifications (ISO 14001, OHSAS, water positive certification).
• Potencial Financial Impact: Low

Emerging Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Diversification of geographical area.
• Control Effectiveness: Partially effective.
• Potencial Financial Impact Segment profit was Rs. 397Cr.

Industrial Infra Segment #

Strategic Risks #

• Severity: High. High reliance on large-scale, long-cycle projects exposes the segment to significant execution and delay risks.
• Likelihood: Medium. Project delays and deferrals are common in the sector.
• Trend: Increased risk due to lower order bookings.
• Mitigation Strategies: Robust project management structures, focus on waste heat recovery and renewable energy solutions, international expansion.
• Control Effectiveness: Partially effective, reflected in strong revenue growth, but offset by order booking declines.
• Potencial Financial Impact: High.

Operational Risks #

• Severity: High. Challenges in technology scale-up (bio-CNG), project execution delays.
• Likelihood: High. Evidenced by ongoing challenges in the bio-CNG business.
• Trend: Increasing, due to issues in bio-CNG plant stabilization.
• Mitigation Strategies: Dedicated Green Hydrogen SBU, focus on backward integration (biomass supply chain), and development of digital solutions (EDGE Live).
• Control Effectiveness: Mixed.
• Potencial Financial Impact: High.

Financial Risks #

• Severity: Medium
• Likelihood: Medium.
• Trend: Increasing, dependence on debt.
• Control Effectivness: Monitored
• Potencial Financial Impact: Segment profit was Rs. 209Cr.

Compliance/Regulatory Risks #

• Severity: High. Exposure to changing emission norms and government policies (FGD system mandates).
• Likelihood: Medium. Regulations are continuously evolving.
• Trend: Increasing due to stricter environmental regulations.
• Mitigation Strategies: Proactive engagement with government ministries (Ministry of Coal, Ministry of Steel, MNRE, CTUIL, CEA, BEE), development of FGD technology.
• Control Effectiveness: Moderate, evidenced by compliance with existing norms, but future regulations create uncertainty.
• Potencial Financial Impact: Medium to High.

Emerging Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Investment in partnerships.
• Control Effectiveness: To be determined
• Potencial Financial Impact Negative arbitration of 218Cr in FY23

Green Solutions Segment #

Strategic Risks #

• Severity: High. Relatively new business area with a focus on emerging technologies (bio-CNG, renewable energy).
• Likelihood: High. Success depends on technology stabilization and market adoption.
• Trend: Increasing risk, due to the nascent stage of the business.
• Mitigation Strategies: Focus on backward integration (biomass supply chain), partnerships with farmer producer organizations, and expansion into battery energy storage systems (BESS).
• Control Effectiveness: Early stage.
• Potencial Financial Impact: High

Operational Risks #

• Severity: High. Significant challenges in bio-CNG plant stabilization, particularly in converting rice straw to gas.
• Likelihood: High. Operational challenges are currently being experienced.
• Trend: Increasing risk due to ongoing operational issues.
• Mitigation Strategies: Intensive efforts to overcome technical difficulties, investment in R&D, and close collaboration with FPOs.
• Control Effectiveness: Low, due to ongoing stabilization challenges.
• Potential Financial Impact: High

Financial Risks #

• Severity: High. Capital-intensive business model (BOO) with long-term fixed-price contracts.
• Likelihood: Medium. Exposure to interest rate variations and customer default risk.
• Trend: Increasing due to the capital-intensive nature of projects.
• Mitigation Strategies: Selective customer engagement, diversification of offtake options, and potential for carbon market participation.
• Control Effectiveness: Moderate, but dependent on securing long-term financial stability.
• Potential Financial Impact: High

Compliance/Regulatory Risks #

• Severity: Medium. Dependent on government policies supporting renewable energy, green hydrogen, and biofuels.
• Likelihood: Medium. Policy changes can impact the viability of projects.
• Trend: Stable, but subject to government policy changes.
• Mitigation Strategies: Active engagement with government ministries, monitoring of policy developments.
• Control Effectiveness: Moderate, dependent on government policy continuity.
• Potencial Financial Impact Medium

Emerging Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable.
• Mitigation Strategies: Investment in partnerships.
• Control Effectivness: To be determined.
• Potential Financial Impact: NA.

Chemical Segment #

Strategic Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable
• Mitigation Strategies: Expansion of product portfolio, M&A for diversification.
• Control Effectiveness: Moderate.
• Potential Financial Impact: Revenue of 663Cr in FY24.

Operational Risks #

• Severity: Medium. Dependence on specific industries (construction, oil field, paper).
• Likelihood: Medium. Fluctuations in demand from these sectors can impact performance.
• Trend: Stable.
• Mitigation Strategies: New product development, expansion into new markets (e.g., high-purity water for pharma).
• Control Effectiveness: Partially effective, but segment performance is linked to cyclical industries.
• Potential Financial Impact: Moderate

Financial Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Improved due to stabilisation of commodity costs.
• Mitigation Strategies: Strategic partnerships and pricing strategies.
• Control Effectiveness: High.
• Potential Financial Impact: Profit Increased to Rs. 124 crore (Rs. 86 crore in FY 2022-23).

Compliance/Regulatory Risks #

• Severity: Medium. Compliance with regulations related to chemical manufacturing and handling.
• Likelihood: Low.
• Trend: Stable.
• Mitigation Strategies: Adherence to regulatory standards, implementation of safety protocols.
• Control Effectiveness: High, demonstrated by compliance with environmental norms.
• Potencial Financial Impact: Low.

Emerging Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Startegies: Diversification of geographical area.
• Control Effectivness: To be determined.
• Potential Financial Impact: NA.

Thermax Limited Financial Analysis: Segment Overview #

Industrial Products #

Long-Term Strategic Goals and Progress #

• Solutions for clean air, clean energy, and clean water.
• Introduced new and upgraded products: Dynatherm, Shellmax Global Ultra, and UPRG.
• Launched a new growth unit within the Cooling business (energy efficiency and water savings).
• Inaugurated a new manufacturing plant for water and wastewater treatment solutions.

Competitive Advantages and Market Positioning #

• Comprehensive heating, cooling, air pollution control systems, and water/waste solutions.
• Acquisition of TSA Process Equipments for end-to-end solutions for high-purity water.
• Secured significant international orders.
• Gaining ground in biogas purification and upgraded gas processing technology.

Innovation Initiatives and R&D Effectiveness #

• Launched products like hybrid heat pumps and solid fuel-fired thermic fluid heaters.
• Introduced customer portal (Thermax EDGE) and AI & ML-based asset performance solution (EDGE Live).
• Development of a digital platform, including the “City of Solutions” for water and wastewater offerings.

M&A Strategy and Execution #

• Acquired a 51% stake in TSA Process Equipments.

Management’s Track Record in Execution #

• Revenue and segment profit saw strong growth.
• Shipped the first consignment for a waste-to-energy project in the UK.
• Addressed attrition with measures to improve employee engagement and retention.

Capital Allocation Strategy #

• Invested in increasing capacity at the Chinchwad plant (Heating business).
• Modifying the chemical plant in Jhagadia (capacity increase and new product lines).

Organizational Changes #

• Implemented a strategic initiative to introduce specialized growth units.

Industrial Infra #

Long-Term Strategic Goals and Progress #

• Focuses on energy transition projects: captive power plants, cogeneration, waste heat recovery, and independent power plants (EPC).
• The segment includes TBWES (boilers, heaters, retrofitting) and TBSPL (bio-CNG plants).

Competitive Advantages and Market Positioning #

• Diversified portfolio (sulphur recovery and flue gas desulphurisation systems).
• TBWES’s FlexiSource™ multi-fuel solution was recognized at the G20 summit.
• Digital offerings like Thermax EDGE Live® for boilers and heaters.

Innovation Initiatives and R&D Effectiveness #

• TBWES focuses on developing green energy solutions and multifuel flexibility.
• TBSPL is working on technologies to produce bio-CNG from various waste sources.

Management’s Track Record in Execution #

• The P&ES team executed an FGD project for Damodar Valley Corporation.
• TBWES secured an order for a first MSW RDF waste to energy boiler in India.
• TBSPL secured multiple orders for bio-CNG plants.

Capital Allocation Strategy #

• Investments were made in the TBSPL business segment to grow operational capabilities.

Organizational Changes #

• TBSPL was formed to specially address setting up and operation of bio-CNG plants

Green Solutions #

Long-Term Strategic Goals and Progress #

• Through TOESL and FEPL, offers opex-based green utilities and renewable energy solutions.
• Focuses on long-term (10-25 years) engagements.
• Backward integration into the biomass supply chain through briquetting facilities.

Competitive Advantages and Market Positioning #

• TOESL provides green utility delivery solutions under a build-own-operate model.
• FEPL is expanding with wind-solar hybrid renewable energy projects and exploring battery energy storage systems (BESS).

Innovation Initiatives and R&D Effectiveness #

• Investments in asset management to ensure committed throughput from renewable assets.
• Focus on stabilizing new platforms like bio-CNG and expanding FEPL projects.

Management’s Track Record in Execution #

• TOESL commissioned new sites and secured repeat orders for green steam supply.
• FEPL secured its first international order and commissioned a wind-solar hybrid plant.

Capital Allocation Strategy #

• High initial capital intensity due to the build-own-operate model.

Organizational Changes #

• Green Hydrogen Strategic Business Unit has been established and started offering EPC solution

Chemical #

Long-Term Strategic Goals and Progress #

• Manufactures and markets a wide range of resins, water treatment, and specialty chemicals.
• Focuses on customized and cost-effective solutions.

Competitive Advantages and Market Positioning #

• Offers a broad portfolio, including construction chemicals, ion exchange resins, oil field chemicals, and performance chemicals.
• Expansion into international markets.

Innovation Initiatives and R&D Effectiveness #

• The Chemical business achieved Level 3 in the ‘Total Cost Maturity Model’.

M&A Strategy and Execution #

• Exploring partnerships to expand the chemical business.

Management’s Track Record in Execution #

• The segment showed profit increase due to stabilization of commodity costs and growth in specialty product sales.
• Ongoing construction of a chemical plant in Jhagadia, Gujarat.

Capital Allocation Strategy #

• Significant investment in a new chemical plant in Jhagadia, Gujarat.

Organizational Changes #

• Commenced the commercial production of ion exchange resins at the chemical factory in Dahej, Gujarat.

Thermax Limited: Segment-Wise Financial Analysis (FY 2023-24) #

Environmental Metrics and Targets #

• Group-wide CO2 Emission Reduction: Thermax achieved a 30.6% absolute reduction in emissions from the 2019 base year, exceeding its 25% target for 2025. The target has been revised to 35% reduction for FY'25.
• Renewable Energy Generation: Renewable energy generation increased to 98,107 GJ (27,252 MWh) from 26,747 GJ (7,430 MWh) in the previous year.
• Non-Renewable Energy Consumption: Decreased to 2,41,021 GJ (66,950 MWh) from 3,15,661 GJ (87,684 MWh).
• Water Reuse and Recycling: 2,61,246 m3 of water was reused and recycled, up from 2,49,510 m3 in the prior year.
• Water Positive Certification: Solapur plant achieved Water Positive certification with water positive index of 6.59
• ZLD Installations: 7 Zero liquid discharge installations are present within the Thermax facilities.
• Carbon Emission Reduction: 13,754 tCO2e reduction achieved, compared to 5,665 tCO2e in the previous year.
• Capex on Carbon Footprint Reduction: Rs. 11.35 crore invested in projects related to carbon footprint reduction, up from Rs. 4.10 crore.
• Single Use Plastic: 1,307 kg of single-use plastic was eliminated.

Social Responsibility Programs #

• CSR Expenditure: Rs. 8.15 crore was spent on CSR activities, with a focus on education, exceeding the required 2% of average net profit.
• Beneficiaries: 5,415 student beneficiaries and 9,513 government schemes facilitated through worker facilitation centers (WFCs) and community facilitation centers (CFCs).
• Social Compact (SoCo) Initiative: The Social Compact initiative aims to support underprivileged and unorganized workers to gain access to benefits under various government schemes.
• Employee Volunteering: 930 employees participated in blood donation drives and other volunteering.
• Skill Building: 810 youth were trained near factory locations, with over 75% placed in companies.

Governance Structure and Effectiveness #

• Board Composition: 10 directors, with a mix of executive, non-executive, and independent directors (including two woman directors, increased from one), meeting Listing Regulations.
• Board Meetings: Seven Board meetings were held during the year, with a maximum gap of 120 days between meetings.
• Committees: Audit, Stakeholder Relationship, Nomination & Remuneration, CSR, Risk Management, and Strategic Business Development Committees are in place.
• Whistleblower Policy: A Whistleblower Policy is in place, with 18 complaints received and 13 resolved during the year.
• Code of Conduct:: All board members and KMPs have confirmed the compliance with company’s code of conduct.

Sustainability Investments and ROI #

• R&D Spend: R&D spend was 0.40% of Group turnover.
• Technology/Process Improvement Initiatives: Rs. 25.3 crore invested in technology/process improvement initiatives.
• New Plant: New manufacturing plants for water and wastewater treatment solutions have been built following green building guidelines.
• Green Solutions Revenue: Green Solutions segment revenue was Rs. 507 crore, with a profit of Rs. 45 crore, indicating growing returns from sustainability-focused businesses.
• Acquisition: Acquired 51% stake in TSA Process Equipments, for offering a one-stop solution for highly purified water.

ESG Ratings and Peer Comparison #

• Award: Received Golden Peacock Award for Excellence in Corporate Governance.

Regulatory Compliance and Future Preparations #

• Compliance: The Company states compliance with the Companies Act, 2013, Indian Accounting Standards, SEBI Regulations, and Secretarial Standards.
• Data Governance and Cybersecurity: A Cyber Defence Centre has been established, and data classification has been implemented. Business-critical systems have high availability, and disaster recovery is periodically tested.
• Future Preparations: The Company is developing products based on renewable energy, acquiring new technologies, and complying with statutory standards to mitigate climate change effects. A roadmap for emission reduction is in place.
• New Manufacturing Plants: New manufacturing plants will be following the Indian Green Building Council (IGBC) guidelines.

Thermax Limited Segment-Wise Financial Analysis (FY 2023-24) #

Industrial Products #

Management Guidance and Assumptions #

• Introduce new and upgraded products (Dynatherm, Shellmax Global Ultra, Thermopac Global, UPRG).
• Dedicated growth unit within Cooling business for energy-efficient and water-saving products.
• Continued implementation of robotics and hobby classes, and learning circles.
• Acquired 51% stake of TSA Process Equipment to provide end-to-end water solutions.

Market Growth Forecasts #

• Enforcement of emission norms and fuel shift from coal to biomass.
• Increasing government push for water recycling, traction in ethanol, high-purity water segments.
• Customer adoption of AI and seeking single-point service providers.

Planned Strategic Initiatives #

• Biogas purification and upgraded technology solutions.
• Expansion of the water portfolio by introducing new technologies.
• Continued focus on digitalization and remote monitoring of products.

Capital Expenditure Plans #

• New high-tech facility for water and wastewater treatment in Pune, Maharashtra.
• Capacity enhancement underway at the Chinchwad plant for the Heating business.

Efficiency Improvement Targets #

• Offering smart IIoT-enabled boilers and heaters.
• Modularized and plug-and-play solutions for water treatment.
• Plant modernization projects for improvements and upgrades.
• EDGE Live platform for enhanced uptime, energy efficiency, reliability, and data-driven decision-making.

Potential Challenges and Opportunities #

• Challenges:
  • Global macroeconomic conditions, including inflation and recession fears.
  • Volatile raw material prices impacting margins.
  • Delays and disruptions in deliveries of input material, and higher logistic costs.
• Opportunities:
  • Biogas purification and upgradation.
  • Fume extraction in solar and battery manufacturing.
  • Gaseous scrubbing solutions for waste-to-energy boilers.
  • Pulp and paper capacity expansion in Indonesia.
  • Retrofit and revamp opportunity due to changes in norms in Southeast Asia and Latin America.
  • Waste heat recovery and waste-to-energy solutions.
  • Modularised and plug-and-play solutions for water treatment, expansion of water portfolio to become end-to-end solution providers.

Industrial Infra #

Management Guidance and Assumptions #

• FlexiSource™ as a key growth driver.
• Stabilization of new platforms, including backward integration for biomass in TOESL and expansion of wind-solar hybrid renewable energy projects at FEPL.
• TBSPL secured 15+ orders across five states.
• Plant stabilization, particularly in bio-CNG, is a high priority.

Market Growth Forecasts #

• Increasing demand for EPC, renewable energy, waste-to-energy, waste heat recovery plants, and biofuels.
• Government mandate for power companies to install FGD systems.

Planned Strategic Initiatives #

• Expand EPC offerings to international markets.
• Explore opportunities in unconventional fuels and renewable energy.
• Continued investment in value-added service offerings, including IIoT solutions.
• Strengthening the green portfolio (waste heat recovery, waste-to-energy).
• Enhancing modularisation capabilities.
• Build O&M capabilities in TBSPL and use digital solutions for plant performance monitoring.

Capital Expenditure Plans #

• TBSPL plan of setting up bio-CNG turnkey projects and undertaking localisation of electrolysers, in time.

Efficiency Improvement Targets #

• Focus on digitalisation within TBWES.
• TBSPL aims to enhance plant efficiency.
• Deployment of robust project management structures to monitor and control risks.

Potential Challenges and Opportunities #

• Challenges:
  • Lower power tariffs from alternative renewable sources impacting the viability of captive power plants.
  • Technology scale-up challenges in the bio-CNG space, particularily for TBSPL.
  • Continuous availability, storage, and pricing of bio-CNG feedstock, and uncleared mandates for selling digested material as bio-manure.
• Opportunities:
  • Clean energy drive leading to greenfield projects and brownfield replacements.
  • Shift in energy mix.

Green Solutions #

Management Guidance and Assumptions #

• Operates under the build-own-operate (BOO) model for utility delivery services and renewable energy solutions, indicating a focus on long-term contracts (10-25 years).
• The Group continues to explore options within green hydrogen.

Market Growth Forecasts #

• Growing demand for green utilities and renewable energy solutions.

Planned Strategic Initiatives #

• Strengthen TOESL’s portfolio through backward integration, digitalization, and strategic business development.
• Expand FEPL’s opex-based offerings in India and select neighboring geographies.
• Explore connecting large power projects with the central transmission utility (CTU).
• Collaborate with credible partners.
• Explore additional revenue sources, such as carbon market exchanges.
• Adopt new technologies and automate business processes.
• Set up Dedicated Green Hydrogen Strategic Business Unit, offering EPC solutions for Green Hydrogen.

Capital Expenditure Plans #

• TOESL backward integration into the supply chain of biomass through 10 dedicated briquetting facilities.
• FEPL constructing wind and solar capacity projects.

Efficiency Improvement Targets #

• Backward integration in TOESL’s biomass supply chain.
• Asset management improvement in FEPL to ensure committed throughput from renewable assets.
• Continued investment in enhancing the digital platform (EDGE Live).

Potential Challenges and Opportunities #

• Challenges:
  • Financing model is subject to interest rate variations, posing a risk to long-term profitability.
  • Customer default risk in FEPL, though mitigated by alternative off-takers.
  • Equipment stranding risk in TOESL in case of customer default.
  • Need for improvement in asset management to ensure committed throughput for FEPL.
• Opportunities:
  • Potential for setting up BOO projects and undertaking localisation of electrolysers.
  • Significant strides are being made in embracing renewable sources.

Chemical #

Management Guidance and Assumptions #

• The Chemical segment’s performance was driven by the stabilization of commodity costs and increased sales of specialty products.
• Plans to Increase capacity and add new product lines, as well as exploring new partnerships, for Jhagadia, Gujarat, plant.

Market Growth Forecasts #

• Focus on high-purity water needs in pharma, biopharma, personal care, and food and beverages.

Planned Strategic Initiatives #

• Expanding manufacturing capabilities and capacities, including construction of new plants.
• Actively exploring new partnerships to expand the chemical business.

Capital Expenditure Plans #

• Ongoing construction of a chemical plant in Jhagadia, Gujarat, with plans for modification to increase capacity and add new product lines.

Potential Challenges and Opportunities #

• Challenges:
  • Competition from other manufacturers and suppliers.
• Opportunities:
  • Expansion into the Southeast Asian market.
  • Growth potential in high-purity water solutions for various industries.
  • New partnerships to expand chemical business.

Audit & Compliance #

Auditor’s Opinion and Qualifications #

• The auditor’s report expresses an unmodified opinion on the consolidated and standalone financial statements, meaning the statements present a true and fair view in conformity with Indian Accounting Standards (Ind AS).
• There is an emphasis of matter regarding demand orders of Rs. 1,385.47 Crore from the Commissioner of Central Excise, Pune, for which the department has filed an appeal, and a separate matter regarding an arbitral award against the Holding Company for Rs. 218.45 crore, of which Rs. 50.63 Crore is provisioned.
• For 27 subsidiaries, 2 branches of subidiary and various trusts, the auditor’s opinion relies on audit reports of the other auditors.
• Un-audited financial statements, considered not material to the Group, were used for 5 subsidiaries and 2 associates.
• There is non complience of rule 11(g) of Companies (Audit and Auditors) Rules, 2014, for account records of branches of subsidiary and trusts.

Key Accounting Policies and Changes #

• The financial statements adhere to Ind AS, with a historical cost convention, except for certain financial instruments and defined benefit plans measured at fair value.
• Revenue recognition follows Ind AS 115, with revenue recognized upon transfer of control of goods/services. Engineering, Procurement and Construction (EPC) contracts often recognize revenue over time, using a cost-based input method.
• Leases are accounted as per IND AS 116.
• Impairment of financial assets is assessed using the Expected Credit Loss (ECL) model under Ind AS 109.
• Significant management judgement is required to asses impairment of financial assets.
• Property, Plant, and Equipment (PPE) are depreciated using the straight-line method, with useful lives determined by management, and reviewed annually.
• Amendments to Ind AS 8, Ind AS 1 and Ind AS 12 are adopted.
• Amendments to Ind AS 8 had no impact.
• Amendments to Ind AS 1 impacted disclosures but not measurement, recognition, or presentation.
• Amendments to Ind AS 12 related to deferred tax from single transactions resulted in recognizing deferred tax assets and liabilities separately for leases, with no net impact or effect on opening retained earnings.

Internal Control Effectiveness #

• The auditor’s report includes an opinion on the adequacy and operating effectiveness of internal financial controls over financial reporting, indicating they were adequate and operating effectively.
• Management has the responsibility of reviewing and agreeing on policies for managing each of the risks.
• There is a defined process for back-up of books of account with logs.
• There is one exception noted: The backup of certain books of account and records maintained in electronic mode at certain subsidiaries has not been maintained on servers physically located in India on a daily basis, as required.
• Also, for some accounting softwares used, the audit trail feature is not enabled for changes to certain master data and changes made using privileged access.
• There are whistleblower complaints under review, but management does not currently believe they will have a material impact.

Regulatory Compliance Status #

• The Company states compliance with the Companies Act, 2013, SEBI regulations, and other applicable laws.
• No instances of non-compliance with capital market regulations were reported by stock exchanges, SEBI, or other statutory authorities.
• There were no delays in transferring amounts to the Investor Education and Protection Fund.
• There were no proceedigs against the Company for holding of Benami property.
• The Company did not trade or invest in crypto-currency during the period.
• The company confirmed that they did not indulge in any transaction not recorded in books of account that has been surrendered or disclosed as income in the tax assesments.

Legal Proceedings and Their Potential Impact #

• There are pending litigations, including tax demands disputed in appellate proceedings, as disclosed in Note 30A.
• The Arbitral Award against the Holding Company is under appeal, and a stay has been granted pending a deposit.

Related Party Transactions #

• Related party transactions are disclosed in Note 32 and 33, with sales to and purchases from related parties conducted.
• All related party transactions were at arm’s length and in the ordinary course of business.
• Outstanding balances with related parties are unsecured and interest-free.
• The Group’s subsidiary, Thermax Babcock and Wilcox Energy Solutions Limited (TBWES) shipped its first consignment of waste to energy project modules in Europe, as part of a project in UK.

Subsequent Events #

• Acquisition of 51% equity in TSA Process Equipments Private Limited was completed after the financial year end (April 19, 2024).

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The reliance on management judgment in areas like revenue recognition for EPC contracts, ECL provisioning, and useful life of assets introduces an element of estimation uncertainty.
• Regulatory Risk: Non-compliance with the requirement of the Companies Act of taking backup of books of accounts in server based in India on daily basis, is a notable regulatory concern. The pending legal cases and tax disputes represent a regulatory risk.