Thermax capex for FY17 Rs 450-455 cr; Q1 net profit down 26%

The company has earmarked investment of Rs 138 cr in building a chemical factory for the manufacturing of ion exchange resins at Dahej

M S Unnikrishnan, MD, Thermax

Energy and environment solutions provider Thermax, which has been facing challenges in its business, due to slow growth in domestic and some of its international markets is still going ahead with its capex plans for FY17. The company intends to invest about Rs 450-455 crore in expanding its manufacturing centres in India as well as in international markets. 

To begin with the company has earmarked investment of Rs 138 crore in building a chemical factory for the manufacturing of ion exchange resins at Dahej. The company at present has a similar plant at Khopoli but it has been running at full capacity for the last three years. 

“We are setting up a world class facility at Dahej, which will ultimately reach a capacity of 41,500 meter cube per annum. Phase-I which is expected to be commissioned by end of March 2017 will have a capacity of 11,000 meter cube per annum. This is an area where we have been able to make a presence in the international markets. Phase I we would have invested Rs 138 crore, phase II will start immediately after will see an investment of over Rs 60 crore,” said M S Unnikrishnan, MD, Thermax. 

The current resin business of the company is between Rs 160-170 crore per annum, and the base capacity is about 9000-10,000 meter cube per year. This is exported to the US. Entire chemical business for the company is about Rs 290-300 crore.

Similarly, the company is also setting up a boiler and product manufacturing facility at Indonesia. The project was to be completed in 2017-18, however due to certain import restrictions the company is hastening the completion of the facility in FY17 itself. 

“Our outlay is to invest about $20 million in the first phase. We have acquired the land and started the work. We will be spending approx. about $15 million in the first phase and by then we will begin the commercial production. The total outlay will be in the range of $20-25 million,” added Unnikrishnan.

The third capex plan is for building the facility for manufacturing of absorption chillers at Sri City in Andhra Pradesh. Good part of this will be for exports. “We have brought 40 acres of land and recently received all the environmental clearances. The total outlay for this project is Rs 150 crore to be completed in 18 months,” added Unnikrshnan.

Meher Pudumjee, chairperson, Thermax further stated that while the company is going ahead with its expansion plans it is also assuring that investments are hedged for which they are going in for phased growth rather than developing all these facilities at one go. “We want to go slow to go fast,” she stated.

A look at the company’s first quarter results gives a glimpse of the pressure that it is facing in its core segments. Lower carry forward order book and challenges in the core sector of the domestic market and some of the international market impacted the first quarter performance of energy and environment solutions provider Thermax.

The company reported net profit of Rs 53 crore for the first quarter down 26.4% from Rs 72 crore it reported same quarter last year. Revenue for the quarter was down 18.6% at Rs 1,002 crore compared to Rs 1,231 in the corresponding quarter last fiscal. 

The Group as on June 30, 2016, had an order balance of Rs 4,440 crore. During the quarter, order booking at the consolidated level stood at Rs 824 crore, down 19.2% compared to Rs 1,020 crore last year. "We see demand being sluggish for the next 12-18 months. Our core sectors continue to be suffering from low capacity utilisation, no large investments and no improvement in capital goods segment," said Padamjee.

The company expects growth in its products and services business going ahead, but the slow pick up in its core business will mean a slow pick up in the project segment. 

"If we divide our business in three— project, product and services — the latter two will grow this year as well but the growth will be camouflaged by the degrowth in the project business. Our strategy will be to play where we see growth like heating products cooling products our chemicals, small water treatment plans etc. We do not see the domestic market changing for good soon and the international market is very competitive,” said Unnikrishnan.

The company is also diversifying in the African region under its selective internationalization strategy. Under this the company will be targeting its products and services in markets like South Africa, Nigeria and Egypt. 

The company’s international business has been panning out well for its products and services play. For FY16 the company’s international business jumped by 42.5% to Rs 2,336 crore.