Hold Blue Star; target of Rs 185: Emkay

Emkay Global Financial services has recommended hold rating on Blue Star (BLSR) with a target of Rs 185 in its October 23, 2012 research report.

“Blue Star Q2FY13 performance was below estimates due to decline in revenues and lower than expected EBITDA margins (1) Revenues declined 4% yoy to Rs5.8 bn due to lower order book and sharp decline in PEIS division (-43% yoy) – below estimates (2) EBITDA margins stood at 3.5% (+120 bps yoy and -110 bps qoq) – lower than expected margins was due to dismal margins in both Cooling Products (-70 bps yoy) & PEIS division (-2140 bps yoy) (3) EBITDA growth at 48% yoy to Rs202 mn on low base in Q2FY12 – but remains below estimates (4) Net profit at Rs73 mn (Vs loss of Rs208 mn) was below estimates.”
“BLSR continued to witness healthy momentum in order inflows at Rs6.2 bn (in line with estimates) on back of slow pick-up in demand from select sectors – IT/ITES, commercial complexes, etc. While BLSR continues to remain selective wrt to order selection – refusing low margins orders or orders from the hospitality & residential real estate. Sustenance of order inflow momentum will be crucial for maintaining our earnings estimates. BLSR reduced slow moving orders worth Rs2 bn from its order book. BLSR indicated no provisions for above orders as work on the projects was still to commence. BLSR’s order book fell sharply by 22% yoy and 9% qoq to Rs16.8 bn. Break-up of order book stood at 30% from Infrastructure, 35% from real estate and balance 35% from industrial, government and light commercial sectors.”
“We expect BLSR’s strategy to pursue profitability over growth and expect it to reap rich dividends going forward. We expect BLSR ROE and ROCE to revert back to +26% range in FY14E with strong ROIC at 34% - comparable to FY11 levels. While positive catalysts are gaining prominence, we would review the rating in subsequent quarters on further improvement in balance sheet and business fundamentals. Retain hold rating with price target of Rs185 per share,” says Emkay Global Financial services research report. Shares held by Financial Institutions/Banks Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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