Construction slowdown to hit Blue Star financials

Blue Star, the country's largest central air-conditioning firm, anticipates its financials in the next couple of quarters to be affected by the downtrend in commercial construction activity, a top company official said.

"The cost overruns due to sudden collapse of construction activity. Some projects did not get closed. In the process we indeed incurred losses... Our forecast is contracting business will have tough time for the next couple of quarters and the growth we expect in the market will be only in 2014," Blue Star President (Air-conditioning and Refrigeration Group) B Thiagarajan told reporters here today.

He added that the company expects growth in contracting business, which accounts for 40% of the revenues, only after two years.

Contracting business involves air-conditioning of projects such as shopping malls, airports, and large office complexes.

The company suffered a net loss of Rs 11.01 crore in the half-year period of the current fiscal mainly on account of a lull in contracting business.

The company reported a net profit of Rs 75.79 crore in the corresponding period last fiscal.

According to the company, the electro mechanical projects and packaged air-conditioning business that accounted for 64% of the total revenues in the second quarter, declined by 19%, while segment results fell sharply to a loss of Rs 3.41 crore compared to a profit of Rs 43.37 crore during Q2 FY11.

To a query, Thiagarajan said the company would invest Rs 20 crore in advertisement and other promotional activities for this season and is mulling a hike in product prices by 10-15% for the ensuing summer season.

Blue Star, which has a market share of 7.5% in room air-conditioner market, is aiming to reach 9% share this year.

"We have improved our market share from 5.5% to close to 7.5%. We should move towards the 9% range this year itself. That is our plan. We have hopes to improve our market share to even 15% in the coming years," he said.

The company commands 30% share in packaged air-conditioners market and 25% in refrigeration and cold storage segment.