Thermax’ s June quarter topline declined 20 percent and profit fell 10.4 percent year-on-year. In an interview to CNBC-TV18, MS Unnikrishnan, MD of the company, said first quarter was expected to be bad as the industry is not seeing any pick-up in order inflow.
Owing to this, he believes FY17 revenue may be a bit lower than last fiscal year. Despite this, Thermax has started bidding for selective and specialised products and is close to winning a large order in the solar thermal space, he added. Below is the verbatim transcript of MS Unnikrishnan’s interview to Anuj Singhal, Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Anuj: The stability is just not returning to your sector. Even for you, the topline was down, your earnings before interest, taxes, depreciation and amortisation (EBITDA) was down and even your net profit was down?
A: Yes, which was already expected. When we have entered the current year with lower carry forward orders which is almost 24 percent lower than what we had in the last year. There was a clear cut understanding that the year is going to be tough and especially the first two quarters because even within the carry forward orders that we had, the booking good part of that will be fructifying and the revenue recognised in the second part of the current year. So, it is on expected lines. On the contrary since we are very well prepared for this we have tightened our belt because of which despite decline in the topline by 20 percent normally such kind of things happen the company will plunge into negative. We had been able to retain the profitability almost closer to last year’s level just a 100 bps difference only despite a 20 percent reduction in topline. But the most disheartening thing frankly is there is no pick up in the industry right now. If you look at the order intake for the current quarter it is a little disappointment because revenue for capital goods companies is already a written off thing in the past itself because when you register an order it is going to be fructifying after one year of recognition as revenue. But order book is more important. There we are not seeing any major improvement in the classical core sector of the company.
Latha: I wanted to ask you how the situation is looking for the current and the coming quarters. Can you give us some idea of whether there are L1s expected in the second half. We keep getting noises about a lot of solar power project awards being made and tenders being won. Is that not something that interests your company at all. Is there too much competition even for those projects which thins down margins?
A: We have started bidding for in a selective way for the solar projects. There are two types of solar projects going on in the country. One by the state electricity boards (SEBs), second by NTPC Limited equivalent. In those state electricity equivalent ones where the state is bidding out most of them don’t even have the land readily available and many of them agree for a price today and maybe the execution starts much later. And as you mentioned rightly there are hardly any manufacturing of solar photovoltaic (PV) panels happening in India. It is only the modules being manufactured by a set of people and what you do is a very low level of an Engineering, Procurement, and Construction (EPC) of putting it together which is ideally the lowest level of contracting. But I don’t think anybody is making good money in that. And that is not an area where Thermax would be interested in. Since you brought the point in we have now started bidding for a very specialised solar thermal project in the existing power plants wherein they increase the efficiency of operation by a few percent and reduce the carbon foot print also and I am very happy to say that we may be very close to winning the first ever such order in this country. But they are not such large ones but we are a thermal company, so, we will possibly stick a lot more into solar thermal.
Sonia: If you can just put some numbers into that. Your base business order inflow run rate for the last couple of quarters has been between Rs 800 – 900 crore per quarters. This quarter it is about Rs 820 crore, what can we expect for the next couple of quarters?
A: I would expect an improvement in the next quarter on account of the fact that though there is domestically no major core sector projects happening internationally we are bidding for a couple of projects where some of them will be closer to conclusion, not very large ones. So, I am expecting an improvement in my order intake in the next quarter certainly because in the current quarter frankly what has camouflaged is there has been an improvement in the order intake from the conventional sectors like food processing had been extremely good in the current quarter, textiles has started reviving, paint industries has started giving us orders. But most of these orders are of smaller nature. A couple of crores, Rs 4 crore, Rs 5 crore kind of a size, not the Rs 50 crore or Rs 100 crore and couple of hundreds. So, fundamentally we are talking about those sectors have started ordering out in a better way than in the previous year also but the total absence of orders from the cemnet sector, the steel sector, the power sector, the heavy chemical sector, oil and gas these are the one which are plaguing the entire industry and I don’t expect any one of them to be coming back into being even the next three or four quarters. So, we have got to be happy with the domestic projects on the consumer sector, the FMCG sectors and basically medium sized projects from outside India. But I am expecting some improvement outside India at least in the next one or two quarters.
Anuj: So, FY16 versus FY15 your profit was down 31 percent, Q1 hasn\\’t started on a good note. FY17 will be even worse than FY16?
A: Topline I doubt whether it will be able to meet up with, I am not giving you a guidance. It will certainly be lower than the previous year but it may not be a decline of sort that it happened in the early past. It is too early right now to comment on that. Only one quarter is over, we still have time available.