Strong topline and bottom-line growth but increase in commodity prices, cost of raw materials, and ocean freight continued to exert pressure on gross margins | Blue Star Q3 FY22 Conference Call Highlights

Published on 04 February 2022
.Views 0 .Comments 0

Methodology Video

Share On

The company’s consolidated revenues grew by 34% y-o-y (+21.5% q-o-q) to Rs. 1506 crore Revenues from electro-mechanical projects and commercial air conditioning grew by 41.7% y-o-y (+14.7% q-o-q) at Rs. 830 crore. Unitary products revenues grew by 23.7% y-o-y (+34.1% q-o-q) at Rs. 610 crore. Professional electronics and industrial systems revenues grew by 46.8% y-o-y (+8.2% q-o-q) at Rs. 67 crore.
The consolidated operating margins were at 6.0% (-124bps y-o-y, +31bps q-o-q). Increase in commodity prices, ocean freight and roll back of FY2021 cuts in discretionary spends impacted operating profit margin (OPM) y-o-y. Overall, operating profit grew by 11.1% y-o-y to Rs. 90.6 crore. Strong revenue growth along with higher other income (up 65% y-o-y, receipt of subsidy for one of its manufacturing plant) led to 29.4% y-o-y rise in consolidated net profit at Rs. 47.5 crore. Its net borrowing increased to Rs. 165 crore compared to Rs. 131 crore in Q3FY2021 on account of inventory built up to meet the demand for upcoming seasons and investments in expansion projects at Sri city and Wada.
The consolidated revenue from operations and revenue from each of the segments for the quarter surpassed revenue achieved in the pre-pandemic period. However, increase in commodity prices, cost of raw materials and ocean freight continued to exert pressure on gross margins.
Blue star would be targeting to increase its market share to 15% in FY2023 from 13.2% now. The deep freezer plant at Wada is expected to be commissioned over three months which will double its deep freezers production capacity. The Sri city first phase is expected to complete in Q3FY23. The plant will have phased roll out of products with Room ACs to begin with.
During Q3, the Refrigeration and Air conditioning (RAC) industry primary market in value terms has grown by 25% while blue star has grown by 28% (partly led by value led growth). In 9MFY22, RAC industry grew by 33-34% while blue star has grown by 36%. The RAC industry had been growing at 15-18%CAGR before the pandemic and is expected to return to that normal growth trajectory from FY23.
The company took three price hikes in 2021 aggregating 15%. It expects other large players to increase prices.
The Deep freezer plant at Wada would be live in three months which would aid in substituting few SKUs which it is importing. It has spend Rs. 100 crore over two years. The Sri city commercial operations is expected to start in Q3FY23 which would house company’s third RAC manufacturing unit along with PLI led manufacturing. The company would be augmenting capacities at Sri city to reach its two Himachal plants to increase in-house manufacturing to 70-75% levels from 50-55% now.
Distribution: The company is touching 7500 plus stores which had been increased by 15-20% y-o-y. It targets to reach 8000 stores by FY23 end. Channel inventory by December end, the top few players has seen inventory level getting normalised. It is unlikely to exert pricing pressure.
The share of e-commerce for the industry was 10% and for Blue star was 8% for Q3. During 9MFY2022, industry e-com share was 18% vis-a-vis Blue star’s 14-15%.
Project business: The company has been focusing on select customers having high credibility. It expects 12-15% growth possible for FY23.
The net debt stands at Rs. 165.11 crore (D/E of 0.18x) compared to Rs. 131.01 crore (0.16x) in Q3FY2021.
The company would be shifting to new tax regime in FY23. The benefit of its upcoming manufacturing plant would accrue in FY24 lowering the overall tax rate.
The EMP segment order inflows increased by 34% y-o-y to Rs. 852.82 crore. The order book increased 4.2% y-o-y to Rs. 2311 crore.
Q4 outlook: Management expects good demand in Q4. If competitive pressure eases and commodity prices remain stable the EBIT margins in Electro- mechanical Projects (EMP) & Commercial ACs is expected to be 5.5-6%, Unitary products 7% and Professional electronics 18-20%.