Blue Star - Shinning Star

I was reading the Blue Star balance sheet and it was a breath of fresh air. I was pleasantly surprised by the candidness and the clarity of management thought process.

Enclosing a few excerpts of the Chairman’s speech

“Actually we have been successful in controlling expenses for a number of years with a conceptually simple yet effective approach. Basically, we ensure that the increase in total expenses is significantly less than the increase in Gross Margin.

Blue Stars operating managers are well versed in a culture of accountability and cost consciousness and are entrusted to deliver business results while managing costs and cash flow. They did a excellent job last year. For ex, while Operating Income grew by 39% and Gross Margin by 51%, total expenses grew by only 24%. The difference flowed straight into PBT which grew by 137%. The mathematics is simple, but the results dramatic.”

Some more

“Capital turnover improved dramatically from 5.32 to 7.48. Borrowing reduced from 89 crores to 37 crores and debt/equit ratio reduced from 0.42 to only 0.14. This was a encouraging development because we clearly have proven a self financing business model. At a time when capital is likely to become scarce and more expensive, it is reassuring to have good internal cash generation and a strong balnce sheet”.

I just love the focus on costs in a year where the company increase topline from 1607 crores to 2270 cores and net profit showed a dramatic 145% jump from 71 crores to 174 crores. There is clarity of thought and the orientation to focus on profitable growth and not just growth.

I have experienced that in most balance sheets the “ management discussion & analysis” part is really given lip service and managements typically mouths some platitudes. The Blue Star discussion was excellent with detailed analysis of each of the business segments, plants & various functions. It was informative and the management has made a genuine attempt to educate as opposed to just informing the shareholder.

The business had a great time last year and things might slowdown a little bit this year bcos of the general slowdown.

Here’s a company which delivered RONW of 66% and ROCE of 81% last year. Consistent growth in profits in the last 10 years. The stock has a PE of about 20

So what’s the call …

I m clear that I will own stock in this company someday not just for performance but more importantly for the clarity of management thought process. At 20 PE I m unable to break the mental barrier of paying top dollar for a good business. So I will wait patiently and hope for a bad quarter or some bad news when the market irrationally hammers the stock down.

But then like I said in one of my earlier post maybe …

Yeh Na Thi Hamari Kismat, Ke wisaal-e-yaar, hota,
(It was not in my destiny, to be united with my lover)

Agar aur jeete rehete, Yahi Intezaar Hota
(If I had lived any more , I would still be waiting for it) …… Mirza Ghalib