Blue Star braces for slower order flows this year
Air conditioning and refrigeration products maker Blue Star says the macro economic environment remains challenging and project delays continue across sectors, and so it will focus on quality of projects rather than just growing volumes this year to maintain profitability.
August 03, 2012 / 18:59 IST
Moneycontrol Bureau
Air conditioning and refrigeration products maker Blue Star says the macro economic environment remains challenging and project delays continue across sectors, and so it will focus on quality of projects rather than just growing volumes this year to maintain profitability."Carry forward order book as on June 30 reduced to Rs 1,848 crore, compared to Rs 2,019 crores as at June 30, 2011, due to slower new order bookings as well as a concerted effort to improve the quality of new orders won," Blue Star said. It also continues to look at controlling capital employed and productivity improvement, which will include job cuts, automations and off-shoring work, to boost profits, Vir Advani, executive director, said in a post earnings conference call. The company had reduced headcount by around 5% last year and there could be another 5% cut this financial year, B Thiagarajan, president - air conditioning and refrigeration products had said in an earlier call in May.Engineering and capital goods companies have been hit by the economic downturn as order inflows have been sluggish.Advani said on Friday that industrial capex cycle remains uncertain and no sector looks interesting at this point. He, for instance, is not expecting any major orders from the power and real estate sectors this year, given the overall slowdown in these sectors. Earlier this week, Blue Star reported a net profit of around Rs 21 crore in the first quarter, more than double year-on-year, while net sales rose 4% to Rs 723.2 crore. The turnaround in April-June came on the back of a loss of Rs 89 crore in the last financial year. Continued growth in cooling products business and a rebound in electro mechanical projects and packaged air conditioning systems (EMPPAS) business ( it posted a profit of Rs 12 crore in Q1 after losses in last few quarters), coupled with the cost cutting measures, boosted profits.EMPPAS accounted for 50% of the total revenues in the quarter.Other income in the first quarter also rose to Rs 7 crore from Rs 73 lakh due to income tax refunds and foreign exchange gains.However, cooling products business was a drag with just 2% increase in revenue and profit declined 15% at Rs 38 crore."A relatively mild summer across the country in April and May, coupled with cost pressures due to the appreciation of the dollar, resulted in the decline," the company said.Blue Star raised prices twice last quarter to offset input cost pressures, Thiagarajan said during the call.He said that the home air conditioning market is shifting to split ACs from windows ACs and expects split ACs will account for as much as 95% of the market, up from 85% now. Globally there is not much research and development happening in windows ACs he said.Blue Star shares were down 0.7% at Rs 190.75 on NSE in afternoon trade. The stock is up 3% so far this financial year.Nachiket Kelkar
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