Motilal Oswal initiates coverage on Blue Star with ‘Neutral’ rating; check target price, upside

Motilal Oswal has initiated coverage on Blue Star with a Neutral rating and a price target of Rs 1,950, implying an upside of about 10 percent from current levels. Shares of Blue Star were trading at Rs 1,761, down 1.36 percent on Tuesday, and the stock has declined 22.1 percent year-to-date.

The brokerage said Blue Star offers profitable growth driven by backward integration and scale, but current valuations already capture much of the near-term upside. At present, the stock trades at 48x FY27E EPS and 38x FY28E EPS, slightly above its long-term average of 46x. Motilal Oswal therefore believes the risk-reward is balanced and the stock is “fairly valued” at these levels.

Steady market share gains in cooling businesses

Motilal Oswal highlighted Blue Star’s steady rise in the room air-conditioner (RAC) market, where its share has improved from 7 percent in FY14 to 14 percent in FY25, with a 15 percent target for FY27. The company also retains a strong footing in commercial refrigeration, holding over 31 percent share in deep freezers and modular cold rooms.

The brokerage expects the firm’s unitary cooling products (UCP) revenue to decline 3 percent in FY26 due to a weak summer season, but sees a sharp recovery ahead -- projecting 19 percent and 18 percent revenue growth in FY27 and FY28, supported by rising demand. EBIT margins are expected to remain in the high single digits, improving gradually as the company scales up operations and increases localisation.

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Shift to high-value segments, leadership in commercial AC

The report noted Blue Star’s strategic shift toward high-value, higher-margin segments such as data centres, factories and select infrastructure projects, which offer stronger profitability and cash flow generation.

In the commercial air-conditioning (CAC) market, Blue Star retains leadership in ducted ACs and scroll chillers with 45-50 percent market share, and ranks second in VRF and screw chillers with around 20 percent share. Motilal Oswal expects the MEP and CAC segments to deliver a 15 percent revenue CAGR over FY26-28, with margins of 8.6-8.9 percent.

PEIS: value-added segment showing recovery prospects

Blue Star’s professional electronics and industrial systems (PEIS) division accounted for 4 percent of revenue and 8 percent of EBIT over FY21-25, though margins slipped to 9 percent in FY25 from 15 percent in FY21 due to regulatory and demand challenges in MedTech and data security. The industrial solutions business, however, is gaining traction.

Motilal Oswal expects the PEIS segment to recover with improving private capex and demand in healthcare and security systems. It projects a 10 percent revenue CAGR over FY26-28 and margin expansion to the 11-13 percent range.

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