Blue Star to transfer PE&IS biz to wholly-owned subsidiary

Blue Star has announced the transfer of its Professional Electronics & Industrial Systems (PE&IS) business to wholly-owned subsidiary called Blue Star Engineering & Electronics on lumpsum basis at consideration of Rs 110.5 crore. The company expects its PE&IS business, which reported a turnover of Rs 122 crore for 2013-14, to scale up once it gets independent identity.

In an interview to CNBC-TV18, B Thiagarajan, ED, Blue Star, discusses on the company’s plans and future outlook.

Below is the transcript of B Thiagarajan's interview with Reema Tendulkar and Latha Venkatesh on CNBC-TV18.Reema: The company has announced that they will be transferring Professional electronics and industrial systems to its wholly owned subsidiary for a total amount of Rs 110.5 crore. Can you tell us what different this will make to the profit and loss (P&L) of Bluestar?A: The scheme was announced last month. This is basically for hiving off a company, hiving off other Professional electronics business to a wholly owned subsidiary. So because it has to be the fair value transaction, value has been put in there and now I will not be able to discuss about Q4 financials. The scheme is subject to approval of the court and other formalities that are underway. So obviously there is a value that is being created and we have to see how it is going to pan out in terms of our financials as a whole.Latha: What is the whole purpose of giving it to a wholly owned subsidiary? Why would the business do better simply because you have put it in a subsidiary or is the purpose to sell off listed get some JV partner, is there some other reason why you have put it in a subsidiary, otherwise what sense does it make, should a business do well simply because it is in a subsidiary?A: Blue Star is an air-conditioning, refrigeration company. This is professional electronics and industrial systems part of the business has been with us for more than five decades or so. The whole management review system, planning process etc, it is predominantly air-conditioning driven. So for quite some time we have been wondering that this should be given a separate attention in order to pursue growth. There were two problems that were there in the past couple of years or so -- one the capital goods industry and infrastructure industry which that part of the business serves was slowing down, there were no huge opportunities. Second is air-conditioning and refrigeration as you know other than the room air-conditioners business, the rest of the businesses were not growing basically because of the economic condition. So we were waiting for an opportunity when the market will be available for pursuing long-term growth. So in air-conditioning, refrigeration for example, we have to expand our capacity, we have to get into certain new products like inverters and inverter VRF systems etc. The provisional electronics business again requires a separate attention with its own top management and the board which will govern that part of the business. So what was supposed to happen a couple of years ago, it has moved into a subsidiary. There is no interest whatsoever for us to sell it off also at all. It is going to be a part and parcel of Blue Star for sure and you will see as the years passed by many announcements that are being made in terms of investments in both parts of the business.

Latha: No efforts at hiving off this into separately listed company or getting any strategic partner there?A: Not at all. We may get partners as an agency line, we have been working with many international leaders of repute so that will be an ongoing thing but this particular question surprisingly none of the analysts had asked even during the conference call. We were prepared for this and I commit that there is no intention whatsoever for us to hive it off entirely at all. It is going to be key strategic business unit of Bluestar forever.Reema: Can you give us some rough time estimate when this Rs 110 crore will come in? When the transaction will get completed?A: It will get completed in Q3, the approval process is on. The court has to approve this and so we should be having the picture perhaps in April-May.Latha: You have already seen about over two-thirds of this month in fact the quarter is almost out but for two weeks. How has business been, have you seen any improvement, winter is not best time that people buy air-conditioners, in any case comparing like-to-like from previous years same time, has business improved?A: It is, it continues to hold good. So our estimate is by March the market in value terms should have grown by around 19 percent or so and in volume terms by around 10 percent and we have been growing at least 10 percentage points higher than the market. In value terms we will be closing the year for room air-conditioners business close to 30 percent or so. The market is doing well, so there is absolutely no problem as of now. The weather forecast is available for the next 45 days, that also there has not been any kind of major setback there. Though one hears about the rains, therefore the farmers having some kind of a problem more than 50 percent of the business comes from tier III, IV, V markets. So the agriculture income is one of the important factors but this is all in the game, every year this keeps happening one way or other but I am certain that FY16 outlook is something like minimum of 15 percent growth and we are aiming 10 percentage point more than the market growth which means 25. So the planning of inventory and other marketing inputs are all based on this kind of growth numbers.