Thermax looks to focus on clean energy, water and air

Engineering company Thermax does not plan to remain just a capital goods company in the coming years, says Ashish Bhandari, managing director and CEO. He tells Shubhra Tandon that the company is transforming itself from being just a supplier of equipment to providing products and solutions for the sustainability needs of its customers. He said the future is not just in large capital-intensive projects, but several small and distributed projects for clean energy, water and air. Excerpts.

Thermax is still facing challenges in getting large orders in the mainstay segments like boilers and heaters. What are the challenges there?

Many of the large projects, which are Rs 300-crore-plus, are currently being rescoped for one reason or another, which is often the case with large capex projects. But that is delaying projects. Also, what I cannot say for sure [is that] while the discussions have started in earnest, how customers will close out these projects and what Thermax’s win rates will be. That is because as the market opens up, the competitiveness remains to be seen. We are hopeful that in the next few months there will be project decisions that will happen and Thermax will be able to win.

What is the outlook on private capex? Are you seeing signs of revival?

Yes, there are definite green shoots. Looking at our manufacturing index starting to build up nicely by September-and even in October, there are green shoots of recovery for the industrial segment at large. In terms of the kind of projects that customers are getting started on, I think private players are opening their chequebooks for projects which have less than three years payback and projects that have a sustainability impact.

How are these projects in terms of moving the needle of large orders, and how revenue accretive will they be?

My answer will be slightly complicated here. India’s capital goods industry, even before Covid-19, for almost last 10 years, has underperformed the larger market. So for companies like Thermax, to wait for really big projects in the range of Rs 500-Rs 1,000 crore may not be the answer. We have to change our business models as well, because the nature of energy is changing and that changes the kind of products and solutions that are needed … We will see more and more distributed projects, which will be for clean energy, clean water and clean air. This will therefore change the mix that companies like Thermax will have going forward.

How do we then see Thermax in the next three to five years in this changed scenario in terms of the focus and project profile?

Thermax will not be only a capital goods company. While it already is [one], it can be even more of a clean energy, clean air, clean water company. It will think about products and solutions more in terms of how do we help our customers balance sustainability along with energy and resource availability. Introducing new technologies in some of these high-tech clean energy space areas — that means pushing products and services in a very constructive detailed manner, pushing finance-based build, own, operate models a lot more. So unlike earlier, where we would just provide the equipment, in future we would be doing utility as a service-based model, which is what our customers are asking for as well.

Some of Thermax’s global businesses are under pressure. What are the challenges and plans to iron out those issues?

We expect more from our international businesses. Our plans in Indonesia are very nascent, but we are very committed there. In the short term, we are going through challenges in some of the international businesses because some of these travel restrictions make it difficult for our engineering leaders and manufacturing teams to go out and work on things as we set up. I think in some of these cases, both in Europe and South East Asia, not having businesses where we have local manufacturing presence be at scale is something which is hurting us right now.

Any investments planned in the international businesses?

We will do investments for expansions, but we will not do mergers and acquisitions outside of India in the near future. We will continue to invest in three areas in the international market. We will look at new technology areas, growing and adding new footprint capability within the plants that we have, and improving our capability from services perspective.

Data suggests that the tenders and awards scenario continues to remain weak. What is the outlook on your fresh orders intake for the current financial year?

The order intake took a beating in the first two quarters for expected reasons. However, Q2 was better than Q1, and Q3 is expected to be better further. In Q3, at least we expect that our base orders would get back to normalcy. Many of our customers have good order books, including steel and cement, and they are ready to spend in most cases. However, it is just that some of these big projects, where no work was happening for several months in between, the customers have had to re-estimate those projects. Many customers are starting discussions, especially on projects that have less than three year pay back.

Are orders coming in from the government-led programmes and PSUs?

We are not as dependent on state governments. But we have some big tenders from central PSUs like NTPC and IOCL. It is just that with no activity happening, these projects have to be rescoped in portions. We have big FGD orders that NTPC is looking to go through the tendering process for. However, there is a China angle there. All of the us players are dependent on China for a particular component. So with some of those China embargoes, the cost increase based on looking at alternate supplies is resulting in project delays.