Blue Star Q3 net sales up 3.5 percent at Rs 599 crore from Rs 579 crore QoQ. Company's profit after tax (PAT) down by 26 percent to Rs 5.4 crore from Rs 7.3 crore QoQ. “Topline has been flattish through fiscal 2013,” said Satish Jamdar, MD, Blue Star in an interview to CNBC-TV18. The company has delinked from telecom sector as it did not yield profit. “We have de-grown maybe Rs 100-150 crore in telecom, but we have added air conditioners (ACs), chillers and our export,” added Jamdar.
Further Jamdar said that the major focus of the company in Q4 will be on profitability and cash flow. “For FY14, we are looking at our new bookings, whatever we have booked in the last ten-twelve months are all at a minimum margin with minimum cash flow. Those jobs are now beginning to kick in as a part of the percentage which wasn’t like this year,” added Jamdar.
Below is an edited transcript of Satish Jamdar’s interview on CNBC-TV18
Q: Can you take us through the order book, the sales growth has been extremely muted, a flat 3.5-4 percent performance?
A: Yes. The top-line has been for a steady ride through the year, very little growth, almost flat. Within these segments there are items which have grown and others which we have decided to de-grow because they were not profitable. For example, telecom was a booming sector till two years back and is now slowing down and the cash flows are not going well and we decided to delink from that.
We have de-grown maybe Rs 100-150 crore in that particular product but we have added ACs, chillers and our export. Though it looks flat, there are ups and downs built in there. However, on the contracting business our last results were very bad, first time we had losses. They came from projects which were going slow and cost building up where we had a problem. So we have chosen that we will not bid for jobs where the margins are not good, the cash flows are not good. There we do not go for top-line at any cost, which has been a normal thing but we went a little wrong last time.
The way we are correcting segments, only we can see de-growth there. We had a new product like the new range of Variable Refrigerant Flow (VRF), which is very popular now, so it is a mixed bag. We are focusing on profitability and cash flow and capital employed at the same time, getting our act together and getting new products. So, our direction is clear. We had a bad year; this year is sort of a half good. We are still going through some bad patches but we are hopeful for next year.
Q: In terms of FY13, a lot of analysts tracking your company have already written it off, we were looking forward into FY14. In the electromechanical business, you had a lot of low margin orders which were suppose to be completed this year itself, but now your indication seems to be at 70-75 percent, do you think that pain will linger into FY14 as well?
A: A bit of it may linger for maybe two quarters next year, this is because the jobs are not moving well and that is more to do with the way the market is growing. Infrastructure growth, cash flows with customers and projects, we have to live with what is happening. I don’t know if we can wish it away. At the same time, we are looking at our new bookings, whatever we have booked in the last ten-twelve months have all been at a minimum margin, minimum cash flow. Those jobs are now beginning to kick in as a part of the percentage which wasn’t like this year.
While I am not saying it will be great in the first two quarters, on this segment on the contracting side especially because of old carry over. But we are hoping that with two years of de-growth in the room ACs, this year with things on ground, the sentiment is a little better. I cannot be sure right now. We are discussing, sometime back diesel prices, whether the inflation will go up. It is a little iffy but we are feeling that maybe smaller towns and people’s aspiration is still a key and these products that are not related to infrastructure may still grow.
Q: There is a lot of competition from abroad as well, China, Korea, a lot of players have entered in, do you see that being a bigger problem or do you think tier-II, tier-III markets are still where domestic player have an edge?
A: We were not a very big player sometime back, when we decided to get into retail a year and a half back, we have grown on our market share. Every year we are going to chip in atleast 1-2 percent, we are targeting 9 percent, at the moment we bought 7 and also new products are moving in. We have revamped our factories, our deep freezer factory which has commissioned in the Ahmedabad plant.
In spite of going through some difficult time, we thought it is good to invest into the future. We added R&D capacity, this area will grow and we need to be prepared. Indeed, the competition will grow but then the market is likely to grow. We are quite small as we are not the market leaders in that particular business, so we can carve out a larger share.
We need to protect ourselves where we are market leaders like package ACs and those kind of refrigeration products, cold rooms and are working on those as well. The other complication apart from competition is the government’s plan for these energy labeling and the energy efficiency products due to which now every two years there is a change of labels and so the cost goes up, the whole R&D has to be redone. This is meant for all the industries but that is also something we have to contend with.