Jul 09, 2013 09:56 AM IST | Source: CNBC-TV18

No big orders in system; rupee impacting margins: Thermax

In an interview to CNBC-TV18, MS Unnikrishnan, MD, Thermax speaks on winning their petrochemical order of Rs 1700 crore. He expects the project to be completed in 29 months.

Energy and environment solutions provider Thermax plans to complete its latest order win, worth Rs 1,700 crore, in the next 29-months, says managing director MS Unnikrishnan. The order is from a leading petrochemical company for the design, manufacture and commissioning of nine CFBC high pressure boilers.

However, in terms of the industry sentiment, Unnikrishnan says, large orders are not being awarded currently. "It is tough for companies to pass on price hikes to consumers with the rupee fall," he told CNBC-TV18.

Even though margins may be under pressure due to high costs of raw materials such as steel, aluminium and copper, Unnikrishnan says, the cap goods major will aim to keep them in double-digits.

Also read: Thermax uses Private Cloud to manage data security issues

Below is the edited transcript of his interview to CNBC-TV18.

Q: We always thought that orders were difficult to come by whenever we spoke to you. Post the index of industrial production (IIP) figures, you always indicated that there has been a slump in orders as well. You have won a big order of Rs 1,700 crore. Could you tell us little more about that? Are you expecting to see a few more order wins?

A: I had been mentioning in the earlier interviews that there are one-two large projects in the refinery sector and maybe isolated ones in the steel sector fructifying. This is one order which we had following up with a refinery. This is a very special kind of a project where currently they are utilizing the entire electricity and the steam units for the process coming from the refined gas and gas itself.

So, if one were to convert that into entire solid fuel firing we use as a fuel, in every refinery at the end of the refining process, we have got a pure carbon coming on a petcoke. So, we have designed a very special boiler for this particular purpose which should be burning that. As an alternative, it will also be capable of burning imported coal.

So, when we use this in the boiler, the coal, we will be generating sufficient steam to produce the entire electricity need of refinery along with all the heating. So, there are two sides of this particular refinery and the downstream projects where one side will have five numbers and the second will have four numbers of 500 tonne capacity boiler.

This is where the entire work for this including design, engineering, construction, commissioning all to be managed by Thermax and will be completed within a period of 29 months. It is a challenging job but very interesting job; and first of a kind for this country.

Q: Would that mean more margins better than 11 percent, 11.5 percent that you normally do?

A: These are very difficult and challenging times. Not that Thermax has won this order as a lone company; there were multinational and domestic companies which vied for this order. There are hardly any orders of this kind of a size prevailing in the country under the negotiation platform.

Whatever maybe the technical superiority, it is a biased market right now. So, we cannot be sticking on to the margins. So, I do not want to comment on the margins. But let me tell you that things were okay and is certainly a profitable order.

Q: Does the rupee give you a little bit of protection and therefore removes the pressure on billing to some extent as foreign competitors already will have some problem competing on dollars?

A: In domestic market, there is a protection available and the rupee could also give us a competitive advantage in the international market. Both these pluses are there. Negative is nobody is talking about.

The commodity prices for steel, copper, aluminium, which are the raw materials which are used for the boiler are higher. The domestic manufacturers have a price advantage as they do not have to compare on to prices.

Normally in a depleted, depressing market condition the commodity prices would be expected to be eased. But, with the rupee depreciation, no easing of the domestic price level is expected. This could put pressure on the margins of companies in the capital goods sector and equipment manufacturing sector.


Q: We just spoke to the Steel Authority of India Ltd (SAIL) chairman and he didn’t seem to give the indication that he had too much of an elbow room to raise prices. They were all bemoaning weak demand. Are prices going up for you or are you complaining that they are not going down?

A: I would rather say it is not going down. When we have to be reducing the prices to the ultimate customers, they are making a life miserable in negotiating against each other. So, there are hardly any margins available in the orders that one would not conclude in the country.

There you normally expect to pass on that margin to suppliers. Suppliers are the commodity manufacturers. They have been given the protection with the rupee depreciation. But they do not need to necessarily come down in a difficult market condition.

Q: On a consolidated basis, is the company facing downward pressure on the margin over the next nine months? What could we expect FY14? Are margins going to be lower than what we saw in FY13?

A: I do not normally give guidance. But, if there is a margin pressure, we never give up like the way we have been managing every time. At best one or two quarters certainly have a reduction of a margin happening. But we would struggle to ensure that we retain at double digit, which is what we want to aim for.

It is not an easy task with the rupee having depreciated. Maybe we wouldn’t have been able to manage it but now it is a tough task. We have never given up on such kind of ideas, we will try our level best.

Q: You have been maintaining a run rate of order inflows of about Rs 1,200 crore so far for the last few quarters? What is your comment on that? Is that likely to be maintained?

A: To maintain more than Rs 1,000 crore run rate for the company and Rs 1,400-1,500 run rate for the group, it would not be impossible but it is challenging.

Q: You just gave us half a hint that export markets are opening to you because of the rupee. Are there some orders there that you all will be able to be in a better position to claim now?

A: In comparison to what we were one year back, we are in better position. But there aren’t many large orders that can make a substantial difference in the order book. There are of ticket sizes of Rs 10-15-20 crore but nothing in the triple digit crore in the international market currently.

For any Indian company in the capital goods sector, getting an order is not an easy task because it is not your price that makes a difference. India as a brand for very high quality engineering is good. When you are competing with Chinese, you are treated equal or better. But when you are a company taking German company or a Japanese company, suddenly the market perception about Indian manufactured goods is not as good.

So, we necessarily have bought it cheaper. The rupee depreciation improved our competitive positioning. The brand perception about our company is good. But our country, I cannot say, that is the case with India compared to Germany or Japan.

So, it is not that we have a runway available to fly off. It is going to be a better task than the earlier.

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