Accumulate Blue Star; target of Rs 365: Kotak Securities

Kotak Securities research report on Blue Star“We met the management of Blue Star. The key takeaway were 1) Higher level of enquiries in projects segment 2) Potential for market share gains in room AC segment 3) Borrowings to decline. We see strong growth potential for room ACs in the medium term aided by higher disposable incomes and improving power supply scenario.” “Despite being a late entrant into the room Airconditioner market, BSL has managed to corner a 6% market share in the segment. Traditionally, the company has been mainly strong in the Western and Southern markets but is increasing its penetration in the Northern market (largest market). The company's products are priced in the mid range (higher than LG, Samsung and Voltas) and competes with the likes of Hitachi and Panasonic. The company expects to consolidate its market share further to around 9% in the next three years. Order intake for the quarter stood at Rs 4.18bn, up 14.2% on a y-o-y basis. Thus, order backlog at the end of Q1FY15 stood at Rs 15.7 bn, up 9.3% on a yoy and 6% sequentially. Legacy orders now stand at Rs 1.25 bn out of a total order book of Rs 15.7 bn. These are around 80-85 projects orders which should get closed by the end of this fiscal. The company has seen increased level of enquiries in this quarter, which is a positive takeaway. The company is seeing signs of revival especially in Bengaluru, Pune and NCR.” “Blue Star is trading at 23.1x and 19.3x on FY15 and FY16 earnings respectively. On a EV/EBITDA basis, the stock is trading at 13.9x FY16 EBITDA. Valuations are at a fair discount to peer group. In view of this, we recommend ACCUMULATE (BUY earlier) with a revised DCF based target price of Rs 365 (prior target of 328),” says Kotak Securities research report.

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