Ladies and gentlemen, good morning and welcome to the Blue Star Limited Q2 and H1FY26 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 clients 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. Over to you, sir.
Thank you. Good morning ladies and gentlemen. You might have gone through the results of Q2FY26 so it was a tough quarter. You are aware of the impacted summer season that continued through July. Post that on August 15 we had the GST announcement. Practically from 15th of August till September 22, not only the room air conditioners business and also some part of or some segments of commercial air conditioning business were also impacted. Because we are a company having interest in B2B as well as the B2C segment, we could deliver modest growth. On the whole it was a tough.
Quarter and the fundamentals are strong.
The growth for the industry is strong and even if you look at the CAGR from FY 2020 or you ignore the COVID years you take from FY 2022, the industry has grown and Blue Star has grown in double digits. There is no doubt about the long term prospects of this business. It is just that in this particular financial year is tough. We had mentioned that it is probable that the second half of the financial year should be better than the first half. We still believe so. However, whether it will make up for the shortfall in H1, I doubt at this moment going by what is happening in the market, considering the inventory levels of room air conditioners that are in the market.
One would.
Think that if we close the year with industry being flat, we being flat, we should be very happy. I don't think we will be able to grow over the previous year at all given that it was a huge growth year and it is also probable that the industry ends up with -15% over last year and Blue Star does better than that. It is also probable because we are dependent on just two windows now that in December prior to the energy level change for a couple of weeks and then you have to wait for summer season to set in the last few days of February and the month of March, that's all the window that is available as far as room air conditioner business is concerned. Commercial refrigeration business.
It's smaller in terms.
Of market size that grows but it cannot make up for the shortfall in room air conditioners business, commercial air conditioning it continues to do well while the order inflow was lower due to the reasons I mentioned because GST impact is also affecting certain segments like for example government or educational institutions, so on and so forth. We think that that business will revive and electromechanical projects business other than the infra projects, all other segments are doing well whether it is buildings or data center or manufacturing. It is matter of concern is the slow execution of infra projects and the speed is not picking up there. It is a rain interrupted match as I keep telling it is all that that was Louis method.
We don't know how many hours are left or what is the asking rate, and Sureain keeps interrupting on one.
Foot.
The other way to look at it is first half of the movie was not that interesting. Intermission. Post intermission one hopes that the movie will be good, but on the whole one will close the year with a great feeling. I do not think so because the momentum was somewhat disrupted. I keep repeating that the CAGR estimate for any period over the past five years, four years, three years, it is more than 15% for industry. In this whole thing we seem to have done well, better than the industry, gaining market share. Internally I keep telling that everyone failed in that I failed with better marks. It is not the consolation, but we have done better than the industry. One more question that will come is inventory in the pipeline.
While post summer the inventory we thought during festival season it will get liquidated due to this GST interruption it did not. For the period September 22 till Diwali day we witnessed as far as Blue Star is concerned more than 35% sale. Post that there is a lull period. Our inventory level based on the latest estimate as on date is around 65 days of sale. Ideally it should be only 45 days of sale and I do not know the industry level but I know the inventory levels are much higher than 65 days. Which means it is going to be a period where all these inventory have to find way to the market and the channel as well as manufacturers inventory liquidation will be top priority.
From 1st of January the manufacturers have to produce new products or relabel the existing products depending on the energy efficiency level.
The.
Signal that we want to give is indeed second half of the movie will be better, there is no doubt about it and we will continue.
To.
Maintain our fundamental principles, that is, grow faster than the market, control the expenses, both operating as well as CapEx, find ways and means to maintain the margins or contain the deterioration of the margin, and close the year hoping that Somerset yearly, that's where we are. I hand it over to Mr. Nikhil Sohani for his remarks.
Thank you Mr. Thiagarajan. Good morning ladies and gentlemen. This is Nikhil Sohani and I will provide you an overview of the results of Blue Star Limited for quarter ended September 2025. Coming to financial highlights in quarter two of FY26 the company has reported modest growth amidst multiple challenges. The room air conditioner segment continued to witness demand slowdown after a subdued monsoon late Q1 FY26 as prolonged rains and lower temperatures impacted secondary sales and delayed channel offtake. Also, the room AC and commercial AC demand was deferred due to GST rate reduction announcement on 15th of August 2025 which subsequently came into effect only on September 22, 2025. In project business, execution of factories and data center projects remained steady though the pace of new order inflows was subdued. Financial highlights for the quarter ended September 30, 2025 on a consolidated basis are summarized as follows.
Revenue from operations for quarter two of FY26 grew 6.4% to INR 2,422 crore as compared to INR 2,276 crore in quarter two of FY25. EBITDA excluding other income for Q2 FY26 improved to INR 183.4 crore and EBITDA margin of 7.6% as compared to INR 149.3 crore and an EBITDA margin of 6.6% in Q2 of FY25. PBT grew 1.3% to INR 133 crore in Q2 FY26 as compared to INR 131 crore in Q2 FY25. Tax expense for the current quarter was INR 33.4 crore as compared to INR 35 crore in Q2 of last year. Net profit grew 2.8% to INR 99 crore in Q2 of FY26 as compared to INR 96 crore in Q2 of FY25. Carried forward order book as of September 30, 2025 grew by 7.9% to INR 7,120 crore as compared to INR 6,598 crore as of September 30, 2024.
Carried forward order book as of March 31, 2025 stood at INR 6,263 crore. The capital employed as of September 30, 2025 increased to INR 3,531 crore as compared to INR 2,550 crore as of September 30, 2024. Net borrowings of INR 417 crore as of September 30, 2025 as compared to net cash position of INR 185 crore as of September 30, 2022. Coming to business highlights for quarter two, segment one i.e. electromechanical projects and commercial air conditioning systems. The segment revenue grew 16.5% to INR 1,664 crore in Q2 of FY26 as compared to INR 1,428 crore in Q2 of FY25. Segment result was INR 147 crore which was 8.8% of revenue in the current quarter as compared to INR 119 crore which was 8.3% of revenue in Q2 of last year. Order inflow for the quarter was flat at INR 1,922 crore in Q2 FY26.
In the previous years it was INR 1,900 crore. Coming to electromechanical project business, while the inquiry inflows from buildings, data centers, and factories were good, order finalizations during Q2 FY 2026 was muted as far as infrastructure projects are concerned. The company continues to be selective owing to the strong order book and faster project execution. Billing growth during the quarter was strong. Carried forward order book of electromechanical projects business was at INR 4,840 crore as of September 30, 2025, as compared to INR 5,037 crore as of September 30, 2024. It was a negative growth of 3.9%. Coming to commercial air conditioning, the business grew in line with the market trends. However, billing tests moderated post GST reforms from mid August until mid September.
The company continues to maintain its market leadership in ducted systems and scroll chillers and ranks among the top three in VRF and screw chillers. International business, with the approval process and trial marketing having been completed for a few products in the US market, the supply scaled in Q1 FY2026 and Q2 FY2026. The tariff-related uncertainties persist and the business should accelerate further once the India-US trade deal is concluded. With the successful development of products for both the US and Europe, the company continues to be optimistic about the prospects for international business. Overall, the segment one margins saw an improvement in Q2 FY2026, rising to 8.8% of revenue compared to 8.3% of revenue in quarter two of last year. The improvement in margins is a result of changing mix of business within the segment. Coming to segment two, i.e., unitary products, the revenue degrew 9.5% to INR
694 crore in Q2FY26 as compared to INR 767 crore in Q2FY25. Segment result was INR 43 crore, that is 6.2% of revenue in Q2 of FY26 as compared to INR 54 crore, that was 7% of revenue in Q2 of FY25. Cooling and Purification Products business, unfortunately, the Q2FY26 was also impacted and the only silver lining was the good secondary sales with effect from September 22, 2025. With the energy efficiency level change scheduled for implementation on January 1, 2026, it is likely that the Christmas and New Year sales would be good. Preparations are underway for the launch of new products for pre-summer and summer season 2026. Coming to Commercial Refrigeration business, the business experienced a modest quarter with the GST rate reduction on various food products. We expect significant demand growth in H2 of FY26.
We are expanding our energy efficient and IoT enabled product range to meet evolving customer needs while deepening penetration in Tier 2 and Tier 3 markets through localized distribution and service support. The segment margins were lower as compared to the previous corresponding quarter in last year. Quarter two the margins reported were 7% whereas in current year the margins are 6.2%. Coming to segment three, there is professional electronics and industrial systems. The revenue degrew 20.1% to INR 64 crore in Q2 of FY2026 as compared to INR 81 crore in Q2 of FY2025. Segment result was INR 6 crore, which was 9.6% of revenue in Q2 of FY2026, as compared to INR 5 crore, which was 6.4% of revenue in Q2 of FY2025. The degrowth is primarily due to uncertainty surrounding the current business model of the MedTech Solutions business.
Pending the finalization of regulatory policy framework, Industrial Systems continued its strong growth momentum on the back of manufacturing and testing demand. Data Security Solutions continued with steady performance driven by robust demand from DFIs and large enterprises. As the business navigates through challenging times, efforts on expense rationalization helped to improve the margin. Coming to Business Outlook, we are optimistic about the prospects of room AC business as the benefits of GST rate rationalization will spur the demand in quarter three of FY 2026. However, unseasonal rains in several parts of the country continue to be a matter of concern while the order inflow in Electromechanical Projects business continues to slow. We expect demand revival in commercial air conditioning and commercial refrigeration businesses. Several initiatives have been undertaken for reducing both operating costs as well as working capital in order to substantially improve the H2 FY 2026 performance.
With that, ladies and gentlemen, I am done with the opening remarks. I would like to now pass it back to the moderator who will open the floor for questions. We'll 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 the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Natasha Jain from Phillip Capital. Please go ahead.
Thank you for the opportunity and good morning gentlemen. First of all, congrats on a resilient set of numbers. My first question is on segment one commercial AC. So commercial AC, which is a higher margin business, witnessed loss of sales as per your opening commentary. Overall also execution has been slow on account of rain. Yet your top line growth was. I mean your top line growth was moderated to 16.5% versus 30% run rate before. Now this segment saw margin expansion and it's also above our broader guidance of 7-7.5% range. Can you explain how margin expansion happened and sequentially also it's been a sharp improvement. Were there any favorable terms with our vendors here? That's my first question.
Thank you for asking this question. This will benefit others as well. You are right. This segment comprises electromechanical projects as well as the commercial air conditioning and also the service business. All three are there. Now, the margin in a particular quarter will depend on which are the segments that have done well broadly here. The weightage of commercial air conditioning or the weightage of electromechanical projects, how it is. The second part is connected with what kind of jobs and projects got closed, what kind of segments played a very major role broadly. For your guidance, the margins are good in manufacturing data center segments. Margins are not that good in infrastructure project segments. Again, in commercial air conditioning products, we have ducted or packaged air conditioning, which are conventional. We have got chillers, we have got also VRF systems.
Again, each one of them have different set of profit margins. In the quarter, whether it is 7.5%, sometime 8%, you should not actually worry at all. What is the outlook? The potential for this business is just 7-7.5%. It can be 7% in some quarter, 7.5% in some quarter. Our guidance for the rest of the year is also the same, 7-7.5%. That is how it will be. This segment is not going to dramatically improve the margins in the coming quarters at all because there are quite a bit of investments that are being made to enhance the reliability of the product. Therefore, we are putting money into the product and normally one will say that we are re-engineering the product and we are going to be improving the margins by value engineering.
That is not the case because the product is becoming very digital with the electronics content being very high as the sophistication is being built and quite a bit of the products or components are being sourced from India and many manufacturers are there for the first time. The guidance as far as segment one is concerned, it is 77.5%. That's what you should go ahead with.
Understood, sir. My second question is on segment two. Our top line has degrown by 10% and both commercial refrigeration and room AC has declined again. Your UCP margin has shown resilience, and what is surprising is Q on Q, it has actually improved. My question, and in conjunction, if I check your creditors, you've also made very steep payment to your creditors. My question here is, did we avail some good cash discount from our creditors which actually protected our UCP margins?
A number of things. The very first thing is that in Q1 if you look at it, we were all investing for the summer season and when April it was not happening. Second half of April will happen. Then we said May it is going to happen. Weather forecast was also like that. We did not get into any cost saving measures at all. Plus advertising expenses. It was heavy like we were in IPL. That commitment was made. We had to continue with that. Now subsequently, when summer has not happened, you do many things. The very first thing is connected with advertising, which is easy to do and in shop demonstrators for example. You go ahead and focus on manufacturing cost reduction and you will be also seeking discounts wherever it is possible. The significant part is connected with cost reduction. That is what had happened.
Now the going forward. Again you should ask this question what margin we are likely to end the year with for your benefit. For rest of the analysts, fund managers who are all joining this call, we have been. First of all the history is as follows. That 9.5% margin outlook was there. Then we toned it down to 8.5-9%. When the summer failed we said that still 8% is possible. As I see it now, as I keep in mind what is likely to happen in the coming months with the huge inventory in the marketplace, I think we should be very happy if we end the year anywhere between 7-7.5% and we will work towards 7.5%. It can as well be 7%. It all depends now on that.
February 2 of March and the inventory have to move out before the energy level change. That's the outlook for that.
Got it.
Sir, one last question if I may ask. You lowered your guidance from positive 5 earlier to now flat-ish. You would also recently address the media sometime around the festive period saying that, you know, our sales have been good and we maintain our guidance. Just wanted to understand what really changed in the interim that we've, there's a cut in our guidance in just a couple of days.
That is. Thank you that you asked the question. The question was that I repeat what I had been maintaining that whenever summer fails I said the second half does well, festival season as well, the subsequent summer season buildup in Q4. Therefore, there is always a possibility that you can make up and grow even by 10%. That sort of beginning statement when the GST cut came in. First, we have to wait and watch how fast this GST implementation will happen and post that we will see and 10% growth. We had said full year 15% potential was there. That was the thinking.
The secondary sale movement between September 22 and October 18-19 was 35% in our case, actual sale to the consumers from the channel. After that, it is dull, the movement is not taking place, and the window that will happen will be only before the energy level change. The rain continues all across the country, so the festival season has not gone well. Despite the GST reduction, it has helped to reduce the inventory. What I could make out is that all the players are carrying inventory. In our case, I told you we would have preferred it to be 30-45 days. Last year it was 34 days as of now, but unfortunately it is 65 days of inventory if you add up what is in the channel and what is with us.
This will lead to the sale happening to the channel and the channel carrying the inventory even till February. Therefore, I am, even though I may be, I may be erring on the wrong side. It is probable that February-March is so very great like last year, everybody stocking up because there will be shortage of material in summer. I do not think that will be the situation. Therefore, one should be happy if we match last year number. Even with that, the CAGR if you look at it will be some 18% for the industry, slightly better for Blue Star. I am also cautioning that it is now dependent on that six weeks in Q4, so it can actually be growth which is minus 15%. It could be. So the range could be minus 15% to 0.
As of now I am still hoping that one can attempt to, if there is going to be a good summer outlook, that's a change. The festival season has not gone on as one would have expected. I also would think that there is a comparison that is being made with the auto sector. Obviously that industry was not growing. In this case you are comparing with a huge previous year. In terms of HRT, people may be putting that money in their hands into auto ahead of air conditioning. They will wait for the summer season. It is probable. Last line is I do not see any problem in the long-term growth outlook at all. It is just that this is a rain-affected year. Thank you.
Thank you, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants in the conference call, we request you to kindly limit your questions to one per participant. Should you have a follow-up question, please rejoin the queue. Again, the next question is from the line of Bhoomika Nair from Dam Capital. Please go ahead.
Yeah, thank you sir.
The question is on the commercial refrigeration part of it.
Last year we've seen some challenges out there and there was a muted growth or even a decline in that segment.
Could you kind of speak about how?
The growth has panned out in YTD on that segment is to understand either qualitatively or with some numbers, whichever manner that you can speak about. Secondly, in terms of the REC segment, as said that there's a lot of inventories etc. As we get into the year end before the BEE rating changes, do you think there could be some pressure on margins as the industry tries to liquidate the inventory prior to the rating change by December? Could that be a bit of a challenge? Lastly, if I may also squeeze in on our working capital has seen quite a bit of an increase on a net debt cash level going to net debt levels as this inventory is wound down by the year end, do we see us coming back to the.
Net cash levels.
On the cash part, Nikhil will explain the cash is not connected with working capital alone. There is a CapEx that has to be incurred for long term that will also determine that. The first perspective is when we talk about growth we have to keep in mind we are talking about growth over an unprecedented year. That is what is probably giving a wrong picture. I again repeat that you calculate a CAGR. The industry has been growing. Blue Star has been growing even in room air conditioners. First I will answer the room air conditioner margin. If the inventory levels are higher in the market and there is demand, demand will be there basically because the energy efficiency level change is there and once the energy efficiency level change is implemented the prices will be higher for the new energy labeled products. The demand will be there.
It is a question of the demand versus what is available and one's aspiration for the market share. There will also be players who would like to reduce their inventory levels and there will be pressure on the margins. As far as Blue Star is concerned, we want to grow faster than the market. We have been disciplined about the margins and we have the track record of maintaining the price discipline. We will attempt to hold on to this margin level. At the same time, we have indicated to you we would like to close the year between 7-7.5. The sum and substance is there will be pressure on margins but we have to deliver this. We will stay disciplined and find ways and means to achieve that profit level.
If the inventory levels are so very high, one should anticipate pressure on the margins. This is the first part. The second part of the question, the very first question you asked is commercial refrigeration. Last year, yes, there were regulatory changes in terms of Bureau of Indian Standards in water coolers and as well as deep freezer. That had happened prior to March itself, but it impacted the rest of the period. Those are all over, but the growth again, these two products are also impacted due to monsoon or rain, intermittent rains, but still it has grown. It has grown in the order of around 6%, 7% to 8%, but the market size being smaller, it cannot make up for the shortfall in the room air conditioners. Outlook for that product, it will still grow.
That's what we feel and given that that industry has gained significantly in the GFC, the food products or food retail, they are all our customers, are all investing in huge expansion, so that should translate into business and one can say that it will be somewhere around 7.5-8% growth at least should be possible in this financial year as a whole. Nikhil,
Yeah, so coming to cash flow.
As we said, also remarked, it's not just working capital, it is also CapEx that one has to look at in totality, and in this case particularly, you will have to see over a period of time.
You're right in saying that it was.
A net cash position last year and before that and now we have moved to a net borrowing position. It has to be said, seen in light of the last two years. If you see in 2023, we had a QIP, which, so that was a cash position which was available in 2023 and 2024, and 2025 was an exceptional year in terms of sales. You had very good cash accruals. At the same time, you had working capital levels which were at a minimum. All of that aids in cash generation, and you are seeing and comparing it with a year in which there is an inventory build up, as we all know. The working capital levels have gone up. At the same time, you have to continue with your CapEx.
Given that, I think this kind of borrowing position that we are having is given looking at the projections by year end, whether we will be back to the net cash position, I think a lot hinges, as Mr. Thiagarajan again said, on the last six weeks, on how the February and the March turns.
Out to be and how in December.
The inventory levels can be brought down if the year goes well and the estimated kind of volumes do come back, there is no reason why we should at least not be bullish. Levels should not come down.
At the same time if the.
Last six weeks and December inventory levels don't come down, then we could see the continuing borrowing in the company's balance sheet. That's how it will be.
Sure. Thank you. All the best.
Thank you. The next question is from the line of Manish Mehta from Kotak Securities. Please go ahead.
Hi. Thank you for the opportunity. Just wanted to check on your commercial AC, particularly for data centers, data center chillers. From what we understand, you had some start in the air cooled data centers and you're developing something on the liquid side. Possible to share any update and any outlook on that particular business? That's the first question.
You know, first of all, in data centers, MEP part of it, we are leading. That does not involve any equipment manufactured by us. We continue to be a preferred vendor in that segment. Second part is connected with which are the equipment that we can deliver. We do have some chillers, and some chillers are being developed. On the liquid cooling part of it, we are exploring some partnerships and we are continuing to explore. I do not think that these products will be launched before the end of this financial year at all, because these are high-tech products and one will have to look at the proper field trials and commercializing that product category. It is not going to be making any kind of significant contribution in this financial year.
Got it, sir.
The second question was on your slight caution in terms of order inflows in MEP. Anything particular that is kind of, you know, dragging the inflow because overall we are seeing quite a lot of tailwinds right on data centers and even private sector CapEx.
No, it is not a slight caution. It is a serious question in the, in the sense. Look, for me, the enquiry inflow will indicate order finalization trend. Now, enquiry inflows are lower and order finalizations are taking time in quite a few segments. Existing projects are infra projects basically, they are taking much more time than what one would have estimated. Therefore, we will be cautious. You know our principle there, we are not chasing market share there. We are interested in good margins and or reasonable margins and good cash flow. Therefore, the caution is, see the issue will be this, right? That when you have.
The hypothesis could.
If you have a bad summer, therefore room air conditioner business or commercial refrigeration business is impacted. That should not lead to suddenly changing our approach to projects business. Our enterprise risk mechanism is very clear that we will be cautious.
That is the truth.
Just because there is a problem in room air conditioner business, it is not that we will go ahead and book any order and try to keep the revenue up. That is not the principle or the philosophy of Blue Star.
Makes sense. Thank you and all the best.
Thank you. The next question is from the line of Sandeep Tulsiyan from Sundaram Alternates. Please go ahead.
Yeah, good afternoon sir.
First question is pertaining to we doing better than industry. Definitely points to some market share gains that we've had in the quarter.
If you could start, speak more on.
Regional color how your strategy of gaining.
Market share north is panning out. Market share gains in first half of this year were more pronounced in north, south or any other specific region?
The first caution is that the results of many companies are not announced. I will not say that we are doing better than the industry, but I know in terms of the volumes based on our estimates, I think in Q2 the industry would have shrunk by around 17% and our estimate is in room air conditioners we have shrunk only by 12%. In Q1 our estimate is industry would have shrunk by 15% and we have shrunk only by 10%. To that extent we may have done better. Again, it is all other estimates. So that disclaimer I want to make place. The second part is that we have indeed analyzed the growth is or the extent of degrowth is same across all regions because it is not making a significant difference at all.
The northern region has been doing better than the previous year because our own penetration had been lower there to the next. You know, you can't figure out a single market which is doing extremely well. Definitely not all are impacted in some manner.
The second question is regarding this average.
Selling price increase due to when you guide for let's say 5% growth this year, you are guiding more in terms of volumes or you are building in.
This price increase the volumes will be.
Down by let's say 5-10%.
You might be 5% higher for the year.
No, I am not , y ou know, in my case the volume or the revenue, I am keeping the same or whatever change I taken place. If you are asking post the energy label change, but what I am comparing with, I am comparing with the previous year, correct. There would not be any significant difference. One can say that for the period January to March, because the energy label change has taken place, volume to price or the average price realization may be higher compared with the Q4 to Q4, one can argue, it will be so. Right now, I am not getting into that at all. I am keeping the average price realization of last year and this year same. On that basis, I am saying the.
Growth.
Revenue for this guidance. I am not changing anything.
Okay. Greatly better in case whatever the price increase comes in.
Last question is.
Sir, on these payables I think there.
Was a very sharp increase of INR 1,000 crore. I mean we paid much faster in the balance sheet. Just checking on that. Any specific reasons why it's showing the INR 956 crore increase?
Honestly, I keep telling this. This particular quarrel with the finance provisions. It is all on that particular last day. How it will make a difference, I don't know that too in the.
Middle of the year.
The question is that one, you know somebody can say on 30th of September or 7th of October. According to me that is not the measure. That's what I feel. Nikhil can explain. Yeah. I think you have covered it.
Basically you are looking at over March one has to see over a longer period of time. I do not think at the month end it is a right range reflection. Because whatever gets built up in March gets paid out in April. That is how one has to see. If you just look at March to September it is more or less going to.
Be the story every time.
If you see. Okay, thank you so much.
O ne has to realize that it is a seasonal nature. In March technically you will have more buildup also happening. That's the other reason, one. Yeah.
No, but I'm looking year on year. Last year they were, was, let's say INR 350,000 crore. Suddenly seems very high.
The reason I just checked.
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Hi. Good afternoon sir. My first question is on the inventory levels that you spoke about. Just wanted this clarification. The 60-65 days of inventory is the combined inventory that brand, MERS, and channel is car.
Is that so?
That's right.
Understood. Within this, according to you, inventory is higher at both the levels. Even channel is already carrying much higher inventory. To that extent, there may be some difficulty in selling inventory before December, before the new energy efficiency norms come in. Is that the reason why you are anticipating some bit of pricing pressure?
Yeah. Two things here to keep in mind if I. First of all, you cannot stop a factory.
Correct.
One second fact is that always for summer season you start manufacturing and building the inventory. From December onwards you end up building the inventory. Now you have inventory with you, inventory with the dealer. You are regulating the production in such a manner that whatever you have produced you will be able to sell. The dealers will be able to sell. Now the question is what dealers buy. They should liquidate it before the summer. You have to pass a judgment that what will be the summer season demand and you can't wait for commencing the production in February or January for the February and March and the new label products production also will have to be commenced. It is a complex situation at the moment.
Now fact of the matter is that the festival season have not gone on well and one GST interruption post that there was good. Now you have got rains and disruptions and it has to to pick up.
At some point of time about.
Around the 15th of December. That is why the caution is. I suppose all manufacturers are intelligent. They are not going to be blindly producing. Correct. All of them will regulate. It has happened in the past as well. That is, you do, but only thing here is, here is a cut off. I cannot sell the, you know, if you want to sell this product beyond 31st of December, you have to relabel that as per the new energy label norm.
In that case, isn't it so happening that the new manufacturing we start doing as per the new efficiency norms, because if we curtail production by beyond a certain level, then unabsorbed overheads may also start hitting us.
All that in life it carries on. The manufacturing planning is different. You know, it is not. You know, there are platforms, there are common components, and how it has to be done. That is, we know how to do it. Exactly what numbers will be produced between now and 31 December, that has to be closely monitored and done.
Understood sir.
Just the last bit on segment three which has been kind of struggling for some time. How should we think about the segment from a slightly longer term perspective?
I don't think it carries a significant weightage to Blue Star's performance. It's a business we have been in for a long period of time. There are a set of customers who are looking forward to Blue Star contributing in that particular segment and it's not consuming any capital. There are principals who have a very long relationship. The industrial system business will continue to grow. There is a correlation with the manufacturing investments or the GDP growth. One can say that at a CAGR of 10-12% it will grow. The medtech business which is connected with.
Diagnostic.
Like MRI, CT scanner. Right at the moment there is regulatory uncertainty. They are yet to announce the regulations pertaining to the refurbished medical diagnostic equipment. That policy is in the making now. We are not sure at all how this policy will pan out. There is one Make in India requirement, refurbished machines that obviously will have to be regulated. In what form it will be regulated, we do not know. To that extent there is uncertainty out there. The outlook is that till such time that policy is announced, which could be Q4 of this year, it is going to be muted. Industrial systems with the growth in manufacturing or these products are consumed by even many laboratories, educational institutions.
That continues to do.
Well.
Understood sir. That's very helpful. Thank you.
Thank you.
Thank you. A reminder to all the participants. You may limit your questions to per participant. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company Limited . Please go ahead.
Thank you. Just one question. That is an electromechanical segment. Segment one, considering the slowdown in order intakes and order book, how should we think of growth for the next three or four quarters? Any qualitative color on anything is changing or anything is decelerating as far as growth is concerned? In that backdrop, how should we think of profitability as well? Not for this year, but probably next four or five quarters. Thank you.
For the segment one, you are asking projects.
Yes, yes. Segment one. Yes.
There are two parts. One is the commercial air conditioning. I would say that that segment has huge potential to grow again because it is a very large segment where you have shops, room, boutiques, manufacturing, small hospitals, small health care, and tier 3, 4, 5, many such establishments getting air conditioned. My guidance will be it will be having a CAGR of 12% over the next five years. That is the industry and we should do better than the industry. That is the attempt there. As far as projects business is concerned, there will be plenty of opportunities to grow as infrastructure is growing and as manufacturing is growing. As data center investments and data center growth also will begin because we are now having huge amount of enquiries. Growing by 10-15% is very easy.
The question is that good cash flows, good margin. If that is the case, I would say that 10% growth is guided.
There is no deceleration. I mean looking at the order book and order inflow, should we assume couple of quarters or 3-4 quarters, the growth rate may be lower?
No, it is not. I don't see a deceleration. Definitely not. Right now the order inflow was muted, but it should come back, that sort of problem.
There.
There is a reason that business complete is going is cyclical in nature. I will not look at a deceleration at all.
Understood. Noted, sir. Thanks a lot.
All the best.
Thank you. The next question is from the line of Manoj Koti from Equities Capital. Please go ahead.
Yes, thanks for the opportunity, sir. When I look at the commentary throughout the call, somewhere definitely there has been caution. Just want to understand whether this.
Is the near term caution that we have seen?
Because you also talked about the demand momentum getting disrupted or through that being you believe like say actually your outlook for FY27 also probably has been impacted and probably now your view has changed a bit. If you can throw broad color on the overall. Because if you look at today only come and we have found it more cautious on commercial AC as well as on room air conditioners. Just want to have a broad understanding about how we look at the things from near term that is Q2 and from FY27 point of view.
Yeah. The commercial air conditioning, there is no caution at all. It is that 12-15% kind of a growth has been the story there. It is not suddenly going to become 25-30% and all that. Never that industry has grown like that at all. There is no caution there whatsoever. It is just that there were restrictions this year and it is not summer dependent again. There is absolutely no caution whatsoever in commercial air conditioning projects business. We have been always cautious ever since 2011. We are very clear that you will not chase market share. It has to be based on the free cash flows and margins. That is how it is. That business is fully dependent on the order book that you have, order inflow that you are seeing now.
Order book you have seen that is not a significant expansion in the tariff forward order book. The order inflow is dependent on also the enquiry inflow. Going by that we are telling you we are cautious. Added to that we do have, let's say, we have explained this earlier. There are infra projects which are electrification driving ways, Metro railways, railway, airport, water like that. There are data center factories as another segment. There are buildings as another segment.
Buildings will include even hospital sorting.
Now within these three buckets. It's a de-risking factor what kind of orders I should have. In that particular part, while the buildings are factoring, factories, data center, they are all getting executed as per the time frame. Infra projects are taking time. Therefore I am not able to release some headroom for taking other orders.
That's about all.
Therefore we are cautious. I am summarizing. Room air conditioner is the largest part of the business. It is a summer impacted year. The rain keeps interrupting. There is a GST disruption. Even if you account for it, CAGR is 18 and CAGR outlook for that business is 19. There will be a year in which it will grow by 25. Another year it will be minus 5. It doesn't matter.
The outlook is positive.
We have gained market share. We will move towards 15% market share. By FY2027 we should get to 15% market share. That is a goal there. Commercial air conditioning by nature will be only 12% CAGR growth. There we will grow ahead of the market. There is absolutely no problem. Electromechanical projects, we will maintain it only at around 10%. The cash flow and the profits are important. The caution is, you may be getting that feeling because I am changing the outlook. I said room air conditioner, for example, can make up for the summer and still grow 10%. That has been the history so far. That is looking very unlikely. If February and March do well, one can look at matching last year's market size. Quite probably, it may be even lower at this juncture.
That's all I can say.
In this case on room air conditioners. Keeping aside FY 2026, obviously this is a year with a lot of uncertainty. If I look at a two-year CAGR from FY 2025 to FY 2027, when we are south, we have been talking about 15% gigantic growth. This indicates in FY 2027 we should grow by close to around 30-35% for that 15-17% CAGR.
Doing two year excluding one year.
Okay, that's not the way to do it.
According to me if you look at the FY2020 to 2026 it is 16%. FY2021 to 2026 it will be 24%. FY2022 to FY2026, 21%. FY2023 to FY2026 it will be 15%. Then by many estimates, FY2025 to FY2030 it will be 19%. So don't worry about it.
Okay, sir. Thank you, sir, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Niraj Randeria from BNP Paribas. Please go ahead.
Yeah. Hi sir.
Thank you for the opportunity and I apologize if this question is already covered. Firstly, want to better understand how we are expecting the secondary demand to pick up during the weak winter season on the account of energy rating change. Given that the demand has already weakened post festive despite at least a 7-10% cut in the retail prices. Do we mean a pickup in the primary sales by brands as they liquidate their old inventory or the higher discounts to drive the secondary demand during this Christmas and New Year period?
The first part, the growth we are talking about is over the previous year. Previous year also winter. This year also winter. Previous year there was no energy level change and now there is energy level change. What is the significance of energy level change? You are buying a five star air conditioner. The five star air conditioner which is before 31st of December and post 31st of December there may be a 7-10% price increase. Of course, the new five star will be highly higher energy efficient. The consumer will think that I am buying a five star air conditioner which is a five star air conditioner of 2025. Therefore, it comes as one added thing. Second is that the GST has brought down the price and there was lull post Diwali. What has gone wrong? Nothing has gone wrong, right?
The penetration levels are lower and the people want to buy air condition. It is because last year was a huge year. We are feeling the pain. Otherwise I do not think there is something fundamentally a change or some other product has replaced this product. Therefore in Q3 weather compared with the previous year, 10% growth should be looked at. By all means you should look at it and it can happen. The caution is only there is already enough inventory there in the field that has to get liquidated. The dealers' working capital level should permit them to stock other products for me to post revenue. That is when we are.
Sure sir.
Very helpful.
Secondly, just want a clarification that when we say 65 days of sales approximately at the channel and brand, is it possible to quantify this in terms of approximate volumes? Asking this because, like, when we say two months of sales, whether it is the two months during summer season or the average monthly sales.
When I say this, it is estimating the sale during this winter season only. It is not summer. In summer, this will mean that 15 days of summer inventory, we do not do that at all. When I say as on date and looking at the winter season sales and how much more is there, and I said that normally one would have been happy with 45, it is at 65.
Thank you so much and all the best.
Thank you. The next question is from the line of Bhageshree from Kotak Securities. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. I assume the unitary product segments.
Include the cassette ACs and the tower.
ACs which are used in projects.
Just one confirmation, whether this is?
A part of the UCP business.
Can you help us with the.
Growth numbers particularly for room ACs for.
Quarter two of FY 2026 and what is.
The year-end outlook for this year?
Thank you.
Cassette AC will be used by many parts. Even the commercial air conditioning will use it. The factories produce, and in a commercial air conditioning product, even a room air conditioner may be there. That is fine. You cannot say cassette air conditioner is reported only under commercial air conditioning. It is reported if it is part of that application, it will be. If it is part of room air conditioner, it will be. That is the first part of it. Now, I have stated this number of times that unitary cooling products comprises room air conditioners as well as commercial air conditioning products. It is difficult for us. It will become a selective disclosure.
If I am to look at the industry volumes, based on my estimate, I think the industry volumes more or less the revenue grew by 17% and Blue Star volumes would have grown by 12% in Q2.
All right, thank you. Thank you. The next question is from the line of Sukrit Patil from Eyesight Fine Trade Private Limited. Please go ahead.
Good afternoon to the team. I have a forward-looking question on Blue Star's long-term direction. As more players, you know, are entering or may enter the cooling and refrigeration space, what is Blue Star doing to build a strong edge not just through product range or distribution, but something deeper like a way of working or thinking that grows over time and makes the company, you know, stand out amongst the peers.
Thank you.
Applicable for all companies, all products. The very first thing is that whether you are in a growth segment and whether you have got leadership there and we have been a long-term player there and we have good reputation for being there. If it is so, when the industry is growing, I should be growing if I keep doing the good things. That's the first part of it, general. The second part of it is that how you continue to grow or expand your market share. You said that other than the product range, product is very important, that whether your products are innovative, products are reliable, products are available at all price points, and it is able to compete and overall competitiveness. Therefore, you have to continue to invest and build, because in a growing segment there will be many competitors.
All of them reputed, all of them trying to grow their own market share. The third part is that the intangibles, how you will excel. The important part is the customer experience, whether it is in delivering product, in installing a product, how you look after the consumer. Next is that how you improve your operating efficiency through digitalization. Therefore, you are able to improve your profitability. Lot of things together has to be orchestrated in order to maintain your leadership position and grow. This will be the same for all leaders in all categories ahead of the curve. In anything, if innovation is going to take place, whether you are ahead of that, whether energy level change is going to take place, you are ahead of the curve, whether refrigerant change is happening.
Whether you are ahead of it, whether there is a digitalization, whether you are ahead of it. AI, whether you are ahead of it. That's how you play.
Okay, my last final question, again a forward-looking one, on margins and cost planning. You know, as GST changes and weather.
Disruptions, you know, keep on affecting demand.
How are you planning to protect the margins? Are there any smart internal methods that you are going to be putting into place that help you keep the delivery quality high without putting any pressure on the profits?
Thank you.
Yeah. Broadly, how you will weather proof your business, because the weather can spoil the game. There is no doubt about it. Each time this happens, you will try to become smarter. I'm not claiming we have become smarter. The question is whether there are other portfolios which will protect you, which means the equal attention to B2B products as well as B2C products. The second is, even room air conditioner, there is a significant amount of consumers who are B2B within room air conditioner. How you will enhance your share from those customers. The next part is connected with how you will have the inventory production management in such a manner you are able to manage the disruptions without being saddled with huge inventory.
That is beginning to happen.
Because earlier the industry was dependent on, booster was dependent on imports. In which case the material would have arrived. Because you are now manufacturing in a.
Big way, you can at least curtail.
The production and component ecosystem is evolving. You are able to curtail and manage the component ecosystem. Still, whether you have mastered that, I wouldn't say so because that three-month window is very significant. Any business that is seasonal, there will be some pain if the season is not happening, but we continue to work on various initiatives. For example, you might have ended up advertising in IPL anticipating that there is going to be a summer season. If summer fails, you will be, but next time it will be very clear I may not go ahead and incur the expenditure in advance and suffer. I will have to change my marketing expenses mix substantially in order to weatherproof ourselves. These are the pictures.
Thank you for the guidance and I.
Wish the entire team best of luck for Q3.
Thank you.
Thank you very much ladies and gentlemen. That was the last question for today. I would now like to hand the conference over to Mr. Nikhil Sohani for closing comments. Over to you sir.
Thank you very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. Do feel free to revert to us in case any of your questions were not fully answered, and we'll be happy to provide you additional details by email or in person. Thank you.
On behalf of Blue Star Limited. That concludes this conference. Thank you for joining us today and you may now disconnect your lines.