Voltas
Blue Star Ltd is India's largest central airconditioning company. It fulfils the airconditioning needs of a large number of corporate and commercial customers and has also established leadership in the field of commercial refrigeration equipment ranging from water coolers to cold storages. The company has also started offering Electrical Contracting and Plumbing & Fire Fighting Services. Blue Star's other businesses include marketing and maintenance of hi-tech professional electronic and industrial products. Blue Star primarily focuses on the corporate and commercial markets. Blue Star has business alliances with world renowned technology leaders such as Rheem Mfg Co., USA; Hitachi, Japan; Eaton - Williams, UK; Thales e-Security Ltd., UK; Jeol, Japan and many others, to offer superior products and solutions to customers. The company has manufacturing facilities at Thane, Dadra, Bharuch, Himachal and Wada.
Mr. B Thiagarajan, President - Channel Business Group, Blue Star, joined the company in 1998 and has nearly three decades of experience having worked for companies such as L&T, BPL and Voltas, prior to joining Blue Star. In Blue Star, he has made significant contributions in Airconditioning & Refrigeration Service, Corporate Affairs, and Corporate Communications & Marketing, demonstrating great versatility. Thiagarajan recently took over the Channel Business Group operations of the Company comprising Packaged Airconditioning, Room Airconditioners, Refrigeration Products and Cold Chain equipment. He also oversees Telecom Airconditioning, Customised OEM business, Central AC Products Marketing, Corporate Communications & Marketing and Public Relations.
In an exclusive interview with Hemant P. Maradia of India Infoline, Mr. B Thiagarajan says: “Though the overall economic scenario is not very clear, the company remains confident about its prospects for the year.”
What is the total value of orders at hand as of now? What is the timeline for executing the same?
The Carry Forward Order Book as on June 30, 2009 increased to Rs 1717 crore compared to Rs 1410 crore as at June 30, 2008, representing a growth of 21%. Most of the order book comprises orders of the Electro Mechanical & Packaged AC Systems Group. The execution time will vary from project to project, but the average would be about 10-12 months.
What kind of order intake do you expect in the whole of FY10 over FY09? Which industry segments (Infra, IT, Retail, etc.) are you banking on for fresh orders?
Segments such as Airports, Power Plants and Metro Rail as well as other projects from the Government and PSUs continue to be less affected by the economic downturn with significant project expansion plans. Telecom, Healthcare and Education segments are also pursuing investments with expansion plans aggressively. While the slowdown continues to adversely affect segments such as IT/ITES and Real Estate, there seem to be some signs of a modest recovery.
However, the economic environment is still extremely fluid and the outlook appears uncertain. Hence, it will not be prudent for us to comment on the order book for FY10 vis-à-vis FY09.
What will be the main growth drivers in the next few quarters? Which segment(s) do you expect to bring in the larger share of the incremental revenue?
We expect the Infrastructure segment, mainly Airports, Power Plants and Metro Rail as the key growth drivers. Also, segments such as Telecom, Healthcare and Education appear to be promising.
Going forward do you expect to see improvement in order execution? What is your outlook for the overall business?
The dull economic situation has affected demand in several segments, leading to delays in project execution and decline in topline growth. However, the company’s focus on value engineering and stringent cost control measures has enabled it to significantly enhance margins and profitability. Furthermore, the carry forward order book continues to be reasonable with several large infrastructure-related jobs which are expected to get executed over the next few quarters.
Though the overall economic scenario is not very clear, the company remains confident about its prospects for the year.
Do you expect revenue to improve significantly over the next few quarters as the economic environment turns around?
Yes, there were quite a few projects that slowed down due to the adverse economic conditions. As and when the economy turns around, we would expect most of these (projects) to get back on track. You need to consider that Blue Star as an airconditioning, electrical contracting and plumbing vendor would generally get involved in the last phase on any project.
For all the new projects that will be initiated, there will be a time lag for realization of (Blue Star’s) revenues. Thus, if land is finalized for a particular project, Blue Star will get involved after a time lag of 6-12 months, depending on the project.
What is your outlook on raw material prices with commodity prices already firming up in the international markets?
Yes, raw material prices have started firming up and this is a cause for concern. The softening of raw material prices had helped us improve our margins over the last couple of quarters. However, we see a strong correlation between raw material prices and the economic environment. As long as there is enhanced demand when the economy revives, benefits of scale should help us counter the increase in raw material prices, to some extent.
Will you continue to command high pricing power?
Despite the fact that revenues came down by about 15% last quarter, we were able to enhance operating margins by about 250 basis points. One of the main reasons has been higher price realizations due to our differentiated offerings.
We continue to pursue projects with healthy margins and where we command a price premium. Our business model of being a manufacturer, contractor and after-sales service provider enables us to provide an integrated solution to customers across the life cycle of the system and continues to be a strong differentiator.
Are you planning to raise money in the near future? If yes, though which route and how much?
We have extremely healthy reserves and surplus. There are no plans to raise money in the near future.
What is the total debt on the book? What is the debt-equity ratio?
An important aspect of our financial model is to maintain a lean balance sheet with low debt. Last year, by focusing on profits and maintaining tight inventory control, we generated a record operating cash flow of Rs 169.72 crores, even though the credit squeeze made collection of sundry debtors very difficult. This enabled the company to end the year with borrowings of only Rs 23.60 crores and debt/equity of 0.06, both lower than the previous year.
How much of your revenue comes from the domestic market and how much from the overseas markets?
Our primary focus is on the domestic market and over 95% of our revenues are from India.
You being a net importer what steps do you take to mitigate the impact from currency fluctuations?
Yes, we are a net importer. Since all our projects are in different stages of execution, there is some amount of natural hedging that occurs – we gain in some places and we lose in some places. Also, we hedge some important contracts. Moreover, the foreign exchange gain/loss is not really significant, and hence we are not perturbed by that at the moment.
What is your message to the shareholders?
Blue Star has coped well with the downturn so far and we remain in a relatively strong position. The carry forward order position is reasonable at Rs 1717 crore, an increase of 21% compared to last year. We are alert for early indicators of business revival and can gear up quickly for faster growth when new opportunities arise.
With the continuing macro uncertainties, we are not in a position to provide a reliable year-end forecast for the company, but we remain cautiously optimistic.
Blue Star Ltd is India's largest central airconditioning company. It fulfils the airconditioning needs of a large number of corporate and commercial customers and has also established leadership in the field of commercial refrigeration equipment ranging from water coolers to cold storages. The company has also started offering Electrical Contracting and Plumbing & Fire Fighting Services. Blue Star's other businesses include marketing and maintenance of hi-tech professional electronic and industrial products. Blue Star primarily focuses on the corporate and commercial markets. Blue Star has business alliances with world renowned technology leaders such as Rheem Mfg Co., USA; Hitachi, Japan; Eaton - Williams, UK; Thales e-Security Ltd., UK; Jeol, Japan and many others, to offer superior products and solutions to customers. The company has manufacturing facilities at Thane, Dadra, Bharuch, Himachal and Wada.
Mr. B Thiagarajan, President - Channel Business Group, Blue Star, joined the company in 1998 and has nearly three decades of experience having worked for companies such as L&T, BPL and Voltas, prior to joining Blue Star. In Blue Star, he has made significant contributions in Airconditioning & Refrigeration Service, Corporate Affairs, and Corporate Communications & Marketing, demonstrating great versatility. Thiagarajan recently took over the Channel Business Group operations of the Company comprising Packaged Airconditioning, Room Airconditioners, Refrigeration Products and Cold Chain equipment. He also oversees Telecom Airconditioning, Customised OEM business, Central AC Products Marketing, Corporate Communications & Marketing and Public Relations.
In an exclusive interview with Hemant P. Maradia of India Infoline, Mr. B Thiagarajan says: “Though the overall economic scenario is not very clear, the company remains confident about its prospects for the year.”
What is the total value of orders at hand as of now? What is the timeline for executing the same?
The Carry Forward Order Book as on June 30, 2009 increased to Rs 1717 crore compared to Rs 1410 crore as at June 30, 2008, representing a growth of 21%. Most of the order book comprises orders of the Electro Mechanical & Packaged AC Systems Group. The execution time will vary from project to project, but the average would be about 10-12 months.
What kind of order intake do you expect in the whole of FY10 over FY09? Which industry segments (Infra, IT, Retail, etc.) are you banking on for fresh orders?
Segments such as Airports, Power Plants and Metro Rail as well as other projects from the Government and PSUs continue to be less affected by the economic downturn with significant project expansion plans. Telecom, Healthcare and Education segments are also pursuing investments with expansion plans aggressively. While the slowdown continues to adversely affect segments such as IT/ITES and Real Estate, there seem to be some signs of a modest recovery.
However, the economic environment is still extremely fluid and the outlook appears uncertain. Hence, it will not be prudent for us to comment on the order book for FY10 vis-à-vis FY09.
What will be the main growth drivers in the next few quarters? Which segment(s) do you expect to bring in the larger share of the incremental revenue?
We expect the Infrastructure segment, mainly Airports, Power Plants and Metro Rail as the key growth drivers. Also, segments such as Telecom, Healthcare and Education appear to be promising.
Going forward do you expect to see improvement in order execution? What is your outlook for the overall business?
The dull economic situation has affected demand in several segments, leading to delays in project execution and decline in topline growth. However, the company’s focus on value engineering and stringent cost control measures has enabled it to significantly enhance margins and profitability. Furthermore, the carry forward order book continues to be reasonable with several large infrastructure-related jobs which are expected to get executed over the next few quarters.
Though the overall economic scenario is not very clear, the company remains confident about its prospects for the year.
Do you expect revenue to improve significantly over the next few quarters as the economic environment turns around?
Yes, there were quite a few projects that slowed down due to the adverse economic conditions. As and when the economy turns around, we would expect most of these (projects) to get back on track. You need to consider that Blue Star as an airconditioning, electrical contracting and plumbing vendor would generally get involved in the last phase on any project.
For all the new projects that will be initiated, there will be a time lag for realization of (Blue Star’s) revenues. Thus, if land is finalized for a particular project, Blue Star will get involved after a time lag of 6-12 months, depending on the project.
What is your outlook on raw material prices with commodity prices already firming up in the international markets?
Yes, raw material prices have started firming up and this is a cause for concern. The softening of raw material prices had helped us improve our margins over the last couple of quarters. However, we see a strong correlation between raw material prices and the economic environment. As long as there is enhanced demand when the economy revives, benefits of scale should help us counter the increase in raw material prices, to some extent.
Will you continue to command high pricing power?
Despite the fact that revenues came down by about 15% last quarter, we were able to enhance operating margins by about 250 basis points. One of the main reasons has been higher price realizations due to our differentiated offerings.
We continue to pursue projects with healthy margins and where we command a price premium. Our business model of being a manufacturer, contractor and after-sales service provider enables us to provide an integrated solution to customers across the life cycle of the system and continues to be a strong differentiator.
Are you planning to raise money in the near future? If yes, though which route and how much?
We have extremely healthy reserves and surplus. There are no plans to raise money in the near future.
What is the total debt on the book? What is the debt-equity ratio?
An important aspect of our financial model is to maintain a lean balance sheet with low debt. Last year, by focusing on profits and maintaining tight inventory control, we generated a record operating cash flow of Rs 169.72 crores, even though the credit squeeze made collection of sundry debtors very difficult. This enabled the company to end the year with borrowings of only Rs 23.60 crores and debt/equity of 0.06, both lower than the previous year.
How much of your revenue comes from the domestic market and how much from the overseas markets?
Our primary focus is on the domestic market and over 95% of our revenues are from India.
You being a net importer what steps do you take to mitigate the impact from currency fluctuations?
Yes, we are a net importer. Since all our projects are in different stages of execution, there is some amount of natural hedging that occurs – we gain in some places and we lose in some places. Also, we hedge some important contracts. Moreover, the foreign exchange gain/loss is not really significant, and hence we are not perturbed by that at the moment.
What is your message to the shareholders?
Blue Star has coped well with the downturn so far and we remain in a relatively strong position. The carry forward order position is reasonable at Rs 1717 crore, an increase of 21% compared to last year. We are alert for early indicators of business revival and can gear up quickly for faster growth when new opportunities arise.
With the continuing macro uncertainties, we are not in a position to provide a reliable year-end forecast for the company, but we remain cautiously optimistic.
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