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Recommendations India

Blue Star 4QFY2014 performance highlights and results update

June 11, 2014, Wednesday, 07:11 GMT | 02:11 EST | 10:41 IST | 13:11 SGT
Contributed by Angel Broking


Blue Star reported a mixed set of numbers for 4QFY2014. Its top-line grew 1.2% yoy to Rs.869cr as against Rs.858cr in the same quarter of the previous year. On the operational front, the EBITDA grew 49.5% yoy to Rs.30cr on the back of 395bp yoy decline in raw material cost as a percentage of sales; the EBITDA margin improved by 111bp yoy to 3.4%. The other income for the quarter rose by 68.6% yoy to Rs.35cr and as a result, the net profit jumped by 130.7% yoy to Rs.43cr.


Improvement in macro scenario to support growth

The company’s Electro Mechanical Projects and Packaged Air-conditioning Systems (EMPPAC) division, which contributes ~57% to total revenues, will benefit from an expected revival in the economy as the division caters mainly to institutional/commercial clients. With the formation of a stable government at the centre, we expect the investment climate to improve, going forward. Additionally, we also expect the Cooling Products division to gain traction, given a favorable macro scenario.


Outlook and valuation

We expect Blue Star to report a CAGR of 10% in its revenue over FY2014-16E to Rs.3,542cr. The EBITDA margin is expected to expand by 248bp over FY2014-16E to 5.6% due to better margin orders. Consequently, the net profit is expected to be at Rs.122cr in FY2016 as compared to Rs.74cr in FY2014. At the current market price, the stock is trading at EV/sales of 0.8x for FY2016E, which we believe is attractive, considering its historical average of 1.0x (five-year average). We maintain our Buy rating on the stock with a revised target price of Rs.367 based on a target EV/sales of 1.0x for FY2016E.