Blue Star Ltd. share price target

3 May 2019 4QFY19 sales at INR16b grew 19% YoY (v/s our est. of INR15.2b) on strong pick-up in UCP segment sales (+19% YoY) and timely execution of projects in the EMP segment (+21% YoY). EBITDA of INR1.1b (+81% YoY) was ahead of our estimate of INR839m, supported by better-than-estimated margins in the UCP segment (+350bp YoY; 10.4%). Adj. Net Profit increased 212% YoY to INR824m (v/s our est. of INR482m) on lower-than-estimated tax during the quarter (1% v/s our est. PAT grew 13% (INR52.3b)/ 30% (INR3.5b)/35% (INR1.9b).

To achieve its stated five- business of HVAC, MEP and AC&R; service through new product introduction every year (two new launches annually), (b) aggressively grow in the adjacencies (air cooler, air purifier, professional kitchen refrigeration, engineering facility management and factory E&M; projects), (c) drive higher value addition through backward integration, import substitution by in-house manufacturing and supply chain efficiency, (d) incubate new business lines in the professional electronics segment by adding new agencies and forming JVs, and (e) invest in overseas markets and water purifiers businesses to turn profitable by FY21. migrate from small-ticket to large-ticket orders, and being selective in choosing sites, (b) retain market leadership in the buildings segment (malls, commercial buildings) and consolidate position in the infrastructure segment (airports, metros and power transmission segment) by providing superior after-sales service and enhancing customer engagement, (c) evaluate entry into select adjacencies with higher-margin opportunities within factory E&M;, industrial EPC and infrastructure MEP.

For 2QFY2019, Blue Star posted results above our expectations on the top-line front; however, bottom-line numbers came below expectations. The company has reported 21.5% top-line growth, whereas PAT was down ~14% yoy due to losses in JV and higher interest cost. Outlook & Valuation: We forecast Blue Star to report top-line CAGR of ~13..

For 1QFY2019, Blue Star posted results below our expectations on the top-line, however, it reported healthy growth on the bottom-line front. The company has reported flat top-line growth (after adjustment of GST, revenue growth was ~7%) and PAT was up ~20% yoy. Outlook & Valuation: We forecast Blue Star to report top-line CAGR of ~13%..

Blue Star (BLSTR IN) has reported a decent performance in 1QFY19 with its consolidated PAT rising by 20% YoY to Rs916mn. Blended EBITDA margin improved by 163bps YoY to 9.1% with 235bps rise in project business' margin. The margin of Unitary Products (UPs) rose by 37bps to 11.4%. Revenue declined by 1% YoY to Rs15.1 bn (+7% YoY on Like-to-Like basis) due to 4% YoY decline in revenue from unitary product segment, while revenue of projects business increased by 3% YoY. The revenue of room AC business declined by 10% (vs. 13% industry degrowth) owing to low demand led by soft summer and unseasonal rains. Its order book stood at Rs21.2bn (+8%) as of 1QFY19-end. Looking ahead, the Management sees Unitary Product segment margin at 9.5%-10.5% (vs. 8.8% in FY18) led by higher realisation, better leverage for...

Our key takeaways Sales in April were weak and demand was subdued on rain/hailstorms across the country. This continued into May, but finally, the weather has turned warm in Telangana, Maharashtra, Goa, Gujarat and North India over the past week. Rains continue in Kerala, West Bengal, Tamil Nadu, and the North East. Yet, industry sales are unlikely to decline in 1QFY19. Year-on-year, sales are likely to be flat in 1QFY19. In FY19, Blue Star now expects the room AC industry to grow 15%, despite the muted 1Q summer sales; it had earlier estimated 15-20% growth. sales expected to grow at a CAGR of 15-20% over the next few years, (b) consumer financing via EMIs, and (c) rising income levels. These would continue to drive demand for ACs, despite seasonal variations. Blue Star expects inverter ACs to be 60% of the room AC market by FY20. For Blue Star, inverter ACs are likely to be 45% of sales in FY19.

For 4QFY2018, Blue Star posted results in-line with our expectations both on top line and bottom-line fronts. The revenue was higher by 7.8% y-o-y and PAT was up 27.4% y-o-y. During the quarter, cooling and the unitary products has been the key performer for the company. Operating margin improved by 87bps on account of lower material cost..

Given the unseasonal rains across various regions, we believe the RAC industry could report lower growth rates in the range of 5-10% in FY19 v/s 20% as earlier anticipated. We downgrade FY19E/20E EPS estimates by 34% and 11% respectively on lower revenue and margin assumption. Recommend SELL with target price of Rs624 (SoTP). In-line performance: Revenues increased by 14% yoy (adjusting for excise duties) to Rs14.7bn. EBIDTAM increased by 87bps yoy to 6.1% and PAT increased by 38% yoy to Rs512mn. The EMP & PAC segment reported muted growth of 6.7% to Rs7.2bn impacted by sluggish project execution and lower order inflows. The EBITM however...

Sales grew 8% YoY to INR14.8b, in line with our estimate of INR15b. EBITDA of INR927m (+23% YoY) came in below our estimate of INR1.1b due to a miss on operating margin (-80bp YoY to 6.3% v/s est. of 7.1%). Adj. net profit rose 23.6% YoY to INR460m, below our estimate of INR602m. BLSTR's market share stood at 11.5% for FY18. For full-year FY18, sales stood at INR47.5b (+8% YoY), EBIDTA at INR2.9b (+21.3% YoY) and adj. PAT at INR1.4b (+17% YoY).

our estimate of INR3.2b. Revenue in this segment was adversely impacted by lower restocking by dealers and muted demand during the festive season. Room AC segment grew 5% YoY (in line with market growth), while VRF segment increased 10% YoY. EBIT margin shrunk to 5.4% from 6.8% in the yearago period on account of marketing investment made by the company in the water purifier segment and higher raw material cost. BLSTR's market share in room ACs remained stable at 11% in 2QFY18; it expects to take this share to 12% once the market stabilizes. EMP segment's revenue declined 10% YoY to INR5.0b, impacted by delayed...