Motilal Oswal Financial Services

5 August 2020

Annual Report Update | Sector: Capital Goods

Blue Star

BSE SENSEX

37,688

S&P CNX

11,102

CMP: INR481

TP: INR460 (-5%)

Neutral

Focus on working capital management remains key

Blue Star’s (BLSTR) FY20 Annual Report highlights the company’s focus on

improving working capital, enhancing manufacturing facilities, deepening its

reach, consolidating global presence in key markets like the Middle East, and

increasing R&D/ad-spends. Key insights highlighted below:



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Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Financials Snapshot (INR b)

Y/E Mar

2020 2021E

Sales

53.6

45.0

EBITDA

2.8

1.9

PAT

1.5

0.6

EBITDA (%)

5.3

4.3

EPS (INR)

15.3

6.7

EPS Gr. (%)

-21.4

-56.2

BV/Sh. (INR)

81.2

83.9

Ratios

Net D/E

0.2

0.1

RoE (%)

18.8

8.0

RoCE (%)

13.6

6.9

Payout (%)

156.2

60.0

Valuations

P/E (x)

31.8

72.6

P/BV (x)

6.0

5.8

EV/EBITDA (x)

17.1

24.8

Div Yield (%)

4.1

0.8

FCF Yield (%)

8.0

2.5

BLSTR IN

46.6 / 0.6

887 / 425

-8/-32/-29



2022E

57.5

3.4

1.8

6.0

18.7

179.7

91.4

0.1

20.5

14.7

60.0

25.9

5.3

13.8

2.3

2.2



Focus on working capital reduction leads to healthy FCF:

BLSTR was

successful in reducing its working capital (WC) cycle in FY20. As % of sales,

WC stood at 6.2% in F20 (v/s 10.6% in FY19) due to debtor days declining to

57 days in FY20 (v/s 78 days in FY19). Free cash flow (FCF) generated stood

at INR3.7b in FY20, implying FCF/EBITDA of 131% and FCF/Adj. PAT of 252%.

Over FY14-20, FCF generation stood strong at INR8.9b, implying 100%

FCF/Adj. PAT.

Consolidating global presence:

BLSTR’s products are exported to 18

countries across the Middle East, Africa, SAARC and ASEAN regions.

Revenues from abroad doubled to INR5.2b in FY20 (v/s INR2.6b in FY15).

Also, share of revenue from abroad now constitutes ~10% of the company’s

total revenue (v/s 8.4% in FY14). Due to temperatures in the Middle East

going up to 60°C, BLSTR with its range of cooling solutions has a plethora of

opportunities in the region. Hence, the company has expanded its

operations by starting a new office and inaugurating its first state-of-the-art

flagship showroom in Dubai.

Enhancing manufacturing capabilities:

To reduce dependence on imports

from China, BLSTR has invested to expand its range of plastic-molding tools

and hard-formed tools. This would enable backward integration for the

company. Also, BLSTR has made significant upgrades to its Wada facility (it

has added heater-less vaporizer machine and a

Fanuc

robot), which has led

to cost savings and improvement in productivity.

Focus on Research and Development (R&D):

In FY20, BLSTR continued to

enhance its R&D activities with 35% YoY increase in spends to INR685m.

R&D spends now form 1.3% of sales, up from 1% in FY19. BLSTR has already

developed a 3-star inverter split AC complying to the 2021 BEE energy-

efficiency norms, with an ISEER of 3.90.

Increasing ad-spends:

Despite the muted 2.4% YoY revenue growth in FY20,

advertisement expenses increased by 52% YoY as BLSTR signed on cricketer

Mr. Virat Kohli as a brand ambassador for its range of Air conditioners (ACs).

Ad-spends, sales incentives and promotions together formed 2.8% of FY20

sales, up from 2.3% in FY19.

Rising distribution reach:

BLSTR has added ~720 channel partners in FY20,

one of its highest additions since FY15. Total channel partners stood at

~3,880 at end-FY20 (v/s ~2,000 in FY14). This indicates the company’s

deeper presence across various markets. BLSTR has expanded its retail

distribution reach for room air conditioners (RAC) and added ~508 retailers

and distributors across India, thereby increasing its presence in Tier 2/3

markets by 10% YoY.

Nilesh Bhaiya – Research Analyst

(Nilesh.Bhaiya@MotilalOswal.com)

Pratik Singh – Research Analyst

(Pratik.Singh@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Blue Star

Shareholding pattern (%)

As On

Jun-20 Mar-20 Jun-19

Promoter

38.8

DII

23.0

22.8

19.5

FII

8.8

10.9

Others

29.5

29.6

30.8

FII Includes depository receipts

Stock Performance (1-year)



FY20 performance highlights:

FY20 revenue grew 2.4% YoY while Adj. PAT

declined 21.4% YoY. The company reported 18.4% decline at EBITDA level. The

company is maintaining high liquidity due to the disruption in operations during

Mar’20. While gross debt has increased by INR1b to INR4.5b, Net debt has

reduced to INR1.6b in FY20 (v/s INR2.4b YoY).

Key segment highlights (FY20):

(a) EMP & CAS segment – Revenue stood at

INR28.3b, up ~3% YoY. EBIT margin stood at 4.3% (down 120bp YoY). (b) Unitary

Product segment – Revenue stood at INR23b (+1.4% YoY), while EBIT margins

declined 110bp YoY to 7.1%.

Valuation and view:

Over FY20-22E, we expect revenue/EBITDA/PAT to grow

3.6%/10.3%/10.7%. FY21E is expected to be a washout year. However, we note

that margin volatility in the case of BLSTR poses a challenge to our earnings

forecast, thereby leading to sharp earnings downgrade. Our SOTP-based TP

stands at INR460/share and we maintain

Neutral.

We prefer

Voltas

over

BLSTR

to play the underpenetrated AC market in India.

5 August 2020

Blue Star

Story in charts

Exhibit 1: FY20 revenue break-up

PE & IS

Exhibit 2: FY20-22E CAGR estimates by category

6.3%

3.6%

Unitary

products

43%

3.6%

EMP & CAS

53%

1.3%

EMP & CAS

Unitary

products

PE & IS

Total

Exhibit 3: Expect Unitary Products’ revenue CAGR of 6.3%

over FY20-22E

Unitary products revenue (INR b)

YoY (%)

52.9

Exhibit 4: Unitary Products’ margin to scale up by 40bp over

FY20-22E

Unitary products EBIT (INR b)

11.0

8.8

10.3

8.4

8.0

8.2

7.1

5.0

7.5

EBIT margin (%)

23.7

11.6

18.6

26.4

4.6

8.6

1.4

(26.1)

10.8

FY14

13.3

FY15

15.8

FY16

20.0

FY17

20.9

FY18

22.7

FY19

23.0

17.0

26.0

0.9

1.5

1.6

1.7

1.9

1.6

0.9

2.0

FY20 FY21E FY22E

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Exhibit 5: EMP & CAS revenue CAGR of 1.3% over FY20-22E

EMP & CAS revenue (INR b)

19.1

10.1

5.7

(2.4)

(1.7)

2.9

(8.0)

16.4

11.5

YoY (%)

Exhibit 6: EMP & CAS margins to bounce back in FY22E

EMP & CAS EBIT (INR b)

5.2

3.8

4.2

3.4

1.5

4.1

5.5

4.3

3.0

4.0

EBIT margin (%)

17.3

17.0

18.8

22.3

23.6

27.5

28.3

26.0

29.0

0.7

0.6

0.8

0.9

1.2

0.8

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

5 August 2020

Blue Star

Exhibit 7: Expect revenue CAGR of 3.6% over FY20-22E

Revenue (INR b)

19.4

8.4

0.4

15.5

5.8

12.8

2.4

YoY (%)

27.8

Exhibit 8: EBITDA margin to expand 70bp over FY20-22E

EBITDA (INR b)

5.3

5.7

5.1

EBITDA margin (%)

6.6

5.3

4.3

3.5

3.4

1.9

6.0

5.1

(16.0)

1.5

FY14

FY15

FY16

FY17

FY18

FY19

45 58

FY20 FY21E FY22E

1.7

2.1

2.2

2.7

2.8

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Source: MOFSL, Company

Exhibit 9: Adj. PAT CAGR expected at 10.7% over FY20-22E,

partly due to reduction in tax rates

Adj. PAT (INR b)

98.8

23.1

22.0

5.5

12.7

35.1

(21.4)

(56.2)

YoY (%)

179.7

Exhibit 10: Return ratios to remain healthy over FY20-22E

after a blip in FY21E

RoE

21.0

RoCE

21.5

18.5

17.4

13.4

16.3

15.6

17.5

18.7

15.3

13.8

13.6

8.0

6.9

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Source: MOFSL, Company

14.7

18.8

20.5

16.2

0.8

1.0

1.2

1.4

1.9

1.5

0.6

1.8

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Source: MOFSL, Company

5 August 2020

Blue Star

Management discussion and analysis – Key takeaways

#1: Consolidating global presence



BLSTR has continued its steady growth in global markets. Its products are

exported to 18 countries spread across the Middle East, Africa, SAARC and

ASEAN regions. BLSTR’s 100% subsidiary, Blue Star International FZCO,

headquartered at Dubai Airport (Free Zone), manages its international business

as well as joint ventures (JVs), which focus on HVAC&R, in addition to MEP

projects for residential, commercial and industrial segments.

Blue Star International FZCO handles export of air conditioning and commercial

refrigeration products. It also manages the Original Equipment Manufacturing

(OEM) / Original Design Manufacturing (ODM) businesses for globally

recognized brands such as Danfoss and Rheem.

To expand its operations in the Middle East, BLSTR started a new office and

inaugurated its first state-of-the-art flagship showroom in Dubai. The Middle

East has always been a promising market for BLSTR. Due to temperatures in the

region soaring upto 60°C, it augurs well for BLSTR’s range of cooling products.

BLSTR’s overhead unique tank chillers used in commercial/residential space

are in high demand across the Gulf Cooperation Council (GCC) market due to

the high prevailing temperatures in the region.

The company’s eco-friendly

inverter split ACs with zero-ozone depletion R32 refrigerant are also well

accepted in the Maldives and Sri Lankan markets.

In FY20, BLSTR’s some projects under execution include the Qatar University and

other multi-storeyed buildings (Qatar), and the Cyberjaya Hospital, Bukit Jalil

Mall and BB Tower (Malaysia).

Though still a small proportion to overall sales (9.7% in FY20), BLSTR’s revenue

outside India has doubled over FY15-20.

Exhibit 12: Share of revenue (%) outside India has ranged

between ~8-10% over FY14-20

India

Outside India

Exhibit 11: Revenue outside India has doubled over FY15-20,

though growth in FY20 was muted at ~3% YoY

Revenue outside India (INR b)

62.5

YoY (%)

8.4

15.2

3.7

2.5

FY14

2.6

FY15

4.2

FY16

(6.0)

8.1

10.9

8.9

9.7

9.6

9.7

11.4

2.8

91.6

91.9

89.1

91.1

90.3

90.4

90.3

3.9

FY17

4.5

FY18

5.0

FY19

5.2

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

Exhibit 13: Construction of the district cooling plant, civil

and MEP works of Qatar University project

Exhibit 14: BLSTR service vehicle/showroom in the UAE

Source: MOFSL, Company

#2: Enhancing manufacturing capabilities



BLSTR’s manufacturing footprint spans five state-of-the-art facilities across

Wada, Dadra, Himachal Pradesh and Ahmedabad, which are dedicated to

various product lines.

BLSTR has now embarked on a manufacturing transformation project titled

‘Qualis 2.0’ with a focus on supplier excellence, end-to-end logistics, Industry 4.0

practices and building new-age competencies in people.

As part of its strategic initiatives, the company has invested in expanding its

range of plastic-molding and hard-formed tools. This would enable backward

integration for the company.

BLSTR is in the process of setting up an additional facility to expand its

manufactured commercial refrigeration range of products. To achieve this end,

it is

using some of the latest techniques such as virtual factory simulation, 3D

modeling,

etc., at its existing manufacturing plant in Wada. The same should be

operational by FY22E.

Robotic interventions are being successfully used for automation of sheet

loading and unloading on Amada machine to optimize manpower.

Its Dadra Plant, which boasts of state-of-the-art testing facility, enjoys the

reputation of being one of the top manufacturing facilities in India for high-

quality air conditioning products. The facility manufactures packaged/ducted

split ACs and VRF systems.

BLSTR’s two plants in Himachal Pradesh continue to cater efficiently to the fast

growing markets of RACs and refrigeration products, and had an impressive

performance during FY20. BLSTR continued to unlock enhanced value through

vertical integration with in-house design and manufacture of key components

such as drives, headers and strainers. A new 5mm copper coil line with a new

auto brazing machine was added at the plant to keep pace with emerging trends

in technology and quality upgrades.

5 August 2020

Blue Star

Exhibit 15: Auto panel bender installed in FY19 led to

productivity gains in FY20

Exhibit 16: 5mm fin pressing machine installed at the AC

manufacturing set-up

Source: MOFSL, Company



Source: MOFSL, Company



The Wada Plant, which is the company’s largest manufacturing facility in terms

of built-up area, produces a wide range of products such as scroll chillers, screw

chillers, cold room panels, condensers/evaporators for the cold room business

and condensing units for an overseas OEM.

The heater-less vaporiser machine installed at the Wada Plant, which has

replaced the 36kW electrical heater-base vaporiser, has

achieved energy

savings of INR5.1lac per annum with a payback of 14 months.

Exhibit 18 shows a

Fanuc

robot installed at the Wada Plant on the Amada Turret

punching machine for sheet metal ‘Pick and Place’ process. It has a 165kg

payload capacity.

The robot has eliminated human fatigue and increased

machine utilization by 15%.

Exhibit 18:

Fanuc

robot at Wada plant

Exhibit 17: Heater-less vaporizer machine at Wada plant

Source: MOFSL, Company

#3: Focus on Research and Development



BLSTR R&D team has over 135 employees, best-in-class infrastructure including

performance test labs, reliability testing facilities, electronics lab, design studio,

high-end workstations for CAD and analysis, amongst others. With many patents

to its credit, including the four won during FY20, the company prides itself on

having one of the best R&D centres in the Indian HVAC industry.

During FY20, Air-Conditioning, Heating and Refrigeration Institute (AHRI)-

certified a configured series of air-cooled VFD screw chillers and inverter series

of scroll chillers were introduced, which have significantly enhanced the

company’s market share in the chiller segment. This comprehensive range of

5 August 2020

Blue Star



products meets the 3, 4 and 5-star energy efficiency levels as per the voluntary

labeling program launched by BEE.

A complete range of 3/5-star RACs with specific focus on the cost-competitive

Inverter model series was launched in FY20.

The side discharge range of VRF series up to 16 HP was indigenized to ensure

cost competitiveness. This would help BLSTR enhance its market share in the

VRF segment.

Water purifiers with state-of-the-art filtration system and process delivering

alkaline water with added minerals were well accepted in the market, creating a

niche for BLSTR.

Exhibit 20: Ongoing water Ingress Protection (IP) test

Exhibit 19: RACs undergoing endurance testing

Source: MOFSL, Company



Source: MOFSL, Company



R&D expenses have been largely range-bound between ~1-1.3% as a % of sales.

FY20, R&D expenses increased 35% YoY to INR685m. However, it rose to

just 1.3% of sales (v/s 1% in FY19).

FY20 also saw share of capex led R&D spends inch higher as a proportion of total

spends, with BLSTR investing in new machines and facilities in FY20.

Exhibit 22: FY20 saw increase in share of capex spend (%)

towards R&D

Capex

Opex

Exhibit 21: R&D expenditure increased 35% YoY in FY20

R&D expense (INR m)

1.3

1.1

1.3

1.2

1.0

% of sales

1.3

322

FY14

407

FY15

498

FY16

537

FY17

554

FY18

508

FY19

685

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

#4: Increasing supply chain effort and reach



In FY20, the supply chain function worked on areas like lead time reduction,

working capital management and expanding supplier base in FTA countries.

The supply chain function also focused on the risk framework and worked on

mitigation of risks, such as heavy dependence on one sourcing partner. It also

initiated steps to de-risk its dependence on China.

The localization of indoor units, inverter ACs and drives was a great step forward

toward mitigation of risks.

The ‘Supplier Excellence’ program, which was launched in FY19 progressed well

during FY20. Currently, 50 suppliers are deploying BLSTR’s best practices in

order to upgrade the overall quality of products/components.

The Channel Management Centre, which is the overall custodian of BLSTR’s

channel partners and a single point of contact for all channel administration,

development and conflict resolution initiatives,

added ~720 channel partners

and service associates during FY20.

Under the framework of its ‘Service Excellence’ program, its service reach has

improved significantly to 3,946 talukas/tehsils with a new assured service

response time of 3 hours and a turnaround time of 18 hours.

BLSTR has expanded its retail distribution reach for RACs and added ~508

retailers and distributors across the country, thereby

increasing its presence in

Tier 2/3 markets by 10% YoY.

Currently, BLSTR has 3,880 channel partners

with over 6,000 stores for RACs,

packaged ACs, chillers, cold rooms, and refrigeration products and systems, as

well as 1,060 service associates reaching out to customers in over 900 towns.

Exhibit 24: VRF commissioning van

Exhibit 23: Refrigerated service van

Source: MOFSL, Company

Exhibit 25: Total channel partners have steadily risen…

Total channel partners

3,160

2,700

2,000

2,225

2,250

3,880

Exhibit 26: …with FY20 witnessing highest addition

Channel partner addition (YoY)

460

720

450

225

FY14

FY15

FY16

FY17

FY19

FY20

FY15

FY16

FY17

FY19

FY20

Note: FY18 data not available, Source: MOFSL, Company

5 August 2020

Blue Star

#5: Segmental performance

(A) Electro-Mechanical Projects (EMP) and Commercial Air Conditioning

Systems (CAS)



EMP and CAS segment saw modest growth of 3% YoY in FY20 at INR28.3b.

Electro-Mechanical Projects:

In this sub segment, revenue was mainly driven by

buildings and factories, infrastructure, and industrial segments. BLSTR has

bagged a significant order from Mumbai Metro. L&T has also awarded the

company with prestigious orders for major airports at Delhi, Bengaluru and

Chennai.

For FY20, more than 40% were multi-service orders as BLSTR is a significant

player in the industry in this category.

Order inflows in 2HFY20 were impacted due to challenges in the flow of credit

to the Construction and Infrastructure sectors and slowdown in new projects

due to business disruption caused by the spread of COVID-19.

Commercial Air Conditioning:

This sub segment grew faster than the market

and improved its market share across product categories, aided by new product

launches and increased operational reach in tier 3/5 cities. Newly launched

products such as the next-generation inverter ducted, water-cooled VRF, air-

cooled VFD screw chiller and configured oil-free chiller gained good traction and

market acceptance.

The market share of VRF systems stood at 18% and that of screw chillers at 15%.

With 45% market share in the duct-system category and 40% market share in

the scroll-chillers’ category, BLSTR has maintained its market leadership

position.

International business:

During FY20, BLSTR’s JV in Qatar executed the

prestigious Chilled-Water Supply Unit project at Qatar University. Profitability of

its JV in Malaysia was moderately impacted due to the challenging economic

conditions.

Owing to lower operating leverage in Mar’20, EBIT margin declined by 120bp to

4.3% in FY20. Additionally, taking into consideration the outlook for commercial

real estate and infrastructure sectors, BLSTR made additional provisions for

potential doubtful receivables on a prudent basis.

Exhibit 28: Profitability declined in FY20 after rising over

FY14-19

EBIT (INR m)

16.4

3.8

5.7

2.9

3.4

EBIT margin (%)

5.5

5.2

Exhibit 27: EMP & CAS delivered revenue CAGR of 8.5% over

FY14-20

EMP & CAS (INR b)

19.1

10.1

YoY (%)

4.2

4.1

4.3

(2.4)

17.3

FY14

(1.7)

17.0

FY15

18.8

FY16

22.3

FY17

23.6

FY18

27.5

FY19

28.3

FY20

661

FY14

580

FY15

781

FY16

907

FY17

1,220

FY18

1,509

FY19

1,203

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

(B) Unitary Products



Revenues in this segment grew modestly at 1.4% YoY to INR23b in FY20.

RAC business grew well during 1HFY20 led by a strong summer; however,

Mar’20 (a key month for peak season sales) saw lower off-take due to COVID-led

disruption.

The affordable premium range of products introduced during FY20 did well and

contributed to the significant growth in split AC sales. There was increased

demand from tier 3/4/5 cities. BLSTR improved its split AC market share

marginally to 12.5% (by value) in FY20 (v/s 9.5% in FY15).

In the Commercial Refrigeration Products’ business, BLSTR maintained its

leadership position and grew well in the deep-freezer and water-cooler

businesses. It also gained market share in bottled water dispensers. Adjacencies

such as supermarket refrigeration and medical refrigeration also gained traction.

The company also gained reasonable foothold in its newly launched water

purifier business with 2% market share in FY20.

Profitability was lower in FY20 owing to loss of AC sales in the peak month of

Mar’20, coupled with higher spending on advertising and in-store presence in

the modern trade to support growth in 2019.

Exhibit 30: Profitability in FY20 was affected owing to COVID

-19 led disruption in Mar’20 and higher ad-spends

EBIT (INR m)

11.0

8.8

10.3

8.4

8.0

8.2

7.1

EBIT margin (%)

Exhibit 29: Unitary product revenue has grown at a CAGR of

13.5% over FY14-FY20

Unitary Products (INR b)

23.7

18.6

11.6

4.6

26.4

YoY (%)

8.6

1.4

10.8

FY14

13.3

FY15

15.8

FY16

20.0

FY17

20.9

FY18

22.7

FY19

23.0

FY20

948

FY14

1,468

FY15

1,621

FY16

1,679

FY17

1,681

FY18

1,859

FY19

1,623

FY20

Source: MOFSL, Company

Exhibit 31: Market share in the RAC business

11.1%

11.5%

12.3%

12.5%

9.5%

10.5%

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star



The PE&IS segment is operated by Blue Star Engineering & Electronics Limited, a

wholly-owned subsidiary of BLSTR.

PE&IS recorded 7% YoY revenue growth at INR2.3b in FY20.

Growth was aided by regulatory requirements of data localisation and increased

thrust on digital payment solutions, creating good opportunities for the Data

Security Solutions business.

The Government’s programs for affordable healthcare created good

opportunities for the Healthcare business.

The Communication Systems’ business that deals with radio frequency,

microwave as well as avionics test and measuring equipment, secured few

orders from the Defense, Space and Aerospace sectors.

Research centers and agricultural universities continued to place orders for a

wide range of inspection equipment including universal testing machines and

customized plant growth chambers enabling the Testing Machines’ business to

clock good performance through the year.

The Non-Destructive Testing Systems and Industrial Automation business

augmented its automation offerings and booked substantial orders from Steel

and Automotive segments. The Non-Destructive Testing Products’ business has

a highly diversified portfolio, which includes technologies such as Ultrasound,

Eddy-Current, RVI, X-ray, Industrial CT, Radioscopy, Portable Radiography and

Metrology. It has secured orders from the Automotive, Aerospace and

Inspection sectors.

Despite the slowdown, the Industrial Products business, which mainly deals in

industrial valves and filters, was able to sustain itself by securing orders from

the Oil & Gas industry.

EBIT margin expanded by 320bp to 23.3% in FY20, as BLSTR slowly realigned its

business model from being an exclusive distributor to a value-added re-seller,

thus moving up in the value chain.

Exhibit 33: Profitability improved significantly after a slump

in FY17

EBIT (INR m)

21.3

7.0

17.5

18.0

17.0

12.1

EBIT margin (%)

20.1

23.3

Exhibit 32: PE & IS revenue CAGR at 11.1% over FY14-20

PE & IS (INR b)

18.2

15.2

13.3

3.6

YoY (%)

9.8

(32.0)

1.2

FY14

1.5

FY15

1.7

FY16

1.9

FY17

2.0

FY18

2.2

FY19

2.3

FY20

218

FY14

312

FY15

304

FY16

325

FY17

240

FY18

438

FY19

543

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

#6: Other key takeaways:

Forex earnings and outgo:



Forex outgo has considerably increased from INR7.4b in FY14 to INR11.6b in

FY20. Forex earnings have largely remained flat at INR1.8b over FY14-FY20.

Hence, Net forex outgo increased from INR5.6b in FY14 to INR9.8b in FY20.

However, rising indegenization has led to a decline in the forex outgo as a % of

raw material cost.

Exhibit 34: Forex earnings and outgo trend

(INR m)

Forex outgo

Forex earned

Net forex outgo

FY14

7,373

1,814

5,558

FY15

8,611

1,972

6,640

FY16

9,255

3,491

5,764

FY17

10,379

2,566

7,812

FY18

12,521

2,637

9,885

FY19

12,721

2,270

10,450

FY20

11,606

1,813

9,793

Source: MOFSL, Company

Exhibit 35: Forex outgo as % of sales and raw material has declined over FY14-FY20,

indicating lower risk

Forex outgo as a % of RM

36.1

33.0

27.1

25.1

24.4

23.7

33.4

31.2

27.0

24.3

21.7

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Forex outgo as a % of Sales

36.2

32.4

28.9

Source: MOFSL, Company

E-Commerce:



BLSTR has not only partnered with reputed online distributors but has also

become a preferred seller for Flipkart and Amazon. In addition, the company has

also deployed direct seller and dropship models.

While the current contribution of BLSTR’s unitary product from e-commerce to

overall sales is less than 5%, it is likely to grow to over 20% by FY24E.

Online sales of RACs/water purifiers in FY20 grew 63%/42%

over the previous

year. Also, strong sales traction has started for air purifiers and deep freezers.

Investments in e-commerce marketing with sponsored listings and

advertisements across platforms created immense brand visibility and resulted

in high conversions.

During the year, a new Digital Asset Management system was deployed for all

the cooling and purification products, which is now a strong product information

and digital asset repository, widely used by various internal stakeholders.

Employees



Number of employees at end-FY20 stood at 2,885, up 2.6% YoY.

Per employee cost increased 12% YoY in FY20.

5 August 2020

Blue Star

Exhibit 36: Steady growth in number of employees over

FY15-20

No of employees

5.6

2.4

(1.3)

(5.9)

2,540

FY14

2,508

FY15

2,567

FY16

2,711

FY17

2,819

FY18

2,812

FY19

2,885

FY20

(0.2)

YoY (%)

4.0

2.6

Exhibit 37: Per employee cost has steadily increased over

FY17-20

Employee cost (INR m)

1.6

0.97

1.07

1.3

Cost per employee (INR m)

1.7

1.4

1.5

2,476

FY14

2,675

FY15

3,986

FY16

3,390

FY17

3,977

FY18

4,215

FY19

4,845

FY20

Source: MOFSL, Company

Remuneration



Adj.Net profits were down 21% in FY20. Senior management remuneration

declined 41% YoY for the Vice Chairman and Managing Director and 3% YoY for

the Managing Director.

Exhibit 38: Management compensation

Name

Vir S Advani

B Thiagarajan

Designation

Vice Chairman & MD

Managing Director

FY19 (INR m)

FY20 (INR m)

YoY (%)

(41)

(3)

Source: Company, MOFSL

5 August 2020

Blue Star

Financial analysis

Revenue analysis



Revenue CAGR of 11% over FY14-20:

BLSTR’s revenue growth was marginal at

2.4% in FY20, with all three segments growing in single digits. EMP and CAS grew

~3% YoY, with growth slowing down in 4QFY20 owing to subdued economic

conditions and the COVID led shutdown. Unitary products’ revenues were a

strong 9% YoY until 9MFY20, but loss of peak season sales in Mar’20 led to FY20

growth of 1.4% YoY. PE&IS segment revenue grew 7% YoY led by healthy

demand from the Professional Electronics segment.

Exhibit 40: Unitary products’ revenue trend

YoY (%)

16.4

5.7

11.6

4.6

Unitary Products (INR b)

23.7

18.6

2.9

8.6

1.4

26.4

YoY (%)

Exhibit 39: EMP & CAS revenue trend

EMP & CAS (INR b)

19.1

10.1

(1.7)

(2.4)

17.3

FY14

17.0

FY15

18.8

FY16

22.3

FY17

23.6

FY18

27.5

FY19

28.3

FY20

10.8

FY14

13.3

FY15

15.8

FY16

20.0

FY17

20.9

FY18

22.7

FY19

23.0

FY20

Source: MOFSL, Company

Exhibit 41: PE & IS revenue trend

PE & IS (INR b)

18.2

15.2

13.3

3.6

YoY (%)

9.8

7.0

Exhibit 42: Overall revenue trend

Revenue (INR b)

YoY (%)

15.5

19.4

8.4

0.4

12.8

5.8

2.4

(32.0)

1.2

1.5

1.7

1.9

2.0

2.2

2.3

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company



Source: MOFSL, Company

Decline in share of EMP & CAS revenue; revenue from product sales – the

mainstay:

Share of EMP and CAS revenue has declined from 59% in FY14 to 53%

in FY20, while unitary products revenue has increased from 37% in FY14 to 43%

in FY20. In terms of revenue break-up, revenue from products has been the

mainstay for BLSTR with 64% share in FY20’s total revenue. Share from

construction contracts has largely remained constant at 26% over FY14-20.

Share of revenue from services has also remained constant at ~10% over FY14-

20.

5 August 2020

Blue Star

Exhibit 43: Segment-wise share of revenue

EMP & CAS

Unitary Products

PE & IS

Exhibit 44: Revenue break-up

Products

Construction contracts

Services

Other operating revenue

FY14

Source: MOFSL, Company

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Gross margin analysis



Gross margin has remained stable at ~25% over FY19-20, expanding by 120bp

over FY14-20.

Purchase of traded goods as a percentage of total RM cost increased over FY16-

18, but rising backward integration has led to a decline over FY19-20.

Exhibit 46: Purchase of traded goods has steadily declined in

FY19-20 and now forms ~23% of total RM cost

Purchase of traded goods (as % of RM)

34.5

Exhibit 45: Stable Gross margin at ~25% over FY18-20

Gross margin (%)

27.0

25.0

23.8

24.3

25.5

24.9

25.0

25.5

17.2

18.0

28.3

24.4

22.8

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Employee cost analysis



The number of employees has marginally increased at 2.6% YoY. Staff cost has

risen 15% YoY in FY20.

Implied per employee cost has been increasing steadily since FY17 with 12% YoY

increase seen in FY20. Employee costs have moderated after sale of IT business

in 2016.

5 August 2020

Blue Star

Exhibit 47: Increase in number of employees has been

steady over FY15-20

No of employees

5.6

2.4

(1.3)

4.0

(0.2)

YoY (%)

Exhibit 48: Per employee cost showed an upward trend over

FY17–20

Employee cost (INR m)

1.6

Cost per employee (INR m)

1.4

2.6

1.5

1.7

0.97

1.07

1.3

(5.9)

2,540

FY14

2,508

FY15

2,567

FY16

2,711

FY17

2,819

FY18

2,812

FY19

2,885

FY20

2,476

FY14

2,675

FY15

3,986

FY16

3,390

FY17

3,977

FY18

4,215

FY19

4,845

FY20

Source: MOFSL, Company

Analysis of other expenses



Ad spends:

BLSTR has been prudent with its ad spends. Its ad spends-to-sales

ranged between 1–1.5% of sales over FY14-20 (FY17 was an exceptional year).

Despite almost flat sales in FY20, advertisement expenses increased 52% YoY

during the year as BLSTR signed on cricketer Mr. Virat Kohli as a brand

ambassador for its range of ACs. Ad-spends as % of sales stood at 1.5% in FY20,

up from 1% in FY19.

Ad-spends as % of unitary products sales have ranged between ~3-4% (except in

FY17). FY20 showed steep rise at 3.5% of sales (v/s 2.3% in FY19).

Overall, ad-spends, sales incentives and promotion activities ranged between

~2-3% of overall sales, with FY17 being an exception.

Exhibit 50: Ad-spends as % of total/unitary products sales

YoY (%)

Ad-spend as % of total sales

Ad-spend as % of Unitary products sales

5.5

3.9

(45)

4.0

2.5

1.2

1.6

1.7

1.3

2.9

2.3

1.0

1.5

3.2

3.5

Exhibit 49: Trend of advertising expenses

Advertising expenses (INR m)

(13)

343

FY14

519

FY15

631

FY16

1,107

FY17

613

FY18

533

FY19

812

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

Exhibit 51: Ad-spends, sales incentives and promotion trend

Ad-spend, sales incentives and promotion (INR m)

4.2

2.7

2.1

3.0

3.1

2.3

2.8

% of sales

619

FY14

873

FY15

1,132

FY16

1,840

FY17

1,459

FY18

1,204

FY19

1,507

FY20

Source: MOFSL, Company

Depreciation



Depreciation rate stood at ~12% over FY18-20, with no appreciable increase in

FY20 despite the company adopting Ind-AS 116 (where lease rent on right to use

assets has to be classified as depreciation).

Increase in depreciation over the last two years was largely due to various

capacity enhancement projects.

Rise in rate of depreciation from FY16 was owing to adoption of Ind-AS

accounting norms.

Exhibit 52: Depreciation rate broadly at ~12% over FY18-20

Depreciation (INR m)

14.9

Deprecaition rate (% of gross block)

13.4

11.9

12.1

12.0

7.1

7.6

378

431

571

606

638

749

880

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Capex trend



Under the ‘Manufacturing Footprint Redesign’ program introduced in FY17,

BLSTR’s target was to enhance production capacity. The company has enabled

various capacity additions over FY17-20.

BLSTR is in the process of setting up an additional facility to expand its

manufactured commercial refrigeration range of products. For this, it would use

some of the latest techniques such as virtual factory simulation and 3D

modelling at its existing manufacturing plant in Wada. The same is expected to

get operational by FY22E.

Capex in FY20 stood at INR860m, lower than INR1b in FY19. Capex has been in

the range of ~INR900m-INR1b over FY17-FY20.

5 August 2020

Blue Star

Exhibit 53: Capex has increased from FY17 onwards due to ongoing capacity additions

Capex (INR m)

1,075

1,028

860

602

399

529

983

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Migration to new tax rate in FY21



Write-back of deferred tax assets in FY20 led to higher effective tax rate at 31%

(v/s ~17% in FY19).

The tax write-back was mainly on account of its subsidiary Blue Star Engineering

& Electronics Limited. The company is expected to migrate to the new tax rate

from FY21E.

Lower operating leverage and higher tax rate led to PAT decline of 21.4% YoY in

FY20.

Against overall revenue growth of 10.6% over FY14-20, the company delivered

Adj. PAT of 11.3% CAGR over the same period.

Exhibit 55: Over FY14-20, BLSTR delivered Adj. PAT at 11.3%

CAGR

Adj.PAT (INR m)

31.1

YoY (%)

Exhibit 54: Effective tax rate higher in FY20 on account of

write-back of DTA

Tax rate (%)

23.1

26.0

16.9

19.2

2.9

777

956

FY15

(21.4)

(9.4)

1,167

FY16

1,231

FY17

1,387

FY18

1,874

FY19

1,473

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY14

Source: MOFSL, Company

Working Capital analysis



BLSTR’s WC cycle improved significantly in FY20 owing to reduction in debtor

days.

Net WC as % of sales also improved over FY16-20 (FY18 was an exception when

inventory days had shot up across the industry owing to bad summer season for

ACs).

From 20.4% of sales in FY14, Net WC has significantly improved to 6.2% in FY20.

5 August 2020

Blue Star

Exhibit 56: Working capital analysis

FY14

Net working capital days

Net working capital (as a % of sales)

Receivable days

Payable days

Inventory days

FY15

FY16

FY17

FY18

FY19

FY20

20.4

104

103

15.0

102

6.4

104

7.6

11.6

121

10.6

107

6.2

108

Source: Company, MOFSL

Contingent liability



In FY20, contingent liability declined 12% YoY, but formed ~49% of Net worth.

Contingent liability as % of Net worth stood at ~40-50% over FY15-20.

Rise in contingent liability over FY15-20 can be mainly attributed to rise in

disputes related to sales tax, service tax and income tax.

Exhibit 57: Contingent liability trend

(INR m)

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Claims against the company not acknowledged as debts

Sales tax matters

Excise duty matters

Service tax matters

Income tax matters

GST matters

Corporate Guarantee given on behalf of JVs

Total

693

106

251

286

1,352

1,205

181

474

389

2,269

907

1,521

512

2,981

443

1,514

617

2,641

1,042

1,631

588

3,353

1,579

119

1,737

906

4,343

1,079

1,590

1,089

3,821

Source: MOFSL, Company

Exhibit 58: Contingency liability remained at ~50% of net worth over FY19-20

Contingent liability (INR m)

as a % of networth

1,352

FY14

2,269

FY15

2,981

FY16

2,641

FY17

3,353

FY18

4,343

FY19

3,821

FY20

Source: MOFSL, Company

Cash flow analysis



Barring FY18, the company has generated FCF over FY14-20. Improvement in

WC position led to higher FCF in FY20 at INR3.7b.

Over FY14-20, FCF/EBITDA and FCF/PAT have been positive, barring an

aberration in FY18. FCF/PAT has been at 100% over FY14-20.

In FY20, FCF/EBITDA stood at 131% with FCF/PAT conversion at 252% – the

highest in the last six years.

5 August 2020

Blue Star

Exhibit 59: Cash flow statement

Y/E March (INR m)

PBT before EO Items

Add : Depreciation

Interest

Less : Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments & Others

CF from Investments

(Inc)/Dec in Debt

(Inc)/Dec in Equity

Less : Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

2014

762

378

571

(188)

(857)

666

723

112

592

(536)

(315)

(259)

519

165

684

2015

427

431

1,005

(257)

543

2,149

(352)

1,797

(135)

(487)

(967)

(497)

(440)

(0)

(1,904)

(241)

684

443

2016

1,563

571

(212)

(319)

964

2,567

(486)

2,081

(166)

(652)

(232)

(429)

(1,293)

(1,905)

443

454

2017

1,586

606

(46)

(586)

1,585

(1,060)

525

1,755

694

(1,698)

(381)

(18)

263

(1,768)

512

454

966

2018

1,956

638

(41)

(451)

(1,913)

189

(924)

(735)

(883)

1,534

129

(285)

(864)

537

(158)

966

808

2019

2,511

749

157

(352)

(432)

2,633

(837)

1,797

138

(698)

(274)

(479)

(1,154)

(1,734)

201

808

1,010

2020

2,060

880

417

(854)

2,072

4,574

(814)

3,760

(68)

(882)

943

(311)

(2,301)

(93)

(1,762)

1,930

1,010

2,940

Source: MOFSL, Company

Exhibit 60: FCF/EBITDA stood at 131% in FY20…

FCF/EBITDA (%)

131

Exhibit 61: …with FCF/PAT at 252% owing to higher FCF

FCF/Adj.PAT (%)

162

175

252

(30)

FY14

FY15

FY16

FY17

FY18

FY19

FY20

(57)

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Dividend payout trend



With strong cash generation over FY14-20, dividend payout stood over 50%

during the same period.

Barring FY19, the dividend paid has steadily increased over 70% of Adj.PAT

during FY17-20, and stood at 79% of Adj.PAT in FY20.

5 August 2020

Blue Star

Exhibit 62: Dividend payout was over 50% since FY14, with payout rising considerably over

FY16-20

Dividend outgo (incl. tax) (INR m)

Dividend payout (%)

421

FY14

541

FY15

746

FY16

865

FY17

1,155

FY18

1,159

FY19

1,161

FY20

Source: MOFSL, Company

Debt analysis



BLSTR had INR4.5b worth of debt at end-FY20. Of this, INR0.5b is non-current

debt and INR4b is current debt.

With strong cash generation in FY20, Net D/E further improved to 0.2x. Even

over FY14-20, Net D/E has declined from 0.9x in FY14 to 0.2x in FY20.

Exhibit 63: Stable debt with improving Net D/E ratio

0.9

0.8

0.5

0.4

0.2

4.9

FY14

4.0

FY15

3.6

FY16

2.2

FY17

3.7

FY18

3.4

FY19

0.3

Debt (INR b)

Net D/E (x)

0.2

4.5

FY20

Source: MOFSL, Company

Exhibit 64: % of secured and unsecured debt as part of total debt

Secured

Unsecured

FY14

FY15

FY16

FY18

FY17

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

Return ratios



BLSTR’s RoE has been healthy. RoE expanded from 16.2% in FY14 to 21.5% in

FY19. Lower profitability in FY20 led to decline in RoE to 18.8%.

Over FY14-19, RoIC also expanded from 12.6% to 22.7%, declining to 15.8% in

FY20.

Exhibit 65: Trend of return ratios

RoE (%)

RoCE (%)

RoIC (%)

26.0

22.0

18.0

14.0

10.0

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

5 August 2020

Blue Star

Financials and valuation

Income Statement

Y/E March

Total Revenues

Change (%)

EBITDA

% of Total Revenues

Other Income

Depreciation

Interest

Exceptional items

PBT

Tax

Rate (%)

Reported PAT

Change (%)

Adj. PAT

Change (%)

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority Interest

Loans

Deferred Tax Liability

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Inventory

Debtors

Cash & Bank Balance

Loans & Other current assets

Current Liab. & Prov.

Creditors

Other liabilities

Net Current Assets

Application of Funds

2018

46,390

5.8

2,659

5.7

170

638

287

1,956

494

25.3

1,440

18.0

1,387

12.7

2019

52,348

12.8

3,465

6.6

247

749

479

2,511

420

16.7

1,900

32.0

1,874

35.1

2020

53,602

2.4

2,828

5.3

447

880

295

-40

2,060

653

31.7

1,433

-24.6

1,473

-21.4

2021E

45,000

-16.0

1,922

4.3

225

1,020

300

827

208

25.2

645

-55.0

645

-56.2

(INR M)

2022E

57,500

27.8

3,438

6.0

288

1,150

200

2,376

598

25.2

1,804

179.7

1,804

179.7

(INR M)

2022E

193

8,611

8,803

4,489

-818

12,507

9,344

5,076

4,269

674

229

30,996

9,452

8,986

3,676

8,883

23,660

16,974

6,686

7,336

12,507

2018

192

7,735

7,927

3,699

-1,136

10,506

5,363

1,443

3,920

254

132

26,921

10,171

9,504

809

6,437

20,721

15,327

5,394

6,200

10,506

2019

193

8,538

8,731

3,445

-1,076

11,119

6,194

2,192

4,002

412

146

27,874

8,693

11,121

1,009

7,051

21,315

15,346

5,969

6,558

11,119

2020

193

7,631

7,824

4,489

-818

11,519

7,344

2,907

4,438

674

169

28,295

8,698

8,377

2,939

8,281

22,056

15,824

6,233

6,239

11,519

2021E

193

7,889

8,082

4,489

-818

11,781

8,344

3,926

4,418

674

199

25,007

7,397

7,032

3,626

6,952

18,517

13,284

5,233

6,490

11,781

5 August 2020

Blue Star

Financials and valuation

Ratios

Y/E March

Basic (INR)

Adj EPS

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

EV/Sales

Price/Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

RoIC

Turnover Ratios

Debtors (Days)

Inventory (Days)

Creditors. (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

Cash Flow Statement

Y/E March

PBT before EO Items

Depreciation

Interest & other income

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

(Inc)/Dec in FA

Free Cash Flow

Investment in liquid assets

CF from Investments

(Inc)/Dec in Debt

(Inc)/Dec in Equity

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

2018

15.0

14.4

21.1

82.6

7.5

62.3

33.6

23.0

18.6

1.1

5.9

1.5

17.5

13.8

15.8

121

4.4

0.4

2019

19.7

19.5

27.2

90.7

10.0

61.6

25.0

17.8

14.2

0.9

5.4

2.1

21.5

18.7

22.7

107

4.7

0.3

2020

14.9

15.3

24.4

81.2

19.9

156.2

31.8

19.9

17.1

0.9

6.0

4.1

18.8

13.6

15.8

108

4.7

0.2

2021E

6.7

17.3

83.9

4.0

60.0

72.6

28.1

24.8

1.1

5.8

0.8

8.0

6.9

8.5

108

3.8

0.1

2022E

18.7

30.7

91.4

11.2

60.0

25.9

15.8

13.8

0.8

5.3

2.3

20.5

14.7

19.9

108

4.6

0.1

(INR M)

2022E

2,376

1,150

(88)

(598)

(796)

2,045

(1,000)

1,045

288

(713)

(200)

(1,082)

(1,282)

3,626

3,676

2018

1,956

638

(41)

(451)

(1,913)

189

(924)

(735)

(883)

1,534

129

(285)

(864)

537

(158)

966

808

2019

2,511

749

157

(352)

(432)

2,633

(837)

1,797

138

(698)

(274)

(479)

(1,154)

(1,734)

201

808

1,010

2020

2,060

880

417

(854)

2,072

4,574

(814)

3,760

(68)

(882)

943

(311)

(2,301)

(93)

(1,762)

1,930

1,010

2,940

2021E

827

1,020

(208)

435

2,148

(1,000)

1,148

225

(775)

(300)

(387)

(687)

686

2,940

3,626

5 August 2020

Blue Star

NOTES

5 August 2020

Blue Star

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

< - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30

days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations,

is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary

company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOFSL

(erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of

India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its

stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member

of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance

products.

Details of associate entities of Motilal Oswal Financial Services Limited are available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf

MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell

the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a

market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of

interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the

analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in

some of the stocks mentioned in the research report

MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware

that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment

banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at

https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and

Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity

and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use

would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities

and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal

Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report

is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to

professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer

or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S.

Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state

laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934

Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by

MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as

defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on

by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in

only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and

interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a

chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be

executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered

broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading

securities held by a research analyst account.

For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services

license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First

Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising

from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of

"accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be

such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.

Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

********************************************************************************************************************************

The associates of MOFSL may have:

financial interest in the subject company

actual/beneficial ownership of 1% or more securities in the subject company

received compensation/other benefits from the subject company in the past 12 months

5 August 2020

Blue Star

other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific

recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there

might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)

discussed herein or act as an advisor or lender/borrower to such company(ies)

received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider

demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not

considered in above disclosures.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research

analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Terms & Conditions:

This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be

altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is

based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from

publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made

as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not

constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers

simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or

in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be

used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal,

accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this

report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This

may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at

an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to

determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures,

options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied,

is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is

provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The

Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and

the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform

or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a

separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is

already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the

views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or

published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any

locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or

licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose

possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be

liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not

to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses,

costs, damages,

expenses that may be suffered by the person accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website

www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai-

400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:

ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration

No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:

INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,

NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered

through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk

Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,

read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law

Tribunal, Mumbai Bench.

5 August 2020