Blue Star Ltd’s move to acquire Nasser Electricals Pvt Ltd, an electrical contracting firm based in Bangalore, is a move steeped in synergies.
Insight
Blue Star Ltd’s move to acquire Nasser Electricals Pvt Ltd, an electrical contracting firm based in Bangalore, is a move steeped in synergies.
The acquisition immediately affords the cenral air-conditioning systems major gain the capability to undertake integrated mechanical, electrical & plumbing (MEP) projects on its own, instead of farming it out to sub-contractors such as Naseer.
Blue Star’s margins on turnkey projects can improve because it can access projects at the conceptual level itself, which engenders efficiencies at the implementation level.
The company can also cater to customers seeking electrical contracting services outside the air-conditioning world.
Naseer is a contracting firm that caters to the MEP needs of the information technology, ITES, infrastructure and retail segments.
A three-decade-old entity, Naseer has a topline of Rs 107 crore and enjoys a strong presence in south India.
The buyout may have been at around one-time Naseer’s sales, though Blue Star did not reveal how much it paid.
Both Blue Star and Naseer are riding India’s construction boom. No wonder, Blue Star’s second-quarter results were excellent with topline growing by 46% and net profit by a massive 150%.
All three of its business segments — central & packaged air-conditioning, cooling products, and professional electronics & industrial systems have performed well.
Nearly three-fourths of its revenue — 73% to be exact — comes from central & packaged air-conditioning.
Blue Star’s carry-forward orderbook position as on September 30, 2007, stood at Rs 1,031 crore as against Rs 788 crore on September 30, 2006.
The order book is expected to post a growth of 30% YoY.
At a current market price of Rs 463.56 the stock is available at 36.6 times its earnings in the last 4 trailing quarters. That’s decent valuation in a segment that will continue to rock for some time to come.
More room to develop
In the past two days, the stock of Parsvnath Developers Ltd (PDL) has risen 5.5%, compared with a 3.3% rise in the BSE Midcap index, thanks largely to two announcements. On December 4, Parsvnath SEZ, a subsidiary of PDL, signed an MoU with the government of Rajasthan to develop an SEZ over 112 acres in Jaipur, with an investment of Rs 1,400 crore. The SEZ, likely to be completed in three years, is expected to boost the gems and jewellery industry.
The following day, PDL won a bid to develop a commercial mall in Noida, the cost of which, including the land, is estimated to be Rs 160 crore. The saleable land area is estimated to be around 3.6 lakh square feet. PDL expects the Noida project to add Rs 300 crore to its financials in the next three years.
PDL is engaged in real estate development and promotion of clubs, hospitals, hotels, retail shopping malls, SEZs and townships.
For the quarter ended September 2007 (Q2), the company posted a growth of 36.3% in revenues year-on-year to Rs 397.24 crore. Operating profit margins increased to 38.50% from 26.16% in Q2 last year. This improvement was on the back of a decrease in cost of construction and development as a percentage of sales to 54.43% from 68.29% in Q2 last year.
PDL’s other income increased by 431% to Rs 10.48 crore, as the unutilised IPO money was temporarily invested in short-term avenues. This resulted in an increase of 109% in PDL’s earnings before interest, depreciation, tax and amortisation (Ebidta) to Rs 163.40 crore. Interest costs for Q2 rose by 156.5% to Rs 9.67 crore, while depreciation costs surged by 56.9% to Rs 4.55 crore and the tax outgo was up 114.2% at Rs 48.44 crore. All these translated into an increase of 106% in net profit to 100.74 crore.
According to analysts, PDL has a land bank of about 160 million square feet and has acquired a further 30 million square feet in Q2. The company intends to have total developable land of 320-330 million square feet by 2008. Its diversified portfolio further helps in mitigating risks, they maintain.
PDL’s stock has underperformed the BSE Midcap index and the broader Sensex in the past one-year and has dropped by 27.8% during the same period. At Rs 376.40, it trades at 8.6 times its estimated earnings for 2009, taking the average of two analyst calls.
Most analysts see the stock as a good bet in its space, albeit with a long-term view.
Contibuted by Sunder Subramanian & Pallavi Pengonda
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