Blue Star Limited (BLUESTARCO.NS) fair value

ACCE thesis

Blue Star makes room air conditioners, commercial HVAC systems, water coolers and refrigeration equipment for India, with its commercial and project business (chillers, central AC for hospitals, data centres and factories) making up a large share of the mix. The structural case rests on India's low AC penetration and rising cooling demand, which the company is positioned to capture through its distribution network and its engineering-led project business. Near term, the catalyst is the summer selling season and the ramp in commercial project orders, with revenue growing 13.3% over the last twelve months. The stock is expensive on trailing earnings, at 63.2 times P/E and 40.9 times forward P/E, and thin operating margins of 3.5% against a 21.9% gross margin mean the earnings forecast has to be delivered for that multiple to hold up. It merits a deeper look to test whether margins can widen from here, since that is the swing factor between the forward multiple and the trailing one.