Blue Star Limited (500067) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to Blue Star Limited Q1 FY '25 Earnings Conference Call. We have with us today from the management, Mr. B. Thiagarajan, Managing Director, Blue Star Limited; and Mr. Nikhil Sohoni, Group Chief Financial Officer, Blue Star Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. B. Thiagarajan. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. It's a pleasure to address you today as a part of the earnings call. I have with me, Mr. Nikhil Sohoni. Of course, he's joining from Singapore today. You might have seen the press release as well as other announcements shared with the stock exchanges, including the AGM speech of my colleague, Mr. Vir Advani. So you might have seen that the results are once again an excellent one this time, supported by a very hot summer season. B2B as well as B2C businesses have done well. We have done well in terms of the balance sheet items as well. The order book has been good, and the margins have improved. And of course today, Mr. Nikhil Sohoni will take you through the highlights for the quarter ended June 30, 2024. We will also share with you the outlook for the coming quarter. From my side, we have interacted individually, collectively over the past 6 months. You have seen my television interviews and other interactions wherever it is available in the public domain. The outlook is positive. As I had shared last time, it is a golden period for the Indian air conditioning and refrigeration industry. We are the fastest-growing market in the world, and we are -- as far as room air conditioners is concerned, I think and I continue to maintain that by 2045, we can overtake China in terms of market size. The supply chain constraints continue in the same way. It's due to different reasons which you're all aware of. And the domestic supply chain has been improving steadily. There are 3 items which many of you keep asking. One is connected with copper. It's likely to improve in about 6 months' time. Until then, we are import-dependent. Compressors, we continue to source from outside and from domestic manufacturers as well as international companies. And this is likely to be getting resolved only after around 18 months of time. This is -- it's true for every player in the industry. The third item is connected with the electronics. And again, domestic supply chain is improving. There is a transition that is happening. In other words, hybrid sourcing goes on. The costs are coming down as of now and due to various measures. One is connected with the scale. Second is connected with value engineering. The third is connected with the indigenization that is happening and the global commodity prices. But having said all this, right now, the geopolitical situation across the world and specifically the developments in the Middle East region calls for extreme caution. It's a matter of concern, things can dramatically change. But we continue to remain optimistic. And I suppose India will navigate through this crisis, which is likely to be lasting for about 6 months of time. That's our understanding at the moment. We continue to pursue our basic fundamentals. Number one is connected with growing faster than the market. Building strong fundamentals by investing adequately in research and development, looking out for improvements in margins through multiple ways, including supply chain effectiveness and discipline in terms of capital allocation, whether it is CapEx or working capital management. And in terms of booking large orders for B2B businesses, like projects, our focus will continue to be, look for the free cash flows and profitability rather than market share. There is one important element alone I will highlight, preempting the -- it may be come up in the Q&A so that we can be out of this. Two important points. One is connected with the Segment 1 margin. It is very high basically because of the mix of our own manufactured products impacting the air conditioning. So as you're aware, it is the electro-mechanical projects and packaged air conditioning. And where we have VRF system, chillers and packaged air conditioners, there are significantly high value orders for the equipment executed in the quarter. That's why the margin for that -- this quarter for that segment is very high. The second one I would like to preempt is that we maintained that the growth will be somewhere around 25% to 30% in the beginning of the quarter. It was increased to 30% to 35%. But in real life, we witnessed some 40% growth in March last week itself. We exceeded the expectations for the Q4 FY '24 results. And in Q1, April, the market grew by some 70%. Again, in May, 70%. June only it came down to somewhere around 10% to 15%. So there was chaos in managing the demand versus supply. At the end, you know the figures. We have delivered much more than what we planned for. There have been questions as to what could be the revenue we would have lost because we have not planned for. I don't think one will ever plan for a 50%, 60% growth at all. That would have been a futile exercise while keeping the supply chain flexible. So, yes, 25% to 30% growth, 50% to 60% growth is -- could be managed with great difficulty. Still, if you would have had material, we would have sold. Our estimate is we would have done somewhere around INR 250 crores worth of revenue and perhaps INR 20 crores to INR 25 crores worth of PBT we would have done more. But that's only for an academic interest what would have been. It was an unprecedented summer. I don't think that every now and then you can expect that kind of situation. Especially this summer is the one which is following a very disappointing summer season of 2023. So with that, I will hand it over to Mr. Nikhil Sohoni for his opening remarks. Thank you.

Thank you, Mr. Thiagarajan. Good afternoon, ladies and gentlemen. This is Nikhil Sohoni, and I will provide you an overview of the results of Blue Star Limited for quarter ended June 2024. We stepped into FY '25 on a strong note with an outstanding business performance in first quarter and a healthy carryforward order book to be executed in coming quarters. Robust demand for our diversified product portfolio across segments and focused cost management helped us achieve impressive revenue and profit growth during this quarter. Financial highlights for the quarter ended June 30, 2024, on a consolidated basis are summarized as follows: revenue from operations for Q1 FY '25 grew by 28.7% to INR 2,865.37 crores as compared to INR 2,226 crores in Q1 of last year. EBITDA excluding other income for Q1 FY '25 improved to INR 237.83 crores, an EBITDA margin of 8.3% of revenue as compared to INR 145 crores, an EBITDA margin of 6.5% of revenue in Q1 FY '24. PBT before exceptional items grew 98.9% to INR 226.02 crores in Q1 FY '25 as compared to INR 113.61 crores in Q1 FY '24. Tax expense for Q1 FY '25 was INR 57.26 crores as compared to INR 30.24 crores in Q1 FY '24. Net profit for Q1 FY '25 grew to INR 168.76 crores as compared to INR 83.37 crores in Q1 FY '24. Carried forward order book as of June 30, 2024, grew by 13.5% to INR 6,084.69 crores as compared to INR 5,359 crores as of June 30, 2023. Carried forward order book as of March 31, '24 stood at INR 5,697.63 crores. The capital employed as of June 30, 2024, increased to INR 1,737.88 crores as compared to INR 1,700 crores as of June 30, 2023. We continue to invest in manufacturing capacity, research and development and digitalization initiatives. Strong operating performance added a net cash position of INR 1,042.87 crores as on June 30, 2024, as compared to a net borrowing of INR 283.46 crores. The debt-equity ratio of 0.20 on a net basis as of June 30, 2023. Business highlights for Q1 FY '25. Coming to Segment 1, which is Electro-Mechanical Projects and Commercial Air Conditioning Systems. Segment 1 revenue grew 9.5% to INR 1,038.99 crores in Q1 of FY '25 as compared to INR 949.12 crores in Q1 of FY '24. Segment result was INR 103 crores, which was 9.9% of revenue in the current quarter FY '25 as compared to INR 66.62 crores, which was 7% of revenue in Q1 of FY '24. Order inflow for the quarter was INR 1,466.03 crores in Q1 FY '25 as compared to INR 66.62 crores in Q1 of FY '24. Electro-Mechanical Projects business, despite limited traction in commercial building sector, we experienced robust bookings from the factories and data center sectors, majorly driven by ongoing government efforts to encourage manufacturing investments through PLI initiatives. We also witnessed an uptick in inquiries from healthcare and retail sectors. Additionally, inflow of inquiries and tenders in railway electrification sector remained buoyant throughout the quarter, while there was a slowdown in finalization of orders in the power and metro railway sectors. Carryforward order book of Electro-Mechanical Projects business was at INR 4,557.29 crores as on June 30, 2024, as compared to INR 4,038.14 crores as of June 30, 2023, a growth of 12.9%. Coming to Commercial Air Conditioning Systems. Demand for government sector was subdued. However, the increasing demand from education, manufacturing and retail sector more than compensated, driving revenue growth during the quarter. Price revisions and prudent cost management helped us improve the margin. Demand for Tier 3 and 4 cities remained strong and significant orders primarily driven by ducted systems and VRF chillers. We successfully retained our top position in conventional and inverted ducted air conditioning systems and ranked amongst the top 3 players in scroll chillers, VRF and screw chillers. This quarter, we expanded the product range with the commercial launch of state-of-art chillers for data center application and brine chillers. With these new product lines, we are confident of penetrating new market segments. Due to the higher mix from commercial air conditioners, especially with good margin products, Segment 1 margins significantly improved in Q1 of FY '25 versus Q1 of FY '24. Coming to International business. Demand in Middle East and Africa remained subdued during the quarter. Overall, for our International business, we are focusing on products. Accordingly, we continue to invest in R&D to expand the product portfolio. Our subsidiaries in U.S. and Europe are engaging with customers, and we expect the business to pick up traction soon. Segment 2, which is Unitary Products, the revenue grew by 44.3% to INR 1,729.52 crores in Q1 of FY '25 as compared to INR 1,198.45 crores in Q1 of FY '24. Segment result was INR 158.03 crores, which was 9.1% of revenue for Q1 of FY '25 as compared to INR 89.34 crores, which was 7.5% of revenue in Q1 of FY '24. Coming to Cooling and Purification Products business. This quarter has experienced exceptionally strong growth for room ACs with seasonal demand receiving an additional boost from unusually high temperatures. The demand exceeded our inventory plans, and the company successfully met most of the demand through higher production. In our estimate, in the month of May, we would have lost an opportunity to meet the market demand despite 50% higher production. We estimate that our market share continues to remain at 13.75%. Margins for the quarter improved due to volume growth, which enhanced operating leverage. Q1 FY '25 was exceptional, and we remain optimistic about our growth outlook for the entire year. Coming to Commercial Refrigeration business. The market for Commercial Refrigeration, namely deep freezers, water coolers and modular cold rooms, continued to grow at a CAGR of 15%. BIS-related regulatory changes for water coolers, announced in the last week of March 2024, impacted the sale of water coolers in Q1 FY '25. Though the production and sales have normalized in Q2 FY '25, substantial reduction in sale of water coolers resulted in lower-than-expected revenue growth and profitability in Q1 FY '25. Company maintains its leadership in key categories like deep freezers, storage water coolers and modular cold rooms. The outlook for the Commercial Refrigeration market is strong, and we expect to accelerate our growth in coming quarters. Segment 3, which is Professional Electronics and Industrial Systems, here, the revenue grew 23.5% to INR 96.86 crores in Q1 FY '25 as compared to INR 78.43 crores in Q1 FY '24. Segment result was INR 9.6 crores, which is 9.9% of revenue in Q1 FY '25 as compared to INR 10.49 crores, which is 13.4% of revenue in Q1 FY '24. While most of the product categories are performing well, supply chain disruptions and cost overruns in MedTech business impacted the segment margins. Coming to business outlook. The year has begun on a positive note with robust demand for our product portfolio, and the outlook for the remainder of the year continues to be favorable. We anticipate sustained growth driven by ongoing market trends and launch of new products. We are pleased to announce that our order book remains robust, indicative of sustained confidence and trust placed in us by our esteemed customers and partners. As a part of our commitment to long-term growth and innovation, we'll continue to invest in manufacturing, research and development and digitalization. These investments will position us to capitalize on future opportunities and enhance our competitive advantage. We continue to remain focused on maintaining a prudent approach to balance sheet management. To conclude, we are optimistic about the business prospects for the rest of the year. With that, ladies and gentlemen, I'm done with the opening remarks. I would now like to pass it back to the moderator, who will open the floor to questions. We'll try to answer as many questions as we can. To the extent we are unable to, we will get back to you via e-mail. With that, we are open for questions.

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

Congratulations on a good set of numbers. Sir, my first question is on the EMP segment where you said that the mix was kind of skewed towards commercial segment, which kind of -- product segment, which kind of helped the margin profile. Can you just give a color on how the mix kind of changed? From what I understand, earlier it used to be 70% project, 30% product. What was the kind of skew during the quarter? And you were looking at margins earlier at, say, 7% to 7.5%. Does this quarter kind of change the outlook? And a sub-question to the project segment or the similar EMP segment is also on data centers. How large are we kind of -- what kind of revenues on an annualized basis are we generating from this segment? And if some color can be thrown in terms of what is the addressable TAM out here for us in terms of per-megawatt CapEx, what could be our addressable project size that we could potentially get?

Thank you. First of all, I am not sure where you got 70-30 as a figure. Officially, our position is very clear that we are not going to be selectively disclosing any of the products within a particular segment at all. The same question can come within Unitary Products, what is refrigeration, what is room air conditioners? The -- I have been a very strong advocate. I've taken it up with SEBI, forums, and I have aired this in many CII forums whether it is integrated report or annual report, quarterly disclosure, there is no level playing field at all. Because I compete in a multinational environment, my information is readily available to the international competitors readily. I do not have any information on my competitors at all. So I have been firmly advocating that at least RoC filings should be asking for the disclosures; otherwise, listed companies are at a disadvantage. So that has been my position. Second, with respect to that, there has to be a level playing field in terms of disclosures to all stakeholders. So this position is very clear. Whether it is QIP investors or retail investors, the information that is put out is same for all. So coming back to the 70-30 or anything in that segment, you know very well, the project is something which happens based on a particular order being executed, particular site being available, how the progress is taking place. We have a big order that is booked, nothing may move for 6 months over time. In 7 to 8 months, suddenly the billing will commence. There could be jobs which are going on smoothly and suddenly some 3 months the billings may not happen. So never, even within Blue Star, will be -- one will be able to say ahead that what is the equipment part of it, what is the projects part of it. Equipment, again, is based on -- when I say a VRF or a packaged air conditioner, it is dependent on the site availability. And the customer just lifts the equipment because it is not stored in the site nor it is a product where it is built to the dealers and it is getting consumed. And most of these equipments are also cleared after the drawings are approved. Until the circumstances, one quarter it may be 20-80, another quarter it can be 80-20, another quarter it can be 90-10. All that we are saying is when you see a huge margin, the skew could be where the products are higher. For the simple reason, certain products fetches higher margins. Same way, within projects itself, there are certain projects which would have been booked or resulted in a higher margin. Certain projects, we are just making some 6% to 5% kind of. That's a real story. It is extremely difficult even within Blue Star to be passing a judgment on quarter-to-quarter. Our interest is to smoothen out and have consistent execution, but it is entirely not in our hands at all. So, therefore, I am unable to disclose anything more than this except that the margin -- why I'm saying this? I am saying for your benefit. Somebody should not end up projecting that this business has the potential to deliver 10% plus EBIT margins, then I am doing injustice to your estimates. The outlook remains very clear. The outlook is somewhere around 7.5%. It could be 7.5% to 8% as far as Segment 1 is concerned. And we don't want the investors to -- as well, I can keep quiet, but we don't want to in the best interest of transparency to this extent that it is due to certain highly profitable orders equipment executed. This is the first part of it. Same way, here I'm completing the Segment 2 outlook. Segment 2, we have been saying it is somewhere around 8%. And now since the summer season has been good, barring that rest of the period goes through, there are no major disruptions due to geopolitical situation, we are saying it could be 8.5% to 9% instead of 8% to 8.5%. So 7.5% to 8% for Segment 1, 8.5% to 9% for Segment 2 is the outlook we are communicating. Now coming to data center field, the segment is growing. There is absolutely no doubt about it. Right now, everyone is investing. It is driven according to us by -- according to the information we have, it is due to artificial intelligence-related expansions that are happening. There is a huge demand for data centers, and all are expanding their capacities. Now, equally, it's a fact that there are growing concerns about the carbon footprint related to data centers. Therefore, what are the alternate solutions? We are conscious of this as well. Now, close to in a year, we think that INR 1,000 crores to INR 1,500 crores worth of orders can be booked. It is in the order of around INR 1,000 crores now. It can go up to INR 1,500 crores. This business, I keep believing it is something like [ Telepac ]. Some point of a time, we used to be a player in that. Mobile cellular towers, wherever it was coming up, for the batteries as well as the switches, there were specialty equipment, and it was a growing segment at some point of time. Close to around 6, 7 years, we have -- it is a niche business, it was growing, and the profitability was high. The tower companies, you all have reported about their growth. At some point of time, the technology changed, and it was -- there was no need for air conditioning. We believe in next 2, 3 years' time, there will be a huge requirement for equipment like chillers as well as electromechanical projects, where we do including the civil work, which are highly profitable, we'll grow. I would reckon that INR 1,000 crores to INR 1,500 crores of revenue is possible in the coming years for at least 3 years. I do not think a dramatic change in the technology could be there. And you might have seen even yesterday, there was an article with regard to AWS, Accenture reporting that one could exploit cloud solutions in order to bring down the carbon footprint, where we are working that. Right now, there is -- we are augmenting capacity in order to execute. In the Electro-Mechanical Projects segment, as Nikhil mentioned, that the growth is driven today by manufacturing. It is driven by data center. It is driven by educational institutions. These are the segments. Building segment is showing some kind of revival. During the last 6 months, infrastructure orders, there was some kind of slowdown. I suppose it is due to the elections and the new government getting formed. Things would have been delayed, but now those orders are also getting finalized. And we believe that we will further build on the results we delivered last year for the Segment 1. This is where we are.

Just on INR 1,000 crores, what is the FY '24 revenues from data centers?

It will become selective, right? This is where the problem is, that I am -- I should not be doing injustice to a regulation. If I do it, I will notify to the stock exchange and do. I am not doing it because I am peeved by the fact that it is not a level playing field. Room air conditions, for example, the information of Voltas, Blue Star, Havells will be available. [ Amble ] will be available in different degrees, but then I don't have the other competitors. So I -- this solution will have to be found where we disclose every information. You look at our annual report. To the extent possible, we have disclosed everything. And we have got nothing to hide. But the fact is that whether the information is -- information disclosure meets 2 requirements. One is I am having a level playing field with my competitors. Two, I am disclosing the same information to all stakeholders.

[Operator Instructions] The next question is from the line of Natasha Jain from Nirmal Bang.

Sir, just one follow-up in terms of the Segment 1 commentary that we just made. Sir, in the last con call, you said that manufacturing on data centers, orders cannot compromise -- cannot compensate for the large infra projects that we could not get. So now that elections are over, are we seeing any pickup in the infra-related orders? Or is there still delay happening in terms of finalization? And ultimately...

The tenders are being floated. Order finalizations will be coming up in the next 2, 3 months. So one can expect. It doesn't mean that Blue Star should back the order, but the market has opened up. And we should be successful, I suppose, in the same ratio as what we have been in the past in terms of share from a particular segment.

Got it, sir. Sir, are we in line in terms of maintaining our 25% topline guidance in terms of Segment 1?

What is the guidance you are saying?

Sir, I think last quarter, you had given a guidance that approximately 25% is the topline growth that Segment 1 is expected to see in FY '25. So are we on track in terms of delivering that guidance?

Yes. We have been saying some 20% to 25%. That's how it has been going by the history. See, the ratio of a particular segment will also depend on the other segments, right? The room air conditioners and commercial refrigeration products and all have grown significantly due to summer.

Got it, sir. Sir, my second question is in terms of the update. Can you tell us, we had shipped out trial orders for commercial AC in the European and North America markets? So what's the update there? What's the feedback? Have you got any initial figures on that? That will be it.

We have been successfully testing, validating the products. And I think we have made good progress in terms of meeting the technical specification. So that has been our direction to the team, that our product should be world-class quality. We should be able to compete with the best of the best in the world. And the second -- that's what we did in VRF or room air conditioners or chillers. The second part is connected with the cost part of it. The -- you're competing in an international market, where they were earlier sourcing from China, and there will be a challenge there. It doesn't happen so very easily. Our direction is as follows: first, to get the quality and technology right and the product differentiation or a unique selling feature. Then, it is going to come to the cost because somebody is negotiating with you, this is what I got it from China. And that is a path we are working on. That journey will take 3, 4 months. In the meanwhile, you're aware European market is down and the United States is down. And I think the market there are varied opinion. United States, they say post the elections, it will revive. And Europe, we don't know. So -- but that suits us in a manner of speaking in the same that to build our competitiveness, build our manufacturing capacity expansion, which Nikhil talked about, because you have to meet the growing demand of domestic market as well. So the bottom line is we have quite a few products in heating, water or air approved by a few OEMs. And the products are now world-class. And the second part of it is connected with -- the cost part of it we are working. And the third part is we have to expand the portfolio because each volume as we approach the differentiation will have to be there. That is a journey. And as we had maintained, it's a 2, 3-year journey. Once it is built, it should be a well-oiled machine.

The next question is from the line of Akshen from Fidelity.

Congratulations on a good set of numbers. I just had one question on...

We are not able to hear you.

Sorry, can you hear me, sir?

Yes.

Yes. Sorry. Sir, just on the AC segment, you mentioned that there was a demand/supply mismatch. Towards the end of the quarter, if you could give us some color on how the channel inventory was? That's question 1. Question 2 was given the kind of demand/supply mismatch that we've seen, could you just talk to the pricing action that the industry would have taken? And question 3 was -- is there any changes in norms in the AC division that we typically keep seeing in a few years, that is expected this year? And how do you think that impacts? Those 3 questions.

Thank you. First one is that I do not -- I think everyone would have planned. That's what we hear in the industry forums that broad agreement was this summer could be harsh, some 25% to 30%. I suppose all players subscribed to weather forecast as well, but it came as a surprise. And you would have read many newspaper articles that there is pressure in terms of delivery. And next is -- it is not only delivery. Once you have the material, you have to have it installed. And then in this extreme summer condition, there was also pressure due to service complaints because at 50-degree-plus, 45-degree-plus, there could be certain models which may even get de-rated in terms of -- it's as per the specification, but still there will be a de-rating. So it is not only a supply pressure, it is the installation service pressure as well. Now the industry rose to the occasion in order to produce more and mobilize all kind of supply chains and then go ahead and deliver. My estimate is that the industry also would have grown anywhere between 50% to 60% depending on the region, depending on the brand. That's what we estimate. I do not think the channel would have had inventory beyond 1 month, which is a normal norm. I do not think it would have been more than that at all. Because even in June, July, the material were planned hand to mouth. That's how it is. Because quite a few critical components are still imported. And that is our understanding. That's what we hear from the channels as well. Now, are there any mitigation measures? And I -- the only solution could be the local supply chain developing. Thanks to the PLI scheme, the supply chain is today -- now, after having planned 25%, it's 50-plus industry met, it is thanks to the supply chain that has been developed locally. And other than that, I am not very sure at all. Because, look, it could be other way around as well, that you plan for 25% and the market is flat or it de-grows. That is also possible. So the question here is it is -- beyond that 25%, 30% is gambling. I don't think given the cost of capital one should be producing every year expecting some 50% growth. I do not think that is the right thing to do. Instead, the industry will prepare for scale up or scale down by planning their supply chain. Look, 2, 3 years ago, the subassemblies were coming from China. The quantities would have been blocked in December itself. Then, January, February, March, this all would have arrived or will be on high seas. And that is the time, the story used to be INR 1,000 crores of inventory of the industry lying, INR 700 crores lying, so on and so forth. Last year, when the summer failed, we didn't hear much of the noise. And this year, again, on the upside, there was a shortage, but it was managed well to cope up to even 55%. So that's what the industry will do. Now it is futile to be keeping inventory. It is not only the capital is blocked. In desperation, prices will come down. So once the prices come down, to take it up is a very difficult task. We have -- I would have in my career gone through that at least 15 years in my 40-plus-year career of trying to go through this painful period of liquidating inventory post the summer season due to a failed summer season. Now, regulatory changes, it is connected with the energy label change, which is due on 1st of January, 2026. And, therefore, the industry will prepare for that, a new energy label change. And the refrigeration related, there is enough time. And it is to move from low GWP refrigerant or global warming potential refrigerant to ultralow or near zero. That is their time until 2035. Having said that, the industry has been working on, a, old air conditioners, which are non-rated or rated 10 years ago, whether there could be a program in order to replace them. There are discussions going on there through certain regulatory guidelines. It can happen. The second one, the industry has been asking for is higher energy efficiency products from 28% GST slab to be moved down to 12%. May happen, may not happen. But there is a green credit scheme, which I have been asking whether a 5-star air conditioner, some green credit should be given and so that the consumer benefits, which is all what was done in Japan or China at some point of time. There are bilateral agencies, including the World Bank, looking at certain programs. You might have read that again in the newspapers connected with supply chain resilience to be built within India. There is research and development. You are aware of that INR 1 lakh crore set aside for that so that we are able to innovate and come out with the technologies. That is the other piece that is working. And most importantly, the UNEP program as a part of COP28, how to make cooling devices affordable while making it sustainable. People should have access, and they should consume. So the industry is fully aligned. There are interactions, and newer things are happening there. But regulatory-wise, as far as Blue Star is concerned or preparing for the future, we are ahead of the COP. And we are closely involved in this policy formulation exercise. And we are up-to-date on that. There is nothing to worry.

Just to clarify on the pricing. Has industry taken up pricing post the season this year?

Yes. With effect from June 1 itself, we -- I don't know about the others, we increased the price to the tune of around 3%.

Okay. And this is to cover inflation...

That was not based on -- again, in the television interviews, I've clarified, it's not because demand is high, therefore, we are increasing the price. It is basically the input costs have gone up. And you're aware of the commodities which went up and also the ocean freight.

Okay. Just one last follow-up from my side, sir. On your point on channel inventory, where I was trying to come from is that there was clearly higher demand in June, which the industry couldn't meet. So it would seem logically that there is a mismatch in primary and secondary sales numbers. So through the year, if demand remains healthy, is there a chance that you could see restocking back at dealer levels, which could lead to -- your sales being higher than the secondary offtakes?

No, I -- you would like to hear what pleases your ears. We would like to say what pleases us. At the end of the day, it is all in a -- you look at the FMCG, there is a demand struggle that is going on. And on the room air conditioners, specifically, there has been -- the penetration levels are lower. It -- in the urban heat effect, the way the homes are constructed, you need air conditioners. And it is available at affordable prices. What is there? About INR 35,000 or so. And it is happening through consumer finance, and more than 55% of the sale is happening through consumer finance. Therefore, people are going ahead and buying. So one hopes that the demand continues. And equally, there could be a pessimistic view. Whenever there had been a very strong summer season, festival season cannot be that great. Last year, if you see, post the summer season, we all said, there is a pent-up demand that is -- the question is that I would be happy that CAGR of 15% is maintained. That's what one should look at in the long term. And one should be flexible about that if the growth is high, I'm able to step in. If the growth is lower, I'm able to regulate. That's how we will go about. Otherwise, I just do not know how the consumers will behave.

The next question is from the line of Sonali Salgaonkar from Jefferies.

My first question is now beyond the summer season, how do you foresee the underlying demand trends, especially in Q2 and Q3? Apart from the restocking of channels, but the basic consumer discretionary behavior, are you seeing an uptick in that?

Actually, Jefferies will know much better than me. Going by what is happening in the channels, for this category is concerned, the demand continues to be good. See, at the end of the day, it's not the dealer, right? The dealer is an intermediary. So the consumer sentiment matters. And I think I believe, I can be proven wrong, but the demand is going to be good in Q2, Q3, Q4. And my -- I would have said that the industry will grow for the full year between 20% to 25%, I think it could be even 25% to 30% this year. And we have to watch what is going to happen in terms of other events. Like, for example, the oil price. If there is some Middle East crisis, simple oil thing can derail for 3 months' time the demand outlook. And the good news is that summer season has gone on well. So you can be -- you can relax. It's not a huge pressure. Relaxed in the sense you may not have anxiety. Again, the demand will come back. Next big quarter will be, for this category, Q4. And we will -- to answer your question, the sentiments are good as far as this category is concerned.

Understood. Sir, my second question would be any light you would like to throw on the exports? Your focus on exports are probably targets for FY '25? And also, I missed the initial remarks on order book, overall order book, if you could repeat those figures as well?

See, the -- you asked about the...

Exports.

Exports. I think it is muted. I do not think, U.S., anything is going to happen. There is some demand connected with some -- the inquiries are qualifying. As I told you, we are taking baby steps there. Europe, again, it is the same. So it is only the Middle East. And I do not think it is going to be a needle-mover as far as Blue Star is concerned this particular year. So our exports revenue will remain the same like last year with a marginal growth of some 7% or 6%. That's all is going to happen is our view at this juncture. Now, you asked about -- Nikhil, you can clarify what is the...

Yes. So carryforward order book as on June 30 is INR 6,084.69 crores [indiscernible] inflow for the quarter is INR 1,466 crores, which -- as compared to INR 1,224 crores last time.

The next question is from the line of Sanjay from Ampersand Capital.

Sir, just 2 questions. One is that you have so much of cash in your book after the QIP that we had done last year. So can you just tell us like how have you changed your CapEx plan? And how much it is for this year as well as next?

Nikhil, you can go ahead.

Yes. So we have not changed our CapEx plan. I think everything is in line with what was planned. So the CapEx plan for the current year, we should be spending in the region of around INR 450 crores, is the expectation. And if you look at it over a period of 2 to 3 years, it could be in the region of INR 750 crores to INR 800 crores at least. So that's the kind of CapEx, which was there earlier also which we had indicated, and we stick to that plan. Of course, anything comes up in between, we will have to see at that point in time. The QIP monies were taken for a particular purpose, and they have been used for that, mix of both manufacturing, R&D as well as digitalization, and of course, the growing working capital needs. So all of that, which were there and which have played out. Probably the cash position which you are seeing is also because of the exceptional quarter 1, which has led to very high collections, because of which you are seeing some extra cash which was not probably anticipated. But of course, that helps us making cash available for further growth if required, but there are no change in the plans.

And second question is that -- I mean, I'm sure you would have already explained, but the non-unitary cooling part didn't really grow much, that is the project part in this quarter 1. Is that something -- and the order book at the same time is up around 20% higher, so should we expect a bit of acceleration in the other -- rest of the businesses during the remaining part of the year?

Yes, it should be. We had indicated that, that whenever there is an election year, the order finalization execution gets postponed. That's about -- there's nothing to worry, everything is returning back.

Understood. And should we be a little cautious about the margin expectation in the future period or we should be getting into a bit of a better margin trajectory overall primarily because your level of backward integration and everything seems much better now than...

It depends on the segment. I had cautioned that they don't go by Segment 1 margin. If it happens at 10%, it is a bonus. I think you should assume. Our estimate is it is 8% to 8.5% only. And Segment 2, 8.5% to 9%, we are saying. And this is as we see it today.

The next question is from the line of Pankaj Tibrewal from Ikigai Asset Manager.

Congratulations on consistent delivery. My question was twofold. One, your aspirations of going global. We have been talking about it on the U.S. and Europe...

I'm sorry, louder, I'm not able to hear you.

Can you hear me now?

Yes. You mentioned your aspiration...

For going global for the last couple of years. What is the progress right now on the U.S. and the European markets? Where are we on that path?

I have clarified to some of the earlier question that, look, each of the markets, each of the -- see, first of all, we are not directly entering with our brand, at least as of now. We are very clear that we have the technology that is needed, IP that is needed in the decarbonization area where variable frequency drives or variable refrigerant flow systems and the heat pumps including low temperature ones for heating air to air or air to water. That is the profile. Now these 2 markets are expected to move in that direction because they are heating homes or heating water with conventional technologies of gas or electricity directly. So, therefore, we are -- the opportunity that is mapped is huge for entire global players. But the pace in which the adaptation will take place, some -- many countries had announced some kind of subsidy for pushing the homes and commercial establishment to move. Some countries have not announced. Some countries deferred certain plans. Now, on the whole, you might have seen in -- by the international players, the U.S. earning calls or Japanese earnings call, you would have seen that the U.S. and Europe markets for heating, ventilation, air conditioning is -- and refrigeration is somewhat muted. And in some cases, it is even degrowth. That is what is being reported. In our case, I had explained that, a, we have to understand the requirements; b, since it is not my own product, I have to make a product for the OEM. I have to ensure I'm developing a product which fits with its product portfolio, which means it is the custom-developed for that particular customer, how he is positioned in respective markets. The third thing is I have to meet the quality standards that are global in nature. And we are happy to report that the -- with a few OEMs and with a few SKUs we started, we have completed the journey. We are able to design, we are able to develop and test and deliver prototypes which are of global quality. That is the direction to the team. The second part is connected with how you will become globally competitive. In this case, global means Chinese prices. I should be interested in a margin. And with that margin, I should be able to match the prices, which will be a 1 year kind of a journey in order to get there. It is not easy for a new market, new product to be competing with China in that scale to be coming to. Because somebody, China Plus One means he's not going to pay you some premium and buy. He will be eventually interested in your matching the price. That is the other part of it. The third is connected with when the demand will revive. So in our case, we are -- in a manner of speaking, I'm making a statement it's a blessing in disguise the market is taking time to revive so that when it revives I am ready with the prices and the products. So it is a baby step, and it is fine with us because Indian market is growing. I'm expanding my R&D capacity. I'm expanding my manufacturing footprint. And it fits well with the strategy. I am not desperate. Now if you ask me sometime middle of next year, I think -- and our intention is, even our Board asked that, what will be our export revenue in about 3 years' time, I think we will be in a better position. And deliberately and very firmly, Vir and I keep saying this, that get the fundamentals right before trying to project a number. Because if you look at China, it is not China went and marketed their products anywhere in the world at all. People were rushing to China to source. Our desire is that we have a product, we have the technology, we have the capability. People should ask us, look, can you make for me? That's the dream. There is a journey to go through that. Until then, this small export revenue is fine with us.

That's a very helpful answer, sir. The second question is on the MEP project. While the tailwind is very strong, the old memories keep haunting us as all-time investors that this was a segment which gave us trouble. What are the checks and balances we are making in place that the same thing is not repeated again in this segment, where project overruns and other things, which are part and part of this business? And how much capital allocation can we expect on this business? Because it's been gradually going up now and the old hat, kind of keep me reminding about that risk, so just some clarity.

A very good question, intelligent question, pertinent question. This is a question whether it is Vir or myself or Board keep asking ourselves. And, therefore, the specific mandate to Nikhil, for example, and his team is to closely monitor this on a monthly basis. And we are aware of this because we have gone through and endured that problem of what can happen. So there is enterprise risk management framework, that ERM committee and the subcommittees within that are spending adequate time in order to understand. And there is -- so first, it starts with the direction. Direction is not market share and quickly grow. That's not in the DNA of Blue Star. If you are an old-time investor, you will understand that. And between market share and returns, we are very clear about returns. Between profits and balance sheet, we are very clear that the balance sheet should be strong. Between short term and long term, we are very clear long term is the important thing. And if you ask anybody in Blue Star, the PBT percentage with ROCE, everyone will say ROCE is important. Between ROCE and ROE, we will say ROE is important. So that principles are very clear, and it is in our DNA. Now we know what all can go wrong. There is a time delay. The escalation claims are there or not there, there -- when to stop a job, when we will not go ahead and place orders for the equipment in a particular project. If there is a delay, whether time extensions are available and whether we are contractually compliant there. And where -- while booking the order, every major order is put through a due diligence completely. And the margin considerations and the payment terms consideration and the working capital that will be going in, that is measured. In fact, it is almost on a quarterly basis, Nikhil, Vir and myself, we review this particular business very closely. So we -- I can assure you that at least the orders that we have in hand and what capital is being allocated, there is -- to the best of our knowledge, there is no shock that can happen.

That's quite comforting, sir. And wish you all the best, and I'm sure in coming years, Blue Star will become a formidable player across the globe.

Thank you very much.

Ladies and gentlemen, this will be the last question for today. It is from the line of Kirti Dalvi from ENAM Asset Management.

Congratulations for good set of numbers. Just 2 questions, first on the cash part. If I see our March year-end net cash was roughly around INR 456 crores, which has gone up significantly. So congratulations for the same. But I just wanted to know, this doesn't include our dividend payout from last year. And where do we see the year-end cash? Because even if I do the cash flow calculation, it seems to be a significant generation which has happened, so assuming INR 450-odd crores CapEx guidance what you have given for the year as a whole, in Q1, we wouldn't have incurred much CapEx as well.

What is your second question?

And second, sir, on the professional electronics, I mean, this is the third segment of ours, the margins have seen a little severe impact. So if you could throw a little bit more light on that, on our sustainable margins in that particular segment?

So I'll answer the second part. First part, Nikhil will be in a better position to explain to you on the cash position. See, it was a muted quarter. That particular business is dependent on the CapEx cycle as well. And we ourselves are a little bit disappointed. But fundamentally, there is nothing wrong there. It should revive. It's -- there are supply chain disruptions there in terms of getting the required equipment and completing the delivery. The order inflow there was like the Segment 1. There were certain delays, but it has revived. There is nothing to worry there. But it is not a great quarter for that particular segment. Nikhil, you can clarify regarding the cash.

Yes. So on the cash position...

Sustainable margins will remain in the same zone? Because if I see these segments, over a period of time, from the highs of 20% plus, we are trending to roughly around 13% to 14-odd percent. So these are the sustainable margins one should consider going forward?

No. Our intention is to maintain the same margin as last year.

So on the cash position, see what you are seeing is, over the March levels, this cash has gone up substantially because of -- as you are aware, it was an exceptional quarter in terms of room air conditioner, and the working capital has got completely released. So that is due to better collections and release of working capital. It has got converted into cash. Of course, as you now again build up the inventory, the cash is going to get used up because, as come Q4, you need to have stocks in position, inventory in position. So we expect that by year-end, probably we should be back to around the INR 350 crores to INR 400 crores cash position, and of course, the regular working capital, CP borrowings, if we do some regular borrowings, that's it. So this is not a sustainable cash level, INR 1,000 crores. Plus the CapEx expenditure also was only around INR 30 crores to INR 35 crores in this quarter. A large part of the CapEx is planned to happen around Q2 to Q4. So that will also use up some amount of cash.

Sir, the treasury income, what we have seen in this particular quarter, one can't extrapolate the same, right?

That's what I'm saying. You cannot extrapolate that treasury income because the cash collections were exceptional in quarter 1. And as you build up inventory, as you spend on CapEx, it will go on coming down.

Ladies and gentlemen, due to time constraint -- yes, sir, do you want to say something?

Yes. So I'll just put the ending remarks. So thank you very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. Do feel free to revert to us in case of any of your questions were not fully answered, and we'll be happy to provide you additional details by e-mail or in person. Thank you.

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