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Strong growth across segments with margin expansion; reiterate BUY

Result Synopsis

RAC segment for Blue Star has once again outperformed in Q1 BLSTR has been outperforming industry for 3 consecutive quarters thereby surpassing pre COVID level sales. April has seen strong demand for RAC after strong momentum was built in March. Management now expects industry to clock growth of 25% of FY23 and is confident of BLSTR achieving 30% growth. BLSTR has outperformed 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 market share gains. Commercial refrigeration is seeing increased traction on back of demand from industries like retail and ice cream joints. EMPS segment continues to witness improved pace of execution as capex has increased in manufacturing space. Considering improved execution in the project business and market share gains in RAC, we remain upbeat on the company’s performance and maintain BUY.

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 15%/31%/46% over FY2224E. We maintain BUY with a SoTPbased PT to Rs1,288 valuing Unitary products business at 45x of FY24 PAT.

Result Highlights

* Quarter summary – Blue star (BLSTR) delivered revenue growth of 87.3% yoy with Unitary products and EMPS and packaged air conditioner segments registering growth of 57% and 122% respectively. Gross margin has contracted 333bps given high commodity inflation.

* Cooling products business – Cooling products has registered 123% growth on back harsh and uninterrupted summer sales. The company now commands market share of 13.25% as company is enhancing its distribution touch points in Tier 3, 4 and 5 cities

* Price hikes – Company has taken price increases in first week of April to pass on raw material costs. The company now does not expect any price increase in Q2 as it is lean season for AC and prices will be revised in Q3 ahead of new season

* 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 chillers. It has leadership position in storage coolers, deep freezers and modular cold storage.

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