Air conditioning and commercial refrigeration company Blue Star is expected to increase its market share and post a high growth in profitability this fiscal as its large projects are likely to yield higher margins. Although Blue Star has had big projects over the past 4-5 years, these projects fetched very low margins. Among the main reasons for this was the delay in execution, which proved a drag on the profitability of its large electro-mechanical projects (EMP). The company has learnt from this experience and reduced the time taken to execute projects. “Out of the total order backlog, only 10% of orders are now legacy orders, which will be completed in the first half of FY15. The completion of legacy orders will boost our margins. We expect margins of EMP segment to expand to 6% by the end of FY15,“ said Blue Star’s executive director B. Thiagarajan. The company had reported an operating profit margin of 2.2% in EMP segment in 2013-14. At present, 52% of the company’s revenues come from EMP segment while 41% come from cooling products (CP) segment and the remaining from project engineering business. CP division accounted for 41% of total sales in the quarter to March and recorded an operating profit growth of 27% compared with the year-ago period. The CP division, under which earnings from room air-conditioners are accounted for, has been clocking a speedy growth in revenues. Since the conclusion of the recent Lok Sabha polls, the company has been receiving increasing interest and orders from a number of sectors and small retailers. “We are witnessing great optimism from clients from sectors such as IT, banking, insurance, QSR (quick-service restaurants) and small hospitals and education centres. But big orders which require acquisition of land will remain on the backburner,“ said Thiagarajan.

“We expect the growth in our orders to be fuelled by improvement in sentiment related to economy, growth in GDP and corporate salaries and pick-up in projects which do not require large funds.“ With its increasing retail presence, the company is targeting to increase its market share in the air conditioning market from 7% at present. “AC industry’s volume growth in FY15 is expected to be 15% and our company will be growing 5% more than the industry’s. We are targeting to touch a market share of 9% by the end of current financial year from deep retail footprints, an array of products at several price points and price-competitiveness,“ said Thiagarajan. The company’s stock has appreciated 45% since the start of the year. According to Bloomberg’s estimates, its earnings are expected to grow 30.9% and 44.5% in 2014-15 and 2015-16, respectively. (Source: The Economic Times, Mumbai, June 19, 2014)