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Company was represented by Vir Advani, President-Electro Mechanical Projects Group and B.Thiagarajan, President Air Conditioning and Refrigeration Products.
Key takeaways of the conference call by Capital Mkt; Operating Income for the quarter ended June 30, 2014 stood at Rs 845.48 crore, a rise 10%. But operating Profit for the quarter increased by 37% (to Rs 53.08 crores) as the operating profit margin expands by 130 bps to 6.3%. Other Income declined 15% (to Rs 3.54 crore); interest/finance cost declined marginally by 6% (to Rs 11.04 crore) and depreciation was up by 13% (to Rs 9.41 crore). Thus the PBT was up by 59% to Rs 36.17 crore. Taxation for the quarter was Rs 5.16 crore as compared to no expense in the same period last year. Consequently the Net Profit grew by 36% to Rs 31.01 crore.The Electro Mechanical Projects and Packaged Air-conditioning Systems business (EMP&PAS) accounted for 40% of the total revenues in Q1FY15 and the share of Cooling products (CP) was at 57% and the balance 3% was accounted by Professional Electronics and Industrial Systems (PE&IS)segment. Revenue of EMP&PAS for the quarter declined 4% (to Rs 335.43 crore) while the segment profit of the same registered a sharp decline of 70% (to Rs 5.42 crore) as its segment margin contracted to 1.6% for the quarter compared to 5.1% in the corresponding previous period.Revenue of CP for the quarter registered a growth of 22% (to Rs 483.92 crore) and its segment profit grew significantly by 67% (to Rs 70.59 crore) with its segment margin expand to 14.6% for the quarter compared to 10.7% in the corresponding previous period. Typically first and fourth quarter of any fiscal will be strong quarter for CP business.The PE&IS segment revenues increased by a marginal 2%, while segment results declined 24% to Rs 4.27 crore, owing to the un-favorable business climate.The decrease in profitability of EMP&PAS was mainly due to slower execution of projects resulting in lower billings coupled with cost overruns in specific legacy projects. Strong 22% growth in sales of CP is driven by enhanced sales of room air-conditioners and refrigeration products due to an extended summer and superior brand perception. Strong 67% jump in segment profit of CP segment is mainly due to higher manufacturing capacity utilization due to indigenization, stable foreign exchange and higher price realization.The cooling products business, driven by the residential segment, has been performing better than the industry owing to superior brand equity, wider distribution reach and impressive product range. The Company intends to continue to focus on prudent cost control and fiscal management in order to sustain this performance for the rest of the year. Room air conditioner â In Q1FY15 while the aid of extended summer the Industry grew by 10%yoy in volume and 20%yoy in value terms. But the company has registered a growth of 15%yoy in volume and 28%yoy in Q1FY15. Growth in volume is driven by strong demand growth in residential sales with the regions of West and East driving the growth. Specialized air-conditioning players preferred than general consumer durable players. Room air conditioner âThere is an exponential growth in the offing and the market size can grew from 3.5 mln numbers to 20 mln numbers in next 5-6 years. With economic situation improving the market can grew to 10 million in next 3 year. But the competition is intense. The company is one of the few pure air-conditioning professional and the company's positioning as air-conditioning expert is well perceived in the market.Deep freezer and coolers seen demand from dairy biz however the margin in this segment seen pressure due to unorganized segment and increased presence and competition of/from foreign players.Carry Forward Order Book as on June 30, 2014 increased by 9%yoy to Rs 1572 crore. Order inflow in Q1FY15 increased by 14%yoy to Rs 418 crore compared to Rs 366 crore in the corresponding previous period. Share of legacy order book in carry forward OB is Rs 125 crore spread over about 80-85 jobs. Of the total carry forward OB about 25% will be accounted by infrastructure and balance will be accounted by commercial buildings (IT, Hospitals, Hotels) and integrated commercial complexes.The electro mechanical projects business while continues to be adversely impacted mainly due to significant correction in project estimates of specific legacy orders. However, such legacy projects now form a small base of the total order book and the margin of this business is likely to improve over the next few quarters since the rest of the order book comprises projects with healthy margins. The performance is likely to improve in the medium term with the revival of the commercial construction segment.Enquiry levels for EM&PAS segment are up 30% compared to earlier. Average size of orders enquiries is about Rs 10-20 crore. In EMP&PAS business the company continues to be selective and opted out of certain segments. Power generation market, where it has too much of legacy job is one such segment where the company is opting out until all the legacy orders in this segment get over. Similarly the company is no longer bidding with civil contractor and general contractor. EMP&PAS business - Until quality order inflows improves, the under utilization will continue and resultantly the margins will be suppressed.Legacy orders in EMP&PAS will get completed in next 2 quarters. There can also be some additional cost kick in these legacy orders going forward till their closure.PE&IS - Quarterly performance is not a good indicator and can be presumed for full year. Full year prospects is still good even though there is about 540 bps contraction in segment margin of PE&IS in Q1FY15. Margins of Multi service jobs will be higher than single service jobs once that business mature and attain size. The company expects 10-12% margin for multi service biz.Manpower cost for Q1FY15 can be annualized for full year but the company is exiting certain segment and the company will do better.VRF product â competition is intense. Keep improving market share in these products given service and product differentiation.Steady state operating margin of EMP&PAS project is 8% and that of cooling projects is 9-10%. Similarly the steady state margin of PE&IS is about 18-20%.The company expects the EBIT margin of CP business for FY15 to be in the range of 9-10% even though the Q1FY15 margin stand higher. Current project management band width including manpower. Capacity 35% higher volume which is underutilized. This manpower was employed in non profitable projects.Room A/c â the company has adequate capacity for growth till Dec 2015. The duty concession in Himachal is expiring in June 2015 and the company will look for contract manufacturing in location with duty concession. The plant in south is on hold as the company is watching for any duty concession in erstwhile AP under the bifurcation package promised. |