30-Oct-2026 18:21:33
BLUE STAR Q2 CONCALL: TARGETS 25% ROOM AC REVENUE GROWTH & 6.5% UNITARY PRODUCTS MARGIN IN FY27; SEES ₹4,000 CR DATA CENTER REVENUE BY FY30, GUIDES FOR ₹300 CR CAPEX
• FY27 Room AC Revenue Guidance: Management expects approximately 25% revenue growth in room air conditioners, supported by stronger demand, extended summer conditions and price increases. • FY27 Room AC Volume Outlook: Management expects approximately 20% volume growth, with potential for 25–30% growth if summer demand strengthens earlier than expected. • Unitary Products Margin Guidance: Management maintained its FY27 segment margin recovery target of at least 6.5%, compared with 2.3% achieved during Q2. • H2 FY27 Margin Outlook: Management expects further margin improvement in Q3 and Q4 through price revisions, product cost optimization and operating leverage, although achieving the full-year target remains challenging. • FY28 Margin Outlook: Management has not provided a specific FY28 margin target. Summer 2027 demand, commodity costs and competitive pricing will determine the scope for further recovery. • Room AC Market Growth: Blue Star recorded approximately 42% YoY primary sales growth during Q2, compared with estimated industry growth of 35–40%. • H1 Room AC Performance: Company reported approximately 28–29% growth, compared with estimated industry growth of around 30%, while broadly maintaining market share. • Market Share Recovery: Management indicated that Blue Star recovered market share progressively from May to September after losing share during April due to aggressive pricing. • October Price Increase: Company announced an approximately 5% price increase effective October 2026, with the actual market acceptance expected to become clearer during November. • Raw Material Inflation: Management indicated that cumulative input cost escalation since January 2026 reached approximately 18% by October. • Pricing Gap: Even after including the October price increase, cumulative pricing adjustments of approximately 13% remain below the estimated 18% cost escalation, leaving a gap of around 5%. • Product Portfolio Restructuring: Management is redesigning room AC products through value engineering, alternative components, removal of nonessential features and cost-efficient product configurations. • Outsourcing Strategy: Management is evaluating increasing outsourced room AC products from approximately 15% currently to potentially 30%, particularly in entry-level categories. • Product Quality Strategy: Management clarified that cost reduction initiatives will not compromise cooling performance, energy efficiency, product durability or warranty standards. • Commercial Refrigeration Outlook: Management expects signs of demand recovery from Q3 FY27 and would consider approximately 10% growth during H2 a satisfactory outcome. • FY27 Commercial Refrigeration Growth: Management expects only single-digit growth for the full year, reflecting earlier weakness in FMCG, cold-chain equipment and quick-commerce expansion. • Commercial Refrigeration Long-Term Outlook: Management sees potential for approximately 25% industry CAGR over the longer term, supported by India's low penetration, although current demand remains subdued. • Commercial Refrigeration Pricing Pressure: Management estimates that raw material cost escalation would require price increases of approximately 24–25%, limiting near-term demand and margin recovery. • Electromechanical Projects Outlook: Management expects project revenue growth to accelerate from Q3 FY27, primarily driven by data centers and factory-related projects. • Data Center Order Book: Management indicated that approximately ₹2,000 Cr of data center orders have already been secured. • Data Center Order Booking Outlook: Management sees potential for approximately ₹4,000 Cr of data center order bookings, rising toward ₹8,000 Cr by FY30. • Data Center Revenue Target: Management indicated that annual data center revenue could increase from approximately ₹2,000 Cr in FY27 to ₹4,000 Cr over the next three years. • FY30 Data Center Contribution: Management indicated that data centers could contribute approximately ₹4,000 Cr to an illustrative Blue Star annual revenue base of ₹20,000 Cr by FY30. • FY30 Electromechanical Projects Outlook: Management indicated potential annual revenue of approximately ₹6,000–7,000 Cr from the overall electromechanical projects business by FY30. • Data Center Industry Opportunity: Management estimates approximately ₹10,000–12,500 Cr worth of domestic data center project orders could be finalized during FY27. • Data Center Project Margins: Management indicated that data center projects could potentially deliver EBIT margins of approximately 10–12%, compared with the overall Segment 1 margin guidance of 7–7.5%. • Segment 1 Margin Guidance: Management maintained its 7–7.5% margin guideline, with potential for approximately 8.5% as higher-margin data center projects contribute more significantly. • Data Center Execution Timeline: Management indicated that data center projects typically have execution periods of approximately 8–9 months, with favorable payment terms and certain provisions for material cost escalation. • Infrastructure Project Strategy: Company is reducing exposure to infrastructure projects, including railway, metro and similar contracts, due to delays, cost overruns and lower profitability. • Infrastructure Revenue Contribution: Management estimated that infrastructure projects currently contribute approximately 20% of project billing, with the share expected to decline. • Factory Projects: Management sees opportunities in semiconductor facilities, solar manufacturing, electric vehicle battery plants and other industrial projects requiring electromechanical systems. • Data Center Liquid Cooling Opportunity: Management estimates the Indian liquid cooling CDU market at approximately ₹500 Cr currently, potentially reaching ₹3,000 Cr or more over three years. • Liquid Cooling Technology Plans: Company is evaluating technology partnerships or joint ventures for liquid cooling systems but has not finalized an arrangement. • Data Center Chiller Opportunity: Management estimates the domestic data center chiller market at up to ₹2,000 Cr, with Blue Star's indicative market share around 15%. • International Data Center Strategy: Management is currently focused on domestic data center opportunities rather than pursuing overseas EPC contracts. • US Heat Pump Business: Company continues supplying heat pumps to US customers and developing solutions for additional OEMs in the US and Europe. • US Heat Pump Revenue Potential: Management reiterated the previously indicated potential for approximately $100 million of additional revenue from the international heat pump opportunity, subject to business scaling. • FY27 Capex Guidance: Management expects full-year capital expenditure of up to approximately ₹300 Cr, including product R&D and digital technology investments. • Order Book: Carried-forward order book stood at ₹7,229 Cr as of September 30, 2026, compared with ₹7,120 Cr YoY and ₹6,923 Cr as of March 2026. • Net Cash Position: Company reported net cash of ₹289 Cr as of September 2026, compared with net borrowings of ₹417 Cr in September 2025, supported by improved working capital management. • Segment 1 Revenue: Electromechanical Projects & Commercial Air Conditioning revenue increased 16.3% YoY to ₹1,936 Cr. • Segment 1 Profitability: Segment result declined to ₹133 Cr, with margin at 6.9% versus 8.8% YoY, primarily due to material cost escalation. • Segment 2 Revenue: Unitary Products revenue increased 29.4% YoY to ₹898 Cr. • Segment 2 Profitability: Segment result declined to ₹21 Cr, with margin at 2.3% versus 6.2% YoY, reflecting pricing pressure and elevated input costs. • Segment 3 Revenue: Professional Electronics & Industrial Systems revenue increased 51% YoY to ₹97 Cr. • Segment 3 Profitability: Segment result increased to ₹23 Cr, with margin at 23.7% versus 9.6% YoY, supported partly by warranty provision reversals following the MedTech business sale. • MedTech Business Sale: Company completed the sale of its MedTech business on August 31, 2026, for ₹35.6 Cr. The business had generated approximately ₹41 Cr revenue in FY26. • Q2 Consolidated Performance: Management reported approximately 21% YoY revenue growth and 10.5% growth in operating profit, while margins remained under pressure. • Depreciation Outlook: Management indicated that the current quarterly depreciation and amortization run rate can broadly be treated as normalized, including costs related to R&D and leased facilities. • Key Challenges: Continued raw material inflation, incomplete price pass-through, aggressive industry competition, uncertain summer demand, weaker rural consumption, project execution delays and the need to restore unitary products margins remain important factors.
BLUE STAR LIMITED