Jefferies Downgrades Blue Star, Suggests 'Buy' For V-Guard, Crompton Greaves, Polycab

Jefferies has downgraded Blue Star Ltd. to 'hold' because of muted urban offtake. The brokerage kept a 'buy' on V-Guard Industries Ltd., Crompton Greaves Consumer Electricals Ltd. and Polycab India Ltd.

It has a 'hold' on Havells India Ltd. and 'underperform' on Whirlpool of India Ltd. Expectation of a good summer in fourth quarter are likely to bode well for air conditioner players, the brokerage said.

Capital expenditure recovery is expected in the first half of calendar year 2025. Housing traction stays healthy, which will benefit Polycab India Ltd., according to Jefferies. Cables and wires offtake usually emanates with a lag of four to six quarters after a launch of housing project.

India's air condition industry volume is estimated to grow 25% to 30% on the year in FY25 from 1 crore units in the preceding year. The first quarter of the current financial year was a strong summer, the second quarter benefitted from channel restocking. Lower domestic air condition penetration, housing, and hot weather could be key tailwinds, Jefferies said.

Amber Enterprises India Ltd.'s management foresees industry air condition growth to be at over 17% CAGR in next seven years, to reach 30–35 million units by 2030, Jefferies said.

Jefferies downgraded Blue Star Ltd. to 'hold' from 'buy' after the stock rallied 140% in calendar year 2024. The stock is now trading at 60 times financial year versus historic five-year average price-to-earning ratio of 41 times.

Blue Star will likely launch new products for summer from January 2025. Premiumisation, rupee depreciation, supply chain disruptions, and commodity volatility could entail price evaluations to retain profitability. Demand will likely rise by 25% in the fourth quarter of financial year 2025, Jefferies said.

The brokerage raised financial year 2026-27 earning per share estimates by 5–6%. The estimated EPS CAGR for FY24–FY27 is at 33%, which is higher than historic FY19-24 EPS CAGR of 15%, the brokerage said in a note. The brokerage assigned target PE at 52 times is at a 25% premium to historic five-year average. Jefferies sees limited upside post sharp rally.

Jefferies chose to stay selective in discretionary segment. Its channel checks indicated improvement in rural recovery but dampened sentiment in urban demand can be primarily attributed to inflation.

In the discretionary space, Jefferies prefers V-Guard Industries Ltd., and Crompton Greaves Consumer Electricals Ltd. Whirlpool of India remains an underperformer due to margin weakness and stretched risk-reward. Demand slowdown and weaker summer will be key sectoral risks.