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Recommendations India

Blue Star Q3FY14 results update

January 28, 2014, Tuesday, 10:47 GMT | 05:47 EST | 15:17 IST | 17:47 SGT
Contributed by Nirmal Bang


Results were sharply below estimates. Revenue for the quarter declined by 8.8% YoY (-6.7% QoQ) to Rs545.9 Cr on back of poor performance in all the segments. EBITDA declined by 41.4% YoY. EBITDA margin declined 152bps on a YoY basis and declined by 114bps sequentially at 2.7%. Partly cushioned by higher other income (at Rs9.1 Cr vs Rs2.1 Cr YoY) PAT declined 47.7% YoY to Rs2.8 Cr translating to 38bps YoY fall in net profit margin.
 
The revenues of EMP&PAS business, accounting for ~64% of the total revenues, in the quarter declined significantly by 11.9% YoY (-6.7% QoQ), while EBIT margin of the segment declined to 5.2% from 5.8% in Q3FY13 and 5.4% in Q2FY14, mainly due to slower execution of projects as well as and sticky legacy orders continue to take a toll on the segment. Optimal margins for the segment would be achieved only after the sticky orders are out and order inflow momentum improves.
 
The revenue of Cooling Products, accounting for ~29% of the total revenues, in the quarter was same as Q3FY13 as its usually a lean quarter for the room air conditioner industry as well as revised energy rating (applicable from Jan 2014) impacted company’s volume growth, while EBIT margin improved marginally to 2.9% from 2.4% in Q3FY13 on account of proactive revision in selling prices as well as a higher mix of in-house manufactured products.
 
The PE&IS business revenues declined by 11% YoY, with marginal improvement in EBIT margin to 20.6% from 20.3% in Q3FY13 due to the unfavorable business climate. The carry forward order book at the end of the quarter stands at Rs1737 Cr, up by 7% yoy and flat on QoQ basis.
 
 
Valuation & Recommendation
 
At CMP, stock is trading at a PE of 29.3xFY14E and 17.4xFY15E. Persistent muted order inflow outlook, weak margins expected in the EMP segment (~64% of overall revenue) and subdued growth in the CP segment remains a concern for the company. We reduce our estimates for FY14 to factor in poor growth and introduce FY15 estimates.
 
We had recommended the stock at level of Rs 186 in our 22 Aug 2012 report with price target of Rs 199 (upgraded in Q2FY14 note.) We remain cautious on near term outlook considering the dull business environment which continues to dampen capital investment decisions as well as commercial construction, resulting in adverse impact on the profitability of the company. We recommend investors to exit the stock at CMP.