Ladies and gentlemen, good day and welcome to Blue Star Limited Q4 and FY 2025 Earnings Conference Call. We have with us today from the management, Mr. B. Thiagarajan, Managing Director, Blue Star Limited, and Mr. Nikhil Sohani, 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 the star, then zero on your touch-tone phone. 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.
Good morning, ladies and gentlemen. It's a pleasure and privilege to address you this morning. I have with me Mr. Nikhil Sohoni, who is Group Chief Financial Officer. You have seen the results published yesterday after our board meeting, both for Q4 and the full financial year. You might have noticed that the total income for—that is, the consolidated income for Blue Star for the financial year ended 31st March 2025—has crossed INR 12,000 crore, and it is another landmark for the company. The net profit before exceptional items had grown by 40% to INR 581 crore. The profit before exceptional items again grew by 38.6% to INR 72.42 crore. These are a consistent performance for the third year in taxation ever since the COVID recovery happened.
Now, it's an all-round performance, except for the commercial refrigeration business, the performance of which was impacted due to regulatory changes which we had disclosed to you in Q1 itself. These are regulatory changes that continued, and the business has recovered, and it had been somewhat flat compared with last year in Q4. As we speak, that business is growing significantly from April onward. In fact, March was a flat quarter, given that last March it was a very, very significant quarter for that business before the regulatory changes came into effect. I'll hand it over to Mr. Nikhil Sohani for his opening remarks, but I am preempting a few things from the reactions, questions from many investors, financial press, or my own wealth advisor, or even neighbors and relatives about our results compared with our competitors, whichever results have been published so far.
Now, the results, obviously, you all may be confused with what is going on in the industry. I'll begin with the first part, which is here and now, which is how is April going? From January, I've been saying last year was a very, very significant summer season, with April more than 75% growth happening and Q1 more than 59% growth happening. The backdrop of it this summer, how it will be, has been a debate for a long time ever since weather forecasts have been available. We have been maintaining it should be anywhere between 20%-25%. We should be happy. Now, April had not been a month which delivered in line with that outlook. First problem was in March, itself, materials were listed in significant quantities, which resulted in, in my estimate, more than 4 million units in the market.
In my view, it was anywhere between 1.5 million-2 million more inventory than what should have been there. There were sporadic rains across the country, including Mumbai for the past few days, and April sale would have been—I understand the industry would have grown anywhere between 15%-20%. In our case, as I can disclose this since the board meeting is over, we would have grown by around 5%. Our own internal target was to grow by 25%-30% because if the industry is growing between 20%-25%, we wanted to grow by 25%-30%. Second concern will be with regard to commercial refrigeration because it is forming part of the segment two. That business, as I had mentioned earlier, has grown significantly in April. It is more than 25% growth. Whereas in the last quarter, it was flat.
The third information, it will be in the questions that will come up, the energy labeling program, whether on January 1, 2026, whether it is going to change or it is going to change in 2027 again, or it is also going to be in 2028. The discussions are on. It is in the advanced stages. Our anticipation is there will be indeed a change in 2026, and the next change will be 2028 with a higher parameter. So the urgently and necessary 2026 change should happen. That is what the industry is prepared for. Now, I also want to reiterate the Blue Star segment two results, which I have been explaining for the past two quarters. It does not include commercial air conditioning. It does not include commercial air conditioning service in our case. In our case, it includes the room air conditioners. It includes the commercial refrigeration product.
I'd explained to you. Till certainly we classify what is the path of room air conditioner, what is the path of commercial refrigeration. I'm unable to disclose that, but I can tell you that room air conditioner business has grown significantly. Commercial refrigeration business has been flat. In the first half of the year, it had degrown. In the last quarter, it was flat. Now, the only way I can indicate is that had it not been commercial refrigeration's degrowth, if it had been business as usual, our estimate is that our growth in revenue for Q4 would have been 500 basis points higher, revenue growth. The margin would have been higher by 50 basis points. It is even to disclose this, we took the board permission that this is how we will disclose.
Now, it does not include the commercial air conditioning or commercial air conditioning service, which will be close to more than INR 150 crore kind of profit at any given point of time in any particular year, or the average I'm talking about over the years. That is not part of the segment two at all in our case. It is purely room air conditioners and commercial refrigeration products. The industry, this is the last point I wanted to make, had been undergoing many supply chain challenges, and it is somewhat stable now with the extensions that are given for the compressor imports. You might have read about an article about e-waste extended producer responsibility. The companies are filing suit against the government for increasing the rate. Blue Star also has filed a petition.
The question here is the revised rate when it came into effect, whether it was provided for or not provided for. There are companies which would have provided for. There are companies which would not have provided for. Next part is you would have read an article or many articles about the copper duty, whether it is under FTA and whether localization has happened. The good news is localization has happened, and we have signed an MoU with Hindalco for sourcing locally. Significant amount of material next year should be coming from the state. Now, in the last financial year, we would have imported copper. There had been again the question of whether the FTA-related disputes have been provided for or not. These are all business as usual. Some companies would have provided for. Some companies would have not provided for.
As far as Blue Star is concerned, what needs to be provided for has been provided for. In other words, for example, in the e-waste matter, we have provided for that additional money, and if the court case goes in our favor, we will be writing it back. That's how the life will go on. Now, the results of ours, to an extent, may not be comparable with others because it is a pure operating income that is there purely for the businesses that I told you in segment two. I thought I must clarify this because numerous questions will come later. Our limitation is related to bifurcating this world on Z. We indeed consider this, and at some point of the time, it may happen, but as of now, we are not able to.
The way you should be able to also figure out our room air conditioner performance may be from GFK. There you would have seen, or some of you would have seen, we have gained market share by 100 basis points. For three consecutive quarters, we have been leading in terms of the tax rebates as well in many markets. With that, I hand it over to Mr. Nikhil Sohani for his opening.
Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. I'll be providing you an overview of the results of Blue Star for quarter-ended March 2025. FY 2025, on an overall basis, has been an exceptionally good year, delivering a 23.6% revenue growth on the back of the strong performance of FY 2024. Profit before tax grew by 40.9%. EBITDA margin improved by 40 basis points from 6.9% in FY 2024 to 7.3% in FY 2025. Carry forward order book rose to the highest-ever level of INR 6,263 crore as compared to INR 5,697 crore in FY 2024. This reflects on the operational rigor and efficiency, and at the same time, depicts an extremely good pipeline to support growth. The company remains committed to its stated path of investments in research and development, manufacturing, sales and distribution, digitalization, talent development, and capacity enhancement in order to strengthen its position in times to come.
Coming to quarter-ended March 31, 2025, financial highlights for the quarter on a consolidated basis are summarized as follows. Revenue from operations for Q4 FY 2025 grew 20.8% to INR 4,018.9 crores as compared to INR 3,327.7 crores in Q4 of FY 2024. EBITDA, excluding other income for Q4 FY 2025, was INR 279.4 crores, an EBITDA margin of 7% of the revenue as compared to INR 241.9 crores, an EBITDA margin of 7.3% of revenue in Q4 of FY 2024. EBITDA before exceptional items grew 16.2% to INR 248.8 crores, which is 6.2% of revenue in Q4 of FY 2025, as compared to INR 214.1 crores, which is 6.4% of revenue in Q4 of FY 2024. Coming to year-ended March 31, 2025, the financial highlights on the consolidated basis are as given below. Revenue from operations for FY 2025 grew 23.6% to INR 11,976.7 crores as compared to INR 9,685.4 crores in FY 2024.
EBITDA, excluding other income for FY 2025, improved to INR 875.9 crores and EBITDA margin of 7.3% of revenue as compared to INR 664.9 crores and EBITDA margin of 6.9% of revenue in FY 2024, recording a growth of 31.7% mainly due to impact of scale. EBITDA before exceptional items grew 38.6% to INR 772.4 crores in FY 2025 as compared to INR 557.2 crores in FY 2024. Tax expense for FY 2025 was INR 193.6 crores as compared to INR 142.8 crores in FY 2024. The effective tax rate was 24.7% for FY 2025 as compared to 25.6% for FY 2024. Net profit for FY 2024 grew to INR 591.2 crores, which is 4.9% of revenue as compared to INR 414.3 crores, which was 4.3% of revenue.
In view of the record revenue and profits earned by the company, a dividend of INR 9 per share, previous year INR 7 per share, is recommended by the board of directors of the company. Carry forward order book as of March 31, 2025, grew by 9.9% to INR 6,263.4 crore as compared to INR 5,697.6 crore as of March 31, 2024. Capital employed as of March 31, 2025, increased to INR 2,427.3 crore as compared to INR 2,156.7 crore as of March 31, 2024. This was primarily owing to investments in fixed capital. The company reported a net cash position of INR 640.35 crore as of March 31, 2025, as compared to a net cash position of INR 455.9 crore as of March 31, 2024. Coming to segments, the business highlights for quarter four, segment one that is electromechanical projects and commercial air conditioning systems.
The revenue grew 30.6% to INR 1,968.2 crores in Q4 FY 2025 as compared to INR 1,506.8 crores in Q4 FY 2024. The segment result was INR 149.9 crores, which was 7.6% of revenue in Q4 of FY 2025 as compared to INR 112.5 crores, which was 7.5% of revenue in Q4 FY 2024. Segment revenue for the year grew 27.2% to INR 5,998 crores as compared to INR 4,715.5 crores in FY 2024. Segment result was INR 490.9 crores, which is 8.2% of revenue in FY 2025 compared to INR 341.1 crores, which was 7.2% of revenue in FY 2024. Order inflow for the quarter increased by 17.5% to INR 1,439.9 crores compared to INR 1,225.1 crores in Q4 of FY 2024. Coming to the electromechanical project business, continuing with the trend of the previous quarter, this quarter also witnessed strong order finalizations, primarily from factories and data center market segments.
The commercial real estate and infrastructure market segments saw muted demand. The focus remained on faster execution of projects with healthier profitability and cash flow. The company is hopeful that growing data center investments and focus on manufacturing will result in fruitful opportunities in FY 2026. The carry forward order book of the business stood at INR 4,755 crore as of March 31, 2025, as compared to INR 4,344 crore as of March 31, 2024, a growth of 9.5%. Coming to commercial air conditioning system, the commercial air conditioning business delivered a good performance this quarter by maintaining its market leadership and improving profitability. Growth was led by resilient demand from healthcare, hospitality, and education sectors. While the industrial and BFSI sectors remain muted, the government orders showed signs of revival during this quarter.
Coming to international business, in FY 2025, we have developed products for three OEMs in the U.S. and Europe, and after completion of field trials of the products, commercial shipments have begun. While volatile global trade policies have led to the slowdown, the inquiry levels are higher in anticipation of an India-U.S. trade deal and supply chain de-risking by these OEMs. We expect more clarity to emerge in H2 FY 2026. Segment one margin overall at 7.6% for Q4 FY 2025, but there is 7.5% in Q4 FY 2024, and the margin for FY 2025 is at 8.2% in FY 2025, as against 7.2% in FY 2024. As this segment comprises both projects and product business, the mix of which influences the margins. Coming to unitary products segment two, revenue grew 14.7% to INR 1,960.2 crores in Q4 of FY 2025 as compared to INR 1,708.9 crores in Q4 of FY 2024.
It is to be noted that this growth has to be seen in connection with Q4 FY 2024 growth, which was 34.8%. Segment results improved to INR 164.5 crores, 8.4% of revenue in Q4 of FY 2025, as compared to INR 141.4 crores, that is 8.3% of revenue in Q4 FY 2024. Similarly, the revenue for the year grew by 22.4% to INR 5,621.1 crores in FY 2025, as compared to INR 4,592.2 crores in FY 2024. Consequently, segment results improved to INR 471.2 crores, which was 8.4% of revenue in FY 2025, as compared to INR 360.3 crores, which was 7.8% of revenue in FY 2024. FY 2025 was a landmark year for room AC business, with sales volume crossing 1.53 million units.
Coming to cooling and purification products business, the room AC business recorded a strong growth during this quarter, driven by the upcoming summer season and rising demand in tier three- five markets. FY 2025 witnessed a very strong demand growth, and the overall performance of this business has been exceptional. Our market share now stands close to 14%. To capitalize on demand momentum, we have introduced a comprehensive new range of room ACs during this quarter, including a flagship premium lineup, catering to every consumer segment across all price points. We continue to strengthen our presence across various distribution channels through targeted promotions and in-shop demonstrators while expanding distribution, especially in North India. With 2,100 + service centers, 150 + vehicles, and its gold standard service, we continue to focus on reliable nationwide after-sales support.
Coming to commercial refrigeration business, which also is a part of segment two, the commercial refrigeration business was impacted due to regulatory changes in H1 of FY 2025, as well as supply chain constraints. Further, the slowdown in the FMCG sector impacted the dairy and the frozen products, including ice creams, which resulted in lower demand for deep freezers. In Q4 FY 2025, the demand has revived, and the business has recovered. With the revival of demand from ice creams, frozen food, and growth of quick commerce delivery platforms, the outlook for this business is encouraging. In Q4 FY 2025, this segment reported a margin of 8.4%, which is marginally better than 8.3% in Q4 of FY 2024. The margin for FY 2025 has improved to 8.4% from 7.8% in FY 2024, aided by strong revenue growth in room AC business, leading to a benefit from economies of scale.
Coming to segment three, which is professional electronics and industrial systems, the revenue degrew 19.2% to INR 90.6 crore in Q4 FY 2025, as compared to INR 112.1 crore in Q4 FY 2024. Segment result was INR 8.8 crore, which is 9.7% of revenue in Q4 FY 2025, as compared to INR 13.6 crore, which was 12.1% of revenue in Q4 FY 2024. Segment revenue for the year degrew by 7.7% to INR 348.6 crore, as compared to INR 377.7 crore in FY 2024. Segment result was INR 29.7 crore, which was 8.5% of revenue in FY 2025, as compared to INR 51.5 crore, which was 13.6% of revenue in FY 2024. The med tech business is facing headwinds from regulatory developments, and the same has resulted in the loss of revenue and profitability for this business. Industrial solutions business is showing momentum, but it is not compensating for lost opportunities.
Coming to business outlook, for the second consecutive year, the company delivered exceptional financial results, with the total income crossing INR 10,000 crores and profit before tax crossing INR 750 crores. The weather forecasts have predicted a strong summer, and we are hopeful that the momentum for the room AC business will pick up in May - June, even though the growth in the month of April was not in line with expectations. The hurdles faced by commercial refrigeration business are behind us. The strong order book of segment one and the growing demand from manufacturing and data center market segments will contribute to growth. The proposed India-U.S. trade deal should help us to scale our international business. Overall, we are optimistic about the prospects for FY 2026. Of course, we have to keep a close watch on geopolitical developments, potential volatility in commodity prices, and supply chain disruptions.
With that, ladies and gentlemen, and done with the opening remarks, I would now like to pass it back to the moderator, who will open the floor to questions. We will try and answer as many questions as we can. To the extent we are unable to, we will 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 withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset 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 Natasha Jain from Phillip Capital. Please go ahead.
Thank you for the opportunity. First of all, the detailed commentary was helpful. My first question is on RAC. Now that you've mentioned and all your peers have also given out numbers, the top-line growth was strong. Could be because of channel filling. The start of this quarter has been slightly tepid and may have in which way seen continuous rains in north of India. 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. You said that the rating is due, just probably seven, eight months down the line. 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 then therefore there could not be any pricing advantage?
If you look at, you know, if you are in this business, you should always be watch on. That is to say that, look, if it is going to be a not that good summer, what one needs to do. That's what one may look at it as, isn't it? That you won't be in the business. When the list there is, this will already be there. It's almost like a cricket team. If that season is going to be rainy playing in Australia or England, they will know very clearly they are trying to do that. If you ask me before 2021, there was a serious problem because you are ordering for the material. Many SKUs coming from China or Far East, you will not be able to do anything because you have already opened the LC. They started shipping it.
The inventory pressure will be huge. Thanks to Made in India, all of us have, majority of us have already started producing in-house. It is a question of raw material and what you have planned and how that is being imported or locally sourced month after month. I do not see inventory as a problem. It is something very quickly it will be corrected. If you recollect, we are, you know, our memory is short, including many Blue Stars. The whole bad summer was in FY 2024. It is only one year it changed. In FY 2024, if you look at it, as far as Blue Star is concerned, it started exactly like that. IMD forecast, March is becoming very, very, you know, hot, and the people started buying. It peaked in quite a few locations in March. April 15th, suddenly it stopped.
The Q1 growth in FY 2024 for us in room air conditioner volume terms was just 2%. However, the year ended, financial year 2024 ended with 20% growth. In fact, Q3 itself showed 25% growth, the festival season part of it. Whereas if you look at FY 2019, FY 2020 was a COVID-impacted year. One year prior to that was a very bad summer year. It was a huge preparation, and Q1 was - 10%. Q2, however, showed 14% growth because in July, North India did well, and some parts of Madhya Pradesh, etc. Q3 was a flat quarter. Q4 was again some single digit. Full year was a flat year. I am giving you two comparisons. Now, it can answer, we are again talking about a year on a base which was very, very high.
I am of the view that MSG label change will not be an issue at all for the simple reason the production of those products would not have comments. And raw materials would have been ordered only for the summer season. Finished good inventory when we, in case the summer sales, I am still hopeful something will happen in May and June because the weather forecast says from 12th onwards it is going to be tough summer. Whether this year again 20% growth will be full year, you have to wait and see. I am not seeing it as a crisis. Because we are seasoned players in this, it will be a disappointment if rain continues throughout the summer.
Thank you [crosstalk].
Thank you, sir. That was helpful. Just one last question.
In terms of commercial AC, I understand that VRF technology is the fastest growing, and you have ingeniously developed your own technology. Now, what I've understood from the industry is this technology needs to continuously go through R&D in order to, you know, be with the updated technology. Here, because we have already made this technology probably a year before, are we going to see huge R&D spends on this? Therefore, can margins be impacted? Thank you.
See, not only commercial air conditioning. In fact, even room air conditioning requires technology for multiple reasons. Number one is connected with you had a gap with other competition. You will end up making centrifugal chillers, for example. It was not in our portfolio. We have invested in that. We are growing. We will keep developing that. There is a product portfolio gap.
There is a second type of R&D expenses where you want to become competitive. You launch a product. It is functioning very well, but you want to make it very, very cost-effective, improve the margins, which means you will try out alternate vendors for many components. There is a second type of R&D. There is a third thing, which is actually energy label change or a refrigerant change in order to improve the sustainability. It will go on. Fourth is the developing technologies in digital or AI in order to improve the performance, in order to improve the reliability, in order to improve the energy efficiency itself. You incorporate those technologies therefore. Now, in all these, it is not only current year. You keep a five-year roadmap, and you start developing that investing in that.
Clear guideline is that whether it is room air conditioner or a deep freezer or it is a commercial air conditioning system, 1.5%-2% of our revenue will be invested in R&D. It will keep on happening. As you can imagine, we are not a global company. Some global headquarters is not going to develop a technology and give it to us. Whatever we have achieved, if we are able to compete with the multinationals or if our products are comparable to multinationals, thanks to our efforts in R&D. The last point is connected with the backward integration or vertical integration, whenever that needs to be done. In make versus buy in component ecosystem, it is not only regulatory. In order to improve the margins from time to time, we will take such decisions.
Other investments in R&D will continue to happen at around 1.5%-2% of the revenue.
Thank you.
Thank you, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant, as there are several people waiting for their turn. The next question is from the line of Naushad from Aditya Birla Sun Life. Please go ahead.
Thanks for the opportunity. I highly appreciate the detailed explanation and almost everything. All queries have been resolved. Just one on the EPR side, if at all it is possible, if you can quantify how much we have taken a provision last year, either in absolute term or as a percentage of revenue, and what was the expected increase on that base for which we are fighting?
The exact figure Nikhil will be able to tell you. You know, what happened was the recycling was at some INR 9 per kg. It got increased to somewhere around INR 23 a kg. That is an issue. Now, what is EPR? Ten years ago, whatever number of air conditioners I sold, equal material there will have to be recycled. And in India, generally getting this material back is a problem. You know, one air conditioner becoming old, that is shifted to another bedroom, and it is bought by somebody, and even if you pay INR 4,500- INR 5,000, it doesn't happen. You are supposed to be going to the recycler, give the material that you have collected. Apart from that, you also buy the certificates for recycling. That rate tripling is the issue. You assume approximately some INR 10 crore what it was, it will become INR 30 crore.
That's a type of formula. As far as Blue Star, exact figure, don't worry. It is in the order of INR 10 crore, which will go up to INR 30 crore in the coming year. Last year, midway through, it came in. So the differential has been provided for.
And this INR 9 crores to INR 23 crores is for retrospective or for the fresh material?
Fresh material, whenever it came into the middle of last year, it came into effect, which is what you are reading in the newspaper as being contested.
Oh, okay, sir. Thank you so much. All the best.
Thank you.
Thank you. The next question is from the line of Rahul AgrAgarwal from Ekigai Assets. Please go ahead.
Hi sir. Good afternoon, and thank you for the opportunity. Sir, you alluded to some outlook on how do you see RSC ahead. I just wanted to understand.
Similarly, because the last two years, most of the revenue for segment one and two has grown like 20% on an average. Going forward, obviously, the industry looks, the outlook looks great, but I think these numbers are, you know, I think are very good. Just in terms of sustainability, if you could help us qualitatively understand the outlook for commercial AC, commercial ref, and projects also going into next year, it will really help. That's the first question. Secondly, similarly on margins, I think you could just highlight, you know, what could be, you know, additional reverse from where we are at current levels on both segment one and segment two. Do we see margin expansion further? Is that more organic or is it going to be more effort-driven? Those are my two questions. Thank you.
Sir, thank you.
If you, the room air conditioner business is growing, is poised to grow in the coming years, and there may be a good year of significant growth beyond 20%-25%. Another year, it may be a flat year if it is going to be a wash of summer. Both can happen. All taken into account, between now and 2030, the CAGR estimate is 19%. It was an Ernst & Young report, CII National Committee on Consumer Durables, and the Electronics did that. In that research, it is widely accepted by many stakeholders. Even for many government representations, we continue to use that. In fact, the air conditioner will be the fastest growing category within that consumer durables and electronics at 19% CAGR, market accepted to more than double.
Now, the commercial air conditioning product is connected with the infrastructure development, whether it is a core infrastructure or a social infrastructure. Where the product goes, shops, showroom, boutiques, hotels, hospitals, data centers, and the manufacturing, educational institutions, etc. Our estimate is that it should grow at a CAGR of somewhere between 12%-12.5%. That is our estimate. Now, electromechanical projects is a big canvas. It's a question of where you want to compete, what kind of risk appetite that you have in terms of cost overruns or the time overruns. And numerous, you know, compared with what we are doing, in any number of projects we can get into, our principle has been that do the projects selectively where your cash flows are secure and the profitability is reasonable. It doesn't bring down the average profitability of the company as a whole. That has been the approach.
I'm not really worried about the market growth as far as the electromechanical project segment is concerned. Commercial refrigeration is a fragmented one. It may be a water cooler, it may be a deep freezer, it may be a cold chain related cold room. It can be a ripening chamber. And many, many sectors, pharma, quick commerce, or the QSR segments, and their warehouses, and a number of customers keep buying. It has a potential to grow at 30% because India is under-penetrated. The growth potential there is very high. It is yet to reach a room air conditioner kind of a scenario. Room air conditioner struggled like that for many years till 2020- 2021. Post that, it is showing signs of it. I expect at some point of a time, there are signs now.
There is no doubt that the demand is coming back in many sectors driven by the modernization of the traditional kirana stores itself. As you are seeing tier three- five towns, every kirana store wants to sell ice cream or wants to sell cold beverages. The bicycle, the deep freezer market is growing. Processed frozen food consumption is growing. The healthcare sector is getting online. Therefore, you should be, and if you look at it, the QSR players keep on announcing more and more number of stores, restaurants getting open, even on the highways. Quick commerce is a last year phenomenon. That huge amount of 10% of the total market now is the requirement from the quick commerce segment for delivery-related cold rooms or deep freezers. This is the overall scenario. Margin, you know, this is my view.
My view is that to dramatically grow the margin in this particular period, 2025 - 2030, is to be looked at in the context of many investments that have to be made. That when you are trying to penetrate the market in tier three- five towns, you have to make investments in brand and brand promotion related. Next, you are complying with newer and newer regulations like the extended producer responsibility. There's a cost that comes to that. Next, in-shop demonstrators. When you are expanding your network to 15,000 from 10,000, that additional 5,000 will be coming with some cost like in-shop demonstrators. Consumer finance-related cost. It is 40% of the sale coming from consumer finance. That is a cost that comes to you. Therefore, if you, there is a phase that you go through, keep on making investments. Therefore, you make investments for this scale.
Let us imagine the industry was only 8 million in 2024, sorry, FY 2024. And FY 2025, it crossed 10 million. It has crossed 15 million in FY 2022. Blue Star itself, from 8 - 15.75, that kind of volume we have grown. It will require investments in even digitalization, etc. In this particular period, it is going to be a journey, a tough journey, and the competition will be intense to improve the margins dramatically because you are making simultaneously many investments that are needed. The guidance for FY 2026, other than something dramatically changes, remains for segment one, 7.5%, and segment two, 8.5%. We will attempt to take it to 9%, and that will be with great difficulty, I think. If the summary is not going to be that great, that 8.5% - 9% will be very difficult.
Thanks.
We should assume that in whatever growth rates you mentioned on all segments, we should be gaining market share. That's just a follow-up. That's very clear that we want to grow faster than the market. You know, we were not happy with room air conditioner in Q1. Despite a great summer, we were stocked out at some point of time last year, and we didn't gain market share in that summer. If you look at it in Q3- Q4, we have done better. That 100 basis point market share gain happened in the later parts. Now, our goal, we have stated that we would like to see that 15% market share quickly. Our distribution, branding, everything will be happening that way. Thank you.
Thank you so much. All the best.
Thank you.
The next question is from the line of Dhruv Chen from Ambit Capital. Please go ahead.
Thank you so much for the opportunity, sir. My first question is on the MEP business. I know that you cater to various segments and do a lot of things there, but just wanted to understand that which segments particularly would be higher than median margins and which would be lower than median margins that you reported. You know, some color there would be very helpful.
See, generally, you know, the projects in which the equipment content is higher will obviously have a higher margin. The projects in which it's around 12-18 months kind of completion will have higher margin. Projects in which you have price variation cost that is built-in will have.
But broadly, what we have seen is that manufacturing, data center, these kind of projects have more than average margins for the simple reason they have got a completion period certain and their revenue is suffering. These projects will happen. Infrastructure projects like metro railway or railway electrification, substations and all can, you know, six months - one year, it can get delayed.
Thank you. Get the points. The second question is on exports. I know that you've embarked upon an export initiative program, but just wanted to understand where are you in that journey from an SKU approval perspective? And you know, if you could just share some thoughts there. Thank you.
Yeah. The situation remains the same that we have three customers and we have got products approved for them.
These are in the deep organization area and they have started lifting the material. As one would have liked to scale, you know, from January, what is happening? The complete uncertain situation provides. Therefore, we have to wait and see. There are a huge number of inquiries that are flowing in. There are a record number of people now asking for samples, etc. It may not straightaway translate into orders because I think all of them are trying to secure their supply chain. As we speak, we wait and watch whether U.S.-India deal when will happen, U.S.-China deal they are talking about, what will happen, and whether U.S.-owned, you know, or Euro, whether they will get into inflation or whether they will be into recession. A number of questions are being asked. We are, to that extent, it is a disappointment.
There is uncertainty in the whole international export landscape. Thank you, sir, and all the best [crosstalk]. In the meanwhile, we are speeding up to give the samples, understand the specifications for numerous inquiries that are coming in because their problem is if China does not open up and whether India is, they will evaluate. It will go on for another one year, I suppose.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks for the opportunity. Sir, one question. Now, in your career, you would have seen such weather-related issues like early monsoon or late summer multiple times. Just wanted to understand from the experience that whether these things really impact in the medium term or not. Secondly, are these things in a way helpful?
Because I guess the smaller, unorganized players would be getting relatively more impacted compared to players such as Blue Star. Do we end up gaining market share in such periods? That is question number one. In terms of, secondly, in the case of, in a way, commercial refrigeration, if you can indicate about the market size and the market position of Blue Star, let's say the market share roughly three years ago, what it was, what it is currently, and the shares of other players also. Yeah, that's it from my side. Thank you.
The last part of your question is commercial refrigeration,
correct? Okay. Now, many times
it has happened that it is, you know, first thing is it is a seasonal product, that sets the tone. The corrections were not happening.
As I explained earlier, we have seen in 2024, when the summer failed, FY 2024, when the summer failed in 2023, the recovery happened significantly. The situation is different from what it was in the past. Having said that, for that particular year, instead of growing by 25%, they just see can grow by just 10%. That is a possibility. The weather is becoming unpredictable, and no one would think that in Mumbai, this kind of rain will happen in the month of May. Equally is the fact that it can suddenly become hot, unbearable temperature can happen. Whether it will impact medium term or long term, I do not think so. It depends on the company. Like, for example, will you postpone expansion of your network? Will you postpone recruiting people or initiating new R&D projects? We do not believe in that at all.
We continue to invest some discretionary expenses one may. It can create pain for the employees associated because the variable pay or the sales incentive will be linked to the sales growth. So there is a pain they will undergo indeed. There is no doubt about it. Now, in one particular year, you earn a significant amount because it was an unexpected bumper sale. And another year, you are losing it. We have seen this again and again happening. I have not come across, fortunately, two summers consecutively disappointing in my 45 years of career. Therefore, I have a feeling, I am of the view, even May- June should bounce back is my view. Let us see. I can be entirely wrong. The good news now, as I have told you, is you can quickly correct the supply chain.
You asked me a question whether the smaller players will be impacted.
I do not think so. They are now mature players. We handle each other, if you mean the vendors or the OEM suppliers, and we should be doing better. Before, you know, I can put it another way. Ten years ago, it used to be a huge tension in the morning and, you know, disappointment and all that. It is not. It is a part of the game. It will happen. Thank you.
Okay. Sure. On the commercial refrigeration part,
if you take deep freezers, which are chest freezers, many types, whether it is hot top, and you bought a cooler or the negative temperature storage, all these put together, we will be having close to 31% market share there. We would like to make them possibly improve. That market is significantly growing.
The second part is modular cold rooms, which are walk-in coolers, we call it, which goes in very large numbers to restaurants, pharma, industry, logistics, warehouses, etc. There again [crosstalk], we hold 32% market share. Water cooler is a small part. We have been leaders there. There is nothing to worry.
Market leadership is not an issue there.
The issue is connected with the market to open up. It is opening up. Last year was a disappointment for a different reason altogether, which we are all aware. The many regulatory changes connected with import. Most importantly, we all imported from China many, many equipment, commercial refrigeration equipment. When you indigenize, it will not be as competitive as China was able to deliver.
The customers are used to Chinese pricing.
Therefore, even though you are trying hard, the question that comes up is when the margin will go up. This is the issue. The customer got used to a Chinese price for many decades. You suddenly stop importing. When you make locally, it is going to take time for you to improve the competitiveness. That is where it is. Thank you. You can excel. Thank you.
Thank you, sir.
The next question is from the line of Anupam Gupta from IIFL Capital. Please go ahead.
Yeah. Thanks for the opportunity, sir. The question is on the RAC business, primarily RAC and commercial refrigeration people can talk about. Basically, where are you in terms of backward integration at this, let's say at the end of FY 2025, in terms of in-house, third-party, and imported sort of sourcing?
Over the next two- three years, how do you see it changing incrementally? Also because there is pressure from the government to indigenize, as we saw in case of compressors very recently. If you can just give a color here.
There are a few items which we should deal with here. The number one is connected with the compressor. Second item is the motor. Third item is the copper tubes. Fourth item is electronics. Fifth item is refrigerant. All of them are critical items from the supply chain point of view, constitute a significant part of the cost that goes into air conditioner. Refrigerant, we will not be manufacturing at all. We are working with the manufacturers in order to ensure that adequate capacity is available as the refrigerant phase down begins by 2028. We should not be ending up paying huge price due to shortage.
That I do not mind saying this, but there have been press articles there. The industry should work together to help create more capacity for R32 refrigerants. I do not think that there is going to be a challenge per se. Copper tubes, inner cooled copper tubes, we are getting imported from FTA countries like Vietnam predominantly. There are issues related with the certificate of origin, whether it is mined within, the copper is mined within ASEAN countries in order to arrive or pay a full duty. There have been clarifications from the ministry in March. If that is so, there is a cost that gets added. Whether there are domestic capacities available that was initiated two, three years ago, good news is that domestic capacity commissionings have taken place. As I mentioned in the opening remark, with Hindalco, we have signed.
We were the first one to sign the MoU as well for sourcing. There are two other players as well who will be making copper tubes here, including Adani and MetTube. Therefore, it may be expensive than what the industry was getting because of the reasons I told you. There is no supply chain problem there. The third item is the electronics. A significant amount of electronic EMS players are available. Our policy has been clear that we will invest in R&D for developing our ITs, but get the PCBs or electronics assembled outside because there is not enough capacity there. That is not a value-adding job. The money comes from the IT. We are not going to be setting up a PCB assembly unit in-house and all. There are enough players. That is the model given multinationals follow. That is where we are.
We are no longer worried about it, but we are speeding up our efforts to develop the ITs. The next item is the motor. Because of the automobile and other industries, the BLDC motor ecosystem has developed completely. Their quality standards have improved, and there is no problem anymore. Even if restrictions come into place in a much bigger way, and even multinationals who were prevented from exporting to India, they have set up a manufacturing facility here. There is no problem with that. Now, the question is compressor. That is one big item. There are multinationals who have their technology, and they are setting up their own facility. They are in the process of scaling. There are compressor manufacturers. There are two Chinese compressor manufacturers, GMCC and Hyli. GMCC is part of the Midea Group.
They are telling us that they are expanding their manufacturing capacity within India. There are also the players who are trying to get the components and assemble in-house. There are a number of players who are attempting to do that. As far as the good service concerns, we have kept all our options open. That we will continue to source from the players from whom we source. We have assured the players who will have excess capacity because when they set up, they are setting up a larger capacity than they would consume. Therefore, we are in discussions with them. We are testing these compressors. In principle, we have agreed to source if they will be giving. The third option of getting the components in CKD form, like another model that is being proposed, that set up an assembly line, we have no problem with that at all.
It's a low-cost investment. Last item. As in 2030, if you have to look back, your leaders in air conditioning and your volumes have reached 5 million + kind of in this situation, why you shouldn't be making compressor can come. Therefore, we are looking at how to design a compressor, what it takes. And we are in the primary school there. The program is very much on. This is where we are. The bottom line is there are supply chain challenges. There are mitigation measures. The mitigation measures have to come with two important conditions. Number one, the quality standards. Actually, three. Quality standards, continuous supply. Third is the cost. On all angles, we believe, at least for FY 2026, we are fully secured. Till the end of summer 2026, we are fully secured. Nothing to worry. Thank you.
Okay.
Will it be right to assume, if we look out to FY 2027-FY 2028, except compressor, everything would be India-based to a very large extent?
Yeah. I think even by FY 2027.
Okay. Understood. That's all from my side. Thank you.
Thank you. The next question is from the line of Laj Kandhi from Investec. Please go ahead.
Hi, sir. This is Ajith, participant here from Investec. I'm still in direct,
sir. There's a lot of echo from your end.
Hello. Is it better?
Yeah. Please carry on.
My first question is on something that you mentioned in your opening comment, that in April, we have seen 15%-20% decline for the industry sales. Just wanted to understand, was it the primary sales that you were speaking about or secondary sales?
Because in case we are speaking about secondary sales, then is it fair to assume that primary sales would have fallen by even a sharper percentage, given that inventory in the system was fairly high?
No. I mean, at this point of time, we will have visibility only to the primary sale. And secondary sales visibility is some extent we will have because of the information coming from the stores. The thing is our understanding, based on whatever data that we have got, indeed, the opening inventory was higher than what it should be because there will be a comparison shortage. This season will not be available. The dealers ended up stocking. In our case, I do not know the market data. We have to wait and see for the GFK report, whenever it is published, for the month of April.
In our case, primary sales, as well as secondary sales, are up by marginal 5%. We would have expected it to be 30%. It is 25% lower than what we thought. We have not grown compared with last April. For your information, last April, we were 79% higher than the previous April.
Understood. Understood. Given that this year industry has been operating with higher than usual inventory for compressors, given all the shortages that we were kind of hearing about,
what implication can a weak summer have on the compressor scenario?
Yeah. One month ago, I had said a question, "What happens if something happens, compressor shortage will be there?" Now I am answering the question. It is good in my view, in the sense that you may not go and pay a higher price. See, today the world is highly volatile, right?
We do not even know what will be the exchange rate and what will be the ocean freight rate. Now you see that the effects of this will start following. The logistics sector will be impacted. There will be seaports which are closed. That is what will happen. Your compressor inventory of three - four months more you have, it is good.
Understood, sir. That is helpful. Thank you so much.
Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.
Sir, my question is on pricing actions. In your media interviews earlier towards the start of this year, you did mention that you will be evaluating price hikes. My first question is, have you taken any price hikes in Q4?
With this scenario of sort of muted demand, do you think it will impact the industry's ability to take pricing actions despite supply chain disruption?
Firstly, the principle. The principle is that if there is a raw material cost increase or cost increase due to exchange rate, that is passed on to the consumer in that alternating for two - three months. Therefore, the implemented price increase with effect from 1 January, which coincided with the release of new models. Again, in April first week, we have increased the prices. That is the input cost that has gone up. Now, when the demand comes down, what happens is that you end up introducing some schemes. We are not there yet. In other words, there is no desperation.
If the demand itself is not there and you are taking some 2%-3% price lower for the sake of getting away, we will rather manage the inventory than trying to play with the prices. There could be some schemes in order to keep your market share. What it will mean? It will mean how the industry as a whole is going to operate. The desperation has to happen industry-wise. Some player will drop the price, and that's what will happen. We are not yet there as of now. It can change only later. The general belief is that the news you would have read, May 12th onwards, the sky is supposed to clear up. The temperatures are to peak. Anyway, the industry is not operating with some 25% margin to be taking these decisions.
We are talking about an industry, some 8-9% margin industry it is. If there is a cost, and it has to be, you have to manage the inventory well, which means you have to regulate the incoming material and the production in line with what you need for the summer.
Sir, what has been the quantum of price increases that you took in April? Also, what is the cumulative amount by today?
From January, we don't calculate like that. If there was a 3%-4% taken in January, 4%-5% from April 1.
That has not impacted the demand so far in your view, the price increase?
So far, we did exceptionally well. It didn't impact at all.
But it is not that it resulted in margin improvement because the input costs had gone up at that point of time. Now, we have increased it by 5%. In any case, the first month went with some 5% growth only. We have to wait and watch. So 3% - 4%, 4%- %5.
Understood. That's all from my side, sir. Thank you.
Thank you.
The next question is from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.
Yeah. Good afternoon, sir. Thank you for the opportunity. Sorry if I'm hopping on the same question. Sir, wanted to just quickly get your sense in terms of the April- June. What would be the mix in terms of the primary sales for the industry? Would that be like 40- 40- 20, 20, or any proportion if you could highlight just a mix?
No, I don't follow. The mix of primary?
Yeah. Primary sales perspective, how large will be April- June individually if you would have any proportion?
No, it has been erratically changing. All that I can tell you is April- June together, if you look back many years, it will be some 45% of the sale happening.
Okay. Understood. Just a yes [crosstalk].
Yeah. See, what we have seen is some four- five days of heat in any particular week. Immediately, it peaks. It is not that your question, hidden in your question is, what is lost in April, whether it will come back in May - June. That is a thing no one knows. I would also pay heed to the fact that how the sentiment also changes in the market. There are border tensions that are there.
I keep telling you, it is not the U.S. trade war is impacting the stock market alone or the company exports. The stock market for the U.S. trade war-related issues or the immigration issues. The entire South India, there are numerous people who are dependent on that. The IT-related jobs, new jobs, or people who wanted to migrate, people who wanted to study there. There are sentiments also have dramatically changed. As you see, it keeps changing. Put together all, nobody knows. I should not pretend so much growth will happen. All that I can say is we thought going by what was the forecast, etc., 20%-25% growth should happen. Blue Star should grow 25%-30%. As we sit and see now with a muted April, I would doubt it to say 10%-15% growth.
If we're extremely lucky, it will be 20% growth. Because one month has gone, another seven days have gone.
Understood. Just a second question. In terms of the south mix for the industry as a whole and for us, would it be possible to get some sense?
My guess is that it will be roughly 30%.
For us, sir, would it be similar or a little higher?
In our case, it will be higher. Close to around 40% of our sale will be coming from south because we hold more than 20% market share in quite a few markets there.
Right. That has seen a 25%-30% drop, right, in April?
No. The other 5% growth is thanks to those locations also.
See, for the industry term, sorry. Sorry. That is my last question. For the industry, was that a drop as much?
I don't know region-wide drop. All that I know is that I hear that anywhere between 15%-20% all India drop. And given that summer sets in yearly in Kerala and Tamil Nadu, it is likely South India contributed more than because north can come back in either the summer goes on till July.
Understood. This is very helpful, sir. Thank you so much. I wish you all the best.
Thank you.
Thank you. The next question is from the line of Arisha Khosla from Nirmal Bang. Please go ahead. So the current participant has been disconnected.
You can take one more question.
Yes, sir. The next question is from the line of Keshav, an individual investor. Please go ahead. As there is no response, we'll move on to the next question. It's from the line of Shivk umar Prajapati from Ambit. Please go ahead.
Yeah. Hi, sir.
Thanks for having my question. My question is more on the data center front. We are seeing that data center is about to boom in the coming years. To understand the liquid cooling opportunities available for us, we just want more clarity. Are we present in this segment, or are we planning to foray into this segment? What would be the opportunity size and margin profile?
See, number one, we are a leading player with a huge market share in the MEP related to data center, which are mechanical, electrical, plumbing, putting together the data center-related equipment, other than the server part of it. In MEP, we are present in a big way. We will be a preferred vendor as well.
Now, if you look at the equipment that goes into, we are a manufacturer of chillers meant for, we make a few types of chillers meant for data center applications as well. We are expanding that range. Now, liquid cooling has not penetrated in India much. We do not have that. We are in talks with many players abroad for getting that technology.
Okay. Okay. Got it, sir. Thanks. And best of luck.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Mr. Nikhil for closing comments.
Thank you very much, ladies and gentlemen. With this, we conclude the quarter's earning call. Do feel free to revert to us in case your questions were not fully answered. 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 this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.