Thermax's close rival BHEL among other players are also confronted with stiff competition due to .slow order scenario overall. In an interview to CNBC-TV18 Unnikrishnan says that players are getting aggressive while bidding for projects. Companies are even accepting low margin orders to improve their order size.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: We understand that the bids are getting pretty aggressive. How was the scenario looking with respect to bids and how aggressive are they?
A: Everybody is becoming aggressive with the number of bids in the market coming down.Naturally it is expected that people will do two things. 1) is they will accept orders at lower price and 2) will also do a lot of exercise to reduce and cut the cost to ensure that they should remain profitable.
So, this is a phenomenon being visible in the market. I don't expect any of this to be changing any further for sometime to happen on account of the fact that the number of bids in the market are actually going to be limited.
Q: In your mind how long do you think it will take for recovery in the IIP number and any kind of recovery in the investment cycle at all?
A: We haven't seen any substantial turnaround on the ground level related to orders getting concluded for green projects or newer projects or maybe Greenfield expansion or Brownfield expansions. I would believe that it is going to be a longer road for us to the path of recovery. Though, there are some green shoots visible in some parts of the industry like maybe food, food processing, maybe some part of Fast Moving Consumer Goods (FMCG), breweries even the growth is visible.
However, otherwise the core industries of the countries which are infra-related like power, steel, cement, oil and gas, I am not seeing any major recovery or no projects getting announced. So, I won't believe that there can be a near-future turnaround going to be happening.
So, your question about IIP number expectations none of us are expecting the IIP numbers to be looking very positive and going to cheer all of us on the street.
Q: Do you foresee a big slowdown in your order booking as we head into the new fiscal or do you think you could maintain this run rate of order inflow of about Rs 1,200 crore per quarter that you have been seeing in the last couple of quarters?
A: The hopes are to continue registering similar numbers or maybe a little better. There could be isolated orders which maybe chunky in size, which can happen and make a difference for the order book.
If you were to look at the average order book of Thermax or Thermax kind of companies, which are into larger projects as well as in the smaller projects I would believe while medium and small projects will continue to be at the same level, larger ones once in a while can make a windfall into the order book.
So, the answer to the question is I am expecting that the order book should continue in the four digits in the coming year also for every quarter.
Q: Since, the industry is getting so aggressive will FY4 margins be lower than that you will clock-in in FY13?
A: Overall, we still maintain double digits. Maybe profit before tax (PBT) level are in single digits, but earnings before interest, tax, depreciation, and amortisation (EBITDA) level we were still in double digit. I am expecting that as a company, we should be able to multiple things to retain our double digit margin in the coming year.
For example, we have got service, international business also business which are related to chemical, which are not totally impacted by the current slowdown. So, a mixture of both of this put together should be able to help us to retain the double digit margin. It may not be the case for everybody plus a lot of activity is done within the company to contain the cost and reduce the cost.
So, we are hoping that I should be able to deliver a double digit in the coming year also, though it is not guidance.
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