Blue Star Limited Company Details Report

Blue Star Limited incorporated in 1943, headquartered in Mumbai, is a leading heating, ventilation, air conditioning and commercial refrigeration (HVAC&R) company, and a major player in the mechanical, electrical, plumbing, and fire-fighting (MEP) space with a network of 31 offices, 7 modern manufacturing facilities – 2 at Himachal Pradesh and one each at Dadra, Ahmedabad and 2 in Wada and one at Sri City. It has 4,120 channel partners. The Company has 7,500 stores for room ACs, packaged air conditioners, chillers, cold rooms as well as refrigeration products and systems, along with 1,172 service associates reaching out to customers in over 900 towns. The Wada plant has an installed production capacity of 3L deep freezers and 1L water coolers, while the Ahmedabad plant has a dedicated capacity for deep freezers of 1L units. The Wada plant also manufactures cold room panels, evaporating units, and condensing units. The Company’s integrated business model of a Manufacturer; Engineering, Procurement and Construction (EPC) services provider; and an after-sales service provider; not only enables the company to offer end-to-end solutions to its customers across building, industrial, and infrastructure segments, but also facilitates delivery of these offerings in an agile manner. It exports AC&R (air conditioning & refrigeration) products and Original Equipment Manufacturing (OEM)/Original Design Manufacturing (ODM) businesses for globally recognized brands such as Danfoss and Rheem and solutions to 19 countries across the Middle East, Africa, SAARC and ASEAN regions. Through its joint ventures in Qatar and Malaysia, the company also undertakes MEP projects for residential, commercial and infrastructure in those markets. The company is a market leader in the product categories of modular cold rooms, deep freezers and storage water coolers and estimates their market share, both the residential segment and institutional segment put together, to be 13.5%. In volume terms they are marginally higher than 10%, in value terms are at 13.75%. It crossed ten lakh units during FY24 in RAC segment.

Electro - Mechanical Projects and commercial air conditioning system – This business segment covers the design,manufacturing, installation, commissioning and maintenance of central air conditioning plants, packaged/ducted systems and Variable Refrigerant Flow (VRF) systems, as well as contracting services in mechanical works, electrification, plumbing and fire-fighting, and water distribution. It also comprises after-sales services such as revamp, retrofit and upgrades, which covers a wide repertoire of operation and maintenance services for efficient functioning of electro-mechanical utilities. Unitary Products – The company offers a wide variety of contemporary and highly energy-efficient room air conditioners for both residential as well as commercial applications. It also manufactures and markets a comprehensive range of commercial refrigeration products and cold chain equipment. Besides, the company has water purifiers, air purifiers and air coolers in its product portfolio. This segment is seasonal in nature. Professional Electronics and Industrial Systems – Exclusive distributor in India for many internationally renowned manufacturers of professional electronic equipment & services, as well as industrial products and systems. This business is managed by the company’s wholly owned subsidiary, Blue Star Engineering & Electronics Limited.

Good morning

Lemon Tree Hotels Company details report

Lemon Tree Hotels (LEMONTRE) reported strong revenue growth of 23% YoY in 3QFY25, led by significant improvement in occupancy (OR) to 74.2% (up 830bp YoY) and healthy growth in ARR (up 7% YoY). OR improvement was primarily led by the ramp-up of Aurika Mumbai. Further, operating leverage resulted in an EBITDA margin improvement of 350bp YoY.  With a robust performance in 9MFY25 (revenue up 23%), we expect FY25 to end on a strong footing with healthy performance in 4Q. The continuous ramp-up of Aurika Mumbai and favorable demand-supply dynamics coupled with renovations (boosting ARR and OR) will be the key drivers.  We broadly maintain our FY25/FY26/FY27 EBITDA estimates and reiterate our BUY rating on the stock, with an SoTP-based TP of INR190 for FY27.

Revenue grew 23% YoY to INR3.6b (in line), and occupancy rose 830bp YoY to 74.2%, reflecting the ongoing ramp-up at Aurika Mumbai and higher ARR of INR6,763 (up 7% YoY). Management fees increased 23% YoY to INR184m.  EBITDA rose 32% YoY to INR1.8b (in line). EBITDA margin expanded 350bp YoY to 52% (est. ~50.3%) driven by favorable operating leverage. Adj. PAT increased 71% YoY to INR625m (est. INR664m).  During the quarter, LEMONTRE signed 13 new management and franchise contracts, which added 766 new rooms to its pipeline, and operationalized one hotel, which added 38 rooms to its portfolio.  As of 31st Dec’24, the total operational inventory comprised 112 hotels with 10,317 rooms, and the pipeline comprised 88 hotels with 6,068 rooms.  In 9MFY25, revenue/EBITDA/adj. PAT grew 23%/24%/37% YoY to INR9b/ INR4.3b/ INR1.1b.

Highlights from the management commentary

 Guidance: The company expects mid-teen RevPAR growth through optimizing ARR and occupancy. It is also targeting to reach 20,000 rooms (operational and pipeline) ahead of FY27, i.e., within 12 to 15 months vs. the current 16,385 rooms (operational – 10,317; pipeline – 6,068).  Aurika: The company expects Aurika Mumbai to stabilize by 2HFY26, with ARR reaching ~INR11.5-12.5k and occupancy stabilizing over 85%. The hotel is already doing ARR/OR of ~INR9,500/85% in Jan’25. Additionally, the company is close to signing Aurika in Varanasi, which is expected to have an ARR five times higher than the other Aurika properties.  Aurika Shillong: LEMONTRE received a Letter of Award from the Directorate of Tourism, Government of Meghalaya, to redevelop Shillong’s Orchid Hotel as Aurika under a PPP model, featuring 120 rooms. The company will invest INR1.2b for all 120 rooms supported by a 5% interest subvention. It received the land for a 1% revenue share plus INR10-20m annually. The initial annual EBITDA from this hotel is expected to be ~INR150m.

Valuation and view

 LEMONTRE is likely to maintain a healthy growth momentum, led by 1) the stabilization of Aurika Mumbai, 2) accelerated growth in the management contract (pipeline of ~5,879 rooms), and 3) the timely completion of the portfolio’s renovation leading to improved OR, ARR, and EBITDA margins.  We expect LEMONTRE to post a CAGR of 16%/19%/34% in revenue/EBITDA/ Adj. PAT over FY24-27 and RoCE to improve to 19.3% by FY27 from ~10% in FY24. We reiterate our BUY rating on the stock with our SoTP-based TP of INR190 for FY27.

Guidance and outlook

 Moving forward, the company remains confident in its ability to sustain growth in the coming quarters by focusing on key strategic drivers: I) accelerating the expansion of its management and franchised portfolio, resulting in a proportional increase in fee-based income. (II) Ensuring the timely completion of renovation activities in its owned portfolio to enhance Gross ARR and occupancy rates.  The company aims to significantly increase EBITDA, while operating at an EBITDA margin of 60%, with Keys expected to double its EBITDA.  The company aims for mid-teen growth in RevPAR by optimizing the right combination of ARR and occupancy rate growth.  The company is confident of reaching its target of 20k rooms well ahead of FY27, potentially achieving this milestone within the next 12 to 15 months.  The company expects management fee income to double in the next two years.  Demand growth is expected to continue exceeding supply in the mid-market hotel segment in India.

key highlights

 The management is confident that the company will achieve a debt-free status within the next two years.  The company believes it has a competitive moat due to its network effect, which is difficult for competitors to overcome  The company does not directly compete with the hotel industry for talent, as only about 15% of its workforce is interchangeable with staff from five-star hotels.  The company has a practice of transferring employees to other hotels and replacing them with employees who have a lower salary, which helps manage rising wage costs.  The company is focused on eliminating lower-price businesses and replacing them with higher-price businesses.  The increased investment in renovation expenses will persist into FY26 until the entire portfolio of owned hotels has been fully renovated and refreshed.

Valuation and view

 LEMONTRE is likely to maintain a healthy growth momentum, led by 1) the stabilization of Aurika Mumbai, 2) accelerated growth in the management contract (pipeline of ~5,879 rooms), and 3) the timely completion of the portfolio’s renovation leading to improved OR, ARR, and EBITDA margins.  We expect LEMONTRE to post a CAGR of 16%/19%/34% in revenue/EBITDA/ Adj. PAT over FY24-27 and RoCE to improve to 19.3% by FY27 from ~10% in FY24. We reiterate our BUY rating on the stock with our SoTP-based TP of INR190 for FY27.

Lemon Tree Hotels 110-130
Expected level 170
Support100

Good morning

CEAT Company Details Report

CEAT is a prominent tyre manufacturing company and the flagship entity of the RPG group. With over 1,900 stock keeping units it has a strong product portfolio. In FY24, CEAT manufactured 4.8 cr tyres and made a mark by launching India’s first range of EV tyres designed for two, three and four-wheelers. The company has a robust global presence, exporting to over 110 countries and partnering with 27+ key OEMs (original equipment manufacturers) and has 2,000 SKUs (stock keeping units) product range. CEAT has wide distribution network, including 900+ outlets nationwide, 5,500 dealers, and 59,000 sub-dealers, ensuring widespread accessibility and customer reach. In export markets it caters to agri-radial category, passenger car tyres and bus radial tyres with special focus on EU, LATAM and US markets. In the overall two-wheeler tyre segment (replacement market), it has a market share of ~35% and ~17% in the passenger car/utility segment. With more than 30% market share in two-wheeler EV OEMs, CEAT has established itself as a strong brand in the EV space. CEAT operates six manufacturing plants across India and collaborates with 17 outsourcing units for the production of tyres, tubes, and flaps. These facilities are strategically located to cater to different segments of the market: The Halol plant specializes in manufacturing passenger car radial tyres and truck & bus radial tyres. In Nashik, a range of tyres is produced, including truck & bus tyres, light truck tyres, farm tyres, and passenger car radial tyres. The Nagpur plant focuses on the production of scooter tyres, bike tyres, and threewheeler tyres. Bhandup is dedicated to manufacturing truck & bus tyres, farm tyres, and specialty tyres. The Ambernath plant produces specialty tyres, while the Chennai plant specializes in manufacturing passenger car radial tyres and motorcycle radial tyres. The company has established a digital footprint through its association with e-commerce platforms. Currently, ~9% of PV/UV replacement sales is from D2C channels.

#SALES #GROWTH 5 Year CAGR 11.3%

In FY24, the net sales was ₹11,944 cr and increased by 5.6% YoY. Growth during the year has been largely driven by OEMs and specialty & passenger category tyres. It has begun to see some recovery in exports and the replacement market, especially in the commercial category. The company believes that the increasing share of tyres above 16-17 inches in the PV segment, along with its focus on this category, will positively impact growth, going forward. In 9M FY25, the net sales was ₹9,798 cr v/s ₹8,951 cr and grew by 9% YoY. The growth was mostly driven by replacement & exports segment, while the OEM segment had moderate growth. It witnessed volume growth in the two-wheeler and passenger car segment (replacement), alongside three-wheeler segment as well observed steady growth. It continued to gain market share in the passenger car and two wheeler segment and the OEM segment is expected to witness market share gain backed by new launches PV, CV and two wheelers.

#EBITDA #GROWTH 5 Year CAGR 20.8%

EBITDA saw a growth of ~70% YoY and stood at ₹1,652 cr. This increase on a YoY basis has been on account of softening of raw material prices. However, from January 2024 onwards, the natural rubber prices have increased owing to global supply shortage and India’s dependance on imported natural rubber. In 9M FY25, the EBITDA was ₹1,087 cr v/s ₹1,261 cr and de-grew by 13.8% YoY. The company's raw material costs rose YoY due to rise in natural and synthetic rubber prices, however, it couldn't implement equivalent price hikes to offset the increase due to competition. Gross profit declined by 1.3% YoY for the period. Better product mix helped company up to certain extent to offset the same.

#PAT #GROWTH 5 Year CAGR 21.6%

In FY24, the net profit was ₹615 cr majorly led by rise in operating profit. In 9M FY25, the net profit was ₹357 cr v/s ₹521 cr and declined by 32% YoY. This was majorly led by degrowth in operating profit.

#EBITDA #MARGIN

In FY24, the EBITDA margin was 13.8% and expanded by 520 bps owing to softening of raw material prices and better product mix (premiumization). Contribution from premium ranges grew by more than 2x in last 4 years i.e., 9% in FY19 to 28% in FY23 for PC/UV and 13% in FY19 to ~23% in FY23 for 2W. Company imports 2/3rd rubber and 1/3rd is locally sourced. Margins from Q4 FY24 includes an impact of EPR provisions. In 9M FY25, the EBITDA margin was 11.1% v/s 14.1% in 9M FY24. This declined, mostly owing to rise in raw material costs. Also, the company has not been able to offset the same with similar price increases owing to competition.