>BLUE STAR LIMITED: Moving from HVAC (Heating, Ventilation and air-conditioning) to MEP (Mechanical, electrical and plumbing) orders:

We recommend “BLUESTAR” a BUY. Blue star is one of India’s largest central air-conditioning company with an annual turnover of INR2,900 crores. It has a market share of 7.5% in room air-conditioning market and is aiming to reach 15% in coming years. The company commands 30% share in packaged air-conditioning market and 25% in cold storage segment.


INVESTMENT HIGHLIGHTS



■ Moving from HVAC (Heating, Ventilation and air-conditioning) to MEP (Mechanical, electrical and plumbing) orders: The company is focusing on MEP orders rather than HVAC, which increases the order book size by almost two and a half times. Almost, 75% of the order book comprises of large infrastructure projects (all sectors) and clients prefer to choose MEP orders as a matter of its simplicity. In simple terms, in case of large projects customers prefer MEP orders and HVAC orders for small projects.


■ Consistent growth in Cooling Product Segment: The cooling product segment has been growing at a CAGR of 17% for last 5 years. The Company’s confidence in their strategy of channel expansion, continuous focus on high growth markets and products and their leadership position in refrigeration product business would help the company keep growing in coming years.


■ Company’s aggressive focus on room AC segment: The company which entered the room AC segment last year through retail route has already captured 7% of market share and is eying 9% by FY12. The company primarily focused on commercial and residential sector having equal business mix. But now, the residential sector would now account for 60% of the mix. It has plans to reach INR1,000 crores by 2014 in room air conditioner segment in terms of revenue.


■ Company’s inviolable initiative to take measures to improve profitability: The company has taken various measures like a)setting up of separate hedging desk for copper and other commodities to reduce the risk of loss b) including price escalation clauses while booking new projects, as 70% of the orders are of fixed price in nature c) managing the capital employed in business through expediting debtor collection, commercially closing jobs and contemporizing delivery of materials, allocation of resources strictly base on requirements and payment trends.


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