Result Update

MAY 06, 2024

Result Update BLUE STAR LTD (BLSTR)

Stock Details
PRICE RS.1448 TARGET RS.1176 SELL
Market cap (Rs cr) : 29,773
52-wk Hi/Lo (Rs) : 1512/693 In Q4FY24, Bluestar reported strong revenue growth but EBITDA margin
Face Value (Rs) : 2
came in below our expectation. Revenue growth in the quarter was strong
3M Avg. daily vol (Nos) : 377,594
Shares o/s (cr) : 205.6
in both the Electro-Mechanical Projects & Commercial Air Conditioning
Source: BSE, Capitaline Systems (EMP & CACS) and the unitary product segment. In the projects
business (EMP & CACS), order execution remained healthy and the company
Financial Summary
saw 17% yoy revenue growth in FY24. The room air conditioners (RAC)
Y/E Mar (Rs cr) FY24E FY25E FY26E
demand remained strong in Q4FY24 amid strong start to the summer
Sales 9,685 11,895 13,879
Growth (%) 21.4 22.8 16.7
season. April 2024 has seen strong RAC demand and RAC growth outlook
EBITDA 665 880 1,076 for Q1FY25 is expected to be robust. While revenue growth was strong, the
EBITDA margin (%) 6.9 7.4 7.7 same did not translate into EBITDA margin expansion. We revise our
Adjusted Net profit 415 591 737 estimates higher led by strong revenue performance and positive growth
Adjusted EPS (Rs) 20.2 28.7 35.8
outlook. We remain positive on the RAC industry growth outlook over the
Growth (%) 48.8 42.3 24.7
coming years. However, competitive pressure continues to be high in the
Book value (Rs/share) 127 149 177
Dividend per share (Rs) 7.0 7.5 8.0
RAC segment. We maintain SELL rating with a sum-of-the-parts (SoTP)
ROE (%) 21.1 20.8 22.0 revised fair value of Rs1,176. The stock is trading at a PE of 50.4x on FY25E
ROCE (%) 25.3 26.5 28.1 earnings.
P/E (x) 71.8 50.4 40.4
EV/EBITDA (x) 44.2 33.2 26.9 Result highlights
EV/Sales (x) 11.4 9.7 8.2
Q4FY24 consolidated revenue came in at Rs3,328 cr, a growth of 26.8% yoy.
Source: Company, Kotak Securities - PCG
EMP & CACS segment revenue grew by 20.3% yoy to Rs1,507 cr and the unitary
Shareholding Pattern (%) product segment revenue grew by 34.8% yoy to Rs1,709 cr. Consolidated
(%) Mar-24 Dec-23 Sep-23 EBITDA margin came in at 7.3% (was below our expectation of 7.8%). EMP &
Promoters 36.5 36.5 36.5 CACS and the unitary product segment witnessed yoy decline in EBIT margin.
FII 15.9 15.4 14.9 The company reported consolidated net profit of Rs161 cr as against Rs225 cr
DII 24.7 24.8 25.2
in Q4FY23. Adjusted for one-off in Q4FY23, net profit grew by 87% yoy in
Others 22.9 23.3 23.4
Q4FY24.
Source: BSE

Price Performance (%) Outlook and Valuations

(%) 1M 3M 6M Despite a weak start to FY24 (Q1FY24 RAC sales were impacted due to
Blue Star 7.4 21.8 48.8 monsoon), the company ended the year with a strong performance. The unitary
Nifty 0.2 2.9 16.9
product segment (includes RAC business) ended FY24 with revenue growth of
Source: Moneycontrol
27%. The outlook for the current summer season is positive. RAC segment is
Price chart (Rs) expected to grow at a healthy pace over the medium to long term, given low
penetration levels. In the projects segment (EMP & CACS), the order inflow in
1600
1400 Q4FY24 was lower yoy. Management highlighted about slowdown/delay in
1200 order finalizations in the commercial buildings sector and slowdown in tender
1000 inflows in the infrastructure sector. We maintain SELL with a revised fair value
800 of Rs1,176 (earlier Rs1,050).
600

Source: BSE

Arun Agarwal
Arun.agarwal@kotak.com
+91 22 6218 6443

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group.
MAY 06, 2024

Quarterly performance - Consolidated

Rs cr Q4FY24 Q4FY23 YoY (%) Q3FY24 QoQ (%)
Revenues 3,328 2,624 26.8 2,241 48.5
Total expenditure 3,086 2,445 26.2 2,086 47.9
RM consumed 2,539 2,013 26.1 1,699 49.4
Employee cost 230 170 35.4 185 24.0
Other expenses 318 262 21.1 201 57.9
EBITDA 242 179 35.0 155 55.7
EBITDA margin (%) 7.3 6.8 - 6.9 -
Depreciation 28 23 24.6 23 20.6
Interest cost 12 18 (32.5) 10 19
Other Income 12 7 86.3 13 (2.2)
Exceptional gain / (loss) 171 - -
PBT 214 316 (32.3) 134 59.2
PBT margins (%) 6.4 12.0 6.0
Tax 54 92 (40.7) 34 60.4
Tax rate (%) 25.5 29.1 - 25.3 -
Share of profit in JV 0.4 1.3 - 0.1 -
Minority Interest (0.8) 0.0 - 0.1 -
Reported PAT 161 225 (28.7) 100 59.9
PAT margins (%) 4.8 8.6 - 4.5 -
Reported EPS (Rs) 7.8 11.7 (33.2) 4.9 59.9
Source - Company; Kotak Private Client Group

Consolidated Result Highlights

Bluestar reported consolidated revenue of Rs3,328 cr, 26.8% higher yoy and was
above our estimate of Rs3,074 cr. The company reported better than expected
revenue growth in both the key segments. In the EMP & CACS segment, the
revenue grew by 20.3% yoy supported by healthy execution pace. In the unitary
product segment, revenue grew by 34.8% yoy with strong performance in the
RAC and the commercial refrigeration category. Consolidated carried-forward
order book as on FY24 increased to Rs5,697 cr vs Rs5,073 cr as on end FY23.
Gross margin improved 40 bps yoy to 23.7% in Q4FY24. Employee cost rose by
35% yoy on account of annual increment and additional workforce for the new
plants. The company reported consolidated EBITDA margin of 7.3% in Q4FY24
(6.8% in Q4FY23). Interest cost was lower yoy in Q4FY24 amid debt reduction.
Consolidated adjusted net profit grew by 87% yoy to Rs161 cr (broadly on
expected line).
Bluestar had net cash of Rs456 cr as of end FY24 vs net debt of Rs208 cr in
FY23. In June 2023, the company had issued bonus shares in the ratio of 1:1. In
September 2023, the company completed a fund raise of Rs1,000 cr through
QIP. In FY24, the company declared a dividend of Rs7 per share (Rs6 per share
in FY23.

Electro-Mechanical Projects & Commercial Air Conditioning Systems

(EMP & CACS)
 Revenue grew 20.3% to Rs1,507 cr in Q4FY24 and by 17.4% to Rs4,715 cr in
FY24.
 In Q4FY24, segment (EBIT) margin declined to 7.5% from 7.9% in Q4FY23.
 Amid delay in order finalisation, order inflow in this segment fell by 7.8% to
Rs1,227 cr in Q4FY24 vs Rs1,330 cr in Q4FY23.

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MAY 06, 2024

Electro-Mechanical Projects (EMP)

 Demand is strong in the manufacturing, data centers segments.
 Demand from commercial buildings and real estate sectors are yet to take-
off
 The company is focused on prudent project management and healthy
cashflows.
 Carried-forward order book of the EMP business increased from Rs3,893 cr
in FY23 to Rs4,344 cr in FY24.
Commercial Air Conditioning Systems (CACS)
 Revenue growth was primarily driven by product portfolio and channel
expansion.
 Growth is supported by demand from industrial, healthcare, hospitality,
retail, educational institutions and data centers.
 The company launched VRF Lite and that helped the company address the
premium residential segment.
 As per the company, it maintains number 1 position in Ducted Air
Conditioning Systems as well as Scroll Chillers and second position in VRFs
and Screw Chillers.
International Business
 Performance remained subdued due to global disturbance.
 US and Europe subsidiaries are engaging with customers and the company
expects the business to pick up going ahead.

Unitary Products
 Unitary Product segment revenue increased 34.8% yoy to Rs1,709 cr.
 Unitary product segment (EBIT) margin at 8.3% in Q4FY24 was lower yoy.
The company indicated that margins were impacted on account of higher
advertisement cost in the quarter.
 Revenue in FY24 grew by 26.6% to Rs4,592 cr. However, despite the strong
revenue growth, EBIT margin remained similar in FY24 (as compared with
FY23).
Cooling and purification products business
 RAC business witnessed strong demand in Q4FY24. As per the
management, primary sales growth in March could be ~40% yoy.
 As per the management, April could see 65-75% growth for the industry in
the primary segment. In the secondary segment, growth in April 2024 could
be in the range of 70-90%.
 As per the management, RAC industry growth in Q1FY25 could be 30-40%.
We note that Q1FY24 RAC sales were weak.
 The company’s RAC market share for FY24 is estimated at 13.75% vs 13.5%
in FY23.
Commercial Refrigeration business
 Commercial refrigeration business saw demand traction from OEM’s,
hospitals, offices and educational institutions.
 As per the company, they maintained leadership position in Deep Freezers,
Storage Water Coolers and Modular Cold Rooms.

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MAY 06, 2024

Professional Electronics and Industrial Systems (PE&IS)

 Revenue in the PE&IS segment grew by 8.3% yoy to Rs112 cr.
 Segment margin declined yoy and qoq to 12.1%.
 Data security business continues to face challenges as customers move
from on-premises IT infrastructure to cloud.

Outlook and Valuation

In the projects business, pace of execution has been healthy; however, there is
slowdown and delay in order finalisations as well as inflow of tenders in certain
segments. Management expects that the EMP & CACS segment can grow by
25% in FY25E (supported by order book and expectation of pick-up post
election) and margin guidance for this segment is 7-7.5%. The company
continues to be focused on profitability and healthy cash flow projects.
In the unitary product segment, the management has guided for EBIT margin of
~8-8.5% for FY25E. RAC demand is expected to be strong in FY25E as per initial
demand trends. In the RAC segment, the company aims for 15% market share
in FY25E. While revenue growth has been strong, segment (EBIT) margin
performance in Q4FY24 was below expectation. We factor in improvement in
company’s EBITDA margin led by cost control, PLI benefit, scale benefit and
cost advantage from Sri City plant. The company is investing in manufacturing
capabilities, new product development, R&D and digitization. We retain SELL
rating with a revised fair value of Rs1,176. We have valued the Electro-
Mechanical Projects & Commercial Air Conditioning Systems (EMP & CACS) at
a PE of 20x (unchanged), Unitary Products at a PE of 45x (earlier 43x) and
Professional Electronics and Industrial Systems (PE&IS) business at a PE of 20x
(unchanged) on FY26E earnings.

Change in estimates
FY25E FY26E
Rs cr Old New % chg Old New % chg
Revenues 11,173 11,895 6.5 13,140 13,879 5.6
EBITDA margin (%) 7.4 7.4 - 7.6 7.7 -
Adjusted PAT 557 591 6.0 682 737 8.0
Source - Company; Kotak Private Client Group

One year forward PE Chart

80.0 Forward PE Average Forwrad PE

70.0

60.0

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40.0

30.0

20.0

10.0

0.0
Apr-24
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Oct-23

Source - Kotak Securities - Private Client Group

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 4
MAY 06, 2024

Company Background
Blue Star is a leading air conditioning and commercial refrigeration company.
Blue Star's integrated business model of a manufacturer, contractor and after-
sales service provider enables it to offer an end-to-end solution to its customers.
Electro-Mechanical Projects and Packaged Air Conditioning Systems business
segment covers the design, manufacturing, installation, commissioning and
maintenance of central air conditioning plants, packaged/ducted systems and
variable refrigerant flow (VRF) systems, as well as contracting services in
electrification, plumbing and fire-fighting. Unitary Products - Blue Star offers a
wide variety of stylish, contemporary and energy-efficient room air conditioners
for both residential as well as commercial applications; manufactures and
markets a comprehensive range of commercial refrigeration products and cold
chain equipment; water purifiers; air purifiers and air coolers. (Source –
Company)

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MAY 06, 2024

Financials: Consolidated
Profit and Loss Statement (Rs cr) Balance sheet (Rs cr)
(Year-end Mar) FY23 FY24E FY25E FY26E (Year-end Mar) FY23 FY24E FY25E FY26E
Revenues 7,977 9,685 11,895 13,879 Fixed Assets 934 1,282 1,464 1,631
% change YoY 31.6 21.4 22.8 16.7 Long Term Investments 29 28 28 28
EBITDA 493 665 880 1,076 Current assets 4,437 5,309 6,818 7,853
% change YoY 42.2 34.9 32.3 22.3 Inventory 1,433 1,407 2,014 2,338
Depreciation 85 98 118 133 Debtors 1,549 1,953 2,414 2,806
EBIT 408 567 762 942 Current Investments 130 249 - -
% change YoY 56.6 39.1 34.3 23.7 Cash & Bank 247 377 948 1,136
Net interest 55 58 41 41 Loans and Adv & Others 1,078 1,323 1,441 1,572
Other Income 31 47 67 82 Total Assets 5,399 6,618 8,310 9,511
Exceptional income/(loss) 171 - - -
Profit before tax 555 557 788 983 Equity 19 41 41 41
% change YoY 122.2 0.3 41.6 24.8 Reserves 1,311 2,569 3,016 3,598
Tax 155 143 199 248 Debt 662 243 351 251
as % of PBT 28 26 25 25 Current Liabilities & Prov. 3,403 3,763 4,899 5,618
Profit after tax 400 415 591 737 Payables 2,511 2,617 3,650 4,259
Adjusted PAT 261 415 591 737 Other liabilities 816 1,053 1,147 1,247
% change YoY 55.8 58.9 42.3 24.7 Provisions 76 93 102 112
Shares OS (cr) 19.3 20.6 20.6 20.6 Deferred Tax Liability - - - -
Adjusted EPS (Rs) 13.6 20.2 28.7 35.8 Minority Interest 3 3 3 3
DPS (Rs) 6.0 7.0 7.5 8.0 Total liabilities 5,399 6,618 8,310 9,511
Source: Company, Kotak Securities – Private Client Group Source: Company, Kotak Securities – Private Client Group

Cash flow Statement (Rs cr) Ratio Analysis

(Year-end Mar) FY23 FY24E FY25E FY26E (Year-end Mar) FY23 FY24E FY25E FY26E
EBIT 408 567 762 942 Margins
Depreciation 85 98 118 133 EBITDA margin (%) 6.2 6.9 7.4 7.7
Change in working capital (179) (272) (36) (107) EBIT margin (%) 5.1 5.9 6.4 6.8
Change in other net current asset 54 8 (16) (20) Adj. net profit margin (%) 3.3 4.3 5.0 5.3
Operating cash flow 368 401 828 949
Interest (55) (58) (41) (41) Working capital days
Tax (155) (143) (199) (248) Inventory (days) 70 57 67 67
Other Income 31 47 67 82 Receivable (days) 76 79 80 80
EO income 171 (19) 1 1 Payable (days) 115 99 112 112
Others 29 3 0 0
Cash flow from operations 389 231 657 743 Ratios
Capex (438) (446) (300) (300) Debt/equity ratio (x) 0.5 0.1 0.1 0.1
(Increase)/decrease in investments 15 (118) 249 - ROE (%) 22.2 21.1 20.8 22.0
Cash flow from investments (423) (564) (51) (300) ROCE (%) 24.6 25.3 26.5 28.1
Proceeds from issue of equities - - - -
Increase/(decrease) in debt 108 (419) 108 (100) Valuations
Proceeds from share premium - 997 - - EV/ Sales 3.5 3.0 2.5 2.1
Dividends (96) (116) (144) (154) EV/EBITDA 57.2 44.2 33.2 26.9
Cash flow from financing 12 463 (36) (254) Price to earnings (P/E) 106.8 71.8 50.4 40.4
Opening cash 270 247 377 948 Price to book value (P/B) 21.0 11.4 9.7 8.2
Closing cash 247 377 948 1,136 Source: Company, Kotak Securities – Private Client Group
Source: Company, Kotak Securities – Private Client Group

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MAY 06, 2024

RATING SCALE (PRIVATE CLIENT GROUP)

Definitions of ratings
BUY – We expect the stock to deliver more than 15% returns over the next 12 months
ADD – We expect the stock to deliver 5% - 15% returns over the next 12 months
REDUCE – We expect the stock to deliver -5% - +5% returns over the next 12 months
SELL – We expect the stock to deliver < -5% returns over the next 12 months
NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock.
The report has been prepared for information purposes only.
SUBSCRIBE – We advise investor to subscribe to the IPO.
RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target
for this stock, either because there is not a sufficient fundamental basis for determining, or
there are legal, regulatory or policy constraints around publishing, an investment rating or
target. The previous investment rating and price target, if any, are no longer in effect for this
stock and should not be relied upon.
NA – Not Available or Not Applicable. The information is not available for display or is not
applicable
NM – Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our
internal benchmark.
FUNDAMENTAL RESEARCH TEAM (PRIVATE CLIENT GROUP)
Shrikant Chouhan Arun Agarwal Amit Agarwal, CFA
Head of Research Auto & Auto Ancillary, Building Material, Transportation, Paints, FMCG
shrikant.chouhan@kotak.com Cement, Consumer Durable agarwal.amit@kotak.com
+91 22 6218 5408 arun.agarwal@kotak.com +91 22 6218 6439
+91 22 6218 6443

Purvi Shah Rini Mehta K. Kathirvelu

Pharmaceuticals Research Associate Support Executive
purvi.shah@kotak.com rini.mehta@kotak.com k.kathirvelu@kotak.com
+91 22 6218 6432 +91 22 6218 6433 +91 22 6218 6427

Sumit Pokharna Pankaj Kumar Amarjeet Maurya

Oil and Gas, Information Tech Construction, Capital Goods & Midcaps Internet Software & Services
sumit.pokharna@kotak.com pankajr.kumar@kotak.com amarjeet.maurya@kotak.com
+91 22 6218 6438 +91 22 6218 5498 +91 22 6218 6427

TECHNICAL RESEARCH TEAM (PRIVATE CLIENT GROUP)

Shrikant Chouhan Amol Athawale Sayed Haider
shrikant.chouhan@kotak.com amol.athawale@kotak.com Research Associate
+91 22 6218 5408 +91 20 6620 3350 sayed.haider@kotak.com
+91 22 62185498

DERIVATIVES RESEARCH TEAM (PRIVATE CLIENT GROUP)

Sahaj Agrawal Prashanth Lalu Prasenjit Biswas, CMT, CFTe Karan Kulkarni
sahaj.agrawal@kotak.com prashanth.lalu@kotak.com prasenjit.biswas@kotak.com karan.kulkarni@kotak.com
+91 79 6604 1701 +91 22 6218 5497 +91 33 6615 6240 +91 20 6608 3292

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MAY 06, 2024

Disclosure/Disclaimer
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MAY 06, 2024

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Complaints Off Western Express Highway, Malad (East),
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Off Western Express Highway, Malad (East),
Mumbai, Maharashtra - 400097
Compliance Officer Mr. Hiren Thakkar Kotak Towers, 8th Floor, Building No.21, Infinity Park, 022-42858484 ks.compliance@kotak.com 9 a.m. to 6 p.m. All trading days
Off Western Express Highway, Malad (East),
Mumbai, Maharashtra - 400097
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Director Off Western Express Highway, Malad (East),
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