Motilal Oswal Financial Services has initiated coverage on Blue Star, with a ‘Neutral’ rating. The brokerage has given an initial target price of Rs 1,950, implying an upside of 10% from the current market price. The factors like steady market share, robust growth drivers across segments, and favourable financial outlook have favoured the stock.
Motilal Oswal on Blue Star: Steady market share
The company has steadily gained market share in the Indian RAC (Residential Air Conditioning) segment, with its share improving to approximately 14% in FY25 from 7% in FY14. Looking at the outlook, the company aims to grow its market share by around 15% by FY27. Further, Blue Star has a strong leadership position in the commercial refrigeration business, commanding over 31% market share in deep freezers and modular cold rooms.
Motilal Oswal on Blue Star: Strong growth visibility in Electro-Mechanical Projects
The company is identified as a leading integrated Electro-Mechanical Projects (MEP) service provider with eight decades of experience. The company is strategically shifting its focus to high-value segments that offer better profitability and cash flow generation, such as data centres, factories, and select infrastructure projects. This focuses on the estimated 11% CAGR of the Indian MEP services market.
Motilal Oswal on Blue Star: High growth potential in CAC
Blue Star maintains dominance in the Commercial Air Conditioning (CAC) business. It holds leadership positions with 45-50% market share in ducted air conditioners and scroll chillers, and ranks second in VRF and screw chillers (around 20% share). The Indian CAC market itself is expected to book a robust 16% CAGR over FY26-30, driven by rising commercial real estate activity across sectors like offices, hospitals, and hotels.
Motilal Oswal on Blue Star: Backward integration and scale driving profitability
Blue Star’s growth is profitable, which is driven by backward integration and scale. The company currently has about 25-30% backward integration in the RAC business. This aim towards indigenisation and larger scale of operations is expected to lead to operating margin expansion by roughly 40-50 basis points in both FY27 and FY28.
All in all, the sustained outperformance of Blue Star compared to peers like Havells India and Voltas over the past three years further underscores the success of its strategy involving market share gains and margin expansion.