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Outperforms AC peers with healthy margins

BLSTR’s posted consolidated revenue of Rs19.7bn (Q1FY20-23 CAGR at 7.7%), 6% above our estimate. Unitary Products sales was healthy at Rs11.2bn (Q1FY20-23 CAGR at 7.4%), with BLSTR sustaining its AC market share of 13.25%. EMPS sales was also healthy at Rs7.9bn (Q1FY20-23 CAGR at 8.3%) driven by execution of large order book. Gross margin was up 50bps QoQ to 21.1%, partly led by price hike in AC in April’22. EBITDA margin rose 230bps YoY to 6.3%. EBIT margin of Unitary Products was up 110bps QoQ to 8.1%, highest in past 3 years and highest among all listed AC players for Q1FY23; which has been plagued by hyper competition and irrational pricing. EBIT margin of EMPS was also healthy at 5.7%, broadly in-line with guidance of 6%. PAT was on expected lines at Rs742mn, aiding BLSTR to turn net cash of Rs810mn at endQ1FY23 vs. net debt of Rs685mn YoY. AC growth prospects remains strong led by masspremium foray, Sri City plant benefits (lower logistics cost and tax rate) and retail reach expansion. BLSTR’s target of 15% market share by 2025 with 8-10% margin profile remains intact. EMPS is also well placed with construction upcycle driving robust inflows at 6% margin and healthy cash flow terms. We marginally tweak our earnings estimates and maintain BUY rating with a revised target price of Rs1,250 (Rs1,300 earlier) based on P/E of 40x/15x to Unitary Products/Projects business on FY24E EPS.

Strong summer aids RAC demand; Margin ahead of peers despite hyper competition

Unitary Products sales was at Rs11.2bn (Q1FY20-23 CAGR at 7.4%), led by strong summer demand and new range of mass-premium products, which helped BLSTR to sustain its market share of 13.25%. BLSTR’s AC sales grew 39% in Jan-June 2022 period vs. Jan-June 2019, while industry growth is likely at 30%. Higher scale, price hikes (in April’22) and cost management led to industry leading EBIT margin of 8.1%, up 110bps QoQ. The revenue mix of AC and commercial refrigeration has remained the same, while both operate at similar margins. BLSTR aims to improve margin profile led by softening of commodity costs (to reflect from Q3FY23) and Sri City plant commissioning in Oct’22. The key benefits of new plant are lower logistics cost (South region forms 45% of BLSTR AC sales), lower inventory needs (10 days currently for supply from Himachal Pradesh, to reduce to overnight delivery from Sri City), PLI incentives and lower tax rate (of 15%). BLSTR’s target of 15% market share by 2025 with 8-10% margin profile remains intact

EMPS on healthy footing led by strong inflows from construction cycle revival

EMPS sales were at Rs7.9bn (Q1FY20-23 CAGR of 8.3%) with healthy EBIT margin of 5.7%. Order inflow was strong at Rs13.7bn leading to 24% YoY and 20% QoQ rise in order book to Rs39bn. Order pipeline remains strong due to construction cycle upswing in sectors like urban infra (airport, metro, healthcare), factories, data centers and commercial offices. BLSTR selects orders based on its term of 6% EBIT margin and healthy cash flows

Maintain BUY with a revised target price of Rs1,250

We expect BLSTR to report revenue CAGR of 18% over FY22-24E, but earnings CAGR will be higher at 53% due to lower base and lower tax rate. Strong brand reputation, healthy growth prospects and margin expansion levers will support its valuations.

Valuations

We assign P/E of 40x to Unitary Products and 15x to Projects business’ FY24E earnings. We arrive at the SOTP-based target price of Rs1,250.

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