Hold Blue Star; target of Rs 363: PINC Research

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Hold Blue Star; target of Rs 363: PINC Research

PINC Research has recommended hold rating on Blue Star with a target of Rs 363, in its February 02, 2011 research report.

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PINC Research has recommended hold rating on Blue Star with a target of Rs 363, in its February 02, 2011 research report.

"Blue Star (BSL) Q3FY11 results were disappointing and below our expectations as net sales grew by 4.2% YoY to Rs 6.1 billion (PINCe Rs 9.7 billion). OPM contracted by 210bps to 7.7% on account of higher other expenses. Lower operating margins coupled with higher effective tax rate (28.7% against 24.1% YoY) translated in a 37.4% fall in adj net profit to Rs 224 million."

"Revenues from MEP segment (contributes ~70% to topline) degrew by 4.9% YoY. PBIT margin for the segment contracted by 411bps to 6.7% on the back of lesser revenue booking and cost pressure. This resulted in 41% de-growth in PBIT from this sector resulting in 38% decline in net profit for the company. Total order book as of Dec'10 stands at Rs 20.1 billion (+10% YoY), however it is just 4% up QoQ with order inflows of Rs 6.8 billion in Q3FY11.Though the order book looks strong, revenue booking in expected to remain sluggish as activities in IT/ ITES, Infrastructure and construction sectors have not yet picked up post economic downturn. We expect order inflows to improve going forward; however, margins should remain under pressure with increasing material cost and lower revenue booking. BSL with inhouse expertise across all pieces of MEP works i.e. Mechanical, Electrical, Plumbing & Fire fighting should aggressively pursue integrated MEP business."

"We have decreased our net profit estimates for FY11 and FY12 by 19% and 23% respectively on the back of margin pressure and muted outlook for Electro-Mech project division. At the CMP of Rs 333, the stock trades at a P/E of 20.3x & 16.5x and an EV/ EBITDA of 11.1x & 9.2x for FY11E & FY12E earnings respectively. We maintain our 'HOLD' recommendation with a reduced target price of Rs 363 (18.0x FY12 EPS)," says PINC Research report. 

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