Blue Star - Fundamental and Technical Analysis

Blue Star is India's largest central air-conditioning and commercial refrigeration company with an annual turnover of Rs 1607 crores.

Blue Star's major products includes packaged air-conditioning, industrial packaged chillers, shell and tube condensers and coolers, air handling units, finned condensers and evaporators.

The main customers of Blue star are Banks, Builders, Cinema / Multiplexes, Dairy, Educational Institutions, Hospitals, Hotels, Industrial Applications, IT / ITES, Malls, Offices, Pharma, PSU / Government, Restaurants / Eateries, Showrooms / Retail Outlets, Telecom. If we believe in India's consumption lead, capex lead economic growth, and Blue star should be part off one's portfolio.

Blue star is a very investor friendly company and before 2000, it has rewarded investor's with Bonus issues (almost every time it was liberal 1:1) once in every four years. It is a good dividend paying company as well. In 2007, there was a stock split and currently the face value of the stock is Rs 2. Investor's are well rewarded by way of stock split also as after stock split, the share price jumped from Rs 140 to current price of Rs 500.

The current equity is 17.99 crores. Blue star has a huge reserve of about 200 crores and the EPS for year 2008 is about 14. Historically, Blue star has rewarded share holders with bonus issue whenever the EPS is more than 10.

Blue Star has recently bagged an Rs 38 crore order for air-conditioning India’s first indigenously designed 500 Mw fast breeder reactor from Nuclear Power Corporation of India (NPCIL) for the Kalpakkam project. This order will be executed in the next 2 years. Apart from this, Blue star has orders worth over 1000 crores from from Ahmedabad Airport, Thiruvananthapuram Airport, Pantaloon Retail, Bangalore, Cognizant Technologies, Bengal Greenfield, Kolkata, RBI, Guwahati, DuPont, Secunderabad, Bengal Peerless, Kolkata, Moser Baer, Noida, HCL Technologies, Gurgaon, 2 Square Mall etc. I have unconfirmed news that Blue star has also got huge orders from Infosys, Mangalore, where Infosys is building a huge campus.

Snapshots of financial results for the last four quarters are as follows.

March 2007, 36% increase in sales, 34% increases in Net Profit
June 2007, 48% increase in sales, 206% increases in Net Profit
Sept 2007, 40% increase in sales, 150% increases in Net Profit
Dec 2007, 40% increase in sales, 208% increases in Net Profit

The trailing four quarter EPS is 11.53 and the current P/E is 42. With the expected EPS of about 14 for year ending March 2008, the P/E works out 35. From a purely P/E perspective stock looks expensive at the current price of 490 but with the visibility of orders for the next 2 years, capex lead economic growth in India and with the expected bonus, one can accumulate the stock at every dip. It has to be noted that stock was almost resilient to the Jan market crash. Even on the black Monday where sensex crashed by over 2000 points, only 9000 stocks of Blue star traded at around Rs 420, against the average daily volume of 25,000 stocks.

Also from a technical perspective, Blue star is above its 30, 50 and 200 day moving averages, showing significant strength.

Note: Blue star is part of my portfolio during this writing. There may be price fluctuations in the price based on general market volatility and it is good time to buy this stock.

Study Notes:

Those who have read 'One up on the wall street’ by Peter Lynch can try to understand how common stocks can be picked up by common investors just by observing the company and our environment. It is not a complicated business to understand.

Those who are following William O Neil's CANSLIM approach can try to apply the CANSLIM technique to this stock. Most of the CANSLIM criteria are met for this stock.

And finally, technical analysis enthusiast's can see the bullish signal by applying the 3 point moving average technique or 2 point moving average technique. Stock is also well above the 200 day moving average.