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Blue Star 4QFY23 results were below JMFe, although better vs BBG consensus. Net sales grew by 16% YoY, in line with estimates, while EBITDA was 7% lower vs our estimates (INR 1.8bn, +25% YoY). Unitary Products segment registered a robust growth of 22% YoY to INR12.7bn, 5% above estimates. Further, we attended the analyst meet and the key takeaways are as follows: a) Management targets to maintain growth in EMP segment through expansion in product portfolio and channel expansion with key focus on lower tier cities, b) Increased focus on international markets by consolidating position in the MEA region and making an entry in North America and Europe markets, c) pushing affordable RAC range in North India to gain market share (current share at 13.5%), d) deepen distribution reach and increase customer touch points to 10k by FY24 from 8k currently and f) Capex likely to be in the range of INR2.5-3bn over next two years for expansion of capacities in Sri City. Management highlighted that they intend to grow faster than market which is likely to clock 20% growth over Jan-Jun’23 period and intends to retain margin of 8-8.5% and 6-6.5% in Unitary Products and EMP segments respectively. We maintain BUY rating with revised TP of INR1,600.

* Strong growth across segment: Net sales grew 16% YoY to INR 26.2bn, in line with JMFe. The growth in revenue was primarily led by UP segment, where sales were up 22% YoY/80% QoQ, given early onset of summers and healthy growth in refrigeration business. EMP segment posted growth of 10% YoY to INR12.5bn given healthy order inflows from across segments including Buildings, Metro Railways, Factories and Data Centres. PEIS posted growth of 33% YoY to INR1bn, with the revival of the private capex cycle, revenue grew across all lines of businesses.

* Margins to sustain: EBITDA came in at INR 1.8bn, as margins were up 50bps YoY to 6.8%. Although overall EBITDA margins missed expectations, segmental margins reported a beat as the company classifies a large proportion of spends as unallocable expenses, which were up 74% YoY. Inflationary pressure in RM and logistics was offset by healthy growth in sales and cost reduction initiatives. In EMP segment, margins were up by 130bps YoY to 7.9%, whereas in UP segment margins were up by 150bps YoY to 8.4%, given higher sale of premium and mass premium products. PEIS margins were up by 70bps YoY 19.2%.

* Execution to further ramp up: Order book grew by 55% YoY to INR50.4bn (1.3x TTM sales). Order inflows were up 31% YoY, led by inflows from the factories and light industrial sectors coupled with pickup in order inflows from the Infrastructure and the Commercial Realty sectors.

* Maintain BUY with revised TP of INR1,600: We forecast BLSTR to deliver sales/EPS CAGR of 19%/45% over FY23-25E, as we expect it to increase its market share in RACs to 15% by FY25 and maintain its margin discipline vs peers. We maintain BUY with TP of INR1,600, as we value the consumer business at 40x Mar’25E EPS, non-consumer business at 20x Mar’25E EPS, and cash+invst at 1x BV.

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