Expect double digit margin in FY13: Thermax

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying videos.

Q: What’s the order book position?

A: I won’t be able to talk specifically about the current quarter. It’s a silent period for me because we have just closed quarterly book. We have closed the year with an order of Rs 4,200 crore for the main company and approximately Rs 4,800 crore for the group at the beginning of the current year.

I had predicted that we should be able to do something better than the previous year for the entire year. If you look at progressively, in the Q3 of the last year, we had an order book barely of Rs 590 crore. We have increased to more than Rs 800 crore in the Q4. I had possibly said that we would do better in the current quarter. That’s all what I can say at this point of time.

On the orders that we carried forward in the previous year, the margins were under pressure, but we were very hopeful. I am still hopeful that we should be able to retain the margins going forward. Currently, since number of orders on finalisation table are under stress and less in numbers, one can’t be expecting to improve the margins. Retaining the margins or within a maybe 100-200 basis points in comparison to what we have done in the earlier year would be the right assumption.

Q: How is the rupee impacting you?

A: Thermax is a net exporter. So, any rupee depreciation should be beneficial to the organisation in the medium to long term. But in a short-term, to have an order intake accreted using the depreciation will not be a predictable thing. But I am looking forward to an improved order book with the competitive advantage, which I am going to be enjoying in the market, in comparison to a main competition from China because their currency is stable or marginally appreciated. Indian currency has depreciated by almost to 8%. So that delta advantage can be converted into an improved order booking in the current year, but should be progressively done.

As a company we don’t do any punt or speculation, so we don’t have any open positions available. That will also mean that I may have to be booking a mark-to-market losses for couple of quarters, which will certainly get recouped as we go forward. So, the net impact for the shareholders is nil because we have always taken a forward position. Whenever we do a rebooking for the periodicity, certainly the losses have to be booked, but that is only a temporary affair. That’s an overall impact.

Commodity prices impact, I wish for that purpose the rupee did not depreciate because Indian prices for commodities, especially steel and the various other components that we are consuming, which are ferrous based, haven’t come down. On the contrary, it has gone up on the back of a depreciating rupee. If the rupee was stable, I would have been in a position to import the raw material, which is impractical right now with the rupee having depreciated by 20%.

Q: For the end of the year, would you say that margins will continue to impact and will impact your profitability?

A: Last year, we closed with a double digit profitable margin; the EBITDA was 11% upwards. Current year, I am not expecting it to be improving. But my task and my teams work is towards ensuring that we have a double digit margin in the current year towards the end of the year also. I agree with you it’s quite likely that in a quarter I may even go down by a couple of percentages. But at the end of the year, we should be able to have a double digit profitability margin based on the orders and the way the market is moving.

A lot of activities are done by my team to ensure that we contain the cost. It’s not just cutting expenses the waste is being taken out from the system. Despite the reduction in top-line, which I am already expecting, I should be able to maintain the profitability within 100-150 basis points at the end of the year.