Blue Star - Q4 FY21 first cut - Inline performance - YES Securities

Result summary -Blue star (BLSTR IN) reported in -line revenue growth with unitary products delivering 31% revenue growth in-line with estimates, while EMP and Packaged Air conditioner grew marginally higher than estimated and EPS registering revenue decline.

Margins - EBITDA grew 173% yoy with EBITDA margin of 6.3%, an improvement of 344bps yoy but 214bps lower than estimated. Gross margin at 21.9% (lowest in past 5 years) contracted 358bps and 231bps yoy and sequentially. Higher commodity prices and product mix shift towards mass premium segment would have dented gross margin. Significant reduction in other operating expense led to expansion in EBITDA margin despite contraction in gross margins. Other operating expense saw reduction of 21% yoy.

EMP and Packaged Air-conditioners: Revenue from EMPS grew 18.1% yoy on improved execution. Margins in this segment expanded by 574bps and 39bps yoy and sequentially to 6.2% on back of better margin profile jobs executed during the quarter and improved margin in commercial air-conditioning and service business. Company continued to see healthy traction in the Healthcare, Pharma, Industrial and Government customer segments. Carried forward order book stood at Rs29.5bn, flat on yoy basis.

Unitary Products: Revenue grew 31.1% yoy, in-line with estimates. Improvement in general business sentiment, increased share of business from e-commerce and sustained initiatives such as introduction of new product categories and foray into new customer categories. Commercial Refrigeration business which saw increased traction from retail and pharma segment also contributed to growth of the unitary products.

Professional Electronics and Industrial Systems: PEIS revenue grew 16.6% yoy as orders from healthcare business and essential services from government remained encouraging. Opportunities from BFSI sector for data security and solutions business led to growth in revenue.

Other Highlights: 1.) Gross debt has remained flat on yoy basis at Rs45.1bn while it has reduced by Rs30.1bn from Sept'20 levels. 2) Cash conversion cycle at 8 days has remained flat on yoy basis. 3) Company has declared final dividend of Rs4/share.

Near-term outlook - We expect business environment to remain challenging due to intermittent lockdown in various states and cities, while its unitary products business being a seasonal product could see higher impact of lockdowns.

Our view - The stock continues to trade at expensive levels of 31x FY23 EPS. Given the difficult business environment and intermittent lock down in various part of the country, there could be downside risk to the earnings estimates. We have Reduce rating on the stock with TP of Rs760.

Shares of BLUE STAR LTD. was last trading in BSE at Rs.834.2 as compared to the previous close of Rs. 836.3. The total number of shares traded during the day was 6044 in over 718 trades.

The stock hit an intraday high of Rs. 841.9 and intraday low of 819.05. The net turnover during the day was Rs. 5034975.

Source : Equity Bulls

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