Edited Transcript of BLUS.NS earnings conference call or presentation 7-Aug-20 5:30am GMT

Edited Transcript of BLUS.NS earnings conference call or presentation 7-Aug-20 5:30am GMT

Mumbai Aug 7, 2020 (Thomson StreetEvents) — Edited Transcript of Blue Star Ltd earnings conference call or presentation Friday, August 7, 2020 at 5:30:00am GMT

* B. Thiagarajan

* Bhavin B. Vithlani

JM Financial Institutional Securities Limited, Research Division – Senior Research Analyst

Ladies and gentlemen, good day, and welcome to Blue Star Limited Q1 FY ’21 Earnings Conference Call. We have with us today from the management, Mr. B. Thiagarajan, Managing Director; and Mr. Neeraj Basur. Group CFO. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Neeraj Basur. Thank you, and over to you, sir.

Thank you. Good morning, ladies and gentlemen. This is Neeraj Basur. We also have on the call today our Managing Director, Mr. B. Thiagarajan.

I will be providing you an overview of the results for Blue Star for the quarter ended June 2020. The current financial year commenced in the backdrop of an unprecedented economic disruption. As a socially responsible organization, during the initial phase of the lockdown, apart from donating rations to the needy and personal protective equipment to the frontline social workers, we were at the forefront, attending to the emergency equipment servicing needs of our customers, such as Kasturba Hospital; Chitradurga District Hospital, Karnataka; and Torrent Power, Sabarmati, in their efforts to keep the essential services operational.

The financial performance for the quarter needs to be viewed in the context of it being a challenging period for the economy as a whole and the HVAC&R industry in particular due to the ongoing pandemic. Most part of the summer season was lost and project sites were shut. It was in the third week of May, the economic activity started opening up. Even as we speak, partial lockdowns are in place and various restrictions continue. Therefore, the results for Q1 FY ’21 are not comparable with that of Q1 FY ’20.

Financial highlights for the quarter ended June 30, 2020, on a consolidated basis are summarized now. Revenue from operations for Q1 FY ’21 was INR 626.02 crore as compared to INR 1575.45 crore in Q1 FY ’20, a degrowth of 60.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. EBITDA, excluding other income and finance income, for Q1 FY ’21 was INR 1.36 crore as compared to INR 114.85 crore in Q1 FY ’20. In Q1 FY ’21, there was a loss of INR 29.47 crore before exceptional items, as compared to a profit of INR 107.96 crore in Q1 FY ’20. Our net loss was INR 19.66 crore in Q1 FY ’21 compared to a net profit of INR 76.84 crore in Q1 FY ’20.

Carryforward order book increased marginally to INR 2923.06 crore as on June 30, 2020, compared to INR 2841.10 crore as on June 30, 2019. Capital employed increased to INR 1186.58 crore as on June 30, 2020, from INR 949.20 crore as on June 30, 2019, due to higher inventory levels on account of revenue degrowth.

We raised INR 350 crore during the quarter through issuance of nonconvertible debentures to fund working capital and to build sufficient liquidity on our balance sheet. Consequently, net borrowings increased to INR 421.03 crore as on June 30, 2020, with a debt-equity ratio of 0.55 as compared to a net cash balance of INR 0.74 crore as on June 30, 2019.

I will now cover business highlights for Q1 FY ’21. Segment I, Electro-Mechanical Projects and Commercial Air Conditioning Systems. Segment I revenue was INR 312.44 crore in Q1 FY ’21 as compared to INR 623.94 crore in Q1 FY ’20, a decline of 49.9{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Reduction in scale caused the margin to shrink significantly. In view of the financial and operational threats faced by a few of our customer segments, we have prudently made provisions for doubtful receivables and potential credit loss. These factors resulted in the segment reporting a negative margin of INR 10.53 crore in Q1 FY ’21, as against a margin of INR 33.53 crore in Q1 FY ’20. Order inflow during the quarter was impacted due to the lockdown, and it reduced to INR 271.18 crore as compared to INR 966.90 crore in Q1 FY ’20, a degrowth of 72{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

Our Electro-Mechanical Projects business. The lockdown during the quarter severely impacted bookings and had a major impact on our revenue. Only around 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the project sites were operational during the quarter. We prioritized and focused on jobs based on the customers’ credit profile and collections. Going forward, the same principles of cash management will be followed as far as this segment is concerned. As the economic recovery post-COVID will be slow, the commercial building sector, which contributes a major part of our revenue, is expected to take longer to recover. Infrastructure and industrial sectors are expected to recover relatively faster. Carryforward order book of the Electro-Mechanical Projects business was INR 2040 crore as on June 30, 2020, as compared to INR 2013 crore as on June 30, 2019, an increase of 1.4{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

Commercial Air Conditioning Systems, with the segments such as light commercial, medium-sized offices, educational institutions, entertainment and banquet hall severely impacted. Both new order booking and billing were lower during the quarter. Consequently, we registered a degrowth of 66{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in the billing. However, order inflow from BFSI, health care, pharma and government sectors were encouraging. Major orders back in Q1 FY ’21 were from Patna Medical College, (inaudible) Nagpur, and MMRCL COVID Hospital in Mumbai.

I will now talk about our international business. The international markets in which we operate were also impacted by the pandemic. However, easing of restrictions in some of the major markets enabled pickup in revenue in June. Revenue and profitability of the projects executed through our joint venture with Qatar and Malaysia were also impacted due to the pandemic, though the operations slowly started to normalize from June. Our focus remains on the expansion of Blue Star product range and building brand awareness in the different markets that we are present in. We have also increased our marketing across digital media platforms to build awareness and then visibility across these key markets.

I will now talk about Segment II, Unitary Products. Segment II revenue was INR 274.85 crore in Q1 FY ’21 as compared to INR 906.89 crore in Q1 FY ’20, a decline of 69.7{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Inability to sell during a substantial part of the peak selling summer season, combined with additional burden of demurrage and retention charges due to the lockdown resulted in erosion of margins in this segment. Consequently, the segment result was a loss of INR 3.76 crore in Q1 FY ’21 compared with a profit of INR 98.91 crore in Q1 FY ’20.

Room Air Conditioner business. In our Room Air Conditioner business, our estimate is that the market shrunk by almost 65{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} during the quarter with the conventional retail outlet and nonessential e-commerce sales shut till the third week of May. Our degrowth was also in line with the market. Even after the market began opening up, the footfalls were lower and the priority was to liquidate the inventory line with the channel since March. Sales through the e-commerce channel, including our own net store, gained traction. And the share of revenue through this channel improved to 12{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} this quarter.

Commercial Refrigeration business. Revenue of this business was impacted significantly due to loss of sales to the ice cream manufacturing segment and a complete shutdown of commercial establishment and educational institutions, which contribute a major share of revenue from storage water coolers and bottled water dispensers. The loss of revenue from these segments was partially compensated by increased revenue from customers in the essential services segment, such as processed food, health care and pharma. Major orders were bagged in Q1 FY ’21 from Odisha State Medical Services Corporation, [Royal Cold Chain] (inaudible) and Indian Immunologicals Limited. Health care, pharma, food delivery and processed food segments will continue to offer attractive growth potential for this business in the new normal.

Water Purifier business. Impact of the pandemic on our Water Purifier business was relatively moderate. E-commerce channel continued to contribute to a major share of revenue for water purifiers. We continue to stay focused on establishing our brand as a trusted one in this category with well engineered and reliable products, including the ones that offer alkaline water for boosting immunity, backed by superior service. Given the growing concerns on health and immunity, the demand for water purifiers is set to grow, and we have set ourselves a market share target of 2.5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in FY ’21. The business is poised to break even this year.

Segment III, Professional Electronics and Industrial Systems. Segment III revenue was INR 38.73 crore in Q1 FY ’21 as compared to INR 44.62 crore in Q1 FY ’20. Segment results grew to INR 10.18 crore, which was 26.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of revenues in Q1 FY ’21, from INR 4.42 crore, which was 9.9{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of revenues in Q1 FY ’20.

Data Security Systems business continued to do well on the back of digitization initiatives in the BFSI sector. Demand for health care products also picked up in the later part of the quarter. While corporate CapEx is likely to be selective, we expect the Indian digital payment sector and health care sector to grow further in the current scenario and continue to offer opportunities. With the wide product — portfolio of products and solutions forming part of our offerings, the prospects for this business segment is positive.

Business outlook. We have taken swift actions to restore business operations with adequate focus on safety and well-being of our employees, channel partners, business associates and vendors. Our manufacturing and supply chain operations are fully operational. We have cut the operating costs in line with the potential revenue loss and infused capital through long-term debt to strengthen the resilience of our balance sheet. We will continue to prioritize project execution based on cash flow.

The Room Air Conditioner and Commercial Refrigeration businesses are expected to gain traction gradually. And our expectation is that the market will get back to normal by Q4 FY ’21.

Health care, pharma and processed foods segment will continue to offer good opportunities for the Commercial Refrigeration business in the new normal. Increased awareness on building immunity will offer good prospects for the Water Purifier business. Digitization and health care initiatives offer good prospects for the Professional Electronics and Industrial Systems segment. We will endeavor to overcome this challenge phase — challenging phase in a balanced and agile manner with focus on prudent management on working capital and operating costs while ramping up our revenues.

With that, ladies and gentlemen, I am done with the opening remarks. I would now like to pass the call back to the moderator, who will open up floors to the questions. Mr. Thiagarajan and I will try and answer as many questions as we can. To the extent we are unable to, we will get back to you via e-mail.

With that, we are now open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Ravi Swaminathan from Spark Capital.

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Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division – Assistant VP [2]

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My first question is with respect to the Air Conditioning business. If you can give a flavor on how the secondary sales has been in the month of July? How many dealers are completely open? And also the kind of inventory levels which are there with the dealers currently, I mean how much above normal is it currently? If you can give a flavor, it would be great.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [3]

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This is Thiagarajan here. June — if you are talking about room air conditioners alone, June came to something like 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the previous year end. July, we saw 77{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} as far as Blue Star is concerned, okay? We do not know the industry, how it is. My sense is that given the fact that we are maintaining the market share, the industry also should have recovered anywhere between 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in July. This is in terms of secondary sales. This includes e-commerce as well.

Now the — your other part of the question is inventory. I am not seeing here, if at all, it should be somewhere around 30 days. More inventory should be there. It is not an unmanageable level as it was in 2019, when the summer failed. But basically, because people would have produced in their second half of March or April, so the inventory correction would have taken place with this kind of sales. In Q2, we expect the revenue should be at 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} level because market will settle down. Normally, some part of the festival season also happens, like Onam and all, in the second quarter itself. That’s where we are. I hope I answered your question.

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Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division – Assistant VP [4]

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Got it, sir. And my second question is with respect to the debt we have raised recently. I mean is it due to abundance of caution with which we have raised this debt? Or do we see some sizable deterioration in the working capital cycle for either or both of the segments?

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Neeraj Basur, Blue Star Limited – CFO [5]

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Yes. So we’ve talked about this before. And Ravi, as you’re aware that we’ve been through a fairly compressed cycle of liquidity where we didn’t want to have any sort of refinancing risk on our balance sheet in the short duration. At the same time, we want to make sure that there’s sufficient liquidity, which is there with us for a mid- to slightly longer duration in view of this pandemic-created uncertainty. So it’s a mix of that. And of course, we want to make sure that we have sufficient working capital financing available so that growth resumes as normally as we can. And that does not — financing does not become a constraint in our process of growing back again. So those are the major objectives.

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Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division – Assistant VP [6]

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Got it, sir. And my last question is with respect to the composition of your order book among commercial real estate, industrial, if you can give a breakup?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [7]

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Commercial real estate at this point of time should be — the terminology, commercial real estate also has to be understood. It is good that you raised this question. We don’t look at it as commercial real estate, per se. So we have to look at — within commercial real estate, I don’t think, for example, health care is impacted at all. It is the offices, malls, hotels. These are the segments which people may postpone execution or sell the project or maybe under liquidity crisis, so which we are conscious of. We are evaluating the individual credit risk profile. Even if they say execute, we are not executing unless we satisfy ourselves that there is liquidity, this project is going to happen.

In that context, the buildings that are potentially impacted, as I mentioned to you, offices, hotels, malls, that kind all put together in our order book, in the segment for both Electro-Mechanical Projects as well as Packaged Air Conditioning may be around 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. But here, again, our exercise is not complete for a simple reason. As you can imagine, they will be the last one in that particular project. The civil — if at all, there will be some interior that will be pending there.

So there are customers who are saying complete this project. Quite a few such projects are there, including a very large [ROTE]. We are — we may end up executing it provided there is no credit risk. So roughly around 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} on the total impacted segment spending order book. But within that 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, we are — we cannot say all are not going to happen. This is where we are.

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Operator [8]

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The next question is from the line of Renjith Sivaram from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division – Assistant VP [9]

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Sir, I just wanted to understand this new Atmanirbhar theme which the government is trying to play. So what percentage of our imports are from China? And we know that China has scale and that gives cost advantages. So when we move that to India, logically, the cost should increase and that will impact our margins unless until we pass on the price hike. So how do you see this? And what is the solution for this? What is your strategy to address this issue?

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Neeraj Basur, Blue Star Limited – CFO [10]

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So this answer what I’m giving is meant for you and many others who have the same question. So number one is that I am part of the high-power committee which is engaged with the government or the difficulty of this [backup]. Point number two is that there is a phased manufacturing program, which is announced under Atmanirbhar Bharat. Number three, Atmanirbhar Bharat is, as of now, just a nomenclature, right? There is nothing called the program under which one all will be done. There is nothing. There are — there is misconception of development on Atmanirbhar Bharat. There will be some subsidy. There will be a new industrial policy. There will be blah, blah, blah. There is nothing like that as of now. But it is very clear that there are certain sectors which are prioritized under Atmanirbhar Bharat. Air conditioners, furniture, leather, shoes, these 4 are prioritized under that, which when Superior Goyal himself chairs in chalking out the road map and the way ahead for this.

Now next one I wanted to correct is it has got nothing to do with the China. It does not do with every import. It is not China alone. Now the government went ahead with non-tariff barriers. Long ago, Atmanirbhar Bharat was announced. It is only (inaudible) expedited that. Otherwise, a couple of years ago, the program to introduce a non-tariff barrier called a quality control order or a QCO was introduced by which the Bureau of Indian Standards will define the standards and the testing procedures and clear every component or a finished good that is coming from any country. And of course, when they say any country, they are targeting China in this, okay?

Now therefore, a couple of years ago, Blue Star’s own risk management framework called for reducing dependence on imports, particularly China, okay? And we had a target to reduce it to a level of 15{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, including the components, okay, by 2023. But we are expediting that, okay? Now in this finished goods, our dependence has been not strategic in nature. It is practical, depending on the volume of a particular SKU. For example, we have about 134 SKUs in room air conditioners. We will go ahead and select some SKUs which are not worthwhile to manufacture here by us or by any third party within India. We may end up importing. And so therefore, finished goods, we do not have any problem whatsoever just in case under Atmanirbhar Bharat program other than the non-tariff barrier or quality control order of BIS. If there a likelihood that import license will be introduced, there is a likelihood that custom duty may be enhanced. These — keeping this in mind, we have mitigated our full complete unit, anything getting imported. Unless until it is a small quantity, it doesn’t have any weightage or material in nature in terms of our revenue generation or profitability.

The key point is under Atmanirbhar Bharat, they want all the components to be manufactured here. That is what the discussions are going on. Now that is a level playing field. Any player in India, whether it’s a Japanese or Korean or an American, all of them get their components, including Japanese get their components only from China. Koreans get it from their Chinese factory.

Now India doesn’t have scale for compressors or motors or drives. And copper, this is called the inner grooved copper tube or certain material, okay, like aluminum or zinc. The details are being worked out because it is level play field. It will not impact Blue Star alone. It will impact the entire industry.

What is the agreement that we have come to is, one, if there is an Indian manufacturer, we do not mind buying from that Indian manufacturer. Two, they should allow Chinese manufacturers to set up here because their costs are lower, they have already committed investments, like for example, world’s largest computer manufacturer known as GMCC, he has set up a facility here. So he could not complete the commissioning to encourage Japanese — sorry, Chinese direct investment if it is going to take place here. Similarly, drives (inaudible) what we call Megmeet. So Megmeet also is ready with their factory.

So the third point we are saying is that, look, go ahead and grow the market. Then only they will be competitive in terms of components. Otherwise, all of us are going to incur more costs in terms of components. And in the process, the customer will end up paying more.

So the government has notified. You all might have seen the draft of that. They draft phased manufacturing programs similar to that of mobile phones, where we will have for a 5-year period, the custom duty will go up for this product as the indigenization efforts will increase.

Simultaneously, with many Indian parties who have potential interest in manufacturing components, discussions are on. There, we are committing quantities to them, all manufacturers. We are providing them all the details so that they can go ahead and set up. The government is enabling that. Say, for example, aluminum (inaudible) for heat exchangers. Hindalco is called by the government. So the industry players have explained to them what we need. Say for example, the TVS Group company is being talked to for setting up, promote especially with their manufacturing facilities, so on and so forth.

Finished goods, we have absolutely no problems. In components, it is a level playing field. The government has fully understood this program. They know every aspect of it. And therefore, it is being done systematically.

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Renjith Sivaram, ICICI Securities Limited, Research Division – Assistant VP [11]

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Okay. Second question is how do you see the growth of room AC this year. This is my second question.

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Operator [12]

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(Operator Instructions)

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [13]

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No. I can answer the question. As I told you that room air conditioners alone is already reaching in terms of revenue around 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of last year level in Q2. I expect in Q3 to touch 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Very likely, Q4, it should come back to last year level.

But as far as the industry is concerned, it is possible, if March, there are no more infections, we are behind the COVID-19. In that case, even we can look at 5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} market growth. So the revenue generation part is going on smoothly in that business.

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Operator [14]

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The next question is from the line of Ankur Sharma from HDFC Life Insurance.

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Ankur Sharma, [15]

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So my questions are again on the room air conditioner industry. So in your opening remarks, you mentioned that the industry shrunk by about 65{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in Q1. All I was trying to understand was how would the north versus the southern regions have fared given the fact that the lockdowns were in April? And then — which is, again, April and maybe beginning even which are the bigger seasons for the South. But then even you had a relatively better selling time, right, all the way till June for the northern markets. So would it be fair to assume that the southern parts would have been worse off both in terms of absolute volumes and also in terms of inventory at this point versus the northern parts…

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [16]

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Good question. I understood the question. It is — the very first signs of showrooms opening in South was in the May last week. And that too, it is alternate day, limited hours like that. By then, Kerala market had — the summer season was over. Southern region was over. Little bit of Andhra Pradesh was there. But again, Andhra Pradesh also had quite a few restrictions. It is fair to assume that predominantly the sales came from northern region and western region. Even Gujarat and Maharashtra did reasonably well during that period. Not Mumbai, our country, Maharashtra.

So in the month of June, the overall recovery was to the extent of 77{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} — sorry, 71{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, out of which the North would have seen something like 85{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in the month of June.

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Ankur Sharma, [17]

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Got it. And it’s fair to assume that inventory levels also would be slightly better off on the northern side versus the south? Is that correct?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [18]

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I do not know about the industry. As far as we are concerned, what you are saying is true. It is southern regions, inventory level is high, relatively. But as I told you, the real issue is not inventory this time. Unfortunately, the industry players did not anticipate.

My assessment is as follows: I don’t think industry or even Blue Star anticipated 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} recovery — recovery to 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in June or 77{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in July. Therefore, the price levels have dropped. That is the problem. Inventory is not an issue at all.

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Ankur Sharma, [19]

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Sure. Sure. Sir, on the pricing front, so despite inventory not being an issue, you’re saying that it still is a problem?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [20]

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Yes. Because if the market has collapsed, everyone would like to see their revenue recurring and convert whatever is inventory is there into cash. The price levels are dropping. That is — you need to react, right? So across the board, the price levels, we are witnessing a drop in the order of around 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 12{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

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Ankur Sharma, [21]

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Okay. Okay. That’s helpful. And sir, my second question on the project side also. How is the labor availability? How is the execution? I think you said about 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of sites were open, if I remember the number correctly.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [22]

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In Q1.

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Ankur Sharma, [23]

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In Q1, of course.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [24]

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In Q2, it will be up to around 25{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in Q2. The — I will give you a picture. That is pre-year to lockdown. All put together, we would have had around 10,500 people and around 150 very active sites operating. And right now, it is reduced to something like 50 sites, and — which would have operated with around 3,500 people. But what — we are having today somewhere around 1,500, which is at a 50{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} level. It is not only due to nonavailability of labor because we wanted to make sure there is safety out there. In the sense, the number of people who will work in the same place is restricted, so on and so forth.

And — but our other revenue pressure is, I wouldn’t blame it on the labor availability alone. It is to do with the credit risk profile of the customers. We are very clear unless until they are going to pay for the work done or settle the payments that are due, we won’t mobilize a particular site at all. In that business, our interest is not market share also. It is — cash profit is our interest.

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Operator [25]

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The next question is from the line of Nitin Arora from Axis Mutual Fund.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [26]

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Just continuing — one question I had on this, the theme which you were talking about. So let’s say — so compressors, sir, as you rightly said, the scale and, say, even GMCC and Haier there and the balance sheet they have, they can really expand.

But coming to ODU and IDU, given whatever the domestic EMS company we have in India, they themselves are so much dependent on the supply chain abroad. But if the PLI scheme comes in, let’s say, for an IDU or an ODU, supposedly IDU should be more because that we import a lot. As a brand, would you be interested in applying in that PLI scheme? Do you think taking advantage of that PLI scheme can really help in getting some exports or can really lower the cost for the domestic market? Is there something on that level?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [27]

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Yes. Number one is that the ODUs we do, we do not depend on China at all. As far as IDUs are concerned, we have been importing from China and — some parts, but our indigenization program started here before itself. I anticipate this year, we would have completed most of the indigenization of IDUs.

Now I’m not very sure government is thinking of any incentives for IDU manufacturing. There is nothing. Actually, this is one of the things — see, under phased manufacturing program, they are not providing any incentive. All that they are saying is, “I keep increasing the custom duty every year. So go ahead and indigenize.” That’s all the thing is. The government has not committed any kind of an incentive for anything. They are forewarning in the industry, “I am going to stop — I’m going to make it difficult for you to import over a 5-year period. If you want indigenous, go ahead and indigenize.”

So therefore, all we are saying is it is fine. We are supposed to create our value chain. It is perfectly fine. But the factory (inaudible) in Indian market is some 7 million. And 110 million of China, obviously, they will be competitive. So therefore, if you increase the duty, they will reduce the price because they have excess capacity out there, correct?

Now the — there are — fundamentally, I have a different philosophy. Let us say I want to — I feel like eating pizza. I have to make it at home. And I am buying all the ingredients. I’m investing my time with all that. The total cost of it come to INR 400, whereas by a phone call, I can get it at INR 100. I should not be stuck on hot meal or burned pizza, right?

So therefore, the question is that what is good for the country as we’ve done, then do it. By all means, go head and indigenize. And what is the — why I will indigenize IDUs? Number one, I — we figured out that I am able to make it despite the small volume of Indian market and our own market share by designing it in some way. So there has to be an innovation against scale. If you want to compete, only innovation can help. So we did that. We did the same for our 300-liter deep freezer. We did the same for VRF, as you’re all aware. So it can come only through innovation. For that, I have to invest into R&D. So we — including hiring experts like Japanese into our system or Chinese into our system to design it. That’s where the difference can make.

So all that we are requesting government is under Atmanirbhar Bharat, please provide incentives for R&D. Without R&D, you cannot become globally competitive. That is point number one.

Point number two, we are saying is that, look, go ahead and grow the domestic market. So at least for 5-star or 4-star air traditioners, go ahead and make the GST 18{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, then the domestic market will grow. Then you can go ahead and ensure you’re globally competitive.

So your self-reliant India should come together along with global competitiveness, not pinching the pockets of Indian consumers, right? That is where we are. So these discussions are well understood by Honorable Minister (inaudible). So therefore, it is going on smoothly.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [28]

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And sir, lastly, if that is the case and you’re in-sourcing IDU supply chain, in the longer run, if I look at the higher component — because the component and the whole IDU is still highly imported. In the longer run, as a company, does it make sense today in-house what you’re doing? Or do you think I have to depend on a domestic vendor who can get me the IDU done and then I’ll buy from him? What will you do?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [29]

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It depends on case to case. For example, number one I’m going to make clear is Blue Star is not going to get into all components. We will — for the foreseeable future, we are not interested in manufacturing compressors. We are not going to manufacture motors. We are not going to manufacture drive in-house. So whether the IP of the drive is ours, we will get it manufactured by a third party, either in India or any other country. And it will — in India, the supply chain is available now. Motor, again, we are going and asking anybody can go ahead and develop. We will provide all the cooperation. We commit our quantities to them.

And coming to IDUs, the real reason for us is this kind of answer would be right. This year, it was lockdown. A couple of years ago, summer, if you are dependent on China, you end up committing the quantities in December itself and your supply chain month-on-month. So you can’t do any kind of a correction out there. So it helps you in inventory management to the extent of even just in time.

So therefore, IDU, yes. ODU, we have already. Drives, we will go — we have our own IP and we will go ahead and get it manufactured. Today, we might get it done by Indian vendor as well as Chinese vendor. Tomorrow, it may move to entire Indian vendor.

The motors, we have Indian vendor. We have a vendor from China. We have to help the government to crack this problem. Then otherwise, all manufacturers will end up increasing the price of the unit by procuring motors at a higher price. We are bringing that handle to it, that you cannot pinch the customer’s pocket and then call it make in India.

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Operator [30]

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The next question is from the line of Amber Singhania from Asian Market Securities.

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Amber Singhania, Asian Markets Securities Private Limited, Research Division – Senior Analyst [31]

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Just 2 small question. One, if you can give some color on the quantum of provision you have taken in Segment I and the quantum of demurrage and detention in Segment II?

And secondly, when we are saying that Water Purifier business, we are seeing a breakeven even this year. So would it be fair to assume that the margin compromise, which we have done earlier of 1{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} or 1.5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} during the launch of this product, will come back to the Segment II from next year onwards?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [32]

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Yes. It was — I’m taking the last question first. It was 1.5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} year before last, that is FY ’19. FY ’20, it came down to 0.6{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Now it will be nil. In fact, last year, it should have been nil had March gone on well. So your reading is right. It is no longer a burden for us now. The focus should be to grow the market share from 2.5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 3.5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} like that. So that is the last part.

Provisions we have taken is to the order of around INR 15 crores. Basically, we are concerned about, if anything, if some projects are delayed beyond — some of the segments won’t be settled and all. Proactively, it has been done as we had done in Q4. The — your question on the demurrages. It is — INR 8 crores is the demurrage in Segment II.

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Amber Singhania, Asian Markets Securities Private Limited, Research Division – Senior Analyst [33]

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Okay. Sir, any further provision…

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [34]

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It is demurrage and retention charges of containers all put together.

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Amber Singhania, Asian Markets Securities Private Limited, Research Division – Senior Analyst [35]

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And any further provision or demurrage is there to be built in subsequent quarters on the year?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [36]

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Demurrages, apparently not because we — it’s all clear. The lockdown period, one can clear. This is again one absurd announcement by the government that the demurrages will not be charged, but then there are nobody. It’s not government that’s charging demurrages. It’s by third party who has taken the lease or a container lease. So he is not going to waive it. That is where the entire industry suffered.

But as far as the Electro-Mechanical Projects are concerned, we think we have done adequately, but we have to wait and watch. You know the segment itself, how it moves. And we are — at this point in time, while the project sites are opening up, the speed at which the execution is supposed to happen, it is not. It is going to take a little while.

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Amber Singhania, Asian Markets Securities Private Limited, Research Division – Senior Analyst [37]

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Okay. And lastly, sir, if you can give some color on air purifier and water cooler business? That’s all.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [38]

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Deep freezer and water cooler?

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Neeraj Basur, Blue Star Limited – CFO [39]

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Air purifier.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [40]

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Air purifier and water coolers. Water cooler season is over, and there is nothing. It’s not a material thing to impact as we have a 34{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} market share. And that is not a business one should be worried.

Air purifier is disappointing that we thought due to this coronavirus, everybody will run and buy. And nothing is happening there. You can track it also in your Amazon or Flipkart sites as well. So unfortunately, air purifiers is not gaining traction. I suppose within the residence, there is no risk for people to be worried about. We can wait for the winter season. Weather pollution will be there and it will be. But as I have been saying, the whole market size is not even to INR 50 crores, so there is nothing we should be concerned about.

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Operator [41]

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The next question is from the line of Charanjit Singh from DSP Mutual Fund.

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Charanjit Singh, [42]

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Sir, can just help us understand on this inventory part in the room AC space? Because by the end of March, everybody was worried in terms of the supply side from China, so there was a huge inventory buildup in the industry. And then we lost in 1 month, 1.5 months of sales. So we are now talking about only 1 month of extra inventory, whereas we have been earlier having 2 to 3 months of extra inventory. So if you can just tell us like what is the level of inventory in the channel? And what is the level of inventory at your end? And if it is only 1 month of inventory, then why there’s a 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 12{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of price cut? And when was this price cut actually initiated in the market on the room AC space?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [43]

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This will be — I’m talking for Blue Star now. The question is that you know from March, last 10 days, production didn’t take place at all. April production didn’t take place. So therefore, in fact, the room air conditioner factor started sometime in June, second week only. So therefore, there is no additional material being produced is one reason.

Second reason is, if you recollect, you might have seen my own TV interviews. What was the concern in February and March? Weather, summer season, there will be shortage of material. So we set up a boardroom. We were following up with China to dispatch as much as possible, but China could not also produce. So we were worried that there is going to be a shortage. So it’s a God-given situation where the material we’re not getting despite in that quantity in the month of February or in the first half of March, okay?

When the lockdown was announced, we ended up canceling quite a few orders and rescheduling it to second half, okay? So therefore, the inventory pressure — it is not that I’m saying there is no inventory pressure. It is there. More — 30 days more inventory is available in the system than it is required. And it comes with its own mismatch and other stuff. So therefore, it was managed in that respect. That’s about all.

And we never anticipated that — see, when you begin selling in the counters, you don’t know how June is going to be, correct? And therefore, everybody rushes to the stores and the dealers tell, “I already have material. How do I sell it?” And in that context, the prices started dropping.

And again, when June was over, for the month of July, we are disclosing deals. July stood at 77{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of last year. We have told in the beginning of July, now the summer is gone, if nothing will get sold and we were worried that there will be some last opportunity. And the industry, we have like on energy pricing — we are not a price leader, you know that. We are expensive. We can only react to what is happening in the market, and that is our way.

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Charanjit Singh, [44]

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And sir, on the commercial refrigeration, if you can highlight how is the market right now? What’s the kind of dip in the volume that you would have seen? And going forward, how we see this market picking up?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [45]

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We are very optimistic about that part of the business, and we saw in July a huge recovery. Though the first quarter was pretty bad because of both water coolers as well as deep freezers. The deep freezer segment is driven by ice cream. And as you are all aware, ice cream was not classified as essential goods. And therefore, while the milk and butter, cheese was getting distributed, ice cream was not. And to add to that, people consuming ice cream also substantially dropped because of the fear of cold, cough, et cetera, et cetera. So the ice cream industry had collapsed. Now ice cream, going forward, would have revived in August, September, October with the marriage season. But you know what — how the marriages are going to be conducted with 50 people or so. Therefore, it is not going to revive. We feel it will revive only in Q3 as far as deep freezers are concerned.

Now with the workforce not being there in full swing in the factories and the health concerns, water cooler also should not be seeing anything till Q3. But processed food, vaccines, pharmaceutical, these sectors have been supporting the growth. And therefore, I think going by what has happened in the month of July and quite a few significant orders that have come in, the — most importantly, the food delivery segment for cold storages or deep freezers, these things should be better.

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Operator [46]

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The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

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Bhavin B. Vithlani, SBI Funds Management Private Limited – Senior Analyst [47]

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I have 3 questions. First is on the cost side. We have seen 40{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} lower employee cost and 50{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} lower other expenses. What part of this is sustainable, and what part of it will come back as the volume comes back? That’s the first question.

The second question is if you can give us any color on the energy rating change that was expected in 2021? What are the new time lines that the industry is expecting?

The third question is if you can give us a color on the cash flow from the operating activities? And how should one expect for the year as a whole? These are my questions.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [48]

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So the first question is about the cost. See, the employee cost has, whether it is a fixed pay, variable pay and the headcount, new recruitment, that is controlled. It is sustainable for the full financial year. I cannot state beyond that. We expect the full recovery in Q4. And therefore, that is not a very permanent one in nature. That will form part of almost 40{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the total cost, okay, for the full year.

Now the other costs are variable in nature, right? Let’s say, for example, the warehousing, logistics, even, I would say, advertising. Depending on the market demand in the situation, we will end up advertising. Right now, we are on a campaign on water purifiers with immunity protection. Festival season, we will end up advertising air conditioners, specifically with the COVID-deactivating filter. So therefore, that expense is dependent on the market recovery.

What I can indicate to you is out of the total reduction, somewhere around 50{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} will be sustainable. Balance 50{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} will depend on the volume. And — but they all should note that the — while the employee and other expenses have been managed well proactively, finance costs, we have a higher burden at this point of time.

And last question you asked is with regard to year-end, what we are seeing. Neeraj can answer that in terms of borrowings.

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Neeraj Basur, Blue Star Limited – CFO [49]

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Sure. So Bhavin, cash flow from operating activities is a high-priority item on our radar. And as Mr. Thiagarajan explained, even in the project business, the reason we are prioritizing cash flow growth is with that objective in mind. So as we speak, we expect the inventory to get progressively liquidated, and that will release operating cash flows into the system. We are doing reasonably well on collecting money from our customers. So we are not seeing a stress buildup over there. So we are taking very prudent steps on that count as well. And we are using a significant part of our free cash flow to ensure that we catch back on the overdues that we’ve had on some suppliers, which will also be done pretty much within the month of August.

Thereafter, we will start applying our operating cash flows to reduce the level of our gross borrowings so that by the end of the year, our target is to reach to a level of net borrowings anywhere in the range of INR 350 crores to INR 400 crores. So that’s what we’re trying to achieve. And the operating cash flows will play a major role in helping us achieve that.

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Bhavin B. Vithlani, SBI Funds Management Private Limited – Senior Analyst [50]

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Sure. The question on the energy rating change?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [51]

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Energy level change should have taken place from 1st January 2021. That is getting postponed. It is very likely that it is from 1st July 2021. So we are telling this summer, inventory management will become difficult. So take it to next year. The dialogue is on.

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Operator [52]

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The next question is from the line of Bhoomika Nair from IDFC.

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Bhoomika Nair, IDFC Securities Limited, Research Division – Security Analyst [53]

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Sir, just wanted to understand, you spoke about the phased manufacturing program for the component part of it. Sir, so part of this is there was to not be a reduction by the Chinese vendors. What kind of increase of in-component cost would be there if import duties were to be levied over the next 5 years?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [54]

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I do not know at all how — see, first clarity that is important is all the Chinese manufacturers, as I mentioned to you, when the QCO was introduced, which is quality control order, and they saw the Japanese market penetration is achieved. And now India is a growing market with only 7{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} penetration, started investing in India. GMCC, Midea, Haier, their investment plans are huge. If I’m not mistaken, even Gree was evaluating their options when to enter, how to enter.

The first clarity that has to come is what is going to happen to those investments. I don’t think we should be preventing direct investment if it is — if they are going to follow the law, if they are going to generate employment, if they are going to bring down the cost. That clarity is important.

Now if you are going to be in the phased manufacturing program, custom duty component is going up year after year. Chinese can bring down the price year after year, in which case there won’t be any impact at all.

The problem I told you is the — a, I do not think there will be a compressor manufacturer who will be competitive in India on his own, impossible. They cannot match the Chinese prices. Second, do you have any other country which can give you — I had explained this, I think, in the last call or in some TV interview. We have — for these reasons, we have Chinese vendor. We have vendor from Spain. We have vendor from France. But those guys are importing the components from China. So getting from — even United States will be — he will depend on China. It is so very well connected, and dependency is very high on China. The crankshaft of a compressor, that goes from China. And ironically, we have some electronics coming from Japan. And during this period, we find that Japan is not able to deliver because he is dependent on China for the chips.

So this program is a 5-year one in order to actually understand and move forward. But my own personal opinion is if a Chinese manufacturer is going to invest in India and manufacture, not assemble, fully manufacture, we should encourage them to do so. At the end of the day, the affordability of the consumer is important. Our own domestic market growth is important.

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Bhoomika Nair, IDFC Securities Limited, Research Division – Security Analyst [55]

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Got it. Sir, my second question is on E&P segment. You said that we will be more cautious in terms of where the cash visibility is there. Where do you see that kind of stabilizing? And how quickly do you see the scale-up there? And do you see further provisions that you — like you made in the current quarter? I think you mentioned INR 15 crore provision in the current quarter that you made.

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [56]

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So the future provisions, we don’t as of now. I mean the question is it is not that we know we won’t provide for. Let’s say, for example, if we know another INR 10 crores to be provided for, we would have provided for now, right? That’s the principle Blue Star follows. What we know, we will provide for. And in this particular case, it is not even — we anticipate this much of damage would be there. That’s what we have done. So we have to keep assessing as we move forward.

Now when it will stabilize? I really do not know at all. Like, there are some countries in [signal] that I told you. In Bangalore, we are doing a very large project there. There is a hotel and mall. The customer says go out and complete it. We thought, for example, that project will not happen for next 1 year. And we are executing 3 airports, like Bangalore, Chennai and Delhi. And we thought now airports will go slow, but there is a huge pressure to expedite these jobs.

Now you ask when it will scale up. I don’t think we are interested in scaling up at all. Our interest is profitable growth with high cash flow. If the risks are very high in that business, so therefore, we are selective. And our focus continues to be good projects with good cash flow, high-quality execution and in buildings. Our focus is — factories and industry. Our focus is infra projects where the funding is assured through JICA or any other Asian Development Bank or whatever is, like metro railway, airports and other things. So we are not focused on how to scale up that business. That — it is not, I guess, especially at this juncture. Perhaps next year, we will review how fast to scale up.

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Operator [57]

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The next question is from the line of Sandeep Tulsiyan from JM Financial.

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Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division – Senior Research Analyst [58]

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Sir, my first question is on a comment that you had made in the previous call that the price gap between Blue Star and the more affordable ACs is reducing gradually and the company is okay to sacrifice some margins to come in that affordable product range. So where are you on that journey? Have we further cut prices? And has that gap reduced further from, say, last 2 to 3 quarters to 1Q?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [59]

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Yes. So one, you’re right, actually. The strategic initiative in order to make Blue Star products in that affordable premium category, we had plans to do around 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of our products to come in that range. Our product launch in January addressed that, okay? Now that program continues. Except to that, that 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} we think is not good enough. We should move to 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} level. So that is — that clarifies that, okay, basically because when it was 65{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the sales coming from Tier 3, 4, 5, we anticipate it will be more than 75{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} because the rural and other Tier 3, 4 towns seem to be growing faster even during June, July. So that is — therefore, we need to enhance that range.

Second is this is a moving target. So we assume that this price will go on, but the market forces have — had forced the prices to come down further, as I told you during this period. But I believe it is ephemeral in nature. So it should come back, the price realization, once the situation normalizes because I don’t think everybody will be interested in making loss and running the business or reducing their profits.

Having said that, we are conscious of the fact that the future growth in our B2C portfolio is going to be driven by middle class and Tier 3, 4, 5 towns. In B2B products, it is going to be driven by MSMEs than the large industrial or corporate customers. That is making us to invest more time, energy, efforts into product optimization without compromising on our image as a superior product and solution provider.

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Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division – Senior Research Analyst [60]

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And sir, second question, sorry, I had on the e-commerce side. You did mention it is about 12{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of your overall sales now. In terms of market share, are you better off on e-commerce versus your offline sales on results? That’s number one. And secondly, how does it fare in terms of profitability because a lot of channel costs are not existing in the e-commerce space?

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B. Thiagarajan, Blue Star Limited – MD & Executive Director [61]

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So by — I think this is a wrong period to be passing a judgment on e-commerce. I’m not saying that e-commerce will not grow. It’s sort of a different insight I’m giving you. The — because the dealers had higher inventory and e-commerce had also nonessential sales prohibited. And when they were permitted to sell non-essentials, like air conditioners, retail put objection. If you recollect, it was stopped again and then they restarted so that they have a level playing field.

In this particular period, June-July, we saw there is not a big price difference between e-commerce and the regular channels. So therefore, it may be a wrong period to be judging. Next one is only this week, big sale is happening. So during the past 3, 4 months, we didn’t witness any sale events of e-commerce, which pushes up the volumes heavily.

Now market share of ours in e-commerce is lower than outside (inaudible). For example, the industry share of e-commerce in Q1 was 17{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. And our sales, out of 100 we sold, only 12 is sold. If the industry sold 100, 17 was through e-commerce. So you can imagine our market share is not in line with the industry share. So therefore, that is by design because we will not compete in a particular price bracket.

Now what is our way forward? Our way forward is we would like our share in e-commerce to be equivalent to that of industry. That is our goal. And that is not by compromising the margins. That is by developing products which will be able to compete.

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Operator [62]

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(Operator Instructions) We will be taking this as the last question. I now hand the conference over to the management for closing comments.

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Neeraj Basur, Blue Star Limited – CFO [63]

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Thank you very much, ladies and gentlemen. With this, we conclude this quarter’s earnings call. Do feel free to revert to us in case any of your questions were not fully answered, and we will be happy to provide you additional details by e-mail or in person. Thank you very much, and have a good day.

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Operator [64]

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Thank you. Ladies and gentlemen, on behalf of Blue Star Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

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