analyst meet february 25, 2008 analyst meet february 25, 2008

ANALYST MEET

February 25, 2008

ANALYST MEETFebruary 25, 2008

Analyst MeetAnalyst MeetFeb 25, 2008Feb 25, 2008

About Blue Star


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


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


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


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


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


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


Target SegmentsBusiness Target Segments

Central Airconditioning Infrastructure; IT/ITES; Office Complexes; Retail; Healthcare; Hospitality

Packaged Airconditioning Retail; Medium Corporate and Commercial establishments


Telecom service providers; Passive infrastructure providers

Room Airconditioners Small/Medium Corporate and Commercial establishments; High-end Residential


Agriculture; Ice Cream; Hospitality; Supermarkets; Processed Foods; Pharma

AC&R Service Installed base of Blue Star customers


Manufacturing; Defense; Industrial; Healthcare; Banking


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


Expansion of telecom network

Room Airconditioners Expansion of small/medium corporate and commercial establishments


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;


Industrial and economic boom


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


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)


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


Business Outlook


Unprecedented growth in construction driving AC&R and Building Electrification industry


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


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)


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


Building Services

Contract Value

Airconditioning 50%

Electricals 40%

Plumbing 10%


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


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


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


Naseer Electricals Overview


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


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


Details of Acquisition


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


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


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


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


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”)


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.


Thank You

analyst meet february 25, 2008 analyst meet february 25, 2008

Documents

analyst meet

service products

blue star slide

blue star blue star

economic boom slide

operating profit rs

net profit rs crore

total income rs crore