4QFY2012 Result Update | Cons.

Durables
May 22, 2012

Blue Star
Performance Highlights
Y/E March (` cr) Net Sales EBITDA OPM (%) PAT

NEUTRAL
CMP Target Price
% chg (qoq)
35.9

`167 -

4QFY12
801.3

3QFY12
589.7

4QFY11
915.6

% chg (yoy)
(12.5)

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

(49.1) (6.1)
(45.4)

(3.1) (0.5)
(32.8)

1,469.8 (560)bp
38.5

102.6 11.2
56.8

(147.9) (1,734)bp
(179.8)

Cons. Durable 1,503 0.8 344/151 16,806 2 16,026 4,861 BLUS.BO BLSTR@IN

Source: Company, Angel Research (Standalone)

For 4QFY2012, Blue Star reported a 12.5% yoy decline in its revenue to `801cr. OPM for the quarter fell by 1,734bp yoy and 560bp qoq to negative 6.1% due to higher other expenditure. PAT declined by 180% yoy to negative `45cr. According to management, the current scenario is going to continue for the next two to three quarters owing to cost overruns. Thus, we continue to maintain our Neutral recommendation on the stock. Top line declines, margin dips significantly: Blue Star reported a 12.5% yoy decline in its top line to `801cr in 4QFY2012 on a standalone basis. The decline in the companys revenue was on account of a 20.3% yoy decline in the electromechanical projects and packaged air conditioning systems (EMPPACS) segment to `463cr, which accounted for nearly 57% of the companys total revenue. The segment also reported EBIT loss of `58cr in 4QFY2012 vs. profit of `70cr in 4QFY2011 on account of cost overruns of `40cr and write-off worth `20cr, which had a negative impact on margins. Owing to losses in this segment, overall OPM declined by 1,734bp yoy to negative 6.1%. PAT came in at negative `45cr during the quarter. Outlook and valuation: Demand from market segments has still not picked up. However, growth in the cooling products segment remains strong. Overall, management is not very optimistic and expects the current scenario to continue over the next two to three quarters. Management also expects a 5-6% yoy margin contraction in FY2013. We have revised our estimates downwards and continue to maintain our Neutral stance on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 40.1 16.1 6.7 37.1

Abs.(%) Sensex Blue Star

3m (13.0) (15.3)

1yr (12.5) (49.4)

3yr 15.4 (39.6)

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011

FY2012

FY2013E

FY2014E

2,976 17.9 158 (25.1) 8.5 17.6 9.5 2.9 32.0 30.6 0.5 6.0

2,820 (5.2) (105) (166.1) (0.8) (11.6) (14.4) 3.8 (23.2) -6.3 0.5 (66.7)

3,047 8.1 86 182.6 5.4 9.6 17.4 3.4 20.7 16.4 0.5 9.1

3,328 9.2 146 69.0 6.9 16.2 10.3 2.8 29.7 25.2 0.5 6.6 Sharan Lillaney
+91 22 3935 7800 Ext: 6811 Sharanb.lillaney@angeltrade.com

Please refer to important disclosures at the end of this report

Blue Star | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

4QFY12 801.3 439.7 54.9 55.3 6.9 355.4 44.4 850.4 (49.1) (6.1) 10.0 8.2 22.7 (44.7) (44.7) (5.6) 0.7 (1.6) (45.4) (5.7) 9.0 (5.0) (45.4)

3QFY12 589.7 416.3 70.6 52.5 8.9 124.0 21.0 592.8 (3.1) (0.5) 22.1 8.1 0.6 (32.8) (32.8) (5.6) (32.8) (5.6) 9.0 (3.6) (32.8)

% chg (qoq) 35.9 5.6 5.3 186.7 43.4 1,470 (560)bp (54.6) 1.4 3,883.6 36.4 36.4 38.5 (11)bp 38.5 38.5

4QFY11 915.6 584.3 63.8 56.1 6.1 172.5 18.8 812.9 102.6 11.2 9.6 8.2 2.6 87.4 87.4 9.5 30.6 35.0 56.8 6.2 9.0 6.3 56.8

% chg (yoy) (12.5) (24.7) (1.4) 106.0 4.6 (147.9) (1,734)bp 4.4 (0.1) 766.7 (151.1) (151.1) (97.7) (179.8) (1,187)bp (179.8) (179.8)

Segment-wise performance
The EMPPACS segment posted a decline of 20.3% yoy to `463cr in 4QFY2012, as debtor position remained challenging during the quarter as well. The segments EBIT margin came in at negative 12.4% in 4QFY2012 vs. positive 12.0% in 4QFY2011. The company accounted for cost overruns of `40cr and write-off worth `20cr in 4QFY2012. The cooling products segment posted growth of 6.5% yoy to `283cr, mainly driven by refrigeration product sales. The segments EBIT margin contracted by 105bp yoy to 9.8%. The professional electronics and industrial systems (PEIS) segment reported 8.2% yoy growth during the quarter to `67cr. The segments EBIT margin came in at 22.7%, down 1,012bp yoy.

May 22, 2012

Blue Star | 4QFY2012 Result Update

Exhibit 2: Segment-wise performance (Standalone)

Y/E March (` cr) Total Revenue A) EMPPACS B) Cooling Products C) PEIS Total Less: Inter-Segmental Rev. Net Sales EBIT A) EMPPACS B) Cooling Products C) PEIS EBIT Margin (%) A) EMPPACS B) Cooling Products C) PEIS
Source: Company, Angel Research

4QFY2012 3QFY2012 4QFY2011 % chg (qoq) % chg (yoy) 463 283 67 814 814 (58) 28 15 (12.4) 9.8 22.7 368 164 52 584 584 (15) 7 12 (4.1) 4.4 22.5 581 266 62 909 909 70 29 20 12.0 10.8 32.9 39.3 279.6 287.2 31.2 (832)bp 541bp 26bp (10.5) (182.6) (3.8) (25.1) (2,446)bp (105)bp (1,012)bp 25.8 72.7 29.7 39.3 (20.3) 6.5 8.2 (10.5)

Sales decline by 12.5% yoy

In 4QFY2012, the company posted a 12.5% yoy decline in its top line, mainly due to weak demand and issues on the execution side. However, we expect the scenario to improve slightly in 2HFY2013.

Exhibit 3: Sales trend

1,000 900 800 700 600
(` cr)

916 801 665 695 613 705 605 590

30 25 20 15 10 5 0 (5) (10) (15)

(%)

500 400 300 200 100 0 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Sales (LHS) yoy Growth (RHS)

Source: Company, Angel Research

OPM declines significantly on the back of cost overruns

For 4QFY2012, Blue Stars OPM declined by 1,734bp yoy to negative 6.1%, mainly due to higher other expenditure, which increased to 44.4% of sales compared to 18.8% of sales in 4QFY2011. Other expenditure accounted for cost overruns and write-offs. Management expects the scenario to improve only after two to three quarters. Margins are expected to decline by 5-6% on a yoy basis on the back of project delays, cost overruns and higher raw-material prices.

May 22, 2012

Blue Star | 4QFY2012 Result Update

Exhibit 4: OPM trend

120 100 80 60
(` cr)

14 11.2 9.2 9.7 7.7 3.9 2.3 (0.5)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

12 10 8 6 2 0 (2) (4) (6) (8)

(%)

40 20 0 (20) (40) (60)

EBITDA (LHS)

OPM (RHS)

(6.1)

Source: Company, Angel Research

PAT negative on the back of cost overruns

PAT during the quarter declined by 180% yoy to negative `45cr on the back of lower OPM and cost overruns. PAT margin declined by 1,187bp yoy to negative 5.7% vs. positive 6.2% in 4QFY2011.

Exhibit 5: PAT trend

80 60 40
(` cr)

56.8 37.2 38.6 22.4 9.8

20 0 (20) (40) (60)

(20.8)

(32.8)

(45.4)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

Source: Company, Angel Research

May 22, 2012

Blue Star | 4QFY2012 Result Update

Outlook and valuation

There are still no signs of pick-up in demand from the commercial real estate market. Consequently, the company continues to witness a challenging environment, as reflected by weak top-line growth in 4QFY2012. Overall, management is not very optimistic and expects the current scenario to continue over the next two to three quarters. Management also expects OPM to contract by 5-6% on a yoy basis in FY2013. New orders are being accepted at higher margins of 10-11%, but this will reflect post 2HFY2013. Owing to the weak outlook and expected margin erosion, we have revised our estimates downwards and maintain our Neutral recommendation on the stock.

May 22, 2012

Blue Star | 4QFY2012 Result Update

Profit and loss statement (Consolidated)

Y/E March (` Cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg % of Income Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY10 2,525 0.9 2,250 1,882 50 185 133 275 5.8 10.9 35 240 2.7 9.5 8 31 11.9 263 6.9 10.4 14 277 65 23.5 211 211 198 5.2 7.8 23.5 23.5 15.0 FY11 2,976 17.9 2,722 2,287 92 215 128 254 (7.4) 8.5 32 223 (7.3) 7.5 26 34 14.6 231 (12.2) 7.8 0 231 73 31.5 158 3 161 161 (18.7) 5.4 17.6 17.6 (25.1) (105) (105) (165.5) (3.8) (11.6) (11.6) (166.1) 86 86 182.6 2.9 9.6 9.6 182.6 146 146 69.0 4.4 16.2 16.2 69.0 FY12 2,820 (5.2) 2,843 2,200 273 221 149 (23) (108.9) (0.8) 32 (54) (124.5) (2.0) 72 23 (22.4) (103) (144.8) (3.7) (103) 1 (1.1) (105) (1) FY13E 3,047 8.1 2,881 2,407 92 220 161 166 829.6 5.4 39 127 332.) 4.2 35 23 20.1 115 211.4 3.8 115 29 25.0 86 FY14E 3,328 9.2 3,097 2,580 101 241 176 231 39.4 6.9 44 187 47.7 5.7 16 23 11.9 195 69.0 5.9 195 49 25.0 146 -

May 22, 2012

Blue Star | 4QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` Cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability (Net) Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Inventories Debtors Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 351 180 171 28 4 1,393 13 132 258 628 361 1,097 296 499 406 212 194 28 27 1,957 52 146 404 821 533 1,252 705 1 955 466 243 222 16 28 1,818 54 110 447 836 372 1,322 496 762 496 282 213 35 28 1,948 48 152 468 762 518 1,437 511 786 556 326 230 39 28 1,946 53 166 496 666 566 1,542 404 700 9 (1) 499 445 (1) 955 367 (0) 762 347 (0) 786 157 (0) 700 18 474 492 18 493 511 18 377 395 18 422 440 18 526 544 FY10 FY11 FY12 FY13E FY14E

May 22, 2012

Blue Star | 4QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` Cr) Profit before tax Depreciation (Inc.)/ Dec. in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY10 277 35 (114) 31 65 101 (22) 0 31 10 (15) 84 (4) (103) 8 6 13 FY11 231 32 (370) 34 73 (214) (55) (23) 34 (44) 436 74 (65) 297 39 13 52 FY12 (103) 32 211 23 1 115 (48) (1) 23 (25) (78) 11 0 (88) 1 52 54 (62) (5) 54 48 (232) 4 48 53 FY13E 115 39 (20) 23 29 82 (48) 23 (25) (20) 42 FY14E 195 44 111 23 49 277 (64) 23 (41) (190) 42

May 22, 2012

Blue Star | 4QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales 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) ROCE (Post Tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC ROE Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Operating Income / Invested Capital Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.0 28.4 0.9 0.1 1.5 8.7 0.9 0.1 (13.7) (0.8) 0.8 0.1 1.8 3.7 0.3 0.0 0.4 11.9 7.4 14.1 6.2 34 92 134 33 7.9 16.3 4.5 41 89 143 57 6.5 13.5 3.6 55 107 155 71 6.3 14.0 4.4 55 96 163 54 6.3 15.0 5.1 53 78 157 45 53.8 58.7 46.0 30.6 33.4 32.0 (6.3) (7.0) (23.2) 16.4 18.2 20.7 25.2 28.6 29.7 9.5 76.5 5.8 42.2 39.7 0.0 42.2 7.5 68.5 4.3 22.0 7.7 0.4 27.2 (1.9) 101.1 3.5 (6.8) 18.0 1.4 (41.2) 4.2 75.0 4.2 13.2 7.3 1.0 19.3 5.6 75.0 4.8 20.3 4.7 0.6 30.3 23.5 23.5 25.8 8.0 54.7 17.6 17.6 21.1 7.0 56.8 (11.6) (11.6) (8.1) 1.0 44.0 9.6 9.6 13.9 4.0 48.9 16.2 16.2 21.1 4.0 60.4 7.1 7.1 6.5 3.1 4.8 0.6 0.6 5.4 3.0 9.5 9.5 7.9 2.9 4.2 0.5 0.5 6.0 2.0 (14.4) (14.4) (20.6) 3.8 0.6 0.5 0.5 (66.7) 2.3 17.4 17.4 12.0 3.4 2.4 0.5 0.5 9.1 2.3 10.3 10.3 7.9 2.8 2.4 0.5 0.5 6.6 2.1 FY10 FY11 FY12 FY13E FY14E

May 22, 2012

Blue Star | 4QFY2012 Result Update

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%)

May 22, 2012

10