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Mar 04, 2013, 10.40 PM IST | Source: CNBC-TV18

Budget Analysis: Do not see pick up in sentiment towards investment: Thermax

The biggest positive from the Budget that appears to come for all capital expansion plans or those who have such plans has been that 15 percent investment allowance.

All of us were expecting that let there not be any move in the Budget that will retard investment and there is nothing that the FM has done that will retard investment.

MS Unnikrishnan

MD

Thermax

The biggest positive from the Budget that appears to come for all capital expansion plans or those who have such plans has been that 15 percent investment allowance.

Also read: Budget Reactions: FM pulls off great balancing act: KPMG's Kanabar

However, MS Unnikrishnan, MD, Thermax says, “Whatever has come in the Budget is insufficient to be turning the sentiments from negative to positive.” He does not see any pick up in sentiment towards investments. Though there is nothing in the Budget that would retard investment, he adds in an interview to CNBC-TV18.

Commenting on the 15 percent investment allowance, he says it will be an attraction for those companies who are to go in for Greenfield projects of smaller size, he elaborates.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What are you picking up in the three days since the Budget, has anyone been enthused by this tax break to go ahead and spend Rs 100 crore?

A: I don’t think such a quick response was expected from the Indian market. However, the question is it is going to be enticing people to accelerate the investment cycle? I think it is not such a pull factor where you will see a plethora of activities and ferocity of investment happening. Because a Rs 100 crore  plus  and 15 percent investment allowance, will be good for companies who are going to go for Greenfield projects of smaller size, and on balance sheet Brownfield expansions where they can take the tax benefit on the balance sheet, certainly they will find it as an attraction.

However, I don think it is sufficient and large enough attraction where there will be a queue of people to move in. It is just one more move in the positive direction.

Secondly, for any investment where the internal rate of return (IRR) is not sufficient enough for them to be taking an affirmative decision to go ahead with, this 15 percent investment allowance can make it a little more attractive, and the borderline cases can become a go case.

Q: The surcharge on corporate tax, some 5 percent to 10 percent some point out will already neutralise the additional benefit that you get in terms of the 15 percent leeway? Do you think hardly anything has been done in this Budget to revive sentiment and what’s the feedback you are getting aside of the Budget measures on when the order flow could start coming up. Do you sense any kind of improvement in sentiment from corporate India?

A: I haven’t seen anything remarkable to notify that people have started changing their attitude towards investment. Coming specifically to the Budget, I won’t blame the finance minister (FM) and say that he has not done anything because the question is where is the money available for him to be supporting anybody.

All of us were expecting that let there not be any move in the Budget that will retard investment and there is nothing that the FM has done that will retard investment.

I agree that there is a higher burden of taxation on all of us, especially the people who earn more money as high-net-worth individuals (HNIs) and also corporates. But under the current circumstances what choice did the FM have other than looking forward to getting that chunk of income for the government to come from taxation, taxing a limited number of people.

But is that going to be deterring all of us to be taking decisions related to capital investment? No, I don’t think that is going to be, so there is nothing negative.

On the contrary, I would say there are some positives done by him especially in terms of declaring that Jawaharlal Nehru National Urban Renewal Mission (JnNURM) is going to continue for the next five year plan, allocating virtually a 200 percent of what was allocated in the previous Budget, so that’s a good move. Rural water creation use for arsenic removal, it’s a good move from his side.

A lot more or smaller items are there. There is not a single item, which is so large, which could be gearing industry to look at it, there is nothing of that kind, but there is nothing negative either.

I would possibly believe that consistency should be felt by the people. So all of us should be positive and start taking decisions to increase capacity.

It should be done by the general industry and when they take a decision to increase the capacity, capital goods companies like Thermax will also get benefited from that.

Q: You are speaking in the future tense. You haven’t noticed any change at all on the ground. I take your point, there were those announcements even on coal, a reiteration of the blending of imported and domestic price, also a suggestion that public private partnerships (PPP) projects would be allowed with Coal India as a partner, those are sentimentally positive, and will take time to hit the ground. Are you noticing that all these positives are having any sentiment positive, any improvement in orders, tenders, even talk of tenders?

A: No, I don’t want to mislead the market. Certainly, whatever has come in the Budget is insufficient to be turning the sentiments from negative to positive. Is it one more move towards positive? Yes. Will it neutralise the negativity? No.

I am sure we are going to wait for the Reserve Bank of India (RBI) policy related to interest. Is RBI going to support the government in terms of a tleast bringing in that interest reduction, by at least a 50 basis point (bps) that will be seen by people. And how the implementation of many of the policy directions given by him is going to happen in the next maybe six to nine months will be watched by people.

So if one were to talk about in the immediate future, a reversal is impossible. Neutrality where those who are willing to be taking a little higher risk - they can start moving into the market to set up capacities.

Otherwise, classical Indian investor who would be risk averse will not be committing capacity and investment right now.

Thermax stock price

On December 19, 2014, at 09:26 hrs Thermax was quoting at Rs 1004.00, up Rs 14.45, or 1.46 percent. The 52-week high of the share was Rs 1131.80 and the 52-week low was Rs 615.00.


The company's trailing 12-month (TTM) EPS was at Rs 25.17 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 39.89. The latest book value of the company is Rs 169.94 per share. At current value, the price-to-book value of the company is 5.91.

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