MOSL: BLUE STAR (Neutral)-Prioritizing profitable growth with market share gains

Blue Star: Prioritizing profitable growth with market share gains; Products, backward integration, service and distribution as the key growth pillars

(BLSTR IN, Mkt Cap USD0.9b, CMP INR634, TP INR610, 4% Downside, Neutral)

We met senior management team of Blue Star (BLSTR) to understand the initiatives and plans that are taking hold at the company as it attempts to identify the important growth pillars. Key takeaways:

• Successful outcome starts with identifying the right path…: BLSTR has set a target to achieve 20%/25% revenue/profit growth and 30% RoCE over the next five years. As part of the roadmap on its future, the company intends to: (a) become the no. 3 player in room ACs, with a market share of at least 15%, (b) focus on larger-value but selective MEP projects, with a more evenly balanced portfolio across the buildings, infra and industrial segments, (c) become the no. 2 player in VRF and chillers, with a market share of at least 20%, (d) retain no. 1 position in ducted systems and commercial refrigeration, (e) emphasize on service, which will continue being a winning differentiator and a growth enabler, (f) have a fully backward integrated, world-class manufacturing prowess, and (g) become the largest exporter of products in the industry to the MENA, Gulf and SAARC regions.
• …and taking thoughtful steps through the journey: To achieve its stated five-year targets, BLSTR will attempt to: (a) retain leadership in the core domestic business of HVAC, MEP and AC&R service through new product introduction every year (two new launches annually), (b) aggressively grow in the adjacencies (air cooler, air purifier, professional kitchen refrigeration, engineering facility management and factory E&M projects), (c) drive higher value addition through backward integration, import substitution by in-house manufacturing and supply chain efficiency, (d) incubate new business lines in the professional electronics segment by adding new agencies and forming JVs, and (e) invest in overseas markets and water purifiers businesses to turn profitable by FY21. The company also elaborated on the segment-wise focus areas in its quest for profitable growth.