Sharekhan Says To Buy The Stock Of Blue Star For Long-Term Returns

Leading player in the white good space

According to Sharekhan, Blue Star has emerged as a leading player in the domestic white goods consumer electronics space through market share gain (from 6% in FY11 to 13.25% currently) by increasing penetration, broadening its distribution network and rapidly expanding its store count.

"It has been continuously launching new and affordable air-conditioner (AC) models to establish itself as a 'mass-premium' player and aims to achieve a market share of 15% in FY2023. On the project side as well, healthy order book of Rs 2,311 crores and pick up in public and private sector capex would drive growth. The company has emerged as a leading player in the AC and commercial refrigeration segments despite a challenging business environment and intensifying competition in the past 2-3 years. Further, the company has low debt, high fixed asset turnover and healthy return ratios," the brokerage has said.

Healthy growth in the AC industry

According to Sharekhan, the AC industry reported a healthy growth of 14%/16% in value and volume terms respectively over FY15-20.

"However, last two summer seasons have been adversely impacted due to lockdown during the pandemic leading to a decline in volumes as compared to FY2020. Our interaction with multi-brand outlets indicate a strong summer season in Q4FY22 and Q1FY23.Hence, given the lower base and pent-up demand of the last two years coupled with rising heat, the AC industry is expected to grow at 20-25% this season.

Further, structural growth triggers such as rising per capita income, increasing urbanisation, low penetration levels (7-8%), various financing options and better availability of power etc., would help maintain a healthy growth trajectory over the long term. Blue Star, being the fourth-largest player with a value market share of 13.25% (first three players being Voltas, LG and Daikin) in the RAC segment is well placed to tap this opportunity backed by increase in its market and distribution reach, store expansion and launch of new products in the "mass-premium" category," the brokerage has said.

Valuation and view on Blue Star

Sharekhan has maintained a buy on the stock with unchanged price target of Rs 1,200. "Blue Star is expected to outperform the industry as well as its peers driven by a strengthening distribution network, rising market share, and improving product mix. Besides, scale-up in commercial refrigeration products, backward integration, increase in in-house manufacturing and PLI led aid growth. Similarly, the EMPS segment's growth prospects are brighter given continued traction in order inflows. We expect revenue/PAT to clock a CAGR of 23%/43% over FY21-24E. At CMP, the stock trades at 32xFY24E EPS. We maintain our Buy rating on the stock with an unchanged price target of Rs 1,200," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.