Thermax: Order book to attract consumer facing entities

Thermax Limited anticipates a healthy inflow of orders from consumer-facing industries in the remainder of the financial year.

The company kick-started the year with a smaller order book as compared to last year. Thus, it is headed towards contraction. The management anticipates orders from industries like food processing and dairy, light engineering, alcohol and beverages, plywood and the wood sector. The prospects of receiving orders from the packaging industry also look good owing to the steady pace of growth in e-commerce. However, all this is subject to healthy order availability in the market which is a key factor to monitor.

In order to boost its order book, the management has decided to take on short-cycle orders or orders in which the project lifecycle is no more than a year, right from bidding to execution. Judging by the overall scenario, the company is well-placed to attract good orders from the domestic market in the current year.

The management expects average order ticket size to be around Rs. 500 crore for equipment like standard-package boilers, absorption chilling plants, wastewater treatment plants and pollution control devices. The uptick in orders is likely to happen from H2FY19 onwards.

The company is a leading equipment manufacturer for the domestic heavy industry sector. The management believes that it is challenging for the steel companies to leverage their balance sheets without adequate support in the form of government policy to facilitate capacity expansion. The companies operating in this space will have to engage in land negotiations which are expensive. The availability of mining options in the vicinity is also an important consideration. Thus, the steel sector is likely to remain muted this year but has better potential to improve next year. Meanwhile, the cement industry is likely to grow this year. The mega projects announced by the government will boost cement consumption across the country. These are extremely important for long-term sustainable growth and will require funding. Both internal gas distribution and the power sector are in need of rejuvenation.

In terms of geographic expansion, the SAARC countries barring Pakistan are on the path of good growth. Although they constitute a small market, they will contribute to the company’s revenues. Sri Lanka fared poorly for the last couple of years. However, we can anticipate some improvement from H2FY19 onwards. Countries such as Indonesia, Malaysia, Thailand, Philippines, and Cambodia are growing well at a minimum of 4 to 5 per cent GDP growth. Subsidiaries are being set up in 4 to 5 countries for executing local orders. Despite muted private investments, the overall order intake is improving.

Moving forward, the company is on the lookout for tie-ups with technology companies which will elevate its operations. In order to have a better year than FY19, the company is focused on acquiring and executing more orders across sectors. 

On Friday, the shares of Thermax opened at Rs. 1,057.00 per share and hit a high and low of Rs. 1,062.50 and Rs. 1,055.00, respectively. At 11:48 am, the stock was trading at Rs. 1,055.00, down 0.22 per cent.