BLUESTARCO - Blue Star Ltd Share Price

The management of Blue Star Limited provided an optimistic outlook for the upcoming financial year (FY26) during the earnings call on May 8, 2025. Highlights from the discussion include:

1. Financial Performance: The total income for the financial year ended March 31, 2025, surpassed Rs.12,000 crores, with net profit before exceptional items increasing by 40% to Rs.581 crores. The company reported a 23.6% revenue growth with an improved EBITDA margin of 7.3%.

2. Revenue Expectations: Management anticipates solid growth in the Room Air Conditioning (RAC) segment, despite a muted performance in April due to weather conditions, forecasting a revenue growth of 10% to 15% for FY26.

3. Industry Trends: The forecasted CAGR for the RAC market is expected to be 19% by 2030, with commercial air conditioning projected to grow between 12% to 12.5%. The Commercial Refrigeration market presents significant growth potential, expected to see around 30% growth as modernization in traditional sectors continues.

4. Order Book: The carried forward order book reached a record high of Rs.6,263 crores, reflecting strong operational efficiency and a robust pipeline for future growth.

5. Market Share Goals: The company aims to increase its market share in the RAC segment to approximately 15% by continuing investments in distribution and branding, particularly targeting Tier-3, 4, and 5 markets.

6. Raw Material and R&D Investments: Blue Star plans to continue investing around 1.5% to 2% of its revenue in R&D to enhance product development and improve cost efficiencies, with a focus on backward integration for critical components like compressors and motors.

7. Supply Chain Adjustments: The management noted that supply chain stability is returning, with local sourcing initiatives in place for copper tubes and compressors to mitigate import challenges.

Overall, Blue Star is cautiously optimistic about sustaining growth in FY26 while navigating the challenges posed by weather conditions and market dynamics.

Certainly! Here are the major questions asked during the Q&A section of the earnings call on May 14, 2025, along with their detailed responses from the management of Blue Star Limited:

1. Question: "Given that all of our major players have backward integrated, are now sitting with massive capacities, and the season has kind of at least started with slight disappointment, does that mean that for the remaining part of the year there will be pressure, both in terms of volume, because inventory will be high in the channel, and therefore, there could not be any pricing advantage?"

   Answer: "I believe inventory management won't be an issue for us. We've prepared well, sourcing locally and minimizing reliance on imports. Despite the current weather impacting demand, I am optimistic that inventory levels will normalize quickly. Based on past years, peaks in demand can happen unexpectedly, and we continue to monitor our channels effectively to adapt as needed."

2. Question: "In terms of Commercial AC, you mentioned that VRF technology is fast-growing, will we see huge R&D spends on this, and can margins be impacted?"

   Answer: "Absolutely. Our ongoing and future R&D investments will target optimizing product cost and performance across all product lines, including VRF systems. We plan to allocate 1.5% to 2% of our revenue to R&D, which is essential for maintaining competitiveness and keeping up with industry advancements in technology."

3. Question: "On the EPR side, can you quantify how much provision we have taken last year, either in absolute terms or as a percentage of revenue, and what was the expected increase?"

   Answer: "We had made provisions of around Rs. 10 Cr, and it is expected to rise to Rs. 30 Cr due to regulatory changes in recycling rates. This increase is driven by rising costs associated with EPR compliance, as the rate has jumped from Rs. 9 to Rs. 23 per kg, presenting significant implications for us moving forward."

4. Question: "Just wanted to understand how do you see RAC ahead? Qualitatively, what's the outlook for Commercial AC, Commercial Ref, and Projects going into next year?"

   Answer: "The RAC market is projected to grow with significant opportunities in Commercial AC and Commercial Refrigeration, reflecting a CAGR of 19% and around 12-12.5% respectively. Our focus will be on smart investments to ensure better profitability while being selective in projects to manage risk."

5. Question: "In terms of backward integration, where do you stand at the end of FY25, and how do you see it changing incrementally over the next few years?"

   Answer: "We're making significant progress in backward integration. By FY27, aside from compressors, we expect to see most of our components sourced domestically. Currently, we have robust plans for local sourcing of critical components, minimizing reliance on imports while ensuring quality standards are upheld."

6. Question: "In April, you mentioned the industry saw a 15% to 20% decline. Was this in primary or secondary sales, and what implications does a weak summer have on the compressor scenario?"

   Answer: "The figures presented are primarily based on our visibility of primary sales. Our internal metrics indicate that while we grew modestly, overall market dynamics need to be monitored closely. Weak summer conditions could mean excess inventory, ultimately stabilizing prices rather than increasing them for compressors, which is beneficial."

These responses encapsulate the key elements of the discussion, combining both questions and detailed management insights into the company's financial health and strategic outlook.