'We Are No Longer A Baby Boiler' Company'

Today, Thermax boasts of a turnover of Rs 500 crore and claims it is the market leader in the energy and environment business. It is widely acknowledged that the company's focus on exports, especially to the former USSR, helped it to metamorphose from a baby boiler company into a market leader. Critics, however, point out these export orders were the result of 'political connections'.

In an interview with S Ravindran of Business Standard, Abhay Nalawade, managing director, refutes these allegations. Nalawade took charge after the death of founder chairman and managing director, Rohinton Aga. The chairperson of the company is Anu Aga, widow of Rohinton Aga.

 

What are the reasons behind the success of Thermax?

Thermax started as a family-owned company. However, today it is a totally professionally managed firm thanks to the vision of the company's founder, the late Rohinton Aga. He himself was a professional with a degree in economics and was educated at Harvard. Most of us grew with the company. In which other company will you find a man like me who is totally unrelated to the promoter in the managing director's post? In most companies it is the relatives of the promoters who hold this post.

The company has also had a good vision. Right from 1980 it started concentrating on energy and environment and is today the market leader in the field. In terms of strategy we also focused on innovative technology.

Some of the products introduced by the company include fluidized bed technology, liquid phase heating system and vapour absorption machines. The company has over the years concentrated on innovative incineration and waste water treatment technology. Besides, it has also focused on strategic marketing.

Rivals point out it is the company's thrust on exports that is responsible for a large part of its success. How far is this true?

It is true that we benefited a lot from exports. We started concentrating on exports in 1973 and evolved a viable export strategy. A large part of the export of our heating systems went to the former Soviet Union. Today, the export focus is on vapour absorption machines, boilers and heating systems and speciality chemicals like Ion Exchange Resins.

There is a good potential for vapour absorption machines as only four countries in the world manufacture them. These are the US, Japan, Korea and China. Given our cost competitiveness we should greatly benefit.

Which are the export markets identified?

Apart from the Commonwealth of Independent States we are also looking at South East Asia, Middle-East and the US.

Critics add the company's exports to the USSR benefited due to its 'political connections'?

This is totally wrong. We are a very apolitical company. We have never used political influence to promote ourselves. We have really taken the trouble to understand the market. I can understand charges about political influence if we dealt in products like locomotives or tea. We are in none of these categories. All along we have been in heating systems. We have a very professional office in Moscow besides Kazakhstan.

Critics once dismissed you as a baby boiler company.

Yes we did start out as a baby boiler company in 1967 when we manufactured small boilers. All that has changed though. Today, the range of boilers we manufacture vary between 30-tonne to 1600-tonne. Besides, we also make the 300-tonne boilers for power projects.

Thermax has entered into a series of joint ventures. This includes Thermax Babcok & Wilcox, Thermax Fuji Electric, Thermax Energy Performance Services and the recent Thermax Culligan Water Technologies. The draft companies bill is contemplating introducing a clause which stipulates that holding companies cannot be subsidiaries. It also seeks to place various restrictions on cross holdings. How will this affect the company?

If these provisions become law they will have no effect on Thermax. None of the joint ventures are through a holding company. Thermax has picked up equity in all the joint ventures directly. In the case of subsidiaries too the provision will not affect us. This is because again all the subsidiaries are wholly-owned ones of Thermax. The other provision regarding cross holdings too will have no bearing as there are no cross holdings.

The other point of debate in the corporate world today is the issue of buyback of shares. How will this affect Thermax?

This provision too will not affect us. Thermax is a closely held firm with the Aga family and associates holding most of the shares. When we earlier went public we offered only 25 per cent to the public. The objective behind the public issue was to gain the various benefits of being a listed company.

There is an element of comfort while dealing with a public limited company. We will not be interested in buy backs as we are not in the business of short term gains. Thermax is a company charged with a vision.

The favourite buzz word today is corporate governance. What is Thermax doing to introduce that?

Corporate governance too is being implemented as all decisions are taken in the interest of the institution and not individuals. Transparency is being maintained throughout. Where else will you find a person who is not a member of the family being made managing director?

Another concept being discussed in corporate circles is the issue of non-voting shares. What are your views on this?

I don't know what difference it makes. Most decisions that are made by corporates are not put to vote. However, I am not against the concept as such.

What are the prospects of Thermax getting into more joint ventures?

We have entered into joint ventures where we need partnerships.

Take the case of Thermax Bacock Wilcox. The joint venture was formed as we needed the technology. However, we don't see the need for such partnerships in future. I don't see any possibility of a joint venture. The time has come for consolidating.

What about technical tie-ups ?

I see prospects for technological tie-ups in waste management and water treatment. We definitely require the expertise in this area. However, in this case we will not be entering into a technical agreement with just a single company but a number of firms. We already have a joint venture with Culligan Technologies of the US, Thermax Culligan Water Technologies.

Does the recent technical tie-up with Kawasaki for the manufacture of the modular vapour absorption machine mean the company has junked its earlier tie-up with Sanyo?

No. The agreement with Sanyo expired in 1994. Besides, under the terms of the agreement the tie up was only for machines between 100-tonne to 1600-tonne.

The tie-up with Kawasaki on the other is hand for manufacturing machines between 30 tonne to 70 tonne. Besides, the Sanyo agreement included a clause under which we can continue to manufacture the bigger machines without using the Sanyo brand name.

How will the tie-up with Kawasaki benefit you in terms of market penetration?

This will enable us to supply the machine to small restaurants. Earlier, the market was restricted to bigger companies. We have already bagged an order from McDonalds, Delhi, for the new machine.

What are your plans for supplying boilers to power projects?

We are currently supplying boilers to power projects ranging between 100mw to 200mw. We, however, do not supply boilers to huge power projects ranging between 500mw to 1000mw. This calls for huge investments in manufacturing and workforce.

We certainly don't see manufacturing bigger boilers as a possibility.

Expenses on this head would be unjustified.

Does the company have plans of diversifying into any other sector ?

No. We intend to concentrate on our core areas of energy and environment.