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In-line performance; planning for long growth runway

BLSTR’s consolidated sales grew 13% YoY to Rs22.3bn, in-line with our/consensus estimates. Unitary Products revenue was up 6% YoY to Rs12bn as RAC sales decline amidst unseasonal rains in summer, was offset by healthy traction in commercial refrigeration products. EMPS sales grew 19% YoY to Rs9.5bn aided by robust order book. Gross margin rose 120bps YoY to 22.2%. EBITDA grew 18% YoY to Rs1.5bn leading to 30bps YoY rise in operating margin to 6.5%, broadly in-line with our/ consensus estimate. PAT grew 12% YoY to Rs834mn. BLSTR expects RAC industry to grow 10-15% in FY24, while it aims to sustain 8-8.5% margin in unitary products. EMPS and commercial air-conditioning segment is likely to grow faster driven by robust order book and strong enquiry pipeline. With a long runway of growth in sight, BLSTR has approved Rs10bn fund raise via QIP as it embarks on Rs7.5bn capex plan over next three years to expand capacity in RAC and commercial air-conditioning products. We increase earnings estimates by 3%/6% for FY24E/25E and retain ADD rating with a revised target price of Rs780 (Rs755 earlier) on SOTP basis

Unitary Products: Unseasonal rains impact RAC sales; EBIT margin remains decent

Unitary Products sales grew 6% YoY to Rs12bn with a decent EBIT margin of 7.5%, down 60bps YoY. The RAC industry is likely to have de-grown by 10% in Q1FY24 while BLSTR’s sales decline was lower due to institutional sales. BLSTR maintained its RAC market share at 13.5% (in value terms), although its average realization was lower due to rising mix of affordable ACs. Channel inventory is only marginally higher as dealers refrained from over-stocking. Thus, BLSTR expects demand to revive from festive season, with likely industry growth of 10-15% in FY24. BLSTR aims to sell 1mn units in FY24 (vs 0.8mn YoY), leading to 10% volume market share. Commercial Refrigeration business stayed healthy led by hospitality, pharma and processed food sectors with BLSTR benefiting through its market leadership in deep freezers, storage water coolers and modular cold rooms.

EMPS & commercial AC: Strong traction across sectors drive topline growth

EMPS sales grew 19% YoY to Rs9.5bn. EBIT margin rose 130bps YoY to 7% led by better realizations, lower input costs, value engineering and better execution. Order inflow was lower at Rs12.2bn vs. Rs13.6bn YoY as BLSTR is selective in taking orders with core focus on profitability and FCF. With strong order book of Rs40.4bn and uptick in enquiries from industrial factories, data centers, healthcare, hospitality and metro rail, the growth outlook remains robust. Commercial air-conditioning products are exhibiting strong demand with BLSTR being a key beneficiary due to its leadership in ducted AC, chillers and VRF. It aims to enhance its capacity in these products via a new plant at Sri City.

Maintain ADD with revised target price of Rs780

We expect BLSTR to report revenue CAGR of 19% over FY23-25E, but earnings CAGR will be higher at 40% due to margin improvement and reducing tax rate (shift to new tax regime + Sri City tax benefits). We are optimistic about BLSTR’s AC growth prospects and strong EMPS business outlook. However, current valuations offers limited upside. Maintain ADD with revised target price of Rs780 on SOTP basis.

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