Buy Blue Star; target of Rs 224: Angel Broking

Angel Broking is bullish on Blue Star and has recommended buy rating on the stock with a target of Rs 224 in its December 21, 2012 research report.

“The positive impulse sensed by Blue Star’s management earlier in 1QFY2013 has faded now with a deteriorating macro scenario. Some unexpected developments on the order book front and execution level are the prime reasons for the pessimistic outlook. We maintain our Buy recommendation on the stock with a reduced target price of `224.”

"Order inflow for Blue Star is expected to decline by more than 30% in FY2013E as against the expectation of a decline of 20-25%. This is primarily on the back of company’s stance to book selective high margin orders. Delay in order finalization has added to the deteriorating scenario. Concerns on profitability of the Delhi/ Bangalore metro railway project have arisen on account of involvement of more players than expected, in the project. The debt is expected to reduce by `20cr only for FY2013E, much below the previous expectation of `75cr, due to lack of cash generation from the EMPPACS segment. The Services and Cooling Products business continues to perform well with most categories in the segment expected to post a 10% growth for FY2013E. However, this would be just enough to offset the adverse impact inflicted by the ailing EMPPACS business. Concerns on the debtor front relating to delayed payments continue to persist. The PEIS segment is expected to continue to face pressure due to slowdown in capex cycle. On the whole, the management expects the harsh conditions to continue for a little longer than previously expected.”

“We have revised our revenue estimated downwards for FY2013E and FY2014E by 8.1% and 9.0% respectively owing to declining order flow, low execution rate and negligible pickup in capex cycle. However, the net profit is expected to improve on the back of improving EBITDA margin. At the current market price, the stock is trading at EV/Sales of 0.7x for FY2014E. We maintain our Buy recommendation on the stock with a reduced target price of `224 based on a target EV/sales of 0.8x for FY2014E,” says Angel Broking research report.

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