FDI to boost biz; expect uptake in cold storage: Blue Star

B Tyagarajan, President of Blue Star said the light commercial sector including shops, showrooms and boutiques have not witnessed a major slowdown. Even the residential market has seen some demand and going forward, FDI in retail will provide impetus to the corporate sector, he adds. Moreover, some uptake can also be expected in the cold storage segment, said Tyagarajan.

Also read: FDI in retail sector to create 10 mn jobs in 10 yrs: Report

Besides, in order for FDI in retail to be completely established and the investment to pour in, it might take a couple of years, believes Tyagarajan.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Give us a sense of how the on-ground situation is looking like. We hear from other MEB players that it's not looking materially good, but things maybe on the mend. What's been your experience?

A: There are broadly two segments, one is large commercial spaces including airports, hotels etc. The other part is the residential one and also the light commercial shops, showrooms, boutiques etc. Fortunately, shops, showrooms, boutiques sector has not witnessed a major slowdown in the sense that it continues to grow at around 10% or so.

The residential market is still healthy given the penetration gap. The demand is still good so far. Though, I wouldn’t know going forward in about 5-6 months how it will be, but given the current build up of sentiments, we do hope the recent announcement from the government will provide some kind of impetus to the corporate sector as well.

If I have to sum up I think 50% of the business is still growing, 50% of the business is in a downward trend for the third year in succession. If you had asked me last month, we were not seeing light at the end of the tunnel but, I think there are some hopes now. On the other hand, with FDI in retail notification coming in, I think in the cold storages segment there should be some uptake.

Q: Have you had any conversations with any kind of industry players on what could the potential order size be? By when do you expect to see orders? We know it has been operationalized, but no one knows when a deal could be struck and when actual FDI could start coming through. What are your best guesses on that?

A: The detailed notifications have to be seen when you are talking about integrated cold chain infrastructure. It also depends on how within the country the states are going to react. The real planning will have to be done. Let's say for example, one particular company is going to setup retail. The backend investment will take place. That is clear.

For the backend infrastructure design it has to clearly mark out the geographies, which will mean the places where they have got stores and there they will be procuring apples or bananas or oranges or potatoes. I think it will be a couple of years before the final design is ready.

But in the meanwhile, there will be already existing players like logistics providers or the aggregators, they will start working on it. The national cold chain transport, the APMC Act amendment is another thing which we will start expediting now. We know very well FDI in retail is one important lever for cold chain infrastructure, but there are paraphernalia of activities that I have to go through. Let us get on with it.

The actual investment flow should in my opinion take two years. But, the build-up to that will start taking place immediately. I am seeing at least a very positive sentiment at this point of time. For example, our own company, the cold chain because of its small base has been growing at a rate of 20% or so even now. But, I need to invest in technology, I need to expand my manufacturing space. The sentiment helps. That is what is the benefit of this.

Q: You said two years before the money comes in, do you mean therefore foreign money comes in or do you think that you are seeing enough on the ground activity from the local big boys, there is Reliance Fresh, there is Metro Cash & Carry and there is some ground work as you say being done negotiating with the state owned Agricultural produce market committee (APMC). Will domestic demand start coming in earlier than two years or do you think both domestic and foreign whatever the colour of the money, the big bucks for coal storage comes only after two years?

A: I am saying both, the big bucks will be coming only after two years. The growth is around 20 percent. That will start accelerating further because in anticipation of this, quite a bit of infrastructure will get created.

Q: What is the P&L in your own case, you have come out of a tough period of being in the red, what kind of revenue growth in the current year itself are you expecting and interest is also an issue for you, will you get into capex mode maybe in FY14 itself?

A: We are at the end of Q2 and we are indeed progressing significantly as per the plans that we have Unfortunately, I am not able to talk about the exact numbers. But as far as we are concerned, FY12 was a year of aberration in our seven year history and FY13 is going to be definitely profitable and we are going ahead as usual.

The sentiments are very positive and 50% part of the business earlier used to do with commercial construction only. At this point of time, some metro or very minimum number of projects, the industry as a whole is not seeing any major investments but, things should change because we know very well this is a cyclical business, it should come back.

Q: What about competitions as the Asian peers are getting aggressive, how has pricing been, are you all renegotiating your contracts, what can you tell us about the industries?

A: The prices are low because the demand is low. We know very well that everyone is fighting for the same pie and that is part and parcel of the game. The commodity prices are somewhat stable or in some cases it is coming down. That should help us to at least maintain the margins because the margins were hit very badly last year itself on two accounts, one is the commodity prices and most importantly the foreign exchange.

But at this point of time, foreign exchange is coming under some control. Let the government do some more things and as such if you ask me, the margin is not going to be further affected, what has to happen have already happened.