Investing more in new segments to beat cyclicality, says CEO of Thermax

By: | Published: September 15, 2018 5:27 AM

To combat volatility in the capex cycles which impacts capital goods companies, Pune-based Thermax is venturing into new areas to make the company’s core business more resilient to it.

Thermax, MS Unnikrishnan, crude oil prices, capex cycles, domestic market, NCLT, private capex Private sector continues to order, but the kind of orders happening cannot move the needle for Thermax or for the country.

To combat volatility in the capex cycles which impacts capital goods companies, Pune-based Thermax is venturing into new areas to make the company’s core business more resilient to it. MS Unnikrishnan, MD & CEO, Thermax, told FE’s Shubhra Tandon that while the order inflows outlook from the international and domestic markets looks healthy, the company is increasing its focus on orders coming in from the commercial sector, which will give more stability to the business. Excerpts:

How is the order inflow panning out for FY19 and which sectors are showing promise?

We had a fairly good Q1 in terms of order intake both in terms of projects as well as product businesses. The spread has been fairly good led by consumption-oriented industries. Apart from these, we had some orders coming in from the large part of the Bharat-VI implementation by the refineries.

How is the international ordering environment now and which are the geographies contributing to your order inflows?

We continue to receive orders from the Southeast Asia, Middle East and Africa. Once the crude oil prices started stabilising at above $50, there have been refining expansions and investments coming back in the Middle East. There are newer project announcement expectations from Kuwait, Abu Dhabi and Saudi Arabia. We should see some ordering 4-6 quarters down the line post these announcements, which is when typically the process for ordering tertiary equipments start. At the turn of the century, our international business was in single digit percentage. Today, it has reached almost a third of our total income. It can go up further also, and our next milestone is 40% in the next few years. This will be both for projects and products together.

Are orders more government driven in domestic market or are you seeing private capex coming back?

It is a myth that private sector is not ordering. Private sector continues to order, but the kind of orders happening cannot move the needle for Thermax or for the country. The ones that are missing in the bargain are larger power plants, where hardly anything is happening. There has not been a single refinery expansion post the Cochin refinery expansion completed few years ago. There has not been any significant cement expansion in the country. There are two projects going on in steel – one in western and another in eastern region – but no major expansions. So, unless NCLT, IBC-related issues are sorted out and the financial system starts supporting again, we do not see much progress.

By when do you think meaningful private spending will start?

Cement capacity utilisation is touching late 70s now, I am expecting it will be crossing 85% in the next 12 months. So, given the demand, and the fact that most cement companies have fairly decent balance sheets, the capacity expansion should increase at a faster pace. I am expecting the same in the steel industry too with construction picking up and good traction in road construction sector, which is increasing steel demand. Overall automobile and white goods demand is also picking up; so steel industry will have to expand.

Thermax is taking steps to make the business more resilient to economic cycles by foraying into new areas. Elaborate. Companies like us, which are dependent on derived demand, will always have cyclicality to the order intake. So, now, we are also looking at areas which are contra-cyclical to our current business. For instance, hotels, hospitals, malls and commercial buildings continue to invest irrespective of downcycle. Some of them also need products from energy and environment sector that we are manufacturing.

Similarly, we are increasing focus on waste water management and pollution control segments, and even chemicals, which have nothing to do with capacity building. We are focusing a lot more on these segments so that our market share from these, which is minuscule at present, improves substantially, and whenever there would be a downcycle next time for capital investments, we will be more stable than we are today.

What sort of investments are you looking at to make in these newer segments?

Last four years, we have invested over `500 crore. It will be much bigger ticket size than what it is currently.

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