Gentlemen, good day and welcome to the Blue Star Limited Q3 and nine months FY 2025 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 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.
Thank you. Good morning, ladies and gentlemen. It's a pleasure addressing you today. I have with me Mr. Nikhil Sohoni, our Group Chief Financial Officer. I am happy that we could close the quarter ending December 2024 on a high note once again, and you may remember it is almost 12 consecutive quarters. I believe we have delivered good returns. In quite a few quarters, we have even outperformed the market. I think Q3 FY 2025, with a revenue growth of 25% and an operating profit growth of around 35%, we would have done better than the market and peers. Specifically in the room air conditioners, sorry, unitary products segment, which you all closely track, you're seeing the revenue growth of close to around 22% and even margin expansion by around 100 basis points. The market continues to be good for this particular category.
While quite a few other categories within consumer durables or FMCG are yet to witness the revival, we continue to see offtake from the market, and the dealers are stocking up for the forthcoming summer season, and we are ready with the new products that are to be launched for the forthcoming season. Equally is the fact that there are quite a few headwinds which we are preparing for. Number one is connected with the supply chain restrictions that continue to happen, and which is getting intensified post the U.S. elections, escalation because of raw materials and some liquidity crisis in the market. There is union budget around the corner. What it will have in store for us, we do not know at the moment. Most of the market segments are doing well, apart from residential segments. For example, manufacturing investments continue. Data center investments are continuing.
The entire three, four, five towns, smaller shops, showroom boutiques are doing well. We had a setback in commercial refrigeration, which forms part of segment two, which we had explained to you. Arising out of certain regulatory changes, consequently, water cooler business not going the way we would have liked in the first two quarters. Third quarter, it has stabilized, and we are fully ready now for the fourth quarter. The professional electronics and the industrial systems part, which is segment three, there are headwinds. Both in terms of investments impacting that and the domestic demand yet to pick up because of the CapEx cycle. Overall, we have been not only managing the cost and the growing scale. We have also been focusing on preparing Blue Star for the future. The investments in research and development, investments in digitalization, investments in manufacturing is continuing as planned.
We are keeping a tight control on the operating cost, and the profit margin improvement is attributed to this. The scale benefit combined with tight control on cost. Capital allocation is closely monitored by the board, and we are happy to report the collections are being good. If there is a working capital in certain segments, it is due to certain types of projects that are being executed, or it is connected with the scale, which requires working capital. We are confident that we will manage the balance sheet also well. On the whole, so far, we have done well, and we are on track. We are confident that we will close the forthcoming quarter also on a high note, which means the third year in succession, we will deliver good results for the whole financial year. With that, I thank you for your support. And quite often, interaction with you also adds value to us. And I will hand it over to Mr. Nikhil Sohoni for his opening remarks.
Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. This is Nikhil Sohoni, and I will provide you an overview of the results of the Blue Star Limited for the quarter ended December 2024. Coming to financial highlights, on the back of unprecedented growth experienced in the earlier quarters of this financial year, in the current quarter, as well as room AC business continued on its exceptional growth trajectory. Benefiting from the strong festive season demand, the room AC industry stood as an outlier among all consumer durables. Other key businesses also delivered robust growth supported by demand from some key sectors.
The growth in revenue and profit is achieved due to our continued focus on expanding distribution footprint, investments in innovation, R&D, and digitalization, and strategizing supply chain. Financial highlights for the quarter ended December 31, 2024, on a consolidated basis are summarized as follows. Revenue from operations for Q3 FY 2025 grew by 25.3% to INR 2,807.36 crores as compared to INR 2,241.19 crores in Q3 of last year. EBITDA, excluding other income for Q3 FY 2025, improved to INR 209.38 crores, an EBITDA margin of 7.5% of revenue as compared to INR 155.35 crores, the EBITDA margin of 6.9% of revenue in Q3 of FY 2024. EBITDA before exceptional items grew 24.5% to INR 167.20 crores in Q3 FY 2025 as compared to INR 134.29 crores in Q3 of FY 2024. Tax expense for Q3 FY 2025 was INR 46.53 crores as compared to INR 33.93 crores in Q3 of FY 2024.
Net profit for the current Q3 grew 31.8% to INR 132.46 crores as compared to INR 100.46 crores in corresponding quarter of last year. EPS for Q3 FY 2025 stood at INR 6.44 as compared to INR 4.89 for Q3 of FY 2024. Carried forward order book as of December 31, 2024, is at a record high of INR 6,801.99 crores as compared to INR6,038.53 crores as on December 31, 2023. This was a growth of 12.8%. The capital employed as on December 31, 2024, stood at INR 2,763.4 crores as compared to INR 2,298.9 crores as of December 31, 2023. Net cash position as on December 31, 2024, was INR 102 crores as compared to a net cash position of INR 157 crores as of December 31, 2023. Coming to business highlights, electromechanical projects and commercial air conditioning, segment one revenue grew 32.2% to INR 1,562.41 crores in current Q3 as compared to INR 1,182.30 crores in Q3 of last year.
Segment result was INR 118.7 crores, which was 7.6% of revenue in the current quarter as compared to INR 96.7 crores, which was 8.2% of revenue in Q3 of last year. Order inflow for the quarter was INR 1,748.3 crores in Q3 of FY 2025 as compared to INR 1,260.8 crores in Q3 of FY 2024. Coming to Electromechanical Projects, which is a part of segment one, in this quarter, there has been a good progress in order finalizations from the factory and data center market segments. On the other hand, we saw muted demand from commercial real estate and infrastructure segment. The company remains committed to faster execution of projects while maintaining a strong focus on healthy cash flow. Carry forward order book for this business was at INR 5,146 crores as of December 31, 2024, as compared to INR 4,648 crores as of December 31, 2023. This was a growth of 10.7%.
Coming to commercial air conditioning, during this quarter, the commercial air conditioning business delivered reasonable growth compared to the same period last year, reflecting strong demand. Significant contributions from manufacturing, educational, retail, and auditorium sectors fueled this improved performance. We further strengthened our market position, maintaining leadership in ducted systems while maintaining the number two position in VRF and chiller product categories. The market potential for commercial air conditioning continues to be good. We are also witnessing liquidity issues in certain market segments, and in the process, order finalizations are getting delayed. The profitability of the business may also experience volatility due to the impact of adverse exchange rate and material cost movements. Among this mixed scenario, we remain committed to providing innovative and customized solutions for addressing the evolving needs of our customers.
Coming to international business, we are focused on positioning ourselves as manufacturers of innovative and reliable products for European and North American markets. We have been successful in developing and getting a few products approved by three OEMs, and the initial shipments have commenced. However, slowdown in European market and uncertainty around U.S. trade policies is likely to have some impact on the potential scaling up of these businesses. We are committed toward our international strategy, and as these external factors settle down in the future, we are optimistic that our global ambitions will bear fruit. Segment one margins at 7.6% were in line with the long-term guidance that we have provided for this segment. This segment comprises of both projects as well as products, each business having a very different margin profile, which influences the quarterly returns.
Coming to segment two, that is unitary products, the segment two revenue grew 21.9% to INR 1,164.4 crores in Q3 FY 2025 as compared to INR 955.4 crores in Q3 of FY 2024. Segment result was INR 94.8 crores, which was 8.1% of revenue in Q3 of FY 2025 as compared to INR 67.9 crores, which was 7.1% of revenue in Q3 of FY 2024. Cooling and purification products segment, buoyed by successful festive season and sustained strong demand, our room AC business continued on its unprecedented growth trajectory, achieving remarkable growth during this quarter. The strong demand for our products helped us improve our market share for the quarter to 14%. We are proactively addressing the supply chain challenges arising from regulations and non-tariff barriers, and are confident that our planned investment in strategic inventory will enable flawless servicing of demand that the forthcoming season will provide.
Coming to commercial refrigeration, the regulatory issues faced in water coolers and deep freezers in the previous quarters are behind us, and now we are focused on preparing for the forthcoming summer season. We are expecting the upcoming quarter to be a promising one as market demand is likely to be strong. The quick commerce and food delivery market segments are driving growth for modular cold rooms. Apart from deep freezers, the market for Visi Coolers is growing with many retailers across the country investing in upgrading their stores. Overall margins in this segment registered a strong 100 basis points improvement in the current quarter, and the return, as you have seen, was 8.1% in the current quarter as compared to 7.1% in the last corresponding quarter. This was fueled by strong revenue growth in room AC business, which has led to the benefits from economies of scale.
Coming to segment three, that is professional electronics and industrial systems, the segment three revenue degrew 22.1% to INR 80.6 crores in Q3 of FY 2025 as compared to INR 103.5 crores in Q3 of FY 2024. Segment result was INR 6.2 crores, where 7.7% of revenue in Q3 of FY 2025 as compared to INR 15.2 crores, which is 14.7% of revenue in Q3 of FY 2024. In this quarter, while the industrial solutioning business continues to show momentum and growth, both the medtech and data security business have been muted. The operating cycle in these businesses are yet to revive, which is impacting order inflow. The challenges in this segment continue to impact revenue growth and profitability, and we expect to revive in FY 2026. Therefore, we are focused on controlling costs and managing working capital.
Coming to business outlook, as we close this quarter on a positive note, we remain optimistic about the growth prospects and the favorable look forward to opportunities that the forthcoming quarter will provide. The coming quarter should benefit from three drivers like onset of summer season, potential revival in government spending, and accelerated CapEx spending by private sector. However, there are headwinds owing to depreciation of Indian rupees, escalations in commodity prices, and possible supply chain disruptions due to huge demand. We have strong mitigation action in place to tackle these challenges and continue to deliver value to our stakeholders. With that, ladies and gentlemen, I'm done with my opening remarks. I would like now 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. To the extent we are unable to, we'll get back to you via email. With that, we are open for questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. The first question is from the line of Natasha Jain from PhillipCapital. Please go ahead.
Thank you for the opportunity, and congratulations, sir, on a great set of numbers. I have two questions, both on the UCP side. So the first question is, the third quarter is usually an unseasonal quarter, but we have seen good growth on RAC, mainly on account of prolonged summers. Now, having said that, do you think the channel is a little cautious in terms of stocking to 4Q because there could be a chance of a prolonged winter? And any which way is sitting on a very high basis. So how does that look to you?
The first part is, it is not due to the prolonged summer. The summer has ended by July. It is demand that has been good during the festival season, commencing from Dussehra, Diwali, New Year; it continued. Now, many people keep asking this question, whether it's financial press or investors, fund managers, analysts, when FMCG is not doing well or other consumer durables are not doing well, why room air conditioners alone should be?
First of all, I wish the good news, so I would like the demand to slow down. But I'll say that for my journey, first, this is a category in which the penetration levels are low. Obviously, it will grow beyond 8% towards it should move towards 30% or something like that over the next few years. So the CAGR projected by various studies stands at 30%, sorry, 19% over the next five years in order to reach a penetration level that India should have. So 19% CAGR is the guidance, okay? Second part, I mean, in one particular year, the growth can be 30%, and another year it can be 10%.
It depends on various events, like how harsh is the summer or how the economy is doing, how the disposable income is, other forward planning, or many other government programs that are connected to refrigerant or PLI, supply chain, new. So all are connected based on this 19% CAGR for room air conditioners. Second part is connected with the prices have remained stable thanks to the competition. No competition that is happening. The manufacturing capacity is almost doubling from what it was a couple of years ago, and therefore, prices are stable. One will not like eight, 8.5% kind of operating margin, but the industry is getting towards. Now, third part is related to consumer finance options that are available. People's attitude to avail that.
There are multiple customers who are ready to go ahead and buy today and pay over 12 months, and that 35%-40% of the sale in a year is good at true consumer finance. The next reason is, unlike earlier years where I can buy an AC by power bill who will pay, thanks to the energy labeling program, the power bills are affordable. If someone is using for six hours, seven hours, that too on hot days, it is not unaffordable. Next is the urban heat effect or even entire three to four times how the homes are constructed. Hardly there is cross ventilation. Humidity levels are going up. And one is used to air-conditioned environment wherever they go, whether it is a restaurant or whether it is metro area, whether it is car, whether it is office. They experience air conditioning.
In a non-air-conditioned environment, they are not, so people are beginning to buy. Last reason, this is my subject, the disposable income substantially is taken away by smartphones and mobile phones, which are more than two at a home, and there used to be a time when people used to keep buying mobile phones once in six months, once in a year, but people are using smartphones for a longer period now, and I understand the smartphone sales growth has moderated, which means the disposable income, the priority is for buying something what they do not have or essentially they need to have, so the air conditioning industry is benefiting, and in all categories I've seen, whether it is refrigerators or televisions or washing machines, there is a particular period when it will grow.
I think we are in a step change in penetration of room air conditioning ownership. That's how the industry is also planning and moving forward. The demand has held through Q3. Usually, before Q4, the dealers end up stocking. There is no inventory I am seeing. The secondary movements continue to be good. My opinion is the GfK report as well. The key is, how is the summer season going to be? You mentioned about winter, and North India people are disappointed that the winter has gone. They are feeling that it should have lasted for some more time. Usually, we pray that the March first week onwards, there is summer, and February onwards, again, stocking takes place. The bottom line is it is for various reasons. This category is doing well. And much depends on how severe the summer season will be. But irrespective of what is happening in one season, one quarter, 19% CAGR is a widely accepted figure by multiple agencies. Thank you. I take in more time because this question need not to be repeated later.
Thank you so much, sir, for that detailed answer. That helps. And my last question is on the EBIT margin side. Now, if I look at both your segment one and segment two margins, you are already at peak as per your own guidances, specifically outperformance in your segment one. So from here on, how does the margin growth trajectory look like given the fact that commercial refrigeration is yet to pick up? So what kind of expansion can we expect? Thank you. And all the best, sir.
I want to clarify. Commercial refrigeration, the issues are all over. And we will pick up. There is nothing to worry about it. It's again a segment which is expected to grow at 20% CAGR. So the margin guideline, where again, the 7%-7.5% segment one, 8%-8.5% segment two, these guidelines. Unless and until something dramatically changes, let us say commodity prices crash, the margin can go up. And if there is, let us say, inflation and there is going to be escalation in commodities, it can significantly go down or the forex. As of now, I think 7%-7.5%, 8%-8.5% holds good.
Got it. Thank you, sir.
Thank you. We'll take the next question from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thank you for taking my question. Just on the market share part, the kind of improvement what we have seen the past two, three years, and now standing at 14%, how do you think this penetration, especially in the north market, in the affordable category which you did, how has been the response of the consumer? If you can talk about that, and you think that can further help you inching more, or you want to calibrate your moves that this 13%-14% is good enough and let me focus on the profitability given there are some supply chain disruptions which are coming? I hope that's for the near term. So just wanted your take, how you think about your market share from here.
I understood. So it is a category which is growing and which will continue to grow. Therefore, the competition will be intense. All the players have set up manufacturing capacity, and obviously, they will be interested in gaining market share, and unfortunately, only 100% market share is possible. Now, our goal was to achieve a market share of 15% by FY 2024, which didn't happen, and FY 2025, we said that we will achieve a market share of 15%, but as you can see, if we reach 14, we should be happy, and 15 is what we will attempt. Our tendency is that anywhere between 12.5%-15%, you are a significant player. You will be able to leverage many things and continue to grow. Now, our immediate goal is 15% market share. Our goal is to keep that operating margin intact of that 8.5%. You have to, for this itself, you have to keep in mind there are many other costs which other categories may not have.
So the first thing I explained in the earlier question is the consumer finance part of it. 40% of the sale is happening through consumer finance. We have to reckon that. Whatever be the reason, the industry offers a warranty of five years. So therefore, there is some warranty cost. There will be costs arising out of e-waste regulation compliance, which is the extended producer responsibility. Now, the import tariffs will continue to happen, and one cannot help it because it's completely beyond control. What can be imported, what cannot be imported, what you have to consume locally, how to find alternate material. So there will be costs arising out of that as well. Now, keeping all that in mind, our goal is to reach a 15% market share within a couple of years and then keep delivering that 8.5%. That is what is our goal. If we do beyond that, we will see. We will be very happy if we are able to reach this. Thank you.
Thank you, sir. Thank you for detailed answers. Second, I think Nikhil said that in starting comments that there is, and you also articulated that the scale is coming in, which is helping the profitability as well. We understand there are challenges, supply chain challenges ahead of the industry, with respect to compressors and all. But let's say if the season goes good, okay, that's everyone's hope. Do you think there are further levers because of the scale where you can improve your profitability going forward?
Multiple things are there. The scale has only begun. As it continues to grow, it stays, isn't it? So there is a scale advantage will be perpetual, will continue to be there. First part. The second one is connected with the affluent customers moving up the value chain, and so we are very clearly seeing year after year heavy-duty air conditioner or Wi-Fi-enabled air conditioner, these going up, and so therefore, it is not you will be able to improve your margins in certain cases. The third one is connected with the ability to innovate and continue to enhance the reliability at the same time economic in terms of input costs, including alternate materials that may be possible like aluminum microchannels in place of copper, for example, I'm saying, and these are the levers that will continue to be available. But if you are translating into 8.5% margin, will change to 10%, perhaps in some quarters it could be, but it is not up against, keeping in mind multiple factors, including competition, and keep maintaining the growth.
Got it. Thank you very much and all the best, sir.
Thank you. Sir, your voice is breaking at times. Can I connect you back?
Yeah, you can.
Yes, sir. I'll connect you. Ladies and gentlemen, please hold the line while I connect the management again. Ladies and gentlemen, thank you for patiently holding. The management's line has been reconnected. Over to you, sir. So we'll take the next questions from the line of Aniruddha Joshi from ICICI Securities. Before I go ahead and promote the participant, I would request all the participants to limit their questions to two per participant. Should you have a follow-up question, please rejoin the queue. We'll take the next question from Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks for the opportunity. So two questions. One, there was a W.J. Towell against our partner in Oman, and that was around INR 461-462 crores. So, any update on that and any likely impact considering almost six months are over post that now? And then, the second question is in terms of the electromechanical projects. So we have seen a significant margin deceleration in this business, almost back-to-back third quarter in a row now. This used to be the highest profit-making segment, profit margin segment for us. So where do we see the margin outlook for this segment? And in general, in a way, revenue recovery also in this segment. Any color that you can share, maybe FY 2026 or H2 FY 2026, any update on that? Yeah, that's it from my side. Thank you.
I'll take the question on WJT. So that arbitration, as you are aware, is in progress. There is a certain timeline to which the arbitration is working. As for that timeline, we were required to file a statement of defense, which we have done. There are certain things on which the submissions have been done, and of course, we are confident, as we had told earlier also, that the company in which we were joint venture partners and which we had kind of exited almost seven years back, we have a very strong case, and the same thing holds today too, so I don't think there is any risk on that count. Of course, we'll wait for the arbitration to play out, but the necessary timelines are being adhered to, and we are doing the filings as per the timeline.
Okay. So in terms of timeline means, is there any particular end date there or?
As for the timeline, it will go for another around 12-15 months.
Okay. Okay. Sure, sir. That's helpful.
Yeah. Yeah. On the E&IS, that is the second, the third segment, as we have mentioned, see earlier, the segment used to return the profits when the data security business, etc., were kind of doing quite well. Today, as we have mentioned, there are certain headwinds in both data security as well as medtech, while industrial solutions are doing good. So the margin profile for each segment is different, and accordingly, the margins get influenced. So that is the reason why you see the margin kind of moving in a particular manner. The current drop in the margins is because out of the three segment lines that are there within that segment, two are not doing well, and one is doing well. So as we said, we expect the revival to happen slowly over next year, and by that time, probably the segment margins could improve a little.
Okay. So sir, in near term, maybe next three quarters, we believe the status quo or the similar weakness in the two subsegments may continue, and one segment may continue to do that. Is that right?
I would say the whole thing will be for as for the segment, one segment is considered enough order because this momentum should be maintained. Segment two, it much depends on the summer season. Depending on the summer, there are years in which the growth is only 10. There are years in which more than 50% growth we have seen. Segment three, in certain segments, the CapEx cycle will have to revive. And this can be beginning with the union budget and announcements how the sentiments change. That's how we will look at it.
Okay. Sure, sir. Thanks. Very helpful.
Thank you. The next question is from the line of Bhumika Nair from DAM Capital. Please go ahead.
Yeah. Good afternoon, sir. Sir, one, I just wanted to check if I missed out the volume number or growth for both Q3 and nine months. And second, in terms of continuation on the RAC, the base is very high for last year, both for us and also the industry. So while the outlook is strong, do you think we can continue as an industry to grow at 15%-20% plus, particularly in view not so much in terms of demand, but also in terms of the supply chain issues where compressor availability is a bit of a challenge is what our channel checks tell us? So if you can just throw some light on this aspect.
So first question, volumes. We don't disclose any of the volumes. You do have the data from GfK indicating all that I know. See, first of all, GfK is only one part of our business. We do have very large institutional share being a company which is much focused on that as well. Now, all that we know is that the months of October, November, December that we seem to have performed exceedingly well, much, much better than the industry. So volumes we do not disclose at all. All that we know is that it is very likely the industry closes above 15 million, and we will close much higher than 1.5 million this year. And that we are more or less aware that guidance can be given. Now, coming to whether the growth will be, yes, I'm saying the growth of if the summer season is good, even if 25% growth has to be achieved, we have enough raw materials.
I know that not only, sir, all players should have secured their components for the summer season because it's planned much in advance. If you are hearing about, I want to clarify on the issue of supply chain in general. What is the direction? Direction of Government of India and the DPIIT has been to create the component ecosystem. That's why PLI was brought in. Almost all components have been indigenized. Important item like a inner grooved copper tube, also the factories are coming up. Imports are restricted basically because one will have to create high-quality components, not because it is cheap, some poor quality comes into the country. Second is that under Make in India, people will have to make it here.
Now, if there are restrictions that are there through what is known as the BIS license or the quality control order, it is kept in mind whether it is available, not available, whether the quality standards are reasonably important. Depending on that, government keeps extending those licenses. So there has been no problem, but it is a headache to be watching this. You can't take for granted it is going to be available, but at the same time, there has been a shortage so far. It's not the issue. But the government will keep telling that, "Look how long I should be allowing this, why it is not happening within the country." Electronics, enough manufacturers are available, which is the next important item which imports have been coming in.
Now, in electronics, unless and until there is a global shortage of microprocessors, which will be an event of a different nature altogether. Otherwise, air conditioner-related electronics, there is no supply chain constraint at the moment. And see that. Compressors, the domestic capacities are coming up. It will be a time for it to meet the country's demand as a whole. There are imports readily, and there are enough sources that are available. The question here is whether the industry, any other technology support or investment support in order to the future is asked from the government, rightly so, and the industry has been working with the government. What kind of other measures we should do? Let me completely self-reliant. This is coming from the fact that we are the fastest growing market for air conditioners. We are the fastest.
We are the world's largest market by 2045-2050. We should be the largest in the world, and therefore the government is insisting create this ecosystem. As far as Blue Star is concerned, our stand has been very clear. For us to make compressor, we have to reach somewhere around 2.5 million, and the investment that you make will have to pay back. The investment that you make should be able to deliver compressors which are meant for the future because the energy labeling norms will keep becoming stringent, so the compressor designs are very important keeping in mind. If you are investing, that investment should take into account new refrigerants that will have to come in future, keeping in mind Kigali-Paris agreements. We have to keep in mind that the country will continue to consume products that are affordable.
Therefore, the technology should be something that is not very expensive as well. Lastly, Indian consumer would like the product to be highly reliable. So therefore, we should be. Now, keeping all this parameter in mind, we don't see yet at the moment. We are the right share. We will take a decision to get into that also. This question has been. Many of you have been interacting with us for more than a decade. VRF, when the technology came, what Blue Star will do, and where is this technology going to come from? We are leaders there. In fact, in VRF, we are number two. And inverter came, what Blue Star will do? We are Master Inverter. So the focus is actually to grow profitably, and the focus is to also keep ahead of the curve. So there is no answer.
But with the Paris restrictions that are happening across the globe, and it is a very unpredictable situation who will stop supplying what to whom. And that one will have to the whole world is undergoing this tension, especially for since January. We will have to go through this. There is no other way. Summer season, the material is secured. There is nothing to worry.
Thank you. Sure, sir.
This will clarify for many of the other participants as well.
Yes, sir. Sir, the second question is on our capacity vision where we're doing the second phase of expansion at Sri City. So one is obviously the CapEx and the timeline. But second, I also wanted to understand how has the first phase kind of helped us in terms of margin expansion as also go-to-market from meeting the demand in a much more timely manner of production, etc. If you can throw some lights on what we can expect as we ramp up, this will benefit us.
Yeah. The second part I will answer. First part, Nikhil will answer. There has been no go-to-market kind of delay or concerns or anything like that at all. That, whether there is energy labeling or our own decision to be competing on all price points with affordable, affordable premium and premium products or heavy-duty machines or Wi-Fi-enabled or in commercial refrigeration, lower capacities for import substitution or sophisticated cold rooms or chillers, including centrifugal chillers or certain chillers meant for data center applications. That we have investments are the largest in the country in R&D, and we continue to deliver. There is absolutely no doubt about it.
If at all, the question will be whether to which product line first we introduce and how we go ahead and expand the product line. Always that will be the case. We may introduce to move to a glass top, curved glass top in cases. That may be the thing that we will bring. But otherwise, it is a bold mission in that respect. It is for this reason we are not promising or committing into some unrelated lines we want to get into. Let's say often the question is, will we get into consumer durables as a whole or all category? We are not. In air conditioning, refrigeration, we are deepening and deepening, becoming stronger and stronger. So there has been no problem. As for the CapEx is concerned, Nikhil will clarify.
Yeah. So coming to CapEx, we have told earlier also our investments are modular in nature. Capacity is not a constraint, and as and when we see demand coming up, we are ready to invest. The capacity at HP plant was already in the region of around 600,000, and in the Sri City, we were investing. We started with 300,000. We have now reached up to 600,000, and as and when we want, we can scale it up. In the current year, also the capital investments have happened, and this will keep happening as we see the demand. We can go up to around 1.8 million-2.4 million as the demand scales up.
The C apEx amount for FY 2025 and likely in FY 2026. That's it. Thank you.
The CapEx amount that we have already told, we have told over a period of around three years. And so that over a period of three years, if you see, our CapEx will be in the region of around INR 750-800 crores. And that will be moving towards both manufacturing as well as product development and a certain amount of digitalization. So all of these three will be the end use of this CapEx.
Thank you, sir, and all the best.
Thank you. We'll take the next question from the line of Naushad Chaudhary from Birla Mutual Fund. Please go ahead.
Yeah. Hi. Thanks for the opportunity and congrats on a decent set of numbers, sir. Again, clarification on the margin side. So two things are the AC energy rating changes due in next one year, plus step-up capacity coming in this time in the AC industry. And it is slightly different versus what historically it has been this time. The OEMs bringing the capacity in the market. Along with these two points, what gives us confidence that we should be able to maintain 8.5%? Do you also fear or have some risk on the margin side because of these two things?
No. I have no question now. Fear and all fear will help. It is not. So it is about what all can happen. So if you look at, first of all, the energy labeling change is due on 1st of January 2026. The product meant for that is already developed. So there is nothing to worry about it because energy labeling, sufficient time is given for people to develop. And it is always a discussion with the industry by consensus when what label change has to take place. And it is an ongoing discussion.
Going forward, it can even become much more stringent because the installed population is going up, and it is in the interest of the regulators. It is in the interest of the industry. We don't want the industry to grow, but in summer, power cut is there. How is it going to help us? It used to be the story when I used to be young. The summer season means there will be power cut. The AC sale will be impacted. We don't want that, so energy label change will be a continuous program, and when we plan our strategy, we keep in mind that we have to continuously invest in technologies which will improve the energy efficiency at the same time remain competitive. The margin management is connected with the first to the scale.
The market will have to grow, and we have to ensure that the growth is maintained so the entire industry will have to also play a role in that. The second part is connected with your ability to manage the total cost, how you are designing the product, what value engineering has happened, where are the procurement sources, how you are driving down the cost, which we have demonstrated over the years, and since we are a focused air conditioning utilization player, we believe that we understand the subject. We continue to learn what all can be done. The third one is that in the value chain, there are other costs and the customer expectation also changes. That A, I should be able to buy it through consumer finance. B, I need the delivery the same day. The quick commerce will force them to think differently.
How often, how quickly I'll get the product, how quickly it will be installed, and this part of life plays an important role, and the reliability will have to essentially improve so that you reduce, even though it may be a five-year warranty, how the warranty can be checked, so multiple factors result in the margin management. Now, the question has been the other way around. The scale is happening. Industry is growing. Local manufacturing, backward integration is happening, and you had a factory in North earlier. You also have a factory in South now. There should be a logistics saving. Why this 8.5% should not become 10%? We are saying it is because of the competition, because many other things have to be done. We are not guiding today. If it happens 9 or 9 and a half, one will see.
Thank you. Sir, to follow up on this, you are indicating about the scale, but we have seen the scale player also not able to enjoy a certain margin. Can you be a little more specific which specific cost or line item should help you once you scale up, and that should help you in the market?
I'm saying that, let us say, for example, in room air conditioner, full year, let us say, we are growing over 35%. It is not necessarily advertising expenses goes up by 35% or the headcount goes up by 35%. So the scale benefit comes through that. Now, when your scale is high, you will drive down the cost also because you have greater purchasing power. And logistics cost of incoming material comes down because of that scale. So the scale is an important lever. So this scale should obviously improve the margin, but I am saying that we are not telling you this 8.5 will become 10 or something like that. It is basically because there are certain new costs that are coming, like e-waste, consumer finance. These are new costs. And there is competition. So the prices will be under check because of the competition.
And this time, if I'm not wrong, especially on the OEM side, capacities would be PLI linked. So they would be having more incentive in terms of pushing the revenue. They would be having timeline to achieve that. Shouldn't that?
There's a whole story, right? Because all of us also, we are also in PLI. All players are in PLI. Finished goods guy as well as a component manufacturer. The question is that all will have to grow their revenue in order to earn the PLI. The market is growing. So there is no problem. It was known for earning the PLI, you have to show incremental sale over FY 20 21 figure, and all will be, and it is not deterrent in my view. It is good.
Mr. Chaudhary, I would request you to rejoin the queue for follow-up questions. Thank you. Ladies and gentlemen, due to time constraint, we'll be taking only one question per person.
No, we can extend by another 20 minutes. I'm available to follow up.
Sure, sir. We'll take only one question from the participants now so that everybody gets a chance to ask questions. Thank you.
Okay. One for party. Yeah. Okay.
The next question is from the line of Rahul Gajare from Haitong Securities. Please go ahead.
Yeah. Hi. With respect to the UCP business, I want to know, given that the energy efficiency norms are changing from January, what is the price hike that you would have to pay? Given that the growth momentum is strong and it will be easier to pass the higher prices. Connected with this, I want to know if the third quarter had any pre-buying because of the change of energy level. Were you able to identify that? Thank you.
No, the energy level changes from 1st January 2026. And 1st January 2025, no changes happened. And what can happen potentially is somewhere in festival season, it can be pre-launched that the future ready like that. That can happen. Right now, there is no energy level change.
But in the PLI, how much is the PLI that was booked in the third quarter and nine months? Whether this is the reason also that it can be attributed to the higher operating profit of the UCP business. That's the question. Thank you.
The question is that, look, we are all the way and say that we are indicated that we are eligible for somewhere close to over a four-year period, INR 78 crores of PLI benefit for an eligible investment of somewhere around INR 155 crores or something. I don't remember the exact figure, but it is in the order of around between INR 75-80 crores. We are on track on that. We will be fully receiving. These applications are made on a yearly basis. At the year end, we will be. Then what PLI benefit we received for a particular year, we can disclose in the May call. Right now, it is of no relevance whatsoever. But I am committing to you that for our scale and our investment, we will fully avail what we are eligible for in the phase one now. You might have read that in phase three of the PLI, also we are an applicant. We have to begin the investment of that.
Sure. Thank you very much.
Thank you. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.
Yeah. Hi. Thank you for the opportunity and congratulations on an amazing set of results. Sir, you briefly commented on outlook for some of the key end markets in your project business. May I request to please elaborate that a bit more for some of the end markets?
In the project business, you are asking?
Yeah. Like the manufacturing, data center, commercial building. Can you please elaborate a bit?
Yeah. Our portfolio there, if you're looking at segment one, first clarification, it comprises electromechanical projects. It comprises the commercial air conditioning products like packaged air conditioning system, ducted air conditioning system, VRF system, chillers, data center chillers, so on and so forth, process chillers and all. There is a third thing is aftermarket revenue. All these are B2B in nature. We are a leader. We are number one in quite a few. We are number two in quite a few. And in electromechanical projects, we do the electrical part of it. We do the air conditioning. We do fire fighting. We do plumbing. And these projects are executed for office complex. It can be an IT park or it can be an airport. It can be a hotel. It can be a hospital. It can be an airport. It can be a metro railway system.
Now, the direction for this business is that focus not on market share, focus on profitability, focus on free cash flows. That's the direction, and in that, the emerging segments in the past couple of years have been also the manufacturing and the data center in addition to what all I told you. And so it is broadly categorized into four verticals, and one is the infra projects, which are metro railway or water distribution project or airports, etc. The second big one is commercial buildings. These are mall offices, ITs, this part of it, which are generally done through developers. The third one is manufacturing.