Capitaline

Analyst Meet / AGM 12-Mar-18

Press Meet

Blue Star

Expects 12.5% market share in CY2018

Key highlights of the interaction with B Thiagarajan, Joint Managing Director of Blue Star on March 9, 2018.

In CY2017 the room air-conditioner industry grew by 10% and Blue Star grew by 15%. Expect room air-conditioner market to grow by 15-20% in CY2018. The company expects to improve its all India market share to about 12.5% in CY2018 from 11.5% in CY2017. The company is working towards 15% market share in 2021.
GST impact on the cost of the company is neutral as far as air-conditioner segment.
The company effected price hike of 4-6% across products from Jan 1, 2018. The material cost has increased by about 12% and after adjusting for GST gains and forex benefits the effective cost rise is almost 8%. So the company has absorbed part of the increased cost. Considering market condition i.e. competitor strategy the company will tailor its pricing strategy at the start of the ensuing summer season.
The company will maintain an operating margin of 9.5-10.5% for cooling products despite cost pressure.
Planned capex for FY2019 was Rs 55 crore and that is solely on existing factories of the company. Since the decision on tax benefits continue to be delayed, the planned J&K plant has not seen any progress. With J&K plant getting delayed the company is now expected to start work on its Sri City plant near Chennai post current year monsoon. The work is expected to get completed in 18 months from start of construction. If no decision on tax benefits on J&K plant is known by March 2018, the company will shift water cooler capacity in Himachal to Wada plant and on such vacated land will put up capacity for air conditioners. The shift of manufacturing capacity of water cooler from HP to Wada if at all happening that will likely to be by Dec 2018 after conclusion of ensuing peak season for water coolers which run till Jun 2018.
The company is working to expand its deep freezer range to 300 and 250 ltr as well as glass top deep freezer. The expanded capacity at Wada will be used for this as well.
If J&K plant not materializing the capex on fresh capacity will go up to Rs 350 crore from earlier board approved or planned Rs 210 crore.
The company expects expenses on advertisement and new product development to increase by Rs 10 crore and Rs 5 crore respectively in FY19.
In EMP business the company as of now has nearly completed revised contract values post GST. No slow moving order in the order book and not expecting any billing risk or execution slowdown going forward apart for usual project approval delays and other client issues.
The packaged air conditioning order book are short cycle in nature and thus its share in order book (of Rs 2163 crore as end of Dec 2017) stands at about Rs 250 crore.
The company sees traction in order inflow for EMP and packaged air conditioners (segment 1) from residential, shops/boutique stores, restaurants and hotels, educational institutions. Expects the demand from manufacturing sector too to improve soon.
On international market the company currently focused on Oman and Qatar. The Dubai market has bounced back and looks attractive with lot of projects happening. Expo 2020 also expected to boost the demand from this market.
The company expects the water purifier to clock a revenue of Rs 100 crore in current fiscal another Rs 50 crore from engineering and Rs 350 crore from international market.

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