Blue Star Limited (500067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Blue Star Limited Q1 FY '23 Earnings Conference Call. We have with us today from the management, Mr. B. Thiagarajan, Managing Director, Blue Star Limited; and Mr. Nikhil Sohoni, Group Chief Financial Officer, Blue Star Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. B. Thiagarajan. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen. Thank you for joining this call today. As you are aware, we had declared our Q1 FY '23 results yesterday. I thought that it is important for me to join this call as a transition. As you may recall, in May, I joined the call along with Mr. Neeraj Basur, who had resigned at that point of time. I'm pleased to inform you that Mr. Nikhil Sohoni has joined us as Group Chief Financial Officer with effect from July 1, 2022. He is on the call today. And as you may be aware, he joined us from Mahindra & Mahindra. He has over 3 decades of professional experience. He began his career in 1992 after spending his initial years with AF Ferguson & Co and Geoffrey Manners & Co. After that, he was with Mahindra & Mahindra Group from 1995. He has handled various roles there in a diverse career spanning over 27 years. Nikhil had handled finance and accounts function in corporate accounts in Mahindra & Mahindra Limited. He was Chief Financial Officer of Mahindra Navistar Automotives Limited. He was Vice President of Group Finance for the company. In his last role before joining us, Nikhil was designated as Senior Vice President, Group Finance and Group Treasury, Mahindra & Mahindra Limited. He will be reading out the opening remarks, and after that, we will be answering your questions jointly. As you may have noticed, for the third straight quarter, we have delivered good results, and it was backed by a very good summer season. The opening remark also will include the outlook. In the press release, we had given our outlook as well. As we remain optimistic for the financial year FY '23, though there are several headwinds with regard to the global recessional fears, there is inflationary fears, the -- there are issues related to global supply chain disruption, which is yet to come under control, but there are silver linings as well as the softening of commodity prices. But given the penetration rate in India for various air conditioning and refrigeration products, most importantly, we enter the last part of the value chain, as you can imagine, in a large building, the building is constructed, air conditioning comes as the last one. And we have witnessed even in the home construction, this is one of the last few items that are equipped by the owners of the home. Now we have noticed that when a slowdown happens, it takes time for us to -- time for it to hit the air conditioning and refrigeration industry. And at the same time, when there is revival also, it takes time, that's what we had experienced. So our assessment going by what is happening in the market, what is happening in terms of order finalization, even today we are very optimistic about the prospects for FY '23, of course, we have to keep watching how the market is moving. And with that, I will hand it over to Mr. Nikhil Sohoni for his opening remarks. Over to you, Nikhil.

Yes. Thank you, Mr. Thiagarajan, and good evening, ladies and gentlemen. This is Nikhil Sohoni, and it gives me immense pleasure to interact with you for the first time. I'll provide you an overview of the results of Blue Star for the quarter ended June 2022. Coming to the financial highlights, so it's always good to start on a [Technical Difficulty] after 2 consecutive summers disrupted by pandemic. This year, we witnessed a normal summer without any restrictions. The growth momentum witnessed in the quarter 4 FY '22 continued in the Q1 FY '23 with business and economic activities back to complete normalcy. Consequently, the demand for all our products and services surged as compared to Q1 FY '22 and also as compared to Q1 FY '20, which was the last comparable period. So coming on the back of the best Q4 in last couple of years for every business segment that we operate in, we are happy to inform that the performance was repeated in Q1, wherein we have outperformed every business segment as compared to Q1 of last 3 years. Coming to financial highlights for the quarter ended June 30 on a consolidated basis, following the summary, revenue from operations for Q1 FY '23 grew by 87.3% to INR 1,970.32 crores as compared to INR 1,052.04 crores in Q1 FY '22. EBITDA for Q1 FY '23 was at INR 123.31 crores, a margin of 6.3% of revenue as compared to INR 42.23 crores, margin of 4% of revenue in Q1 FY '22. So despite continued pressure on gross margin and supply chain disruptions, revenue growth, price increases and consequent scale impact, coupled with continued focus on costs enabled improvement in the EBITDA margin for the quarter. Profit before tax grew to INR 100.69 crores in Q1 FY '23 as compared to [ INR 19.23 crores ] in Q1 of FY '22. Tax expense for Q1 FY '23 was INR 26.34 crores as compared to INR 6.52 crores in Q1 of FY '22. Net profit for Q1 FY '23 [ grew INR 74.35 crores ] as compared to INR 12.71 crores in Q1 of FY '22. Carried forward order book as of June 30, '22 grew by 23.8% to INR 3,901 crores (sic) [ INR 3,901.48 crores ] compared to INR 3,052 crores (sic) [ INR 3,152.30 crores ] as of June 30, 2021. Capital employed as on June 30, '22 marginally increased to INR 1,018 crores as compared to INR 969.8 crores as compared -- as on June 30, 2021, and that was owing to capital investments for capacity expansion projects at Wada and Sri City. Higher cash from operations, coupled with a continued focus on working capital managers -- management has enabled us to end the quarter with a net cash balance of INR 81 crores as compared to a net borrowing of INR 68.47 crores on June 30, '21. The net debt equity ratio stood at [ 0.08 ]. We had raised INR 350 crores through [ issue of unsecured ] nonconvertible debentures in June 2020. That was done in order to strengthen our balance sheet with the repay vendors -- NCD at a repayment tenor of 3 years with a call option to repay 50% of the NCD in May 2022. Given our current strong cash position, even after funding our capacity expansion plans, we have redeemed NCDs to the tune of INR 175 crores in June '22. We will continue to stay focused on healthy cash flows and mitigating the impact of the cost escalations. Coming to highlights for the first quarter. Segment 1, that is Electro-Mechanical Projects and the Commercial Air Conditioning Systems, the revenue grew by 57% to INR 793.43 crores in Q1 FY '23 [ as against ] INR 505.24 crores in Q1 FY '22. Segment result was at INR 45.17 crores, that is 5.7% of revenue as against a profit of INR 20.03 crores, 4% of revenue in the corresponding Q1 of FY '22. Order inflow for the quarter more than doubled to INR 1,365.9 crores as compared to INR 650.78 crores in Q1 of last year. In the Electro-Mechanical Projects business, with the onset of the construction and CapEx cycle, order inflows from Commercial Building, Factories, data center and infrastructure such as metro railway, water distribution and power distribution sectors picked up. We received a couple of major orders from Bangalore Metro Rail Corporation worth INR 390 crores. Carried forward order book of the EMP, that is Electro-Mechanical Projects business was at a record INR 2,777 crores as on June 30, '22 as compared to INR 2,232 crores as on June 30, 2021, a growth of 24.4%. Coming to Commercial Air Conditioning Systems, a healthy flow of opportunities across all the segments that we operate in, coupled with the revival of demand from the Retail, Manufacturing, Healthcare and Entertainment segments, enabled growth for the Commercial Air Conditioning business during the quarter. We have gained market share in all product categories and continue to maintain our #1 position in conventional and inverter ducted air conditioning system, as well as scroll chillers, and second position in VRF and screw chillers. Some of the major orders received during the quarter were from Reliance Industries, L&T, Railway Freight Corridor, Laxmi Diamond, et cetera, to name a few. Coming to International business, the economic activities in the GCC region continue to be good in the backdrop of higher oil prices. Consequently, we witnessed healthy growth in inflow of inquiries. The newly entered markets of Nigeria, Bangladesh and Nepal have also responded well to the launch of our new and improved applied range of products. We have also commenced export of our deep freezers to Middle East. Order inflow grew by 9%, where revenue grew by 38% as compared to Q1 FY '22. The project business in Qatar continued to do well. The operations of the joint venture at Malaysia continue to be impacted owing to competitive pressures in the region. We will continue to focus on expansion of Blue Star product range and build brand awareness and brand visibility in different markets that we are present in. Let me now come to segment 2, that is the Unitary Products. In segment 2, revenue grew by 122.5% to INR 1,124.2 crores in Q1 FY '23 as compared to INR 505.37 crores in Q1 FY '22. Segment result was at INR 91.13 crores, that is 8.1% of revenue in Q1 FY '23 as compared to INR 21.77 crores, 4.3% of revenue in Q1 FY '22. The margin for the segment improved owing to impact of scale, coupled with price increases undertaken to partially counter the impact of increase in input costs. In Cooling and Purification Products business, we witnessed a strong demand for our room air conditioners, enabling a 163% growth in revenue from the business during the quarter compared with the corresponding previous quarter. We surpassed sales achieved in Q1 of the pre-COVID years with our new range of affordable mass premium products being valued by the market. We further strengthened our position as one of the preferred brands with first-time buyers in Tier 3, 4 and 5 markets. We grew in line with the market and maintained the market share of 13.25%. Coming to Commercial Refrigeration business. The Commercial Refrigeration business witnessed increased traction across all product categories with strong demand from ice cream, processed food and pharma segments, coupled with the growth in demand for our Supermarket Refrigeration Products from the Retail segment. We continued to maintain our leadership position in deep freezers, storage water coolers and modular cold rooms. We also launched a new range of visi coolers with a wild capacity range to suit different customer needs. We received large orders during the quarter from players like Reliance and [ Immacule Pharma ] and from several individual mushroom cultivation proprietors. Our new manufacturing facility at Wada commenced commercial production during the quarter with a new series of indigenously designed and manufactured hard top and glass top deep freezers ready to be launched in the markets. Let me now come to segment 3, which is our Professional Electronics and Industrial Systems. Segment 3 revenue grew by 27.2% to INR 52.68 crores in Q1 FY '23 as compared to INR 41.43 crores in Q1 FY '22. Segment result was INR 5.89 crores, which was 11.2% of revenue in Q1 of FY '23 as compared to INR 5.56 crores, which was 13.4% of revenue in Q1 FY '22, it's owing to the delay in execution of certain high-value orders due to shortage of semiconductors. With the increase in corporate CapEx, we witnessed growth in demand across all segments that we operate in. Order inflows from Healthcare, BFSI, Industrial, and a few government sectors enabled growth in revenue for the quarter. Revenue from Data Security Solutions business also continued to contribute to our revenue growth. Demand for the Non-Destructive Testing business also gained momentum during the quarter. Major orders were backed from HDFC Bank, Reliance Jio, Axis Bank, Grasim Industries and [indiscernible], to name a few. With a wide portfolio of contemporary products and solutions forming part of our offerings, the prospects for this business segment continue to be positive. On the business outlook, while the inquiries and order inflows continue to be good for our products and services, there will be headwinds due to inflationary pressures, weakening of Indian rupee and global recessionary concerns. Given the poor penetration in the room air conditioners and commencement of CapEx and construction cycle, we are optimistic about the prospects for the rest of the year. Further, the softening of the commodity prices and the ongoing PCM program will help us to improve our margins. 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 questions. We'll try and answer as many questions as we can. To the extent we are unable to, we'll get back to you via e-mail. With that, we are open for questions.

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

Yes. Congratulations on a good set of numbers. Sir, if you can just talk a little bit about UCPL in terms of what was the volume value growth, any price hikes taken during the quarter? Because unlike the rest of the peer set, we have seen an improvement in margins on a Q-o-Q basis. And if you can also talk about within the segment, how much is RAC and what is the contribution of the other segments like Commercial Air Conditioning, et cetera?

Thank you, Bhoomika. The first thing is that UCPL is used by one of our competitors as a subsidiary company. So as far as we are concerned, it is the segment 2, it is Cooling Unitary Products, okay? Now the -- you asked about the margin improvement and the price hike. So I maintain this. We had increased the prices in the 1st week of April. And afterwards, our position has been we will review in August. So the commodity prices also had gone up. And the -- as we had indicated, we are -- we had optimized the products from January onwards. So the mix had been changing. The optimization is to do with our decision to position room air conditioners as for the belly of the market as affordable premium range. These products were launched in January 2022. Now there had been also a total cost management program in order to optimize the costs. The net margin improvement will -- we have still a long way to go. If you compare the margins with what we enjoyed earlier prior to the pandemic or the beginning of FY '20, it had deteriorated, primarily due to the commodity prices. That's a important thing to note. Now our goal will be to further improve the margins, but at the same time, we will be looking at what is the inventory level we hold now, what is going to be the outlook for the festival season and then the commodity prices how they are going to move. So therefore, while we are happy that to an extent, we are able to manage the margins, we still have a long way to go in order to get back to the reasonable margin levels, okay? There was another explanation also I should give you that you are talking about the operating margins. So obviously, when the scale comes back, you've got the operating leverage as well. The last part of your question is connected with whether we can disclose what is the room air conditioners and the other products within segment 2. Unfortunately, it will become a selective disclosure. And so therefore, we don't want to get into that at all. And you know we are -- we do have a Commercial Refrigeration business also. And some part of Commercial Refrigeration business is to do with the International as well here in the segment 2. So therefore, I'm not -- at present, I'm not in a position to indicate what is the room air conditioner part alone within that because it will be a selective disclosure. But if you were to ask me a question in terms of margin profile, whether commercial refrigeration and room air conditioners will be distinctly different? It is not so, okay? Second indicator is, we have maintained our market share. There is no product mix change within segment 2. I hope that answers your question.

Yes, sir. That clearly helps. Sir, from the BEE rating, which has gone effective from 1st of July, what is the kind of cost increase and further incremental size hike that we'll take -- need to take purely from a BEE rating perspective?

No, we have not increased the price. See, we were all aware that from 1st July, the BEE rating will change. And what we have done is certain models were future-ready models, okay? So therefore if somebody would have bought a 5 star, it would have remained 5 star even after the energy label change. Now there is no reason to increase the price, because what will happen is, a 3 star may become 2 star, a 5 star may become 3 star, that's all will happen in the energy label change. So therefore, what was a 5 star of the earlier rating regime changes to a 3 star of this regime, that's how it can happen, okay? Now in the dealer pipeline, that 5 star of the previous year will remain as that 5 star of the -- that's about all. So there is no -- you need not implement a price increase because of the energy label change. But what can actually happen is a new 5 star conforming to new energy label standards must be costlier than the earlier one depending on the brand. The thumb rule is that each energy efficiency change could be a 10% improvement in the energy efficiency, and it will result in around 7% price increase, that's a rough thumb rule you can follow. It is in terms of cost. Price again is a factor determined by the market.

Thank you, Ms. Nair. May we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Ravi Swaminathan from Spark Capital Advisors.

We have seen very good inflows in the EMP business, that is Electro-Mechanical Projects business. So excluding the Bangalore order also, metro order also, we have seen good traction. If you can throw some light on as to are there further large orders which are there in the pipeline? So if you can, give a broad outlook as to which are the large contracts which are there, apart from the large orders, which are the sectors which are showing traction? And within the order book, how much is our exposure now towards industrial, commercial real estate, residential real estate, infrastructure, if you can give a broad breakup, it would be great, sir?

Thank you, Ravi. You are the only person who is interested in this, whether it's a television debate or investor interaction, nobody ask about the Electro-Mechanical Projects these days. So to answer your question, see, we had stated this, that look the developer-related buildings business, with the onset of the pandemic, we had said that probably it will not grow, right, because office space consumption itself was a question. Now I, in the initial key questions, I'm taking time to explain, so that rest of the people can modify their questions. That's about all, okay? So that the broad -- the theme is getting set. Now the second thing is that we have been consistently saying that there is a construction cycle on driven by infra projects. These are social infrastructure projects. That's what helps Blue Star. A core infrastructure like highway being constructed, it is not going to directly result in a MEP order for Blue Star. So there is a core infrastructure, there is a social infrastructure. The social infrastructure ones, whether it is to do with the airports, metro railway or it is to do with the healthcare, these kind of things can help Blue Star. But there is a -- that cycle is on. There is a lot of construction that is taking place. There is a third thing that manufacturing CapEx cycle has returned a lot of manufacturing-related investments are taking place, manufacturing has a lot of MEP work to be executed there, manufacturing units, new ones that are coming up. Then there is a data center related expansion, data center consumes lot of MEP work. So these are the broad segments. Now, order inflow is a function of enquiry buildup. So how many RFQs are there in the pipeline, how many orders are to be executed -- are to be finalized, so on and so forth. So the -- quite a lot of orders are there in core infra connected with metro railway. There are quite a bit of metro railway tenders, which are yet to be finalized, which are being floated, that is one set. There are water-related projects, which are to do with -- again, water MEP, water distribution, these may be in rural areas or Tier 3, 4 towns and under many the -- under many missions, these projects are getting executed by various state governments, that is the second set. There are airport-related enquiries are going to come. You know quite a bit of airports will have to be constructed, that will come up now. Now we have found that all of a sudden, there is also office consumption that is taking place, quite a bit of office complexes are, I think it is driven mainly by, IT, ITES related, because that sector is growing and that is happening. Now as far as we are concerned, we are very clear that we have indicated to you, it should be around a 6% margin we will be looking at and we have reached the stage we have been consistently delivering there. Second thing is that you would have noticed that our cash flow and the balance sheet is healthy. We would like to maintain it that way. So, therefore, it is important for us rather than the market share in that particular business, which is highly scalable. You can go ahead and build the order book, go ahead and grow the revenue, but we would like to do it in a steady manner rather than in a hurry to do that. And in that context, our focus has been, it should give some 6% operating margin, it should be giving us a very healthy cash position. So this is the way forward. And we will continue to, I think we will continue to grow steadily, and we will continue to deliver results as far as segment 1 is concerned. And the segment 1 also includes the commercial air conditioning equipment which we manufacture, and there we enjoy good leadership position. So therefore, that particular part of business, the product-related innovation and keeping ourselves technologically advanced and current, and that focus continues. So there the significant development that we are finding is that the even Tier 3, 4, 5 towns there are beginning to grow and offer opportunities. These are shops, showroom, boutiques, restaurants, these kind of medium-sized projects.

Got it, sir. And the 6% margin that you were talking about, given the fact that compared to, say, a decade ago where there was intense competition at that point of time. Now you are seeing many players are not looking at this particular category, correct me if I'm wrong. Can this 6% is -- can there be a upside risk to this? Can this read as 8% or 10% over a 2-year, 3-year period?

I wouldn't to be saying that nobody is looking at. There are still players. See, it is only depending on the segments it is happening. There -- in building, there are a set of competitors. In metro railway, there are a set of competitors. In water, there are a set of competitors. I don't think that it is -- I wouldn't say that there is no competition out there. Now it comes with anything to do with EPC, it comes with its complexities and it comes with associated risk. The projects can -- there can be time overrun, there can be also the cost overrun. These are very common in these projects, especially in India. So therefore, is there a possibility this margin will move to 7%? Probably, yes, but we are not willing to commit it at this point of time, because you know what the industry had gone through, what we had gone through. So it is very important that we ensure that we are able to take a project where we deliver superior value. People are not going to be giving you a premium unless and until you are going to be showing them that you are different, and that is where we are. So there is a possibility margin can improve, but we are not committing anything whatsoever at all. In other words, what I'm communicating is, in the immediate short-term, 6% margin is something doable with very healthy cash flow.

Mr. Swaminathan, may we request that you return to the question queue for follow-up questions. The next question is from the line of Naval Seth from Emkay Global.

Sir, I have 2 questions. First is on the demand perspective on Unitary Products segment. So last time you had stated that demand was moving in a very strong lane and you were expecting close to around 30% growth in the summer season and eventually 25% for the full year for industry. So given the current season has gone now, so would you like to change that number upward, downwards? And second, then you had again given the guidance on EBIT margin in the last communication, at that point in time, commodity was still in a bull run. So, would you again like to revise that upwards on your margin guidance as commodities have cooled off significantly now?

Thank you. So the question is that I had maintained if you build up to the summer season from January onwards? If I recollect, it was January 2, 2022, I had spoken in February, March, April, May, June, so on and so forth, I always maintained that the industry should grow by around 25%, we will grow by around 30%. And then what happened was, March was a very big demand month and April was very huge demand. And there were reports of Manufacturers' Associations and many players that it is 60% growth, 70% growth, there will be shortage, et cetera. Even at that point of time, I had maintained that, look, all these may look like that, my experience says that eventually it may be 25% to 30% growth, that's all is likely to happen. If that happens, then Blue Star will grow ahead of the market, because our goal has been that grow faster than the market and gain market share. Now, what had happened? The demand started slowing down from May onwards. May was lower than April, June was lower than May. Now this is happening over the years, that some point of a time June used to be the peak month of demand for the industry, then it moved to June third week, June middle, June first week, then May became the peaking month, and now of late we are finding March and April are peaking months. And I think that will be the trend, because people when they can afford, when the temperatures are shooting up, they are not going to wait for the end of the summer to buy. So they are ending up buying earlier. Now this year, there was also another fear that most of us had indicated the prices will go up and therefore people would have purchased ahead or forget the people, the dealers would have stocked up, because dealers anticipate what is going to happen, they end up buying. So this was the truth. Now then you saw the reports that the people panicking that demand has completely slowed down and what is happening we don't know, but somewhere around May, June, there was also interest rate hike. And therefore, the consumer finance scheme costs would have got impacted or the petrol prices went up, so there was some kind of sentimentally people try to tighten their belts, possible. Now the -- eventually, what we ended up doing was -- it is what we do in Blue Star, that look at -- first of all, I have told you number of times that nothing you can do about this particular month. You have to plan ahead and look at what is the trend and make a judgment that what can happen, this is how you have to plan your supply chain. We looked at January to June. If demand would have peaked in April or March, that is the right way to look at it. So I can disclose you to the figure -- disclose to you the figure, January to June 2020 versus January -- sorry, 2019, January to June 2019, that belongs to FY '20 actually, summer season. And if you look come -- and it is a real summer season last other than this particular year. So compare that with January to June 2022. So January to June 2019 versus January to June 2022, there is a 39% growth as far as Blue Star is concerned. And I estimate that the market for the same period should have grown by 30%. It is not Blue Star has outperformed the market by a huge margin, it could not be because our market share is maintained, that's about all. So therefore, compared with 2019 season, we would have -- we have grown by 39%, market would have grown by 30%. That is my assessment, and I think I'm right. So this the truth. Now as far as the -- you asked about the margin whether we are revising our estimates? Margin should improve. I don't think it will improve in Q2, for the simple reason, the commodities that are meant for Q2 would have come already in the pipeline. Now I'm also saying that we should not be greedy for the simple reason that when the commodity price went up, our margin was not impacted immediately, it took time because we had old raw material for some time. Same way, the costlier raw material, we will have for some more time. It should begin to impact positively in the sense improvement should start happening sometime in September onwards. That is my -- our assessment.

The next question is from the line of Harsh Shah from Jefferies.

Yes. I just wanted to know the absolute order flow number for 1Q?

Order flow number for?

1Q, first quarter.

Nikhil, do you have that figure?

Just one second.

Yes.

It's for first quarter, the order flow is around -- for segment 1 is INR 1,366 crores, and for -- within that, for EMPG, it is around INR 746 crores.

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

Yes. The question is on the Commercial Refrigeration segment. Could you help us with what has been the growth in the industry in the current quarter, your expectation of the growth in the year and the indigenization efforts that you have undertaken with commencement of the products, what is the impact that has had on the margins? I'm sure, because depreciation would have come in the immediate -- immediately, but the utilization comes with a lag. These are my questions.

The Commercial Refrigeration, the growth in our opinion would have been in the order of around 10% to 11%, that's all would have been the growth. Generally, people think that, that business should grow at a CAGR of 15% or more. Now this business also operates demand fulfillment, there is a lag here, that like what happens is for the summer season, the ice cream -- ice cream is a very important segment if you look at Q1. And therefore, the ice cream manufacturers place these deep freezers in Q4 itself. They won't wait for the summer season to be buying this, okay? It would have happened in Q4 with a time lag it happened. Similarly, the wedding, festival season part of it, it happens much ahead. So you will see the demand building up from September, October onwards. This is how the deep freezer segment has been. We had found water coolers, there had been a decline in the market size or the demand for the simple reason, I think the offices, factories, public places, after the pandemic, people are not encouraging the employees to -- or the public to consume from the water cooler or people are avoiding doing that. So that is our assessment, because storage water coolers generally grows at around [ 7% to 8% ], we didn't see that kind of growth. In our case, there have been multiple things that have been happening. Number one, in room air conditioner, the -- there is a huge demand expansion that took place. In the process, we decided that we will kick start the Sri City construction, which should get commissioned by October-November this year, in about 3, 4 months' time. And on the other hand, in Himachal, we were doing massive expansion in order to meet the quantities for this final year -- this season that ended. And in the process, we shifted water coolers, which were manufactured in Himachal to Wada. Now in the water coolers, when we did this shifting, and I think we would have -- we fell short of something closer to some INR 10 crore to INR 15 crore kind of revenue we would have lost, because that -- we did face shortage in April and May in terms of storage water coolers. But that is a one-time event that we were aware of it, whatever we could make, we could make, but there was a delay. Now, deep freezers, we are indigenizing 300-liter and sub-300 liters. This factory got commissioned in April. It was during trial production between February and March, but the regulatory approvals in all respects got completed only in April. So therefore, in April only it would have -- the depreciation thing will happen, otherwise, it is a capital work in progress. Now, 300-liter production is being stepped up, 400-liter, 500-liter is in full swing. So, by the way, we make also glass top deep freezers indigenously now. We were dependent on imports for that. The margin improvement in that business has been happening from May onwards. May, certain 300-liter glass top started coming, June, it is good. From now on, it will be significantly improving in that part of business because of indigenization. Now I can also tell you that in Q2, we will have certain imported inventories. We need to be selling those. It is not we can scrap that, right? So therefore, the complete margin improvement, you may start seeing only in Q3, not in Q2. Q2, there will be improvement, but there may not be full. This is the full picture.

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

Yes. I have 2 questions. Firstly, from the overall margin perspective, just want to get your thoughts. I think what we've seen in the past cycles that the AC industry has been able to pass through price increases effectively, be it raw material inflation or be it currency depreciation. But in the current season, we are seeing that is becoming a challenge to come through. And also subsequently a lot of large companies are setting up plants in South India, which may also increase competition going forward. But spectrum from this overall change in industry structure, do you think, is it heading towards lower [ industry structure ]? Is there something else we should read it? How should we view this entire change, please?

Last part, I didn't hear, Sandeep.

No, basically, just want to understand that a lot of large players also setting up capacities in South India. So how should we look at the entire industry structure? Are we structurally headed towards slightly lower margins? Are the past peak margins of, say, early double-digits behind, or do you think margins should resume, this is more of a temporary phenomena? More want to know your thoughts from a 2-year to 5-year perspective for the [ room ACs ]?