Blue Star Limited (500067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Blue Star Limited's Q2 and H1 FY '22 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 would now like to 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 you and your families are healthy and are safe. Today, I will be providing you an overview of the results of Blue Star Limited for the quarter and half-year ended September 30, 2021. First, let me talk about the financial highlights. The quarter commenced on a strong note with extended summer in the northern parts of the country. There was healthy demand and robust volume growth for room air conditioners and refrigeration products compared to Q2 FY '21, with the ebbing of the second wave of the pandemic and the consequent easing of restrictions and improvement in consumer sentiment. Commercial, manufacturing and other institutional segments also revived. Most importantly, the collections were healthy, resulting in substantial reduction in borrowings. However, escalation in commodity prices, logistics cost and INR depreciation resulted in margin pressure. Financial highlights for the quarter-ended September 30, 2021 on a consolidated basis are now being summarized by me. Revenue from operations for Q2 FY '22 grew 37.4% to INR 1239.74 crores as compared to INR 902.12 crores in Q2 FY '21. EBITDA excluding other income and finance income for Q2 FY '22 was INR 70.70 crores, EBITDA margin 5.7% of revenue, as compared to INR 55.08 crores, EBITDA margin 6.1% of revenue in Q2 FY '21 due to the impact of increase in the input cost coupled with the rollback of cuts in discretionary spend. Profit before tax grew 107.9% to INR 47.44 crores in Q2 FY '22 as compared to INR 22.82 crores in Q2 FY '21. Tax expense for Q2 FY '22 was INR 15.99 crores as compared to INR 7.42 crores in Q2 FY '21. Effective tax rate for Q2 FY '22 was 33.9% as against 33% for Q2 FY '21. Net profit for Q2 FY '22 grew by 104.2% to INR 31.45 crores as compared to INR 15.40 crores in Q2 FY '21. Carried forward order book as of September 30, 2021 grew by 5.5% to INR 3,185.91 crores as compared to INR 3,019.57 crores as on September 30, 2020. Capital employed reduced to INR 938.14 crores as on September 30, 2021 as compared to INR 1,124.27 crores as on September 30, 2020, on account of continued focus on working capital efficiencies. Prudent working capital management enabled us to end the quarter with a net borrowing of INR 44.34 crores. This is debt equity ratio of 0.05 as compared to a net borrowing of INR 344.06 crores as of September 30, 2020, which was debt equity ratio of 0.44. I will now cover business highlights for our 3 business segments for Q2 FY '22. First, Segment 1, Electro-Mechanical Projects and Commercial Air Conditioning Systems. Our Segment 1 revenue grew 33.8% to INR 723.40 crores in Q2 FY '22 as compared to INR 540.83 crores in Q2 FY '21. Segment result was INR 46.54 crores, 6.4% of revenue, in Q2 FY '22 as against profit of INR 34.41 crores, 6.4% of revenue, in Q2 FY '21. Order inflow for the quarter grew by 3.5% to INR 709.13 crores as compared to INR 684.91 crores in Q2 FY '21. Our Electro-Mechanical Projects business, overall pace of execution of projects and order finalizations improved as compared to the previous quarter. Order inflows from the factories and light industrial sector continued to be encouraging and are expected to offer significant opportunities in the coming months. The inflow of orders from the commercial buildings and infrastructure sector is beginning to pick up. We will continue to focus on opportunities in the infrastructure sector, such as metro railways, electrical substations and water distribution in sectors such as factories, data centers and warehousing, which are expected to throw good opportunities in the medium term. Carried forward order book of the Electro-Mechanical Projects business was INR 2,240 crores as on September 30, 2021 as compared to INR 2,070 crores as on September 30, 2020, a growth of 8.2%. Major orders received by us during the quarter were from L&W Construction, Embassy Realty and [ Max Square ]. Commercial Air Conditioning Systems, we continued to gain traction in the health care, pharma, industrial and government customer segments, coupled with early signs of recovery in key segments, namely retail, IT and educational institutions, enabled a good growth for the Commercial Air Conditioning business during the quarter. We continued to maintain our number one position in ducted air conditioning, second position in VRS and third in the chiller product categories. Major orders back in Q2 FY '22 were from Late Meenatai Thackeray COVID Hospital, NMMC; Bharatiya Reserve Bank Note Mudran, Mysore; NTPC; Reliance Retail; ONGC; and ISRO. Sriharikota. Our international business, the faster recovery in the Middle Eastern markets enabled a strong growth in revenue during the quarter. Demand for both air conditioning and refrigeration solutions improved across SAARC and the Middle-East markets. The ongoing Dubai Expo 2020 and the just concluded IPL and the ongoing T20 Cricket World Cup offer good opportunities during the quarter in the UAE. The projects business in Qatar continued to do well with a pickup in order inflows and execution of projects. The operations at the joint venture at Malaysia continue to be impacted during the quarter due to lockdown restrictions imposed there on resurgence of COVID-19. We continue to explore new markets for business opportunities and expanded our export business to Tanzania. I will now talk about Segment 2, Unitary Products. Segment 2 revenue grew 42.7% to INR 454.71 crores in Q2 FY '22 as compared to INR 318.65 crores in Q2 FY '21. Segment result was INR 23.26 crores, which was 5.1% of revenue as -- in Q2 FY '22 as compared to INR 11.73 crores, which was 3.7% of revenue in Q2 FY '21. Cooling and Purification Products business, despite extended monsoon, our revenue grew 35% over Q2 FY '21, in line with the market. We maintained a market share of 13%. Upgradation of residencies and the revival in the light commercial sectors are driving the demand. As in the past, Tier 3, 4 and 5 markets constitute more than 60% of our revenue. Our reach-in product portfolio for addressing the middle of the market is helping us to compete effectively. We have further consolidated our position in the e-commerce space. Dealer network expansion in Northern India is on track. We have applied for PLI benefit for sheet metal components and heat exchangers. Blue Star Climate Tech Limited, the wholly owned subsidiary, has commenced construction of a new factory for room air conditioners at Sri City, and the same is expected to get commissioned by October 2022. Due to the unprecedented increase in the commodity prices and logistics costs, we implemented price increase of 3% effective September 1, 2021. Our Commercial Refrigeration business, pickup in consumption in the commercial food segment coupled with continued traction for the medical and supermarket refrigeration equipment enabled a growth in revenue for the Commercial Refrigeration business during the quarter. Additionally, demand for storage water coolers and bottled water dispensers have also picked up due to the partial reopening of educational institutions and commercial establishments. During the quarter, we launched new variants in storage water coolers and angular glass top freezers, which offer better product visibility and merchandising. We continue to maintain our leadership position in deep freezers, storage water coolers and modular cold rooms. The new deep freezer plant at Wada shall commence commercial production from January 2022. Major orders were backed by us from Reliance Retail, ITC Fortune Hotel, SRL Limited, Omega Systems and Zydus Cadila. Segment 3, Professional Electronics and Industrial Systems; our Segment 3 revenue grew by 44.5% to INR 61.63 crores in Q2 FY '22 as compared to INR 42.64 crores in Q2 FY '21. Segment result is lower at INR 9.83 crores, which was 16% of revenue in Q2 FY '22 as compared to INR 8.15 crores which was 19.1% of revenue in Q2 FY '21 due to product mix changes. Revenue for the quarter grew on the back of a few high large value orders received in the data security solutions, non-destructive testing and our health care business. The Data Security Solutions business continued to do well, led by various digitization initiatives in the BFSI sector. The testing machines business is also witnessing growth with the revival of investments in the manufacturing sector. Major orders were backed from State Bank of India, Federal Bank, HDFC Bank, Bharat Electronics, Jio platform to name a few. With a wide portfolio of products and solutions forming part of our offerings, the prospects for this business segment continue to be positive. With the business environment returning to near normalcy and the upcoming festival -- festive season, the demand for our products and services is expected to be robust. We believe that with the acceleration of the vaccination drive, the impact of the third wave, if any, shall be minimal. With the revenue reaching pre-COVID levels in the second quarter, we expect the growth momentum to continue through Q3 and Q4, leading up to the next summer season. The pricing corrections will continue depending on the input costs and at the same time, product cost rationalization through value engineering and alternate designs as well as operating cost reductions will be undertaken to counter the margin pressures. With that, ladies and gentlemen, I'm done with the opening remarks. I would like to now pass it 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. Thank you.

[Operator Instructions] The first question is from the line of Bhoomika Nair from DAM Capital.

Congratulations on a good set of numbers in a challenging environment. Yes, sir. Sir, just wanted to understand on the margin profile for both E&P and Cooling, both have seen almost a near normal reversion given the lean period for cooling products and E&P back to the historical 6%, 6.5% kind of margin profile. So I just wanted to understand, with the kind of raw material increase for UCPL, is this 3% price hike that you've taken in the month of September good enough to kind of come back to our 8% kind of normalized level of margin on an annual basis as we move ahead or will the industry need to take a further price hike? Also if you can talk about other players, if they have also taken price hikes as well.

Yes, Bhoomika, good questions. Now, see, these are 2 things. Firstly, of course, there is these headwinds around raw materials and other input cost increases, which everyone has been facing now for the last few quarters and particularly the last couple of quarters. So as a consequence, of course, these price increases that we have taken ever since January of this year, we've been regularly introducing price increases across most of our business segments, has to a very large extent helped us absorb the impact of the input price cost increases. Also bear in mind, we have rolled back substantially the discretionary cost cuts which were introduced last year. So, the numbers that you have seen are after pretty much -- an example I'd like to give is on the employee cost because you'll remember, last year, we had to -- we had undertaken employee cost rationalization because of the ongoing COVID issues at that point in time. Those have been rolled back. So the cost -- the operating cost is at a normalized level. The -- of course the input cost, we are facing headwinds, which have been, to a large extent, been utilized as an account of these price increases. Now as far as future position goes, we continue to watch the emerging trends on the input cost situation. And if needed, we will consider further price increases as may be appropriate. Of course, we have to watch the market very closely. We have to see how the situation plays out. Our understanding is most of the players have also taken and effected price increases. So, this is an evolving situation. But of course, like I mentioned, we will consider further actions in the quarters that will unfold as the situation requires.

Okay. Sir, and would it be fair to say that there would have been some low-cost inventory because there was inventory of the summer season, which was still there with us? These could have also helped a little bit in terms of the margin profile in the current quarter?

Well, the inventory wasn't a very substantial buffer to that extent. While yes, to some extent, end of quarter 1 we had inventory which was a little higher than normal, but nothing compared with where we were last year, and I'm talking industry as a whole as well and of course our own situation. And you'll remember, we mentioned in the last earnings call, pretty much in quarter 2 the inventory to the extent we had some extra buffer has got fully liquidated out and we are at normal levels already. So, that advantage probably would have been there for the first month or so of the quarter, maybe first 45 days, but no longer now. So, we are now having inventory which is pretty normalized -- at a normalized level now.

The next question is from the line of Ravi Swaminathan from Spark Capital. [Operator Instructions]

My first question is with respect to the Projects business. So we had talked about good traction returning back in infrastructure projects like airport, metros, even data centers, et cetera. So, can you quantify to us in terms of, say, either in terms of big pipeline compared to, say, last year or, say, previous year as to how that would have moved -- would it have seen a substantial increase, if you can give some clarity on that, it would be great.

Yes, thanks Ravi. So Ravi, I'll just read out that section again. So, our -- the order book that we carry forward as far as the segment is concerned, I'm talking about the Projects business only, we have an order book of around INR 2,200 crores end of September this year and last year same time we had about INR 2,000 crores. Now, that's one data point. The other data point is our order inflow for the quarter, roughly we got about INR 700 crores of orders as compared to INR 680 crores last year. So pretty much, we are maintaining our traction. Now, bear in mind that we are still coming out, the market is still coming out of these lockdowns, specifically impacting some of our customers. And therefore, what we have been mentioning to all of you is that our focus on -- our greater focus on light industrial sector, on infrastructure such as metro rail, electric substations, factories, data centers, warehousing, health care, these are the customer segments which we find the traction is revising quite encouragingly. We are still looking at the traditional customer segments such as commercial real estate and privately funded infrastructure projects a bit carefully because that's where the overall impact of COVID and the dynamic cost disruption probably will continue. And also equally, the hospitality and the -- some of the associated sectors. So, the order book looks good. The traction is normal, I would say, in the context of the scale of disruption that we have all been through. And from here on, we think we'll be -- we continue to remain optimistic in terms of adding newer customers as the economy continues to revise further, which will help this particular category continue to register the good growth you've seen so far. So, that's how we are looking at this segment.

Okay. But my question -- second derivative question is, so will the orders from the infrastructure projects like metro, airport and data center, will it be enough to commentate or more than compensate for the softness in the commercial real estate space, so...

Yes, to some extent -- to a very large extent, even in the past for last few quarters, we have seen that trend. So for example -- I'll give you a couple of examples here. So the light industrial sector, now it is on account of this private CapEx on the factories, the PLI or the focus on this Make in India policy, which is kind of creating this entire urgency or requirement to invest in the manufacturing CapEx. So, that's a good development which we can really see is happening. Similarly, the focus on government infrastructure continues. So, whether it is privatization of airports, metro rail, those projects continue to get tendered reasonably frequently. And the expansion of the digital footprint which has got accelerated in the last 2 years has resulted in increased demand of data centers and also equally the expansion of e-commerce is causing an increase in the warehousing space as well. And all these are good customer segments for us to consider in terms of our own expansion and growth opportunities, and that's exactly what we've been focusing on.

Got it, sir. My second question is with respect to the Cooling Products business. Past 6 to 9 months, what would have been the absolute price increase that we would have taken? Would it be in the 10% to 12% range? And the kind of revenue run rate that we are doing currently for the full year for air coolers, air purifiers and water purifiers, and if you can talk about the profitability of these individual products to an extent, that would be great.

So I mean, we've been -- yes, see, we have taken price increases ever since January this year little bit, you can say, roughly ranges from 12% to 14%, and we've taken it in installments. We [indiscernible] over the last 3 or 4 installments we took in that unitary cooling products segment. So that covers both the room ACs as well as our commercial refrigeration products. And like I mentioned, the price increases were necessitated to partially offset the impact of the input cost headwinds. That's been taken. And as far as the profitability is concerned, we talked about it in our last earnings call as well. We expect to come back to our desired profitability margin profile of 8% to 9% by the time we reach Q4. The financial year as a whole, as you can imagine, because of Q1 will continue to be impacted, but then we are not too much worried about that. We feel by the time we come to Q4, our normal margin profile in this segment will start looking better and more encouraging.

And the air cooler, air purifier, water purifier, sorry, I didn't see run rate -- revenue run rate at which we are going now.

So we usually tell you about the segment as a whole. We currently do not dissect the segment into various product categories.

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

Just one question from my side on the kind of spend we are doing in the North market for the UCP segment and the kind of hirings and deals as we are making there. Can you tell us when saw the improvement in the North market in your latest results, how has been the response of our consumer to our products, especially in the new ranges what we have launched. And if you can throw some light how the channel is responding and taking stocking up your new product range, especially in the North market.

Yes. Thanks, Nitin. So yes, it's been quite encouraging and we've been working on the northern market, as you're aware, for the last couple of years now, a little over a couple of years actually. So it was a mix -- it has been a mix of a couple of initiatives, a few initiatives. One is of course expansion of the channel, both expanding and deepening our presence. So, that's been one initiative. The other is of course -- and that results in better engagement and deeper connect with the channel partners. And the second one to complement this initiative has been to offer a product portfolio, which we have launched now for the last almost a year, which is targeting the belly of the market in terms of the price points as well as the quality perspective, which we are calling the mass premium range of products. Combined impact of these initiatives has been encouraging. And as we speak, our north -- of our overall sales, North and South are now equal at around 35% each, and then followed by first West and followed by East. So, that's how the pecking order is. And you will recollect that till about few years ago, North used to be relatively lower than South and the rest of the regions, which has now picked up. So the answer to your question is relative to the efforts undertaken by us. And I wouldn't say as much spend of -- our spends are incidental. It's the overall effort that we've undertaken to supplement and grow our northern markets has -- is beginning to show good result and is paying off, is how I will put it across.

Because -- I was asking this question because when we launched in previous season which got bad because of the COVID, we got quite different category of products coming into North and then the COVID came. So this season, you feel that some market share movement even can happen for us in the North market this time?

So well, our product portfolio is not crafted for any specific region. Our product portfolio is almost uniformly offered across all the regions. So, there is no product portfolio level differentiation that is needed. Well, the portfolio itself is quite comprehensive and quite vast. So, it caters to the requirements of most customer segments and most customer categories in that sense. But of course, the efforts have been, like I said, a combination of expanding the channel reach -- outreach as well as getting the product portfolio to become more attractive for a larger number of customers, which is what is helping us. And not just -- not the same phenomenon is also supporting us in West as well as South.

And would you like to change your guidance on the EBIT margin of the UCP segment? I remember -- correct me if I'm wrong, 6%, 6.5% was our whole year guidance there. Would you like to change given the kind of price increase has happened or you will still wait one more quarter to look more of a stability and how this thing pans out?

Nitin, I wish I could give you some answer there. But the fact is that we are still in the middle of -- let's be more optimistic, we're still not over with the pandemic. While the work seems to be over, the pandemic has not gone away. And the import cost headwinds are still pretty strong. So, we continue to take several actions in order to manage and respond to these challenges, and that's what you see in our results. We will continue with those efforts. And yes, of course, all of us are hoping for a very normal full financial year FY '23 and get into -- we want to walk into FY '23 by the time we exit FY '22, again on a strong positive note with a greater degree of normalization, both internal as well as external as far as the environment is concerned. So, I guess this is a question we'll broach in FY '23.

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

Congratulations for a good set of numbers.

Thanks, Bhavin.

So the first question is on the Unitary cooling, so the 43% growth, if you could help us break that between what could be for the room air conditioner and the commercial ref. And the reason I'm asking is, a couple of quarters ago you mentioned that there could be a near-term bump up because of special refrigeration for the vaccination.

Yes. So Bhavin, as far as the overall situation goes, I mean both -- I mean in Segment 2, obviously the room ACs as well as the Commercial Refrigeration Products are doing, I would say, equally well for different reasons though, so in terms of that growth -- so the growth is pretty much -- you can say it is slightly better in the Commercial Refrigeration space because I've already talked about our growth of 35% over Q2 FY '21 as far as the Cooling and Purification products are concerned. Now, this is room ACs plus the other purification products that we sell. So to that extent, of course, the refrigeration products have done a little better than the room AC products. But then directionally, they are both demonstrating good and quite encouraging growth opportunities. As far as the Commercial Refrigeration products are concerned, you'll remember, we mentioned that as far as the vaccination driven demand was concerned, which started somewhere same time last year, it was quite visibly a short duration opportunity, which has worked well last financial year and parts of this financial year as well. But as you can imagine, now that the vaccination program is maturing out quite effectively across the country, we don't think that will continue to funnel any significant opportunity going forward. So, that's pretty much to the extent both infrastructure had to be created in terms of cold rooms and vaccination equipment, whatever. That part has already been -- that opportunity has already played out. But yes, as far as the Commercial Refrigeration products are concerned, we see encouraging opportunities in the supermarket space, in the medical -- meaning the health care space and the pharma space. And as the educational institutions begin to open up, as the markets are beginning to open up, of course the traditional customers for our refrigeration products will also start getting normalized. So overall, it's a very balanced situation in our UCP segment in the Unitary Product segment. And to that extent, we think that the -- directionally, the opportunities will continue to be equally encouraging for both room air conditioners and commercial refrigeration products.

That's helpful. And then the second question is, if you could just help us on the Sri City expansion, what's going to be the phase-wise capacity because we talk about a considerable expansion in terms of our installed base? And a related question is, are we also targeting exports market and if you could also just highlight about the efforts taken towards building the exports market?

Yes. So Sri City expansion, that has just got started. I mean, we just broke ground a few weeks ago in Sri City. Firstly, the project is expected to get commissioned by October 22. It will be a phased rollout, and we will start augmenting our room AC manufacturing capacities there to begin with. And then over a period of time, we will inform everyone what will be the installed capacities, which will finally come up. But then you can consider that obviously since it's a greenfield project, we will look at significantly expanding our capacities beyond what we already have in the Himachal plant. So, that's the directional sense that I wanted to provide. The -- yes, of course, over a period of time -- once we have catered to our domestic requirements, we will also consider exporting from this plant, though as of now most of our exports are focused on the central air conditioning products and related solutions. But yes, there is some market for room air conditioning products as well. But of course, our priority will be, first the domestic market as far as the homes products are concerned, and this will mostly be visible in FY '24 because by the time this plant goes live it will be the fag end of FY '23.

The next question is from the line of Anupam Gupta from IIFL Capital.

So 2 questions. Firstly, on the Unitary Products segment, if I see, the capital employed there is pretty high even, let's say, versus last quarter -- I mean in previous quarter. So is that -- firstly, what is the composition there? Is it more raw material [Technical Difficulty]

Sorry, Anupam, your voice is breaking. Can you please repeat your questions? I heard the first part. I couldn't hear the second part clearly.

Yes, so what I was asking is basically [Technical Difficulty] which we have seen even if you compare to last [Technical Difficulty].

Sorry, your voice is -- continues to break, Anupam.

Is it better? Hello?

Yes, try it one more time please, try one more time.

Mr. Gupta, please use the handset while speaking.

Yes, so what I was asking is your capital employed in the Unitary Product segment is pretty high. Is this in preparation for the raw material thing? And does it cover the disruptions which you are seeing in the freight movements for the second half?

Yes, so Segment 2 capital employed, the increase, you need to bear in mind, is on account of a couple of factors. First and foremost, you will remember we have talked about expanding our deep freezer production capacity and for that a new plant is getting commissioned in the next couple of months in Wada. So, we have incurred capital expenditure in that -- for that capacity enhancement, which is getting reflected as part of our Segment 2 capital employed. Of course, there is a little bit of inventory impact still that is left in Segment 2. And we have indeed accelerated procurement of some inventory as compared to usually we would have started procuring from there in the months of November and December, this time because of the inordinate increase in the lead times as well as disruptions that continue, specifically to the imported component space is concerned, we have stopped up some components in anticipation of production requirements for Q3 and Q4. So it's a mix of a mix of these factors. And Sri City, of course you heard me on Sri City. So the initial capital expenditure that is getting incurred on our Sri City project also will get ruled out as part of this segment capital employed.

Sure, understand. And my second question is relating to the Projects business. So the way I see it, your commentary there is really optimistic in the sense you're talking about healthy traction across segments and you've also seen recoveries in your receivables as well as your margins have trended up this quarter. So, should we read it like, let's say, in the next couple of years the growth can pick up meaningfully and you can maintain these sort of margins here with the current working capital cycle or is it too optimistic to read it that way?

So Anupam, clearly, there's a triangulation of 3 variables in that segment. In fact, in both segments but in Segment 1, it becomes a bit more profound. So, a combination of the growth and the growth opportunities coupled with what kind of margin profile we can expect to achieve for the segment taken together with the cash flows or the overall operating cash cycle, these are 3 elements that triangulate the overall balance of growth and profitability for Segment 1. So far, we have balanced it out, I would say, notwithstanding the disruption and the uncertainty that continue to prevail. We -- and we think this learning that we have got and we've been able to execute now for the last few years is helping us. And with the reopening of the market, with reopening of so many traditional customer segments which were kind of subdued for the last 5 quarters, it should only give us a little bit of additional positive push in terms of the opportunity and the landscape which we can then explore further. On the order book, you've heard me, looks quite healthy and encouraging, and we feel that as long as we continue to stay focused, very sharply focused on execution excellence as well as the fundamentals -- managing the fundamentals efficiently, I -- we see no reason why this segment -- that's the reason for the optimistic sound bites that you hear from us.

The next question is from the line of Aadesh Mehta from Motilal Oswal AMC.

Congratulations on good set of numbers. Just wanted to understand, how do you visualize your opportunity in data centers? Would you have some sense on what could -- what kind of order book would we benefit per megawatt of CapEx in data center?

Yes, so Aadesh, we are -- okay, let me talk to you about firstly the overall landscape. So 2 things are happening, there are 2 sets of factors which are playing out. First and foremost, because of regulatory reasons, the need to house and post data within India has increased substantially and you would be -- you would have read about a lot of these new articles as well. So there is, on the one side, rising from data confidentiality and security concerns a regulatory push to have -- and there are several sectors which -- customer sectors which have a need to do this. So, that's one reason why there is a good requirement that is arising. The second reason is more, I would say, connected with the way this pandemic-related resiliency has played out for a number of customer segments, which is the substantial enhancement of digitization and the digital footprint across most business processes, which companies and customers will have. So, the combination is that the requirement for data centers looks encouraging. And this is a very specialized -- from our perspective when we talk about NEP project involving data centers, it involves specialized experience and knowledge because, as you can imagine, a data center which will house -- physically house the computing hardware, servers, et cetera, will need specialized air conditioning and electrical work. And that's where our experience and past track record or the pre-qualifications we have plays a good role. I'm not sure whether I'll be able to give you a specific number here, but the overall funnel of discussions we're having or we continue to have in this space looks good. Probably by the year-end -- we do it -- once a year actually we give some sort of high-level breakup of our order book into various customer categories in our Segment 1. Probably by the year-end, we will review this again and we will consider giving some sort of a breakup for this line, if it makes sense. So, we will consider this towards the end of the year. But at this point in time, all I can share is it looks healthy, it looks encouraging, and our existing experience in this space is helping us.

And last question from my side. How do you see the demand environment right now, especially on the consumer side?

So the demand even in Q2 was good, I would say, because notwithstanding the unseasonal rains and the weather pattern seem to have become quite unpredictable, as we all see all around us. Despite that, in Q2, actually is the lowest selling quarter as far as the Commercial Refrigeration and Air Conditioning products are concerned, yet we saw good demand momentum, specifically at the beginning of the quarter. Now, part of that could be because obviously quarter 1 was impacted and there could be some spillover impact, which we will not know. But then -- so maybe we can factor that in as well. As we step into Q3, which is a festival season, we see no reason why the consumer sentiment will not be positive because obviously the -- one is -- anyway, this is a good festival season as well as the customers are witnessing more normalcy all around them. And we did experience some of this factor last year in Q3 as well. So, we remain quite hopeful that if our last year's quarter 3 experience is anything to go by, we think the customer sentiment on the demand side should be -- should remain positive.

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

Sir, just a couple of book keeping questions I had. What should be the tax rate FY '21 onwards and what will be the CapEx one should assume for this year and next year?

So Anupam, next year, we expect to migrate to the lower 115BAA tax rate of 22% plus surcharge, but the effective tax rate would be somewhat higher. So I would say, in the range of 28% to 30% is what we are anticipating because we'll be moving into the new tax rate regime. The normal CapEx of close to about INR 100 crores will continue because that's something we continue to incur in our existing plants. In addition to that, the CapEx in our Sri City project will get firmed up by Q4 for FY '23. So, we have started work. We are -- the design, et cetera, are getting finalized, so that probably we'll share with you in Q4.

Okay. And FY '22 tax rates will be full tax rate of [ 23 ]?

Yes, almost what you see in the H1, it will be at the same levels.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Neeraj Basur for closing comments.

Thank you very much, ladies and gentlemen. With this, we conclude this quarter's earning call. We offer you seasons greeting and wishing everyone the best of health and stay safe. Do feel free to revert to us in case any of your questions were not fully answered. We will be happy to provide you additional details by e-mail or in person. Thank you very much, and good-bye.

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