HSBC now has a “buy” recommendation on Blue Star from its previous “hold” rating and a price target of ₹1,780 apiece, implying an upside of 18% from its previous close.
The brokerage said the room air conditioner (RAC) industry grew 25% in the June quarter, with an estimated volume growth of 20% – 22%. It added that Voltas fared better than Blue Star in the first quarter.
Looking at the summer sales (January to June), Blue Star had stable margins despite slow growth from a high base, HSBC said.
The brokerage has cut its estimates on lower margin guidance.
It said it has upgraded Blue Star given its strong order book, data centre play, scope for margin expansion and focus on its core business.
Blue Star’s share price has corrected by 23% this year, so far, compared with 8% for Voltas. This makes the company’s valuations more favourable, HSBC said.
Earlier this month, the company reported its first quarter earnings, where its revenue increased 13.3% to ₹3,378 crore but was below the CNBC-TV18 poll of ₹3,547 crore. Its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) declined by 12% to ₹175 crore from last year and was also well below Street estimates of ₹247 crore.The company’s EBITDA margin contracted to 5.2% from 6.7% in the year-ago period and was also below the Street estimate of 7%.
However, the company said its inflow of Data Center MEP project orders reflected the sustained momentum in the high-growth segment.
Of the 27 analysts who have coverage on Blue Star, 13 have a “buy” rating, nine have a “hold” rating and five have a “sell” rating.
Shares of Blue Star opened higher but have given up those gains to trade 0.3% lower on Tuesday at ₹1,503.2. The stock is still down 15% so far this year.
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