Q1 order intake poor, but H1 better than last year: Thermax

Thermax reported a 66.87% fall in net profit to Rs 30.16 crore in the second quarter ended September 2013. MS Unnikrishnan, managing director of Thermax, says order intake this quarter, which stands at Rs 768 crore, has not been encouraging. Though he is quick to add that compared to the first half of the previous year, this year has been far better.

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Despite its poor financial performance in this quarter, its assets and cash on the balance sheet have improved in one of the worst situations in the market, he says. However, he sees only smaller ticket size projects getting finalised. Below is the verbatim transcript of MS Unnikrishnan's interview on CNBC-TV18 Q: We did see pressures build up in Q1 on the order book, which was running about 10-15 percent behind schedule, just give us an indication of how much your orders can grow by both - end of FY14 as well as specifically in the second half of the fiscal?
A: Our order intake for the quarter had been not very encouraging at Rs 768 crore however if we were to take it at H1 level, that is Q1+Q2 level, we are far better than the previous year. The order carry forward at this point of time is approximately Rs 5,300 crore against Rs 4,900 crore, which is around 20 percent more than the previous year.
Of course that is because of a fairly large order that we booked in the first quarter. So the current quarter is a disappointment but there are no orders lost by the company in the larger sector. It is predominantly on account of the fact that our EPC business has not registered any order book or either a loss and this is purely on account of the decision making postponement prevalent in the market today and it is all across the capital goods industry.
We only see the smaller ticket size projects getting finalized and anything which is maybe a ticket size of Rs 100 crore and above, nothing is concluded in the last one quarter. I am expecting things to improve going forward. Let us wait and watch. Otherwise it is such a bad performance.
Coming back to the performance related to the balance sheet - as you mentioned, the current quarter we don’t have any – we have got a difference of Rs 10 crore in income from our other income that is interest earnings. Last year for the same quarter, whatever was other income, it is lowered by Rs 10 crore in the current year for the quarter plus a foreign exchange loss recorded net in the current quarter is minus 10, so there is a total Rs 20 crore in the entire balance sheet for the current quarter which are not comparable with the previous year same quarter.
If I have to add that way our performance on operation was almost the same as previous year and the silver lining that I would like to talk about is our assets are improved, our cash on the balance sheet is substantially improved in one of the worst situations in the market, my working capital cycle is tightened which many other companies aren’t able to do so. So we have spruced up our operations, tightened it knowing fully well that the market is not good. Q: On the revenue front there is still discomfort, down about 11.5 percent, do you start getting better revenues in Q3 and Q4? Also margins, they slipped last quarter, they have slipped yet again another 30 bps last time the slip was about 40 bps, do you slide more or will you be able to put a floor at 9 percent?
A: For the next two quarters, the freight is almost seal based on the carry forward orders though I have mentioned to you that I have got better carry forward orders to 8 percent more, many of them will spillover to the year next. So I have to wait and watch for the book and bill which are my businesses in chemical in small capacity boilers, heaters, which normally have a gestation period from the time of order to execution of maybe three-four months time.
So depending upon the order intake in the third quarter and to a certain extent in the fourth quarter I should be able to improve the numbers. I don’t want to make a promise to the market that I am going to improve because the market is not in my control. If the market were to at least remain little better than what it is currently, I should be able to improve the topline, but the best estimate in my thinking would be that will I be able to catch up and come closer to what we have done in the previous year on the topline.
On the bottomline, there will be a catch up on account of other income which forms a good part of our balance sheet because we are a cash positive company, so my other income on the balance sheet should be improving in Q3 and Q4 because last year we had fixed deposits so I had quarter-on-quarter (Q-o-Q) income but currently some of them are in FMP which will have to be waiting for the maturity period.
So there should be an improvement in profitability because operations haven’t deteriorated in any case, we had been tightly managing it. Q: I didn’t get more clarity on whether your margins will get back to double digits because for many quarters, that is what the management had indicated to a lot of analysts that give and take the pressers, the margins will still hold at around that more than 10 percent mark, for the second half of the year where do you think you can hold on to in terms of operating margins?
A: We are working towards my promise that we should be able to retain at double digit at the time when we close the balance sheet for the coming year. I am not going to go back on the commitment we are trying to be reaching there. It is a challenge but we should be able to reach there. Q: Will we see order book improving by the end of the year maybe through export orders?
A: Certainly. In any case even in H1 we are better than the previous year and I am very confident about the fact that at the end of the year, the total order intake for the company would be better than the previous year.