Blue Star will continue to do better: Sharmila Joshi

In an interview with ET Now, Sharmila Joshi, Co-Head PCG Sales, Emkay Global Financial Services, talks about Blue Star and Voltas. Excerpts:

What are your two picks?

Both are interrelated in a way. I am talking of Blue Star and Voltas. So there is a commonality in the sense of the kind of business that they do. If you look at the quarter 4 numbers for both the companies, they have been really way ahead of our expectations and as a result of which, we find that whatever we had been talking of earlier that going forward it will be the MEP, mechanical, electrical and plumbing which is going to be driving the business for both these companies. That seems to be playing out. So essentially, to just focus on Blue Star, we see that every segment that they are into, they have done well. They will continue to do better in all of them. Room air conditioners will be a focus again because you will see 25% plus growth there and the under penetration in the other businesses as well will mean very good order inflows for both the MEP division as well. So going forward, margins will improve from the kind of levels that they are at currently. So Blue Star is a stock that we like and we have a target of 464 for Blue Star.

What about Voltas?

Numbers have been even better. If you look at the quarter 4 FY10 performance, it has really been way ahead of our estimate. The interesting thing for Voltas also is the fact that their FY11, whatever order book that we have estimated is already with them. So there will be a further uptick if anything in the stock if they get better orders from hereon. So for both is going to be the progression from the HVAC play to MEP as well as the fact that there is an under penetration in all the markets that they are in and the fact that room air conditioners will continue to grow at 25% plus. So Voltas post numbers has already given you a good run up from the kind of 184-185 levels that it was at but this is a stock that we continue to like with a target of about 234.

So both are really a play on a growing middle class in the country, right?

Absolutely and in the capital goods space, it is either the consumption story or the fact that you will increasingly see focus on industrial capex. Those are the type of ideas that we like, for instance McNally Bharat would be another stock where the focus is clearly on industrial capex. Petron Engineering would be another interesting stock to look at in the current environment. So yes, those are the kind of stories that the market likes, one which are directly linked to domestic consumption and other story in the capital goods space of industrial capex.