Blue Star Stock Analysis – Motilal Oswal’s View
Key Points
- Blue Star gets a ‘Neutral’ rating, target price ₹1,950.
- Strong growth expected, driven by market share gains & scale.
- RAC market share up to 14% by FY25, aiming for 15%.
- UCP revenue decline in FY26, rebound expected by FY28.
- EBIT margins improving due to efficiency and scale.
- Valuation is fair, but recent re-rating suggests caution.
Motilal Oswal Financial Services has recently looked closely at Blue Star, a company that makes air conditioning equipment. They’ve given it a ‘Neutral’ rating, meaning they think it’s neither a particularly good buy nor a bad sell. Their target price for the stock is ₹1,950 per share – that’s about 9.2% higher than where the stock was trading on Monday.
Growth Opportunities
Oswal believes Blue Star is going to grow in the next few years. They think this growth will come from the company taking more market share and becoming more efficient. They are particularly excited about Blue Star’s success in the market for room air conditioners (RACs) and commercial refrigeration.
RAC Market Share
Blue Star is currently the leader in the Indian RAC market. They’ve already increased their market share from about 7% in 2014 to around 14% by 2025. The company is aiming to get even more market share, targeting 15% by 2027. This is a big deal because it means more people are buying air conditioners made by Blue Star.
Unitary Cooling Products (UCP) – A Temporary Dip
However, Oswal expects that Blue Star’s UCP segment – which makes things like chillers and coolers – will have a small dip in revenue in the year 2026. This is because the summer season is expected to be weaker than usual. But they think things will quickly get better, with revenue jumping significantly in 2027 and 2028. This recovery is due to increasing demand for cooling products.
Improving Efficiency
Blue Star is also getting better at managing its costs. They’re expecting their profit margins (EBIT margins) to increase as they become more efficient and their business grows. They are also focusing on making more of their products in India, which will reduce costs.
MEP Business – Focused on High-Value Projects
Blue Star is a leading provider of “MEP” services, which means they install the mechanical, electrical, and plumbing systems in buildings and factories. They are now shifting their focus to bigger, more profitable projects like data centers and select infrastructure projects. This will bring in more money and keep their business strong.
MEP & CAC Growth Forecasts
Analysts predict a 15% annual growth in revenue for the MEP and CAC (Commercial Air Conditioning) businesses over the next three years. They also expect these businesses to be profitable, with margins of 8.6% and 8.9% in 2027 and 2028, respectively.
PEIS Recovery
The “PEIS” division (Professional Electronics and Industrial Systems) used to contribute about 4% of Blue Star’s revenue and 8% of its profits. However, these profits have dropped recently. Analysts believe this will improve as more companies invest in healthcare and data security, and as factories and businesses need more industrial equipment.
Valuation Assessment
Finally, Oswal looked at how much Blue Star’s stock is currently worth. The stock is trading at 48 times its expected earnings for the year 2027, and 38 times its expected earnings for 2028. This is a little high compared to how it has been in the past (around 46 times), so Oswal thinks the stock is fairly valued at its current price.
Ultimately, Blue Star’s future depends on its ability to continue growing its market share and improving its efficiency.
