Mumbai: India’s airconditioning firms are betting on government contracts, to make up in volumes what they lose in margins, to boost revenue as corporate demand wanes and overseas real estate development stays weak.
India’s growth is seen hitting a seven-year low of 6% or less this year and firms are competing on wafer-thin margins thanks to office and retail slowdown.
However, India is renovating its six large airports and the government has identified 35 non-metro airports for development, according to Frost & Sullivan.
Blue Star, Voltas, and the latest entrant, Carrier India, are in a race to be the lowest bidders for government contracts, officials said.
“I don’t know about margins improving with these projects but definitely hope sales will,” said director, marketing, Krishan Sachdev, Carrier India, part of United Technologies Corp.
“The increased exposure towards government-funded infrastructure projects is a strategy to offset losses from the slowdown in the corporate side,” said Vir Advani, executive vice- president Blue Star, which started servicing government orders three years ago as “an additional initiative.”
“The country definitely provides opportunities in this avenue (airports) but the players who are renowned will have an upper hand because of their expertise and brand name,” said Ratan Shrivastava, director, aerospace and defence, Frost & Sullivan.
Market leader Blue Star draws 99% of its revenue from large airconditioning and electrical projects and government contracts make up a fourth of it, said Advani.
Advani sees this segment of his business growing to 30% in FY10.
“In the coming year the government segment piece will see us through,” he said, but also admitted that, “In the next 15 months the opportunity will die down from the airport side as 20-25 regional airports have been commissioned and maybe 15 more airports are left,” he said.
Voltas is now focusing on healthcare, airports, hotels and commonwealth games facilities, it said on its website.
One reason is a slowdown in West Asia, which accounts for over Rs40 billion of its Rs53.34 billion order book. Only a fifth comes from domestic sales.
“Incrementally, what orders they (Voltas) get is a big question mark because Middle East is not throwing up a lot of orders,” an analyst with Prabhudas Lilladher said.
However, increased government exposure towards infrastructure development is likely to keep oppurtunities flowing even if the environment remains competitive, industry participants said.
New orders are expected from India’s upcoming metro and power projects from NTPC, National Power Corp, Bharat Heavy Electricals and Power Grid of India Ltd, Bluestar’s Advani said.
Since January Voltas shares rose 54% in line with the 30-share BSE index growth, while Bluestar surpassed the index performance to grow 83%.