IGI Logo

Weak quarter

Blue Star reported weak set of results on account of subdued performance in commercial refrigeration segment (segment 2) and slower execution in EMP & PAC. Liquidity crunch and company’s intention to control working capital, led to slower execution in the project business, thereby posting flattish growth. In UCP segment, Blue Star’s Room AC (RAC) value growth stood at 25% yoy, outperforming industry growth of 22% yoy in primary sales. The company’s market share increased from 11.7% in Q1 FY19 to 12.5% in Q1 FY20. UCP segment growth was curtailed by 30% yoy de-growth in commercial refrigeration (30% of USP business). This was due to larger base in Q1 FY19 and the company’s migration to non-ozone depleting products. UCP EBITM (ex-Wada subsidy) contracted 94bps yoy to 10.5%, on account of higher sales of two and three star rated fixed speed RAC. EMP & PAC segment EBITM (ex-Wada subsidy) contracted 241bps yoy to 4% in Q1 FY20. The company received a subsidy of Rs140mn for Wada plant. Order book of EMP & PAC as of 30th June’ 2019 stood at Rs28.4bn (up 34% yoy), of which EMP segment book was Rs20bn and the rest was PAC book. The company received order worth Rs6.2bn in Q1 FY20 including a large Mumbai metro order worth Rs2.5bn.

The management expects to outgrow the market led by higher penetration and strong product portfolio. We have lowered our estimates based on subdued Q1 FY20 in non-AC business. Debt levels have corrected from their peak in H1 FY19 and is currently net debt positive. Expectation of healthy growth in RAC business, prudent inventory control of RAC and strengthening balance sheet, augurs well. However, at 25.1x FY21E P/E valuations appear reasonable. We recommend a Hold rating with a revised price target of Rs.680.

To Read Complete Report & Disclaimer Click Here

For Yes Securities Disclaimer http://yesinvest.in/YES/index.jsp SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer