Blue Star (SELL): EMP margins improve; cooling maintains momentum - Ambit

Blue Star's 1QFY14 revenues and EBITDA margin were in line with our expectations. However, PAT was 11% lower than our expectations owing to lower other income and marginally higher interest cost. The EMP segment's margins surprised positively (at 5.9% vs our estimate of 3.2%) after a disappointing 4QFY13 (2.2%), as the share of poor-quality legacy orders reduced. The Cooling products segment's revenue momentum remained strong (up 19% YoY) but margins disappointed marginally (at 10.7% vs our estimate of 11.3%). We do not expect material changes to our FY14 earnings estimates, as we were building in a gradual margin recovery in the EMP segment and higher volume growth in the cooling products segment. Whilst there is an upside to our target price (Rs175), we refrain from putting a BUY given the meager upside (12%) in an illiquid stock with a low likelihood of an operating surprise. Currently, the stock is trading at 15.0x FY14 consolidated EPS of Rs10.

Source : Equity Bulls

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