Blue Star reported Q1FY15 numbers in line with our expectations. Revenues for the quarter have grown by 13% YoY; EBIDTA margins went down by 180 bps YoY. Nirmal Bang continues to be positive about the stock and recommends buy for long term.

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Blue Star Infotech Ltd
QQ11FFYY1155RReessuullttUUppddaattee––2255JJuullyy22001144
Recommendation BUY Blue Star reported Q1FY15 numbers in line with our expectations.
Revenues for the quarter have grown by 13% YoY; EBIDTA margins
went down by 180 bps YoY. Q4FY14 was exceptional in terms of Sales
and EBIDTA. In Q4FY14, while the sales grew by 17% QoQ, EBIDTA grew
by a whopping 860 bps QoQ to 15.5%. This was mainly on the back of
one time license revenues during that quarter. Post the appointment of
new CEO Mr Sunil Bhatia in 2011, company has changed its strategy
towards focusing on solutions and on inorganic growth which has
resulted in increasing its local presence in the US and Singapore by
opening up new centres. At CMP, the stock is trading at 8.2x/6.3x its
FY15E/FY16E expected earnings. We continue to be positive about the
stock and recommend BUY for long term.
Revenues for the quarter have grown by 13% YoY; however fell by
18% QoQ since Q4 was an extraordinary quarter due to onetime
license sales.
EBIDTA margins were down 180 bps YoY at 6% on the back
investments made by the company to fuel future growth. Company
is hiring senior professionals in sales and marketing team.
Forex loss came in at 0.14 crore against a loss of Rs.3.8 crore.
Tax rate was lower 19% against 23% in Q4FY14 and 25% in Q1FY14.
Pat was lower by 24% YoY on the back of lower sales.
Company broadly provides following services for its Global clients:
Business Application: Currently, company is developing applications
and solutions for its Travel and Hospitality sector customers. Lately
company has moved up the value chain and has created mobile
applications to enhance customer experience.
Product Engineering: Company provides engineering services for
Medical, Pharma, Manufacturing, Travel BFSI sectors. It has been
instrumental in 1800+ product releases and competes with large cap IT
company’s.
Professional services: HP has been an important customer since
inception for Blue Star Info and it has successfully been trying to add
more value for the company. The current engagement has lower
margins and we believe is a drag for overall margins of the company.
Business Analytics: The company has made a acquisition in 2013 which
is in the BI space and is well geared up to tap the $ 13.8 bn BI and
Analytical market.
CMP Rs.170
Target Price Rs.243
Sector IT Software products
Stock Details
BSE Code 532346
NSE Code BLUESTINFO
Bloomberg Code BLSI IN
Market Cap (Rs cr) 158
Free Float (%) 46.1%
52- wk HI/Lo (Rs) 172/58
Avg. volume BSE
(Quarterly)
5636
Face Value (Rs) 10
Dividend (FY 14) 40%
Shares o/s (Crs) 1.04
Relative Performance 1Mth 3Mth 1Yr
Blue Star Info 17.3% 50.0% 1.2%
Sensex 2.2% 19.6% 33%
Shareholding Pattern 30-June-14
Promoters Holding 53.9%
Institutional (Incl. FII) 3.0%
Corporate Bodies 2.7%
Public & others 40.5%
Kavita Vempalli (+91 22 3926 8173)
Research Analyst kavita.vempalli@nirmalbang.com
Year Net Sales Growth % EBITDA Margin % PAT EPS PE EV/EBITDA ROE %
FY13A 187.1 48.5% 9.2 4.9% 5.0 4.8 35.4 15.4 5.8%
FY14A 270.2 44.4% 25.3 9.2% 15.9 14.3 11.9 6.4 16.8%
FY15E 345.9 28.0% 32.3 9.3% 23.1 20.8 8.2 4.6 21.0%
FY16E 435.8 26.0% 41.7 9.5% 30.0 27.0 6.3 3.2 22.7%
0
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Blue Star Infotech Ltd
QQ11FFYY1155RReessuullttUUppddaattee––2255JJuullyy22001144
Quarterly Analysis
Source: Nirmal Bang Securities, Company
Q1FY15 Result Analysis (in Rs Crs.) Q1FY15 Q4FY14 Q-o-Q Q1FY14 Y-o-Y
Sales 64.5 78.8 -18.2% 56.9 13.3%
Employee Benefit Expenses 47.8 43.7 9.4% 45.8 4.3%
Cost of Product/Licenses 4.5 12.0 (62.7%) 3.2 38.1%
Travel Expenses 2.5 2.5 0.8% 1.4 76.3%
Other Expenses 5.8 8.4 (31.2%) 4.3 36.4%
EBITDA 3.9 12.2 (68.1%) 2.1 82.3%
Margin 6.0% 15.5% (944)bps 7.8% (174)bps
Depreciation & Amortization 1.0 1.1 (8.2%) 0.7 41.3%
Finance charges 0.2 0.9 (76.7%) 0.0 5786.5%
Other income 1.3 0.3 307.5% 1.5 (12.8%)
Forex gain/loss 0.1 3.8 0.0
Income before taxes 3.8 6.7 (43.05%) 2.9 31%
Margin 5.9% 8.5% (259)bps 5.1% 80 bps
Income taxes 0.7 1.5 (52.7%) 1.3 -45.1%
Minority Interest (0.0) 1.0 0.0 #DIV/0!
Net income 3.1 6.1 (49.69%) 1.6 94%
Margin 4.8% 7.8% (300)bps 2.8% 199 bps
EPS Rs. 2.7 4.1 (32.84%) 3.9 (30.47%)

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Blue Star Infotech Ltd
QQ11FFYY1155RReessuullttUUppddaattee––2255JJuullyy22001144
Financials
Profitability (Rs. In Cr) FY13 FY14 FY15E FY16E Financial Health (Rs. In Cr) FY13 FY14 FY15E FY16E
Revenues 187.1 270.2 345.9 435.8 EQUITY & LIABILITIES
% change 48.5% 44.4% 28.0% 26.0% Share Capital 10.4 10.4 10.4 10.4
EBITDA 9.2 25.3 32.3 41.7 Reserves & Surplus 78.9 90.2 109.5 134.5
EBITDA margin (%) 4.9% 9.2% 9.3% 9.5% Minority Interest 0.0 2.1 3.6 4.1
Depn & Amort 2.9 3.8 4.5 4.7 Non-Current Liabilities
Operating income 6.2 21.5 27.9 37.0 Net Deferred Tax Liabilites 1.6 1.0 1.0 1.0
Interest 0.1 1.0 2.2 2.2 Other Long Term Liabilities 3.3 6.3 7.0 7.6
Other Income 6.6 5.6 6.5 7.5 Long Term Provisions 0.9 1.7 1.9 2.1
Forex Hedging Cost 5.4 4.1 0.0 0.0 Current Liabilities
PBT 7.3 21.8 32.1 42.3 Short Term Borrowings 0.1 4.5 2.5 0.0
PBT Margins (%) 3.9% 8.1% 9.3% 9.7% Trade Payables 20.3 22.1 32.3 40.6
Tax 2.3 5.9 9.0 12.3 Other Current Liabilities 6.1 9.1 10.1 10.7
Tax rate% 32.0% 27.1% 28.0% 29.0% Short Term Provisions 3.0 5.5 6.9 8.6
PAT 5.0 15.9 23.1 30.0 TOTAL 124.6 152.9 185.0 219.7
M.I 0.0 1.0 1.5 2.0 Non Current Assets
PAT after MI 5.0 14.9 21.6 28.0 Fixed Assets
EPS 4.8 14.3 20.8 27.0 Tangible 20.6 20.1 21.1 22.1
Quarterly (Rs. In Cr) June.13 Sep.13 Dec.13 Mar.14 Intangible 1.2 2.0 2.1 2.2
Revenue 56.9 67.2 67.4 78.8 CWIP 0.6 2.2 4.0 6.0
EBITDA 4.6 3.8 4.7 12.2 Goodwill 1.6 17.9 17.9 17.9
Dep & Amortisation 0.7 1.2 0.8 1.1 Non Current Investments 2.4 0.0 0.0 0.0
Op Income 3.9 2.6 3.9 11.1 Long term Loans and Advances 18.2 23.6 21.2 19.1
Interest 0.0 0.0 0.1 0.9 Others 0.5 0.6 0.6 0.6
Other Inc. 1.5 2.2 1.5 0.3 Current Assets
Forex Gain/(Loss) 0.0 0.0 (0.4) (3.8) Current Investments 1.1 0.0 0.0 0.0
PBT 5.4 4.8 4.9 6.7 Trade Receivables 44.6 61.0 76.9 94.4
Tax 1.3 1.7 1.4 1.5 Cash and Bank Balances 28.7 21.0 37.0 53.3
Tax rate 24.5% 34.7% 28.5% 22.8% Short Term Loans and Advances 3.7 3.0 2.7 2.4
PAT 4.1 3.2 3.5 5.2 Other Current Assets 1.4 1.6 1.6 1.7
PAT Margins % 7.2% 4.7% 5.2% 6.6% TOTAL 124.6 152.9 185.0 219.7
M.I 0.00 0.09 0.00 0.96
PAT after M.I 4.08 3.06 3.52 4.22 Cash Flow (Rs. In Cr) FY13 FY14 FY15E FY16E
EPS 3.9 2.9 3.4 4.1 Operating
Performance Ratios FY13 FY14 FY15E FY16E OP before WC 9.2 25.3 32.3 41.7
EBITDA margin (%) 4.9% 9.2% 9.3% 9.5% Change in WC (3.0) (11.0) 0.1 (3.5)
PAT margin (%) 2.6% 5.8% 6.7% 6.9% Tax (2.3) (5.9) (9.0) (12.3)
ROE (%) 5.8% 16.8% 21.0% 22.7% CF from Operation 3.9 8.3 23.5 25.9
ROCE (%) 7.4% 18.1% 23.3% 25.7% Investment
Capex (3.7) (5.6) (4.8) (5.0)
Valuation Ratios FY13 FY14 FY15E FY16E Other Income & Investments 10.8 9.1 6.5 7.5
Price Earnings (x) 35.39 11.87 8.17 6.30 Total Investment 7.0 3.6 1.7 2.5
Price / Book Value (x) 1.70 1.51 1.27 1.05 Financing
EV / Sales 0.76 0.60 0.43 0.30 Change in Borrowing 0.1 4.4 (2.0) (2.5)
EV / EBITDA 15.44 6.42 4.59 3.18 Dividend paid (1.7) (3.4) (5.0) (6.5)
Interest Paid (0.1) (1.0) (2.2) (2.2)
Per Share Data FY13 FY14 FY15E FY16E Extraordinary & Others (3.3) (19.4) 0.0 (0.9)
Reported EPS 4.8 14.3 20.8 27.0 Total Financing (5.0) (19.5) (9.2) (12.1)
BV per share 85.9 96.9 115.4 139.5 Net Chg. in Cash 5.9 -7.7 16.0 16.3
Cash EPS 27.6 20.2 35.6 51.3 Cash at beginning 22.8 28.7 21.0 37.0
Dividend per share 0.2 0.5 0.7 0.9 Cash at end 28.67 21.01 36.99 53.29
Source: Company data, Research

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Blue Star Infotech Ltd
QQ11FFYY1155RReessuullttUUppddaattee––2255JJuullyy22001144
Disclaimer:
This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities Pvt Ltd). The information, analysis and
estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This
document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for
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herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This
document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees
may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or
perform investment banking or other services for any company mentioned in this document.
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