Accumulate Blue Star; target of Rs 1783: Prabhudas Lilladher

What happened

Prabhudas Lilladher kept an accumulate rating on Blue Star with a target of Rs 1783. Blue Star reported strong Q2FY27 revenue growth on robust room air conditioner demand, but profit was squeezed by commodity inflation and limited pass-through of cost increases.

Confirmed

Global impact / market context

Blue Star's room air conditioner segment revenue grew 29.4% while its segment profit margin fell to 2.3% from 6.2%. That gap matters because fast sales growth is not producing proportionally more profit, so restoring margins through price increases and cost cuts is central to the investment case.

Analyst inference

Management expects about 25% industry growth in room air conditioners in FY27, but aggressive competition and high input costs are risks. Data centres are the key driver in projects, with potential order bookings of INR40bn in FY27 and a revenue opportunity scaling to INR40bn over three years.

Analyst inference

What to watch

1. Watch whether Blue Star meets its FY27 room air conditioner profit margin guidance of above 6.5%, which the report calls challenging and dependent on sustained demand and successful cost pass-through. Confirmed
2. Watch the company's planned fixes: calibrated price hikes, product portfolio rationalization, value engineering and cost optimization. These are management actions proposed to restore profitability, not results already achieved. Proposed
3. Watch data centre order bookings and project execution, since delays are flagged. Orders and revenue at these levels would support the projects business, but slow execution could hold back revenue and cash conversion. Analyst inference

Evidence

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