Moneycontrol
Mar 14, 2016 05:12 PM IST | Source: CNBC-TV18

No ground level investment growth in cap goods ind: Thermax MD

MS Unnikrishnan, MD at Thermax points out that orders carried into the current year were substantially lower and new order inflow has also been subdued.


There has been no ground-level improvement in investments in most sectors in India, including the capital goods industry, says MS Unnikrishnan, MD at Thermax. Only a few sectors like textiles and durables might see some continuous investment, he adds.


Unnikrishnan points out that orders carried into the current year were substantially lower and new order inflow has also been subdued.  


He believes the industry is couple of years away from seeing double-digit growth, adding Thermax is likely to report year-on-year single-digit decline in revenue.   

It will be difficult to commit any growth in FY17 but the numbers might remain stable, he says.

Below is the transcript of MS Unnikrishnan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Is that the reality on the ground? A contraction in the first 10 months or at least no improvement at all in the overall capital goods output?

A: You are absolutely on the point. There had not been any ground level improvement in investment within the country. Though you would see investment happening in some of the sectors which are not going to be making a substantial difference for the capital goods industry. I am talking about the food area, the dairy, the beverages, the pharmaceutical industry, which are all maybe smaller projects in the range of maybe Rs 100 crore to Rs 500 crore kind of size. The larger sets of orders are not happening and not even enquiries are on the ground where one could anticipate order intake to happen.

And in any case, most of the industry opened last year with lower carry forward orders in comparison to the year prior to that, because of which you have already seen virtually no growth for the industry in the current year. And one of the areas where possibly Indian companies were able to perform better in the past was exports. And unfortunately, there again, many of the captive markets for Indian capital goods are finding it difficult also. And with maybe two segments, European and Japanese currency depreciation making them competitive has also possibly reduced that option available to Indian companies to export out.

So, that is the reality.

Sonia: You have poured cold water on our enthusiasm that we saw on the stock market this morning, but anyway, that is what ground checks are all about. So tell us, because of the situation one, of excess capacity in the system and two, because banks are in this process of cleaning up their balance sheets, etc. do you think that it is sometime before we see any kind of recovery in the capital expenditure (Capex) cycle and if yes, how much time are we looking at?

A: It is not going to be a short term. Let me be very important about. There are some sectors where continuous investments are going to happen. You heard Mr Sanjay Lalbhai talk about textile industry and I am sure consumption is picking up. If you look at the durables growth in the last one year, amazing kind of numbers. So, capacities will get added in those areas and all of us are supplying our equipments also to those areas. So, that is going to be a positive story, so let me not be pouring totally cold water on your expectation. I mean, all of us will survive.

But the only thing is that the growth ambitions, as of all of us would expect it to be a double-digit growth, to come back to the market, I presume that we are at least a couple of years behind, because it is not going to be an immediate turnaround going to happen. It is not an India story. Across the globe, people have invested near to USD 14 trillion in the last decade and a half in creating capacities. A good part of that is remaining in one country alone, so that capacity is going to get utilised or it has to be mothballed, before it can be – I mean a universal investment cycle to happen.

It is a reasoning from Europe, from Japan, from Korea, from China, all put together. India will continue to be investing.

Latha: The Chinese have said that they will reduce their capacity by 10-15 percent every year. That was part of the promise the Chinese Premier, Li made at the National People’s Conference. So, let us see how things happen in terms of mothballing. What might your full-year growth numbers be or your one-year forward growth numbers be? Revenue?

A: I had already told that current year, I am going to be promising maybe the topline to remain in minus single digits. Not any growth in the current year because you have already seen for the first nine months. So, that is the topline. Next year will be equally challenging because new order intake had not really picked up so far though we have got some orders. I cannot promise a growth in the next year. Certainly, we will be stable for the next year. That is all what I could say at this point of time.

Things can change in case there is a major push happening from the government in terms of investment cycle getting reactivated, which is not going to be easily possible for it to be translated into the balance sheets of all of us. That is the reality.

Sonia: You had mentioned that you are going to conclude some large deals in Q4. Quickly, have those deals come through?

A: One is already announced. We have received an order worth around Rs 390 crore registered without tax at Rs 353 crore on the balance sheet which we announced in the market also from one of the fertilizer companies for a combines cycle, energy efficiency improvement programme. That is already announced. One or two of them are at the discussion level. Nobody is in a hurry to finalise orders, that is the reality.

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