Blue Star spurted today after the company issued a liberal dividend of Rs 9 per share.

The dividend announcement saw the scrip of the air-conditioning company spring forth by 9.8% to Rs 105. The scrip hit a high of Rs 106.70. However, volumes in the stock (which is generally thinly traded) were low today, at 8,100 shares in one-and-a-half hours of trading. Today's rally on the counter comes after the stock plunged 3.5% to Rs 95.55 on the day of announcement of results, Friday, 23 May 2003.

Nevertheless, the stock is witnessing sustained buying interest having risen sharply in the last few months on value buying. From a low of Rs 68 on 22 November 2002, the stock has risen 54.4% in the last 6 months to the current Rs 105.

Along with the announcement of Q4 and FY 2003 results, Blue Star announced a liberal dividend of Rs 9 per share which includes a special diamond jubilee dividend of Rs 2.50 per share. Based on the current market price of Rs 105, the dividend yield works out to 8.5% which is a tax-free dividend yield. Attractive valuations with good dividend yield is what has prompted the rally in Old Economy stocks on the bourses and today's rally in the Blue Star counter is part of that trend.

For FY 2003, Blue Star reported decent results. The profit before tax and extra-ordinary items surged 38% growth to Rs 43.24 crore (Rs 31.32 crore) on a 15.5% growth in net sales to Rs 586.88 crore (Rs 507.96 crore).

Blue Star's strength is in central air-conditioning, where it is a leading player. It also has a presence in room and window air-conditioners. The Union Budget 2003-2004 cut the excise duty on air-conditioners to 24% from 32%. This is expected to be very beneficial for the company.

Despite difficult economic conditions and an overall market slowdown, Blue Star has registered a good growth in FY 2003. This is attributed to the prudent cost reduction initiatives taken by the company, and extensive value engineering.

Blue Star's strengths are in manufacturing, system design, installation, commissioning and support of large central air-conditioning plants, packaged air-conditioners and ducted split air-conditioners. This line of business also promotes after sales service as a business, by offering several service products, including retrofitting and revamping.

Notably, Blue Star continues to be the undisputed market leader in this segment with a market share of close to 30%. The company enjoys preferred vendor status in several fast growing segments, with a share of over 50% in these.

Following buy-back initiatives, its equity capital has reduced to Rs 18 crore, which will help the shareholders further.