MOSL: BLUE STAR (Neutral)- Results below est. impacted by weakness across segments
BLUE STAR: Results below est. impacted by weakness across segments
(BLSTR IN, Mkt Cap USD1b, CMP INR709, TP INR760, 7% Upside, Neutral)
- 1QFY20 sales at INR16b grew 5% YoY (v/s est. INR17.7b) impacted by weak performance across segments. UCP segment sales (+9% YoY) were below our expectation of INR10b, while Electro Mechanical Project (EMP) segment sales were muted at INR6.2b (+1% YoY). EBITDA of INR1.1b (-16% YoY) was below our expectation of INR1.7b, impacted by weaker-than-estimated margins across segments. Adj. net profit at INR0.8b stood flat YoY (v/s est. of INR993m).
- Commercial Refrigeration segment decline hampers UCP growth: UCP segment sales were up 9% YoY at INR9.0b, affected by weak performance in the Commercial Refrigeration segment (-30% YoY). Room AC sales grew 25% YoY, supported by strong summer season. EBIT margin declined 50bp YoY to 10.9%, impacted by weak revenue mix (sales of lower margin fixed-speed AC registered higher growth v/s higher margin inverter AC). Blue Star expects the RAC market to register 12-15% value growth in FY20.
- EMP segment registers muted performance: EMP segment sales were muted at INR6.2b (up 1% YoY), impacted by old inventory clearance and migration towards non-ozone technology product. EBIT margins declined 100bp YoY to 5.4%. It expects EMP division's margins at ~5.5-6% for FY20.
- Valuation and view: We maintain our rating, valuing the stock on SOTP to get a target price of INR760 (UCP business at 32x FY21E EPS, EMP at 15x, and Professional Electronics at 15x). Maintain 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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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