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  • Stock Recommendation: Blue Star Ltd – ACCUMULATE – TP Rs.701

    Publish date: 18th July, 2018

    Annual Report Update

    Key Highlights

    • Higher working capital has resulted in weak cash flow from operations for the company in FY18. Borrowings have risen as a consequence.
    • Spending on Advertising and Promotion has remained at elevated levels as the company has entered new product categories - Water Purifiers, Air Purifiers and Air Coolers. We understand that the intensity of adspends is likely to remain high in FY19 as well.
    • The company created its next rolling, challenging 3-year Strategic plan, Blue Star@77, which starts from this year and ends in FY21, when the Company turns 77. The objectives of the plan is to drive growth and improve profitability.
    • Order book is up 20% to Rs 20.9 bn.

    Valuation & outlook

    • The blue star stock has corrected since our previous recommendation ("Reduce" CMP Rs 756 and Target Rs 759). In view of this, we upgrade rating to "Accumulate" with revised target price of Rs 701 (Rs 759 earlier). Given modest upside from current levels, we recommend "Accumulate". In terms of valuation, the stock is trading at 40x and 28x FY19 and FY20 earnings, which is at a premium to sector leader – Voltas.

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