Blue Star - Annual Report Summary
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About the company:
Blue Star Limited (BSL) was established in 1943 by the late Mohan T Advani. It is India’s leading central AC and commercial refrigeration company, and its manufacturing facilities are spread across various locations in India, including Ahmedabad, Dadra, Wada and Himachal Pradesh, along with an upcoming facility in Sri City, Andhra Pradesh.
The company’s operations can be classified into three segments, namely:
Electromechanical Projects and Packaged Air Conditioning Systems
Professional Electronics and Industrial Systems
Each of the segments contributed 53%, 43% and 4% respectively to the consolidated net sales of the company in FY22, respectively.
It has a presence in 18 international markets in the Middle East, Africa, SAARC and ASEAN regions through its product distribution business and joint venture companies.
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The air conditioning industry was impacted during the peak season for the second year in a row, and as a result, the overall market size grew modestly to 18,200 crores in FY22 when compared with the pre-COVID period of FY20.
Of this, the market for central air conditioning, including central plants, packaged and ducted systems, and VRF systems, was around Rs 2,700 crores and the market for other ancillary equipment was estimated at around Rs 2,500 crores, while the market for room air conditioners comprised the balance Rs 13,000 crores.
During the year, growth in central air conditioning was mainly driven by the government, and the Industrial, Healthcare and Pharmaceutical segments, as well as a revival in demand from the Builder, Retail and Education segments in the latter part of the year.
In this business, increased traction was experienced across all product categories owing to the revival of demand from traditional customer segments such as Ice Cream, Processed Foods, Dairy and Restaurants, coupled with increased demand from the Pharma, Healthcare, QSR, and Food Delivery segments.
Electro-Mechanical Projects and Commercial Air Conditioning Systems:
This business segment covers the design, manufacturing, installation, commissioning and maintenance of central air conditioning plants, packaged/ducted systems and Variable Refrigerant Flow (VRF) systems, as well as contracting services in mechanical works, electrification, plumbing and fire-fighting, and water distribution.
It also comprises after-sales services such as revamp, retrofit and upgrades, which cover a wide repertoire of operation and maintenance services for the efficient functioning of electro-mechanical utilities. In 2021-22, the Company maintained its No. 1 position in Ducted Air Conditioning and No. 2 in VRFs, while it moved up to No. 2 in the Chiller product category as well. During the period under review, the market share of VRF systems was 19% and screw chillers increased to around 22%. The Company continued to dominate the ducted system and scroll chiller categories with 43% and 45% market share respectively.
Blue Star offers a wide variety of contemporary and highly energy-efficient room air conditioners for both residential as well as commercial applications. It also manufactures and markets a comprehensive range of commercial refrigeration products and cold chain equipment. Besides, the Company has water purifiers, air purifiers and air coolers in its product portfolio. Amidst the challenging circumstances for the period under review, the Company’s Room Air Conditioners business performed better than the market, thereby improving the Company’s market share to 13.25% in value terms, and managed to post a healthy growth on the margins front as well.
Professional Electronics and Industrial Systems:
For over six decades, Blue Star has been the exclusive distributor in India for many internationally renowned manufacturers of professional electronic equipment and services, as well as industrial products and systems. This business is managed by the company’s wholly-owned subsidiary, Blue Star Engineering & Electronics Limited. Recently, this subsidiary also set up a Medical Diagnostic Equipment Refurbishment Facility at Bhiwandi in Maharashtra to Scroll chiller assembly line at the Company’s Wada manufacturing facility to refurbish a wide array of pre-owned medical diagnostic imaging systems, including CT (Computed Tomography) scanners, and Permanent Magnet MRI and Supercon MRI (Magnetic Resonance Imaging) machines.
Segment-wise Revenue Break up:
India is fast becoming a major manufacturing hub for air conditioning and refrigeration products because of the introduction of the Production Linked Incentive (PLI) scheme and in the pursuit to secure the supply chain, European and American players are looking at reliable and capable manufacturers outside China. Hence, huge opportunities lie in India.
The introduction of the new affordable range of products addressing a larger section of the market is expected to drive the growth of the Company’s room air conditioners and tap the opportunity arising from improved penetration.
Opportunity for the Company’s Commercial Refrigeration business continues to be encouraging given its wide array of offerings across sectors such as Ice Cream, Pharma, Horticulture and Food Delivery.
Additional investments in the healthcare sector offered good opportunities for the growth of the Medical Diagnostic Equipment Distribution business.
Besides the revival of demand from the traditional customer sectors, the Company’s recent foray into Water MEP projects is also expected to offer a significant opportunity.
Expansion of manufacturing capacity in the country across sectors driven by the Make in India initiatives continues to be encouraging which in turn continues to offer growth opportunities.
Revival of the capex and construction cycles offers encouraging prospects for the Electro-Mechanical Projects and Commercial Air Conditioning Systems segments.
Blue Star exports AC&R products and solutions to 19 countries across the Middle East, Africa, SAARC and ASEAN regions, where its products stand the test of time in some of the most difficult and extreme climatic conditions in the world. This gives the company the opportunity to have a global footprint in the market.
Seasonality Risk: All the businesses in the Company’s Unitary Products segment are seasonal in nature. Unforeseen weather patterns such as extended winter, pleasant summer, less than normal monsoon or excess monsoon may impact the Company’s planning and forecasting process leading to either a stock-out or excess inventory situation.
Sourcing Risk: Key components for manufacturing the Company’s products such as compressors, copper tubes, electronic parts, indoor units for split air conditioners and inverter drives are sourced from vendors in China and some other countries. Any disruption in supply caused due to geo-political reasons and imposition of non-tariff‑ barriers can negatively affect the company.
Competition Risk: Several Indian and global players in the air conditioning business have set up/are in the process of setting up or expanding their own manufacturing facilities in India to tap the under-penetrated market. Such players could resort to predatory pricing practices to capture market share leaving the company vulnerable to significant loss of business to the competitors.
Business Model Risk for The Professional Electronics & Industrial Systems: Each line of business within the Professional Electronics & Industrial Systems segment is dependent on the supply of products by a select few principals. There would be a significant impact on the segment’s revenue, should a key principal terminate the arrangement.
Currency Risk: The Company’s operations are subject to risk arising from fluctuations in exchange rates with reference to countries in which it operates or sources its raw materials from.
Regulatory and Compliance Risk: Emphasis on the usage of eco-friendly refrigerants and collection and eco-friendly disposal of e-wastes are some of the specific requirements that the Company is required to adhere to. Some of the other regulatory compliances comprise compliance with the Competition Commission of India for norms pertaining to the dedicated dealership; compliance with BEE rating norms; compliance with QCO norms; compliance with statutory requirements pertaining to Labour Laws, Environmental Laws, Factory Laws, Competition Laws, PF Laws, Insider Trading and listing requirement; amongst others.
Health and Safety Risk: The Company’s human resources (including those of its extended arms such as sub-contractors, channel partners and associates) are exposed to health and safety risks in the normal course of business.
Blue Star’s new ‘Customer Experience Centre’:
With an intent to create an experience around Blue Star’s brand legacy, innovations, and products and services for its customers, the Company recently inaugurated the Company’s first-of-its-kind ‘Customer Experience Centre,’ built on an area of 1000 sq ft, at Blue Star Innovation Centre in Thane. An invite-only Centre, it displays Blue Star’s Cooling and Purification products from across categories such as room air conditioners, commercial refrigeration and commercial air conditioning, besides showcasing Blue Star’s rich pedigree of 78 years articulated through an exquisitely designed History Wall.
New Wada and Sri City Plants:
The company is in the process of setting up two new state-of-the-art Plants, one at Wada in Maharashtra, and another at Sri City in Andhra Pradesh. The Company’s new manufacturing facility at Wada, purpose-built to cater to the production of the Company’s Commercial Refrigeration products and solutions, in particular deep freezers and water coolers, is fully equipped with advanced manufacturing systems and imbibes global best practices in its operations. With this new Plant, Blue Star has doubled its production capacity of deep freezers!
The new 20-acre manufacturing facility at Sri City will have the capability to manufacture 12 lakh units of air conditioners per annum. The Company plans to invest `550 crores over the next few years in a phased manner, on this facility. The Sri City Plant is not only closer to the markets in the Southern Region, but also to the Krishnapatnam and Ennore ports. This will help Blue Star to significantly save on logistics costs.
New Products Launched During the Year:
Commercial Air Conditioning:
A new range of mini VRF systems with up to 6HP capacity was launched to cater to premium residential locations. The new range includes a wide range of indoor units such as a high wall, cassette, ceiling concealed and ducted units, to suit the interior design.
A new range of air-cooled and water-cooled scroll chillers was launched to meet the Star Labelling program of the Bureau of Energy Efficiency. Blue Star is the first company in India to offer its extensive range of scroll chillers with AHRI certification.
ROOM ACs: Range of split ACs at highly affordable prices:
The range is embedded with various customer-friendly features and specifications such as ‘Turbo Cool’ for fast cooling; ‘Fix & Lock’ for convertible 5-in-1 cooling; ‘Nano Blue Protect Technology’ and Hydrophilic ‘Blue Fin’ coating, for both IDUs and ODUs, to prevent coil corrosion and leakage, and for longer life, respectively; ‘Eco-Mode’ for energy-saving; ‘Comfort Sleep’ function that auto-adjusts the AC temperature during night time for better comfort of occupants as well as for power saving; 4-way swing for uniformity; and ‘Self-Diagnosis’ for easy troubleshooting.
The Company has made available a range of top-of-the-line heavy-duty ACs that are extremely powerful and can deliver 100% cooling beyond 43°C for up to 55°C. With an ISEER of 3.99, the highest in the category, these ACs are apt for Northern India, and some parts of Western and Southern India, where summers are extreme and require very powerful cooling.
Super energy-efficient ACs:
The Company offers super energy-efficient 5-star inverter split ACs with an ISEER of 5.41, which are 55% more energy-efficient compared to 3-star inverter split ACs. These are apt for applications where AC usage is very high, especially with the emerging trend of working from home.
A new range of deep freezers offering optimum storage space and cooling was launched. These freezers are embedded with superior technologies for highly efficient performance including even and optimum cooling from all four sides, and greater heat transfer for efficient cooling, amongst others. They also come with 10% higher insulation leading to a longer holding time in case of a power failure.
Most models in the 3-star inverter range of Blue Star are future-ready which means that they already meet the new energy-efficiency norms of the Bureau of Energy Efficiency that will come into effect in July 2022. This ensures that these are 10% more energy-efficient as compared to the current 3-star norms, maximising power savings for consumers.
Blue Star offers a range of Smart ACs with Wi-Fi connection and Voice Command Technology, which can be integrated with other smart devices such as Amazon Alexa and Google Home. All Blue Star inverter ACs are Smart Ready and can be upgraded to becoming Smart ACs by the addition of a separate smart module.
Innovative IT solutions implemented to increase sales over the past few years:
As an enabler for sales, the Company implemented a leading cloud-based sales management solution for its primary businesses which fully enables them to focus on customers and track every sales opportunity.
The Company also implemented its Connected Business Network program that digitally connects it with its primary business partners, distributors and modern retailers.
Blue Star leveraged its dealer management system, ‘Star Connect,’ to capture secondary sales information from its primary distributors and use the data to generate sales insights.
Its mobile app-based Product Catalogue, which earlier covered its air conditioning, air purification and water purification products, was extended to include refrigeration products as well.
A Customer 360 Profiler tool enables its B2B sales teams to view customer engagements across business units in real-time which in turn enables them to gain valuable customer insights and identify cross-divisional sales opportunities.
Leveraging its ‘Intelligent Factory’ solution deployed across its factories earlier, the Company implemented a number of dashboards that enable these factories to monitor and improve their Direct Employee Expense (DEE) on an ongoing basis and optimise energy consumption.
For self-enabling customers on various service-related aspects, the Company deployed a number of digital solutions. Customers can now log and track their service requests through WhatsApp. Customers can extend their product warranty or purchase annual maintenance contracts online via the Company website.
The Company released a contemporary eLearning platform, ‘iLearn,’ to ensure its employees and other stakeholders are provided with the means to enhance their skills and capabilities anytime and anywhere.
This is for EDUCATIONAL purposes only.
At Intelsense we regularly study interesting businesses. We keep profiling them. The idea is to keep learning and expanding our knowledge base.
It does NOT construe a BUY or SELL recommendation on the stock.
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