Stay Cool….BUY Blue Star tgt Rs 380/-

Blue Star is India’s largest central airconditioning company, the stock with a marketcap of ~Rs2600cr has been languishing these last two years.  Profits dropped as did the sales. The last two years have not been the best for the air-conditioning business as whole. The last quarter results indicate recovery.

Blue Star fulfils the airconditioning needs of a large number of corporate, commercial and residential customers and has also established leadership in the field of commercial refrigeration equipment ranging from water coolers to cold storages. The Company also offers comprehensive Electrical Contracting and Plumbing & Fire Fighting Services.

Blue Star has five modern state-of-the-art manufacturing facilities located at Thane, Bharuch, Dadra, Himachal and Wada.

The company focuses on the corporate and commercial markets. These include institutional, industrial and government organizations as well as commercial establishments such as showrooms, restaurants, banks, hospitals, theatres, shopping malls and boutiques.  Their products include

Electro Mechanical Projects And Packaged Airconditioning Systems

Cooling Products

Professional Electronics And Industrial Systems


Valuations and Outlook

The management has indicated that a 25% growth is possible in the summer season given that their markets have been doing well because of how hot the summer has been. While the company has not taken any price hike, the fact that rupee stabilized and that there is a CENVAT concession of 2% in the interim budget will mean that their margins will be stable at 9%.  Also more hearteningly commercial customers are showing interest and that further helps demand growth.

Inventory levels are well under control at about 45 days, which is the norm.  Going ahead the management will focus on getting to 10% market share as against the 7% they currently stand at.

The last quarter Blue Star   Q4 Net profit was at Rs 42.7 crore versus Rs 18.5 crore (YoY) while Net sales were at Rs 863 crore versus Rs 851 crore (YoY).

Assuming a FY16E EPS of Rs 19 BUY the stock with a target of Rs 380/-



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