Thermax Ltd Management Discussions.

Economic Outlook and Prospects

Your companys performance is significantly influenced by macro factors such as capacity building in core sectors, infrastructure building as well as consumption growth in durable and consumer segments. The cyclicality in these areas coupled with implementation of environmental norms and capacity utilisation defines the health of the capital goods industry.

During the year 2017-2018, the global economy showed signs of a possible recovery after almost a decade of slump. This was reflected in revival of investment in a few of the sectors, especially in the developing world. Manufacturing activities and trade have also shown an upward trend, though minor in nature. There have been signs of favourable global financing conditions, generally accommodative policies, positive business sentiments and firming commodity prices. Global GDP growth has picked up from 3.2% in 2016 to almost 3.8% in 2017.

The growth in advanced economies was 2.3%, while that of emerging markets and developing economies was more pronounced at 4.8 % in 2017. The recovery was significantly stronger than expected in the Euro area and, to a lesser degree, in the USA. Abenomics helped Japan recuperate from a prolonged decline in growth, while the oil-dependent economies heaved a sigh of relief with the firming up of prices. Growth in China continues to be moderate. However, the country has emerged as a centre of global energy demand with significant investment in renewables. South East Asia also witnessed improved economic stability showing signs of revival in growth.

In order to leverage the selective global growth and to reduce dependency on a single geo-polity, your company further expanded its manufacturing footprint into eastern Europe through Danstoker Poland and established a manufacturing facility in Indonesia. These strategic initiatives will help your company to participate actively in the capacity building process in eastern Europe as well as ASEAN countries.

On the domestic front, Indias economic growth is estimated to have decelerated to 6.6 % in the last fiscal, lower than the previous years 7.9%, impacted partially by the process of demonitisation and by the initial challenges on account of GST implementation. However, in the long term, both these initiatives will propel Indian economic growth which is targeted at 7.3% this fiscal and further to 7.6% in the next financial year. Ongoing successful implementation of the Insolvency and Bankruptcy Code (IBC), though painful in the interim, will help clean up the banking balance sheets of India and pave the way for economic stability in the long-term.

The macro indicators were steadily improving with Current Account deficit coming down from 4.2% in FY 12 to 1.9% in FY 18 (as % of GDP) while the fiscal deficit reduced from 5.7% to 3.5% during the same period. However, rising oil prices, depreciating Indian currency, inability to enhance exports and rising inflation could dampen the positive momentum for India.

The investment needed in infrastructure over the next five years is estimated to be around a trillion USD. While generating financial resources to fund these will be a major challenge for the country, success on this front can accelerate the economic growth trajectory and benefit your company.

The capacity utilisation in various sectors is showing signs of improvement signalling selective investment revival, mainly in the consumption-led industries. Though capital goods companies have registered a healthy order intake during the year, the market is viewing this recovery with cautious optimism.

In order to abate the alarming rise in air pollution created by the automobile sector, the Union Ministry of Petroleum and Natural Gas has advanced the introduction of Bharat Stage VI fuel norms by two years. Oil refineries are hastening their upgradation programme with a capital outlay of over Rs. 90,000 crore envisaged to meet the new norms by 2020.

With the government making emission norms stringent, your company can look forward to increasing opportunities coming its way.

The Indian power sector is undergoing a paradigm shift to meet the growing electricity demand. The Government

of Indias focus on attaining Power for all has accelerated capacity addition in the country, where the total installed capacity of power stations in India stood at 344 Gigawatt (GW) as on March 31,2018. For ensuring reliability of power supply and reduced dependence on the grid, industries such as fertilisers and food processing are investing in captive cogeneration plants. These plants designed with cleaner fuels like gas and biomass will not only reduce the carbon footprint but also offer higher plant efficiencies. By bagging significant orders, your company has been a major beneficiary from the developments in the captive cogeneration sector.

India added 11.79 GW of power generation capacity from renewable sources between January - November 2017. With Indias commitment to implement the Paris agreement on climate change that entails a 35% reduction in carbon intensity by 2030, the company expects an accelerated growth for the renewable energy segment in India. With initial success in the rooftop segment and its leadership position in biomass as an energy source, your company is expected to benefit from the countrys programme to support climate change mitigation.

Overall, against the backdrop of an anticipated global economic recovery, augmented by improved investments in the domestic industrial sector, your company is poised for a positive year ahead.

Thermax Operational Performance

In FY 2017-2018, Thermax Group posted a revenue of Rs. 4,602 crore as compared to Rs. 4,704 crore in the previous year. At the standalone level, the total revenue was Rs. 3,993 crore for the financial year 2017-18, against last years Rs. 3,973 crore. The current year revenue is exclusive of Goods and Service Tax (GST), while last years revenue includes Excise Duty, and hence they are not comparable.

On a standalone basis, revenue from exports have gone up by 7.3% to Rs. 1,262 crore (Rs. 1,176 crore) and the group international business was higher by 13.2% at Rs. 1,794 crore (Rs. 1,585 crore). This was due to a large refinery order in Africa and opportunities in the Middle East and South East Asia.

Consolidated order booking for FY 2017-18 went up by 45.2% to Rs. 6,380 crore (Rs. 4,394 crore) with standalone order booking at Rs. 5,696 crore, an increase of 48.7% over the previous year (Rs. 3,831 crore). Order booking from international markets at Rs. 2,748 crore accounted for over 43.1% of the consolidated figure as compared to Rs. 2,087 crore last year (47.5%).

Over the years, your companys key strategy has been to insulate its business from cyclicality of the India capital goods sector and projects business. Through selective internationalisation of the product businesses and strategic expansion of its product manufacturing footprint, the company has progressed well in this direction. With the acquisition in Poland and the new manufacturing facility in Indonesia, Thermax is poised to capitalise on the growth in the East European and ASEAN markets respectively. The businesses have diversified their sales network to foray into new countries, the latest addition being a sales office in Istanbul, Turkey. The projects businesses have improved their prospects by collaborating with OEMs and EPCs and by exporting to markets on a case to case basis.

Business Segments of the Company

Energy Segment

The energy segment contributed 78% (79.2%) of the groups operating revenues in FY 2017-18. The segment comprises 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 and solar thermal for an extensive range of applications. The Cooling business provides industrial and commercial cooling making use of vapour absorption chillers as well as offerings for process cooling. The Power business offers turnkey power plants including solar photovoltaic and solar thermal solutions.

This segments performance was muted, lower than the previous year.

Environment Segment

The environment segment, accounting for 14.1% (14%) of the groups operating revenues, consists of air pollution control and water and waste solutions.

The air pollution control business caters to a wide range of industries - cement, steel and ferrous metals, petrochemicals, fertilisers, etc. The business offers products and solutions for both particulate and gaseous emissions. The water and wastewater solutions business support industry and commercial establishments to treat water for their process requirements and clean sewage and effluent.

This segments performance remained flat during the year.

Chemical Segment

The Chemical segment accounts for 7.9% (6.8%) of the groups operating revenues. It comprises the following business segments - boiler and water chemicals, resins, performance chemicals, construction chemicals and oil field chemicals.

Besides the domestic market, this segment has customers in several international markets such as Middle East, Japan, Europe and USA.

This segment is supported by manufacturing facilities in Paudh (Maharashtra), Jhagadia and Dahej (Gujarat).

The three segments - Energy, Environment and Chemical - 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 predominantly sales/ service oriented, trading in products made in India or in the groups international factories. The group has 14 manufacturing facilities across the world, eight in India, two in Denmark, and one each in Indonesia, Poland, 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 & waste treatment and air pollution control equipment made by it, along with turbines, generators and the rest of balance-of-plant 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 predominantly impact the revenue side of the balance sheets of customers.

Energy Segment Analysis

For FY 2017-18, the Energy segment posted an operating revenue (net) at the group level of Rs. 3,497 crore (Rs. 3,625 crore). The segment profits were at Rs. 283 crore (Rs. 323 crore). While the drop in revenues contributed to lower profits for the year, profitability of the energy segment was further impacted by lower margins of the cooling business and losses from the Chinese subsidiary. However, with an order booking for the current year at Rs. 5,309 crore (Rs. 3,426 crore), prospects for the Energy segment have improved.

Heating

The standard products of the Heating business - small packaged boiler and heater - saw a marginal improvement in revenue, while exports were lower than last year. In Europe, the business experienced a dip in sales during the year, owing to subdued oil prices that muted the demand for solid fuel.

The year also saw several new additions to the product portfolio. Shellmax series boilers were introduced for the global market. Thermax partnered with its technology affiliate, Lambion Energy Solutions GmbH to introduce the latest underfeed stoker technology (UFS) in its Enerbloc and Combloc boilers for Asian markets. The company also launched Powerpac boilers for process heating as well as cogeneration applications.

The outlook for FY 2018-19 is positive with opportunities in India in the textile, pharma, chemical, plywood and food processing sectors and focus on renewables in Europe. Integration with the service business will help in driving synergies in the aftermarket. Internal process enhancements including the implementation of product lifecycle management (PLM) model are expected to bring operational efficiencies.

The large boiler subset (B&H) registered flat growth in revenues due to a lower opening in orders booked. However, it witnessed a substantial improvement in order pipeline, offering a positive outlook for the coming year. The domestic business saw growth coming from expansion projects as well as refineries upgrading to meet Bharat VI fuel standards. Thermax commissioned a Boiler -Turbine-Generator (BTG) system for an integrated steel major in southern India. This waste gas fired boiler and turbine package will help the plant reduce its dependence on the power grid significantly. The international business looked promising mainly due to a multiple unit order from a refinery in Africa. The division increased its export capacity by expanding its assembly facility at Mundra port in Gujarat. Continued efforts by industries to go green using waste heat along with investments in refineries present an optimistic scenario for this business next year.

The Services business supporting the large boiler subset (B&H) saw a positive year with an uptick in both revenue and order intake. Growth drivers include increased capacity utilisation across select sectors, entry into reforming application in refineries gearing up for Bharat VI emission norms. Predictive maintenance and efficiency improvement programmes increased customer penetration, a breakthrough project with a power major for remaining life assessment of the steam lines being a good example. The business expanded its geographical presence by foraying into Europe and Australia. The year also saw the execution of a first-of-its-kind fuel shift project by successfully commissioning Syngas firing of boilers for a leading private sector refinery.

Cooling

Thermaxs Cooling business witnessed a decline in revenues during the year due to lower international revenues as a result of project delays in Asia and Latin America. The sale of chillers in the Chinese market remained subdued during the year.

On the global front, the business bagged a repeat order for chillers from a petrochemical giant in Saudi Arabia. The Russian market presented excellent growth opportunities with several chillers sold mainly to the growing F&B sector. There was an inflow of orders from the textile sector in Bangladesh. With a new office in Istanbul Thermax expanded its footprint to Turkey. During the year, Thermax sharpened its global focus on the industrial segment, reaping dividends mainly in the Middle East and South East Asia. The business in the US came from a mix of commercial and industrial sectors while in Europe it was mostly from the cogeneration segment. Thermax promoted its unique low-temperature chiller applications at the Drinktec exhibition on beverages and liquid food industry at Munich.

In the Indian market, the newly introduced triple effect chillers in the chemical sector and ultra-low-pressure chillers in the F&B industry saw good traction, followed by orders from the petrochemical and fertiliser sector. Thermax won the Innovative Energy Saving Product Award for its One Degree Absorption Chiller at the 18th CII

National Award for Excellence in Energy Management in Hyderabad. It unveiled the new high COP hot water driven absorption chiller along with process cooling solutions at a major HVAC expo in India. The Cooling business is on the verge of completing its state-of-the-art manufacturing plant at Sri City, Andhra Pradesh. The emerging Process Cooling portfolio of Thermax has been structured as a new Strategic Business Unit, effective April 1,2018, to bring about better focus at a global level.

Cooling & Heating Services

Cooling & Heating Services registered its best performance with growth in both revenues and profitability. During the financial year, a new 22,000 sq. ft. manufacturing facility for steam engineering products was commissioned at Savli, Gujarat. The plant will manufacture steam accessories for the Rifox (Germany) brand in India. Starting next financial year, Cooling and Heating services will be merged with the respective products businesses in order to enhance customer service and synergy.

Power EPC Business

Revenue for Power division was marginally lower due to lower order carry forward at the start of the year. Order booking improved significantly during the financial year with the business receiving significant orders for captive cogeneration plants from public sector undertakings in the fertiliser and chemical sector. It also witnessed opportunities coming from waste heat recovery projects and international markets.

Thermax received its first EPC order in the Middle East from a leading cement company in the UAE. Thermax also received a repeat order from the Philippines for a power plant based on biomass.

For FY 2018-19, in the domestic market, this group expects new business on account of waste heat recovery projects and captive power projects from other core industries driven by revival in private capex. The business is continuing its efforts to pursue prospects for middle range captive power plants in international markets.

The Power O&M services witnessed the addition of customers in the domestic segment during the year.

The business is focusing on growing its portfolio of value- added services to customers.

An increase in order booking in the recent months should help the power business register growth in the coming year.

Solar Business

The Solar business successfully commissioned Indias second largest single-roof solar PV project on a turnkey basis. The project will help the customer reduce CO2 emissions by 6500 tons/year.

The business continued to perform better with higher revenues and repeat orders from customers in the rooftop segment. Even though the module prices increased for the first time during the year, installations continued to gather pace with increasing preferences for Solar PV plants. Thermax will continue to focus on expanding its presence in this business.

Environment Segment Analysis

Operating revenues (net) for the Environment segment in FY 2017-18 is at Rs. 694 crore (Rs. 700 crore). The profit for the segment was Rs. 29 crore, lower as compared to Rs. 38 crore in the last financial year, mainly due to rise in commodity prices which impacted the margins of the air pollution control business that is largely dependent on steel.

Order booking for the Environment segment for FY 2017-18 was at Rs. 729 crore (Rs. 663 crore).

Air Pollution Control Business (Enviro)

The revenue for Air Pollution control was flat for 20172018, due to lower order backlogs from the previous year and margins were impacted by rising commodity prices. However, the order intake improved substantially during the year. The business bagged a major order of six ESPs from a customer in Indonesia. With industrial pollution norms being enforced with higher rigour, the business saw opportunities in several sectors such as cement, steel, palm oil and power. On the domestic front, COP 21 compliance requirements and Indias initiative to go green has paved the way for the Indian Ministry of Environment & Forests (MOE&F) to introduce stringent new standards to regulate NOx, SO2, particulate matter and mercury emissions from coal-fired power plants. However, with increasing competition from multiple players and complex bidding terms, the company has considered participating selectively in opportunities from the sector.

Water

The Water business that turned positive last year sustained its momentum in FY 2017-18 both in order booking and revenue. The strategy of focusing on the quality of orders regarding short gestation period has resulted in significant improvement in margins.

Majority of the business has been realised from the growing food processing sectors with many greenfield expansion projects coming its way.

With industry norms becoming more stringent regarding usage of recycled water and effluents discharged, Thermax received many opportunities in wastewater and ZLD plants, including a major order from a leading Oil MNC in Bangalore for a Membrane Bioreactor based waste water treatment plant as well as Zero Liquid Discharge.

In the global market, Thermax has commissioned projects through EPC contractors in the Middle East and South East Asia, the major one being a repeat order for a Demineralisation (DM) water treatment plant order from the Ministry of Electricity and Water (MEW), Kuwait.

There is an increased focus on the quality of sewage treatment plants and water treatment plants in the realty segment where the business sees a positive outlook for the coming year.

Chemical Segment Analysis

In FY 2017-18, the Chemical business segment posted an operating revenue of Rs. 361 crore (Rs. 332 crore).

The profit for the segment was Rs. 54 crore as compared to Rs. 59 crore in the previous fiscal. The profitability of the Chemical segment was impacted due to expenses incurred in the stabilisation phase of the new resins facility at Dahej, Gujarat which was higher compared to the low production in its initial phase of operations. Order booking for the segment in FY 2017-18 stood at Rs. 342 crore (Rs. 305 crore).

The Chemical business registered a growth in revenues attributed mainly to the oil field chemicals product group. Construction chemicals business was buoyed by the growth in infrastructure where major repair and rehabilitation projects were executed. The Resin business achieved breakthrough in developing a proprietary specialty resin to improve the process efficiency in a large petrochemical complex.

The new Chemical facility at Dahej started production during the year and is expected to reach 70% to 80% of capacity utilisation by the end of the calendar year.

This facility will serve as a global hub for supplying ion exchange resins to the US, Europe and the South East Asian market.

In FY 2019, the focus will be on expanding the business of ion exchange resins used for water softening, demineralisation, ground water remediation, catalysis, metal recovery and F&B applications.

Major business is expected to come from the US, followed by Europe, South East Asia and the Far East.

The growth in domestic infrastructure spend will present new opportunities for the construction chemicals business in the coming year.

Thermaxs Capacity Expansion: Manufacturing Facilities

The group forayed its footprint into three manufacturing facilities, two international and one domestic, to meet the global demand for its products.

Thermax inaugurated its new manufacturing facility in Indonesia on July 26, 2017. With the new plant, the company will be able to better serve its customers in the ASEAN region.

Thermax Limited, through its step-down subsidiary in Denmark, acquired certain assets and production activities of Barite Investments Sp. z.o.o. in Poland. This provides the company additional manufacturing capacity for future expansion and for advancing its business in eastern Europe.

Commercial production from its newly constructed facility at Dahej, Gujarat commenced on October 31,2017 and the new phase of expansion is underway.

The manufacturing facility of Thermax at Sri City, Andhra Pradesh is in its final stages of completion and expected to commence commercial production in the second quarter of FY 2018-19.

Opportunities

1) With nations including India endorsing the COP 21 compliance requirements and the thrust on going green, enforcement of stringent emission norms and focus on renewable energy is likely to offer opportunities for the businesses of the company.

2) With the smart cities project gaining momentum and growth in residential as well as commercial realty sectors, Thermax can expect business for solutions such as compact sewage treatment, water recycling systems, absorption chillers and construction chemicals.

3) Increase in capacity utilisation particularly in consumption-led sectors from private as well as public sector players will manifest in new opportunities for Thermax.

Concerns

1) The concern about rising protectionism across the world, affecting the cost of cross-border trade may prevent export-oriented companies from remaining competitive in the international markets.

2) The availability of bank credits for projects continues to be difficult which may limit companies from planning further expansion, thereby constraining the prospects for the companys EPC and projects businesses.

Risk Management

The company has a comprehensive Enterprise Risk Management (ERM) framework in place for identification, assessment, mitigation and reporting of risks. The Risk Management Council of the company carries out a detailed review of key risks facing the company, its impact on strategic decisions and mitigation measures. The review of these risks is done based on the important changes in external environment which have significant bearing on the risks. The company actively keeps track of changes in the domestic economic environment, geo political developments, key commodity prices such as oil and coal, currency and interest movement. Apart from mitigation, these risks are also monitored for any emerging business opportunities.

Apart from these risks, the individual business units assess operational risks such as execution challenges, working capital challenges, human resources challenges etc. and appropriate timely action is taken to mitigate the risks.

The Audit Committee of the Board oversees risk management strategies and practices.

Internal Control

The company has an internal control mechanism to ensure adequate safeguards and processes to handle large and varied businesses in global markets.

Internal controls of the company 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 necessary actions are taken.

Among the internal control mechanism and good governance, the employees are guided by the companys Code of Business Ethics and Conduct as well as companys Whistle Blower policy.

Senior management and the Audit Committee of the Board is periodically apprised on the internal processes of the company with respect to internal controls, statutory compliances and assurance.

Financial Performance

In FY 2017-18, your company registered a total revenue of Rs. 3,993 crore as compared to previous years Rs. 3,973 crore. The Group revenue was Rs. 4,602 crore (Rs. 4,704 crore). Thermax was able to maintain profit before tax and exceptional items at Rs. 403 crore which is close to last years Rs. 407 crore. The current year revenue is exclusive of Goods and Services Tax (GST), while last years revenue includes Excise Duty, and hence they are not comparable.

After accounting for exceptional items of expense of Rs. 25 crore (Rs. 133 crore) and income tax expense of Rs. 140 crore(Rs. 130 crore), the profit after tax stood at Rs. 238 crore as compared to Rs. 145 crore last year. The exceptional item of expenses relate to the impairment of the companys investments in joint ventures and subsidiaries as follows:

1. Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd. - Nil (2016-17 : Rs. 112 crore)

2. Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. - Rs. 20 crore (2016-17: Rs. 5 crore)

3. First Energy Pvt. Ltd. - Nil (2016-17: Rs. 16 crore)

4. Thermax SPX Energy Technologies Limited - Rs. 5 crore (2016-17: Nil)

The impairment, indicated above, has been done in view of the present market conditions and also based on the principle of prudence.

On a consolidated basis, profit before tax and exceptional items was Rs. 422 crore (Rs. 455 crore). The net profit after exceptional item, tax expense and share of loss of jointly controlled entities was Rs. 231 crore as compared to Rs. 216 crore last year.

The net cash flow from operations showed remarkable improvement at Rs. 507 crore (Rs. 346 crore) mainly due to better working capital management. At the consolidated level, the net cash flow from operating activities stood at Rs.546 crore (Rs. 335 crore).

The groups other assets include unbilled revenue of Rs. 539 crore (Rs. 579 crore).

Last year your company invested Rs. 55 crore in a new manufacturing facility for its Cooling business in Sri City (Andhra Pradesh) and a further Rs. 26.44 crore for its chemical manufacturing facility at Dahej (Gujarat).

Your company infused additional funds of Rs. 14 crore in Thermax Netherland for acquisition of Barite Investments Sp. z.o.o. in Poland, Rs. 6 crore in Thermax Singapore and Rs. 6 crore in First Energy Pvt. Limited.

Thermaxs cash and bank balances and investments, other than investments in joint ventures and subsidiaries, stood at Rs. 1,360 crore in comparison to Rs. 918 crore in the previous year.

Performance of Subsidiaries:

Thermax Engineering Construction Company Limited (TECC)

This wholly owned subsidiary is the construction arm of the larger boiler & heater business of the company.

The net revenue from operations for the year ended March 31,2018 was Rs. 100.71 crore as compared to Rs. 236.41 crore during the previous year, down by 57.4% due to lower opening orders carry forward. The subsidiary is being restructured which will limit its business growth. Accordingly, the order pipeline of TECC has been lower and will post lower revenues in the coming year.

Thermax Instrumentation Limited (TIL)

TIL, a wholly owned subsidiary is engaged in construction and commissioning of captive power plants. The net revenue from operation for the year ended March 31, 2018 was Rs. 106.77 crore as compared to Rs. 122.41 crore during the previous year (12.8% lower). With higher carry forward orders, this subsidiary is expected to register growth in 2018-19.

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 such as steam and heat to its customers. The net revenue from operations for the year ended March 31,2018, was Rs. 63.57 crore, as compared to Rs. 57.97 crore during the previous year (9.7% higher).

The company continues to focus on domestic and international markets. The recent trend in rising oil prices is driving a shift towards biomass which along with a growing preference for outsourcing prove to be enablers for the business.

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 unfavourable. Due to the unavailability 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 in USA is the sales and service arm of the company and operates in two segments - energy (sales of absorption chillers) and chemicals (sale of ion exchange resins). The net revenue from operations for the year ended March 31,2018 was $ 16.65 million (Rs. 107.31 crore) as compared to $ 15.5 million (Rs. 100.52 crore) during the previous year (7.4% higher in USD).

With both the Chemical and Cooling businesses of Thermax doing well along with signs of economic recovery in the US market, prospects for Thermax Inc. are encouraging.

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 31,2018 was XOF 639.93 million (Rs. 6.73 crore) as compared to XOF 1,374 million (Rs. 14.53 crore) during the previous year (53.4% lower in XOF). With the closure of the earlier order and no new orders registered so far, the subsidiary is unlikely to generate any revenue in the coming year.

Thermax (Zhejiang) Cooling & Heating Engineering Co. Limited, China (TZL)

TZL, 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 31,2018 was RMB 52.52 million (Rs. 51.09 crore) as compared to RMB 63.66 million (Rs. 59.97 crore) during the previous year (17.5% lower in RMB). Performance of this subsidiary in FY 2018-19 is expected to be flat. The company has further recognised diminution in the value of investment in the subsidiary.

Thermax Europe Limited, UK

Thermax Europe, a wholly owned subsidiary, is engaged in the sales and service of vapour absorption chillers.

This subsidiary had a profitable year despite a lower net revenue from operations at 6.81 million (Rs. 58.22 crore) as compared to 8.25 million (Rs. 67.15 crore) during the previous year (17.5% lower in )

Rifox-Hans Richter GmbH Spezialarmaturen, Bremen, Germany

Rifox, a wholly owned subsidiary, is engaged in the business of manufacturing a range of standard steam engineering products. The company turned around during the year, posting marginal profits and established a strong partnership with India to drive low-cost synergies.

The net revenue from operations for the year was EUR 3.36 million (Rs. 25.32 crore) as compared to EUR 2.98 million (Rs. 20.59 crore) during the previous year (12.8% higher in Euro).

Danstoker A/S, Denmark

Danstoker A/S, a step-down subsidiary is engaged in the business of design, 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 31,2018 was DKK 135.63 million (Rs. 137.30 crore) as compared to DKK 185.41 million (Rs. 172.22 crore) during the previous year (26.8% lower in DKK). While economic growth in the Euro zone has improved enquiries for Danstoker, delayed decision making for investment by customers have impacted the performance of the subsidiary. Signs of improvement in the European economy, rising oil prices coupled with commitment to COP-21 Paris agreement could shift focus to biomass-based projects, presenting a positive outlook for Danstoker.

Boilerworks A/S, Denmark

Boilerworks A/S, a stepdown subsidiary of the company, is engaged in the business of design, production and supply of high pressure components to power plants, waste and biomass combustion plants, industrial and petrochemical plants.

The net revenue from operations of Boilerworks A/S, for the year ended March 31,2018 was DKK 143.44 million (Rs. 145.2 crore) as compared to DKK 117.43 million (Rs. 109.08 crore) during the previous year (22.1% higher in DKK).

Outlook for Boilerworks continues to be positive.

Joint Ventures

Thermax Babcock & Wilcox Energy Solutions Private Limited (TBWES)

For FY 2017-18, TBWES registered revenues of Rs. 144 crore (Rs. 306 crore), executing orders received from B&W, the US partner of the JV.

In May 2018, Thermax entered into a preliminary understanding with Babcock & Wilcox India Holdings Inc. (B&W) to acquire the shareholding of the latter.

The transaction will provide Thermax access to the manufacturing facility of TBWES and also to a wider range of B&W technologies. The parties are working towards a definitive agreement to conclude the transaction.

Thermax SPX Energy Technologies Limited (Thermax SPX)

Thermax SPX reported revenues of Rs. 14 crore for FY 2017- 18, compared to Rs. 28 crore in the previous year. The company is in the advanced stages of executing the orders.

Human Resources

In anticipation of the people competencies required to meet your companys promising outlook and footprint expansion globally, a programme for leadership development was instituted in collaboration with Indias leading management institute ISB comprising modules for strategy, manufacturing, finance, internationalisation and people development. The international HR team was strengthened to further support Thermaxs increasing global presence.

An organisation-wide programme for technical competency mapping was launched that led to identifying 247 roles mapped to 92 competencies and 222 technical skills, setting a base for career progression planning.

Several initiatives to strengthen employee culture and instil employee pride were undertaken - T Quiz on the theme of Know Thermax, Love Thermax for the first time, successful second year of the Learning Fest and continued awareness on Code of Business Ethics and Conduct (COBEC).

Industrial Relations in FY 2017-18 proved to be a successful year with the conclusion of a five-year union agreement at the Savli plant that is being considered as a model agreement in Gujarat. A three-year contract with the Union at the Chemical factory at Paudh was also signed. The new facilities of Indonesia and Danstoker Poland completed their organisational structuring.

As a key step towards diversity and cultural shift on the shop floor, Thermax initiated a one-of-its-kind Urja programme at its Savli and Sri City plant where women were trained on welding trade and inducted on the shop floor.

Health Safety and Environment

The safety performance of the company is reviewed every quarter by the Board and the managing director. Safety committees support the process at business and project site levels.

The construction subsidiary, TECC was recertified as per OHSAS18001:2007 by Bureau Veritas and Chinchwad;

Savli and Mundra works were recertified for OHSAS 18001: 2007 and ISO 14001:2004 by DNV during the financial year. Surveillance audits for OHSAS18001:2007 were conducted by DNV for TOESL & Heating EPC and by Bureau Veritas for Paudh and Jhagadia (Chemical plants) as well as Power and WWS division. Total 1,509 internal audits and 43 external safety audits and inspections were carried out in FY 2017-18. Special safety audits for fire prevention were carried out at office locations and manufacturing plants in Pune.

All manufacturing and project locations have developed emergency management plans. Training on fire prevention and control, mock drills on emergency evacuation have been conducted at plants and offices. Regular safety training covers employees at various levels, contractors, vendors and suppliers. To reinforce the importance of Safety, a mobile app on incident reporting and several e-learning modules were launched during the year.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the companys 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 expressed or implied.