Feb 22, 2012, 02.49 PM | Source: CNBC-TV18
In an interview to CNBC-TV18, MS Unnikrishnan, the managing director of Thermax talks about the latest developments happening in his company and sector.
MS Unnikrishnan (more)
MD, Thermax |
‚Äú 19% import duty likely on power equipment expected prior to the budget or as a part of the budget ‚ÄĚ
- MS Unnikrishnan (MD)
Below is an edited transcript. s for more.
Q: We now understand that there could be a 19% duty on import of power generation equipment as compared to the 14% that was recommended earlier. Take us through this hike which is now recommended and the plausibility of it actually coming through?
A: Itís a welcome move. Itís a cabinet paper that needs to be approved and implemented. There must be consensus available within the various arms of the government that there is a level playing field available for Indian manufacturers and it is the fundamental duty of the government to support all investments coming in, already put in by all of us.
So I am expecting it to be passed by the government and it should be implemented any moment. Now, the 14% versus 19% is just a technical matter. Of the 19% spoken about it is 5 plus 4 plus 10. That 10% is a countervailing duty which is to offset against the excise duty or service tax prevailing in the country. So that is a level playing equivalent only, there is nothing that is increased or changed by the government.
I wonít say it is going be giving any advantage to any Indian company but is certainly going to improve their competitive positioning by improving their level playing field. Otherwise we were in a ditch, so maybe we are been told - okay you are almost at the same level. This is currently only considering the fiscal equivalence between country to country.
The efficiency equivalence of the infrastructure of two countries and indirect subsides available to other countries arenít available to India. It is still a lot more for us to be competing against the Chinese by having our efficiencies improved.
Q: There is a 5% import duty on power projects with less than 1,000 megawatt capacity. What is the current duty structure?
A: There was always a 5% duty on the power equipments in the country. The government has removed that 5% duty by a notification on any power plant which is designated as a mega power plant. A mega power plant as per the governmentís definition was anything more than 1,000 megawatt. So les than 1,000 megawatt there will be a 5% duty plus a 4% equivalent CVD available whereas for more than a 1,000 megawatt which is mega project as per the governmentís understanding on the notification there will be a 5% plus 4% plus 10% that is overall incidents of duties and taxes will be 19%.
Q: What is the current situation for all power plants?
A: Any Indian developer or company can import from outside India, any power equipment at nil duty, nil CVD nil everything. Itís a free import.
Q: How competitive do you think you will become? How much do you think your order book may increase at all?
A: We have not started booking any orders for the larger power plants because my joint venture with Babcock & Wilcox as a company is now biding in the market. I have not picked up any orders and my factory is getting ready in September of the current year. With this imposition which will happen, I am very certain and very hopeful that the government will support all of us, not only Thermax but also Larsen & Toubro, BHEL, Bharat Forge Alstom etc.
Many of us who have invested put together maybe Rs 20,000-25,000 crore in this country and all of us put together maybe employing 50,000 people directly or indirectly to run this entire capacities. These capacities will get utilized. So this is not the only factor. Interest rates in the country are higher, call availability and call securities are going to be another issue, land acquisition will be another issue, all this need to be resolved.
As they get resolved progressively, more and more power plant orders will get finalised in the country. I would expect and say FY14 or FY15 onwards at least, India should be finalizing anywhere between 15,000-20,000MW worth of orders every year. Of that, my capacity is 3,000MW and I should be getting at least 2,000-3,000MW of orders every year FY14 onwards.
Q: Now there are reports emerging that there is a lot of lobbying from the likes of international companies to possibly not having this 19% come through. By when do you expect this to come through? How decisive would you be at this 19% vis-a-vis a possible consolidation or a possible adjustment to this 19%?
A: The expectation is prior to the budget or as a part of the budget. How can any international company object to that? Even in China if you go to the import power equipments you are going to pay duty. There is hardly any country in the world where there is no import duty on power equipments. Why should we be that haven in the world where anybody can dump their material and the domestic technology and domestic companies should be suffering?
It is the sovereign duty of the government. I am sure, every time and anytime there will be pressure whenever anything is going to be done. First of all we shouldnít have removed the duty that was a mistake India made. After having done the mistake we are correcting it only. We are not talking about anti-dumping duty.
Q: How is the order situation in the country looking like? Have you noticed any improvement at all in investment intentions?
A: There was overall improvement for the past one month in terms of people talking positive, not acting positive. There is a lot of gap between acting positive and talking positive. Talking positive is an indication of people thinking positive which means people are either fed up of all the negativity or they do believe things are going to be improving or they possibly believe that letís at least be positive so that portion has started.
Q: Any improvement in your order book?
A: I wonít be able to comment on anything because there are no substantial changes happened to the order book. Orders are coming in but they are of smaller sizes. When I see triple digit orders i.e. Rs 100 crore, Rs 200 crore, Rs 300 crore orders getting finalised in the market regularly then I will say the situation is changed. Such kinds of orders are not getting finalised in the industry at this point of time.
Q: In Q3 there was concern that there was a 19% decline on a YoY basis in the order book because of a 40% decline in the order inflow. Any sort of margin pressure that could boost up the order book going forward?
A: If we are wiling to accept orders at a very low margin, there could be an improvement in order booking but thatís only in a small number. Unless there are more orders of a larger ticket size, no capital equipment company in the country is going to be reporting an improved order book position for the next two to three quarters. I donít expect anything to change overnight in one or two quarters because the consumer sentiment has to improve, consumptions should increase.
So the investor should decide about investing in creating capacities. Once the capacity creation decisions are made we will get orders. Companies like Thermax and capital goods companies would improve their order booking. But we will have to wait for one to two quarters minimum.
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