Blue Star - 1QFY2014 Result Update - Angel Broking

For 1QFY2014, Blue Star reported a decent set of numbers with its top-line growing 5.4% yoy to Rs.771cr. The Cooling Products division reported an 18.8% yoy growth which was partially offset by a 6.7% yoy dip in revenue from the EMPPACS division. On the operational front, the EBITDA registered a 14.6% yoy growth to Rs.38cr owing to reduced raw material cost as percentage of sales. The EBITDA margin came in at 5.0%, 146bp higher than our expectation (on a yoy basis). Depreciation for the quarter increased by 11.5% yoy and other income declined by 37.5% yoy resulting in a 10.9% yoy growth in PAT to Rs.23cr.

Improvement in EBITDA margin to be snail-paced: Blue Star's EBITDA has stabilized since 1QFY2013 after a loss in two preceding consecutive quarters. We expect the EBITDA margin to sustain at the current levels of 3.0% - 3.5% for the rest of FY2014. We believe the recovery in the EBITDA margin will come post FY2014 owing to improvement in quality of new order inflow in the EMPPAC division and improvement in the Cooling Product division led by room air conditioners and refrigerators.

Outlook and valuation: We expect Blue Star to report a modest revenue growth of 5.4% yoy in FY2015E to Rs.3,099cr. This would be on the back of an expected improvement in the macro-economic scenario. EBITDA margin is expected to expand by 114bp to 4.2%_for FY2015E due to better margin orders. Consequently, the net profit is expected to be at Rs.84cr in FY2015E as compared to Rs.39cr in FY2013. At the current market price of Rs.155, the stock is trading at EV/sales of 0.5x for FY2015E which we believe is attractive. We maintain our Buy recommendation on the stock with a target price of Rs.208 based on a target EV/ sales of 0.7x for FY2015E.

Source : Equity Bulls

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