In a determined bid to stem its decline, the engineering projects company is re-configuring its board and businesses.

By Roop Karnani

When Anu Aga first introduced consultants from The Boston Consulting Group to her senior colleagues at the Pune-based Thermax, she narrated a story to drive home what was about to unfold at the embattled company.

The story was about a skeptical disciple who wanted to test his guru's knowledge. So, one day he went to the guru with a bird in his hand and challenged him to guess accurately whether it was dead or alive. The guru replied thus: ''My son, the answer depends on whether you want the bird to be alive or not. If I say it is alive, you can tighten your fist and crush it to death. If I say it is dead, you can open your fist and let it fly.''

The point that Aga, Chairman of the engineering company founded by her late husband Rohinton Aga, wanted to make was that the consultant's recommendations had to be taken seriously and acted upon double-fast if Thermax was be turned around.

Aga's been true to her words. Three months after the meeting, on July 21, 2000, she sacked her company's 13-member board en masse. It was unprecedented, but Aga believed it was long due: ''There are many things we could have done differently to avoid this situation. But we did not. I see it as a failure of the top management.''

A Climb Uphill

As a first step, Thermax's CEO and MD of four years, Abhay Nalwade, has been made to step down. Prakash Kulkarni, the Joint Managing Director, has been asked to fill in until a CEO is found, although Kulkarni could end up being the one. Also planned is a complete overhaul of the business structure, including merger of divisions, sale of non-profitable businesses, acquisition of new ones, and consolidation of core, profitable businesses.

Greater accountability is being demanded of senior executives. Each business unit will now have a head, and all such heads will form an executive council. They will not only be accountable for their own division's performance, but also of the company as a whole. To make sure the executives pull their weight together, part of their remuneration will be tied to the performance of divisions other than their own. Says Kulkarni: ''This will ensure collective responsibility.''

Within each division there will be a business council that will have top performers running it. At the moment, the informal council draws its members at the discretion of the division manager. The idea behind the change being to grow the divisions rapidly. Notes Aga: ''So far we had been lenient towards non-performers.''

Aga can say that again. The projects business, which fetches 40 per cent of the company's income, was badly hit by several projects failing to take-off, and it proved slow to respond to the changes. Similarly, the co-generation division strayed from its original mission of focusing on power projects of up to 30 mega watts (MW). Instead, it bid for three independent power projects-dc Power in Kerala, Newcon in Maharashtra, and Tenaga in Tamil Nadu. The projects, expected to fetch Rs 250 crore in business, fell through, and Thermax was unable to find alternates. Admits Kulkarni: ''Our ability to predict the market has to improve.''

As a result, Thermax's turnover and profits have been sliding (See The Big Tumble), and the stock price has plunged from Rs 430 in 1995, to Rs 94 today. Last year, it made an operating loss of Rs 14 crore, but managed to turn in a net profit of Rs 32 crore due to a windfall in treasury income of Rs 92 crore.

To be fair, the loss was also due to a balance-sheet clean-up. Doubtful debt and inventories that had been carried over from the previous four years were written off. And a joint venture, Thermax Fuji, was shut down and its losses absorbed. Says Deepak Nanda, 47, MD, Communications Equity Associates India: ''Writing off all its doubtful debts has definitely made Thermax's balance-sheet a healthier one.''

Shedding Load

Even as Thermax waits for the strategic changes to pay off, it is cutting the flab for immediate benefits. For example, BCG is helping the company reduce its cost of sourcing, which is a high of around Rs 400 crore; the asset base, worth Rs 230 crore, is to be made more productive to match industry standards; product-price realisation for the projects division is to be improved, and target-costing is to be adopted across the product-range.

The company's non-core businesses of software and electronics have been put on the block, and a buyer may already have been found for the software division. While Thermax won't disclose the name of the buyer, BT believes that it could be the Bangalore-based Global Telesystems.

Fortunately for Thermax, the new initiatives are likely to ride on the back of an upturn. For the quarter ended June 30, 2000, the turnover has gone up from Rs 65 crore in the first quarter of last year to Rs 70 crore. Losses are down from Rs 9.13 crore to Rs 7.6 crore. Avers Kulkarni: ''We are confident of a turnaround in the current year itself.''

The order-book position is said to be 30 per cent higher than last year's and exports up 20 per cent in the first quarter. Aga expects the four divisions of process heat, chemicals, absorption chillers, and water treatment to lead the recovery. But there's no doubt that it will take time. Says Nanda: ''If for the next 18-24 months, Thermax's profits show a positive trend, only then will the markets will react positively.''

Over the next six months, BCG will help Thermax rationalise its business portfolio. That done, Thermax executives are hoping they never have to hear another story from Aga.

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