Blue Star Limited (500067) Earnings Call Transcript & Summary

Good afternoon, everyone. I, Rajesh Parte, Company Secretary and Compliance Officer, welcome you to the 74th Annual General Meeting of Blue Star Limited. Mr. Shailesh Haribhakti, Chairman of the company, has occupied the Chair. He has joined the meeting from our office at Bandbox House, Worli, Mumbai. Members may please note that this AGM is being held through video conference in accordance with the provisions of the Company's Act 2013 and applicable circulars issued by Ministry of Corporate Affairs, and SEBI. The facility for joining this meeting through video conferencing and other audio-visual means is being made available to the members on first come, first served basis. Members participating the AGM [ through ] video conferences shall be reckoned for the purpose of forum as per Section 103 of the Company's Act 2013. All members who have joined this meeting are by default kept on mute mode by the host to avoid any disturbance arising from background noise and ensure smooth conduct of this meeting. The company has received requests from few members to register themselves as speakers at the meeting. Once the question-and-answer session starts, the meeting moderator will announce the names of shareholders one by one, who have registered themselves as speaker shareholders. The speaker shareholders will thereafter be unmuted by the host. [Operator Instructions] In the interest of time, we would request the shareholders to limit their speech to 3 minutes. Members are requested to refer to the instructions provided in the notice for a seamless participation through video conference. In case members face any difficulty, they may reach out on the helpline numbers mentioned on the notice of the AGM. As the AGM is being held through video conference, the facility for appointment of proxies by the members was not applicable and hence the proxy register is not available for inspection. The statutory register and other documents have been made available for electronic inspection during the AGM. Members seeking to inspect such documents can send their requests to the secretarial help desk at bluestarindia.com. As the requisite quorum is -- in terms of Section 103 of the Company's Act 2013 is present, I'm calling this meeting to order. The company has received board resolutions from board corporates appointing authorized representatives under Section 113 of the Company's Act 2013 in respect of equity shares held by them. We also have Mr. Nikhil Sohoni, Group Chief Financial Officer, attending this 74th Annual General Meeting from our office at Bandbox House, Mumbai. The representatives of statutory auditors and secretarial auditors are also present in the meeting. With the unanimous consent of the directors attending the meeting, I request Mr. Vir S Advani to occupy the chair in case due to technical glitch, unavoidable circumstances, Mr. Shailesh Haribhakti, Chairman of the meeting, fails to continue with the meeting.

I agree.

I agree.

I agree.

Thank you, directors. I now request Mr. Shailesh Haribhakti, Chairman of the Board, to initiate formal proceedings of the AGM.

Thank you very much, Rajesh. Ladies and gentlemen, I, Shailesh Haribhakti, Chairman of the Board, have great pleasure in welcoming you to the 74th Annual General Meeting of Blue Star Limited. Before we start the main proceedings of the meeting, I request all the directors to introduce themselves. Vir, we start with you.

I am Vir Advani, Vice Chairman and Managing Director of Blue Star Limited. I'm also the Chairman of the Risk Management Committee. I'm attending the 74th Annual General Meeting of Blue Star Limited from my office in Bandbox House, Mumbai. Thank you.

Mr. Thiagarajan?

I am B. Thiagarajan, Managing Director of Blue Star Limited. I am the Chairman of the Corporate Social Responsibility Committee. I'm also the member of the Audit Committee as well as the Risk Management Committee. I am attending the 74th Annual General Meeting of Blue Star Limited from my office at Bandbox House, Mumbai. Thank you.

Anil Harish?

I'm Anil Harish, Independent Non-Executive Director of the company and Chairman of the Audit Committee and a member of the Risk Management Committee. I'm attending this meeting from Blue Star's office at Bandbox House, Worli, Mumbai.

Mr. Sam Balsara?

I'm Sam Balsara, Independent Director of Blue Star Limited. I'm also the Chairman of the Nomination and Remuneration Committee. I'm attending the 74th Annual General Meeting of Blue Star Limited from Blue Star office at Bandbox House, Worli.

Anita Ramachandran?

I'm Anita Ramachandran, Independent Director of Blue Star, attending this meeting from Worli. Thank you.

Arvind Singhal?

I'm Arvind Singhal, Independent Director of Blue Star Limited. I'm the Chairman of Investors Grievance and Stakeholders' Relationship Committee and a member of the Audit Committee of the company. I'm attending the 74th Annual General Meeting of Blue Star Limited from Bandbox House, Mumbai.

Dinesh Vaswani?

I'm Dinesh Vaswani. I am a member of the Nomination and Remuneration Committee. I'm attending the 74th Annual General Meeting of Blue Star from Bandbox House, Worli.

Sunaina Murthy?

I'm Sunaina Murthy, Non-Executive Director of Blue Star Limited. I'm a member of the Investor Grievance & Stakeholders Relationship Committee and the Corporate Social Responsibility Committee. I'm attending the 74th Annual General Meeting of Blue Star Limited from the Blue Star office at Bandbox House, Worli.

Rajiv Lulla?

Good afternoon. I am Rajiv Lulla, Non-Executive Director of Blue Star Limited. I'm a member of the Investor Grievance, Stakeholder Relationship Committee and the Risk Management Committee of the company. I'm attending the 74th Annual General Meeting of Blue Star Limited from the Blue Star office at Bandbox House in Worli.

Thank you. As the notice was already circulated to all the members, I take the notice convening the meeting as read. The reports of the statutory auditors and secretarial auditors do not contain any adverse qualifications, observations or comments on the functioning of your company and hence are not being read. Let me now appraise you of the performance of your company during fiscal year '22 and Q1 FY '23. Ladies and gentlemen, good afternoon. It gives me immense pleasure to extend a warm welcome to all of you to the 74th AGM of Blue Star Limited, which turns out to be the third consecutive one in the virtual world. I was hopeful that the entire Board would have an opportunity to meet all of you in person at least this year. But we thought that it is prudent to avoid a physical meeting given the fact that the infection rate continues to be high in Mumbai. The good news, of course, is that hospitalization rates and fatalities are negligible, thanks to the high vaccination rates. Therefore, the central and state governments have been operating with minimum restrictions and businesses are able to function normally. Let's look back at the year that was. As I reflect on the period since the last AGM, 6 things stand out clearly as far as your company is concerned. The company's growth accelerated every quarter and we closed fiscal '21-'22 on a high note, delivering all-time high profits. Strategic initiatives, such as the rejigging of the product portfolio to address the value of the market, the implementation of a new manufacturing footprint with backward integration and a focus on localization, implementing the total cost management program, strengthening our research and development, investing in digital initiatives, enhancing Blue Star's brand salience and building a leadership pipeline, all these progressed extremely well. And as a consequence, your company is poised to grow faster than the market in India and enter new overseas geographies such as the U.S. and Europe. Your company continued to manage cash flows exceptionally well and strengthened its balance sheet. The Board and the management believe that the Indian air conditioning and refrigeration industry is expected to witness huge growth in the next 5 years. At the same time, the CapEx cycle has set in and the construction cycle has begun. These developments will propel the growth of your company. In May 2022, the Board approved an ambitious 3-year strategic plan. The company has remained ahead of the curve in terms of its commitment to environmental, social and governance standards. As I had stated last year, Blue Star has reinvented itself once again and has emerged stronger. And I believe that with its strong fundamentals, the company will be able to overcome headwinds such as inflation, interest rate hikes and the depreciation of the Indian Rupee. I continue to remain optimistic of our Blue Star's prospects. Now let us look at the just finished quarter, Q1 FY '23. Earlier today, your Board met and approved the results for Q1 FY '23. As you are aware, the summer season was impacted in '20 and '21. This year, we witnessed a reasonably good season without any lockdown restrictions. Despite continuing supply chain disruptions, inflationary pressures and the fact that the softening of the commodity prices was benefited only in the quarters to come. Your company maintained its growth momentum and delivered impressive results for Q1 '23. This is the third consecutive quarter of good corporate performance and it sets the tone for the rest of fiscal '22-'23. Financial highlights for the quarter ended June '22 on a consolidated basis are summarized below. The revenue from operations grew to INR 1970.32 crores compared to INR 1052.04 crores in Q1 fiscal year '22. EBITDA, excluding other income and finance income for the first quarter, was INR 123.31 crores. EBITDA margin 6.3% of revenues compared to INR 42.23 crores and an EBITDA margin of 4%. In Q1 FY '22, due to the higher scale, net profit for Q1 '23 was INR 74.35 crores compared to a net profit of INR 12.71 crores in Q1 fiscal year '22. Net cash position as on June 30, 2022, was INR 81.03 crores compared to a net borrowing of INR 68.47 crores as of 30 June 2021. And the company repaid 50% of its NCD borrowings. The current forward order book as on 30th June 2022 is that a record INR 3901.48 crores in comparison with INR 3152.3 crores as on June 30, 2021. Our profitable and sustainable growth has happened through innovation. All of us must take pride in the fact that India is a fast-growing economy and that the world looks at our country not only as a huge market but as a potential destination for source. All the stakeholders, including the central and state governments, policymakers and the public and private sector enterprises are working towards accelerating India's growth, infrastructure development into ease of doing business, the introduction of production-linked incentive schemes for various sectors, entry into FTAs with several countries and investments in skill building are some of the major measures being undertaken. While much work still remains to be done, the direction is indeed encouraging. In this context, I would like to highlight the fact that there has always been a direct correlation between the sustained economic growth of the nation and its R&D spend. When countries such as the U.S.A., Germany, Japan, South Korea and China grew, their R&D investments, as a percentage of GDP, also grew. According to the data published by the UNESCO Institute of Statistics, India's R&D expenditure as a percentage of its GDP is estimated at 0.66%. Unfortunately, it has been steadily declining over the past 3 years in comparison to the corresponding figures for Japan, 3.3%; South Korea, 4.8%; Germany, 3.1%; China, 2.2%; U.S.A., 2.8%; Israel, 5%; and Taiwan 3.3%, which are much higher. Ironically, in the case of India, the government spending in R&D is much higher than that of industry. If you look at the number of full-time researchers per million population, the picture is shocking. The data available for 2017 reveals that India has 253 full-time researchers whereas Japan had 5,331; South Korea, 7,980; China, 1,307; Taiwan, 6,380; Israel, 8,342; Germany, 5,212; and U.S.A., 4,412. Even Brazil had 888 full-time researchers per million population. I would like to share one more data. While the number of nonresident patent applications filed in India was approximately 34,000, resident patent applications filed were a little over 16,000 as per the data published for 2018. The corresponding figures for Japan were 60,000 for nonresidents and 254,000 for residents. In South Korea, nonresident patents were approximately 47,000 and resident 1,63,000, while China received 1,48,000 nonresident patent applications and 13,94,000 resident applications. We can look at many other data points. But it is very clear that as a country, we have been ignoring the importance of investments in R&D. It is not just the government but it appears that industry itself did not recognize the potential of R&D and innovation. As India prepares for accelerated economic growth and aspires to position itself as a major sourcing destination for the world, there is growing consensus that substantial investments in R&D innovation are critical. Blue Star believes that there are a couple of compelling reasons why a focus on R&D and innovation is imperative. Scale, must have. There is no doubt that the domestic market is growing. But in terms of market size, India is small compared to China. For example, the domestic market for room air conditioners in India is less than 10% of China's domestic demand. This is the case with every product category. There is no doubt that the domestic demand in India will steadily grow. But in order that we compete with Chinese players in the global arena, you will agree that it is important for us to innovate and offer customized and superior solutions. We need to integrate with global supply chains. Post the pandemic, Europe and the U.S.A. are in a hurry to find partners outside China to derisk their supply chains. And this opportunity is not going to be open for a long time. Custom designing products and solutions for the export markets is a critical success factor that we need. Sustainable and green products and solutions. In terms of energy efficiency as well as global warming potential pertaining to refrigerants and insulation, the air conditioning and refrigeration industry is on a treadmill to find sustainable solutions since regulatory standards across the world are fast becoming stringent. Blue Star has always been ahead of the curve and in its pursuit to be the frontrunner, continues to invest in R&D in terms of expert resources, testing laboratories and partnerships with international agencies. Affordable products, penetration of air conditioning, both in the B2C and the B2B segments, is extremely low in India. For example, in the room air conditioners category, the household penetration is around 7%. More than 90% of the customers are first-time buyers. And the demand from Tier 3, 4 and 5 markets is approximately 65%. The growth driver is the aspirational middle-class consumer whose preference is affordable, functionally superior and reliable products supported by dependable aftersales service from a trusted brand. Therefore, products must be redesigned and also differentiate in order to address the belly of the market. Even in the B2B space, the growth potential offered by the smaller towns is huge. Keeping in mind the applications and user segments such as a shop, showroom, single-screen cinema theater or marriage hall in many smaller towns across the country, it is necessary for us to constantly innovate and introduce affordable products. Component ecosystem. India has been dependent on imported components and raw materials. And post the pandemic, supply chain disruptions and the volatility of prices as well as exchange rate fluctuations have left the company with no choice but to explore alternate vendors. It is pertinent to also note that thanks to the PLI scheme introduced by the Union Government, a new domestic component ecosystem is developing extremely fast. Simultaneously, the company has invested in certain backward integration initiatives. Without a strong R&D organization, adapting to these changes will not be possible. And finally, food security of India and the world. With its wide range of product offerings, Blue Star is a leader in commercial refrigeration and the company has the expertise and domain knowledge for the preservation and life extension of perishables, which includes fruits, vegetables, dairy, processed food, meat, poultry, fish and even flowers. India is a large producer of many fruits and vegetables but the wastage is huge due to improper post-harvest practices. Moreover, our experts are -- our exports are negligible. Even in the case of fish, India has enormous potential to grow exports. Therefore, the development of an integrated cold chain infrastructure continues to be an important focus area for the government as well as other stakeholders. Blue Star will continue to innovate and introduce cold chain solutions that are energy efficient, sustainable, dependable and affordable. We have been steadily increasing our investments in R&D and we will continue to do so. We are perhaps the largest Indian air conditioning and refrigeration player in terms of dedicated resources and investments in R&D. This also includes prototype facilities and state-of-the-art laboratories. We have 12 performance-testing laboratories and 15 reliability and simulation laboratories. 5 of our laboratories are approved and accredited by international agencies such as the American Heating and Refrigeration Institute. 8 of our laboratories are accredited by the government [ of India ]. In fact, we have just set up a large testing facility for chillers at Vada. We've also inaugurated a modern innovation center in Thane. The construction of a global R&D facility is on the anvil in Dadra. We have received 14 patents so far and 30 more are pending approval. I also take pride in the fact that 12% of our R&D engineers are women as on date and our target is to increase this number to 20% by March 2024. As Blue Star embarks on its next phase of growth, we will further strengthen the company's R&D and innovation capabilities. I would like to thank my colleagues on the Board as well as Mr. Ashok M. Advani and Mr. Suneel M. Advani, Chairman Emeriti, for their counsel. And I wish to compliment the executive management and every employee of Blue Star for delivering exceptional results in fiscal '21-'22. I'm grateful to you, dear shareholders, for your continued faith in the company. My best wishes to you all. The company had provided remote e-voting facility through NSDL to the shareholders to cast their votes electronically in respect of all businesses mentioned in the notice. The remote e-voting facility commenced on August 1, 2022, 9 a.m. IST and ended on August 3, 2022, 5 p.m. IST. Members present in this AGM through VCs or OAVM and who have not cast their vote on the resolutions through remote e-voting shall be eligible to cast their vote through e-voting system during the AGM. Members may cast their vote while simultaneously viewing the proceedings of this AGM. Please note that there will be no voting by show of hands at this AGM. Mr. Bharat Upadhyay, Partner of M/s. N.L. Bhatia & Associates, practicing company secretaries, has been appointed as the scrutinizer to scrutinize the remote e-voting process and e-voting during the AGM in a fair and transparent manner. For transacting the agenda contained in the notice, I request Mr. Rajesh Parte, Company's Secretary and Compliance Officer, to briefly explain the resolutions proposed to be passed at the AGM. Rajesh?

Yes. Thank you, Chairman. Since the remote e-voting is already concluded and many members have cast their votes, there will be no proposer or seconder for the resolutions as set out in the notice of the AGM. Item #1 of the notice relates to approval of the audited stand-alone financial segment of the company for the financial year ended March 31, 2022, along with the reports of the Board of Directors and auditors thereon and the audited consolidated financial statement of the company for the financial year ended 31 March 2022, together with the report of the auditors thereon. As stated earlier, the auditor's reports are unmodified. The resolution Item #1 of the notice is set forth for your approval as an ordinary resolution. Item #2 relates to approval of final dividend of INR 10 per equity share of INR 2 each of the company for the financial year ended March 31, 2022. The resolution and item #2 of the notice is set forth for your approval as an ordinary resolution. Item #3 relates to reappointment of Mr. Dinesh Vaswani, who retires by rotation and, being eligible, offers himself for reappointment. The resolution at Item #3 of the notice is set forth for your approval as an ordinary resolution. Item #4 relates to ratification of the remuneration of M/s. Narasimha Murthy & Company Hyderabad, Cost Accountants for the financial year ended March 31, 2022. The resolution at Item #4 of the notice is set forth for your approval as an ordinary resolution. Item #5 relates to appointment of Ms. Anita Ramachandran as an Independent Director of the company for a term of 5 consecutive years from June 13, 2022, to June 12, 2027. The resolution at Item #5 of the notice is set forth for your approval as a special resolution. In respect of Item #4 and #5 covered under special business, necessary information has been provided in the explanatory segment forming part of the notice of AGM. Approval of the members is therefore sought for the said agenda items. I now hand over the room for further proceedings to the Chairman.

Thank you, Rajesh. I now invite dear shareholders to offer comments and seek clarifications on the resolutions contained in the notice. In order to afford an opportunity to as many of you as possible, I request you to be brief and avoid repeating the questions or comments made by your earlier speakers. Shareholders are requested to mention their name and folio ID or client ID before asking their question.

Thank you, Chairman, sir. Before we start taking questions from our shareholders, a short audio-visual will be played. [Presentation]

Dear shareholders, the Chairman will now be taking your questions.

[Operator Instructions] Our first 2 speaker shareholders, Ms. Smita Shah and Mr. Bharat Shah have joined in from one device and will be speaking in succession. Over to you, Ms. Smita Shah.

[Foreign Language]

[Foreign Language]

Dear shareholders, may we request you restrict your comments or queries to a maximum of 3 minutes since we have a number of your fellow shareholders waiting to speak. Our next speaker shareholder is Mr. Bimal Kumar Agarwal.

First of all, I thank the Company Secretary and his team for a very good work they are doing. And now I'll come -- the company has reported strong revenue and profit during FY '22. Please provide the [ guardian ] for the current year and please provide the detail of CapEx spend. What is the impact of [Technical Difficulty]...

Mr. Agarwal? Have you unmuted your -- have you muted yourself by mistake? We do appear to have a connectivity issue here. So we could move on to our next speaker shareholder, Ms. Prakashini G. Shenoy. We'll come back to Mr. Agarwal, if possible, after others are through. Ms. Prakashini G. Shenoy?

Can you hear me?

Yes. Please go ahead.

I'm Prakashini Ganesh Shenoy from Bombay. Respected Honorable Chairman, Sri. Haribhakti ji, other dignitaries from the Board and my fellow shareholders. First of all, I want to welcome Mr. Rajesh Parte, our new Company Secretary. I wish him good luck and I hope he brings the brightness -- more brightness to our company. Welcome, Mr. Parte. I reviewed the annual report well in time with a colorful, informative, transparent and contains all the information as per the corporate governance. I thank, again, Mr. Parte, for this thing -- and this thing. I should not forget to thank him once again for phoning me and reminding me of today's meeting and giving me the link for the same. Thank you once again. Sri. Haribhakti, the Chairman, has given a wonderful picture about the company, its working, et cetera. So I hardly have any questions. So I'm thankful to the Board for recommending dividend for the financial year. On the outset, I congratulate the management for getting various awards. This shows the hard work and sincerity of one and all staff. I'm glad to note that the company has done outstanding work in the field of CSR activities. I have 1 or 2 questions. My first question is, what is the road map for growth to increase revenue in domestic and international market? My question #2 is, how is the company planning to digital future? My third question is, are we planning to expand the existing R&D or going to have any new R&D? If yes, please let me know the approximate cost. I wish the company good luck for a bright future and pray god that the profit of the company shall reach the peak in due course. I strongly and wholeheartedly take the proposals.

Thank you.

We move on to our next speaker shareholder, Ms. Lekha Shah.

Respected Shailesh, Board of Directors, and my fellow members. Myself Lekha Shah from Mumbai. First of all, I would like to welcome our new Company Secretary, Rajesh, on the Board. I know Company Secretary, Rajesh for a long time. I'm sure that he will add a lot of value to our company and also our Company Secretary, Rajesh, for extending very good investor services and also sending me the AGM notice well in time, which is full of knowledge, facts and figures in place. So I'm very grateful to our Company Secretary, Rajesh and Sharani. Thank you, Shailesh, for explaining well about the company. Congratulation for excellent work. I pray to god that he always shower his blessing upon you. I would thank to all the person of company for receiving awards and recognition by the various plans during the year, '21 and '22. And also, I'm very happy the company is doing very well in the field of CSR activities. Thanks for the dividend. I would like to ask few questions. My first question is, how is the expansion project at Sri City going on? My second question is, what was the market share in room air conditioners? So I would like to say I strongly support all the resolutions for today's meeting and my best wishes always to our company and its prosperity.

Thank you very much.