Blue Star has an order book of Rs 2,841 crore; we will have 10% market share in cooler market by 2021: B Thiagarajan
The actual performance of the company is not reflected in the results due to management decisions, says B Thiagarajan, Joint Managing Director, Blue Star Ltd., in an interview with Business.
The actual performance of the company is not reflected in the results due to management decisions, says B Thiagarajan, Joint Managing Director, Blue Star Ltd. In an interview with Swati Khandelwal, Zee Business, Thiagarajan said, Blue Star will have a 10% market share from air cooler business by 2021. Edited Excerpts:
Q: A pressure has been felt on the margins and the bottom-line of Blue Star’s first-quarter results. What led to this decline especially because June quarter is an important quarter for AC and cooler solutions?
A: Your interpretation is right, but it is deceptive in the sense that the actual performance is not reflected in the number because of various management decisions. The summer season was extremely good as you pointed out and in the room air conditions, we grew by around 25% and my estimate for the market growth is 22%. I think we would have been improved our market share marginally to 12% from 11.75%. But in the cooling product segment in the refrigeration products which had picked up in March 2019, we decided to use this quarter for the second product-related migration, specifically in deep freezers and cold rooms, which required shutting down the factory for certain changes in refrigerants and production processes. So, we had to take a call at what point of time we do that, and this is something unavoidable for a strict do. having said that if you look at the pending order book than it is very healthy at a record high with around Rs2,841 crores which are 34% higher than last year. We controlled segment one execution basically due to the liquidity position in the market, which resulted in as we used to have a borrowing of an Rs405 crore last year, which came down to Rs205 crore and it is Rs1 crore surplus cash. Nothing to worry about it, these numbers are a better aberration in quarter 1. The things are going very well and internally, we are happy about what did in quarter 1.
Q: Update us about the inventory levels of the company as there were reports that suggested that inventory levels are very high at the dealers’ level. What is the situation right now?
A: Even in January the inventories started coming down and as of March there were very-very attractive levels of inventory and there was a shortage of material during the summer season. This summer season, room air conditioner demand was for low-end products rather than high-end products. We witnessed a shortage in fixed speed split air-conditions of 1.5 tons in quite a few markets. So, there is no inventory problem at all, and I am saying that room conditioners have done extremely well for most of the brands and we have also done well. We have done better than the market. So, there is no concern on inventory as well as margins, as the exchange rates as of now are stable, therefore, the margins should be stable. If we have some worry about the slowdown whether the consumption is going to further slow down and therefore festival seasons will be washed and we have a concern related it. But, going around the market, the purchase is still taking place.
Q: You have said that Blue Star, which won an order of Rs253 crore from the Mumbai Metro Rail Corporation, has an order book of Rs 2,841 crore. Let us know the incremental order that is expected in this fiscal?
A: You are right that we have a pending order book of Rs2,841 crore, which includes Rs253 crores of Mumbai metro that covers thirteen stations from Mumbai Central to BKC (Bandra Kurla Complex). Now, there is going to be more metro railway order worth Rs3000 crore, which is in envelop from Bangalore, Delhi and Gujarat metro among others. Normally, our strike rate is around 25%, we will get at least one-fourth of those tenders that is our goal. Other than that, even though there are talks related to the slowdown in manufacturing there is a lot of manufacturing-related MEP projects are having. Shops, showroom and boutiques, it is going on-and-on. We are surprised, how the order inflow is somewhat healthy.
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Q: What is an update on an expansion plan to double up the AC capacity by 2020? What are the growth opportunities that you see in the cooling business?
A: First-of-all, air coolers did extremely well, and this is a landmark year for us. It will be remembered that we moved from 2% market share to 5% market share in air coolers in this short window of peak summer that happened. This air cooler business, we will continue to grow and our goal as we have stated that 2021, we will have a 10% market share from air cooler business, whose market share is around Rs1,800 crore and we will do around Rs180 crore out of air coolers alone by then. As far as the expansions are concerned, then last year, we have pulled out from Jammu and we don’t have any expansion plan in North now. City land had been acquired year before last and I think by 2021 we should be commencing construction there and in 2022, we should be doing the production. This year, a major project is going in Wada, we had additional land in there and a deep freezer factory that is coming up there. We are investing around Rs180 crore in this factory, this investment will be made in two phases. The first phase should be commissioned by post-next summer. So, I have told you that refrigeration products and design and this relates to that.
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