Turnaround at Thermax

By N. N. Sachitanand

PUNE, SEPT. 9 The last few years have been turbulent for Thermax Ltd., the Pune-based engineering company specialising in energy and environment systems. Board level tussles, labour problems and a general lull in capital investment in the country brought this once premium engineering company almost to its knees. Fortunately, some sound analysis by the Boston Consulting Group and quick implementation of its recommendations has led to a turnaround last year.

Despite a stagnant capital goods market, sales increased by 16 per cent to Rs. 473 crores and export income went up by 32 per cent to Rs. 101 crores in 2000-01 while the operating loss was brought down to Rs. 8 crores from Rs. 21 crores in 1999-2000. The first quarter (April-June) of the current financial year shows a continuation of the improved working with an increase of 14 per cent in domestic sales and 38 per cent in export revenues, compared to the first quarter of 2000-01. What is even more encouraging is that the net loss in the first quarter this year has come down to Rs. 1.65 crores from Rs. 7.59 crores in the same period last year.

So, what has Thermax done to accomplish this reversal of fortunes? In an interview with this correspondent at the corporate headquarters in Pune, the Chairperson, Ms. Anu Aga, emphasised four major steps: shedding of non-core activites, rightsizing, reconstitution of the board and focus on cost reduction.

The company exited most of the peripheral businesses such as transmitters (a joint venture with Fuji Electric), electronic components, software, bottled water (a joint venture with Culligan), lease financing, fans, and the painting systems of the surface coatings subsidiary. A buyer is now being scouted for the industrial washing machines business. What Thermax is left with now is its backbone businesses: boilers, chillers, cogeneration and captive power systems, pollution control systems and special chemicals.A major part of the restructuring exercise has been the reconstituion of the board. As Ms. Aga explains it: ``Earlier we had a preponderance of executive directors on the board. This led to a conflict of interest and a tendency to push things under the carpet when explanations were demanded for things going wrong. We were advised by the Boston Consulting Group to reconstitute the board with more non-executive directors who could lend a more impartial look at company operations."

Accordingly, a new board has been formed with four external non- executive directors - Mr. Tapan Mitra (ex-MD of Indal), Mr. Vallabh Bhansali (director of ENAM Financial Consultants), Mr.Manu Seth (ex-MD of Tata Chemicals) and Mr. Ravi Venkatesan (Chairman of Cummins India), along with Meher and Pheroz Pudumjee (daughter and son-in-law of Ms. Aga) and Ms. Aga herself as the Chairperson. The only whole-time working director on the board is Mr. Prakash Kulkarni, who is the Managing Director.

The operational aspects of the company are overseen by an Executive Council led by the MD and manned by the chiefs of the various divisions. This council ensures that the various operating units work together, there is a corss-fertilisation of ideas and practices as well as implementation of such things as a common supply chain for the whole company.

The right sizing exercise involved a VRS that was offered to white collar employees rendered surplus. Around 270 persons opted for this scheme. Earlier, about 150 persons were sent out because of non-performance. Along with those who went out with the offloaded businesses, the total employee strength is now around 1,200 from the 2,000 before the restructuring exercise. Ms. Aga hinted that the company is now exploring the possibility of offering VRS to shopfloor workmen rendered surplus due to streamlining and integration of operations.

The cost cutting exercises include detailed cost reviews, improving operational efficiencies, global sourcing, reduction in design to market cycle time, reduction in replacements and improvement in project management so that fines for delays are avoided. According to Ms. Aga, already 5 to 7 per cent reduction in material costs has been achieved.

So, what are the prospects for this year? Ms. Aga refused to give specific numbers for topline growth as the investment climate in the country is still in the doldrums. There had been some encouraging sparks such as a recent order worth Rs. 90 crores from a cement company in Rajasthan for the supply of a 36 MW cogeneration plant. There was tremendous interest among industries for cogen and captive power plants, pointed out Ms Aga , who is also the Chairperson of the CII Western Region. But hostility of state-owned power utilities is depressing the demand. The overseas subsidiaries of Thermax - ME Engineering, U.K., and Thermax Inc., U.S., - have picked up some good orders, though the gestation period is from 6 to 18 months.

However, Ms. Aga is more confident of a pickup in the profitability of the company this year, thanks to the restructuring exercise.

Thermax is also exploring some new business areas. For example, it has entered into a tie-up with Cummins for supply of heat recovery systems for their engines. Talks are on with Wartsila for the same purpose.

Energy audit is another promising area. Thermax has a joint venture with a U.S. company called Thermax Energy performance Services which studies a customer's energy practices, makes a plan for reduction of energy consumption, implements the scheme and shares the resultant profits. The joint venture has already landed seven contracts for such work from textile, glass, paper, cigarrette and hotel companies in India and Sri Lanka. Thermax is now contemplating a joint venture in Thailand for a similar purpose.

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