Business Model of Blue Star Limited

NSE: BLUESTARCO

• Blue Star operates across 3 business segments: electromechanical projects (EMP) and commercial air conditioning systems, unitary cooling products (UCP), and electronics and industrial systems (EIS), contributing 62.8%, 33.7%, and 3.5% to its FY24 revenue, respectively. The company offers a broad product range, including central AC plants, packaged and ducted systems, VRF systems, and various room air conditioners. {2}

• In the refrigeration sector, Blue Star provides solutions like deep freezers, storage water coolers, modular cold rooms, and cold chain equipment. Its purification portfolio includes advanced water and air purifiers, while other products encompass air coolers and professional electronic equipment. {2}

• It continues to innovate with new offerings such as VRF Lite systems, centrifugal chillers, energy-efficient split ACs, and IoT-enabled cold room solutions. As part of its international expansion, the company is developing specialized products for the US and European markets, including heat pump units designed specifically for the US. {2}

• The Ahmedabad plant implemented BEE marking for deep freezers and achieved Level 4 in the CII total cost management (TCM) maturity assessment.

• The Wada plants, the largest manufacturing facility & produce a wide range of chillers, cold room panels, and deep freezers. In FY24, the plants achieved 100% indigenization of deep freezers range covering capacity models from 60L to 200L, with a ₹34 crore investment. Major infrastructure developments included a 2.1 MW solar power plant. A ₹45 crore plant expansion introduced advanced manufacturing systems. {2}

• The Himachal Pradesh plants successfully commissioned 6 fin lines for heat exchangers, enhancing peak capacity and reducing reliance on OEMs. The plants also introduced over 40 new models, including AI-enabled and -10°C hot and cold models, and have an annual capacity of 7 lakh finished units. {2}

• Dadra plant is known for producing high-quality air conditioning products such as packaged and ducted split ACs and VRF systems. In FY24, the plant completed two BIS surveillance audits and completed ten quality improvement projects.

Exhibit 1: 7 well-placed manufacturing units with vast distribution efficiency across northern, central, and southern India, giving export opportunities and geographic diversification.

Source: Investor Presentation Q3FY25

• The company has a huge network of 2,281 dealers and distributors, with the top 10 dealers accounting for 18.06% of total dealer sales in FY24. {2}

Exhibit 2: Extensive Pan-India Network with 1 corporate office, 4 regional headquarters, 28 sales and service offices, and 2 R&D centers.

Source: Annual report FY24, Pg-113

• In FY23, the company established wholly owned subsidiaries in the USA, Europe, and Japan to expand globally. In FY24, electro-mechanical projects and commercial air conditioners contributed 17.4% of revenue, with a 23.2% rise in segment results. In the MEA region, the unitary segment grew by 19%, and the applied segment by 23%. {2} The company aims for a 15% market share in the Room Air Conditioners segment by FY26. However, exports, contributing 6% of total turnover, faced challenges in certain Middle Eastern and African markets. {3}

• The company is focusing on expanding its product exports and investing in R&D to enhance its portfolio for these markets. Company has received a grant of ₹ 100 crores spread over 5 years by Mr Ashok M Advani, Chairman Emeritus & Promoter of Blue Star Limited, for the innovative center in Thane in FY23 {3}. Its subsidiaries in the USA and Europe are currently developing and launching energy-efficient and eco-friendly heating and cooling products, which are expected to drive growth in the coming years.

• It has also appointed new distributors in Oman, Sri Lanka, East Africa, Uganda, and Qatar for its applied business. Furthermore, it secured significant orders for room air conditioners in the recovering Saudi market. {2}

Revolutionizing After-Sales Service: Speed, Reach, and Excellence

• Catering to diverse end-markets, the air conditioning services support sectors such as government (PSU), industrial, hospitals, automotive, infrastructure, and banking. Refrigeration services extend to industries including dairy, quick-service restaurants (QSRs), retail, pharma, and healthcare. {2}

• The digital infrastructure incorporates a customer care app, enabling seamless service requests with tracking and automated escalation for quick resolutions. Field service technicians benefit from a mobile-enabled system for breakdown and preventive maintenance updates, ensuring digital recordkeeping of all parameters. {2}

• Additionally, a robust knowledge management system, Star Vault , supports centralized storage and management of critical business documents and standard operating procedures (SOPs). {2}

•Blue Star maintains a value market share of over 10% in online channels for its room air conditioners in FY24. Company also provides attractive special offers and promotions on online shopping portals to increase D2C presence.

• The company’s major business is driven by its 10 subsidiary companies and 2 joint ventures, from which it sources products. Additionally, it actively participates in the M1xchange TReDS platform to help its MSME vendors access funding at competitive rates.

Segment I (Electro-Mechanical Projects & Commercial Air Conditioning Systems) {2}

• Blue Star’s Electro-Mechanical projects and commercial air conditioning systems business contributed 62.8% in FY24 of the company’s revenue from operational projects like large central AC & ventilation projects, fire-fighting projects, water projects, plumbing projects, electrical projects and railway electrification.

• Commercial air conditioning offers a product portfolio that includes inverter split ACs, window ACs, portable ACs, and air coolers. Marking a 32.6% increase in the segment in FY24.

• A milestone in FY24 was the company’s entry into the semiconductor segment with an HVAC(Heating, Ventilation, and Air Conditioning) order for India’s largest semiconductor plant in Gujarat which Tata Group is developing in collaboration with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC). Demand for commercial air conditioning systems remained robust, especially in Tier 3 and 4 cities, driven by the popularity of ducted systems and VRF (Variable Refrigerant Flow) chillers.

• Company expanded its commercial cooling portfolio in FY24 with key advancements. It launched sixth-generation VRF systems featuring high-efficiency heat exchangers and compact designs. The company introduced enhanced ducted split and packaged ACs with 5% improved airflow.

• In chillers, it unveiled centrifugal chillers securing 33 orders, and brine chillers  for pharma and process cooling, with plans to extend the range by FY25. Additionally, it developed a 3-star to 5-star chiller lineup in preparation for the July 2024 star labeling mandate.

• In the commercial air conditioning systems segment, the company maintained its leadership in ducted air conditioning with a 46% market share and scroll chillers with a 45% market share in FY24. It also ranked among the top three in VRF systems and chillers, holding a 21% market share in VRF systems and 24% in screw chillers.

• Key orders in FY24 were secured from clients like Tata Electronics (Hosur), Emmvee Energy (Bengaluru), Foxconn Hon Hai Technology (Bengaluru), Indian Oil Corporation (Panipat), and Shiv Nadar School (Noida), among others.

• Within its VRF (Variable Refrigerant Flow) systems, the indoor unit offerings include one-way cassette, high-wall, ductable, four-way cassette, and concealed split units. In contrast, outdoor units feature slide discharge, top discharge, and VRF Lite models.

• The company also provides a range of ducted and packaged systems, such as air-cooled ducted split indoor and outdoor units, water-cooled mini-series indoor and outdoor units, floor-mounted packaged indoor units, inverter packaged outdoor units, centrifugal chillers, brine chillers, water-cooled inverter scroll chillers, and data center chillers.

Exhibit 5: Products under VRF system and Ducted AC and packaged systems.

SEGMENT II (Unitary Products) {2}

The unitary products range also encompasses water purifiers, air purifiers, and air coolers. Contributing 33.7% in company’s revenue in FY24.

• In FY24, the company expanded its AC portfolio with a range of innovative products across various categories. In the inverter split AC segment, three new ranges were launched: flagship, premium, and affordable models, available in 2-star, 3-star, and 5-star variants, with prices starting at ₹29,990. {2}

• These models come with customer-centric features, including the 'AI Pro' function, 'Turbo Cool' for rapid cooling, and the 'Convertible 6-in-1' function for added flexibility. Additionally, the company introduced Super Energy-Efficient ACs with a 6.25 ISEER(Indian Seasonal Energy Efficiency Ratio) rating, Heavy-Duty ACs for extreme cooling, Smart Wi-Fi ACs with voice control, and Hot & Cold ACs for sub-zero temperatures. In the light commercial segment, new offerings such as mega split, Verticool (Tower), and cassette ACs with R32 refrigerant were launched, all meeting BEE(Bureau of Energy Efficiency) and BIS (Bureau of Indian Standards) QCO(Quality Control Order) standards.

• The company’s range of top-of-the-line ‘Heavy-Duty ACs’ designed with superior specifications , and can deliver faster cooling and comfort even at 56°C. These ACs also come with a powerful air throw of up to 55 feet and deliver 100% cooling capacity at even 43°C. The company targets to achieve a market share of 15% by FY26 in the Room Air Conditioners segment.

Exhibit 6:  Company launched new range of  smart, premium, turbo, and efficient  range of AC in FY24.

Exhibit 7: Innovative products for cooler, cleaner, and healthier living.

• In FY24, the company achieved 100% Domestic production of deep freezers under the ‘Make in India’ initiative, expanding production at its Wada Plant to include 60L–600L models, available in 3-star, 4-star, and 5-star variants, all of which earned the India Design Mark {2} . It also introduced advanced technologies like Vapour Injection for cold rooms, semi-hermetic condensing units, IoT-enabled monitoring, and electronic expansion valve systems to optimize refrigerant flow and enhance compressor protection.

• However, the commercial refrigeration segment faced temporary challenges due to regulatory changes by BIS in September FY24 that affected water cooler specifications {3}.

Exhibit 8: From farm to pharma: expanding commercial refrigeration for every sector.

• Notably, the company secured substantial cold room orders from industry giants such as Snowman; DHL; Delhivery; Bharat Biotech; Coke; Intas Pharma; and Zomato in FY24, marking its foray into the large cold storage business space. {2}

• Company became the first Indian company to receive an India Design Mark for its 300-600 litres deep freezers and also obtained BIS certification for the full range.It has maintained its market leadership in deep freezers, storage water coolers and modular cold rooms.

SEGMENT III (Professional and industrial structure) {2}

• This business segment is overseen by Blue Star Engineering & Electronics Limited, the Company’s wholly-owned subsidiary, this subsidiary operates a medical diagnostic equipment refurbishment facility in Bhiwandi, Maharashtra, dedicated to refurbishing a diverse range of pre-owned medical diagnostic imaging systems.

• Company has established two customer experience centres: one in Thane for its non-destructive testing solutions and another in Chennai for material testing and metrology solutions.

• The PEIS business operates in three broad segments: MedTech solutions(MRI machines, CT scan machines); Data security solutions; and Industrial solutions, which encompasses material testing; Non-destructive testing (NDT); Metrology; Warehouse automation; and Electronics assembly and testing solutions contributing 3.5% of the total revenue in FY24.

• In this segment, business relies heavily on imported hi-tech capital equipment. Supply chain constraints and uncertainties have caused significant delays in order finalization and execution which has impacted revenue and margins in the segment.

• The Company continues to make investments in R&D in FY24, the company invested 143 crores which includes capital expenditure of 94 crores on contemporary design and test facilities. A new centre was established at Bhiwandi near Mumbai for the design and development of heat pumps and VRF. It now have 4 state-of-the-art R&D centres at Thane, Wada, Dadra, and Bhiwandi. In FY24. {2}

Exhibit 9: Segmented revenue dominated by Electro-Mechanical & Commercial AC at 63% in FY24.

Source: Tijori Finance