Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue from operations for Q1 FY25 grew by 28.7% to INR2,865.37 crores compared to INR2,226 crores in Q1 FY24.
- EBITDA margin improved to 8.3% from 6.5% in the previous year.
- Net profit for Q1 FY25 grew to INR168.76 crores compared to INR83.37 crores in Q1 FY24.
- Carried forward order book as of June 30, 2024, grew by 13.5% to INR6,084.69 crores.
- Strong operating performance added a net cash position of INR1,042.87 crores as of June 30, 2024.
Negative Points
- Supply chain constraints continue, particularly with copper and compressors, which are expected to be resolved only after 18 months.
- Demand in the Middle East and Africa remained subdued during the quarter.
- Commercial Refrigeration business faced lower-than-expected revenue growth due to BIS-related regulatory changes impacting water cooler sales.
- Professional Electronics and Industrial Systems segment saw a decline in margins due to supply chain disruptions and cost overruns in the MedTech business.
- Concerns about geopolitical situations, particularly in the Middle East, which could impact future performance.
Q & A Highlights
Blue Star Ltd (BOM:500067, Financial) Q1 FY25 Earnings Call Highlights
Q: Can you provide more details on the mix change in the Electro-Mechanical Projects (EMP) segment and its impact on margins?
A: B. Thiagarajan, Managing Director, explained that the mix change towards higher-margin products like VRF systems and chillers significantly improved margins. However, he emphasized that margins can vary greatly depending on the project execution timeline and product mix. The outlook remains at 7.5% to 8% for Segment 1.
Q: What is the current status and future outlook for data center projects?
A: B. Thiagarajan noted that data center projects are growing due to AI-related expansions. The company expects to book INR1,000 crores to INR1,500 crores in orders annually over the next three years. However, he cautioned that technological changes could impact this segment in the long term.
Q: Are there any updates on the international business, particularly in Europe and North America?
A: B. Thiagarajan stated that while the company has made progress in meeting technical specifications and quality standards, the market conditions in Europe and the U.S. are currently subdued. The focus remains on building competitiveness and expanding the product portfolio.
Q: How did the company manage the demand-supply mismatch in the AC segment during the summer?
A: B. Thiagarajan explained that the industry faced unprecedented demand due to a harsh summer. Despite planning for a 25-30% increase, the actual demand was much higher. The company managed to meet most of the demand through higher production and local supply chain improvements.
Q: What are the future regulatory changes expected in the AC segment, and how will they impact the business?
A: B. Thiagarajan mentioned that the next significant regulatory change is the energy label update due on January 1, 2026. The company is also preparing for a transition to low GWP refrigerants by 2035. Additionally, there are ongoing discussions about green credits and GST reductions for higher energy efficiency products.
Q: What is the outlook for the Professional Electronics and Industrial Systems segment?
A: B. Thiagarajan acknowledged that the segment had a muted quarter due to supply chain disruptions and delays in order inflows. However, he assured that the fundamentals remain strong, and the segment is expected to recover in the coming quarters.
Q: How is the company planning to utilize its cash reserves, and what are the CapEx plans for the year?
A: Nikhil Sohoni, Group CFO, stated that the company plans to spend around INR450 crores on CapEx this year, with a total of INR750 crores to INR800 crores over the next two to three years. The cash reserves will be used for manufacturing, R&D, digitalization, and working capital needs.
Q: What is the company's strategy for maintaining margins in the EMP segment?
A: B. Thiagarajan emphasized that the company prioritizes returns over market share. The focus is on disciplined capital allocation, strong project execution, and maintaining a balance between short-term profits and long-term sustainability.
Q: What is the expected growth rate for the room air conditioners and commercial refrigeration products?
A: B. Thiagarajan projected a 20-25% growth rate for the full year, potentially reaching 25-30% due to strong consumer demand and favorable market conditions.
Q: How does the company plan to handle future geopolitical risks and supply chain challenges?
A: B. Thiagarajan mentioned that the company is closely monitoring geopolitical developments and is prepared to navigate through potential crises. The focus remains on building a resilient supply chain and maintaining operational flexibility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
