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Recommendations India

Blue Star Q1FY15 results update

July 25, 2014, Friday, 15:02 GMT | 10:02 EST | 18:32 IST | 21:02 SGT
Contributed by Nirmal Bang

Blue Star reported Q1FY15 numbers in line with our expectations.

Revenues for the quarter have grown by 13% YoY; EBIDTA margins went down by 180 bps YoY. Q4FY14 was exceptional in terms of Sales and EBIDTA. In Q4FY14, while the sales grew by 17% QoQ, EBIDTA grew by a whopping 860 bps QoQ to 15.5%. This was mainly on the back of one time license revenues during that quarter. Post the appointment of new CEO Mr Sunil Bhatia in 2011, company has changed its strategy towards focusing on solutions and on inorganic growth which has resulted in increasing its local presence in the US and Singapore by opening up new centres. At CMP, the stock is trading at 8.2x/6.3x its FY15E/FY16E expected earnings. We continue to be positive about the stock and recommend BUY for long term.

- Revenues for the quarter have grown by 13% YoY; however fell by 18% QoQ since Q4 was an extraordinary quarter due to onetime license sales.

- EBIDTA margins were down 180 bps YoY at 6% on the back investments made by the company to fuel future growth. Company is hiring senior professionals in sales and marketing team.

- Forex loss came in at 0.14 crore against a loss of Rs.3.8 crore.

- Tax rate was lower 19% against 23% in Q4FY14 and 25% in Q1FY14.

- Pat was lower by 24% YoY on the back of lower sales.

Company broadly provides following services for its Global clients:

Business Application: Currently, company is developing applications and solutions for its Travel and Hospitality sector customers. Lately company has moved up the value chain and has created mobile applications to enhance customer experience.

Product Engineering: Company provides engineering services for Medical, Pharma, Manufacturing, Travel BFSI sectors. It has been instrumental in 1800+ product releases and competes with large cap IT company’s.

Professional services: HP has been an important customer since inception for Blue Star Info and it has successfully been trying to add more value for the company. The current engagement has lower margins and we believe is a drag for overall margins of the company.

Business Analytics: The company has made a acquisition in 2013 which is in the BI space and is well geared up to tap the $ 13.8 bn BI and Analytical market.