Recommendation From Consumer Electronics Sectors
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
Blue Star Limited
A COOL COMPANY TO GROW WITH!
HERE IS WHY
Increasing global presence with foray into KSA
New product launches
Robust financials
Blue Star Limited (BSL) is an air-conditioning and commercial refrigeration company. Blue Star’s key business segment comprises electromechanical projects and packaged air conditioning systems (EMPS); unitary products; and professional electronics and industrial systems; contributing 50 per cent, 46 per cent and 4 per cent, respectively, to its sales for 9MFY18.
The company’s EMPS business is expected to benefit from investments in metro, railways, hospitals and government buildings. Its unitary product segment has been outperforming the market growth. BSL’s entry into other categories, such as water purifiers, air coolers, air purifiers and kitchen refrigeration, will aid revenue in this segment. Further, LG’s exit from split AC and inverter AC, which controlled around 10 per cent market volume, will help BSL gain significant market share over the next few years in ACs. Further, the price hikes of 5 per cent of ACs due to increase in input cost will lead to improvement in gross margins.
On the financial front, the net sales of the company increased 7.59 per cent to Rs 901.12 crore in the third quarter of FY18 as compared to Rs 837.58 crore in the same quarter of the previous fiscal. The PBIDT of the company grew by 88.16 per cent to Rs 47.04 crore in the third quarter of FY18 as against Rs 25 crore in the same quarter of the previous fiscal. The net profit of the company increased magnanimously by 238.73 per cent to Rs 32.01 crore in the third quarter of FY18 as compared to Rs 9.45 crore in the same quarter of the previous fiscal.
On the valuation front, the company has return on equity (RoE) of 20.21 per cent and return on capital employed (RoCE) of 24.06 per cent. The company’s PE stood at 58.91x against an industry PE of 25.54x. BSL has a debt-to-equity ratio of 0.29x. The company has been maintaining a healthy dividend payout of 62.09 per cent.
To strengthen its presence in the GCC region, Blue Star’s wholly-owned subsidiary, Blue Star International FZCO has announced its partnership with Sands International to be the official distributor in KSA (having the largest market share in GCC region) for its unitary products range.
The company has launched 100 products for this summer season and has set a revenue target of Rs 1700 crore from room AC segment as well as higher market share in the current fiscal. The company had garnered Rs 1500 crore revenue last fiscal from this vertical. With a mere 3 per cent penetration level of ACs vis-à-vis 25 per cent in China, the overall outlook for the room air-conditioner market in India appears promising. Also, Blue Star plans to invest Rs 85 crore in the current financial year on new product development, research and design and advertising and brand promotion in this financial year. The company also intends to add 50 exclusive stores this fiscal, taking the total exclusive stores count to 200. Considering a confluence of the above factors, we recommend a BUY on the stock.
