Refrigeration major Blue Star is pinning hopes on the residential air conditioning (RAC) segment to offset sales drop due to a slowdown in commercial construction and time overruns in infrastructure projects.
While a drop in commercial air-conditioning orders is likely to shrink Blue Star’s order-book by about 15%, its sales are growing with the RAC segment chipping in.
From the current 7.5% in the country’s RAC market, Blue Star is expecting to increase it to about 9%. The RAC market is about 31 lakh units and expected to reach 70 lakh units by 2013-14.
A Thiagarajan, Blue Star’s president, air-conditioning and refrigeration products group, said, “The expectations of an explosion of sorts in the RAC market are bringing several multinationals to India and most of them are setting up their manufacturing plants.”
For the current fiscal, Blue Star is expecting to record about Rs500 crore in revenues from the residential segment, which it sees touching Rs600 crore in the next.
However, the air conditioning sector as a whole is likely to see price hikes of 10-15% due to escalation in input costs owing to foreign exchange fluctuations, senior Blue Star officials said.
Though the price increases are unlikely to hit the topline, the company is concerned about a drop in volumes.
Also, after recording revenues of about Rs2,900 crore and profit before tax of about Rs227 crore in the last fiscal, the company is witnessing a drop in its margins in the current fiscal.
“In 2011-12 commercial construction has slowed down. The builders started delaying the projects and therefore what was supposed to get closed in 12 months gets completed in two years. Malls, etc are continuing with the overrun period. The raw material (copper, steel) prices and, most importantly, the exchange rate, have gone up in the overrun period. In the process, in quite a few contracts which were booked three years ago we incurred losses,” Thiagarajan said.
He said the company was cleaning up spillover of those projects that were stuck in execution delays even if it amounted to booking losses.
“The impact of the previous year’s slowdown would continue for another couple of quarters. We are in the process of cleaning up. The new orders that we have booked now are very high quality orders,” he said.
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