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Blue Star QIP a well thought out decision, timing is also right: B Thiagarajan, MD

In an interview to ET Now, B Thiagarajan, MD, Blue Star Ltd, shares his business outlook and talks about the company’s QIP. Edited excerpts:

ET Now: Let us talk about the latest fundraise — a thousand crore via QIP. Can you give us some insights regarding your overall capex plan?
B Thiagarajan: We have successfully closed the QIP issue of Rs 1,000 crore. The fund is for multiple purposes. One is for manufacturing capacity expansion. The second is to find the working capital because we have been growing and we are planning to grow faster than the market.The third one is connected with the digitisation initiatives. Quite a few are in progress and we will continue to invest there as well.The issue was subscribed well. We have quite a few existing foreign shareholders building further — HSBC Global and the domestic funds like SBI or Kotak, HDFC, Birla. We also have new foreign institutional investors like Fidelity, ADIA and so on. So, basically the fund is being raised to support the growth plans that Blue Star has.

Whether or not will you be using any of these funds for debt reduction? What is the plan on that front?
We will. The placement document lists the details.

As you are aware, we have been investing in manufacturing capacity expansion through debt — the deep freezer plant that came up in Wada or the first phase of the CCT plant that we had commissioned. Phase two is under construction now. So, for retiring debt also it will be used and basically it is going into manufacturing capacity expansion.I have tracked Blue Star over the years and it has a very rich history of not diluting. You preserved your equity and that is what markets like about you. But QIP means there is dilution…
You are right. We are in our 80th year by the way. Tomorrow we will be celebrating the 80th anniversary of the company and we have been conservative in terms of raising funds from the market. But we are at a stage — we crossed Rs 8,000 crore of revenue and we are on a fast track mode in domestic market in the air conditioning and commercial refrigeration business as well — where our ambition is to expand our international footprint.Now, for many years, we did not expand manufacturing capacity at all. We postponed and postponed, waiting for the right time. As for CCT, we had to quickly commission it because we were crossing the threshold of eight lakh units and will be crossing one million units in room air conditioner. Similar is the case commercial refrigeration.

If you look at it, there is an indigenisation and localisation drive in the post-pandemic world.

As for the QIP, given the accelerated growth that we are seeing in the market, we will need additional money, because from Rs 8,000 to 10,000 to 12,000 to 15,000 crore we have a clear visibility in terms of revenue.

You can raise debt to fund some part of it, but you definitely need equity capital for funding the growth. It was a well thought out decision and the timing was also right.

What is giving you the signal to expand — commercial demand or demand coming from residential units?
Both. This is the first time in my career spanning over 49 years I am seeing that quite a few parts of the businesses are witnessing growth — residential room air conditioners business, institutional room air conditioner business, commercial air conditioning business, and commercial refrigeration business including cold chain.

We are witnessing growth in other parts of the business as well — like professional electronics or EPC contracting. Now, you have seen our results over the past eight-nine quarters. We have maintained growth momentum continuously. We are also into profitability improvement measures through indigenisation and backward integration. This is the reason that you need to invest.

And the international footprint of ours had been small for many years. We were present in the Middle East and North Africa. We would like to take our products and solutions to Europe and the United States as well. You are aware we have set up subsidiaries there. This will be through the ODM route and we are not entering directly with our brand. We will be marketing through others and this is part of our strategy.

You are also looking at diversifying from non-air conditioning segment….
No, not at all. The last product that we launched was water purifier. We have been in water coolers and we did get into water purifiers. Otherwise, we are staying focussed on air conditioning and refrigeration, not even residential refrigerators.

Talking of exports, big Indian companies like Bajaj Auto are moving to Africa. How large is Africa for you?
For air conditioners, there is a market but it is not significant. The largest market will be United States and Europe. As a part of their decarbonisation strategy, they will have to get into higher energy efficiency products, and that is what Blue Star specialises in.

We have mastered those technologies and we are continuing to invest in research and development for that purpose also. You will recall Mr Ashok Advani, Chairman Emeritus, had provided a promoter grant of Rs 100 crore last year. It is basically meant for expediting and deepening our R&D efforts there. So, Africa is a market, but the large ones will be United States and Europe.

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