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.