Blue Star's Q4FY19 results (Neutral) - Strong quarter
Q4FY19 result highlights
- Adj. PAT at Rs825mn (+212% yoy): Revenue +18.5% yoy to Rs16bn. Margins expanded 237bps yoy to 6.9%, driving 81% yoy growth in EBITDA to Rs1.09bn. Moreover, higher other income and one-time deferred tax credit (1% tax rate) led to strong PAT.
- EMP revenues +20.6% yoy growth: to Rs8.42bn led by uptick in execution. However, margins fell 24bps yoy to 4.3% on execution of low margin orders.
- Cooling performance strong: Revenues +19% yoy to Rs7bn driven by sustained traction in commercial refrigeration (+34% yoy) & water purifiers. However, RAC saw moderate 6% yoy growth, ahead of industry, enhancing its market share to 12.3% for FY19 (+80bps yoy). Accordingly, margins improved 353bps yoy to 10.4% led by operating leverage, enhanced revenue mix (higher inverter), price hikes (limited discounts, 5% hikes in Oct-18) and cost efficiencies.
- FY19 adj PAT +36% yoy to Rs1.9bn: Revenues +13% yoy to Rs52bn driven by EMP (+16% yoy) and cooling (+9% yoy). OPM +90bps to 6.6% led +30/20bp in EMP/ cooling margins, while PE saw +800bps driving 30% yoy growth in EBITDA to Rs3.47bn.
Conf call highlights: (1) RAC revenues +6%/3% yoy in 4Q19/FY19 (vs industry decline) resulting in mkt share gains (+80bps) to 12.3% in FY19 (2) Ongoing summer season is expected to be normal and industry is expected to see 10-12% yoy in FY20 (3) Traction in North and West mkts has aided mkt share gains (4) Commercial refrigeration +34% yoy in 4Q19 on strong demand momentum and ramp up in product portfolio (5) Water purifier mkt share of 2.5% to be increased to 10% by FY21 with entire product portfolio & distribution network in place (6) Bluestar remains mkt leader in ducted systems with 39% mkt share and improved mkt share in VRF and chillers to 17% and 15% resp.
Impact on financials: FY20/21 EPS raised by 8%/2% to Rs24.6/30
Valuations & view
Blue Star’s wide product portfolio (strong inverter RACs presence), premium brand image and growing reach has enabled it to expand market share. Concurrently, Blue Star is leveraging its brand to penetrate into other segments and grow at a faster pace. Moreover, EMP business has stabilised led by focus on profitable orders. These measures should drive 24% earnings CAGR over FY19-21E, in our view. However, we believe valuations factor in all the positives at 28.4x/23.3x FY20E /21E earnings. Neutral.
Blue Star is an air-conditioning and commercial refrigeration company. Co. is engaged in the provision of cooling solutions as well as import distribution and maintenance of professional electronic and industrial equipment and systems, including turnkey engineered solutions in the areas of banking, telecom, healthcare, defense, pharmaceuticals, manufacturing and research and development. Co.'s business segments are Central Air-conditioning Systems, Cooling Products and Professional Electronics and Industrial Equipment.
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