Sharekhan's research report on Blue Star
Blue Star reported strong operational beat for Q2FY2024, led by Unitary Products’ performance. Consolidated revenues were up 19.9% y-o-y at Rs. 1890 crore, led by 39% y-o-y growth in Unitary products revenues (industry growth estimated at 30% y-o-y) while EMP segment reported 12% y-o-y revenue growth. Consolidated OPM at 6.5% (up 106 bps y-o-y) surprised positively by Unitary products (EBIT margins up 227 bps y-o-y at 8.4% led by scale, product realignments, and lower ad spends). Overall, consolidated operating profit/net profit was up 43% y-o-y/66% y-o-y at Rs. 123 crore/Rs. 71 crore (much higher than our estimates). The company’s recent Rs. 1000 crore fundraise through QIP would help fund manufacturing capacities expansion (Sri city phase 2 to double cooling products capacity to 1.2 mn units, venture into sub 300 liter deep freezers and other new products). Overall capacity building and a healthy demand environment would entail a high growth trajectory for the company.
Outlook
Blue Star is well placed to leverage on the opportunities in the domestic RAC and commercial cooling and the refrigeration industry. The company also plans to explore exports opportunities in countries like USA and Europe. The long-term growth momentum would continue, given sectoral tailwinds regarding soaring temperatures across India and changing consumer lifestyles. The EMPS segment’s growth prospects are brighter, given robust order book and continued traction in order inflows in domestic and international markets. We introduce our FY2026E earnings in this note. We expect revenue/adjusted PAT to post a CAGR of 17%/32% over FY2023-2026E. At the CMP, the stock trades at 39x/31xx its FY2025E/FY2026E EPS, which we believe provides further room for upside. Hence, we upgrade the stock to Buy with a revised price target (PT) of Rs. 1160, rolling forward our valuation multiple to September 2025E earnings and increasing valuation multiple considering strong earnings growth trajectory over the next 2-3 years.
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