Blue Star - In the last leg of pain; Upgrade to 'REDUCE'; TP Rs173 - PINC Research

Q3FY12 Result Review – Blue Star

In the last leg of pain

Blue Star reported disappointing results. Net sales declined by 4% to Rs5.8bn (PINCe Rs6.6bn). Execution of loss making orders and lower margins in cooling product division resulted in Blue Star reporting OPM of -0.5% as against 7.85% (YoY). Company reported a net loss of Rs328mn led by forex loss and low OPM. Adj. loss was Rs190mn (PINCe PAT of Rs102mn). Current order book stands at Rs21.6bn (flat QoQ).

- New orders carry high margin
- Cooling products division reported higher sales but lower margins

VALUATIONS AND RECOMMENDATION

Focus on orders with high margin and better working capital would enable the company to improve its performance going ahead. We have revised our earning estimates for FY12E -13E and introduced FY14E. We have marginally reduced our sales estimates for FY12 by 2% and increased FY13E by 26% to factor in spill over of project sales to FY13 and higher sales in cooling products. Similarly, for FY12 we expect loss of Rs57mn (vs PAT of Rs428mn) and reduced our PAT estimates for FY13 by 1.5% to Rs1196mn to factor in cost overrun on spill over projects and reduced profitability in cooling division. We believe things to get incrementally better H2FY13 onwards post execution of loss making orders and increased inflow on account of expected improvement in the economy. Valuations are expected to gradually approach towards its historical average one year forward multiple (average of 18-19x) but at the same time we remain cautious & wait for more clarity to emerge in subsequent quarters in terms of order inflows and profitability and therefore, assign a multiple of 13xFY13E (earlier 10xFY13E). We upgrade the stock to 'REDUCE' with a revised target price of Rs173.

Source : Equity Bulls

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