Blue Star newly rated 'Neutral' at Motilal Oswal; 9% upside seen

Motilal Oswal Financial Services has initiated coverage on Blue Star with a ‘Neutral’ rating and a target price of ₹1,950 per share, implying 9.2 per cent upside from Monday’s close of ₹1,784.75. The brokerage believes Blue Star’s profit will grow over the medium term, supported by market share gains in room air-conditioners (RAC), its leadership in commercial refrigeration and Commercial Air Conditioning (CAC), a gradual recovery in its Professional Electronics and Industrial Systems (PEIS) segment, and operating leverage from backward integration and scale.Steady market share gain in RAC segment Blue Star has been steadily gaining market share in the Indian RAC market, with its share rising to around 14 per cent in FY25 from about 7 per cent in FY14. The company is now targeting 15 per cent share by FY27E. In commercial refrigeration, Blue Star retains a strong leadership position, holding over 31 per cent share in deep freezers and modular cold rooms, according tto Motilal Oswal. Analysts estimate that revenue from the Unitary Cooling Products (UCP) segment could decline 3 per cent year-on-year (Y-o-Y) in FY26, largely due to a weak summer season. However, they expect a sharp rebound, projecting UCP revenue growth of 19 per cent and 18 per cent Y-o-Y in FY27 and FY28, respectively, driven by a recovery in demand. Earnings before interest and tax (EBIT) margins in UCP are expected to remain in the high single digits, with gradual improvement as Blue Star benefits from higher operating scale and increased indigenisation. CATCH STOCK MARKET LIVE UPDATES TODAYIntegrated MEP player pivots to high-value areas; CAC franchise strongBlue Star is a leading integrated MEP (Mechanical, Electrical and Plumbing) service provider, with around eight decades of experience across infrastructure, buildings and industrial projects. The company has been shifting its focus to higher-value, better-margin segments such as data centres, factories, and select infrastructure projects, which offer stronger profitability and cash flows. In its commercial air-conditioning (CAC) business, Blue Star offers a full range of energy-efficient solutions — including packaged units, ducted systems, VRF systems and chillers — catering to B2B clients. It holds: Leadership positions in ducted air conditioners and scroll chillers with 45–50 per cent market share, andSecond position in VRF and screw chillers, with around 20 per cent share.Analysts forecast a 15 per cent revenue compound annual growth rate (CAGR) over FY26–28 for the MEP and CAC businesses, supported by a healthy order book and segment Ebit margins of 8.6 per cent and 8.9 per cent in FY27 and FY28, respectively.PEIS segment: Recovery expected as capex and demand improveThe PEIS division contributed around 4 per cent of revenue and 8 per cent of Ebit over FY21–25. However, segment margins have compressed to ~9 per cent in FY25 from about 15 per cent in FY21. According to the analysts, the MedTech and data security verticals within PEIS were hit by regulatory and demand-related challenges, while the industrial solutions sub-segment is now gaining traction. A recovery in PEIS is expected to be driven by:Improving private capex, andRising demand in healthcare and data security.Analysts project a 10 per cent revenue CAGR over FY26–28 for PEIS, along with margin expansion to around 11–13 per cent.ValuationOn valuations, Blue Star currently trades at 48x FY27E EPS and 38x FY28E EPS, compared to its 10-year average of around 46x. Given the strong rerating in its valuation multiples in recent years, analysts view the stock as fairly valued at current levels. (Disclaimer: The views and investment tips expressed by Motilal Oswal Financial Services in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)