Blue Star Ltd (BLUESTARCO) Q2 FY23 Earnings Concall Transcript

Blue Star Ltd (NSE: BLUESTARCO) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

B. Thiagarajan — Managing Director

Nikhil Sohoni — Group Chief Financial Officer

Analysts:

Rahul Gajare — Haitong Securities — Analyst

Ravi Swaminathan — Spark Capital — Analyst

Shalini — DSP Mutual Fund — Analyst

Manoj Gori — Equirus Securities — Analyst

Sujit Jain — ASK Investment Managers — Analyst

Bhavin Vithlani — SBI Mutual Fund — Analyst

Bhoomika Nair — DAM Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Blue Star Limited Q2 and H1 FY ’23 Earnings Conference Call. We have with us today from the management Mr. B. Thiagarajan, Managing Director, Blue Star Limited; and Mr. Nikhil Sohoni, Group Chief Financial Officer, Blue Star Limited. [Operator Instructions]

I now hand the conference over to Mr. B. Thiagarajan. Thank you and over to you, sir.

B. Thiagarajan — Managing Director

Thank you. Good morning, ladies and gentlemen. It’s a pleasure and privilege to join this call today. Thank you very much for sparing your time to attend this briefing from Blue Star on Q2 FY ’23 results. I’m going to give a brief introduction, after which Mr. Sohoni will brief you on the highlights and then we will answer your questions. If you would have noticed all throughout in my television interviews and interactions with some of you and the press, I had indicated that the market is doing well. The demand for all our products and services, including cooling products, had been good. That’s what I had been indicating even though there had been many reports that the market has completely slowed down.

Now you will see from the results, all segments have done well. Specifically the room air conditioners compared with last year or compared with even FY ’20, we have shown good growth. There was a second subject, which was being discussed all throughout for the past three months, is that there is commodity price softening and therefore whether the margins will improve. We had maintained that, look, it is not likely to improve because we had raw material bought at old prices and perhaps we have to look at the second half of the financial year. But then slowly we have been finding the exchange rate it is not stabilizing. Rupee continues to depreciate. Of course people say it is dollar strengthening than rupee depreciating. The fact of the matter is it is offsetting the commodity price savings that will be accruing from now on.

So therefore on the margin front, it is going to be a tight rope walk, but we have mitigation measures for Q3 and Q4. There are a few things that will benefit us to get back to the original margin levels. Now I had indicated that apart from B2C, B2B businesses continue to do well with record level of order finalizations and the order inflows. And I had gone on to say that there is huge pressure to execute the orders whether it is a large infra project or shop, store room, boutiques across main cities as well as Tier three, four, five towns. That trend continues driven by many sectors, whether it is apart from metro railway; it is water, it is connected with electricity or it is connected with the retail segment or the food related segments, whether it is QSR, so on and so forth.

There was another subject that was repeatedly discussed was how the supply chain disruptions are impacting Blue Star and I had indicated and I continue to maintain that you have to plan in advance the inventory levels are going up. We may be holding something like 45 days inventory. Against that, we are aiming at holding something like 75-day inventory, whether it is raw material of metallurgical nature or otherwise the components. So I had also indicated prior to Diwali that this is a new reality. We do not know when things will normalize as far as the supply chain disruptions are concerned. The vendors across have been indicating that the China, some kind of stability you can see from January onwards and therefore, things may begin to improve.

But as of now, there is no concern about supply chain disruption except that the inventory levels we may have to do increase. Now whether it will impact the capital employed, we have always — you’re aware that we have been managing our capital well and I don’t think that is a challenge. But we would have preferred the supply situations to go away by now, but it is not happening. On the outlook, we are optimistic about the second half of the financial year as well. It is arising from the fact: number one, we do make — penetration level is low and I think this is an in-season and it will be — buildup to the summer will be extremely good. And we have seen the residential property consumption or the rental levels that are operating and the new home of homes being occupied should help that cost as well.

Embedded in that is a question whether price increase will take place. We have to review that in January because the product portfolio will again get regent with new products coming in. which are affordable premium range as well. The fact is that the Sri City factory should be coming into operation and that gives us some kind of competitiveness compared with Himachal plant. So there is a second aspect to that. The third one is in the B2B part, there is a huge order inflow and therefore, carry-forward order book and order finalizations even in Q3 continues to be good. And I mentioned to you about the sub part of it, we are mitigating by advancing the ordering and increasing the stocking levels.

So therefore, while I have no insight further than what is available in the public domain on whether there will be a slowdown, how much it will impact in India, I’m not getting into — I’m limiting myself to the financial year 2022-’23. Keeping that in mind, I’m optimistic about the prospects for the second half of the financial year as well.

And with this opening remarks, I hand it over to Mr. Nikhil Sohoni to give you the update on the quarter.

Nikhil Sohoni — Group Chief Financial Officer

Thank you, Mr. Thiagarajan. So good morning, gentlemen. This is Nikhil here and I’ll be providing you an overview of the results for the quarter ended September ’22. The sentiments in the Indian economy continued to be positive despite the ongoing geopolitical uncertainties and the impact that the strengthening dollar has on the global currencies. The capex by both public and private sector continue to be encouraging. Consequently, all the sectors that we’re operating saw healthy growth and enabled us to end the quarter on a positive note. Our financial highlights for the quarter on a consolidated basis are as follows.

Revenue from operations for quarter two grew by 27.1% to INR1,576 crores as compared to INR1,240 crores in Q2 of FY ’22. EBITDA, excluding other income and finance income, for Q2 FY ’23 was at INR85.6 crores, margin of 5.4% of the revenue as compared to INR70.7 crore, margin of 5.7% of the revenue in Q2 of last year. Operating margin was marginally lower in Q2 of the current year owing to input costs in certain segments and higher operating expenses. Profit before tax grew to INR57.5 crores in the current quarter as compared to INR47.4 crores in the quarter last year. Tax expenses were at INR14.9 crores as compared to INR15.99 crores in quarter two of last year.

Net profit grew by 35.6% and grew to INR42.6 crores as compared to INR31.4 crores in the corresponding last quarter. So carried forward order book as on September 30 grew by 13.6% to a record INR4,192 crores compared to INR3,186 crores that we had as on September 30 of last year. Capital employed for the current September was increased to INR1,441 crores as compared to INR938 crores as of September 30, 2021. This was owing to higher inventory holding to mitigate the continuing supply chain disruptions and also the capital investment for manufacturing capacity in various expansion projects. Consequently, we ended the quarter with a net borrowing of INR392.6 crores and a debt equity ratio of 0.37 on a net basis as compared to net borrowing of INR44.3 crores and a debt equity ratio of 0.05 as on September 30, 2021.

Coming to business highlights. The first segment that we have that is electro-mechanical projects and commercial air conditioning. The segment revenue grew by 32.6% to INR959 crores in the current quarter as compared to INR723 crores in the quarter two of last year. Segment results are INR60.7 crores, 6.3% of the revenue in the current quarter as compared to INR46.5 crores, 6.4% of the revenue in quarter two of last year. Order inflow for the quarter grew by 68.9% to INR1,198 crores as compared to INR709 crores in the quarter two of last year again. Coming to the first segment that is electro-mechanical projects business, the overall pace of execution remained healthy. We witnessed a strong uptick in inquiries and order finalizations in the data center segment, metro railways and factory segment. Inflow of tenders in the infrastructure sector continued to remain encouraging.

We also booked our first order for railway electrification. We received our largest ever order for integrated data center project during the current quarter. Carried forward order book for the electro-mechanical projects business is at INR3,054 crores as on September as compared to INR2,240 crores as on corresponding last September. That’s a growth of around 36.3%. Coming to commercial air conditioning systems, growth in demand across all segments that we operate in enabled growth in the revenue of commercial air conditioning business during the current quarter. We further consolidated our position in Tier two, three and four towns with approximately 65% of the revenue for the quarter coming from these cities.

We continue to maintain our number one position in conventional and ducted air conditioning systems as well as scroll chillers and second position in VRFs and screw chillers. Some of the major orders received during the quarter were from West Bengal [Technical Issues] Services Corporation,[Indecipherable] Surat, L&T office stadium, Rourkela etc, just to name a few. Coming to international business. Best growth across all segments and territories that we are present in. We further expanded our offerings across markets to cater to new customer segments. We witnessed strong demand for our commercial air conditioning and refrigeration products and a few notable orders were received during the quarter from fast food chains like Americana, Domino’s and Tim Hortons. We also setup a wholly owned subsidiary in United States.

The project business in Qatar continued to do well. The operations of the joint venture in Malaysia continue to be impacted owing to slowdown in construction and order finalization. We will focus on expansion of Blue Star product range and build brand awareness and brand visibility in different markets that we are present in. Coming to segment two that is unitary products. The revenue grew by 15.4% to INR525 crores in the current quarter as compared to INR455 crores in quarter two FY ’22. Segment results were at INR32.4 crores, which is around 6.2% of revenue in the current quarter as compared to INR23.3 crores at 5.1% of revenue in the quarter two of last year. We continue to expand our distribution footprint across the country apart from promoting our new range of affordable premium products. Coming to purification products in this segment. Seasonally lower demand quarter is the quarter two which we operate this time, but our room air conditioner business rented a growth of 17%.

The new energy leveling came into effect from July 1, 2022 and with all our products into the new BE ratings. We grew in line with the market and maintained our market share at 13.25%. The Sri City project is progressing well and is expected to commence commercial production early 2023. Coming to commercial refrigeration business. The business witnessed growth in demand across all segments with consumption levels back to normal. Demand for our supermarket refrigeration products retail segment continued to be encouraging. Demand from the hospitality sector also revived during the quarter. We continued to maintain our leadership in deep freezers, storage water coolers and modular cold rooms. We also launched a new range of visi coolers with a wide capacity range to suit different customer needs. The last segment that is the professional electronics and industrial systems.

The revenue grew by 50% to INR92.4 crores in second quarter as compared to INR61.6 crores in the quarter two of FY ’22. Segment result was INR13.8 crores, it was 14.9% of revenue in the current quarter as compared to INR9.8 crores or 16% revenue in the quarter two of last year. We witnessed robust demand for medical diagnostic equipment with increased awareness and investment in health care sector post COVID. Demand for nondestructive testing business as well as data security solutions for BFSI also continued to be encouraging. Major orders were bagged from Arcelor Mittal, Nippon Steel, Jindal, HDFC Bank, Tata Steel, ICICI Bank just to name a few. With a wide portfolio of contemporary products and solutions for each part of our offerings, the prospects for this business segment continue to be positive. Coming to business outlook.

The demand for our products and solutions from the segments in which we are operating in continues to be good. We will stay focused on our mission to grow faster than the market, profitability improvement and efficient utilization of capital while continuing to invest in manufacturing capacity additions, R&D and expansion of international footprint. With the push in infrastructure investment and commencement of capacity expansion cycle in the management, we expect order inflows in projects segment to remain buoyant throughout the year. On the other hand, low levels of penetration will continue to aid market growth in the room air conditioner business going forward. Opportunity for our commercial refrigeration business is expected to be robust with growth in food processing and organized retail sectors.

Further, the softening of the commodity prices and the higher level of indigenization will enable us to partly mitigate the impact of the depreciation of Indian rupee against the U.S. dollar. We are optimistic about the prospects of our business in the second half. With that, ladies and gentlemen, I’m done with my opening remarks. I would like to pass it on back to the moderator who will open the floor to questions. We’ll try and answer as many questions as we can and to the extent that we are unable to, we’ll get back to you via email.

With that, we are now open for questions.

Questions and Answers:

 

Operator

[Operator Instructions] We have our first question from the line of Rahul Gajare from Haitong Securities. Please go-ahead.

Rahul Gajare — Haitong Securities — Analyst

Good morning. My question is on the revenue.. Blue Star has actually bucked that trend where most of the players last year have seen pressure on their revenue growth and profitability. Could you throw some light on what is it that has helped you gain market share? And is there any geographical contribution which has impacted this market share gain and revenue growth? That’s the first question.

B. Thiagarajan — Managing Director

I am first taking the B2C part of it and was well known that our market share was not uniform across the country. There were certain parts of India we have been doing extremely well, certain parts of India we have been not doing that well specifically Hindi speaking belt in North India. So we had stated the strategies to do with the product repositioning and the distribution. So the product repositioning task is complete, distribution is halfway through. So we could ensure that that part of the business grows. The second one is within that segment, if you’re talking about cooling products, the commercial refrigeration. First of all, we have also remember it was a COVID impacted year as far as commercial refrigeration is concerned.

While the room air conditioner last year came lately after the summer season was over, commercial refrigeration took time so when you compare with last year, obviously there will be growth. But most importantly that business is opening up, but not to the extent we would like. But one can expect CAGR of around 20% in commercial refrigeration business alone driven by the processed food or food retail so on and so forth on one side, pharmaceutical on the second side. The processed food being manufactured and exported or traded within the country. So commercial refrigeration is the second part of it, which is driving. Now come to the — and in order to pursue this growth, what we have done differently, it’s our own weakness that we have corrected in room air conditioner, right.

That we were not able to compete with a range of products in Hindi speaking belt, which we have come back with supported by the distribution, supported by making the brand relevant to them. You’re all aware Virat Kohli was brought in for that particular purpose. So go to the commercial refrigeration, the market itself is growing. We stay focused on it. We were very clear that we are not getting into large projects there. We will — our ambition is to remain number one in deep freezers and modular cold rooms and which we continue to do. It is to do with positioning ourselves as leaders there. Come to electro-mechanical projects, we are very clear that we were playing a very cautious game of picking and choosing the segments in which free cash flows will be good.

We were not chasing the market share there. And then we need to get — we should be in the consideration set of the customers. We should be a preferred vendor for certain activity. Data center, we have positioned ourselves like that. In factory segment, we are treated like that. And we are having a situation fortunately, the infra segment investments are happening. So we have the competence, we are participating. That is the next reason. It is a favorable economic or market environment that is prevailing as far as infra related projects are concerned, which is water and metro railway and power distribution. Come to the shop, showroom, boutiques, retail.

After many, many years, the investments are coming back there. This Diwali so many people wanted to open restaurants, so many people wanted to open retail outlets and many of them have not renovated or expanded. All those are happening is a favorable condition. There why we are succeeding? We were very clear that in ducted, we will be number one. We will further strengthen ourselves by introducing products that are world class. In VRF, from those doubtful days whether Blue Star will ever be able to develop and launch and sell a VRF and we are a clear number two player there and we will continue to grow. The strength is the progression and the investments that we have made in R&D as well as manufacturing. Professional electronics segment continues based on the capital cycle coming back.

Capital investment cycle has come back. So this is what it is. So it is a combination of a favorable market enrollment and correcting our inner references in certain cases like room air conditioner. In certain other cases, further strengthening and ensuring we grow. That is what has helped us to grow our revenue. This will continue to be the direction. Equally I should also concede where we have not done well as we would have expected. I think in air coolers we could have done well, we could have done much better in water purifier. Don’t ask me for that individual figures, it is negligible compared with the rest of the things. But these segments we are some 4%, 5% kind of. We should be also attempting to grow there at 20% plus. That has not happened.

Rahul Gajare — Haitong Securities — Analyst

My second question is on the project business. How is the domestic tender pipeline and specifically the competitive intensity that you’ve seen change in the domestic business? And given that you have intention to grow your international business, how do you plan to go about it? Do you have a limit for the revenue mix that you’re looking at between domestic and international?

B. Thiagarajan — Managing Director

So the competitive landscape there has not changed at all because some player might have decided not to participate. But given that the entry barriers are not that big, there is always intense competition and players actually reducing it to some L1 game. The contractual conditions of any kind are being accepted. Getting the contractual conditions imposed in this country and the compliance which is also very difficult. Of course the laws has changed, but it is still very difficult. The third is that with our understanding what it will take to have a superior project, the prices are being coated. Air conditioning is a slow-fisted science, but unfortunately it is invisible as well.

I have told in the same conference calls or in the individual interactions. The decision makers spend more time on bathroom fittings, more time on carpets, more time on paintings on the walls rather than the air conditioner is a reality. It is an invisible thing that order gets finalized. And look at the air conditioning cost as a percentage of the total project compared with the civil, engineering put together. It is still negligible, but unfortunately, it is driven to a L1 theme and in my lifetime whether it will change, I do not know. But the competitive intensity is high because of the industry player itself reducing it to cutting corners and executing the jobs. That is how it is. The construction practices have not got modernized fully and you’re in a situation where the construction cycle is on and you need to improve quite a few things, but that will happen only if the [Indecipherable] improves.

So therefore, competition continues. Our strategy has been clear. A, whether we can deliver superior project delivery and go ahead and ensure that best practices are followed there. Two, do not chase the sales and it has to be profitable and the cash flow should be good. And third-part is that position yourself as a preeminent undisputed leader as far as MAT services are concerned. Then you will be able to command some kind of premium. I don’t think today we command a huge premium, but there are very large number of customers who would like Blue Star to be their vendor, some minor premium they may be granting. And I can imagine their situation also that they do have competition offering much more attractive prices. So this has been our strategy. We will continue with that.

And again I repeat because construction cycle is on, we are not going to be chasing orders and grow the revenue at all. We will deliver superior projects in the country and we will modernize — continue to upgrade and modernize our practices and we are content with what we are doing there. In other words, what I imply is that perhaps 20% to 25% growth we will drive during this construction and we will continue to focus on 6% to 6.5% operating margin from that segment 1. This will be the direction.

Rahul Gajare — Haitong Securities — Analyst

Thank you.

B. Thiagarajan — Managing Director

Thank you.

Operator

We have our next question from the line of Ravi Swaminathan from Spark Capital. Please go ahead.

Ravi Swaminathan — Spark Capital — Analyst

Congrats on a good set of numbers. My first question is with respect to the project business once again. Given the fact that large orders are kind of flowing in, can there be any upside to the profitability that we are looking at? So basically I mean the ticket size would be large and because of that, some operating leverage can be there like data centers, etc, do they carry better margins? And if you can also give the order book breakup, that will be great, across sectors.

B. Thiagarajan — Managing Director

Yes, it will be there because of scale, the operating leverage that you get, but it is not going to be in FY ’23. We still maintain 6% to 6.5% outlook basically because we are in a high commodity cycle and these orders will not be a full-fledged manner what has flown in because it is all 18 months to 24 months execution cycle. Margin will continue to improve, but you may see the improvement in ’24 rather than FY ’23.

Ravi Swaminathan — Spark Capital — Analyst

Got it, sir. And the order book breakup across sectors so basically how much is infra, how much is commercial real estate, how much is…

B. Thiagarajan — Managing Director

We will go ahead and publish that. We wanted to do it and we will. We will some point of time share with you. The question is it is like this, it is today infra, factories and data center. Factories and data centers behave in the same manner in terms of the processes and others in the building, so on and so forth, all are equal at 33%, 33%.

Ravi Swaminathan — Spark Capital — Analyst

Thank you.

Operator

We have our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Shalini — DSP Mutual Fund — Analyst

Hello, hi sir this is Shalini [Phonetic]. Sir, my question is around the debt levels. Could you help us understand what has caused the debt levels to go up in September? And also just give us a guidance on how this number would look in the subsequent quarter? What is the peak debt level that we can expect?

B. Thiagarajan — Managing Director

Nikhil will explain. But before that, I wanted to share with you my disappointment. When we were surplus cash, people were not excited about it. They were saying for your company it doesn’t matter whether it is a business channel, whether it is the financial press. And they said that look, your leverage is very high and what are you saying you have surplus cash. Analysts by and large never bother about it. This is a great achievement, okay? He will explain to you what is the reason for higher borrowings.

Nikhil Sohoni — Group Chief Financial Officer

Yes. So you have to look at the net cash position of course because there’s certain surplus cash which the company retains. And at a net level, which you’re seeing at around INR392 crores, we also have to keep in mind that there is a lot of capital expenditure that has happened. If you compare it to the last year, we were almost — as we have commissioned Sri City plant, there will be more than INR200 crores of capex that would have happened during this period. Also the inventory levels will be slightly higher because of the supply chain disruptions. So we are not maintaining like earlier times 45 days inventory. We would be maintaining around 70 days inventory at least and of course that will be a combination of raw material.

You have some amount of pipeline stocks, which are there so which of course has come down now drastically. So all of this will have to be funded by some amount of debt so you will see the debt levels go up. As we build for quarter 4, we have to stock again so there will be some amount of debt going up as we go forward. But considering the thing that overall the management focus is on this area, we always will try to maintain a very healthy debt equity ratio, which would not like to go out of hand. There will be enough focus on that. And the peak level as such can’t be defined, but you can say reasonably it can increase more than INR100 crores, INR150 crores at the max.

B. Thiagarajan — Managing Director

By the way, the debt to equity ratio stands at 0.37. So what he meant is that in the net borrowing level INR100 crore to INR150 crore or more can go because of Wada defreezer plant is complete now and Sri City is happening and increased working capital because the revenue itself has grown. So working capital turns in fact have not deteriorated due to debtors. It has deteriorated slightly due to the increase in inventory holding. That inventory holding is critically important for maintaining the supply chain and this is where it is.

Shalini — DSP Mutual Fund — Analyst

Okay, sir thank you.

B. Thiagarajan — Managing Director

Thank you.

Operator

We have our next question from the line of Manoj Gori from Equirus Securities. Please go ahead.

Manoj Gori — Equirus Securities — Analyst

Yeah thanks for the opportunity and congratulations for good performance. So this has been the fourth straight quarter where we have reported extremely strong performance on top line and on margin in the UCP segment. So I just want to get some clarity. So if you look at over last probably couple of years, we have worked on product side where we have done the engineering and everything. We have worked on the distribution side, on the marketing side. So probably can you highlight like what are the other areas which we have identified where we can structurally work upon and probably we can continue this momentum in the time side also?

B. Thiagarajan — Managing Director

Yes. One is a good question. Thank you for your observation. The very first thing that one will have to work is the frequency of major global events causing supply chain or exchange rate so on and so forth. That you can cross it for the past five years what are those events. Events seem to be very frequent. Somewhere some you take a Suez Canal to some China zero COVID policy to some Ukraine war so on and so forth. So the resilience how do we build is one area we are focusing and we are working on because this is a reality. It is going to be quite a few things that are going to take place. The second is there are — in research and development, you are in a market where it is price sensitive because the growth is coming from first time buyers, Tier three, four, five towns, aspirational middle class whether it is B2B, B2C. If it is a B2B, you’re having MSMEs or startups growing the market so therefore the expectation is it should be an affordable product. India will continue to be like that.

There is a third area that if you have to expand your — many of you have asked that your export revenue is lesser, how you will play in the China plus one or the global supply chain how Blue Star can participate. So there is work to be done in expanding our global footprint. We incorporated a subsidiary in U.S. And therefore, that is another area to be looked at. Then comes the manufacture footprint expansion so we do have Sri City to be commissioned and it will be happening in record time. The trial production has started and the commercial production should be happening by January. So you have the ability to execute such projects compared with where we are all doing some 0.5 million unit plants. Now we are talking about 1.5 million kinds of plant sizes. So ability to be setting up manufacturing units and hiring talent and growing that.

Now the last point is going to be the competitive intensity is going to be higher. Say for example room air conditioner, many people are expanding the capacity. There will be more production is happening. Everybody have to avail PLI. Therefore, people will have to go ahead and sell more because PLI, X axis may be the investment, Y axis is the incremental sales over FY ’21. So everybody have to show increment in order to earn the PLI from next year onwards. So therefore, there will be intensity. While the market will grow, product will become affordable, there will be continued competitive pressure. So how will capabilities to deliver competitive products through product innovation and other levers that you identify. So these are the areas which we will continue to work.

Manoj Gori — Equirus Securities — Analyst

That was very elaborated. So just to continue. So if you look at probably on the distribution side, can you throw some data points like what it is currently and probably what it was pre COVID?

B. Thiagarajan — Managing Director

I am lazy enough and reluctant to be looking at that figure even when my team says for the simple reason. I never in the past 30 years believed that the distribution numbers will deliver real results. They just put up a figure from 6,000 goes to 7,500, 7,500 to 10,000 number, 10,000 to 12,500 number. That is not the approach I would like to pursue at all. What is to be seen is that what is the potential of each of the outlets. So if India’s market size is going to be eight lakh — eight million units, what is Blue Star market share goal? So that number how it divides into various states, various towns and various outlets. It is to be estimated. Unfortunately, that data is not available in one single source.

We’re very particular about getting to that kind of planning. If it is Aurangbad, how many ACs will be sold? Each of the outlets, what is the potential? In that outlet, what is my share? And therefore, I am very particular. You can deliver that with 4,000 dealer network, 7,000 dealer network, 12,000 dealer network. And I think other problem is connected with not the numbers, but whether where we are getting that share. If my all India market share is 13.25%, I am not getting 13.25% from the stores in which I am present. So therefore, I don’t review this number at all. This number according to me even if I tell you, it is meaningless because by having one store, some 40 units being sold is of no use to me at all.

So I am lazy to even look at the number these days. So I am very honest with you. But the plan is that they are supposed to expand it by 30% this year. If I’m set with my 7,500, it’s supposed to go to 10,100 or something. Yes, something like that. And so I do not deal in the — some of you have closely discussed with me this subject, I continue to maintain that. Our problem is connected with not getting the share of business in many counters.

Manoj Gori — Equirus Securities — Analyst

If they so that was very helpful thanks a lot and wish you all the best sir.

B. Thiagarajan — Managing Director

Thank you.

Operator

We have our next question from the line of Sujit Jain from ASK Investment Managers. Please go ahead.

Sujit Jain — ASK Investment Managers — Analyst

Sir, beginning of the financial year, the commentary was from all the players to increase prices by the festive season to take care of the table change. That has not happened plus we had thought of increasing 50 bps market share this year. So I just want to check H1 market share I presume was 13.25%. Base H1, what was the market share and is there a scope of delivering on that 50 bps improvement in market share? And I also wanted to check with you how has been south this H1 in terms of how it has panned out for you in RAC? And is the competitive intensity increasing in south because everybody is putting that new capacity addition in south?

B. Thiagarajan — Managing Director

So good set of questions. So the very first thing is my communication is very consistent that we had reviewed the prices. I am telling the periods April 2021, July 2021 October 2021; and I said that we will look at the prices and again revise in 2022 January. Now all these price increases took place. When it came to the financial year closing and the summer season, there was a question whether we will be improvising the prices and we had gone ahead and done some price revision not to the extent we would like in April 2022. The question was that will the prices be reviewed again during the energy level change. The energy label change related corrections have been kept in mind. In fact quite a few models were future-ready models so even if the energy label changes, it will sail through. That is how it has been.

Now going back. Commodity prices begin to soften therefore what were the questions. Question is will the prices come downwards was the dialog till such time we got into a rate related issue post the war. So we were in at least three, four TV interviews, I advised why the prices cannot be revised downwards. But I maintained this that if we increase the prices because of commodity prices, if commodity prices effectively comes down, we will be the first one to go ahead. Since we are not doing, there will be a competitive pressure that will be happening. So this is the history. So another thing that happened if March huge sales, April huge sales, first 15 days huge sales and you’re witnessing a situation where people say it will be a 90% growth, even some industry associations. 80% growth, there will be stock, etc. 2nd of August it collapses.

People end up carrying inventory including ours, okay. Then if you recollect, I had clarified that as look at we had great February, great March, great April so it is better to look at January to June. I was also blamed by some that look, you’re diverting the attention by comparing six months versus summer only you should compare. Whichever way you analyze, you will now understand the market — I maintained that market eventually would have grown over FY ’20. That is what has happened. What was my outlook? Outlook was very clear that it will be 15% to 20% growth over FY ’20 will happen for FY ’22 partially due to price increase has taken place. But even if you look at the volumes, that kind of a growth will happen, 15% still for FY ’23 will be happening over FY ’20. There is no problem. When one will look at the prices, all of us will begin to launch the products for the summer and this supply chain within India would have dramatically changed.

Blue Star will be getting some products manufactured in Sri City, there may be competition which will be manufacturing there and many would have commissioned their new backward integration initiatives. So the prices all will be changing is my view that the January to February prior to summer, prices will change. Now despite huge commodity price increase, the margin drop is not that significant. Actually if prices wouldn’t have dropped, the margin would have dropped by as much as 10%. That one would have been making loss. That’s what would have happened. So the real price increase helped and I have been transparent enough also to tell one more thing that has happened is I don’t think the advertising expenses happened to the extent it happened pre-COVID days. And it had almost, in my view, had dropped due to right reasons that there had been adequate demand and there is clearness and people have changed their marketing expenses mix.

So advertising also has given leverage to industry. So therefore, the margin drop would have been significant, the industry may have done well. And I can talk for Blue Star, we have contained that margin erosion substantially by adjusting the prices. We will review the prices January keeping in mind what is the portfolio, what is the demand, what is our internal supply chain mix of product categories or where it is manufactured. And this is where we stand. And my view is — I’m not an expert. My view is I think by then the supply chain related disruptions for the components would at least to some extent because I expect China to become normal and I think exchange rate would have stabilized and I don’t think it will continue to be like this. So some point of a time it has changed, it maybe January is the time. So this is the overall explanation.

Sujit Jain — ASK Investment Managers — Analyst

What was the market share in H1?

Operator

Mr. jain, we request you to come back in the queue.

B. Thiagarajan — Managing Director

Okay. You asked about the market. The overall today we will be at 13.25%. Our goal is by FY ’24 reach 15% and I think we will improve it to that — 0.5% we will improve in this financial year itself. So it should be 13.75% to 15%, it should be possible for us. That is our belief because I mentioned to you our distribution penetration is still work in progress.

Sujit Jain — ASK Investment Managers — Analyst

Thank you.

Operator

[Operator Instructions] We have our next question from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.

B. Thiagarajan — Managing Director

I’m stepping out for a TV interaction, you have to excuse me. Nikhil will continue.

Bhavin Vithlani — SBI Mutual Fund — Analyst

So late in the May when you had an analyst meet, you had guided for unitary cooling margins rising to 8%, 8.5% this financial year. Apparently that supposed to be was the peak of commodity cycle. So where are we in terms of the guidance for this year?

B. Thiagarajan — Managing Director

We commit 8% to 8.5% for this financial year. It will happen.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Great. The last question is more of a balance sheet related. We have seen a consistent decline in the trade payable days and that is resulting in increase in the working capital. So from 140 days in ’21 March, we are now down to 80 days. So if you could just help us understand where do we see it settling and what is the strategy behind this?

Nikhil Sohoni — Group Chief Financial Officer

See, when you look at the number of days, I think it’s important to look at the period at which you’re looking because if you’re comparing it to last year and trying to see the drop, last year was impacted in the first quarter very heavily due to COVID and that means the turnover and the number of days at that point of time would not be comparable to this time so what is the number of days. That factor will have to be kept in mind. Otherwise the working capital cycle, as we said, we are not seeing the big shift other than the fact whatever we are storing for raw materials to take care of the supply chain. There is no change in either payment patterns or in terms of collections otherwise.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Sure. So is 80 a new normal or we can see further decline in the payable days?

Nikhil Sohoni — Group Chief Financial Officer

I think what you’re seeing now is the normal thing. You will not see further decline.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Sure thank you so much for taking the question.

Nikhil Sohoni — Group Chief Financial Officer

Thank you.

Operator

We have our next question from the line of Bhoomika Nair from DAM Capital. Please go ahead.

Bhoomika Nair — DAM Capital — Analyst

Yeah. Good afternoon. Sir just wanted to — a lot of plants are getting commissioned in this next quarter or so in the south market. Our plant itself will also start ramping up plus there is Amber and then there is Lloyd’s plant as well which is coming up. Do you think while on one hand, there will be some settling of the cost structure in the upcoming season with supply chain and rupee, etc, but these new plants increased cost structure can drive some competitive intensity in the market?

Nikhil Sohoni — Group Chief Financial Officer

See, the plants I think which have been commissioned was anyway which were there for some time now so of course they will all productionizing in some time. As we said, there is a huge potential. We have always said 7% to 8% penetration. That is what everyone is counting on as to how we go deeper into the Tier two, Tier three, Tier five. How do we increase the penetration and how do we increase the market size? And as the market size increases, there will be enough for everyone to play out there.

So I don’t think — there will be some amount of competition intensity which will increase. It will also result in the market getting penetrated more and more and that is what will help. At the same time, there are opportunities globally so the export markets will also open up as we go along and that’s where the capacities are going to serve. So I don’t see any major impact of that. I think it’s just the timing of the market which will determine how it’s going to play out.

Bhoomika Nair — DAM Capital — Analyst

Sure. And sir, my second question is on our exports for ACs where we were looking at some white labeling opportunities. If you can just talk about progress and where are we in that entire aspect?

Nikhil Sohoni — Group Chief Financial Officer

So that is work going on. As you see, in the global footprint we are expanding. We will be coming back on the strategy as to how we want to do this business and what we are doing. There will be a common statement, which will be coming out on that. So I think I would like to pass it. That’s something which as a company, we will be coming in the next six months’ time.

Bhoomika Nair — DAM Capital — Analyst

Yes, thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question of today. I would now like to hand the conference over to Mr. Nikhil Sohoni for closing comments. Over to you.

Nikhil Sohoni — Group Chief Financial Officer

Thank you, everyone, and thank you very much. With this, we will conclude the quarter’s earnings call. Do feel free revert to us in case any of your questions are not fully answered and we’ll be happy to provide you additional details by e-mail or in person. Thank you.

Operator

[Operator Closing Remarks]