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May 21, 2013, 03.25 PM | Source: CNBC-TV18

Don't expect revival in power sector orders soon: Thermax

Capital goods maker Thermax does not see recovery in orderflow in near term.

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Dont expect revival in power sector orders soon: Thermax

Capital goods maker Thermax does not see recovery in orderflow in near term.

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MS Unnikrishnan (more)

MD, Thermax |

Despite Jan-March quarter being the strongest in terms of order inflow, the capital good sector overall witnessed a subdued quarter and the situation was no different with Pune-based Thermax Ltd.

In an interview with CNBC-TV18, MS Unnikrishnan, CEO and managing director, Thermax said, his company has not seen major recovery in order book in the quarter gone-by and he is neither expecting a reversal in trend  anytime soon.

Order inflow, considered a key growth driver for the industry have remained lukewarm either due to a general slowdown in India Inc capex or due to drying up of order from power sector Read This:  Capital goods to report subdued performance in Q4: N Bang

“We do not see material recovery in power sector in next 18 months. However capital goods industry may benefit from softening of commodity prices,” said Unnikrishnan.

Below is the edited transcript of MS Unnikrishnan's interview with CNBC-TV18

Q: Is it true that the overall order inflow for the capital goods sector has started looking up? Which sectors have you seen any sort of momentum buildup in terms of order inflows?

A: For the entire capital goods sector, we have not seen a major recovery in Q4. We have not seen any traction in announcement of new projects either in the power sector, steel sector, oil and gas sector which are the main contributors to the order intake of larger companies.

We are not expecting a quick recovery because there isn’t too much positive news in the entire market. However, we see a movement happening in the food and food processing sector and to a certain extent in basic chemical sector. Otherwise we haven't seen anything happening in the last quarter substantially different than what happened in the previous quarters.

Q: Power is an important vertical which has remained in a challenging space for many quarters now. By when can we see a material recovery coming to the power sector in particular?

A: Power sector would take a much longer period than what we are currently anticipating on account of the following reasons. Most of the current power purchase agreements (PPAs) signed and being in operation are not really tenable on account of the fact that they do not provide for the variability in cost of coal.

Unless the government and the electricity regulatory commissions agree to the fact that they have to renegotiate the existing PPAs, the power generating companies in the country are going to see pain. One can see negatives on the balance sheet of most of the companies whether it is Tata Power or Adani Power or Reliance Power. None of them are doing too well. So, we have to have a better tariff regime prevailing in the country in tune with energy pricing over the world.

The second is fuel supply agreement (FSA) which Coal India is signing, they are signing agreements but the availability of fuel is a problem even today. They are not getting sufficient quantum of coal even for the existing plants. The third is related to the mining location.

There is no valid land acquisition act in the country by which companies can acquire land, start operating mines and constructing power plants. We were waiting for the past four sessions of the parliament for this particular bill to be passed. Unfortunately it has not been taken up in the current session of the parliament either.

The last one is related to the availability of money in the market. There aren’t enough sector allocations available for the power sector for funding on the debt side. Unless these major issues are resolved I do not expect the power sector to be catching back.

Q: For all this to be happening what is the timeframe one should be expecting?

A: Not less than 18 months and it could go as high as 24 months. It is bad for the country, but it is a reality. I wish the people who are involved right from the government to the regulatory authorities are fully sized up on the gravity of the situation. We are already into summer and I am sure the country is going to sweat without power in the current summer also.

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