Blue star

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.4% down at 15,748. Top gainers in NIFTY50 were POWERGRID (+2.3%), CIPLA (+1.5%), and NESTLEIND (+1.3%). The top losers were IOC (-2.4%), ONGC (-2.2%), and HINDALCO (-2.1%). The only sectoral gainers were PHARMA (+0.6%) and FMCG (+0.5%) while the top sectoral losers were PSU BANK (-1.5%), METAL (-1.2%), and PRIVATE BANK (-1.0%).

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star (BLUESTARCO), aired on CNBC TV18 dated 29thJune 2021:

  • Markets started reopening in first week of June 2021. Since then, demand has been much better than anticipated. The loss of summer sales will still keep the numbers lower than 1QFY20 by almost 25-30%. However, sales in 1QFY22 will be much better than 1QFY21.
  • In January 2021, BLUESTARCO took a price hike of 5-8% due to cost inflation. Despite that, BLUESTARCO had record sales in 4QFY21with 37% YoY growth.
  • BLUESTARCO took a second price hike in April 2021 to the tune of 3-5%. As the company cannot absorb the exorbitant input cost inflation, it plans to take a third price hike in mid-August 2021.
  • Naturally, consumers have migrated to lower end products and may continue to do that due to the several price hikes.
  • Mr.Thiagarajan maintains the guidance of 8-8.5% margins in the cooling products. BLUESTARCO does not want to sacrifice margins to gain volume.
  • Government’s Production linked incentive (PLI)scheme will have a positive impact in coming months.
  • Embracing the technology of aluminium heat exchangers will reduce the costs and increase energy efficiency for AC industry. Auto industry has shifted to this technology while the AC industry has not done so yet.
  • The next energy level change is scheduled for 1st January 2022 which will push up prices by another 7%. For demand to continue to grow at least at 10% CAGR, these cost rationalizationmeasures will have to be taken.
  • For room ACs, delivering 8% EBITDA margin is possible in 1HFY22. 8.5% is the upper target band which may not be possible in the short term.
  • Demand in Tier 1 cities has been worst affected. For BLUESTARCO, Tier 3,4,5 cities form 65% of revenue. This aspirational middleclass segment in Tiers 3,4,5 cities is what will drive the growth going ahead so BLUESTARCO has repositioned itself in line with this expectation.

 

Asset Multiplier comments:

  • Industries across the board have been facing input cost pressures and are trying to pass on the costs through price hikes.
  • However, passing on the entire cost inflation is proving to be difficult in an already sensitive demand scenario.
  • Consumer discretionary items are sensitive to pricing, so companies will have to calibrate pricing based on competitive scenario. Consumers will shift to a lower priced product if the price difference is large.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of BLUESTARCO was ₹ 815/- as of 29-June-2021.  It traded at 44x/ 31x the consensus earnings estimate of ₹ 18.5/ 26.7 for FY22E/23E respectively.
  • The consensus price target is ₹ 819/- which trades at 31x the earnings estimate for FY23E of ₹ 26.7/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect a demand recovery once restrictions are lifted – Blue Star

 

Update on Indian Equity Market:

On Monday, markets were on the rise, with Nifty increasing 128 points to close at 14,950. COAL INDIA (8.2%), UPL (8.0%), and HINDALCO (6.2%) were the top gainers on the index while SHREECEM (-1.9%), BRITANNIA (-1.28%), and ULTRACEMCO (-1.28%) were the top losers for the day. Among the sectoral indices, Metal (4.7%), PHARMA (2.8%), and MEDIA (+2.5%) led the gainers. There were no sectoral losers for the day.

 

Excerpts of an interview with Mr. B Thyagarajan MD of Blue Star with CNBC- TV 18 dated 7th May 2021:

 

  • Till 15-April-21, secondary sales were growing at a healthy pace. The increased restrictions have resulted in the slow down of Air- Conditioning and Commercial Refrigeration verticals.
  • The company feared a washout as evidenced in Q1FY21 but it actually posted a 20% lower compared to its earnings in Q1FY20. The Company hopes sales could normalize by the end of May and sees recovery in the months of June-July owing to a hot extended summer.
  • Blue Star had already hiked prices as of 1st April. As the Company has significant inventories owing to slow down, it doesn’t expect any more margin pressure and expects it to stabilize around 8%.
  • The company witnessed a stellar growth in the pharma-health care sectors across air-conditioning and commercial refrigeration verticals due to covid-19 developments and vaccine transports.
  • The manufacturing sector in both Electro-Mechanical and Air-Conditioning segments showed good growth in Q4FY21. The 1st financial quarter is seasonally focused on residential air-conditioning sees its growth prospects dampened due to lockdowns. 
  • Capacity expansion will be operational in the Wada plant for Deep Freezers by Q2FY22 and another plant is expected to be operational in H1FY23 for Air conditioning in Sri City.
  • It expects pent-up demand to drive residential air conditioning growth by around 10% for FY22 owing to prolonged work from home exposure and reduced spending on other luxuries.

 

Asset Multiplier Comments:

  • The seasonal nature of the company’s demand may impact the performance in the short term. The improved macro factors, longer summers due to climate change present good growth prospects over the long term.
  • The margins have been beaten down due to various factors, we expect pressure to ease off in the medium term.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Blue Star was ₹ 833/- as of 10-May-2021.  It traded at 44x/ 32x the consensus EPS estimate of ₹ 19/ ₹ 26 for FY22E/23E respectively.
  • The consensus price target is ₹ 790/- which trades at 30x the EPS estimate for FY23E of ₹ 26/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect to take another price hike from April – Bluestar

 Update on the Indian Equity Market:

On Wednesday, Nifty closed in the green at 15,175. Among the sectoral indices, Metal (+1.9%), IT (+1.7%), and Pharma (+1.8%) closed higher. PSU Bank (-0.2%) was the only sector that closed in the red. Eicher Motors (+3.1%), JSW Steel (+3.0%), and Hindalco (+2.3%) closed on a positive note. SBI Life (-3.5%), ONGC (-1.8%), and HDFC Life (-1.5%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Bluestar with CNBC-TV18 dated 09th March 2021:

  • The demand for cooling products has picked up since the festival season. 20% sales growth is expected in Q4FY21E.
  • The Indian Meteorological Department (IMD) has indicated for hotter than usual summer season in 2021.
  • Thiagarajan expects 25% sales growth in the summer season for Bluestar.
  • The demand recovery is primarily due to people spending more time at home.
  • The disposable income is expected to be higher in the hands of people as there is saving due to no summer vacations and less travel.
  • The company has taken a price increase by 3-5% since Jan-21 on its products. The second price hike has not yet been taken by the company.
  • The second price hike might come from April 1. The rise in raw materials, transportation charges, and ABS plastic costs are not coming down.
  • The dealers are stocking up ahead of the season.
  • Room AC market share for the Bluestar was ~12.8% last year and currently it is 13%. The company targets to maintain a 15% market share by FY23E.
  • Food delivery and the pharma sector are driving the growth of commercial refrigeration.
  • In the Electromechanical projects segment, growth is coming from the manufacturing sector.
  • Thiagarajan says Room air conditioners are poised for growth in coming years led by positive announcements under the PLI scheme.

 

Asset Multiplier comments:

  • The coming summer season will be crucial for Air cooling products as last summer season was a washout led by lockdowns.
  • Industry players are bullish on the upcoming summer season as early sales indicate an uptrend.
  • On the commodity cost front, inflationary pressure is witnessed by the industry. Most AC players have resorted to taking price hikes.
  • Increased demand due to rise in temperature bodes well for the industry but an increase in commodity cost might hurt operating margins in the coming next 2 quarters.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 932 as of 10-March-2021.  It traded at 94x/47x/36x the consensus Earnings per share estimate of ₹ 9.87/19.9/26.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 761/- which implies a PE multiple of 29x on FY23E EPS of 26.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

E-commerce sales doing well – Blue star

Update on the Indian Equity Market:
On Friday Nifty closed 0.24% lower at 11,642. Among the sectoral indices Metal (+1.6%), Media (+1.5%), and IT (+0.2%) closed higher. Auto (-1.1%), Private Bank (-0.9%), and FMCG (-0.8%) closed lower. Bharti Airtel (-4.0%), Hero Motocorp (-3.1%), Maruti (-2.5%), closed on a negative note. Adani Ports (+4.5%), BPCL (+3.5%), and Coal India (+3.4%) were among the top gainers.

Excerpts from an interview of Mr. Vir Advani, VC & MD, Bluestar with CNBC-TV18 dated 29th October 2020:

● On cost-cutting, Mr. Advani said the revenue recovered 72% as compared to the same quarter last year and EBITDA recovered 75 percent. The Company was able to sustain the margins. It was supported by overheads and changes in the cost structure.
● The company has made some structural changes to the cost structure which will help to save costs in the current year as well as next year.
● On business, he said in projects the recovery is still slow which ~ 60-65% of last year is. The project sites have not fully opened and there is a tight cash position in some customers.
● On the retail side, he said there are some green shoots visible. For September month the recovery is high at 90%. The company is looking to reach a 90% level of last year’s demand in Q3. The company expects a normal Q4.
● The company has held on to the Market share of ~12.8% as they had strong sales in Tier II & III.
● E-commerce sales are doing well for the company.
● In 1HFY20 the online sales were 3% of the company’s sales, in 1HFY21 it crossed 13%. Water purifiers are doing better and ~75% of Water purifier sales happening online.
● The company has made progress on the working capital front. The company generated Rs100 cr of positive cash flow on a standalone basis.
● On Exports, he said the company has reached 90% of last year on an H1 basis and expects growth in FY21E on exports.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Blue star was ₹ 629 as of 30-October-2020. It traded at 59x/ 34x/ 25x the consensus Earnings per share estimate of ₹ 10.7/18.7/25.0 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Blue star is ₹ 566/- which implies a PE multiple of 23x on FY23E EPS of ₹25/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

AC sales likely to decline 30% in 2020- says Blue Star’s B Thiagarajan

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 9,187 (+2.3%). Top gainers in NIFTY50 were ZEEL (+20.0%), Reliance (+9.8%) and Asian Paints (+5.2%). The top losers were ONGC (-5.2%), VEDL (-2.5%) and L&T (-1.7%). Top sectoral gainers were Media (+6.5%), Auto (+2.5%) and FMCG (+2.5%) and sectoral losers were Realty (-0.8%) and PSU Banks (-0.1%).
Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star Ltd with CNBC -TV18 dated 22nd April 2020:

  • He expects a big decline in the AC segment as he thinks the upcoming summer is going to a tough one.
  • He said things are tough and the industry will de-grow by at least 30 per cent compared to the previous year.
  • About 45 days ago they were worried whether they will lose sales during the summer season. But things have entirely changed. He thinks they can still salvage the situation by attempting to sell in the month of May and June.
  • Room air conditioners are not going to impact the health of the people. Central air conditioning – there are certain solutions which will make people comfortably use the central air conditioning system.
  • On the lower end kind of consumer durable products, he feels, the recovery is going to be faster.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Blue Star Ltd was ₹ 565/- as of 22-April-2020.  It traded at 26x/ 22x/ 19x the consensus earnings estimate of ₹ 21.9/ 25.9 /30.4 for FY20E/21E/22E respectively.
  • The consensus price target of Blue Star Ltd is ₹ 779/- which trades at 26x the earning estimate of ₹4/-

Blue Star- The demand in the festival season is expected to grow 12% YoY in FY20

Update on the Indian Equity Market:

On Thursday, NIFTY was up 1.07% to close at 11,586 level. The top performers in the index were yes bank (+15.47%), Tata motors (+13.27%) and Eicher Motors (+7.96%). HCL tech (-1.06%), VEDL (-0.97%) and Grasim (-0.59%) were the worst performing NIFTY stocks. Among the sectorial indices, NIFTY Auto (+3.13%), NIFTY PSU Banks (+3.0%) and NIFTY PVT Bank (+1.71%) were the top gainers. NIFTY IT (-0.41%) was the only negative performing index today as all the other indices were in green.

Excerpts of an interview with B. Thiagarajan, managing director, Blue Star (From Livemint dated 17/10/2019)

  • According to Mr. Thiagrajan, the festival season has been good.   Summer season has been great. Starting with Onam, the Dussehra season and now leading up to Diwali the consumption seems to be good and they are doing better than the market.
  • They are launching new TV commercial, print and digital campaigns in an orbit-shifting move. It is because the market is doing well.
  • They have engaged Virat Kohli and it is a new orbit-shifting move as far as Blue Star is concerned.
  • Advertising expesnes will be somewhere around 12% over last year in value terms. Considering the entire festival season up to New Year perhaps starting from Onam. So far that figure is holding good.
  • They would like to grow faster than the market. If the market is growing by 12%, they would aim to have 17% growth in the festival season. He expects between 10-12% market growth, anywhere between 15-17% Blue Star growth. This is in terms of room air conditioners.
  • In air conditioners the penetration levels are around 6%, there are many first-time buyers, low-end products are getting sold, and consumer finance is at an all-time high.
  • 90% energy consumption reduction has been achieved in AC. So it is no longer viewed as an energy guzzling device. Altogether, the monsoon season has ended well. Though there will be some delayed crops, he thinks agriculture income will be good.
  • Therefore tier-3-4-5 markets also should be doing well. This prompts him to say that anywhere between 10% and 12% growth should be taking place in the market.
  • Association with Virat will be for 14 months. Just like Virat is good in T20, one day and test cricket, Blue Star is a player in corporate commercial; light commercial like shop, showroom, and boutiques and residential. They need the mass connect because tier-3-4-5 towns are doing well. They are proud of that association.
  • They will spend around ₹550 mn out of the revenue target in this association. In terms of percentage of ad expenses to revenue it is not going to make a difference because they are growing and this association is going to bring more sales, they are excited about this.

Consensus Estimate (Source: market screener website)

  • The stock price was ₹ 826/- as of close of 17-10-19 and traded at 39x/ 29x/ 23x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 23.1 /28.3 /36.1 respectively.
  • Consensus target price of ₹ 805/- implies a PE multiple of 22x on FY22E EPS of ₹ 36.1/-.

Blue Star Limited (BLUESTARCO): Will use the extra money from corporate tax cut in capital expenses

Update on the Indian Market:

On Friday, Market was more or less flat. Nifty closed 0.5% lower at Rs 11,512. Bharti Airtel (+2.89%), Bajaj Finance (+1.61%), ITC (1.36%) were among the biggest gainers. IndusInd bank (-4.92%), Yes bank (-5.0%), Vedanta (-5.69%) were the losers. Among the sectoral indices Pharma (-2.06%), Realty (-2.28%), Metal (-2.84) closed lower while there were no gainers.

Excerpts from the interview by Mr. B Thiagarajan, MD – Blue Star

  • Effective tax rate was 32% in FY19 and would have been ~ 31% in FY20. So, setting aside certain concessions they will forego if they move to this regime, they should be gaining around 4.5 percent and 5 percent in terms of EPS.
  • They will pump in this extra money into the capital expenses. They have been on an indigenization mode and they will accelerate indigenization or reduce in-China dependency.
  • In FY20, they are looking at indigenizing deep freezers. So ~ Rs 120 cr is being invested in Vada in Maharashtra. Sri City plant which they had acquired the land there, they would have looked at FY22-23, they may end up accelerating that because the room air conditioner market continues to be good.
  • Plastic injection moulding, compressor manufacturing industry will benefit due to indigenization drive.
  • They will accelerate the capital investment there. So the entire Sri City plant should get frozen sometime in January-February 2020.
  • Unlike many other durables, air conditioners have been witnessing and even during Onam season they witnessed good growth. He thinks that will further grow.
  • The Onam season is an indication because there were floods. He thought Onam season will be a washout, the markets are priced close to around 40% growth over last year, but last year also there were floods. The year before there was around 12% growth.
  • Going forward, the festival season should be ~ 12-15% growth. Having said that, the demand is for lower-end products and 40% of the sales have been through consumer finance schemes.
  • According to him, there is no room for more discounts because the dollar has moved up. They have to keep a close watch on the exchange rates because copper and quite a few components still get imported.
  • The competition is stiff and the reach is becoming very complex; with 65% of the market for them are tier III, tier IV, and tier V.
  • To reach out, they have to pump up the advertising expenses. So, there won’t be price dilution. He expects that they would maintain last year margin levels and marginally improve that.

Consensus Estimate (Source: market screener website)

  • The closing price of BLUESTARCO was ₹ 794/- as of 27-September-19. It traded at 34x / 28x / 22x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 23.1 / 28.3 / 36.1 respectively.
  • Consensus target price of ₹ 792/- implies a PE multiple of 22x on FY22E EPS of ₹ 36.1/-

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 21st 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

Bluestar: 1QFY20 – Increase in raw material prices impact profitability

Dated:- 16th August 2019

1QFY20 Results

·       Bluestar (BLSTR) reported consolidated revenue growth of 4% YoY to Rs 15,755 mn in 1QFY20. The Electro-Mechanical Projects and Packaged Air Conditioning Systems (EMP) segment reported muted revenues at Rs 6,239 mn impacted by a slowdown in the execution of projects business. The Main business of ACs – Unitary Products (UP) – segment revenues grew by 9% YoY to Rs 9,069 mn. The Professional Electronics and Industrial Systems (PEIS) segment revenues declined by 23% YoY to Rs 446 mn on a higher base of 1QFY19.

·       The EBITDA declined by 16% YoY to Rs 1,149 mn. The raw material costs increased by ~440 bps YoY while the other expenses reduced by ~325 bps YoY. The EBITDA margin contracted by ~180 bps YoY to 7.3%.

·       All segmental margins were lower YoY. In the UP segment, the EBIT margins declined by ~50bps YoY to 10.9%. The EMP segment margins declined by ~100 bps YoY to 5.4%. The PEIS segment margins declined by ~450 bps to 9.9% impacted by the variation in the mix of new orders.

·       The other income was higher at Rs 217 mn on account of receipt of an industrial promotion subsidy for the manufacturing facility at Wada.  The finance costs were lower at Rs 82 mn (v/s Rs 121 mn in 1QFY19) due to the effective management of working capital and consequently lower borrowings in Q1FY20. Consolidated PAT stood at Rs 768 mn v/s Rs 916 mn in 1QFY19.

Management Commentary

·       Rs 140 mn industrial promotion subsidy received for the manufacturing facility at Wada; includes Rs 84 mn allocated to the EMP segment and Balance Rs 56 mn allocated towards the UP segment.

·       For the EMP Segment, the order book reported a growth of 34% Yoy to Rs 28,410 mn and the order intake increased by ~55% YoY at ~Rs 9,669 mn

·       The UP-segment margins were impacted due to the adverse product mix. In 1QFY20, there was an increase in the demand for 2 Star – 3Star fixed speed ACs which are comparatively lower margin products.

·       Management guided for 12-15% YoY revenue growth for the Room AC segment for FY20E and margin guidance of ~9.5%-10%. BLSTR’s current market share is ~12.5% and the management expects to reach 13.5% by FY20E end.

·       The Market size of Room ACs is ~Rs 110 -120 bn with annual volumes of 5.5 mn-6 mn units. The industry market share of inverter AC segment was ~60% in Q1FY20, BLSTR’s inverter share was 52% during the quarter.

Consensus Estimate (Source: market screener website)

·       The closing price of BLSTR was Rs 702/- as of 16-August-19. It traded at 30x / 25x the consensus EPS for FY 20E / FY 21E EPS of Rs 23.3 / 28.3 respectively.

·       Consensus target price of Rs 776/- implies a PE of 27x on FY21E EPS of Rs 28.3.