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Strong demand for ACs, likelihood of price hike

With March 2022 turning out to be India’s hottest month in 122 years, what the upcoming summer season looks like, is obvious. The demand for air conditioners is expected to remain strong, brokerages said. Companies like Blue star are expected to be the biggest beneficiaries.

Several brokerages have picked Blue Star stock as a top bet for high returns with an upside of up to 12 per cent from the current levels.

While the demand outlook remains robust, the brokerages also expect a strategic price hike in the air conditioners on the back of higher commodity prices led by weak global cues.

Blue Star has emerged as a leading player in the domestic white goods consumer electronics space through market share gain from around 6 per cent in FY11 to 13.25 per cent now. It has been instrumental in increasing penetration, broadening its distribution network, and rapidly expanding its store count.

It has continuously been launching new and affordable AC models to establish itself as a ‘mass-premium’ player and aims to achieve a market share of 15% in FY2023. It’s expected to outperform the industry as well as its peers drove by a strengthening distribution network, rising market share, and improving product mix.

We expect revenue/PAT (Profit after tax) to clock a CAGR (Compound Annual Growth Rate) of 23/43 per cent over FY21-24E and maintain a Buy rating on the stock with a target of Rs 1,200 per share, which translates into an upside of over 6 per cent.

YES Securities
Commodity prices continue their roaring up move with copper witnessing a price increase of 19 per cent year on year (YoY) and aluminium witnessing an even sharper rise of 61 per cent in the ongoing quarter.

Companies would require a further 8‐10 per cent of a price increase to offset increased commodity prices. However, most companies, including Blue Star have shown reluctance to take up prices further as they feel further price increase is likely to impact demand.

We believe electrical companies will be better off in protecting margins in the rising commodity cycle, while heightened competition and the seasonal nature of business will impact durables companies relatively more. We continue to prefer Blue Star in the AC category while maintaining a Buy rating with a target price of Rs 1249 apiece, which implies around a 12 per cent upside.

Nirmal Bang
While January-February remains muted to the Omicron wave, the demand for ACs has rebounded in the month of March. There is an expectation of strong demand in the first quarter of the financial year 2022-23 amongst peers barring geopolitical tensions and supply constraints. ZeeBiz

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