Expect to take another price hike from April – Bluestar

 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 09^th 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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”