Blue Star (BLUS.BO, Buy, PT Rs430, 71% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• An Indian MEP contractor and manufacturer of AC and
commercial refrigeration systems. It is a beneficiary of longterm
structural story, growing infrastructure spending in India
(US$500bn total) and rapid 25-30% growth in consumer AC
volumes
• Pick-up in domestic capex could support a re-rating of stock,
given their high elasticity to GDP growth (EPS CAGR of 42% in
FY06-10). We estimate an EPS CAGR of 21% in FY11-13 and
44% ROIC in FY12
• Asset-light business model, broad based exposure, integrated
project execution ability, higher returns and low leverage;
Rs21bn order book supports c1 year visibility in MEP business
• Focus on the infrastructure and industrial segments to facilitate
order book growth
• Shareholding: Promoter - 40%
• Valuation: DCF using UBS’s VCAM tool (assume WACC of
12.2% and terminal sales growth of 1.7%). Implied FY13E PE
of 16.5x



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