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Margins to be maintained despite rising input cost: Thermax

Published on Thu, May 22, 2008 at 18:40 | Source : CNBC-TV18

Updated at Fri, May 23, 2008 at 11:09

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MS Unnikrishnan , MD, Thermax , said if orders in the market are going to be shrinking, then there will also be pressures on margins. "But we should be able to maintain it. We do take forward actions to ensure that we are in a position to maintain margins."

Excerpts from CNBC-TV18's exclusive interview with MS Unnikrishnan:

Q: It's a 12% jump in sales and net profit and a slight improvement in margins, yet your sales growth has been about the slowest in 12 quarters. What were the pressures and how do you see it panning out in FY09?

A: Don't look at engineering companies on QoQ basis, especially the capital equipment industry. For the year, we have given a 50% improvement in profitability. Apart from that, the initial 2-3 quarters had not been too good in terms of order finalizations. But the fourth quarter of the current year has seen an improvement in new orders booked by the company in comparison to the same quarter last year.

Q: What was your order book at the start of the year and what is your order book at this point in time?

A: Last year, we opened with a better order book level, i.e Rs 3,100 crore. We are closing the current year with Rs 2,637 crore. The first 45 days of the current year, which we are already into, are also quite positive for the company.

Q: You were speaking about the order booking, even that seems to have slowed a bit?

A: It was slowing down for the first three quarters of the last year. But in the fourth quarter, there was a pick up and it is almost 15% better than same quarter last year.

Q: You were saying that the fourth quarter should not be the only quarter to judge because money has come in little lumpily for capital goods makers. Are you therefore trying to say that FY09 could be a better year? Do you see no pressure, whatever of inflation, or a possibility of people pushing back their capex plans because of inflation and interest rate pressures?

A: The next year would be a year of consolidation for Thermax. For the capital equipment industry, there will be pressures next year. The segments that we have a presence in include water, air pollution, and captive power. The industry may see a revival in the coming year. Overall, one can't expect growth that we have seen in the recent past for any company next year.

Q: How do you expect margins to pan out? You have managed to improve your margins in the current quarter to about 13.8%, will they improve or will you see them under pressure because of steel prices and other commodities?

A: If orders in the market are going to be shrinking, then there will also be pressures on margins. But we should be able to maintain it. We do take forward actions to ensure that we are in a position to maintain margins.

Q: Are all your raw materials tied up in forward contracts? How do you essentially try and low down the costs or build in that margin on the cost front?

A: In the orders on hand, which are to be executed, we have covered for almost 90% of raw material prices. We have a cycle. Within 90 days of receipt of order, we would complete about 80-85% of ordering and we do give financial commitment to our suppliers also.

Q: Could you leave us with some numbers, what kind of a revenue growth can you forecast for FY09, and what kind of a order book contraction or expansion can you expect for FY09?

A: No, guidance for the current year can be given because of market volatility. In a very steady market one would have clear visibility. Some part of our orders, which have to be executed, have been carried forward. We have some other product business in which we will book and as well as bill in the current year. In the current year, I am desisting from giving guidance especially for topline because that would be a prediction. In my opinion, growth in the current year can't be as good as the previous years.