For FY09, order inflows slowed down to 12.3% compared to 39% in FY08. New orders in Q4 FY09 degrew by 39% as some of the major orders have got delayed.
The management clarified that it has adjusted order book for orders wherein work is likely to be delayed or where client has asked to stop progress. Quantum of such orders amount to Rs 950 million.
Management has said that a good number of projects that were delayed or deferred in FY09 due to liquidity crunch/economic recession are showing signs of reviving.
However, the order size has reduced as the project size has been curtailed in view of the changed economic growth outlook.
In the near-term, the company expects to finalise 4-5 large orders worth Rs 4.0 bn which have been in discussion since FY09 but have been delayed this far.
IT/ITES had been one of the prime driver of Central Air Conditioning demand for the company. However, the ongoing slowdown in IT outsourcing has taken its toll on creation of new software development centres.
As a result, share of IT/ITES has declined from 30% in Q2 FY09 to 15% in Q4 FY09. Also, the order mix has become more broad-based with several government projects now accounting for 26% of orders.
The space thus vacated has been taken by offices/Hospitals/Government and Infrastructure projects. Execution period for order backlog of Rs 13.4 billion is of 9-11 months.
Order backlog is up 18% y-o-y at the end of FY09. However, near term outlook on order inflows remains sedate. In view of this, the management has guided for a moderate growth in revenues in FY10.
We have factored in 15.8% growth in revenues in FY10. Our forecast builds in a recovery in revenue growth in H2 FY10. Earnings to grow at 19% in FY10 aided by a minor improvement in margins.
Blue Star remains one of our favoured picks in the engineering madcap sector. The stock is trading at a discount to Voltas and the broad engineering sector.
However, in view of the reduced upside from these levels, we recommend ACCUMULATE with a revised price target of Rs318 (earlier Rs250).