Blue Star Ltd is an Indian multinational home appliances company, headquartered in Mumbai. It specializes in air conditioning, commercial refrigeration and MEP (mechanical, electrical, plumbing and firefighting). The company is India’s second largest homegrown player in the air conditioning space. Blue star manufacturers air purifiers, air coolers, water purifiers, cold storage and speciality products.

Blue Star was founded in 1943 by Mohan T Advani as a reconditioning company. Soon after inception, Blue Star ventured into the manufacturing of ice candy machines and bottle coolers and began the design and execution of central air conditioning projects, followed by the manufacturing of water coolers. The company later expanded into new product lines and began exporting to Dubai. It went public in 1969 with an initial public offering, listing on the Bombay Stock Exchange. In the late 2000s, Blue Star ventured into the electrical, plumbing and fire-fighting contracting businesses, offering customers an integrated mechanical, electrical, and plumbing (MEP) solution. It then forayed into the residential air conditioning segment a few years later, along with entering the water and air purification segments as well as the engineering facility management (EFM) space recently.

Blue Star has a presence in 18 countries in the Middle East, Africa, SAARC and ASEAN regions. Blue Star has three Joint Ventures in Oman, Qatar and Malaysia. The company has subsidiaries in UAE, Qatar and India.

Quarterly Growth Walkthrough

Blue Star’s Q2 FY23 performance was stronger to a certain degree as compared to its competitors. Margins have been tolerably affected in the previous quarter. The company has undertaken multiple optimisation initiatives which could aide recovery in the second half of the current fiscal year.

Particulars	Sep 2022	Jun 2022	Sep 2021	Sep 2019	YoY	QoQ
Net Sales	1576	1970	1240	1249	27%	-20%
EBITDA	86	123	71	74	21%	-31%
Net Profit	43	74	31	38	36%	-42%
EPS	4.42	7.71	3.26	3.94	36%	-43%

Revenue for the second quarter was reported at Rs 1,576 crore, which is a rise of 27 percent year on year (YoY), that was supported by vitalizing growth across all segments. The EMP (Electro Mechanical Projects) segment reported a revenue growth of 33 percent YoY and consists about 60 percent of the total sales. The EBITDA margins have fallen by 30 basis points (bps) YoY to 5.4 percent on behalf of an increase in the other expenses. While the company faced inflationary pressure in raw material and logistics, the initiatives of a sturdy growth in sales and reduction in cost has aided the company to tackle such constraints.

Segment wise growth

The company gained tremendous momentum for growth supported by project execution in the EMP (Electro Mechanical Projects) and the Commercial Air Conditioner segment. The EMP business acquired a spike in enquiry and order finalisation for data centres, metro rail, and factory segments. In the Commercial Air Conditioning business, Blue Star persistently maintains the #1 position in conventional, ducted AC, and scroll chillers. It holds the #2 position in Variable Refrigerant Flow (VRF) and screw chillers. The company has also acquired its first order for railway electrification.

Order intake has grown by 68 percent YoY to Rs 1,200 crore which takes the segment arrears to greater than Rs 3,000 crore. These projects will be realized within the coming 2 years.

The second quarter is weak for the air conditioning industry due to seasonality. In spite of the weakness, the Unitary Cooling Products segment has reported a growth of 15 percent YoY.  Blue Star’s major competitors lost some market share in H1FY23. However, the company has endured onto its market share (about 13 percent) as RAC (Room Air Conditioner) sales have risen by 17 percent YoY.

Blue Star perseveres to sustain its leadership in deep freezers, storage water coolers, and modular coolers. For FY23, the management has an expectation for the margin of 8 percent, which is probably burdensome to achieve because of the escalating market rivalry and the carry-forward of high-cost inventory.

Professional Electronics and Industrial Systems (PEIS) revenue has skyrocketed by 50 percent YoY with the support of increasing demand from the medical diagnostic equipment segment. The demand for non-destructive testing and data security solutions for the BFSI sector prevails. Blue Star has acquired huge orders from Arcelor Mittal, Jindal Steel, and HDFC Bank.

Technical Analysis

Blue Star share price is trading around its lifetime high and appears to be in the distribution zone. The price is facing heavy resistance at the Rs 1300 level. The stock has achieved its 161.8% target level of retracement from the crash of 2020. The next target for the price will be at the 261.8% retracement level which is at Rs 1662. The price has overextended above its 200-day moving average which makes its overbought. MFI is at 52 points which gives no clear indication. Considering the persevering growth of the company, this target may be achieved in the mid-term period of a few months. Presently, the stock is highly expensive, and investors must be patient for correction to make an entry into this stock.

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