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Strong growth, positive outlook with new opportunities on cards

In Q1FY25, Blue Star Rev was at INR 28.6bn, up 29% YoY, down 14% QoQ (In line JMFe), 5 year CAGR of +13%. The growth was mainly driven by strong performance in Unitary Products (UP) on the back of strong season. EBITDA was at INR 2.3bn up 64% YoY and down 1% QoQ. OPM was at 8.3% vs 6.5%YoY and 7.3% QoQ (JMFe OPM at 7.5%). It reported PAT of INR 1.7bn up 102% YoY and up 6% QoQ.

* Strong growth in UP: Revenue was up 44% YoY to INR 17.2bn, 5 year CAGR of +14%, Lloyd +24%, JHAC +1% on the back of strong summer season for RAC along with strong traction in commercial Ref. Strong volumes + operating leverage led to EBIT margin at 9.1% up 168bps YoY and up 86bps QoQ. In Q1; demand exceeded the planned inventory and hence BS lost c.INR 2.5bn of sales with an EBIT of c.INR 20-25mn. However BS continues to maintain its market share of c.13.75%. In June it has taken a price hike of c.3% in RAC mainly due to higher RM. Going forward management has guided for a growth of c.25-30% in FY25 and margins of c.8.5-9%. (JMFe.9%)

* In EMP & Commercial AC(CAC) higher mix towards CAC led to strong margins: Revenue at INR 10.3bn up 10% YoY (5yr CAGR +11%) mainly driven by strong demand from education, manufacturing & retail sector for EMP along with healthy growth from tier 3 and 4 cities for CAC with significant orders primarily for ducted systems and VRF chillers. EBIT margins at 9.9% up 290bps YoY and 245 bps QoQ mainly because of the price revisions, new launches, operating leverage and prudent cost management.

Management expects revenue/margins to be 20-25% and 7.5-8% for FY25 respectively.

* Working on new opportunities: Management expects data centres are opening up new opportunities on the back of increasing use of AI resulting significant capacity expansion in Data centres. Management expects c.10-15bn revenue in next 3 years from the same. For exports; management expects traction to start soon in US and Europe on the back of new customers and strong R&D on products. Expects exports of c.6-7% in FY25.

* Outlook & Valuation:

We expect Blue Star’s Unitary Products (UP) business revenue to grow at a CAGR at 21% over FY24-27 (vs Management expect c.25% in FY25), along with margin expansion of 145 bps, mainly because of Blue Star’s increased focus on its sourcing and in-house manufacturing, distribution and marketing, improved product mix, affordable price brand, logistics cost advantage, PLI, and scale along with strong industry tailwinds in the Commercial Refrigeration business. We expect EMP and PEIS segment revenue CAGR of c.17%/20% over FY24-27 mainly backed by private capex and strong industry tailwinds. All the above will result in revenue/earnings CAGR of 19%/31% over the next 2 years with RoCE/RoE of 28%/21% in FY26 and OCF/FCF of INR 12.8bn/5.8bn. we now value BS on Sept’26 (earlier Mar’26) SOTP, UP at INR 1,087 PE of 50x (Profitable market share gain), MEP & Commercial ACs at INR 606 PE of 35x (because of strong growth backed by pick up in capex), and PEIS at INR 97 PE of 30x (because of strong RoCE). Our SOTP target is INR 1,790, up 10% from CMP and hence maintains a BUY

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SEBI Registration Number is INM000010361