Informist, Tuesday, Feb 9, 2021

By Satyanarayan Iyer

PUNE - Increasing focus of institutional investors on environmental, social and governance aspects is making managements relook at the environment quotient of their company.

A major beneficiary of this development has been one of India's oldest companies in the energy and environment management business – Thermax Ltd. 

Demand from the industry has come roaring back, Ashish Bhandari, managing director of Thermax, said in an interview to Informist.

While overall sales were flat on year at over 14 bln rupees in Oct-Dec, energy segment sales rose to the pre-COVID 19 levels of about 11 bln rupees. The segment rose 20% quarter-on-quarter, building on a previous sequential growth of 77%.

The energy segment regained the historical 75% contribution to sales for Thermax and over 65% of profits.

Not only did the energy segment sales regain ground for Thermax, it also logged in a 62% on year rise in new orders at 13 bln rupees. This also pushed the energy segment's pending orders to a total of about 36 bln rupees, accounting for over 69% of the total order book.

The return of strength to the company's mainstay segment enthused investors, who pushed the stock to a 34-month high of over 1,217 rupees on the National Stock Exchange.

As more companies look to cut carbon emissions, the business prospects in green energy, especially heat recovery, are set to improve.

Thermax is seeing demand for energy-efficient solutions from the private sector, especially continuous process industries such as refining, cement, and food, said Bhandari.

While green-energy orders may not always grow at the pace seen in Oct-Dec, Thermax's energy segment sales will be more driven by it.

Similar opportunities for orders could emerge in the public sector too, but the company will look at them selectively and stay focussed on the private sector, Bhandari said.

Following are edited excerpts from the interview: 

Q. What led to this Street-beating performance in Oct-Dec?

A. Overall expectations had come down post COVID-19, but then demand picked up across the board. Not only Thermax, the entire industry set has performed better than what analysts expected. We had a decent order backlog. We were able to work on that backlog with real effort in these 90 days and that showed. We had also cut down on costs and were working on a lean basis. This helped us provide better margins. Also, there was good mix in energy segment where a couple of more profitable orders were executed in the quarter. This, along with broad based and better-than-expected demand, has led to a V-shaped recovery in sales.

Q. What share of your energy segment sales now comes from the green energy business?

A. What we consider green energy operations have been much higher in Oct-Dec than what we expected. I think the number is 80% odd as a part of revenue. For instance, even in cases where we do large boilers, of which we did some 4 bln rupees of business, all went to green applications like waste heat recovery in cement, steel and refining projects. Our second biggest business order was a bamboo-based bio-ethanol refinery in Assam. I don't think though that this 80% number is repeatable for some time, but our portfolio is becoming more and more driven by new energy.

Q. Does Thermax have to re-engineer to cater to this emerging heat and waste recovery green business?

A. Businesses are still traditional, but their model of working is changing. For instance, a food industry client setting up plant in rural India might have earlier used coal or fuel oil to provide power to this plant. Now they are coming back and saying, can you use biomass. As water requirements are becoming more and more stringent, customers are asking for more efficient water usage solutions.

A lot of global multinationals are asking for heat and water recovery from existing energy spends. Customers are asking for more efficient and circular use of spent energy from a point of no use and looking for everything to be recycled. Requirements are becoming more unique and specific. The cement plant is still traditional industry, but they are saying we do not want to waste the generated heat and I will rather put a solution to recover waste heat, which is a new application and area of business for us.

Some portions of our business are very much geared up for the change, but we can do a lot more.

Q. Do you think the performance of Oct-Dec is sustainable, especially as raw material prices are rising?

A. That is the question that everyone is asking. I think some parts are sustainable, while some parts will depend on commodity prices, particularly of steel. We have increased our prices and do not know what the reaction to demand will be. A lot will come down to how we execute.

Q. How are your customers reacting to this price increase?

A. We will know. In some cases customers are accepting parts of it and in some, we are taking a step back wherever we can. In others, we are still working, and working to see if we can come to some resolution.

Q. Will the price increase have any impact on the order book, which has seen a recovery?

A. I think we continue to see strong demand and the problem we have is also the industry's problem. It will affect our order book to some extent. May be without these constraints we could have grown even more. It will also affect our cost and profitability on existing projects to some extent. But, some projects will have to be undertaken by the customers as capacities could already be at boiler-plate levels.

Q. You have steadfastly stayed away from government businesses but most new spending is driven by the government. Does your strategy change?

A. We will look at government businesses on a case-by-case basis but do not see a dramatic change in our stance. Bidding for largescale municipal projects is not our intent. We will continue to focus on areas where we are doing well and in that sense business-to-business is an area where we play really well. That does not mean we do not have government business. We have a fair bit of it, but we do not go for certain kind of projects where cash flows are not assured.

Q. How well placed is Thermax on working capital cycle?

A. Thermax has been and continues to be stringent. We are relatively good on working capital. We are actually at negative working capital. We look not just at profitability of a project from the numbers perspective but also on the cash flow and ability of the project to get us the money quickly. That rigour and outlook we will continue to maintain.

Q. To what extent is container shortage, arising from limited air freight capacity and congestion at ports due to lockdown, impacting your exports?

A. It affected us last quarter. At least two of our businesses could not do everything that they wanted to do because of this container shortage. I think it has become slightly better now, but the price increase in freight and commodity is a big source of worry.

Q. Is the voluntary separation scheme for employees done and over with?

A. We are constantly evaluating and it is an ongoing thing. We are constantly looking at it from a cost basis and from the perspective of requirement of the business. We cannot say a definite yes or no to it.

Q. How much and what kind of investment are you looking at over the next year?

A. The exact amount I cannot share, but we will continue to invest in building new energy-related products. We will continue to invest more in digital processes. We will also invest in areas of growth like chemicals, build-own-operate services, and water business.  End

Edited by Vandana Hingorani

Informist, Tuesday, Feb 9, 2021

By Satyanarayan Iyer

PUNE - Increasing focus of institutional investors on environmental, social and governance aspects is making managements relook at the environment quotient of their company.

A major beneficiary of this development has been one of India's oldest companies in the energy and environment management business – Thermax Ltd. 

Demand from the industry has come roaring back, Ashish Bhandari, managing director of Thermax, said in an interview to Informist.

While overall sales were flat on year at over 14 bln rupees in Oct-Dec, energy segment sales rose to the pre-COVID 19 levels of about 11 bln rupees. The segment rose 20% quarter-on-quarter, building on a previous sequential growth of 77%.

The energy segment regained the historical 75% contribution to sales for Thermax and over 65% of profits.

Not only did the energy segment sales regain ground for Thermax, it also logged in a 62% on year rise in new orders at 13 bln rupees. This also pushed the energy segment's pending orders to a total of about 36 bln rupees, accounting for over 69% of the total order book.

The return of strength to the company's mainstay segment enthused investors, who pushed the stock to a 34-month high of over 1,217 rupees on the National Stock Exchange.

As more companies look to cut carbon emissions, the business prospects in green energy, especially heat recovery, are set to improve.

Thermax is seeing demand for energy-efficient solutions from the private sector, especially continuous process industries such as refining, cement, and food, said Bhandari.

While green-energy orders may not always grow at the pace seen in Oct-Dec, Thermax's energy segment sales will be more driven by it.

Similar opportunities for orders could emerge in the public sector too, but the company will look at them selectively and stay focussed on the private sector, Bhandari said.

Following are edited excerpts from the interview: 

Q. What led to this Street-beating performance in Oct-Dec?

A. Overall expectations had come down post COVID-19, but then demand picked up across the board. Not only Thermax, the entire industry set has performed better than what analysts expected. We had a decent order backlog. We were able to work on that backlog with real effort in these 90 days and that showed. We had also cut down on costs and were working on a lean basis. This helped us provide better margins. Also, there was good mix in energy segment where a couple of more profitable orders were executed in the quarter. This, along with broad based and better-than-expected demand, has led to a V-shaped recovery in sales.

Q. What share of your energy segment sales now comes from the green energy business?

A. What we consider green energy operations have been much higher in Oct-Dec than what we expected. I think the number is 80% odd as a part of revenue. For instance, even in cases where we do large boilers, of which we did some 4 bln rupees of business, all went to green applications like waste heat recovery in cement, steel and refining projects. Our second biggest business order was a bamboo-based bio-ethanol refinery in Assam. I don't think though that this 80% number is repeatable for some time, but our portfolio is becoming more and more driven by new energy.

Q. Does Thermax have to re-engineer to cater to this emerging heat and waste recovery green business?

A. Businesses are still traditional, but their model of working is changing. For instance, a food industry client setting up plant in rural India might have earlier used coal or fuel oil to provide power to this plant. Now they are coming back and saying, can you use biomass. As water requirements are becoming more and more stringent, customers are asking for more efficient water usage solutions.

A lot of global multinationals are asking for heat and water recovery from existing energy spends. Customers are asking for more efficient and circular use of spent energy from a point of no use and looking for everything to be recycled. Requirements are becoming more unique and specific. The cement plant is still traditional industry, but they are saying we do not want to waste the generated heat and I will rather put a solution to recover waste heat, which is a new application and area of business for us.

Some portions of our business are very much geared up for the change, but we can do a lot more.

Q. Do you think the performance of Oct-Dec is sustainable, especially as raw material prices are rising?

A. That is the question that everyone is asking. I think some parts are sustainable, while some parts will depend on commodity prices, particularly of steel. We have increased our prices and do not know what the reaction to demand will be. A lot will come down to how we execute.

Q. How are your customers reacting to this price increase?

A. We will know. In some cases customers are accepting parts of it and in some, we are taking a step back wherever we can. In others, we are still working, and working to see if we can come to some resolution.

Q. Will the price increase have any impact on the order book, which has seen a recovery?

A. I think we continue to see strong demand and the problem we have is also the industry's problem. It will affect our order book to some extent. May be without these constraints we could have grown even more. It will also affect our cost and profitability on existing projects to some extent. But, some projects will have to be undertaken by the customers as capacities could already be at boiler-plate levels.

Q. You have steadfastly stayed away from government businesses but most new spending is driven by the government. Does your strategy change?

A. We will look at government businesses on a case-by-case basis but do not see a dramatic change in our stance. Bidding for largescale municipal projects is not our intent. We will continue to focus on areas where we are doing well and in that sense business-to-business is an area where we play really well. That does not mean we do not have government business. We have a fair bit of it, but we do not go for certain kind of projects where cash flows are not assured.

Q. How well placed is Thermax on working capital cycle?

A. Thermax has been and continues to be stringent. We are relatively good on working capital. We are actually at negative working capital. We look not just at profitability of a project from the numbers perspective but also on the cash flow and ability of the project to get us the money quickly. That rigour and outlook we will continue to maintain.

Q. To what extent is container shortage, arising from limited air freight capacity and congestion at ports due to lockdown, impacting your exports?

A. It affected us last quarter. At least two of our businesses could not do everything that they wanted to do because of this container shortage. I think it has become slightly better now, but the price increase in freight and commodity is a big source of worry.

Q. Is the voluntary separation scheme for employees done and over with?

A. We are constantly evaluating and it is an ongoing thing. We are constantly looking at it from a cost basis and from the perspective of requirement of the business. We cannot say a definite yes or no to it.

Q. How much and what kind of investment are you looking at over the next year?

A. The exact amount I cannot share, but we will continue to invest in building new energy-related products. We will continue to invest more in digital processes. We will also invest in areas of growth like chemicals, build-own-operate services, and water business.  End

Edited by Vandana Hingorani