Blue Star Q3FY18 Concall Summary


Financial Highlights 

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Adjustment of financials:

  • Prior to GST going live, revenue for previous periods included excise duty and other applicable input taxes
  • Revenue and EBIDTA percentage for Q3FY17 have been computed by adjusting excise duty and other applicable input taxes from revenue
  • There is no impact of this on the profit before tax and profit after tax figures


  • Revenue from Operations for Q3FY18 was Rs 981.30 Cr, as compared to Rs 872.21 Cr in Q3FY17, at a growthrate of 13%


  • EBITDA for Q3FY18 was Rs 51.33 Cr as compared to Rs 33.91 Cr in Q3FY17 at a growth rate of 51%
  • EBITDA as a percentage of revenue improved from 3.9% in Q3FY17 to 5.2% in Q3FY18


  •  PBT has increased from Rs 15.71 Cr in Q3FY17 to Rs 30.31 Cr in Q3FY18 at a growth rate of 93%
  • PBT as a percentage of revenue improved from 1.8% in Q3FY17 to 3.1% in Q3FY18


  • Tax expense increased from 1.53 Cr in Q3FY17 to 9.31 Cr in Q3FY18
  • Increase in effective tax is due to general increase in taxable profits

Net Profit:

  •  Consolidated Net Profit increased fromRs 14.5 Cr in Q3FY17 to 18.78 Cr in Q3FY18 at a growth rate of 30%

Carry forward order book:

  • Carry-forward order book as on Dec 31, 2017 increased by 21% to Rs. 2,163 Cr as compared to Rs. 1,794 Cr as at Dec 31, 2016
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Net borrowings:

  • Consolidated net borrowings increased marginally to Rs 295 Cr as on Dec 31, 2017 from Rs 286 Cr as on Dec 31, 2016
  • Debt to Equity ratio reduced to 0.38 as on Dec 31,2017 from 0.39 as on Dec 31,2016

 Capital Employed:

  • Consolidated capital increased marginally to Rs 778 Cr as on Dec 31,2017 from Rs 724 Cr as on Dec 31,2016

Segment- wise reports:

Segment 1 – Electro-Mechanical Projects and Packaged Air conditioning Systems:

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  • The comparable revenue for this segment was Rs 576.72 Cr in Q3FY18 as against Rs 532.23 Cr in Q3FY17 at a growth rate of 8%
  • The segment results grew to Rs 36.19 Cr (6.27%) in Q3FY18 from Rs 27.22 Cr (5.12%) in Q3FY17
  • Order inflow in Q3FY18 was RS 566 Crore as compared to Rs 446 Crore in Q3FY17 at a growth rate of 27%

Electro – Mechanical Project business:

  • The market demand and execution pace continued to remain weak in Q3
  • Investments in infrastructure continued to be largely driven by Government through various infrastructure projects like metro and healthcare while private investments remained sluggish
  • Sales prospects base remained stagnant with a drop in the office segment and growth in the residential space mostly for fire, ventilation, electrical and plumbing services
  • New order booking from heavy industrial & factory segments continued to be low and customer preference for single vendor for multi services is gradually on the rise
  • Select large value investments from Government and a few corporate are going the super bundled route through general contractors
  • Some major orders won during Q3FY18 included Bhartiya City, Medanta Hospital, Microsoft and IIT Jodhpur
  • Impact of GST: Though the order bookings have been improving, revenue growth in Q3 slowed down as billings from Government and few large projects are yet to gain momentum due to slow pace in concluding revised contract values post GST
  • Pace of billing is likely to remain slow in Q4
  • Profitability: There was an improvement in profitability as compared to last year and the same was driven by higher scale and better margin profile of certain key jobs
  • The strategy to focus selectively on profitable and healthier cash flow projects continues to contribute to segment results
  • Investments: Blue Star continues to invest in smart systems and technology in line with its value proposition of superior project delivery through intelligent engineering, modern execution practices and committed teams

Central and Packaged Air Conditioning Systems:

  • Market : Overall market witnessed recovery in demand post slow-down in Q2 due to GST transition
  • Ducted and VRF products continued to grow faster than the market
  • Newly launched products like Inverter Ducted, VRF V Plus and configured series Screw Chillers witnessed good growth momentum
  • Marketing strategy of conducting product launches to penetrate key markets in tier 2 and tier 3 cities was well received
  • Major orders booked during the quarter were SJR Builders, PSG College, Saint Gobain India Pvt Ltd, L&T Limited, ITC Limited, KC School and Hanon systems Pvt Limited
  • Blue Star expects to generate 4.5-5% margins on a sustainable basis
  • The old inventory is not fully liquidated by the dealers though there was accelerate push by the dealers to restock in the month of December across all product categories
  • The channel is back to around 60 days inventory as the case with pre-GST
  • Dealers will keep buying in-line with the summer demand which should start somewhere in the month of March
  • The market growth rate this year during Q3 has been good at 20% and the market should grow in the range of 10-11% for FY18
  • For FY19, market growth is expected to be in the range of 12-15%
  • International Business:Blue Star continued its focus on expanding its product export business
  • Healthy order inflow continued for water coolers, room air conditioners and other applied products such as AHU & chillers from various distributors and OEM customers
  • Strengthening of Rupee against the US dollar and increase in commodity prices in Q3 impacted export billing in INR terms and profit margin
  • Blue Star’s VRF system was approved and listed by Abu Dhabi Quality and Conformity Council (Abu Dhabi QCC)
  • Blue Star was also successfully placed in the approved list of vendors for applied system products registered by CEO Engineering Consultancies for the UAE region, which enables the company to sell equipment for projects in UAE
  • Blue Star’s international business is currently present in 19 markets and are currently focused on deepening the penetration in these markets
  • On the economic outlook, emerging markets of the Gulf Cooperation Council (GCC) countries and Africa remained under pressure as the ongoing sanctions on Qatar by GCC countries have impacted both order inflow and cash flows
  • Blue Star has an aggressive plan to selectively and profitably grow its international business and overall business outlook remain positive

Segment II - Unitary Products:

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  • Comparable revenue for this segment, was Rs 365.33 Cr in Q3FY18 as compared to Rs 286.47 Cr in Q3FY17 at a growth rate of 28%
  • The segment results grew from Rs 10.31 Cr(3.61%) in Q3FY17 to Rs 27.08 Cr in Q3FY18 (7.41%)
  • While the commodities remained costlier, due to price revisions implemented in Q3FY18, the margins were better
  • Room Air Conditioner business: The business which remained subdued in the previous quarters due to GST transition returned back on the growth trajectory in Q3FY18, with the dealers beginning to restock
  • Blue Star’s room AC business grew by 25% in value terms while the market grew by 20%
  • Blue Star’s market share increased to 11.5% in YTD Q3FY18 as compared to 11% YTD Q3FY17
  • The company continued to perform better in the high energy efficient products such as 5 star and inverter ACs
  • Capacity utilization ranges from 80%-85%, depending on production cycles
  • Blue Star expects to achieve margins of around 9.5-10% this year before considering the investment in water purifier business
  • Energy efficient norms: With the new energy efficiency norms coming into effect from January 1, 2018, Blue Star has increased prices of its room air-conditioners ranging from 4% to 6% in line with other market players
  • Blue Star had not taken price increase in Q2 mainly because of GST transition. Toward the end of Q4, business will take a stock of competitive pricing following energy label changes and decide pricing strategy by Q1 subsequently
  • With 5-star AC now becoming a 3-star AC, the prices of new 3 star machines will be relatively higher than the earlier prices
  • There is no increase in cost by labelling itself but because of the increase in commodity prices
  • Commercial Refrigeration business: the overall market for Commercial Refrigeration products also witnessed smart recovery in demand post slowdown in Q2 due to GST transition
  • The growth was seen across categories of Deep Freezers, Storage Water Coolers, Bottled Water Dispensers and Modular Cold room
  • Blue Stars new lines of business ‘Kitchen Refrigeration’ and ‘Medical Refrigeration’ witnessed reasonable growth in the market with increase in secondary sales
  • Water purifier business: After having penetrated over100 towns and increasing its availability to 1750 outlets, the business is now focusing on enhancing the productivity of channels
  • It has engaged over 400 star water consultants (in storedemonstrators) who are available at retail outlets to highlight the superior features of Blue Star’s water purifier range
  • These personnel also carry out activations and other field marketing activities for brand awareness and lead generation
  • Blue Star launched 6 new models in Q3FY18 under a series called Imperia and another 6 models under two new series are planned to be launched in Q4FY18
  • Blue Star expects segment II results to be impacted by 120 – 150 bps for the current financial year, due to investments in this product category primarily in marketing, brand building and R&D

Segment III, Professional Electronics and Industrial Systems:

  •  Revenue declined by 27% in Q3FY18 to Rs 39.25 Cr from Rs 53.51 Cr in Q3FY17
  • Segment results degrew to Rs 3.25 Cr (8.28%) inQ3FY18 as compared with Rs 8.41 Cr (15.59%) during Q3FY17
  • Revenue in Q3 was lower due to continued softness in industrial capex and slow pace of project execution
  • Margins in this segment were impacted by lower demand coupled with lower realization due to sluggish market conditions
  • Plans are on the anvil to renew the product portfolio in order to improve profitability and at the same time, the demand is expected to revive in the last quarter of the current financial year
  • During the quarter, large orders were received from TUV SUD South Asia Pvt. Ltd., Hindustan Aero Limited, Space Application Centre and Brakes India Pvt. Ltd
  • On the professional electronics, Blue Star consistently used to clock 15% EBITDA margins, but has now come down to 7%-8% during the last 2 quarters along with bit sluggish sales
  • The slowdown in private and industrial CAPEX has impacted Blue Stars sales
  • Blue Star has been trying to substitute some of that business by adding new lines of products and services which have its own gestation time
  • Once the gestation period is over and there is visibility of investments from customers, Blue Star expects to have a healthier order book and hence better margins