Stock Market Update on Blue Star for 1QFY2012

StockMarket  Update on Blue Star for 1QFY2012 with a Neutral recommendation

In 1QFY2012, Blue Star posted 6.0% yoy growth to `705cr (`665cr). OPM fell by 524bp yoy and 730bp qoq to 3.9% due to higher raw-material and other expenditure. Consequently, PAT declined by 73.6% yoy to `10cr (`37cr). According to management, the current scenario is going to continue for the next six quarters owing to cost overruns. Hence, we change our recommendation to Neutral on the stock.

Weak top-line growth, margin dips significantly: Blue Star reported 6.0% yoy top-line growth in 1QFY2012 to `705cr. The company’s growth was muted on the back of an 8.7% yoy decline in its electromechanical projects and packaged air conditioning systems (EMPPACS) segment to `342cr (`374cr), which accounted for nearly 49% of the total revenue. The segment also reported an EBIT loss of `9cr vs. profit of `34cr in 1QFY2012, negatively affecting margins. Owing to the losses in this segment, overall OPM declined by 524bp yoy to 3.9% (9.2%). Consequently, PAT and PAT margin also declined to `10cr and 1.4%, respectively.

Outlook and valuation: Demand from the key market segments has still not picked up. However, growth in the cooling products segment and DS Gupta remains strong. Overall, management is not very optimistic and expects the current scenario to continue over the next six quarters. Management also expects margin to contract by 3–5% on a yoy basis going ahead until 1QFY2013. We have revised our estimates downwards and changed our recommendation to Neutral.