Blue Star has already increased market share in room air conditioner business and commercial refrigeration products like water coolers and deep freezers, says Joint MD B Thiagarajan.
Blue Star is targeting better margins this fiscal than FY16, said B Thiagarajan, Joint MD, Blue Star.
Speaking to CNBC-TV18, he said the company has increased market share in room air conditioner business and commercial refrigeration products like water coolers and deep freezers.
The company has grown at 39 percent versus industry growth of 30 percent, he said, adding, Blue Star will end FY17 with market share of 10.5 percent.
However, its engineering, procurement and construction (EPC) is causing concerns. The company has been selective while taking EPC orders as the speed of execution of construction projects have been slower than estimated, Thiagarajan said. He expects some more delays and execution issues in its EPC segment.
Below is the verbatim transcript of B Thiagarajan\'s interview to Reema Tendulkar & Prashant Nair on CNBC-TV18.
Reema: Your consolidated margins have dropped by a little more than 100 bps. Could you take us through the reason for that and do you expect margins to improve from here on?
A: If you are talking about the segment one margin specifically it is so, as you may recall that we had cleaned up our legacy jobs last year and we have been very selective in booking the orders and these are with good margins and healthy margins, but not withstanding that as the year began, we are finding that the speed of execution is not in line with our expectations. The construction cycle is yet to revive. People are not in a great hurry to complete the projects. Therefore, we anticipate that there could be delays, there could be some kind of minor execution issues that will happen and we wanted to be conservative having gone through pain in that particular segment for over three years of time we wanted to be very cautious and under the circumstances we thought that we will provide for certain costs and it is not to do with the whole year at all. In this particular quarter we decided that we will be cautious and that is about all. On the whole we do not see any kind of a problem. The financial year FY17 will have a much better margin than FY16. So there is no concern on the full year.
Prashant: How much better than FY16 in terms of margins?
A: I will not be able to give the specific figure but the full year figures, for example in segment two I can be very well saying it will be in the order of 9.5 to 10.5 percent and somewhere around 4-6 percent in segment one and that has been our goal and we will achieve it. There is no concern for that at all. It is just that in Q1 we wanted to be safeguarding our interest because once again we do not want to get into any kind of a difficulty.
Prashant: In segment one; margins will be better by 400 bps?
A: No. The operating margin for the whole year will be anywhere between 4 and 6 percent. In segment two, it will be between 9.5 and 10.5 percent.
Reema: Your AC business is 60 percent of the company\\'s revenues, did you see an improvement in market share in the quarter gone by because that would be seasonally strong quarter and given the start to the year what would be your own assessment of FY17 revenues?
A: In room air conditioners as well as commercial refrigeration products such as water coolers and deep freezers, we significantly improved our market share, for example the market grew in room air conditioners by around 30 percent, our growth was 39 percent. This is a fifth year in succession. We have improved our market share. As you may recall, our problem has been in the northern region while the all India market share could be in the order of 10 percent. In northern region we have been below 7 percent and that\\'s basically because window air conditioners or certain distribution weakness in certain markets like Uttar Pradesh, Bihar which we have corrected, so we have done extremely well. So for the full year we will achieve our goal. We set out this year with a goal of reaching a market share of 10.5 percent. It will definitely happen.