5 August 2020
Annual Report Update | Sector: Capital Goods
TP: INR460 (-5%)
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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Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials Snapshot (INR b)
EPS Gr. (%)
Div Yield (%)
FCF Yield (%)
46.6 / 0.6
887 / 425
Focus on working capital reduction leads to healthy FCF:
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%
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
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.
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
Pratik Singh – Research Analyst
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.