Analysts are concerned that the Blue Star business is falling off the cliff and their margins are crashing. However, in an interview to CNBC-TV18, B Thiagarajan, president, Air-Conditioning & Refrigeration Products Group, Blue Star said that their air conditioning market was growing in-line with estimates. He further adds that the consumer market is not witnessing any signs of slowdown, growth has slowed in commercial space, building segments.
Thiagarajan sees room conditioning market growing by 17 percent from hereon. In the forthcoming season you can expect 10-15 percent of growth. The industry as a whole anticipate 17 percent plus growth in room air-condition market in the forthcoming season,” he adds.
Below is an edited transcript of B Thiagarajan's interview on CNBC-TV18
Q: The read through from the analyst was pretty negative. Do you think these margin decline trends are here to stay with the fact that a lot of new players have come in and even the bigger players are getting aggressive, a case in point Voltas?
A: I will not be able to give you specific numbers for obvious reasons. We are in the month of December and unless the Q3 result is announced, I will not be able to speak but I want to set the context in terms of the industry scenario and the Blue Star’s position there. In yesterday’s conference, we dealt with what is actually happening to commercial construction industry because air conditioning, or the electro mechanical projects including building, electrification or plumping, has got a direct correlation to the building industry. I am not going to be done with residential part or commercial refrigeration part. It did not have huge growth, but room air-condition or commercial refrigeration is growing so there is nothing to worry.
Firstly, considering specific commercial concession like airports, metro railways, hospitals, hotels or any commercial infrastructure and office spaces, there is excess space, no expansion taking place.
Secondly, the correlation is also the employment numbers. If the employment is not growing, you will not have an air-conditioning market, like each person employed in corporate sector consumes around 50 sq feet of air-condition space that is not happening.
Thirdly, today the building industry is not lucrative. Payments are not coming through. Even if the transactions are delayed, as far as Blue star is concerned, our focus is cash and profitability. Unless I earn margins because we had gone through a bad year and are on the recovery path, we have to move up in terms of our capital returns as well as PBT to sales ratio. Therefore, unless the commercial concession market revises the industry, I do not see a revival immediately. This is the context of that statement.
Q: Is it in the commercial office, hotels, metro rails and other infrastructure segment that you are seeing a genuine slow down but in the consumer air-conditioning consumption space the slow down is not so apparent, is that how we should understand you?
A: The residential part or the shop showrooms fittings, small spaces, small hotels or tier III, tier tier IV, tier V expansion, given the current economic scenario it is impressive. In the forthcoming season you can expect 10-15 percent of growth. In fact, the industry as a whole anticipate 17 percent plus growth in room air-condition market in the forthcoming season.
Q: How do you compare it with the previous year? Is 17 percent better or worse than the last three year average?
A: Not last three year, it is better than the year that is closing now. The year that is closing, is flat in terms of volumes and marginally 5 percent higher in terms of value. It was a bad year for the industry because for certain reason like energy efficiency. Now the consumer has got use to a particular price level and we anticipate we will grow in the coming year.
Q: In the IT industry we saw peer like Infosys go down very sharply in a down turn because they wanted to maintain pricing. The industry itself is declining and you have a lot of new players coming through and bigger players like Voltas willing to sacrifice on margins. As a strategy are you willing to let go of revenue or top-line and lose market shares to hold on to pricing?
A: Losing the top-line for the sake of top-line does not make any value to the company. Our clear focus is PBT to sales ratio and we should generate cash, bring down the borrowing, the focus will continue. In fact the shareholder value is not generating top-line which has been our clear cut view now.
Q: Whater maybe your sales output for the current year and for the next year. Should we expect that you will be lingering around Rs 2,000 crore mark?
A: No. We are in the range of Rs 2,700 crore upwards. You have Q1, Q2, Q3 results. The top-line has been flat and we are retuning to profitability. Our clear focus will be to stay in the electro mechanical project segment, rest of the businesses try to grow it so you can draw a conclusion out of this.