Blue Star advanced on Monday with the cut in excise duty raising hopes of a surge in demand for the company's products.
The scrip of the central air-conditioning major was up 4.5% at Rs 81 on the BSE in late-afternoon trades. However, it came off from the day's high of Rs 84.70. A thin volume of 3,400 shares was recorded on the counter.
The Blue Star scrip surged in the run-up to the Union Budget for 2003-04 on expectations of a cut in excise duty. From a recent low of Rs 72 on 14 February 2003, it surged 12.1% to hit a high of Rs 80.75 on 26 February 2003. Profit-taking saw the scrip slip to settle at Rs 77.50 on the day of announcement of the Budget i.e last Friday (28 February 2003).
The Budget cut the excise duty on air-conditioners to 24% from 32%. It was still below expectations of a cut in duty to 16%. There were hopes that the cut in excise duty may lead to reduction in the prices of ACs, thereby helping the air-conditioining sector through increased demand. BSL's strength is air-conditioning, wherein it is a leading player. It also has a presence in room and window air-conditioners and the excise cut would benefit this segment. Industry watchers also said that the concessions to tourism and healthcare sectors may have a positive impact, as these sectors are major end-users for the air-conditioning and refrigeration industry.
In the room air-conditioner market, BSL sold less than 14,000 window air-conditioners and 6,000 split air-conditioners in 2001-02. The marginal growth of 6% in window air-conditioners has been more or less in line with the industry trend, which saw an almost flat performance during 2001-02. The market was characterised by substantial price erosion to the extent of 20%. In spite of the overall market sentiment being negative, BSL enhanced its product offering by delivering value-for-money products. All these were achieved with marginal investments in the company's existing manufacturing facilities.
Analysts said there were a slew of positive developments that make the BSL stock a good bet at the current level. BSL is India's largest provider of air-conditioning and refrigeration products, systems and services with nearly six decades of experience. Despite the dull overall economic scenario, the company has performed reasonably well in all respects. While the company has improved its profitability consistently, it has reduced its debt burden (debt equity ratio of 0.11 in 2001-02 as against 0.51 in 99-00) over the last three years. The company has improved its return on capital employed to 26.7% in 2001-02 (from 19.1% in 99-00) and return on net worth to 24.6% in 2001-02 (from 19.8% in 99-00). It has increased its dividend consistently from Rs 3.50 in 98-99 to Rs 6.5 in 2001-02.
Despite difficult economic conditions and an overall market slowdown, BSL has registered a good growth in the current fiscal. This is attributed to the prudent cost reduction initiatives taken by the company, and extensive value engineering.
BSL's strengths are in manufacturing, system design, installation, commissioning and support of large central air-conditioning plants, packaged air-conditioners and ducted split air-conditioners. This line of business also promotes after sales service as a business, by offering several service products, including retrofitting and revamping. Notably, BSL continues to be the undisputed market leader in this segment with a market share of close to 30%. The company enjoys preferred vendor status in several fast growing segments, with a share of over 50% in these.
Following BSL's buy-back initiatives, its equity capital has reduced to Rs 18.19 crore, which will help the shareholders further.
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