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Blue Star: Other income boosts profits - Views on News from Equitymaster
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Blue Star: Other income boosts profits
Jul 1, 2014

Blue Star has announced fourth quarter results for financial year 2013-2014 (4QFY14). The company reported 1.2% YoY increase in sales while net profits have increased by 130.7% YoY. Here is our analysis of the results.

Performance summary
  • Standalone topline improved moderately by around 1.2% YoY during 4QFY14. This was mainly due to a 14.2% YoY decline in Professional Electronics and Industrial Systems (PEIS) segment followed by 5.7% YoY decline in the Electro Mechanical & Project Services (EMPS) segment. Both the segments accounted for 93 % of the total sales.
  • At the same time; Cooling Products (CP) segment sales increased by 15.6% YoY during the quarter.
  • The operating profits increased by 49.8% YoY during the quarter. Raw material cost for the quarter declined by 4% YoY on an absolute basis. Also, as a proportion of sales the material cost declined from 76.5% in 4QFY13 to 72.6% in 4QFY14. This resulted in increase of operating margin from 2.3% in 4QFY13 to 3.4% in 4QFY14.
  • Other income increased by 68% YoY. Net profits improved 130.7% YoY.
  • Order book as on 4QFY14 stood at Rs 14.8 bn, representing a 5% YoY growth.

Standalone performance snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Income from operations 8582 8,687 1.2% 27,671 27,704 0.1%
Expenditure 8,383 8,389 0.1% 26,682 26,647 -0.1%
Operating profit (EBDITA) 199 298 49.8% 989 1,057 6.9%
Operating profit margin (%) 2.3% 3.4%   3.6% 3.8%  
Other income 208 350 68.3% 365.3 545.1 49.2%
Interest 124 125 1.1% 499 496.4 -0.5%
Depreciation 88.7 95 6.8% 329 346.9 5.4%
Profit before tax 194 428 120.5% 525.9 759 44.3%
Tax 8.6 - - 8.6 -  
Profit after tax/(loss) 186 428 130.7% 517 759 46.7%
Net profit margin (%) 2.2% 4.9%   1.9% 2.7%  
No. of shares         90.0  
Basic & diluted earnings per share (Rs)         8.4  
P/E ratio (x)*         34.6  
* On a trailing 12 months earnings.

What has driven performance in 4QFY14 and FY14?
  • Blue Star's net sales have improved moderately YoY during 4QFY14. Poor performance from PEIS and EMPS segment was the prime reason for a low growth.

  • The company's CP segment did well in the quarter registering a sales growth of 15.6% YoY. This was primarily on account of favorable climate, good distribution across tier 3, 4 and 5 cities.

  • EBIT margin for EMPS segment fell from 2.2% to 2.0% YoY in 4QFY14. The lower margin was on account of certain low or zero margin legacy orders. Also, execution in case of new- higher margin projects was slow.

  • EBIT margin improved in the CP business from 10.1% in 4QFY13 to 11.2% in 4QFY14. This was on account of higher mix of in-house raw material and manufactured products.

  • The EBIT margin in the PEIS segment increased to 15.8% in 4QFY14 from 14.9% in 4QFY13.

  • Net profit for the company has increased by whopping 130.7% YoY on account of strong operating profit and other income.

    Segment-wise performance
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Electro-Mech. Proj. & Packaged A/C Sys. (EMPS)
    Revenue 4,807 4,532 -5.7% 16,196  15,182 -6.3%
    % share 56.0% 52.2%   58.5% 54.8%  
    PBIT margin 2.2% 2.0%   4.5% 4.4%  
    Cooling Products (CP)
    Revenue 3,072 3,550 15.6%   9,652 10,755 11.4%
    % share 35.8% 40.9%   34.9% 38.8%  
    PBIT margin 10.1% 11.2%   8.3% 8.8%  
    Professional Electronics & Industrial Systems (PEIS)
    Revenue  704  604 -14.2% 1,823 1,767 -3.1%
    % share 8.2% 7.0%   6.6% 6.4%  
    PBIT margin 14.9% 15.8%   16.4% 16.9%  
    Total
    Revenue 8,582 8,687 1.2% 27,671 27,704 0.1%
    PBIT margin 6.1% 6.7%   6.6% 6.9%  

  • The order inflow in the EMPS segment has witnessed a growth of 11% YoY to Rs 15.8 bn in FY14.

  • For FY14, sales growth has been flat on account of decline in sales of EMPS and PEIS segments. The operating profit growth has also been subdued at 6.9% YoY primarily on account of increase in staff and other expenses.

  • Net profit for FY14 grew by about 47% on account of increase in other income.
What to expect?
Blue Star has delivered good performance in 4QFY14 and FY14 as a whole as far as profitability is concerned although a major proportion of net profit growth is a result of increase in other income. Going forward, the company expects pickup in demand as a result of revival in the investment climate of the country. The company is also looking at increasing product exports in the Middle East, North Africa and SAARC markets.

At the current price of Rs 292, the stock is trading at a multiple of 34.6x its trailing twelve month earnings. Since FY14 is over, we shall revisit our estimates and view on the company. We shall soon update investors with a revised view and target price based on FY17 earnings. Till then we recommend the investors to Hold on to the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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