We expect to grow at over 20% between Jan to June despite slower sales in April: Vir S Advani, Blue Star

"April has been a little slower as you pointed out. May, only the north is an issue, I think the rest of the country is doing very well but we are very confident that Jan to June we should grow at this 20% plus," says Vir S Advani, VC & MD, Blue Star

In middle of the last quarter when the summer in the month of Feb had hit 40 degrees in Mumbai and Delhi, everyone thought that this would be a bumper year for Blue Star. Just when the summer was getting ready, it has started raining and there was a foggy Delhi afternoon yesterday. So, what is happening to business because weather conditions are so erratic?
Of course, we will discuss April and May sales but first I would like to take us back to last year. I think we had a record year so I would like to highlight some of those successes we have had. So, we closed the year just above Rs 8,000 crores of income. We delivered 493 crores of EBITDA and about Rs 385 crores of PBT. It really was a great year because we had all our segments firing. You would have seen segment 1, 2 and 3 all growing over 30% in revenue and also our EBIT margins have improved.

You would also have seen that we have had great carry forward order book. It grew about 55% to over Rs 5,000 crores. So, it was an all-around good year. I think we also invested very significantly in capex in bringing in capacity, part of which will dovetail into your question about the upcoming summer. So, we commissioned our new factory in Sri City in January. Production is up and running. Of course, we are all building up. We have high expectations of the summer as you know. I think Jan to June is how we look at the season rather than looking at it month to month. I think you saw in Q4 as far as air conditioner sales were concerned, we grew about 22%.

April has been a little slower as you pointed out. May, only the north is an issue, I think the rest of the country is doing very well but we are very confident that Jan to June we should grow at this 20% plus.


Last year was an extraordinarily volatile year for commodities. Metal prices, steel prices, copper prices and your margins have expanded. Why? How and how did you achieve it?
Sure. So, I am happy you raised that. First of all, to be very frank last year, FY22 gross margins were one of the lowest we have ever had. We were severely hit in FY22. So, we had an internal plan. Of course, as always, we say price increases we will try and do which we did manage to do in the first half of the year, but then we were not able to increase prices anymore.

We have taken up a fairly extensive and large total cost management programme in the company, redesigning products, taking out cost, repositioning products in the market, all based on our significant investments in R&D and innovation.

So, because of those, we were able to bring down our cost of the products. If you look at the quarter-on-quarter improvements, for the full year gross margins would have improved about 50 basis points. But if you look at standalone Q4, you will see a big jump in gross margin, about 2.5% to 3% if I am not mistaken.

So, I think the point is that all the hard work done in redesigning products, taking out cost has begun to show results and you can see in Q4 that there has been significant improvement. I think going into the new year, there is no respite on either commodity prices or in terms of price realisation in the market, so we will continue to focus on our total cost management initiatives and are confident of improving margins from here.

The other thing I wanted to also talk about is, and please correct us if we are wrong at this, because some reports are suggesting that consumers are getting very price conscious, that they are now down-trading, avoiding consumer discretionary spends. Is there any truth to that?
I am sure at a broader market, you are absolutely right. We have room air conditioners which is a significant consumer product for us as you know. I would say that consumer demand for air conditioners and this is broadly industry wide, not Blue Star in particular, continues to be strong. I know that there have been number of news articles about April being slow, May being doubtful, north being the largest part of the market. So, all of that is really weather related. If I step back and I look at consumer demand and try and understand whether a room air conditioner is in their purchase set, I would confirm that in fact room air conditioner demand is very strong.

I think as an industry, we closed last year at about eight-and-a-half million units overall. We are all confident in the industry that we should grow by about 20% in the current year. Like I said, of course, we do need a strong summer. There is no doubt about that. But even if we look beyond that, we still have May and June available with us. Just to remind you, in FY23 last year, June month you will remember was a washout. In fact, all our sales, industry sales pretty much happened from January to May. So, of course, given the year, summer does move, peak months move between March, April and even May. So, we will, of course, wait and watch how the north summer unfolds. But we are all confident of a strong summer overall and a full year for this category.

I am getting a mixed picture about the economy. One side is commercial real estate is slowing down but the industrial capex is picking up. If you have to blend the demand of let us say, the pure commercial traditional favourites versus the new demand which is getting generated. How would you map the commercial and the so called project management business for us?
If I go to segment one, I am happy you brought that. We always like to talk about our segment one even though everyone is only interested in room air conditioner sales. As you saw, we had a very strong last year. You saw order inflow up significantly. We have a large carry forward order book. In fact, the mix of the order book has shifted. It used to be extensively commercial buildings, it could be retail malls, IT parks, hospitals, hotels etc that, as you are rightly pointing out, we have diversified that portfolio of projects. We now have a fair amount of infrastructure projects, factories, data centres. These are some of the newer segments for Blue Star and, of course, in line with what you are talking about as far as the general economy is concerned. I think, as we look forward, in real estate there is some, pressure. Of course, commercial real estate, especially because of the IT slowdown will continue to be under pressure, but if you look at water projects, you look at metro projects, you look at rail projects, it is all infrastructure, there is no slowdown in capex. If you look at data centres and private sector capex into factories and capacity again is very healthy.

So I would say that we are looking at a positive outlook as far as our first segment is concerned. If you look at our commercial air conditioning business, which is a part of segment one that feeds a wide range of segments, not just the large capex but also small and midsize capex. And I can tell you that order enquiries are extremely strong when you look at midsize projects and regular private capex.

For FY24 how much of the uptick could come as the legacy orders start waning down and the new orders would kick in. And also this year, because commodity prices are down and there somewhere you will be getting benefits of that.
I am not sure what you mean by legacy projects. We do not have any legacy projects in our order book to talk of. These are all fresh orders received in the last 18 to 24 months. We have been indicating that pricing in the projects business has been good. We have also been very selective about the projects that we have booked. Our focus continues to be on free cash flow in the first segment rather than in volume of business. So that strategy that we have been executing for the last few days has resulted in what you see in FY23. In FY24 I think that we will continue to improve on margins. If you look at segment results I think we are looking at, at least a half percent improvement in segment results in the coming year in FY24. So we closed FY23 segment one, results for 6.9%. I think we should reach up to 7.5% in FY24 and similarly in segment two, where we close the year full year at about 7.8% we should get up to about 8.5%.

So for FY24 will you say a good year, a very good year, a strikingly good year?
In Blue Star we are always a little cautious and therefore, I would say it is going to be a good year. But very frankly, we are geared up as an organisation. We have our capital investments, and we are going full force in that, we have a big programme on to total cost management. We are investing heavily in our people, in infrastructure, R&D. I think you would have seen some, reports we have come out with during the year of very significant investments in innovation in R&D. So, as far as the company is concerned, all investments are in full throttle and we are looking forward to a good deal.