B LUE STAR ": REDUCE T ARGET PRICE: RS.188 : Kotak Securities

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B LUE STAR LTD

P RICE: RS.178 RECOMMENDATION: REDUCE

T ARGET PRICE: RS.188 FY13E P/E: 14.2X

Numbers are sharply lower than expectations mainly due to loss in the

Central Air Conditioning projects business and MTM loss on forex exposure.

The company during the quarter may have continued with its process of

short-closing of sluggish projects and has booked losses on such projects.

Thus, as a prudent measure, the company has front-loaded most of the

foreseeable costs in the quarter. Consequently, the performance should

improve progressively in the coming quarters. However, given the cost

inflation, change in profile of order book and presence of low margin

orders, EBITDA margins may continue to remain below normal levels in

FY13 as well.

Amidst the poor set of numbers, we take note of the fact that the company

has been able to reduce its capital engagement in the projects business. The

company has also repaid part of its outstanding borrowings. This as a

positive development.

Medium-term outlook for the Central Air-conditioning business continues to

remain negative given over-supply in office space, which is translating into

sedate order intake.

In view of the near-term issues related to margin pressure and weak order

intake, we have reworked our target price which now stands at Rs 188 (Rs

227 earlier). Although, the worst in terms of earnings may be over for the

company, we maintain our Reduce rating on the stock in view of lack of

visible triggers in the near term coupled with weak business outlook.

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