Update on the Indian Equity Market:
On Wednesday, Nifty closed in the green at 15,175. Among the sectoral indices, Metal (+1.9%), IT (+1.7%), and Pharma (+1.8%) closed higher. PSU Bank (-0.2%) was the only sector that closed in the red. Eicher Motors (+3.1%), JSW Steel (+3.0%), and Hindalco (+2.3%) closed on a positive note. SBI Life (-3.5%), ONGC (-1.8%), and HDFC Life (-1.5%) were among the top losers.
Excerpts from an interview of Mr. B Thiagarajan, MD, Bluestar with CNBC-TV18 dated 09th March 2021:
- The demand for cooling products has picked up since the festival season. 20% sales growth is expected in Q4FY21E.
- The Indian Meteorological Department (IMD) has indicated for hotter than usual summer season in 2021.
- Thiagarajan expects 25% sales growth in the summer season for Bluestar.
- The demand recovery is primarily due to people spending more time at home.
- The disposable income is expected to be higher in the hands of people as there is saving due to no summer vacations and less travel.
- The company has taken a price increase by 3-5% since Jan-21 on its products. The second price hike has not yet been taken by the company.
- The second price hike might come from April 1. The rise in raw materials, transportation charges, and ABS plastic costs are not coming down.
- The dealers are stocking up ahead of the season.
- Room AC market share for the Bluestar was ~12.8% last year and currently it is 13%. The company targets to maintain a 15% market share by FY23E.
- Food delivery and the pharma sector are driving the growth of commercial refrigeration.
- In the Electromechanical projects segment, growth is coming from the manufacturing sector.
- Thiagarajan says Room air conditioners are poised for growth in coming years led by positive announcements under the PLI scheme.
Asset Multiplier comments:
- The coming summer season will be crucial for Air cooling products as last summer season was a washout led by lockdowns.
- Industry players are bullish on the upcoming summer season as early sales indicate an uptrend.
- On the commodity cost front, inflationary pressure is witnessed by the industry. Most AC players have resorted to taking price hikes.
- Increased demand due to rise in temperature bodes well for the industry but an increase in commodity cost might hurt operating margins in the coming next 2 quarters.
Consensus Estimate: (Source: Market screener website)
- The closing price of Bluestar was ₹ 932 as of 10-March-2021. It traded at 94x/47x/36x the consensus Earnings per share estimate of ₹ 9.87/19.9/26.1 for FY21E/FY22E/FY23E respectively.
- The consensus average target price is ₹ 761/- which implies a PE multiple of 29x on FY23E EPS of 26.1/-.
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