Don't see margin correction from current levels: Thermax

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Don't see margin correction from current levels: Thermax

In an interview to CNBC-TV18, Thermax managing director, MS Unnikrishnan says the power segment of the company sees lower margins. He says the pricing pressures are also dragging, adding that the power sector order inflow continues to remain weak.

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With booked orders worth Rs 1,189 crore in the second quarter , energy solutions provider, Thermax posted net profit jump at Rs 102 crore versus Rs 89.5 crore, year-on-year.

In an interview to CNBC-TV18, managing director MS Unnikrishnan says the power segment of the company sees lower margins. He says the pricing pressures are also dragging, adding that the power sector order inflow continues to remain weak. "The raw material prices continue to remain high, despite demand concerns," he added.

Below is an edited transcript of MS Unnikrishnan's interview to CNBC-TV18. Also watch the accompanying video.

Q: If you could take us through the kind of order inflow and booking that you are witnessing or have witnessed in the previous quarter? Any sluggishness there or do inflows continue at a good clip?

A: Our order booking is Rs 1,189 crore, marginally lower than previous year same time. However, from the captive power segment or EPC segment there has been no major orders coming in for the company. Otherwise, for the water business, the chemical business, pollution business, our conventional boiler business all of them have seen an improvement in order booking for the last quarter. There is demand but finalizations are taking a much longer time in comparison to what we would normally expect.

Q: Can you just breakup what it is exactly that you are seeing on power bookings because that contributes nearly 20% to your total order book?

A: Power segment would contribute normally to 20% that has come down to maybe almost a 10% in the current quarter. When I say power based it is a water treatment plant that we would supply to a power plant, or a pollution control equipment or in some cases the captive power plant orders that we would be receiving. However, that segment is seeing absolute sluggishness and I would blame it is a very high rate of interest prevailing and availability of coal and land availability.

These are the kind of reasons which are delaying the power projects. This is a national issue right now. It is an issue that needs attention from the government, however, as a company we have done quite okay on the bookings. It could have been better but certainly, we have done fairly well in the rest of the sectors.

Q: You participated in the recent NTPC boiler tender as well. How much of a pressure are you facing on the pricing front?

A: That was from our joint venture with Babcock & Wilcox. There is a pricing pressure on the power segment but overall, the numbers of orders getting finalized are lower than what used to be in the earlier, past competition sometimes can succumb to lower margins. But we have not had come down to that kind of a level. We are still able to manage our prices. We have got 65% of my orders coming from my existing customers, repeat orders. We already have a brand experience for Thermax, in terms of the performance, in terms of efficiency.

We continue to be drawing a preference from the customer, so we are able to maintain our price at this point of time. The concern is more in terms of the raw material prices going up despite the slackening demand world across. Technical situation prevailing in India about the raw material availability especially the coal and the iron ore, the steel prices are going up when the price should be coming down. So, that is the phenomenon which is worrisome for everybody in the market.

Q: Your margins came off a bit to 10.78% in the current quarter. Do you see it slipping further?

A: No, you are comparing this quarter with an earlier quarter or an earlier year same quarter, whenever I have an EPC execution a little more than what it was earlier because the margins available for any EPC company is lower than what you would get on a product sale. So, whenever my EPC sale is more than what it was in the previous quarters you might find it wrong. But overall, we should be able to retain and maintain the margins at almost the same level that you are seeing it at now.