Bluestar (BLSTR): Company takes a cautious approach in the troubled times

Dated:- 22nd August 2019

Update on the Indian market:

In the past few days, all eyes are towards the government, expecting to announce stimulus measures for the economy to rekindle the risk appetite of investors. The Chief Economic Adviser (CEA) Krishnamurthy Subramanian’s comments reduced such a possibility, leading to a sell-off in the markets. NIFTY fell by 1.6%. Amongst the NSE 50, worst performers were Yes Bank (-12.2%), Vedanta Limited (-7.6%), Bajaj Finance Ltd (-5.2%) and Indiabulls Housing Finance Limited (-5.2%). While the best performers were Britannia (+1.7%) and Tech Mahindra (+1.5%). In the sectoral indices, the realty sector was the worst performer (-6.7%); followed by Metal (-3.6%), PSU Bank (-3.6%).

Bluestar (BLSTR): Company takes a cautious approach in the troubled times

In an interview on CNBC-TV18 on 21^st August 2019, Bluestar MD, Mr B Thiagarajan talked about industry scenario. Key highlights are below:

·       The performance of the Electro-Mechanical Projects and Packaged Air Conditioning Systems (EMP) was a conscious decision made by the management. The order inflows from across the segments remain healthy. BLSTR reported 34% YoY increase in the order book at ~Rs 28,410 mn.  BLSTR delayed the order execution with the focus on controlling working capital.

·       BLSTR reported ~9% YoY growth in 1QFY20 in the Unitary Products segment revenues. The Room Air Conditioners (RAC) revenues grew by ~25% YoY while the commercial refrigeration product revenues de-grew by ~22% YoY. The decline in the commercial refrigeration products sale was a result of efforts for migration to a new technology product range. The commercial refrigeration product sales peaked in 4QFY19 and were muted in 1QFY20. BLSTR is seeing improved demand in 2QFY20.

·       ~40% of the air conditioner sales are through consumer finance schemes. The payback period is ~10 months and currently, no repayment issues have been noticed. BLSTR deals through financers like Bajaj Finance.  The demand is higher for the lower end products.

·       The floods in certain parts of India may lead to subdued demand in the festive season. BLSTR expects ~10-15% growth in the unitary products segment for FY20E. The Rupee depreciation will put stress on costs. 

·       BLSTR intends to focus on margins and cash. The cash position has been improving at BLSTR. In 1QFY20, it became ~Rs 10 mn net cash company from a borrowing level of Rs 4,050 mn in 1QFY19.

Consensus Estimate (Source: market screener website)

·       The closing stock price of BLSTR was Rs 710/- as of 22-August-19. It traded at 31x / 25x / 22x the consensus EPS for FY 20E / FY 21E / FY 22E EPS of Rs 23.0 / 28.3/ 32.8 respectively.

·       Consensus target price of Rs 779/- implies a PE of 24x on FY22E EPS of Rs 32.8