Thermax to go slow but steady in power segment: CEO

Chooses not to undertake big contracts that carry a bigger risk.

Thermax plans to grow slowly but steadily in the booming power industry of India, making money without risking its shareholders, said MD and CEO M S Unnikrishnan in an interview.

Thermax, a leading maker of small capacity boilers for power plants, gets 65 per cent of its revenues from boilers and engineering, procurement and construction orders.

Yet, Unnikrishnan said the company would not go overboard with it, and resist taking EPC orders that are sized more than half its annual turnover.

"Typically, power units take 4-5 years to be commissioned. So, if you put all that you have to execute a big contract, it can boost your order book, but will carry a long-term risk," Unnikrishnan said.

Thermax currently has an order backlog of Rs 2,700 crore, which comprises boilers, water treatment equipment, air pollution control equipment and speciality chemicals.

Capital expenditure
"Our conservative approach has won the confidence of our shareholders. At the worst of times, our two-rupee face-value shares have traded at about Rs 600," he said.

Thermax recorded sales of Rs 2,330 crore in 2006-07. He said it is expected to grow 40 per cent this year, while the company will "maintain profitability". The company's net profit for 2006-07 was Rs 194 crore.

Thermax made a capital spending of Rs 425 crore during the current financial year, but is likely to incur much lower capital expenditure in 2008-09, he said.

"We will add to our boiler and heater capacity and also enhance our other businesses," he said, without elaborating.

Thermax shares closed at Rs 525.15 on Wednesday last week, a loss of over 13 per cent over its previous weekend close.

Different approach
In many ways, Thermax's approach, as outlined by Unnikrishnan, looks quite contrary to industry trends.

In an era of ultra-mega power projects, the decision to limit EPC orders to 300 mw of capacity sounds intriguing.

Even more surprising is the company's determination to stick to quality without compromising on prices, in an industry where the whole focus is on who can do it cheaper.

"We are not in the price game. We can never be the cheapest manufacturer. What we will continue to focus on is quality, and we will charge aptly for the quality," Unnikrishnan said.

"The Indian power industry is not a short-term story. It is going to continue for about 15 years. We will slowly move up the ladder," he said.

He said the company is not threatened by larger peers such Bharat Heavy Electricals or Alstom Projects.

"We are in a boiler business. It is a very high technology business and we don't expect the field to get crowded," he said.

Acquisition plans
Unnikrishnan does not see Thermax scouting for acquisitions any time soon. "But in the longer run, we may have to go for companies that add technological strength to Thermax," he said.

Any such acquisition is likely to be funded almost entirely through internal cashflow. Thermax currently has cash reserves of Rs 5 crore, he added.

Until the time these acquisitions happen, Thermax will be making the most of its technology tie-ups, such as the one with Babcock & Wilcox for utility boilers.

The 15-year agreement signed last month allows Thermax to engineer, make and sell B&W's sub-critical utility boilers up to the size of 800 mw.