Nirmal Bang is bullish on Blue Star and has recommended buy rating on the stock with a target of Rs 215 in its January 30, 2013 research report.
“Blue Star, revenue for the quarter was at Rs 599 cr, up 2.5% yoy and 3.5% qoq. EBITDA was Rs 25.4 cr as compared to a loss of 8.8 cr in the year ago quarter and profit of Rs 20.1 cr in the sequential quarter. EBITDA margin improved both on a qoq and yoy basis to 4.2%. Lower other income and lower Interest expenses for the quarter led to PAT of Rs 5.4 cr as compared to a loss of Rs 32.8 cr in Q3FY12 and profit of Rs 7.3 cr in Q2FY13. The revenues of EMP&PAS business, accounting for 2/3rd of the total revenues in the quarter increased by 7.7% yoy and 5.4% qoq, while EBIT margin improved to 5.8% from -4.1% in Q3FY12 but fell from 7.0% in Q2FY13.”
“Blue Star still has 25-30% of low margin orders that remain to be completed (earlier management expected theses orders to be completed this year itself) and hence the performance of this segment can remain muted for next 1-2 quarters due to old carry over. However, we expect improvement in margins on account of newer orders coming in at higher margins. Cooling Products revenue registered a modest decline of 4.9% in the quarter, while EBIT declined significantly by 47.1% to Rs 3.8 cr. The decline was mainly due to increase in input costs owing to foreign exchange rates and erosion of margins in sourcing and selling of installation accessories such as copper pipes. The revenue decline in Room ACs can be partially attributed to advanced buying of ACs in the corresponding quarter last year before the implementation of new BEE (Bureau of Energy Efficiency) norms from 01 January 2012 which was absent in this quarter, leading to lower billing. The PE&IS business revenues fell 9.4% yoy, while EBIT declined 18.2% to Rs 9.6 cr, due to the unfavourable industrial projects business and declining demand in capital goods sector. Near term outlook for this segment remains uncertain. The order book at the end of the quarter was at Rs. 1628 cr which saw a drop 24.6% yoy. This was mainly as order inflows continued to remain elusive, while the company remained cautious in bidding for new contracts to safeguard its margin profile.”
“We have recommended Blue Star as a theme story for desire for air conditioning by both household and commercial sectors. We think FY13 will be the year of all the concerns bottoming out and the revival of economy in FY14 can help the company achieve similar growth as shown in past in its previous up cycles. The focus on profitability will also lead to better margin performance in FY14. However the near term outlook continues to remain a concern on lower order inflows and higher competitive intensity. We feel the poor environment on demand side leading to a poor performance by the company and corresponding decline in share price offers opportunity to enter the stock with the a long term perspective. Based on our revised estimates, we maintain BUY on the stock with a target price of Rs 215,” says SPA Research report.
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