Rating Rationale
June 30, 2020 | Mumbai
Blue Star Limited
Rating Reaffirmed 
 
Rating Action
Rs.500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Blue Star Limited (BSL).
 
The rating reflects BSL's healthy business risk profile driven by its diversified revenue profile from Electro-mechanical projects (EMP) and unitary products (UP) segments. The ratings factor in the BSL's market leadership position in the EMP segment and the gradually increasing market share in the UP segment along with its healthy financial risk profile marked by high networth and strong debt protection metrics. These rating strengths are partially offset by susceptibility of operating performance in EMP segment to cyclical demand in end-user industries and working capital intensive operations.
 
For fiscal 2020, the operating income grew by 3% as operations were impacted by twin impact of lockdown in the last 10 days of March and supply chain disruptions caused by COVID 19.
 
Operating performance in fiscal 2021 is likely to be impacted following measures taken by various state governments as well as central government towards containment of COVID-19. The unitary product segments generates around 35-40% of its revenue in Q1 is expected to be significantly impacted. The EMP segment has a healthy order book of Rs 2813 crore - a major part of  of which is expected to be executed over FY 21, however new order inflow will be a key monitorable for this segment.  

The company's healthy financial risk profile is expected to support operations during the disruption. Liquidity is also healthy with cash and cash equivalents of around Rs 300 crore as of March 31, 2020.

Analytical Approach

For arriving at the ratings, CRISIL has consolidated the business and financial risk profile of Blue Star Ltd and its subsidiaries Blue Star Engineering and Electronics Ltd (BSEEL), Blue Star Qatar (Qatar), and JV Blue Star M&E Engineering (Sdn) Bhd (Malaysia) due to the similar nature of operation of these entities.

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:
* Diversified revenue profile: 
BSL operates both in Industrial segment through EMP segment and consumer segment through UP segment mitigating the risk of slowdown in any one product segment and industry. Furthermore, revenue and profitability are supported by contribution of UP segment (43% as of March 2020), which has operating profitability of over 10% along with less volatile demand.
 
* Healthy market position across business segments:
BSL has an established track record and strong market position the EMP segment, where it is the market leader. In the UP segment it is the largest player in commercial refrigeration business and has increased its market share in the room air-conditioning business to 12.5% from 10% five years back. Company has a widespread distribution network of over 1500 dealer points and 4000 stores across the country.

* Healthy financial risk profile despite moderation of debt protection metrics:
Financial risk profile is backed by comfortable networth, low gearing, and strong debt protection metrics. Networth was over Rs 700 crore as on March 31, 2020, with steady growth in cash accrual. Interest coverage ratio was over 11 times in fiscal 2020, however netcash accruals to total debt declined to around 0 times driven by higher dividend outflow.
 
Weaknesses
* Susceptibility to downturns in end-user industries: The demand for EMP segment is dependent on capex in end user industries which are co related to economic environment because of large capital requirement of end-user industries, as witnessed in performance over the past few years.
 
* Working capital intensive operations: 
The operations are working capital intensive due to the EPC nature of operations in the EMP segment. The same can be witnessed in high GCA days of ~180 days as on March 31, 2020. However, majority of the working capital is financed through creditors and advance from customers.
Liquidity Strong

The company has healthy liquidity in the form of cash and cash equivalents of Rs 294 crore as on March 31, 2020. The repayments are expected to be in the range of Rs. 20-30 crores per annum and NCA of over Rs 140 crores. The company has fund based facilities of Rs 325 crore which are utilized at the rate of 20%. CRISIL expects internal accruals, and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Rating Sensitivity factors
Downward factors
* Sustained decline in operating performance leading to reduction in RoCE to below 15% on a sustainable basis.
* Significant debt funded capex leading to decline financial risk profile
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 50%, 45% and 5% to the consolidated net sales of the company in FY 2017, respectively. It has presence in 19 international markets in the Middle East, Africa and South Asia.

Key Financial Indicators
As on/for the period ended March 31 2020* 2019
Revenue Rs crore 5360 5235
Profit after tax Rs crore 143 190
PAT margin % 2.7 3.6
Adjusted debt/adjusted networth Times 0.21 0.28
Interest Coverage Times 8.13 6.19
*Provisional financials based on results uploaded on BSE

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity
Date
Issue size
(Rs Cr)
Complexity
Level
Rating Assigned
with Outlook
NA Commercial paper NA NA 7-365 days 500.00 Simple CRISIL A1+
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Blue Star Engineering and Electronics Ltd, Blue Star Qatar (Qatar), and JV Blue Star M&E Engineering (Sdn) Bhd (Malaysia) Full consolidation Due to the similar nature of operation of these entities
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  500.00  CRISIL A1+      28-06-19  CRISIL A1+  27-06-18  CRISIL A1+    --  -- 
                18-01-18  CRISIL A1+       
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Consumer Durable Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com


Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com


Ankit Jain
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3259
Ankit.Jain1@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL