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For 3QFY2011, Blue Star reported a weak performance. The top line increased
by mere 4.2% yoy to `613cr (`589cr), against our expectation of `705cr. OPM
declined by 210bp yoy to 7.7% (9.8%), again much below our estimates.
Consequently, PAT declined by 47.2% yoy to `22cr (`42cr). During the quarter,
the company slowed down the pace of revenue billing, given its high debtor
position. This was the primary reason for the company’s lower-than-expected
performance in 3QFY2011. During the quarter, the business environment was
disappointing as well. The expected pick-up in demand from the commercial real
estate market did not materialise during this quarter and seems to have been
delayed by a couple of quarters. Owing to weaker-than-anticipated business
outlook, we have revised our top-line estimates for FY2011 and FY2012
downwards by 7.1% and 9.9% to `2,938cr and `3,594cr, respectively, and PAT
estimates by 19.5% and 20.0% to `173cr and `226cr, respectively. We maintain
our Buy recommendation on the stock
Poor order execution: During 3QFY2011, order billing took a hit as the company
was bogged down by a large number of debtors and the business scenario did
not pick up as expected. Consequently, order inflows were also low at `682cr
(`660cr), while the order book stood at `2,703cr, compared to `1,998cr at the
end of 2QFY2011.
Outlook and valuation: The pick-up in demand from the key markets of the
company still remains elusive. However, the business scenario is expected to
improve in FY2012E. Growth in the cooling products business also remains
robust. Overall, we expect the company to post a 19.3% CAGR over FY2010–12E
in the top line to `3,594cr, while PAT is estimated to grow at a 3.3% CAGR to
`226cr. We maintain Buy on the stock with a revised Target Price of `477 (`596).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Blue Star – 3QFY2011 Result Update
Angel Broking maintains a Buy on Blue Star with a Target Price of Rs. 477.
For 3QFY2011, Blue Star reported a weak performance. The top line increased
by mere 4.2% yoy to `613cr (`589cr), against our expectation of `705cr. OPM
declined by 210bp yoy to 7.7% (9.8%), again much below our estimates.
Consequently, PAT declined by 47.2% yoy to `22cr (`42cr). During the quarter,
the company slowed down the pace of revenue billing, given its high debtor
position. This was the primary reason for the company’s lower-than-expected
performance in 3QFY2011. During the quarter, the business environment was
disappointing as well. The expected pick-up in demand from the commercial real
estate market did not materialise during this quarter and seems to have been
delayed by a couple of quarters. Owing to weaker-than-anticipated business
outlook, we have revised our top-line estimates for FY2011 and FY2012
downwards by 7.1% and 9.9% to `2,938cr and `3,594cr, respectively, and PAT
estimates by 19.5% and 20.0% to `173cr and `226cr, respectively. We maintain
our Buy recommendation on the stock
Poor order execution: During 3QFY2011, order billing took a hit as the company
was bogged down by a large number of debtors and the business scenario did
not pick up as expected. Consequently, order inflows were also low at `682cr
(`660cr), while the order book stood at `2,703cr, compared to `1,998cr at the
end of 2QFY2011.
Outlook and valuation: The pick-up in demand from the key markets of the
company still remains elusive. However, the business scenario is expected to
improve in FY2012E. Growth in the cooling products business also remains
robust. Overall, we expect the company to post a 19.3% CAGR over FY2010–12E
in the top line to `3,594cr, while PAT is estimated to grow at a 3.3% CAGR to
`226cr. We maintain Buy on the stock with a revised Target Price of `477 (`596).
Segment-wise performance
The electromechanical projects and packaged air-conditioning systems (EMPPACS)
segment of the company posted a 4.9% yoy decline in the top line to `434cr
(`457cr). The segment was hit by weak order execution, as well as a delay in
demand pick-up. As a result of lower revenue, EBIT margins declined by 411bp
yoy to 6.7% (10.8%).
The cooling products segment performed well on the sales front, posting an
increase of 34.8% yoy to `128cr (`95cr). The segment witnessed strong demand in
the room air-conditioner market. However, due to a substantial increase in input
costs, EBIT margins for this segment declined by 76bp to 7.9% (8.7%).
The professional electronics and industrial systems (PEIS) segment grew by 29.3%
during the quarter to `45cr (`35cr). EBIT margins for the segment came in at
26.1% (25.3%), an improvement of 79bp yoy.
Sales growth dips sharply in 3QFY2011: The company, which has been posting
fairly robust growth of around 20.0% over the past few quarters, witnessed a dip in
its top-line growth on the back of weak demand outlook. This scenario is expected
to remain challenging over 4QFY2011 as well, post which the business situation is
expected to improve.
OPM dips on weak top line: Blue Star reported a 210bp yoy fall in the OPM in
3QFY2011, mainly because of operating leverage on low sales. High input costs
also put pressure on the margins. Going ahead, as sales increase, we expect OPM
to rise from the current levels.
PAT dips 47.2% yoy: Owing to weak sales growth and a decline in margins, the
company reported a sharp 47.2% yoy decline in PAT. This is the lowest quarterly
profit that the company has posted over the past eight quarters. Going ahead, PAT
is expected to rise from these levels.
Management call – Key takeaways
�� The execution is moving well in hotels and hospitals, while it is still sluggish in
the infrastructure and commercial real estate space.
�� The order book execution period is around 14–15 months, with the period
stable at this level.
�� Management expects the top line in 4QFY2011 to remain flat yoy, as it
continues to remain cautious on project completions, keeping in view the
current debtor position. Post that, it is expected that the EMPPACS segment
would post growth in excess of 15.0% in FY2012E.
�� The company has raised the minimum margins and payment schedule
conditions to bid for projects since October 2010, although the market is
witnessing quite aggressive pricing from competitors.
�� DS Gupta Construction is witnessing strong order inflows. Management
expects the company to enter FY2012 with an order backlog of `250cr.
Investment arguments
Substantial demand for centralised air-conditioning, cold storage to drive future
growth: The surge in demand for commercial space and increasing corporate and
government thrust for setting up an efficient cold chain infrastructure in the country
are set to trigger demand for centralised air-conditioning and cold storage systems
in India. BSL's cold storage division too has high growth potential with the
aggregate cost of providing a nation-wide cold chain infrastructure estimated to
cost more than `15,000cr.
To maintain leadership position owing to superior execution skills: BSL's strength
lies in its superior execution skills compared to competition. The company, with
30% market share in the central air-conditioning system segment, is a preferred
vendor with institutional clients. The company's list of national account customers
provides repetitive business.
Present in high-margin segments: BSL is a diversified player in the air-conditioning
industry and is focused on high-margin segments, including commercial
refrigeration, cold storage and central air-conditioning. The company has
improved its margins following an increase in the average ticket size of orders.
The easing of pricing pressures is also expected to improve the company's margins
going ahead.
Outlook and valuation
The expected pick-up in demand from the commercial real estate market seems to
have been delayed by a couple of quarters. Consequently, the company is
currently witnessing a more challenging environment than that anticipated earlier,
as reflected in weaker-than-expected 3QFY2011 numbers. However, things are
expected to improve in FY2012, when demand picks up. Moreover, the cooling
products business of the company continues to perform well. On account of
subdued numbers in 3QFY2011 and relatively weaker business outlook, we have
revised our top-line estimates for FY2011 and FY2012 downwards by 7.1% and
9.9% to `2,938cr and `3,594cr, respectively, and PAT estimates by 19.5% and
20.0% to `173cr and `226cr, respectively.
Overall, we expect the company to report a 19.3% CAGR over FY2010–12E in its
top line to `3,594cr, while PAT is estimated to grow at a 3.3% CAGR to `226cr.
At the CMP, the stock is trading at 17.7x and 13.6x its FY2011E and FY2012E EPS.
We maintain Buy on the stock with a revised Target Price of `477 (`596).
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