The brouhaha over the addition of 100,000MW of power between 2012 and 2017, largely through the so-called super-critical technology, has prompted a rush of equipment makers into this space. Pune-based Thermax Ltd has announced its joint venture with US-based Babcock and Wilcox Co., which will give it technical prowess to provide high-end energy solutions.
Although an important milestone in its growth trajectory, Thermax will have to take on behemoths such as Bharat Heavy Electricals Ltd, Larsen and Toubro Ltd-Mitsubishi Heavy Industries Ltd joint venture and JSW Group- Toshiba Corp. joint venture, which are already in the field.
Thermax’s strength, according to analysts, is its good brand recall, especially in project execution and timely deliveries.
Graphic: Yogesh Kumar / Mint
The Rs700 crore venture will have a debt to equity ratio of 1:1. Thermax and Babcock will hold equity in the ratio of 51:49. Thermax will fund its Rs175 crore equity investment through internal accruals. This should not impact its cash flows despite the lower revenue and profit guidance for fiscal 2010, as it is debt-free. But the debt component for the project will be funded through bank loans.
While the firm is yet to finalize the plant location, Thermax would service orders through the strong supply chain of its partner. In fact, Thermax already has a tie-up with Babcock for making sub-critical equipment below 300MW.
The venture is in line with Thermax’s focus on the power sector. Of its Rs5,300 crore order book, Rs4,444 crore is in the energy sector.
Analysts’ consensus is that the venture will increase earnings. Not surprisingly, the stock, which had earlier declined on news of its Rs178 crore litigation settlement with Purolite International Ltd, closed 3% higher at Rs675 on Wednesday.
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