Thermax Ltd Management Discussions.

A. Economic Outlook and Prospects

In 2018, the global economy took off at full throttle but started losing pace during the year and closed at an estimated 3% growth as compared to 3.1% in 2017. Trade tensions among major economies continued to persist, which had an impact on investor sentiments and softened manufacturing activities. Growth in most of the advanced economies was moderate, barring the U.S., which picked up to 2.9% from 2.2%. The growth of emerging markets and developing economies edged down to an estimated 4.2%. The main reason is attributed to rising borrowing costs as many advanced-economy central banks continue to tighten their monetary policies.

On account of the uncertainties and unpredictable turn of events globally, the capacity building in core sectors such as investment in cement, metals, power plants and infrastructure building was muted, impacting the derived demand for capital goods industry. Though crude oil prices stabilised during the year, there were no expansions or greenfield projects announced in the refinery sector either. As a result, the international order booking of large projects for your company witnessed a decline during the year. Consumer facing industries continued to invest, providing a 20% growth in Thermaxs products internationally.

On the domestic front, economic growth lost steam in the last two quarters of the fiscal year ending March 2019, ahead of the general election. This slowdown was dominant in investments across the board. The limited scope of government spending and worsening scenario on the global economic front further added to the woes. These factors led to the estimated GDP growth being downwards to 7%, as compared to 7.2% in 2017-18, which is the lowest growth in the last five years. As a result of the slowdown, the capacity utilisation in most of the industrial segments started stagnating towards the second half of the year. Even though the enquiry pipeline continued to remain healthy, order conclusions were delayed. Towards the end of the financial year, anxiety related to the electoral outcome tempered decisions related to even small and mid-sized capacity creation.

To rejuvenate the infrastructure sector, the Government allocated a budget of Rs. 71,000 crore for national highways and द 19,000 crore for development of rural infrastructure. This led to a boost in road construction, improving the cement industry capacity utilisation and resulted in captive power plants based on waste heat recovery. Though the growth also fuelled the demand for steel, which was up 1.3% during CY 2019, pending resolution of insolvency cases in NCLT against the stressed steel companies limited fresh investments. The only exception was an expansion project by an Indian steel major where your company was a benefficiary. Sustaining the momentum in infrastructure development could be a challenge due to an anticipated surge in borrowings by the NHAI (National Highway Authority of India) in the coming year.

Your company had a reasonably good run in the food processing and FMCG industries, estimated to have grown by 13% and 17% respectively during the year. The other sectors that contributed to a steady inflow of opportunities comprised tyre, chemical, pharma and textile.

The power supply position in the country has consistently improved over the years due to an increase in supply as also a decrease in demand, thanks to a number of energy efficiency measures being introduced. The defficit is estimated to be -0.8% as compared to -2% in the previous fiscal. However, as the momentum of industrialisation is expected to pick up in future, coupled with accelerated urbanisation, the energy demand will see a significant boost. Lack of addition in the past several years to the thermal, base-load generation capacity should open up avenues for captive industrial power in the medium term.

As a signatory to the COP 21 agreement for climate change, the MNRE (Ministry of New and Renewable Energy, Government of India) has formulated a plan to achieve 100 GW of solar power and 10 GW of biomass power by March 2022. However, Indias solar capacity addition was subdued during the year as the industry continues to face policy and execution challenges.

On the other hand, industry mandates on efluent discharge, and water consumption has paved the way for positive momentum in the Environment businesses of water recycling and air pollution control.

With the government combating the liquidity crunch in the Indian market arising mainly on account of NPAs, coupled with global trade tensions and protectionist measures, the investment scenario in the core sectors appear challenging during the current year.

B. Thermax Operational Performance

In FY 2018-2019, Thermax Group posted revenues of द 6,123 crore as compared to Rs. 4,602 crore (including excise duty) in the previous year, on account of a strong opening order book and growth in the products businesses during the year. At the standalone level, the total revenue from continuing operations, excluding the Boiler & Heater business of the company moving into its wholly owned subsidiary, TBWES, was द 3,664 crore for the financial year 2018-19, against last years द 2,846 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 has gone up by 54.4% to द 1,061 crore (द 687 crore) and the group international business was higher by 46.9% at द 2,636 crore (द 1,794 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 2018-19 reduced by 11.7% to द 5,633 crore (Rs. 6,380 crore), with standalone order booking from continuing operations at द 3,325 crore, a decrease of 8.5% over the previous year (द 3,634 crore). Order booking in international markets at Rs.1,984 crore accounted for over 35.2% of the consolidated figure as compared to द 2,748 crore last year (43.4%), a decline of 27.8% on account of slowdown in global investments and no large project orders.

C. Operating Structure

Thermax operates through three segments - Energy, Environment and Chemical, spanning 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) Lifecycle and O&M services to operate plants and other services that the company provides to customers

The group has 16 manufacturing facilities across the world, ten in India, two in Denmark, and one each in Indonesia, Poland, China and Germany.

D. Business Segments of the Company

This section comprises the performance of the group, segment-wise along with that of the related subsidiaries. The MDA captures only the growth trends and outlook of those subsidiaries which impact the segmental performance reasonably and the comprehensive details on each subsidiary is available in AOC-1, on page no. 274.

1. Energy Segment

The energy segment contributed 80.3% (78%) of the groups operating revenues in FY 2018-19. The segment comprises the following businesses: 1) Heating 2) Cooling 3) Boilers for steam and power generation 4) Power EPC 5) Solar 6) Service arms for the businesses including Power O&M services.

For 2018-19, the Energy segment posted an operating revenue (Net) at the group level of Rs. 4,799 crore (द 3,497 crore). The segment profits were at द 322 crore (द 283 crore). The profitability of the energy segment was impacted by losses in the companys European subsidiary, Danstoker Group (discussed below under Subsidiaries) and challenges faced in executing a couple of large EPC projects. Your company is in the process of implementing a turnaround strategy for the Danstoker Group, to restore its profitability.

The order booking for the current year was lower at द 4,476 crore (द 5,309 crore). Last years figure comprised some sizeable orders including a single large export order of Rs. 1,000 crore from a large refinery in Africa - a trend not witnessed during the current fiscal, due to the slowdown in investments seen globally.

i. Heating

The standard products of the Heating business - small packaged boilers and heaters saw a significant improvement in revenue as a result of opportunities from the consumption-oriented sectors and aggressive channel sales. The international businesses continued to be challenging, mainly in Europe, due to the subdued performance of the Danstoker group as explained subsequently.

Among the new launches of 2017-18, Shellmax series boilers for the global market and the underfeed stoker technology (UFS) in the Enerbloc and Combloc boilers, customised for Asian countries have performed well in the current year, on both parameters of demand and performance.

The product business is expected to continue its positive momentum in 2019-20 with opportunities from the tyre and food processing industries in the domestic market. With the ongoing shift to renewables in Europe, Thermax has developed a customised offering to increase its market share. The integration of the service business with the product division (details provided in the last years MDA) was completed successfully and sustained its growth during the year.

The project business of Heating viz. large boiler subset (B&H) registered substantial growth in revenues on account of a higher opening order book. The drivers for this business are a lack of reliable power and enhancement of energy efficiency. The business made significant progress in the execution of its large export order received last year from a refinery in Africa which entails assembly of equipment at Thermaxs port facility, Mundra. The company started dispatches of sub-assemblies and is on track to complete this prestigious project as per schedule. Most of the equipment supplied will be used to generate power and steam efficiently to the refinery. Additionally, continued efforts by industries to go green and enhance energy efficiency using waste heat, along with new investments in refineries, present an optimistic scenario for this business in the next year.

Services supporting the large boiler subset intensified its focus on the spare parts business and continued to expand its geographical presence by penetrating Latin America. It is also executing a first-of-a-kind complex relocation and revamping of a steam generation equipment for a leading refinery in India. The opportunities arising from a fuel shift drive by refineries to cater to the new emission norms, diversification of the portfolio by introducing new service initiatives and utility offerings to Independent Power Producers (IPPs), as well as the ongoing reliability and efficiency programmes, present a positive outlook for the business.

Subsidiaries

Danstoker A/S (Denmark)

Danstoker A/S, a step-down subsidiary is engaged in the business of design, production and sale of boilers and related equipment to the European market, including rebuilding and servicing of boilers. The first three quarters of 2018-19 witnessed a sluggishness in the Scandinavian market due to delay in decision making by customers. This subsidiary has incurred losses during the year owing to cost overruns in some of the projects. With an enhanced order carry forward, shifting of manufacturing to its lower cost facility at Poland and improved order execution, efforts are afoot to improve the performance of this subsidiary.

Boilerworks A/S (Denmark)

Boilerworks A/S, a part of Danstoker Group and a step-down subsidiary of the company specialises in the manufacture and supply of high-pressure boilers and components for power plants, waste and biomass-fired plants, industrial and petrochemical plants.

Due to challenges arising from cost and time overruns, the subsidiary will now focus on smaller service jobs where the risks are considerably lower, instead of participating in large projects.

It also plans to shift its operations to Danstoker Poland for leveraging capabilities of the new facility.

Danstoker Poland Spolka Z Ograniczona Odpowiedzialnoscia

Danstoker Poland is a step-down subsidiary of Danstoker A/S and is engaged in the design, manufacturing and supply of boilers, hot oil heaters and other related equipment to the Eastern European region.

In its first year of operations, the subsidiary received orders mainly from food processing, chemicals and light engineering industries. A healthy order book presents a promising year ahead.

PT Thermax International, Indonesia (PT TII)

PT TII is a subsidiary of Thermax Engineering Singapore Pte Limited and is engaged in the design, manufacturing, supply, installation, commissioning and servicing of boilers, heaters and other related equipment with a focus on serving the South East Asian region.

In July 2017, Thermax inaugurated its state-of-the-art manufacturing facility in Indonesia, expanding its footprint in international markets, especially the ASEAN countries. During the first year, the facility progressed well on its localisation strategy and witnessed traction for its indigenously manufactured boilers in the local market along with exports to other South East Asian countries. Though the revenues were subdued for the year, the subsidiary anticipates an optimistic year ahead with order booking picking up in the last two quarters.

ii. Cooling

After a period of slump, Thermaxs Absorption Cooling products business witnessed significant growth in 2018-19, mainly attributed to revenues from sectors such as fertilisers, petrochemicals, food & beverage and pharmaceuticals. The international business continued to be challenging in Europe, China and the US, while the Middle East witnessed a moderate growth. In South East Asia and Bangladesh, the Absorption Cooling products saw a reasonable demand, though plagued by intense global competition.

On January 31, 2019, Thermax inaugurated its production unit at Sri City, Andhra Pradesh to manufacture a wide range of vapour absorption machines comprising chillers, heat pumps and heaters in its first phase, with a capacity of 400 machines per year. The division launched a Remote Online Support System (ROSS) - a web-based solution that helps to monitor, troubleshoot and supervise chillers remotely. During the year, the company introduced a new series of Thermax absorption chillers that are designed to provide an additional efficiency of 7% to 8% over traditional offerings. With the increasing demand for energy efficient products backed by capacity building and digital initiatives of the company, the outlook for the next year is positive.

Process Cooling in its first year of operation as an independent Strategic Business Unit supplied products to the steel, dairy and automobile sectors. Some of the new applications developed include closed loop cooling tower for furnace cooling in glass manufacturing and adiabatic coolers for engine testing in earth moving construction companies. The business will continue to pursue similar opportunities in the coming year and work in tandem with TSPX to leverage the synergies in their customer base.

Subsidiaries

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 subsidiary has been facing a tough time in the Chinese market; moreover, the cost arbitrage of Chinese manufacturing versus manufacturing in India has reduced significantly. Hence TZL plans to progressively close its manufacturing operations.

iii. Power EPC Business

The drivers for the captive power and cogeneration market have been the lack of reliable power, energy efficiency and promotion of green energy. Revenue for the Power division was significantly higher owing to a healthy order carry forward at the start of the year. Order booking during the year continued to be positive, though comparatively lower as compared to last year.

Major orders received during the year include a repeat order for a gas-based cogeneration plant, solid fuel-based cogeneration projects, waste heat recovery power plants and international projects in South East Asia and the Middle East.

It also commissioned its first full-fiedged EPC project in the Middle East for a leading cement company in the UAE.

For FY 2019-20, in the domestic market, this group expects continued business from waste heat recovery and cogeneration segments. It is also continuing its efforts to pursue prospects in middle range captive power plants in international markets.

The Power O&M services acquired new customers in the domestic segment during the year. The business is focusing on growing its portfolio of value-added services to customers and expanding its presence in the international market.

Following a year of record revenue but lower order carry forward, growth in the coming year will be subject to new order bookings with short cycle execution period.

Solar Business

Capacity addition in the solar PV sector remained subdued during the year, further impacted by government policies and intense competition from the unorganised sector.

However, the business will continue to focus on expanding its presence in this business selectively.

Subsidiaries

Thermax Instrumentation Limited (TIL)

TIL, a wholly owned subsidiary is engaged in construction and commissioning of captive power plants. Given the lower carry forward, growth for the subsidiary in FY 2019-20 will be subdued.

2. Environment Segment

The environment segment, accounting for 12.8% (14.1%) of the groups operating revenues, consists of air pollution control and water and waste solutions.

Operating revenues (Net) for the Environment segment in FY 2018-19 was at द 828 crore (द 694 crore). The profit for the segment was द 57 crore, higher as compared to द 29 crore in the last financial year, mainly due to stability in commodity prices, which improved the margins of the air pollution control business.

Order booking for the Environment segment for FY 2018-19 was at द 741 crore (द 729 crore).

i. Air Pollution Control Business (Enviro)

The revenue for Air Pollution Control was higher in 2018 -19, due to a higher order backlog as well as new orders received during the year; while the margins improved due to stability witnessed in commodity prices. The sectors presenting opportunities to the business comprised cement, steel, power, food processing, pharma and tyre. The implementation of stringent emission norms laid by the Indian Ministry of Environment & Forests called for customers to upgrade their equipment to meet the new standards which improved prospects for this division. Business also had accelerated growth in South East Asia where implementation of pollution control norms with highest rigour was seen in cement, steel, palm oil and power sectors. The company will selectively participate in Flue Gas Desulphurisation (FGD) projects, announced to regulate SOx emissions from coal-fired power plants in the current year. Riding the surge in opportunities in both domestic and ASEAN region, the business is poised for healthy growth in the coming year.

ii. Water

The Water business continued its successful run in the third consecutive year with significantly higher revenue and a strong order booking. The division focussed on quality projects with shorter gestation period. Acute water scarcity, regulatory norms being implemented for waste water as also urbanisation, will continue to drive this business.

A majority of the opportunities came from sectors such as metals, food processing, tyre, cement and commercial construction. Some one-of-a-kind solutions included partnering with a mining major under the Smart City Mission to commission a 25 MLD sewage treatment plant and providing a ZLD (Zero Liquid Discharge) solution to a leading engine manufacturer, which is designed to operate at near silent decibel levels, owing to its proximity to a residential zone.

In the international market, the business bagged a repeat order from a leading EPC company for a water treatment plant to be installed in a gas-based power plant; it also supplied high rate _lters to a steel major in Oman, through an EPC contractor.

With industry norms becoming more stringent regarding the use of recycled water and efluents discharged, Thermax expects continued growth from this business in the coming year.

3. Chemical Segment

The Chemical segment accounts for 6.9% (7.9%) of the groups operating revenues. It comprises the following business segments - boiler and water chemicals, resins, performance chemicals, paper chemicals, construction chemicals and oil field chemicals.

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

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

In FY 2018-19, the Chemical business segment posted operating revenues of द 415 crore (द 361 crore). The profit for the segment was द 62 crore as compared to द 54 crore in the previous fiscal. The profitability of the Chemical segment was impacted due to expenses incurred in the stabilisation phase of the new resin facility at Dahej, Gujarat. Order booking for the segment in FY 2018-19 stood at द 416 crore (द 342 crore).

The Chemical business achieved growth in revenue, attributed to a healthy order booking from domestic and international customers in FY 19.

The ion exchange resin business registered a substantially higher growth over last year with marginal improvement in profitability, which is under pressure due to volatility in raw material prices, currency fluctuation and the additional burden of depreciation and operating cost of its new manufacturing location at Dahej. Significant orders were received from large OEMs in the US, India and Europe for water treatment and process applications. The development of breakthrough resin technologies for catalyst applications and deploying them across geographies helped in securing prestigious orders.

Production from phase-1 of the Dahej facility has been streamlined to achieve 70 percent of the capacity. Phase-2 of the project is expected to be commissioned in October 2019. This additional capacity will help the business in executing major orders in FY 20.

The performance chemicals business registered a higher growth and crossed the द 100 crore mark during the year. Majority of the orders came from power, steel and fertiliser segments. The product portfolio has been strengthened by the development of a non-phosphate based polymer for cooling water treatment. The F&B sector in India will present growth opportunities in the coming year.

Construction chemicals also witnessed a commendable increase in revenue over the last financial year attributed to the growth in the domestic infrastructure segment and this momentum is expected to continue in this year.

Other Subsidiaries

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 to its customers.

The company won several contracts for steam supply to new customers and won its first order for supplying treated water to a polyester company in Maharashtra.

With increased attention to climate change, leading to the adoption of non-fossil fuels, the market for agro-waste based steam solutions is expected to grow steadily.

Thermax Inc. (USA)

Thermax Inc., a step-down subsidiary in the 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 subsidiary registered a substantially higher revenue in FY 19 on account of growth in the chemicals business.

With encouraging prospects for both Cooling and Chemical businesses, the outlook for the subsidiary looks promising.

E. Opportunities and Threats

1. Opportunities

1) The growing thrust by nations to improve their energy security will intensify the demand for biofuel and other new generation technologies. The preference for methanol as a fuel may kickstart the hydrogen economy. These trends are likely to augment your companys vision of providing sustainable energy and environment solutions.

2) The rising need for reducing energy consumption in the industrial sector, which accounts for close to 38% of the global energy use, shall improve the opportunities for Thermaxs energy segment comprising waste heat recovery, absorption and process cooling, solar PV, cogeneration and trigeneration captive power plants, biomass-fueled boilers and power plants.

3) Following the COP 21 and COP 24 agreements on climate change, several countries have intensified their measures to ensure rigorous implementation of environmental norms, thus paving the way for a positive momentum in the environment segment of the company.

4) Your companys strategy of internationalising the projects business in chosen markets will fortify its global presence and devolatalise the EPC business from the domestic cyclicality.

5) The growth in consumer-facing industries presents an opportunity for your company to increase it products businesses both in the domestic and international markets.

6) The growing demand for FGD systems across the globe, on account of various federal laws and regulations that mandate SOx emitting industries to install air quality control equipment, is likely to improve the prospects for the environment business.

2. Threats

The rising trade tensions among the USA, China, the EU and other major economies, furthered by the losing relevance of WTO in ensuring a level playing field amongst trading nations, has emerged as a threat to Indian companies participating in global trade. The recent denial of preferential status to India by the US will affect the margins on your companys exports to the US.

The burden of Non Performing Assets (NPAs) on the banking & financial sector and other economic challenges comprising trade defficit, private investment and infrastructure slowdown will limit the prospects for the company in the domestic market.

F. Risk Management

The company has an 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 the external environment, which have a significant bearing on the risks. The company actively keeps track of changes in the domestic economic environment, geopolitical 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.

In view of the inherent risk involved due to the volatility of markets, the companys policy is to manage the treasury with highest priority accorded to the safety of investment, followed by liquidity and optimum returns. For a comprehensive analysis of financial risks and management, please refer to Note 40 (a) to the Consolidated Financial Statements.

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

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

G. Internal Control

The company has an internal audit function which continuously evaluates the quality of its controls and the extent of compliance with them. The company has also introduced a process of control self-assessment by its operating managers. In addition, Internal Financial Controls were specifically audited by an external audit firm. The company uses various enterprise resource planning packages in its operations that contain a variety of in-built controls. Careful analysis is done for variations between performance and plan. The company has a strong culture and processes that reduce the risk of unethical conduct. These include a clear code of conduct and whistle-blowing processes. Based on all of the above, the Board believes that the internal controls are adequate and that they operated effectively during the year.

Similarly, the company has a process by which operating managers are kept up-to-date with legal amendments affecting their areas of operation. Operating managers confirm compliance with various provisions every month. Additionally, the internal auditors, the statutory auditors and the secretarial auditors check compliance with certain laws related to their areas of work. The company has a culture that reduces the risk of non-compliance with the laws. Based on the foregoing, the Board believes that the systems to ensure compliance with applicable laws are proper and that they operated effectively.

H. Financial Performance

In FY 2018-19, the group revenue was द 6,123 crore (द 4,602 crore). The profit before tax and exceptional items at द 501 crore, was substantially higher than last years द 422 crore. The current years revenue is exclusive of Goods and Service Tax (GST), while last years revenue includes excise duty, and hence they are not comparable.

After accounting for exceptional items of the expense of द 90 crore (द Nil) and income tax expense of द 85 crore (द 166 crore), the profit after tax, exceptional items and share of joint venture stood at द 325 crore as compared to द 231 crore last year. For details of the exceptional items, please refer to Note 4 (c.) and Note 42 to the Consolidated Financial Statements.

The effective tax rate has come down due to the recognition of deferred tax asset in TBWES.

The net cash outflow from operations is द 117 crore (द 507 crore inflow). At the consolidated level, the net cash outflow from operating activities stood at द 115 crore (द 534 crore inflow). The negative cash flow is mainly on account of a substantial increase in the Contracts in Progress (CIP), owing to a few major projects under execution. The same is appearing as unbilled revenue of द 1,121 crore (द 539 crore) in the groups other assets. This situation is expected to improve during the current financial year.

During the year, your company invested द 70 crore in a new manufacturing facility for its Cooling business in Sri City (Andhra Pradesh) and a further द 25 crore for its chemical manufacturing facilities at Dahej and Jagadia.

Thermaxs cash and bank balances and investments, other than investments in joint ventures and subsidiaries, stood at द 820 crore (excluding discontinued operations).

Key Financial Ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, the company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector-speci_c financial ratios.

The company has identified the following ratios as key financial ratios:

*Standalone

Consolidated

FY19 FY18 FY19 FY18
Debtors Turnover Ratio 4.06 3.41 4.30 3.63
Inventory Turnover Ratio 8.05 8.21 7.62 7.29
Interest Coverage Ratio 59.84 51.14 35.98 33.84
Current Ratio 1.25 1.30 1.30 1.33
Net Profit Margin 5% 6% 5% 5%

 

*Standalone

Consolidated

FY19 FY18 FY19 FY18
Return on Capital Employed 17% 15% 14% 15%
Return on Net Worth (RONW) 10% 9% 11% 9%

*For comparison with FY 18, the ratio for FY 19 include the discontinued operation of B&H.

There are no ratios where there have been significant change from fiscal 2018 to fiscal 2019.

Return on net worth (RONW) is computed as net profit by closing net worth. For Thermax Limited, the increase in PAT, attributable to substantially higher revenue, has resulted in higher RONW. The PAT at the consolidated level was further augmented on account of the recognition of previously unrecognised deferred tax credit.

I. Joint Ventures

Thermax Babcock & Wilcox Energy Solutions Private Limited (TBWES)

During the year, Thermax entered into a de_nitive agreement to acquire the stake of Babcock & Wilcox India Holdings Inc. (B&W) in TBWES which was concluded on July 19, 2018. Accordingly, TBWES changed its status from JV to a wholly owned subsidiary of the company.

Subsequent to the acquisition of the remaining shares in TBWES, the Board of directors approved the transfer of the Boiler & Heater (B&H) business of Thermax through a slump sale. Consequently, the results of B&H business have been classified as discontinued operations in the standalone financial statements. However, this will not impact the consolidated group accounts.

Thermax SPX Energy Technologies Limited (Thermax SPX)

Thermax SPX Energy Technologies Limited (TSPX) is a joint venture between Thermax Limited (51%), Mutares Holding-24 AG Germany (23%) and Balcke Duerr GmbH Germany (26%).

Based on the share purchase agreement dated February 25, 2019, the company acquired the entire stake held by the joint venture partners. Subsequent to the acquisition, TSPX has now become a wholly owned subsidiary of Thermax Ltd.

J. Human Resources

The key highlights of the year comprised the Employee Engagement Survey (EES), conducted across the organisation with a participation of 96.5%; rollout of SAP Success Factors, an advanced digital platform for people management; and commencement of a Wellness programme to sensitise employees on the importance of good health and help them achieve their fitness goals. Details of these initiatives are provided in the Business Responsibility Report.

Among other ongoing HR initiatives, the Leadership Development Programme for the middle cadre (LDP II) is going on for 32 managers, and junior levels (LPD III) was completed for 52 managers. The training programme for workmen named ‘Disha which focusses on developing their interpersonal skills and take ownership at work, progressed well and was launched at the companys chemical facility in Paudh. The ‘Urja initiative for women empowerment comprising training and deployment of women welders continued at an impressive pace at Thermaxs Savli and Sri City facility with over 28 women being inducted on the shop floor during the year.

Given the competitive scenario in attracting young talent, your company launched an internship programme for young engineers to augment its time-tested Graduate

Engineer Trainee programme. From a modest beginning of four in the first year, it has grown to an intake of fifteen in the current year. The two-month internship programme comprises business application-based projects that provide students with the platform to demonstrate their technical skills and learning appetite. It also helps trainees to experience the organisation and Thermax to undertake structured evaluation; resulting in seamless assimilation of the trainees when they join the organisation.

The relation between the Union and the Management across locations continued to be cordial and initiatives were undertaken to encourage a two-way communication along with communication skills and capability development.

The total number of permanent employees on the rolls of Thermax Limited as on March 31, 2019, were 4,110 compared to 3,664 employees in the previous year.

K. Health, Safety and Environment

The safety performance of the company is reviewed every quarter by the managing director. Divisional safety councils review their divisional performance and carry out preventive as well as corrective actions to ensure high levels of performance.

Enviro division has implemented an Integrated Management System (IMS) through TUV:SUD as a certifying agency. In the IMS system, Enviro has adopted and implemented for the first time, ISO 45001:2018 & ISO 14001:2014. Water division was recertified as per OHSAS 18001:2007 through Bureau Veritas during the financial year.

Surveillance audits for OHSAS 18001:2007 were conducted by DNV.GL for TOESL & Heating EPC and by Bureau Veritas for B&H (TECC) and Power division. Chinchwad, Savli and Mundra works were audited for OHSAS 18000:2007 and ISO 14001:2004 by DNV.GL, while Paudh and Jhagadia (chemical plants) were audited by Bureau Veritas during the financial year.

1,530 internal audits and 51 external safety audits and inspections were carried out in FY18-19. Special safety audits for fire prevention were conducted at office locations and manufacturing plants in Pune. All manufacturing and project locations have developed an emergency preparedness plan. They have also imparted training on fire prevention and control and conducted mock drills on emergency evacuation at plants and office locations.

Regular safety trainings are conducted for employees, contractors, vendors and suppliers. To align the standards of safety with its growing global presence, Thermax organised the IOSH (Institution of Occupational Safety & Health, UK) programme in partnership with the British Safety Council for four of its divisions (Heating, Power, B&H and Water) involving about seventy participants. The employees are now certified as safety practitioners across all countries.

The continued use of a mobile app on incident reporting has improved the reporting of leading indicators, which are helping in minimising the hazards and risks at plants and sites.

At manufacturing plants which are under the Environment Management System, a number of management programmes on waste/resource reduction have been successfully implemented throughout 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.