Analyst Meet Note | Consumer Goods

December 21, 2012

Blue Star
Reduce target price
The positive impulse sensed by Blue Stars 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. The key takeaways from the meet are as follows 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 companys 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. Outlook and Valuation: 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.

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Consumer Goods 1,667 286 0.8 231/151 41,788 2 19,242 5,848 BLUS.BO BLSTR IN

`185 `224
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 40.1 15.9 12.3 31.6

Abs. (%) Sensex BLUESTAR

3m 2.6 4.7

1yr 22.7 16.8

3yr 15.9 (48.5)

Key Financials (Consolidated)

Sales (` cr) FY2013E FY2014E 2,538 2,681 OPM (%) 4.6 5.7 PAT (` cr) 66 EPS (`) 7.3 RoE (%) 15.6 P/E (x) 25.2 16.4 P/BV (x) 3.7 3.1 EV/EBITDA (x) 16.8 11.8 EV/Sales (x) 0.8 0.7

Shareen Batatawala
+91 22 3935 7800 Ext: 6849 shareen.batatawala@angeltrade.com

102 11.3 20.7

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Blue Star | Analyst Meet Note

Profit and loss statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Net Raw Materials Personnel Other Total Expenditure EBITDA % chg (% of Net Sales) Depreciation EBIT % chg (% of Net Sales) Interest (incl. forex loss) Other Income (% of Net Sales) PBT % chg Tax (% of PBT) PAT (reported) Extraordinary (Expense)/Inc. ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 2,558 33 2,525 2,525 36.1 1,870 185 183 2,238 287 (0.2) 11.4 35 252 7.8 10.0 8 19 0.8 263 10.2 65 24.8 198 (14) 211 16.0 8.4 23.5 23.5 116.0 FY2011 3,010 29 2,981 2,981 19.3 2,145 215 364 2,724 256 21.7 8.6 32 224 (11.0) 7.5 26 32 1.1 231 (12.2) 73 31.5 158 (0) 158 (23.9) 5.3 17.9 17.9 76.1 FY2012 2,848 28 2,820 2,820 4.6 2,200 221 422 2,843 (23) 4.3 (0.8) 32 (54) (1.9) 72 23 0.8 (103) 1 (1.1) (105) (105) (3.7) (11.7) (11.7) (65.3) FY2013E 2,564 25 2,538 2,538 9.4 1,826 216 381 2,423 116 (14.8) 4.6 33 83 3.3 45 28 1.1 66 66 66 2.6 7.3 7.3 (62.8) FY2014E 2,708 27 2,681 2,681 13.3 1,898 228 402 2,528 153 4.4 5.7 36 117 40.9 4.4 27 29 1.1 119 81.0 18 15.0 102 102 53.8 3.8 11.3 11.3 153.8

December 21, 2012

Blue Star | Analyst Meet Note

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long Term Liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term Loans & adv Other non-current assets Current Assets Cash Loans & Advances Inventory Debtors Other current assets Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 18 474 492 66 (1) 556 352 154 198 3 4 1,399 20 131 258 628 361 1,047 352 556 18 493 511 445 (1) 3 958 377 183 194 25 27 40 6 2,014 52 113 498 814 536 1,349 665 958 18 377 395 367 (0) 5 767 418 211 207 32 28 73 8 1,737 54 102 447 762 372 1,318 419 767 18 433 451 347 (0) 5 803 448 243 204 30 28 66 8 1,603 44 91 365 765 338 1,136 466 803 18 514 532 227 (0) 5 763 488 279 209 40 28 70 8 1,595 68 99 318 735 375 1,186 409 763 FY2010 FY2011 FY2012 FY2013E FY2014E

December 21, 2012

Blue Star | Analyst Meet Note

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Other income Direct taxes paid Others Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments (Inc.)/Dec. In L.T loans and adv Other income Others Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans (Dec.)/Inc. in long term provision Forex difference on cash equivalents Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
Note: FY2010 numbers are on standalone basis

FY2010 263 35 (163) (19) (65) 41 91 3 22 19 (55) (11) 39 0 (84) (24) (69) 11 9 20

FY2011 231 32 (281) (32) (73) 10 (113) (47) (23) (40) 32 (48) (127) 379 3 (0) (73) (41) 267 27 25 52

FY2012 (103) 32 247 (23) (1) 93 244 (47) (6) (33) 23 12 (51) (78) 2 (0) (10) (106) (192) 1 52 54

FY2013E 66 33 (57) (28) 14 (28) 7 28 7 (20) (10) (30) (10) 54 44

FY2014E 119 36 82 (29) (18) 189 (50) (4) 29 (24) (120) (21) (141) 24 44 68

December 21, 2012

Blue Star | Analyst Meet Note

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.1 0.1 29.8 0.4 1.4 8.8 0.7 (12.6) (0.8) 0.7 2.4 1.8 0.4 0.9 4.3 7.9 34 89 156 36 8.8 46 88 161 58 7.6 61 102 171 63 6.3 58 110 171 57 6.1 46 100 171 52 53.0 60.1 49.2 29.6 33.8 32.1 (6.3) (7.5) (23.2) 10.6 12.8 15.6 15.0 18.5 20.7 10.0 0.8 6.0 45.2 0.2 0.1 48.0 7.5 0.7 4.5 23.1 0.0 0.4 32.3 (1.9) 1.0 3.9 (7.5) 0.3 0.7 (13.1) 3.3 1.0 3.9 12.8 0.2 0.7 21.3 4.4 0.9 4.2 15.7 0.2 0.4 22.4 23.5 23.5 27.4 8.0 54.7 17.9 17.9 21.4 7.0 56.8 (11.7) (11.7) (8.2) 1.0 44.0 7.3 7.3 11.0 1.0 50.1 11.3 11.3 15.2 2.0 59.1 7.9 6.8 3.4 4.3 0.7 6.0 3.1 10.4 8.6 3.3 3.8 0.7 7.9 2.1 (15.9) (22.7) 4.2 0.5 0.7 (85.9) 2.5 25.2 16.9 3.7 0.5 0.8 16.8 2.4 16.4 12.2 3.1 1.1 0.7 11.8 2.4 FY2010 FY2011 FY2012 FY2013E FY2014E

December 21, 2012

Blue Star | Analyst Meet Note

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Blue Star No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 21, 2012

Blue Star | Analyst Meet Note

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com

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December 21, 2012