BLUESTARCONSEQ4 FY22May 10, 2022

Blue Star Limited

8,173words
53turns
12analyst exchanges
2executives
Management on call
B. Thiagarajan
MANAGING DIRECTOR
Neeraj Basur
GROUP CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
Rs.75 crore
spite losing the summer season and easily in my estimate, we should have delivered something like Rs.75 crores to Rs.80 crores more if the summer season of 2021 would have been an active quarter, but that is
Rs.80 crore
summer season and easily in my estimate, we should have delivered something like Rs.75 crores to Rs.80 crores more if the summer season of 2021 would have been an active quarter, but that is unfortunate,
39.5%
, 2022, on a consolidated basis, are summarized below: -Revenue from operations for Q4FY22 grew 39.5% to Rs 2247.58 cr as compared to Rs 1611.56 cr in Q4FY21. -EBIDTA (excluding other income and fi
Rs 2247.58
n a consolidated basis, are summarized below: -Revenue from operations for Q4FY22 grew 39.5% to Rs 2247.58 cr as compared to Rs 1611.56 cr in Q4FY21. -EBIDTA (excluding other income and finance income) f
Rs 1611.56
summarized below: -Revenue from operations for Q4FY22 grew 39.5% to Rs 2247.58 cr as compared to Rs 1611.56 cr in Q4FY21. -EBIDTA (excluding other income and finance income) for Q4FY22 was Rs 142.95 cr (E
Rs 142.95
to Rs 1611.56 cr in Q4FY21. -EBIDTA (excluding other income and finance income) for Q4FY22 was Rs 142.95 cr (EBITDA margin 6.4% of revenue) as compared to Rs 101.81 cr (EBITDA margin 6.3% of revenue) f
6.4%
-EBIDTA (excluding other income and finance income) for Q4FY22 was Rs 142.95 cr (EBITDA margin 6.4% of revenue) as compared to Rs 101.81 cr (EBITDA margin 6.3% of revenue) for Q4FY21. -Profit bef
Rs 101.81
me and finance income) for Q4FY22 was Rs 142.95 cr (EBITDA margin 6.4% of revenue) as compared to Rs 101.81 cr (EBITDA margin 6.3% of revenue) for Q4FY21. -Profit before tax grew 9.2% to Rs 113.91 cr in Q
6.3%
4FY22 was Rs 142.95 cr (EBITDA margin 6.4% of revenue) as compared to Rs 101.81 cr (EBITDA margin 6.3% of revenue) for Q4FY21. -Profit before tax grew 9.2% to Rs 113.91 cr in Q4FY22 as compared to R
9.2%
as compared to Rs 101.81 cr (EBITDA margin 6.3% of revenue) for Q4FY21. -Profit before tax grew 9.2% to Rs 113.91 cr in Q4FY22 as compared to Rs 104.32 cr in Q4FY21. -Net profit for Q4FY22 grew by 1
Rs 113.91
red to Rs 101.81 cr (EBITDA margin 6.3% of revenue) for Q4FY21. -Profit before tax grew 9.2% to Rs 113.91 cr in Q4FY22 as compared to Rs 104.32 cr in Q4FY21. -Net profit for Q4FY22 grew by 12.0% to Rs 76.
Rs 104.32
% of revenue) for Q4FY21. -Profit before tax grew 9.2% to Rs 113.91 cr in Q4FY22 as compared to Rs 104.32 cr in Q4FY21. -Net profit for Q4FY22 grew by 12.0% to Rs 76.27 cr as compared to Rs 68.09 cr in Q4
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Guidance — 20 items
B. Thiagarajan
opening
“So, perhaps this and next quarter, I will interact with you over this quarterly investor call.”
B. Thiagarajan
opening
“Neeraj Basur for the opening remarks on the results and I will be happy to answer any questions later.”
Neeraj Basur
opening
“Electro-Mechanical Projects business Revival of capex cycle led to improved pace of project execution as compared to the previous quarters.”
Neeraj Basur
opening
“Our comprehensive range of affordable ACs continued to resonate well with the price sensitive customers and first-time buyers especially in Tier 3, 4 and 5 markets and we further consolidated our position as a mass premium brand in our target customer segments.”
Neeraj Basur
opening
“After the washout of two consecutive summers, we expect strong growth in Q1FY23.”
Neeraj Basur
opening
“The launch of our new range of products in room air conditioners and commercial refrigeration is expected to significantly aid growth going forward.”
B. Thiagarajan
qa
“Therefore, there will be substantial cost savings once the Sri City plant commences production.”
B. Thiagarajan
qa
“All possible cost reduction levers will be used and finally, we expect to witness softening of commodity prices later this year.”
B. Thiagarajan
qa
“We had earlier expected the cycle to continue for 12 to 18 months but with the inflation control measures being taken, we expect the prices to soften by end of this calendar year.”
B. Thiagarajan
qa
“Taking all these into account, we expect to get back to 8% to 8.5% operating margin this year.”
Risks & concerns — 10 flagged
He played an active role in implementation of digitalization programs, the enterprise risk management framework, most importantly, the operational support in bringing quite a few businesses well under control in terms of ROCE.
— B. Thiagarajan
Despite pressures on gross margin due to escalation in commodity prices, the impact of scale enabled preservation of profitability levels.
— Neeraj Basur
-Due to planned increase in inventory levels owing to advancement in the procurement of long lead raw materials and components in order to de-risk supply chain constraints and capacity expansion capital investments in the new manufacturing projects at Wada and Sri City, capital employed as on March 31, 2022, stood at Rs 1087.69 cr (March 31, 2021: Rs 736.41 cr).
— Neeraj Basur
Also, if you can talk about the impact of cost escalation once the BEE ratings kicks in from 1st of July?
— Bhoomika Nair
China dependence risk mitigation that is a part of our enterprise risk management framework is also being addressed.
— B. Thiagarajan
We had earlier expected the cycle to continue for 12 to 18 months but with the inflation control measures being taken, we expect the prices to soften by end of this calendar year.
— B. Thiagarajan
Near term pressure on margins would kind of continue given the cost escalations and these benefits out of Sri City to only be more towards the end of the year?
— Bhoomika Nair
Our process is well defined there and there is no concern with regard to that.
— B. Thiagarajan
Can you elaborate on the 47% growth in RAC, how various regions would have done like east, west, north, south because south as per our checks suggested was quite kind of weak in March but picked up in April, so, how things have panned out in Q4?
— Naval Seth
But in line with our Enterprise Risk Management framework, we wanted to derisk dependency on China.
— B. Thiagarajan
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Q&A — 12 exchanges
Q
I wanted to understand this whole price hike and the cost escalations that we're seeing. You mentioned that in April, we've taken about a 2% to 3% price hike. Now, given the recent events of March, April due to the geopolitical issues, the kind of cost escalations that we're seeing and the freight costs, etc., which are also going up, is this adequate enough to kind of take back our margins to that 8%-plus trajectory and how much more will we need to take? Also, if you can talk about the impact of cost escalation once the BEE ratings kicks in from 1st of July?
B. Thiagarajan
As you may recall, we have launched a new range of affordable premium air conditioners, which are reengineered and have achieved a cost reduction. Unwanted features have been removed, given the fact more than 90% of the buyers are first-time buyers, 65% of the buyers are from tier-3, 4, 5 markets, the growth is driven by aspirational middle class and 45% of the sales are financed through consumer finance. These customers are looking for a product which is functionally delivering air conditioning. In addition to managing price escalations, it is also necessary to address these customer segments
Q
I have two questions. One is on the commercial refrigeration segment. What was the growth in the segment in the fiscal year gone by and what percentage of the business is the commercial refrigeration? The second question is more on the services part. What is the share of the services in our business? I believe commercial refrigeration and both commercial air conditioning, there will be an element of after-sale services. On a slightly longer period, do you believe that this share of services grows as we see in some of the global multinationals and that kind of adds to the structural improvement
B. Thiagarajan
There is no public information on the break-up of revenues of Daikin or Johnson, and we won't be able to comment on that. In commercial refrigeration, we are a player with the entire range of products other than transport refrigeration such as water cooler, bottle water dispenser, deep freezers, ripening chambers, cold rooms etc. We do not undertake turnkey projects, which are not sizable, but will require quite a bit of bought out material. Other than that in commercial refrigeration, we are the largest player, holding more than 30% market share in every category. If you look at fast food cha
Q
Two questions. One, if you could talk about the competitive landscape on the room AC side, any significant changes that you want to highlight, any players getting aggressive and all? Also to kind of connected with the import ban on with gas compressors, so, has that led to any of the Japanese brands losing share or have they kind of managed to now start assembly in India, consolidation is what I mean?
B. Thiagarajan
The competitive landscape is not going to change as all the players including multinationals who are present continue to be active players. It is also driven by the penetration levels which are expected to reach 10% in three years from the current level of 6%. Therefore, all players would be aggressively pursuing this opportunity. Another aspect is the expected doubling of manufacturing capacity in the next three years’ time, thanks to the PLI Scheme. Incentives under the PLI scheme works not only based on the investment but also on the incremental sale over FY'21. Therefore, if someone invest
Q
One thing I see that the trade receivables have increased by close to Rs.400 crores and inventories have increased closer to Rs.260 crores. So, is that the timing issue, or you said some conscious decision on the inventories, at least given the summer?
Neeraj Basur
It's all linked to the scale change that happened in FY'22. Our revenue growth, specifically in Q4, is close to 40% and obviously, that results in higher billing, and some of that billing will be reflected in receivables. It's all normal, nothing to be worried about, it is all fine and collectable. As far as inventory is concerned, there are two reasons. We have consciously taken a call to advance procurement of some long lead time raw material components, because we wanted to make sure our Q1 production runs normally and also to support the scale growth that's expected in the next financial y
Q
You gave a pretty detailed picture on the portfolio, the changes which you're doing. So, can you give a similar picture on the distribution side? I think last year, you were at close to about 7,000 retail points, and you have talked about higher focus on the north, and also on the tier 3, 4, 5 markets. So, just give us a more color on how the distribution is being focused for driving this growth?
B. Thiagarajan
There has been a systemic change that has been happening. While we were worried about two summer seasons are lost, so on and so forth, what has been happening is the growth in e- commerce channel. Today, around 17% of the sales takes place through that channel and in the summer season, it may go up to 20%. Sales through e-commerce platform is driven by pricing and for the past couple of years, our share in e-commerce is coming closer to the share of the industry itself. There are also modern retailers or the power retailers who are having multiple stores and their behavior will be similar to t
Q
My first question is pertaining to the order inflows. We have reported a very strong growth in inflows as well as execution in the current quarter. So, if you could give more color, where are these orders coming in from, are there any large orders which got concentrated in the fourth quarter or is it many number of small orders which are driving this growth? Also if you could give the market share in each of the categories, the ducted, VRF as well as chillers, where we are?
B. Thiagarajan
The carried forward order book is Rs.3253 crores as of 31st March 2022, roughly around 10% higher than 31st March 2021. Order inflow has been uniform throughout the quarter. Our segment 1 it is not seasonal in nature and the orders keep flowing regularly. In terms of the execution, the Q4 may be much bigger quarter compared with the other quarters. Orders from is the manufacturing sector are driven by capacity expansion which in turn is driven by PLI for quite a few sectors, including mobile phones, so on and so forth. In the automobile sector, specifically electric vehicles, say for example,
Q
My first question is with respect to the cooling product segment, the breakup between air conditioners and non-air conditioners revenue and what kind of revenue growth do you expect in the entire cooling products segment for FY'23?
B. Thiagarajan
If we were to give a breakup, that will be a selective disclosure. All we can say is substantial part is room air conditioners because refrigeration market is very negligible. We do not operate in the transport refrigeration. The addressable market therefore will be Rs 4,000 crores and the Rs 16,000 crores is the market for the room air conditioner in a normal year. In the COVID impacted year, it may be Rs 12,500 to Rs 13,000 crores. Our ambition is to grow that segment by at least 25% and going by what is happening in the summer, it should be possible for the entire segment for FY'23. With re
Q
Can you elaborate on the 47% growth in RAC, how various regions would have done like east, west, north, south because south as per our checks suggested was quite kind of weak in March but picked up in April, so, how things have panned out in Q4?
B. Thiagarajan
We do not see any difference at all. You're comparing the growth with the COVID impacted year and in the COVID impacted year, you know the different locations had different lockdown restrictions, some states allowed retail trade while some other states allowed e-commerce etc. Therefore, region-wise comparison of growth with last year may not be apt. Currently, the growth is significant in double digits in every location including very large markets like Chennai, Tamil Nadu, Andhra Pradesh, Maharashtra, Gujarat, entire NCR and Punjab. East maybe relatively lower growth. In UP, it is about build
Q
Is there any down trading happening in the market and how is the inventory level in the market right now?
B. Thiagarajan
At Bluestar, we do not have any inventory problem, at least we do not foresee that till June. We hear from the dealers is there are shortages in quite a few markets.
Q
So, just wanted to check the 10% to 11% price increase you would have taken for room ACs for FY'22. Was it sufficient for the RM inflation, and if that was not sufficient, to what extent, it was not sufficient?
B. Thiagarajan
Our operating margin has come down from 7.9% to 7%. The decrease in the operating margin was lower due to improvement in the leverage relating to the operating costs. In other words, if we had increased the prices by something like 14.5%, we would have maintained the margin. We have taken a price increase in April which should help improve the margin. In taking price increase, we are not dictated by anyone at all and we have been doing it from right from January that's 2021 whenever required. After April price increase, now, you're fully covered for the price inflation in the raw materials? We
Q
In the new plant at Wada that we plan to commission specifically for commercial refrigeration, what could be the increase in localization that you will see and how does this compared to our peers in commercial refs specifically?
B. Thiagarajan
We had a factory in Ahmedabad which manufactured only 400 litre and 500 litre deep freezers. There are also deep freezers of other capacities such as the 300 litre, 250 litre, 100 litre and the 75 litre. Deep freezers are used predominantly for ice cream distribution. When the ice cream penetration goes to smaller towns, smaller retailers, the OEMs will appoint the retailers and those kirana shops are going to be selling with a deep freezer that will occupy a space. Over the years, the skew is towards 300 litre, 200 litre, 100 litre because in tier 4, the retailers’ consumption will be lower,
Q
Thank you very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. Do feel free to revert to us in case any of your questions were not fully answered and we will be happy to provide you additional details by e-mail or in person. Thank you very much and good bye.
Management
Speaking time
B. Thiagarajan
18
Moderator
14
Neeraj Basur
3
Bhoomika Nair
3
Bhavin Vithlani
2
Ankur Sharma
2
Ravi Swaminathan
2
Sujit Jain
2
Vishal Biraia
2
Renjith Sivaram
1
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Opening remarks
B. Thiagarajan
Thank you. Good afternoon, ladies and gentlemen. It's a pleasure interacting with you. I have stepped in because as you are aware Mr. Neeraj Basur has decided to leave Blue Star. So, I wanted to provide continuity before the next Group CFO comes in. So, perhaps this and next quarter, I will interact with you over this quarterly investor call. First, I would like to place on record my deep sense of appreciation and gratitude to Mr. Neeraj Basur and Mr. Vir Advani joins me in conveying the same. He for over eight years did an exceptional job in taking our corporate financial services function to a next level. He played an active role in implementation of digitalization programs, the enterprise risk management framework, most importantly, the operational support in bringing quite a few businesses well under control in terms of ROCE. So, we will miss him and we wish him all the very best. After my opening remarks, he is still going to continue with the highlights of the quarter. Before tha
Neeraj Basur
Thank you very much, Mr. Thiagarajan, and good afternoon, ladies and gentlemen. Firstly, it's been a privilege and an honor for me all these years to have interacted with you so very regularly and it's been a great learning journey for me as well and I wish you all the best in your respective endeavors. So, as Mr. Thiagarajan has already set the context, I will now walk you through the key highlights of our financial results and business results for Q4 and the full year. First, let me take you through the Financial Highlights. 1. FINANCIAL HIGHLIGHTS The momentum gained in Q3FY22 continued in Q4FY22 despite a three-week disruption caused by the Omicron variant. The demand for our offerings across various segments not only continued but also accelerated in the month of March. Further, the policy announcements in the Union Budget 2022-23 resulted in positive business sentiments. The early onset of summer in some parts of the country also helped revenue growth in several product categorie
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