Blue Star Limited (500067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Blue Star Limited Q4 FY '21 and FY '21 Earnings Conference Call. We have with us today from the management, Mr. Neeraj Basur, Group Chief Financial Officer of Blue Star Limited. [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. First of all, I hope all of you and your families are safe. And all of you are taking the necessary precaution. And to begin, I wish the best of health to you and to your families. Today, I will be providing you an overview of the results of Blue Star Limited for the quarter and year ended March 2021. First, I will cover the financial highlights. With an improvement in the general business sentiment, and the early onset of summer in some parts of the country, all business segments witnessed growth as compared to Q4 levels last year. The overall business recovery for the year was satisfactory and better than expectations at the year beginning. Several cost rationalization and capital reservation measures coupled with prudent working capital management, resulted in healthy generation of cash from operations. These measures enabled the company to close FY '21 with a strong balance sheet and a healthy liquidity position. Financial highlights for the quarter ended March 30, 2021, on a consolidated basis are summarized below. Revenue from operations for Q4 FY '21 recovered 124% to INR 1,611.56 crore, as compared to INR 1,299.36 crore in Q4 FY '20. EBITDA, excluding other income and finance income, for Q4 FY '21 was INR 101.81 crore, EBITDA margin, 6.3% of revenue, as compared to INR 37.33 crore, an EBITDA margin of 2.9% of revenue in Q4 FY '20. Other income in Q4 FY '21 includes of a profit of INR 32 crores from the sale of an office property in Mumbai, which got consummated in Q4. PBT before exceptional items was INR 103.34 crore in Q4 FY '21 as compared to INR 13.08 crore in Q4 FY '20. Healthy cash from operations and improvement in working capital efficiencies, enabled a reduction of INR 282.46 crore in net borrowings in Q4 FY '21. Financial highlights for the year ended March 31, 2021, on a consolidated basis are as follows. Revenue from operations for FY '21 recovered 79.5% to INR 4,263.59 crore as compared to INR 5,360.19 crore in FY '20. EBITDA excluding other income and finance income for FY '21 was INR 239.81 crore, EBITDA margin, 5.6% of revenue, as compared to INR 282.78 crore, EBITDA margin, 5.3% of revenue in FY '20. Improvement in EBITDA margin was driven by improved profitability across businesses, coupled with cost rationalization measures. PBT before exceptional items recovered 69.1% to INR 145.15 crore in FY '21 as compared to INR 210.02 crore in FY '20. Tax expense for FY '21 was INR 47.09 crore as compared to INR 65.32 crore in FY '20. Net profit for FY '21 recovered 70.1% to INR 100.35 crore as compared to INR 143.25 crore in FY '20. Carry-forward order book as of March 31, 2021, remained almost flat at INR 2,952.42 crore as compared to INR 2,946.59 crore as on March 31, 2020. Capital employed reduced to INR 736.41 crore as on March 31, 2021, as compared to INR 948.62 crore as on December 31, 2020, and INR 951.13 crore as on March 31, 2020, because of our continued focus on enhancing our working capital efficiency. We ended the year with a net positive cash balance of INR 151.45 crore as on March '21, as compared to a net borrowing of INR 131.01 crore as of December '20. Our net borrowings were INR 155 crore as on March 31, 2020, with a debt equity ratio of 0.21, and needless to say, on March '21 this year, we have, on a net debt basis, nil debt equity ratio. Business highlights for FY '21. Segment I, Electro-Mechanical Projects and Commercial Air Conditioning Systems. Segment I revenue grew 18.1% to INR 779.96 crore in Q4 FY '21, as compared to INR 660.39 crore in Q4 FY '20. Segment result was INR 48.50 crore, 6.2% of revenue in Q4 FY '21 as against INR 3.17 crore, which was 0.5% of revenue in Q4 FY '20. Segment revenue for the year recovered 78.5% to INR 2,218.72 crore as against INR 2,826.67 crore in FY '20. Segment result was INR 106.49 crore or 4.8% of revenue in FY '21 compared to INR 120.26 crore or 4.3% of revenue in FY '20. Order inflow during the year was INR 2,244.84 crore as compared to INR 3,104.67 crore in FY '20. Electro-Mechanical Projects business. As expected, order inflows continue to be slow from the commercial building sector, which is yet to recover. Muted government expenditure also impacted order inflows in the infrastructure sector. Order inflows from the factories and light industrial sector improved as compared to last year, driven by the Make in India initiatives of the government. We continue to moderate the pace of our execution basis assessment of customer credit profile and operating cash flow visibility for the ongoing job, which enabled an improvement in margins for the business. We will continue to focus on the infrastructure sector, such as metro railway, electrical substations and water distribution, which are expected to offer immediate growth opportunities. Factories, data centers and warehousing sectors are also expected to show a good opportunity in the upcoming quarters. Carry-forward order book of Electro-Mechanical Projects business was INR 2,149 crore as on March 31, 2021, as compared to INR 2,039 crore as on March 31, 2020, a growth of 5.4%. Segment-wise breakup of the carry-forward order book of the Electro-Mechanical Projects business is as follows. I'll just cover that. You'll get it in a tableau form when you see the release. So in our office, IT and non-IT segment, our share was 29%; metro rail, 22%; hospitals, 9%; industrial, 9%; power generation and distribution, 6%; malls, 4%; others, which includes segments such as airports, hotels, education institutions, was 21%. I will now talk about our Commercial Air Conditioning Systems. Our Commercial Air Conditioning business registered a growth of 19% during the quarter. While order inflows from key sectors, such as IT, offices, marriage halls, and auditorium continues to be dormant, we channeled the focus on the emerging sectors such as health care, pharma and light industrial. We continue to maintain our #1 position in ducted air conditioning, #2 in VRF and #3 in solar product categories. We added new large capacity models and high discharge system for residential use to our VRF product range and have now completely indigenized this product category. Major orders bagged in Q4 FY '21 were from builder payments in Nagpur, a new super mart at Vijayawada, then Surat, ISRO Bangalore, Flextronics Chennai, Gujarat Biotechnology, Ahmedabad and West Coast Pharmaceuticals, Ahmedabad. Our international business. Normalization of business activities enabled a growth in revenue during the quarter. We witnessed improvement -- improved demand for both air conditioning and refrigeration products across SAARC and ASEAN markets with channels stocking up for the upcoming summer sales. The upcoming Expo 2020 at Dubai and the FIFA Tournament at Qatar are expected to offer growth opportunities. The macroeconomic environment in the region is expected to improve driven by the establishment of trade relations between Israel and UAE and the towering of ties between Qatar and the GCC countries. The project business at Qatar and Malaysia continues to be impacted owing to COVID. While the subsidiary at Qatar received some notable orders towards the end of the year, that will get built during FY '22. Order inflow and the pace of execution, the joint venture at Malaysia continues to be slow due to macroeconomic instability. We continue to focus on the expansion of the Blue Star product range and building brand awareness and brand visibility in different markets that we are presenting. I will now talk about Segment II, Unitary Products. Segment II revenue, which recovered 84.5% in Q2 FY '21 and 117.3% in Q3 FY '21, continue to improve its recovery trajectory and grew 31.1% to INR 781.81 crore in Q4 FY '21 as compared to INR 596.28 crore in Q4 FY '20. Segment result was INR 62.06 crore, 7.9% of revenue in Q4 FY '21, as compared to INR 43.75 crore, which was 7.3% of revenue in Q4 FY '20. Revenue for the year recovered 81.2% to INR 1,868.28 crore in FY '21 as against INR 2,300.61 crore in FY '20. Segment result was INR 108.82 crore or 5.8% of revenue in FY '21 as compared to INR 162.27 crore, which was 7.1% of revenue in FY '20. Due to unprecedented increase in the raw material costs, including steel, copper and ABS plastics, as well as ocean freight, the prices were increased between 5% and 8% for various SKUs with effect from January 1, 2021. Cooling and Purifications Product business. Stocking of inventory by channel ahead of the peak selling season, improved share of billing from the e-commerce channel and a general business sentiment improvement enabled growth in revenue for the room air conditioner business in Q4 FY '21 as compared to Q4 FY '20. The room air conditioner market grew by 27%. We grew by 33% and expect to have improved our market share to 13.25% in Q4 FY '21. Other products such as water purifier, air purifiers and air coolers are performing well, in line with our clients, and we continue to gain market share. We achieved a market share of 3% in water purifier with a major share of billings to e-commerce players. Having reached a breakeven level, water purifiers will be an e-commerce-centric product portfolio going forward. Commercial Refrigeration business. Our Commercial Refrigeration business witnessed good traction across all product categories during the quarter. Improvement in demand across all customer segments coupled with aggressive stocking by the channel, enabled a growth in revenue during Q4 FY '21 as compared to Q4 FY '20. In addition to continued demand from the health care, pharma and food processing and food delivery segments, order inflows also improved from restaurants and the government sector. With the launch of a new range of pharma cold rooms, medical freezers, ice-lined refrigerators and vaccine transporters, we offer an end-to-end solution for vaccine distribution. Our products have been well accepted by the government, vaccine manufacturers and private distributors. We continue to be the market leader in the health care and pharmaceutical sector. We continue to also witness healthy growth for our supermarket refrigeration equipment driven by the growth in the retail sector. With the launch of our super coolers, we now also have a complete range of visi coolers, enabling us to gain momentum in this segment as well. Major orders were bagged in Q4 FY '21 from Dr. Reddy's Lab, Apollo Hospitals, [indiscernible], REBEL Foods, Swiggy, Reliance Retail, et cetera, to name a few. Segment III, Professional Electronics and Industrial Systems. Segment III revenue grew by 16.6% to INR 49.79 crore in Q4 FY '21 as compared to INR 42.69 crore in Q4 FY '20. Segment result was INR 7.22 crore, 14.5% of revenue in Q4 FY '21 as compared to INR 7.50 crore, 17.6% of revenue in Q4 FY '20. Segment revenue for the year recovered by 75.8% to INR 176.59 crore as against INR 232.91 crore in FY '20. Segment results was INR 33.81 crore, 19.1% of revenue as compared to -- in FY '21 as compared to INR 54.34 crore, 23.3% of revenue in FY '20. Revenue and profitability was higher in FY '20 on account of few large value orders in the Data Security Solutions business. Revenue of this segment continues to be driven by opportunities from the BFSI sector for the Data Security Solutions business, order inflows from the healthcare sector and orders from the essential services of the government sector. Major orders were bagged in Q4 FY '21 from FIS Payment Solutions and Services, Navodaya Education Trust, GeoPlatform, [ Asian Dev ] Bank, ICICI Bank, et cetera, to name a few. With a wide portfolio of products and solutions forming part of our offerings, the prospects for this business segment are positive. Business outlook. Robust business recovery witnessed in the second half of the financial year enabled us to end the year with a strong quarter. In the Electro-Mechanical Projects business, we continue to prioritize our project execution based on assessment of customer credit profile and operating cash flow visibility. The government's focus on localization under the Atmanirbhar Bharat program has brought in good opportunities for the company in the manufacturing sector. We have strengthened our product portfolio under all categories in room air conditioners and commercial refrigeration. Digitization and health care initiatives continue to offer good prospects for the Professional Electronics and Industrial Systems segment. However, the sustenance of this growth momentum has been challenged by the second wave of the pandemic. The restrictions similar to lockdown of varying degrees in many parts of the country since the middle of April 2021 might impact the planned growth -- planned revenue growth for April and May. We are focused on maximizing the revenue in the markets which are open and at the same time, moderating the inventory levels and operating costs. As on date, our factories at Himachal Pradesh, in Dadra and Ahmedabad are operational. And the Wada plant is operational for executing export orders and domestic pharma and health care contracts. With the experience gained in the previous year, our focus continues to be on keeping our employees, dealers and business associates safe, fulfilling emergency needs of our customers, building resiliency and operating agility. As in the past, we are confident of sustaining the sales in a prudent and balanced manner and continue our growth and expansion trajectory. With that, ladies and gentlemen, I am done with the opening remarks. I would like to now pass the call back to the moderator, who will open the floor to your questions. I will try and answer as many questions as I can. To the extent I'm unable to, we will get back to you via e-mail. With that, we are now open for your questions.

[Operator Instructions] The first question is from the line of Lavina from Jefferies.

Congrats on a good set of results. Just 2 questions. Firstly, on the air conditioner market, how are you viewing the impact of this localized state-wide lockdown? Do you think it will be very material? Or how -- and how are you viewing the channel inventory levels in that context? Secondly, sir, you said, I mean, this quarter has been hit by competitive pressures. Do you see this easing off? Or do you see this continuing in the course of the year?

Yes. All right. So the 2 questions you've asked, Lavina. Now of course, till about second week of April, around 10th April, you can say, the market as well as the overall business prospects were quite normal as we can expect them to be normal during the summer season. So it is only probably towards the middle of April, things started to a little bit get shaken up because of the lockdown-wide restrictions, which many states and many cities have imposed thereafter in varying -- for a varying period of time. So at this point in time, we are just taking one step at a time. So the overall impact in the month of April appears to be around 20% if you compare our overall performance, what happened in the April of financial year '19/'20. And even as compared to our plans, which will be impacted by around 20%. The month of May, of course, is still just starting and depending on how different states choose to relax some of these restrictions, we will get to know. But we'd like to say, of course, there is going to be an impact in Q1, which, of course, was not anticipated again. And to that extent, we have to continue to moderate, modify as well as change our tactical initiatives, pretty much like what we did last year and respond to the change in circumstances. You asked a question around inventory. At this point in time, the inventory levels are pretty normal. Because keep in mind, we've had a very, very good March, the month of March was quite good. And half of April or first 10 days of April were also good. So we don't expect the inventory levels by the time we end the quarter to be significantly higher than the normal level. It does depend on how quickly things start to normalize to a reasonable level. But again, we have to wait and watch. And like we said last year, we have put into place the post correction measures to ensure that we are rebalancing our production requirements in line with the growth trajectory that is now becoming visible. As far as competitive position is concerned, of course, the intensity of competitiveness does not reduce that is also compounded by or has been compounded by the increase in input costs, raw material costs, I talked about increasing ocean freight cost as well. Now those are competitive pressures, we have to, again, continue to respond to. And like I said, we took some price increases and to some extent, whatever the market has been ready to absorb, we have taken those core correction measures, and we will again continue to respond as the situation unfolds on the competitive intensity as well.

Next question is from the line of Ravi Swaminathan from Spark Capital.

My first question is, I had missed a number of the order inflow for the EMP segment for the full year, if you can do the numbers, sir?

Yes. Just 1 second, Ravi. So I'll give you the order book position for the EMP. So overall, carry-forward order book is close to -- carry-forward order book is INR 2,149 crore as of March 31, 2021. Order inflow during the year was INR 2,244 crore as compared to [ INR 3,104 crore ]. Last year, of course, we got some large orders from metro rail. So that's the reason why last year was a bit higher. But it has been pretty encouraging even in FY '21 as far order inflows are concerned.

Got it, sir. Got it. Got it. And at the company level for the quarter, the gross margins have taken a sharp correction. But we have taken a 5% to 7% price increase at the UCP level. So do we see gross margins correcting back to older levels in the subsequent quarters because of this price increase? Or do we need more price increases to compensate for the fall in gross margin?

Yes, I talked about there are the figure for gross margin pressure in Q4 is practically the -- primarily the unprecedented increase in input cost, increases on that side, actually started somewhere in November, December and then intensified in Q4. So we did some post correction. So like I mentioned, we took a price increase ranging from 5% to 8% in Q4. That has been partially already incorporated in the overall revenue that we got. We have taken a further price correction in April, which ranges from 3% to 5%, which is now getting rolled out depending on how the market opens up. So the overall impact will be there for some more time. And of course, we are hoping that some of the commodity price -- prices should start cooling off as the market normalizes. So it is just really wait and watch. And we have done whatever course correction within the acceptable limits we could implement on the pricing front.

Got it. And my next question is with respect to other costs, it has fallen by 20% year-on-year. I mean throughout the year, it has been -- it has seen a decline compared to the top line. How much of it is the contribution to ad spend being cut, promotion sales and promotions being cut and any other costs which are getting cut? So how much is -- to be precise, how much is ad spent in sales and promotion as a percentage of sales this year vis-a-vis last year? And how is it likely to pan out?

So I'll keep it at an overall level, so the other costs includes the entire SG&A. And that, as far as you've seen our overall -- around 36% promotion and marketing is just 1 element of it. So you remember, we have been talking about some pretty incisive cost rationalization measures that we started implementing in April last year itself. Across all our cost lines, right from, of course, line items such as travel, which naturally reduced. Even rentals, we went back and renegotiated with all our warehouse owners and office premises, then, of course, the selling expenses to the extent they had to be rationalized. So there's entire rationalizations across the board. Now how much of it will sustain in FY '22? We are still working out that visibility. Some of it will because the external environment is still not conducive to normal business activity. For example, activities such as a product launch, which is now happening in a virtual environment, it is likely to continue for some more time. So some part of our operating cost reduction that we achieved last year will -- or should continue, but part of it will come back as business starts to normalize. So it is across a number of lines.

[Operator Instructions] The next question is from the line of Mr. Nitin Arora from Axis Mutual Fund.

So question is, if you look at in the UCP segment, the other business apart from the AC, how that has responded in the last 1.5, 2 months’ time of -- rather put a 1-month time of this lockdown, if you can throw some light? And going forward, we were trying to localize few products in this particular category. So when is the time line? I think there's 1 plant which is about to get commissioned in terms of local indigenization and all. So if you can throw some light on that? And as well as on the MEP has there been a less impact because construction is allowed in Q1 versus the other segments where you're saying the impact is more? Those are the 2 questions.

All right. Yes. So I did talk about the non -- you may see products that are comprised into this product segment, which is largely a commercial refrigeration range of products. Now as far as the Commercial Refrigeration business is concerned, we have actually -- I mean, we continue to see some many encouraging response across the customer categories that we serve, right, from health care, pharma, food processing to delivery segment. Though the usual customer segments, which this particular product category serve, which is the ice cream manufacturers, for example, continues to be under a bit of a challenge. So even restaurants. So this -- we also sell quite a few of our products to restaurants and some government sector as well. But there has been a good uptake from the pharma, health care and the supermarkets. And we have now a complete range of refrigeration products, which serve the needs of all of these customers across these segments. Then I also talked about the entire cold room, the pharma cold room and the medical freezers, which are very specialized equipment, which are now in great demand because of the ongoing situation. Also, we also launched last year, a complete range of new ice lined refrigerators which are now needed for transporting vaccines and also vaccine transporters. So the -- so while it may be a slightly short duration opportunity like we said last year and overall, maybe over the next few quarters that might get fulfilled. But at this point in time, pharma, health care sectors do seem to be encouraging. And of course, as the second wave starts to evolve and the overall situation starts to normalize, we expect the traditional customers in our commercial refrigeration segment should also start to regain their growth trajectory, and that will reflect on our numbers as well. So this is as far as the commercial refrigeration is concerned. Of course, this we also have water coolers and water purifiers in the UCP segment, which are -- and I'd like to mention water purifiers, that we consciously and strategically, we have made these e-commerce distribution play. And it's working well because, again, in the current environment, e-commerce in any products which are more suitable for an e-commerce distribution have a good prospect as far as the market potential is concerned. So that's on water purifiers. Water coolers also have been slower-than-expected in terms of their offtake because our key customers there are government institutions, educational institutions and to some extent of course those segments are yet to recover fully. So other than the room ACs, we have a range of non-unitary products, which are included in this particular segments, which are showing some promising results. Now you talked about MEP. As far as the MEP projects are concerned, see, there are 2 sides to our MEP projects. One part we've been talking about relatively consistently, which is our decisions to take on a new order and continue to fulfill the servicing obligations is being closely linked with the overall credit profile and operating cash flow visibility on these projects. So that continues. That is not changing regardless of how the external environment is playing out across different regions of the country. The other part is, to the extent we have seen some many encouraging response from light industrial data centers as well as the warehouses -- e-commerce warehouses. So there's some good work opportunities and of course, infra sector as far as the government infra projects are concerned. So that -- the impact so far on construction is not as profound as it was last year. Because last year, if you remember, there was also an added issue around migration on the labor force, which did impact to some extent across some sites. And then the sites were, in fact, when the national lockdown happened last year, all the job sites were put under suspension at that point in time, which is not the case this year. So it's a bit localized. It's a bit regional, the extent of disruption is lesser so far. And like you said, I think it is likely to be more state-specific and presuming hypothetically, let's say, Maharashtra and a couple of other states which are looking a little bit more stable, assuming if they start to open up relatively faster over the next few weeks, then the normalization of our business activities in those states also will follow. So that's how we are doing a very close watch and monitoring of all the MEP job sites, which are currently going on.

And maybe just 1 more question on this commodity. I understand you said you took a price hike, you're trying to negate the cost impact. But when we look at only the commodity basket for April, I mean, it's up -- I mean this is our calculation, you can correct me, it's almost up closer to 250, 300 basis points. So this is something that you -- and I'm understanding, optically, the inventory would be higher because the stores would not be selling much. I'm not talking about the margin inventory. So once you come -- start selling even if the country starts opening up or the states starts opening up, do you think the full pricing -- passing full price would be that easy this time, considering being a seasonal product, and generally, the sentiment is a little weak, what has happened in this wave versus the last one? Maybe your input on that.

Correct. So those are good point. So keep in mind 2 things. Firstly, the inventory buildup for quarter 1, which is the selling season tactically happens, starts to take place or starts to happen in Q4 or around Q1 and for which procurement happened a couple of months ahead of that. So to some extent, whatever price increases and commodity ocean freight had to happen, which has impacted the inventory, raw material inventory, which we hold has already been taken on the inventory cost. Now, of course, we are going to moderate a little bit the production pace for the next 2 or 3 months because we have sufficient stocks to sell in the background of the current disruption. On top of that, if you remember, I talked about a 3% to 5% price increase that we have taken additionally from 1st of April. So we are hopeful that this 3% to 5% price increase on top of a 5% to 8% increase that was taken in Q4 and the fact that in the next 3 months or so, the procurement -- the pace of procurement will also slow down. And if, let's say, in the next 3 months, the commodity prices start to cool off, then the overall pricing pressure probably will be relatively lower. But in the interim, of course, this is a challenge, and this is going to be faced by all the players where the cost of inputs definitely is one major issue to be addressed in order to protect the margins to whatever extent. But like I said, since it impacts the entire industry, there should be some calibrated actions -- at least directionally calibrated actions, the quantum may defer across payers over the next few months, which will probably help solve this situation.

The next question is from the line of Bhoomika from DAM Capital.

And congratulation on a good set of numbers. Sir, my first question is on the margins of the UCPL segment. If one looks at it, we had a very strong quarter in terms of strong revenues, whereas we -- we saw higher volumes. There were price hikes, and we also had the benefit of some expenses being much lower due to the cost rationalization. So in that sense, the margins, to some extent, seem a bit low [Technical Difficulty] and was there a mix issue or something else that prohibited the kind of an improvement in the margin profile? That's my first question.

Sorry, there seems to be some interruption in the network.

Yes, sir. You can hear me?

There was a little bit of -- unless the network at mine was an issue. Can you just in brief if you can please repeat your question, please?

Yes, sir. Sir, I was asking about the margins for the UCPL segment, where there was -- we saw a fairly strong quarter in terms of revenues with higher volumes, price hikes, et cetera. And on the other side, we saw cost of other expenses and employees, et cetera, being much lower. But despite that, margins have not really seen an improvement. So where do we see the trajectory of margins in the next couple of quarters or in the foreseeable future when things normalize. When do we see them hitting an 8%, 9% to 10% kind of a level?

So Bhoomika, I mean, if you look at 2 successive quarters, now we are almost having around 8% margin in this particular segment. So I think Q3 was 7.9%. Q2 was also in the same way in a similar range. So we are holding a margin profile of around 8%, which is pretty much what we were hoping for, which is after counterbalancing the impact. So while you're right that the operating cost elements are lower, but at the same time, the overall increase in the raw material cost has been also of a huge order. So this margin profile of 8% that you see after absorbing all the price, the cost of raw material input cost increase and ocean freight increases. So we are not planning at this point in time too much down for the future of many quarters at this point in time. But clearly, we would like to -- we would want to maintain this kind of a margin profile. And hold on to it, and that's the reason when I talked about the price increases that we have taken in Q4 and again in Q1, with an intent to neutralize the downward impact of some of the input cost increases. So this is a reality because, obviously, the disruption, the scale of disruption in the input cost is also quite high.

Got it. Sir, what would have been the impact of water purifier? And if you can talk about our CapEx plans and the PLI scheme, are we looking at investing in some components in manufacturing or any new plant, et cetera, you can talk about that? That would be my second question.

Yes. So water purifier I covered during my opening remarks. We have it around 3% market share. The segment has [indiscernible] over the last 3 years, we realized, and we feel that this particular product category will be best distributed predominantly through e-commerce, still first time we hit critical scale, the next critical scale of, say, 5% or 6% market share, which is where you will start [indiscernible] the stores, retail store format and then given, at least for next years, because e-commerce will be a natural collection for -- distribution for these products which are kind of plug-and-play. So it fits in well with that strategy. We have ensured that in FY '21 that we are reporting, but I think last quarter as well. And so now going forward, in water purifier will not be there in for a certain [indiscernible] it starts to go beyond that level and starts contributing as to the overall margin contribution. PLI, I want to talk about it a little. So we have been watching the PLI announcement quite closely. As the notification which came out at the end of the month of April, read the PLI incentive is linked for these components, unlike the initial impression that we had that will also be. It will also cover a nice [ percentage ] of the finished product. It is not intended to [indiscernible] covers components. So it still is still of great benefit because over the period of time, it will probably take a couple of years, then more and more components like electronics and some other components, which like compressors probably it will start getting factored indirectly the benefit of realizing of getting part through to the end manufacturers as well. So as far as our own plans are concerned of expanding our manufacturing footprint in the city of Andhra Pradesh, which we talked about. At this point in time, it is going to be now more given and to the need for us to expand our capacities in line with our plans than the realized imperatives, which would have been for us to invest CapEx probably, be more accelerated for what's become applicable for us. So to that extent, our expansion plans continue. We have commenced work on preparing our plants for taking up this manufacturing facility in Sri City, which we will talk about as those plans get underway. And for the next couple of years, that facility should start operating as well. And like I said, it is now going to be calibrated with our own internal plans, not any external need. And as that happens, we will continue to focus more on indigenization, backlog integration, like ideas which we have entirely done. So there are a few more components, which are planned in the localities of Sri City, which will also be covered in that particular plant. So that strategy of increasing backward integration and individual realization we'll have in to do on a high priority product.

[Operator Instructions] The next question is from line of Anupam Gupta from IIFL Capital.

A couple of questions. Firstly, just harping on the product margin. Was there any impact of your entry into or maybe expanding into the more affordable product range in the quarter? And will that be a consideration going forward also on the margins? And yes, so this is the first question.

Yes. So Anupam, we already talk about -- we are talking about March premium. It's not as much about being affordable. So March premium because, obviously, it's clearly less about products in the context of the quality performance and the reliability that our customers are -- that will get -- that our brand is associated with. So we maintain that, yet in terms of the marketing, in terms of the price points at which the products can be offered. And as we said this was what we launched in Q4, and we got some good traction. And part of the growth is in Q4 and so because of that strategy playing out quite well. So that continues and that focus continues because that's where we believe the next wave of growth for us, which is the March [ paving ] segment. And so clearly, had it not been for, of course, the raw material cost increases, the overall margin profile of these products compare very with what we expected and historically what we have been experiencing on our margin profile. So that we don't foresee to undergo any change. Of course, the variable that leads to get under some range of is the raw material and input costs. Alternatively settling down of price increases that we have taken. So I guess we'll watch closely over the next few quarters to continue to recalibrate that entire customer segment.

Okay. Understand. And the second question is related to projects. I think as I understand, most of the projects business is fixed price in nature. So -- and despite that, 4Q margins were pretty healthy. Do you see pressures in the project margins in the first quarter and the second quarter in this year because of the high raw material? Or will you delay the execution? How will that pan out?

So you're right, the MEP projects are mostly fixed-price contracts by their very structure. However, it's a mid-term easier as far as the project business is concerned because when we bid for projects, when we do our casting, when we do our tendering. At that stage itself, we try and get some back-to-back supplier commitment for a period of time. Of course, if the projects are going to be beyond the committed time period, then that creates a price increase issue. But there is an element of price protection, procurement price protection, because that is a time that is for us when we order. Sometimes when we have a price variation as well there is [indiscernible] has been [ finished ]. So having said that, there is an element of protection, protection against a spike involved in prices, which is there in the project cost. So we really don't need to moderate the pace of our execution or anything like that.

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

And congratulations for a good set of numbers, especially infused by the speed at which the company responded in terms of new products with respect to the current situation. I have a couple of questions. One is on the commercial res. Historically, it used to be 30% of the segment. If you could speak about it? What was the growth in the full year? And what are the new products that we have introduced last year? And how has our market share change? If you could speak about the commercial res, that is very useful.

Yes. So commenting in 2 parts, Bhavin. Firstly, if the -- what we've been sharing with all of you is in the EPC segment, the overall [indiscernible].

Your voice is breaking. We're not able to hear you clearly.

Is it better?

Yes, sir. You can go ahead.

Okay. All right. So I'll just repeat the answer to Bhavin. So in the [indiscernible] predominantly, historically we have contributing to the highest share, which used to be the case in about 3 or 4 years ago. Now, as we see [indiscernible] the share of the key set of products, things as commercial refrigeration products is now around [ 40% ], this used to be about [ 30%, 35% ] a couple of years ago. So in that mix is shifting, i.e. in terms of the overall [indiscernible] products. As far as [indiscernible] are concerned, we had a complete range of cold rooms, which are [indiscernible] new requirements of the pharma sector [indiscernible] which are gearing [indiscernible].

Audio was breaking again, sir. We are not able to hear you. [Technical Difficulty]

So I don't know to what extent I was clear, so what I was saying that I'll repeat very quickly. Firstly, we are strategically shifting the proportion or the composition of non-room AC product revenue in the Unitary Products segment. So at this point in time, it stands at 40% of the total products [indiscernible]. Within the 40%, of course, the largest share is of commercial refrigeration products. And the new range of products there includes pharma cold rooms, medical freezers and an entire range of vaccine supply equipment which are offering end-to-end solutions. So we are expanding and also the supermarket -- a range of supermarket refrigeration equipment and with the advent of several of these large format, supermarket players, we are seeing some good traction in the supermarket refrigeration equipment, including visi coolers, et cetera. So we are quite bullish with what the experience we've had in the last few years. And we -- the strategic diversification of Unitary Products segment will continue to help us in a very healthy way, while we continue to achieve our desired growth rates on the room AC category. In the non-room AC category, we will also continue to see some good traction. So Bhavin, I thought that was your question. I hope I have addressed it.

Sure, yes. Just if I could ask a similar question for commercial res as well because this is a segment we have been focusing. What percentage it will be of? It used to be 30% historically. And how are we seeing growth prospects in this?

That's what I said, Bhavin. So we are not giving the line item as breakup of these -- all the products which are there in Segment II. We're just giving headline level, room AC and all other products. And all other products includes a number of other products as well, including water purifiers, water coolers, water dispensers, air purifiers, air coolers. There are a number of non-room AC products. It's a complete basket. In that basket, of course, commercial res are probably the highest contributing range. But it is -- that's how we are looking at this particular segment.

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

Sorry to harp upon on the same point of margin. Just wanted to get a color, like even if I compare Q4 FY '19 versus Q4 FY '21, there has been a sharp decline on the segment margin of [ ECL ] from [ 10.4 to 10.9 ]. Despite in FY '19, we had advertising costs. We had losses coming in from the water purifier segment. I understand the commodity prices has moved up significantly. So 2 things. One, is there anything more we are doing to maintain this margin because going forward when rising costs will come back and the commodities continues to be remain from, do we still maintain that -- we will be able to maintain this margin or there is further downside on this margin on the [ ECL ] product from here onwards? What makes us confident that we'll be able to maintain this margin on that part?

One clarification. Advertising and marketing costs has been brought back in Q4 to the levels -- to the normalized levels because the overall business was -- I would say that it is in FY '19, Q4 -- FY '19, '20 Q4 -- you're looking at FY '18/'19. So FY '18/'19 Q4, whatever would have been the relative spend on brand building as well as advertising and marketing, in proportionate terms, we are back on track as far as that is concerned because Q4 pretty much for us was a good growth quarter. So there is no reduction as far as that cost is concerned. So as you rightly said that the entire pressure on the margin is because of some very rapid increases in the overall input costs, which have hit us in the financial… [Technical Difficulty] Am I audible now? Is it clearer, better?

Yes, sir. It's much better.

My apologies for this disruption because telephone connection seems to be an issue. All right. So I'll just very quickly repeat what I had just said. So first point I made was that our advertising and marketing and brand spend, in proportionate, we are back to our FY '18/'19 levels as far as Q4 is concerned, and there's no let down there. The second point is the increase in input and raw material costs in FY '21 it has been pretty steep. We did not face that kind of a raw material pricing pressure in cost pressures in FY '18 or FY '19. The third point is we started FY '21 with inventory problem. And you'll remember that we were supposed to have taken a price increase because of -- just keep in mind, there were customs -- 2 outsets of customs duty increases in the year before in FY '20, once in September, another one in February, which we had said we will start passing on to the customers beginning April '20, which we could never do and so there was an element of price increases, which could not happen because of the disruption. There was inventory pressure, which was putting pricing pressures for at least 2, 2.5, 3 quarters. So there are many factors which are causing -- so the way the positive we are looking at it, that despite having severe headwinds through the year, from where we started the year and where we ended the year, and of course, the measures which have been taken further in Q1 this year, we think the margins will normalize. And as the market stabilizes -- this is not a normal year, end of the day. And we have to just wait for a little bit more stability in the environment to settle down. So that's 1 context of looking at the overall margin performance. I know there are very -- too many questions on margin, but this is just a snapshot where we think that coming back to 8% is a recovery which has happened because of several actions which were also undertaken during the year.

I understand. That's very helpful, Neeraj. Secondly, just wanted to understand on the import ban the government has imposed a quarter back. How do we see the scenario now panning out for us as well as for the industry? Have most of the imports have already shifted to India or still companies are exporting and importing and getting it as refilled in India as such? Both if you can get some context from our perspective as well as from the industry perspective? And just along with that, for the component on the PLI side, are we keen on applying for the license for the PCB boards and all?

So I'll very quickly cover both because now we run out of time. So as far as the question is concerned on the PLI, I already addressed because since the finished goods are not covered. So we don't think we will apply for the PLI license, but we will get indirectly benefited once the components, whoever undertakes PLI transactional components we will anyway, procure locally and source locally. That benefit will flow. That's the first question you asked on import. I'll address for us. So our own import of finished products is almost 0 over the last few quarters. So whatever is being sourced is being either manufactured by us in our own factory or we also bought some certain SKUs from Indian contract manufacturers. So that is completely taken care of.

That will be the last question. I would now like to hand the conference over to Mr. Neeraj Basur for closing comments.

Sure. Thanks very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. I can see there are quite a few questions, which we could not take up because of the lack of time. So -- but feel free to revert to us in case any of your questions were not answered, and we will provide you additional detail, e-mail or in person. In any case, we are also planning to have next week analyst calls that we are going to host, and you will hear some ag sector soon on that. So probably you may seek further clarifications during those interactions with our 2 MDs. So I invite you to join that. And again, I would like to close the call by wishing the best of health to all of you, and do stay safe and stay protected. All the best, and thank you very much. Bye.

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