Sharekhan says to buy Blue Star shares for long-term returns

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Leading player in white good space

According to Sharekhan, Blue Star has become a leading player in the home consumer electronics space for white goods thanks to market share gain (from 6% in FY11 to 13.25% currently) by increasing penetration, expanding its distribution network and rapidly increasing its number of stores.

“It continuously launches new models of affordable air conditioners (AC) to establish itself as a ‘mass-premium’ player and aims to achieve a 15% market share in fiscal 2023. On the project side as well , a healthy order book of Rs 2,311 crore and increased capital expenditure in the public and private sectors would drive growth. The company has emerged as a prominent player in the air conditioning and refrigeration segments despite a challenging business environment and escalating competition over the past 2-3 years, the company has low debt, high capital asset turnover and healthy yield ratios,” the brokerage said.

Healthy growth in the air conditioning industry

Healthy growth in the air conditioning industry

According to Sharekhan, the air conditioning industry recorded a healthy growth of 14%/16% in value and volume respectively in FY15-20.

“However, the last two summer seasons have been impacted due to the lockdown during the pandemic, resulting in lower volumes compared to fiscal 2020. Our interaction with multi-brand outlets indicates a strong summer season in Q4FY22 and Q1FY23 Therefore, given the declining base and pent-up demand of the past two years coupled with rising heat, the air conditioning industry is expected to grow 20-25% this season.

Also, structural drivers of growth such as increasing per capita income, growing urbanization, low levels of penetration (7-8%), various financing options and better availability of electricity, etc. , would help maintain a healthy long-term growth trajectory. Blue Star, being the fourth player with a value market share of 13.25% (the top three players being Voltas, LG and Daikin) in the RAC segment is well placed to exploit this opportunity supported by the increase in its market. and its distribution reach, store expansion and new product launches in the ‘mass-premium’ category,” the brokerage said.

Blue Star estimate and view

Blue Star estimate and view

Sharekhan maintained a buy on the stock with an unchanged price target of Rs 1,200. In addition, scaling of commercial refrigeration products, upstream integration, increase in in-house manufacturing and PLI led the growth in aid. EMPS are more promising given continued traction in incoming orders.We expect revenue/PAT to register a CAGR of 23%/43% in FY21-24E.At CMP, the stock is trading at 32 x FY24E EPS We maintain our buy rating on the stock with an unchanged price target of Rs 1,200,” the brokerage said.

Warning

Warning

The stock was selected in Sharekhan’s brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article.

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