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Strong all round performance; recent outperformance in stock price pose limited upside; downgrade to ADD

Result Synopsis

BLSTR continues to see strong traction in its project business with pressure on quick execution and increased order enquires. It order-inflow stood for Q2 and 1H stood at Rs12.1bn and 26bn respectively which translates into growth of 82% for 1H. Strong growth in inflows have resulted in order-book swelling to Rs42bn which has been highest ever. Company expects strong traction to continue in project business as there is strong demand from the QSR and retail sector and increased in capex activity on the manufacturing side. On UCP front both RAC and commercial refrigeration has seen continued growth even in the lean season. BLSTR has been able to outperform its peers in terms of revenue as well as margins in challenging environment. The work done in expanding distribution and extending product portfolio into mass premium segment is now bearing fruits resulting in traction in North which has been the weak area for the company. Given the improved pace of execution in project business and market share gains in RAC, we remain positive on the stock. However, after the recent out performance of the stock we downgrade the stock to ADD given the limited upside from CMP.

BLSTR is estimated to deliver strong double-digit CAGR revenue growth on back of improved execution of projects, market share gains in RAC and continued growth momentum in Commercial refrigeration. We now pencil in revenue/EBITDA/PAT CAGR of 19%/35%/51% over FY22-24E. We have increased our SoTP-based PT to Rs1,370 vs earlier Rs1,288 valuing Unitary products business at 45x of FY24 PAT

Result Highlights

* Quarter summary – Blue star (BLSTR) delivered revenue growth of 27.1% yoy with EMPS and packaged air-conditioner and UCP segments registering growth of 32% and 15% respectively. Gross margin has expanded 23bps on improved revenue mix.

* Cooling products business – RAC has registered growth of 17% growth on increased traction from North. The company now commands market share of 13.25% as company is enhancing its distribution touch points in Tier 3, 4 and 5 cities.

* EMPS – Project business continues to see increased traction with strong order-booking and order book swelling to its all-time high levels. Company is witnessing increased order enquires from retail and manufacturing sectors.

* Debt – BLSTR’s net borrowing has increased to Rs3.9bn vs Rs0.4bn in Q2FY22. Increase is on account of higher inventory holding to mitigate continuing supply chain disruptions and capital investments for the manufacturing capacity expansion projects.

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