BLUESTARCONSEQ1FY23July 15, 2022

Blue Star Limited

6,735words
43turns
9analyst exchanges
2executives
Management on call
B. Thiagarajan
MANAGING DIRECTOR
Nikhil Sohoni
GROUP CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
rs,
financial year FY23. Though there are several headwinds with regard to the global recessional fears, inflationary fears, there are issues related to global supply chain disruptions etc. However, there
87.3%
, 2022, on a consolidated basis, are summarized below: -Revenue from operations for Q1FY23 grew 87.3% to Rs 1970.32 cr as compared to Rs 1052.04 cr in Q1FY22. -EBIDTA (excluding other income and fi
Rs 1970.32
n a consolidated basis, are summarized below: -Revenue from operations for Q1FY23 grew 87.3% to Rs 1970.32 cr as compared to Rs 1052.04 cr in Q1FY22. -EBIDTA (excluding other income and finance income) f
Rs 1052.04
ummarized below: -Revenue from operations for Q1FY23 grew 87.3% to Rs 1970.32 cr as compared to Rs 1052.04 cr in Q1FY22. -EBIDTA (excluding other income and finance income) for Q1FY23 was Rs 123.31 cr (E
Rs 123.31
to Rs 1052.04 cr in Q1FY22. -EBIDTA (excluding other income and finance income) for Q1FY23 was Rs 123.31 cr (EBITDA margin 6.3% of revenue) as compared to Rs 42.23 cr (EBITDA margin 4.0% of revenue) in
6.3%
-EBIDTA (excluding other income and finance income) for Q1FY23 was Rs 123.31 cr (EBITDA margin 6.3% of revenue) as compared to Rs 42.23 cr (EBITDA margin 4.0% of revenue) in Q1FY22. Despite continu
Rs 42.23
me and finance income) for Q1FY23 was Rs 123.31 cr (EBITDA margin 6.3% of revenue) as compared to Rs 42.23 cr (EBITDA margin 4.0% of revenue) in Q1FY22. Despite continued pressures on gross margin and supp
4.0%
Q1FY23 was Rs 123.31 cr (EBITDA margin 6.3% of revenue) as compared to Rs 42.23 cr (EBITDA margin 4.0% of revenue) in Q1FY22. Despite continued pressures on gross margin and supply chain disruptions,
Rs 100.69
osts enabled improvement in the overall EBITDA margin for the quarter. -Profit before tax grew to Rs 100.69 cr in Q1FY23 as compared to Rs 19.23 cr in Q1FY22. -Tax expense for Q1FY23 was Rs 26.34 cr as comp
Rs 19.23
l EBITDA margin for the quarter. -Profit before tax grew to Rs 100.69 cr in Q1FY23 as compared to Rs 19.23 cr in Q1FY22. -Tax expense for Q1FY23 was Rs 26.34 cr as compared to Rs 6.52 cr in Q1FY22. -Net
Rs 26.34
grew to Rs 100.69 cr in Q1FY23 as compared to Rs 19.23 cr in Q1FY22. -Tax expense for Q1FY23 was Rs 26.34 cr as compared to Rs 6.52 cr in Q1FY22. -Net profit for Q1FY23 grew to Rs 74.35 cr as compared to
Rs 6.52
FY23 as compared to Rs 19.23 cr in Q1FY22. -Tax expense for Q1FY23 was Rs 26.34 cr as compared to Rs 6.52 cr in Q1FY22. -Net profit for Q1FY23 grew to Rs 74.35 cr as compared to Rs 12.71 cr in Q1FY22. -
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Guidance — 20 items
B. Thiagarajan
opening
“He will be reading out the opening remarks and after that, we will be answering your questions jointly.”
Nikhil Sohoni
opening
“Business Outlook While the enquiries and order inflows continue to be good for our products and services, there will be headwinds due to inflationary pressures, weakening of Indian Rupee and global recessionary concerns.”
B. Thiagarajan
qa
“Our goal will be to further improve the margins, while at the same time keeping a close watch on the current inventory level, outlook for the festival season and the movement in commodity prices.”
B. Thiagarajan
qa
“In terms of margin profile, commercial refrigeration and room air conditioners will be almost identical.”
Naval Seth
qa
“So, given the current season has gone now, would you like to change that number upward downwards and secondly, you had again given the current guidance on EBIT margin in the last communication, at that point in time commodity was still in a bull run.”
Naval Seth
qa
“So, would you again like to revise that upwards on your margin guidance as commodities have cooled off significantly now?”
B. Thiagarajan
qa
“We had always maintained that the industry should grow by around 25% and we will grow by around 30%.”
B. Thiagarajan
qa
“Even at that point of time we had maintained that that the growth could be between 25% to 30% and Blue Star will grow ahead of the market as our goal has been to grow faster than the market and gain market share.”
B. Thiagarajan
qa
“Of late demand is peaking in March and April and that will be the trend as people tend to buy when the temperatures are shooting up and they are not going to wait for the end of the summer to buy.”
B. Thiagarajan
qa
“Similarly, the raw materials procured at higher prices will be in inventory for some more time.”
Risks & concerns — 10 flagged
In the event of a slowdown, it takes time to impact the air conditioning refrigeration industry and similarly when there is revival also it takes time to impact.
— B. Thiagarajan
-We will continue to stay focused on healthy cash flows and mitigating the impact of cost escalations.
— Nikhil Sohoni
Margins for the segment improved owing to the impact of scale coupled with price increases undertaken to partially counter the impact of increase in input costs.
— Nikhil Sohoni
Can there be a upside risk for this, can this be 8% or 10% over a two, three-year period?
— Ravi Swaminathan
There had been a decline in the demand for storage water coolers as in the offices, factories and public places the employees or the public are not encouraged to consume from the water cooler.
— B. Thiagarajan
There would have been the impact of depreciation from April onwards.
— B. Thiagarajan
So, firstly from the overall margin perspective just want to get your thoughts, what we’ve seen in the past cycles that our AC industry has been able to pass through pricing industry effectively be it raw material inflation or be it currency depreciation, but in the current season we are seeing that it is becoming a challenge to come through and also subsequently a lot of large players are also setting up capacities in South India.
— Sandeep Tulsiyan
We had also stated that commodity prices are likely to soften.
— B. Thiagarajan
Can you just quantify in the last year the revenues from the water purifier business and the drag because of that business?
— Gopal Navandher
We had stated that in FY19 and FY18 that the impact of water purifier business on margin is around 1.5%.
— B. Thiagarajan
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Q&A — 9 exchanges
Q
Can you talk a little bit about UCPL in terms of what was the volume value growth, any price hikes taken during the quarter because unlike the rest of the peers, we have seen an improvement in margins on a Q-o-Q basis. And if you can also talk about within the segment, how much is RAC and what is the contribution of the other segments like commercial air conditioning?
B. Thiagarajan
UCP as a segment title is used by one of our competitors. For us, it is unitary products. We had increased the prices in the first week of April and maintain our position to review the prices again in August. Commodity prices had gone up and we have optimized the product mix from January onwards to address the belly of the market through the affordable premium range of products. We are also pursuing a total cost management program in order to optimize the costs. We have a long way to go for the net margin improvement. Compared to the net margins earned prior to the pandemic or the beginning of
Q
We have seen very good inflows in the EMP business that is electromechanical projects business. So, excluding the Bangalore order and Metro order also we have seen good traction, if you can throw some light on as to are there further large orders which are there in the pipeline. So, you can give a broad outlook as to which are the large contracts which are there? Apart from the large orders, which are the sectors which are showing traction and within the order book, how much is our exposure now towards industrial, commercial real estate, residential real estate, infrastructure, if you can give
B. Thiagarajan
To set the context on the customer segments, there is a developer related buildings business that is driven by office consumption. There is a construction cycle on driven by infra projects that are social infrastructure projects where Blue Star has MEP offerings. Core infrastructure such as construction of highways is not going to directly result in MEP order for Blue Star. Broadly, infrastructure can be categorized into core infrastructure and social infrastructure. Social infrastructure comprises airports, Metro railway, healthcare etc. which are segments which result in MEP order for Blue s
Q
I have two questions. First is on the demand perspective on unitary product segments. So, last time, you had stated that demand was moving in a very strong lane and you were expecting close to around 30% growth in the summer season and eventually 25% for the full year for industry. So, given the current season has gone now, would you like to change that number upward downwards and secondly, you had again given the current guidance on EBIT margin in the last communication, at that point in time commodity was still in a bull run. So, would you again like to revise that upwards on your margin gui
B. Thiagarajan
We had always maintained that the industry should grow by around 25% and we will grow by around 30%. There was good demand in March and April and there were reports of a possible 60% to 70% growth leading to shortages etc. Even at that point of time we had maintained that that the growth could be between 25% to 30% and Blue Star will grow ahead of the market as our goal has been to grow faster than the market and gain market share. The demand started slowing down from May onwards. May was lower than April, June was lower than May. Over the past few years, the peak period is changing. At some p
Q
I just wanted to know the absolute order flow for 1Q?
Nikhil Sohoni
For first quarter the order flow for segment one is Rs 1366 crores and within that for EMP it is around Rs 746 crores.
Q
The question is on the commercial refrigeration segment. Could you help us with what has been the growth in the industry in the current quarter and the indigenization efforts that you have undertaken with commencement of the products? What is the impact that had on the margins, I’m sure because depreciation would have come in the immediately but the utilization comes with a lag. These are my questions.
B. Thiagarajan
Growth in the commercial refrigeration would have been in the order of around 10% to 11%. The general expectation is that the business should grow at a CAGR of 15% or more. However, there is a lag here. For instance, ice cream is a very important segment for the summer season and therefore, the ice cream manufacturer placed these deep freezers in Q4 itself they won’t wait for the summer season to buy the freezers. Similarly buying for the wedding and the festival seasons happens much ahead. There would be demand build up from September and October onwards for the deep freezer segment. There ha
Q
I had two questions. So, firstly from the overall margin perspective just want to get your thoughts, what we’ve seen in the past cycles that our AC industry has been able to pass through pricing industry effectively be it raw material inflation or be it currency depreciation, but in the current season we are seeing that it is becoming a challenge to come through and also subsequently a lot of large players are also setting up capacities in South India. So, how should we look at the entire industry structure? Are we structurally headed towards slightly lower margins, are the path peak margins o
B. Thiagarajan
The margin will improve in the second half, in our estimate by around 200 basis points if the commodity price is softening continues. In the peak season quarter, it could be around 10% and for the year around 9% EBIT margin. To the question as to whether this business can become a 14% or 15% operating margin, we do not think so. A 12% EBIT business could be feasible for the room AC business. The manufacturing capacity of finished goods is doubling. Market will double provided the products are made more and more affordable which means the margin profile is not going to change and the manufactur
Q
It’s heartening to see the margin improvement in such a challenging environment where rest of the peers are losing margins. Can you give some more color on this what is helping us in terms of improvement, whether it is mix, which is helping what is that because rest of the large players even the number three, number four, are losing money with the same scale which we have? We have introduced more product in the mass category which is like very competitive. So, what all has helped Blue Star in terms of improving margins, year-on-year and sequentially also?
B. Thiagarajan
We won’t be able to comment on the other players, they are all very competent and eminent players and they have to be respected. We will not be commenting about a particular quarter results of a particular brand or something like that. As far as Blue Star is concerned, as stated earlier in several press releases or at the product launch in January, in the last investor call, we have to address the belly of the market, and if we want to address the belly of the market, we need to go ahead and ensure that the products are redesigned. We were operating in the premium segment and should we try to
Q
Sir in earlier part of the call you mentioned a 30% growth in from the first of calendar year ‘19 to now for the industry and 39% for the Blue Star. So, was that value growth or the volume growth?
B. Thiagarajan
It is the volume growth and the value growth will be some 3% to 4% lower. The industry growth of 30%, is our estimate. It is unlikely that the industry would have grown by 20% and we grew by 39%. Got it and sir would you have similar number for 1Q for financial year? Q1 results are already published and our growth in Segment-II is available there. But just from the AC perspective for the industry and for us? We would not like to deal with bifurcating Segment-II. There are questions around selective disclosure, but we disclose whatever we think is genuinely to be disclosed. In terms of the marg
Q
Thank you very much, ladies and gentleman 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. We’ll be happy to provide you with additional details by email or in person. Thank you.
B. Thiagarajan
Thank you, thanks a lot.
Speaking time
B. Thiagarajan
15
Moderator
11
Nikhil Sohoni
3
Amit Agrawal
3
Bhoomika Nair
2
Ravi Swaminathan
2
Sandeep Tulsiyan
2
Naval Seth
1
Harsh Shah
1
Bhavin Vithlani
1
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Opening remarks
B. Thiagarajan
Thank you. Good evening, ladies and gentlemen, thank you for joining this call today. As you’re aware, we had declared our Q1 FY23 Results yesterday. I thought that it is important for me to join this call as transition, as you may recall in May 2022 I joined the call along with Mr. Neeraj Basur, who had resigned at that point of time. I am pleased to inform you that Mr. Nikhil Sohoni has joined us as Group Chief Financial Officer with the effect from July 1, 2022. He is on the call today and as you may be aware, he joined us from Mahindra & Mahindra. He has over three decades of professional experience. He began his career in 1992 after spending his initial years with AF Fergusson and Co and Geoffrey Manners & Company. After that he was with Mahindra and Mahindra Group from 1995. He has handled various roles there in a diverse career spanning over 27 years. Nikhil had handled various facets of the finance and accounts function in Mahindra & Mahindra Limited. He was Chief Financial Off
Nikhil Sohoni
Thank you, Mr. Thiagarajan, and good evening, ladies and gentlemen, this is Nikhil Sohoni and it gives me immense pleasure to interact with you for the first time. I’ll provide you an overview of the results of Blue Star for the quarter ended June 2022. 1. Financial Highlights: After two consecutive summers disrupted by the pandemic, this year witnessed normal summer without any restrictions. The growth momentum witnessed in Q4FY22 continued in Q1FY23 with business and economic activities back to complete normalcy. Consequently, demand for all our products and services surged as compared to Q1FY22 and also Q1FY20 which was the last comparable period. Coming on the back of the best Q4 in last couple of years for every business segment that we operate in, we are happy to inform that the performance was repeated for Q1 wherein we have outperformed in every business segment as compared to the Q1 of last 3 years. Financial highlights for the quarter ended June 30, 2022, on a consolidated ba
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