Dec 27, 2012, 06.29 PM IST | Source: CNBC-TV18

See topline reducing in H2FY13; bullish on cement: Thermax

In an interview to CNBC-TV18, MS Unnikrishnan, managing director, Thermax, gives his expectations for the company's performance.

India would do better in the next year. There are no more global negativities.

MS Unnikrishnan

MD

Thermax

In an interview to CNBC-TV18, MS Unnikrishnan, managing director, Thermax , gives his expectations for the company's performance. Unnikrishnan is expecting a reduction in the company's topline. "We are trying our level best to ensure that we will be able to retain the balance sheet within single digit drop. At the best a 10 percent drop is what we are currently looking forward to," he adds.

Also read: Bharti Infratel to list shares on December 28

Cement industry is a sector that Unnikrishnan is extremely bullish on."In our understanding, the cement industry performance has improved, so they should start placing orders for newer capacities," he says.

Q: How is business looking like at this point in time? How is growth likely to pan out in the next four quarters?

A: To take stock of what has happened in the past one calendar year, of which almost nine months were booked for the current financial year, overall there had been a decline only in terms of order intake for the industry. However, for Thermax as a company, we are almost at the same level as previous year. I cannot declare the number for Q3 because it is just about couple of more days before me closing the balance sheet.

The prospects are looking that we will be better off than the previous year in the forthcoming FY13 when we are going to be closing at end of March. That may not be the story for the entire capital goods industry. Since I am also heading the capital goods committee for the CII, I am privy to what is happening in the market.

There has not been a substantial change in the sentiments, despite the fact that the good moves made by the government are acknowledged by the market. They have not translated that in terms of capital investments or commitment for new orders; that is a reality. So, if you have to talk about the next three to four quarters and how it is going to pan out, it is better to take a sectoral view rather than a global view, because the global view is going to be possibly an averaging.

There are some sectors where I am expecting things to be changing, the fortune should be taking a positive stride. The first such sector is the cement industry because in our understanding, the cement industry performance has improved so they should start placing orders for newer capacities.

In the oil and gas sector, there will be two major expansion programs including one public sector and one private refinery and in the next six months time they will be finalising orders. I would expect the food sector to be doing extremely well in the next four to five quarters. The sector that is going to be the laggard sector is the power sector.

I do not expect anything substantial to be turning around in the power sector and that is about the main sectors. Overall, I would believe that next year should be better than the current year for the industry, because India cannot be going down any further. We are at the cusp of something like 5.1-5.2 percent growth level. I do not think India is going to be continuing at the same level. My own prediction is India would do better in the next year. There are no more global negativities. Our internal sentiments also have to change so  that things could improve.

Q: What about the underutilisation in your new Maharashtra plant. We understand that the order inflow with regard to supercritical inflows are pretty much subdued at this point in time. Are you worried that you have an annual outflow or around Rs 40-50 crore in terms of maintenance of the plant? Would it be some amount of pressure in terms of margins? What would the utilisation of capacity be at this point?

A: This is a joint venture between us and Babcock & Wilcox, where we own 51 percent. The plant is ready to be commissioned, but there are not any markets in the market that is reality. We are not even expecting anything substantial to change in the next 18 months period. Are we prepared to go ahead with that, certainly yes, because a manufacturing facility of this kind is not constructed for a quarter, not for a year. This is supposed to be supporting the Indian power industry and it should be for 25-30 years. So, we should be willing to undergo the pain for a time of even one or two years.

The amount paid is not for maintenance but the burnout rate to ensure that we are able to keep the entire edifice on and also to ensure that we are able to have the debt repaid. We are talking about a burden in excess of Rs 100-120 crore depending upon the way it is going to be maintained. About 51 percentage of that is the responsibility of Thermax and I do not have any difficulty in accepting the fact that we may undergo some difficulty.

However, if the captive power industry were to be picking up it will find it very difficult to even run industries for two to three days a week. So, I am expecting an improvement in the captive power industry in the coming year to two year time. I have additional capacity available which I can utilize. Any orders that our partner, Babcock & Wilcox may receive in any part of the world, can certainly also be manufactured. So, a part of the cost can be offset. I would not say the entire offsetting is possible and that India will not have any larger supercritical power plant orders that will be finalised in the next 18 month period. There maybe and there will be, but there will be limited numbers and they will be major competitors. We will be one of the major players in that area along with BHEL and Larson and Toubro . So, we should fight it out and possibly pick orders if there are orders in the market. If there are no orders in the market we are prepared even for that.


Q: In your first half numbers, your revenues were down about 8.5 percent. Will you end this financial year with a 9 percent fall in revenues? How is FY14 therefore looking to you? Would it be an uptick of 10 percent? Would it be even better because the base is bad?

A: I cannot give exact guidance, but I am certainly looking forward to a reduction in topline even in the next quarter. We are trying our level best to ensure that we will be able to retain the balance sheet within single digit drop or at the best a 10 percent drop.

It also depends a lot on the off-take that is going to happen in the last quarter. We will be ready and we have got orders for the last quarter available, but the off-take will depend upon the credit inflow into the market. Coming back to the next year, certainly I am looking forward to have growth back to the original levels of FY11. I will want to answer that question towards the end of the current year because I still have atleast three plus months available for fresh orders to be taken. I believe the order position in the market for the industry that I belong to should be better than the last quarter, but we will wait and watch.

Thermax stock price

On April 17, 2014, Thermax closed at Rs 753.30, up Rs 31.75, or 4.40 percent. The 52-week high of the share was Rs 786.40 and the 52-week low was Rs 526.00.


The company's trailing 12-month (TTM) EPS was at Rs 22.02 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 34.21. The latest book value of the company is Rs 156.88 per share. At current value, the price-to-book value of the company is 4.80.

READ MORE ON  Unnikrishnan, Thermax, cement, topline, CII
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