Blue Star : 2QFY2012 Result Update: Angel Broking

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In 2QFY2012, Blue Star posted a 13.0% yoy decline in revenue to `605cr
(`695cr). OPM fell by 742bp yoy and 166bp qoq to 2.3% due to higher
raw-material cost and other expenditure. The company reported a loss of `21cr
during the quarter. According to management, the current scenario is going to
continue for the next five quarters owing to cost overruns. We continue to
maintain our Neutral recommendation on the stock.
Top line declines, margin dips significantly: Blue Star reported a 13.0% yoy
decline in its top line to `605cr in 2QFY2012. The decline in revenue was on the
back of a 19.1% yoy decline in its electromechanical projects and packaged air
conditioning systems (EMPPACS) segment to `382cr (`473cr), which accounted
for nearly 64% of the company’s total revenue. The segment also reported an
EBIT loss of `3cr vs. profit of `43cr in 2QFY2012, negatively affecting margins.
Owing to losses in this segment, overall OPM declined by 742bp yoy to 2.3%
(9.7%). The company also reported unrealized forex loss of `20cr during
the quarter. The company reported loss of `21cr in 2QFY2012 vs. profit of
`39cr in 2QFY2011.
Outlook and valuation: Demand from the key market segments has still
not picked up. However, growth in the cooling products segment and DS Gupta
remains strong. Overall, management is not very optimistic and expects the
current scenario to continue over the next five quarters. Management also
expects margin to contract by 3-5% yoy until 1QFY2013. We have revised our
estimates downwards and continue to maintain our Neutral recommendation on
the stock.