Summary
Blue Star Limited - Q3 FY26 Earnings Call Summary Friday, January 30, 2026, 11:00 AM IST
Event Participants
Executives 2 B. Thiagarajan (Managing Director), Nikhil Sohoni (Group CFO)
Analysts 8 Aniruddha Joshi, Deepak, Keyur Pandya, Manoj Gori, Natasha Jain, Naushad C., Naveen Baid, Rahul Agarwal, Renu Baid, Sonali S.
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue from Operations | ₹2,925.31 crores | +4.2% YoY; modest growth despite challenging market conditions and muted B2B demand. |
| EBITDA (Excl. Other Income) | ₹220.72 crores | +5.4% YoY; margins steady at 7.5% due to cost control despite flattish top-line in core segments. |
| Reported Net Profit | ₹80.55 crores | -39.2% YoY; impacted by a non-recurring exceptional item of ₹56.35 crores related to labor codes. |
| Carried-forward Order Book | ₹6,898.74 crores | +1.3% YoY; growth slowed due to deferred order finalizations in the EMP segment. |
| Segment I (EMP & Commercial AC) | ₹1,696.21 crores | +8.6% YoY; margins compressed to 6.8% (vs 7.6% YoY) due to infrastructure projects nearing closure. |
| Segment II (Unitary Products) | ₹1,154.22 crores | -0.87% YoY; revenue flattish but margins improved to 8.5% (vs 8.1% YoY) on cost rationalization. |
| Segment III (Electronics & Industrial) | ₹74.88 crores | -7.1% YoY; slowed by regulatory uncertainties in Med-Tech, partially offset by Industrial solutions. |
| Net Borrowings | ₹352.00 crores | Sharp reversal from ₹102 crore net cash position in Q3FY25 due to working capital and inventory build-up. |
Geographic & Segment Commentary
- Unitary Products (UCP): Revenue was flat at ₹1,154.22 crores as Room AC (RAC) growth was offset by a muted Commercial Refrigeration market. Management noted a revival in RAC demand in late Q3 due to channel loading ahead of the Jan 1, 2026 energy label change. Strategic focus remains on maintaining 8.5% margins through price discipline and localized supply chains.
- Electro-Mechanical Projects (EMP): Segment revenue grew 8.6% to ₹1,696.21 crores, driven by a strong opening order book, though new order inflows fell 16.5% QoQ. Demand is robust in Data Centers, Factories, and Healthcare, but large infrastructure projects (Metros, Railway electrification) are currently in low-margin closure phases. The company is being selective in bidding to protect capital deployment efficiency.
- International Business: Forays into the U.S. and Europe are progressing with successful product testing, though significant scaling is hindered by U.S. trade barriers and slow Heat Pump adoption in Europe. Management targets a 15% revenue share from exports within three years.
Company-Specific & Strategic Commentary
- Pricing and Energy Labeling: The Jan 1, 2026 energy label change is expected to drive 5-7% price hikes, which, combined with commodity and FX volatility, necessitates a ~10% net price increase to consumers in Q4FY26.
- Weatherproofing Blue Star: A strategic initiative to reduce seasonality by growing B2B portfolios (Commercial AC/Ref) and maintaining high variable cost structures (e.g., ad spends, sales incentives).
- Data Centers & Semiconductors: Management is building leadership in the EPC part of sophisticated cooling for these sectors and is exploring confidential TAs for liquid cooling/CDU solutions.
- Cost Optimization: Realized margin improvements in UCP (to 8.5%) despite flat revenue via controlled production, reduced discounting, and systematic input cost management.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Segment-I Margin | ~7.0% for Q4 FY26 | Impacted by infrastructure project closures; medium-term outlook remains stable. |
| Segment-II Margin | 8.5% to 9.0% for FY27 | Dependent on a strong summer; price hikes are non-negotiable to offset input costs. |
| Segment-I Revenue Growth | 8.0% to 10.0% CAGR | Moderated from previous 15%+ levels due to current muted B2B order inflows and liquidity. |
| Room AC Growth | 18.0% to 20.0% CAGR | Long-term target maintained due to low penetration, despite the “washout” in FY25. |
| Export Revenue Contribution | 15% of total revenue | Three-year target based on R&D investment and becoming a global OEM alternative to China. |
Risks & Constraints
| Risk | Context |
|---|---|
| Seasonality & Weather | Heavy dependence on the Q4/Q1 summer onset; two consecutive bad summers would severely strain the Room AC business. |
| Input Costs & FX | Rising commodity prices and INR depreciation require a ~10% price hike, which may test consumer demand elasticity. |
| Project Execution | Infrastructure projects (1/3rd of EMP) are seeing margin dilution during the closure phase due to cost overruns and hurry to hand over. |
| Regulatory & Labor | New Wage Code requirements resulted in a ₹56.35 crore exceptional hit and will permanently increase conversion and service costs. |
Q&A Highlights
RAC Pricing & GST
- Question: Will the 10% price hike be net of the GST reduction? (Natasha Jain)
- Answer: Every tax reduction is passed to consumers, but energy label changes (5-8% cost) and commodity/FX pressures necessitate a net ~10% increase to maintain 8.5% margins. (B. Thiagarajan)
Inventory Levels
- Question: What is the current industry inventory vs. Blue Star? (Sonali S.)
- Answer: Industry is likely at 8-10 weeks; Blue Star is leaner at 5-6 weeks. We intentionally slowed production in Q3 to avoid heavy discounting of old-star-rated stock. (B. Thiagarajan)
EMP Growth & Margins
- Question: Why is EMP growth slowing and margins under pressure? (Deepak)
- Answer: Inflows have bottomed out but were muted recently. Margins are lower (6.8%) because large infra projects like Metros are in the final handover stages where costs typically peak. (B. Thiagarajan)
Strategic Targets (KRAs)
- Question: What are the key focus areas for the new Executive Director? (Aniruddha Joshi)
- Answer: Achieving 15% RAC market share (currently ~14%), maintaining 25-30% ROCE, and driving premiumization while staying competitive in the aspirational Tier 3-5 markets. (B. Thiagarajan)
Key Takeaway
Blue Star delivered a subdued Q3 FY26 with 4.2% revenue growth, reflecting a year of significant challenges in both consumer and B2B segments. While net profit was hit by a ₹56.35 crore labor code provision, the RAC business showed resilience with margins improving to 8.5% through disciplined inventory management and cost rationalization. Strategically, the company is pivoting toward “weatherproofing” by expanding its B2B presence in Data Centers and Factories, while preparing for a mandatory ~10% price hike in the Room AC segment to offset energy label changes and commodity inflation. Management remains cautious with a single-digit growth outlook for the EMP segment due to infrastructure margin dilution but expects a strong Q4 revival driven by pent-up summer demand. Capital allocation remains focused on R&D and localized manufacturing to reach a 15% export revenue mix over the next three years.
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