ANNUAL REPORT 2011-2012
Your Directors have pleasure in presenting the Thirty-first Annual Report,
together with the audited accounts of your company for the year ended March
Financial ReSUltS (Rupees in crore)
Total income 5374.55 4935.49
Profit before finance cost, depreciation,
tax and extraordinary items 654.40 618.21
Finance cost & depreciation 53.50 45.51
Profit before tax & before extraordinary items 600.90 572.70
Provision for taxation (incl. deferred tax) 194.04 190.28
Profit after tax & extraordinary items 406.86 382.42
Balance carried forward from last year 823.54 605.76
Profit available for appropriation (cumulative) 1230.40 988.18
Proposed equity dividend 83.41 107.24
Tax on dividend 13.53 17.40
Transfer to general reserve 42.00 40.00
Surplus carried forward 1091.46 823.54
Your company has registered record total revenue of Rs. 5374.6 crore, a
growth of 8.9% over last year`s revenue of Rs. 4935.5 crore.
Thermax`s Energy business comprising Boiler & Heater, Power, Cooling and
Heating contributed 78.2% of the total revenue while the Environment
business comprising Air Pollution Control, Chemicals, Water and Wastewater
Solutions accounted for the remaining 21.8%. Last year, the share of Energy
and Environment businesses was 80% and 20% respectively.
During the year, exports, including deemed exports were higher at Rs.1142.7
crore from Rs. 1065.9 crore last year, an increase of 7.2%.
Profit before tax at Rs. 600.9 crore was 11.2% of total revenue as compared
to Rs. 572.7 crore in the previous year which was 11.6%. The company
maintained the EBITDA margins at 11% even though the year witnessed
increase in input costs. The company`s management continues to work on
building operational efficiency and controlling costs on a sustainable
basis at divisional and overall company levels.
Profit after tax and extraordinary items was at Rs. 406.9 crore compared to
Rs. 382.4 crore in the previous year. Earnings Per Share (EPS) rose to
Rs.34.15 from Rs. 32.09 in 2010-11.
Order booking for the year was Rs. 4032 crore against Rs. 5318 crore last
year. Your company completed the year with an order backlog of Rs. 4230
crore as against Rs. 5605 crore in the previous year. 2011-12 had been a
challenging year for the capital goods sector. Various policy and economic
factors were responsible for significantly reducing fresh investments and
order finalisations in the power sector, affecting order booking and
resulting in lower order backlog. The order inflows were lower compared to
the previous year as the economy witnessed a slowing down of growth,
particularly in the second half of the financial year.
The profit after tax on a consolidated basis is lower than the stand alone
results owing to the losses incurred by the subsidiaries namely, Thermax
Instrumentation Ltd. (TIL), Thermax (Zhejiang) Cooling & Heating
Engineering Co. Ltd. (TZL) and the company`s share of losses in the recent
joint venture subsidiaries, Thermax Babcock & Wilcox Energy Solutions Pvt.
Ltd. (TBWES) and Thermax SPX Energy Technologies Ltd. TIL, which undertakes
erection and commissioning work for the Power division of the company, is
expected to face a challenging year ahead. TZL improved its business
operations and reduced operating losses. TBWES is yet to be operational.
The consolidated total income of the Thermax Group was Rs. 6174.2 crore
(Rs. 5393.6 crore, previous year) recording a 14.5% increase. Income from
international business including deemed exports was up 25.9% to Rs. 1574.2
crore from Rs. 1250.3 crore. The Group registered a profit before tax of
Rs. 596.5 crore (Rs. 573.4 crore, previous year). Profit after tax,
extraordinary items and minority interest was Rs. 403.5 crore for the year.
Consequently, EPS also increased to Rs. 33.86 (Rs. 32.03 after
extraordinary item, previous year).
A detailed review of performance and future prospects of the company`s
business and its subsidiaries is included in the section `Management
Discussion and Analysis`.
The audited consolidated financial statements presented by the company
include the financial results of all subsidiary companies, prepared in
accordance with Accounting Standard 21 issued by The Institute of Chartered
Accountants of India. In addition, a statement of summarised financials of
all the subsidiaries is included.
Your company acquired Rifox-Hans Richter GmbH, a leading German steam traps
and allied steam accessories manufacturer which was the subsidiary of Virgo
Valves & Controls Ltd., India. Virgo`s steam division has also been
acquired by your company for an aggregate consideration of Rs. 13.39 crore.
The acquisition which is effective from April 1, 2012, offers a strategic
fit for the company`s steam engineering business. The acquisition would
enable your company`s Cooling and Heating service business to extend its
portfolio in Europe, South East Asia and the Middle East.
The Directors have recommended a dividend of Rs. 7/-(350%) per equity share
of face value Rs. 2/-. The dividend, if approved by the shareholders, will
entail a payout of Rs. 96.9 crore, including dividend distribution tax of
Rs. 13.5 crore.
By a general circular (No. 2/ 2011 dated February 8, 2011), the Ministry of
Corporate Affairs, Government of India, under Section 212(8) of the
Companies Act, 1956, has permitted companies not to attach copies of the
Balance Sheets and Profit and Loss Accounts, Directors` Reports, Auditors`
Reports and other documents of all their subsidiaries, to the Accounts of
the Company. The company has acted accordingly.
However, annual accounts of the subsidiary companies and the related
detailed information are available at any time to shareholders of the
parent company and subsidiary companies and to statutory authorities. On
request, these documents will be made available for inspection at the
company`s corporate office.
MANAGEMENT DISCUSSION AND ANALYSIS
A Management Discussion and Analysis report, highlighting the performance
and prospects of the company`s energy and environment segments including
details of subsidiaries catering to the respective businesses, is attached.
It has been the endeavour of your company to follow and implement the best
practices in corporate governance, in letter and spirit. A detailed
Corporate Governance Report is included in this report.
A certificate from the statutory auditors of the company regarding
compliance with the conditions of corporate governance as required under
Clause 49 of the Listing Agreement is part of this report.
LISTING ON STOCK EXCHANGES
The company`s equity shares are listed on two stock exchanges - National
Stock Exchange of India Limited (NSE) and BSE Limited (BSE).
FINANCE, ACCOUNTS AND SYSTEMS
As on March 31, 2012 the company`s cash and cash equivalents including
current investments stood at Rs. 771.5 crore.
The net cash flows from operations, before investments in fixed assets and
subsidiaries was Rs. 174.5 crore (previous year Rs. 53.4 crore).
The company made net investments of Rs. 105.8 crore in fixed assets and
Rs.74 crore as equity in Thermax Babcock Wilcox Energy Solutions Private
Limited - the Joint Venture with Babcock & Wilcox India Holdings Inc., USA.
Besides, the company infused equity of Rs. 10.6 crore in Thermax (Zhejiang)
Cooling & Heating Engineering Co. Ltd. and Rs. 4 crore in Thermax
Sustainable Energy Solutions Ltd. during the year. The net cash outflow,
after factoring the above, was Rs. 25.9 crore in the current year as
against Rs. 9.9 crore in the previous year.
The company`s net working capital, adjusted for bank fixed deposits, was
positive at Rs. 34 crore as against a negative Rs. 117 crore in the
previous year owing to lower customer advance balances and higher
receivables in absolute terms. The company`s management continues to
monitor closely and control the working capital.
The process of building internal controls as well as the automation of work
flow was continued during the year.
The company`s financial statements have been prepared according to the
revised Schedule VI of the Companies Act, 1956.
ICRA Ltd. has reaffirmed its rating, LAA+ for long-term and A1+ for short
term banking facilities. The long term rating carries a `Stable` outlook.
The company had no unpaid / unclaimed deposit(s) as on March 31, 2012. It
has not accepted any fixed deposits during the year.
The total number of permanent employees on the rolls of the company was
4016 as on March 31, 2012 (3920 previous year).
During the year, the management of the company has amicably signed the
following wage settlement agreements:
1) Memorandum of settlement with Thermax Kamagar Sangathan (representing
workmen at Chinchwad works) which will remain in force for a period of
three years commencing from May 1, 2010.
2) Memorandum of settlement with Bhartiya Kamgar Karmachari Mahasangh
(representing workmen at Paudh works) which will remain in force for a
period of three years commencing from July 1, 2010.
PARTICULARS UNDER SECTION 217 OF THE COMPANIES ACT, 1956
A statement of the particulars required under Section 217(1) of the
Companies Act, 1956 (the Act), read with the Companies (Disclosure of
Particulars in the Report of the Board of Directors) Rules, 1988, is
annexed and forms part of this Report.
In terms of the provisions of Section 217(2A) of the Act, read with the
rules framed thereunder as amended, the names and other particulars of the
employees are set out in the annexure to the Directors` Report. Having
regard to the provisions of Section 219(1)(b) (IV) of the Act, the Annual
Report excluding the aforesaid information is being sent to all the members
of the company and others entitled thereto. Any shareholder interested in
obtaining such particulars may write to the Dy. Company Secretary at the
corporate office of the company. The statement is also available for
inspection at the corporate office, during working hours up to the date of
the Annual General Meeting.
In accordance with the provisions of the Companies Act, 1956 and the
company`s Articles of Association, Dr. Valentin A.H. von Massow and Dr.
Raghunath A. Mashelkar retire by rotation at the ensuing Annual General
Meeting and being eligible, offer themselves for reappointment as
M. S. Unnikrishnan has been reappointed as the Managing Director and Chief
Executive Officer of the company for a period of five years commencing from
July 1, 2012. His reappointment requires approval of the shareholders at
the ensuing Annual General Meeting.
Devang Trivedi was appointed Compliance Officer in terms of the Listing
Agreement and also Deputy Company Secretary as per the provisions of
Section 383A of the Companies Act, 1956. His appointment was necessitated
by the resignation of Sunil Lalai as the Company Secretary and Compliance
DIRECTORS` RESPONSIBILITY STATEMENT
In terms of Section 217(2AA) of the Companies Act, 1956, your Directors, to
the best of their knowledge and belief and according to the information and
explanations obtained by them with respect to the statement of Profit &
Loss for the financial year ended March 31, 2012 and the Balance Sheet as
at that date ("financial statements"), confirm that:
1. The financial statements have been prepared on a going concern basis. In
the preparation of the financial statements the generally accepted
accounting principles (GAAP) of India and applicable accounting standards
issued by The Institute of Chartered Accountants of India have been
2. Appropriate accounting policies have been selected and are being applied
consistently. Judgments and estimates that are reasonable and prudent have
been made so as to give a true and fair view of the state of affairs of the
company as at the end of the financial year and of the profit of the
company for that period. Significant accounting policies and other required
disclosures have been made in Notes to the Financial Statements.
3. Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities. To ensure this,
the company has established internal control systems, consistent with its
size and nature of operations. In weighing the assurance provided by any
such system, its inherent limitations should be recognised. These systems
are reviewed and updated on an ongoing basis. Periodic internal audits are
conducted to provide reasonable assurance of compliance with these systems.
The company has an Internal Audit department, which coordinates the
internal audit process. The Audit Committee of the Board meets at periodic
intervals to review the internal audit function.
4. The financial statements have been audited by M/s. B. K. Khare & Co.,
the statutory auditors and their report is appended thereto.
COMMITTEES OF THE BOARD
During the year, changes have been effected in the following committees of
A) Audit Committee: The Board appointed Nawshir Mirza as a member of the
committee with effect from May 3, 2011.
B) International Investment Committee: The terms of reference of the
committee were amended by the Board on October 20, 2011.
The Corporate Governance Report gives details of the aforesaid committees.
M/s. B. K. Khare & Co., Chartered Accountants, retire as statutory auditors
at the ensuing Annual General Meeting and are eligible for reappointment.
As required under the provisions of Section 224(1B) of the Companies Act,
1956, the company has obtained a written certificate from them to the
effect that their reappointment, if made, would be in conformity with the
limits specified in the said section.
As per the Order dated January 24, 2012, issued by the Ministry of
Corporate Affairs, the appointment of Cost Auditors becomes mandatory for
your company pursuant to the provisions of Section 233B of the Companies
Accordingly, the Board of Directors at its meeting held on May 11, 2012
approved appointment of M/s. Dhananjay V. Joshi & Associates, Cost
Accountants, Pune as the Cost Auditors of the company for the financial
year 2012-13 subject to the approval of the Central Government.
AWARDS AND RECOGNITION
Your company has received the following awards and recognition during the
* Thermax won the CNBC TV-18 India award for the `most promising entrant to
the big league`. M. S. Unnikrishnan received the award from the Union
Finance Minister, Pranab Mukherjee in January, 2012.
* Anu Aga, Director and former Chairperson of Thermax, nominated as Member
of the Rajya Sabha by the President of India, on the recommendations of the
* Chinchwad factory bagged the Safety Innovation Award 2011 from the
Institution of Engineers, Delhi, for its innovative health, safety and
* Chinchwad factory won the Health, Safety and Environment appreciation
award 2011 from CII, Western region.
* Gopal Mahadevan, Chief Financial Officer and Executive Vice President
received the best performing CFO award in the Capital Goods sector by CNBC
TV-18 in February, 2012.
* Meher Pudumjee`s column, `Expressions` in Fireside, the company in-house
magazine, won first prize at the Association of Business Communicators of
India in November 2011.
* Thermax employees continue to win awards for technical paper
presentations, corporate quizzes and sports tournaments.
Your Directors place on record their appreciation of the continued support
extended during the year by the company`s clients, business associates,
bankers, investors, government authorities and its joint venture partners.
Your Directors also place on record their appreciation of the dedication
and contributions made by employees at all levels including the workmen,
who through their commitment, hard work and support have steered the
Your Directors would also like to thank all their shareholders for their
faith in the company and its future.
For and on behalf of the Board
Pune: May 11, 2012 Chairperson
Annexure to the Report of the Board of Directors as required under the
Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988, for the year ended March 31, 2012
A. CONSERVATION OF ENERGY
During the year, the following measures were taken towards energy and
1. Electricity: At the Chinchwad and Savli manufacturing facilities,
consumption was optimised using energy saving devices such as Electronic
Energy Saver, measurement of lux (unit of light intensity) level and
maintaining power factor according to State Electricity Board norms,
resulting in an annual saving of Rs. 0.6 crore.
At Paudh plant, the company has reduced 9% electricity over last year for
every metric cube of resin produced by controlling process cycle time,
effectively utilising high power-consuming machinery and improving
2. Water: At Paudh plant, around 135000 m3 water has been recycled and
reused by installing conservation systems such as a Reverse Osmosis plant
for effluent treatment and recirculation of condensate water to boiler
3. Fuel: At Chinchwad factory, replacement of tubes and other retrofits in
the air conditioning system has been revamped, thereby resulting in a
saving of Rs. 0.1 crore.
At Paudh plant, by installing fuel emulsion system, air pre-heater,
arresting leakages and optimum utilisation of steam, the company has been
able to save Rs. 0.4 crore.
B. TECHNOLOGY ABSORPTION
Research and Development (R&D)
1. Specific areas in which R&D is carried out by the company
Three R&D cum technology demonstration projects
initiated in public-private partnership (PPP) mode have been commissioned
successfully. These projects are in the field of solar biomass hybrid
distributed power generation, solar air conditioning, solar biomass hybrid
cold storage and anaerobic wastewater treatment. The company is working on
international funded projects in the energy field and networking with
international research institutes. In the environment sector, R&D work on
indoor air quality and new generation designs for air pollution control
equipment are in the final stages of development.
2. Benefits deriued as a result of the above R&D
The above R&D products are in development stage and shall be taken up for
beta trials before their market launch.
3. Future plan of action
Solar thermal technologies for power, heating and cooling, low temperature
waste heat recovery will continue to be a thrust area for R&D in the energy
sector. The company will also continue to work on futuristic energy
technologies such as coal gasification and fuel cells.
In the environment sector, your company is focusing on waste to energy
products and technologies, energy efficient and space saving sewage and
waste water treatment technologies.
4. Expenditure on R&D
Particulars Amount in Rs. crore
Current year Previous year
a. Capital 3.9 2.8
b. Recurring 15.3 13.4
c. Total 19.2 16.2
d. Total R&D expenditure as a 0.37% 0.34%
percentage of turnover
Technology absorption, adaptation and innovation:
1. Efforts, in brief, made towards technology absorption, adaptation and
a) Concentrating solar collector technology: High efficiency and low cost
are the most crucial factors for proliferation of solar thermal systems.
The company identified mirrors, absorber tubes, tracking system etc. as
components requiring significant development. Collaborations with national
and international institutions enabled fast track development resulting in
parabolic trough at a reduced cost.
b) A new generation of Hot Water Series Absorption machine with higher
efficiency has been developed.
c) A new Chiller-Heater which can simultaneously cater to heating and
cooling requirements has been developed.
2. Benefits derived as a resUlt of the above efforts - product improvement,
cost redUction, prodUct development, import substitution etc.
a) Concentrating solar collector technology: This development provided an
indigenous, high efficiency, low cost solution for medium temperature
industrial heating processes. Coupled with triple effect vapor absorption
technology, a new solution in terms of solar thermal cooling is generated
which has potential to replace electrical power used for process cooling
and air-conditioning with renewable energy at higher conversion efficiency.
b) The development of new generation of hot water series absorption machine
which occupies a lesser footprint would specifically be helpful for the
commercial market segment where space is a constraint.
c) The development of a new Chiller-Heater machine would lead to a saving
of 30% of the electricity bill of customers.
3. In case of imported technology (imported during the last five years
reckoned from the beginning of the financial year), following information
Technology A B C
High pressure 2012 In the process This technology would be
condensate of absorption absorbed after commissioning
polishing and execution of a commercial
unit (HPCU) project.
Currently, such a project is
Construction 2011 In the process } The technology partner has
chemicals of absorption } provided complete technology
technology } transfer documents based on
} which product development and
Technology for 2011 In the process } validation is in progress.
certain of absorption }
used in }
manufacture of }
different bases }
of concrete }
Reciprocating 2010 Yes N.A.
Difficult-to- 2009 In the process Technology absorption has been
degrade waste of absorption completed for one industrial
water systems segment and it is in the
process of absorption for
Sequencing batch 2009 In the process Project commissioning has been
reactor system of absorption delayed due to various
(SBR) constraints and is expected to
be completed by financial year
Photo-electro- 2009 In the process First phase prototype trials
chemical air of absorption and data generation completed.
purification All components indigenised.
technology for Final phase rapid prototyping
indoor air and embedded control
purification development in progress which
is likely to be completed by
Eco Power 2008 In the process Technology developed jointly
of absorption by Thermax and Eco Power
Technology Oy., Finland. The
Eco Power special purpose
burner joint development is
Sub critical 2008 In the process The company has executed an
utility boiler of absorption order during the year for
technology supply of boiler using the
technical knowhow for its
design & manufacturing. The
technology will be fully
absorbed on completion of
erection and commissioning of
this boiler which is under
progress. After carrying out
the performance guarantee
test, planned in December
2012, technology absorption
will be completed by
financial year 2013.
Paper process 2007 Yes N.A.
Electrostatic 2007 Yes N.A.
A = Year of import
B = Has technology been fully absorbed
C = If not fully absorbed, reasons thereof and future plan of action
C. FOREIGN EXCHANGE EARNINGS AND OUTGO
The Management Discussion and Analysis Report elaborates the company`s
operations in export markets.
During the year, the company had a net foreign exchange inflow of Rs. 44.6
crore as against a net inflow of Rs. 75.4 crore in the previous year.
The details on foreign exchange earnings and outgo are given in the Notes
31(j), 31(k) and 31(l) of Financial Statements, which form part of the
MANAGEMENT DISCUSSION AND ANALYSIS
Overview of the business environment
The Indian economy, in the wake of the positive performance of the previous
year, began 2011-12 with high growth expectations. The Eurozone crisis,
along with the Fukushima disaster and apprehensions about a weak American
recovery toned down the global growth expectations. This was compounded by
a crisis of confidence induced in the Indian economy by the domestic
coalition compulsions, and increased social activism deterring the process
of policy making and governance. Throughout the financial year, the RBI
continued to increase interest rates under a tightening monetary policy to
rein in the headline inflation. Despite the plea of the business and
industrial stakeholders of the country that the interest rates on borrowing
for capacity building have already crossed permissible levels, the
Government and the Reserve Bank continued with monetary policy adjustment
alone rather than addressing the supply side constraints through
legislative measures. The net effect was a decline in our domestic economic
growth, quarter over quarter, bringing it down from 8.6% in FY 2011 to 6.9%
for FY 2012. Except for 2008-09 when the growth rate was only 6.7%, the
year gone by witnessed one of the lowest growth in nine years.
While both agriculture and services sector performed well during the year,
internally, India`s slowdown can be attributed almost entirely to a
weakening industrial growth rate. The manufacturing sector could only
register a growth of 2.7% and 0.4% respectively in the second and third
quarters of 2011-12.
For industry - especially the capital goods sector - the most worrying
aspect was a feeble IIP growth of 2.8% for 2011-12 against a robust 8.2%
growth seen in fiscal 2010-11. During the year, the sector witnessed a
major slowdown in order booking and subdued execution owing to lower
infrastructure spending, rising input costs and spiralling interest rates.
Confidence in growth, critical for capital formation and expenditure,
remained at a low level throughout the year. This was reflected in the
sharp fall in fresh order inflows, especially in the power sector.
Growth in power generation during April`11-January`12 was 8.6% as compared
to 5.2% during April`10-January`11, reflecting unfulfilled demand. However,
new plants being ordered out plummeted to low levels compared to previous
Barring roads, all other constituents of the infrastructure sector - power,
oil & gas, cement and mining - witnessed a sluggish trend in the current
fiscal. With the unlikely prospect of a reduction in interest rates,
factors such as weakening rupee, higher inflation rate and constrained
governance, the corporate sector adopted a wait-and-watch approach
resulting in the absence of big-ticket projects.
After protracted discussions and modifications, a comprehensive National
Manufacturing Policy was announced by the Government. If implemented in its
letter and spirit, the policy can certainly give an impetus to industrial
growth in India. National Manufacturing Investment Zones, as envisaged in
the policy, have sufficient potential to create world class enterprises.
The recently held Durban Climate Change Conference marked an important step
forward in the climate change negotiations. Compared to the earlier Cancun
summit, this conference outcome paved a decisive way forward in terms of
the Kyoto Protocol and the stand of developing countries like India. The
discussions at Durban also opened a window for discussions on the post 2020
arrangements for the global climate change regime. The National Action Plan
on Climate Change will continue to present a wide range of opportunities to
organisations in the field of energy and environment.
Moving on to the current financial year, the global economic scenario is
challenged by a socialistic polarisation of Europe, delaying the
possibility of a recovery and even increasing the fear of a collapse. This
will have far reaching ramifications on our domestic economy compelling us
to accept the possibility of a further contraction in the GDP growth. India
will also face the added challenge of a fast depreciating currency as a
sequel to the uncontrolled inflation and unmanageable levels of subsidies
propelled by the import of energy resources (coal, oil and gas) and the
recently introduced Food Security Bill. These will see the spiralling of
subsidies beyond the committed level of 2% GDP, resulting in a fiscal
deficit way above the budgeted levels.
The downgrade of the nation`s credit rating by S&P could have an adverse
impact on year 2012-13 in terms of making finance dearer for corporates,
particularly in foreign currencies. The agency has indicated that GDP
growth could fall to 5.3% as against the government expectations of over
7%. This downgrade along with continued high fiscal deficit could put
increased pressure on the rupee, next year.
Overview of company operations
Your company registered improved results for fiscal 2011-12 with a total
revenue of Rs. 5374.6 crore and a net profit after tax of Rs. 406.9 crore.
Export income including deemed exports, during the financial year,
increased to Rs. 1143 crore.
The economic uncertainties of the country, especially in the power sector
caused Thermax`s order booking to decline to Rs. 4032.1 crore, a reduction
of 24.2% from the previous year.
The project businesses of the company - Power, Boiler & Heater, Air
pollution Control (Enviro) - were adversely affected by the shortfall in
orders. As a result, the order balance at the end of the year reduced by
24.5% to Rs. 4230 crore from Rs. 5605.4 crore, the previous year.
Sixty two percentage of the orders booked during the year were repeat
orders from our existing customers.
Among the sectors that contributed to the orders booked, the leading ones
were ferrous metals, power, refinery and cement. Even as these sectors
continued to be the largest contributors of this year`s revenue, compared
to the previous year, in real terms they have shrunk. However, sectors like
food, textiles, pharma and sugar, insulated from the economic turbulence,
have performed well and the company`s standard product businesses have
gained orders from these sectors.
In the orders booked for the export market, South East Asia had the largest
share, followed by West Asia, Africa, SAARC and Europe. Thermax`s renewed
focus on Africa is yielding better dividends from this market.
Your company acquired Rifox-Hans Richer GmbH, a German company specialising
in energy efficiency products, effective from April 2012. The business will
be a strategic fit for the company`s steam engineering business handled by
the Service SBU (Cooling and Heating division).
The Service business of the company grew by 16% over the previous year.
Power Plant Management Services is supporting 995 MW equivalent of power
plants, of which 48% are for plants constructed by our competitors.
The company has launched a very high efficiency, triple effect absorption
chiller that has reduced energy consumption by 30%. Deploying this product,
Thermax installed a unique solar based air conditioning system at the
National Solar Research Centre, Gurgaon, with the support of the Ministry
of New and Renewable Energy (MNRE). This technology demonstration project
will need to undergo commercial feasibility and initiatives for cost
reduction are already underway.
A new compact hot water chiller was introduced for basements of commercial
complexes where space is a major constraint.
The first low capacity CFBC Boiler using a combination of U-beam and
cyclone technology was also commissioned. This product will find major
applications for very poor quality coal as well as lignite, petcoke and
Energy Segment Analysis
Year Energy business
Income* Growth Income from exports
(Rs. crore) (% YoY) (Rs. crore)
2009-10 2407 - 4 542
2010-11 3879 61 883
2011-12 4150 7 980
* Figures are adjusted for inter-segment income.
Energy business of your company accounted for 78.2% of its revenues and has
grown by 7%, owing to the order backlog from the previous year.
This segment had a profitability of 10.8% (10% last year). The project
businesses of the Energy segment, viz., Power and Boiler & Heater performed
well on the basis of carry forward orders from the previous year. Owing to
the growing trend of outsourcing in the Indian industry, the operation and
maintenance arm of the power business gained new orders while retaining
earlier ones. Revamps and retrofits, increasingly preferred by industry in
difficult times gave the Boiler & Heater group`s Service business short
cycle orders that were executed in the same year itself.
The Power division maintained its performance during the year, based on
orders carried forward from the previous year. The year saw four more
captive power plants getting commissioned, enabling the division cross the
cumulative 1000 MW mark for successfully commissioned projects.
This year, the division bagged only one major order from a viscose fibre
producer in Gujarat for a cogeneration project that will generate 96 MW of
power and steam.
Due to adverse market conditions, especially in the power sector in India,
there were very few order finalisations. To derisk the business, Power
division focused on related areas. It has successfully pre-qualified to
address the balance of turbine island package from Nuclear Power
Corporation of India; and for the Balance of Plant package in thermal power
projects as well as gas based power plants of 350 MW and above. The
division has also renewed its efforts in overseas markets and has signed
The 2 x 150 MW IIP project in Andhra Pradesh is due for commissioning in
the first half of FY 12-13. The gas based cogeneration plant for a
petrochemical unit in Karnataka is also progressing well.
The division continued to focus on safety measures at project sites.
Several of its teams have won client appreciation and awards for their
safety practices and `safe manhours`.
The division is working on another set of power projects totalling over
1000 MW which is under various stages of erection and commissioning. In the
absence of a clear stimulus for investments in infrastructure including
power sector, this business expects challenging conditions to continue for
the next two years.
Power Plant Management Services
The Power Plant Management (O&M) Services business registered robust growth
in revenues in the year under review. Repeat orders from its customers and
renewals of earlier contracts contributed to this sustained growth. To tide
over the uncertain business environment, several companies outsourced their
captive power plants for O&M, on a variable pricing model based on plant
load factor to lower their breakeven point. Your company responded with
some innovative pricing structures and flexible manpower that can be shared
across a cluster of power plant sites. New sectors covered were sugar, non
recovery coke oven plants and independent power producers.
The SBU ensured that the two cogeneration power plants based predominantly
on biomass in the Philippines attained availability of 95%.
Apart from Udaipur, one more training centre was opened in Trichy (Tamil
Nadu) to train young engineers in power plant O&M to create a steady supply
of skilled manpower for our growing number of sites.
With opportunities emerging in public sector undertakings who face shortage
of staff and are looking at outsourcing of power plant O&M, the outlook for
this business continues to be positive.
Thermax Instrumentation Limited (Subsidiary)
Thermax Instrumentation Ltd. is the construction arm of the Power Division.
During the year, this subsidiary earned a total income of Rs. 249.5 crore
(Rs. 236.5 crore, previous year). The company posted a net loss of Rs. 10.4
crore (Rs. 3.4 crore profit after tax, previous year) because of cost
escalations at some of its project sites. This may continue in the
forthcoming year too, and will turn profitable by FY 2014-15.
B) BOILER & HEATER
The Boiler & Heater division of the company registered reasonable growth in
revenues during the year. This growth was supported by a healthy order
carry forward from the previous year.
During the year, the division successfully commissioned many large
Circulating Fluidised Bed Combustion (CFBC) boilers, predominantly in the
captive power plant sector. It also commissioned high capacity process
fired heaters for refineries in India and the first high pressure bagasse
fired boiler supplied by the company in Thailand. A heat recovery steam
generator, successfully commissioned for an oilfield development project in
Netherlands, meeting European emission norms will help Thermax win
assignments with EPC majors in developed markets on similar projects.
The division`s manufacturing facility at Chinchwad exceeded its installed
capacity and the Savli facility`s production was very close to the rated
The division received a 120 MW BTG order based on blast furnace gas firing
from a leading public sector steel plant in South India. It stabilised its
spent wash combustion technology, resulting in fresh enquiries and order
The unfavourable environment for investment decisions resulted in shrinking
markets and aggressive competition from both established and emerging
players. FY 2013 appears to be tough for the Boiler & Heater business.
Refining and petrochemical segments, steel, distillery and sugar are
expected to bring in business for the division. A revival of captive power
plants using solid fuels is also anticipated, due to the ongoing impasse on
The services arm of Boiler & Heater business continues to focus on retrofit
and revamp services for ageing heating equipment in Indian and global
markets. The division completed a retrofit assignment for a South East
Asian national oil company. This business stream is likely to continue, as
customers are likely to avoid capex investments and opt for revenue based
expenditure in the wake of the prevailing difficult economic environment.
Fuel shortage due to gas and coal availability issues and high prices of
oil, has encouraged this group to support industrial customers with energy
efficient alternatives. The division innovated and customised a waste heat
recovery boiler to optimise the energy use in a coal gasification plant.
For a mining company in Western India, it also installed a multi-fuel
boiler, supplementing solid fuel with waste heat and other fuels.
Thermax Engineering Construction Co. Ltd. (Subsidiary)
Thermax Engineering Construction Co. Ltd., (TECC) undertakes and executes
engineering construction projects mainly for the Boiler & Heater division
of the company. This subsidiary`s total income for the year is Rs. 171
crore (Rs. 120.1 crore, previous year), on account of higher order balance
at the beginning of the financial year. The company made a profit after tax
of Rs. 7.1 crore (Rs. 6.4 crore, previous year).
The company`s year-end order balance is lower than the previous year. The
slowdown in the capital goods sector makes the current year a challenging
one for this company.
Cooling business completed the financial year with a healthy growth in
revenues. It also registered a strong growth in order booking and
consequently a healthy carry forward for the new financial year.
Inlet air cooling for improving power generation with minimum additional
inputs brought in new business for the Cooling division. Growth has also
come from the steel sector which in the absence of reliable power at
competitive rates, uses alternate energy sources - waste heat, steam from
processes - to meet its cooling requirements.
Export business accounted for more than half of the revenues for the
Cooling business. Growth in order booking was witnessed in US, Europe and
SE Asia markets.
Business in Europe, in spite of economic slowdown, grew significantly. A
globally respected Japanese EPC company placed a large order for a chiller
for its cogeneration plant in Thailand. Following Berlin and Rome, one more
order was received for one of the busiest airports in Australia. Besides
growing its business in China, the Cooling SBU also strengthened its
position in Africa and CIS markets.
The chiller heater introduced last year to deliver 30% savings in energy
bills, have found several new customers this year.
With a healthy carry forward and projected business from its domestic and
international markets, the cooling business is poised to witness strong
growth in FY 2012-13.
Thermax (Zhejiang) Cooling and Heating Engineering Company Ltd. (Ouerseas
In its third full year of operation since commencing operations in August
2008, Thermax (Zhejiang) Cooling and Heating Engineering Co Ltd., has been
supporting the global cooling business. In spite of rising costs and fierce
competition in a market recovering in the current global conditions, the
company grew its business 45% over the previous year, with orders gained
from various regions of China.
For the FY 2011-12, the company had a revenue of RMB 67.7 million (USD 10.8
million). After accounting for interest & depreciation, loss for the year
was RMB 8.4 million (USD 1.3 million) compared to RMB 11.4 million (USD 1.8
million) for last year.
An additional equity of USD 2 million has been infused in the last quarter
to meet the planned total investment of USD 13.5 million.
With a subdued growth prospect for the Chinese economy in the current year,
this subsidiary will concentrate on consolidation and reduction of losses.
Thermax Inc. (Ouerseas subsidiary)
This step-down subsidiary in the USA focuses on ion exchange resins and
The company reorganised its operations in 2011-12 in response to the
overall economic uncertainty in the US market. The vapour absorption
chiller business performed well, with a 59% increase in orders and a 71%
increase in sales revenue. New clients include a major Hollywood studio,
one of the largest IT companies in the world as well as an innovative
Japanese electronics company for co-generation application.
However, the ion exchange resins market continued to be stagnant, resulting
in an overall increase of 14% in the subsidiary`s revenue.
Thermax Inc. recorded revenues of USD 13.3 million (USD 11.7 million,
previous year) and a profit after tax of USD 0.21 million (USD 0.03
million, previous year) for fiscal 2012-13.
Thermax Europe Ltd. (Ouerseas Subsidiary)
This subsidiary, focusing on Thermax`s cooling business in Europe, closed
the year with a revenue of Pound 5.33 million (previous year Pound 4.3
million) and a profit after tax of Pound 0.45 million (previous year Pound
0.40 million). Although the market has remained flat in comparison to last
year, the company`s focus on niche market segments and new applications
helped improve its market share. The year also saw an order booking of
Pound 6.4 million.
Prestigious orders received for cooling installations for the year include
Vienna Railway station, Stanlow refinery, Kaiser Compressor, and heat pumps
for Skagen district heating company.
While the markets in Southern Europe face economic trouble, the enquiries
from Northern Europe have shown a positive trend. The outlook for 2012-13
is one of cautious optimism.
Heating business recorded a healthy increase in its total income compared
to last year, with exports accounting for 26% of its business.
The major industry segments of this business such as food processing,
textile, chemical, pharma, and distillery performed satisfactorily, in
spite of the economic slowdown that set in from the second half of the
The division absorbed the Lambion grate technology transferred last year,
helping it pick up several biomass based orders. Efforts are on to extend
this technology to the entire product basket, which includes various
packaged boilers and heaters.
Heating SBU received the single largest boiler and heater order from a
leading Indian textile company to shift from oil/ gas to solid fuel. It has
also commissioned a large DIN design vaporizer (16 Million kcal/h) to this
customer`s existing plant in the Western region.
The Heating business offers its customers in the edible oil-soap
manufacturing segments a solid fuel based hi-pressure steam boiler package,
using the thermosyphon principle. A new shell boiler to address the small
boiler market has opened up new market potential for future growth.
The streamlining of operations at the manufacturing facility of this
business has started showing results in terms of increased productivity,
elevating the available capacity too. This will enable the Heating business
to cater to the growth demands also in the near future.
With its chosen sectors performing satisfactorily through this slowdown
phase and with the shift to biomass and other solid fuel fired systems due
to high oil prices and non availability of gas, the Heating division
expects to improve its performance in FY 2012-13.
Danstoker (Overseas Subsidiary)
Danstoker and its subsidiary Omnical, the companies that Thermax acquired
to grow its global heating business, performed well in 2011-12. Compared to
the Euro 40.5 million revenue for the year before acquisition (October`09-
September`10), the company posted Euro 53 million for the changed
accounting year (April`11-March`12). In the 18 months since its acquisition
by the company, Danstoker has clocked Euro 78 million in revenue.
While Danstoker continued to maintain dominance in renewable fuel based
heating systems with almost 50% of its order booking coming from this
segment, Omnical continued to work with industry majors, garnering business
in waste recovery boilers. 30% of Omnical`s order booking came from this
Initial forays into Latin America, Canada and Saudi Arabia are likely to
generate new orders in the second half of the current fiscal and business
plans are under discussion to convert these into sustainable markets.
Danstoker is expected to maintain its performance during FY 2012-13
Seruices (Cooling & Heating)
Cooling and Heating service business increased its total income during the
year. The business offered energy efficiency solutions in complete steam
circuit across various industry segments including an export order for a
large paper mill.
The technology partnerships the SBU formed in the previous year with two
companies in the US and Israel have helped offer energy saving and emission
reducing solutions to its customers. During the year, it upgraded its
offerings through remote monitoring devices and extended its reach through
mobile service units.
The acquisition of the German steam engineering company, Rifox, besides
supporting the division in its international business is expected to
provide access to a wide range of steam efficiency products to cover
saturated as well as superheated steam applications.
The outlook for the business continues to be positive.
E) SOLAR BUSINESS
The solar business commissioned two prestigious technology demonstration
projects during the year. It installed a unique air conditioning project
combining triple effect chillers and solar concentrators at MNRE`s National
Solar Research Centre. The rural electrification project at Shive, near
Pune has also been successfully commissioned.
Apart from these R&D based applications, the solar business unit of the
company continued to expand its footprint in industrial and commercial
establishments by creating hybrid systems for heating and cooling.
In FY 2012-13, the solar business plans to grow its business. The
constraints of operating on unreliable grid power plus the possibilities of
integrating renewable systems to existing energy infrastructure, will help
in gaining increasing acceptance for the company`s solar thermal products.
The outlook is positive.
Enuironment Segment Analysis
Year Environment business
Income* Growth Income from exports
(Rs. crore) (% YoY) (Rs. crore)
2009-10 778 4 115
2010-11 973 25 183
2011-12 1154 19 163
* Figures duly adjusted for inter-segment income.
The Environment segment accounted for 21.8% of the company`s revenues and
has clocked a healthy growth of 18.6 % over the previous year. This segment
had a profitability of 13.9% (14.8% last year).
An improved enforcement of the existing norms and an increased awareness
about the ill effects of negligence of pollution control across society are
driving the growth of the environment business.
Municipalities across the country are in search of workable and cost
effective sewage treatment technologies. Water scarcity is now making it
mandatory for industry in several states to go for water recycling. Your
company`s environment businesses are positioned well with effective
technologies and relevant application knowledge to help preserve the
community resources of clean air and water.
The air pollution control business of your company has successfully
completed a few projects in international markets with the prospects of
bagging similar projects in the coming years. The water and wastewater
business, besides strengthening its presence in the industrial sector, has
also for the first time ventured into the prospective area of water
treatment in municipal projects.
In the volatile business environment that stays clear of capex investments,
the services arms of Thermax`s environment businesses are offering
retrofits and O&M services to industry. Your company envisages
opportunities in such business initiatives based on revenue side
investments for customers.
F) AIR POLLUTION CONTROL (ENUIRO)
The air pollution control business brought in a healthy increase in its
revenues. Increased competition from new international players as well as
many local companies have resulted in compromised margins in this business.
Construction work of its upcoming facility at Solapur, Maharashtra is
nearing completion and commercial operation is expected to start in the
first quarter of FY 2012-13.
The division has successfully completed its largest ever Lump Sum Turnkey
project for conversion of electrostatic precipitators (ESPs) to low
emission fabric filters for a cement plant in Egypt through a World Bank
funded global tender.
In 2012-13, the division is anticipating sluggish prospects in its key
customer segments of cement, steel and captive power. Intense competition
in these sectors is putting pressure on price realisation. Margins are
under severe pressure due to fierce competition and higher input cost
caused by volatile commodity prices and rupee devaluation. The division has
embarked on initiatives to reduce waste, increase productivity and value
engineering to partially mitigate the situation.
G) WATER AND WASTEWATER SOLUTIONS
Water and Wastewater Solutions business of the company has reported
improved results both in revenues and profits. Fresh order intake increased
both in the industrial and commercial segments. However, new orders in
municipal sewage treatment were at subdued levels, since the current phase
of funding under JNNURM has come to an end. The slowdown in the power
sector also failed to deliver anticipated business for this group.
The standard products performance unit of this business has completed a
productivity enhancement and standardisation initiative in collaboration
with the Confederation of Indian Industry. This increased productivity and
the cost of optimisation resulting from it will enable the business to
increase its market share in the growing commercial as well as the MSME
sector. The business has also forayed into high-end municipal drinking
water solutions on a selective basis. These solutions from its stable will
be limited to technology oriented projects needing high-end processes that
will save space as well as deliver consistent quality of drinking water
even when the input quality varies.
Many state level pollution control boards have set forth stringent norms to
enforce treatment and recycling of effluent to save the limited resources
of water. This has propelled the opening up of a new market for effluent
recycle. As an innovative and technology based solution provider, your
company is poised to capitalise on this emerging market.
Despite a slowing down domestic economy, this divisions business is poised
to deliver a healthy growth in FY 2012-13.
The Chemical SBU ended the financial year with a marginal growth in sales
over the last year. A sizeable portion of the division`s revenue came from
exports to the US, West Asia and South East Asia markets. The resin
business, constrained by capacity limitation, concentrated its efforts on
capturing more value-added specialty resin market. It also streamlined
manufacturing processes to improve the yield in the wake of raw material
price increase fuelled by crude petroleum price increase.
The division commissioned its new manufacturing plant for performance
chemicals at Jhagadia, Gujarat during the year.
The performance chemical arm of the SBU has added many new accounts with
products plus services offering. The paper chemical sales have grown by
almost double and will break even in the coming year.
The business expects to deliver improved performance in FY 2012-13.
I) Services (Chemical & water)
The Services business of Chemical & Water improved its business with better
revenues and orders booked. In FY 2011-12, its business gained from
effluent treatment and recycle projects and operation and maintenance of
Among the notable projects were the three million litre per day effluent
recycle plant for a 375 MW power project of the Gujarat State Electricity
Corporation, and recycle plant for a textile unit that also includes a five
year contract for comprehensive O&M. Breaking new ground, the SBU has also
won an order for the maintenance of multi-utilities for BOP package for
Tata Power`s 4000 MW ultra mega power plant in Western India.
With the growing trend of outsourcing utilities and the demand for systems
that help the conservation of water, the SBU is confident of improved
business in FY 2012-13. The outlook is positive.
Other Wholly Owned Subsidiaries
Thermax Onsite Energy Solutions Ltd. (TOESL)
TOESL which was established to deliver utilities on a unit consumption
basis, earned a total income of Rs. 9.2 crore during the year as against
Rs. 6.1 crore in the previous year. Profit after tax was Rs. 1.1 crore
(previous year Rs. 0.6 crore).
In 2011-12, the company produced and supplied 42789 tons of steam and 4489
million kcal of heat from the existing three projects. It also bagged two
more repeat contracts from a leading paint manufacturing company for supply
of steam and heat for its new facilities in Southern and Western India.
With its focus on green fuel and reduction of client`s carbon foot prints,
TOESL expects to improve its business prospects in FY 2012-13. The outlook
Thermax Sustainable Energy Solutions Ltd. (TSESL)
During the year under review, TSESL, the subsidiary company focusing on
business related to Clean Development Mechanism (CDM) successfully
registered two projects under the Programme of Activities registered under
The company earned an income of Rs. 0.3 crore against Rs. 0.3 crore in the
previous year. It incurred a net loss of Rs. 3 crore compared to Rs. 1.2
crore in the previous year - due to various expenses for validation of CDM
projects and investments in the development of IT infrastructure.
Joint Venture Subsidiaries
Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd. (TBWES)
As part of the technology transfer agreement, engineers of the joint
venture company were trained at the Babcock &Wilcox facility at Barberton,
Construction of the manufacturing facility for supercritical boilers at
Shirwal, Maharashtra is progressing and the plant will be ready for
commercial operations during the year.
The company is geared up to contract and execute supercritical boilers up
to 3000 MW per year. Owing to issues related to land acquisition, fuel
security, fund availability, environment clearances and sustainable power
purchase rates, the power development initiative of the country has not
taken off as anticipated less than a year ago. The joint venture expects
the Government to take proactive and constructive measures at a quicker
pace to reverse this trend and support the power development momentum of
Thermax spx Energy Technologies Ltd.
This joint venture faced another challenging year as its product portfolio
--electrostatic precipitators and regenerative air pre heaters -- were
dependent on new independent power plants. There weren`t any new project
order finalisations during the major part of the year, and this subsidiary
did not receive any orders.
Thermax SPX will continue to face difficulties till the power development
Health, Safety and Environment Measures
As an organisation that values human life and believes that all injuries
are preventable, your company is committed to conduct all its operations in
a manner to avoid injury to employees, contractors, workmen, local public
and damage to the environment. During the year, various initiatives were
undertaken to improve its Health, Safety and Environment (HSE) measures:
Safety and Environment Management System
TECC, the construction arm of the Boiler & Heater Business was certified by
the Bureau Veritas with Safety Management Systems as per the requirements
of BS OHSAS 18001: 2007 standards.
A surveillance audit of Chinchwad, Savli (by DNV) and Paudh plant (by
Bureau Veritas) was also successfully conducted for OHSAS: 18001
(Occupational Health Safety Assessment Series) and ISO: 14001 (Environment
Management System) International Standard.
Leadership and Commitment
The Managing Director reviews safety performance of each business every
quarter. This is followed by the Board`s quarterly review. In each division
a safety council has been formed under the chairmanship of the strategic
business unit head and a safety review is held every month. At each project
location, a site safety committee reviews and effectively monitors safety.
Competency and Training
An emphasis on safety training has been continued this year for all levels
of employees, contractors, vendors and suppliers. Safety training
programmes in all regions were conducted during the year for site in-
charges, site engineers. A conference for contractors and their project
managers was conducted in Pune to share the best practices and create
Standards and Procedures
Method statements for all safety critical activities have been developed
and job hazard analysis for all these activities has been carried out.
Emphasis has been given to the preparation of location and activity
specific job hazard analysis.
Incident/near-miss reporting and investigation
Emphasis has been given on reporting near- misses and carrying out their
analyses for preventive action across the company`s locations. The ratio of
near misses to accidents has improved considerably over the last year.
Emergency preparedness plan
Emergency management plans have been developed to deal with any emergency
at all manufacturing and project locations. Training on fire prevention and
control, and mock drills on emergency evacuation have been conducted at our
plants and offices.
Safety Audits and Inspection
Internal and external safety audits and inspections are carried out
regularly and the compliance of audit action points is monitored. A total
of 680 internal audits and 55 external audits have been conducted in 2011-
12. The overall audit compliance level is 91% whereas the same is 98% for
`A` category observations.
Safety in Design
Safety in design has been taken up. All the audit and inspection points are
taken up with engineering teams and corrective action is being taken at the
drawing stage itself.
The business environment in the country continues to be uncertain with lead
indicators such as GDP growth, inflation, interest rates and foreign
exchange rates reporting adverse trends. The uncertain environment in the
political climate continues to impact society and industry. From a robust
9% GDP growth in 2009-10, the country is witnessing the possibility of GDP
growth going below 6%.
The power industry continues to reel under policy, fuel and off-take
uncertainties. Coal availability has become a significant constraint for
the industry and the hardening of stance by the Indonesian Government on
export of coal has further added to the uncertainty. Infrastructure
investment by the Government which can act as a fillip to crank the growth
engine has seen a deceleration. Core industries, therefore, continue to
underperform and so does industrial output. The challenge of managing high
fiscal deficit continues.
This coupled with high inflation, high interest rates and an adverse
currency movement can have medium term impact on the capital goods
The turmoil in overseas economies, especially in Europe has increased in
intensity and the possibility of Greece moving out of the European Union
looms large and ominous. We can only imagine the full impact of such a
first-of-its-kind event. Germany, France and England, the leading troika of
Europe have begun to bear the brunt of the Eurozone uncertainty - both
socially as well as economically. The United States of America continues to
fight the impact of the 2008 financial crisis. While posting marginal
growth, it continues to fight high unemployment even as it has to deal with
the uncertainty of a possible change in the country`s leadership.
India is no longer decoupled from the rest of the world and all the above
factors impact its economic prospects further.
Given the above context, your company finds that demand for some of its
products, especially the larger boilers as well as power plants, have been
impacted. Most importantly, under such a challenging environment,
forecasting, anticipation, review and management of risk become critical to
business and success.
Some of the key risks reviewed by the management are:
Risk of concentration in one business segment Energy segment continues to
have a significant share of the company`s business. The Power EPC and
Boiler & Heater businesses account for a major slice of the Energy
business. The current subdued business prospects for captive as well as
utility power plant orders have impacted the order booking and revenues of
the company in the short term. Similarly, the Boiler and Heater business
which caters predominantly to heat and steam applications for core
industries as well as for power generation is seeing tightness in order
To mitigate the above risk, the company continues to diversify and grow the
product businesses in the Energy segment - such as process heating, vapour
absorption chiller and EPC of small power plants - which have customers
across industry sectors. Moreover, the Environment segment comprising of
Air Pollution Control, Water and Wastewater as well as Chemical businesses
help further diversify the business portfolio of Thermax. The company also
continues to focus on its services business which can add stability to
revenues and profits.
Risk of cyclical business
The company is currently facing the challenge of cyclicity of the capital
goods sector as the order backlog at the start of the financial year 2012-
13 is lower than what it was at beginning of last year. As stated earlier,
the diversified business portfolio has helped reduce the impact of the
cyclical nature of some of its businesses -especially Power and Boiler and
Off take and investment trends in critical end-customer industries such as
cement, steel, petrochemicals, oil & gas etc. are closely monitored. Demand
trends in key industries both in India as well as overseas are reviewed
periodically by the businesses so that strategies for growing business
amidst such challenging conditions can be adopted.
Efforts are on to develop the service business of the company, as this
vertical tends to be less cyclical and as it has a larger impact on the
customer`s revenue side of business.
Exchange fluctuations and interest rate risks
The company`s policy has been to avoid speculation in foreign exchange. All
foreign currency exposures are hedged immediately upon their occurrence.
Consequently, the foreign exchange policy for the company is conservative.
The current forex volatility can impact input costs as well as sales
realisations and therefore it is critical to continuously review the latest
foreign exchange rates while quoting for projects, which the company is
On the funds deployment side, the company continues to maintain its
conservative investment policy. The company invests its surplus funds in
fixed deposits of reputed banks, liquid debt funds and has limited exposure
to Debt Fixed Maturity Plans. Principal protection continues to be the key
Customer concentration risk
Typically, the large orders which can lead to the risk of customer
concentration emanate from Power as well as the Boiler & Heater businesses.
When such orders are bid for, a detailed risk analysis of the order is done
and its impact on the company`s overall performance is reviewed. As the
company continues to build capabilities to execute larger orders the
concentration risk would occur at periodic intervals which can be mitigated
by a robust project management and review mechanism.
Given the current global economic scenario as well the domestic challenges
faced by capital equipment manufacturers, there is an increased intensity
in competition as the overall market is shrinking. Pricing and delivery
have become even more critical to win customers.
While your company is well positioned to meet these challenges, it
continues to recognise the need for optimising cost and increasing
operational efficiency to offer better value and solutions to customers.
Risk of concentration in one geography
The company has also been increasing its export and international revenues
to reduce the dependency on its home country. The revenues from its
international subsidiaries including Danstoker Group, Thermax Inc., Thermax
Zhejiang and Thermax Europe account for nearly 8.5 % of its revenues. The
thrust is to increase the share of non-India revenues through these
subsidiaries as well as through exports, as this would also help in
reducing the impact of the Indian market on overall operations.
Project management risk
Nearly three-fourths of the company`s businesses are projects in nature
which means that a significant portion of the execution happens at the
customer`s site. Delays in projects can result in cost over-runs as well as
liquidated damage claims from customers. Thus, it is important to ensure
that projects are executed within timelines and budgeted costs.
The company has established project management systems as well as processes
for reviewing the progress of projects. Larger projects, especially those
with greater risk, are reviewed more frequently. Specialised project
management software is deployed to monitor these projects.
Risk related to safe operations
Your company is committed to the safety of its people and continues to
strive for making workplaces safe. The complexity and spread of operations
make this task even more daunting.
There is a dedicated team of Safety Officers reporting to the Head of
Safety who continuously review the implementation of policies and
procedures especially at the site and factories. They also conduct periodic
safety audits to measure and improve compliance.
Continuous efforts and programmes are on for enhancement of safety
awareness at all levels through direct and indirect communication.
Risk related to human talent
Though economic activity has slowed and GDP growth has come down,
acquisition, management and retention of talent continue to be a challenge
in current times. Managing aspirations, remuneration and people costs is a
challenge that the company recognises as Thermax places special emphasis on
its people and people processes. Availability of appropriate talent and
attrition risk are reviewed periodically by the management and necessary
measures taken to mitigate the impact of these human resource related
risks. The company also has a formal process of reviewing succession
Risk of adverse changes in cash flows and working capital
The company is predominantly in the project business where projects are
medium term to long term in nature. Consequently payments receivable from
customers are spread over the project period. Given the current domestic
and international economic scenario, there is the risk of delays in
payments from customers. This coupled with reduced customer advances can
adversely impact the working capital and cash flow position of the company.
The company`s management closely monitors and reviews the working capital
position to ensure adequate steps are taken to minimise the impact of the
current economic situation.
Risk of energy price fluctuation
Thermax offers solutions in the Energy and Environment space. Volatility in
fuel prices may prompt customers to shift to lower cost fuel. The company
is well positioned to offer a variety of energy solutions as it has
technologies for handling a spectrum of fuels, including a wide range of
biomass as well as harnessing waste heat.
The company also offers waste-to-energy, combined heating power cooling
(CHPC), combined cycle as well as solar heating and cooling solutions which
help in reducing energy costs for customers.
Input price increase and supply chain management risk
One of the critical requirements for successful project management is to
forecast and manage input costs. The company is a major consumer of steel
plates and tubes of various grades as well as bought-out items including
motors, pumps and valves.
Stability of profits depends on how effectively the costs are managed
within estimated levels. Therefore, significant fluctuations in raw
material prices could impact the profitability of the company.
While quoting for large projects, provisions for escalation of input costs
are factored in to help make up for any spurt in prices. In addition,
before such quotes are furnished, committed quotes from vendors for
critical inputs are obtained. This way, variability can be reduced as many
project finalisations take time.
Besides these, the Corporate Sourcing Group responsible for strategic
sourcing continuously reviews the existing vendor base and develops new
supplier relationships. The process of vendor rating and evaluation helps
in grading vendors and also enhance their performance on cost, quality and
Risk related to international operations
Over the past few years, the company`s international presence has been
expanding. The recent acquisitions of Danstoker Group and Rifox, the
enhanced operations of Thermax Zhejiang Heating & Cooling Engineering
Company in China as well the subsidiaries in USA and UK add complexity to
management of international operations. In addition, the company`s
operations span 20 international offices.
The international operations are exposed to risks of specific socio-
economic, legal and fiscal developments occurring in these countries.
Beside these, rules and laws relating to recruitment of employees,
technology cooperation, etc. are different and complex for each country.
Compliance with law
The company`s operations have been expanding both in India and outside. The
larger scale and size of operations makes compliance with law and
regulations complex. The company recognises this and therefore has a system
of reporting and reviewing of compliances at periodic intervals - for
entities located within and outside India.
REPORT ON CORPORATE SOCIAL RESPONSIBILITY
Thermax strongly believes that education is the best enabler. Through
education, talent is created and harnessed, which further strengthens
society. To bridge the inequity gap in education and improve the quality of
education meted out to children, Thermax has partnered with the Pune
Municipal Corporation (PMC), the Akanksha Foundation and Teach for India,
through its CSR arm, the Thermax Social Initiative Foundation (TSIF).
Considering the wide range of tasks to be undertaken, the Thermax Board of
Directors have decided to increase the allocation of funds from 1% to 3% of
The activities and achievement during the year 201112 is given below:
K C Thackeray Uidya Niketan English Medium School
The school has completed five years, and has 480 students in the academic
year 2012-13. This school will see its first batch of students appear for
the Board examination in 2013. This is also the first PMC English Medium
School to have students appearing for the SSC Board Examination.
Two 7th standard students ranked 28th & 32nd, and a student from 4th
standard ranked 17th on the district merit scholarship list. Another
student from 7th standard was selected for the Duke`s Talent Identification
Programme organised by Educational Initiatives Pvt. Ltd.
Samtribai Phule English Medium School
The school which began in 2008 with Junior and Senior KG, has reached the
4th standard during the academic year 2012-13 and now has 360 students. The
school not only focuses on academic performance but also on holistic
To inculcate the habit of reading in the young minds, the school has
started a literature circle which has generated a lot of excitement and
interest among the students.
Adoption of Matoshri English Medium School
TSIF Board has decided to fully fund another municipal school named
Matoshri English Medium School from the academic year 2012-13. This school
was earlier directly managed by Akanksha and TSIF suported Akanksha to
liase with the Government. This school has 340 students.
Partnership with Akanksha Foundation
Thermax continues to support two learning centres that benefit 88 students
of the Akanksha Foundation. The children from this centre took up a service
project titled "Clean-up Mula Mutha river - nala ko nadi banayenge". Ten
employees from Thermax also volunteered for this hour long river cleaning
The students also visited the J W Mariott Hotel to be exposed to operations
in the hospitality industry.
TEACH FOR INDIA
Apart from partnering with Teach for India (TFI), Thermax has become the
Platinum Sponsor of TFI through its CSR arm, TSIF. Thermax also encourages
its employees below 35 years of age to be a part of the Teach for India
program. Interested employees can join TFI as a fellow for two years and
after completing his /her tenure can rejoin the company. The company takes
care of the salary and the position of the employee for the entire two
years of his /her deputation.
One employee from the Boiler & Heating division of the company has
completed his two year tenure with TFI and has rejoined the company.
CHILD DEVELOPMENT PROJECT
TSIF has been supporting two daycare centers run and managed by Annapurna
Mahila Mandal (AMM). Through these centres, approximately 50 slum children
aged between 1 and 5 years benefit from a safe environment, develop hygiene
and healthy eating habits, learn to share and be sociable.
Thermax has been a signatory to the Confederation of Indian Industry (CII)
code of conduct on affirmative action and has undertaken various steps to
support this cause. Thermax sponsored and participated in the Trade Fair
organized by Dalit Indian Chamber of Commerce and Industry (DICCI) along
with CII in 2011.
The 13th batch of 35 students from the SC / ST back ground benefited from
the Thermax sponsored CII-Symbiosis Finishing School. Thermax has also
recruited two more students from the 11th batch who will join the company
in August 2012.
The company is also involved in sharing its human resource to conduct
sessions at the CII - Yi - ITI Aundh Finishing School.
Thermax offers different opportunities for employees to participate or
contribute to social initiatives:
* Seven employees from Thermax regularly mentor adolescent children from
the Akanksha centre.
* To enable the employees to contribute financially, Thermax has tied up
with Give India for pay roll giving programme. There are around 1087
registered employees till date who have since its inception contributed
* This year 593 donors from Pune and the Savli factory participated in the
blood donation camp supported by Sassoon Hospital, Poona Hospital, DY Patil
Medical Hospital, Deenanath Mangeshkar Hospital, SSG Hospital Baroda and
the Rotary Club of Pune Sports City.
* 54 employees participated in the Pune Marathon organised on the theme,
"Save the Girl Child".
* Mumbai Marathon was held on 15th January and like previous years, this
year also Thermax was represented by two teams of 40 members. Thermax
raised Rs. 9,80,500 for Akanksha, making it the company with the 3rd