Blue Star Q2FY18 Concall Summary


 Financial Highlights

Bluestar Q2FY18 Financial Performance.png
  • The revenue from Operations for Q2FY18 is at 835.71 Crore with a marginal decrease from 847.84 Crore in Q2FY17
  • EBITDA excluding other income and finance income for Q2FY18 is at Rs.45.91 Crore with a growth of 14% as compared to Rs.40.19 Crore in Q2FY17
  • EBITDA as a percentage of revenue increased to 5.5% in Q2FY18 from 4.7% in Q2FY17
  • Profit before tax was Rs.28.78 Crore in Q2FY18 as compared to Rs.26.66 Crore in Q2FY17 with a growth rate of 8%
  • Tax expense for Q2FY18 was at Rs.8.42 Crore as compared to Rs.7.34 Crore in Q2FY17
  • Effective tax rate for Q2FY18 was 29% as compared to 28% for Q2FY17
  • Consolidated net profit for Q2FY18 increased to Rs.20.78 Crore from Rs.20.01 Crore in Q2FY17 at a growth rate of 4%
  • Last year in September, Blue Star was at Rs.320 Crore on a consolidated basis as against around Rs.295 Crore this year
  • In Q1FY18  payables were actually at the lowest level ever at around Rs.48 Crore for the group as a whole
  • This is purely because of the procurement cycle and payable seasonality
  • Consolidated capital increased marginally to Rs.757 Crore as of September 30,2017as compared to Rs.705 Crore as on Septmber 30,2016

Carry forward order book:

  • Carry forward order book as on September 30,2017 increased by 15% to Rs.2120 Crore as compared to Rs.1840 Crore as on September 30,2016

Net borrowing:

  • •On a standalone basis, Blue Star had a net borrowing of Rs.252 Crore as of September 30,2017as compared to Rs.263 Crore as on September 30,2016
  • Net borrowing of fully owned Blue Star Engineering and Electronics Limited decreased to Rs.45 Crore as of September 30,2017as compared to Rs.56 Crore as on September 30,2016


  • For the full year, CAPEXwill be around Rs.100 Crore odd
  • This Capex will be incurred in five manufacturing plants to rebalance capacity and replacement of existing machines
  • The other 2 areas of CAPEX spending are IT and R&D

Segment wise results:

1. Segment 1 – Electro-Mechanical Projects and Packaged Air Conditioning Systems;

  • Unfulfilled customer orders needed to be individually realigned under GST structure
  • This was a slow and arduous process and resulted in to a slowdown in project execution and therefore billing
  • The revenue in this segment is at Rs.501.82 Crore in Q2FY18 as compared to Rs.538.67 Crore in Q2FY17
  • The results grew to Rs.38.3 Crore, which was 7.63% of revenue in Q2FY18 from Rs.28.56 Crore, which was Rs.5.3% of segment revenue in Q2FY17
  • Closure of certain project with higher profitability in Q2FY18 resulted in better margin realizatioN
  • Order inflow in Q2FY18 was at Rs.582 Crore as compared to Rs.560 Crore in Q2FY17 at a growth rate of 4%
  • For electro-mechanical projects business, the overall market demand slowed down in Q2 due to business and operational uncertainty post introduction of GST and sluggish demand from private investments
  • Spending was largely driven by Government in various infrastructure like metro and healthcare
  • Sales prospect base remained static with a drop in office segment and some growth in the residential space mostly for fire, ventilation, electrical and plumbing services
  • New order booking from heavy industrial and factory segments continued to be muted
  • Select large value investments from government and a few corporate are going the super bundled route through general contractors
  • Customer preference on single vendor for multiple services is on the rise
  • Blue Stars share of multi service mechanical, electrical and plumbing systems in building and industrial projects continues to be higher than the industry
  • Blue Star continues to invest in smart systems and technology in line with value proposition of superiorproject delivery through intelligent engineering, modern executionpractices and committed teams
  • Some majororders won during Q2FY18 included Cube Constructions, DLF Cyber park, Sintex Corporate office, Ford, Deloitte, Smitha Hospital and MRF

Impact of GST:

  • In Central and Packaged Air Conditioning Systems business, overall market for the central plant equipment business also experienced a slowdown inQ2 due to the implementation of GST
  • Billing cycle got delayed due to lack of sufficient clarity and interpretation of new GST rules
  • Bookings however showed some signs of recovery in the month of September

VRF product range:

  • Fifth generation VRF, inverter ducted systems and the new configured series chillers have gained good acceptance in the market
  • There is also a good momentum amongst the dealer for the sales Major orders booked during the quarter were JSW Cement, Samhi Hotel, Theni Anantham Silks, NTPC, Jindal India and Greenply Industries
  • VRF market grew by 10% in Q2 and by 12% in H1

International Business:

  •  Healthy order inflow continued for watercoolers, room air conditioners and other applied products such as VRF,AHU and chillers from various distributors and OEM customers
  • Strengthening of Rupee against US dollar in Q2 impacted export billing
  • Blue Star participated in a number of exhibitions across Sri Lanka, Qatar, Iran and Maldives
  • Blue Star’s stallin the ‘SIVAR expo’ in Sri Lanka was adjudged as the best stall by the exhibitors
  • Emerging markets of the Gulf Cooperation Council (GCC) countries and Africa remained under pressure
  • The ongoing sanctions on Qatar by GCC countries have impacted both order inflows and cash flows

2. Segment II – Unitary Products:

  • Revenue for this segment was Rs.294.38 Crore in Q2FY18 as compared to Rs.262.83 Crore in Q2FY17 with a growth of 12%
  • The results reduced to Rs.15.66 Crore, which was 5.32% of revenue in Q2FY18  from Rs.19.79 Crore, which was Rs.7.53% of segment revenue in Q2FY17
  • Drop in segment results is due to higher commodity prices andplanned investments in new product categories such as water purifiers,air purifiers and air coolers
  • During Q2, room AC business grew by 5% in value terms and in line with the market growth with a steady market share of 11%
  • The company continued to perform better in the high energy efficient product such as 5 Star and inverter ACs
  • With growing volumes in tier 3, 4 and 5 markets, more customers prefer availing consumer financing schemes now
  • In Commercial Refrigeration business, the overall market for theseproducts also experienced a slowdown due to GST implementation
  • The growth was seen across all our product lines. The quarterwas good for Deep Freezers, Bottle Water Dispensers and Modular ColdRooms
  • Modular Cold Room business saw an increased traction with majorcontribution from dairy, ice cream and food processing segment
  • Newlines of business Kitchen Refrigeration and Medical Refrigeration also witnessed good acceptance in the market with increase in secondary sales
  • In the Commercial Refrigeration Space Blue Star continued to strengthen its product offerings catering to theneeds of constantly growing Dairy, Ice cream and Food processing segment
  • The products of Water purifier business have been well received in the market and overall the business outlook remains positive
  • While the industry grew in line with theexpectations, price realization continued to be under stress due todisruptive pricing strategies used by few large market players
  • Blue Star  water purifiers are now available in 110 towns with over 450 channelpartners and 1700 retail points
  • The entire service delivery process was made IT and app-enabled and is now fully supported by a call centre
  • Investments in brandbuilding continued with advertisements, campaigns across various TV,print and digital channels, and the campaign received great visibility
  • The segment results are expected to be impacted by 120 to 150 basis points for thecurrent financial year due to continued investments in this productcategory primarily in distribution, R&D and brand building

Impact of GST:

  • From middle of Q1 this year, dealers and distributors started to destock their inventory in anticipation of GST migration
  • Post GST going live, business supply chain had to undertake a short shut down during the month of July in order to revalue the stock of unsold finished goods to establish transition credits under GST
  • The things are expected to come back to normalcy by Q4 and market growth rate in room AC is expected to be 10-12%


  • The commodity prices have increased by 8 to 10% but there is no change in MRP prices as of now
  • The energy efficient norms are to be changed from January 1,2018 and the current range of 5 star machines will be labelled as 3 star rated machines
  • There will be an optical price increase for the customers who on a like-to-like basis would have paid almost a similar price for 5 star rated machine pre January 1,2018

3. Segment III - Professional Electronics and Industrial Systems:

  • Revenue in this segment was at Rs.39.51 Crore in Q2FY18 as compared to Rs.46.34 Crore in Q2FY17 with a decrease by 15%
  • The results reduced to Rs.2.85 Crore, which was 7.21% of revenue in Q2FY18  from Rs.8.08 Crore, which was Rs.17.44% of segment revenue in Q2FY17
  • Revenue in Q2 was lower due tocontinued softness in industrial Capex and general uncertainties arriving from GST migration
  • Margins in this segment were impacted by lowdemand coupled with lower realization due to sluggish market conditions
  • Plans are on to renew the product portfolio in order to improve profitability and at the same time the demand is expected to also revive in the last quarter of the current financial year
  • During the quarter, large orders were received from Karnataka Institute of Medical Science, Institute of Nephro Urology, Reliance Jio, Axis Bank, Ordinance Factory, Jindal Steel, Hindustan Aeronautics Limited and GB Springs
  • The Company intends to continue to make investments in manufacturing, marketing, brand building, product development as well as human resources over the next few quarters in order to capitalize on the imminent growth opportunities

Impact of GST:

  • The procedural transition of GST for Blue Star was pretty much in line with plan, billing andprocurement activities were reinitiated in the GST environment withminimal downtime
  • The markets that we serve have not yet fully stabilized and regained momentum
  • While Q3 is expected to be better in terms of market potential, Blue Star  anticipates some impact to continue during Q3 as well
  • Once the external environment stabilizes, the Company is confident of regaining its growth momentum
  • All the key dealers, distributors, suppliers and vendors have successfully transited to GST