2015-16 was a year of consolidation and transition for Blue Star.Consolidation refers to the completion of a two-year exercise involvingcorporate restructuring and retrospective amalgamation of Blue Star Limited and Blue StarInfotech Limited (BSIL). Towards the end of the year the Managing Director SatishJamdar conveyed his desire to retire which created a mood of anticipation of the changesto come. The year concluded with the smooth transition of leadership from Satish Jamdar toVir S Advani and B Thiagarajan.
Consolidated Financial Performance
Instead of the Standalone Accounts it is more meaningful to look at the ConsolidatedAudited Accounts. Total Revenue grew by 19% to Rs.3787 crores while Profit After Taxdoubled from Rs. 54 crores to Rs.108 crores.
Earnings Before Interest Taxes Depreciation and Amortisation (EBITDA) beforeexceptional items climbed to Rs.233 crores. Return on Capital Employed at 24.8% and Returnon Shareholders Funds at 19.4% reached their highest levels in the past five yearsand are expected to keep improving. These encouraging financial results confirm theacceleration of business growth and profitability that began in the previous year.
Balance Sheet & Cash Flow
Complementing the healthy growth of revenue and profit is the state of the BalanceSheet which strengthened considerably mainly due to the merger of Blue Star and BSIL. Theyear-end borrowings of Rs.363 crores shown in the Consolidated Accounts are reallyequivalent to a much lower net figure of Rs.205 crores after adjusting thecurrent investment of Rs.158 crores which was the net cash received by BSIL for the saleof its IT business.
The year-end debt equity ratio on a consolidated basis came down to 0.55 a more solidfigure than the previous years 0.87. This reduction occurred despite the interimdividend payout of Rs.75 crores in March 2016. Had the dividend been declared and paidafter the finalisation of accounts as is usually done borrowings would have been lowerto that extent and debt/ equity would have further reduced to a comfortable 0.44.
Thus with modest leverage and substantial liquid assets in the Balance Sheet BlueStars financial position is now much stronger. Looking ahead the Companysasset-light financial model aims to deliver cash profit high enough to pay good dividendswhile retaining sufficient profit to fund future business growth without resorting toexcessive debt. We have achieved this in the past and we will do it again.
A review of the segment-wise performance reveals that Electro-Mechanical Projects &Packaged Air Conditioning Systems revenues grew a moderate 12% to Rs.1908 crores whileoperating profit showed a healthier increase of 48% to Rs.80 crores. The businesscontinued to be handicapped by the long slump in industrial investment and commercialconstruction aggravated by the slow execution of ongoing projects.
Unitary Products (the erstwhile Cooling Products) with 42% of Corporate revenues i.e.Rs.1576 crores produced 58% of the profits i.e. Rs.166 crores. This segment hasconsistently been the major bread-winner for the Company. The current extension of theproduct range into non-cooling but related areas like water purifiers and air purifiersexplains the new name for this business segment.
Professional Electronics & Industrial Systems had a disappointing year mainly dueto recessionary conditions in the industrial sector. Though revenues grew 15% the resultsdeclined from Rs.31 crores to Rs.27 crores.
Top Management Succession
The new financial year 2016-17 began with the passing of the Managing Directorsbaton from Satish Jamdar to Vir S Advani. Simultaneously B Thiagarajan stepped into theposition of Joint Managing Director. While the new team will manage the Company togethereach of them will oversee different business areas and support functions. Thisorganisational structure leverages individual strengths and provides clear accountabilityin a diversified company. Major corporate matters of course involve coordination andjoint decisions where the shared corporate culture and values ensure a common bond withunified decision making. What gives me confidence in the partnership is that Vir andThiagarajan have actually worked successfully in this manner as Executive Directors underSatish.
The new top management is off to a quick start. They had already begun the planningprocess earlier along with senior managers by addressing the fundamental question of whatsort of Company they want Blue Star to be in 3 years when it celebrates its 75thJubilee. This exercise resulted in the Strategic Plan FY17-FY19: Blue Star @ 75 and theAnnual Business Plan for 2016-17 which have been approved by the Board.
I do not intend to steal Virs thunder. Let him tell you himself. In a separatecommunication in this Annual Report he explains the Corporate Vision and plans and howthe management intends to tackle the opportunities and challenges of the Company. Sufficeit to say they aim to transform Blue Star in a number of important ways over the next 3years. Their views and aspirations are thought-provoking and aggressive yet veryconscious of the heightened risks and uncertainties in the world of today.
The Road Ahead
While 2016-17 has started well and business growth is expected to pick up our plansare to some extent dependent on a healthy growing economy. India is relatively wellpositioned compared to most other countries but there are a number of macro-economicfactors that could be problematic. Inflation is rising again especially highly sensitivefood prices. This is preventing the RBI from cutting interest rates. Investments in theinfrastructure and industrial expansion remain subdued due to the dysfunctional bankingsystem and over-leveraged corporate balance sheets. The Brexit development will create amajor upheaval in international financial markets. India too will feel the effect to someextent but being relatively insulated is better prepared to deal with the consequences.
I do not wish to list only problems and uncertainties because my personal view remainsupbeat for good reason. There are many positive developments taking place across the broadeconomic social political and technological canvas of India. The Central and Stategovernments are paying serious attention to the ease of doing business by simplifyingbureaucratic procedures and relaxing controls which will benefit industrial and businessactivities while encouraging foreign investment. A new generation of youth is growing upwith different hopes and aspirations. There may not be too many conventional blue collarjobs being created but Indian entrepreneurial spirit is generating new self employmentand contract work opportunities. In short there is progress on many fronts and change ishappening.
Blue Star too has a younger group of engineers and managers who are empowered to takeon the new challenges. The Company's financial position is reasonably strong. We areresilient enough to absorb the impact of Brexit and continue business as usual. We havethe vision the resources and the leadership. Our employees possess commitment skill andabove all the willingness to work hard. I believe they will transform the Company into adynamic new Blue Star.
| ||Ashok M Advani |
|Mumbai: June 24 2016 ||Chairman |