Steel, cement sectors disappointed in April: Thermax

Index of Industrial Production (IIP) for the month of April came in at 2 percent as against 2.2 percent in previous month, almost in-line with street expectation. The IIP data stated that the capital goods industry grew only a percent during the period as against 6.9 percent growth in March.

MS Unnikrishnan, managing director of Thermax told CNBC-TV18 that segments like steel, cement and infra from where companies get orders from disappointed.

He further said there are inquiries on ground but order confirmation is at a distance.

Thermax may see orders getting finalised in a few quarters as infra and power projects are at a standstill for now.

Capital goods sector growth declining in April mirrors unevenness in order execution and despatches,given the lack of improvement in investment activity and new project announcements.

Read This: Don't expect revival in power sector orders soon: Thermax

Below is the verbatim transcript of his interview on CNBC-TV18

Q: The capital goods numbers look rather bad. It is a 1 percent increase year on year from April, which was terrible. So, April 2012 was terrible and we have not been able to capitalise even on that weak base. If one look at it from month on month perspective, which will be unfair because March is always a good month. It is almost seasonally adjusted fall of 15 percent is what an economist told us. How are things on the ground? Is anyone talking capex?

A: The number is a reflection of reality on the ground for a change because many a times a gap is visible. Right now the way we are looking at it is there are not any substantially larger projects on the anvil excepting some road projects or something related to metro rail or Delhi-Mumbai corridor equivalent. Other than that in the power sector or in the steel sector, cement sector we are unable to be seeing any movement.

Q: Are you getting a sense that people are at least brining something on the drawing board in terms of expansions. Is there hope that perhaps three months down the line probably after the monsoon if the monsoons were good and demand picks up because consumer non-durable demand is doing very well. Can you see some visibility in terms of growth a quarter down the line?

A: There are enquiries but are they going to fructify into an order conclusion and the money starts flowing in, maybe I would say banking to be concluded for projects to takeoff. That is an issue, which has to be discussed separately.

On ground level there are enquires, there are active enquiries but the ability of those enquiries to move into a negotiation platform and a conclusion platform, I suspect may not happen in a quarter period. One need to look at the demand pickup for the consumer goods, the durables and also the various other infrastructure related, where support items have to be looked into - there it is disappointing to see the overall consumer goods not picking up.

If we compare one year back – in an average consumption growth ranging between 8.5 percent and 10.5 percent. So, to support that 8.5 percent-10.5 percent, one needs to increase capacity of various industries, commodities. Unfortunately, for the past three-four months, the decline has come down to 1-1.5 percent as a real consumption growth, and at 1-1.5 percent consumption growth one can afford to be postponing expansion projects.

Therefore, we need to be somehow getting the consumer to take his wallet out and spend some money and then there will be a shortage of capacity in the future.

I would believe that at 5-5.5 percent gross domestic product (GDP) growth also the real consumption growth in a three year period can go to 20-25 percent if the demand picks up which means somebody can afford to be setting up a new capacity. Unfortunately that is not being visible.

GDP is being pulled up, not by manufacturing or consumption, I do not know, maybe service industry is picking it up to give 4-5 percent as well. It is not a good sign right now.