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Strong growth and outlook across segments with market share gains in RAC; upgrade to BUY

Result Synopsis

RAC segment has seen strong growth in Q3 outperforming industry by growing at 28% in RAC vs industry growth of 25%. December has seen good demand for RAC. While there has been some slowdown in demand due to Omicron uncertainty, but management is confident of strong demand returning from 3rd week of Feb with the peak selling month of March not likely to be impacted. The work done in expanding distribution is now bearing fruits resulting in market share gains. Commercial refrigeration is seeing increased traction on back of demand from hotels and restaurants. EMPS segment saw improved pace of execution on back of increased capex activities. BLSTR’s efforts in the North market to improve its presence is now delivering desired results. Considering improved execution in the project business and market share gains in RAC, we see this as a good time to upgrade the stock to BUY from Add.

BLSTR is estimated to deliver double‐digit CAGR revenue growth on back ofimproved execution of projects, market share gains in RAC and continued growth momentum in Commercial refrigeration. We now pencil in Revenue/EBITDA/PAT CAGR of 20%/31%/51% over FY21‐ 24E.We have increased our multiple in cooling products to 45x vs 40x earlier(on back of market share gains) and increased our SoTP‐based PT to Rs1,188; upgrading the stock to BUY from Add.

Result Highlights

* Quarter summary – Blue star (BLSTR) delivered revenue growth of 34% yoy with Unitary products and EMPS and packaged air‐conditioner segments registering growth of 23.7% and 41.7% respectively. Gross margin has contracted 260bps on high commodity inflation.   

* RAC business – RAC has registered 28% growth vs industry growth of 25% with strong off‐take in month of December. The company now commands market share of 13.25% with distribution touch points increasing to 7,000, an increase of 15% in past year.

* Price hikes – Company has taken 3 price increases in 2021 with latest being in the month of September. This increase is higher than some of the industry players. The company does not expect any price increase in Q4.

* Market share trends – BLSTR has grown faster in RAC with market share increasing to 13.25%. BLSTR continues to be leader in ducted AC, second in VRF and has now moved to 2nd position in chillers. It has leadership position in storage coolers, deep freezers and modular cold storage.

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