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Multiple levers for growth captured in current valuations: downgrade to NEUTRAL

Result Synopsis

BLSTR has once again has outperformed industry and peers in significant way with its UP revenue growing by 39% vs industry growth of 30% in Q2. BLSTR market share in RAC stood at 13.5% in Q2. Commercial air conditioner continues to see growth with enquiry pipeline remaining good. BLSTR is witnessing strong traction in the commercial refrigeration space and is developing sub 300lts commercial refrigerator which is the fastest growing product in that space. On the project front the slowdown and delay in order finalizations in the commercial buildings sector continued during the quarter, inquiries and order finalizations from factories, data centres, railway electrification, water MEP, metro railway and healthcare sector continued to remain Buoyant. Order inflow for the quarter stood at Rs1.7bn growth of 42%, while order book stood at Rs60bn growing by 44%. Company is confident of outperforming the RAC market and maintaining its margin guidance in the range of 8-8.5% for FY24. Funds raised through QIP would be utilized towards increasing the manufacturing capacity, enhancing capabilities, investing in R&D and digitalization. We continue to remain positive on the stock, as its company has growth drivers in place with strong proposition in the commercial refrigeration and airconditioning space and growth in domestic as well as international markets in RAC. This coupled with healthy execution in its project business with focus on cashflows will arguer well for the company.

BLSTR is estimated to deliver strong double-digit CAGR revenue growth on back of improved execution of projects, market share gains in RAC and continued growth momentum in Commercial refrigeration. We pencil in revenue/EBITDA/Adj PAT CAGR of 19%/26%/43% over FY23-25E. We have increased our SoTP-based PT to Rs950 vs earlier Rs879. We assign Neutral rating on the stock as current valuation captures the positives.

Result Highlights

* Business update - Bluestar (BLSTR IN) reported better than expected revenue growth, with Unitary products beating estimates by 20%, while Electro-mechanical projects & packaged air-conditioners and PEIS revenue were lower than estimated. UP grew 39% yoy higher than peers as well as market.

* Margins – Gross margins have expanded by 152bps and 261bps on yoy and sequential basis. EBITDA margins expanded by 106bps on yoy basis. BLSTR has maintained its margin guidance of 8-8.5% for unitary products for FY24.

* EMPS – Order-book at Rs60bn continues to remain healthy. Order inflow at ~Rs17bn was up 42% on yoy basis. Commercial office space has seen slowdown, while healthcare and hospitality sectors are witnessing sustained investments.

* Demand Outlook – Company believes FY24 volume will grow by 10-15% summer being impacted on account of unseasonal rains. Festive demand for RAC has been buoyant, with company realizing good Onam and Diwali demand trending higher.

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