Thermax Ltd, a Pune-based boiler and absorption chiller manufacturer, plans to start production at its China facility by the end of the second quarter.
MUMBAI: Thermax Ltd, a Pune-based boiler and absorption chiller manufacturer, plans to start production at its China facility by the end of the second quarter.
In January 2007, the company had announced that it would set up an absorption chiller manufacturing facility in China under a wholly-owned foreign subsidiary Thermax (Zhejiang) Cooling & Heating Engineering Company Ltd.
The plant’s initial capacity is expected to be 100 units annually, which will eventually be scaled up to 300.
According to analysts, revenues from the plant would reflect in the company’s balance sheet only after the next year.
An analyst with a leading domestic brokerage firm said, “The China plant is expected to contribute very less to the company’s total revenues and that will not happen anytime before the end of the next calendar year.”
This unit is expected to contribute around Rs 15-16 crore by December 2009, he said.
Confirming this timeframe, Thermax managing director MS Unnikrishnan told analysts that the China plant is expected to reach breakeven in three years from the date of commissioning.
Thermax’s Baroda plant, which manufactures high capacity boilers, started operations at the end of the last quarter and is expected to contribute between Rs 200-250 crore this year, Unnikrishnan said.
He added that the slowdown in the infrastructure sector would not affect the company much but inflationary pressures have caused a delay in the decision-making process.
He blamed the situation on uncertainty and fear over volatile interest rates.
“Most of the slowdown-related fears have their roots in the United States and we hardly have any business coming from there. Our major customers are in Southeast Asia and the Middle East and here we do not see any decline in (business) inquiries,” Unnikrishnan said.
Analysts, however, disagree. “It will definitely be hit and the hit could be substantial as the company operates in the domestic corporate capex segment where a slowdown has already been seen,” the analyst said.
As much as 80% of Thermax’s business comes from the domestic market, with exports accounting for the rest.
So a slowdown in India will definitely have a major impact on the company in the coming quarters, the analyst added.
A recent Deutsche Bank report said that the slowdown in the infrastructure investment cycle is not a short-term phenomenon and is likely to persist over the next 18-24 months.
Thermax operates in the captive boiler segment in which companies such as steel and cement operate. They are its biggest customers. “This small band is expected to be hit by the slowdown. So even Thermax will have to bear the brunt of it,” the analyst said.
For the quarter ended June 2008, Thermax posted a net profit of Rs 63.7 crore, up 13.7% from Rs 56 crore in the corresponding quarter last year. Total income for the quarter increased to Rs 727.2 crore from Rs 676.3 crore, a jump of 7.5%.
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