Blue Star shares have rallied nearly 15% over the last 7 trading sessions and given a positive closing on five occasions despite markets remaining subdued. But this momentum is not a one-off event as the returns over the last 12 months have been to the tune of 70% which is fourfold over the gains seen in Nifty50 during this period. On the year-to-date basis, the stock’s returns have been around 50% which is higher than 8% given by the 50-stock index.
On Tuesday, the stock fell 1.2% as investors looked to book profits after a sharp spike in price. Momentum indicators RSI and MFI show that the stock is trading in an overbought zone. While RSI hovers around 71, an MFI of 96.7 puts the counter in a strongly overbought zone.
Notwithstanding the correction, Rajesh Palviya, Senior Vice President, Technical and Derivatives Research at Axis Securities said that bullish trends remain intact for Blue Star shares as suggested by golden crossover of 20, 50 and 100 day Simple Moving Averages (SMA).
Moreover, the bollinger band (S, 20, 2) buy signal on a weekly basis reconfirms increased momentum as the stock recaptured its 200-day SMA support zone in August and rebounded sharply indicating strong comeback of bulls, Palviya said. The stock has confirmed a short-term consolidation range breakout at Rs 842 on a closing price basis on a weekly timeframe which is accompanied with huge volumes, indicating increased investor participation, the Axis Securities’ analyst said.
Pravesh Gour, Senior Technical Analyst at Swastika Investmart also sees strong breakout of inverse head and shoulders and triangle formations on the daily chart with strong volume which suggests that the counter is poised for a further uptrend.”The overall structure of the counter looks good, as it is trading above all its important moving averages. MACD and RSI are also supportive of the current uptrend. On the upside, Rs 950 is a susceptible level. Above this, we can expect a run-up towards 1000+ levels in the near term,” Gour said.
The stock is facing resistance at Rs 950 while Rs 810 is the critical support level during any correction and a break below this level could lead to a further sell-off, Gour opined.
The stock is trading above its 50-day and 200-day Simple Moving Averages (SMAs) with momentum indicators RSI and MFI in the overbought zone. The Trendlyne data suggest that the RSI is at 71 while the MFI in a strongly overbought zone of 96.7.
Lower volatility is a positive for the stock as it has traded with a 1-year beta of 0.2.
Fundamental Take
Blue Star’s June quarter consolidated Q1FY24 revenue grew 12.6% to Rs 2,226 crore while the net profit for the quarter grew over 12% to Rs 83.37 crore compared to Rs 74.35 crore in Q1FY23. The operating profit jumped 17.6% to Rs 145 crore.
The company reported a carried forward order book of Rs 5,359.05 crore as of June 30, 2023, which was up by 37.4% compared to Rs 3,901.48 crore in the corresponding period of the previous financial year.
The management also gave a positive view on the demand situation from infrastructure, manufacturing, healthcare, data center, food processing and retail sectors. It is also hopeful of demand revival in the room air conditioners category during the festive season. The unseasonal rains during the summer season impacted the revenue growth in the room air conditioners category, the company had said in its filings of the June quarter earnings.
Blue Star had positioned itself as a mass premium air conditioner brand in 2022 and maintained its 13.5% market share in room ACs at end-Q1FY24, Nirav Vasa, Research Analyst, Anand Rathi Institutional Equities said.
“Aided by a strong season, a re-jigged range portfolio of affordable premium air-conditioners, expanded distribution in north India and the launch of commercial cooling products, this vertical was in a high-growth stage,” Vasa said.
The company is also expanding its marketing reach across tier-II, III, IV and V cities and towns with operations spanning in more than 3,900 smaller towns, the Anand Rathi analyst said, adding that Blue Star’s focus on strengthening manufacturing capabilities remains unabated.
In FY23, the company commissioned the deep freezer manufacturing plant at Wada and the room air conditioner manufacturing unit in Sri City.
Vasa sees a decades-long demand prospect for air conditioners and commercial cooling products in India and opines that Blue Star’s planned capital expenditure of Rs 750 crore over the next three years will strengthen its foray into the American and European markets while giving a push to its R&D project management capabilities. The long-term prospects remain strong for the stock, he said.
Kranthi Bathini, Director-Equity Strategy at WealthMills Securities also views Buke Star as a long-term buy and puts a conservative upside of 15-20%. A strong balance sheet, quality of its management and the nature of the business holds the stock in good stead, Bathini said.
He, however, recommends a hold in Blue Star while suggesting investors not to make a fresh move on the current valuation, which he finds expensive. “The stock has seen a good rally because of strong traction in the capital goods space which makes it fully priced-in. In terms of current valuation so we may not see a run-away rally in it in the near term,” he said.
The stock is currently trading at a forward PE of 37 and in his opinion, a PE of will be good enough to make an entry.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)