Buy Blue Star; target of Rs 580: Dolat Capital

Stellar performance in Room AC segment led Blue Star (BSL) to report a strong 23% growth in sales. Sales remain 21% higher than our estimates. However, EBITDA remain 8.2% below our estimates due to, low margin in EMP segment coupled with higher excise duty in UCP segment. Adjusted Stand Alone PAT for the quarter stood at Rs 530mn (Dolat Rs 476mn). Gaining market share in RAC and bringing up a consumer focus in the unitary cooling products is the key highlights in the business of Blue Star. On the way of economic recovery, we expect 18% CAGR in net sales and 26% CAGR in consolidated PAT over FY16-FY18. We recommend BUY with TP Rs 580, valuing the company 16x FY18 EV/EBITDA for its superior return profile as compared to its peers.

Maintain BUY We expect 18% and 26% CAGR in recurring consolidated sales and PBIT over FY16-FY18E, respectively. At CMP the company trades at 13.5x FY18 EV/EBITDA (RoE 22.6%) as compared to Voltas at 16xFY18 EV/EBITDA (RoE 15.8%) and Hitachi Home and Life Solution at 20xFY18 EV/EBITDA (20.6% RoE). So we find the current price is attractive and maintain BUY recommendation on the stock with TP Rs 580 valuing the company at 16x FY18 EV/EBITDA.