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Anand Rathi
Blue Star (Buy)
CMP: ₹737.35
Target: ₹947
Blue Start’s Q4 FY19 consolidated revenue growth (19 per cent y-o-y) was led by 21 per cent y-o-y growth across project divisions and 19 per cent across the UPC segment, while the professional electronics division declined 11 per cent. The EBITDA margin expanded 240 bps as fixed costs were levied on a higher revenue base; the gross margin, though, at 25 per cent, was flat y-o-y, as rising commodity prices and the rupee depreciation were partially passed on. At ₹100 crore, staff costs were flat y-o-y, making up 7 per cent of Q4 revenue (8 per cent a year ago); other manufacturing expenses rose just 3 per cent y-o-y.
Blue Star has again showcased its robust and agile business model, developed over time. Its rising RoCE in challenging times, from 20.5 per cent in FY18 to 24.9 per cent in FY19, depicting its ability to deliver superior returns in FY20/FY21. We expect the RoCE to rise to 29.9 per cent and 34.7 per cent, respectively, aided by a supportive macro environment. We initiate coverage on the stock, with a target of ₹947 (30x FY21e EPS of ₹31.6).
Risks: Constant rise in metal prices, unseasonal rains.
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