Outlook on recovery as clear as mud as lot of things are positive: Ashish Bhandari, MD & CEO, Thermax

We have scenarios and we work based on which scenarios come about, not worrying about whether we committed a certain growth number or certain specific number.

While the first quarter of the current financial year will bear the brunt of the brutal second wave of Covid-19, it has brought upon a haze on how the whole of FY22 will pan out. Ashish Bhandari, managing director and CEO of Thermax, tells Shubhra Tandon that outlook on recovery “is clear as mud”, with a lot of positives, but potential headwinds as well. The company has done away with annual plans and is now preparing 90-day plans to keep organisation flexible and nimble. Edited Excerpts:

The fourth quarter remained strong showing broad-based recovery and growth. How is first quarter been so far?
The first quarter has not been easy. We have had most of our plants cut down capacities because of multiple reasons related to Covid. In May, in particular our productivity has been impacted as well, as people have suffered so much on personal fronts.

Also, the lack of availability of oxygen has hurt some of our sub-vendors and many of our customer sites have also had Covid breaks. So, overall, the first quarter from delivery and revenue perspective will be below what we had originally expected. Constraints to our ability to deliver, I think affect will affect our revenues and also profitability to some extent, despite our backlog and order intake remaining healthy. It will be difficult for me to give a projection because we still have all of June to go, which is looking potentially better compared to April and May, but it could go either ways.

How has the first quarter started in terms of new orders coming in?
April started off very well, in line with February and March. In May, we started to see slowdown across the country, which this time around was more pronounced than when we opened up post lockdown in June of last year. In June-July last year, the pick-up in rural areas, in our distributors across the country was faster than what we expected. This time around, the drop in demand has been more pronounced in nationwide network of distributors, which could result in genuine drop in demand.

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It could be that Covid has impacted rural India in a lot more pronounced way, so it could just be a temporary drop in demand, and that demand will come back as Covid wave passes. So difficult to say right now.

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What has been the contribution of private sector orders in fourth quarter and what is the outlook on private capex?
Out of total global order booking value, 90% of it has come from the private sector. This includes customers in chemicals, cement, steel, in distilleries, food and pharmaceuticals. Government sectors which are more pronounced in large FGD and large refining projects, those are now coming into discussion. Very tough to say how will private capex look like in FY22.

How has been the composition of large and small orders in Q4 and what is the outlook going forward for the financial year on large projects coming through?
Anything above couple of Rs 100 crore is a large order for us. All of last year, we had one order which was above Rs 200 crore. The expectation is that we would definitely like to do many more of those this year. Some of these could be international orders as well and competitive to win.

Large capacity enhancement projects are going on in some of the bigger industries in cement, steel and refining. Refining in particular had a lot of projects in play in 2019, which slowed down in 2020 due to Covid, but are all back and work-in-progress. Many of the FGD projects that had stalled because of Covid and issues with China have revived as well. So, we do not know how it will look like yet, but many of them will come for decision this year.

What are the execution challenges and is labour shortage a problem?
Labour problem is not as bad as last year, but Q1 will be challenged. The reason for that is that while people have not migrated, but say if a welder is found with Covid then the entire group that he interacted with will have to be tested and isolated and that affects work.

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Also, any new person who is to be added to the workforce at site will have to do a 14 day of mandatory quarantine, so you are paying for that person for two weeks but if that person decides to leave on the 10th day citing some reason…So all of that has created a fair amount of disruption. As of now, at the end of May, we are saying we are looking at a close to normal June. So, if that continues and there is no third wave, then I do expect some stabilisation in the labour market. Second half of April and all of May was very challenged.

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What will be the impact of commodity price inflation on performance during the year?
In Q4 the impact was about Rs 10 crore, impact will continue in Q1, and to lesser extent in the rest of the year as well. It is not just that prices are high, what affects us is when the prices rise rapidly. In many places we were able to raise our prices, but in many places we couldn’t as it is a competitive world.

What was the capacity utilisation in Q4 and what will it be like in coming quarters?
We crossed 90% in most plants, but not chemicals where we added capacity, and not all of that came online. Right now we would have fallen back down to 60% number. The fall is not because of the lack of demand as our backlog of orders is above Rs 5,000 crore, but our inability to supply with all the challenges that we have been facing in the last two months. As these challenges lift, we could be back to February and March levels. We are also working on de-bottlenecking, increasing capacity in cases, so even if the demand comes back stronger, we will not be found lacking and will find another gear within Thermax to add capacity.

Order from which sectors constitute the backlog and which industries could give orders in future?
Current order book is broad-based. We have had demand from multiple industries. Our historical backlog is in our FGD business, we have Rs 900 crore there, long-term O&Ms and service projects. This year, initially we got lot of orders from food industry, textiles, tyres, pharmaceuticals and chemicals. Last four months were very strong for cement, which started to come back in a much more pronounced way. After that steel started to come stronger as well. The future course on sectors that will give out orders will depend on whether it is a multi-sectoral revival like last year, or limited to few industries.

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What is your outlook on whether the recovery will be prolonged or faster this time around?
To me it is clear as mud, but I mean that in a good way because there are a lot of things that are positive, and there are potential headwinds as well. I am preparing Thermax for a lot of flexibility and nimbleness. We have scenarios and we work based on which scenarios come about, not worrying about whether we committed a certain growth number or certain specific number.

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Last year also we had four scenarios prepared of what future could look like, and with each one of those scenarios there was a plan that we would execute. So we were nimble in that sense, we did not have a yearly plan, but a quarterly plan and we were working based on what we saw over the next 90 days. We would have a similar approach this year as well. We would be nimble and not guided by annual plans, but 90 day plans. However, there are certain strategic initiatives and imperatives which we will make sure get executed on irrespective of the environment.

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