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Target: ₹1,260
CMP: ₹1,188.15
Blue Star is a top 5 player in all its key product categories. Multiple tailwinds are at play, with the trend of penetration improvement-drive growth likely to aid 15 per cent CAGR in the unitary products segment (RAC+ commercial refrigeration). Share gain opportunities (we expect 60bps MS improvement in RAC) exist through new product introductions and distribution expansion.
Private & public sector project wins drove 44 per cent order book jump last 12 months, and will drive 23 per cent CAGR in the EMP segment whilst maintaining steady 6.5 per cent margins (given diversified order book). Blue Star is also opening up a new optionality with entry into exports in the CAC space. Next decade will also see CAC exports and premium housing-driven VRF pick-up. In commercial segment, QCO and pick-up in preservation trend would drive double-digit growth.
Current valuation of 43x FY25E EPS is at 15-20 per cent discount to Havells/Voltas; we expect re-rating as growth trajectory continues. Our fair valuation of ₹1,260 implies 41x 1-year fwd EPS. Beyond the next 3 years, Blue Star will benefit from enlargement of multiproduct TAM with scope for scale-driven margin expansion.
Key risks: Weak summers and delays in project execution.
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