He further said that the margins will improve only when there is a sellers market as such is not the case, margin improvement won‘t happen immediately hence, margin retention or maintenance is the priority at this moment.
In an interview with CNBC-TV18, MS Unnikrishnan, MD of Thermax said that the order book will not improve beyond expectations as there are no major project orders under conclusion.
He further said that the margins will improve only when there is a sellers market as such is not the case, margin improvement won’t happen immediately hence, margin retention or maintenance is the priority at this moment.
Below is the verbatim transcript of MS Unnikrishnan's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: The Street wants to know two things. What is happening to your order book and what is happening to your margin picture? Could you give us some clarity on both for the next two-three quarters?
A: I am in a silent period for the current quarter, so the numbers which I am indicating is general in nature and not related to my current quarter.
Order booking is not improving beyond the expectation on account of the fact that there are no major project orders currently under conclusion either in the steel industry; cement industry, oil and gas industry, fertiliser. These are the core industries where one would expect largest size of order.
The orders are coming in but they are all from the food sector, food processing sector, textile sector. So values of these orders being smaller, we are not seeing a traction in large capacity, large value orders either in India or in the international market.
However, margins improve only when you are in sellers market. None of us are in sellers market and we are not expecting margin improvement to happen immediately. Margin retention or maintenance is what all of us are looking for at this point of time.
Ekta: Are you bidding for these lower size orders and how is the competition within them considering that you are not seeing larger size orders right now?
A: We are there in smaller sizes; in fact our main survival kit at this point of time is smaller and medium size orders which are for the industries which I mentioned about and we are taking orders, we are getting fairly large number of orders in this particular area but that will move the big needle for me to show that we are able to grow as a company. Temporarily, for capital goods industry, there is a difficulty related to larger orders not coming in and surviving only on medium size orders. It's already happening.
Anuj: What about overseas acquisition since organic growth is bit tough, what about the inorganic measures?
A: For capital goods industry one would buy a company in the international market which are already stressed especially in the European continent or in American continent. It may not be the wiser thing to do. Capacities are getting build in energy and environment in south East Asia, Middle East, Africa and South America and there aren't any large companies available in this kind of place and that's why instead of merger and acquisition (M&A) we have decided to setup our own manufacturing facility in Indonesia which is already on the way.
We purchased land; construction has started for the factory building, 18 months down the line we should be up and going. Similarly we are now setting up offices in Africa in Egypt, in Lagos in Nigeria and South Africa intending to be creating our business centres in that part of the world also. So buying companies may not be a good solution for capital goods companies in Europe or America at this point of time unless otherwise you locate a company which has got great technology available and that is not available in India or to companies like us and that is a reality.
Ekta: I want to understand with regards to larger industries and not the smaller ones like food processing that you mentioned. Are you seeing a cancelation of any orders and how much of a delay are you seeing in the current projects at this point in time. How much of a delay in terms of moving walk down on the ground?
A: Industries related to consumption, I am not seeing any kind of cancellation and the movement of the projects are also quite regular, there is nothing irregular. However, there are some orders which are not from this industry where slow movement is there. Some of the steel plant expansion which were ongoing, projects are going but I do not think the cash flow is sufficient for them to be supporting an accelerated project execution cycle in that area. Otherwise we are not seeing any order cancellations at this point of time. There aren't sufficient order book available, is the only question. Order cancellations aren't there much.