MANAGEMENT DISCUSSION AND ANALYSIS Economic Outlook and Prospects The global economy has been experiencing a rough and uncertain phase characterised by sub-optimal growth in world output and distinctly reduced investment demand. Global growth has continued to remain sluggish in 2015, slowing to 2.4% compared to 2.6% in 2014. The subdued performance was mainly due to the continuing deceleration of economic activity in emerging and developing economies amid weakening commodity prices, global trade and capital flows. The World Bank anticipates revival of global growth, but at a pace slower than expected, to reach 2.9% in 2016 and 3.1% in 2017/18. Crude oil prices, on an average, declined further from USD 52.83 per barrel (31-03-2015) to USD 37.34 (3103-2016), causing substantial reduction and cutbacks in investments in both the upstream and downstream areas of the petrochemical industry. The US-Iran agreement which has freed Iranian oil from sanctions, is expected to restore the surplus availability of crude for a conceivable period, thus tethering crude oil prices to current levels. Adding to these challenges, are concerns over the impact of the recent changes in China's economy, where it is opting for a more balanced growth path. China's decision to regulate its uncontrolled economic growth had far-reaching ramifications for global trade: (i) the industrial activity across sectors has decelerated, reducing demand for commodities, pushing their prices to the lowest levels, and (ii) the surplus capacity from China that started reaching every part of the world were at prices that local manufacturers couldn't compete with. Despite introduction of punitive measures and anti-dumping duties, supply brssures are still keeping commodity prices down. In the coming years, the world's economic activity will be significantly influenced by the provisions of the Paris Agreement on global climate, adopted by 196 nations during the 21st Conference of Parties (COP-21) in December 2015. The agreement aims to limit the rise in the global average temperature from br-industrial times to below 2°C within a specific time frame, to avoid a global climate change catastrophe. It clearly charts the change in the overall direction in which the world economy would move over this century - towards cleaner energy systems and fuel sources. The agreement does allow developing countries like India to use coal for its development plans for another 10 to 15 years. However, due to the emphasis on renewable energy sources, thermal power development is expected to face difficulties in seeking global financial support. The Indian Government's recent announcement of plans to generate 175 GW of electricity by 2020 from renewable sources (100 GW from solar) is a response to this changed reality. The silver lining came from strong economic recovery in major high-income countries last year. This has been increasingly driven by stronger domestic demand, particularly in the United States, supported by robust consumption and investment in the non-oil private sector. The US Government, in tandem with the local industries, is incentivising domestic manufacturing with the intention of bringing back the jobs lost to low cost countries. In the Euro zone, growth picked up in 2015, as domestic demand strengthened and exports accelerated, partly due to the lagged effect of Euro debrciation. In addition, credit growth is visible and unemployment is declining. Euro zone growth for 2015-16 is estimated at 1.5%, which has been displayed by Spain and to a certain extent by Germany, while France and Italy have made a slow but gradual recovery. Low oil prices and favourable financing conditions are supporting consumer spending and investments in consumption driven sectors. The recovery remains fragile in Japan despite substantial policy stimulus as private consumption and investment failed to pick up in 2015. Notable exceptions in an otherwise gloomy outlook for developing countries are South Asia and commodity-importing countries of East Asia, reflecting reduced macro-economic vulnerabilities and domestic policy reforms. GDP growth in South Asia increased from 6.8% in 2014 to 7.0% in 2015 - the fastest rate among developing regions, as the region benefited from lower oil prices and improved resilience to external shocks. Indonesia, the largest economy in South East Asia, devalued its currency substantially, and the government has implemented policies to protect the country's local enterprises from external factors. Restrictions were imposed on the import of many items, including capital goods, as Indonesia is vigorously localising its manufacturing. A few low-income economies (Ethiopia, Rwanda, Tanzania) displayed continued strength, supported by large-scale infrastructure investment, ongoing mine development, and consumer spending. However, fiscal risks have increased in several countries in East Africa due to sharp increases in public debt and contingent liabilities. In South Africa, serious power supply bottlenecks resulted in weak growth. Brazil and the Russian Federation have taken a turn for the worse as a result of global and domestic headwinds, with both countries experiencing GDP contractions, above-target inflation, and deteriorating public finances. India reported a GDP growth of 7.6% in the fiscal year 2015-16 compared to 7.2% in 2014-15, making it one of the fastest growing economies. However, this was achieved by shifting from a factor cost approach to a market price approach while computing GDP. Monetary and fiscal austerity, the fall in global crude oil prices and a moderation in food price inflation have contributed to this momentum. Fiscal prudence, combined with low crude prices ensured reduction of Current Account Deficit to an estimated 0.90% of GDP in 2015-16 as against 1.3% of the GDP in 2014-15. The Government also succeeded in bringing down the fiscal deficit to 3.9% as promised in the budget. However, industrial output has slowed and investment demand continues to remain muted. Surplus idle capacities and low commodity prices are restraining the revival of the investment cycle, especially in large sectors like steel, cement and power. Small investments continue in the consumer sector, brdominantly in food & food processing, drugs & pharma, alcohol & beverages, textile and automobiles. The Power sector is yet to revive. Coal block allocation is still underway. The Government is in the final stage of auctioning 11 coal blocks (captive). There will be no new auction for coal blocks earmarked to the power sector until the legal issues around the tariff regulations are resolved. Ultra mega power plants announced earlier are yet to be awarded as the new standard bidding document is awaiting Central Government's approval. The Government has announced a new revival package for DISCOMS and its successful implementation will have a positive impact on the power sector for Independent Power Producers (IPPs) to start implementing new projects. There has been substantial progress in the implementation of solar PV based power generation, in the form of both IPPs and roof top installations. Taking a cue from the Ministry of Power and MNRE targets, many states have auctioned new solar capacities. Tariff levels in these competitive bids have reached less than Rs.5 per unit levels, making solar power generation for major consumers more viable than grid power. This has emboldened the Government to revise its installation targets. In the context of the economic scenario outlined, with no big-size orders in the market, the capital goods sector remains under severe brssure, both on revenue and margin fronts. Due to the depleting order book and lower fresh intake in capital goods, industry across the globe is facing difficulties in managing balance sheets. As projects have dried up in the core sectors like power, oil & gas, steel, cement and infrastructure, the outlook for the capital goods segment continues to be challenging. Thermax Operational Performance In these challenging market conditions, revenues of Thermax Limited (standalone) showed a decline of 5.4% at Rs. 4,462 crore vis-a vis the brvious year (Rs. 4,719 crore). This is mainly due to lack of a large order during the maiden quarter of FY 2015-16 compared to FY 2014-15, which witnessed revenue from a large petrochemical order. However, the company was able to post marginally higher revenues of Rs. 5,636 crore at the Group level, a growth of 3.9% over the brvious year (Rs. 5,427 crore for FY 2014-15). This was mainly due to a few large orders in the subsidiaries booked earlier having neared completion in the current year, enabling the company to book revenues. Consolidated revenue from international business marked a significant rise of 43.8% at Rs. 2,336 crore (Rs. 1,624 crore). On a standalone basis, exports grew by 32.4% to Rs. 1,446 crore (Rs. 1,092 crore). This was possible due to healthy orders carried forward from the brvious year, both for consolidated and standalone business. The order intake for FY 15-16 remained subdued, both at consolidated and standalone levels. The consolidated order booking for FY 15-16 stood at Rs. 4,515 crore, a drop of 14.6% over the brvious year (Rs. 5,293 crore) with standalone order booking at Rs. 3,701 crore, a drop of 6.3% over the brvious year (Rs. 3,951 crore). This drop is mainly on account of lower orders in international markets. Business Segments of the Company: Energy and Environment Energy Segment The energy segment, contributing 82.6% of the group's operating revenues, offers solutions through the following businesses: (1) Heating (2) Cooling (3) Boilers for power generation (4) Power EPC (5) Solar (6) Service arms for the businesses including Power O&M services. The heating segment supplies boilers for a very wide range of applications with capacities ranging from 0.03 MW to 1200 MW (super-critical power plant boilers). The cooling business makes use of vapour absorption technology and supplies industrial and commercial cooling solutions. The power business offers turnkey power plants and the solar business is into photovoltaic and thermal solutions. The environment segment comprising air pollution control, water & wastewater solutions and chemical businesses account for 17.4% of the group's operating revenues. Overall, the performance of this segment during the year has been sluggish with a decline in revenues. Both the segments span a wide range of products and services, which can be grouped into three categories: 1) Products, both, standard and custom-designed. Larger units are generally custom-designed and built. 2) Projects and EPC contracts, especially for the larger non-standard products. 3) Life-cycle and O&M services to operate plants and other services that the company provides to customers. Operating Structure The risks, economics and business organisation are different for each segment. Most of the product and service businesses are with the parent company. Subsidiaries abroad are brdominantly sales/ service oriented, trading in products made in India or in the company's international factories. The company has 11 manufacturing facilities across the world, seven in India, two in Denmark, and one each in China and Germany, making different products to meet the requirements of diverse markets. The EPC business includes designing, engineering and integrating other machines in order to deliver a composite plant to a customer. For example, Thermax supplies complete power plants that integrate boilers, chillers and various utilities such as water & wastewater treatment and air pollution control equipment made by it, along with turbines, generators and the rest of balance-of-plants procured from other manufacturers. The construction portion of some of the EPC businesses are held by the domestic subsidiaries. The service business also includes revamping and retrofitting of existing plants to improve efficiencies and operating life of plant and equipment. Moreover, businesses like chemicals brdominantly impact the revenue side of the balance sheet of customers. Energy Segment Analysis The energy segment posted a revenue growth at group level of 3.7% over the brvious year. The revenue for this segment for FY 2015-16 was Rs. 4,546 crore (Rs. 4,383 crore). This growth was largely driven by the increase in revenue share of the company's domestic subsidiaries, which are the construction arms of the EPC businesses, and from TBWES, the joint venture company. Revenue from a nearly completed construction work for a major refinery order, received in the brvious year, contributed to the increase. Heating Business The standard product offerings under the Heating segment ie. Small packaged boilers, heaters and other solutions catering to multiple industries such as food, pharma, FMCG and textiles performed well. However, revenues remained flat owing to a lower order book being carried forward from the earlier year. Order intake for the Danstoker Group the subsidiary that contributes to the packaged boiler business remained flat owing to the subdued economic conditions in Europe. Changes in European policies and the Ukraine conflict continue to impact order inflow from Russia, as also the EU. The company's strategy continues to focus on certain countries in Latin America and diverse markets in continental Europe. The company also plans to enter the Middle East and South East Asian markets, leveraging the brsence of Thermax subsidiaries in these parts of the world. In the domestic market, the heating business of the company continued to be supported by the subsidiary, Thermax Onsite Energy Solutions Limited (TOESL). The company's large Boiler & Heater subset catering to power, steel, cement, etc. sectors was impacted by subdued market conditions, both domestic and global. With no signs of investment demand revival and bleak signs of capacity additions, the outlook for this subset remains cautious. The current order intake comprises small-sized orders from oil and gas, sugar, distillery, pharma and chemical sectors. Though similar small green shoots continue to appear in the international markets, closure of orders are taking longer than usual. Cooling Business The energy segment includes the cooling business that makes use of vapour absorption technology. For FY 2015-16, order intake of the cooling business remained flat compared to the brvious year. Food, beverage, and dairy sectors are prominent customers of the Cooling business and new product solutions were developed during the year specifically to cater to petrochemical and refinery sector. The Cooling business is supported by two wholly owned overseas subsidiaries: 1) Thermax (Zhejiang) Cooling and Heating Engineering Company Limited in China with a world class manufacturing facility, and 2) Thermax Europe Limited, based in the UK, managing the prospecting, marketing and services for absorption cooling business across Europe. The service arm (C&HSS) of the heating and cooling businesses continued to report a modest growth of 10% in both order intake and revenue. With the capacity utilisation of our customers showing an upward trend, the outlook for this business is positive in the coming years. The service business includes the operation of Rifox, our German subsidiary. Power EPC Business Power EPC for TL includes power plants up to 300 MW. Power, integral to the capital goods sector, was largely impacted by the sector's decline. Order intake of the Power business was half of the brvious year, resulting in a corresponding reduction in the order intake of Thermax Instrumentation Ltd, which is the construction arm of this business. The revenues for Power business clocked a growth of 61%, resulting brdominantly from carried forward orders. However, the order booking in 2015-16 remained very subdued. As a part of its O&M services, the company monitors the quality and consumption of fuel and water, chemicals, spares and other consumables at our clients' power assets. The cash flows from O&M installations have been challenging and hence a few accounts have been terminated. In spite of that, the revenues for Power O&M business clocked a growth of 12%, compared to last year. Solar Business With the global focus on renewable energy, and the Indian Government setting a target of 100,000 MW of solar energy by 2022, the future prospects for solar look bright. The company had placed its bets and invested some amount of resources, both manpower and financial in solar thermal. However, with PV prices crashing, the power sector is looking at PV far more favourably than solar thermal. Although the company is gearing up towards both roof top and larger power plant BOP, it needs to find a business model that is remunerative. With regard to solar heating, with the price of oil at current levels, it may take a while before this product picks up. With the Government of India's extensive plans of setting up renewable energy projects over the next seven years, this business should witness some growth. Environment Segment Analysis The performance of the Environment segment registered a marginal growth at 3.8%. The revenue at the group level for the segment for FY 2015-16 was Rs. 956 crore (brvious year Rs. 921 crore). Air Pollution Control Business (Enviro) Enviro division's order intake dropped by 40.4% from last year. However, revenues showed an increase of 23.3%. The air pollution control business is yet to witness a surge in order intake due to the change in the new emission norms issued by the Ministry of Environment. The new standards are aimed at reducing emission of particulate matter, Sulphur oxides (So) and Nitrogen oxides (NOx) to improve the ambient air quality in and around thermal power plants. The company has signed a licensing agreement with Marsulex Environment Technologies Corporation (MET) to offer pollution control technologies, especially for flue gas desulphurisation in South Asia. The tie-up is expected to open up new business opportunities in emerging markets. Water Business The Water and Waste Solutions business has improved its performance by reducing the losses by a considerable amount. The losses were due to the closure of the larger project business, brdominantly in the municipal sector where there were delays, overruns and cash flow challenges. The strong focus the business has brought to both the standard packaged treatment plants and the industrial sector, has resulted in an improved order intake during the year. The business is also planning to grow by actively prospecting for operation & maintenance of water and wastewater treatment plants. During the year, it already crossed the milestone of '100 active customers' for O&M. With continued efforts in cost reduction, standardisation and selective customer acquisition, the business should turn the corner in the forthcoming year. Chemical Business The chemical business remained flat in the current year, impacted by oil and commodity price drop. However, the ion exchange resin and construction chemicals businesses recorded good growth and performance. Opportunities 1) Compliance with the provisions of COP-21 will necessitate enhanced energy efficiency and deployment of technology to bring down carbon emissions. This will offer the company opportunities in waste energy recovery across the economies of developing countries. Deployment of clean coal technology using the gasification route, developed by the company, should open up new avenues for heating and captive power business in the medium term. As the signatory countries of COP-21 move into regimes of low carbon economic development, the company will benefit from high-efficiency solutions based on renewable energy options across the heating, cooling and power businesses. 2) In the domestic market, the Government has already promulgated stringent emission norms for suspended particles, SOx and NOx. Stricter implementation within defined timelines will help the company grow its air pollution control business at a faster pace than in the recent past. 3) As India transits from a water stressed country to a water starved one, many states plan to contain their usage of limited resources for industrial activity. The measures being considered for implementation include use of sewage as a raw input for industrial water, insistence on zero liquid discharge and compulsory recycle in water stressed locations. As a company specialised in knowledge and capabilities, with proven experience in these areas, the water business will be able to grow profitably, as it makes use of the opportunities emerging in the domestic market. Threats, Risks and Concerns 1) The ongoing contraction in capacity building across the globe is the biggest challenge faced today. Even in the domestic market, the capacity utilisation in the core and commodity sectors are limping at 55 to 70%. Unless they cross the 85-90% level and there is the promise of enhanced capacity utilisation, investments for greenfield projects will be difficult to come by. This scenario, if prolonged, will add to the woes of the entire capital goods industry including the company. 2) The tenets of COP-21 will result in adverse stipulations on the use of fossil fuels being formulated and implemented in the near future. However, use of cleaner technologies to contain and reduce greenhouse gas emissions while using fossil fuels may reduce the impact of this threat. 3) The banking system in the domestic market is facing an unbrcedented situation due to non-performing assets (NPAs). This is applicable to projects in segments that form a major part of the company's business. Though the Government and the Central Bank are seized of the gravity of the situation and are moving ahead with initiatives to contain and resolve the problem, global macro-economic factors, beyond the control of the domestic economy can disrupt the equilibrium. In such a scenario, the entire capital goods sector itself will face difficulties due to lack of new projects and liquidity crisis. Several ongoing projects in the core sector are facing financial constraints which have halted progress in certain cases, with possible risk of recovery of receivables. The company has continued to follow strict provisioning norms and the credit review system has been reinforced to address the increased risk. Risk Management The company has formed a Risk Management Council, consisting of heads of business and corporate functions. The Council meets four times a year. The risk management process consists of risk identification and assessment, risk measurement, mitigation and monitoring, and risk reporting. The Risk Management Council of the company carries out a detailed review of key risks facing Thermax, its impact on strategic decisions and mitigation measures. The review involves identification of key changes in the external environment which have significant bearing on some of these risks and the interplay of these risks and strategic initiatives of the company. Based on these reviews, certain risks have been prioritised, mitigation measures have been put in place and their effectiveness is continuously reviewed and monitored. This will be brought to the audit committee for review. Outlook The company has begun the new financial year with a lower order book at Rs. 3,747 crore. While the larger project orders may not be forthcoming, the organisation expects continuance and even improvement of shortlisted projects in food, drugs, pharma, etc. With substantial capacities that can turn around products and components at a fast pace, the company expects a linear performance even in this adverse market condition. Mid-sized projects for captive or cogeneration purposes will continue to be available in international markets where the company operates and should help create a better order carry forward towards the end of the current fiscal, provided decisions are made in time. Internal Controls The company has an internal control mechanism to ensure adequate safeguards and processes to address the evolving requirements of its divisions as they conduct large and varied businesses in global markets. These procedures facilitate efficient use and protection of its financial and non-financial resources. Key controls have been identified with respect to critical areas such as project cycles, operation & maintenance and customer support. Through such measures, the company meets the diverse challenges of its various business divisions by delineating and elaborating specific controls vital for their operations. The identified controls are further classified under the categories of automated and manual, and based on a combrhensive audit, their effectiveness and adequacy is determined. Internal controls are reviewed by Internal Audit on a periodic basis. All significant and material observations emerging out of internal audit are regularly reported to the Audit Committee of the Board and follow-up measures are taken. The company has also established internal controls over the financial reporting process. The adequacy and effectiveness of such controls is reviewed on a periodic basis. The process is suitably amended to address the evolving and varied needs of the business divisions and regulatory requirement. Financial Performance of Thermax Limited Revenue: Your company's net revenue from operations decreased by 5.5% to Rs. 4,352 crore and profit before tax decreased by 12.1% to Rs. 437 crore. Total employee cost was Rs. 454 crore as compared to Rs. 450 crore during the brvious year. The debrciation charge decreased from Rs. 64 crore to Rs. 61 crore during the year. The interest cost has come down from Rs. 20 crore in the brvious year to Rs. 1 crore this year, as the company has not availed packing credit for its exports. Additionally, the interest cost for 2014-15 included an amount of Rs. 9.6 crore towards interest on income tax, payable. Fixed Assets: Addition to the Fixed Asset block during the year ended March 31, 2016 was Rs. 62 crore (Rs. 55 crore in the brvious year). The addition consists mainly of plant and machinery. The debrciation block as of March 31, 2016 was Rs. 475 crore as compared to Rs. 430 crore as on March 31, 2015. The deductions/ disposals during the year amounted to Rs. 21 crore as compared to Rs. 8 crore in the brvious year. Consequently, the net fixed asset block marginally decreased to Rs. 645 crore as on March 31, 2016 as compared to Rs. 648 crore at March 31, 2015. The estimated amount of contracts remaining to be executed on capital account and not provided for, as on March 31, 2016 was Rs. 69 crore, and your company believes that it will be able to fund them internally. Investments: Investments increased to Rs. 1,506 crore on March 31, 2016 from Rs. 1,257 crore as on March 31, 2015. Dividend distribution to the shareholders was at 300% (Rs. 6/- per share) which accounted for Rs. 71 crore excluding dividend distribution tax. Performance of Subsidiaries: Thermax Engineering & Construction Company (TECC) This wholly owned subsidiary is the construction arm of the larger boiler & heater business of the company. The net revenue from the operations of the company for the year ended March 31, 2016 was Rs. 336. 49 crore as compared to Rs. 203.60 crore during the brvious year (65% higher) owing to a large order executed in the petrochemical sector. Thermax Instrumentation Limited (TIL) TIL, a wholly owned subsidiary is engaged in construction and commissioning of captive power plants. The net revenue from the operation for the year ended March 31, 2016 was Rs. 131.58 crore as compared to Rs. 101.09 crore during the brvious year (30% higher). With lower carry forward orders, this subsidiary is expected to have a subdued performance, next year. Thermax Onsite Energy Solutions Limited (TOESL) TOESL, a wholly owned subsidiary, is engaged in the build- own- operate business of providing sustainable solutions by supplying utilities like steam and heat to its customers. The net revenue from the operations for the year ended March 31, 2016 was Rs. 52.27 crore, as compared to Rs. 41.08 crore during the brvious year (27% higher). With two more projects getting into commercial operation, this subsidiary is expected to perform better. However, owing to lower oil and gas prices and absence of proportional reduction in biomass prices, conclusion of fresh biomass based contracts will be a challenge in the immediate future. Thermax Sustainable Energy Solutions Limited (TSES) The prospects of this wholly owned subsidiary, engaged in the business of providing sustainable solutions to the industry through the Clean Development Mechanism, continues to be unfavorable. Due to the unviability of Certified Emission Reductions (CERs) in the global market, the company did not witness any operations during the year. Thermax Inc. (USA) Thermax Inc., a step-down subsidiary and the sales and service arm of the company consists of two segments - energy (sales of absorption chillers) and environment (sale of ion exchange resins). The net revenue from operations for the year ended March 31, 2016 was USD 13.24 million (Rs. 87.73 crore) as compared to USD 14.96 million (Rs. 99.13 crore) during the brvious year (12% lower). The fall in revenue was due to lower revenue recognition of goods in transit as well as due to lower oil prices. The challenges faced by the US manufacturing industry will impact the performance of this subsidiary in the forthcoming year. Thermax Senegal S.A.R.L (Senegal) Thermax Senegal S.A.R.L, a step-down subsidiary of the company, is engaged in the business of plant management services. The net revenue from operations for the year ended March 31, 2016 was XOF 1,466 million (Rs. 16.71 crore) as compared to XOF 398 million (Rs. 4.54 crore) during the brvious year (268% higher). Revenues of this subsidiary are expected to be flat, next year. Thermax (Zhejiang) Cooling & Heating Engineering Co. Limited (China) Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd., a wholly owned subsidiary of the company is engaged in the manufacture, sales and service of vapour absorption systems. The net revenue from operations for the year ended March 31, 2016 was RMB 62.79 million (Rs. 64.49 crore) as compared to RMB 80.85 million (Rs. 83.04 crore) during the brvious year (22% lower). The drop in revenue was on account of lower domestic (China) sales due to subdued market conditions. Demand for chillers came down in view of the absence of capacity building in the manufacturing sector of China. However, offshoring into this subsidiary due to the shortage of manufacturing capacity within the overall cooling business of Thermax, combined with the cost reduction exercises initiated will see this subsidiary remain EBITDA positive in the coming year too. Thermax Europe Limited (UK) Thermax Europe, a wholly owned subsidiary, is engaged in the sales and service of vapour absorption chillers. The net revenue from the operations for the year ended March 31, 2016 was £ 6.15 million (Rs. 58.51 crore) as compared to £ 9.43 million (Rs. 89.71 crore) during the brvious year (35% lower). This was due to execution of a major order in the brvious year (GBP 4 million) and absence of such an order during the financial year 2015-16. This subsidiary with its focus on renewable and waste-to- energy for cooling, should perform better in the coming year. Rifox-Hans Richter GmbH Spezialarmaturen, Bremen (Germany) Rifox, a wholly owned subsidiary, is engaged in the business of manufacturing a wide range of standard products within the four most applicable steam trap systems. The net revenue from operations for the year ended March 31, 2016 was EUR 3.73 million (Rs. 28.13 crore) as compared to EUR 3.69 million (Rs. 27.82 crore) during the brvious year (1% higher). With outsourcing of components from India, and improvement in operational efficiency, Rifox has maintained its profitability during the year. Danstoker A/S (Denmark) Danstoker A/S, a step-down subsidiary is engaged in the business of designing, production and sale of boilers and relevant equipment to the energy market, including rebuilding and servicing of boilers. The net revenue from operations for the year ended March 31, 2016 was DKK 170.86 million (Rs. 172.86 crore ) as compared to DKK 186.94 million (Rs. 189.12 crore ) during the brvious year (9% lower). Withdrawal of subsidies for renewable energy in many European markets combined with the lack of Russian investments across Europe has had a negative impact on Danstoker's performance. The parent company is helping this subsidiary to market its products in the Middle East and South America, which should see traction in the coming years. Boilerworks A/S (Denmark) The net revenue from operations of Boilerworks A/S, a stepdown subsidiary of the company, for the year ended March 31, 2016 was DKK 94.88 million (Rs. 95.99 crore) as compared to DKK 72.66 million (Rs. 73.51 crore ) during the brvious year (31% higher). Boilerworks A/S is engaged in the business of designing, production and supply of high brssure components to power plants, waste and biomass combustion plants, industrial and petrochemical plants. With anticipated life extension contracts for older power plants, Boilerworks should repeat another year of good performance. Joint Ventures Thermax Babcock & Wilcox Energy Solutions Private Limited (TBWES) Investment in the thermal power sector could be decelerating during the year. Despite the UDAY initiative created by the Central government, the banking system in the country continues to suffer, owing to unbrcedented levels of non-performing assets (NPAs) from the power sector. Lending has almost come to a standstill in this sector. The private power producers have not initiated any new projects. Despite the announcement of setting up five ultra mega power plants, the Government was unable to initiate the process of tendering any of those projects. The state electricity generation companies with substantial debts on their balance sheets also were not forthcoming with new projects barring four isolated projects, two of which were awarded on nomination basis to PSUs, and others requiring financing by equipment suppliers. Tendering activity for boiler-island alone for thermal power plants within India remained feeble. Even those limited tenders invited had enhanced scope of additional work like civil structures, ash handling plants, electricals, etc., adding to higher levels of business risk. There were a few tenders for power plant EPC, which the company decided not to participate considering the long-term risk it may pose. Manufacturing at the facility of TBWES progressed well during the year. During FY 2015-16, the company registered a total revenue of Rs. 358 crore (Rs. 46 crore, brvious year) by executing part of the orders received from B&W, the US partner of the JV. The company made a loss of Rs. 70 crore. However, TBWES was EBIDTA positive to the extent of Rs. 30 crore. TBWES received one more order from its JV partner for engineering and supply of core brssure parts for a 300 MW supercritical boiler for a South East Asian country. This combined with the carry forward orders should help the JV. TBWES had availed term loans amounting to Rs. 443 crore from the banks for setting up its manufacturing facility at Shirwal, Maharashtra. The interest burden for the repayment needs of this loan, coupled with low visibility of feasible orders in the domestic market, is making the operations unviable. As a remedial strategy, the promoters jointly decided to infuse further capital to enable repayment of outstanding loan. The JV has already repaid its term loans. Consequent to the repayment, the breakeven levels of this company is expected to come down and make its operations cash positive. Thermax SPX Energy Technologies Limited (Thermax SPX) This joint venture had its first profitable year with a total revenue of Rs. 44.3 crore. During the year, Thermax SPX supplied seven air cooled condensers (ACC) to different sectors including cement, pharma, and chemical. As part of business restructuring, the foreign partner, SPX Technologies, divested dry cooling as a part business to an Indian company. This will reduce the potential market for this JV to regenerative air brheaters and electrostatic brcipitators for large projects. Human Resources The company's Human Resources group, with the help of an external agency, conducted the Employee Experience Survey (EES) in October, 2015 to gain insights from the workplace. 96% employees participated in the survey and the findings were brsented to the senior management. Based on employee response, action plans were charted out and a review mechanism is being put in place to ensure implementation. HR also supports the company's internationalisation programme with specific focus on South East Asia. An E-MBA programme in partnership with IMT Ghaziabad was launched for young employees aspiring to pursue management education. Health Safety and Environment The Board continues to review the safety performance of the company every quarter. The managing director reviews the health, safety and environment (HSE) performance of each division on a quarterly basis and the process is supported by safety committees at business and project site levels. The Water and Waste Solutions division of the company was recertified as per OHSAS18001:2007 by Bureau Veritas in this financial year. Surveillance audits for OHSAS18001:2007 and ISO 14001:2004 were conducted by DNV for Chinchwad, Savli and Mundra works and by Bureau Veritas for Paudh and Jhagadia plants. 1,152 internal audits and 36 external safety audits and inspections were carried out in FY15-16. Special safety audits for fire brvention were carried out at all the office locations and manufacturing plants in Pune. All manufacturing and project locations have developed emergency management plans. Training on fire brvention and control, mock drills on emergency evacuation have been conducted at the plants and offices. Regular safety training covers employees at various levels and regions, contractors, vendors and suppliers. Cautionary statement Statements in this Management Discussion and Analysis describing the company's objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either exbrssed or implied. |