MOSL: BLUE STAR (Neutral)-Results impacted by weaker-than-estimated margins

Blue Star: Results impacted by weaker-than-estimated margins

(BLSTR IN, Mkt Cap USD1.1b, CMP INR754, TP INR860, 14% Upside, Neutral)

• 4QFY18 results below expectations at operating level: Sales grew 8% YoY to INR14.8b, in line with our estimate of INR15b. EBITDA of INR927m (+23% YoY) came in below our estimate of INR1.1b due to a miss on operating margin (-80bp YoY to 6.3% v/s est. of 7.1%). Adj. net profit rose 23.6% YoY to INR460m, below our estimate of INR602m. BLSTR's market share stood at 11.5% for FY18. For full-year FY18, sales stood at INR47.5b (+8% YoY), EBIDTA at INR2.9b (+21.3% YoY) and adj. PAT at INR1.4b (+17% YoY).
• UCP segment reported LTL revenue growth of 19.3% YoY (7.3% YoY on reported basis) to INR6.9b, higher than our estimate of INR6.6b. Room air conditioner segment sales grew 19% YoY v/s industry growth of 15%. EBIT margin expanded 120bp YoY to 9.9%, led by higher volumes, price hikes taken to offset higher RM cost, and higher realizations. Management guided for 9-9.5% margin in FY19, excluding 100-150bp impact from water purifiers.
• EMP revenue stood at INR7.3b (up 7% YoY) in 4QFY18. Market demand was muted due to weak investment in metro, healthcare and muted private capex. BLSTR expects EMP market to pick up in FY19, with revenue growth of 8-10%, led by government, metro and airport segments. EBIT margin expanded 90bp YoY to 5.6%, led by higher volumes and execution of high-margin projects. EBIT margin is guided at 4.5-5.5% for FY19.