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Heartiest Greetings to all of you!
As the Chairman and Managing Director of Johnson Controls-Hitachi Air Conditioning India Ltd. (JCH-IN), this is my first letter addressing you all. At the onset, I would like to thank you all for your undeterred support and faith in us. Financial Year 18 had a mix basket of offering for us. We undertook a number of decisive changes in terms of internal organizational restructuring as well as in the Board composition. Here I would like to express our sincere appreciation to our Independent Directors and Executive Directors for their continued support, inspiration and contribution made during their tenure towards development and progress of the Company. And, we welcome on Board Yoshikazu Ishihara, who brings with him an extensive repertoire of knowledge and international experience as a senior professional in business as well as legal field.
Consolidated Financial Performance
Financial Year 18 was an extraordinary year for JCH-IN in terms of an all-round performance, despite major economic reforms like demonetization and GST, which threatened to upend the Indian economy, coupled with poor investments in the manufacturing and construction sectors. For the year under review, the Company reported a total operating income of Rs, 2,258 Crores, representing growth of 8% over Financial Year 17 on a like-to-like basis. Our operating profit for the year grew 18% to Rs, 206 Crores. So, both revenue and profit grew hand-in-hand indicating robust growth. Successful execution of our strategies during Financial Year 18 resulted into a strong growth of the order book by nearly 6%. Building on these strategies coupled with their successful execution, is expected to drive the business in the days ahead and will also enable us achieve our medium-term sales growth target of 4-6%.
Boosting growth in core business
Financial Year 18 was also an eventful year for the HVAC industry. During the year, air conditioning market witnessed a steady growth despite the double impact of two major economic demonetization i.e. GST and demonetisation. This growth was primarily driven by change in the consumer perception towards the air conditioning products, rising disposable income, and the soaring intensity of Indian summers. Besides this improvement in energy efficiency and easy finance options also played a pivotal role in the growth of HVAC industry. Hitachi witnessed more than 24% year-on-year growth (y-o-y) in Room Air Conditioner whereas industry growth was an impressive 7%.
Our commercial business, despite the direct impact of GST and demonetization, also witnessed a remarkable growth in Financial Year 18. Our PAC business registered a significant growth of around 18% during the fiscal under review. This was enabled majorly by the Company’s channel expansion policies and business extraction strategies.
In our Set Free-VRF air conditioning business, we introduced a new variant this year called the Set-Free Sigma series which offers enhanced technology, is highly energy-efficient, provides better flexibility of operations and is eco-friendly refrigerant based. Thus, the introduction of the new product line not only helped the Company achieve a growth of 8% (HP basis) but also helped in widening its product offerings to the Indian consumers.
The impact of GST and demonetization was majorly borne by the chiller business segment, making the Company suffer significantly due to canceled orders and reduced influx of new orders. Finally, with the improvement in economic conditions owing to the disruptions caused by the implementation of GST tapering off, the chiller business is expected to gain traction again. And, we hope it will be back on its growth track soon.
Driving customer and operational excellence
While the sudden economic disruptions majorly impacted the commercial business segment, it was the room air conditioner and VRF business segment that helped the Company register a remarkable growth over the last year. This was majorly possible because of well-planned manufacturing, efficient supply chain management, perfect execution of our strategies and a great teamwork of the other functions.
Manufacturing was one of the major focus areas for the Company in Financial Year 18. We invested in machine automation by implementing robotics into our operating system. Case-in-point: We added pick and place robots in the injection molding machines and CNC pipe bending machines. The Company also launched JCMS (Johnson Control Manufacturing System) program with a motto to become the “Most Operationally Capable Company”.
The Company’s focus on retaining human talent was key to its success as it ensured steady growth, timely execution and achievement of organizational goals. We introduced various retention programs that helped in improving the performance of the Company as well as in reducing the attrition effectively. Programs like Diversity & Inclusion, creation of WISE (Women’s Interaction, Support and Engagement) forum, NEO (New Employee Orientation) and NEXINT (New Employee Experience Intervention) were rolled out to retain talented employees with high potential.
With a vision to increase its market share in HVAC industry, the Company also invested significantly in marketing and promotions of the air conditioning products. With an aim to enhance its reach in the Tier
II, Tier III cities and South India markets, the marketing team undertook various innovative marketing activities which helped the brand reach its target audience. Innovative and multiple communication route coupled with the right kind of media mix like TV, print, OOH and digital media helped the Company in increasing brand awareness and mindshare.
Apart from the products, the Company also focused on further enhancing its after sales services. In line with this strategy, we undertook several initiatives during the year to improve the customer satisfaction index. This enabled us achieve a healthy year-on-year growth. Besides the Company-owned Hitachi Customer Services centres, the Company also launched Hitachi I-Care Service App during the year, matching the need of the hour and to communicate faster. This app allows the customer to register their product, take demo, register complaint and track complaint status, thus avoiding lengthy waiting time in undertaking these activities in person. After-sales customer service has been a key differentiator for the Company, but still we would look forward for means and ways to further improve on the same.
During the Financial Year 18, the Company also started a major initiative in vision with the Government’s Skill India Project. We inaugurated Engineering Excellence Centres (EECs) in Delhi, Chennai and Mumbai to provide skilled manpower and professionally trained technical resources to employees of JCH-IN and its dealers. These centres will not only generate employability but also aim to provide impressive consumer experience. We are very happy to receive positive responses from our channel partners as well as from the participation from both our Hitachi’s Service Team and our Channel Partner’s Service Teams. And, we hope that this will bridge the gap that the Indian HVAC industry has been facing till date by generating skilled taskforce and employment avenues for all.
Since the inception of its two EECs in Delhi and Chennai in 2017, and one in Mumbai in 2018, the Company has imparted training to more than 2,500 trainees and has invested more than 39,000 man hours in training. By the next year, the Company aims to provide technical training to more than 3,000 people.
With the improving economic scenario not only in India but across the globe, we are optimistic that the pro-industry reforms undertaken by the Government and Phased Manufacturing Program (PMP) policy launched in 2018 will boost indigenous manufacturing. Low penetration of RACs, growing middle-class population, increased disposable income (per family) and increasing standards of Bureau of Energy Efficiency (BEE) for energy efficiency in products is expected to further improve the demand for energy-efficient inverter technology air conditioning products.
It is expected that growth in e-retail market, increasing demand and spreading awareness about energy-efficient products from smaller cities coupled with stronger economic conditions will further boost air conditioning business in the coming years.
With an objective of sustained profitable growth, we are more than ever optimistic, confident and determined that JCH-IN will keep investing in innovation and technology in order to provide wider air conditioning solutions, thus staying ahead of the curve.
With this, I would like to thank all the stakeholders of JCH-IN, the employees for their dedication and sincere efforts, our various suppliers and vendors for their timely support, the customers for their trust in our products and our respected shareholders for showing their continuous faith in our business. With all your support and trust, I am confident that we will be able to achieve even greater heights, one that will be a continuous source of pride for us.
Chairman and Managing Director Johnson Controls-Hitachi Air Conditioning India Ltd.