Blue Star Limited (500067) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I have pleasure in extending a warm welcome to you for this conference. Before I proceed further, I have pleasure in introducing Mr. Vir Advani. Many of you know him. He's the Vice Chairman and Managing Director; Mr. Nikhil Sohoni, who is the Group CFO. I also have the senior colleagues from Blue Star from various functions, they will introduce themselves to begin with P. Venkat Rao. Venkat you have to use the mic, I think.

Good morning again. I'm P. V. Rao, the President and COO, heading the P2P business group, Electro-Mechanical Projects and Air Conditioning Solutions Group, it is called. And you have 3 lines of businesses, the project business and the commercial air conditioners sales business and the after-sales service business. So there's a consolidation of 3 lines of businesses. And I'm with Blue Star for the last 34 years. Nice meeting all of you. Thank you.

Thank you. Mr. Shashi Arora?

Hi. Good morning to all of you. I'm Shashi Arora. I'm President and Chief Operating Officer for CPAG, Cooling and Purification Appliances Group. We have the room AC business house in CPAG, and I've been with Blue Star for over a year now. Thank you.

Mr. Wilson Jebaraj.

Good morning, I'm Wilson. I handle the Electro-Mechanical Projects and Customer Service Group. I've been with Blue Star for the last 25 years.

Thank you, Wilson. Mr. Srinvas Reddy.

Good morning. My name is Srinvas Reddy. I'm responsible for Commercial Refrigeration Business. I've been with Blue Star for the last 25 years. Thank you.

Mr. V. S. Ashok.

Good morning, everyone. My name is Ashok -- V. S. Ashok. I'm the Chief Human Resource Officer. I've been with this company for 31 years. Thank you.

Mr. D. V. Kasbekar.

Good morning, ladies and gentlemen. My name is D. V. Kasbekar. I'm CEO of wholly-owned subsidiary Blue Star Climatech. I am heading Manufacturing Function of unitary products. I have been Blue Star -- I've been with Blue Star for the last about 25 years. Thank you so much.

All of you know, Mr. Shiva Kumar. Shiva Kumar, who is now going to take charge of a different role.

Good morning. I'm Shiva Kumar. I've met all of you personally. So I am the CFO of the wholly-owned subsidiary, Blue Star Climatech Limited. And I am with Blue Star for 12 years. Thank you.

And Mr. Dipankar De.

Good morning, everyone. My name is Dipankar De. I head the corporate planning function at Blue Star. I have been here for the last 4 years. Thank you.

Thank you, Dipankar. We have quite a few other colleagues, including Ms. Priya, who heads the marketing function. So I think we met in 2018 that was in St. Regis that time we were celebrating our platinum Jubilee. We are in our 80th year of operations and the September 27, 2023, we will complete 80 years. We continue to be the oldest air conditioning and refrigeration company in India. So first of all, I would like to thank you. In these interactions, Vir or Nikhil and myself, we continue to learn from you because you are the eyes and ears of the market. As much as you asked us the questions. After each interaction, we also benefit from what are the issues that you have in mind or what we should look at it. So Thank you for that. Thank you also for many resolutions that would have happened during the year, like appointment of directors, so on and so forth. It's a pleasure interacting with you here again in person at a conference after 5 years. Otherwise, quarterly, we have been meeting. And we are also particularly pleased that we are meeting you -- delivering exceptional results in financial year FY '23 as well as Q4 FY '23. The format of this will be, there is a first part, which Nikhil will present about the financials for the quarter and the full year. We are not going to have a separate investor call for that. There is one part of the presentation and followed by the presentation on the corporate strategy. And post that, we will answer your questions. I'll -- questions will be answered by Vir, Nikhil, me or any of our colleagues who are present here. In case we are not able to answer the questions. Shiva Kumar is going to make a note of that. We will respond to you within 48 hours. So that's the first part of it. Now I'm imagining that you have seen the audited financial results that were published and this is the sixth consecutive quarter where we have delivered the numbers or exceeded the numbers. In fact, all the quarters we have exceeded our own expectations. And the questions can be related to that and the benefit of this meeting will be the long-term picture as well. But from last night or yesterday afternoon itself, there had been many calls to me or to others about the unseasonal rains in North and what is going to happen in April. I thought that it's better to address that part once and for all because so many of you are interested in that. The -- before that, I also want to point out that in this particular meeting, we have to comply with -- the first part is we have been transparent all along. There is -- in fact, if there is going to be a price increase in all probability, it would have been -- Blue Star would have announced that, there is going to be, if there is a margin pressure we have announced. If there is a drop in sales, we had gone ahead and said ahead of the industry. So we want to maintain that tradition of being transparent. At the same time, selective disclosures, we will not be able to. Just as the meeting commence, we have uploaded the presentations, which are going to be made to the stock exchanges itself. That's what we believe in. Now in that context, we may not be able to give you, you may get frustrated that within segment 2 unitary products, whether -- what is commercial refrigeration or within the first segment, how much is product, how much is this? So you have to understand this, this particular problem or a [indiscernible] that we don't want to, but it is important for us be also clear on the regulatory requirements. The second is connected with what information is available to the competition or not available to the competition. In fact they are aware. The, [indiscernible] integrated report. We are the first one to go ahead and do that in the industry. We are sir -- we will be doing it. Numerous amount of data is going to be getting disclosed. But in a multinational environment, that data is not available for my competition, whereas competition will get it. And some of you or a couple of you, I don't know whether you're present here or not, had asked about other major competitor in India. They have the commercial air conditioning products and the service in segment, unitary or cooling product segment added. In our case, we have not done so. Segment 1 includes the commercial air conditioning products. Segment 1 includes the service. Now that part to be added to unitary products, it can boost the profits or the EBIT substantially. Now that couple of the inquiries are, can you tell us how much has we removed from my competitor? Or how much has to be added to my result. Again, it becomes selective. The question is, the companies have their own rationale of doing it. We believe segment 2 is connected with the products, and we will deal with that. I don't want to bring in a commercial air conditioning service revenue or commercial refrigeration -- commercial air conditioning product revenue into that segment. Now one day, we may decide that I'm changing all the segments is fine. So the thing is that kind of disclosure becomes selective. We -- if we do it, we will do it for everyone and very clearly and make it clear that this is what we have done. And because Blue Star as a corporation believes that we have to be safe, we have to be compliant, and we have to be transparent. We should never misguide you. Now coming to room air conditioners. The -- it was in December, actually, I was discussing with Shashi, it was 16th of December when we were preparing for the summer season, and he was to make a presentation to our board on 31st December and we were planning for CCT inauguration and what is stocking and the campaign, what is the advertising money that particular day I told them something tells me it will be -- there will be rains during summer, specifically April. Subsequent to that, there were 3 interviews of ET Now, CNBC, I had clearly stated that there maybe IMD forecast, there will be rains. So the fact of the matter is that there are unseasonal rains, which is not in our control. But I had stated, this is the company's view as well that because of many reasons, the full year market growth should be around 20%. That is on our estimate, forget the summer, forget the festival season. By looking at a 15-year period of what has happened in the market in energy label change year, in a year in which rains are there in El Nino year or whatever it is. Our estimate is the market for the year will grow by at least 20%. Second point, within Blue Star, we have figured out that the peak of summer that what used to be in May last week, it moved to May middle, some point of a time, May. It started peaking in April last week. And in an interview in February, I had stated that my belief this year is that it is going to peak in March last week, which is what so far it is. Now the summer season, how we calculate in Blue Star is because the dealers for April end up stocking in March itself. The other companies offer some quantity discount target they have to meet. And if I take a period January to June, we believe that the growth should be at least 20%. It can be even 25% because there is now a prediction that May 7 or May 8 onwards, temperature is going to shoot up in Delhi, and the summer will last till June 15 kind of. So we don't know all that. Our broad direction is, if you take the period January to June, I think the market will grow at least 20%. If market is growing by 20%, we should grow more than the market. In order to gain the market share, that's what we have done for the past 11 years. If you take the period January to March, they have grown by 22%. There was a question this morning, whether that is from commercial refrigeration or that is from room air conditioners. Again, I -- the -- broadly, all businesses have grown. In fact, commercial refrigeration last year had some hiccups in summer. And therefore, the growth has come from room air conditioners. If in 3 months, 22% growth is there, it should be a growth of similar nature is our understanding. That is what we are aiming. And we can't worry every day, whether it rained or this week it rained, our supply chain is planned in that manner. Connected question. Whether there are inventory pileup. It is not so, because West, East, South are doing extremely well. In fact, last week, South would have done. Within Blue Star, whether we are monitoring everyday sales, it is not so, because we are very clear that there will be some markets will not grow. Some markets, there will be rain. Some markets, some model will not be there, some other markets that will be there. And I'm again quoting this that this is like T20 cricket. And every week picture can change. We have learned to play that game. We believe that we can play it well. Now as we have stated again and again, I should have a product which is competitive. I should have a distribution network, which is robust. I should have the brand salience and we should work hard, and we still believe, irrespective of rain in North, we should do well. And -- can things go dramatically wrong, it can. We don't know that. But going by a track record, we will figure it out. So this is the broad answer to that question because these -- there was -- only less than 10 days ago, there was an interview with regard to shortage of material, whether we are going to face shortages. And within 3 days, that weather stocks are piling. And last night, it rained and there is a weather forecast. It will -- summer will be harsh in May and June. It's very impossible to react to any of this. So bottom line, we still believe the market for room air conditioners for FY '24 should grow by 20%, our goal is to grow faster than that. And if -- the -- if you take the summer season, which we calculated January to June, we still believe that the growth will be more than 20%. And they are doing well in South, West and East. North, the forecast is May 7, May 8 onwards, it is going to be a hot let us see. That's part of it. Now the last part of it. There is also investor fund managers' analyst feedback survey, which we will commission from next week or day after tomorrow, it is. And we will welcome your feedback. These areas we can improve, what you think we should do better, please give your feedback. With that, I invite Mr. Nikhil Sohoni to make a presentation on Q4 and FY '23 full results.

So thank you, Mr. Thiagarajan and good morning, ladies and gentlemen. So let me start with the safe harbor statement. This is because we will be talking about the numbers in the past as well as certain future-looking statements. So coming to the results. They say resilience is an attribute of people, which is required to succeed in business and life. And I'm sure this goes as well for the businesses also. If I was to start the presentation with a name, I would have called it firing back. If you see the results for FY '23, the results have been good, will be an understatement. It has been excellent results and one can see that the revenue growth has been 32%. It has added almost INR 1,900 crores to what was the last year's base. Same way for the quarter, it was around 16% growth. What is important is not only the growth but the value creation by way of making it a profitable growth. And that has happened because the operating margins, you can see, are clearly up by 50 basis points. So it has gone up from 6.3% to 6.8% for the quarter and from 5.7% to 6.2% for the year. Again, if we look at the trend, for the last year, while it was 5.7% and ended with 6.3%. This year, it was average of 6.2% and ended with 6.8%. So that speaks well as far as the direction is concerned. Of course, one important thing also is that yesterday, the Board has declared a dividend of INR 12 per share, and they have also declared bonus of 1:1. And post bonus, which is approved by the -- after the approval of the shareholders, the dividend will stand restated at INR 6 per share. Coming to profitability. If you see the PBT and we have this time and exceptional items, so we are seeing PBT before exceptional item. The growth is again the same 50 basis points, which you saw in EBITDA is translated right up to the PBT and probably it has gone up to around 70 basis points when it comes to PBT stage. So thus it is carried forward all through and with the benefit which has come to the operating margins and not been lost when you come to the PBT stage. During the last quarter, we have changed the method of depreciation from WDV to straight-line method that was required because we have invested in capacities. And when you're investing capacities, you are required to give a relook to the consumption pattern. So having done that, what has happened is we have, in fact, been in sync with the industry now, and we are more comparable to others also. Having said that, at the patch stage, if you see the benefit, you will see a return of 5%, which will be including exceptional income. So we -- during the quarter, we have sold a land parcel at Thane, which has given a profit of around INR 170 crores, net of tax around INR 139 crores. And if you exclude that, the margin is around 3.3%, which is again a 50 basis point improvement over what was it last year. When we are investing in growth, what is most important is the cash flow and how we are financing it. And this slide probably will bring it out quite well how the growth has been financed. So last year was the year in which if you see the investment in capacities was quite substantial, having invested around INR 353 crores. At the same time, because of increase in scale, the working capital requirement also went up. So combined, it was more than INR 500 crores of requirement. However, all of that could be managed with just INR 100 crores of incremental debt. The company, of course, had a very strong starting cash position and also ended with a good cash position. But the cash accruals for the year were also very strong at INR 400 crores. And this is without taking into account the exceptional income of land sale, which gave another INR 179 crores, INR 139 crores net of tax. So that said, the cash flow has been very robust. And therefore, we are prepared to finance in growth in the right way, it should be without overleveraging. Coming to business highlights. This has been the year when all the segments have given our exceptional performance. Starting with the segment 1, which is electro-mechanical projects and commercial air conditioning, you can see that clearly, the growth for the quarter has been 10% and for the year has been around 25% in revenue terms. This was because of the government investment in infrastructure, the good uptick, which was there in private CapEx, which we also are aware of. In commercial air conditioning, there has been a product portfolio expansion. And at the same time, there is also a good demand from Tier 2, 3, 4 towns. So all of that has helped the increase in revenues. Again, the profitability, if you see in terms of segment margins, there is a directionally improvement. With last year, we have reported 6.1% average, whereas this year, it is 6.9% average for the year. So that shows that the margins for the business are also improving, and that is possible because of cost management, because of scale and also because of a good profile of the customers' projects which we are handling. Coming to segment 2, again, a very good growth, 22% for the quarter and 39% if you look at it on an annual basis. This was possible because of the rejigged product portfolio, which we had, we also came into the affordable segment and of course, that also translates into a good margin with average of last year being 6% and average for the current year being 7.8%. It is almost 140 basis point improvement in this segment in terms of margins. And this includes commercial refrigeration. And for that business also, we are seeing a very good traction and a good demand going forward. Coming to the last segment, that is PE&IS, or Professional Electronics and Industrial Systems, was small segment, but a very niche market. The growth in the revenue has been quite good at around 33%, and 35% on an annual basis. The margins over here have been slightly impacted. It's still good in double digits, but it was slightly impacted because of the investments which the segment has done for business development and for the future. So overall, if you see all the 3 segments have reported a very good revenue for the year. The company -- the margins have shown quite a good improvement as well as traction. And this sets a good ground for us going forward. So if you look at the business outlook, what I would like to cover is that we are ending FY '23 on a very high note and a very strong note. At the same time, we will continue to focus on investing in research and development. We'll continue to invest in channel. We'll continue to invest in manufacturing footprint. And of course, we'll continue to focus on cost because that is what has helped us maintain and improve the margins, and that is what will drive the future as we go along. Thank you.

Great. Thank you, Nikhil. I think they got a good overview of the year. Of course, there will be many questions that I'm sure will come up. I will now take you through our strategy. We do a 3-year rolling strategy in Blue Star. We started doing this, I think, about 6 years ago. We -- I think when we started, we weren't doing such a good job of it. We are making 3-year plans but never meeting them. I think that's improved over the last few years. And I'm happy to say that at least the last 2 financial years, we met whatever goals we had set ourselves if we wound back 3 years. So what I'm showing you today is a limited glimpse, but I hope it conveys the direction. But this is an extract of a presentation we made to our Board of Directors in March of 2023. So it's less than 2 months old. So it's very fresh. Of course, there's a lot more behind it, but I'll give you a sense of where we're going. So with that, I'll jump in. I think that's some disclaimer there, so I'll skip that. You would have seen last year's performance that Nikhil took you through. This is just a 5-year snapshot of what has happened. Of course, you know that we had 2 years of COVID, especially in the summer for Blue Star. That's why you see the dip there. But I'm happy to see that in spite of the 2 years of COVID, all positive CAGR and even, of course, you see a very high number of PAT of 401 in FY '23, but without Thane, it's still 261, so good recovery on that front as well. So I think the direction that we set ourselves going forward is to improve the CAGR significantly. We're assuming COVID is behind us, has no such surprise looking ahead, so I'd say next 3 years, all the CAGR is looking at north of 20% on top line and bottom line. Return on capital, another very important measure for Blue Star. We are a low-margin business, as you know, and therefore, return on capital is something that we track very, very carefully. You'll see steady improvement in ROCE there. Return on equity as well, even without Thane is about 20.3%. So we believe that we're doing a good job on managing our capital and deploying it well. As far as quantum of capital is concerned, you can see a net debt level, which is very comfortable. We have -- this is, of course, after the significant capital investments that we have started to make in FY '22 and FY '23. These investments will continue in '24 and '25 at least. And so we will be looking at our net debt levels fairly carefully as we go forward, but committed to delivering a ROCE north of 30% and an ROE of 20%. If I just wind back, many of you know the company, so I don't need to go back to 1943. Thiag mentioned, we're in our 80th year. Very proud of this journey, very proud of this heritage. So I'll force you to look at least a few of these milestones. If I go back, I think, 1972 was really the start of what we call our project business that we have today, very important milestone for the company when we go into large air conditioning projects, which you know then we moved into MEP projects in 2008, '09. Manufacturing commitment actually started way back in 1985. Small investment, I'd say, the first significant investment in manufacturing that the company made was in 1997 with setting up our Dadra plant. That was our first modern manufacturing factory. Since then, we have opened, very frankly, I think Himachal Pradesh was the next big one in 2007. We then opened Wada, I think, if I'm not mistaken, around 2010, '11. And then all the way until 2021, '22, there was very limited capital investment in new factories. We are, of course, upgrading and expanding existing factories. But 2022 is the year, which is another milestone for manufacturing when we have set up both our modern room air conditioner plant in Sri City, Andhra Pradesh as well as our ultra-automated defreeze plant in Wada. I think you will see as -- if we are to meet 5 years from now, our journey, if I show you will have significantly more CapEx in manufacturing as we go forward. Other highlights of this is, of course, our entry into the UAE market and into the Middle East in 2017 with forming Blue Star International. And you may have read in 2022, '23, we established -- '23. We established subsidiaries in the U.S. and in Europe. So another theme that you'll see going forward for Blue Star is internationalization of the business. So if I wind back 1985 is projects, 1997 is manufacturing and 2017 will be our internationalization plan. This is extremely important for us. It's all over our website and all that. You may have even seen it every now and then. But this is what drives Blue Star. This is what runs us. This is how we deliver what we do. We have a vision, which is, "to dream, to strive, to care and, above all to be the best in everything that we do." I want to tell you that -- so there is no number there, there's no INR 10,000 crores, INR 20,000 crores, INR 1,000 crores of PBT. This is not numbers. This is a direction. It is about setting a growth mindset in the organization. And I'm proud to tell you that all our close to 3,000 employees will be able to tell you this vision. We'll be able to tell you our credo without referring to any PPP or any document. And that's how we run the company. So there's a growth mindset, which is part of the vision. And then equally important is our credo, which is I am Blue Star, and I take pride in delivering a world-class customer experience. I'll tell you this that this is as important as the growth mindset, because we're very clear that unless there is ownership at an individual level. And all our 3,000 employees, our extended organization of 30,000 people, our dealers and distributors and technicians and everyone. When you add it all up, I think it may be 60,000, 65,000 people. It is our goal and our -- at least we try to ensure that a large number of these people understand what the credo is, which is taking personal responsibility of delivering a world-class customer experience to our main stakeholders. So that's our credo. We also have a Blue Star Way, which are 11 guiding principles. Again, that we follow. I think that one, none of us will be able to rattle off what those 11 are. But rather than rattling off what they are, I can give you -- I can assure you that over 90% of the organization will be living the Blue Star way. That's just in our DNA. This is how we work versus how we -- this is what we stand for. And I think collectively, these 3 very powerful tools are leveraged by us as a senior management team to ensure that we deliver year after year to or exceed the expectations of all our stakeholders. I think you -- as far as governance is concerned, I'm proud to say that I don't need to spend too much time on this because Blue Star stands for governance. And I think you're aware about this and you're clear about this. That's why you're here. That's why you invest in us. So with that background, I'll spend a few minutes on our way ahead, how we see the next few years. So our strategic direction is -- so we have it in 3 buckets as it were. We have a growth objective, we have a profitability objective and we have an excellence objective. So there are 3 objectives. That's the framework of our strategic direction. The first one is growing faster than the market. You hear my colleague, Thiag, talking about it all the time. That's what we stand for in each line of business that we have. So the first thing is to build scale. I think you'll -- that's a repeating thing that you'll also hear in Blue Star is building scale. So we want to build scale by participating in all the growth opportunities that the air conditioning and refrigeration industry have for us in India. So I look -- I'll talk about India first. So whether it is the middle class, whether it is MSME, whether it is the light commercial segment, whether it is Tier 3, 4, 5, 6, 7 markets. These are all areas that we are keen to be present in and capitalize on. How do we do that? So we have an air-conditioning business, as you know, right from a window unit up to a large centrifugal chiller. While we do end up spending a lot of time on room conditioners and we talk a little bit too much about that, I think what has emerged in Blue Star is that there's a common theme for all our product categories that we look at when we plan. So the first is to launch of affordable products. So we have high technology products. We have premium products that has been traditionally Blue Star's strength over the last 3 or 4 years, really in COVID and post COVID. We have developed, and we've been working hard to develop a capability to also bring affordable products. And this is not just in a 3-star mini split, right? That's not the only thing. We do this in chillers, we do this in VRF, we do this in ducted, we do this in deep freezers, we do it in cold rooms, and that's how we want to grow. So we will always see Blue Star having high-technology products and affordable products even side by side as we go forward. That's one important way that we can address the entire market. The second one, again, that cuts across all our product businesses is distribution reach. We know where we are strong, we know where we're weak, and we are working on improving that. Again, this is not just a room air condition story. It applies to our commercial air conditioning business, commercial refrigeration business as well. And finally, it is the Blue Star brand and making it salient. And again, I'll say it needs to be salient in HSM markets in Tier 3, Tier 4, 5 markets, not just room conditioners, but even for a centrifugal chiller because if you believe in India's growth, and if you believe that the growth of India is going to be outside its metros, then you need to build a brand in all your product categories that is relevant to the whole of Bharat, to the whole of India. So that's what we're doing in air conditioning. In refrigeration, in addition to these affordable products, distribution and the brand. Specifically, we're looking at 2 strategies. One is for our deep freezer business, which you -- which is a very, very important business of ours, we want to build scale and we want to widen the range. We are the leader. We think that we can increase our market share much more. We believe that the future of this business is going to be huge because food -- food security, food availability and the per capita income of this country is growing. So if we fast forward 10 years from now, we are very confident that this is going to be a large market, and we want to dominate it. So that's a big focus for us. The other thing is in that context is to add adjacent products. So it's not just about cold rooms and deep freezers. We're building capability and products in retail, in healthcare, in kitchen. These are all new and emerging segments for that business. And thirdly, as part of building scale is our MEP business. I will say this that I think we're consistent about this for at least the last 7 or 8 years. While the order book has grown tremendously in the last year, and we're obviously all excited about it, we continue to focus on profitable growth. Cash flow is the only metric that matters in this business for us. We've been fortunate that we've been able to select projects that meet our cash flow requirements, that meet our profitability requirements and yet we've been able to deliver the added order book. And it is not the reverse, right? So we're not the type of company that will go and build an order book and then figure out how to make it profitable. That's not Blue Star. We're doing it the other way around. So in that context, I think we've talked about this in many calls. We are purposely and strategically diversifying the order book away from commercial buildings. So commercial buildings for us are IT parks, hotels, hospitals, retail malls, et cetera. We are purposely going after different segments; infrastructure, data centers, factories. And it is a conscious decision. But -- and again, when I say infrastructure, that's a very broad statement. So we go drill down into railway electrification or into metros or into water. And what we're doing is we're ensuring that we build a portfolio of projects. So when we reach a maximum limit of what we are comfortable with in a segment, we stop accepting any more business there and then we look at other segments. So it is a strategy that we have been executing over the last few years, and we will continue to do this as we go forward. Regardless of the segments that we operate in, we are the contractor of choice and we stand for superior project delivery. I think you know that we won the MEP contract of the year for 7 years in a row in this country. And that's what we continue to do. So -- and very frankly, even if you are a PSU customer who we believe doesn't value quality or doesn't value superior project delivery we still deliver it. And we believe that whether it is a public sector unit or it is a central government project or it is a developer or it is a manufacturer, everyone in India is looking for superior project delivery, which, in our mind, is on time and on cost, and that's what we stand for. Other than our India business, we have, as I mentioned, an ambition to grow into a globally important air conditioning and refrigeration company. This is an important point because we have evaluated in the past and we have decided not to become a white goods player in India. So many questions come to us on that. We are very clear. We want to be a globally significant air conditioning and refrigeration player. And when we want to be globally significant, we need to be operating outside of India. We realize we need to be operating out beyond even the Middle East. So you saw an entry into the Middle East in 2017. That business is up to about $100 million in size. You're now seeing subsidiaries being set up in the U.S. and Europe. That will grow into a $100 million business in the near future. That's the direction that we're going in. We feel -- and this is long term. So I don't want to talk about a 3-year objective or something. But over a 10-, 15-, 20-year period, you will see Blue Star, which is globally present significantly in multiple geographies. Now it is a -- it is not what the majority of our competitors are doing in terms of a strategy. We know that. We understand that. There is risk associated with this plan. We understand that as well. There may be a question, there aren't that many successful manufacturing companies from India who have been able to build a successful global business. That is also true. But we believe we can. And we believe we can because we have R&D capability, and we have innovation capability, and we have products that are relevant for those markets. especially in a new world, which requires energy efficiency, which requires decarbonization, which is looking for better solutions than what exists today. So Blue Star stands out in the world, and I say this in the world, as one of the companies that innovates in air conditioning and refrigeration technology. So it will be foolish for us not to go out to these markets and compete. So that's our plan. And lastly, we have a subsidiary, Blue Star Engineering and Electronics. I know it doesn't quite fit into the entire portfolio, but it is a very important part of our plan. It is a small but highly profitable business. We believe we can scale it. It's about INR 330 crores in revenue today. We believe that it should cross INR 1,000 crores in revenue in the near future. We believe it will deliver at least INR 100 crores of profit to our -- to the group and therefore, we stay committed to it. So across these businesses, India, international and E&E, we are fairly confident of growing faster than the market, addressing all the opportunities that exist in AC&R. Moving on to profitability. I will say this, very frankly, profitability is our #1 strategic objective. I started by saying we are a low-margin business, but that is what we are today. It doesn't mean what we -- that's what we want to be in the future. If we measure ourselves against global competitors, our operating margins are lower. I know India is a price-sensitive market, no doubt, but there's still opportunity to improve profitability. Nikhil talked about it, maybe in the questions you will have something we'll address that. But what we are focused on is, one is driving scale. Scale has an objective of operating leverage, right? So operating margin will improve. You saw that in last year as well. In spite of all the challenges we've had in raw materials, we've been able to improve EBITDA margin by about 0.5%. And in FY '24, we'll drive another 0.5% improvement. So it's a journey. So scale will contribute. But beyond scale, we have very structured total cost management program that runs in the company across all our verticals. Of course, we're doing it sequentially. We can't handle everything at one time. So you will see margin -- gross margin improvement in multiple businesses going forward. It's done in a very structured way, and we are expecting that to contribute significantly to our profitability targets. I talked about product innovation, extremely important part of this whole game. So we innovate not just for market access and new markets. We also innovate for profitability improvement. It's built -- in-built into our R&D, into our supply chain, and we are hoping to leverage that further. Lastly is indigenization and backward integration. I think you're more familiar with this in room air conditioners, in deep freezers, but even in commercial air conditioning. So you will see -- and I mentioned to you, you'll see a lot more manufacturing capacity being built, plus you will see a lot more backward integration going forward. On excellence, I'd say that out of everything, it is our people that make the most difference now. Everyone says that it's part of management jargon to say that. Honestly, in Blue Star, this is -- there's nothing more true than this. And again, I think if you look at the last 6 quarters of outperformance, it is because of our people. There's actually nothing else we've done very differently from anyone else. So people are extremely important. We are today, and we will always be, and I say we will always be the preferred employer in our industry. And that's very important if we are to build talent, build capability, build scale. So we, of course, have programs that run in the company for succession planning, talent management, all of that. But if I really -- we did a survey recently, I think many companies do this great place to work. employee survey. It's about a trust index. It's about really gauging how engaged your employees are to your organization. And we just completed in -- we ran it in Jan, Feb of 2023. So this is very recent data. We got a score of 81, which is better than the 69 we got in '16 and better than the 75 we got in '19. I won't go into the details of how this call is created. I think you have to look at the direction. You will see a highly engaged organization. I know many of you do channel checks, you go out in the market. I think if you do that today, you will probably get even better response than you did a year ago. And that's a fact, and that's the momentum that we've built up as far as our people are concerned. The other one is innovation and R&D. You would have seen a news article went out a few months ago, saying that one of our promoters, our Chairman Emeritus, Mr. Ashok M. Advani, has given a grant of INR 100 crores to the company with nothing in exchange, no equity, no obligation. It is a no obligation gift given to the company with an objective of strengthening our R&D and innovation. Firstly, I'm a promoter. So therefore, it's odd for me to say this, but I'm going to say this because it's a fact. I haven't heard of any other promoter in this country who believes in his company so much to have given money to the company and ask for nothing in return. That's the commitment and conviction that our promoters have to this company and have to R&D in this company more importantly. He's too intelligent a man to have given INR 100 crores to be put behind something that is not going to give us all returns, right? That's the kind of belief that he has and we have in our innovation and product development. So you will see a lot more innovative products from the company. Financially, I think you consider us to be a conservative company, you consider us to be an intelligent company when it comes to capital allocation. I know there have been some questions to us in the past about are you really correctly allocating your capital, there you have some risky low-margin business, you want to put it there, et cetera. So we take those inputs constantly from you, from other stakeholders. But we've made a plan that we believe has an optimal capital allocation will be value creation and that we will follow the financial discipline that we have been for the last decade, at least that I've been around. We have an opportunity to improve working capital, no doubt. We've gone through 2 or 3 years of very high inventory because of supply chain challenges. Those are easing off. So we will see some improvement on working capital. But on the flip side, you will see a step change in capital investment. And therefore, we'll have to be prudent about how we allocate this capital, and we will be. Lastly, digital, a very, very important part of our plan. Of course, one is on the cyber security front, we did have something come up in the end of Jan, early Feb that we communicated on. We were able to contain that situation extremely well. We're very proud of our IT team for having brought back operations almost immediately. But we continue to invest in protecting the company from cyber threats. So that's one. But really, the money is going to digitalizing all our customer-facing operations. Because we see there's a tremendous opportunity to reach our customers directly and to enhance engagement with them to improve the overall service delivery experience all of that. So a lot of money going there. We have a large analytics program running -- data analytics program because you do know that we have products that we can cross-sell to our customers. We also are fortunate unlike other durables, where customers buy more than one of our products. They buy a first air conditioner and a second and a third and a fourth. So there's tremendous opportunity in analytics. Finally, our manufacturing plants are extremely modern, not just from machinery and manufacturing process, but from IoT and a digital perspective, and we extract tremendous benefit from that. So you will continue to see big investment on the digital front. Lastly, on ESG, it's a buzzword. I think you will agree that on governance, we don't need to speak much. We stand for what we do, and we'll continue to do that. On the social front, we have a very important CSR program that runs. We have selected certain areas of skilling and health. These are areas that are relevant to us and important to us. So we continue to spend on that, and we will continue to do so. In the company, we have a very important objective of gender diversity. We have 9% of our employees are women. We have a near-term target, we have a long-term target, and we stay committed to that. So that's our social strategy. As far as the environment is concerned, it's a little different, right? We're an air conditioner company, refrigeration company. So technically, we are not good for the environment. But our environmental strategy is in that context, what we will -- we've committed to do is to stay ahead of the curve as far as technology is concerned, drive energy efficiency, drive improvement in ozone depletion, drive improvement in global warming potential of our products. And I'm proud to say that we stand neck to neck with the best in the world. So that continues to be our investment on the environmental side. Other than that, we are -- we have taken up a net zero mission in the company. I don't have a date to tell you by when we will be net zero, but we have initiated investment on that front. We have initiated work on that front. We will, in due course, declare a date. I don't have that right now. So that's what we're doing on the environmental front. So with that, this is my last slide, then we open it up for Q&A. I'll just repeat pretty much what I've said for the last 20 minutes. We continue to be guided by our Vision, Credo and The Blue Star Way. It's non-negotiable. We will be a globally competitive AC&R player. I want to make it clear. We're not going into washing machines and refrigerators and all of that, it's not for us to do. Profitability improvement is the most important strategic objective for the company. And you will see year-on-year improvement in profitability. We are committed to that, and we will drive that. We will continue to have differentiated products that meet the large mass of the market. So differentiated means both in technology and in price points and in cost base. All of that we will work on. We are significantly increasing our commitment to R&D and manufacturing. Again, we may have been asset-light, low capital employed in the past. That's not the future, we are investing. We will continue to attract and retain the best talent I told you in the industry and fast beyond. And really, we stand for strengthening our balance sheet and giving returns to our shareholders and our stakeholders that they hold us accountable for. We will continue to stay focused on sustainability. It is very important to us, given what our products do to the environment. So that is in a nutshell what Blue Star is going to do over the next few years. So with that, I close with -- we have our tagline, which is built on trust. That is what we stand for. And I hope that -- it comes across in all our interactions today and in the future. Thank you.

Thank you, Vir. Thank you, Nikhil. We now open it up for questions. There are volunteers with the mics. It will be -- these proceedings are being recorded. So if you can just say your name and firm you're representing.

Firstly, this is Atul Mehra from Motilal Oswal Asset Management. Firstly, congratulations to the entire management team for...

If you can be louder.

Is it better?

Yes, yes.

Congratulations to the entire management team for the very good performance. A couple of questions. One is on the room AC business, while the performance has been very good so far. Given how the competitive environment is, how do you forecast like you mentioned about the 3-year strategy plan. So in an environment where the industry gets even more competitive versus what it is today, how would you try to balance growth and profitability? And what are your market share aspirations from a 3-year perspective as you build the 3-year strategy plan? So...

The market size today. It's a year [ as mentioned ] crossed 8 million units. We expect this market will continue to grow. The penetration will improve that our estimate of penetration is somewhere between 7% to 8%. This financial that is FY '24, we expect it to cross 10 million units in terms of numbers. The market according to me -- according to Shashi Arora's estimate and the industry estimate as a whole, within 3 years, it has the potential to double. It can become 20 million units for multiple reasons. And our own market share goal is 15% by FY '25. And we estimate our market share, both the residential segment and Institutional segment put together should be today around 13.5%. In volume terms, we will be marginally higher than 10%. In value terms, we will be at 13.5%. We crossed 8 lakh units. Next year, our plan is to cross that magic number of 1 million units. Coming to competition, it will be intense for multiple reasons, is subject to a number of interviews I talked about. This is one category which is growing compared with other white goods or consumer electronic products. We have on the top of it, manufacturing capacity or the indigenization that is in localization that is taking place and the PLI scheme, manufacturing capacity is also doubling. Third, the power consumption has substantially come down. Thanks to the energy labeling program. So therefore, this product is no longer seen as there is a recurring cost. If you look at 15 years ago, when AC categories talked about, look, it is not the initial cost, it is a running cost, but the -- from 2000 to now, which is consuming only 20% of the energy that is consumed. Of course, there is inflation in the electricity bills as is the case in other categories, but it is no longer seen as a running cost is a deterrent for. Next is the room conditioners are not just one per home. There will be multiple. And we are beginning to see so far more than 90% was firsthand buyers. You are beginning to see the second air conditioner being bought. Last point is connected with the finance that is being utilized. So the consumers are our Indian market is becoming a consuming economy that people are trying to use their credit cards or consumer finance scheme. Last year, we have touched 40% of the sales coming through the consumer finance team. And our estimate is it will be touching 45% to 50% this year. Everything put together, the last point, which again, I had talked about in the past, what is going to happen is that PLI money, which will be coming in will eventually be translating into people using it to improve their sales because X-axis is the investment threshold, Y-axis is the incremental sale over. The PLI will not be paid for production. It will be paid for selling more. So on one end, you have localized it. So that gives you some benefit. Second part is, you are building scale and third part is my own estimate or the company's view is this money also will be making the product cheaper, it will get diluted in the market. So like it had happened in many other categories, we think the golden period for air conditioners is around. Everybody will try to utilize their capacity. Therefore, competition will be intense. We can't shy away from that. So what we explained as our strategy, that differentiated product and expansion of the distribution footprint and the brand salience, specifically, the -- making our brand relevant for markets where you're weak, in our case, it is the Hindi-speaking markets. In our case, it is to build our brand for the new generation consumers. And so you are seeing that already happening.

So just one other question on the R&D part. The grant obviously is a great gesture by the promoters. In terms of -- if you could give some context in the absence of this grant, are there things like would we have continued to do R&D, the way we would have done? And because of this grant, is there something that we will do, which we would not have otherwise? And similarly, just one connected question more on the finance side with R&D is all this will be -- it will not make any impact on the P&L, right, because you've received the money without any consideration in terms of quid pro quo. So the expensing of this R&D will not have any P&L impact, right?

I will answer one part. If I miss anything, Vir will step in. So first of all, if you are talking about room air conditioners, okay? So there is a room air conditioner, there are commercial air conditioning and commercial refrigeration. This figure, I have disclosed, so you can very well note down, if you want. The R&D expenses for the room air conditioners FY '23 was INR 26 crores. And we are planning to invest INR 30 crores in FY '24. And advertising expenses for the above the line, below the line put together was INR 61 crores in FY '23. And we are planning to spend INR 73 crores that you're seeing with IPL we have started. So we -- that is the investment that we have planned. Now distribution network, we were at 8,000 touch points. We are moving to 10,000 touch points this year. Now Blue Star, in my view, and is -- the multinationals do have their global R&D supporting them. In our case, we have too. We have international collaborations. And we will be the largest setup in terms of R&D. We continue to spend. Now your question is connected with how this incremental money will be utilized. So normally, what happens in R&D, you are doing R&D for 18-month period, 24-month period, 3-year period. And depending on the product portfolio that is required, you will prioritize the projects. This money, to begin with, is going to help us to advance quite a bit of the projects, which would have happened in the FY '25 or '26, we can fast track that. That is the first part of it. So that your existing resources can actually focus on quite a few other things, which we talked about where we have to make the products competitive. We have to focus on that TCM initiative because you have goal to improve the market share in a country where it is price sensitive, there is intense competition. So there is a strategic R&D efforts to go ahead and ensure that you are ready for the future. So that is where this money will be utilized. Anything else you want to add?

Yes. I'll just add to that. Just to be clear, this is -- again, Mr. Advani has given it with the clear instruction that this will only be for additional R&D work, additional work that we had not already planned and the additional work has a further criteria that it must contribute to either a brand-new product category for the company or must contribute to a high efficiency objective or must lead to decarbonization of our products. So there are both technical as well as financial criteria that he has self-imposed on the company. Otherwise, his own tax paid money is given as a gift to the company. So he could have easily just given it and left it at that, but he's obviously taken a deep interest in ensuring that the money is utilized correctly for additional benefits to the company, not to just -- it is not a gift to subsidize the existing R&D expense of the company that is anyway planned. That's one clarification. The other is on -- as far as the P&L is concerned, this will be P&L neutral. It will neither add to the P&L of the company nor will it reduce our cost in any way. So any plans that we have made, this is not accretive or dilutive to the financial plan.

And by the way, in FY -- I think last night, somebody called me and they have -- the profits have gone up. So they are trying to figure out whether anything else have come in. So Mr. Ashok Advani's grant is not the reason for profit going up. There is no money. In no year it will go up. In FY '23 results, there is nothing there.

My name is Dhananjai Bagrodia from ASK. Just a couple of questions. Wanted to ask you -- let's say, by end of FY '25, across our segments, what would capacities be looking like? What capacities would we be seeing by end of FY '25? And how much would CapEx be for those?

Nikhil, you want to take it up?

So on an annual basis, we'll be having a CapEx of around INR 250 crores to INR 300 crores. So that is what we expect to have consistently for next 2 years. And the capacities, of course, will be -- what we are going to do is the capacities will be built in a modular manner. So the overall spend will be in line with whatever is the requirement. At the moment, the Sri City, we are expecting to go from 300,000 to 600,000. And similarly, on the other plants also, we'll see the need and then we'll invest in the CapEx.

So roughly, what would be effective capacity by FY '25 for each -- for RAC...

So I'll answer room air conditioners part. We manufactured 6 lakh units in Himachal plant. So that, both the plants produced 6 lakh units, okay? And that, we believe, is the maximum capacity, some 2%, 3% more it may produce. Sri City is designed for 1.2 million units. And what Nikhil explained was, what is commissioned our commercial production by January is 3 lakh units. So it is in modules of 3, 3, 3. 3 will become 6. 6 will become 9. 9 will become 12. Next year, I mentioned to you, our goal is to -- for example, we want to do 1 million units. 6 lakh from -- will come from Himachal plant. 3 lakh is going to come from Sri City. 1 lakh is outsourced products, which is predominantly window air conditioners. That is the breakup. Now you know FY '25, I will need 20% more. Therefore, we will commence that part of it. Here again, the building is done. It is the lines that are to be done. So it is on all planned modular. And we believe by FY '25, we will need that additional capacity.

And sir, secondly, on your HVAC strategy, in North America and Europe, anything you could share light on that?

So it's a little early. We just set up the subsidiaries there. We've got a sales team on the ground. Products are being designed and developed for those markets. These are essentially commercial air conditioning products for the B2B market, not consumer products. So I think it's still early. FY '24 also will be -- relatively we will get some business off the ground. So zero business done in '23. Some business will start in '24. I think we'll have a better idea by the end of this year to share with you outlook for those geographies. As far as the Middle East is concerned, I mentioned to you that we reached about $100 million in business. To be clear, our strategy in the Middle East and Africa is product export, that is product designed and developed in India, manufactured here and then sold through dealers, distributors in these countries. We have a small project presence in Qatar, not big and not planned to be scaled up with -- it's a niche business we have there. So even going forward, as we grow this $100 million business in the Middle East, it will be all product-related exports that we'll be doing.

And sir, last question, if I could squeeze in. We've always been speaking about the industry consolidating number of players. But what we've been seeing now is that number of players actually has been increasing as the more French players have started coming in, maybe retailers and stuff. Would you see that trend continue the industry fragmenting 3 years later? Or would you see a lot of these smaller players keep reducing?

I do not see any new player has come in. Somebody is becoming active some year and that's about all. I -- in a category that is going to grow, and I told you it is going to double and I do not foresee anybody else new coming in, but...

Like, Croma, Flipkart have also started producing...

Private labeling across the country -- across the globe, it is not a big thing at all. It will be there. So it's all add to the growth. So real significant players, I think 5, 6 will continue to be there. And automobile, look at it, how many players are there. This is a category which is going to double. And on the lighter side, I'd keep pointing out how so many fund managers and how many analyst firms, how many brokers are there.

Nikunj Mehta from HSBC MS. I have three questions. So first, on the room AC side. So when we look at how the industry is kind of shaping up, a lot of manufacturing is now going to happen in-house across peers, for us as well. So purely, from a cost structure perspective, if I go 5 years back when a lot of things are going to -- were getting imported and getting assembled and sold in India, how will be the ones -- with the PLI benefit, how will the cost structure change for the industry per se and for us? That's question number one. And second question is we speak a lot on the product differentiation part. But when we see the market, right, so the players have become aggressive. It's purely more on the price points if the people are playing. So when we talk about the product differentiation, where exactly are we positioning ourselves versus the competition? So these are two questions on the room AC side.

So the first part is the -- until FY '19, the estimate is close to around 60% of the air conditioners were getting imported in some form or other. Somebody was importing the IDU part, somebody was fully importing. The reason being China is cheapest producer of this product category because their domestic market is estimated at [ $80 million ]. And you have got -- their exports all added together, they will cross [ $110 million ]. And India, you're seeing [ $8 million ], it has crossed. Next year it is expected to cross [ $10 million ]. So it is a huge difference. They are very competitive producer that was available and rightly, the manufacturers -- so the players in India imported and sold. Government identified a few categories that their formula at that point of time was whenever the threshold of INR 10,000 crore more import is happening in a particular category because they can track it, they have to do something. And it was a COVID period, and there was something standoff with China, and they wanted to identify which are all happening. You know that there is leather, shoes, furniture and air conditioners got included in that. And at that point of time, there were two things that was happening. There were -- there was one connected with phased manufacturing program, or PMP, where the duties will keep going up. Second part was connected with the PLI scheme. I will give you PLI and therefore, you can start producing in India, [indiscernible]. At that point of time, there is a free trade agreement with some countries in the Far East, through which the product can come in at zero duty. So you are increasing for the components. You are saying PLI will come, but what happens, zero duty products have come in. So therefore, they can't go back on FTA, but they introduced a rule that any product that is coming with the refrigerant-filled will not be allowed. So therefore, you don't have any, you have to get IDU or ODU. In the FTA, IDU, ODU had a full duty. It's not at the zero duty. So therefore, they blocked that import or made the imports costlier. Now today, if you compare, there are 2, 3 problems. One is, there is a duty that has gone up. Two, you cannot get the air conditioner ready-made. You have to take it to your factory. You will import and take it to your factory and redo that. The third is the ocean freight has gone up. If you benchmark in December 2019, it is almost 300% more. And Chinese prices are no longer cheaper. Chinese price also has gone up. Then government introduced the non-tariff barrier, which is quality control order. There, unless and until the BIS goes and inspect that factory or their component vendor's factory, they won't. So there is -- in a manner of speaking, you will never be able to survive by importing, okay? It is a level playing field. Now unfortunately, India cannot avoid importing components. Inner grooved copper wire -- copper tubes, it is to be imported. India, there is one manufacturer trying to do that under PLI. Compressors, one manufacturer has come in, and it should step up, you have to depend on that. Chips anyway, it has to be imported. So in this particular context, what -- whether India can be as competitive as China? No. Whether Blue Star has a disadvantage against competitors? I don't think so. We have figured out that what we need to do. All that I have to worry is whether there is a level playing field or not. I am not having anybody who is importing and selling. I'm not worried, that it will never be competitive. I hope that answers your question. Shashi, if you want to add anything?

Yes, that's helpful. And second was on the product differentiation part. With competition, I mean, resulting only to on the pricing front. So how are we looking at it?

I am of the view that we can. Shashi will tell you, they are under five buckets, products differentiated offerings are there, back to back. He will tell you just now. But the direction is very clear that I should have a product all price points, point number one. Point number two, I should have a product meant for all expectations in the market, okay? Price is going to be a factor in this product. Large demand is from first-time buyers. Large demand is from Tier 3, 4, 5 towns. Quite a few factors are now energy labeling detriments, energy efficiency, you can't differentiate. Ozone depletion or the global warming norms are fixed, you can't differentiate on that. Very little room is there. Our direction is every price point have a product, don't ignore any channel including e-commerce. Go ahead and serve the customers according to their expectations, which he will explain to you.

Yes. So to your first question, to note is that PLI is not on finished goods. It's on components. To that extent, there are a lot of players who are jumping into component manufacturing in India. So therefore, as the ecosystem develops within India, we will also gain from it as components get locally available and therefore, by some expectation, slightly more competitive costs compared to when they were being imported. So that's the first part. The second part is that if you go back a couple of years ago, we were largely playing in the premium segment. Today, and it was covered in the presentation as well, we are now playing in the value of the market. We're playing in the affordable segment. And we are ensuring that any product segmentation that happens in room AC, whether heavy-duty, whether it's smart ACs, whether price competitive ACs, we are there in the full range. So starting from window to all 3-star, 5-star, going up all the way to 2, 2.5 tonnes, we ensure that we are there in all segments and therefore, maintain product competitiveness and price competitiveness.

Sir, this is Ravi from [ Avendus ] Spark. Congrats on a good set of numbers. My first question is with respect to the split between the cooling products business, between room air conditioners and the other products, what is the ratio over there? And in terms of -- my second question is with respect to the profitability of the -- both the projects business and the cooling products business, how much more levers are there for the profitability to improve?

I don't get the second part. How much more...

Levers are there in terms of improvement in profitability for the air conditioning business and the projects business, both?

See, first of all, we mentioned the scale is an important lever. So you have to keep growing faster than the market, number one. So you asked about the projects business also, I think, so how the profitability will improve, Venkat will answer that what we are doing in terms of the -- portfolio wise, how we are spreading in order to improve the profitability. In products, under the total cost management program, we are very clear that the products are to be designed in terms of design for value. And if there is somebody who can create a product at X rupees, Blue Star should be able to also produce at X rupees. This capability was not there with us 3, 4 years ago. Over the period, now, we are confident. If on this is -- yet if somebody can produce a product at a particular price, we will figure out a way, design the product and deliver that. That's where we are. Now specifically, I know this is leading to room air conditioners. Again, if it is connected with room air conditioners, the Sri City plant of Blue Star Climatech itself gives us some edge in terms of inward as well as the outbound logistics. Earlier, it was -- the components were coming into Mumbai and Nhava Sheva Port, all the way it was going to Himachal. Sri City can get from any of the ports, Ennore port or the Krishnapatnam port or the Chennai port. The outbound, Southern region will constitute over 45% of the all-India sales. We can reach any of the markets, whether it is Kerala, Karnataka, Tamilnadu, Telangana, Andhra Pradesh, Pondicherry within 24 hours. Earlier, we had to transport all the way. One is the transportation cost from Himachal. Next is the inventory holding period. So that gives us -- apart from design for value, this -- as the scale goes up, you get the procurement. And Shashi mentioned, the local component system is evolving. And again, for them to end the PLI, they have to sell more. So obviously, there is competition out there. So this is a broad thing. Venkat, you want to add in terms of projects of the...

Yes. On the projects business, we have a slightly different strategy. We used to be predominantly a commercial buildings MEP player until about 4, 5 years back. So the first lever is to basically build a diversified projects portfolio. So that's what we have done in the last 4, 5 years. Today, the commercial buildings portfolio is about roughly 1/3, which used to be about 80%. And we now have significant presence in the factories and data centers, which are really emerging. And we choose carefully the projects in terms of the -- with due diligence in terms of better cash flows and also the fast track projects, et cetera. And we are also a significant player in the infrastructure projects. So this is the first part. The other thing is, important lever, is the better contracts management. So we have strengthened there. We ran a program internally. We call it as a business process restructuring program. Internally, we named it as Project Tiger Woods, and we have strengthened our commercial controls and the contracts management. Third, important lever is the procurement effectiveness. So this scale also gives us the procurement to a better procurement player in the market. So that gives us some more leverage. So this is how we are able to -- we are hopeful that, see, the profitability will further improve going forward.

Again, in commercial refrigeration, the market for lower capacities are going here because it is an ice-cream frozen food driven market. As the players want to grow their market share, ice cream manufacturers, the retailers are coming up in smaller towns. And these are not 500, 400 deep freezers, it is 300 and below. There again, profitability improvement, what we intend to do, Srinivas Reddy will explain to you.

We made the first leg of investment to manufacture in this nice capacities above 300 liters. So one, of course, the objective is to expand the capacity. Second, also to improve the valuation in the category. We now invested -- investing rather, in sub-300 liters as Mr. Thiagarajan explained. We expect to -- this particular line to go online in the next 6 to 7 months. And we expect the demand to boom from -- for this category in the next decade to come in. So there are -- due to indigenization efforts, the -- definitely, the valuation is going to be much better than what we are currently.

Some of the products recently launched or displayed outside, I would request you to have a look at that aspect.

Swati Jhunjhunwala from BOB Capital. So first question is on the internationalization. As we increase our exposure to the international market, our working capital cycle is expected to increase, right? So how do we expect to tackle that? And second question is on the REC. So one of the competitors recently mentioned that many of the players in this market have been giving discounts during the April period. And they are banking on when these discounts eventually do come, like they evacuate. After that, they will increase the market share again. So what are your thoughts on that? These are the two questions.

The second part, I will answer. First part...

So on the internationalization, you asked whether working capital will go up. So this is a product export business. This will be -- of course, there will be credit terms that will be given, but these are all LC-backed transactions. So yes, there is some credit terms there. But equally, we have -- we will have back-to-back understanding with our vendors on the payable side as well. So -- while there'll be some increase in working capital, I don't think the terms in that business are going to be significantly different from our Segment I term, for example. This will not be a cash business like room air conditioners, but I would say they will be in line with Segment I terms, the product side of it. So I won't worry about that. It is -- the investment in that business is more in R&D, in labs, in infrastructure to design and build products for those markets and of course, in manufacturing capacity because already we're seeing increase in India business that we've talked about. So this will be additional capital investment that we have to take into account for these markets. So that is what we built into the plan.

The second part is connected with discounts, right? Can you repeat that second part is connected with discounts.

Yes. So the second part is related to the REC market. So the competitors have mentioned that many of the players have given a lot of discounts during the April period. And they have said that when this settles down and when everybody come back to the higher prices, is when they expect to increase the market share back. So what are your thoughts on that?

They will keep giving discounts, right. Throughout the year, all of them give discounts. So there is nothing you can do about it. So there is no -- we don't have any control. The question is that we should be able to compete, correct? And your question is that, how will we improve the margin as well as market share? Broadly, that's the thing. It is indeed a tough game. There is no doubt about it at all. But we are very clear that our market share goal is modest that market will grow. There is no doubt about it. That clearly is not a suspect at all. You can suspect whether we will become 15%? We have to demonstrate to you, we will become. And we are very clear that our guidelines, I'd remind for many years, if you look at it, we will do 9% to 9.5%. We have moderated it down from -- I think the H2 call onwards, we had said that it should be 8% to 8.5%. So the -- that difference, what you are saying, some point of a time. And I had stated this that we have to manage this because the capacity is coming up and the competition will be intense. And I indicated to you, eventually, the PLI money is not going to get added to the bottom line. It will get diluted. But the end benefit will be good because the scale and the capacity that you have created, your localization that has happened. So that's the reason we are -- if -- we are not committing to you that it will be 9.5% to 10% operating margin, still we will go keeping in mind the competition. And I -- there will be seasons like -- this is like, for example, in Delhi, some brand can get desperate to go ahead and reduce the prices, but Blue Star doesn't play that game at all. We are very clear. And if you ask me at the end of it, whether I have to choose one, market share and the profitability, we will choose profitability if we have to, but we are confident like it has happened in the past. From 2011, this has been the doubt, will we succeed? Will we succeed? Will we succeed? When inventory came, the same question. Inventory has come, will you? And now PLI scheme has come, will you? This competitor has come, they -- it is good that they are there. And we will -- on the whole, I think the ecosystem is going to dramatically change. And if we keep this kind of scale and growth and you have a say in the market, and we are distinctly preferred brand there in quite a few markets.

So in the mean -- meanwhile if I can go ahead?

Yes, please go ahead. I think there are multiple . So you then -- here, this gentleman. So you go ahead.

Bhoomika from DAM Capital. Sir, just wanted to talk about the projects business. We've seen a very significant order intake in this field. How are you seeing that moving ahead? And if I see the exit margins, they've actually jumped up quite a bit, almost around close to 28% kind of a margin. Traditionally, we've hovered around a 4% to 5% kind of margin profile. So can this perhaps now start moving up to 6%, 7%, 8% kind of a margin profile? Or you think this is more of a quarterly abbreviation?

Mr. Venkat Rao will add. First of all, when you see the Segment I, there is a projects part of it, and there is a product part of it. And at this juncture, it is products as well as the projects, both are doing well. And the proposed of the products had significantly gone up. Venkat can explain to you how he sees the margins moving forward.

On the projects part, I'll explain. With the diversified project portfolio, we are able to build in the last 4, 5 years. At a gross margin level, we are able to improve close to about 2.5%. So that is improving. That is translating to, at least, a couple of percentage at the EBITDA level. So moving forward, as the last question, which I explained, with the levers which we are addressing the projects business, we are hopeful that the -- at a gross margin level, perhaps we will be able to move it up by about another 1% to 1.5%. So to that extent, EBITDA also will improve. That's about the projects business.

See, there is one light there, which prevents me from seeing. Yes, go ahead.

Sorry, just one question on the international business. I know we spoke about it. We are looking to go -- focus a lot more in international markets in the longer term. Here, will we be looking at branding and creating our own distribution brand, et cetera, in the international markets? Or will we be actually looking at white labeling? That's it from my side.

Yes. So we're -- like I said, we're just defining our strategy in these new markets. In the Middle East, it is building the brand. In North America and Europe, we're in the process of designing and developing products. Once we -- the commercial air conditioning is B2B, where we are prioritizing our work. As we go through this year, we'll figure out the most sensible way to enter each of these markets. We may have multiple sort of marketing strategies to do so. So we are aware of the high cost of building a brand in some of these markets. So we'll be selective about where we build the brand and where we partner with others. So a little early. I think by the end of this year, it'll be a little bit more clear, and we'll be happy to share more as we go forward.

There was a question before the conference commenced with regard to whether the room AC capacity expansion is for the international market? As of now, it is not. So we do not have any plans to get into export of room air conditioners to Europe or U.S. immediately at all. The priority, as we had mentioned, is for the commercial air conditioning products.

Congratulations on a great set of numbers. I am [indiscernible] from [ Delmas Capital ]. I have just a couple of questions. So you had mentioned about backward integration at your Sri City plant. So I wanted to understand what is the current level of backward integration today? And how is it expected to go forward? What are the components that you are producing in-house and what are the components you're getting from outside? So that is one. And also, we have heard from some places that there is a labor problem at the Sri City region, due to which some of your competitors and other manufacturers are not able to get labor properly for their operations. So what is your experience regarding that? And how do you plan to expand your facilities as you increase capacity?

Yes. The very first thing is connected with finished goods, whether we are bought, we are outsourcing. Other than window air conditioners, we do not outsource anything at all. And the second part is in terms of indoor units. It's very few SKUs, which we are, at present, dependent like cassette air conditioners IDU, which you see, which also in the next 6 months, we should have launched it. This will be the last season where we will depend on. So I'm telling you what we are dependent on. Rest of it, all, we are doing ourselves. And as far as compressors are concerned, we do not have any plans to manufacture compressors. The Indian ecosystem is improving there. And that is the prudent way to do that as well because that particular part, you cannot manufacture at that cost at all. And as far as drives, which is the other major component is concerned, we had done our own exercise. We hold the IP and getting it manufactured through others. That's what is important because they can -- they are manufacturing huge number of electronics and therefore, they can make it. IP is ours. So that drives design, they have developed, and we will get it manufactured outside. Otherwise, raw materials only, we import. Everything else is in our state. In other words, the complete sheet metal and powder coating, assembly is inside. Now you can ask the last spot, whether we are doing injection molding. Injection molding, again our calculation, so the mold we own, but we get it manufactured or molded by the molders that is the most cost-effective way. Otherwise, it is a completely integrated plant.

So the second question was regarding labor problems that we have heard at Sri City...

Yes. Okay. So any of the locations in India, first time when you are manufacturing, this problem will be there. Sri City. So, so far, if you look at North was the hub right, that it was Noida or the NCR region had the room air conditioning manufacturing facility. And when we went to Himachal, we created that ecosystem of workers training them from, so we are the first one to commission the factory there. During the course of the year, others will come in. And therefore, you have to recruit people and train. So there is no shortage of labor. Whether trained workers are readily available? This is a question. And when the -- when Sri City is becoming a hub -- a major hub because Sri City's combined capacity will be larger than what is available in Delhi. So there will be this effort that has to go on. Especially when you are getting started, you rush for. Now labor problem is -- labor problem means it is union, that there is no such trouble. It is shortage of manpower for room air conditioner manufacturing. It is the expected, one should have planned for that. And we have so far. Mr. Kasbekar, you want to add whether you have any problems. He is Blue Star Climatech's CEO.

As on date, we have not experienced any labor trouble or shortage of labor. In fact, I want to tell you that more than 50% of our labor is gender diversity. Female operators are working and abundant supply of labor is there. The issue is how do we train them and uplift their skills quickly. So we have a training pool where in we expose the operators to the required skill and uplift their skill. That's the issue. I don't see any labor shortage or union trouble there in Sri City as such. We have not faced that kind of issue. I hope I have answered your question.

Yes. I'll just come in. I understood someone asked a question about whether working capital related to the international business is going to be a concern? I now -- Nikhil explained to me what the doubt may be, so I'll clarify. The business is built around -- we don't hold any inventory in the field. It is all sold to a dealer, a distributor, and it is picked up from the Indian port. So we neither hold inventory in the factory or in any warehouse or in India or anywhere else overseas. So what that means is that it's a standard receivable. It's an LC, but obviously, there's a period given. It could be 30 days, 45 days, 60 days. So it is through that limited extent that working capital will go up, but there's no buildup of inventory in our books of any kind anywhere, either in India or overseas. I think that clarifies it.

Just on the distribution channel. So the modern retailers like all the Vijay Sales, Reliance Digital, Aditya Vision, I mean, Bajaj Electronics. So they are getting bigger in terms of the franchises. So over the next 3, 4 years, how do you see the distribution channel evolving? I mean these modern retailers, will they have a higher bargaining power in placing the brands? And second, on the e-commerce channel, how do you see that transitioning over the next 3, 4 years? And what is the strategy for that?

So our understanding is as follows. Unlike many other countries here, everything is going to coexist. You will have the normal stand-alone retail chains. There are regional retail chains and there are modern retailers or the power retailers all India. And there are distributors distributing like it extensively happens in the North and there is going to be e-commerce. And soon, you will have ONDC as another game-changing channel. All of them have to compete with each other. I don't think you will be able to determine, and this is the dilemma of the -- more in retailers as well that how they will grow, how the others will grow. Equally, you are finding that distributors are being, in a manner of speaking, taken over by larger e-commerce platform in the sense that the sub-dealers, the e-commerce channels are able to serve directly. And so this is going to be an evolving thing. That is why I mentioned earlier, our strategy is very clear that we would like to maintain our share across all the channels. Each one has got some plus point. Each one has got some minus point. But coming specifically to the modern retail and their behavior is more or less like -- behavior I mean -- the purchasing behavior is more or less like e-commerce and -- because they are buying large quantity. And they will pay you upfront. There is no problem in terms of collections or something other. Their bargaining power is high. And it is a play of what product portfolio you have got, what brand salience you're able to create and the pull and then the channel own preference and the relationship. And again, it is -- out of all the product categories of ours, this is the one which is with a high seasonality as well. Next one will be the refrigeration products. So season to season, it changes. If you ask us to guess what can happen? The modern retail plus e-commerce put together can be 60% of the total market in 3 years' time, very likely. Because there is also both in -- Shashi can correct me, he has seen quite a few new regional chains emerging because they are acquiring even in a place like Varanasi, smaller dealers are required to form. And we have seen in South a different model that for purchasing alone, they come as a consortium, that also we are seeing. It is going to be evolving. ONDC, we have to wait and watch what is going to happen there. And e-commerce alone, if you look at it, in FY '23, they had de-grown. FY '22, they had grown and it is somewhere around 15% of the total sales is happening there. FY '24, we believe that it could be 20%, and it can go up to 25% in 2, 3 years' time. And again, they have to wait what is going to happen in the ONDC world. Gentleman?

Yes. This is Girish from Morgan Stanley. You partly answered the question. I wanted to understand for room AC growth across channels, how that is coming through. You said e-commerce is degrowing. The rest, modern retail and general trade, how they would have done in FY '23?

So the question is largely in some sense is related to the earlier question. So two parts here. One is that India is a country like Mr. Thiagarajan very well expressed, where all channels will continue to coexist. So we don't see modern retail or regional retail or e-comm or distributor or indeed, sales and service dealers, SSD channel, becoming over dominant. So as long as none of these channels become over-dominant, A, and as long as we are not overdependent on any particular channel, I think we'll maintain both growth and profitability. So that is the way we operate. For example, SSD channel is a very strong channel for us. And therefore, we continue to play to each channel strength such that it works in our favor from a growth and a profitability perspective.

I'm Yash Verma from White Oak Capital. Sir, my question is on the MEP part. What are the steps that we have in place within the organization, which makes sure that the cash flow profile -- cash flow focus, which was mentioned in the PPT, will not be compromised for the sake of order inflow growth or revenue growth? Also, if you can list us with, let's say, if any metrics do you have in mind, qualitative or quantitative that minimum threshold margin or ROCE, which we have in place and we are bidding? And typical, what are the qualities of the project where Blue Star will never participate?

Last part is which...

So what are the qualities of the projected -- like what are the features of the project in terms of where Blue Star will never participate as far as MEP is concerned?

That will be a highly -- last line will be a very highly classified information. I can't tell you this sector. I won't pick up the order or anything like that. So the direction is very clear that, A, we want to go faster than the market, build scale, which we have mentioned. The second, our guidelines remains the same as we had given on 31st January in the sense that 8% to 8.5% operating margin, we will aim in room air conditioners or the Unitary Products segment. And in projects, we are saying -- we used to be saying something like 6% to 6.5%. 6.5% to 7% is the goal that we have got. Some quarter, it may be 7.0. Some quarter, you saw it as 8%. But I think that is what we will aim in terms of the margin. Now you're seeing the ROCE, which is talked about. This is the ROCE direction. And that's how we will move forward.

So just one follow-up. In terms of as a strategic choice, you are very clear that white goods is something you will not enter. So can you walk us through your thought process of why because you have a distribution, you have a brand and the opportunity is there. So why the strategic choice of not looking at white goods? And is it like for now or maybe we will never enter maybe 3 years down the line or 5 years down the line?

Our employees also asked the same question, maybe -- so the question is, you have to make a choice. Look, already you are all asking what capital will be required. And so you need money for everything. And now, if we get in the refrigerators, 90% of the questions will be on refrigerators now, like room air conditioners, now it is happening. So the -- we did debate. We debated a couple of years ago in an extensive research. Dipankar is the person who led that exercise along with our CFO and other Presidents. We did evaluate refrigerators. We evaluated washing machines. We evaluated small appliances because many smaller appliance companies are generating hell a lot of cash. And you are all part of it. Many of you are here that when we entered water purifiers, you all asked the question, why are we entering? Now the -- it happens at the Board level also that if you don't enter, you're asking why you're not entering. If you enter, why did you enter. So that's the whole problem. Now after evaluating, the Blue Star thinks like we should get about 30 ROCE, and we should improve our profitability. We want to manage our balance sheet well, keep the borrowings under control. In this particular context, we came to the conclusion, it is desirable for Blue Star to build global leadership in air conditioning and refrigeration rather than getting into growing our categories in India, very clear direction. Now when you're saying refrigeration, why not get into refrigerators was the last part of that discussion. It is only an addition. So we said, no. The penetration levels and the different type of competencies that are required and the CapEx that will be required. We said what makes sense for Blue Star is to go ahead and build our leadership across the globe, that's the direction. And to begin with, again, we decided that it will be through commercial air conditioning products, not through projects, not through room air conditioners. Room air conditioners, we will look at it after we have succeeded because we do have enviable IP. If you look at the VRF, we have the capability. And inverter drives, we have built the global competence at that particular category. So it gives us the confidence that we have high degree of success. Still, it is work in progress in that strategy rather than getting into ever tempting refrigerator and washing machine business. And you know there, the brand building, most importantly, it is not room air conditioner. Shailesh will get me that. I have to again invest as a leader, which we learned in water purifiers that people didn't buy Blue Star water purifiers readily or even the dealers. You have to invest money to promote that.

So, yes, just to add on what he said. One is about choice. So we had to take -- make a choice. We had -- we could leverage the distribution we had in room air conditioners or we could leverage the technology we had in commercial air conditioning. These are the two standout capabilities that the organization has. We evaluated, therefore, leverage distribution into other categories versus leveraging technology for other markets. And we felt that -- and we had to choose. We couldn't do both because we have a resource constraint, both financial and nonfinancial, where we don't want to try and do both and fail. In our own analysis, leveraging the technology for global markets seem to be more attractive than the other one. It's not to say that the other one is bad or whatever. For Blue Star, we thought that there was a higher return on incremental invested capital going down this path as against the other path. So that's why we did it. It was a financial decision, and we'll see whether we were right or wrong, but we think we are on the right path. Will we -- because we've done this, will we never do something else? The answer is absolutely not. We're only 80 years old. We'll be up another 80 years. So certainly, we will keep exploring things in the future. So we don't have a time line that we're saying for the next 3 years, we won't do something or something, it's not like that. We continue to scan the market for opportunities. And if at some point, we feel that our distribution strength needs to be leveraged with other products, we will revisit that plan. Yes.

This is Nikunj Gala from Sundaram Mutual Fund. I have one question to CFO. The unallocable expenses last year were approximately INR 90 crores, which has increased to INR 170-plus crores. So what are the major line items here to understand the nature of the expenses better here? And if you can help us do whatever -- which are the items -- where increase was higher than the other?

So what you have to look at is, this is probably the first full year of operation after last few years getting dented. Every quarter -- last year, there was one quarter in which there was a dent. This year -- because of COVID. So this year was a full first year of operations, which means that everything, including travel, transport, freight, everything comes back to the normal level. At the unallocated level, what happens is that there are common expenses, which are there in terms of common staff and everything for which the other increments also happen. So all of that has taken place. There have been conferences, which we do at company level, which also started last year. So all of that has resulted in the expenses coming back to where they were earlier. So to that extent, unallocable expenses have gone up.

Okay. Like -- if you look at even the -- like pre-COVID time, it was hovering in the range of INR 90 crores, which has increased...

You have to see the scale also. The scale has gone up. The total employees in the company has also gone up. So to that extent, the staffing, which is required at the corporate level, will also go up. So the unallocable expenses are basically at a group level, which are required to support the group.

But any -- like breakdown you can help us with, out of 170, how much would be the corporate overheads versus the -- any other line item which you have included there? Or whether the A&P at a group level is a part of that? Or it's allocated to the each and every segment?

Because allocable to every business to the extent possible identified at all. Like, for example, advertising. It is debited fully to the businesses. And freight or forwarding or anything. It is purely corporate expenses. And if it is a company-wide exercise that has been taken, for example, some consultant was engaged for some program that may be in the -- there, again, we break our head to distribute to the extent possible. Actually, Nikhil was disappointed, this question, nobody's asking.

Yes, since no one asked...

No. He thought our Board will ask yesterday. He was disappointed nobody is asking why?

This is Ashish Jain from Macquarie. Sir, you spoke about 20% revenue CAGR at company level in the next, say, 2 to 3 years. Can you break it down by business for each segment, especially given for room AC, you also spoke about the volumes doubling for the industry. So can you just break that 20% CAGR number into various segments for yourself?

I think it will happen equally. So it will be very difficult for us to figure that out. The -- because if you look at B2C business, it is dependent on the market growth. And if you are looking at the projects business, it is based on the pending order book that you're seeing. And commercial refrigeration business continues to grow. There is one business, which is on a small base in the country as a market, and it will continue to grow. Very difficult to break up this is going to grow by this much, this is going to grow by this much. If there are no other questions, we thank you for coming over. Thank you for your interest in Blue Star. And one question, I think?

This is [ Ashwani ] from 3P Investments. I wanted to know what kind of efforts you are making on the aftersales service, both on the commercial side and on the room AC side? And how is it differentiated versus how critical it is for your subsystem?

Wilson, do you want to answer that, the -- that's the gold standard effort.

Yes. We have, within the company, a policy which is gold standard customer service. So we invest in training our people, our technicians, our channel partners to ensure that there is a seamless delivery, which we maintain, like how it was shared, the [ credo ] is taken across right up to the technician level, which then enables us to differentiate between us and others. So that's one of the things that we do consciously. We also have channel partners that we developed to meet the needs of the service delivery as far as the commercial refrigeration goes. So apart from our own sales and service dealers, we have channel partners to take care of that as well.

So to add to that, the -- one of the programs that we have undertaken is to be the benchmark for service as far as the room air conditioner is concerned, which will mean -- by the way, we have invested adequately in the digital enterprise initiatives, in service and we are looking at how it can be taken to the very next level. And in commercial refrigeration, we have been continuously innovating in terms of how to delight the customers. Say, for example, it is a quick service restaurant or it is going to be a retail store, if a cold room is going to fail, there are mobile refrigerator vans, which will quickly shift to that frozen food. By the time in 8 hours, we repair, this can be shifted back. On the whole, we believe we are doing well in terms of service, but there is huge room for improvement as well to position ourselves as the best. That's our mission.

Yes. And second, sir, you said in your conversation earlier that 90% of the buyers are first-time buyers in room AC. So in this, basically, with so many brands there and the pricing competition is also very significant, what is the real customer loyalty? I mean, the first time buyers, if it is a replacement buyer, it is very likely that he may consider buying the brand, which he has bought first time. In case of the first-time buyer, what is the most critical attribute for him to choose, I'm just asking Blue Star versus others, what's the most critical thing?

So we -- it's a great question. We are right now on our analytics program. One of the things that we are looking at is also analyzing this, the dipstick sample shows that more than 95% of the buyers are Blue Star, he end up buying Blue Star if he is buying the second one. Now we do not have data for the reference, how much it is happening. So that is something which we are applying our mind. The competition, one, how that is happening, the real input that is available to us is from some of the dealers, but most importantly, very recently, we could get this information from the e-commerce channels because there it is completely known, and there is an authentic information that is available. Now I do not think from these two data, the dipstick that we have done, from the e-commerce players data, there is very high level of loyalty. And whether it is significantly different from other brands, I don't think so. The -- because the comparison, we compare with the top 3 brands in that. So I don't think there was in that limited data. But your question is valid, relevant. It is also one of the subjects that we are trying to figure that out through the analytics program.

And sir, just further on the aftersales service, how big is this business? And what's your market share there? I mean are you able to service a significant part of population, which is their Blue Star products? Or do you still have room to increase market share there?

So the -- if you're talking about service as a business, there are multiple activities that are taking place there. One in the room air conditioners or the commercial refrigeration products, there's no annual maintenance contract there. It is a warranty. And again, here, the warranty on compressor is 5 years, 10 years. Warranty on the inverter is 10 years. And so, therefore, there it is a repair service as the main service revenue. And spare parts will be the second service revenue stream. In commercial air conditioning, which are chillers or VRFs or the packaged air conditioning or even in cold rooms, there will be annual maintenance contract. There will be repair service. There will be spare parts, and there will be other value-added services like, for example, energy management or the air management, water management, so on and so forth. Now as I told you, because of the limited disclosure or because of the reason that I don't have the competition information, why I should disclose what is my service revenue. We are not able to disclose this, unfortunately. You have to forgive us. But to the specific question, whether there is scope for improving the service revenue? Yes. The -- it can be higher by 20% compared with what we are. The areas are connected with certain segments in Tier 3, 4, 5 towns, not coming into annual maintenance contract is one. Two is the spare parts reach and making it available to the technicians and the end customers. So there is a 20% scope that is available there. And that is part of the mission, which Mr. Wilson Jebaraj is driving.

Okay. Thank you, wish you the very best.

Thank you for coming over. Thank you for your interest in Blue Star. So if some of the questions are not answered, you can email that to Mr. Shiva Kumar and we will be happy to respond to you. And the -- as I mentioned, the products are displayed there. You can have a look at them. Please do join us for lunch. Don't run away. The stock market is open until 4:00 p.m.