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Directors Report of Thermax Ltd.

Mar 31, 2015

Dear shareholder,

The directors have pleasure in presenting the Thirty-fourth Annual Report, together with the audited financial statements of your company for the year ended March 31, 2015.

Financial Results (Rupees in crore) 2014-15 2013-14

Total revenue 4808.22 4366.46

Profit before finance cost, depreciation and tax 580.85 473.51

Finance cost & depreciation 83.81 66.62

Profit before tax 497.04 406.89

Provision for taxation (incl. deferred tax) 161.10 153.92

Profit after tax 335.94 252.97

Balance carried forward from last year 1452.16 1308.83

Profit available for appropriation 1788.10 1561.80

Proposed equity dividend 83.41 71.49

Tax on dividend 16.98 12.15

Transfer to general reserve - 26.00

Surplus carried forward 1687.71 1452.16

Annual Performance

Your company posted a total revenue of Rs. 4,808 crore for the financial year 2014-15, against last year''s 4,366 crore, an increase of 10%. The rise in revenues in subdued market conditions that have prevailed for over two years was largely due to the higher order book at the beginning of the year. The government has been taking various steps to promote the manufacturing sector. Though these measures have created a favourable market sentiment, it would take some more time for noticeable changes to happen at the ground level. In the capital goods industry we largely depend upon the revival of core sectors like power, steel, cement, oil & gas, etc. but there has been no significant investment in these sectors. Considering this scenario, the company is putting in more efforts in its international initiatives while focusing on improving the domestic market share.

Thermax''s Energy business contributed 82% of the Group''s operating revenue while the Environment business accounted for the remaining 18%.

Despite adverse market conditions, your company continued to invest in research and innovation initiatives.

During the year, the revenue from international markets including deemed exports were Rs. 1,092 crore against Rs. 1,101 crore last year.

Profit before tax at Rs. 497 crore was 10.3% of the total revenue, compared to Rs. 407 crore, at 9.3% in the previous year.

Profit after tax stood at Rs. 336 crore, compared to Rs. 253 crore in the previous year. Earnings per share (EPS) were at Rs. 28.19 (Rs. 21.23 in FY 2013-14).

Order booking for the year was Rs. 3,951 crore against Rs. 5,394 crore last year, registering a decrease of 27%. Your company completed the year with an order backlog of Rs. 4,396 crore as against Rs. 5,389 crore last year. Though your company made a modest improvement in its revenue and profit, 2014-15 continued to be tough in the absence of project orders getting finalised in the core sectors of the economy.

Dividend

The Directors have recommended a dividend of Rs. 7/-(350%) per equity share of face value Rs. 2/-.

The dividend, if approved by the shareholders, will result in a payout of Rs. 100 crore, including dividend distribution tax of Rs. 17 crore.

subsidiaries

Annual accounts of the subsidiary companies and related detailed information are available to shareholders of the parent company, subsidiary companies and to the statutory authorities. On request, these documents will be made available for inspection at the company''s corporate office.

The report on performance of subsidiary companies is included in Management Discussion and Analysis.

Information on newly incorporated / ceased subsidiaries during the year

In order to enhance its presence in South-East Asia, the company has incorporated a wholly-owned subsidiary, ''Thermax Engineering Singapore Pte.Ltd.'' on May 22, 2014.

The company has set up another step-down subsidiary company in Indonesia (through the Singapore based wholly-owned subsidiary), namely, ''PT Thermax International Indonesia'' which was incorporated on October 22, 2014.

Thermax incorporated a subsidiary, ''Thermax Senegal S.A.R.L.'' to tap business in power sector in Senegal.

During the year, Omnical Kessel, the company''s step down subsidiary in Germany has filed for insolvency, due to continued losses.

The company does not have any ''material subsidiary'' whose net worth exceeds 20% of the consolidated net worth of the holding company in the immediately preceding accounting year or has generated 20% of the consolidated revenue during the previous financial year.

Management Discussion and Analysis

The Management Discussion and Analysis report, highlighting the performance and prospects of the company''s energy and environment segments, including details of subsidiaries catering to the respective businesses, information on company''s health, safety & environment measures, human resources, risk management and internal controls systems, is attached.

Corporate Governance Report

A detailed Corporate Governance Report that also contains disclosures required as per the Section 134 and 177 of the Companies Act, 2013 is attached.

A certificate from the statutory auditors of the company regarding compliance with the conditions of corporate governance as required under Clause 49 of the Listing Agreement is part of this report.

Finance, Accounts And Systems

During the year, the company has invested Rs. 49 crore in capital expenditure. The net fixed assets including capital work-in-progress stands at Rs. 648 crore as on March 31, 2015.

The company has generated Rs. 280 crore from

operations after payment of tax. Cash and cash equivalent as at the end of the financial year stands at Rs. 1,005 crore.

Current investment in mutual fund was Rs. 783 crore.

In order to strengthen its internal control system, the company has automated a number of controls and is also reinforcing its existing system. Further, its Oracle ERP has been upgraded to the latest R-12 platform.

Public Deposits

The company had no unpaid/ unclaimed deposit(s) as on March 31, 2015. It has not accepted any fixed deposits during the year.

Particulars of Loans, Guarantees or Investments

Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statements.

Vigil Mechanism / Whistle Blower Policy

The company has a vigil mechanism named ''Whistle Blower Policy'' to deal with instances of fraud and mismanagement, if any. The details of the said policy is explained in the Corporate Governance Report and also posted on the website of the company.

Employee Strength

The total number of permanent employees on the rolls of the company was 4,027 as on March 31, 2015 (4,046 the previous year).

Particulars of Employees

The information required pursuant to Section 197 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the company, will be provided upon request. In terms of Section 136 of the Act, the Annual Report excluding the aforesaid information is being sent to all the members and others entitled thereto. Any shareholder interested in obtaining such particulars may write to the Company Secretary at the corporate office of the company. The said information is also available for inspection at the registered office during working hours up to the date of the Annual General Meeting.

Details of Trusts for the Benefit of Employees

a) ESOP Trust

The company has ESOP Trust which holds 29,06,250 (2.44%) Equity Shares of Rs. 2/- each of Thermax. The Trust has not made any buying or selling transactions in the secondary market. The company presently does not have any ESOP scheme.

b) Employee Welfare Trusts

The company has a few Employee Welfare Trusts primarily for providing housing loans / medical / educational aid to its employees and their families. These Trusts presently hold 36, 35,190 Equity Shares of Rs. 2/- each of the company. None of the Trusts had any dealings in the secondary market.

Disclosure - Anti Sexual Harassment Policy

The company has in place, an Anti-Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013.

An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

The following is a summary of sexual harassment complaints received and disposed of during the year 2014-15:

Number of complaints received - Nil Number of complaints disposed of - Nil

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8 of The Companies (Accounts) Rules, 2014, is annexed as ''Annexure 1''

Corporate Social Responsibility Initiatives

As a part of its initiatives under "Corporate Social

Responsibility (CSR)'''', the company has undertaken projects in the areas of education, livelihood, health, water and sanitation. These projects are largely in accordance with Schedule VII of the Companies Act, 2013. The CSR initiatives are undertaken through Thermax Social Initiative Foundation (TSIF), since 2007.

In view of the requirements under the Companies Act, 2013, the Company has formed a Corporate Social Responsibility Committee (CSR Committee) and approved CSR Policy, a copy of which is available on the company''s website. As per the said policy, the company would continue its CSR initiatives through TSIF.

The Annual Report on CSR activities is annexed as ''Annexure 2''.

Directors

At the Annual General Meeting (AGM) of the company held on July 22, 2014, the members of the company have appointed Dr. Jairam Varadaraj, Dr. Valentin A.H. von Massow, Dr. Raghunath Mashelkar and Nawshir Mirza as independent directors in terms of the Companies Act, 2013 for a term of 5 years effective from July 22, 2014.

All independent directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

The company has formulated a policy on ''Familiarisation programme for independent directors'' which is available on the company''s website, www.thermaxglobal.com

In accordance with the provisions of the Companies Act, 2013 and the company''s Articles of Association, Pheroz Pudumjee retires by rotation at the ensuing AGM and being eligible, offers himself for re-appointment as director.

Meetings

A calendar of meetings is prepared and circulated in advance to the directors.

During the year, five Board meetings were convened and held, the details of which are given in the Corporate Governance Report.

Remuneration Policy

The Board has, on the recommendation of the Nomination & Remuneration Committee, approved a policy for selection, appointment and renumeration of director and senior management. The gist of Remuneration Policy is stated in the Corporate Governance Report.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual evaluation of its own performance. The manner in which the evaluation has been carried out is explained in the Corporate Governance Report.

Directors'' Responsibility Statement

In terms of Section 134 (3) (c) of the Companies Act, 2013, your directors, to the best of their knowledge and belief and according to the information and explanations obtained by them in the normal course of their work, state that, in all material respects;

a) In the preparation of the annual financial statements for the year ended March 31, 2015, the applicable accounting standards have been followed;

b) Appropriate accounting policies have been selected, applied consistently and judgment and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at March 31, 2015 and of the profit of the company for the year ended on that date;

c) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

d) The annual financial statements have been prepared on a going concern basis;

e) Proper internal financial controls were in place and the financial controls were adequate and operating effectively; and

f) Proper systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

Related Party Transactions

All related party transactions that were entered into during the financial year were at an arm''s length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the company with promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the company at large.

All related party transactions are placed before the Audit Committee for approval. Prior omnibus approval of the Audit Committee is obtained on a quarterly basis for the transactions which are of a foreseen and repetitive nature. The transactions entered into pursuant to the omnibus approval so granted and a statement giving details of all related party transactions is placed before the Audit Committee for their approval on a quarterly basis. The company has developed a Related Party Transactions Manual and Standard Operating Procedures for purpose of identification and monitoring of such transactions.

The policy on Related Party Transactions as approved by the Board is uploaded on the company''s website.

None of the directors have any pecuniary relationships or transactions vis-a-vis the company.

Particulars of contracts & arrangements with Related Parties are appended in Form AOC 2 as ''Annexure 3''.

Significant and Material Orders Passed by the Regulators nr Courts

There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the company and its future operations.

Committees of The Board

Risk Management Committee

During the year, pursuant to the requirement of Clause 49 of the Listing Agreement, the company has constituted a Risk Management Committee. A Risk Management Policy has been prepared which is placed on the website of the company.

The details of all committees and its terms of reference are set out in the Corporate Governance Report.

Auditors

Statutory Auditors

M/s. B. K. Khare & Co., Chartered Accountants, retire as statutory auditors at the ensuing Annual General

Meeting (AGM) and are eligible for reappointment.

As required under the provisions of Section 139 (1) of the Companies Act, 2013, the company has obtained a written consent from them to the effect that their re-appointment, if made, would be in conformity with the limits specified in the said section.

The Audit Committee has recommended appointment of M/s. SRBC & Co. LLP Chartered Accountants, at the ensuing (AGM) as Joint Auditors of the company for a term of five years. Necessary resolution for such appointment is mentioned in the Notice of the AGM for approval of the members.

As required under Clause 49 of the Listing Agreement, the auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India.

Cost Auditors

In terms of Section 148 of the Companies Act, 2013 read with The Companies (Cost Records and Audit) Amendment Rules, 2014, M/s. Dhananjay V. Joshi & Associates, Cost Accountants, Pune have been appointed as the Cost Auditors of the company for FY 2015-16.

Secretarial Audit

In accordance with the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the company has appointed M/s. SVD & Associates, Company Secretaries, Pune, to undertake the Secretarial Audit of the company.

The Secretarial Audit report is annexed herewith as ''Annexure 4''.

Extract of Annual Return

The details forming part of the extract of the Annual Return in Form No. MGT-9 is annexed herewith as ''Annexure 5''.

Awards and Recognition

Your company has received the following awards during the year:

- Best Concentrated Solar Thermal manufacturer

award from Ministry of New and Renewable Energy for the largest number of solar installations in the last three years.

- Safety Innovation Award 2014 for Chinchwad factory from the Institution of Engineers, India (IEI) for safety management and disaster mitigation; and Safety Award 2014 for Chinchwad factory by the Greentech Foundation for its innovative health, safety and environment practices.

- ''L&D Team of the Year'' award from the Tata Institute of Social Sciences for innovation and industry focused content in learning and development.

- BML Munjal Awards 2015 - Business Excellence through Learning and Development for recognising learning and development as an enabler to improve business performance.

- Bharat Asmita Lifetime achievement award 2015 for Anu Aga, director, instituted by MAEER''s MIT Group of Institutions, Pune.

Acknowledgements

Your directors place on record their appreciation of the continued support extended during the year by the company''s customers, business associates, suppliers, partners, bankers, investors, government authorities and joint venture partners. They also place on record their appreciation of the dedication and contributions made by all the employees for their commitment, hard work and support.

Your directors would also like to thank all their shareholders for their continued faith in the company and its future.

For and on behalf of the Board

Meher Pudumjee Pune: May 26, 2015 Chairperson


Mar 31, 2013

Dear Shareholder,

The Directors have pleasure in presenting the Thirty-second Annual Report, together with the audited accounts of your company for the year ended March 31, 2013.

Financial Results

(Rupees in crore)

2012-13 2011-12

Total income 4763.88 5374.55

Profit before finance cost, depreciation and tax 580.14 654.40

Finance cost & depreciation 64.51 53.50

Profit before tax 515.63 600.90

Provision for taxation (incl. deferred tax) 165.67 194.04

Profit after tax 349.96 406.86

Balance carried forward from last year 1091.46 823.54

Profit available for appropriation (cumulative) 1441.42 1230.40

Proposed equity dividend 83.41 83.41

Tax on dividend 14.18 13.53

Transfer to general reserve 35.00 42.00

Surplus carried forward 1308.83 1091.46

ANNUAL PERFORMANCE

For the financial year 2012-13, your company reported a total revenue of Rs. 4,763.9 crore as against last year''s revenue of Rs. 5,374.6 crore, a reduction of 11.4 % owing to a lower order book at the beginning of the year.

Thermax''s Energy business — Boiler & Heater, Power, Cooling and Heating divisions plus the fledgling Solar group — contributed 77% of the total revenue while the Environment business comprising Air Pollution Control, Water and Waste Solutions and Chemical division accounted for the remaining 23%. Last year the share of Energy and Environment businesses was 78% and 22% respectively.

During the year, exports including deemed exports were at Rs. 983.9 crore against Rs. 1,142.7 crore last year, a decrease of 13.9%.

Profit before tax at Rs. 515.6 crore was 10.8% of the total revenue, compared to Rs. 600.9 crore, 11.2%, previous year. In a year that continued to witness increase in input costs, lower price realisations and reduced revenues, the company maintained EBITDA margins at 10.8% as the management continued focusing on operational efficiency and controlling costs on a sustainable basis across the company.

Profit after tax stood at Rs. 350 crore compared to Rs. 406.9 crore in the previous year. Earnings per share (EPS) declined to Rs. 29.37 from Rs. 34.15 in FY 2011-12.

Order booking for the year was Rs. 4,859 crore against Rs. 4,032 crore last year, registering an increase of 20%. Your company completed the year with an order backlog of Rs. 4,357 crore as against Rs. 4,230 crore in FY 2011-12. Like the previous year, FY 2012-13 has also been challenging for the capital goods sector. The difficulties of the power sector and the resulting absence of fresh investments and order finalisations continued.

Profit after tax on a consolidated basis is lower than the stand-alone results owing to the losses incurred by Thermax Instrumentation Ltd. (TIL), Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. (TZL) and the company''s share of losses in the joint venture subsidiaries, Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd. (TBWES) and Thermax SPX Energy Technologies Ltd. (TSPX). TIL, which undertakes construction and commissioning work for the Power division of the company, is expected to face another challenging year ahead. In the tough market conditions prevailing in China, TZL is still working towards breaking even. The construction of the manufacturing plant of TBWES is nearing completion and the JV is focussing on making it operational.

The consolidated total income of the Thermax Group was Rs. 5,576.5 crore (Rs. 6,174.2 crore, previous year). Income from international business including deemed exports was Rs. 1,468.3 crore as compared to Rs. 1,574.2 crore for the previous year. The Group registered a profit before tax of Rs. 481.4 crore (Rs. 596.5 crore, previous year). Profit after tax, and minority interest was Rs. 320.1 crore for the year.

EPS was Rs. 26.87 (Rs. 33.86, previous year).

The audited consolidated financial statements presented by the company include the financial results of all subsidiary companies, prepared in accordance with Accounting Standard 21 issued by The Institute of Chartered Accountants of India. In addition, a statement of summarised financials of all the subsidiaries is included.

ACQUISITION OF ASSETS

In April 2013, the company, through its step down subsidiary Danstoker A/S, Denmark, acquired assets including the factory of D.P. Clean Tech Ltd., Denmark which are suitable for manufacturing and servicing industrial boilers. The assets are held in the newly formed companies viz. Boilerworks A/S and Boilerworks ApS. They will provide additional manufacturing support for Danstoker. The acquisition was funded through the internal accruals of Danstoker A/S.

DIVIDEND

The Directors have recommended a dividend of Rs. 7/- (350 %) per equity share of face value Rs. 2/-. The dividend, if approved by the shareholders, will result in a payout of Rs. 97.6 crore, including dividend distribution tax of Rs. 14.2 crore.

SUBSIDIARIES

By a general circular (No. 2/ 2011 dated February 8, 2011), the Ministry of Corporate Affairs, Government of India, under Section 212(8) of the Companies Act, 1956, has permitted companies not to attach copies of the Balance Sheets and Profit and Loss Accounts, Directors'' Reports, Auditors'' Reports and other documents of all their subsidiaries to the Accounts of the company. The company has acted accordingly.

However, annual accounts of the subsidiary companies and the related detailed information are available at any time to shareholders of the parent company, subsidiary companies and to statutory authorities. On request, these documents will be made available for inspection at the company''s corporate office.

Thermax Energy Performance seruices Ltd. (TEPS)

TEPS, a joint venture company with 51-49 percent shareholding between Thermax Limited and EPS Asia Inc. respectively, had been referred for voluntary winding-up effective February 28, 2007 due to non- acceptance of business model and lack of technical and financial investments from the joint venture partner.

TEPS was dissolved on May 10, 2012 pursuant to the Order passed by the Bombay High Court.

Thermax Sdn. Bhd., Malaysia

Your company acquired this entity (registered under the Companies Act, 1965 of Malaysia) in July, 2012 by way of acquisition of its entire share capital. The entity is now a wholly-owned subsidiary of the company.

MANAGEMENT DISCUSSION AND ANALYSIS

A Management Discussion and Analysis report, highlighting the performance and prospects of the company''s energy and environment segments, including details of subsidiaries catering to the respective businesses is attached.

CORPORATE GOVERNANCE REPORT

A detailed Corporate Governance Report is included in this report.

A certificate from the statutory auditors of the company regarding compliance with the conditions of corporate governance as required under Clause 49 of the Listing Agreement is part of this report.

LISTING ON STOCK EXCHANGES

The company''s equity shares are listed on two stock exchanges - National Stock Exchange of India Limited (NSE stock code - Thermax EQ) and BSE Limited (BSE stock code - 500411).

FINANCE, ACCOUNTS AND SYSTEMS

Opening cash & cash equivalent as on April 1, 2012 including current investments was Rs. 771.5 crore. Closing cash & cash equivalent as on March 31, 2013 including current investments stood at Rs. 632.9 crore, after repayment of buyer''s credit loan of Rs. 162.8 crore.

In addition to repayment of outstanding buyer''s credit loan of Rs. 162.8 crore during the year, the company made net investments of Rs. 127.3 crore in fixed assets (previous year Rs. 105.8 crore) and Rs. 42.7 crore in certain subsidiaries (previous year Rs. 88.6 crore), details of which are mentioned in this report.

The net cash outflow after factoring the above was Rs. 138.6 crore in the current year as against Rs. 25.9 crore in the previous year.

During the year, the company has made net investment of Rs. 195.5 crore in mutual funds which has been shown separately in cash flow statement.

The company''s net working capital, adjusted for bank fixed deposits, was positive at Rs. 469.1 crore as against Rs. 33.6 crore in the previous year owing to lower customer advance balances and higher receivables in absolute terms.

The company continued to strengthen the process of building internal controls as well as automation of work flows. Focus on cash flows, working capital as well expenditure control continued through enhanced Management Information Systems.

ICRA Ltd. has reaffirmed its rating, AA for long term and A1 for short term banking facilities. The long term rating carries a ''Stable'' outlook.

Public Deposits

The company had no unpaid / unclaimed deposit(s) as on March 31, 2013. It has not accepted any fixed deposits during the year.

EMPLOYEE STRENGTH

The total number of permanent employees on the rolls of the company was 4,100 as on March 31, 2013 (4,016, the previous year).

WAGE AGREEMENTS

During FY 2013-14, the Memorandum of Settlement with the Thermax Kamagar Sangathan (representing workmen at Chinchwad works) and with the Bhartiya Kamgar Karmachari Mahasangh (representing workmen at Paudh works) are due for fresh negotiations. The management of the company is confident of amicable negotiations and closure of these settlements.

PARTICULARS UNDER SECTION 217 OF THE COMPANIES ACT, 1956

A statement of the particulars required under Section 217(1) of the Companies Act, 1956 (the Act), read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is annexed and forms part of this Report.

In terms of the provisions of Section 217(2A) of the Act, read with the rules framed thereunder as amended, the names and other particulars of the employees are set out in the annexure to the Directors'' Report. Having regard to the provisions of Section 219 (1) (b) (IV) of the Act, the Annual Report excluding the aforesaid information is being sent to all the members of the company and others entitled thereto. Any shareholder interested in obtaining such particulars may write to the Company Secretary at the corporate office of the company. The statement is also available for inspection at the corporate office during working hours up to the date of the Annual General Meeting.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the company''s Articles of Association, Pheroz Pudumjee and Dr. Jairam Varadaraj retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment as directors.

COMPANY SECRETARY

Gajanan P Kulkarni was appointed as the Company Secretary as per the provisions of Section 383A of the Companies Act, 1956. He was also designated as the Compliance Officer in terms of the Listing Agreement.

DIRECTORS'' RESPONSIBILITY STATEMENT

In terms of Section 217(2AA) of the Companies Act, 1956, your Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them with respect to the statement of Profit & Loss for the financial year ended March 31, 2013 and the Balance Sheet as at that date ("financial statements"), confirm that:

1. The financial statements have been prepared on a going concern basis. In the preparation of the financial statements the generally accepted accounting principles (GAAP) of India and applicable accounting standards issued by The Institute of Chartered Accountants of India have been followed.

2. Appropriate accounting policies have been selected and are being applied consistently. Judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period. Significant accounting policies and other required disclosures have been made in Notes to the Financial Statements.

3. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. To ensure this, the company has established internal control systems consistent with its size and nature of operations. In weighing the assurance provided by any such system, its inherent limitations should be recognised. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The company has an Internal Audit department which coordinates the internal audit process. The Audit Committee of the Board meets at periodic intervals to review the internal audit function.

4. The financial statements have been audited by M/s. B.K. Khare & Co., the statutory auditors and their report is appended.

COMMITTEES OF THE BOARD

During the year, changes have been effected in the following committees of the Board:

A) Borrowing & Investments Committee: The terms of reference of the committee were amended by the Board on July 26, 2012.

B) Strategic Business Development Committee: The Board appointed Dr. Jairam Varadaraj as a member of the committee with effect from February 26, 2013.

The Corporate Governance Report gives details of these committees.

AUDITORS

M/s. B.K. Khare & Co., Chartered Accountants, retire as statutory auditors at the ensuing Annual General Meeting and are eligible for reappointment.

As required under the provisions of Section 224(1B) of the Companies Act, 1956, the company has obtained a written consent from them to the effect that their reappointment, if made, would be in conformity with the limits specified in the said section.

COST AUDITORS

M/s. Dhananjay V. Joshi & Associates, Cost Accountants, Pune have been appointed as the Cost Auditors of the Company for FY 2013-14 subject to the approval of the Central Government.

AWARDS AND RECOGNITION

Your company has received the following awards and recognition during the year:

- Thermax MD and CEO, M.S.Unnikrishnan received the Asia Innovator Award at the 2012 CNBC Asia Business Leaders Awards (ABLA) in Bangkok. He is the first Indian to receive the Innovation Award in the 11 year history of ABLA.

- Thermax''s Savli and Chinchwad factories won awards from the CII and the Greentech Foundation for their health, safety and environment (HSE) practices, employee involvement and environment management systems.

ACKNOWLEDGEMENTS

Your Directors place on record their appreciation of the continued support extended during the year by the company''s clients, business associates, suppliers, bankers, investors, government authorities and joint venture partners. Your Directors also place on record their appreciation of the dedication and contributions made by all the employees including the workmen, for commitment, hard work and support.

Your Directors would also like to thank all their shareholders for their continued faith in the company and its future.

For and on behalf of the Board

Meher Pudumjee

Pune: May 22, 2013 Chairperson


Mar 31, 2012

Dear Shareholder,

The Directors have pleasure in presenting the Thirty-first Annual Report, together with the audited accounts of your company for the year ended March 31, 2012.

Financial Results (Rupees in crore)

2011-12 2010-11

Total income 5374.55 4935.49

Profit before finance cost, depreciation tax and extraordinary items 654.40 618.21

Finance cost& depreciation 53.50 45.51

Profit before tax & before extraordinary items 600.90 572.70

Provision for taxation (incl. deferred tax) 194.04 190.28

Profit after tax & extraordinary items 406.86 382.42

Balance carried forward from last year 823.54 605.76

Profit available for appropriation (cumulative)1230.40 988.18

Proposed equity dividend 83.41 107.24

Tax on dividend 13.53 17.40

Transfer to general reserve 42.00 40.00

Surplus carried forward 1091.46 823.54

ANNUAL PERFORMANCE

Your company has registered record total revenue of Rs. 5374.6 crore, a growth of 8.9% over last year's revenue of Rs. 4935.5 crore.

Thermax's Energy business comprising Boiler & Heater, Power, Cooling and Heating contributed 78.2% of the total revenue while the Environment business comprising Air Pollution Control, Chemicals, Water and Wastewater Solutions accounted for the remaining 21.8%. Last year, the share of Energy and Environment businesses was 80% and 20% respectively.

During the year, exports, including deemed exports were higher at Rs. 1142.7 crore from Rs. 1065.9 crore last year, an increase of 7.2%.

Profit before tax at Rs. 600.9 crore was 11.2% of total revenue as compared to Rs. 572.7 crore in the previous year which was 11.6%. The company maintained the EBITDA margins at 11% even though the year witnessed increase in input costs. The company's management continues to work on building operational efficiency and controlling costs on a sustainable basis at divisional and overall company levels.

Profit after tax and extraordinary items was at Rs. 406.9 crore compared to Rs. 382.4 crore in the previous year. Earnings Per Share (EPS) rose to Rs. 34.15 from Rs. 32.09 in 2010-11.

Order booking for the year was Rs. 4032 crore against Rs. 5318 crore last year. Your company completed the year with an order backlog of Rs. 4230 crore as against Rs. 5605 crore in the previous year. 2011-12 had been a challenging year for the capital goods sector. Various policy and economic factors were responsible for significantly reducing fresh investments and order finalisations in the power sector, affecting order booking and resulting in lower order backlog. The order inflows were lower compared to the previous year as the economy witnessed a slowing down of growth, particularly in the second half of the financial year.

The profit after tax on a consolidated basis is lower than the stand alone results owing to the losses incurred by the subsidiaries namely, Thermax Instrumentation Ltd. (TIL), Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. (TZL) and the company's share of losses in the recent joint venture subsidiaries, Thermax Babcock & Wilcox Energy Solutions Pvt. Ltd. (TBWES) and Thermax SPX Energy Technologies Ltd. TIL, which undertakes erection and commissioning work for the Power division of the company, is expected to face a challenging year ahead. TZL improved its business operations and reduced operating losses. TBWES is yet to be operational.

The consolidated total income of the Thermax Group was Rs. 6174.2 crore (Rs. 5393.6 crore, previous year) recording a 14.5% increase. Income from international business including deemed exports was up 25.9% to Rs. 1574.2 crore from Rs. 1250.3 crore. The Group registered a profit before tax of Rs. 596.5 crore (Rs. 573.4 crore, previous year). Profit after tax, extraordinary items and minority interest was Rs. 403.5 crore for the year. Consequently, EPS also increased to Rs. 33.86 (Rs. 32.03 after extraordinary item, previous year).

A detailed review of performance and future prospects of the company's business and its subsidiaries is included in the section 'Management Discussion and Analysis'.

The audited consolidated financial statements presented by the company include the financial results of all subsidiary companies, prepared in accordance with Accounting Standard 21 issued by The Institute of Chartered Accountants of India. In addition, a statement of summarised financials of all the subsidiaries is included.

STRATEGIC ACQUISITION

Your company acquired Rifox-Hans Richter GmbH, a leading German steam traps and allied steam accessories manufacturer which was the subsidiary of Virgo Valves & Controls Ltd., India. Virgo's steam division has also been acquired by your company for an aggregate consideration of Rs. 13.39 crore. The acquisition which is effective from April 1, 2012, offers a strategic fit for the company's steam engineering business. The acquisition would enable your company's Cooling and Heating service business to extend its portfolio in Europe, South East Asia and the Middle East.

DIVIDEND

The Directors have recommended a dividend of Rs. 7/- (350%) per equity share of face value Rs. 2/-. The dividend, if approved by the shareholders, will entail a payout of Rs. 96.9 crore, including dividend distribution tax of Rs. 13.5 crore.

SUBSIDIARIES

By a general circular (No. 2/ 2011 dated February 8, 2011), the Ministry of Corporate Affairs, Government of India, under Section 212(8) of the Companies Act, 1956, has permitted companies not to attach copies of the Balance Sheets and Profit and Loss Accounts, Directors' Reports, Auditors' Reports and other documents of all their subsidiaries, to the Accounts of the Company. The company has acted accordingly.

However, annual accounts of the subsidiary companies and the related detailed information are available at any time to shareholders of the parent company and subsidiary companies and to statutory authorities. On request, these documents will be made available for inspection at the company's corporate office.

MANAGEMENT DISCUSSION AND ANALYSIS

A Management Discussion and Analysis report, highlighting the performance and prospects of the company's energy and environment segments including details of subsidiaries catering to the respective businesses, is attached.

CORPORATE GOVERNANCE

It has been the endeavour of your company to follow and implement the best practices in corporate governance, in letter and spirit. A detailed Corporate Governance Report is included in this report.

A certificate from the statutory auditors of the company regarding compliance with the conditions of corporate governance as required under Clause 49 of the Listing Agreement is part of this report.

LISTING ON STOCK EXCHANGES

The company's equity shares are listed on two stock exchanges - National Stock Exchange of India Limited (NSE) and BSE Limited (BSE).

FINANCE, ACCOUNTS AND SYSTEMS

As on March 31, 2012 the company's cash and cash equivalents including current investments stood at Rs. 771.5 crore.

The net cash flows from operations, before investments in fixed assets and subsidiaries was Rs. 174.5 crore (previous year Rs. 53.4 crore).

The company made net investments of Rs. 105.8 crore in fixed assets and Rs. 74 crore as equity in Thermax Babcock Wilcox Energy Solutions Private Limited - the Joint Venture with Babcock & Wilcox India Holdings Inc., USA. Besides, the company infused equity of Rs. 10.6 crore in Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. and Rs. 4 crore in Thermax Sustainable Energy Solutions Ltd. during the year. The net cash outflow, after factoring the above, was Rs. 25.9 crore in the current year as against Rs. 9.9 crore in the previous year.

The company's net working capital, adjusted for bank fixed deposits, was positive at Rs. 34 crore as against a negative Rs. 117 crore in the previous year owing to lower customer advance balances and higher receivables in absolute terms. The company's management continues to monitor closely and control the working capital.

The process of building internal controls as well as the automation of work flow was continued during the year.

The company's financial statements have been prepared according to the revised Schedule VI of the Companies Act, 1956.

ICRA Ltd. has reaffirmed its rating, LAA for long- term and A1 for short term banking facilities. The long term rating carries a 'Stable' outlook.

Public Deposits

The company had no unpaid / unclaimed deposit(s) as on March 31, 2012. It has not accepted any fixed deposits during the year.

EMPLOYEE STRENGTH

The total number of permanent employees on the rolls of the company was 4016 as on March 31, 2012 (3920 previous year).

WAGE AGREEMENT

During the year, the management of the company has amicably signed the following wage settlement agreements:

1) Memorandum of settlement with Thermax Kamagar Sangathan (representing workmen at Chinchwad works) which will remain in force for a period of three years commencing from May 1, 2010.

2) Memorandum of settlement with Bhartiya Kamgar Karmachari Mahasangh (representing workmen at Paudh works) which will remain in force for a period of three years commencing from July 1, 2010.

PARTICULARS UNDER SECTION 217 OF THE COMPANIES ACT, 1956

A statement of the particulars required under Section 217(1) of the Companies Act, 1956 (the Act), read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is annexed and forms part of this Report.

In terms of the provisions of Section 217(2A) of the Act, read with the rules framed thereunder as amended, the names and other particulars of the employees are set out in the annexure to the Directors' Report. Having regard to the provisions of Section 219(1)(b) (IV) of the Act, the Annual Report excluding the aforesaid information is being sent to all the members of the company and others entitled thereto. Any shareholder interested in obtaining such particulars may write to the Dy. Company Secretary at the corporate office of the company. The statement is also available for inspection at the corporate office, during working hours up to the date of the Annual General Meeting.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the company's Articles of Association, Dr. Valentin A.H. von Massow and Dr. Raghunath A. Mashelkar retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment as directors.

M. S. Unnikrishnan has been reappointed as the Managing Director and Chief Executive Officer of the company for a period of five years commencing from July 1, 2012. His reappointment requires approval of the shareholders at the ensuing Annual General Meeting.

COMPANY SECRETARY

Devang Trivedi was appointed Compliance Officer in terms of the Listing Agreement and also

Deputy Company Secretary as per the provisions of Section 383A of the Companies Act, 1956. His appointment was necessitated by the resignation of Sunil Lalai as the Company Secretary and Compliance Officer.

DIRECTORS' RESPONSIBILITY STATEMENT

In terms of Section 217(2AA) of the Companies Act, 1956, your Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them with respect to the statement of Profit & Loss for the financial year ended March 31, 2012 and the Balance Sheet as at that date ("financial statements"), confirm that:

1. The financial statements have been prepared on a going concern basis. In the preparation of the financial statements the generally accepted accounting principles (GAAP) of India and applicable accounting standards issued by The Institute of Chartered Accountants of India have been followed.

2. Appropriate accounting policies have been selected and are being applied consistently. Judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period. Significant accounting policies and other required disclosures have been made in Notes to the Financial Statements.

3. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. To ensure this, the company has established internal control systems, consistent with its size and nature of operations. In weighing the assurance provided by any such system, its inherent limitations should be recognised. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The company has an Internal Audit department, which coordinates the internal audit process. The Audit Committee of the Board meets at periodic intervals to review the internal audit function.

4. The financial statements have been audited by M/s. B. K. Khare & Co., the statutory auditors and their report is appended thereto.

COMMITTEES OF THE BOARD

During the year, changes have been effected in the following committees of the Board:

A) Audit Committee: The Board appointed Nawshir Mirza as a member of the committee with effect from May 3, 2011.

B) International Investment Committee: The terms of reference of the committee were amended by the Board on October 20, 2011.

The Corporate Governance Report gives details of the aforesaid committees.

AUDITORS

M/s. B. K. Khare & Co., Chartered Accountants, retire as statutory auditors at the ensuing Annual General Meeting and are eligible for reappointment. As required under the provisions of Section 224(1B) of the Companies Act, 1956, the company has obtained a written certificate from them to the effect that their reappointment, if made, would be in conformity with the limits specified in the said section.

COST AUDITORS

As per the Order dated January 24, 2012, issued by the Ministry of Corporate Affairs, the appointment of Cost Auditors becomes mandatory for your company pursuant to the provisions of Section 233B of the Companies Act, 1956.

Accordingly, the Board of Directors at its meeting held on May 11, 2012 approved appointment of M/s. Dhananjay V. Joshi & Associates, Cost Accountants, Pune as the Cost Auditors of the company for the financial year 2012-13 subject to the approval of the Central Government.

AWARDS AND RECOGNITION

Your company has received the following awards and recognition during the year:

- Thermax won the CNBC TV-18 India award for

the 'most promising entrant to the big league'. M. S. Unnikrishnan received the award from the Union Finance Minister, Pranab Mukherjee in January, 2012.

- Anu Aga, Director and former Chairperson of Thermax, nominated as Member of the Rajya Sabha by the President of India, on the recommendations of the Prime Minister.

- Chinchwad factory bagged the Safety Innovation Award 2011 from the Institution of Engineers, Delhi, for its innovative health, safety and environment initiatives.

- Chinchwad factory won the Health, Safety and Environment appreciation award 2011 from CII, Western region.

- Gopal Mahadevan, Chief Financial Officer and Executive Vice President received the best performing CFO award in the Capital Goods sector by CNBC TV-18 in February, 2012.

- Meher Pudumjee's column, 'Expressions' in Fireside, the company in-house magazine, won first prize at the Association of Business Communicators of India in November 2011.

- Thermax employees continue to win awards for technical paper presentations, corporate quizzes and sports tournaments.

ACKNOWLEDGEMENTS

Your Directors place on record their appreciation of the continued support extended during the year by the company's clients, business associates, supplier-partners, bankers, investors, government authorities and its joint venture partners. Your Directors also place on record their appreciation of the dedication and contributions made by employees at all levels including the workmen, who through their commitment, hard work and support have steered the company.

Your Directors would also like to thank all their shareholders for their faith in the company and its future.

For and on behalf of the Board

Meher Pudumjee

Pune: May 11, 2012 Chairperson

 
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