Business Desk – Blue Star Share Price: The view of brokerage firm HSBC has changed regarding the shares of air conditioner manufacturing company Blue Star. HSBC has now changed the previous Hold Rating of the company to Buy. The brokerage has set a target price of Rs 1,780 for the stock. On Tuesday, the stock was trading at around Rs 1,503.2. At this price, there is a possibility of an increase of about 18% in the stock till the target of HSBC.
Why did HSBC increase trust?
According to HSBC, the room air conditioner (RAC) industry grew by about 25% in the June quarter. The estimated increase in sales volume was between 20% to 22%. However, Voltas performed better than Blue Star in the first quarter.
Looking at summer sales between January and June, Blue Star's margins remained stable despite the high base, the brokerage said. However, considering the low margin estimates, HSBC has made some cuts in the company's financial estimates.
Strong order book and data center business became support
HSBC has given several reasons behind increasing the rating of Blue Star. These include the company's strong order book, presence in the data center business, scope for margin growth in the future and the company's focus on its core business.
According to the brokerage, continuous acquisition of new projects in the data center related business strengthens the company's position in this fast-growing sector. The company has also said that orders for MEP projects related to data centers are being received continuously.
Big decline in shares this year
Blue Star's shares have fallen significantly so far this year. According to available data, the share price has declined by about 15%. Whereas Voltas shares fell by about 8%.
HSBC believes that after this fall in the stock, the valuation of the company has become more attractive than before. Blue Star shares opened with gains, but the initial gains could not be sustained. Later the stock was trading around Rs 1,503.2, down 0.3%.
Pressure on profits in the first quarter
Earlier this month, Blue Star had released the results of the first quarter of the financial year. The company's revenue increased by 13.3% to Rs 3,378 crore. However, it was less than CNBC-TV18's estimate of Rs 3,547 crore.
The company's EBITDA i.e. earnings before interest, tax, depreciation and amortization declined by 12% to Rs 175 crore. This was much less than the market estimate of Rs 247 crore. The company's EBITDA margin also declined to 5.2% from 6.7% in the same quarter last year, while the market estimate was around 7%.
How many out of 27 analysts are in favor of Buy?
Out of 27 analysts keeping an eye on Blue Star, 13 have given a Buy rating on the stock. Whereas 9 analysts have given Hold rating and 5 have given Sell rating. That means most analysts still have a positive view on the company's shares.
What will you keep an eye on next?
AC demand, summer sales, improvement in margins, growth of order book and data center business are going to be important for Blue Star in the times to come. On one hand, the company may benefit from the growing air conditioner market, while on the other hand, pressure on margins and EBITDA in the first quarter remains a matter of concern.
HSBC's Buy rating and target of Rs 1,780 is a positive sign for investors, but this is the brokerage's estimate and not a guarantee of the share price. Investors should take decisions keeping in mind the company's results, valuation and market risk.