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India Equity Research Reports, IPO and Stock News
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http://www.kotaksecurities.com/pdf/dmb/MorningInsight04042012.pdf
BLUE STAR LTD
PRICE: RS.196 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.215 FY13E P/E: 15.1X
The company has continued its process of reviewing the project costs
and expects to take further cost increase of Rs 300 mn at EBITDA level in
Q4 FY12
The company indicates that post the review of project costs, some
projects would continue at low margins and should get executed by
H1FY13. Sequentially, EBITDA margins should expand in FY13 but may
still remain below historical levels. The company indicated that projects
won in FY12 are at reasonably good margins, which should support margin improvement in FY13 and beyond.
The company has been able to reduce its working capital and borrowings
in FY12. This process would continue in FY13 as well. The company targets to cut overheads by 30% in FY13.
We believe the worst is over for the company in terms of deterioration in
balance sheet and earnings. Upgrade to Accumulate with a price target
of Rs 215. We are constrained from according a higher rating due to
weak business outlook.
Key takeaways from the meeting
MEP Segment
At the beginning of FY12, the company had order backlog of Rs 18 bn consisting
of 900 projects. During the year, the company has initiated the process of reviewing the original costs, revenues booked and expected cost to complete
about 600 odd jobs. Based on the extensive review of these jobs, accounting for
about Rs 10 bn of order book, the company has been adjusting the planned revenues and revised the planned costs to reflect the most current prices of equipment and materials. Consequently, the company has taken a hit of Rs 700 mn at
the EBITDA level in the 9MFY12 period in the MEP segment.
The company has continued its process of reviewing the project costs and expects to take further cost increase of Rs 300 mn at EBITDA level in Q4 FY12.
Thus, the overall hit on account of cost-overruns on delayed projects in FY12
would stand at Rs 1.0 bn.
The company has also reviewed its debtors outstanding for over two years and
taken write-offs. Simultaneously, the company is also pursuing the clients for cost
escalation claims.
The management indicated that post significant cost-alignment of orders, old
orders will be billed at margins ranging from zero to six percent. The orders
booked in 9MFY12 are at 10-12%. The management expects the low margin
business to get completed by H1FY13. The company also aims to reduce
overheads by 30% in FY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight04042012.pdf
BLUE STAR LTD
PRICE: RS.196 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.215 FY13E P/E: 15.1X
The company has continued its process of reviewing the project costs
and expects to take further cost increase of Rs 300 mn at EBITDA level in
Q4 FY12
The company indicates that post the review of project costs, some
projects would continue at low margins and should get executed by
H1FY13. Sequentially, EBITDA margins should expand in FY13 but may
still remain below historical levels. The company indicated that projects
won in FY12 are at reasonably good margins, which should support margin improvement in FY13 and beyond.
The company has been able to reduce its working capital and borrowings
in FY12. This process would continue in FY13 as well. The company targets to cut overheads by 30% in FY13.
We believe the worst is over for the company in terms of deterioration in
balance sheet and earnings. Upgrade to Accumulate with a price target
of Rs 215. We are constrained from according a higher rating due to
weak business outlook.
Key takeaways from the meeting
MEP Segment
At the beginning of FY12, the company had order backlog of Rs 18 bn consisting
of 900 projects. During the year, the company has initiated the process of reviewing the original costs, revenues booked and expected cost to complete
about 600 odd jobs. Based on the extensive review of these jobs, accounting for
about Rs 10 bn of order book, the company has been adjusting the planned revenues and revised the planned costs to reflect the most current prices of equipment and materials. Consequently, the company has taken a hit of Rs 700 mn at
the EBITDA level in the 9MFY12 period in the MEP segment.
The company has continued its process of reviewing the project costs and expects to take further cost increase of Rs 300 mn at EBITDA level in Q4 FY12.
Thus, the overall hit on account of cost-overruns on delayed projects in FY12
would stand at Rs 1.0 bn.
The company has also reviewed its debtors outstanding for over two years and
taken write-offs. Simultaneously, the company is also pursuing the clients for cost
escalation claims.
The management indicated that post significant cost-alignment of orders, old
orders will be billed at margins ranging from zero to six percent. The orders
booked in 9MFY12 are at 10-12%. The management expects the low margin
business to get completed by H1FY13. The company also aims to reduce
overheads by 30% in FY13.
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