Blue Star: BUY :: Business Line

Blue Star - More pain before gain; visit note; :: Edelweiss, PDF link

Blue Star (BLSTR IN, INR 173, Not Rated)

We met the Blue Star (BSL) management to get an update on business environment. The overhang of tough macros continues to plague the company as its order intake is likely to plunge a sharp ~25% during the current fiscal. Air conditioner margins continue to bear the brunt of high competitive intensity and increased input costs. We believe there is more pain in store before gain, and expect turnaround to yield results in FY15.

Bluestar Ltd, announced its Q4FY12 & FY12 results :: Microsec Research

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Bluestar Ltd, announced its Q4FY12 & FY12 results on 16^th May, 2012.

Quarterly Performance(Standalone):

The company arrived at Net sales of INR804.38 crore, which was down by 11.46% on YoY basis, but increased sharply by 37.90% on QoQ basis. The EBITDA for the quarter was INR37.40 crore, which was down sharply by 63.56% on YoY basis and 1094.88% on QoQ basis. The EBITDA Margin fell by 665bps on YoY basis, but however, increased by 519bps on QoQ basis. The company posted a net loss of INR45.37 crore, which was down by 179.81% on YoY basis.

Annual Performance (Consolidated):

The company arrived at consolidated net sales of INR2788.85 crore, which was down by 6.29% as compared to FY11. The EBITDA for FY12 was down by 107.98%, because of increase in company expenditure like raw materials consumed (continue trend of increased copper prices), employee cost and other expenses. The EBITDA Margin for FY12 was -0.81%. which was down by 1044bps as compared to FY11. The company posted a net loss of INR105.10 crore, which was down by 165.30%. The reason for the same was many projects had slowed down due to tight liquidity conditions leading to undue delay in collections from customers. This resulted in poor cash flow in the business, higher borrowings and increased interest cost. Due to inflationary conditions the Company reviewed the majority of projects under execution to assess actual costs incurred and expected costs to completion.

At current CMP of INR185, We recommend a “BUY” for the stock.

Particulars	Q4FY12A	Q4FY11A	Q3FY12A	YoY(%)	QoQ(%)	FY12(Con)	FY11(Con)	YoY Change (%)
Net Sales	804.38	908.48	583.3	-11.46%	37.90%	2788.85	2976.09	-6.29%
EBITDA	37.4	102.64	-3.13	-63.56%	1094.88%	-22.72	286.58	-107.93%
EBITDA Margin (%)	4.65%	11.30%	-0.54%	(665)bps	519bps	-0.81%	9.63%	(1044)bps
PAT	-45.37	56.85	-32.76	-179.81%	38.49%	-105.1	160.96	-165.30%
PAT Margin (%)	-5.64%	6.26%	-5.62%	(119)bps	(2)bps	-3.77%	5.41%	(918)bps
EPS	-9.91	6.32	-3.64	-56.80%	172.25%	-11.68	17.89	-165.31%
Source: Company Data, Microsec Research. All data in INR crores unless specified. EPS represents diluted EPS.

Particulars	Our Quarterly Estimates	Actual	Variance (%)
Net Sales	610	804.38	31.87%
EBITDA	11.5	37.4	225.22%
PAT	-24.7	-45.37	83.68%
EPS	-2.75	-9.91	260.36%

Particulars	Our Yearly Estimates	Actual	Variance (%)
Net Sales	2685.23	2788.85	3.86%
EBITDA	61.08	-22.72	62.80%
PAT	-57.49	-105.1	82.81%
EPS(adj.)	-6.39	-11.68	82.85%

Regards,

Team Microsec Research

Accumulate BLUE STAR :TARGET PRICE: RS.215: Kotak Sec PDF link

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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.

Technical: IDFC, Power Finance corp, OnMobile, Blue Star, UFLEX, Punjab Sind bank, Corporation Bank ::Business Line

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Please share the long- and short-term prospects of IDFC and Power Finance Corporation.

Jose K. Mathai

IDFC (Rs 140.6):IDFC threatened to go in to a tailspin when it declined below Rs 100 towards the end of last year. But the decline was stemmed at Rs 90 and the stock is powering ahead again. The recent trough can act as the stop for investors and they can also buy on declines with stop at Rs 85.

The medium-term resistance will be at Rs 170. If it gets past this level, it can move on to the long-term ceiling at Rs 220. The stock has already formed a double-top at this level and can struggle to move above it just yet. If it manages to do so, then next target will be Rs 264.

Long-term support below Rs 90 is Rs 44.

PFC (Rs 191.5): The scary plunge in PFC from the peak at Rs 383 halted above the long-term trough formed in October 2008. Investors can draw some comfort at this higher bottom recorded at the recent trough at Rs 131. The stock is also in a strong short-term uptrend from this trough.

52-WEEK FLOP: BLUE STAR ::Business Line

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Reduce Blue Star, :: Kotak Securities

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BLUE STAR LTD
PRICE: RS.178 RECOMMENDATION: REDUCE
TARGET 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.

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.

-- 

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.

UBS: Blue Star- Weak Q2 FY12 on operations, exceptional

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UBS Investment Research
Blue Star
W eak Q2 FY12 on operations, exceptional
􀂄 Event: Q2FY12 results disappoint on costs, notional forex loss, poor billing
Blue Star’s Q2 FY12 results disappointed due to: 1) operating loss in the electromechanical
projects (EMP) segment for the second quarter on margin pressure and
weak billing; 2) weak margins in the Cooling Products segment—heavy discounts to
push sales in the festive season, high industry inventory could have dented profitability;
3) slightly weak professional electronics (PE) segment results; and 4) exceptional
loss—unrealised foreign exchange loss of Rs194.2m (details unavailable yet).
􀂄 Impact: lower FY12 estimates by 9.1%; FY12 expected to be challenging
Given Blue Star’s likely first ever net loss in Q2 FY12, we have further lowered our
FY12 EPS estimate by 9.1% (weak profitability) and broadly maintained our FY13
estimates. In line with management guidance, we think FY12 will be challenging, and
we expect the next one to two quarters to be the trough of negative newsflow on the
stock (assume peaking of rates). Receivables are contained, although debt/equity is
higher.
􀂄 Action: Buy on weakness; negative newsflow likely to trough in 1-2 quarters
We maintain our Buy rating with a price target of Rs300, given the better risk-reward at
11.8x FY13E PE (near historical trough), considerable underperformance to the Sensex
YTD, presence in an infra focussed Indian market, retail AC opportunity, and high
return profile. We assume rates peaking and capex/investment to improve with a lag in
FY13.
􀂄 Valuation: maintain Buy with a price target of Rs300
We derive our price target from a DCF-based methodology and explicitly forecast longterm
valuation drivers using UBS’s VCAM tool (assume a 12.7% WACC).

Sell Blue Star: Target Rs 227 :: Kotak Sec,

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BLUE STAR LTD
PRICE: RS.211 RECOMMENDATION: REDUCE
TARGET PRICE: RS.227 FY13E P/E: 13.1X
q Numbers are sharply lower than expectations mainly due to MTM loss on
forex exposure coupled with persistent cost pressures in its projects business.
The company has during the quarter continued with its process of
short-closing of sluggish projects and has booked losses on such
projects. It has also done a fresh review of its debtors and has provided
for the same. 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.
q The Central Air-conditioning continues to go through a lean phase on the
back of over-supply in office space, which is translating into sedate order
intake.
q In view of the near-term issues related to margin pressure, longer working
capital, oversupply in commercial real estate, increased cost pressures
in room ACs, we have reworked our target price which now stands
at Rs 227 (Rs 300 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.

UBS: Blue Star- Levered to Indian infra

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UBS Investment Research
Blue Star
L evered to Indian infra
􀂄 Event: Management concall; FY12 to be a challenging year
Management concall indicated a challenging FY12 due to weaker macro
environment, margin pressure due to delays and cost increase and low new orders.
Stellar cooling products revenue growth in Q1FY12 (29.5% YoY) is positive.
Medium term EBIT margins likely at 6-8%. Standalone order book is Rs20.99bn
(1.1x electro-mechanical segment revenues).
􀂄 Impact: Significant downgrade in estimates and price target
We lower our estimates by 36.1%/28.4% for FY12/13E on lower margins (higher
costs, execution delay) and higher working capital. We also lower our price target
to Rs300/share. However, we like Blue Star’s presence in infra focussed markets
and leverage to the long term sustainable opportunity in consumer durables (ACs).
􀂄 Action: Retain Buy- low valuations, infra opportunity and high returns
We retain our Buy rating on Blue Star, given better risk reward at P/E of
12.3xFY13E (near trough), c60% under-performance to Sensex YTD, presence in
infra focussed Indian market, retail AC opportunity and high return profile. We
assume peaking of rates and capex/investment to improve with a lag. We are
positive over the long term, albeit with medium term uncertainties (difficult to
estimate the trough of negative news flow). PT implied FY13 PE is 16x.
􀂄 Valuation: Buy with a lower price target of Rs300
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool (assume a 12.7% WACC).

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



CLICK HERE TO RETURN TO LIST OF UBS TOP PICK

Blue Star - Deteriorating Fundamentals; Downgrade to Hold ::Emkay

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Blue Star

Deteriorating Fundamentals; Downgrade to Hold

HOLD

CMP: Rs 265                                       Target Price: Rs 280

---

n     Blue Star (BLSR) reported its worst  EBITDA margins down 520 bps yoy and APAT down 73% yoy to Rs98 mn.performance  EMP&PAC segment posts EBIT loss of Rs89 mn

n     Order Inflow momentum continues – secures order inflows worth Rs8.5 bn (24% of FY12E target) – Only silver lining. Order book rises 7% qoq to Rs21.0 bn

n     BLSR has downplayed on margin expectation in EMP & PAC business, owing to cost escalation, foreclosures and completion of old projects. DER deteriorates further to 1.1X

n     Revised earnings downwards by 23% in FY12E and 19% in FY13E. Downgrade to Hold with revised price target of Rs280 per share. Benign commodity prices is key upside to earnings

Blue Star Ltd- Hold ::KJMC

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Blue Star Ltd declared its Q1FY12 results which remained much below our
estimates. Net revenue reported a subdued growth of 6.6% at Rs 7,031.8 mn.
EBITDA for the quarter declined by 55% at Rs 275.9 mn with a decline of 530
bps in the EBITDA margins at 3.9%. An increase of huge 278% in the interest
cost further dragged the PAT down by 74% at Rs 97.9mn with a drop of 420
bps in PAT margins at 1.4% during the quarter.
Major Highlights of the Concall
􀀗 Poor show of Electro mechanical project segment: Increased execution
period of the ongoing projects and the resultant and subsequent
provision for cost overruns on account of increase in raw material cost
have resulted in the lower revenues for the quarter and also loss at EBIT
levels. Net revenues for the segment declined by 8.7% at Rs 3,417 mn
with segment EBIT reporting a loss of Rs 88.7 mn. Also the fixed price
contracts in the order book are adding up to the margin pressure.
􀀗 Standalone order book stands at Rs 20,990 mn: The standalone order book
as at the end of Q1FY12 stood at Rs 20,990 mn indicating a muted growth
of 6.2% growth. The order book of D.S. Gupta stood at Rs 2250 mn. On
account of deteriorated investment climate and sluggish markets the
order inflow during the quarter has declined by 8%.
􀀗 Healthy performance by the cooling products division and professional
electronics division: Revenues of the cooling product division reported a
growth of 29.5% at Rs 3,281.4 mn. EBIT of the segment reported an
equally healthy growth of 23.6% at Rs 441.4 mn. Professional electronics
revenues and EBIT reported a growth of 3.2% and 46.1% at Rs 333.4 mn
& Rs 79.7 mn.
􀀗 Increase in capital employed and the funding for the acquisition results in
increased interest cost: Capital employed increased by 30% for the
project & professional electronics division where as it grew by substantial
73% for the cooling products segment. Also the debt to fund the
acquisition of D.S Gupta has resulted in an increased interest cost which
remained up by 278% at Rs 75.6 mn.

Buy BLUE STAR- TARGET PRICE: RS.365:: Kotak Sec

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BLUE STAR LTD
 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.365
 FY12E P/E: 15.9X
In the Annual Report, the management has indicated that they were
aggressive in booking new business in the deteriorating environment and in
the process diluted their focus on cash flow and working capital, which has
resulted in higher borrowings.
Share of income from spares and services has declined in overall revenue,
which could be one of the reasons impacting profitability.
The annual report outlines slowdown in economic growth in FY12 and cites
challenges on cost and cash flow front.
The stock is trading at 15.9x FY12 earnings. In view of the near-term
challenges on business growth and cash flow front, we maintain cautious
view on the stock and maintain Accumulate with a revised price target of Rs
365 (Rs 372 earlier).
The main takeaways from our review of the Annual Report are
as under :
Electromechanical Projects business
n The Electromechanical projects business comprises the central airconditioning,
packaged airconditioning and electrical contracting business, collectively called
Electro Mechanical Projects and Packaged Airconditioning Systems.
n This segment is project based and continuing slackness in commercial real estate
development is reflecting in moderation in execution momentum. In view of the
existing oversupply, user segments like Offices and IT developers have either
deferred or slowed down their plans to increase capacity. In Q4 FY11, billings
and cash flow were adversely impacted due to slowdown in the completion of
large projects.
n The estimated market size of the airconditioning industry was around Rs 130 bn
in FY11. Of this, market for central airconditioning including packaged/ducted
systems and VRF systems was about Rs 61 bn while that of room ACs was
around Rs 70 bn.
n Accordingly, the company's market share in central airconditioning segment
works out to around 27% (possibly the highest in the industry). However, in the
room ACs the company lags behind Voltas, LG and Samsung (mainly due to its
focus on institutional customers).
n During the year, the growth in the central airconditioning segment was driven by
healthcare, education and hospitality segment even as the commercial real estate
market slowed down further. IT/ITES segment may take a while to get into
an expansion mode.
n During the year, the company launched the VRF airconditioning systems with inverter
technology. This technology is suitable for multizone cooling through intelligent
controls resulting in cost savings. Blue Star now offers both the scroll compressor
as well as inverter technology for VRF applications.
n Among the major orders won during the year were Central airconditioning for
Terminal 2 of CSI Airport, Mumbai (Rs 1.2 bn). The company won several orders
in the healthcare and power sectors.
n To strengthen its offerings in plumbing and fire-fighting business, the company
acquired DS Constructions at a cost of Rs 1.0 bn. This subsidiary is now housed
under Blue Star Electro-mechanical Ltd.