Thermax Chairman Speech

Dear shareholder,

It is my privilege to present the 37^th Annual Report of your company. During the financial year 2017-18, Thermax Group posted a total revenue of Rs. 4,602 crore as compared to Rs. 4,704 crore in the previous year.

Profit after tax and minority interest was Rs. 231 crore (Rs. 216 crore).

Though the year started with a lower order booking, business picked up substantially in FY 2017-18 against the backdrop of an anticipated global economic recovery, leading to investments in select sectors.

Revenue from the international business was higher by 13.2% at Rs. 1,794 crore as compared to Rs. 1,585 crore in the previous year.

Consolidated order booking for the year increased by 45.2% to Rs. 6,380 crore (Rs. 4,394 crore).

On behalf of the Board, let me thank our Managing Director & CEO, M.S. Unnikrishnan and his team, our employees for their commendable efforts, our supplier partners and most importantly, our customers for their continued support. Our Board members, as always, have been a source of continued guidance and strength. My sincere thanks and gratitude to all of them.

This year, effective August 8, 2018, Mrs. Anu Aga and Dr. Mashelkar will be retiring as directors on the Board.

Dr. Mashelkar has been a tremendous asset to Thermax.

He spearheaded the Innovation Council within the company and has been very helpful with regard to our Chemical division and the new Dahej plant. On behalf of the Board and the company, I would like to thank him for his illustrious contribution in steering the fortunes of our company.

It was my mother Anu Aga who took over as Chairperson of Thermax, when my father Rohinton Aga suddenly passed away in 1996. By the year 2000, she had to make many uncomfortable, tough decisions, and mainly thanks to them and the commitment of our people, the company turned around. Even though she retires, she will always be available to all of us. With her grounded wisdom and free spirit, she will continue to be our guiding light, especially with regard to governance, HR practices and social responsibility. On behalf of the Board and all our employees as well as other stakeholders, our heartfelt thanks to Anu.

We wish them both good health and happiness.

Coming back to the business situation, on the domestic front, private spending and investment in infrastructure continued to be sluggish in 2017-2018, except for a few select sectors. The economy was further impacted by temporary disruptions post GST implementation and the Indian banking system remains beleaguered with nonperforming assets (NPAs) on account of wilful defaults and governance failures.

However, after an almost decade-long slump, we are beginning to witness a turnaround. Though it positions us for a promising year ahead, the future should be seen with cautious optimism - with the recent rising cost of crude oil, increase in interest rates and the run up to the 2019 general elections in India. Moreover, despite the global economic recovery, we need to be cautious as rising protectionism across the world poses a threat to exports.

As mentioned earlier, we have been witnessing some investments in cement, metals, chemicals and refineries.

Consumption-led sectors like food, textile and dairy continue to give us consistent business. The need for reliable power coupled with energy-efficient technologies is generating a renewed interest in captive cogeneration. Capex investments from refineries to gear up for the Bharat VI norms have been providing new opportunities for your company.

In recent years, especially after the COP-21 Paris agreement for climate change, we have experienced a radical shift in the global outlook towards energy and environment norms. As the prospects for thermal power have diminished globally, posing challenges for the manufacture of supercritical boilers, Thermax is entering into a definitive agreement to acquire the stake of Babcock & Wilcox in our Joint Venture, Thermax Babcock and Wilcox Energy Solutions Pvt. Ltd. (TBWES). Although there is a limited visibility for supercritical boilers, this will provide Thermax access to the modern manufacturing facility of TBWES and also to a few B&W technologies.

We will be in a position to share further details once the agreement is firmed up.

Responding to the fervour in the area of solar power, Thermax has been a discerning player in the rooftop sector and, in the coming year, will selectively participate in prospecting for EPC projects. Last year, we installed India’s second largest rooftop solar PV captive power plant for a public sector hydrocarbon company.

Your company’s strategy of expanding its operations in select overseas markets paid good dividends during the year. Thermax bagged its highest ever export order from a major industry conglomerate in Africa and the project execution is progressing. The US market proved to be beneficial for sale of chillers and chemicals. We made inroads in the Gulf Cooperative Council (GCC) region with our first EPC based captive power plant project for a cement company.

Your company is strengthening its product portfolio to mitigate the impact of the cyclical nature of project businesses. I am happy to share that our new manufacturing facility in Indonesia (mentioned in last year’s report) is now fully operational and catering to the ASEAN region. Through our subsidiary in Denmark, we acquired certain assets of a company in Poland, providing us access to east European markets and the manufacturing muscle to back our business plans in that region, which will pick up over time. Our global facility for chemical resins at Dahej, Gujarat commenced commercial production in October 2017. Another state-of-the-art facility at Sri City, Andhra Pradesh will shortly begin production of vapour absorption chillers. Recognising the rising demand for more energy efficient and environment-friendly solutions, your company is diversifying its cooling portfolio beyond absorption cooling and entering the growing process cooling market with energy efficient products. We expect this new business to contribute to our growth prospects in the next 4-5 years.

Digitisation and IoT (Internet of Things) are being progressively introduced within the company, be it in our products, manufacturing facilities or processes, in order to make us faster, better and more efficient for our customers.

On the CSR front, Thermax Foundation continues its investment in time and resources predominantly in the field of school education for the economically underprivileged, in partnership with three NGOs and the Pune Municipal Corporation. The outcome is heartening since the work is not just with students and teachers, but also with the community they come from, in order to make the impact more sustainable.

During the year, we revisited and discontinued two of our internally run projects - Leadership Institute for Teachers (LIFT) and Aakar Pune Project. We realised that these initiatives were not creating the desired social impact and hence it would be prudent to invest our time and resources through NGOs, both in our current projects in Pune and also around our manufacturing facilities in Gujarat.

In conclusion, on behalf of the Board, let me thank all our employees, customers, supplier partners, our shareholders and well-wishers for their support and faith in Thermax.

With best wishes,

Meher Pudumjee