Blue Star

Blue Star reported a modest 6.4% increase in Q2 FY26 revenue from operations, reaching Rs. 2,422 crores, with net profit growing 2.8% to Rs. 99 crores. The EBITDA margin improved to 7.6% from 6.6% in Q2 FY25, primarily due to a favorable business mix. However, the quarter was challenging, impacted by a subdued summer season, the GST rate reduction announcement from August 15th to September 22nd, and persistent unseasonal rains, which collectively affected demand and inventory movement.

The Electro-Mechanical Projects and Commercial Air Conditioning Systems (Segment-I) showed robust growth, with revenue up 16.5% to Rs. 1,664 crores and a segment result margin of 8.8%. Order inflow for this segment was flat at Rs. 1,922 crores. In contrast, the Unitary Products segment (Segment-II) experienced a 9.5% de-growth in revenue to Rs. 694 crores, with its margin declining to 6.2%. The Professional Electronics and Industrial Systems (Segment-III) also saw a 20.1% de-growth, mainly due to regulatory uncertainties in the MedTech solutions business.

The company's inventory levels stood at approximately 65 days of sale as of September 30, 2025, significantly higher than the ideal 45 days. This, coupled with higher industry-wide inventory, poses a risk of pricing pressure as players aim to liquidate stock before the energy label change on January 1, 2026. Management expressed caution, revising the full-year growth outlook from positive 5% to flattish, with a potential range of -15% to 0% depending on H2 performance and summer onset.

Blue Star's financial position shifted from a net cash position of Rs. 185 crores as of September 30, 2024, to net borrowings of Rs. 417 crores as of September 30, 2025. This change is attributed to increased working capital requirements driven by inventory buildup and ongoing capital expenditure. The company aims to revert to a net cash position by year-end, contingent on improved market conditions and effective inventory management in the second half of the fiscal year.

Despite near-term challenges, Blue Star remains optimistic about its long-term prospects, targeting 15% market share in Room AC by FY27 and expecting 10-12% CAGR for Industrial Systems. The company is focused on maintaining its market leadership, expanding market share through product innovation, enhancing customer experience, and improving operating efficiency through digitalization. Management emphasized a cautious approach to projects business, prioritizing good margins and cash flow over market share.

To weather-proof its business, Blue Star is adapting its manufacturing planning, leveraging its B2B consumer base within Room AC, and managing inventory production to minimize disruptions. The company is also exploring partnerships for liquid cooling solutions in data centers and plans to adjust its marketing expenses to be less reliant on seasonal demand. Cost reduction efforts and seeking discounts from creditors were key to maintaining margins in the challenging Q2.