Bluestar Q3FY17 Concall Summary

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Financial Highlights

Bluestar Q3FY17 Financial Performance
  • Total Operating Income for Q3 FY’17 was Rs. 926.47 Cr as compared to Rs. 733.55 Cr in Q3 FY’16 (excluding BSIL’s operating income of Rs. 61.46 Cr), representing a growth of 26%.
  • PBIDTA (Before other income) for Q3 FY’17 was Rs. 35.08 Cr as compared to Rs. 23.55 Cr in Q3 FY’16 (excluding BSIL’s PBIDTA of Rs. 11.65 Cr), a growth of 49%
  • Profit before Tax (before exceptional items) was Rs. 15.71 Cr in Q3 FY’17 as compared to Rs. 5.98 Cr in Q3 FY’16 (excluding BSIL’s PBT of Rs. 10.97 Cr), a growth of 163%.
  • Tax expense for Q3 FY’17 was Rs. 1.53 Cr as compared to Rs. 1.09 Cr in Q3 FY’16. Effective tax rate for FY’17 is expected to be 22%
  • In Q3 FY16 there was exceptional item of Rs 6.59 crores relating to expenses towards goodwill charge arising from BSIL’s amalgamation & bonus issue expenses relating to earlier years. There is no such exceptional Item this Q3 FY17.
  • Consequently, consolidated net profit for the current quarter increased to Rs. 14.50 Cr from Rs 9.00 Cr in Q3 FY16.
  • Order inflow during Q3 FY’17 increased by 14% to Rs. 787 Cr from Rs 688 Cr over the same period last year
  • Carry-forward order book as at December 31, 2016 increased by 12% to Rs 1794 Cr as compared to Rs 1605 Cr as at December 31, 2015.
  • Blue Star’s standalone net borrowings decreased to Rs. 209 Cr as on December 31, 2016 from Rs. 243 Cr as on March 31, 2015
  • Net borrowings for our 100% subsidiary, Blue Star Engineering & Electronics Limited reduced to Rs. 59 Cr as on December 31, 2016 from Rs. 60 Cr as on March 31, 2016
  • Consolidated capital employed increased to Rs. 723 Cr as on December 31, 2016 from Rs. 630 Cr as on March 31, 2016 in line with business volume growth.
  • The company has 20-25% sales through consumer finance schemes.
  • Procurement of materials starts mainly in advance of 4-5 months. The commodity prices have increased & the company believes it should fit in.
  • LG has decided to quit fixed speed air conditioner business. This is a opportunity for the company & which will help expand & strengthen the market growth.
  • The company has not spent much amount on promotion as it wants to build brand & invest part of corpus in new capability building including new & adjacent products & invest in Research & development

Segment I – Electro Mechanical projects & Packaged Air Conditioning Systems

Electro-Mechanical Projects business

  • Segment I revenue increased to Rs. 554.55 Cr in Q3 FY’17 from Rs 458.30 Cr in Q3 FY’16, a growth of 21.0%.
  • The segment generated profits of Rs. 28.70 Cr (5.2%) in Q3 FY’17 as compared with Rs. 25.58 Cr (5.6%) in Q3 FY’16.
  • Order flow in Q3 saw a modest growth of 471 crore as compared to 433 crores during same period last year
  • The overall market remained sluggish, project execution remained slow as customers phased out their requirements based on available funds. 
  • Increase in fuel costs increased the input cost at the project sites & created additional stress on profit margins
  • Cash flow remained a challenge
  • Demonetization event also adversely impacted real estate segment and investment sentiments amongst the corporate customers.
  • Estimation of net margin in range of 4.5% to 5.5% 
  • Some major orders won by Blue Star during Q3 FY’17 included Amazon (Hyderabad), Thapar University (Patiala), Sea Valley (Vizag), Hotel Cidade de Goa, and Ascendas (Delhi)
  • Carry-forward order book was Rs 1753 Cr as at December 31, 2016 as compared to Rs. 1545 Cr as at December 31, 2015, an increase of 13%.
  • The company is pretty much consistent player in metro rail segment. Executed quite a few orders for Delhi & Bangalore Metros. Next year the company sees order awarded & completed to the tune of 1000 odd crores. 

Central and Packaged Air Conditioning Systems business segment

  • Blue Star performed well in VRF and Chiller product categories
  • The new configured water cooled screw chillers introduced in the market has also gained good acceptance
  • In Q3, orders were received from Vibrant Academy, Amity International School, HDFC Bank, Grasim Industries, JSW Steel Limited.
  • During Q3, Blue Star’s remote monitoring centre called ‘rView’ won the “Excellence in Operations” award from IDC Insights, an international knowledge agency.

International Business

  • Blue Star participated in multiple major trade shows such as Climate Abu Dhabi Expo, UAE and Big 5 Exhibition in Dubai, UAE with largest ever display stall
  • On the economic outlook, emerging markets of the Gulf Cooperation Council (GCC) countries and Africa are expected to remain under pressure during 2017. New geographies have been identified for expansion.

Segment II: Unitary Products

  •   This segment registered revenue growth of 34%, from Rs 237.66 Cr in Q3 FY’16 to Rs. 318.41 Cr in Q3 FY’17
  • The segment results showed reduction by 10% from Rs. 16.08 Cr (6.8%) in Q3 FY’16 to Rs. 14.54
    Cr (4.6%) in Q3 FY’17
  • Results of this segment in the current year include expenditure incurred to launch water purifier products, air-coolers and air-purifiers.
  • Spent close to 10 crores for making investment to launch water purifiers, brand building & launch related cost due to which margins have been impacted.
  • If the investment would not have been made then margin would have been 7.7% for this segment compared to 4.6% now
  • It is a 18 months investment cycle which has just started.
  • Air conditioner market share at the end of December was 11.5%, up 90 basis points compared to last year
  • For AC business the company has 1500 dealer points & close to 4000 stores. Have added 30 new dealers & about 130 distributors in Q3. 

Room Air Conditioner business

  • During Q3, our room AC business grew by 47% against the estimated market growth of 25% during the same period.
  • Product penetration among the existing dealer / retailers coupled with better product range, aggressive sales promotion and widening of distribution footprint contributed to our growth
  • The Company continued to perform better in the high energy efficient products such as inverter ACs
  • With growing volumes in tier 3/4/5 markets, more customers prefer availing consumer finance schemes. During the quarter, close to 16% of the ACs sold were through consumer finance schemes.
  • Overall break up between window-AC and split-AC: roughly 80% is split and about 20% windows.

Commercial Refrigeration business

  • Commercial refrigeration products business slowed down in the current quarter, impacted by demonetization. Retail sales as well as sales at dealer stores especially in Tier 3, 4 and 5 towns were impacted.
  • We expect the situation to improve in Q4 of FY’17 for these products

Water Purifier business

  • Water Purifier business was formally launched in Q3 FY’17 with 13 models (including colour variants) with price points varying from Rs 15,000 to Rs 45,000.
  • In the first phase, the Company plans to offer contemporary range of electric water purifiers. The products will be initially available in Mumbai, Delhi NCR, Bengaluru, Secunderabad, Chennai, Pune, Ahmedabad, Nagpur and Chandigarh.
  • The distribution would be subsequently ramped up in all states in the South, Maharashtra, Gujarat and Northern region by March 2017.
  • The company plans to have presence over 100 towns over a period of 3 quarters & establish products in close to 1000 outlets
  • The model of selling water purifier is not direct selling like Eureka Forbes but more to do with retail selling like kent kind of model.

Segment III Professional Electronics and Industrial Systems

  • Billing of this segment grew by 42% in Q3 FY’17 to Rs. 53.51 Cr from Rs. 37.56 Cr in Q3 FY’16.
  • Growth in billing was driven by a few large surveillance projects billed during the current quarter.
  • Segment result grew to Rs. 7.32 Cr (13.7%) in Q3 FY’17 as compared with Rs. 6.34 Cr (16.9%) during the same period last year.
  • During the quarter, large orders were received from Sun Diagnostic (Cuttack), Steel Plant Hospital (Bhilai), Karnataka Police, Defence Labs (Panagarh), Lalbaba Seamless (Kolkata) and Divine Cylinders (Gujarat).
  • Overall VRF share was roughly around 12% to 13%.
  • In inverters for 9 months the sales from inverter has been around 15% as compared to industry trend of around 12%

Demonetization Impact

  • The company is  bit cautious on this subject & need to watch out for at least one more quarter. 
  • The company saw good response in December due to Christmas & New year
  • The company believes that it did not see much impact of demonetization