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Valuations captures positivity; maintain Reduce

Result Synopsis

BLSTR has continued its strong growth momentum with revenue growth of 28.7% (7% lower than estimates). Revenue miss was largely on account of lower execution in the project business. Unitary products continue to outshine with its revenue growing by 44.3% yoy. Commercial refrigeration has also seen strong demand and is growing at 15% CAGR. EMPS margins at 9.9% surprised positively as there was higher supply of equipment and company had supplied its own commercial air-conditioner. BLSTR expects EPMS margins in the range of 7.5-8% to be sustainable. Order inflow for the quarter stood at Rs14.2bn growth of 13%, while order book stood at Rs60.8bn growing by 14%. The company has experienced strong order-booking from factories and data centers, while commercial building sector has seen limited traction. Company has given positive outlook for RAC in FY25 given the way Q1 has panned out and sentiment continues to remain buoyant. We continue to remain positive on the domestic business, as its company has growth drivers in place with strong proposition in the commercial refrigeration and air-conditioning space, while on the international front it would be a slow progress as US and European market continues to face its own challenges. We maintain our Reduce rating as positivity of the domestic market has been captured in the current valuation, while international business would take time for ramping up as BLSTR is currently focusing on increasing its capability and it will take time to make significant inroads as China is still cost competitive given their scale of operations.

BLSTR is estimated to deliver strong double-digit CAGR revenue growth on back of improved execution of projects, market share gains in RAC and continued growth momentum in Commercial refrigeration. We pencil in revenue/EBITDA/Adj PAT CAGR of 18%/24%/33% over FY24-26E. We have increased our SoTP-based PT to Rs1,492 vs earlier Rs1,380. We have increased our target multiple for EMPS business to 35x vs 30x as company has been consistently delivering on revenue improving margin profile. We maintain Reduce as current stock price valuation captures positivity of the strong domestic growth, while building traction on the international front would take longer than anticipated. We would advise to enter the stock on decline for favorable risk reward ratio.

Result Highlights

* Business update - Bluestar (BLSTR IN) reported lower than expected revenue growth, with Unitary products/EMPS/PEIS growing at 44.3%/9.5%/23.5% respectively. RAC saw unprecedented demand resulting strong growth in UP.

* Margins – Gross margins have expanded by 144bps on yoy basis. EBITDA margins expanded by 179bps on yoy basis. BLSTR has said that 8.5%-9% EBITDA margin would be sustainable for FY25.

* EMPS – Order-book at Rs60.8bn continues to remain healthy. Order inflow at ~Rs14bn was up 13% on yoy basis. Commercial building has seen limited traction, while factories and data centers have experienced robust order booking.

* Demand Outlook – The company expects sustained growth driven by good demand, introduction of new products across all products categories and strong carried forward order-book. BLSTR is guiding revenue growth of 20-25% for FY25

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