Company Update : Blue Star Ltd By Elara Capital Ltd
EMP and UCP drive top line; margin expands
Blue Star (BLST IN, Not Rated) reported top-line growth of 25% YoY to INR 28bn, driven by 32% YoY revenue growth in electro-mechanical projects (EMP) and commercial air conditioning (CAC) segments and 22% YoY growth in unitary cooling products (UCP) segment due to the upcoming Summer season. But professional electronics and industrial systems (PE & IS) segment fell 22% YoY. Management targets EBITDA at INR 3.1-3.15bn EBITDA for FY25. It targets an operating margin of 7%+ on a sustainable basis. Management expects an exit market share of 15% in the RAC industry for the next two years vs (14.1% as on Q3FY25).
Healthy top-line growth led by execution:
Q3 revenue grew 25% YoY to INR 28bn, led by healthy segmental growth. Segment-wise, EMP & CAC segment revenue (56% share of total) jumped 32% YoY to INR 15.6bn, led by robust execution and order finalization in factories & data centers. The UCP segment revenue (41% share) grew by 22% YoY to INR 11.6bn on robust demand during the festival season and the upcoming Summer season. However, the PE & IS segment revenue (3% share) slumped 22% YoY to INR 0.8bn, due to the slowdown in Medtech and Data Security businesses. Management expects Q4FY25 to be strong for the UCP segment due to channel inventory being filled for the upcoming Summer.
Focus on margin expansion:
Q3 EBITDA margin expanded by 60bp YoY to 7.5% based on operational efficiency and product mix. Management expects to sustain operating margin at 7%+ in the long term. Segment-wise, EMP & CAC EBIT margin contracted 60bp YoY, UCP EBIT margin expanded 100bp YoY while PE & IS EBIT margin tanked 700bp to 7.7%. Management has set a target EBIT margin for EMP & CAC and UCP segments to be sustainable in the range of 7.0-7.5% and 8.0-8.5%, respectively.
FY26 may see faster growth:
Although EMP segment grew, orders from commercial real estate and infrastructure witnessed a slowdown. Water coolers in the UCP segment also remain muted. Commercial refrigeration faced regulatory challenges throughout the year. Management says issues in water coolers and commercial refrigeration are largely over, and revenue will start to come in from Q4. In the PE & IS segment, industrial solutions thrived while Medtech and Data Security solutions faced issues. Operating cycle for the PE & IS segment will be revived in FY26, according to management.
Capex to remain robust:
BLSTR has already announced a three-year capex plan on INR 7.5-8bn, which would be used for augmenting manufacturing, product development, backward integration and digitization. The Sri City plant, set to manufacture RAC units, has completed its second phase of commissioning. Post capex, new capacity of the plant will increase from 0.3mn units to 0.6mn units pa. The plant in Himachal Pradesh has a capacity of 0.6mn units pa.
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SEBI Registration number is INH000000933
