Greece exposure low; local business yet to pick up: Thermax

Thermax is looking at large capacity super critical boiler orders from National Thermal Power Corporation (NTPC) and some state electricity boards in later half of the year, he said. 

Below is the transcript of MS Unnikrishnan’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.

Anuj: Would it be simplistic to assume that a company like Thermax, because of what is happening in Europe, will be concerned or you will not be that concerned?

A: I do not think we would in any case be impacted in any substantial way. Our business coming from the European subsidiaries in a good year would have been about six to seven percent of the top-line of the company. Even if I were to be adding on any project orders, which one would normally get and doesn’t have anything currently, could have gone to maybe making it roughly eight to nine percent of Thermax’s group turnover.

At that level, any negative, if something were to happen in the European continent is not going to be impact Thermax. I do not know whether India itself is going to be impacted on account of the fact that our direct export to Europe is not so substantial in comparison to the rest of the world. I do not think we should be unduly worried about that.

Whatever have been the negatives are already factored in by the markets whether it is commodity market or the share market overall put together. A USD 250 billion plus economy, in a USD 70 trillion global economy, does not make a difference. It has got a lot more relevance for European Union to remain together than for rest of the world to get unduly worried about it. It is my personal opinion and professional opinion too.

Ekta: Could you give us more colour in terms of the European markets? For example, where exactly do you get maximum of your revenues from? Have inquiries picked up or slowed down? Which is the sector that you service the most in Europe? Give us some more details on the European operations.

A: We have got four subsidiaries operating in the European Continent. The first two are the Danstoker and the Boilerworks in Denmark. Third one is the Rifox in Germany and fourth is the Thermax Europe Limited operating out of London. The first three of them are manufacturing entities, which caters to green energy based boilers that is biomass based boilers and waste energy appliance in predominantly the Nordic countries and the Western Europe. Thermax Europe Limited is the company which is marketing and servicing absorption chillers manufactured in India and Chinese factory of ours.

As I mentioned, the total turnover of these entities put together would be around Euro 60-65 million, which is fairly steady business. Greece is not a major market for us in any case. Our predominant portion of the market is Germany, Denmark, Austria and maybe Sweden, Switzerland, upper countries and very limited to Italy and Spain also. That is where we are operating from.

This company also exports goods outside the European continent and if the European currency were to come down in a fairly large depreciation, which is expected by the market, it should make my companies over there more competitive for exporting out of Europe. There could also be an upside. It may not be substantial for Thermax, but could be a fairly decent upside for the European entities of Thermax.

Anuj: Let us talk about the other issues at hand. For the last two quarters, you have been saying order inquiries are picking up. Are they actually converting into actual orders now? If that is not the case, why is that not taking place?

A: Being on the June 30, the closure of the current quarter, I cannot give you numbers, but certainly I should give you an indicator. Enquiries of smaller range, which I mentioned, non-government policy related investment Capital Expenditure (Capex) - at least the enquiries improved and are continuing to be improving.

But closure award is not at the pace, which all of us are expecting and wanting. It is at the same pace that prevailed maybe two or three quarter back. Inquiries have improved. Converting them into orders is yet to be improve. However, I am seeing some signs of conclusion in couple of more sectors, which were not mentioned by me in past.

I am seeing investment happening in tyre and tyre accessories sector. Pharma sector is showing signs of next level of investment. Apart from whatever you have seen in the food, food-processing, textiles, this is also another movement we are seeing.

Light engineering has started concluding orders. These are all small ticket size orders for us and the capacities of these plants are not very large to talk about. But however, there is an improvement. I am not really seeing any movement in the larger policy or in cement, steel, infrastructure, power - none of them have moved an inch in the last one quarter.

Ekta: So tell us in terms of the entire fiscal, are you expecting the order inflows to at least be better than the 27 percent drop on a standalone basis and 18 percent on a consolidated basis that you saw last quarter?

A: In the current quarter, I would expect it to be better than the previous year because the previous year base was low. Beyond that, I cannot say anything because we are in the first quarter. For people like us, a conclusions of a larger order can make major difference, so nothing on the anvil I can see right now. However, my expectation is it cannot be a bad year like the way it was in the previous year because Indian macros are not negative, though the global macros in some parts of Europe could be negative.

The global economy is not under stress the way people are making it out to be. I would believe that things should start improving across a year and we will have to really watch out because our one quarter of good order booking is good enough for me to be having a better number. So, I still have the Q2, Q3 and Q4 available to report better numbers.

Ekta: Just one quick question about Thermax Babcock and Wilcox (TBW). The company was hopeful of booking its maiden domestic super critical order as we know. Can you give us an update on that? Where do things stand?

A: As of now, I can see a couple of more inquiries in the market for larger capacity super critical boilers, which was not present in the last year. Especially from National Thermal Power Corporation (NTPC) and one or two state electricity boards, we are seeing enquiries and luckily, at least three four of them are purely for boilers making a spoil effect EBITDA on our own. An engineering procurement and construction (EPC) or a BTG are going to have a three legged race with some other companies in the consortium.

Currently, I can foresee at least some stronger bids we put in the current year. How many of it will conclude in current year and will we be the winner something that you have got to wait and watch. I would believe that towards second half of the current year will be a little better time for the power equipment manufacturers in the country. And in that certainly, we should also be one of the beneficiaries.