BLUESTARCONSEQ2 FY23November 10, 2022

Blue Star Limited

5,453words
47turns
8analyst exchanges
2executives
Management on call
B. Thiagarajan
MANAGING DIRECTOR
Nikhil Sohoni
GROUP CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
rs,
cord level of order finalizations and order inflows and there is huge pressure to execute the orders, whether it is a large infra project or shops, showroom, boutiques across main cities as well as ti
27.1%
er 30, 2022 on a consolidated basis are as follows: - Revenue from operations for Q2FY23 grew 27.1% to Rs 1576.24 crore as compared to Rs 1239.74 crore in Q2FY22. - EBIDTA (excluding other inco
Rs 1576.24 crore
22 on a consolidated basis are as follows: - Revenue from operations for Q2FY23 grew 27.1% to Rs 1576.24 crore as compared to Rs 1239.74 crore in Q2FY22. - EBIDTA (excluding other income and finance incom
Rs 1239.74 crore
as follows: - Revenue from operations for Q2FY23 grew 27.1% to Rs 1576.24 crore as compared to Rs 1239.74 crore in Q2FY22. - EBIDTA (excluding other income and finance income) for Q2FY23 was Rs 85.59 crore
Rs 85.59 crore
1239.74 crore in Q2FY22. - EBIDTA (excluding other income and finance income) for Q2FY23 was Rs 85.59 crore (EBITDA margin 5.4% of revenue) as compared to Rs 70.70 crore (EBITDA margin 5.7% of revenue) i
5.4%
EBIDTA (excluding other income and finance income) for Q2FY23 was Rs 85.59 crore (EBITDA margin 5.4% of revenue) as compared to Rs 70.70 crore (EBITDA margin 5.7% of revenue) in Q2FY22. Operating Ma
Rs 70.70 crore
and finance income) for Q2FY23 was Rs 85.59 crore (EBITDA margin 5.4% of revenue) as compared to Rs 70.70 crore (EBITDA margin 5.7% of revenue) in Q2FY22. Operating Margin was marginally lower in Q2FY23 owing
5.7%
3 was Rs 85.59 crore (EBITDA margin 5.4% of revenue) as compared to Rs 70.70 crore (EBITDA margin 5.7% of revenue) in Q2FY22. Operating Margin was marginally lower in Q2FY23 owing to higher input co
Rs 57.53 crore
osts in certain segments and higher operating expenses. - Profit before tax grew to Rs 57.53 crore in Q2FY23 as compared to Rs 47.44 crore in Q2FY22. - Tax expense for Q2FY23 was Rs 14.89 cror
Rs 47.44 crore
ating expenses. - Profit before tax grew to Rs 57.53 crore in Q2FY23 as compared to Rs 47.44 crore in Q2FY22. - Tax expense for Q2FY23 was Rs 14.89 crore as compared to Rs 15.99 crore in Q2FY2
Rs 14.89 crore
s 57.53 crore in Q2FY23 as compared to Rs 47.44 crore in Q2FY22. - Tax expense for Q2FY23 was Rs 14.89 crore as compared to Rs 15.99 crore in Q2FY22. - Net profit for Q2FY23 grew to Rs 42.64 crore as compar
Rs 15.99 crore
pared to Rs 47.44 crore in Q2FY22. - Tax expense for Q2FY23 was Rs 14.89 crore as compared to Rs 15.99 crore in Q2FY22. - Net profit for Q2FY23 grew to Rs 42.64 crore as compared to Rs 31.45 crore in Q2FY22
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Guidance — 20 items
B. Thiagarajan
opening
“It is offsetting the commodity price savings that will be accruing from now on.”
B. Thiagarajan
opening
“Apart from B2C, B2B business has continued to do well with record level of order finalizations and order inflows and there is huge pressure to execute the orders, whether it is a large infra project or shops, showroom, boutiques across main cities as well as tier 3, 4, 5 towns.”
On the outlook
opening
“We have no insight further than what is available in the public domain on whether there will be a slowdown, how much it will impact in India.”
Nikhil Sohoni
opening
“We received our largest ever order for an integrated data center project during the quarter.”
Cooling and Purification Products
opening
“The Sri City project is progressing well and is expected to commence commercial production in January 2023.”
Business Outlook
opening
“With the push in infrastructure investments and commencement of capacity expansion cycle in the manufacturing segment, we expect order inflows in the projects segment to remain buoyant throughout the year.”
Business Outlook
opening
“On the other hand, low levels of penetration will continue to aid market growth in the room air conditioner business going forward.”
Rahul Gajare
qa
“Though the businesses are opening up, but not to the extent we would like, but we expect a CAGR of around 20% in commercial refrigeration business alone driven by the processed food or the food retail sectors and the pharmaceutical industry.”
Rahul Gajare
qa
“Coming to electromechanical projects segment, we are very clear that we were playing a very cautious game of picking and choosing the segments in which cash flows will be good.”
Rahul Gajare
qa
“My second question is on the Project business.”
Risks & concerns — 14 flagged
Apart from B2C, B2B business has continued to do well with record level of order finalizations and order inflows and there is huge pressure to execute the orders, whether it is a large infra project or shops, showroom, boutiques across main cities as well as tier 3, 4, 5 towns.
— B. Thiagarajan
Another subject is the impact of supply chain disruptions.
— B. Thiagarajan
But as of now, there is no concern about supply chain disruption except for the higher inventory holding levels.
— B. Thiagarajan
On its impact on the capital employed, we have been managing our capital employed well, and we don't think that is a challenge.
— B. Thiagarajan
We have no insight further than what is available in the public domain on whether there will be a slowdown, how much it will impact in India.
— On the outlook
The operations of the joint venture at Malaysia continued to be impacted owing to a slowdown in construction and order finalizations.
— International Business
Further, the softening of commodity prices and higher levels of indigenization will enable us to partly mitigate the impact of depreciation of Indian Rupee against the US Dollar.
— Business Outlook
Blue Star has actually bucked the trend where most of the players or peers have seen pressure on their revenue growth and profitability.
— Rahul Gajare
Coming to electromechanical projects segment, we are very clear that we were playing a very cautious game of picking and choosing the segments in which cash flows will be good.
— Rahul Gajare
We still maintain 6% to 6.5% outlook basically because we are in a commodity cycle which is volatile and the orders that have flown in will get executed in an 18 months to 24 months’ execution cycle.
— B Thiagarajan
Without the impact of price increase, margins would have dropped by more than 10% and hence price increase helped.
— B Thiagarajan
We have seen consistent decline in the trade payables days and that is resulting in increase in the working capital, so from 140 days in '21 March, we are now down to 80-days.
— Bhavin Vithlani
So, is 80-days a new normal or we can see further decline in the payable days?
— Bhavin Vithlani
The current levels are normal and we do not expect a further decline.
— Nikhil Sohoni
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Q&A — 8 exchanges
Q
My question is on the revenue. Blue Star has actually bucked the trend where most of the players or peers have seen pressure on their revenue growth and profitability. Could you throw some light on what is it that has helped you gain a market share? And is there any geographical contribution which has impacted this market share gain and revenue growth? That’s the first question. B. Thiagarajan: We will first address the B2C part of it. Our market share was not uniform across the country. There were certain parts of India where we have been doing extremely well and also certain parts of India w
Rahul Gajare
My second question is on the Project business. How is the domestic pipeline and specifically the competitive intensity that you feel, change in the domestic business? And given that you have intention to grow your international business, how do you plan to go about it? Do you have a limit for the revenue mix that you're looking at between domestic and International? The competitive landscape there has not changed at all. Given that the entry barriers are not that big, there is always intense competition and players actually reducing it to a L1 game. The contractual conditions of any kind are b
Q
My first question is with respect to the project business once again. Given the fact that large orders are kind of flowing in, can there be any upside to the profitability that we are looking at, so, basically, I mean, the ticket size would be large and because of that some operating leverage can be there like data centers, etc., do they carry better margins? And if you can also give the order breakup across sectors, this will be great?
B Thiagarajan
Yes, there could be an improvement in margin due to the operating leverage, but that may not happen in FY23. We still maintain 6% to 6.5% outlook basically because we are in a commodity cycle which is volatile and the orders that have flown in will get executed in an 18 months to 24 months’ execution cycle. Margins will continue to improve, but the improvement could be in FY24 rather than in FY23. Order book breakup across sectors, so basically how much is infra, how much is commercial real estate? We will publish that data in due course. All sub-sectors such as factories and data centers, inf
Q
This is Shalini. Sir, my question is could you help us understand what has caused the debt levels to go up in September? And also, just give us a guidance on how this number would look in the subsequent quarter, what is the peak debt level that we can expect?
Nikhil Sohoni
We have to look at the net borrowings position as there is surplus cash which the company retains. The net borrowing is around Rs.392 crores. There is an increase in capital expenditure compared to the last year, as we are in the process of commissioning the Sri City plant for which we would have incurred capex of more than Rs.200 crores. The inventory levels are also slightly higher because of the supply chain disruptions. We would be maintaining around 70-days inventory compared to the earlier holding period of 45 days, that will be a combination of raw materials and also some amount of pipe
Q
So, I just want to get some clarity. So, if you look at over the last probably couple of years, we have worked on products side, where we have done the engineering and everything, we have worked on the distribution side, on the marketing side. So, probably, can you highlight like what are the other areas which we have identified where we can structurally work upon and probably we can continue this momentum in the times ahead also?
B Thiagarajan
Good question. Thank you for your observation. The very first thing that one will have to work on is frequency of major global events causing supply chain disruptions or exchange rate. Over the past five years, frequency of these events have gone up. Therefore, building resilience is an area we are focusing on. The second is in research and development, you are in a market where it is price-sensitive because the growth is coming from first time buyers, tier-3, 4, 5 towns aspirational middle class, whether it is B2B, B2C, if it is a B2B, you're having MSMEs or startups growing the market. So, t
Q
So, in the beginning of the financial year, the commentary was from all the players to increase prices by the festive season to take care of the table change. That has not happened. Plus we had thought of increasing 50 bps market share this year. So, I just wanted to check H1 market share I presume is 13.25%. For base H1, what was the market share? And is there a scope of delivering on that 50 bps improvement in market share? And I also wanted to check with you how south has been in this H1 for you in RAC? And is the competitive intensity increasing in South because everybody's putting the new
B Thiagarajan
We have been very consistent in our communication on price increase. We had increased the prices in April 2021, July 2021, October 2021 and January 2022. Post the closing of the financial year, we also took another price hike in April 2022 though not to the extent we would have liked to. We did not have to take another revision for the energy label change as the new models were future-ready and the energy label change related corrections had already been factored. We were willing to look at a price revision due to the commodity prices softening. Good sales in March, April and the first 15-days
Q
I am stepping out for a TV interaction You have to excuse me. Nikhil will continue.
Bhavin Vithlani
Late in the May when you had an analyst meet, you had guided for unitary cooling margins rising to 8%, 8.5% this financial year. Apparently, that supposed to be was the peak of commodity cycle. So, where are we in terms of the guidance for this? We maintain the expectation of 8% to 8.5% for this financial year. The last question is more of a balance sheet related. We have seen consistent decline in the trade payables days and that is resulting in increase in the working capital, so from 140 days in '21 March, we are now down to 80-days. So, if you could just help us understand where do we see
Q
Lot of plants are getting commissioned in the next quarter or so in the south market. Our plant itself will also start ramping up, plus there is Amber and then there is a Lloyd plant as well which is coming up. Do you think while on one hand there will be some settling of the cost structure in the upcoming season with supply chain and rupee, etc., but these new plants increased cost structure can drive some competitive intensity in the market?
Nikhil Sohoni
The plants getting commissioned in the next quarter have been under construction for some time. Given the 7% to 8% penetration, there is enough opportunity for all players. There will be increase in competitive intensity but the increased penetration will enable everyone to tap the opportunity. There are also opportunities globally. The export markets will open up as we go along which would also be served by the additional capacities. My second question is on our exports for ACs where we were looking at some white labeling opportunities. If you can just talk about progress and where are we in
Q
Thank you very much, everyone. With this, we will conclude quarter's earning call Do feel revert to us in case any of your questions are not fully answered and we'll be happy to provide you additional details by e-mail or in person
Management
Speaking time
Moderator
10
B Thiagarajan
9
Nikhil Sohoni
7
Bhavin Vithlani
3
B. Thiagarajan
2
Rahul Gajare
2
Ravi Swaminathan
2
Manoj Gori
2
Sujit Jain
2
Bhoomika Nair
2
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Opening remarks
B. Thiagarajan
Thank you. Good morning, ladies and gentlemen. It's a pleasure and privilege to join this call today. Thank you very much for sparing your time to attend this briefing from Blue Star on Q2 FY23 Results. I am going to give a brief introduction after which Mr. Sohoni will brief you on the highlights and then we will answer your questions. If you have noticed all throughout in my television interviews and interactions with some of you and the press, I had indicated that the market is doing well. The demand for all our products and services including cooling products had been good. That's what I had been indicating, even though there had been many reports that the market has completely slowed down. Now, you will see from the results, all segments have done well. In specifically the room air conditioners compared with last year or compared with even FY20, we have shown good growth. There was a second subject which was being discussed all through for the past 3 months that is commodity price
On the outlook
We are optimistic about the second half of the financial year as well. It is arising from the fact that the room air conditioner penetration level is low. The increase in the residential property consumption should help that cause as well. Embedded in that is a question on price increase. We have to review that in January, because the product portfolio will again get rejigged with new products coming in. The commissioning of the Sri City factory should give us some kind of competitive advantage compared with the Himachal plant. In the B2B segment, there is a huge order inflow and therefore carry forward order book and order finalization even in Q3 continues to be good. We have no insight further than what is available in the public domain on whether there will be a slowdown, how much it will impact in India. As far as the financial year 2022-23 is concerned, we are optimistic about the prospects for the second half of the financial year as well. And with this opening remarks, I hand it
Nikhil Sohoni
Thank you, Mr. Thiagarajan. So, good morning, gentlemen. This is Nikhil here and I’ll be providing you an overview of the results for the quarter ended September ‘22. The sentiment in the Indian economy continued to be positive despite the ongoing geopolitical uncertainties and the impact that the strengthening dollar has on the global currencies. The CAPEX by both public and private sector continued to be encouraging. Consequently, all the sectors that we operate in saw a healthy growth and enabled us to end the quarter on a positive note. 1) Financial highlights for the quarter ended September 30, 2022 on a consolidated basis are as follows: - Revenue from operations for Q2FY23 grew 27.1% to Rs 1576.24 crore as compared to Rs 1239.74 crore in Q2FY22. - EBIDTA (excluding other income and finance income) for Q2FY23 was Rs 85.59 crore (EBITDA margin 5.4% of revenue) as compared to Rs 70.70 crore (EBITDA margin 5.7% of revenue) in Q2FY22. Operating Margin was marginally lower in Q2FY23 o
International Business
We witnessed growth across all segments and territories that we are present in. We further expanded our offerings across markets to cater to new customer segments. We witnessed strong demand for our commercial air conditioning and refrigeration products and a few notable orders were received during the quarter from fast food chains like Americana, Dominos and Tim Hortons. We have also set up a wholly owned subsidiary in the United States to pursue opportunities there. The projects business in Qatar continued to do well. The operations of the joint venture at Malaysia continued to be impacted owing to a slowdown in construction and order finalizations. We will continue to focus on the expansion of the Blue Star product range and building brand awareness and brand visibility in different markets that we are present in. Segment II: Unitary Products: Segment II revenue grew 15.4% to Rs 524.79 crore in Q2FY23 as compared to Rs 454.71 crore in Q2FY22. Segment result was Rs 32.40 crore (6.2%
Cooling and Purification Products
Despite being a seasonally lower demand quarter, our room air conditioner business registered a growth of 17%. The new energy labelling came into effect from July 1, 2022, with all our products conforming to the new BEE ratings. We grew in line with the market and maintained a market share of 13.25%. The Sri City project is progressing well and is expected to commence commercial production in January 2023.
Commercial Refrigeration Business
The commercial refrigeration business witnessed a growth in demand across all segments with consumption levels back to normal. Demand for our supermarket refrigeration products from the retail segment continued to be encouraging. Demand from the hospitality sector also revived during the quarter. We continued to maintain our leadership position in Deep Freezers, Storage Water Coolers and Modular Cold Rooms. We also launched a new range of visi coolers with a wide capacity range to suit different customer needs. Segment III: Professional Electronics and Industrial Systems: Segment III revenue grew by 49.9% to Rs 92.38 crore in Q2FY23 as compared to Rs 61.63 crore in Q2FY22. Segment result was Rs 13.80 crore (14.9% of revenue) in Q2FY23 as compared to Rs 9.83 crore (16.0% of revenue) in Q2FY22. We witnessed robust demand for medical diagnostic equipment with increasing awareness and investments in the healthcare sector post COVID. Demand for the non-destructive testing business as well a
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