MOSL: Morning India (6/June/17)-Blue Star- GST, higher RM prices to impact 1QFY18 performance
​MOrning India (6/June/17): Blue Star: GST, higher RM prices to impact 1QFY18 performance
Today’s top research idea
Blue Star: GST, higher RM prices to impact 1QFY18 performance; Rating change in January 2018 to be potential market disruptor
- ​We met the senior management team of Blue Star. Our key takeaways:
- GST, higher RM prices to impact 1QFY18 performance; industry sales down 20% in May.
- Blue Star scales down FY18 room aircon growth guidance to 17-18%.
- Ratings change in January 2018 a potential market disruptor; Blue Star betting on inverters becoming 50% of the industry over next few years.
- Water purifiers - Blue Star targets 15% share in three years.
- Projects segment - execution remains subdued.
Valuation and view: We cut our earnings by 5% each to factor in the lower sales in the UCP segment. We maintain our Neutral rating with a revised SOTP-based price target of INR610 (UCP business at 25x FY19E EPS, MEP at 15x, and professional electronics at 20x). We believe that the current valuations of 36x FY18E and 24x FY19E EPS fully capture the growth potential over FY18/19.
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