Satish Jamdar, Managing Director, Blue Star Ltd., is a Mechanical Engineering graduate from IIT Mumbai and also qualified in Systems Management from NIIT and Management Studies from UK and USA. He joined Blue Star in 1996 as Vice President and has over 35 years of experience having worked for companies such as Siemens, BPL-Sanyo and Alstom. Satish spearheaded the establishment of Blue Star's modern manufacturing facilities. He was also responsible for Corporate Financial Services, Airconditioning & Refrigeration Service, International Operations as well as the Customised OEM business of Blue Star.
Blue Star is India's largest central airconditioning company with an annual turnover of Rs 25,740mn, a network of 29 offices, five modern manufacturing facilities, 700 dealers and around 2,600 employees. It fulfils the airconditioning needs of a large number of corporate and commercial customers and has also established leadership in the field of commercial refrigeration equipment ranging from water coolers to cold storages. The company has also started offering electrical contracting, and plumbing & fire fighting services. Blue Star's other businesses include marketing and maintenance of high-tech professional electronics and industrial products. Blue Star has business alliances with world renowned technology leaders such as Rheem Mfg Co, USA; Hitachi, Japan; Eaton- Williams, UK; Thales e-Security Ltd., UK; Jeol, Japan and many others; to offer superior products and solutions. The company has manufacturing facilities at Thane, Dadra, Bharuch, Himachal Pradesh and Wada, which use state-of-the-art manufacturing equipment to ensure that the products have consistent quality and reliability. Blue Star primarily focuses on corporate and commercial markets. These include institutional, industrial and government organisations as well as commercial establishments such as showrooms, restaurants, banks, hospitals, theatres, shopping malls and boutiques.
Speaking with Anil Mascarenhas and Jasmine Kohli of IIFL, Satish Jamdar says, "The business model for us is of being an engineering-led manufacturer, a contractor, and an after-sales provider."
You’ve just acquired DS Gupta Construction. What is the rationale behind the same?
This acquisition was to strengthen our Electro Mechanical Projects business. DS Gupta Construction Pvt Ltd is the largest independent plumbing and fire fighting contracting company in India. This move will fortify an important pillar in our integrated Mechanical, Electrical, Plumbing & Fire fighting (MEP) contracting offering for our commercial and residential real estate customers.
The transaction is subject to customary closing conditions being met. More details on the acquisition including the consideration will be provided after the Closing Date, which is expected to be on or before July 15, 2010.
Brief us on how the past few years have been for the company?
More recently, we started noticing the impact of the economic slowdown roughly in the second half of 2008. While we had orders in the pipeline and were ready to execute the same, we started witnessing a mixed reaction from our customers. Some clients found it prudent to complete the work that had commenced, while many others, due to liquidity issues preferred delaying their projects. The funnels gradually got smaller and decisions were slow to come by.
Just before that, was a phase when the industry was firing on all cylinders, with companies struggling to cope with the growing demand. It was the heydays, especially for the IT sector, which used to plan their requirements for the next six months to a year, thereby creating infrastructure for the future. Retail was beginning to look big and several large players were eyeing the retail biz (such as Reliance, Bharti, Future Group or the Aditya Birla Group). The banking sector, especially private banks too were planning a large number of new branches. All that changed suddenly in 2008.
Amidst the worries, what were the new avenues you tapped for business?
While urban focused industries were witnessing worries due to the economic slowdown, the rural market didn’t seem to understand what the recession was all about! Companies started shifting their attention to smaller towns and rural markets. Some segments, like Healthcare and hospitality continued to grow. The Commonwealth Games also provided some additional business opportunities despite the slowdown. Infrastructure projects were relatively better placed; for example, we bagged a combined Rs2.7 billion order from the Delhi Metro Rail Corp Ltd (DMRC) and DAMEL to provide total air-conditioning and other services for metro lines.
The hotel industry moved to another level with eco-hotels being the new buzz. Education was an upcoming sector with the setting up of private schools and colleges across the country; airconditioning began to be a hygiene factor rather than a "luxury" in these schools.
The recession brought a shift in our segment mix, and though overall there was a slowdown, some segments were still positive.
You are shifting focus from IT/ITeS and retail segments to hospitals, hotels and infrastructure. Does it significantly increase the execution time?
Yes, till recently, IT was the fastest moving sector as they had their requirements clear, and financing was sorted out in advance. Moreover, most of the elements were standardized. On the other hand, infrastructure projects are specific to their individual needs, and have relatively slower execution cycles due to the nature and funding of these projects. Hence our average order execution period has gone up by a few months due to this change in our segment-mix
You had a tough fiscal. Are you seeing any improvement now?
Last year, like most, we were also affected by the recession. The first two quarters were top-line negative, though there was a gradual improvement. By the fourth quarter, we were about 1% above previous year. And through cost management, we were able to post 17% higher PAT in spite of this flat top-line. Clearly the second half of the year was catch-up time.
The Manufacturing industry seems to be coming back and services, too, look relatively good. When it comes to agriculture and food processing, the whole marketing of agri produce needs to change. The potential is huge for the cold chain, with India being the largest producer of milk in the world, the largest producer of fruit and vegetables and perhaps food grains too. The government is also trying to focus on the rural sector to raise India’s GDP. There is a CII task force, where we are active, which is lobbying with the government for expediting the development of cold chains.
Are you witnessing any changing trends, which could boost your business?
There is more automation and more sophistication in products and projects in terms of controls, software and electronics. People are more tech-savvy. They are now more concerned about energy efficiency and about being environment-friendly; many are mapping their carbon-footprint. There is also more awareness of health, hygiene and indoor air quality. We offer indoor quality audits as well as duct sanitizing services. In fact, during the swine flu, we helped several customers to combat bacteria and other viruses in ducts, etc.
You also have some solutions for fruit ripening. Tell us more about it.
The trend now is that people do not consume just seasonal fruit. They like to enjoy a variety of fruit throughout the year. Farmers now realise that by preservation and storing, they can sell their produce at a later date too instead of dumping it in the market as soon as the fruit is ready. This way they can prolong their earnings over the year and more importantly by grading, sorting and storing, the quality of food and product improves. So, better prices are realised along with better quality.
To help such customers, we offer cooling solutions at all stages, from farm to fork. This includes preservation during processing, ripening, re-packaging, storage and grading of horticultural produce.
We offer both gas emission ripening systems as well as ethylene generator systems along with necessary controls for monitoring ripening parameters. This is much safer than the other methods used.
Share with us details about your product mix?
We have three segments. The electro-mechanical projects and packaged air-conditioning systems segment comprises central and packaged air-conditioning as well as electrical projects, and plumbing & fire fighting projects. We also provide after-sales service as a business, by offering several value-added services in the areas of upgrades and enhancements, air management, water management, energy management and LEED certification consultancy for green buildings. We do electrification contracting projects and offer expertise in the areas of electrical design and engineering, supply and installation of entire power systems as well as liasioning, approvals, commissioning and asset management. Now, we have extended our mechanical contracting offering to include plumbing and fire fighting projects. This gives us capabilities for executing integrated MEP (mechanical, electrical and plumbing) projects.
In the Cooling Products segment, we offer a wide range of contemporary window and split air conditioners. We also manufacture and market a comprehensive range of commercial refrigeration products and services that cater to the industrial, commercial and hospitality sectors. We are seeing room air-conditioning growing this first quarter. It looks like the whole country was not expecting this kind of growth. But, sustainability is a question; being summer time people do tend to purchase more. This is usually followed by a slowdown in the second and third quarter. During Diwali we may again see a spurt in demand.
The third segment is professional electronics and industrial systems. We have been the exclusive distributor in India for many internationally renowned manufacturers of high-tech professional electronic equipment and services, as well as industrial products and systems. Our offerings here include analytical instruments, medical electronics, data communication products, material testing, and test and measuring instruments. We have applications for special projects for the steel industry. We are system integrators, plus we can design the application for turnkey solutions. We buy around 30-40% of equipment and rest we design around it and to give a solution.
One of the businesses of this Segment is medical equipment, where we have some agencies and principals, whom we support for sales and service. We also have an industrial projects business, which has to do with a lot of pipeline routing. We are doing business with a lot of steel makers; they are all expanding capacity, be it Tata Steel or SAIL. Recently, we received an Rs450mn project from IISCO, for overhead, steel layer piping lines, oxygen lines and plant extensions. We are also doing some non-destructive testing like ultrasound, x-ray, etc.
Another important area for us is the services business, where after our products are sold or the turnkey project is completed, we are available to maintain that site. We have annual maintenance contracts where we do retro-fits and also provide value-added services. Further, we also do energy management audits and provide energy management solutions. We have started offering green building consultancy; we offer the entire consultancy, not just air conditioning, but overall. We provide the entire certification, not only of LEED but other agencies also. These customers include hotels, airports, hospitals, banks, malls, etc. Electrical contracting, which we got into a few years ago, is doing very well because we are able to cross sell our electrical services to our air-conditioning customers.
While the operating margins in the cooling products and professional electronics segment tend to be higher, the electro mechanical projects and packaged airconditioning segment contribute significantly to the overall quantum of revenue and profits earned by the Company. Each segment has its own parameters, quite unique to that business.
Blue Star is a value-added solutions provider. We don’t get into the commoditised business. That’s where our technology and engineering add value.
Do you find a similar seasonality in the refrigeration business too?
Refrigeration is more stable in nature. While, certain refrigeration products like deep freezers are slightly seasonal, cold storages which is largely a project business is not seasonal.
What is your business model now?
The business model for us is of being an engineering-led manufacturer, a contractor, and an after-sales provider. This helps us bag more complex, larger projects. We are a turnkey solution provider and carry out design manufacturing and have dedicated vendors and technology. We do the entire set up and look after the project throughout its lifetime providing retro-fits and upgrades whenever needed.
What trends are you seeing in raw-material prices?
Raw materials for us include steel, copper, aluminium, some plastic, insulation material, electrical cables and switch gear. Other infrastructure items like logistics and transport are also important. Two years ago, it was volatile with a sudden support in prices, and then a collapse.
Our margins do get affected, like everyone elses, because it not practical to keep increasing prices as the contracts are on But we need to keep calibrating. And responding adequately.
When prices of copper and aluminium shot up, we went back to our drawing boards to re-design the products with less of these metals.
The customer is willing to pay a premium on prices provided there is a visible pay-back for him.
You have a carry forward order book of Rs18bn. When will it be executed?
The order book has further gone up this year by 30% and most of the order book should be executed in this year. There will be a significant book and bill business as well, as usual.
What would be your profit drivers?
The profit drivers would be well-run project management in turnkey businesses, effective procurement and prudent cost and cash management.
What would be your capex for the coming years?
Well for capex, the usual routine upgrades will continue. We are looking for some increase in manufacturing capacity. We are always open to inorganic opportunities like the one we did for our electrical business.
In terms of manufacturing and R&D, we will be coming up with new products, so there are clear benefits in looking at some technology based capex. We also need more office space at our different locations.
Brief us about your international business.
Our international business is not necessarily through Blue Star Ltd. We have a presence in the Middle East and a joint venture in Malaysia and Qatar. Our Dubai office caters to the Middle East and Africa. We have done some business in Europe earlier; now of course there is a slowdown there.
Is there any message you would like to give to your shareholders?
Generally our shareholders have been happy with the returns they are getting from the company. This year we declared 400% dividend, last year it was 350%. It is our objective to ensure that shareholders get good returns on a long term basis. We will invest money wisely, judiciously and ensure their investments are protected.