INITIATING COVERAGE REPORT RATING: STRONG BUY TARGET PRICE: `230

BLUE STAR LIMITED

Analyst: Neha Majithia +91 33 30512176 nmajithia@microsec.in

Blue Star Limited STRONG BUY

Valuation Data
Current Market Price (CMP) Target Price Upside Potential 52 Week High Low Market Cap (INR in Crores)

Sector-Consumer Durables
We recommend BLUESTAR a BUY. Blue star is one of Indias largest central air-conditioning company with an annual turnover of INR2,900 crores. It has a 182.95 market share of 7.5% in room air-conditioning market and is aiming to reach 15% 230 in coming years. The company commands 30% share in packaged air-conditioning 25.60% market and 25% in cold storage segment.

399.85/150.75 1645.64

Investment Highlights
Moving from HVAC (Heating, Ventilation and air-conditioning) to MEP (Mechanical, electrical and plumbing) orders: The company is focusing on MEP orders rather than HVAC, which increases the order book size by almost two and a half times. Almost, 75% of the order book comprises of large infrastructure projects (all sectors) and clients prefer to choose MEP orders as a matter of its simplicity. In simple terms, in case of large projects customers prefer MEP orders and HVAC orders for small projects. Consistent growth in Cooling Product Segment: The cooling product segment has been growing at a CAGR of 17% for last 5 years. The Companys confidence in their strategy of channel expansion, continuous focus on high growth markets and products and their leadership position in refrigeration product business would help the company keep growing in coming years. Companys aggressive focus on room AC segment: The company which entered the room AC segment last year through retail route has already captured 7% of market share and is eying 9% by FY12. The company primarily focused on commercial and residential sector having equal business mix. But now, the residential sector would now account for 60% of the mix. It has plans to reach INR1,000 crores by 2014 in room air conditioner segment in terms of revenue. Companys inviolable initiative to take measures to improve profitability: The company has taken various measures like a)setting up of separate hedging desk for copper and other commodities to reduce the risk of loss b) including price escalation clauses while booking new projects, as 70% of the orders are of fixed price in nature c) managing the capital employed in business through expediting debtor collection, commercially closing jobs and contemporizing delivery of materials, allocation of resources strictly base on requirements and payment trends.

40.19%

39.52%

0.60% 19.68% Indian Promoters Institutions Foreign Promoters Non-Institutions

Blue Star Limited BLUESTARCO 500067 BLSTR BLUS.NS Consumer Durables-Electronics Rs.2.00 per Share 17.99 18.37 6,672 0.86 16.95% NA

Stock Scan
Scrip ID Scrip Code (NSE) Scrip Code (BSE) Bloomberg Ticker Reuters Ticker Industry Face Value ( INR) Equity Share Capital ( INR Cr) Avg 5 years P/E Avg daily volume (Last 1 Year) Beta Vs Sensex Dividend Yield PEG Ratio

22000 21000 20000 19000 18000 17000 16000 15000

400 350 300 250 200 150

Sensex

Bluestar Limited

-2-

Source: Company Data, Microsec Research

nmajithia@microsec.in Microsec Research

9th February, 2012

Company Profile

Blue Star Ltd, founded by Mohan T Advani in 1943, is one of the Indias leading company in Centralized Air-conditioning and Commercial Refrigeration with annual turnover of INR2,900 crores spread across a network of 29 offices, having 6 modern manufacturing facilities, over 1200 dealers and 2800 employees. It caters to the air-conditioning needs of its Corporate, Commercial and Residential consumers as well as has proven to be a leader in commercial refrigeration products ranging from Water coolers to Cold storages. Blue star focuses on the corporate and commercial sector which includes IT/ITes, Pharmacy, Telecom, Malls, hotels, Restaurants, retail outlets, showrooms, offices, hospitality etc. It has manufacturing plants at The Company with its expertise and wide range of eco-friendly and energy efficient products and services has added several big names as its clients like Accenture, Aditya Birla group, Apollo hospitals, Mother Dairy, Amul, Indian Oil corporation, Reliance, Vishal Retail, Microsoft, DLF, Future Group, etc.

Industry Overview

Air Conditioners

Market Size Of Air-Conditioners In India 7000 6100

INR (cr)

In, FY2010-11, the estimated market size of Air-Conditioning (includes Central plants, VRF systems and packaged/ducted plants) in India was around INR13,100 Crores as compared to INR10,750 Crores in FY2009-10, which shows increase of 16% in Centralized & packaged AirConditioners and 27% in Room Conditioners. In the FY2008-09 and FY2009-10, there was insignificant contribution from the retail, Infrastructure, power sector and builders because of the economic slowdown as an impact of the US recession.

7000

6000

5750 5250

5500

5000 4500 4000 2008-09 2009-10 2010-11 Room Conditioners

Centralised & Packaged Air Conditioners

Source: Company Data, Microsec Research

There was a modest growth in the healthcare, hospitality and education sectors. Leaving behind the impact of US recession and economic slowdown, the figures for the FY2010-11 are eye-catching as a result of decent pick up in commercial real estate, IT/ITes, healthcare, hospitality, education and retail sectors. Consumer spending on Room Air-Conditioners increased. The current penetration level of ACs is just 3% and is expected to double over next 3-4 years. Telecom sector was under severe margin pressure with corruption issues and cutting back on expansion plans.

-39th February, 2012

nmajithia@microsec.in Microsec Research

The Consumer Durable Industry is likely to grow by 11-12% in 2012 provided there is early onslaught of strong summers, cooling of f in the commodity prices and stability in rupee.

Commercial Refrigerators The commercial Refrigeration includes variety of products like cold storages, water coolers, bottled water dispensers, deep freezers, milk coolers, bottle coolers, and ice cubers. The Indian food and grocery industry has been growing very fast which comprises of fresh fruits and vegetables, dairy products and aqua and marine products. These perishable commodities are to be stored at different levels of temperatures and humidity level from the farm to the final consumption. India being the largest producer of fruits and second largest producer of vegetables needs good cold chain infrastructure. But the inadequacy for the same leads to high wastage. Around, 70% of the retail industry is in food items which are sourced locally and due to improper cold chain infrastructure there is wastage of Rs.2.3 lakh crore in retail industry. The major constraint on developing the cold chain infrastructure is high capital cost and electrical bills. Keeping an eye on the loss on wastage, the Ministry of Agriculture with CII has set up a body called National centre for Cold Chain development (NCCD) to develop a cold chain network to balance demand and supply issues.

The Blue Star Group

Entities A). Subsidiary Blue star Electro-Mechanical Limited B). Foreign Joint Ventures-Jointly Controlled Entities Blue star M & E Engineering (Sdn) Bhd Blue Star Qatar- WLL C). Indian Joint Ventures-Jointly Controlled Entity Indian Joint Ventures-Jointly Controlled Entity D). Associate Blue Star InfoTech Limited

Country Of Incorporation

% Shareholding

India

100%

Malaysia Qatar

49% 49%

India

30%

India

30.98%

-49th February, 2012

nmajithia@microsec.in Microsec Research

Business Segments

Products

-59th February, 2012

nmajithia@microsec.in Microsec Research

Manufacturing Units and Production Capacity

1200000 1100000 1000000 900000 800000 700000 FY2008-09 Installed Capacity FY2009-10 FY2010-11

350000 340000 330000 320000 310000 300000 Actual Production

Source: Company Data, Microsec Research

Research and Development

18 16 14 12 10 8 6 4 2 0

16.53

INR (Cr)

6.89 1.92 0.09 FY2008-09 Capital expenditure FY2009-10

9.62

2.81 FY2010-11

Recurring expenditure

Source: Company Data, Microsec Research

-69th February, 2012

nmajithia@microsec.in Microsec Research

Financials at a Glance
100

3900
3428.50

14.00% 12.00% 10.00% 8.00%

40 35 80

88

3400 2900 2400 1900 1400

10.67% 2568.86

11.60% 2549.22

2976.09 2685.23 9.63%

3007.46

60 43 47 49

6.08% 6.00% 4.60%

27 20 3 0 FY2008-09A -20 ROE FY2009-10A FY2010-11 FY2011-12E -14 ROCE FY2012-13E 12 13

23 24

900 400 100

180.3 FY2008-09A 224.61 160.96 FY2010-11A 2.27% 46.04 -57.49 FY2011-12E FY2012-13E 101.47 FY2013-14E

4.00% 2.00% 0.00%

FY2013-14E

FY2009-10A

NetSales

PAT

EBITDA Margin(%)

Source: Company Data, Microsec Research

Source: Company Data, Microsec Research

40

88.27 80 80.06

35 30 25 23.52 20.05 15.43 17.89 20.79

35.04

INR (Cr)

60 47.47 40

20 15 10

15.90 11.28

7.72 5

5.12

20 FY2008-09 FY2009-10 Capex FY2010-11

0 -5 -10

0.00 FY2008-09A FY2009-10A FY2010-11A FY2011-12E FY2012-13E -6.39 EPS P/E

FY2013-14E

Source: Company Data, Microsec Research

Source: Company Data, Microsec Research

*The portion in red border shows the estimates

-79th February, 2012

nmajithia@microsec.in Microsec Research

Financial Highlights
The Company is growing at a CAGR of 21.48% in terms of Net Revenue and CAGR of 21.21% in terms of Profit after Tax for the last 10 years. The total revenue grew by 16.75% in the FY2011 on a consolidated basis on account of significant increase of 35% and 40% in Cooling Products segment and Professional Electronic & Industrial System segment respectively. The EBITDA margin was 9.63% in FY2011 as compared to 11.60% in FY2010. The fall in the margin was due to several factors like a) increase in commodity prices (in the second half of FY2011) hampering the consumption of raw materials, b) increase in operating and general expenses, c) rise in fuel prices which led to an increase in logistic costs. During the FY2011, the interest expenses increased significantly to INR25.57 crores as compared to INR5.1 crores in FY2010 because of sharp increase in bank interest rates and higher financing for funding inventories. There was an unexpected rise in taxation in FY2011 due to reduction in tax holiday benefit from 100% to 30% as of completion of 5 years of the Himachal Plant. The tax rate was 31.5% in FY2011 as compared to 23.5% in FY2011. The Capex showed a robust growth in FY2011 on account of setting up of additional manufacturing facilities at Himachal. The capex in FY2011 was Rs.47.47crores as compared to INR27.99 crores in FY2010. The company added a profit of INR0.43 crores as an exceptional item in FY2011 from sale of its residual shareholding in Ravistar Pvt Ltd as compared to INR13.96 crores in FY2010. During the FY2011, the company went for higher financing of Rs.444.53crores as compared to INR65.99 crores in FY2010 to fund inventories, manage capital employed and pay out vendors. In FY2011, the company added few more debtors of INR192.39 crores due to slow moving projects and the inventories got almost doubled because of weak summers.

3400 2900 2400 1900 1400 900 400

260 220 180 140 100 60 20

sales

Net profit

Source: Company Data, Microsec Research

-89th February, 2012

nmajithia@microsec.in Microsec Research

Exports and Imports

In the FY2009-10, Income declined sharply, with product exports declining by 51% and commission income by 7% as compared to FY2008-09.There were no project exports during the Year. The total foreign Exchange Outflow and Inflow was INR475.49 crores and INR129.42 crores as compared FY2008-09 figures of INR510.45 crores and INR233.98 crores respectively.
600 510.45 500 400
INR (Cr)

561.5 475.49

300 200 100

233.98 129.42 160.3

In the FY2010-11, Income from product exports revived by 33% to INR130.8 crores. Therefore, the total foreign exchange Inflow including commission income was INR160.3 crores as compared to INR129.42 crores in FY200910.While the total foreign exchange Outflow was INR561.5 crores as compared to INR475.49 crores in the previous year.

FY2008-09 Foreign Exchange Outflow

FY2009-10

FY2010-11

Foreign Exchange Inflow

Source: Company Data, mIcrosec Research

Order Inflow
2500
2162 2073 2099

3200 3126 3000

INR (Cr)

1976

1998

INR (Cr)

1815

2000
1717

1890

1968

1733

2925 2800 2794

1500
2600 FY2008-09 FY2009-10 Order Inflow
Source: Company Data, mIcrosec Research

FY2010-11

Carrt Forward Orer Inflow

Source: Company Data, mIcrosec Research

-99th February, 2012

nmajithia@microsec.in Microsec Research

Acquisition of D S Gupta Construction Private Limited and its Impact on the Financials
During the FY2010-11, Blue star Limited acquired the Plumbing and Fire-Fighting business of D S Gupta construction Private Limited on a slump sale basis at a Consideration of INR80 crores. D S Gupta Construction Private Limited now, a wholly owned Subsidiary named as Blue star ElectroMechanical Limited is the largest independent Plumbing and fire-fighting contracting Company in India with its head-quarters in Mumbai and has a turnover of INR130 crores in FY2010-11. The Company has a carry forward book order of INR300 crores. It has pan India operations and excellent credentials in segments like hotels, hospitality, commercial buildings, IT/ITes , educational institutions and residential complexes.

Impact of acquisition of DS Gupta construction Pvt ltd in the FY2010-11 3400 2976.09 2856.9 3100 2800 2500 2200
INR (Cr)

1900 1600 1300 1000 700 400 100 278.02 154.99 286.58 160.96

Standalone
Net Sales EBITDA

Consolidated
PAT

Source: Company Data, Microsec Research

Segmental Analysis
Segmental Revenue 1794.01 1980.88

Segmental Results 250 200

788.43

213.12

1600
INR (Cr)

1733.07

214.7 181.52

INR (Cr)

1100 597.42 600 172.08 100 FY2008-09 EMP & PA FY2009-10 Cooling Products 148.01 582.96

150 100 50 0 74.86 36.03 80.73 45.71 90.08 54.64

206.78

FY2010-11 PE & IS

FY2008 09
EMP & PA

FY2009 10
Cooling Products

FY201011
PE & IS

Source: Company Data, Microsec Research

Source: Company Data, Microsec Research

- 10 9th February, 2012

nmajithia@microsec.in Microsec Research

Capital Employed in Segments 500 400

INR (Cr)

502.05 403.82 316.13

INR (Cr)

Increase in Segmental Revenue after acquisition of D S Gupta Construction Pvt Ltd 2000 1500 1000 1861.69 1980.88

300 200 100 0 FY2008-09 EMP & PA FY2009-10 Cooling Products FY2010-11 PE & IS 116.75 30.8 103.37 52.74 139.03 64.81

EMP & PA

Source: Company Data, Microsec Research

Source: Company Data, Microsec Research

Segmental Highlights
The Electromechanical Projects and Packaged Air-conditioning business segment which constitutes 65% of total revenues, got affected the most in FY2011.The revenues grew a modest of 4%, while segment results declined by 18% and capital employed showed a robust growth of 24%. For Electromechanical Projects and Packaged Air-conditioning business segment, the company saw good demand from hospitality, healthcare, education, infrastructure and power sectors, while the contribution from IT/ITes, retail and builder segments remained subdued. In FY2011, the cooling Products segment showed healthy growth of 35% in revenues, while Segment results marginally moved up by 12%. During the year, the cooling product segment made its entry into residential segment with a wide range of room air conditioners. The company is focusing on retail expansion in Tier I, II and III markets. During the FY2011, the professional electronics and Industrial systems segment performed impressively. The revenues jumped 40%. In this segment, the company has changed its business model from being only a distributor of leading global manufacturers to that of system integrators and value added seller, thereby moving up the value chain. During the FY2011, the segment grew well by major contribution of material testing equipment and automated test systems.

- 11 9th February, 2012

nmajithia@microsec.in Microsec Research

Quarterly Performance
Particulars INCOME Net Sales Other Operating Income Total Income from Operation TOTAL EXPENDITURE EBITDA Margin (%) EBITDA Depreciation EBIT Margin (%) EBIT Interest Other Income PBT before exceptional items exceptional items PBT Margin (%) PBT after exceptional items Tax PAT before extraordinary items Extraordinary item PAT after extraordinary items PAT Margin (%) Basic EPS Adjusted EPS
Source: Company Data, Microsec Research

Q2FY12

Q3FY12

QoQ (%)

Q3FY11

YoY (%)

598.75 5.9 604.65 591.03 2.27 13.62 8 0.94 5.62 30.56 0.97 -23.97 0 -4.00 -23.97 -3.17 -20.8 0 -20.8 -3.47 -2.3 -2.3

583.3 6.39 589.69 592.82 -0.54% -3.13 8.1 -1.93% -11.23 22.1 0.57 -32.76 0 -5.62% -32.76 0 -32.76 0 -32.76 -5.62% -3.64 -3.64

-2.58% 8.31% -2.47% 0.30% (124)bps -122.98%

606.83 6.58 613.41 566.13 7.79% 47.28 8.04

-1.33% -10.33% -1.43% 4.40% (107)bps -71.19%

(305)bps -299.82%

6.47% 39.24 7.91 0.03

(130)bps -85.68%

36.67%

31.36 0

-176.43%

(562)bps 36.67%

5.17% 31.36 9

(209)bps -176.43%

57.50%

22.36 0

-193.02%

57.50% (562)bps

22.36 3.68% 2.49 2.49

-193.02% (253)bps

Q2FY12 reported a total Operating Income of INR604.65 CRORES as compared to INR694.76 crores in Q2FY11, representing a decline of 13%. Gross Margin declined to 18.6% from 22.2% due to higher costs pertaining to increase in material costs and changes in the business mix.

- 12 9th February, 2012

nmajithia@microsec.in Microsec Research

Operating profit declined by 80% to INR13.62 crores. This was largely on account of lower business volume; reduction in the Gross Margin and increases in other expenses comprising investments in advertising, R&D and increases in logistics costs. The overall economic climate continued to deteriorate during the quarter due to slower GDP growth, high inflation, interest rate increases and weakening of the rupee. All the three business segments were adversely impacted. There was a Net Loss of INR20.80 crores compared to Net Profit of INR38.65 crores in Q2FY11. The net sales declined for the quarter Q3FY12 was INR583.30 crores , a decline of 2.58% on QoQ basis and 1.33% on YoY basis. EBITDA sharply fell by 122.98% on QoQ basis and 71.19% on YoY basis, on account of unprecedented input costs. Interest Expense increased significantly from INR8.92 crores in Q2FY12 to INR22.10 crores in Q3FY12 due to rupee depreciation and higher interest costs. The companys normal policy is to hedge only 3555% of net foreign exchange exposure on an on-going basis, but this quarter, the company hedged 70% of the same to avoid foreign exchange losses. Consequently, there was a Net Loss of INR32.76 crores compared to Net Profit after tax of INR22.36 crores in Q3FY11.

Risks and Concerns

The volatility in commodity prices which affects the consumption of raw materials in a big way, thus pulling down the margins. The slowdown in the sectors like Infrastructure, real estate, power, etc which leads to projects deferrals in the business, in return affecting the business volume. Other Financial risks relating to exchange rates, credit risks, interest rates and operating risks like change of technology, customer preferences, high input costs. To address these risks, the company has in place an effective risk management system which ensures that risks are periodically identified and acted upon by the designed risk owners. The uncertainty in the global scenario and its impact on the Indian markets is also an addition to the companys risk.

- 13 9th February, 2012

nmajithia@microsec.in Microsec Research

Prestigious Orders Won In All Segments

Year Electro-mechanical Projects & Packaged Airconditions
Delhi Metro Rail Corporation(DMRC) valued at Rs.104crores Combined Air-conditioning & Electrical Orders at Rs. 40crore each from HCL Technologies at Chennai & Bangalore Fortis Healthcare (Gugaon) at Rs.37 crores Nokia Siemens at Rs.19crores MEP Order fromDea Valley Resorts at Rs.21 crores at Vishakapatnam NTPC (Jhajhar, Sipat) BHEL (Bellary) Volkswegan (Pune) Moser Baer (Greater Noida) Infosys (Pune) DLF (Gurgaon) Wipro (Bhubaneswar & Hyderabad) Cisco Systems (Bangalore) Columbia Asia Hospitals (Patiala) JK Education Foundation (Gurgaon) Apollo Hospitals (Bhubaneshwar) Hindustan Unilever (Mumbai) Novaritis Health (Hydearbad) JW Marriot (Chennai) Hilton (Chennai) Accenture (Pune & Chennai) Viceroy Renaissance Hotels (Bangalore) MIMS Hospitals (Hyderabad) Suzlon (Coimbatore) Arvind Eye Hospital (Madurai) Future Group (Kolkata) Gautam Buddha University (Greater Noida) Central Drugs research Centre (Lucknow) Jawahar Lal Nehru Bhawan (New Delhi) CIDCO (Mumbai) DRDO (Pune) New Insurance Co. (Mumbai) Bank Of Baroda (Mumbai) PCPA Orders from Sify & IBM Integrated MEP Order for Delhi Airport Metro Express Line at Rs.172 crores Bangalore Medical College ESIC Hospitals (Bangalore,Jaipur,Manesar & Mumbai) Nrayana Hrudalaya (Hyderabad & Jiapur) Apollo Hospitals (Karaikudi) Rockland Hospitals (Manesar) Sadar Hospitals (Ranchi) Wipro Data Centre(Greater Noida)

Cooling Products

Professional & Industrial Systems

Jindal Ratnami Sievert Man Industries NDT Inspection Services Numaligarh Refinery, Kalpakkam IGCAR, Kalpakkam IFCI, Delhi at Rs.8 Crores Mumbai International Airport

Bata Titan Eye Plus Future Axiom Telecom Religare Securities Baja Auto Max New York Universal Sompo Installation of Perishable Cargo Centers at 3 Airports (Nasik, Goa, Ahemdabad and Bagdogra) Gujarat Agro Ind Corp Ltd (Ahemdabad) Sungro Seeds (Ambala)

FY2009-10

FY2008-09

Guharat Agro for Potato Storage at Rs.9crores Rajasthan Stae Agriculture marketing Board at Rs 8crores Ministry of Health & Family Welfare for Vaccine Storage at Rs.8.5crores Amul

SAIL IISCO Steel Plant at Rs,45crores, Burnpur Rourkela Steel Plant at Rs.4crores from TATA Steel Jindal Steel at Rs.6.7crores Central Rice Research Institute (Cuttack)

- 14 9th February, 2012

nmajithia@microsec.in Microsec Research

HP (Mumbai) CA India Technologies (Hyderabad) Synthesis Business Park (Kolkata) Infosys (Mysore & Pune) National Centre For Biological Sciences (Hyderabad) Indiabulls Real estate Co. (Mumbai) Sheth Developers (Mumbai) Vrindavan Techvillage (Bangalore) Boomerang IT Campus (Mumbai) C-Das Innovation Park (Pune) Jaypee Green Hotels & Resorts (Greater Noida) IBM-Airtel Data Centre (Bhubaneshwar) Kohinoor City (Mumbai) DLF Mangolias (Gugaon) RBS Corporate Office (New Delhi) Inorbit Mall (Bangalore) Chhatrapati Shivaji International Airport at Rs.118crores at Mumbai AIIMS (Bhubaneshwar) Butibori & Sasan (Korwa) BGR Energy Lanco RIL Infra Gogrej Eternia (Chandigarh) HCL (Noida) Novotel Hotel (Pune) NIT (Rourkela) Infosys Technologies (Thiruvananthapuram) Ashok Leyland (Chennai) HUL (Mumbai) JSW Steel Energy (Mumbai) ABB (Vadodara) Madhya Pradesh Paschim Vidyut Vitran Nigam Ltd (Indore) Avantha Power (Raigarh) Reliance Infrastructure (Sasan and Samalkot) OPTCL (Bhubaneswar) APTRANSCO (Andhra Pradesh) GMR Airport ( Secunderabad) Oberoi Realty (Mumbai) Oberoi and Trident Hote ( Hyderabad) Fortis Hospital (Delhi) Kohinoor Square Commercial (Mumbai) Continental Hospital (Hyderabad)

Vadidlal Vijaya Dairy Hatsun agro Dinshaws Lazza Shital Havmor

Centre of Genetic Manipulation of Crop Plants (Delhi) Department of Genetics (Delhi University) Footwear testing Equipment from Intertek (Delhi) National Metallurgical Laboratory at USD1.5 million at Jamshedpur

Hotel Shangri-La Bestech Hospitalities Triton Jaypee Grandeur Agrotech Alchemist Wockhardt

FY2010-11

Jindal Steel & Power (Angul) Bhilai Steel Plant JSW Salem Usha Martin Ratnamani Metal & Tubes Surya Global Tubes Hindustan Aeronautics (Kanpur & Hyderabad) Ruby Hall Clinic ( Pune)

Source: Company Data, Microsec Research

- 15 9th February, 2012

nmajithia@microsec.in Microsec Research

Peer Comparison

Particulars Net Sales (INR-Cr) EBITDA (INR-Cr) EBITDA Margin (%) PAT (INR-Cr) PAT Margin (%) Market Capitalization Market cap to Sales EPS ROE P/E CMP (as on 8th February, 2012)

Blue Star Ltd 2793.71 107.52 3.85% 13.08 0.47% 1645.64 0.59 1.45 29.01 126.17 182.95

Hitachi Home 782.15 26.56 3.40% 5.49 0.70% 288.03 0.37 -1.79 18.41 NA 125.45

Fedders Lloyd 915.73 94.05 10.27% 41.96 4.58% 179.39 0.20 13.63 23.24 4.28 58.3

Voltas 5157.88 356.39 6.91% 345.25 6.69% 3216.06 0.62 7.38 31.19 13.18 97.25

Note: All figures are on TTM basis

Source: Company Data, Microsec Research

Valuation
We followed DCF approach for the valuation of Bluestar Limited. We utilized Weighted Average Cost of Capital (WACC) of 9.33% to discount the future earnings of Blue Star Ltd. In addition, we applied a terminal growth rate of 2.50% for the earnings beyond FY2014E. We arrived at the WACC with a Cost of Equity of 10.41%, post tax Cost of Debt of 8.22%, and Debt-to-Equity of 0.96x. By adopting Capital Asset Pricing Model (CAPM), we arrived at Cost to Equity based on Market Return of 10.77%, Risk Free Rate of 8.17% and Beta of 0.86x. Furthermore, the Cost of Debt represents expected interest cost after deducting the tax impact. With this, our DCF valuation reflects a target price of `229.78 for the stock, which reflects an upside of 25.73% from the CMP of `182.95.

- 16 9th February, 2012

nmajithia@microsec.in Microsec Research

Income Statement
Year ended March,31st
Particulars INCOME Net Sales Growth in sales (%)-YoY Other Operating Income as % of sales Total Income from Operation Growth (%)-YoY TOTAL EXPENDITURE as % of sales EBITDA Margin (%) EBITDA Growth (%) Depreciation EBIT Margin (%) EBIT Interest Other Income PBT before exceptional items exceptional items PBT Margin (%) PBT after exceptional items Tax Tax (%) PAT before extraordinary items Extraordinary item PAT after extraordinary items Share in profit of associates PAT Margin (%) PAT after shares in associates Paid -up Equity Share Capital Basic EPS Adjusted EPS
Source: Company Data, Microsec Research

FY2009A

FY2010A

FY2011A

FY2012E

FY2013E

FY2014E

2568.86

2549.22 -0.76

2976.09 16.75 32.14 1.08% 3008.23 16.88 2721.65 91.45% 9.63% 286.58 -3.12% 31.93 8.56% 254.65 25.57 1.61 230.69 0.43 7.77% 231.12 72.82 31.51% 158.3 0 158.3 2.66 5.41% 160.96 17.99 17.89 17.89

2685.23 -9.77 20.79 0.77% 2706.02 -10.05 2644.94 98.50% 2.27% 61.08 -78.69% 33.23 1.04% 27.85 80.00 2 -50.15 0 -1.87% -50.15 10.00 28% -60.15 0 -60.15 2.66 -2.14% -57.49 17.99 -6.39 -6.39

3007.46 12% 30.07 1% 3037.53 12.25 2899.22 96.40% 4.60% 138.31 126.44% 34.53 3.45% 103.78 45.69 3 61.09 0 2.03% 61.09 17.72 29% 43.38 0 43.38 2.66 1.53% 46.04 17.99 5.12 5.12

3428.50 14% 34.29 1% 3462.79 14.00 3254.19 94.92% 6.08% 208.60 50.82% 39.34 4.94% 169.26 33.09 3 139.17 0 4.06% 139.17 40.36 29% 98.81 0 98.81 2.66 2.96% 101.47 17.99 11.28 11.28

1.74 0.07% 2570.6

24.46 0.96% 2573.68 0.12

2296.38 89.39% 10.67% 274.22

2277.87 89.36% 11.60% 295.81 7.87%

25.88 9.67% 248.34 13.55 3.44 238.23 0 9.27% 238.23 57.93 24.32% 180.3 0 180.3 0 7.02% 180.3 17.99 20.04 20.04

34.73 10.24% 261.08 5.1 6.68 262.66 13.96 10.85% 276.62 65.14 23.55% 211.48 0 211.48 0 8.30% 211.48 17.99 23.51 23.52

- 17 9th February, 2012

nmajithia@microsec.in Microsec Research

Balance Sheet

Balance Sheet as on 31st, March Particulars SOURCES OF FUNDS:

Share Capital Reserves & Surplus Shareholder's Funds Secured Loans Unsecured Loans Loan Funds Net Deferred Tax Liability Total APPLICATION OF FUNDS Fixed Assets Gross Block (-) Accumulated Depreciation Net block Capital Work in Progress Investments Deferred Tax Asset, Net Fixed Assets & Investments Inventories Sundry Debtors Other Current assets Cash & Bank balance Loans & Advances Total CA, Loans & Advances Current Liabilities Provisions Less: Total CL & Provisions Net Current Assets Miscellaneous Expenditure TOTAL
Source: Company Data, Microsec Research

FY2009A

FY2010A

FY2011A

FY2012E

FY2013E

FY2014E

17.99 349.14 367.13 27.29 0 27.29 0.62 395.04

17.99 473.69 491.68 60.07 5.92 65.99 0 557.67

17.99 493.26 511.25 230.74 213.79 444.53 0 955.78

17.99 386.30 404.29 326.95 123.79 450.74 0 855.03

17.99 378.37 396.36 291.95 88.79 380.74 0 777.10

17.99 416.88 434.87 221.95 53.79 275.74 0 710.61

332.51 144.92 187.59 24.79 4.38 0 216.76 208.06 608.64 86.47 9.2 125.52 1037.89 752.14 108.07 860.21 177.68 0.6 395.04

351.88 154.22 197.66 2.6 4.2 1.47 205.93 258.01 628.21 360.92 20.43 131.42 1398.99 931.22 116.03 1047.25 351.74 0 557.67

376.52 182.51 194.01 28.47 27.24 0.73 250.45 404.29 820.6 533.14 52.44 146.47 1956.94 1148.35 103.26 1251.61 705.33 0 955.78

415.00 215.74 199.26 35 30 0.73 264.99 356.06 706.64 559.80 35.53 134.26 1792.29 1097.25 105 1202.25 590.04 0 855.03

470.00 250.27 219.73 40 23.5 0.73 283.96 306.06 656.64 531.81 59.27 147.37 1701.14 1103.01 105 1208.01 493.13 0 777.10

540.00 289.61 250.39 40 16.2 0.73 307.32 256.06 626.64 558.40 73.77 164.57 1679.44 1171.15 105 1276.15 403.29 0 710.61

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nmajithia@microsec.in Microsec Research

Cash Flow Statement

Cash Flow For the Year Ended Mrch,31st Particulars

A. Cash Flow From Operating Activities Net Profit Before Tax Depreciation Loss/(Profit) on assets sold or discarded EVRS Written off Profit on sale of assets Fees/Cost adj against Securities Premium profit on sale of investments Provision for doubtful loans and advances Provision for Doubtful debts Bad debts written off Unrealized exchange gain(net) Interest Expenses Interest Income Dividend Income Operating Profit before WC changes (Increase)/Decrease in Inventories (Increase)/Decrease in Sundry Debtors (Increase)/ Decrease in loans and advances (Increase)/ Decrease in Other Current assets Increase/ (Decrease) in Current & Liabilities Cash generated from operations Direct taxes paid Net Cash from Operating Activities B. Cash Flow From Investing Activities Purchase of Fixed Assets Sale of Fixed Assets Refund of Escrow Account (Purchase)/Sale of Investments Interest Received Retainer Bonus Dividend Received -86.76 1.68 0 0.19 0.75 -3.33 3.37 -24.26 0.33 2.22 9.24 3.29 -5.25 3.24 -54.15 3.65 0 -79.56 1.27 0 2.04 0 0 0 0 -2.76 0 6.5 0 7.3 -45.01 -60.00 -70.00 238.23 25.88 2.87 0.82 -0.23 0 0 0 0 14.68 -4.12 17.25 -1.42 -3.38 290.58 65.43 -139.92 -9.75 -86.46 132.81 252.69 63.14 189.55 276.62 34.73 2.39 0.6 -0.05 0 -13.96 2.35 0 14.04 -1.9 8.45 -3.56 -3.24 316.47 -49.95 -34.65 -8.99 -274.46 215.83 164.24 73.16 91.08 231.12 31.93 -2.79 0 0 -32.42 -0.43 0.86 8.21 6.38 1.42 25.57 -1.21 -0.4 268.24 -138.43 -162.94 -1.5 -171.37 177.3 -28.69 84.54 -113.23 63.08 48.23 113.96 12.21 -26.66 -49.36 161.46 10.00 151.46 141.31 50 50 -13.10 27.99 5.76 261.96 17.72 244.24 211.60 50 30 -17.20 -26.59 68.14 315.95 40.36 275.59 80 45.69 33.09 0 0 0 -50.15 33.23 61.09 34.53 139.17 39.34

FY2009A

FY2010A

FY2011A

FY2012E

FY2013E

FY2014E

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nmajithia@microsec.in Microsec Research

Net Cash used in Investing Activities Balance Carried Forward Balance Bought Forward C. Cash Flow From Financing Activities Movement in Cash Credit accounts Capital Subsidy received Interest Paid Dividend Paid Tax on dividend distribution Net Cash from/(Used) in financing activities Net (Increase)/Decrease in cash & CE Cash & Cash Equivalents at beginning Cash & Cash Equivalents at End Components of Cash & Cash Equivalents Less: Effect of exchange differences Cash & CE in Cash Flow Statement
Source: Company Data, Microsec Research

-84.1 105.46 105.46

-11.19 -79.88 -79.88

-126.75 -239.97 -239.97

-47.77

-53.5

-62.7

-9.26 0.3 -17.18 -62.95 -10.7 -99.79 5.66 2.67 8.33 9.19 0.85 8.34

13.24 0 -8.46 -62.76 -10.7 -68.68 11.21 9.2 20.41 20.4 0.22 20.18

376.85 0 -25.2 -71.95 -11.95 267.75 27.77 25.1 52.87 52.44 -0.43 52.87

6.21 2.66 -80.00 -41.45 -8.02 -120.60 -16.91 52.44 35.53 0 0

-70 2.66 -45.69 -45.22 -8.75 -167.00 23.74 35.53 59.27 0 0

-105 2.66 -33.09 -52.75 -10.21 -198.39 14.50 59.27 73.77 0 0

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nmajithia@microsec.in Microsec Research

Ratio Analysis

Ratios

FY2009A

FY2010A

FY2011A

FY2012E

FY2013E

FY2014E

Profitability Ratios (%)

Return on Assets (ROA) Return on Capital Employed (ROCE) Return on Equity (ROE) Per Share Earnings Per Share Dividend Per share Cash Earnings Per Share BVPS Valuation Parameters P/E ratio P/CEPS P/BVPS EV/EBITDA Market Cap/Sales Liquidity Ratios Current Ratio Acid Test Ratio Debt-Equity Ratio Efficiency Ratios (%) Asset turnover Ratio Working Capital Turnover Ratio Inventory Turnover Ratio Margin Ratios (%) EBITDA Margin EBIT Margin PBT Margin Net Profit Margin
Source: Company Data, Microsec Research

51.92 88.43 49.11

44.43 46.82 43.01

16.56 26.62 31.48

NA 3.26 -14.22

5.92 13.36 11.61

14.28 23.82 23.33

20.05 7.00 22.92 40.81

23.52 8.00 27.37 54.66

17.89 7.00 21.44 56.84

-6.39 5.50 -2.70 44.95

5.12 6.00 8.96 44.06

11.28 7.00 15.65 48.35

7.75 6.78 3.81 5.15 0.56

15.50 13.31 6.67 11.19 1.31

20.76 17.32 6.54 61.17 1.13

0.00 0.00 4.07 61.55 0.61

35.71 20.40 4.15 26.50 0.54

16.20 11.67 3.78 17.00 0.48

1.21 0.96 0.07

1.34 1.09 0.13

1.56 1.24 0.87

1.49 1.19 1.11

1.41 1.15 0.96

1.32 1.12 0.63

7.27 14.02 10.48

5.35 14.35 10.94

3.93 4.22 8.99

2.97 4.55 7.06

3.69 6.10 9.08

4.61 8.50 12.20

10.67% 9.67% 9.27% 7.02%

11.60% 10.24% 10.85% 8.30%

9.63% 8.56% 7.77% 5.41%

2.27% 1.04% -1.87% -2.14%

4.60% 3.45% 2.03% 1.53%

6.08% 4.94% 4.06% 2.96%

- 21 9th February, 2012

nmajithia@microsec.in Microsec Research

Microsec Research: Phone No.: 91 33 30512100 Email: microsec_research@microsec.in Ajay Jaiswal: President, Investment Strategies, Head of Research: ajaiswal@microsec.in Fundamental Research
Name Nitin Prakash Daga Naveen Vyas Gargi Deb Sutapa Roy Sanjeev Jain Anik Das Neha Majithia Soumyadip Raha Saroj Singh Vinit Pagaria Ranajit Saha Sectors IT, Telecom & Entertainment Midcaps, Market Strategies Agriculture & Pharma Economy BFSI Mid Cap Mid Cap Mid Cap Mid Cap Derivatives & Technical Technical Research Institutional Equities Institutional Desk PMS Research FPD Products Research Support Designation AVP-Research AVP-Research Research Analyst Research Analyst Research Analyst Research Analyst Research Analyst Executive Research Executive Research VP Sr. Manager Sr. Manager Dealer AVP Manager Research Asst. Manager Technology Email ID npdaga@microsec.in nvyas@microsec.in gdeb@microsec.in s-roy@microsec.in sjain@microsec.in adas4@microsec.in nmajithia@microsec.in sraha@microsec.in ssingh2@microsec.in vpagaria@microsec.in rksaha@microsec.in dmittal@microsec.in pdshah@microsec.in ssedani@microsec.in skedia@microsec.in sboral@microsec.in

Technical & Derivative Research

Institutional Desk
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PMS Division
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Research: Financial Planning Division Research-Support

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Recommendation Strong Buy Buy Hold Underperform Sell

Expected absolute returns (%) over 12 months >20% between 10% and 20% between 0% and 10% between 0% and -10% < -10%

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- 22 9th February, 2012

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- 23 9th February, 2012

nmajithia@microsec.in Microsec Research

Disclaimer: This document is prepared by the research team of Microsec Capital Ltd. (hereinafter referred as MCL) circulated for purely information purpose to the authorizedrecipientandshouldnotbereplicatedorquotedorcirculatedtoanypersoninanyform.ThisdocumentshouldnotbeinterpretedasanInvestment/ taxation/legaladvice.Whiletheinformationcontainedinthereporthasbeenprocuredingoodfaith,fromsourcesconsideredtobereliable,nostatementinthe reportshouldbeconsideredtobecompleteoraccurate.Therefore,itshouldonlyberelieduponatonesownrisk.

MCL is not soliciting any action based on the report. No indication is intended from the report that the transaction undertaken based on the information contained in this report will be profitable or that they will not result in losses. Investors must make their own investment decisions based on their specific investmentobjectivesandfinancialpositionandusingsuchindependentadvisors,astheybelievenecessary. - 24 - be liable for any damages whether direct or indirect, incidental, special or Neither the Firm, nor its directors, employees, agents nor representatives shall nmajithia@microsec.in consequentialincludinglostrevenueorlostprofitsthatmayarisefromorinconnectionwiththeuseoftheinformation.

9th February, 2012

Microsec Research