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ANALYST MEET
February 25, 2008
ANALYST MEETFebruary 25, 2008
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
About Blue Star
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
About Blue Star
• Blue Star is an end-to-end solutions provider in the field of airconditioning and commercial refrigeration as a
• Manufacturer
• Contractor
• After-sales service provider• Another business interest is distribution
and maintenance of professional electronics and industrial systems
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
About Blue Star
• Specialist organisation, deliberately tuned to satisfy the needs of corporate, commercial and institutional customers
• Differentiated products and expert solutions
• As market leaders, it often sets the standards for products, practices and services
• Has successfully adapted itself to leverage on opportunities in emerging segments
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Blue Star today
Total Income (9 months ended Dec 31, 2007)
Rs 1526 crore
Net Profit (9 months ended Dec 31, 2007)
Rs 104 crore
Market Capitalisation Rs 4275 crore
Employees 2400
Manufacturing Plants 4 (plus 1 under construction)
Number of products manufactured
Over 250 models in 25 product lines
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Blue Star today
Customers 25,000
Installed Base 4 million TR
Exclusive Sales & Service Dealers
700
Subcontractors and Associates 800
Indirect Manpower Deployed 22,000
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Q3 Financial Performance
9-months ended Dec
31, 2007
9-months ended Dec
31, 2006
Growth Year ended March 31,
2007
Total Income (Rs crore)
1526 1060 44% 1607
Operating Profit (Rs crore)
162 72 125% 117
Operating Margin 10.6% 6.8% 56% 7.0%
Net Profit (Rs crore)
104 37 181% 71
Net Profit Margin 6.8% 3.5% 94% 4.4%
Earnings per share (Face Value = Rs 2) (Rs)
11.53 4.13 179% 7.91
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Business ModelBusiness Business Model
Central Airconditioning Manufacturer; Contractor;After-sales service provider
Packaged Airconditioning Manufacturing and Marketing through channel partners; After-sales service provider
Telecom Shelter Airconditioning
Manufacturing and Marketing; After-sales service provider
Room Airconditioners Manufacturing and Marketing through channel partners; After-sales service provider
Cold Chain products and systems
Manufacturing and Marketing through channel partners; After-sales service provider
AC&R Service Standard Services; Value added service products, Revamp and upgrades
Professional Electronics & Industrial Systems
Value added reseller; System integrator; Agency operations
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Target SegmentsBusiness Target Segments
Central Airconditioning Infrastructure; IT/ITES; Office Complexes; Retail; Healthcare; Hospitality
Packaged Airconditioning Retail; Medium Corporate and Commercial establishments
Telecom Shelter Airconditioning
Telecom service providers; Passive infrastructure providers
Room Airconditioners Small/Medium Corporate and Commercial establishments; High-end Residential
Cold Chain products and systems
Agriculture; Ice Cream; Hospitality; Supermarkets; Processed Foods; Pharma
AC&R Service Installed base of Blue Star customers
Professional Electronics & Industrial Systems
Manufacturing; Defense; Industrial; Healthcare; Banking
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Growth DriversBusiness Growth Drivers
Central Airconditioning Construction boom and huge investments in infrastructure development
Packaged Airconditioning Construction boom; expansion of medium corporate and commercial establishments
Telecom Shelter Airconditioning
Expansion of telecom network
Room Airconditioners Expansion of small/medium corporate and commercial establishments
Cold Chain products and systems
Retail boom; Govt focus on developing cold chain infrastructure; sharp growth in agri exports and processed food industry; emergence of cold chain logistics players
AC&R Service Installed base growth in all the Divisions of the Company; emphasis on energy efficiency and indoor air quality; replacement market;
Professional Electronics & Industrial Systems
Industrial and economic boom
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Competitive Advantages
• Technical Competence • Credentials of over six decades• Vast pool of talented engineers• Turnkey solutions• Energy Efficient and differentiated
products• Wide network and reach• Strong Relationships with
national/repeat customers• Domain expertise
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Margin Improvement• Substantial operating margin improvement over the last
few years - from 4.2% in Q1FY05 to 10.6% in Q3FY08
• Increase in margins can be attributed to – Scale– Product Mix– Value Engineering– Procurement Efficiency– Customs Duty Reduction– Higher Price Realisation due to differentiated products, value-added
offerings and brand equity– Selectively pursuing high margin projects– Himachal Plant Tax benefits– Low interest costs due to lean balance sheet, sound working capital
management and low borrowings– Tight control on operating expenses (Headcount up by only 30%, while
Total Income has nearly tripled in the last four years)
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Human Resource Management
• Take pride in employing the largest pool of talented engineers in the country
• Two-thirds of employees are white collared• Over 1500 engineers/professionals• Attrition under control at less than 15%• Grooming, mentoring, training and
development to make the employee practice the ‘Blue Star Way’
• Customised management development programmes for senior managers
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Business Outlook
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Unprecedented growth in construction driving AC&R and Building Electrification industry
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Airconditioning Opportunities (non-residential) over the next 5 years (cumulative)
Segment Size/Total Investment
value
TR of Airconditioning
(TR in millions)
Value of Airconditioning
(Rs crore)
IT/ITES 300 million sq ft 1.20 4800
Telecom 370,000 cell sites
0.50 2200
Pharma Inv Rs 300 bn 0.40 2500
Bio-Tech Inv Rs 125 bn 0.15 600
Healthcare Inv Rs 1800 bn 0.40 2000
Electronic hardware
Inv Rs 465 bn 0.40 2000
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Airconditioning Opportunities (non-residential) over the next 5 years (cumulative)
Segment Size/Total Investment value
TR of Airconditioning (TR
in millions)
Value of Airconditioning
(Rs crore)
Hospitality 140 luxury hotels + Restaurants
0.20 1000
Airports Inv Rs 243 bn 1.20 3000
Metro Inv Rs 667 bn 0.40 2000
Retail Inv Rs 800 bn 2.50 10000
SEZs Inv Rs 3500 bn 1.50 7500
TOTAL 37600
(* Source : Internal Market Research through Feedback Marketing)
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Airconditioning Opportunities (non-residential) over the next 5 years• Rs 37,600 crore of airconditioning potential
over next 5 years as against Rs 12,000 crore of airconditioning in the last 5 years
• Blue Star can participate with– Own manufactured products such as chillers,
AHUs, FCUs, packaged ACs, VRF etc– Contracting– After-sales service
• Equal amount of potential is available for building electrification and MEP offerings
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Building Services
Contract Value
Airconditioning 50%
Electricals 40%
Plumbing 10%
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
90%
10%
HVAC Orders bundled as MEP
70%
30%
FY08 FY12HVAC orders bundled as MEP
Stand-alone HVAC orders
HVAC orders bundled as MEP
Stand-alone HVAC orders Market Size
Rs 5,000 crore
Market Size Rs 12,500 crore
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Blue Star Growth Agenda
• Aggressively grow core businesses of central airconditioning and commercial refrigeration
• Retain market leadership Enter building electrification
business Grow integrated MEP contracting
business Pursue inorganic growth
opportunities
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Reasons for acquistion
• MEP turnkey projects expected to grow from current 10% to 30% over the next five years
• Offer integrated solutions to our strong customer segments
• Ramp up time in organic growth would have been too long – may have resulted in significant opportunity loss
• Prudent to grow inorganically and leverage on the opportunities in the construction boom
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Naseer Electricals Overview
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
About Naseer Electricals
• Founded by A S Dawood in 1978
• Headquartered in Bangalore with branches in Chennai and Hyderabad
• Business model revolves around providing building electrical contracting services – right from design to execution
• Pre-dominantly a South India player
• Focused on commercial buildings
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
About Naseer Electricals
• Turnover Rs 107 crore (FY07)
• Order book Rs 90 crore
• Margins equivalent to central airconditioning
• 120 professionally qualified and highly skilled employees
• 1000+ contract labourers
• Executed several prestigious projects• Strong long term relationships with its
customers and influencer segments
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Details of Acquisition
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Consideration
• Slump Sale - Acquisition of the businesses of Naseer Electricals as a going concern
• Consideration upto Rs 42 crore includes
– Upfront Payment
– Debt
– Escrowed amount on fulfilment of certain conditions
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Scaling up operations
• Naseer Electricals is primarily functional in the Southern Region
• Initial thrust to ramp up the business in other regions
• Blue Star will also begin cross-selling Electrical Contracting services to its existing HVAC customers and vice versa
• Will also pursue bidding for MEP jobs
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Rolastar Divestment
• Blue Star embarked on a programme to modernise site practices a decade ago
• Pioneered factory made ducting by setting up Rolastar with a 49% stake
• Being a non-core activity, Blue Star has divested 29% stake for Rs 36.75 crore
• Balance 20% to be sold before Sep 2009 for a price to be determined then
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Blue Star Design & Engineering
• Provides outsourced design and drafting services to HVAC & Architectural consultants and contractors in the UK, Europe and Middle East
• Currently employs over 100 engineers in its Mumbai facility
• Blue Star Limited has 50% equity ownership• In the process of inducting a Strategic Partner
into the business to scale the business• With the Strategic Investor in place, we are
confident that our investment in BSDE will yield handsome returns in the coming 2-3 years
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Scheme of Arrangement
• The exercise is to reflect the operating profits of the Company i.e. earnings in the normal course of the business
• Any one time items / non operational items / items that are not in the normal course of the business not to effect the operational results of the Company
• The Company has recently acquired the business of Naseer Electrical Private Limited (“NEPL”)
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Scheme of Arrangement
• The Company has filed the Scheme in the Bombay High Court which envisages the following items as exceptional and non-recurring that should not impact the operational results of the Company: • Any Goodwill that may arise on account of
the acquisition of the electrical contracting business.
• Any payments to the advisors to this new business to stabilize the operation and ensure smooth integration of the same to Blue Star culture;
• Any other exceptional items not pertaining to the business operations of the Company.
Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008
Thank You