Ladies and gentlemen, good day and welcome to Blue Star Limited Q1 FY 2027 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. We are here to share with you the highlights of Q1 FY 2027 financial results, which were approved by our board yesterday. Thank you for joining this call. Before I hand it over to Mr. Nikhil Sohoni, I wanted to point out a few things.
The first one is you might have seen the results, particularly the margins for Segment 2 have been disappointing to you. We will clarify the facts behind these numbers. Broadly, we have fallen short of the expectations, but the fundamentals are strong. We expect to bounce back in the next nine months. You need not worry. I will provide that outlook as well. If you specifically look at the Segment 1, you would have seen that we have grown more than 15%, actually 15.1% in terms of revenue.
The margins were down by around 112 basis points, primarily due to input costs on commodity prices. The exchange rate, that is the impact that's going to be furthermore in Segment 2 as well. In Segment 2, the revenue growth you will be seeing is around 13%, but a significant drop in the EBIT margins by around 300 basis points. In other words, what was last year Q1 5.8 dropped to 2.9.
If you look at the January to June period for this segment, the EBIT margin has been more or less flat. It is 7.3 to around 7.1, and that drop is not significant for the H1 part of it. In terms of the market share, some of you at least would have seen the GfK reports.
In April, we lost around 50 basis points for room air conditioners, in May, we gained around 10 basis points. In June, we gained around 50 basis points. This is where the full story lies about the numbers. We entered the financial year with the hope that we will be able to pass on the commodity price and other input cost increase to the consumers. The total impact that we wanted to pass on was around 13%. What we could pass on was only 5%. In April, the summer set in much later. You will recall that it was around April 20th.
In the May investor call itself, I had pointed out that it was a late summer, we hoped that in the last week of April, when the summer season picks up, we will be able to manage our margins and pass on the entire cost increase, which didn't happen. We lost the market share, that's why 50 basis points in tertiary sales was the erosion in terms of market share.
We embarked on corrections from the second half of May itself, we gained market share. I told you 10 basis points. In June, additional 50 basis points. Q1 as a whole in the secondary tertiary sales, our market share erosion is just 30 basis points, which is not significant. We close the year with around 14.25%. We will be marginally lower than 14% market share.
This market share management has happened basically by maintaining the prices in line with what is prevailing in the market and incurring huge expenditure in terms of consumer schemes because we wanted the tertiary sales volume to go down, because at some point of a time, primary sales will have to begin.
The Segment 2 revenue growth, one may wonder why GfK is reporting a decent growth. Why the revenue growth is this. GfK is a secondary tertiary data, which more or less correlates with the primary sales data. The real problem is the commercial refrigeration business, which has de-grown by around 15%, it is primarily due to deep freezers and the cold rooms. Specifically, the ice cream as well as the frozen food and the quick service business segment did not do well.
On the whole, Segment 2 revenue drop is appearing to be 13%, or it is 13% because of commercial refrigeration. The bottom line is as follows, that we took a hit in the operating margin in order to more or less maintain our market share. Still, as we speak, the commodity prices are going up.
Our expectation is that this should correct over the rest of the year, because at some point of time, we expect market prices also to go up. The outlook, without waiting for the questions, I am disclosing here. Our estimate is that the revival will happen sometime end of August to September as the festival season begins, the corrections are going to happen significantly in Q3 as well as Q4 because we are taking several actions, including rejigging our product portfolio. That exercise has begun.
As of now, we have visibility to close the year with an operating margin of over 6.5% for Segment 2 in the financial year FY 2027. As for the Segment 1 is concerned, the margin outlook remains the same, 6.5%-7%. Our big focus is to manage between the market share and the margins.
In Q1, which is an aberration, we could manage the tertiary market share more or less at the same level as we were last year. We took a hit in the margin. The focus will have to shift to rejigging the product portfolio. Otherwise, the fundamentals are strong, we look forward to closing the year on a higher note. The two significant things that have happened or silver linings are, number one, our continued leadership position in the data center MEP projects segment.
We have close to around INR 1,500 crore of order inflow from this segment alone, taking the pending order book or the carried forward order book as on 30th June 2026 to over INR 7,700 crore. We expect the order inflow for the full financial year from data center MEP projects to be around INR 3,000 crore, and in revenue terms, it should translate to close to around INR 1,400 crore.
As I had stated in the last conference call and many other media interactions or one-on-one interactions, the data center MEP projects will constitute close to 20% of our revenue at around INR 4,000 crore coming from the data center MEP projects alone by FY 2029. That segment is the one which is performing exceedingly well. The second highlight will be the net cash position.
We have managed our working capital well, the inventories are under control, and our debtor position is very strong, and we are having a net cash position of INR 900 crore, more than INR 500 crore higher cash than last year. Last year was something INR 71 crore of cash.
The carried forward order book is very healthy, the B2B part of the business should be doing well with around INR 7,764 crore. The singular focus in the next six months to nine months will be improving the margins for the room AC addition specifically. We are certain that we will hold on to the market share. That's not the issue. The issue is we have to rejig the product portfolio and, even as the competition intensifies, how we will close the year with a margin of over 6.5%.
Ideally, we would like to be 7%-7.5%, which I do not have the view as of now. We will wait for the war to end and how the exchange rate, how the commodity prices are going to move. On the whole, I mentioned to ET this morning, it's a four-test match series. The first match is lost, and there are three more matches which you have to bounce back and win, and I am certain we will win. With that, I hand over to Nikhil. Thank you.
Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. This is Nikhil Sohoni, and I will be providing you an overview of the results of Blue Star Limited for the quarter ending June 2026. Since many of you would have gone through the results, I'll keep this brief so that we get more time for Q&A session.
Coming to financial highlights, as we had indicated previously, Q1 FY 2027 was a challenging quarter with many headwinds, including unprecedented escalation in commodity prices, depreciation of rupee, delayed onset of summer season, and a huge inventory pileup of room ACs in the trade. While the revenue growth for the quarter was 13%, the margins were impacted. A key positive was the strong inflow of data center MEP project orders, reflecting the sustained momentum in this high-growth segment.
The financial highlights for the quarter ending June 2026 on a consolidated basis are summarized as follows. Revenue, as you've already seen, revenue from operations of Q1 have grown by 13.3% to INR 3,378 crores as compared to INR 2,982 crores in Q1 of FY 2026. The PBT before exceptional items dropped by 23.7% to INR 125.6 crores as compared to INR 164.6 crores in Q1 of last year.
The carried forward order book as on June 30, 2026, grew by 13.5% to INR 7,764 crores as compared to INR 6,843 crores as on June 30, 2025. Carried forward order book as on March 31 stood at INR 6,923 crores. The quarter ended with a strong net cash position of INR 900 crores as on June 30, 2026, as compared to a net cash position of INR 371 crores as on June 30, 2025.
The improvement was driven by a release of working capital during the quarter. Coming to segment-wise highlights. Segment 1, that is Electro-Mechanical Projects and Commercial Air Conditioning . The order inflow for the quarter was strong at INR 2,435 crores in Q1 of the current year as compared to INR 1,963 crores in Q1 FY 2026, a growth of 24%. Within this Electro-Mechanical Projects business, we recorded strong order bookings in the project business during this quarter, driven primarily by data centers.
While in the other market segments like commercial office, factories, infrastructure, order inflow remains sluggish as cost escalation due to West Asia crisis led to deferment of order finalization. Given the escalation of the input material cost, we continue to exercise caution in this business. We are also in the process of accelerating the closure of large infrastructure projects. Coming to Commercial Air Conditioning Systems .
During the quarter, this business reported growth on back of reasonable demand from industrial, retail, and healthcare segments. All key product categories like ducted, VRF, and chillers registered growth during the quarter. From the inquiries and order inflow, growth prospects for the rest of the year appear reasonably good.
However, escalating commodity prices and a depreciating currency will continue to put pressure on margins in this business. International business. Our international business witnessed good growth in Q1 FY 2027 despite of supply chain and logistics disruptions. With product approvals in place for a few customers, we are looking to scale this business to generate additional export revenue of $100 million per annum from FY 2028. While the demand is good, the future prospects of U.S. business is largely dependent on U.S. trade tariffs.
Overall Segment 1 revenue grew 15.1% to INR 1,625 crores in this quarter as compared to INR 1,412 crores in Q1 of FY 2026. The segment result was INR 111 crores, which was 6.8% of revenue as compared to INR 112 crores, which was 7.9% of revenue in Q1 of FY 2026. The margin for this segment is influenced by the projects and product mix, and hence it may vary quarter to quarter.
Coming to Segment 2, that is Unitary Products. For cooling products, the quarter began with a delayed onset of summer season. There was a pressure to liquidate the inventory pile up in the trade. As far as primary sales are concerned, we are attempting to pass on at least part of the cost escalation impact, but market operating prices remain low. You may recall we had deferred certain discretionary costs which were incurred during last quarter.
In short summer window with investment in advertising, trade schemes, and consumer finance offers, while we succeeded in good performance in tertiary sales, we could not succeed in achieving desirable primary sales volume growth. All of this impacted our margins. If we normalize the timing impact of discretionary costs, our margins for this segment from January 2026 to June 2026 stands at 7%.
Going forward, with continued escalation in input costs and weakness in Indian rupee, we expect margins to be under pressure. Our endeavor will be to further tweak the product portfolio with a basket of competitive entry-level products to accelerate revenue growth and improve profitability. Coming to commercial refrigeration business. The commercial refrigeration business witnessed degrowth during the current quarter as demand for deep freezers from ice cream OEMs was muted. We expect the demand to pick up during the festive season.
Even though we maintained the market share, the degrowth was to the extent of around 15% in deep freezer business. Consequent to the above, the Segment 2 revenue grew by 12.8% to INR 1,689.3 crores in Q1 of FY 2027 as compared to INR 1,499 crores in Q1 of FY 2026. The segment result was INR 50 crores, that is 2.9% of revenue in Q1 of FY 2027 as compared to INR 87 crores, which was 5.8% of revenue in Q1 of FY 2026.
Coming to Segment 3, that is Professional Electronics and Industrial Systems . The revenue degrew by 9.7% to INR 63.6 crores in Q1 FY 2027 as compared to INR 70.4 crores in Q1 of FY 2026. The segment result was INR 9.5 crores, which was 15.1% of revenue in Q1 of FY 2027 as compared to INR 7.6 crores, which is 10.8% of revenue in Q1 FY 2026.
The segment revenue declined mainly due to continued challenges in Med-Tech business. Finally, coming to business outlook. Overall, in FY 2027, the Electro-Mechanical Projects business will benefit from strong inflow of orders from data center MEP projects. Commodity prices and exchange rates continue to be highly volatile, and our endeavor will be to balance volume growth and margins prudently in our products business.
While the fundamentals of Blue Star and the medium-term outlook for the AC air industry continue to be strong, in view of the West Asia conflict and consequent market uncertainty, we remain cautious about the outlook for this financial year. We will now request for questions to be on the thing. Yeah.
Shall we open the line for questions?
Yeah, please.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on a touch-tone 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 comes from the line of Manoj Chaurasia with Equitas Capital. Please go ahead.
Yeah. Thank you for the opportunity, sir. Sir, my question first on the RAC to revise margins.
Could you be a little louder?
Is it better now?
Yeah.
Yeah. To revise margins in the Unitary Product segment and especially for room AC, one, we highlighted about the product rejig. One thing, in Q1, what was the impact of this deferred cost? Because Q4 obviously looked optically higher and Q1 is optically looking far weaker. Adjusted for that, what could have been your Q1 margins and probably what are the other initiatives that we are taking to revive our margins for Unitary Products for rest of FY 2027?
My second question on MEP business. Here we have been very positive, even in the press release and even in the opening remarks. Earlier we were talking about 8%-10% kind of revenue guidance for this business for the entire FY 2027. Are we looking to upgrade our guidance on MEP business? Yeah, those are my two questions.
Yeah. Hello?
Yeah.
Yeah. Mr. Thiagarajan, you there?
I am there. Am I audible?
Yeah.
Yeah. Thank you for your question. First of all, there is no deferred cost from Q4 at all. You mentioned something like what is the deferred cost. The margin that we declared in Q4 is the right margin. It was a double-digit margin if you recollect. Okay? There is no deferred cost into Q1 or anything. It is an actual cost that was incurred in Q4.
How it has to be understood is that when you do the material accounting, it is on a rolling basis. You will have an inventory of some old material also being there, and as you move into the season, there will be a fresh material that will be coming in. Okay? The price increase that is to be passed on had not been passed on fully. That is the first part of it. There is a second part.
We wait for April last week, summer has set in. In May, whether the market situation changes. Unfortunately, it did not change because many of our competitors had material and they were maintaining lower prices. In the process, having understood that we lost a 50 basis points market share in April, what we should be doing? We should be doing that, look, it is important in this business to be not losing the market share to what extent you can go ahead and do.
Our immediate thing is that our tertiary sales should be improved through consumer finance and other schemes so that the dealers are able to liquidate. We incurred those costs. The in-shop demonstrators, advertising, field marketing and the consumer finance.
These costs came in in May and June in a significant manner, which resulted in our bouncing back with a 10 basis point market share in tertiary sales. Again, in June, I think we performed exceedingly well in the industry with a 50 basis point gain of market share. Suddenly in June, summer ends after the first week because the consumer sentiments also change the moment the petroleum prices started going up, et cetera. You asked about the second part.
The margin that is declared is not due to any deferred cost at all. It is an actual margin. That is what has taken place. What needs to be done? You have to, hopefully, in old inventory, all of the industry is getting exhausted, so the market operating prices, one hopes will go up.
The second part is, fortunately, it is a lean season. The second quarter is not a big quarter. It will pick up from Onam season, Ganpati onwards towards the festival season. That is the place where we have to look at what we can do in taking out the cost out of the products very quickly. That is the second part of the exercise. The third part of the exercise is by Q4, we should have rejigged our product portfolio.
There are numerous opportunities that, look, we have demonstrated it again and again. That's why I'm saying that you may see a slight improvement in Q2. Q3 should be much better. Q4 will be a defining period. Our calculations show with the cost-saving opportunities that we have got and our view of the market, I am saying that 6.5% for full year may not be a challenge.
You have to look at 7%-7.5%. That is what I've been saying that this business should operate at. We are the industry benchmark for ROCE. That part of it is not an issue at all, that we continue to do well there. Even in terms of working capital, you have seen. The real challenge is the market operating prices in the industry vis-a-vis what costs and what market share goals we have got.
That's how you have to understand it. Commercial refrigeration products could have helped in terms of the revenue growth. The margin profile there is not significantly different. Only in the cold rooms it will be different. In the deep freezer is again a unitary cooling product. Unfortunately, that has been doing badly, the industry itself.
One hopes in the festival season that also revise, because for a long period it cannot be muted. This is the answer. Thank you.
Sure, sir. Lastly, on the MEP business.
Sorry. I will tell you. We have never stated about 8%-9% margin at all. See, there.
Not margin, sir. On the revenue side.
Yeah. I had indicated the CAGR for the room air conditioners as a category for the industry over a five-year period, 18% is looking good. I had also stated Commercial Air Conditioning Systems or MEP projects in terms of CAGR, you should look at only 8%-10% kind of growth. It is not a sector which is going to grow.
What has significantly changed is the data center segment. There, there is a huge rush to block the capacities of the vendors. That many data center operators are blocking our capacity. "Can you take this order? Can you sign a three-year contract?" That is what is happening. At the same time, you have to understand there is an infra projects business that we have. We have a buildings vertical we have.
Our principle is very clear, that I cannot, for a data center segment, go ahead and expand my team exponentially. I am expanding my team. I am investing in manpower, but also significant amount of my manpower and other resources are getting diverted from infra and building sector. Probably, the growth what we indicated as 8%-10% may go up to 12% for a couple of years.
It can. I have given you the figure. That is today, this financial year, you can take that our order inflow will be INR 3,000 crore and our revenue will be INR 1,350 crore from this segment alone. This is likely to become an order inflow of around INR 4,500 crore next year and around INR 2,100 crore of revenue next year. That's where it is. This segment can accelerate the growth. This is limited to this particular segment.
It may be there again. We think that there will be a cycle. There is a huge rush, there will be a dip, and again it will be coming back. It is not on a steady state. Whereas in room air-condition, because of the penetration, you can say over a five year period, 18% CAGR is assured like that.
Sure, sir. Thank you and wish you all the best.
Thank you.
Thank you. Next question comes from the line of Natasha Jain with Phillip Capital. Please go ahead.
Thank you for the opportunity. Sir, three questions. One. In terms of the import costs, especially in quarter two, given that we'll now be importing from Kaeser, heavy lifting that and quoted 40% of the BOM cost we import. Additionally, copper sequentially is also up 9%. [inaudible] which is not taken or the industry is not taken the entire price hike.
On that note, and given that volumes are already tapped, do you think that margins will look more blown out of proportion on the negative side in quarter two and therefore 6.5%, which you just guided on the Segment 2 EBIT, do you think that could also see further tapering going into the year? First question, that. Second question, sir, is on the trade scheme. Could you call out specifically what these schemes were?
Just want to know if it was more a direct discounting or not, and more so from, was it competition that took so much of discounting that we had to follow through? Usually Blue Star as a company do not engage in such kind of discounting. Going forward, how difficult will it be to roll back these discounts and then sell without all this? Lastly, sir, on the data center MEP work, is this more a margin-aggressive business or this is more of a top-line story? Yeah. That's that, sir.
I'll answer the last one first. The data center business is not a top-line alone. Out of the MEP project verticals, if you take buildings or the infra projects like metro railway or electrical water, compared with that, the data center segment is attractive for the simple reason these are 8-12 months commissioning projects. It doesn't last three, four years. The second thing is the payment terms are very favorable.
Third is there are enough price escalation provisions on the metal prices specifically and on electrical items. We are very happy with the MEP projects. The execution pressure will be high, we are leaders there today, basically because we deliver these projects well. Therefore, I may not say that we are being given a premium or something like that, but we are the preferred contractors. Compared with other segments, it is very attractive.
It is not a top-line story alone. It is a highly profitable business with good cash flows. We will be also investing there in modernizing the execution, improving our efficiency, and it requires specialized professionals. We are investing in human resources as well. That is the first part of it.
Come to the room air conditioners. Your question is a combination of strategic as well as current operational issues. You are right. Blue Star would like to be in that high-end premium segment. For us, the profitability has been more important than the market share. Now, our behavior would have been like that had it not been for the unprecedented increase in the input costs. Our behavior would have been different if it is not the year after a bad summer year. Okay. We started with Q4 was a stellar performance.
You are aware of it. It is close to 10.4% operating margin that we delivered. We ended the year with a market share gain, and despite being a bad summer year. We felt that this strategy is going to work in the month of April. It didn't work. Suddenly, in one month alone, with around 50 basis points, and the inputs we had from the trade was that, "Look, you are going on increasing the prices, and we are not able to lift, we are not able to sell."
The immediate decision was that I have to help the dealers sell, and that was through the promotions and specifically the consumer finance. This consumer finance cost had significantly gone up, but it paid off.
We saw in the 15 days in May, when we took that decision, our reversing the whole trend and gaining 10 basis points of market share. In June, even though the summer ended, we ended up gaining around 50 basis points market share. It is about managing tactically in order that. We were very sure six months nothing will change if we don't act now, let us do that but a ll along, the hope was that at some point of a time, you know this war is going to end, or it happens, then it suddenly starts, but it is lingering. Having said that, I do not foresee in Q2 anything dramatically going to change in terms of the cost structure. Input costs are going to be higher only. What I'm expecting is the market operating prices should be better than what it is.
It's not going to be dramatically different, but it will be better than what prevailed in Q1, because I'm estimating that the old inventory that was there would have got liquidated. You also keep in mind, because of the energy label change, the trade bought excess material of the old energy label material and continued till April with that material, because only manufacturers cannot build.
The trade can keep stocking that and selling that product. I am expecting the market operating prices to go up. From our side, we are trying to see that how we can make certain products more competitive. As you can imagine, this will take time. It is not overnight. You have to do the testing, et cetera, then alternate component. Or some product we were developing, we were waiting for six more months to launch it, we are expediting that.
All these actions have to take place or beginning to take place from now on. Q3, if the festival season is doing well, we should be improving the margin further. We are determined. We will get back to our conventional margins in Q4. These are our plans that the entire thing depends also on the recession crisis, exchange rate.
You have got how the competition is going to behave. My outlook, I had said that once upon a time, it was a 12% margin industry, and it came down to 9.5%-10%. It came down to 8%-8.5%. Of late, I have been saying it is going to be 7.5%-8%, and I am only hoping that for this commodity price increase, it should go back to 7.5%-8%.
It will be unfortunate if this growing industry also settles down to some 6.5% industry basis combined all put together. I don't think it will happen because the opportunities are plenty, and I think because of the energy label changes, because of the regulatory changes, because of Make in India, this should change. One more thing you have to remember is the PLI schemes.
The people are at their peak, and it will be coming to an end. This INR 4,000 crore of PLI is going to anyway get diluted because PLI is not based on the production. It is based on an incremental sale. Over the base year of 2022, if someone is going to sell more, they are going to get more incentive. It is a SLI, not really a PLI, though it is called a PLI.
You have to be conscious of that fact as well, that money is also getting diluted into the pricing. Now, bottom line, how confident I am that we will reach 6.5%? I am certain we will. Unless something completely untoward happens of a full-blown war in the Middle East and the economy collapses, global economy. Otherwise, 6.5% should be possible. There are enough levers we have already identified.
Whether it will be 7% or 7.5%, we are unable to say. Whether Blue Star will maintain its market share, that is the decision now. That because of one year of unprecedented commodity price escalation and market not able to pass on, whether we should slide back in our market share. May 2nd week, we made up our mind that we should not allow the market share to deteriorate. This period will be over at some point of time. Thank you.
Thank you, sir.
Thank you. A reminder to all the participants, please restrict yourself to two questions. Next question comes from the line of Saumil Mehta with Kotak MF. Please go ahead.
Yeah, thanks for the opportunity. Sir, two questions from my side. First, in terms of the commercial risk where you told that there was a degrowth because of the deep freezers and ice cream, was it got to do with the industry-wide demand destruction, or was it specific market share loss because of higher competitive intensity of ice cream?
We have held on to our market share. There is absolutely no problem. Unlike room air conditioners, there you have a GfK data. We do not have. We have to go by industry data that is available, that business is predominantly through the OEMs. I don't think there is a residential market of significant size. We know which are the rate contracts, whether it is Amul or Mother Dairy or Havmor, so many ice cream brands what they are lifting from there. This is not a market share loss. The industry has not grown. That's why we are hopeful at some point over time, it has to revive.
Sure. In terms of the MEP division, where incremental ordering from data center is going up, now you mentioned that the terms of trades are better, and obviously it comes at a slightly better margin, I believe. If not now, but from a structurally two or three years perspective, is it fair to assume that the unit one division can see margins in north of 8%, 8.5% on a structural basis with far better ROCE because of a better payment terms?
Certainly. As we move towards that peak golden period of data center-dominated MEP segment, the margin should go up.
Sure. My last question, sir, in terms of the revenue growth for the UCP, broadly, if you can split, not the exact number, but what was the volume growth and value growth for the current quarter?
In terms of how the market would have, the primary basically comes from the industry estimates. You have multiple points of checking that how it is, and you do get the data from the retailers, large retailers like Croma, Vijay Sales, and Reliance Digital. That's the basis of that. My estimate is, in Q1, room air conditioners market, in volume terms, grew by 21%, is my estimate, and Blue Star grew by 18%. Okay?
Blue Star.
In volume terms. In revenue terms, the market grew. I'm talking only about the Q1 period. My estimate is it grew by 25%, and Blue Star grew by 21%. These are all on the primary sales basis because your market share is based on primary, right?
Yes.
The GfK talks about the tertiary. The revenue terms market had grown by 25%, Blue Star grew by 21%. You are seeing the revenue growth as 13% because commercial refrigeration has pulled it down. Okay? This data will coordinate with what GfK tertiary is saying as well. If you look at July, August, September, this should play out in this manner that we do have the lag between the industry and ours.
What it translates to. In secondary sales, Blue Star lost a market share of 30 bps compared with March or compared with FY 2026. It is 0.3% drop in tertiary sales. In the primary sales, because of that April huge dip, Blue Star lost 0.65% or 65 bps. This is the data.
Sure, sir. Thank you so much and all the best for subsequent quarters.
Thank you.
Thank you. Next question comes from the line of Praveen Sahay, PL Capital, Prabhudas Lilladher. Please go ahead. Mr. Sahay, sorry for interrupting. We cannot hear you. Your voice is breaking. Can you come in the range and talk?
Am I audible?
Yes, please go ahead.
Thank you, sir, for the opportunity and detailed explanation about the result. My question is related to commercial AC, because their sales growth in the Q1 has been good and you are expecting a good growth there as well while there is some contraction in the margin. What kind of a growth you had seen in the Q1 and way forward, how much you are expecting from the commercial AC space?
Commercial AC space, again, is driven by today the manufacturing or industrial sector, which is doing well. Data center chillers market is growing, but while we have a 30% market share in data center MEP projects and our market share will be 10%-12% in data center chillers because we compete with larger multinational players there. There are four or five of them. We compete with them. There the market share is not 30%.
If you look at manufacturing, if you look at the other sector which had driven growth is the healthcare sector. The other sector which is also doing well is the education sector. There are few other sectors which are not doing well. This quarter we are seeing them reviving as well. Most importantly, the retail and the education sectors. They should be coming back.
The outlook will be that around 10% growth is easily possible, in Commercial Air Conditioning . 15%, I am not able to predict now.
Right, sir. Next is .
I'm not able to hear you.
How much of the CapEx you have done in the Q1 and for the next nine months, how much is the plan?
Nikhil will answer that. Nikhil.
In Q1, the CapEx has been in the region of around INR 60 crore-INR 70 crore. Annually, if you see our CapEx, when I say CapEx, it includes CapEx, it includes R&D intangible spends if any on product development, as well as any digital spends that we do. Overall, the growth-related spend should be in the region of around INR 300 crore-INR 350 crore if everything goes as per plan.
Thank you, sir. All the best.
Thank you.
Thank you. Next question comes from the line of Sonali Salgaonkar with Jefferies. Please go ahead.
Sir, thank you for the opportunity. My first question is on the inventory, channel inventory levels currently, in the industry or with Blue Star. Is it normalized? And if yes, at what level is it?
I don't think it is in alarming level, but it has not normalized. See, the anticipation was the summer will continue beyond June 10th into July. That was the expectation but June itself, after 10th, it suddenly collapsed the demand. Therefore, the channels carry some more inventory, but I don't think it is at alarming level at all.
The key question to be asked is that when the channel will start buying the new inventory for the forthcoming festival season. I think in Kerala it should start just before Onam. The rest of it during the Ganesh Chaturthi period onwards. This month is going to be a lull. That's how it will be.
sir by normalized, should we assume a 45-50 days reasonable levels right now?
There is a lot of confusion with regard to when you say there are the brands who hold the stocks in the field in their warehouses. The trade have already bought it and they are selling it during the month. If you put together, my estimate is it will be 60 days should be normal.
Got it.
If you take the trade alone, 45 days should be normal. What happened in Q1 or what happened in Q4 of last year is a different phenomenon altogether. That the energy label has changed, you buy that material. Carry excess inventory in the hope of summer. The summer gets delayed, chaotic pricing in order to liquidate.
The brand says that I am going to increase the prices, and therefore, the trade starts buying before it goes up in the hope of summer. The summer is a curtailed summer, but I would not still complain. I think the volume growth of around 25% happened. See, this is also a function of what is the total manufacturing capacity today. It is almost double of the market size.
They wouldn't have produced double, that is the capacity available thanks to the PLI scheme and the competition entering this particular space. There is excess capacity available. All the consumer and durable industry go through one particular phase, and that's what we are in. If the commodity prices wouldn't have gone up in this manner or the exchange rate would have been reasonably under control, if the summer season would have been good, the pain will not be there. This is a perfect storm of multiple things happening.
Understood. Sir, second question on price hikes. You did mention that you attempted to pass on a part of the cost surge, you had to keep the prices largely in tandem with the marketplace prices. About 5% hike is what was in net affected in Q1. In your view, how much price hike should be required to recoup our loss margins from here on?
Simply saying, even in the month of May, 8% more was needed. As we speak yesterday, the copper has touched a record price. I don't know today what it is. The rupee is still volatile, the petroleum-based products prices will keep going up. Ideally, you pass on additional 8%, that is not going to be available. It all depends on how the market is going to behave. You have to go ahead and reduce the cost. There is no other way. I don't think the market will be accepting it.
Understood, sir. Very clear.
Who does it faster will be the beneficiary.
Got it, sir. Very clear, and all the best to the team.
Thank you.
Thank you. Next question comes from the line of Aditya Bhartia with Investec. Please go ahead .
Hi. Good afternoon, sir. Sir, given that we had increased prices only in line with the industry at around 5%, what do you think led to the market share loss? That's my first question. A related question is that when we speak about product rejig, what does this necessarily entail? Are we confident that the entire exercise should be done by third quarter, and during the festive season in fourth quarter, we can benefit out of this? Thank you, sir.
The first part is that I don't think many brands had increased it even by 5%. The products at older prices were available even in the month of June. Some of you had done the channel check. They were asking me this question. There are many products which are manufactured in January, February, or on the shelf even in June, despite being a good summer.
That means the products have been manufactured. See, the people who have strategically bought the commodities knowing that it is going up, it is probable. See, if there are enough OEMs in the market, you are aware of it that they can operate with 3.5%- 4% margin. You had many others, other than the regular players, getting into this with the OEM-made manufactured products. It is not that even that 5% was passed on by the other brands.
We had many brands who had not even increased it by 5%. The second part is that Blue Star's own thing could have been that had we known, we would have reengineered the products. The new energy label, when we launched the products, we were very clear that we will have products at all price points.
We will have the new energy label products. We will have premium products as well. What should have been different in retrospect is that all that it is needed is the lowest cost entry-level products. Predominantly, 90% has to be that. That is the thing. Your question is whether in six months it can be done. It can be done. There is no problem. There are quite a few levers have to be used. The alternate makes of the components. Some portfolio may have to be outsourced.
In certain other cases, the products will have to be redesigned. Fortunately, we have multiple designs. Like, for example, CCT has certain products, and our Himachal factories produce a different design. We have already plans to cut down some of the models and replace it with cost-competitive models.
What will not change is, we are very clear in terms of brand positioning, it has to be durable products. It has to be highly reliable products. It should be differentiated. Within that element, we have to compete on price as well. It is not that we will go down the path of cheap products, which is not the idea at all. We have enough levers. That's why I'm saying to you, in Q2 may not be any change. By the way, the earlier person had asked the question, will it get into negative territory?
I don't think so. We know for sure the improvement opportunities within Q2 in the lean quarter will be very limited. Some operating costs can be controlled, because we don't have a pressure of a secondary sales movement at this point of time. Q3, Q4, we are confident.
Understood, sir. That's helpful. Thank you.
Thank you. Next question comes from the line of Rahul Agarwal with IKIGAI Asset. Please go ahead.
Hi. Good afternoon, everybody on the call. Sir, just one question on exports. I'm excited to read this statement of additional $100 million of opportunities in FY 2028 itself, largely coming from U.S. Just wanted to understand, what is the current export run rate for the full year? We can talk about the last year.
Then 2027, you already spoke about good growth in 1Q . How do you look at the current year? Then FY 2028, is U.S. only going to be contributing to this growth? Middle East will obviously recover, we are assuming that. Then over and upwards of that, how do you see the opportunity in Europe? A lot more media is taking quite a bit of mind share there. Can we do anything over there?
Nikhil will take out from the annual report, the U.S. revenue is listed there. He will read it out for you from the balance sheet itself. That's a disclosed figure anyway. The statement that we are making is consistent with what I have been saying. There are three distinct markets. There is our traditional Middle East, Africa market, which is muted for obvious reasons, okay? That we have to wait for this crisis to be over. In any case, it was a very small market for us. It is not a highly profitable market.
The most profitable market for air conditioning industry is North America. That is the most profitable market for any brand. Then comes Europe. The two products that we are pursuing are air-to-air heat pump, air-to-water heat pump, and these are to replace the conventional heating systems out there.
The boiler-based heating. U.S. is beginning to move in the direction, that too, with a new refrigerant. We were also very clear we won't directly enter in our brand, which is an expensive proposition. Profitable opportunity is manufacturing products for other brands there under the CDM route.
OEM is original equipment manufacturing. ODM is original design and manufacturing. CDM is custom design and manufacturing, which means a brand in U.S. has decided that I'm going to introduce these models or these features, and you custom design for them, and you manufacture and export. This process takes a long time. With a couple of customers, we have progress. Our shipments are taking place. Trial orders complete. It has completed two seasons of summer and winter now, and it is on the verge of scaling.
There, this complication over the past 12 months of which tariff, there is a derivative tariff, there is suddenly 100% free trade agreement is hanging. Despite that, we have done that revenue figure Nikhil will give you. As we continue, the shipments are beginning to take place. All are waiting for when these trade-related issues will get resolved. That's where U.S. is. It is not scaling now only for that reason.
Otherwise, the customers are desperate to get this product. It is a huge success there. Come to Europe. In Europe, it is not new construction. New construction is very limited. It is supposed to be replacement or retrofit into the existing homes. Europe behaves in a completely different manner. They all expect subsidy from the government. The governments at some point of time introduced a subsidy and they withdrew that.
Germany was the first one to do. The consumer question is that, "Look, you are trying to de-risk the Chinese gas issue. You want to become green, and then the government should support." That is the position of the consumers. The market is now limited to the extent of only the consumers who can afford and go ahead and do.
Therefore, our OEMs are not growing. For me to grow, my OEMs should see a boom in that market. They believe that once this crisis is over, there should be growth. For a long time, it cannot be muted like that. In both U.S. and Europe, we are seen as China plus one. Where China can supply them the product, they can very well supply.
There are two issues, the China tariff is higher and the geopolitical issues, and they would like to de-risk and have one more country supplying. From India, we are better placed for the simple reason our multinational competitors are directly in there. The other American players will not buy from them. They have to buy from us, preferably if we do well. Good news, their learning curve is over. These products are perfected, these products are working. We hope this tariff thing cannot linger for a long time, and we should be growing. This is the full story about international business.
Yeah.
Go ahead.
In case I wanted to know the export numbers. In the current year, the rupee has moved, so taking an average, you can put it at around $80 million-$85 million in the current FY 2026, the reported year, last year. A year before that, it could have been in the region of around $55 million-$60 million. Around last year, growth will be around 40% in exports. $100 million is going to be additional revenue over and upwards of this in fiscal?
Yes.
Additional over FY 2026 figures.
Yeah. Additional over FY 2026 and by FY 2028.
Right. About $200 million. About $ 180 million, $190 million, right?
Correct.
Got it, sir. Thank you so much for the detailed answer. All the best.
Thank you.
Thank you. Next question comes from the line of Neeraj Jain with BNP Paribas. Please go ahead.
Hello.
Mr. Jain, please go ahead. Thank you.
Yes. Thank you for the opportunity. Sir, just one clarification on the price hike. In the last quarter, we have said that we have taken roughly 5% increase on account of BEE rating and another 8% on the commodity inflation. Now, when we are looking at this quarter numbers, our price action seems to be somewhere close to 3%-4%. That this gap is largely on the account of discounting, is that true? If that is true, how are we looking at the price, like the ASP increase for us for the next three quarters?
No, your understanding is only partially right. The five plus eight, 13, is supposed to be passed on. We could succeed in passing on only around five. Some models three, some models four, some models five. We failed, or it was not possible for us to pass on the rest at all. This is in terms of the gross margin.
You have got the operating costs that are there. That is, what happens is, when you are pushing the tertiary sales, you are going to be incurring costs in consumer finance and other costs in shop promotions, advertising. The combined effect is resulting in a margin erosion. This is what it is. That balance eight is not passed on.
Sure, sir. Going ahead, at least for the balance FY 2027, how are we looking at the pass on, or is it purely contingent on demand as of now?
I mentioned the month of July, August is not a big one. September it should pick up, only when sale is there you can adjust the margin, right? If there is a very small quantities are sold, that margin is not going to impact your quarter margin. I see only a marginal improvement happening in Q2 per se. Q2 will be assuming the festival season does well, it should be doing well. Q4 should be doing well because by then we will be ready with many new other cost-saving in the product.
There are the cost takeout from the products. Our new portfolio, a mix of what we may outsource and what we will make ourselves. I had stated that I am able to disclose that 6.5% is possible full year. Our aspiration is 7.5%.
7% or 7.5%, we have to wait and see how we progress each quarter. That's where we are.
Sir, do you think structurally, not for this year, but structurally the aspiration of 8%-8.5% that has now come down to somewhere between 7%-7.5%?
I had clarified this much earlier. The question is, it used to be a 12% thing. It came down to 10%. We said that it will be 9.5%-10%, the industry. I had stated 8%-8.5%. For the last six months I have been saying with the capacity that has increased and intense competition and the entry-level buyers driving the growth, it more looks like 7.5%-8%. That's what I stated. I stated today, the unfortunate part will be if it is to drop to 6.5% industry. I don't think it will happen given that the 18% growth CAGR is going to take place. It will be a disaster if it drops to 6.5%.
This industry, at this stage, going by what all has happened in television or washing machines or refrigerator, I think it will hold on to 7%-7.5%. This is not a period to judge that. This period is one energy level change and the erratic commodity price and exchange rate, you will not be able to get the answer. I think if this crisis goes some stable period, FY 2027 may determine that. I still believe that it will be a 7.5% operating margin industry.
Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question and answer session. I now hand the conference over to Mr. Nikhil Sohoni for closing comments.
Thank you very much, ladies and gentlemen. With this, we conclude this quarter's earnings call. Do feel free to revert to us in case any of your questions were not fully answered, and we'll be happy to provide you additional details by email or in person. Thank you.
Thank you. On behalf of Blue Star Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.