2QFY2019 Result Update | Cons. Durable
November 3, 2018
Blue Star Ltd
BUY
CMP
`565
Performance Update
Target Price
`867
2QFY19
2QFY18
% chg. (yoy)
1QFY19
% chg. (qoq)
Investment Period
12 Months
Net Sales
1,032
850
21.5
1,508
(31.5)
Stock Info
Operating profit
58
49
18.7
137
(57.5)
Sector
Cons. Durable
OPM (%)
5.6
5.8
(13bp)
9.1
(344bp)
Market Cap (` cr)
5,490
Net Debt (` cr)
210
Adj. PAT
20
23
(14.0)
91.6
(78.7)
Beta
0.2
Source: Company, Angel Research
52 Week High / Low
845/507
Avg. Daily Volume
11,670
Face Value (`)
2
For 2QFY2019, Blue Star posted results above our expectations on the top-line front;
BSE Sensex
34,314
however, bottom-line numbers came below expectations. The company has reported 21.5%
Nifty
10,351
Reuters Code
BLUS.BO
top-line growth, whereas PAT was down ~14% yoy due to losses in JV and higher interest
Bloomberg Code
BLSTR IN
cost.
Shareholding Pattern (%)
Promoters
38.7
Strong revenue growth Electro-Mechanical Project (EMP) and better than industry
MF / Banks / Indian Fls
20.9
performance boosted top-line: The company’s top-line grew 21.5% yoy at `1,032cr on the
FII / NRIs / OCBs
8.3
Indian Public / Others
32.1
back of strong performance in EMP Business (up ~27% yoy) driven by accelerated
Abs.(%)
3m
1yr
3yr
execution of major MEP projects. Further, Professional Electronics and Industrial Systems
Sensex
(8.4)
3.7
29.7
business revenues increased by ~55% yoy. However, Unitary Products business revenues
Blue Star
(16.9)
29.3
48.7
increased marginally by 9% yoy. Room AC business has performed better than the industry
and the market share has improved (current market share at 12.3%).
PAT de-grew ~14%: On the operating front, the company’s margins contracted by 13bps
yoy on the back of higher raw material prices. The bottom-line, posted de-growth of ~14%
yoy to `20cr on account of higher interest cost, one time exceptional expense (`2.7cr) and
losses in International JV.
3-year price chart
Outlook & Valuation: We forecast Blue Star to report top-line CAGR of ~13% to `5,854cr
900
over FY2018-20E on the back of healthy demand growth in Air Conditioning and Unitary
800
700
Products division. On the bottom-line front, we estimate ~18% CAGR to `201cr owing to
600
500
improvement in volumes and better operating margins. We maintain our Buy
400
recommendation on Blue Star with a target price of `867.
300
200
100
Key Financials
0
Y/E March (`cr)
FY2017
FY2018
FY2019E
FY2020E
Net Sales
4,385
4,648
5,122
5,854
Source: Company, Angel Research
% chg
13.5
6.0
10.2
14.3
Net Profit
123
144
154
201
% chg
12.2
17.0
6.9
30.5
OPM (%)
5.1
5.7
6.1
6.3
EPS (Rs)
12.8
15.0
16.0
20.9
P/E (x)
44.1
37.7
35.2
27.0
Amarjeet S Maurya
P/BV (x)
7.2
6.7
6.2
5.7
022-39357800 Ext: 6831
RoE (%)
16.3
17.7
17.6
21.0
RoCE (%)
16.5
17.0
19.2
21.7
EV/Sales (x)
1.2
1.2
1.1
1.0
EV/EBITDA (x)
24.6
21.2
17.9
15.1
Source: Company, Angel Research Note: CMP as of October 31, 2018
Please refer to important disclosures at the end of this report
1
Blue Star Ltd | 2QFY2019 Result Update
Exhibit 1: 2QFY2019 Performance
Y/E March (` cr)
2QFY19
2QFY18
% chg. (yoy)
1QFY19
% chg. (qoq)
1HFY19
1HFY18
% chg
Net Sales
1,032
850
1,508
2,540
2,370
21.5
(31.5)
7.2
Net raw material
704.7
1071.9
1772.5
1664.7
559
26.0
(34.3)
6.5
(% of Sales)
71.1
69.8
70.2
68.3
65.8
244
(282)
Employee Cost
106
100
5.7
100
5.9
206
189
9.1
(% of Sales)
6.6
8.1
8.0
10.3
11.8
(153)
363
Other Expenses
164
141
15.8
199
(17.9)
367
357
2.8
(% of Sales)
13.2
14.5
15.1
15.8
16.6
(78)
263
Total Expenditure
974
801
21.6
1,371
(29.0)
2,345
2,210
6.1
Operating Profit
58
49
18.7
137
(57.5)
195
160
22
OPM (%)
9.1
7.67
6.73
5.6
5.8
(13)
(344)
93
Interest
12
6
98.8
12
(3.6)
24
11
122.6
Depreciation
17
16
7.2
16
5.2
33
28
16.5
Other Income
5
5
9.3
3
47.6
8
13
(37.0)
PBT
34
32
8.2
112
(69.2)
146
134
9.4
(% of Sales)
7.4
5.8
5.6
3.3
3.7
Exceptional Items
(2.7)
15.2
12.5
Tax
8
9
(17.3)
33
(75.9)
40
35
14.1
(% of PBT)
29.1
27.6
26.4
22.8
29.8
Reported PAT before MI & Extra Ord.
24
22
6.9
95
(74.8)
118
98
20.4
Items
PATM
6.3
4.7
4.1
2.3
2.6
Minority Interest
P/L of Ass. Co.
(4)
1
(2.9)
(7)
1
Extra-ordinary Items
(0)
(0)
(0.1)
(0)
(0)
Reported PAT
20
23
(14.0)
92
(78.7)
111
99
12.4
Source: Company, Angel Research
November 3, 2018
2
Blue Star Ltd | 2QFY2019 Result Update
Key investment arguments
Cooling Products division - the backbone of growth: Company is estimating +20%
growth (outperform the market at 15-20% growth) in FY19E in the cooling
products division. Further, owing to the strong growth in this summer, the market is
expected to be further driven by the rise in demand.
Newer products and strong demand to aid overall profitability: Blue Star is
planning to add two brand new models to its RAC product range in FY19, it has
four models currently. The company is planning to launch one high wall-cordless
split AC model around the same time. Besides that, increase in demand from large
government related infra projects like metro and some small segments from
hospitals and educational institutions will also boost sales.
Wide distribution network: Blue Star has a strong presence in the South and West
regions of India and is now planning to increase its presence in North. Hence,
company has already increased its dealer count and is taking steps to improve per
dealer output in Northern region. Moreover, Bluster Silicones, an overseas
subsidiary of China National Bluster (Group) signed a distribution agreement with
Grasim Industries in India for its whole series of silicone products in an attempt to
expand its distribution network in India and increase its market share.
November 3, 2018
3
Blue Star Ltd | 2QFY2019 Result Update
Outlook & Valuation:
We forecast Blue Star to report top-line CAGR of ~13% to `5,854cr over FY2018-20E on
the back of healthy demand growth in Air Conditioning and Unitary Products division. On
the bottom-line front, we estimate ~18% CAGR to `201cr owing to improvement in volumes
and better operating margins. We maintain our Buy recommendation on Blue Star with a
target price of `867.
Downside risks to our estimates
Any slowdown in consumer segments like IT/ITES, healthcare, hospitality and
infrastructure could impact the company’s growth.
Foreign exchange fluctuations have a direct impact on the profit of the cooling
products division since commercial refrigerators are imported.
The RAC industry has been witnessing high traction and the company has
been able to outperform the industry over the past few years. Any unexpected
drop in performance of the RAC industry would pose a threat to our estimates.
Company Background
Blue Star Limited is an air-conditioning and commercial refrigeration company.
The company conducts various activities, such as electrical, plumbing and fire-
fighting services. Its segments include Electro-Mechanical Projects and Packaged
Air Conditioning Systems, and Unitary Products. The Electro-Mechanical Projects
and Packaged Air-Conditioning Systems segment includes central air-conditioning
projects, electrical contracting business and packaged air-conditioning businesses,
including manufacturing and after sales service. The Unitary Products segment
includes cooling appliances, cold storage products, including manufacturing and
after sales service. The company's products include central air conditioning, room
air conditioners and speciality cooling products. Its other businesses include
marketing and maintenance of imported professional electronic equipment and
services, as well as industrial products and systems, which is handled by Blue Star
Engineering & Electronics.
November 3, 2018
4
Blue Star Ltd | 2QFY2019 Result Update
Consolidated Profit & Loss Statement
Y/E March (` cr)
FY2017
FY2018
FY2019E
FY2020E
Total operating income
4,385
4,648
5,122
5,854
% chg
13.5
6.0
10.2
14.3
Total Expenditure
4,163
4,382
4,810
5,485
Raw Material
3,112
3,229
3,488
3,981
Personnel
339
398
441
515
Others Expenses
712
756
881
989
EBITDA
222
266
312
369
% chg
39.0
19.6
17.5
18.0
(% of Net Sales)
5.1
5.7
6.1
6.3
Depreciation& Amortisation
61
64
71
78
EBIT
162
202
242
291
% chg
57.2
24.9
19.5
20.3
(% of Net Sales)
3.7
4.3
4.7
5.0
Interest & other Charges
38
29
41
32
Other Income
35
17
20
20
(% of PBT)
21.8
8.9
9.1
7.2
Share in profit of Associates
-
-
-
-
Recurring PBT
159
190
221
278
% chg
19.7
20.0
16.1
26.1
Tax
37
49
60
75
(% of PBT)
23.1
26.0
27.0
27.0
PAT (reported)
122
141
161
203
Minority Interest (after tax)
0
0
0
0
Profit/Loss of Associate Company
1
2
7
2
Extraordinary Items
-
5
-
-
ADJ. PAT
123
144
154
201
% chg
12.2
17.0
6.9
30.5
(% of Net Sales)
2.8
3.1
3.0
3.4
Basic EPS (`)
12.8
15.0
16.0
20.9
Fully Diluted EPS (`)
12.8
15.0
16.0
20.9
% chg
12.2
17.0
6.9
30.5
November 3, 2018
5
Blue Star Ltd | 2QFY2019 Result Update
Consolidated Balance Sheet
Y/E March (`cr)
FY2017
FY2018
FY2019E
FY2020E
SOURCES OF FUNDS
Equity Share Capital
19
19
19
19
Reserves& Surplus
738
796
857
938
Shareholders Funds
757
815
876
957
Minority Interest
1
1
1
1
Total Loans
221
371
380
380
Deferred Tax Liability
24
24
24
24
Total Liabilities
1,004
1,202
1,281
1,364
APPLICATION OF FUNDS
Gross Block
359
399
439
479
Less: Acc. Depreciation
72
135
206
284
Net Block
288
264
233
195
Capital Work-in-Progress
34
34
34
34
Investments
79
79
79
79
Current Assets
2,141
2,425
2,685
3,032
Inventories
596
815
912
1,042
Sundry Debtors
939
1,019
1,123
1,283
Cash
97
81
128
139
Loans & Advances
390
394
410
457
Other Assets
120
116
113
111
Current liabilities
1,670
1,732
1,882
2,108
Net Current Assets
471
693
803
924
Deferred Tax Asset
132
132
132
132
Mis. Exp. not written off
-
-
-
-
Total Assets
1,004
1,202
1,281
1,364
November 3, 2018
6
Blue Star Ltd | 2QFY2019 Result Update
Consolidated Cash flow Statement
Y/E March (`cr)
FY2017
FY2018
FY2019E FY2020E
Profit before tax
159
190
221
278
Depreciation
61
64
71
78
Change in Working Capital
(105)
(238)
(63)
(110)
Interest / Dividend (Net)
19
29
41
32
Direct taxes paid
2
(49)
(60)
(75)
Others
(26)
0
0
0
Cash Flow from Operations
159
(4)
210
204
(Inc.)/ Dec. in Fixed Assets
(107)
(40)
(40)
(40)
(Inc.)/ Dec. in Investments
177
0
0
0
Cash Flow from Investing
69
(40)
(40)
(40)
Issue of Equity
7
0
0
0
Inc./(Dec.) in loans
6
150
9
0
Dividend Paid (Incl. Tax)
(2)
(86)
(92)
(121)
Interest / Dividend (Net)
(185)
(7)
(40)
(32)
Cash Flow from Financing
(174)
57
(123)
(152)
Inc./(Dec.) in Cash
54
12
47
11
Opening Cash balances
15
68
81
128
Closing Cash balances
68
81
128
139
November 3, 2018
7
Blue Star Ltd | 2QFY2019 Result Update
Key Ratios
Y/E March
FY2017
FY2018
FY2019E
FY2020E
Valuation Ratio (x)
P/E (on FDEPS)
44.1
37.7
35.2
27.0
P/CEPS
29.7
26.5
23.4
19.3
P/BV
7.2
6.7
6.2
5.7
Dividend yield (%)
1.3
1.6
1.7
2.2
EV/Sales
1.2
1.2
1.1
1.0
EV/EBITDA
24.6
21.2
17.9
15.1
EV / Total Assets
5.4
4.7
4.4
4.1
Per Share Data (`)
EPS (Basic)
12.8
15.0
16.0
20.9
EPS (fully diluted)
12.8
15.0
16.0
20.9
Cash EPS
19.0
21.3
24.2
29.3
DPS
7.5
9.0
9.6
12.6
Book Value
78.9
84.9
91.3
99.7
Returns (%)
ROCE
16.5
17.0
19.2
21.7
Angel ROIC (Pre-tax)
20.2
19.7
23.0
26.0
ROE
16.3
17.7
17.6
21.0
Turnover ratios (x)
Asset Turnover (Gross Block)
12.2
11.6
11.7
12.2
Inventory / Sales (days)
50
64
65
65
Receivables (days)
78
80
80
80
Payables (days)
98
95
93
90
Working capital cycle (ex-cash) (days)
30
49
52
55
Source: Company, Angel Research
November 3, 2018
8
Blue Star Ltd | 2QFY2019 Result Update
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay
Stock Exchange Limited, Metropolitan Stock Exchange Limited, Multi Commodity Exchange of India Ltd and National Commodity &
Derivatives Exchange Ltd It is also registered as a Depository Participant with CDSL and Portfolio Manager and Investment Adviser with
SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Limited is a registered entity with SEBI for Research
Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not
been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its
associates/analyst has not received any compensation / managed or co-managed public offering of securities of the company covered
by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Disclosure of Interest Statement
Blue Star
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to -15%)
Sell (< -15%)
November 3, 2018
9
