| Blue Star Limited | ||
| Rated amount enhanced for Commercial Paper | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Blue Star Limited (BSL).
The rating reflects BSL’s strong business risk profile 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.
The operating income grew by around 32% on Y-o-Y basis driven by growth of ~25% in EMP segment and ~39% in UP segment due to strong demand and early onset of summers in first half of fiscal 2023. The operating margins have improved to 6.2% in fiscal 2023 from ~5% in fiscal 2022, due to reduction in logistics cost, cost management program and economies of scale.
Company has undertaken expansion capex of around Rs 350 crores under the phase 1 at Sri City, Andhra Pradesh for manufacturing of room air conditioner (RAC) and their components. The components such as heat exchanger and sheet metals (input for RACs) are eligible for PLI Scheme. The plant is funded through debt of around Rs 200 crores and balance from internal accruals. The plant commenced operations in January 2023 and shall provide additional capacity to cater the increasing demand in the summer season of the current year. Further, due to proximity with market in Southern India, the company is estimated to save transportation & logistics cost which is in turn estimated to increase in operating margin. |
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, BSL AC&R (Singapore) Pte Ltd, Blue, Blue Star North America Inc, Blue Star Europe B.V., Blue Star Innovation Japan LLC, Blue Star Qatar WLL, Blue Star Oman Electro-Mechanical Co. LLC (JV) and Blue Star M&E Engineering Sdn Bhd (JV) 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: Diversified revenue profile: Presence in industrial (EMP) segment and consumer (UP) segments mitigates the risk of slowdown in any one segment or industry. BSL relies almost equally on both these segments in terms of revenue and profitability. The UP segment contributed to around 45% of revenue in FY23, with EBIT margin of around 8%; contribution of EMP segment was higher at 50% with EBIT margins of ~7%.
Healthy market position across business segments: 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 13.5% in fiscal 2023 from 10% in fiscal 2016. The company currently has aim to grow its market share to 15% in next 2 years. The widespread distribution network of over 4,000+ channel partners and 8,000 outlets across the country supports the strong market position.
Healthy financial risk profile: Financial risk profile is marked by comfortable networth of Rs 1,254 crore and low gearing of 0.5 times in fiscal 2023, supported by with steady growth in cash accrual. BSL have net borrowing (gross debt less cash and equivalent) of Rs 200 crores as on March 31, 2023. Debt protection metrics is expected to remain healthy in the medium term.
The company also has modest capex plan for capacity expansion apart from the regular maintenance capex, which will majorly funded by internal accruals and partially by debt. The debt protections metrics are expected to remain strong in the medium term.
Weakness: Susceptibility to downturns in end-user industries: 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.
Working capital intensive operations: Operations are working capital intensive given the EPC nature of operations in the EMP segment. As a result, gross current assets of around 186 days for March 31, 2023. 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 377 crore as on March 31, 2023. The company has fund-based facilities of Rs 690 crore which are utilized at around 8-10%. The company has modest capex plan for capacity expansion apart from the regular maintenance capex, which will majorly funded by internal accruals and partially by debt. Internal accruals and unutilized bank lines to be sufficient to meet BSL’s repayment obligations and capex as well as incremental working capital requirements.
Environment, social and governance (ESG) Profile CRISIL Ratings Believes that BSL’s ESG profile supports its already strong credit risk profile. The sector has a moderate environmental and social impact, primarily driven by its raw material sourcing strategies, waste-intensive processes, and direct impact on the health and well-being of its customers.
Key ESG highlights:
ESG is gaining importance among investors and lenders. BSL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Rating Sensitivity Factors Downward Factors
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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, Himachal Pradesh and Andhra 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 50.3%, 46.5% and 4.2% to the consolidated sales of the company in FY23, respectively. It has presence in 19 international markets in the Middle East, Africa and South Asia. Company has started new subsidiaries in North America and Europe to further expansion in international business. |
Key Financial Indicators
Note: These are CRISIL Ratings-adjusted figures | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
*Management control is with BSL, hence considered as subsidiary |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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