Sentiment revival in cap good sector 2-3 qrts away: Thermax

Though most capital goods stocks have performed well in the past few sessions, howevet this does indicate that the sector has started to turnaround, says MS Unnikrishnan, MD, Thermax. Speaking to CNBC-TV18, he said, the situation on ground hasn’t changed and sentiment revival in capital goods sector is still two-three quarters away.

Further, growth in key economic sectors like cement, steel and refinery continues to be sluggish. Also, one is not seeing any revival in the power sector as yet, he added. However, Unnikrishnan highlighted that some sectors are pharma, sugar, food processing and beverages are doing better. Also Read: Q1 order intake poor, but H1 better than last year, says Thermax Below is the verbatim transcript of MS Unnikrishnan’s interview with CNBC-TV18 Q: The entire capital goods space has been on fire. We have seen a rally in most of the stock prices for almost all the capital goods sectors, is the sector starting to look up? A: Certainly no. There had been a delay in order finalizations in many companies for almost maybe quarter to two quarters. Some of them are getting concluded, so you would see order intake happening in some of the areas in the power transmission sector, one or two refinery expansions. I don’t take it as any message related to anything done from the government side which is pushing it up. Though I am not denying, they have done a lot of things, but that is to be impacting the order book for capital goods sector because you need consumption and utilization to pick up. That has not seen on the ground level. So, I would imagine the sentiment reversal in the sector would take at least maybe two-three quarters. Q: You spoke about some small ticket orders starting to trickle by, any improvement we are witnessing in the domestic ordering scenario? A: First I shall talk about sectors, which have started at least placing orders. They were the same that prevailed earlier. Food processing, beverages, alcohol are picking up. We are also seeing revival in the sugar sector, all of a sudden there is lot of traction happening in that area. Pharmaceutical is again bouncing back. These are the sectors where I can confidently say that things are happening properly. In the textile sector – there are selective companies, which are adding capacity not everybody. Other than that, the larger size projects are very few. In cement there is nothing that I am seeing as order finalization, it may take at least some more time to happen though cement prices have gone up. Capacity utilisation is to be catching up to the level to get to an inflection point to place orders for equipments. In the steel sector there is no movement. It is only the execution of one-two projects expansion which is ongoing continuing, there is no slowdown on the execution in those projects, they are going through. The Cochin refinery and the Reliance refinery are the only two refineries, which are going ahead. Though we are seeing another private refinery of India showing a good profit for last quarter. I am also seeing that the refineries in the public sector undertaking (PSU) sector are gearing up for an expansion programme progressively in the next maybe 18-24 months where they will have to be finalizing orders, but nothing is on the immediate anvil. Power -- there is no revival, power remains as negative as it used to be earlier. Though I would expect that next year, capacities, which are currently running will start making money because whatever said and done, there will be power shortage next summer. Those who already have commissioned factories and plants, those power companies would certainly be positive next year, which would tempt them to add capacity there after. Q: Eight-nine power companies are showing interest in the Orissa UMPP. Of course things are at a very initial stage, could you give us some timeline as to when this will fructify in the form of orders for you? A: We should be looking for more one to two years time because the initial document that the government came with and the type to bidding for UMPPs was not accepted with the developers. With some modifications, it is going on and first UMPP which got declared, nobody bid for it. For the Orissa one, I hope that the three-four of them who are showing interest and may bid. Their names have already come but we will not take anybody’s names specifically. Four names are already there. With that, I hope the expression of interest will have to move into tendering process and bidding should get completed by at least maybe Q1 of next year. Thereafter once they win, once they sign the agreement, three months thereafter, Q3 of next year they should be finalising orders for the Orissa UMPP. That is the timeframe and thereafter one could see other UMPPs also coming. So, one would believe that maybe by Q4 of next year and FY16 onwards, the power industry may not come back to normalcy, but capacity building and equipment ordering will happen in a proper way.