Blue Star is building a new factory in Andhra, first production will be in January 2023: Vir S Advani, VC & MD

Vir S Advani, Vice Chairman & Managing Director, Blue Star Ltd. talks about Q2FY22 numbers, festive sales and momentum in demand, cash flows of the company, PLI Scheme and current debt situation among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:  

Q: Q2FY22 numbers are good except for margins as the input cost pressure has increased. Please summarise the numbers and is there any need to take price hikes to protect margins?

A: Our Q2FY22 results were good. You have rightly said that our revenue has grown by 37% to Rs 1,240 crore and PBT grew 108% to Rs 47 crore. So it was a good quarter. But, as you said, the margins are under pressure and you can see that gross margin has declined by 1.50%, while profit margin/EBITDA margin has dropped by just half a per cent because of three things. In the case of gross margins, we have optimised the product cost with R&D, engineering and manufacturing, so, we have reduced our cost increase. Apart from it, the volume has also gone up due to which we have leveraged the operating cost. This has been good for the H1FY22 but as we look towards the future, then both, the raw material prices and logistic costs, have increased. Blue Star has implemented the price increase of 3% on September 1, 2021, and we will get its benefit in the third quarter. So, I think raw material prices and logistics prices will go up further, but we will maintain the margins of Blue Star for Q3. Beyond that visibility is less, and we will have to see that how the costs are settling. If costs will continue to increase, then we will have to do two things: price increases and (ii) cost optimisation.

See Zee Business Live TV Streaming Below:

Q: Which kind of festive sales and momentum is visible before Diwali and how went during the Navaratri? What is the on-ground situation of demand? Do you think that this can be a record festive season or slight softness is there?

A: If you will have a look at our segment results, then you will see that our Segment-II that is our B2C business and includes room AC etc and when we compare it with the pre-COVID levels, then it has grown by 20% in Q2FY22 from that levels. So, on comparing Q2FY20 with Q2FY22, you will see that the revenue has increased by 20%. We have planned even more growth for Q3FY22. I expect that we have already crossed the pre-COVID levels and will grow further from here. In this festive season, the sales were very strong till Navaratri and Dusshera but some cooling-off has occurred in the last 10 days. As Diwali is nearing, I think, the demand will increase once again. So, I expect that this will be a strong festive season.

Q: Company has a healthy cash balance of more than Rs 340 crore. How do you plan to utilise that? You have also applied for the government's PLI scheme for component manufacturing. Is there any update that by when the work will start on it and what is its revenue projections?

A: Our cash flows were quite strong. Last year, our net debt level stood around Rs 350 crore and it has been reduced sharply in the second quarter. Currently, the net debt stands around Rs 40 crore. So, we have a cash balance and now, we have started with our investments and there are two big investments

(i) Our deep-freezer plant will be commissioned by January-February 2022. We have started construction work on the same in the pre-COVID era, however, It  was stopped due to the COVID and now has restarted once again.

(ii) We have filed an application under the PLI scheme for components and we are establishing a new factory in Andhra Pradesh. The ground praying was conducted two weeks ago and the factory will be ready in the next 15 months. So, the first production from the plant will be done in January 2023.

So these are our two big investments. Apart from these, a lot of investments are being done on digital technology to increase our service business and sales efficiency.

Q: Do you have any plan to reward the shareholders on Diwali or around the festival, as the books are quite healthy and good cash reserves are available with the company?

A: There is no such plan for now. We pay dividends every year and onto it after the end of the year as we are more in an investment mode now. I think, the shareholders will appreciate that we are putting the money into the business itself. We will definitely reward them with whatever money is left after the CapEx. Our B2B business has also grown after a gap of two years, so, it has also recovered up to 90%, and I feel that the future, the next six months, of the B2B business will also be good.