In the last one month the Thermax stock has risen by 52 per cent to Rs 193 from a low of Rs 122.35. Though at the begining of the year, the company's order book position was poor, it will be able to post a net profit in the first quarter. For the last two years, the company has made losses in the first quarter. The reason being that the standard boilers and vapour absorption chilling machines (VACM) are doing excellent business with May being exceptionally good.

It is believed that the company has managed to get an order for a captive power plant from a Gujarat based refinery. Refineries also accounted for 25 per cent of the order book as on July 1998. Thermax has the capacity to supply upto 150 MW IPPs and 65 MW CPPs (including co-gen) on EPC basis.

The order book position as on July 1 is also higher by 15 per cent. The financial closure of the projects resulting in order of Rs 90 crore for Thermax is expected latest by the end of the second quarter. The company is already executing2*27 MW naphtha based captive power projects for Arvind Mills at two locations in Gujarat. The order book also includes a Rs 35 crore lease deal (deferred as Thermax gets lease rentals) and Rs 16 crore membrane-based largest desalination plant for Nirma. Exports for the year are expected to be Rs 125 crore (Rs 100 crore in 1998-99).

Though the financial closure of the projects in the second quarter of 1999-2000 will not be reflected in the P&L Account as the projects will be executed in 24-26 months after zero date which itself might take upto 4-6 months but this fact is always discounted for any engineering company. Despite the sharp price rise, the stock has huge upside potential (at least Rs 250) and any temporary downslide should be treated as an opportunity to buy the stock.

Insilco

The German major Degussa AG has made its first move after increasing its stake in Insilco from 34 per cent to 68 per cent. Reports suggest that the multinational is acquiring the dried silica business of MetaZinc through its Indian venture. With this acquisition, Insilco will be the largest player in the industry with a market share of nearly 70 per cent. The beauty of the deal is that the parent is giving an interest free loan of Rs 25 crore to fund this acquisition.

Insilco had an interest coverage of 2.75 in 1997-98 (12.4/4.5). A Rs 25 crore loan at this stage for the acquisition would have severely affected its profitability. The company's borrowing stood at Rs 29.25 crore for the year 1997-98. With the acquistion Insilco now has a capacity of 25,000 tonnes.

The company had earlier planned for an expansion by 15,000 tonnes of spray dried silica at Gajraula, which was to be implemented during the financial year 1999-2000. Considering the current acquisition it is unlikely that the expansion will go through. The company had to resort to either acquistion or expansion for growth as its plant at Moradabad, UP was operating at full capacity.

Earlier, Insilco's silica was mainly catering to applications inthe tyre industry, but the company recognising its cyclical nature decided to increase its focus on other non-rubber applications, where there is good potential in new areas such as pharmaceuticals, food products, etc. Insilco's product range covers specialised grades for use in wide ranging industries such as tyres, rice rollers, footwear and rubber products as well as toothpaste, poultry feed. The company has also been increasing its presence in the export market. Export volumes have increased by 44% despite economic recession in South East Asia.

Exports currently contribute around 30 per cent to the turnover, thanks mainly to the parent company. One of the other benefits of the acquisition will be that Meta Zinc's plant is located at Patalganga, Maharashtra, which is much better suited for exports. News reports say that exports of Insilico are likely to increase after Degussa increased its stake in the company. As for Meta Zinc, the company has made an operating loss in the first half of 1998-99. Thesilica divion contributes around 16 per cent to its turnover.

The company had commissioned a 5500 tpa capacity at Patalganga, in July 1997. However, it faced teething problems in the initial stages. Another advantage of this plant is that it caters to international tyre manufacturers as well as manufacturers food grade products. The cash inflow from the sale of the silica division will do the company a lot of good. For Insilco the acquisition does not only mean higher volume growth, but also a chance of improved profitability. With a 70 per cent market share the company has a good chance of increasing the product prices.

The tyre industry is also looking up, which should further help in achieving volume growth. This coupled with the fact that the promoters are strongly behind the company as they have lended a Rs 25 crore interest free loan, will also help in the company's effort in the export market. Further, with chances that the accumulated loss of Rs 3.22 crore as on year ending 1997-98 being wiped outduring the 1998-99, shareholders can also expect some dividend from the company.

With contributions from Urmik Chhaya & Shishir Asthana