Blue Star Ltd:Annual Report 2023-24 Analysis

Blue Star Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Blue Star Limited was founded in 1943 by Mohan T. Advani as a general engineering company. Initially, it was involved in air conditioning and refrigeration.

Headquarters Location and Global Presence #

Blue Star is headquartered in Mumbai, India. While primarily focused on the Indian market, Blue Star has a growing international presence, particularly in the Middle East, SAARC countries, and Africa.

Company Vision and Mission #

• Vision: To be a leading provider of integrated cooling and comfort solutions globally, recognized for innovation, reliability, and customer service. (This might need verification with Blue Star’s official website for the most accurate and up-to-date information).
• Mission: (This might need verification with Blue Star’s official website for the most accurate and up-to-date information).

Key Milestones in Their Growth Journey #

• 1943: Founded as a general engineering company.
• 1949: Bagged the order to air-condition India’s first atomic reactor at Trombay.
• 1967: Established its own R&D Centre.
• 1984: Listed on the Bombay Stock Exchange.
• 1990s: Focused on expanding its product portfolio and service offerings.
• 2000s-Present: Continued expansion into new markets and product categories, with a focus on energy-efficient solutions.

Stock Exchange Listing Details and Market Capitalization #

Blue Star Limited is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). (You will need to look up the current ticker symbols and market capitalization on the exchanges).

Recent Financial Performance Highlights #

(You will need to research the most recent annual or quarterly reports to fill in this section. Look for key metrics like revenue, profit margins, and growth rates.)

Management Team and Leadership Structure #

(Research the current management team. List key positions like the CEO, CFO, and other executive leaders.)

Notable Awards or Recognitions #

(Research recent awards or recognitions Blue Star has received. This could include industry awards, sustainability awards, or employer awards.)

Their Products #

Complete Product Portfolio with Categories #

Blue Star offers a comprehensive range of products across several categories:

• Air Conditioning:
  • Room Air Conditioners (Window, Split, Inverter)
  • VRF Systems (Variable Refrigerant Flow)
  • Ducted Air Conditioning Systems
  • Cassette Air Conditioners
  • Packaged Air Conditioners
  • Precision Cooling
• Refrigeration:
  • Commercial Refrigeration Equipment (Deep Freezers, Bottle Coolers, Water Coolers, Modular Cold Rooms, Ice Machines)
• Water Purifiers:
  • Domestic Water Purifiers
  • Commercial Water Purifiers
• Air Purifiers:
  • Domestic Air Purifiers
  • Commercial Air Purifiers
• Professional Cooling Solutions:
  • Medical Equipment Cooling Solutions
  • Industrial Cooling Solutions

Flagship or Signature Product Lines #

Room air conditioners, VRF systems, and commercial refrigeration solutions are key product lines.

Key Technological Innovations or Patents #

Blue Star has focused on developing energy-efficient air conditioning systems and refrigeration solutions. They have patents and innovations related to inverter technology, smart controls, and eco-friendly refrigerants. (Specific patent numbers and details would require further research).

Manufacturing Facilities and Production Capacity #

Blue Star has manufacturing facilities across India. (Specific locations and production capacities would require further research).

Quality Certifications and Standards #

Blue Star’s products adhere to various quality certifications and standards, including ISO certifications. (Specific certifications would require further research).

Unique Selling Propositions or Technological Advantages #

Blue Star emphasizes energy efficiency, reliability, and customer service as key differentiators. Their smart controls and inverter technology also provide a competitive edge.

Recent Product Launches or R&D Initiatives #

(Research recent product launches, focusing on new features, technologies, or market segments targeted.)

Primary Customers #

Target Industries and Sectors #

Blue Star serves a wide range of industries and sectors:

• Commercial: Offices, Retail Spaces, Hotels, Restaurants, Hospitals
• Industrial: Manufacturing Plants, Pharmaceuticals, Data Centers
• Residential: Homes, Apartments
• Infrastructure: Airports, Metro Stations, Educational Institutions

Geographic Markets (Domestic vs. International) #

The primary market is India. They have a growing international presence.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

The key segments include commercial, industrial, and residential customers.

Distribution Network and Sales Channels #

Blue Star has a wide distribution network across India, comprising dealers, distributors, and service centers. They also utilize online sales channels.

Major Competitors #

Direct Competitors in India and Globally #

• India: Voltas, Daikin, LG, Carrier, Hitachi
• Globally: Daikin, Carrier, Trane Technologies, LG, Samsung

Competitive Advantages and Disadvantages #

• Advantages: Strong brand reputation in India, comprehensive product portfolio, wide distribution network, focus on energy-efficient solutions.
• Disadvantages: Potentially higher price points compared to some competitors, greater reliance on the Indian market than some global players.

How They Differentiate from Competitors #

Blue Star differentiates through a combination of brand reputation, product reliability, customer service, and a focus on energy-efficient solutions.

Industry Challenges and Opportunities #

• Challenges: Increasing competition, fluctuating raw material prices, changing consumer preferences, stricter energy efficiency regulations.
• Opportunities: Growing demand for air conditioning and refrigeration in India, increasing adoption of energy-efficient technologies, expansion into new markets, and growing demand for air and water purifiers.

Market Positioning Strategy #

Blue Star positions itself as a premium brand offering reliable and energy-efficient cooling and comfort solutions.

Future Outlook #

Expansion Plans or Growth Strategy #

(Research any publicly available information on Blue Star’s expansion plans, such as targeting new geographic markets or product categories.)

Upcoming Products or Innovations #

(Research any announcements about upcoming products, R&D initiatives, or technological advancements.)

Sustainability Initiatives or ESG Commitments #

(Research Blue Star’s sustainability report or website for information on their ESG commitments. This might include reducing carbon emissions, water conservation, or waste management initiatives.)

Industry Trends Affecting Their Business #

The increasing demand for energy-efficient and eco-friendly solutions, the growing urbanization and infrastructure development in India, and the rising awareness of air and water quality are all significant industry trends affecting Blue Star’s business.

Long-Term Vision and Strategic Goals #

(This information might be available in investor presentations or annual reports. Look for statements about long-term growth targets, market share ambitions, or strategic priorities.)

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Total Income grew consistently over the three-year period, from ₹6,099.80 crores in FY22 to ₹8,008.19 crores in FY23, and reaching ₹9,732.78 crores in FY24.
• EBITDA (before exceptional items, excluding other income & finance income) showed improvement, increasing from ₹346.47 crores (FY22) to ₹492.78 crores (FY23) and ₹664.94 crores (FY24).
• Profit After Tax also demonstrated a growing trend, rising from ₹168.00 crores (FY22) to ₹400.69 crores (FY23) and reaching ₹414.31 crores (FY24).
• Operating Margin improved from 5.7% (FY22) to 6.2% (FY23) and further to 6.9% (FY24), showcasing enhanced operational efficiency.
• Return on Shareholders’ Funds marginally decreased from 23% (FY23) down to 21% in (FY24).
• Return on Capital Employed slightly declined from 33.8% (FY23) to 33.3% (FY24).
• Debt Equity Ratio (Net) improved significantly from 0.16 in FY23 to a net cash position in FY24, owing to the Qualified Institutional Placement (QIP) and robust cash flows.
• Capital Turnover Ratio showed volatility, increasing from 5.5 (FY21) to 6.9(FY22), 6.1(FY23) and 5.2(FY24).

Business Segment Performance #

• Electro-Mechanical Projects and Commercial Air Conditioning Systems: Revenue grew by 17.4% year-on-year, reaching ₹4,715.46 crores in FY24. Segment results improved by 23.2%, driven by strong demand from manufacturing, data centers, and infrastructure segments. The carried forward order book increased by 11.6% to ₹4,343.83 crores.
• Unitary Products: This segment experienced strong growth with a 26.6% increase in revenue, reaching ₹4,592.20 crores in FY24. The segment’s results improved significantly, reflecting strong demand, particularly in the southern region, and successful product diversification. Market share improved.
• Professional Electronics and Industrial Systems: Revenue grew by 12.8% to ₹377.70 crores, with a slight improvement in segment results. The non-destructive testing and healthcare businesses performed well, while the data security business continued to face challenges.

Major Strategic Initiatives and Their Progress #

• Manufacturing Capacity Expansion: The new plants at Wada and Sri City, commissioned in FY23, ramped up production significantly in FY24. The Sri City Plant produced over 300,000 ACs and is on track to double production in the current fiscal year.
• R&D Investments: The Company invested ₹143 crores in R&D during FY24, including the establishment of a new innovation center at Bhiwandi. This will be Company’s largest R&D. Six patents were awarded during the year.
• Digital Transformation: Initiatives focused on data analytics, artificial intelligence, and machine learning were implemented, aiming at revenue growth, cycle time reduction, enhanced customer experience, and improved operational efficiency.
• International Business: The Company is focusing on product exports and investing in R&D to expand our product portfolio for these markets.
• Scale: The Company is making substantial investments in sales and distribution, R&D, manufacturing, supply chain, and digitalization.

Risk Landscape Changes #

• Dynamic Macro Environment Risk: The Company faces ongoing risks associated with economic slowdowns, geo-political developments, and changes in tax regimes.
• Seasonality Risk: The unitary products segment remains susceptible to unforeseen weather patterns.
• Sourcing Risk: Dependence on suppliers from China and other countries for key components remains a concern.
• Competition Risk: Increased competition from Indian and global players setting up manufacturing facilities in India can result in increased price pressure.
• Profitability and Currency Risk: Volatility in commodity prices, input costs, and exchange rates continues to pose potential challenges.

ESG Initiatives and Metrics #

Environmental #

• Blue Star has implemented environmentally-conscious practices, including using eco-friendly refrigerants, tree-planting drives, and reducing water and electricity consumption.
• The Company achieved net-zero initiatives across all manufacturing plants.
• Renewable energy sources, including a 3.1 MW rooftop solar plant at the Wada Plant and a 1.4 MW solar plant at the Sri City Plant, were commissioned.
• Three of the Company’s establishments are green-certified buildings and certification of another four are under progress.
• The Company become the first Indian Company to receive an Indian Design Mark for 300-600 litres deep freezers.

Social #

• CSR initiatives focus on skill development, education, and health, hygiene, and wellness for communities near the Company’s facilities.
• Various capacity building workshops and trainings were conducted.
• Blue Star is committed to enhancing gender diversity, with a focus on increasing female representation in management positions.
• Structured safety management system has been implemented.

Governance #

• The Company maintains a balanced and diverse Board, with a focus on independence and ethical conduct.
• A comprehensive Code of Conduct and Whistle Blower mechanism is in place.
• The company received the “Certificate of Appreciation for Excellence in Corporate Governance” by the Institute of Company Secretaries of India.

Management Outlook #

• The Company is optimistic about FY25, anticipating continued growth driven by strong summer season and new product introductions.
• The strategic plan, “Blue Star@83,” outlines key milestones for the next three years, focusing on core capabilities, competitive responses, new capabilities, processes, and technologies.
• The Company is preparing for accelerated action plans as part of India’s comprehensive plan, ‘India Cooling Action Plan’ (I-CAP), related to energy efficiency norms, low global warming potential refrigerants, and Extended Producer Responsibility (EPR) obligations.

Detailed Analysis #

Financial Analysis of Blue Star Limited #

Balance Sheet Analysis - Three-Year Comparative (Standalone) #

(₹ in Crores)

Significant Year-over-Year Changes (>10%) #

• Non-current Assets: Increased by 54.72% YoY, primarily due to increase in Property, Plant, and Equipment, and investments in subsidiaries.
• Current Assets: Increased by 18.89%
• Total Assets: Increased by 27.31% YoY, driven by increases in both current and non-current assets.
• Equity Share Capital: Increased by 113.50% due to Bonus shares and QIP.
• Other Equity: Increased significantly by 96.19% due to the securities premium from the QIP and retained earnings.
• Total Equity: Increased by 96.49% due to the factors mentioned above.
• Total Liabilities: Increased by 2.49%

Working Capital Trends #

• Current Assets: Increased significantly, major contributors being inventories and trade receivables.
• Trade payables: Increased by 160.51 cr.

Asset Quality Metrics #

• Impairment loss: Increased to 56.08cr compared to 53.47cr in the previous year.

Debt Structure and Maturity Profile #

• Borrowings: Current borrowings decreased significantly, primarily due to repayment of long-term debt and commercial papers.
• Maturity Profile of the Long Term Borrowings: No debt reported for the financial year ending March 31, 2024.

Off-Balance Sheet Items #

• Contingent Liabilities:
  • Claims against the Company not acknowledged as debts: ₹1.40 crores (increased from ₹1.35 crores).
  • Sales Tax matters: ₹21.35 crores (decreased from ₹52.32 crores).
  • Excise Duty matters: ₹4.90 crores (same as previous year).
  • Service Tax matters: ₹30.39 crores (decreased from ₹121.63 crores).
  • Income Tax matters: ₹133.01 crores (increased from ₹120.03 crores).
  • GST matters: ₹12.46 Crores
• Commitments: Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is ₹78.37 crores.
• Guarantees: ₹62.55cr (increased from ₹52.28cr)
• Derivative Instruments: The Company uses foreign exchange forward contracts and commodity forward contracts for hedging purposes. The details of outstanding contracts and their fair values are provided, but they are not designated as hedges.

Operating Performance Analysis: Blue Star Limited FY24 #

Revenue Breakdown by Segment/Geography #

• Electro-Mechanical Projects and Commercial Air Conditioning Systems: FY24 revenue: ₹4,715.46 crores; Growth: 17.4% year-over-year.
• Unitary Products: FY24 revenue: ₹4,592.20 crores; Growth: 26.6% year-over-year.
• Professional Electronics and Industrial Systems: FY24 revenue: ₹377.70 crores; Growth: 12.8% year-over-year.
• Geographical Revenue (Consolidated):
  • India FY24: ₹9,094.90 crore
  • Outside India: ₹590.46 crore

Cost Structure Analysis #

• Cost of Sales, Work Bills, and Services (as % of Revenue from Operations): FY24: 76.3%; FY23: 77.5%. A decrease of 1.2% in the percentage of revenue.
• Employee costs: FY24, ₹749.48 crores, representing 7.7% of total income.
• Operating and General expenses: FY24, ₹878.97 crores, representing 9.0% of total income.

Margin Analysis #

• The decrease in the cost of sales as a percentage of revenue indicates a likely improvement in gross margin.
• Operating Margin (before exceptional items, excluding other income & Finance income): FY24: 6.9%; FY23: 6.2%. An increase of 0.7 percentage points.
• Net Profit Margin (before exceptional items): FY24: 5.7%; FY23: 4.8%. An increase of 0.9 percentage points.

Non-Recurring Items #

• FY23: Exceptional Income of ₹170.81 crores from the profit on the sale of freehold land.

EPS Analysis #

• Basic EPS for FY24: 20.77
• Diluted EPS for FY24: 20.77
• Basic EPS for FY23 (adjusted for bonus issue): 20.80
• Diluted EPS for FY23 (adjusted for bonus issue): 20.80
• The EPS saw an effect on account of bonus issue and QIP.

Cash Management Analysis of Blue Star Limited (FY24) #

Cash Flow Analysis (Consolidated) #

Operating Cash Flow (OCF) #

FY24 OCF: ₹289.22 crores (FY23: ₹243.23 crores). Increase due to higher profit before tax.

Investing Cash Flow (ICF) #

FY24 ICF: ₹(524.62) crores (FY23: ₹(181.66) crores). Primarily due to increased capital expenditure and higher investments in mutual funds.

Financing Cash Flow (FCF) #

FY24 FCF: ₹364.83 crores (FY23: ₹(75.94) crores). Majorly due to QIP proceeds and other borrowings.

Working Capital Management Efficiency #

Debtors Turnover Ratio #

Decreased to 5.5 times in FY24 (FY23: 5.8 times), indicating a marginal decrease in collection efficiency.

Inventory Turnover Ratio #

Improved to 5.2 times in FY24 (FY23: 4.8 times), showing better inventory management.

Trade Payables Turnover #

Decreased to 109 days in FY24 (FY23: 117 days).

Capex Analysis by Segment #

Electro-Mechanical Projects and Commercial Air Conditioning Systems #

FY24 capex: ₹215.23 crores (FY23: ₹48.04 crores).

Unitary Products #

FY24 capex: ₹168.31 crores (FY23: ₹213.18 crores).

Professional Electronics and Industrial Systems #

FY24 capex: ₹4.25 crores (FY23: ₹5.16 crores).

Unallocated #

FY24 capex: ₹45.44 crores (FY23: ₹68.10 crores).

Dividend and Share Buyback #

Dividend #

Final dividend of ₹7 per share declared for FY24. Total dividend payout (including dividend tax) for FY24: ₹143.93 crores (FY23: ₹115.58 crores).

Share Buyback #

No share buyback program indicated during the reported periods.

Debt Service Coverage Ratio #

Decreased to 1.46 times in FY24 (FY23: 10.8 times).

Liquidity Position #

Current Ratio #

Increased to 1.3 in FY24 (FY23: 1.1).

Cash and Cash Equivalents #

Cash and cash equivalents at the end of FY24: ₹373.64 crore.

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

Consolidated Return on Equity (ROE) #

• FY24: 21%
• FY23: 23%
• FY22: 17.9% *Trend: Decreasing

Consolidated Return on Invested Capital (ROIC) #

• FY24: 33.3% (ROCE)
• FY23: 33.8% (ROCE)
• FY22: 33.7% (ROCE)

Consolidated Operating Margin #

• FY24: 6.9%
• FY23: 6.2%
• FY22: 5.7% *Trend: Consistently increasing

Consolidated Net Profit Margin #

• FY24: 5.7% (before exceptional items)
• FY23: 4.8% (before exceptional items) *Trend: Increasing

Liquidity Metrics #

Consolidated Current Ratio #

• FY24: 1.3
• FY23: 1.1

Efficiency Ratios #

Consolidated Inventory Turnover (Days) #

• FY24: 5.2
• FY23: 4.8

Consolidated Receivables Turnover (Days) #

• FY24: 5.5
• FY23: 5.8

Leverage Metrics #

Consolidated Debt/Equity Ratio (Net) #

• FY24: Net cash position
• FY23: 0.16

Consolidated Interest Coverage Ratio #

• FY24: 15.1
• FY23: 10.8

Working Capital #

Consolidated Capital Employed #

• As of March 31, 2024: ₹ 2,156.70 crores
• As of March 31, 2023: ₹ 1,542.25 crores
• Emphasis on efficient cash management.

Business Segments: Blue Star Limited Performance Analysis #

Segment Performance Overview #

This analysis provides a segment-wise breakdown of Blue Star Limited’s financial performance.

Revenue and Profitability Metrics with Growth Rates #

• Electro-Mechanical Projects and Commercial Air Conditioning Systems:
  • Revenue: ₹4,715.46 crores (FY24), a 17.4% growth from ₹4,015.63 crores (FY23).
  • Segment Result: ₹341.09 crores (FY24), a 23.2% growth from ₹276.78 crores (FY23).
• Unitary Products:
  • Revenue: ₹4,592.20 crores (FY24), a 26.6% growth from ₹3,626.93 crores (FY23).
  • Segment Result: ₹360.31 crores (FY24), up from ₹282.31 crores (FY23).
• Professional Electronics and Industrial Systems:
  • Revenue: ₹377.70 crores (FY24), a 12.8% growth from ₹334.76 crores (FY23).
  • Segment Result: ₹51.50 crores (FY24), compared to ₹50.50 crores (FY23).

Market Share and Competitive Position #

• Commercial Air Conditioning Systems: Maintained leadership in conventional and inverter ducted air conditioning systems, and scroll chillers. Holds a strong second position in VRF and screw chiller segments.
• Room ACs: Market share improved to 13.75% (FY24) from 13.50% (FY23).
• Commercial Refrigeration: Market leadership maintained in deep freezers, storage water coolers, and modular cold rooms.
• VRF Systems: 21% market Share
• Screw chillers: 24% Market Share
• Ducted Systems: 46% Market Share
• Scroll Chillers: 45% Market Share

Key Products/Services Performance #

• Electro-Mechanical Projects: Strong demand from manufacturing, data centers, and infrastructure segments. Secured major orders from factories, data centers, and infrastructure projects.
• Commercial Air Conditioners: Growth driven by product portfolio and channel expansion. Increased demand from industrial, healthcare, hospitality, retail, and educational institutions. Successful launch of VRF Lite for premium residential segment and centrifugal chillers for large buildings.
• Room ACs: Surpassed 1 million unit sales milestone. New flagship split AC models (‘Heavy-Duty ACs’ and ‘Super Energy-Efficient ACs’) contributed to revenue growth.
• Commercial Refrigeration: Excellent traction with strong demand from ice cream OEMs, QSR chains, HoReCa segment, food retail, and healthcare. Launch of new energy-efficient and eco-friendly deep freezers.
• Professional Electronics and Industrial Systems: Non-destructive testing solutions market grew. Healthcare business benefited from expansion. Data security business faced challenges.

Geographic Distribution and Market Penetration #

• India: Operations across over 900 towns.
• International Operations: Presence in over 20 countries, including the Middle East, Africa, SAARC, and ASEAN regions. Subsidiaries in the USA, Europe, and Japan. Focus on product exports and expanding the product portfolio for these markets.

Operational Efficiency Metrics #

• Total Cost Management (TCM) program implemented to maximize efficiency across the value chain.
• ‘Manufacturing Excellence Programme’ focusing on lean manufacturing, technological advancements, quality improvement, and culture building.
• Adoption of Industry 4.0 practices. The company launched QCO compliant air-cooled and water cooled ducted split and packaged air conditioners.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Strategic repositioning as a mass premium brand.
  • Expansion of manufacturing scale (new plants in Sri City and Wada).
  • Significant investments in R&D, including a new innovation center.
  • Focus on energy-efficient, sustainable, and eco-friendly products.
  • Digital transformation initiatives across various processes and functions.
  • 3-year strategic plan (Blue Star@83) focused on core capabilities, new capabilities, and new processes.
  • Greater focus on market share improvements.
• Challenges:
  • Dynamic macro environment impacting the Electro-Mechanical Projects business.
  • Seasonality risk in the Unitary Products segment.
  • Sourcing risks related to key components from China and other countries.
  • Intense competition from Indian and global players.
  • Volatility in commodity prices, input costs, and ocean freight.
  • Currency risk.
  • Global disturbances impacting international business, especially in the Middle East and Africa.
  • Challenges in the data security business due to customer shift to cloud-based solutions.
  • Subdued Performance in International business.

Risk Assessment #

Electro-Mechanical Projects and Commercial Air Conditioning Systems #

Strategic Risks #

• Severity: High. Cyclical business dependent on capex investments, vulnerable to macroeconomic downturns.
• Likelihood: Medium. Economic slowdowns are possible.
• Trend: Stable, focus on untapped, growing segments (data centers).
• Mitigation Strategies: Diversification, building in-house capabilities.
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Revenue growth was 17.4% year over year, but segment results will fluctuate.

Operational Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Prudent project management, focus on healthy cash flow, digitalization and automation, superior project delivery.
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Order book grew 11.6% year-over-year.

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Policies and guidelines for commodity price volatility, due diligence for credit risk.
• Control Effectiveness: Appears effective, with cost improvements
• Potential Financial Impact: Material impact on finances (assumed).

Compliance/Regulatory Risks #

• Severity: Medium. Changes in technology and regulations (e.g., eco-friendly refrigerants).
• Likelihood: Medium. Regulatory changes are ongoing.
• Trend: Increasing, due to focus on things such as energy efficiency.
• Mitigation Strategies: Compliance management system, automated legal metrology label printing.
• Control Effectiveness: Appears effective, with no reported penalties.
• Potential Financial Impact: Penalties for non-compliance; compliance costs factored into operational expenses.

Emerging Risks #

• Severity: Medium, due to increasing adoption.
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Investment in relevant technologies.
• Control Effectiveness: To be determined.
• Potential Financial Impact: Costs associated with adopting new technologies.

Unitary Products #

Strategic Risks #

• Severity: High. Seasonality and weather patterns directly impact sales.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Dynamic review of procurement, continuous process improvement, product portfolio expansion.
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Revenue grew 26.6% year-over-year, but significant seasonality risk remains.

Operational Risks #

• Severity: Medium. Disruptions to supply chain and manufacturing operations, dependence on key suppliers
• Likelihood: Medium.
• Trend: Stable
• Mitigation Strategies: Diversification of procurement sources, backward integration opportunities.
• Control Effectiveness: Depends on the execution of the plans.
• Potential Financial Impact: Disruption to operation can impact ability to sell products.

Financial Risks #

• Severity: Medium. Profitability may be impacted by volatile commodity prices, rising input costs, and customer credit defaults.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Commercial and contract management practices, review of operating costs.
• Control Effectiveness: Partially effective; evidenced by improved segment results.
• Potential Financial Impact: Segment results improved to ’ 360.31 crores from ’ 282.31 crores.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Medium. Regulatory changes are ongoing.
• Trend: Stable
• Mitigation Strategies: Adherence to a compliance management system.
• Control Effectiveness: Appears effective, with no reported penalties or strictures.
• Potential Financial Impact: Non-compliance could lead to penalties, costs of compliance are factored into operational expenses.

Emerging Risks #

• Severity: Medium.
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Investment in relevant technologies.
• Control Effectiveness: To be determined.
• Potential Financial Impact: Costs associated with adopting new technologies.

Professional Electronics and Industrial Systems #

Strategic Risks #

• Severity: Medium. Exposed to challenges from shifts in customer IT infrastructure (e.g., move to cloud-based solutions).
• Likelihood: High.
• Trend: Stable.
• Mitigation Strategies: Realignment of internal structure, increased efforts in business development, marketing, sales automation, service management.
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Segment revenue grew but with less of a profit margin.

Strategic and Management Analysis of Blue Star Limited #

Long-Term Strategic Goals and Progress #

• Blue Star’s strategic plan, “Blue Star@83,” outlines key milestones through FY27, focusing on strengthening core capabilities, responding to competition, acquiring new capabilities, building new processes, and adopting new technologies.
• Significant investments are planned in sales and distribution, R&D, manufacturing, supply chain, and digitalization, to support growth.
• Geographic expansion is a priority, with product development targeting North American and European markets.
• The Company aims to improve its gender diversity.

Competitive Advantages and Market Positioning #

• Blue Star maintains a leadership position in conventional and inverter ducted air conditioning systems, and scroll chillers.
• It holds a strong second position in the VRF and screw chiller segments.
• The Company is leveraging its cooling expertise, a wide channel partner network, and strong brand equity to gain market share.
• Blue Star holds the distinction of being one of India’s largest aftersales service provider in the HVAC&R space
• Company has proximity to the customers by leveraging network of channel partners.

Innovation Initiatives and R&D Effectiveness #

• Blue Star invested ’ 143 crores in R&D during FY24, including capital expenditure of ’ 94 crores.
• Four state-of-the-art R&D centers are operational (Thane, Wada, Dadra, and Bhiwandi), with a new innovation center established at Bhiwandi.
• The Company secured 6 patents during the year out of 46 patent applications, and 46 design registrations.
• R&D focuses on customer-centric designs, environmentally friendly sustainable products, variable speed technology, low GWP refrigerants, and heat pump technologies.
• There is an emphasis on customer insights that can enhance existing products.

Management’s Track Record in Execution #

• The Company achieved record revenue and profit in FY24, indicating successful execution of strategies.
• Operating margin improved by 70 bps (6.9% in FY24 vs 6.2% in FY23).
• The carried forward order book reached a record ’ 5,697.34 crores as of March 31, 2024.
• Sri City plant rapidly ramped up to cater to the growth requirements and manufactured over 300,000 AC’s in FY24.

Capital Allocation Strategy #

• Blue Star is investing significantly in manufacturing capabilities, with seven state-of-the-art facilities.
• The Company successfully completed a QIP issuance of ’ 1,000 crores, demonstrating access to capital markets.
• The “Manufacturing Excellence Programme” emphasizes lean manufacturing, technology upgrades, quality improvement, and culture building to enhance operational efficiency.
• Total Cost Management (TCM) techniques are used to reduce costs without compromising quality.

Organizational Changes and Their Impact #

• The Company is implementing the findings of the ‘Great Place to Work’ survey.
• Investments in leadership development and functional training, including a pipeline of young leaders, are ongoing.
• Initiatives to improve gender diversity and technical skill development are in progress.
• Blue Star International was reorganized into 3 verticals Unitary, Applied, and Blue Star Systems, and Solutions.

ESG Initiatives and Performance #

Environmental Metrics and Targets #

• Wada Plant commissioned a 2.1 MW rooftop solar plant, adding to the existing 1 MW, generating 27.75 lakh energy units annually and reducing CO2 emissions by 1,389 tonnes.
• Sri City Plant installed a 1.4 MW solar plant in June 2023.
• Dadra Plant’s solar rooftop systems generated 80,696 kWh of clean energy, reducing CO2 emissions by 16.70 tonnes annually.
• Himachal Pradesh Plants saved approximately 358,215 kWh annually and reduced CO2 emissions by about 236 tonnes through energy-efficient lighting and fan replacements.
• Renewable energy accounts for 9.8% of total energy consumption.
• Saki Naka office offset 64,824 kwh using 100% green power.
• Preparing for accelerated implementation of the India Cooling Action Plan, including high energy efficiency norms, adoption of low global warming potential refrigerants, and stringent Extended Producer Responsibility (EPR) obligations.
• Total Scope 1 emissions: 2,046.80 metric tonnes of CO2 equivalent.
• Total Scope 2 emissions: 14,467.98 metric tonnes of CO2.

Social Responsibility Programs #

• Spent ₹ 4.70 crores on CSR, with ₹ 1.29 crores contributed to the Blue Star Foundation.
• Major CSR projects focused on skill development, education, and health, hygiene, and wellness.
• Supported vocational training initiatives in Air Conditioning and Refrigeration Service (AC&R) and Mechanical, Electrical, and Plumbing (MEP).
• The ‘Mohan T Advani Centennial Scholarship’ supported 227 students across engineering, diploma, and architecture colleges.
• Provided digital education to over 1,050 marginalized students in Himachal Pradesh.
• Sponsored 25 tribal girls to complete their schooling and supported STEM education.
• Partnered to establish a business support unit for Farmer Producer Organizations (FPOs).
• Conducted handicraft skill training to enable 100 women for sustainable livelihood in Sri city.
• Provided free medical consultations, medicines, and basic lab tests to about 1,50,000 families across 20 villages.
• Supported ‘Blue Star Engineering and Electronics Diagnostic Support Programme’ for underprivileged women to detect cancer and provided free diagnostic support.

Governance Structure and Effectiveness #

• Board of Directors has a balanced mix of Executive, Non-Executive, and Independent Directors.
• Eight Board Committees are in place: Audit, Nomination and Remuneration, Investor Grievance cum Stakeholders’ Relationship, Risk Management, Corporate Social Responsibility and Environmental, Social & Governance, Share Transfer, Executive Management, and Debenture.
• Has a Code of Conduct and Whistle Blower mechanism applicable to directors, employees, and business partners.
• Complied with Secretarial Standards on Meetings of the Board of Directors (SS-1) and on General Meetings (SS-2).
• Has GRC policy that enables the integration of processes and components for meeting objectives of governance, risk and compliance.

Sustainability Investments and ROI #

• Invested ₹ 143 crores in R&D during FY24, including ₹ 94 crores in capital expenditure for design and test facilities.
• New innovation center established at Bhiwandi for design and development of heat pumps and VRF.
• Invested in new plants at Wada and Sri City to augment manufacturing scale.
• Sri City Plant received an IGBC Gold certificate.
• Making investments in data analytics, artificial intelligence, and machine learning.

Regulatory Compliance and Future Preparations #

• Compliant with the applicable environmental laws/regulations/guidelines in India.
• Has a compliance management system and follows a structured approach to meet changes in BEE ratings and ECBC 2017 norms.
• Preparing for stringent Extended Producer Responsibility (EPR) obligations under E-waste rules.
• Blue Star Engineering & Electronics Limited has partnered with the Gebhardt Intralogistics Group for enhancing its warehouse automation solutions capabilities in India by integrating state-of-the-art technologies.
• Wada Plant is certified with IGBC Platinum Rating.

Forward Outlook #

Electro-Mechanical Projects and Commercial Air Conditioning Systems #

Management Guidance and Assumptions #

Management assumes continued strong demand from manufacturing, data centers, and infrastructure segments. They anticipate challenges in commercial buildings and real estate sectors but aim for prudent project management and healthy cash flows.

Market Growth Forecasts #

The overall AC industry (residential and commercial) is expected to double in the next four years.

Planned Strategic Initiatives #

Focus on gaining market share in MEP solutions for factories and data centers. Digitalization and automation are planned for productivity improvement and superior project delivery. Product portfolio expansion, including VRF Lite for premium residential and centrifugal chillers for large buildings.

Capital Expenditure Plans #

Significant investments in manufacturing capabilities. The carried forward order book stands at ’ 4,343.83 crores as on March 31, 2024.

Efficiency Improvement Targets #

Focus on project management and maintaining healthy cash flows. The segment result increased by 23.2% to 341.09 cr.

Potential Challenges and Opportunities #

Challenges arise from the dynamic macro environment and competition. Opportunities include expanding into untapped segments and leveraging government initiatives like ‘Make in India’.

Scenario Analysis & Sensitivity #

• Scenario: Economic slowdown impacting order flow.
• Sensitivity: High. Revenue and profitability are directly tied to the cyclical nature of capital expenditure investments.

Unitary Products #

Management Guidance and Assumptions #

The Company exceeded the milestone of 1 million room air conditioners units with 13.75% estimated market share in FY24 and is targeting 15% market share by FY26. Management guidance is to leverage consumer insights of the domestic market, cooling expertise, strong brand equity, and a network of channel partners.

Market Growth Forecasts #

Room ACs market grew to 23,000 crores. The overall AC market will double in size over the next four years.

Planned Strategic Initiatives #

Focus on growing faster than the market and improving margins. Increased penetration in Tier 3, 4, and 5 markets. Roll out of new, differentiated, and affordable split ACs. Total Cost Management (TCM) programme implementation to achieve cost leadership.

Capital Expenditure Plans #

Not explicitly quantified, but ongoing investments in manufacturing scale are mentioned.

Efficiency Improvement Targets #

Continuous cost rationalization through the TCM framework. The segment result increased by ’ 4,592.20 by 26.6%.

Potential Challenges and Opportunities #

Challenges include unforeseen weather patterns impacting seasonality and competition from Indian and global players. Opportunities are present in expanding the retail footprint and changing consumer habits, especially in e-commerce.

Scenario Analysis & Sensitivity #

• Scenario: Predatory pricing by competitors to gain market share.
• Sensitivity: High. Impacts margins and profitability.

Professional Electronics and Industrial Systems #

Management Guidance and Assumptions #

Management’s guidance is to enhance the focus on key customer segments to accelerate growth.

Market Growth Forecasts #

Growth in the non-destructive testing solutions market due to ‘Make-in-India’ capacity expansion. The healthcare business is expected to benefit from expansion in semi-rural healthcare infrastructure.

Planned Strategic Initiatives #

Continued emphasis on business development, marketing, brand building, sales automation, service management, and project execution.

Capital Expenditure Plans #

Not explicitly quantified, but operations are being scaled up.

Potential Challenges and Opportunities #

Challenges persist in the data security business due to customer migration to cloud-based solutions. Opportunities exist in tapping the growth of the non-destructive testing and healthcare markets.

Scenario Analysis & Sensitivity #

• Scenario: Further acceleration of customer migration from on-premises IT infrastructure to cloud-based solutions.
• Sensitivity: High for the data security business within this segment.

Audit and Compliance Analysis of Blue Star Limited #

Auditor’s Opinion and Qualifications #

• The auditor, Deloitte Haskins & Sells LLP, issued an unmodified opinion on the consolidated and standalone financial statements, meaning the statements present a true and fair view in conformity with Ind AS.
• No qualifications or adverse remarks were included in the auditor’s report.
• In Standalone audit report, it’s mentioned Company has used accounting softwares which has audit trail, but was not enabled at data level to log any direct data changes.

Key Accounting Policies and Changes #

• The financial statements adhere to Ind AS.
• The Company changed the method of calculating depreciation for property, plant, and equipment in mid FY23 from written Down Value (WDV) to Straight Line Method (SLM), lowring the depreciation expenses for that FY, and stating it impracticable to estimate the impact of this change for future periods.

Internal Control Effectiveness #

• The auditor’s report expresses an unmodified opinion on the adequacy and operating effectiveness of internal financial controls over financial reporting.
• The Company uses COSO 2013 framework.

Regulatory Compliance Status #

• The Company complied with the Listing Regulations and the Act’s Corporate Governance provisions.
• The Company has complied with Sections 185 and 186 of the Act regarding loans, guarantees, investments, and security.
• Secretarial Audit Reports from M/s N L Bhatia & Associates confirm compliance with applicable statutory provisions and do not contain any qualification, reservation, or adverse remark.
• The Company has maintained cost records as per section 148 of Companies Act, 2013.
• The Company has complied with the SEBI regulations regarding the issuance of bonus shares and a Qualified Institutional Placement (QIP).
• No penalties or strictures were imposed on the Company by stock exchanges, SEBI, or any statutory authority on capital market regulations in the last three years.

Legal Proceedings and Their Potential Impact #

• The financial statements disclose the impact of pending litigations (Note 38).
• Material pending litigations exist concerning disputed tax liabilities (Sales Tax, Excise Duty, Service Tax, Income Tax, and GST matters). Amounts are quantified in Note 38.
• The claims filed by W.J Towell & Co. LLC are stated as frivolous, unsubstantiated, premised on factual misstatements.
• No proceedings are pending under the Insolvency and Bankruptcy Code, 2016.

Related Party Transactions #

• All related party transactions were on an arm’s length basis and in the ordinary course of business.
• Audit Committee approval was obtained for all related party transactions.
• No Material transactions with any related party.
• Details of transactions with related parties are provided in the standalone financial statements (Note 39).
• Transactions included sales and services, reimbursement of expenses, contributions to trusts, fees for professional services, and loans/deposits to/from subsidiaries.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The adoption of Ind AS, along with the unmodified audit opinion and emphasis on using estimates and judgments prudently, suggests a high quality of financial reporting. The change in depreciation method impacts comparability. The consistent application of accounting policies provides transparency. The detailed note disclosures, including segment reporting and related party transactions, also enhance accounting quality.
• Regulatory Risk Assessment: There is adherence to significant regulations, including those related to corporate governance, Listing. Disclosure of pending litigations indicates a proactive approach to managing legal risks. However, the existence of disputes with tax authorities may pose regulatory risk. Overall, the regulatory risk appears moderate, given the proactive compliance and disclosure, but hinges on the resolution of pending legal and tax disputes.