BLUESTARCO - Blue Star Ltd Share Price

Management's outlook for Blue Star Limited highlights a cautious yet optimistic perspective amid current market challenges. Mr. B. Thiagarajan, the Managing Director, emphasized the following points regarding the company's future:

1. Modest Growth Expectations: The company anticipates that the second half of FY26 may improve compared to the first half, but significant shortfalls in the initial half may not be fully compensated. The industry is expected to decline by approximately 15% year-over-year, with Blue Star aiming to perform better than this average, reflecting a cautious optimism.

2. Current Inventory Levels: The inventory on hand stands around 65 days of sales, significantly higher than the ideal 45 days. This elevated level indicates potential challenges in selling existing stock before the upcoming energy label changes scheduled for January 1, 2026.

3. Profit Margin Projections: Management projects that margins can stabilize around 7% to 7.5% for the remaining financial year, contingent on market conditions and sales performance, particularly in February and March, which are critical for the summer season.

4. Positive Market Dynamics: Despite short-term challenges, such as weather disruptions and GST impacts affecting demand, the fundamentals of the air conditioning industry remain strong. The management noted a five-year CAGR exceeding 15%, reinforcing long-term confidence.

5. Order Book Stability: The carried-forward order book increased by 7.9% to Rs.7,120 crores as of September 30, 2025, revealing some resilience in order intake despite current market headwinds.

6. Expectation of Revival: Management believes there will be a revival in the Commercial Air-Conditioning and Commercial Refrigeration segments, supported by recent GST reductions which should stimulate demand in the upcoming quarters.

Overall, while the near-term outlook reflects caution due to various market pressures, management remains committed to maintaining market share and profitability amidst these challenges.

1. Question by Natasha Jain:
Can you explain how margin expansion happened in Segment-I despite a slowdown in sales for Commercial AC?

Answer:
The margin expansion in Segment-I can be attributed to the mix of successful project segments, particularly manufacturing and data centers that maintain higher margins. While we faced challenges due to sales loss, this specific quarter's weightage from higher margin projects led to better overall margins despite the downturn. Our guidance remains at 7% to 7.5% for the year, as we are investing in product reliability rather than chasing drastically higher margins.

2. Question by Natasha Jain:
Regarding Segment-II, did we avail cash discounts that protected our UCP margins despite a revenue decline?

Answer:
Yes, our Q2 FY26 margins improved due to multiple cost-saving measures. After realizing the decline in sales, we focused on reducing advertising costs and seeking discounts from suppliers. While we previously had a 9% to 9.5% margin outlook, we now anticipate closing the year between 7% to 7.5% due to market conditions and inventory levels.

3. Question by Natasha Jain:
What changed that led to the cut in your guidance from positive 5% growth to flat, within a short span?

Answer:
Initially, we expected recovery in the second half due to festival sales. However, after the GST impact and subsequent sales dynamics, we noticed lower movement in secondary sales and significant inventory levels. Thus, our guidance reflected a shift to the likelihood of closing the year flat rather than the previous optimistic estimates.

4. Question by Bhoomika Nair:
What is the expected growth in the Commercial Refrigeration segment?

Answer:
Despite challenges last year, we anticipate a growth rate of around 7% to 8% in Commercial Refrigeration for the fiscal year, enabled by regulatory changes and increased customer investments due to GST benefits. While this segment is smaller than Room AC, it still shows potential for demand growth.

5. Question by Umang Mehta:
What is the outlook on the data center equipment that you are developing?

Answer:
Currently, we lead the data center MEP segment but developing new chillers and exploring liquid cooling partnerships will take time. We don't expect these high-tech products to make a significant contribution this financial year due to the complexity and necessary field trials.

6. Question by Sandeep Tulsiyan:
How has regional growth or market share varied between regions?

Answer:
Preliminary estimates suggest a contraction in the industry by about 17%, while Blue Star's Room AC business is down only 12%. Growth has been consistent across regions, with northern regions performing slightly better due to previous lower penetration.

7. Question by Nirransh Jain:
Can you clarify the sales impact from the energy rating change?

Answer:
The demand we expect is primarily driven by consumers purchasing existing models before the new energy efficiency standards raise prices. Although the festive period showed weak secondary demand, we anticipate growth as inventory gets liquidated and the impending price changes drive purchases.

8. Question by Sucrit Patil:
What long-term strategies does Blue Star have to maintain market leadership amidst increasing competition?

Answer:
Our strategy focuses on maintaining product reliability, enhancing customer experience, and investing in innovative, energy-efficient products. Additionally, we're improving operational efficiency through digitalization to stay competitive and responsive to market needs.

9. Question by Keyur Pandya:
What is the expected growth for Segment-I over the next few quarters?

Answer:
For Segment-I, we expect a CAGR of about 12% over the next five years, driven by strong demand in the Commercial Air-Conditioning sector. We remain optimistic, as foundry and infrastructure projects are forecasted to present solid opportunities despite recent order intake fluctuations.

10. Question by Manoj Gori:
Is the current caution in guidance indicative of ongoing impacts into FY27?

Answer:
The caution stems from a weather-impacted FY26, particularly for Room AC sales, rather than a systemic issue affecting FY27. Future growth in Commercial AC should remain steady at around 12% to 15%. The long-term outlook remains positive, driven by market share gains and recovery expectations.