Ladies and gentlemen, good day and welcome to the Blue Star Limited Q1 FY 2026 earnings conference call. We have with us today from the management Mr. B. Thiagarajan, Managing Director, Blue Star Limited, and Mr. Nikhil Sohoni, Group Chief Financial Officer, Blue Star Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star ten on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. B. Thiagarajan. Thank you, and over to you, sir.
Thank you. Good morning, ladies and gentlemen. You might have seen the results which were published yesterday. I take it as what was a disappointing quarter that had ended. I do not know, I leave it to your judgment that it was better than what you expected or worse than what you expected. As you're aware, we had commenced the financial year with the hope that the summer season will be an impressive one with over 25% of growth during the summer season. 25% - 30% market will grow, and Blue Star also will grow. This is for room air conditioners. Unfortunately, due to unseasonal rains, as I would have or Nikhil would have explained to you during the course of the summer season several times, in the media or in one of our meetings or telephonic calls, it was a disappointing summer.
I had also expressed that it is not a disaster. It is a disappointing one, but the long-term prospects for room air conditioners business at a CAGR of 19% over the next five-year period should happen. We firmly believe in that. This particular disappointing summer season obviously calls for some corrective actions so that we maintain the profitability, we improve our efficiency, and we do not lose momentum in terms of research and development or market expansion or the talent acquisition and other initiatives which are strong pillars for Blue Star. Fortunately, Blue Star, as you're aware, is not only just in and on the 2C business. It is also the non-B2B businesses. Fortunately, that part of the business is doing well. In fact, the order book for the B2B businesses is at all-time high, and we continue to grow at double digits.
With that, I will hand it over to Nikhil for his remarks. Later on, we will answer your questions. Thank you.
Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. This is Nikhil Sohoni, and I will provide you an overview of the results of Blue Star Limited for quarter ended June 2025. Following an exceptional year of growth, FY 2026 started on a softer note, driven primarily by unseasonal rains across the country, which resulted in a muted demand primarily for room air conditioning segment. Despite this headwind faced by the room air conditioners business, the company has delivered robust revenue growth across other key businesses. Backed by a healthy order book and prospects of demand reviving during the festive season, we are optimistic about the growth for the full year. Financial highlights for the quarter ended June 30 on a consolidated basis are summarized as follows. Revenue from operations for quarter one FY 2026 grew by 4.1% to INR 2,982 crore as compared to INR 2,865 crore in Q1 of FY 2025.
EBITDA, excluding other income, for quarter one of FY 2026 recorded at INR 199.99 crore and an EBITDA margin of 6.7% as compared to INR 237.8 crore, which was an EBITDA margin of 8.3% of the revenue in Q1 of last year. PBT before exceptional items dropped by 27.8% to INR 163.23 crore in Q1 of FY 2026 as compared to INR 226.02 crore in Q1 of FY 2025. Tax expenses for Q1 FY 2026 were INR 42.4 crore as compared to INR 57.26 crore in Q1 FY 2025. Net profit for quarter one FY 2026 grew to INR 120.82 crore as compared to INR 168.76 crore in Q1 FY 2025. Carry forward order book as of June 30, 2025 grew by 12.5% to INR 6,843 crore as compared to INR 6,085 crore as of June 30, 2024. Carry forward order book as of March 31, 2025 stood at INR 6,263 crore.
The capital employed as of June 30, 2025 stood at INR 2,821 crore as compared to INR 1,738 crore as of June 30, 2024. We continue to invest in manufacturing capacity, research and development, and digitalization. The company reported a net cash position of INR 370.9 crore as on June 30, 2025 as compared to the net cash position of INR 1,042.9 crore as of June 30, 2024. Coming to business highlights for the quarter one, segment one, that is electromechanical projects and commercial air conditioning systems. The segment one revenue grew by 35.9% to INR 1,412.5 crore in Q1 FY 2026 as compared to INR 1,038.9 crore in Q1 of FY 2025. Segment result was INR 111.6 crore, which was 7.9% of revenue in the current quarter as compared to INR 103.0 crore and 9.9% of revenue in Q1 of last year.
Order inflow for the quarter was INR INR 1,963 crores in Q1 FY 2026 as compared to INR 1,466 crores in Q1 FY 2025. Coming to individual businesses within this segment, electromechanical projects business, we experienced strong order bookings in the project business during the quarter, driven primarily by continued demand from factory, data center, and healthcare market segments, indicating sustained interest and healthy pipeline for upcoming quarters. Influx of inquiries and tenders in railway electrification and metro railway sectors remains subdued, and we continue to maintain a selective approach to infra projects. Carry forward order book for electromechanical projects business was at INR 5,080 crores as on June 30, 2026, as compared to INR 4,557 crores as of June 30, 2024. Commercial air conditioning systems during the quarter, Blue Star's commercial air conditioning business delivered robust growth in line with the overall market trends, reflecting sustained demand and strong execution.
All key product categories like ducted systems, VRF, and chillers registered healthy growth during the quarter. Key demand contributors included the manufacturing and education sectors, driven by infrastructure expansion and increased investment in climate control solutions. However, demand from government and public sector remained muted due to lower capital expenditure, and commercial retail demand was also relatively modest. The international business is also part of this segment, where we continue to pursue our international foray as steadily progressing in the U.S. markets. The engagement with European customers is also underway with discussions at various stages of finalization. Uncertainty due to geopolitical factors, including the U.S. trade negotiations, may act as a short-term impediment. We are also focused on strengthening our presence in the Middle East and African markets. Segment one margins at 7.9% for quarter one of FY 2026 was 9.9% in Q1 of last year.
The quarterly margins are influenced by projects and product mix, and hence may not be comparable with the previous periods. Coming to segment two, that is unitary products, segment two revenue did grow by 13.3% to INR 1,499.4 crores in quarter one of the FY 2026 as compared to INR 1,729.5 crores in Q1 of last year. Segment result was INR 87.5 crores, which was 5.8% of revenue in Q1 of FY 2026 as compared to INR 158 crores in Q1 of last year, which was 9.1% of revenues. Individual businesses within this segment, cooling and purification products business, this quarter presented unexpected headwinds due to the early onset of monsoon across India, making this an unusually soft summer season. However, as in the past, we have done marginally better than the industry, and we estimate that our market share has slightly improved above 14%.
While the near-term environment remains challenging, we remain confident in the underlying strength of the category and are strategically positioned and focused on navigating this phase effectively as we look ahead to a stronger demand revival during the upcoming festive seasons. We continue to invest in expanding our distribution footprints across the country. We remain confident in our outlook for the rest of the year and expect to close FY 2026 with reasonable growth. Commercial refrigeration business witnessed strong growth in Q1 of FY 2026 as we are now on a formal footing. The regulatory challenges we faced with storage water coolers category last year have been resolved. Growth in this quarter was primarily driven by strong demand from the processed food and pharmaceutical segment, reflecting a positive turnaround in key end-user industries. In Q1 of FY 2026, this segment reported a margin of 5.8% as compared to 9.1% of Q1 FY 2025.
Margins for the current quarter were impacted by a sharp decline in the room air conditioning business. With the lower volumes, the operating leverage benefits witnessed in Q1 of FY 2025 could not be replicated in this quarter, thus resulting in the drop in margins. Coming to segment three, which is professional electronics and industrial systems, the segment revenue did grow by 27.3% to INR 70.4 crores in Q1 of FY 2026 as compared to INR 96.9 crores in Q1 of FY 2025. Segment result was INR 7.7 crores, which was 10.8% of revenue in the current quarter, as compared to INR 9.6 crores, which was 9.9% of revenue in Q1 of last year. The segment faced a decline in revenue driven by continued challenges in the Medtech and data security business. The Medtech business has been impacted by regulatory uncertainty, with the government temporarily stopping the import of refurbished medical devices.
However, industrial solutions business is experiencing steady growth, supported by manufacturing and testing demand. Segment margins at 10.8% for Q1 of FY 2026 versus 9.9% in the Q1 of last year. The improvement was majorly due to a favorable change in product and services. Coming to business outlook, while the first quarter of FY 2026 was impacted due to poor room air conditioner stands owing to unseasonal rains during the summer season, it is expected that the demand will revive during the festive season. Further, our strong portfolio of B2B products and solutions comprising electromechanical projects, commercial air conditioning, and commercial refrigeration should help us partly offset the shortfall during the rest of the financial year. Aligned with our long-term vision for growth and innovation, we remain committed to strategic investments in manufacturing, R&D, and digitalization while ensuring sustainable value creation for our stakeholders.
With that, ladies and gentlemen, I'm done with my opening remarks. I would like to pass it back to the moderator who will open the floor to questions. We'll try to answer as many questions as we can, and to the extent that we are unable to, we'll get back to you via email. With that, we are open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aniruddha Joshi from ICICI Securities. Please proceed.
Yeah, thanks for the opportunity. Sir, in case of UCP business, if you can indicate the revenue growth rates in room air conditioners, air cooler, and even commercial refrigeration separately, it will be great. Secondly, what is the inventory as of either June 30 or even July 31 if you can indicate in that space? Thirdly, what are the initiatives that the company has done to clear the excess inventory? It means either free installations or additional trade discounts or consumer discounts or what are the additional initiatives the company has done? Lastly, now the new norms will come into picture from January 1. Whether the company will be able to exhaust all the trade inventory by that time or how should we read the situation panning out? Yeah, that's it from my side.
Thank you. Unfortunately, you know, I think you are new to the call. This has been clarified several times. Unitary cooling products is the segment classification, and anything further breakup there will be selective in disclosure. We will not be able to. All that I can say is that that particular segment comprises room air conditioners and commercial refrigeration products such as water coolers, deep freezer, or cold chain equipment. It does not include, like our competitor, some of the competitors have the service business of central or packaged air conditioning. That is not in that particular segment. It is purely products. Unfortunately, this has been going on for some point of a time. If we have to reclassify, we have to look at the industry, how they report, and then it involves regrouping, etc.
The fact of the matter is in this particular quarter, what is impacted is room air conditioners. Room air conditioners market size is around six times of the commercial refrigeration market. You can make a guess what it is. In our case, also, it will be the same. What's our share there? What's share here? Therefore, the question is unfortunately not answerable. Second part, inventory is not an issue at all. This also had clarified in many television interviews or one-on-one interactions. Nikhil or Swati also would have clarified that the moment the market was not picking up, it only takes these two weeks to correct the manufacturing. Those days, some three years ago, it used to be China imports. What you're committed, it will be in high seas and you will be saddled with the inventory till the end of the festival season.
Normally in the system, 30 to 45 days of inventory will be there always. It is not just in, just out. In addition to that, we will excess inventory, if that is the terminology, it is a one month of sale. That is all the excess inventory Blue Star has got. The inventory is not an issue at all. That one-month inventory will be sold off. There is the correction in not billing began in April, first week itself. Therefore, with the dealers, there is nothing need to be done to be giving additional discounts or whatever it is. Whatever is the market operating prices that's in the schemes existing, that is going on. The real issue is when the demand will pick up. To you and to the other participants, I would request that inventory is not an issue.
It is just 30 days more inventory is there, that will move away. The real question is that whether the festival season will be good. Early indications are, it begins with, in Tamil Nadu, it is called Aadhi like that, and there is Independence Day sale, and there are some early indications it will be good. We have to see in a volatile trade situation across the globe and in India what all will happen, we do not know. We wish and pray that the festival season is as good as last year. Your last question was connected with the, what was the last question?
Norms in the energy label.
No, no norms. We are all well prepared. Usually what happens is in anticipation of the energy label change, many people end up buying in Q3 itself because a new five-star will be costlier than the existing five-star. There are a lot of people who end up buying. It is a question of production planning, the new products as well as the old products, how we will do in Q3. Anyway, from January 1 you have to make the new label. This energy label change happens in consultation with the industry, and we all know what is the new norm, and we all know which day it is coming into effect. Therefore, research and development, supply chain issues are already over. There is absolutely no concern about that. Thank you.
Sure, sir. Thank you. Just last one question. You had indicated earlier that Blue Star is also looking for a JV partner for compressor manufacturing while we have got one year additional window. Any update on this?
No, I have not stated as we are looking for a JV partner. I will, again, this question should not come up later in the call. Blue Star is not manufacturing compressors today. It is a question of scale, and we know that within a couple of years, we will reach 2.5 million kind of quantity. Therefore, we should look at the compressors. The QCY extensions may happen, may not happen. There are manufacturers in India who are planning to expand. We will keep monitoring both. What are the import restrictions? What are the manufacturing capacity expansions that are happening here within India? We have kept all the options open, procuring from Indian manufacturers as and when they expand to keeping our ears and eyes open. If we have to manufacture, we will go ahead and manufacture.
If few Indian manufacturers have come together to make compressors, we are open to that idea. Right now, our supply chain is secured for about 12 months back in the sense that till the end of next summer season, we are covered. We will keep reviewing it, and the compressor supply chain resilience is no longer bothering us because we have kept multiple options.
Sure, sir. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question is from the line of Shivkumar Prajapati from Ambit Investment Advisors. Please proceed.
Yeah, hi, sir. Thanks for adding my question. My first question is, the other players have also reported their numbers, and for the UCP segment, the numbers are drastically down, say 34% and 50% for two players. While we manage just about 13%- 14% of decline, I just want to understand what did we do right? You have also highlighted that we have gained some market share. Would you be able to quote some figures as I think in Q4, we ended it around 14%? What would be the current market share?
Is this your second question or do you have some other questions?
Sorry, this is my first question.
What is your second question? You know I'll answer both together.
The second question is basically on the inventory with the dealers and distributors. Suppose the B norms, would we be sharing some burden with these players or we will be helping them?
That question I already answered. It's only excess inventory of 30 days is there, and that is the B level change is a long time away. It is not an issue at all. Inventory is not an issue, and I request all participants, please take note of, as far as Blue Star is concerned, it has got 30 more days of inventory. All they wanted to look for is that when the growth will take place, and I had maintained that still full year, this industry has got an opportunity to end the year with 10%- 15% growth. That's what will happen whenever there is a summer season which is not good. One has to watch for, if at all there should be anxiety, how well the economy will progress, how well the festival season will progress. Inventory is not an issue.
Coming back to your first question that is connected with the question. Basically, what we can do is a market share of 14%. It would have moved up, in my view, to 14.2% or something like that. We're going by. Why we should have done well? We have been gaining market share. That has been our history. Every year, even during the COVID periods, we have gained market share, and we started with the momentum. Our goal was to end the year with 14.5% market share. This is happening with multiple initiatives. Number one is having products at every price point and expanding our distribution footprint in tier three, four, five cities, specifically in the northern region and places where our market share was lower than all India average, improving it. It's all because of that. Thank you.
Understood, sir. Thank you.
Thank you. The next question is from the line of Natasha Jain from Phillip Capital. Please proceed.
Thank you for the opportunity, sir. My first question is on the channel expansion that you have mentioned. Because we've got market share gains primarily because of that, I just want to understand if you could spell out what is your footprint in South versus non-South and what is the scope to expand here further? How much are we non-indexed in the rest of India and therefore what can be the growth opportunity just by channel expansion? That's my first question. My second question is if you could throw some light in terms of how different geographies are doing. How is South doing? Is it any better than it was before because South disappointed the most and Blue Star is indexed to South versus probably North? How is it doing? You are lower indexed there, therefore on that account.
Lastly, in terms of exports, while I understand U.S., the tariff uncertainties, in non-U.S. markets, what's the scope there and are these high-margin businesses? If yes, what kind of scale-up can we expect and by which year? That's it, sir. Thank you.
The first is the market share gain is not just due to distribution footprint expansion alone. It is having products at all price points that there are. India is a vast country. Different types of consumers are there. There are entry-level products that are issued. Heavy-duty air conditioners are consumed somewhere. Someone is asking for Wi-Fi-enabled, AI-enabled air conditioners. Someone is asking for sophisticated controls there. Someone is asking for purification and health-related features. You have to have a product portfolio at the right prices. That is the first part of it. Distribution footprint, it is not by share numbers it will be happening. You can go and say my distribution has become now 20,000 channels or 25,000 channels. That is not the point. Blue Star understands in every town what is the market size. In that, each of the counter, what is the potential of that counter?
In that, what is my current share and therefore what I have to do? Even in Chennai, I may be having more than 20% market share, but I should be looking at in a particular counter whether I am getting 20% or not. All India market share may be 14%. There are markets in which we will have 7% or 8%. There are markets in which we will have 10%. Each of these markets, we internally call it as a surgical strike, go ahead and work there in order to take the market share higher. A share number of expanding the distribution footprint will not get the market share at all for a simple reason. Your dealer will agree to be your dealer and display a product because you are actually compensating for the space that you occupied. In short, demonstrator you will be deploying.
That alone is not going to help. It will help, but that alone will not help. That is the answer to that. Now coming to the geographical thing, we have not thought of when Kerala failed. We thought in Tamil Nadu the place should be. That was not picking up. I thought it is going to be picking up in West and then North. All over the same thing happened. According to us, the degrowth is common across the country by coincidence. The last part of your question is connected with the international. First of all, our exports, the international footprint itself is low, and we are on a program to improve our international footprint on two conditions. One is it will not bring down our ROC. Two, it will not bring down our profitability. Our approach has been we will not enter there in Blue Star brand name.
We will be making for other players there, established players there. We have acquired around three customers across the U.S. and Europe. Now, the tariff uncertainty has been there. Today, it has got aggravated, but the question is all along there has been a doubt what will happen to the tariff. Both the sellers like us and the buyers, they have been very careful in arriving at what needs to be done. Our dependence on exports is total. All exports put together is 2% of our revenue. If you take the U.S., it is 1% of our revenue. It is not going to be impacting our operations in either manner. What can happen is we had got our products approved, and we are in the process of getting our products approved for other players.
In the international market, we have to be double sure that product has to be performing well, complying with all their international standards. It is new to us, every market. Therefore, we have been going slow, and we were about to ramp up. That may get delayed. That's about all. It is not going to impact the financials in any manner. Our decision is please wait and watch what happens because what happened today may be changed later. We do not know at all. We are focusing on working with our customers to keep developing the products and figure out what is the best way they would like to source. That's where we are. Thank you.
Thank you, sir.
Thank you. The next question is from the line of Akshen Thakkar from Fidelity. Please proceed.
Hi, sir. Congratulations on seeing through a relatively tough quarter. My question is on the electromechanical projects. The last three to four quarters, you've seen 30%+ growth over years. Would you just, you're not glad.
Yeah.
Okay. My question was around the electromechanical projects business. You've seen four quarters of 30%+ growth in this business. Obviously, the base is stiff, but could you give us some color on what kind of growth you're expecting in this business in the coming quarters or maybe for the full year? On the unitary cooling products business, I think the comment on TV this morning by Veer was that we're still going for double-digit growth. That would imply sort of close to mid-teens growth for the rest of the year. Is that something which is an aspiration, a target, or a guidance? Thank you.
I will comment on the second part of it. The thing is that if you plot all the years where the summer has failed, summer sales have not been good, eventually, the industry ends up growing at least 10%. That is going by the past record. It is not necessary it will repeat now, but it is a question of pent-up demand. It's not that they don't want the AC. They wanted the AC. Summer was not us. They postponed it. Remember this, I mentioned this last investor call as well that May, June, or July are very important months for the consumers in terms of schooling, vacation. They do have additional burden. If they can shift their expenditure, that is fine. They come back during the festival season. This particular year, there is an energy label change.
Therefore, all the energy label change years, just before the energy label change, huge purchases take place. Therefore, there is an expectation going by the past data that the growth can be 10%. That's why I mentioned the earlier question also. Eventually, we should look at how the festival season plays out and aim to close anywhere between 10%-1 5% growth. That is what it is. Electromechanical projects, that particular segment has got the EPC business of contracting. It serves many segments. It's infrastructure projects, data center projects, manufacturing units or factories, buildings, hotels, hospitals, so on and so forth. It also has the packaged air conditioning equipment like VRFs, chillers, so on and so forth. In the particular quarter, it all depends on a closure of a job or somebody is ready to lift the equipment there if it is packaged air conditioning.
The B2B part of the business is doing good. At the same time, it is also significant. That's why I keep mentioning in our case, we are not entirely dependent on room air conditioners. There is something else too. Now, your question is that can we assume this kind of a growth, a full financial year? That is not the guidance. The thing is that we would like to grow somewhere around 15%. That's about it. We have always said that the margin should be 7%- 7.5% for the benefit of other participants. I am clarifying that also here. Unitary cooling products, the growth should be 10%- 15%. That is the aspiration going by the past record of the industry. The margin, our aspiration is 8%- 8.5%. In a summer impacted year, it may be tougher. It may be 7%- 8%.
It all depends on how the festival season is and the last quarter is going to be. As far as segment one is concerned, 15% growth is possible and 7%- 7.5% margin we will be able to maintain. The situation is highly volatile. It is not that the U.S. tariff is connected with the exports alone. There will be other implications arising, for example, the exchange rate and other industries which are dependent on, therefore, the consumer sentiment. It is going to be an important period, and it could be a volatile period as well. We have to watch out and pray that the festival season goes on and the Indian economy maintains its momentum. Thank you.
All right. Thank you. Thank you, sir.
Thank you. The next question is from the line of [Ramesh Swaminathan] Avendus Spark. please proceed.
Hi, sir. Thanks a lot for the question. My first question is once again on the first segment with respect to what is the, if you can give the orderable breakup of the key categories like commercial real estate, residential real estate, retail, data center, infra. If you can do some commentary on each of these, some categories which is doing relatively well, which is doing kind of.
Ravi, I will answer this question. The thing is that I do not have the data. The second part is basically we have, first of all, understand this. Why is that, why that is important? How fast the projects will get closed? How healthy is that order book? That's what we are trying to assess. First of all, I'm assuring you that we are not interested in any unhealthy order. If it is a commercial real estate versus infrastructure projects or data center, what orders we book and carry according to us is a healthy order with good cash flows and decent margin. That's why we are not going ahead and building the order book or fighting for a market share. Now, broadly, the buildings, factories, and the infrastructure are equally divided. In a particular quarter, the manufacturing may go up.
In a particular quarter, building, because the orders are not being finalized based on Blue Star's strategy. Orders get finalized in the manner in which the consumers want. Therefore, you can assume always it is one third, one third, one third. That is what we would like to be as a part of our risk mitigation itself. Second question of yours.
Yeah. My follow-up on this is, I mean, are we adding new products into this segment category like equipment, modular core, advanced provisions, data centers, etc.? This is leading to this kind of growth. These are the other non-U.S. and other competitors who are not going that fast in the project business.
I won't underestimate any competition at all. All our competent players, everybody wants to grow. All should be doing the right things to build their own competitiveness. As far as Blue Star is concerned, you are talking about the segment one, I suppose, because the equipment addition means it has to come from the commercial air conditioning systems or what used to be called as the packaged air conditioning. Yes, there are specific chillers meant for data center application. There are chillers meant for brine application. The product portfolio expansion is driving the growth, and we continue to focus on that. Now, even VRF, there are next-generation VRF on getting developed. If you are pointing towards specific data centers like liquid cooling, we are working on that as well.
The question is that as and when the market will be there for a particular product, our intention is to be ready with a particular product. That is why compared with others, see, in case of multinational, their R&D happens internationally. The Indian companies need not to bear that R&D expenses. In case of Blue Star, you have seen that a significant amount of investments are taking place there. Close to around 1.5% of our revenue is in R&D. That is what is making us grow. We will continue to do that. Thank you.
Thank you.
Thank you. The next question is from the line of Achal Lohade from Nuvama Institutional Equities. Please proceed.
Sir, good afternoon. Thank you for the opportunity. Sorry if I'm asking a repetitive question, sir. If you could help us with the volume decline for the industry for the quarter. Just a broad sense, what kind of decline is it? The range we keep on hearing is a fairly large number, but just your sense on the same. In terms of the margin, we've seen for the UCP segment, the 330 basis point margin contraction. At the gross level, have we been able to maintain, or if there is a contraction even at the gross margin level? If you could also help us in terms of an A&P spend in that segment, how much has been the reduction or if it is the same or increased?
Second part, Nikhil will answer. As far as the first part is concerned, our understanding is from various reports because there is a GSM thinking of some part of it. There are institutions here as well. My gut is that the industry growth would have been around 30%. It is not the growth over last year is something one should look at it at all. As analysts, you all will look at it because that's important for you. We look at it from the point of view of a three-year CAGR. The summer of 2023 was a bad summer. The summer of 2024 was a 57% growth summer. Now there is a decline. The question is, if you take a CAGR, it continues to grow. There is a second thing we look at within Blue Star.
It's January to June, how it looks like rather than April to June for the simple reason April purchases got preponed to the market itself. If you look at it like that, the degrowth will be in single digits. Now, why is that important? When the market should do whatever it is doing, for us, it is connected with the strategic direction. It is connected with the investments that we have to make and the competitiveness that we have to build. In other words, we will not sit with a long face and worry about one quarter is washed out or to do. I do understand from the stock market point of view. Here, we are very clear that whether the industry is growing. Therefore, if you look at three-year CAGR, still it has grown. If you look at January to June, the degrowth is single digit.
That's all I worry about. What I hear is there is a 30% degrowth in the industry. In a period like this, frightening numbers, it is better to ignore. The second part, Nikhil can answer.
As far as margins go, if you'd have heard my commentary also, it was mentioned that when the volume should drop, definitely there is some amount of operating leverage benefits that you normally get. You will not be getting it in the current quarter. That said, last year's quarter one was an exceptional quarter. Definitely, the economics of scale benefit was there, and hence, you are going to witness the contraction in the margins the moment the volumes have come down. In addition to that, the mix between various components within this segment will also have a role to play. It is not, of course, at a gross margin level; it will be a function of how the material costs have moved, which all of us are aware of. You know the movements in copper, aluminum, and what are the inventories.
That is not going to impact it in a major way. Most of this kind of comes from the play of volumes. That's as far as the overall margins go. Coming specifically to your question on what are the ad spends and all of that, again, at the moment we see the volumes kind of degrowing, there is some amount of control which definitely comes on these spends. They will not be to the extent they were done last year, and accordingly, some contraction in those spends will also happen. There are certain unique expenses which also come every year as they are, which are industry-level expenses. We are aware of costs like e-waste, etc., also come. They will have the play on the margins. This margin drop, which you are saying, is a combination of all of this. It's not a gross margin impact.
It is more an impact which comes because of real economies and certain unique expenses which come every year.
Got it. Just a clarification, sir, on the first answer. Sir, again, I'm sticking to the first quarter at this point in time, April to June quarter. You said industry has declined 30% YOY. We have said we have our market share is marginally higher. Does that mean that our volume decline is also in the similar fashion or slightly lower than that, or it's substantially lower than that?
Yeah, I mentioned the market share went up by 0.2%, which means our decline is lower than the industry's.
Yeah, no, sir, the math is, yeah.
Sorry to interrupt you.
I'll call back in a few minutes. Thank you.
Thank you. Thank you. The next question is from the line of Nikhil Pandya from ICICI Prudential Life Insurance. Please proceed.
Thank you. Sir, first question is on the overall growth for the room air conditioners for the financial year 2026. The hope is on the festive season. Now, currently, in August, say in South, Kerala or Onam-related demand, are you seeing any early signs of, say, demand revival? For the time being, it is just a hope and you would focus on more of September, October for the growth revival? That is the first question.
I mentioned it starts much earlier. It is something as R&D says in the arts and there is the industry sales is being done, and then the Onam will come. The early indications are it is good. We do not know because the situation is changing every day. We have to wait and watch. Therefore, that full year should be a double-digit growth is an expectation.
The context was that, sir, because there will be some pre-buying before this December deadline, which is just a timing difference because someone buys in December and may not buy in 2025. The second point is that the Q4 base was also higher because a lot of pre-stocking has happened in Q4 2025, saying that backdrop will have a high base of quarter for this year. This 10% looked reasonably high. That was the reason I asked this question.
Q3 of last year was not a stocking season. Q4 is a stocking season. Therefore, when energy level changes there, it should be much higher than last year, Q3. That is the first part of it. Now, there are two ways of looking at it. We can imagine a situation of everything is going to be bad. I do not know how that will help. The question is that the past record shows if there is a summer season which is disappointing, full year, again, it will not be a 25%, 30% growth. It will end up at least with a 10% growth. That is one part of the track record. The second part is whenever there is an energy level change, that particular quarter peaks, actually. That is the history and the record that is available. Now, there is, on the other hand, a huge volatility in the market.
A lot of things are happening globally and in India. We can assume that, look, things will be fine. You can assume things will be a disaster. As far as Blue Star is concerned, we will be prepared for both of it. Our interest is not a quarter. Definitely not. Our interest, that's why we are there for 82 years and beyond, right? We have to go through, and a number of times we would have gone through this kind of periods. Fortunately, we are a B2B and B2C company. Going by your argument, if everything is going to be bad, fine, you have to face it. As of now, we won't plan for everything is going to be bad. As far as festival season is concerned, the question is there are dealers who have inventory.
There are dealers who are beginning to buy, or there are the tertiary movement we are seeing much faster in many counters. That is an indication.
Inventory or one month above normal inventory?
That's right. Yeah, in our case.
Is it total one month inventory or one month above normal?
One month above normal.
Understood. Sir, last one question. That is on your commercial refrigeration side. We are seeing deceleration in store counts for quick commerce businesses. Are we seeing any impact on, say, growth in terms of growth with deceleration from that segment? Not degrowth, but growth deceleration.
10% of the business may be coming from quick commerce. There is pharmaceutical, food and beverages retailing, and quick service restaurants. There are farm and related logistics providers. There is ice cream. Like that, there are so many segments there. Quick commerce is one, and there are many segments which continue to do well. In any case, that penetration of that sector is very low. I won't be worried about one particular segment decelerating if quick commerce is above us.
Thanks a lot, sir. Thanks for elaborate answers. All the best. Thank you.
Thank you. The next question is from the line of Devesh Advani from Reliance General Insurance. Please proceed.
Hello, sir. Actually, you said that for the full year, you are expecting revenues to go at 10%- 15%. How about specifically for unitary cooling products in terms of revenues that you're expecting for full year? How about profitability growth for the whole year?
I have not talked about full year revenue at all. The discussion about 10%- 15% is room air conditioner business has the potential to grow even though it is a disappointing summer. That is the expectation. That's all the 10% -15% figure is that.
Okay. As far as earnings is concerned, bottom line is concerned, what is the expectation for the whole year?
See, we don't give, again, the breakup within the segment. For segment two, we have been guiding that you should go by around 8% margin. This year, of course, there will be a quarter one impact. You can look at it at around 7%- 8%.
Okay. All right. Thank you.
Thank you. The next question is on the line of Anupam Goswami from SUD Life. Please proceed.
Hi, sir. Sir, just an easy clarification. When you say two months of or one month of above normal inventory, that is basically an average inventory throughout the year. Hence, that indicates in the monsoon period or Q2, it will take more than three months to liquidate?
What I'm saying is that ideally, I should have had some inventory. Today, going by the monsoon sales only, 30 days or more inventory is there. Always in the pipeline of our factory, our warehouses, and the field, if you put together, there will be some inventory. It will be around 45 days always. Because we also have a factory in Himachal Pradesh, which is a smaller market, it has to move to the other places. Against that, we may have 75 days of inventory, which is 30 days more. That 30-day figure is based on monsoon sale period. If it is a peak season, that 30-day will be a 10-day sale, right?
Got it, sir. Understood, sir. When we see this picking up, after these norms, if there is slight growth or market picks up, do we again see a quarter flow slow because of a pre-buy?
I'm telling you, the thing is festival season is the one the pickup happens. The 30-day inventory is not a big thing at all. You have to look at that when the market will revive in terms of faster movements. It will be from Onam season or independent sales onwards. You will start getting the indications. Festival season peaks during Diwali and subsequently against New Year. It's a long way off. Energy level plus the festival season, people who postpone buying in the summer season, that is what should result in the growth.
Got it, sir.
These are all expectations. I'm telling you honestly, we will not be sitting and worrying. I should not be, at least Blue Star considering not imagining the worst and then preparing for it. It is not going to help in any manner. We have adequate risk mitigation mechanism. If the sale is not happening, you have to manage the inventory. You have to cut down the production. You have to defer the discretionary expenses. You will be very careful in the expenses such as advertising, marketing, ahead of the festival season. You will watch really what is required. You will end up doing so. Those cost levers will be applied. The preparation will be in the thing for the simple reason, in five years, this category has to more than double. That nobody is going to stop. The long-term investment will continue to take place.
Any other thing is whether we were aware last week that this U.S. decision will impact India in this manner. I'm again saying it is not exports. The exchange rate may be impacted. Many other sectors in India will be impacted, which will impact Blue Star because we are also dependent on B2B. That was not known last week. This week it is known. All these are part and parcel of the game. Our aim is simple, that I should build my competencies for the future. I should keep delivering good performance better than the industry quarter after quarter. That's all we can do, right? Otherwise, I don't have any way to guarantee to you festival season will be good or there will be a double-digit growth. I can go by only past data.
A number of things that are happening are not due to the industry or due to Blue Star. It will keep happening, whether it is summer or tariff or a war or a number of other things.
Are there any pricing discounts going on in the industry and in Blue Star?
When we have a one-month inventory, there is no reason for us to cut the prices. Normal schemes, whatever the market operating prices, that will go on. Again, margin is not the gross margin is not the issue. The growth has to happen.
Yeah.
Thank you.
Thank you.
Thank you. The next question is on the line of Aditya Bhatia from Investec. Please proceed.
Hi, good afternoon, sir. While we have seen a decline versus last year, if I look at versus Q1 two years back, which is Q1 FY 2024, there's still a growth in the UCP vertical. In that context, margins falling quite sharply versus, let's say, the margins that we recorded in Q1 FY 2024 looks a bit surprising. The other way in which I'm also kind of considering is that overall volumes or overall revenues this quarter were still higher than off-peak season of Q2 or Q3 last year, but margins have come off quite sharply from there. Is there some element of some other expenses being involved or some gross margin erosion as well?
Yeah. See, here, when you look at the margins two years back, one has to factor in that over the two years, there has been an increase in volumes. There will be an increase in some amount of fixed costs also because the cost comprises fixed, semi-variable, and variable. It's not that only variable costs will be part of the cost composition. That is going to definitely impact when you are looking at what period two years back was there. The volume increase over the last two years and the fixed cost increase over the last two years, along with the inflation increase, is going to impact the margins to some extent. As I also said, there are certain new expenses or expenses which are impacting like e-waste and all. They will also impact the margins.
All of these costs are unique for that period, and you cannot be relating it to comparing it with what was the cost two years back.
Understood. Versus second and third quarter of last year, also there is a decline in margins. Second and third quarter, of course, are off-peak seasons and therefore volumes tend to be lower. Should we be kind of comparing those?
Quarter two and quarter three of last year.
Just one second. Quarter two and quarter three of last year.
Yeah, he's just looking at the PR.
The question is that you know in the summer season of this year, you are anticipating a 25%- 30% growth. You invest in many things like advertising and a huge number of in-shop promotions and in-shop demonstrators. That's what happens.
Preparing for a huge season, and you are employing additional people for installation and service. Now, when April is disappointing, what you think is that the forecast says May will be the heat wave. Therefore, you carry on to look at May. Then you say that from May 15, you hear that from May 15, it will pick up. Therefore, your quick correction. Also, you will not be recruiting somebody in the field and you'll ask them to go immediately. There are notice periods that are involved, etc. Therefore, a cost that is committed when the season abruptly fails, like a summer rain, always creates, ends up in erosional margin. In Q2, Q3, you will be cautious. Those corrections will be, that's why I mentioned to you, you wouldn't end up advertising and thinking that this special reason is going to be good.
You will be watching and watching, and stage by stage, you will be doing. Therefore, if your question is related to whether there will be a margin dip compared with last year in Q2 and Q3, according to us, it should not be. In Q2, probably one month impact should be there for the simple reason July of last year was again a very peak month. July of this year, still the degrowth continues. Therefore, some part that is one third of Q2 may be a problem. Q3 should not be a problem. Ideally, the margins should be managed during those quarters. Yeah, that answers a large part of it.
In addition to that, when you look at, say, quarter two and quarter three, again, as you yourself said, are the lean quarters where you know that there are certain expenses which are anyway controlled since it's a lean quarter, whereas this quarter was not expected to be lean. You have a different level of, you know, in-shop demonstrator expenses who are there, all of those who are kind of deployed for that season. Now, those cannot be pulled off just whenever you want. There is a certain amount of period which is already committed to them. Those expenses will stay in that quarter. These are the unique quarter one expenses which are there for that season, which you will have to live with. Those are the kind of expenses which will result in impacting the margins more than which may not be incurred in quarter two or quarter three.
Fair point. That's a very, very clear answer. Just one thing.
Sorry to interrupt, Mr. Aditya. May we request you to join the queue again?
Sure. Thanks.
Thank you. Due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Nikhil Sohoni for closing comments. Over to you, sir.
Thank you very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. Do feel free to revert to us in case any of your questions were not fully answered, and we'll be happy to provide you additional details by email or in person. Thank you.
Thank you. On behalf of Blue Star Limited, that concludes our correspondence. Thank you for joining us, and you may now disconnect your lines.