00:00 Thank you for tuning in to this conversation with Blue Star.
00:04 I have with me Mr. Vir Advani, the company's managing director to decode the June quarter
00:09 results.
00:10 Mr. Advani, it's always a pleasure having you on the show.
00:13 Let's quickly do a recap of the Q1 numbers.
00:17 So our revenues rose 13% at 2200 crore.
00:21 Net profit was up 12% to about 83 crore.
00:24 EBITDA was up 18% at about 145 crore and margins came in at 6.5% versus 6.2% a year ago.
00:32 Mr. Advani, you have always spoken about expanding your gross margins.
00:38 Even the last time we spoke, you had mentioned that the company is undertaking cost optimization
00:43 and you were expecting to improve margins by about a half percent for the entire fiscal.
00:48 Are you still sticking to the guidance?
00:51 And how did the cost inflation scenario look like for the company during the first quarter?
00:57 Yeah, so thanks so much for having me.
01:00 You know, actually, we're quite happy with the margin expansion we've seen in Q1, especially
01:06 because it was such a poor summer.
01:08 It was a washout of a summer.
01:11 You saw that our segment 2 volumes barely grew only about 5 or 6%, much lower than what
01:16 we had expected.
01:17 But it's very heartening to see that in spite of that low volume, we were able to deliver
01:23 reasonably good operating profit.
01:25 We're confident that as volume comes back, as the market recovers in the second half
01:29 of the year, volumes come back on, you'll see a very healthy margin position.
01:36 We've been working extensively on margin improvement across the value chain, in R&D, in supply
01:43 chain, in manufacturing, in sourcing a lot of our production.
01:47 So all of those benefits are beginning to pay fruit.
01:51 And we're very confident that the full year margins will be better than Q1.
01:55 All right.
01:56 So coming to the demand, you did mention about some kind of, you know, slowdown.
02:02 But at the beginning of the summer, the industry was spending a growth of about 20%.
02:07 And then later, they had, you know, got the focus down to about 8 to 10%.
02:12 So what is the outlook for the upcoming months?
02:15 How has been the actual demand in July?
02:20 So you know, July is not a good month to look at as a trend, because it's monsoons in most
02:26 parts of the country.
02:27 It was unfortunate that we've had a washout of a summer.
02:31 It happens every few years.
02:32 You can't avoid it.
02:34 Not just the air conditioning industry, I think many industries in India are impacted.
02:38 But you know, we are less worried about a loss of a summer.
02:42 We're more interested in the trend and in the direction that the industry is taking.
02:47 You know that just like Blue Star, there are other manufacturers that are making significant
02:53 investments.
02:54 We're all looking to grow the market.
02:56 The consumer is very keen to buy air conditioners.
03:00 So we're fairly confident that the long term view of this industry remains intact.
03:07 One loss summer does not mean that the outlook changes for us.
03:10 So as far as Blue Star is concerned, we're continuing with all our investments, both
03:14 in capex as well as in operating expenses.
03:17 And we're looking forward to a strong H2.
03:20 I don't think July, August are going to make much of a difference.
03:24 I think it'll be the festival of season onward.
03:26 And of course, looking forward to a strong Q4.
03:28 I think directionally, we're looking at double digit growth for the industry over the next
03:33 several years.
03:34 Double digit volume and value growth?
03:37 Yes, I think so.
03:40 So you know, as far as Blue Star is concerned, definitely both would be double digit.
03:45 I think the industry, there has been a lot of pricing pressure.
03:50 So I know volumes have been doing better than value.
03:52 But I think I think some of that will stabilize as more production comes on stream as we all
03:59 see throughput.
04:00 I think that you know, in a way, whenever you have a bad season, pricing always goes
04:06 out of whack.
04:07 And that has happened.
04:09 But I'm fairly confident that pricing will also return to some normalcy.
04:13 But more importantly, like us, all manufacturers will be looking to bring down costs because
04:18 one of the key levers to growing the market is of course, to bring down the price points,
04:23 right?
04:24 Because we are a value conscious market, it's a value conscious category.
04:28 So we're all working hard, looking at technology, looking at innovation, as means to bring down
04:34 the cost of our products.
04:35 Right. Mr. Advani, could you tell us what would be the range of price cuts that we can
04:41 see maybe in the next few quarters?
04:46 So a little unsure.
04:48 I think everyone's just getting their head around, you know, the first half of the year,
04:52 which hasn't been so good.
04:54 I think we'll begin to see some price movement in the next couple of months.
04:59 We're not expecting any substantial change.
05:02 In fact, you know, after a poor volume summer, pricing should hopefully stay intact.
05:07 I think what's happening on the cost side is that raw materials have pulled off, but
05:12 the dollar, you know, has moved, has strengthened in the last 12 months.
05:16 So net net cost has not come down.
05:20 It's only through value engineering and innovation that you're able to bring down costs.
05:25 So I think some of us who are going to be able to do that more effectively may be able
05:30 to bring down prices.
05:32 But on a pure raw material basis, after you factor in the dollar, unlikely.
05:36 Right.
05:37 So is it right to assume that, you know, sub 5% kind of price hike is what the industry
05:44 can expect, at least in the near term?
05:48 Yeah, I think I think industry will look to not raise prices.
05:52 I think that, you know, there may be some down pressure in prices.
05:57 So we have to wait and watch.
05:58 It's a little unclear right now, but I don't expect, you know, a price increase anytime
06:03 soon.
06:04 I think we need to bring consumers back on to the to buy.
06:08 And price points are, of course, important and we're all conscious about that.
06:12 All right, got it.
06:14 Coming to the B2B segment, you know, could you give us an update on how the rural electrification
06:20 sector has been faring?
06:22 Because that's, that's the segment and how much it contributes to your overall order
06:26 flow.
06:27 So, you know, segment one, we're very, very happy with Q1.
06:33 I think you saw about 19-20% revenue growth, expansion in margins, margins have reached
06:39 now 7%.
06:41 And we're hoping that for the full year, it'll improve further.
06:44 So I think overall, we're seeing a good benefit from scale as well as from pricing.
06:50 Now, you asked about rural electrification.
06:54 Frankly, we do not do rural electrification.
06:57 It's zero.
06:58 Railway electrification, my bad.
07:01 I meant railway electrification.
07:02 Railway electrification, I'm sorry.
07:03 So, so railway, we entered about, it was only 12 months ago, we booked a couple of projects,
07:11 only about 500 crores in volume, yet to execute a lot of that, that order book that we had.
07:18 So we have a total order book of about 5500 crores, it's only about 500.
07:22 So still a small factor.
07:24 I think a lot of movement in the order book has been in the factory segment, a lot of
07:30 movement in data centers.
07:33 And in other infra, I think we've been very successful in metros and, and a few other
07:39 areas.
07:40 So we're very optimistic about railway electrification.
07:44 We're going to do everything step by step, every new segment that we enter, we first
07:50 book two or three jobs of a manageable size, we like to execute them, reconfirm our assumptions
07:58 going into that segment.
07:59 If we like the segment, that's when we scale it up.
08:02 So I think we will patiently build electrification, we'll patiently build water MEP, we patiently
08:10 even build the data center segment.
08:14 And I think looking forward, we are particularly excited with the all the noise around semiconductors.
08:19 You know, semiconductor fabs are huge users of MEP, air conditioning, electrification,
08:27 clean room.
08:28 So it's a big, big opportunity that will unfold maybe in the next three or four years.
08:33 It's still a little early, but we've started already doing some groundwork there.
08:37 So you know, as as as make in India moves forward, as the electronics industry grows,
08:43 the government is supporting it 150%.
08:44 We're very excited to be part of that growth plan.
08:49 All right.
08:50 So like we have seen in the June quarter, do you also expect the B2B business to drive
08:56 your growth in the upcoming quarters and while B2C is still lagging a little bit?
09:03 So you know, B2C is Q1 and Q4.
09:07 Q2, Q3, everyone, you know, goes away.
09:10 So definitely the next two quarters, we're expecting our B2B businesses to deliver the
09:16 results that we're very happy with.
09:18 You know, frankly, the B2B businesses outperformed our expectations.
09:23 Normally, when you have a washout of summer, you see degrowth in in revenue and in profitability.
09:30 In this case, you've seen growth on both sides.
09:33 So I think that there's good momentum in B2B.
09:36 We'll see Q2, Q3 deliver some good numbers.
09:39 Of course, the B2C business is going to come back very strong in Q4.
09:44 And I think we'll have a good overall year.
09:47 Great.
09:48 You know, I would like to ask you about the fundraising plan that you also mentioned,
09:53 right?
09:54 So 1000 crore is what the plan looks like.
09:57 So could you tell us how are you looking to utilize the proceeds?
10:01 Sure.
10:02 So, you know, we, as you know, that we're on a fairly significant capex cycle build
10:08 out.
10:09 We built a few factories in the last two years.
10:12 We have plans to expand in-street city currently, and we've also acquired some additional land.
10:18 So over the next five years, we expect significant investment, both in manufacturing as well
10:23 as in R&D.
10:24 We looked at our balance sheet and looking at the growth opportunities that we have in
10:29 front of us, we felt that it's the right time to strengthen the balance sheet with some
10:34 equity infusion.
10:35 So that's where the approval to go out and raise up to 1000 crores of equity is what
10:40 we've taken from the board.
10:41 First, we go to shareholders, get their approval and then go to investors and, and try and
10:47 get them to come on board.
10:50 Like I said, almost all of it is going to go into building capex or into R&D.
10:56 And we believe with that we will be strengthening the company, the portfolio as well as the
11:01 balance sheet, which will allow us to grow at double digits, you know, annually for the
11:06 next several years.
11:07 All right.
11:08 So what would be the capex for FY24?
11:13 So capex for FY24 will be approximately, some, of course, range I'd say is about 300 to 450
11:22 crores of capex in the current year.
11:26 And we're just reviewing capex over the next two, three years.
11:29 All right.
11:30 So do you also expect some money coming from the PLI?
11:33 Yes, of course.
11:35 So you know, our Sri Siddhi plant is, has been built under the PLI scheme.
11:41 So FY24 is the first year of production.
11:45 We are meeting our numbers.
11:46 And so PLI income will begin to come in from next year as we close the year.
11:52 So we have a plan over the next three, four years to bring in a fair amount of that money.
11:57 And we're very well on track and things are going well.
12:00 All right.
12:01 Okay.
12:02 Mr. Advani, it was nice and pleasure talking to you.
12:05 As always.
12:06 Thank you so much.
12:08 Thank you.
12:18 [BLANK_AUDIO]
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