Air conditioning and commercial refrigeration company Blue Star
is expected to increase its market share and post a high growth in
profitability this fiscal as its large projects are likely to yield higher
margins. Although Blue Star has had big projects over the past 4-5 years, these
projects fetched very low margins. Among the main reasons for this was the
delay in execution, which proved a drag on the profitability of its large
electro-mechanical projects (EMP). The company has learnt from this experience
and reduced the time taken to execute projects. “Out of the total order
backlog, only 10% of orders are now legacy orders, which will be completed in
the first half of FY15. The completion of legacy orders will boost our margins.
We expect margins of EMP segment to expand to 6% by the end of FY15,“ said Blue
Star’s executive director B. Thiagarajan. The company had reported an operating
profit margin of 2.2% in EMP segment in 2013-14. At present, 52% of the
company’s revenues come from EMP segment while 41% come from cooling products
(CP) segment and the remaining from project engineering business. CP division
accounted for 41% of total sales in the quarter to March and recorded an
operating profit growth of 27% compared with the year-ago period. The CP
division, under which earnings from room air-conditioners are accounted for,
has been clocking a speedy growth in revenues. Since the conclusion of the
recent Lok Sabha polls, the company has been receiving increasing interest and
orders from a number of sectors and small retailers. “We are witnessing great
optimism from clients from sectors such as IT, banking, insurance, QSR
(quick-service restaurants) and small hospitals and education centres. But big
orders which require acquisition of land will remain on the backburner,“ said
Thiagarajan.
“We
expect the growth in our orders to be fuelled by improvement in sentiment
related to economy, growth in GDP and corporate salaries and pick-up in
projects which do not require large funds.“ With its increasing retail
presence, the company is targeting to increase its market share in the air
conditioning market from 7% at present. “AC industry’s volume growth in FY15 is
expected to be 15% and our company will be growing 5% more than the industry’s.
We are targeting to touch a market share of 9% by the end of current financial
year from deep retail footprints, an array of products at several price points
and price-competitiveness,“ said Thiagarajan. The company’s stock has
appreciated 45% since the start of the year. According to Bloomberg’s
estimates, its earnings are expected to grow 30.9% and 44.5% in 2014-15 and
2015-16, respectively. (Source:
The Economic Times, Mumbai, June 19, 2014)
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