Thermax

Dear Shareholder,
 
 It is my proud privilege to present the 28th Annual Report of the
 company. This has been a challenging year - one that started off with
 great promise and ended with a lot of uncertainty and change. The total
 income at Rs. 3303 crore and profit after tax at Rs. 287 crore was
 almost the same as the previous year. With a large export order carry
 forward from the previous year the export income, including deemed
 exports, increased 35% to Rs. 912 crore.
 
 Our compliments to the Managing Director, M. S.  Unnikrishnan and his
 team, who have worked with alacrity and dedication to stabilise the
 companys operations in these tough market conditions. I also
 appreciate the support and contribution of all our employees,
 customers, supplier partners and business associates. Our board of
 directors, as usual, have been very supportive and provided the
 requisite guidance in steering through these difficult times.
 
 The economic conditions in the latter half of 2008-09 have been tough
 on businesses. The global economic crisis resulting from innovative
 financial engineering methods have revealed a sense of greed and a
 lacunae in corporate governance practices the world over. This
 unprecedented crisis will, I believe, change the fundamentals of the
 way business will be carried out in the future, which is perhaps what
 is required today. In
 
 our own company, we have declared that performance is critical but
 values are sacrosanct.
 
 These are trying times for corporates, but there is also the silver
 lining of opportunity to put our house in order.  First and foremost,
 freeing up cash from operations is vital; moreover, a great discipline
 for sustainable business. To manage cash flows prudently, our company
 has started Project Ever-Lean to eliminate waste, streamline processes
 and systems and reduce costs.  Coupled with our drive for operational
 excellence, this programme will enable the company to increase
 operational efficiency and reduce the cost of poor quality.
 
 It is these unpredictable times that force us to look at all markets
 with a different perspective and thereby, extend our reach to wider
 segments of society. New opportunities, not thought of earlier, are
 emerging to serve new customers and provide them with innovative
 solutions and services. Selective participation in the projects of
 municipal corporations and public sector undertakings have resulted in
 new and diversified opportunities for the Water and Power businesses.
 The service business of the company, although small at present, is
 addressing customers with innovative approaches like energy rental,
 process efficiency tracking at boiler sites, equipment life extension,
 operation and maintenance of power plants and is exploring other
 service revenue opportunities to mitigate the cyclical risks that the
 capital goods sector is prone to.
 
 Over the past few years commodity prices have been rising - especially
 in the oil, steel, cement and non ferrous sectors. This threw open
 substantial investments; creating opportunities for your companys
 products. It also enabled Thermax to focus on fuel shift, converting
 from expensive oil to solid fuel, primarily biomass and waste to
 energy. With oil having lost its value in the past six months, many
 projects were either cancelled or delayed. However, we strongly believe
 that this is a temporary phenomenon and that oil prices will pick up,
 as has already happened. This, coupled with climate change as well as
 the need to harness one of the largest sources of energy that nature
 has to offer, has prompted your company to invest its time, money and
 human resources in green renewable energy, particularly solar thermal 
 a long term agenda for Thermax.
 
 The company realises that innovation is the key to sustained growth.
 The Board of Directors of Thermax will continue to support investments
 in research and development and innovation. This includes setting up of
 the Research, Technology and Innovation Centre (RTIC) with a time-bound
 programme to establish
 
 Centres of Excellence in the key technology areas critical to Thermax,
 which include solar, combustion and heat transfer, material science and
 biotechnology alongwith advanced computing. Focusing on collaborative
 research, the centre will undertake projects with premier research and
 scientific institutes. These initiatives are expected to improve the
 internal drivers of speed, scale and sustainability delivering value
 over multiple time frames. To kick start the spirit of innovation and
 revitalise the organisation, an Innovation Council has been formed
 comprising external experts, chaired by Dr. R. A. Mashelkar
 
 In the last Annual Report, I had highlighted three areas of focus for
 the company — operational excellence and innovation which we will
 continue to give impetus to. Selective inter- nationalisation is also
 one that will receive our attention, however, in the current economic
 scenario, we would need to wait and watch. Our plant in China is now
 operational. All efforts will be put into making this investment worth
 our while.
 
 The buzz of an organisation is its people Training and developing
 internal talent are areas that the company will continue to give
 priority to. It is only through training our human assets that we will
 continue to add value to our customers and the organisation. The
 Thermax Leadership Development Programme, launched last year, has
 progressed well. We are also looking at specific training needs that
 include our supplier partners, channel partners and customers
 operators. A unique one-year scheme titled the Thermax Graduate
 Programme, was started last year. Your company has trained 22
 academically qualified BSc graduates from tier II towns and
 economically weaker sections of society. After successful completion of
 their Thermax-specific training, they will be employed within the
 company.
 
 The Thermax Social Initiative Foundation (TSIF), the corporate social
 responsibility arm of our company, has entered into its third year of
 operation. I am happy to state that it has undertaken a number of
 community initiatives, with education as the prime focus. We have
 created various avenues through which we encourage
 
 our employees to participate in social causes as per their convenience
 and choice, such as the Payroll Giving Programme and volunteering
 opportunities at our schools. With the strategic partnership between
 TSIF and Akanksha, we are currently managing two Pune Municipal
 Corporation schools, established and scaled up on the basis of a shared
 vision and commitment to a common cause.  Thermax has recently
 partnered Teach for India - an initiative which aims to bridge the
 inequity in education. The company encouraged two of its young
 engineers to apply and one of them has been selected. He has undergone
 intense residential training along with 88 others. From mid June, they
 will be placed as teachers in municipal schools for two academic years.
 Being a responsible corporate, we are committed to improving the
 quality of education in India through which we can make a small but
 significant difference to the less privileged sections of society.
 
 Like everyone else, I look forward to better and more upbeat times when
 the full potential of the company can be actualised and we would
 continue to play a significant role in the energy and
 
 environment sectors. With political stability at the centre, industry
 looks forward to the much awaited reforms and genuine inclusive growth.
 
 Finally, I would like to thank all our shareholders and well wishers
 for their continued support and trust in the company.
 
                                                 With best wishes,
 
                                                   Meher Pudumjee
 
 Dear Shareholder,
 
 I am very happy to write to you about the performance highlights of our
 company during the year. It has been a challenging year with business
 confidence at a new low, generating great uncertainty across all the
 business segments in which our company operates. The year started with
 a lot of optimism and we were able to capitalise well on the business
 growth trajectory by finalising a large number of project orders. The
 mood was upbeat and we were heading for another good year....
 
 The financial crises hit at lightning speed towards the end of the
 first half leading to drying up of credit lines and overall liquidity
 across the globe. This coupled with a crisis of confidence forced our
 customers to put many large orders on a slower track of execution and
 in some cases, outright cancellations. Commodity prices nosedived in
 quick succession, compelling many of our customers to roll back
 production. The Indian rupee depreciated at an unprecedented rate,
 compelling companies to book mark-to-market losses quarter over
 quarter. Customers demanded renegotiation of contract prices, even for
 ongoing projects, to factor in the reduction in input costs.
 
 In this critical scenario the management, guided by the Board, took a
 decision to consolidate the companys operations and concentrate on
 better cash-flow management. Despite the economic uncertainties, this
 has helped us maintain our revenues as well as profits, compared to the
 previous year. I am thankful to the senior management team for
 providing tenacious leadership to the organisation and the Board
 members for their support and guidance in navigating the company
 through these difficult times.
 
 During the year, the Energy segment of our business contributed 77% and
 Environment 23% to the total income of the company. The substantial
 growth in exports revenues has helped us maintain our top line, and a
 repeat of this feat appears difficult during the forthcoming year,
 owing to a temporary shrinkage of our traditional export markets in the
 Middle East, South East Asia and some parts of Africa. The Service
 business portfolio of the company has made positive strides during the
 year by offering upgrades, revamps and operation and maintenance to
 customers to
 
 improve the efficiency of their operations.
 
 During the year, we have made substantial progress in transferring and
 absorbing the utility boiler technology from Babcock and Wilcox, USA
 and were successful in concluding our first order for two 200MW
 pulverized coal fired boilers in this segment. With many new medium
 size projects in the range of 150-300 MW in the power sector on the
 anvil, our company will benefit with better revenues from the utility
 segment. These projects, with gestation periods of 24^-36 months, will
 positively support our revenue growth plan from FY 2011 onwards.
 Similarly, in order to commercialise the technology transferred from
 Georgia Pacific Chemicals, USA, we have set up a new manufacturing line
 for paper chemicals at our Paudh chemical factory. This new product
 line has received an encouraging response from the domestic paper and
 pulp industry and plans are afoot to take these products to the South
 East Asian markets too in the forthcoming year.
 
 Continuing with the concept of technology partnerships for faster
 growth, our company has completed a tie up with a German company for
 difficult-to-treat wastewater technology. With this expertise, will
 achieve a unique capability to provide the full spectrum of industrial
 and municipal water treatment expertise. We have completed all
 formalities related to our strategic agreement with a leading global
 indoor comfort systems and services provider for the North American
 market. Under the terms of this agreement, they will source and
 distribute vapor absorption machines (VAMs) designed and manufactured
 by Thermax, on an exclusive basis.
 
 You will be happy to know that the capacity expansion plans announced
 last year - the boiler facility at Savli in Vadodara, the port assembly
 facility in Mundra, Gujarat, and the chiller plant in China - have all
 become operational. Implementation of a modern Enterprise Resource
 Planning (ERP) software was also undertaken in the Water and Waste
 Solutions as well as Enviro divisions of our company.
 
 The Research and Development arm of our company was reorganised with a
 renowned leader at the helm who is acknowledged for his accomplishments
 in technology and innovation in the country. The strength of this team
 was enhanced substantially with the induction of high-calibre
 scientists to conduct directed and coordinated research with external
 networking and partnerships. It will operate with the singular
 objective of making Thermax a global energy and environment power house
 providing sustainable solutions for customers to improve their
 operations, thus making them more cost competitive.
 
 Innovations in technology and manufacturing have always been key
 drivers of sustainable growth for Thermax. Our company has achieved a
 breakthrough in boiler design and chiller testing and manufacturing in
 India. Engineers of our Boiler division designed a high pressure boiler
 that can generate steam and power using the highly polluting distillery
 waste - spent wash. The first such boiler was commissioned successfully
 during the year for a distillery in Karnataka. This will help the
 distillery segment in eliminating ground water pollution and also
 generate energy - providing a dual-purpose solution.
 
 Also, for the first time in India, your company has created an
 absorption chiller manufacturing and testing capability for capacities
 up to 3300 TR. This facility, one of the largest in the world, will put
 the company in a pivotal market position in the very large chiller
 segment, the demand for which is expected to gather momentum with the
 increased availability of gas in our
 
 country. The company is also developing a green portfolio of products
 and services to align itself with the global initiatives towards
 climate change mitigation. The operational excellence initiative
 established in the earlier years gained further impetus with the launch
 of Project Ever-Lean. More than 400 employees of the company — under
 the leadership of a senior member of our management team - are
 undertaking a company-wide initiative to identify and eliminate waste
 across the various divisions, by building robust processes and systems
 in the company.  This is enabling our organisation to remain lean,
 competitive and agile in this challenging environment.
 
 We continue to invest in our people with a specific focus on competency
 enhancement and leadership development. Our Leadership Development
 Programme enables the company to identify talent at the early stages of
 an executives career and groom them to take on the challenges of a
 globalised economy.
 
 The stability and growth of the overall industry has a direct linkage
 to the performance of our company. Though global economic recovery
 still remains a distant possibility, the domestic market is showing
 signs of improvement.  Business confidence is turning positive and
 project closures are expected towards the second half of the current
 year. It will be a year full of challenges and we have to make all
 extra efforts to stay ahead and not get disheartened by the
 recessionary mood. I am quite certain that Thermax will emerge stronger
 from these difficult times.
 
 I would like to thank all our customers, employees, business
 associates, vendors and well wishers for their support and trust in
 Thermax. It is, as always, a great source of strength for us.
 
                                                 With best regards,
 
                                                  M S Unnikrishnan