3QFY2019 Result Update | Cons. Durable
February 14, 2019
Blue Star Ltd
BUY
CMP
`589
Performance Update
Target Price
`867
3QFY19
3QFY18
% chg. (yoy)
2QFY19
% chg. (qoq)
Investment Period
12 Months
Net Sales
1,099
932
17.9
1,032
6.5
Stock Info
Operating profit
35
42
(17.1)
58
(39.4)
Sector
Cons. Durable
OPM (%)
3.2
4.6
(135bp)
5.6
(243bp)
Market Cap (` cr)
5,605
Net Debt (` cr)
210
Adj. PAT
4
13
(69.8)
23.8
(83.0)
Beta
0.2
52 Week High / Low
843/507
Source: Company, Angel Research
Avg. Daily Volume
18,198
Face Value (`)
2
For 3QFY2019, Blue Star posted results below our expectations on the bottom-line front.
BSE Sensex
35,876
Nifty
10,746
The company reported ~18% yoy top-line growth, whereas PAT was down ~70% yoy due
Reuters Code
BLUS.BO
to losses in JV and higher interest cost.
Bloomberg Code
BLSTR IN
Strong revenue growth across segments boosted top-line: The company’s top-line grew
Shareholding Pattern (%)
Promoters
38.8
~18% yoy at `1,099cr on the back of strong performance in EMP business (up ~16% yoy)
MF / Banks / Indian Fls
22.1
FII / NRIs / OCBs
10.2
driven by the increased pace of execution of projects, and a pick-up in the central air
Indian Public / Others
29.0
conditioning business, especially chillers and VRF systems. Further, the revenue of Unitary
Abs.(%)
3m
1yr
3yr
Products business increased by ~22% yoy due to strong growth in deep freezers and
Sensex
2.5
5.5
53.0
Blue Star
3.1
(20.5)
75.6
storage water coolers in the commercial refrigeration business coupled with growth in the
air coolers and water purifiers businesses. Sales grew in the RAC segment by ~8% yoy, thus
increasing the market share to ~12.5%. Professional Electronics and Industrial Systems
business’ revenue grew~16% yoy during the quarter.
Adj. PAT de-grew ~70% yoy: On the operating front, the company’s margins contracted by
135bps yoy on the back of weak margin in the UCP segment due to increasing pricing
3-year price chart
pressure and higher consumer financing cost. The bottom-line registered de-growth of
900
~70% yoy to `4cr on account of higher interest cost (`14.5cr) and losses in International
800
JV.
700
600
Outlook & Valuation: We forecast Blue Star to report top-line CAGR of ~12% to `5,871cr
500
400
over FY2018-20E on the back of healthy demand growth in Air Conditioning and Unitary
300
Products division. On the bottom-line front, we estimate ~17% CAGR to `198cr owing to
200
100
improvement in volumes and better operating margins. We maintain our Buy
0
recommendation on Blue Star with a Target Price of `867.
Key Financials
Source: Company, Angel Research
Y/E March (`cr)
FY2017
FY2018
FY2019E
FY2020E
Net Sales
4,385
4,648
5,178
5,871
% chg
13.5
6.0
11.4
13.4
Net Profit
123
144
135
198
% chg
12.2
17.0
(6.1)
46.1
Amarjeet S Maurya
OPM (%)
5.1
5.7
6.1
6.3
022-39357800 Ext: 6831
EPS (Rs)
12.8
15.0
14.1
20.6
P/E (x)
46.0
39.3
41.8
28.6
P/BV (x)
7.5
6.9
6.5
6.0
RoE (%)
16.3
17.7
15.6
20.8
RoCE (%)
16.5
17.0
19.6
22.0
EV/Sales (x)
1.3
1.3
1.1
1.0
Please refer to important disclosures at the end of this report
1
Blue Star Ltd | 2QFY2019 Result Update
Exhibit 1: 3QFY2019 Performance
Y/E March (` cr)
3QFY19
3QFY18
% chg. (yoy) 2QFY19
% chg. (qoq)
9MFY19
9MFY18
% chg
Net Sales
1,099
932
17.9
1,032
6.5
3,639
3,293
10.5
Net raw material
837.7
678
23.6
704.7
18.9
2733
2450.5
11.5
(% of Sales)
76.2
72.7
350
68.3
795
75.1
74.4
Employee Cost
107
101
5.2
106
0.7
312
290
7.7
(% of Sales)
9.7
10.9
(117)
10.3
(55)
8.6
8.8
Other Expenses
120
110
8.2
164
(26.9)
357
351
1.7
(% of Sales)
10.9
11.9
(97)
15.8
(497)
9.8
10.7
Total Expenditure
1,064
890
19.6
974
9.2
3,402
3,091
10.1
Operating Profit
35
42
(17.1)
58
(39.4)
237
201
18
OPM (%)
3.2
4.6
(135)
5.6
(243)
6.51
6.12
40
Interest
13
7
78.2
12
12.3
37
18
104.5
Depreciation
18
17
5.9
17
7.9
51
46
12.5
Other Income
10
4
191.3
5
110.3
24
17
43.4
PBT
14
21
(33.7)
34
(58.8)
173
155
11.8
(% of Sales)
1.3
2.3
(43.8)
3.3
4.8
4.7
Exceptional Items
(2.7)
Tax
1
6
(83.0)
8
(87.4)
41
41
0.4
(% of PBT)
7.0
27.2
22.8
23.9
26.6
Reported PAT before MI & Extra Ord. Items
13
16
(15.3)
24
(44.7)
132
113
16.0
PATM
1.2
1.7
2.3
3.6
3.4
Minority Interest
0
0
(4)
0
0
P/L of Ass. Co.
(14)
(2)
(4)
(21)
(1)
Extra-ordinary Items
5
(0)
(4)
0
Reported PAT
4
13
(69.8)
24
(83.0)
107
112
(5.0)
Source: Company, Angel Research
February 14, 2019
2
Blue Star Ltd | 2QFY2019 Result Update
Key investment arguments
Cooling Products division - the backbone of growth: Company is estimating more
than 20% growth (outperforming the market at 15-20% growth) in FY2019E in the
cooling products division. Further, considering the strong growth in last summer,
the market is expected to be further driven by the rise in demand over the coming
months.
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 FY2019,
having four models currently. The company is planning to launch one high wall-
cordless split AC model around the same time. Moreover, 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, the
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.
February 14, 2019
3
Blue Star Ltd | 2QFY2019 Result Update
Outlook & Valuation:
We forecast Blue Star to report top-line CAGR of ~12% to `5,871cr over FY2018-20E on
the back of healthy demand growth in Air Conditioning and Unitary Products division. On
the bottom-line front, we estimate ~17% CAGR to `198cr 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.
February 14, 2019
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
5,178
5,871
% chg
13.5
6.0
11.4
13.4
Total Expenditure
4,163
4,382
4,862
5,501
Raw Material
3,112
3,229
3,526
3,992
Personnel
339
398
445
517
Others Expenses
712
756
891
992
EBITDA
222
266
316
370
% chg
39.0
19.6
18.8
17.1
(% of Net Sales)
5.1
5.7
6.1
6.3
Depreciation& Amortisation
61
64
71
78
EBIT
162
202
245
292
% chg
57.2
24.9
21.2
19.1
(% of Net Sales)
3.7
4.3
4.7
5.0
Interest & other Charges
38
29
50
40
Other Income
35
17
29
22
(% of PBT)
21.8
8.9
12.9
8.0
Share in profit of Associates
-
-
-
-
Recurring PBT
159
190
224
274
% chg
19.7
20.0
17.7
22.2
Tax
37
49
60
74
(% of PBT)
23.1
26.0
27.0
27.0
PAT (reported)
122
141
164
200
Minority Interest (after tax)
0
0
0
0
Profit/Loss of Associate Company
1
2
24
2
Extraordinary Items
-
5
4
-
ADJ. PAT
123
144
135
198
% chg
12.2
17.0
(6.1)
46.1
(% of Net Sales)
2.8
3.1
2.6
3.4
Basic EPS (`)
12.8
15.0
14.1
20.6
Fully Diluted EPS (`)
12.8
15.0
14.1
20.6
% chg
12.2
17.0
(6.1)
46.1
February 14, 2019
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
850
929
Shareholders Funds
757
815
869
948
Minority Interest
1
1
1
1
Total Loans
221
371
380
380
Deferred Tax Liability
24
24
24
24
Total Liabilities
1,004
1,211
1,274
1,354
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
2,719
3,049
Inventories
596
815
922
1,046
Sundry Debtors
939
1,019
1,135
1,287
Cash
97
81
134
147
Loans & Advances
390
394
414
458
Other Assets
120
116
114
112
Current liabilities
1,670
1,732
1,903
2,113
Net Current Assets
471
693
816
937
Deferred Tax Asset
132
132
132
132
Mis. Exp. not written off
-
-
-
-
Total Assets
1,004
1,211
1,274
1,354
February 14, 2019
6
Blue Star Ltd | 2QFY2019 Result Update
Consolidated Cash flow Statement
Y/E March (`cr)
FY2017
FY2018
FY2019E FY2020E
Profit before tax
159
190
224
274
Depreciation
61
64
71
78
Change in Working Capital
(105)
(238)
(70)
(107)
Interest / Dividend (Net)
19
29
50
40
Direct taxes paid
2
(49)
(60)
(74)
Others
(26)
0
0
0
Cash Flow from Operations
159
(4)
214
211
(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)
(81)
(119)
Interest / Dividend (Net)
(185)
(7)
(49)
(39)
Cash Flow from Financing
(174)
57
(121)
(158)
Inc./(Dec.) in Cash
54
12
53
14
Opening Cash balances
15
68
81
134
Closing Cash balances
68
81
134
147
February 14, 2019
7
Blue Star Ltd | 2QFY2019 Result Update
Key Ratios
Y/E March
FY2017
FY2018
FY2019E
FY2020E
Valuation Ratio (x)
P/E (on FDEPS)
46.0
39.3
41.8
28.6
P/CEPS
31.0
27.6
24.1
20.3
P/BV
7.5
6.9
6.5
6.0
Dividend yield (%)
1.3
1.5
1.4
2.1
EV/Sales
1.3
1.3
1.1
1.0
EV/EBITDA
25.6
22.1
18.4
15.7
EV / Total Assets
5.7
4.9
4.5
4.2
Per Share Data (`)
EPS (Basic)
12.8
15.0
14.1
20.6
EPS (fully diluted)
12.8
15.0
14.1
20.6
Cash EPS
19.0
21.3
24.4
29.0
DPS
7.5
9.0
8.5
12.3
Book Value
78.9
84.9
90.5
98.7
Returns (%)
ROCE
16.5
17.0
19.6
22.0
Angel ROIC (Pre-tax)
20.2
19.7
23.7
26.5
ROE
16.3
17.7
15.6
20.8
Turnover ratios (x)
Asset Turnover (Gross Block)
12.2
11.6
11.8
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
February 14, 2019
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.
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nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
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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%)
February 14, 2019
9
