Best AC Stock - Voltas vs Bluestar

The Indian air conditioners market is experiencing significant growth. The industry, which is currently valued at Rs 275 bn is likely to double in the next four years.

Low penetration of ACs, increasing urbanisation, rising disposable income, and changing climate patterns are some of the key factors driving this growth.

In addition, the government's affordable housing scheme, product-linked incentive (PLI) scheme, and infrastructure development are further boosting the AC industry.

In this high-growth industry, two prominent Indian players are Voltas and Bluestar.

Let's compare these two companies on various parameters to see who is a better AC company.

Business Overview

#Voltas

Part of the Tata Group, Voltas is engaged in the manufacturing of air conditioners, refrigerators, washing machines, microwaves, and dishwashers.

The company offers engineering product services for mining, construction equipment, textile, and water management and treatment industries.

It also undertakes electro-mechanical projects as an EPC contractor for domestic and international clients.

The company has four manufacturing facilities in India, with a manufacturing capacity of 2.7 million (m) units.

It also has five state-of-the-art research and development (R&D) facilities, which are dedicated to new features and new product development.

#Bluestar

Bluestar, a popular household brand, manufactures air coolers, air conditioners, refrigerators, air purifiers, water purifiers, cold storage, and speciality products.

It also undertakes electro-mechanical projects such as central AC and ventilation projects, water projects, plumbing projects, electrical projects, and railway electrification.

In the commercial air conditioning space, Bluestar is a market leader for conventional and inverter ducted air conditioning systems and scroll chillers.

The company has 7 manufacturing facilities in India that have the capacity to produce over 300 plus models across 25 product lines.

It also has one R&D centre, which helps the company develop new products and simplify its manufacturing process.

Particulars	Voltas	Bluestar
Market Cap (in Rs billion)*	588.9	350.0

Source: Equitymaster | *as of 4th September 2024

In terms of marketcap, Voltas is leading against Bluestar with a marketcap of Rs 588.9 bn, as against Rs 350 bn of Bluestar.

Voltas also has over 25,000 customer touchpoints, 260 exclusive business outlets, and five experience zones across India.

Bluestar, on the other hand, has a presence in over 3,900 towns, with 4,120 channel partners, and 1,251 service associates.

It also has a strong international presence across 18 countries, where it does both retail and commercial projects.

If we compare the two compares based on their performance on the bourses, then Bluestar is leading with 130.3% return in the last one year, as against 105.3% of Voltas.

Both the companies gave multibagger returns and outperformed Nifty 50, which gave a return of 28.7% in the last one year.

#Revenue

Revenue is one of the primary metrics to look at when analysing the performance of a company.

Voltas earns the majority of its revenue through its unitary cooling segment, which comprises air conditioners, air coolers, and commercial refrigeration products.

For Bluestar, electro-mechanical projects and unitary projects both contribute significantly to the revenue.

In the last five years, the revenue of Voltas grew by a compound annual growth rate (CAGR) of 10.3% driven by growth in the unitary cooling products segment.

On the other hand, for Bluestar, the revenue grew at a CAGR of 12.6% on account of the diversification in revenue.

Clearly, Bluestar is leading in terms of revenue growth.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Voltas	76,581	75,558	79,345	94,988	1,24,812	10.30%
Bluestar	53,602	42,636	60,641	79,773	96,854	12.60%

Source: Equitymaster

#Profitability

To understand how profitable the company is, we must look at the earnings before interest tax depreciation and amortisation (EBITDA) and net profit growth and margins.

In the last five years, Bluestar's EBITDA grew by a CAGR of 16.8% on account of high margins from the unitary products segment. Its net profit also grew at a CAGR of 24.1% during the same period.

The gross and net margins also expanded consistently by 1-2 percentage points.

Voltas, on the other hand, witnessed a degrowth in EBITDA and net profit in the last five years. Cost overruns on account of high raw material prices and high advertising expenses has led to fall in profits.

The margins also contracted by over 4 percentage points during the same period.

Clearly, Bluestar is leading in terms of profit growth.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Voltas	9,173	8,302	8,707	7,408	7,279	-4.50%
Bluestar	3,275	3,022	3,822	5,237	7,124	16.80%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Voltas	5,211	5,288	5,060	1,362	2,481	-13.80%
Bluestar	1,407	1,007	1,680	4,007	4,143	24.10%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	12.00%	11.00%	11.00%	7.80%	5.80%
Bluestar	6.10%	7.10%	6.30%	6.60%	7.40%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	6.80%	7.00%	6.40%	1.40%	2.00%
Bluestar	2.60%	2.40%	2.80%	5.00%	4.30%

Source: Equitymaster

#Debt management

Both companies are debt-free as of March 2024. Voltas has been debt-free for a while now, and Bluestar turned debt-free in the last year.

Voltas has consistently invested in capex to expand and maintain its manufacturing and research and development (R&D) facilities.

It plans to invest Rs 8-10 bn in capex to expand its manufacturing capacity across all its facilities.

The company is also looking at backward integration for certain products, including heat exchangers, cross-flow fans, and plastic components.

Bluestar, on the other hand, has invested heavily in capex and R&D over the last few years. This has helped the company diversify across different product categories and segments.

It plans to invest Rs 2.5-3 bn in capex each year for the next two to three years across various manufacturing plants for expansion and other capex-related activities.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	0.0	0.0	0.0	0.0	0.0
Bluestar	0.1	0.4	0.2	0.1	0.0

Source: Equitymaster

#Financial Efficiency

Two ratios that help measure financial efficiency are return on equity (RoE) and return on capital employed (RoCE).

RoE measures the return a company generates for equity investors, whereas RoCE measures the return a company generates on the capital. A high ratio is considered better.

The RoCE and RoE of Voltas averaged 12.2% and 7.8%, respectively, whereas for Bluestar, they averaged 26.7% and 18.4%, respectively.

Clearly, Bluestar is leading in terms of return ratios.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	17.90%	14.70%	13.10%	6.20%	9.00%
Bluestar	28.40%	17.20%	23.60%	40.90%	23.60%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	12.20%	10.60%	9.20%	2.50%	4.30%
Bluestar	18.00%	11.40%	16.50%	30.10%	15.90%

Source: Equitymaster

#Dividend

A company pays dividends from the profits. If a company is paying consistent dividends, it is considered more stable than other companies.

In terms of dividends, Bluestar has been paying consistently high dividends to its shareholders. The company's dividend per share grew by a CAGR of 8.4% in the last five years.

Its dividend payout and dividend yield averaged 45.5% and 1%, respectively, during the same period.

Voltas, on the other hand, has maintained its dividend per share at around Rs 5 and the dividend yield at 0.5%. The dividend payout, however, averaged at 53.8%.

Clearly, Bluestar is superior with respect to dividends compared to Voltas.

Dividend

Dividend Per Share (Rs)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Voltas	4.0	5.0	5.5	4.3	5.5	6.60%
Bluestar	4.7	1.9	4.7	5.6	7.0	8.40%
Dividend Yield	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	0.80%	0.50%	0.40%	0.50%	0.50%
Bluestar	2.20%	0.40%	1.00%	0.90%	0.60%
Dividend Payout Ratio	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Voltas	25.40%	31.30%	36.00%	103.20%	73.30%
Bluestar	68.50%	38.30%	57.30%	28.80%	34.70%

Source: Equitymaster

#Valuation

Valuation ratios help in estimating the actual worth of the company. Two valuation ratios that are widely used are price-to-earnings (P/E) and price-to-book value (P/B).

Both help in assessing whether a company is overvalued or undervalued.

The PE and PB ratio of Voltas is 99.7x and 10.1x, respectively, whereas Bluestar's ratios stand at 70.1x and 12.5x, respectively.

Clearly, Voltas shares are overvalued when compared to Bluestar.

However, if we compare the two companies with their three-year averages, then both companies are overvalued.

Valuations	Voltas	3-Year Average	Bluestar	3-Year Average
PE (x)	99.70	85.80	70.10	52.40
PB (x)	10.10	6.90	12.50	7.90

Source: Equitymaster

Which AC Stock is Better: Voltas or Bluestar?

Bluestar is leading in terms of revenue growth, profit growth, profit margin expansion, financial efficiency, dividend, and valuation.

It is a market leader in commercial air conditioning and has a market share of 10% in online sales of air conditioners and water purifiers.

Bluestar already has a well-established presence in 18 countries across the Middle East, Africa, SAARC, and ASEAN regions. It now plans to strengthen its presence in Europe and the USA through existing and new product lines.

Voltas, on the other hand, suffered a setback in profits primarily due to high raw material and advertising costs. However, in the financial year 2024, it reported a growth in profit, indicating it is back in the game.

The company is looking at backward integration for certain products, including heat exchangers, cross-flow fans, and plastic components.

It also plans to focus on its international operations to expand its revenue and profits.

Given the low penetration of air conditioners, rising disposable incomes, and climate change, the AC industry in India is expected to grow steadily in the next few years.

Both companies are well-known players in this industry who will benefit from this growing demand.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.