BLUESTAR LIMITED

Annual Report Analysis

Submitted by: Gurnnet Kaur Bhatia (B11020) Kunal Negi (B11028) Mayank Raina (B11021) Tarundeep Singh Gumar (B11057) Swati Mahajan(B11056) Vasudha Shrivastava(B11061)

Blue Star Ltd. An Introduction

Indias largest central air-conditioning company. Founded in the year 1943, it initially engaged in reconditioning of air-conditioners and refrigerators. It currently has an annual turnover of Rs.2900 crores, over 1200 dealers and an employee strength of around 2800. The company has a network of 29 offices and 6 manufacturing facilities.

BLUE STAR Businesses

Blue Star Business Streams

Air-Conditioning

Cooling Products

Professional Electronics and Industrial Systems

Presently, the company draws its revenues from 3 streams of businesses: Electro mechanical project and Packaged Air-conditioning
This comprises central and packaged airconditioning as well as electrical projects and plumbing & fire fighting projects. Major contributor(65%) to the revenue of Blue Star but the sector has seen low growth(4%).

Cooling Products
The Company also manufactures and markets a comprehensive range of commercial refrigeration products and services that cater to the industrial, commercial and hospitality sectors.

Professional Electronics and Industrial Systems

Its the exclusive distributor in India for many internationally renowned manufacturers of hitech professional electronic equipment and services, as well as industrial products and systems

The last two sectors though minor contributors to the revenue, have shown a 40% increase (Volume) each.

CONTD.

Du Pont Analysis: 2010-2011

Return on Total Assets PAT/Total Assets = 7.18% Net Profit Margin = PAT/Net Sales = 5.47 %

Total Assets Turnover = Sales/ Total Asset = 1.312

Net Profit =15499.76

_
Gross Profit = 64677.32

Net Sales = 283185.95

Net Sales = 283185.95

Total Assets = 215847.64

+
Other Expenses- other income = 49177.56 Cash/Bank = 4648.88 Fixed Asset = 19307.84

Net Sales = 283185.95

+
Others = 47254.35 Current Assets = 183438.93

+
Debtors = 77859.02 Investments = 10183.79

Cost of Goods Sold =218508.63

+
Inventories = 40057.44 Capital WIP = 2847.24

+
Deferred Tax = 69.84

Loans & Advances = 13619.24

RATIOS
Ratio Sheet : Assumptions made in calculation Ratios Net Sales = Gross Sales and Services - Excise Duty Net Worth = Share Capital + Free Reserves and Surpluses Free Reserves and Surpluses = General Reserves + Profit and Loss Account (Schedule B of the Balance Sheet) All Purchases and Sales are treated as Credit Purchases and Credit Sales Fixed Assets are taken as Gross Block Accumulated Depreciation The Variable cost used for calculation of Contribution is calculated as COGS + Incentive on Sales + Freight Outwards

Inferences
The company is cash rich company with reserves and surplus of 55,551.09 lakhs which is 96.86% of equity. Capital WIP Expenditure (including interest) incurred during the construction period is included in Capital W.I.P. and the same is allocated to respective fixed assets on completion of the construction.

Total revenue increased by 14% whereas profit decreased by 28% year on year basis.
Cost of sales increased to 76.5% in FY11 from 74.1% in FY10 of revenue from sales on account of increased cost of materials.

Operating and General expenses increased by 19.5% to Rs. 219.02 crores. As a percentage of Total Income, the Operating and General expenses for the year were at 7.6% as compared to 7.2% in the previous year.
Cash conversion cycle is 41 days.

 The company had raised debt this year, increasing its debt/equity ratio from 0.13 in FY10 to 0.73 in FY11.

The funds were primarily utilized for acquisition of the plumbing and fire-fighting business of D S Gupta Construction Pvt Ltd, through the Companys wholly owned subsidiary, Blue Star Electro-Mechanical Limited.
Return on capital employed shows a consistent decreasing trend since 2007-2008. Even though profit increased in FY10 (decreased in FY11) signals that their capital base is increasing the returns on that increasing capital base are not proportional. Provision for taxation during the year was 72.00 cr which is 31.7% of the Profit before Tax, as compared to 23.5% in the previous year. The increase in the effective tax rate was due to reduction in the tax holiday benefit from in one of the plants. Negative cash flow from operating activities (74cr) mainly on account of increase in sundry debtors and increase in inventories . Exports increased during the year by 33% to Rs 130.8 cr.

Strengths
Debt equity ratio has increased from 0.13 in FY10 to 0.73 in FY11. The company can take the benefit of trading on equity because of this. Though the PAT has dropped by 27%, still the P/E ratio has dropped only slightly from 23.52 to 21.39 (P/E ratios as calculated on 31st March 2010 to 31st March 2011. This shows that the company enjoys a positive market sentiment. Fixed asset turnover has increased from 12.64 in FY10 to 14.66 in FY11. This shows that fixed assets have been better utilized. Total sales have increased 14% to 289.291 Cr. Investment in R&D has increased which depicts the strong intention of future growth in the companys strategy. R&D expenditure has been raised from 0.39% of turnover in FY10 to 0.9% of turnover in FY11. The company is paying consistently high dividend.(Rs.7/share in FY11 and Rs.8/share in FY10).

Weaknesses

While the sales have increased by 14%, the EBITDA has decreased by 8%.
The reason is an increased cost base (due to consistently high commodity prices and increase in general operating costs- per the annual report)- which could not be passed on to the end costumers, hence: a fall in the profitability of the company and thus reduced operating margins As the number of equity shares remains the same year on year, lower PAT has also lead to reduced EPS (23.51 in FY11 to 17.23 in FY11) The result is increase in Cash Conversion Cycle (7 days in FY10 to 41 days in FY11) leading to blockage of funds. Increase in Debtor Days (92 days in FY10 to 100 days in FY11) and Inventory Days (45 days FY10 to 55 days in FY11) indicates poor debtor and inventory management.

 The Company raised considerable amount of funds during the year, by way of raising additional long term debt. The LTD base of the company has thus increased, without any change in the Companys equity base. This generally means that that a company has been aggressive in financing its growth with debt. This can result in even reduced margins. Operating Leverage (2.15 in FY10 to 2.34 in FY11), Financial Leverage (1.03 in FY10 to 1.11 in FY11), Combined Leverage (2.21 in FY10 to 2.6 in FY11) have increased. This has increased the financial risk, business risk and overall risk of the company Working Capital Turnover has decreased(5.34 in FY10 to 3.67 in FY11) implying the capital is stuck. Debt Service Coverage Ratio (DSCR) has fallen drastically (39.07 in FY10 to 0.08 in FY11) indicating that the Debt support by cash flow has decreased.

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