Category
🗞
NewsTranscript
00:00 Hello and welcome. You are watching the Small and Mid-Cap show. One stock that is in focus
00:13 on Smith today is Blue Star which came out with its Q4 results and to break down those
00:19 numbers we have with us Mr. Veer S. Advani, Chairman and MD of Blue Star who joins us
00:24 now. Welcome to the show, sir. Thank you. Good morning.
00:27 So, Mr. Advani, my first question to you is good set of numbers, you know, just give us
00:32 some color as to how the quarter has gone by and how FY24 has shaped up for you.
00:38 Thank you. So, I think we had a great year. We closed the year with revenue of 9685 crores
00:46 and EBITDA improved to 665 crores including EBITDA margin improvement from 6.2% to 6.9%.
00:55 I think that was and the great thing about the year in my opinion is that it has been,
01:01 you know, performance has come evenly from both our B2B businesses and our B2C business.
01:07 If you look at segment one which is our B2B businesses, they did about 4700 crores of
01:13 revenue with about 341 crores of EBIT. They improved the EBIT margin from 6.9% to 7.2%
01:23 whereas the B2C businesses which is segment two did about 4600 crores with about 360 crores
01:30 of EBIT. We were able to maintain the EBIT margin in segment two in spite of the competitive
01:36 intensity increasing substantially. So, it was an evenly weighed improvement overall
01:42 both in top line and in bottom line. Understood. And what do you attribute this
01:47 growth to? Was it because of volumes or price hikes?
01:51 So no, we haven't been able to achieve any price hikes. I think the good thing in Q4
01:56 was that there was no erosion in prices operating in the market. I think that was also on the
02:02 back of where we thought would be a good strong summer. So, I'd say pricing has been maintained.
02:09 Our margins have improved because of a very focused total cost management program that
02:14 we have running across all our product businesses as well as of course scale. We are at a top
02:20 line, we are able to drive about 21% growth. So, certainly scale effect has helped us.
02:25 Understood. And in terms of margins, they've remained in the range of that 7% mark. I want
02:31 to understand that going forward, is there a scope of improvement that you're seeing
02:35 and if yes, what kind of levers will augment that growth?
02:39 Sure. So, I think that we're getting to a reasonable EBIT margin right now. I think
02:46 that there is some room for improvement, probably a little bit more in segment 1 where we have
02:53 some more flexibility because of our operating position there. So, I think segment 1 EBIT
02:59 should improve by another 100 basis points as we look forward. Segment 2, we're indicating
03:06 about 8% to 8.5% EBIT is realistic. I think that you know all the capacity that is coming
03:12 online. Of course, demand is growing no doubt for room air conditioners and refrigeration
03:18 products but capacity is obviously coming online much faster. So, there will be competitive
03:23 pressures. We're confident of maintaining this 8% to 8.5% looking forward.
03:29 Okay. And in terms of your order book, which is at present approximately 5,600 crores,
03:35 if you can give me the breakup as to how much from which segment is this order from, the
03:42 entire book and what are the execution timelines for the entire 5,600 crore order book?
03:49 Sure. So, the order book, I don't have the breakup by segment but I can give you sort
03:55 of indicatively what has happened. While we've grown the order book about 12% to 5,700 crores,
04:02 there's a big shift in the mix in this order book. So, earlier you used to see a very heavy
04:08 content of commercial buildings, which is developer business in here. We have actually
04:13 reduced our exposure in that segment partially because we've been focused on other segments
04:18 and the market, commercial real estate market has been slow for the last two years. Most
04:23 developers have been focused on residential, which is a segment that you know we don't
04:27 address from our projects business. Most of the growth and the transition in the order
04:32 book is on account of factories and data centers. We've seen tremendous growth there as well
04:38 as of course selectively in infrastructure. In infrastructure, we've seen some good order
04:43 inflow in water and railways. Metro projects continue to be finalized. So, it's a mix but
04:50 really the real growth has come from our focus on data centers and all kinds of factories
04:54 including semiconductor plants and electronics manufacturing, many of which we booked in
05:01 the last six months. Understood. And Mr. Advani, you know in terms of your cash on books, it
05:06 is doubled as compared to FY23. So, you know, as far as I understand that you had raised
05:13 a thousand crore QIP, a lot of it is from the QIP that you've raised. But you know,
05:18 I just want to understand that this doubling of cash in your books, what are you going
05:23 to utilize it for? Sure. So, you recall when we had raised the QIP funds thousand crores
05:30 around September, we had mentioned that the real focus for us is CAPEX. We had CAPEX in
05:36 manufacturing, in R&D, in digitalization. These were the three major areas. Of course,
05:42 growth required working capital but we were confident about managing that through internal
05:46 accruals. We have, we're executing our CAPEX plan. This is the third year of our CAPEX
05:53 cycle. I think we have another two, two and a half years to go. We were able to deploy
05:58 a fair amount of CAPEX into both manufacturing and R&D in FY24 because, but yet, you know,
06:05 cash flow has been very strong. I think March was an all-time high collection for us as
06:10 a company. So, the teams have been working exceedingly well at managing working capital.
06:16 So, this swing from a net debt of 200 crores to a net cash position of 400 crores, a swing
06:22 of 600, of course, is because of the QIP offset partially by the CAPEX we've invested, but
06:29 then, you know, brought back up because of the working capital efficiency. So, going
06:34 forward, as a company, we do intend to keep some amount of cash on the books from a resilience
06:39 point of view. 200 to 300 crores of cash is what we expect on the books. We have an ongoing
06:45 CAPEX plan. We should spend another 400 to 500 crores of CAPEX in FY25, but internal
06:52 accruals are now starting to kick in as operating margins improve. So, you should see a cash
06:57 balance of 300 to 400 crores going forward in spite of the CAPEX cycle continuing.
07:03 Got it. And, you know, in terms of your capacity utilizations, as per your last Quant call,
07:08 they were around 80%, right? But, you know, because of the heat wave coming in, I'm sure
07:13 you have a lot of orders kicking in. So, I just want to understand that, you know, at
07:17 80% capacity utilizations, do you see any kind of capacity constraint when it comes
07:22 to fulfilling these orders? Yes. So, we are operating at a high utilization.
07:29 We have been timing our CAPEX to the market. You know that we have a modular approach to
07:36 CAPEX, which means that for us to, if I talk about room air conditioners, for us to bring
07:40 on 500,000 units of capacity is relatively quick and simple because we built all the
07:47 surrounding infrastructure for it. So, I don't think we see any challenge with capacity.
07:53 Of course, in the current summer season, demand has been unprecedented. You've been reading,
07:59 you've been seeing the results of us and our competitors. April has been another great
08:03 month. You know, the industry, the great thing about the industry this year is that tertiary
08:09 and secondary sales have been very strong in March and April as well. So, this is not
08:13 just inventory, you know, piling up in the field. This is actually consumers coming to
08:18 retail stores and lifting material. So, there is some shortage of SKUs in some markets in
08:25 the industry and both for Blue Star as well. But because we are all in-house manufacturing
08:30 right now, we have a great opportunity and position to be able to deliver and, you know,
08:36 change our capacity execution fairly simply. So, some of these stock outs that we're seeing
08:43 at the end of April, early May should be sorted out as early as the next 10 to 15 days.
08:49 Okay. Well, Mr. Advani, with that, we're completely out of time. Thank you so much for taking
08:54 our time and speaking with us at NDTV Profit. Quick check on where REC is doing in trade
09:02 today, but we have the management of REC. The stock has been on a tear at least over
09:07 the last five days. Stock is up 22 percent and over the last one year, it's up 4x. Over
09:16 the last two years, the stock is up nearly 5.5 plus x. So, it's been a multi-bagger of
09:25 sorts across time periods and it's been a very solid performance from Q4 as well from
09:31 REC. To give us more perspective as well as to understand what we can expect going forward,
09:38 we have with us Mr. Vivek Kumar Devangan, who is the Chairman and Managing Director
09:42 at REC Limited. Firstly, welcome and pleasure having you here, sir.
09:50 Thank you, Harsh. Sir, again, first off, congratulations on
09:55 a very strong quarter yet again. You've beaten what street estimates had really pegged with
10:01 regard to your Q4 numbers. I want to focus in on that, especially with regard to recoveries,
10:06 because that's the real number which has given you a leg up in terms of what estimates were
10:13 versus what you delivered. Talk to us about the write backs as well as the recoveries
10:18 which are coming through with regard to FY24 and what one can expect for FY25 with regard
10:25 to this number. FY24, we got recoveries up to the tune of
10:29 about 750 crore and going forward for FY25, as we are planning to resolve all the straight
10:37 assets, we are expecting write backs to the tune of about 1500 to 2000 crore.
10:43 Understood. Write back of 1500 to 2000 crore, this is net of any loan losses which you will
10:50 incur as part of this recovery process is what I assume.
10:54 Yeah, that's true, because some of the assets are heading towards liquidation. For that,
10:59 we already made 100% provisioning and some of the assets, the operating assets for which
11:04 we have made provisioning about 70%, we are likely to get very good returns from that
11:10 because our haircut has been limited only about 20 to 30%. And we are expecting better
11:15 resolution because KSK, Mahanadi, Sinhad, Nashik plant here in May, they are going to
11:21 give us better returns.
11:23 Understood. For viewer context, 14,000 crore is the profit after tax for FY24. You are
11:30 expecting 15% of that number just in terms of recoveries for FY25. I want to try and
11:39 bring in context with regard to growth as well, because you are expecting to double
11:44 your balance sheet in the next four years. How confident are you of that number?
11:50 We are quite confident actually. In 22-23, we started with a loan book of 3,85,000. At
11:57 the end of 22-23, it rose to about 4,35,000. And in FY24, our loan book has increased to
12:04 5,09,000 crore. So there has been a growth of 13% in 22-23 and FY24, we saw growth of
12:12 17%. We are expecting this growth trajectory will be able to maintain and 15-20% growth
12:20 every year we are expecting. That's why we are targeting to double our asset and management
12:25 to about 10 lakh crore by the year 2030. But if this growth trajectory of 17% continues,
12:31 then perhaps we may achieve this asset and management of 10 lakh crore by the year 2029
12:37 itself.
12:38 Okay, so before I go to 2028 or 2029 FY, which is roughly the trajectory which you are currently
12:46 taking with regard to doubling loan book, I want to first talk about the levers with
12:52 which will probably help you get there. You are getting into infra financing. You are
12:58 getting into financing of renewable energy, both on the individual side as well, rooftop
13:04 solar and the like, as well as renewable financing in terms of renewable energy financing in
13:10 just in terms of the industry and the scale which the industry requires in terms of financing.
13:16 What are these levers like in terms of growth? How will the book shape up with regard to
13:23 these two, three new levers as you would call it?
13:27 Let me tell you that our renewable energy portfolio is at around 35,000 crore. We are
13:33 expecting a tenfold increase in our renewable energy portfolio to say about three lakh crore
13:39 by the end of 2030. With regard to non-power infrastructure logistics, our loan book is
13:44 about 50,000 crore and we are anticipating that it will see a fourfold growth by the
13:50 year 2030, will reach about two lakh crore by the end of 2030 for the non-power infrastructure
13:57 logistics. Plus one more additional component has been added that Central Electricity Authority
14:02 and Ministry of Power have worked out the base load requirement for the country and
14:08 country will still require coal based thermal power plant with a tune of about 94 gigawatt
14:13 capacity by the year 2032. That will also give us additional lever for increasing our
14:19 loan book.
14:20 Understood. So just the rough math that I'm doing, based on what you've just suggested,
14:27 these two new verticals will probably add roughly four lakh crore to your current balance
14:34 sheet. So are you expecting prepayments, repayments to therefore in some form dampen growth on
14:42 the thermal side of things or you're expecting thermal also the demand to be quite robust?
14:48 So probably a 10 lakh crore plus kind of a number by FY28.
14:53 Yeah, that's what we are expecting that we are targeting 10 lakh crore by the year 2030
14:59 actually. But it appears to me that we'll be able to reach this 10 lakh crore by 2029,
15:06 it's 2029 itself we might achieve this because renewable energy portfolio is really going
15:13 forward because last year we have sanctioned about one lakh 36,516 crore. That was a jump
15:19 of 533% as compared to FY23 that was only 21,554 crore. Similarly, coal based generation
15:28 capacity because within eight years, this additional capacity has to come. Therefore,
15:34 the sanctions and approval will have to be done next two to three years. For that also
15:40 our sanctions loan book for coal based thermal plant will also increase.
15:45 Got it. So and so with regard to margins, therefore, you earlier had a guidance band
15:52 of 3.3 to 3.5%. You've upped that to 3.6. Now you feel comfortable with this number
15:58 is what you seem to suggest. So tell us, you know, is this something like a medium term
16:06 target or guidance 3.6% margin and sustainability of that?
16:11 Yeah, we have made constant efforts to reduce our cost of funding. Our cost of funding has
16:18 gone down by 15 BPS from 7.28 to 7.13%. We are making a judicious mix of our borrowing,
16:26 particularly external commercial borrowing with innovative hedging techniques has helped
16:31 us bring down the cost of external commercial borrowing to say at around 6.6, 6.7%. And
16:39 that's why we are targeting to bring down our cost of funding to say about 7%. And we
16:45 hope to hold on to this net interest margin of about 3.55 to 3.6%. And our spread is also
16:54 improving last year, our spread has improved by 41 BPS from 2.45% to 2.86%.
17:01 And this is despite all the prepayments you've seen in FY24. Do you see that prepayment trend
17:06 kind of continue into FY25? And you know, you holding on to surplus liquidity yet you've
17:11 done this kind of margin. So I want to try and understand whether prepayments are expected
17:16 to continue. You see that trend continuing and despite that margins will hold. So therefore,
17:22 would you therefore expect some margin upside from here?
17:25 Yes, actually, the very nature of renewable energy, you have to see the business actually,
17:32 the turnaround time of renewable energy projects are very fast. It gets commissioned solar
17:36 and wind projects get commissioned every two to three years. The developers want to exit
17:41 and they want to invest their equity in some other projects. So there's likelihood of prepayment
17:48 for this renewable, commissioned renewable energy projects actually. But that the prepayments
17:55 are going to happen, that we are going to meet through the large scale volume of sanction
18:01 that is happening actually. My loan for the project pipeline for the current financial
18:06 year, for example, is quite strong actually. For renewable energy projects, I have pipeline
18:10 of about 1.75 lakh crore projects are already there. Then a conventional generation, transmission
18:17 and distribution, we have huge pipeline projects. This year we are targeting total sanction
18:22 of about 4 lakh crore. But this, since this project gets commissioned over a period of
18:27 five to six years, that this business will keep happening over a period of five to six
18:31 years.
18:32 Understood. And so just with regard to, you know, I'll try to switch focus here with regard
18:40 to net NPAs, you're guided for bringing it down to 0%. I want to understand what is the
18:49 impact of that on your P&L that one can expect in FY25?
18:55 Yeah. Our gross NPA is about 13,800 crore. And those assets which are heading towards
19:02 liquidation are there about 2,222 crore for which we have made 100% provisioning. Remaining
19:08 assets we are expecting a good resolution. And since we have made provisioning of 70%,
19:14 we are expecting that we'll get right back to the tune of 30 to 40%. In some cases it
19:20 may go up to 50% also. Total right backs would be say around 1,500 to 2,000 crore that will
19:28 add to our P&L account.
19:32 Understood. Got it. And this is, so you will have a positive number of 1,600 to 2,000 and
19:40 you'll have a net NPA of zero at the end of FY25. Is that how your P&L will shape up?
19:45 Yes, that's what.
19:47 Okay. Understood. Understood. So a net right back of 1,500 to 2,000 crore is what you're
19:53 anticipating. Okay. Understood. And so just with regard to last of what this does to your
20:01 profit after tax, maybe not in FY25 because there will be these right backs and these
20:06 one-offs, but in terms of overall credit costs as well as profit after tax growth, you've
20:15 done 13% on your top line over the last five years. I've pulled out the numbers, but you've
20:20 done 20% on your bottom line. That's because of OPEX. Your OPEX has been extremely controlled,
20:26 extremely, extremely muted in terms of its growth. I want to try and understand that
20:32 17% AUM growth all the way to FY28 or FY30 while you're doubling, how will your profit
20:39 after tax move? Will it be 25%? Is that how the math will work? Because as you scale,
20:46 that advantage will come to you.
20:48 You're rightly analyzed actually. Our asset management will grow around 17 to 20% actually
20:56 over the next three to four years. And our profit after tax is bound to increase to say
21:02 about 23, 24, more than 23, 24%.
21:07 Understood. And sir, last off with regard to dividend yield, you will continue the 30%
21:12 dividend yield policy regardless. And would you require any extra capital while you are
21:17 growing because you're a high cash flow or rather high profit business and therefore
21:23 capital adequacy will remain healthy despite you not raising capital or will you require
21:28 a capital raise? So dividend and capital raise.
21:30 Yeah, our dividends, since we are a government company, we have to follow the DIPAM guideline.
21:37 So 5% of the net worth or 30% of the profit after tax, whichever is higher, we are bound
21:43 to give that dividend. That trend will be on the upward swing only. With regard to capital
21:50 adequacy ratio, because a lot of projects which are approving in distribution segment
21:57 and that are supported by government guarantees actually, we'll be able to keep the capital
22:04 adequacy ratio of more than 25%.
22:06 And no capital raise required?
22:09 Yeah, no equity infusion would be required.
22:14 So no equity dilution either. Okay. Thank you so much, sir. It's been a pleasure speaking
22:19 with you, getting all of that perspective on REC. Extremely interesting play. Super
22:25 bullish with regard to the way in which this is moving, at least street analysts and the
22:30 way they're looking at how REC is shaping up. So many congratulations, wishing you all
22:34 the very best for FY25.
22:36 Okay. Thank you so much.
22:38 Right. REC, that one in focus on the back of earnings. We've had this understanding
22:43 and guidance coming in from management with regard to a plethora of factors. And it's
22:50 been extremely insightful. Thanks so much for watching. Completely out of time on this
22:53 one. Stay tuned to NDTV Profit for more.
22:56 [Music]