| Blue Star Limited | ||
| Rating reaffirmed at 'CRISIL A1+' | ||
| Rating Action | ||
| ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating to the commercial paper programme of Blue Star Limited (BSL).
The rating reflects BSL’s healthy business risk profile of BSL driven by diversity in revenue from electro-mechanical projects (EMP) and unitary products (UP) segments. The ratings factor in the strong market position of BSL in the EMP segment with a healthy order book and gradually increasing market share in the UP segment. Financial risk profile is also marked by high networth and comfortable capital structure. These rating strengths are partially offset by the working capital-intensive operations and susceptibility to cyclicality in demand from end-user industries.
During the first nine months of fiscal 2022 operating income grew by 44% as demand rebounded strongly albeit on a low base. The UP segment derives nearly 60% of its revenue during the first quarter (April to June), which was severely affected by the Covid-19 pandemic. However the early onset of summer should help performance recover in the first quarter of fiscal 2023
The EMP segment also witnessed a growth of 43% during the nine months of fiscal 2022 aided by the focus on other segments such as data centres, warehouses and healthcare apart from traditional segments like commercial real estate. BSL has a healthy order book of Rs 3111 crore as on December 31, 2021 bulk of these orders are executed during fiscal 2023. New order inflow is expected to grow by 15-20% in this fiscal year.
Company is undertaking expansion capex of Rs 390 crores at Sri City, Andhra Pradesh under PLI Scheme for manufacturing of RACs and components such as heat exchanger and sheet metals funded by debt of Rs 290 crores. Commercial production is expected to be started from Dec’2022 and would further strengthen the business risk profile as company will be able to improve its margin by 4-5% via savings in logistics and raw material cost. Company will also benefit of PLI Scheme via cash back on incremental sales. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has consolidated the business and financial risk profile of Blue Star Ltd and its subsidiaries Blue Star Engineering and Electronics Ltd (BSEEL), Blue Star Climatech Ltd, Blue Star International FZCO, Blue Star Systems and Solutions LLC, Blue Star Qatar (Qatar), and JV Blue Star M&E Engineering (Sdn) Bhd (Malaysia) due to the similar nature of their operations
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Presence in industrial (EMP) segment and consumer (UP) segments mitigates the risk of slowdown in any one segment or industry. BSL relies equally on both these segments in terms of revenue and profitability. The UP segment contributed to around 36% of revenue as of December 2021, with EBIT margin of 5-6%; contribution of EMP segment was higher at 52% with EBIT margin in a similar range
BSL has an established track record and strong market position in the EMP segment, as one of the top two players, along with Voltas Ltd. The company is also the largest player in the commercial refrigeration business in UP segment and has increased its market share in the room air-conditioning business to 13% in fiscal 2021 from 10% in fiscal 2016. The widespread distribution network of over 3,700 channel partners and 7,000 outlets across the country supports the strong market position.
Financial risk profile is marked by comfortable networth, and low gearing. Networth was around Rs 890 crore as on September 30, 2021, with steady growth in cash accrual. BSL had a net borrowing (gross debt less cash and equivalent) of around Rs 165 crore as on December 31, 2021. Debt protection metrics will be healthy over fiscals 2022 and 2023, aided by healthy cash accrual.
Weaknesses:
Demand for EMP segment depends on capex in end user industries which is further co related with the macro-economic environment. Consequently during downturns the amount of capex reduces which can lead to lower order inflows impacting operating performance.
Operations are working capital intensive given the EPC nature of operations in the EMP segment. As a result, gross current assets were high at 202 days as on September 30, 2021. However, majority of the working capital is financed through creditors, given the back-to-back arrangements and advances received from customers. |
Liquidity: Strong Liquidity is strong marked by cash and cash equivalents of Rs 303 crore as on December 31, 2021. The company has fund based facilities of Rs 6470 crore which are utilized at around 6%. Company has a capex plan of Rs 390 crore per annum against which debt of ~Rs 290 crores will be taken in fiscal year 2023. Internal accruals and unutilized bank lines to be sufficient to meet BSL’s repayment obligations and capex as well as incremental working capital requirements |
Rating Sensitivity factors Downward Factors:
|
About the Company BSL was established in 1943 by late Mr. Mohan T Advani. The company is India’s leading central air-conditioning and commercial refrigeration company and its manufacturing facilities are spread across various locations in India including Ahmedabad, Dadra, Thane and Himachal Pradesh. The company’s operations can be classified in to three segments, namely Electro Mechanical Projects and Packaged Air Conditioning Systems (EMP), unitary products (UP) and PE&IS each contributing 52%, 44% and 4% to the consolidated net sales of the company in FY 2021, respectively. It has presence in 19 international markets in the Middle East, Africa and South Asia.
For the nine months ended through fiscal 2022, the company reported profit after tax of Rs 92 crore on the operating income of Rs 3798 crore compared to Rs 33 crore and Rs 2652 crore respectively for the corresponding period in the previous fiscal. |
Key Financial Indicators
* Note: These are CRISIL Ratings-adjusted figures | ||||||||||||||||||||||||
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
|