Buy Blue Star; target of Rs 626: Anand Rathi

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Anand Rathi 's research report on Blue Star

Despite challenging times, Blue Star remains focused on shareholder value-creation courtesy its approach, which concentrated on increasing localisation of components and rationalising SKUs. This can aid in volume leverage leading to better profitability in UCP segment. The increase in localisation is in anticipation of a hike in customs duties for room-ACs and components. Its execution pace in projects, where it has robust `29.5bn order book would be driven by liquidity with clients as 20 project sites (of 150) have become operational. In the present circumstances, where the country is being divided into multiple zones, an all-India policy is not possible. Hence, sales are being monitored, zone-wise. Competition can turn keener in Jun’20 as channel partners would focus on reducing inventory to free capital employed for summer products.

Outlook

We have not revised our estimatesafter the analyst meet and maintain a Buy,with a TP of `626 (25x FY22e EPS of `25). For FY20-22, we model revenue/PAT registering 12%/28% CAGRs, with limited working-capital required. This could result in the RoCE expanding from 20% in FY20 to 24% in FY22. At the CMP of `467, the stock trades at 24x/19x FY21e/FY22e EPS of `19.4/`25.

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