t i n g C o ve ra ge

Sector

NSE Code

Rs. 250

500067

BLUESTARCO

Bloomberg Code

BLSTR IN

Market Cap (Rs cr)

1790

Free Float (%)

60

52- wk HI/Lo (Rs) Avg. volume BSE (Quarterly)

231/151 16429

Face Value (Rs)

2

Dividend (FY 12)

50%

Shares o/s (Crs)

8.9

Relative Performance

1Mth

3Mth

1Yr

Blue Star Sensex

12.6%

6.9%

-7.6%

-0.2%

10.8%

11.4%

240 220 200 180 160

140

Aug

Jun

Apr

Dec

Feb

120 Blue Star

th

Shareholding Pattern

30 Sep 12

Promoters Holding

40.09%

Institutional (Incl. FII)

24.67%

Corporate Bodies Public & others

2.19% 33.05%

Amish Pansuria (+91 22 3926 8174) Research Analyst ([email protected])

Inline Performance, External Environment a Concern Revenues for the quarter were at Rs. 579 cr, down by 4%, YoY. EBITDA for the quarter was Rs. 20 cr, up 48%, YoY. EBITDA margin improved by 123 bps YoY to 3.5%. On QoQ basis EBITDA was down by 80%. Interest expenses for the quarter decreased significantly to Rs 11.20 cr from Rs 30.56 cr in Q2FY12. PAT for the quarter was Rs. 7.2 cr as compared to a loss of Rs 21 cr in Q2FY12. PAT margin for the quarter was 1.2%. On QoQ basis PAT was down by 78%.

ge

Rs. 199

Consumer Electronics

Stock Details BSE Code

BUY

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Target Price

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CMP (23/10/2012)

C overage

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Recommendation

Oct

Q 2 F Y 1 3 R e s u l t U p d a t e – 2 5 O cItn i2t i0a1 t i2n g C o v e r a g e

4

Blue Star Ltd

The revenues of EMP and PAS business, accounting for 65% of the total revenues in the quarter decreased by 2%, while EBIT increased to Rs 26.42 cr as compared to a loss of Rs 3.41 cr during Q2FY12, due to the focus on: (1) business from more profitable segments and at better margins and (2) the benefit of lower cost increases in ongoing projects in the current year. Cooling Products revenue registered a modest increase of 8% in the quarter, while EBIT declined by 6.7% to Rs 7.91 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 PE&IS business revenues reduced significantly by 43%, while EBIT declined 85% to Rs 2.63 cr, due to the unfavourable industrial projects business and declining demand in capital goods sector, and delay in finalization of a few significant new orders. The order book at the end of the quarter was Rs. 1678 cr which saw a drop 22.4%, YoY. This was mainly to low order inflows and debooking of orders worth Rs 200 cr which were slow moving or dormant for more than a year. The management has guided for order inflow to remain at same level of FY12 with H2FY13 expected to see higher inflow as compared to H1FY13. Valuation & Recommendation We have recommended Blue Star as a theme story for more and more desire for air conditioning by both household and commercial sector. We feel the poor environment on demand side and a poor performance by the company in FY12 on account of various MTM losses in project business and corresponding decline in share price offers great opportunity to enter the stock with a long term perspective. The company has a consistent track record of over 20% growth and high return ratios in previous up cycles of the economy. We feel with the revival of economy this company has potential to give similar growth. The company has returned to profitability in H1FY13; however the external environment continues to remain a concern leading to low order inflows. We expect the performance to remain subdued in the coming quarters and order inflow for H2FY13 will remain a key variable which will set up the company’s FY14 growth prospects. The focus on profitability will lead to better margin performance in FY13 & FY14. At CMP, the stock trades at 12.8x its FY14E EPS and 0.6x its FY14E EV/Sales. We maintain BUY with a target price of Rs 250.

Year

Net Sales (Rs cr)

Growth (%)

EBITDA (Rs cr)

EBITDA Margin (%)

PAT (Rs cr)

PAT Margin (%)

EPS

P/E (x)

EV/EBITDA (x)

RoE (%)

FY 11A FY 12A FY 13E FY 14E

2967 2820 2995 3299

18 -5 6 10

254 -23 162 262

8.5 -0.8 5.4 8.0

158 -105 79 139

5.3 -3.7 2.6 4.2

17.6 -11.6 8.8 15.5

11.3 -17.1 22.6 12.8

8.6 -92.6 13.0 7.9

31.0 -26.5 17.1 23.9

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Q2FY13 – Result Update Q2FY13 Q1FY13 Q-o-Q Q2FY12 Y-o-Y Net Revenue 579 1,364 -58% 605 -4% Operating Exp. 558 1,261 -56% 591 -6% EBITDA 20 103 -80% 14 48% EBITDA (%) 3.5% 7.6% -407 bps 2.3% 123 bps Depreciation 8.2 12 -34% 8.0 2% EBIT 12.0 91 -87% 5.6 114% EBIT (%) 2.1% 6.6% -458 bps 0.9% 114 bps Interest 11 40 -72% 31 -63% Other Income 6.47 2.76 134% 1 567% Exceptional Items 0 0 NA 0 NA PBT 7 53 -86% -24 NA Tax Provision 0 20 -100% -3 NA Tax Rate (%) 0.0% 38.3% NA 13.2% NA Reported PAT 7 33 -78% -21 NA PAT (%) 1.2% 2.4% -117 bps -3.4% 468 bps EPS 0.8 1.3 -37% -2.31 NA

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Q 2 F Y 1 3 R e s u l t U p d a t e – 2 5 O cItn i2t i0a1 t i2n g C o v e r a g e

Blue Star Ltd

Source: Company, Nirmal Bang Research

Segment Revenues EMP & PAS Cooling Products PE & IS Total PBIT EMP & PAS Cooling Products PE & IS Total

Q2FY13 Q1FY13

Q-o-Q Q2FY12

YoY

375.9 168.6 34.1 578.6

367.1 333.6 30.8 731.4

2.4% -49.4% 10.8% -20.9%

382.5 156.9 59.4 598.8

-2% 8% -43% -3.4%

26.4 7.9 2.6 36.9

12.4 37.6 7.2 57.1

113.4% -78.9% -63.4% -35.3%

-3.4 8.5 17.3 22.4

NA -6.7% -84.8% 65.0%

Source: Company, Nirmal Bang Research

Order Book Trend 2500 2000 1500

1000 500 0 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY12 Q2FY13

Order Book (Rs. Cr)

Order Inflow (Rs Cr)

Source: Company, Nirmal Bang Research

The carry forward order book has seen a constant decline over last 4 quarters as the business environment gets tougher and the company continues with its strategy to pursue profitable business at the expense of growth.

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Key Highlights Order booking for the quarter was Rs 620 cr The company has de-booked orders worth Rs 200 cr which were slow moving or dormant for more than 12 months Is seeing positive levels of inquiries from IT & ITeS, Commercial complexes and Industrial for its projects business The management expects order inflows to improve in H2FY13 as some of the large infrastructure projects get finalized Overall demand for room ACs remains flat The management expects big opportunity in the cold storage segment on the back of FDI in retail. However it will take atleast 18-24 months before inquiry levels start flowing in. The estimated opportunity in cold storage is expected to be around Rs 25000 cr spread over 5 years The company has maintained its strategy to compromise on volumes and focus on profitability

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Q 2 F Y 1 3 R e s u l t U p d a t e – 2 5 O cItn i2t i0a1 t i2n g C o v e r a g e

Blue Star Ltd

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% change EBITDA

Depreciation

Other Income

2976.1

2819.9

18%

-5%

254.4

31.9

FY13E

2995.2

FY14E

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FY12A

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Revenues - Net

FY11A

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Y/E - March

C overage

Profitability (Rs. Cr)

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Q 2 F Y 1 3 R e s u l t U p d a t e – 2 5 O cItn i2t i0a1 t i2n g C o v e r a g e

Financials

Blue Star Ltd

Financial Health (Rs. Cr)

FY11A

FY12A

FY13E

FY14E

Y / E - March

3299.3

18.0

18.0

18.0

18.0

Reserves & Surplus

493.26

377.35

446.03

564.06

262.3

Net Worth

511.24

395.34

464.02

582.04

39.6

Total Loans

444.5

367.0

381.7

360.0

Total Liabilities

955.8

762.4

845.7

942.0

Net Fixed Assets

222.5

238.5

252.7

263.1

0.7

0.2

0.2

0.2

6%

10%

-22.7

161.7

31.8

35.8

Share Capital

33.8

23.2

25.5

26.0

256.3

-31.3

151.4

248.7

0.4

0.0

0.0

0.0

25.6

72.1

52.4

50.1

Investments

27.2

27.5

27.5

27.5

PBT

231.1

-103.4

99.0

198.7

Inventories

404.3

446.7

449.3

461.9

Tax

72.8

1.2

19.8

59.6

Sundry Debtors

820.6

836.2

838.7

890.8

PAT

158.3

-104.6

79.2

139.1

52.4

53.7

63.6

67.2

9.0

9.0

9.0

9.0

146.5

110.2

127.3

138.6

EPS

17.6

-11.6

8.8

15.5

Other Current Asset

533.1

371.9

404.3

445.4

Dividend

63.0

9.0

9.0

18.0

Current Liab & Prov

1251.6

1322.6

1317.9

1352.7

7.0

1.0

1.0

2.0

955.8

762.4

845.7

942.0

Sep-11

Dec-12

Mar-12

Jun-12

FY11A

FY12A

FY13E

FY14E

604.7

589.7

813.6

731.4

EBIT

Exceptional Item Interest

Shares o/s ( No.in Cr.)

DPS Quarterly (Rs. Cr) Revenue

Deferred Tax Assets

Cash Loans & Advances

Total Assets Cash Flow (Rs. Cr) Operating

EBITDA

13.6

-3.1

-37.4

33.5

Operating Income

Interest

30.6

22.1

9.4

12.5

Change in WC

Dep

8.0

8.1

8.2

7.5

Other Inc.

1.0

0.6

10.4

7.0

Extraordinary

0.0

0.0

0.0

0.0

CF from Operation

PBT

-24.0

-32.8

-44.7

20.5

Tax

-3.2

0.0

0.7

0.0

PAT

-20.8

-32.8

-45.4

20.5

-2.3

-3.6

-5.0

2.3

EPS (Rs.) Operational Ratio

254.4

-22.7

161.7

262.3

-321.6

210.5

-59.3

-82.3

Taxes Paid

-72.8

-1.2

-19.8

-59.6

Other Adj

-2.5

0.5

0.0

0.0

-142.4

187.1

82.7

120.4

Capex

-50.5

-47.8

-50.0

-50.0

Other Investment

-23.0

-0.3

0.0

0.0

Total Investment

-73.6

-48.1

-50.0

-50.0

Investment

FY11A

FY12A

FY13E

FY14E

EBITDA margin (%)

8.5%

-0.8%

5.4%

8.0%

Dividend Paid

-73.2

-10.5

-10.5

-21.0

PAT margin (%)

5.3%

-3.7%

2.6%

4.2%

Share Capital

0.0

0.0

0.0

0.0

Price Earnings (x)

11.3

-17.1

22.6

12.9

Premium / Reserve

-65.6

-0.8

0.0

0.0

Book Value (Rs.)

Financing

56.8

44.0

51.6

64.7

Borrowing

378.5

-77.5

14.7

-21.7

ROE (%)

31.0%

-26.5%

17.1%

23.9%

Interest

-25.6

-72.1

-52.4

-50.1

ROCE (%)

26.8%

-4.1%

17.9%

26.4%

Other Income

33.8

23.2

25.5

26.0

Debt Equity Ratio (x)

0.9

0.9

0.8

0.6

Total Financing

248.0

-137.8

-22.7

-66.8

Price / Book Value (x)

3.5

4.5

3.9

3.1

Net Chg. in Cash

32.0

1.2

9.9

3.6

EV / EBIDTA (x)

8.6

-92.6

13.0

7.9

Cash at beginning

20.4

52.4

53.7

63.6

0.73

0.75

0.70

0.63

Cash at end

52.4

53.7

63.6

67.2

EV/Sales

Source: Company, Nirmal Bang Research

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Q 2 F Y 1 3 R e s u l t U p d a t e – 2 5 O cItn i2t i0a1 t i2n g C o v e r a g e

Blue Star Ltd

Notes

Disclaimer: This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in any way be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

Nirmal Bang Research (Division of Nirmal Bang Securities PVT LTD) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001 Fax. : 022 3926 8010

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