Oct. 31, 2009 (The Hindu Business Line) --
’s sales will pick up once orders from the IT and ITeS space catch up.
Rajalakshmi Sivam
Also, the company has several big corporate clients which place repeated orders. At Rs 1,815 crore, the company’s order book stands at 17 per cent higher than the previous year.
The stock trades (Rs 328) at 16 times its trailing one-year earnings. This is at a discount to Voltas which trades at 22 times on a trailing basis. The latter has, however, withstood the slowdown better than Blue Star (OOTC:BUSRF) and therefore commands a premium.
The business
The company, which began its business as a service agent for air-conditioners and refrigerators, has expanded its revenues substantially over the years.
With five manufacturing facilities and a network of 700 dealers, the company’s revenues have grown at 29 per cent in the last five years. A business model focussed on corporate and commercial market has helped the company establish a strong foothold in the segment with a 35-40 per cent market share now.
The company has three segments — central air-conditioning and electrical contracting; room air-conditioners and refrigeration products; and professional electronics and industrial system. These segments have reported close to 30 per cent growth in sales in the last five years.
The company’s major competitor is Voltas, which, however, showcases a more diversified profile as it manufactures mining and construction equipment as well with a chunk of its revenues coming from overseas business.
However, Blue Star has managed a higher margin both at the operating and net profit levels when compared with Voltas in FY-09. Blue Star’s operating margin was 10.8 per cent (9.3 per cent for Voltas) and PAT margin 7 per cent ( 6.2 per cent for Voltas).
HCL Technologies, DLF, Reliance Industries, IBM (NYSE:IBM) , ICICI Bank (NYSE:IBN) , Wipro, and Infosys are some of Blue Star’s clients which place repeated orders.
The company’s client base is diverse (with customers in telecom, hospital, hotel, education and airline industry); strong order flows from government infrastructure projects such as the airports, metro projects and sports stadium in recent times have helped offset tepid order flows from the private sector to an extent.
Strong order book
Recession in its user industries saw Blue Star reporting a 14 per cent decline in sales for the half year ending September’09. The company could not fully capitalise on the recent revival in consumer spending as it has a relatively small presence in the household room air-conditioner segment.
