We initiate coverage on it, with a target price of Rs 947. For FY19-21, we model 14/26 percent CAGRs in revenue/PAT, with no major rise in net working capital required.
Blue Star has again showcased its robust and agile business model, developed over time. It’s rising RoCE in challenging times, from 20.5 percent in FY18 to 24.9 percent in FY19, depicting its ability to deliver superior returns in FY20/FY21. Q4 FY19 consolidated revenue growth (19 percent YoY) was led by 21 percent YoY growth across project divisions and 19 percent across the UPC segment, while the professional electronics division declined11 percent.
The EBITDA margin expanded 240bps as fixed costs were levied on a higher revenue base; the gross margin, though, at 25 percent, was flat YoY, as rising commodity prices and the rupee depreciation were partially passed on. At Rs 100 crore, staff costs were flat YoY, making up 7 percent of Q4revenue (8 percent a year ago); other manufacturing expenses rose just 3 percent YoY.
Blue Star's market share in room ACs in Q4 FY19 was12.3 percent, up 80bps YoY, flat QoQ, despite challenging conditions in FY19. Overall, Blue Star reported 3 percent value growth in FY19; industry growth was negative.
The pending order book at end-Q4 FY19 across its MEP business was Rs 2,430 crore, up 16 percent YoY. FY19 orders were Rs 2,950 crore, up 19 percent YoY. Blue Star received orders for more than 100 MEP projects in FY19, which it expects to expand in FY20.
At the CMP of Rs 697, the stock trades at 30x/22x the FY20e/FY21e EPS of 23.6/ 31.6.
We initiate coverage on it, with a target price of Rs 947 (30x FY21e EPS of Rs 31.6). For FY19-21, we model 14/26 percent CAGRs in revenue/PAT, with no major rise in net working capital required, eventually leading to the RoCE expanding from 25 percent in FY19 to 30/35 percent in FY20/FY21.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.