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Blue Star (CMP: `453/ TP: `596/ Upside: 32%)
�� Blue Star operates in a high value add space, as indicated by its high RoE profile
of over 40%. The company is poised for strong growth in the years to come, based
on positive business outlook across all its segments and a healthy order book of
`1,998cr, which is 1.1x FY2010 sales of the Electro Mechanical Projects and
Packaged Air Conditioning Systems (EMPPACS) segment. The acquisition of DS
Gupta Construction will complement the company’s service bouquet, which would
now have a strong presence in the plumbing and fire fighting space.
�� Going ahead, we expect the demand from the traditional IT and office segments to
improve, driving the growth of the company. We expect the sales to grow at a
CAGR of 24.4% over FY2010-12E.
�� At the CMP, the stock is trading at reasonable valuations of 14.5x FY2012E EPS,
compared to a P/E of 17.3x for Voltas, even though Voltas has a high exposure to
the relatively weaker Middle East markets, while Blue Star is a domestic-focused
player. We believe that this is a good entry point into the stock, keeping in view its
strong growth prospects. We have valued the stock at P/E of 18.8x FY2012E EPS
and arrived at a target price of `596.
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