BLUESTARCO - Blue Star Ltd Share Price

Management Outlook:
Blue Star's management remains optimistic about growth, driven by summer demand, potential government spending revival, and private sector capex. Headwinds include rupee depreciation, commodity price volatility, and supply chain disruptions, but mitigation plans are in place. The company aims to sustain strong performance through cost control, R&D, digitalization, and strategic inventory management.

Key Highlights:

1. Financial Performance:

   • Q3 FY25 revenue grew 25.3% YoY to Rs.2,807 Cr; net profit rose 31.8% to Rs.132.5 Cr.
   • EBITDA margin expanded to 7.5% (vs. 6.9% YoY).
   • Record order book of Rs.6,802 Cr (up 12.8% YoY).

2. Segment Performance:

   • Unitary Products (Segment-II): Revenue up 21.9% with 100 bps margin improvement (8.1%) driven by Room AC demand. Market share rose to 14%.
   • Electro-Mechanical Projects (Segment-I): Revenue grew 32.2%, but margins dipped to 7.6% due to project mix. Order inflow surged 39% to Rs.1,748 Cr.
   • Professional Electronics (Segment-III): Revenue declined 22.1% due to weak Med-Tech/Data Security demand; revival expected in FY26.

3. Strategic Focus:

   • Room ACs: Targeting 15% market share; leveraging scale, consumer finance (40% sales), and new product launches.
   • Commercial Refrigeration: Recovery post-regulatory issues; summer demand expected.
   • International Expansion: Initial OEM shipments to EU/US markets amid trade policy uncertainties.

4. Risks: Supply chain disruptions, liquidity pressures, and forex volatility. Margins guided at 7-7.5% (Segment-I) and 8-8.5% (Segment-II).

5. Capex: Ongoing investments in manufacturing (Rs.750"“800 Cr over 3 years) and R&D for energy-efficient products.

Outlook: Confident in closing FY25 strongly, supported by summer demand, stable pricing, and execution agility.

Question 1:
"The 3rd Quarter is usually an unseasonal quarter, but we have seen good growth on RAC [Room Air Conditioners] mainly on account of prolonged summers. Now, do you think the channel is cautious in stocking for Q4 due to a prolonged winter? How does growth look given high bases?"
Answer:
Growth in Q3 was driven by festive demand, stable pricing, consumer finance options, and low penetration (8%), with a projected industry CAGR of 19%. Dealers are stocking normally for summer, and demand remains robust despite winter. Margins (8"“8.5%) are sustainable via scale, innovation, and cost control.

Question 2:
"Segment-I and Segment-II margins are near peak guidance. Can we expect further margin expansion, especially with Commercial Refrigeration recovery?"
Answer:
Segment-I (7"“7.5%) and Segment-II (8"“8.5%) margin guidance remains unchanged. Commercial Refrigeration issues are resolved, and recovery is expected. Margins depend on stable commodity prices, forex, and competition, with limited near-term upside.

Question 3:
"How has affordable AC penetration in North India impacted market share? Can Blue Star sustain its 14% share amid supply chain disruptions?"
Answer:
Market share targets 15% with a focus on balancing growth and profitability. Affordable models expanded reach, but margins face pressures from consumer finance (40% sales), warranty costs, and regulations. Scale and innovation aim to sustain margins.

Question 4:
"Update on the W J Towell arbitration case. What's the impact on financials?"
Answer:
The arbitration is ongoing, with filings submitted per timelines. Management is confident in their legal position and expects resolution in 12"“15 months. No financial risk is anticipated.

Question 5:
"Why are Professional Electronics margins declining? When will this segment recover?"
Answer:
Segment-III margins fell due to muted Med-Tech and Data Security demand. Industrial Solutions performed well. Recovery is expected by FY26, with cost control and working capital management prioritized until then.

Question 6:
"How will supply chain challenges (e.g., compressors) impact growth? What's the capacity expansion plan?"
Answer:
Raw materials are secured for summer. Localization (via PLI) and scale mitigate supply risks. Capacity is modular, targeting 1.8"“2.4 million units. CAPEX of Rs.750"“800 crore over three years covers manufacturing, R&D, and digitization.

Question 7:
"With energy label changes (2026) and OEM capacity additions, can margins hold at 8.5%?"
Answer:
Energy-efficient products are ready for 2026. Margins rely on scale, value engineering, and competition. New costs (e-waste, finance) offset savings, but 8"“8.5% guidance remains feasible. PLI benefits (Rs.78 crore over 4 years) support investments.

Question 8:
"Elaborate on growth drivers for the Electro-Mechanical Projects segment."
Answer:
Focus on manufacturing, data centers, and infrastructure (metros, airports) drives growth. Profitability prioritizes cash flow over market share. Order book (Rs.5,146 crore) reflects strong demand, though margins vary by project type.

Question 9:
"Could PLI-linked OEM capacities intensify margin pressure if demand slows?"
Answer:
PLI incentives depend on incremental sales, but demand (15%+ industry growth) supports utilization. Margin risks exist in downturns, but current planning and diversification mitigate cyclicality.

Question 10:
"Was there pre-buying ahead of energy label changes? How much PLI was booked in Q3?"
Answer:
No pre-buying occurred (label changes effective 2026). PLI benefits (Rs.75"“80 crore over 4 years) are tracked annually, with FY25 details to be disclosed later. Current quarters reflect operational performance, not PLI.