Target: ₹1,964
CMP: ₹1,660.40
Blue Star reported a soft performance in Q4FY26, with just 1.3 per cent year-on-year revenue growth, led by muted performance of UCP and EMP segments. However, cost rationalisation measures and deferment of discretionary cost aided margin expansion.
EMP business’ outlook remains strong with steady growth, driven by robust OB, manufacturing capex and data centre demand with stable margin. Although secondary sales improved from mid-April 2026, demand outlook remains contingent on summer intensity and channel offtake.
High industry competition may limit full pass-through of cost, especially during the peak season. Margin is expected to remain range-bound, with likely gradual improvement in the near term. The management has reiterated segmental EBIT margin guidance at 8-8.5 per cent, with an additional about 5 per cent price hike expected in Q1FY27 to offset elevated input cost. It also targets about 15 per cent market share.
UCP (RAC) is likely to see demand recovery in Q1FY27, contingent on summer intensity and channel restocking, though margin may remain range-bound due to competitive intensity, partial cost pass-through and volatility in raw material cost despite planned price hike. Considering modest quarterly performance and guidance, we tweak our EPS estimate by 9-10 per cent. We maintain Buy rating on the stock with a lower TP of ₹1,964 (₹2,188 earlier), valuing it at 44x FY28e EPS of ₹45.