Blue Star — Q2 FY26 earnings call

Call held 6 Nov 2025

Management summary

Blue Star reported modest growth in Q2 FY26 amidst challenges like a subdued summer, GST rate changes, and unseasonal rains. While the Electro-Mechanical Projects segment showed strong revenue growth and improved margins, the Unitary Products segment faced de-growth due to inventory buildup and demand moderation. The company is focusing on cost control, inventory management, and strategic market share gains, with a cautious outlook for the full year given prevailing market conditions.

Highlights

  • Revenue from operations grew 6.4% YoY to Rs. 2,422 crores in Q2 FY26.

  • EBITDA margin improved to 7.6% in Q2 FY26 from 6.6% in Q2 FY25.

  • Net profit grew 2.8% YoY to Rs. 99 crores in Q2 FY26.

  • Carried-forward order book as of September 30, 2025, grew 7.9% YoY to Rs. 7,120 crores.

  • Segment-I (Electro-Mechanical Projects and Commercial AC) revenue grew 16.5% YoY to Rs. 1,664 crores.

  • Segment-II (Unitary Products) revenue de-grew 9.5% YoY to Rs. 694 crores.

  • Net borrowings stood at Rs. 417 crores as of September 30, 2025, compared to net cash of Rs. 185 crores a year ago.

  • Inventory levels reached approximately 65 days of sale, higher than the ideal 45 days.

Concerns

  • Unseasonal Rains and Weather Disruptions

  • High Channel Inventory

Key financials

  1. Revenue from operations ₹2,422 Cr +6.4%YoY
  2. EBITDA ₹183.4 Cr
  3. EBITDA Margin 7.6%
  4. PBT ₹133 Cr +1.3%YoY
  5. Net Profit ₹99 Cr +2.8%YoY
  6. Capital Employed ₹3,531 Cr

What they filed

Q1 FY27: revenue up 13.3%, net profit down 14.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,276 2,807 4,019 2,982 2,422 +6%2,925 +4%4,072 +1%3,378 +13%
EBITDA149 209 279 199 182 +22%220 +5%326 +17%175 −12%
Net profit96 132 194 121 99 +3%81 −39%227 +17%103 −15%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹2,422 Cr Total
  • Segment-I: Electro-Mechanical Projects and Commercial Air Conditioning Systems ₹1,664 Cr 68.7%
  • Segment-II: Unitary Products ₹694 Cr 28.7%
  • Segment-III: Professional Electronics and Industrial Systems ₹64 Cr 2.6%

Order book

high confidence

Total value

₹7,120 Cr

as of 2025-09-30 quantified

7.9% YoY

Inflow this quarter

₹1,922 Cr

Composition

  • Electro-Mechanical Projects (segment) ₹4,840 Cr
Order finalizations for Electro-Mechanical Projects were muted, and existing infra-projects are taking more time than estimated, leading to a cautious approach.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Net ₹417 Cr
    Net borrowings of Rs. 417 cr as of September 30, 2025, as compared to net cash positions of Rs. 185 cr as of September 30, 2024.
  • Liquidity Liquidity disclosed Shift from net cash position to net borrowings attributed to inventory buildup and ongoing capex.
    Net borrowings of Rs. 417 cr as of September 30, 2025, as compared to net cash positions of Rs. 185 cr as of September 30, 2024.

Guidance & targets

Profitability

  • Segment-I Margin Profitability · rest of the year · High confidence 7% to 7.5%
    So the guidance as far as Segment-I is concerned, it is 7% to 7.5%. That's what you should go ahead with.

    — B. Thiagarajan

  • Full Year Margin Profitability · full year · Medium confidence 7% to 7.5%

    Previously 8% → 7% to 7.5%

    I think we should be very happy if we end the year anywhere between 7% to 7.5%. We will work towards 7.5%, it can well be 7%.

    — B. Thiagarajan

Revenue

  • Full Year Growth Revenue · full year · Medium confidence flat growth

    Previously positive 5% → flat growth

    But as of now, I am still hoping that one can attempt to deliver flat growth, if there is going to be a good summer outlook.

    — B. Thiagarajan

  • Projects Business Growth Revenue · Medium confidence 10%
    Growing by 10% to 15% is very easy, but the question is that good cash flows, good margin, if that is the case, I would say that 10% growth is the guidance.

    — B. Thiagarajan

  • Commercial Refrigeration Growth Revenue · this financial year · High confidence 7.5% to 8%
    And one can say that it will be somewhere around 7.5% to 8% growth at least should be possible for this business in this financial year as a whole.

    — B. Thiagarajan

  • Industrial Systems CAGR Revenue · High confidence 10% to 12%
    So one can say that at a CAGR of 10% to 12%, it will grow.

    — B. Thiagarajan

Volume

  • Commercial AC Industry CAGR Volume · next 5 years · High confidence 12%
    My guidance will be, it will be having a CAGR of 12% over the next five years. So that is the industry and we should do better than the industry, that is the attempt there.

    — B. Thiagarajan

Market Share

  • Room AC Market Share Market Share · by FY27 · High confidence 15%
    We will move towards 15% market share. And by FY27, we should get to 15% market share. That is a goal there.

    — B. Thiagarajan

What to watch in Q3 FY26

Full Year Revenue Growth

H2 FY26
Current Minus 15% to 0% (range)
Target Flat growth

Why it matters

Management significantly revised full-year growth guidance; achieving the flat growth target will indicate demand recovery and effective execution in challenging conditions.

But as of now, I am still hoping that one can attempt to deliver flat growth, if there is going to be a good summer outlook.

Risks & concerns

  • Unseasonal Rains and Weather Disruptions

    high

    Unseasonal rains across the country have impacted demand and prevented inventory liquidation during the festival season.

    Management acknowledged

  • High Channel Inventory

    high

    Blue Star's inventory is at 65 days of sale (vs. ideal 45 days), and industry levels are even higher, potentially leading to pricing pressure.

    Management acknowledged

  • Regulatory Uncertainties in MedTech Business

    medium

    Pending finalization of regulatory policy framework for refurbished medical diagnostic equipment is causing de-growth in the MedTech solutions business.

    Management acknowledged

  • Slow Execution of Infra-Projects

    medium

    Slow execution and delayed speed in infra-projects are impacting order finalizations and the company's ability to take on new orders.

    Management acknowledged

Q&A highlights

8 direct
Segment-I Margin Expansion Direct
the margin in a particular quarter will depend on which are the segments that have done well, broadly here. So the weightage of Commercial Air-Conditioning or the weightage of Electro-Mechanical Projects, will impact also Second part is connected with what kind of jobs and projects got closed Broadly for your guidance, the margins are good in manufacturing, data center segments.

Management clarified that margin fluctuations in Segment-I are primarily due to the changing mix of business within the segment, rather than a fundamental shift in profitability.

Asked by Natasha Jain

Segment-II Margin Resilience and Cost Control Direct
Now, subsequently, when summer has not happened, you do many things. The very first thing is connected with advertising, which is easy to do, in-shop demonstrators, for example. And you go ahead and focus on manufacturing cost reduction. And you will be also seeking discounts wherever it is possible. But the significant part is connected with the cost reduction, that's what had happened.

The response explained how the company maintained Unitary Products (UCP) margins despite revenue de-growth, by implementing cost-saving measures and seeking discounts after the summer season failed.

Asked by Natasha Jain

Revision of Full-Year Growth Guidance Direct
I am also cautioning that it is now dependent on that six weeks in Q4. So it can well be a growth which is minus 15%, it could be. So the range could be minus 15% to 0. But as of now, I am still hoping that one can attempt to deliver flat growth, if there is going to be a good summer outlook.

Management provided a detailed rationale for lowering the full-year growth guidance to flattish (from positive 5%), citing unseasonal rains, GST impact, and high inventory levels, indicating a more cautious outlook.

Asked by Natasha Jain

High Inventory Levels and Pricing Pressure Direct
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 got inventory with the dealer, so 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.

The company acknowledged the high inventory levels (65 days) and the potential for pricing pressure, explaining its strategy of regulating production to manage dealer inventory and sales before the energy label change.

Asked by Aditya Bhartia

Long-term Outlook for Professional Electronics and Industrial Systems (Segment-III) Direct
Industrial Systems business, it will continue to grow. Directly there is a correlation with the manufacturing investments on the GDP growth. So one can say that at a CAGR of 10% to 12%, it will grow. The MedTech business, which is connected with diagnostic machines like MRI, CT scanner, right at the moment there are regulatory uncertainties.

Management provided a clear long-term growth trajectory for the Industrial Systems part of Segment-III, while highlighting the ongoing regulatory uncertainties impacting the MedTech solutions business.

Asked by Aditya Bhartia

Deceleration in Electro-Mechanical Projects Order Book Direct
No, it is not. I do not see a deceleration. Definitely not. Right now, the order inflow was muted, but it should come back. That's not a problem. There is a reason, that business capex is cyclical in nature. So I will not look at a deceleration at all.

Management clarified that the muted order inflow in Electro-Mechanical Projects is a cyclical phenomenon and not indicative of a long-term deceleration, expecting a rebound in the future.

Asked by Keyur Pandya

Overall Caution and FY27 Outlook for Room AC Direct
CAGR, you cannot be doing two-year excluding one-year. That's not the way to do it. According to me, if you look at the FY20 to FY26, it is 16%. FY21 to FY26, it will be 24%. FY22 to FY26, 21%. FY23 to FY26, it will be 15%. By many estimates, FY25 to FY30, it will be 19%. So, do not worry about it.

Analyst probed if the current caution extends to FY27, and management reassured by reiterating strong long-term CAGR expectations for Room AC, implying robust growth in FY27 to meet those targets.

Asked by Manoj Gori

Strategy for Building a Strong Edge Amidst New Competition Direct
The second part of it is that how you continue to grow or expand your market share. So you said that other than the product range, but product is very important. Products are innovative, reliable, available at all price points and it is able to compete and overall competitiveness, therefore, that you have to continue to invest and build, because in a fast-growing segment there will be many competitors.

Management outlined a multi-faceted strategy focusing on leadership, market share expansion through product innovation, customer experience, and operational efficiency to maintain competitiveness in a growing market with many players.

Asked by Sucrit D Patil

2 min read 6 chapters

Detailed narrative

Q2 FY26 Performance Amidst Headwinds

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.

Segmental Performance and Challenges

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.

High Inventory Levels and Market Outlook

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.

Shift to Net Borrowings and Capital Allocation

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.

Strategic Focus and Long-term Growth Drivers

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.

Mitigating Seasonal and Market Risks

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.

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