Blue Star — Q3 FY25 earnings call

Call held 30 Jan 2025

Management summary

Blue Star delivered strong Q3 FY25 results, outperforming the market with robust revenue and operating profit growth, primarily driven by exceptional performance in the Room AC business. The company achieved a 14% market share in Room AC and expanded margins in the Unitary Products segment. While facing headwinds in Professional Electronics and certain supply chain aspects, management remains optimistic about future growth, banking on the upcoming summer season and strategic investments in capacity and R&D.

Highlights

  • Revenue from operations for Q3 FY25 grew by 25.3% YoY to ₹2,807.36 crores.

  • EBITDA for Q3 FY25 increased by 34.8% YoY to ₹209.38 crores, with EBITDA margin expanding to 7.5% from 6.9% in Q3 FY24.

  • Net profit for Q3 FY25 grew by 31.8% YoY to ₹132.46 crores.

  • The Unitary Products segment (Segment-II) reported revenue growth of 21.9% and a 100 basis points margin expansion.

  • Room AC market share improved to 14% in Q3 FY25, driven by strong festive season demand.

  • The carried-forward order book reached a record high of ₹6,801.99 crores as of December 31, 2024, representing a 12.8% YoY growth.

  • The company aims for a 15% market share in Room AC by FY25 and to maintain an 8.5% operating margin for the segment.

Key financials

  1. Revenue from Operations ₹2,807.36 Cr +25.3%YoY
  2. EBITDA ₹209.38 Cr +34.8%YoY
  3. EBITDA Margin 7.5%
  4. PBT (before exceptional items) ₹167.2 Cr +24.5%YoY
  5. Tax Expense ₹46.53 Cr
  6. Net Profit ₹132.46 Cr +31.8%YoY
  7. EPS ₹6.44
  8. Capital Employed ₹2,763.4 Cr +20.2%YoY

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
₹2,807.41 Cr Total
  • Segment-I: Electro-Mechanical Projects and Commercial Air Conditioning ₹1,562.41 Cr 55.7%
  • Segment-II: Unitary Products ₹1,164.4 Cr 41.5%
  • Segment-III: Professional Electronics and Industrial Systems ₹80.6 Cr 2.9%

Order book

high confidence

Total value

₹6,801.99 Cr

as of 2024-12-31 quantified

12.8% YoY

Inflow this quarter

₹1,748.3 Cr

Composition

  • Electro-Mechanical Projects (segment) ₹5,146 Cr
The carried forward order book is at a record high, with good progress in order finalizations from factories and data center market segments.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹750 Cr
    • Manufacturing
    • Product Development
    • Digitalization
    The CAPEX amount over a period of around three years will be in the region of around Rs. 750 cr to Rs. 800 cr, and that will be moving towards both manufacturing as well as product development, and certain amount of digitalization.
  • Debt Net cash ₹102 Cr
    Net cash position as on December 31, 2024, was Rs. 102 cr as compared to a net cash position of Rs. 157 cr as of December 31, 2023.
  • Liquidity Cash ₹102 Cr
    Net cash position as on December 31, 2024, was Rs. 102 cr as compared to a net cash position of Rs. 157 cr as of December 31, 2023.

Guidance & targets

Market Share

  • Room AC Penetration Level Market Share · next few years · Medium confidence 30%
    My understanding is as follows, first, this is a category in which the penetration levels are low. Obviously, it will go beyond 8%, it should move towards 30% or something like that over the next few years.

    — B. Thiagarajan, Managing Director

  • Room AC Market Share Market Share · FY25 · High confidence 15%

    Previously 15% by FY24 (not achieved) → 15%

    Now, our goal was to achieve a market share of 15% by FY24, which did not happen and FY25 we said that we will achieve a market share of 15%. But as you can see, if we reach 14%, we should be happy. And 15% is what we will attempt. Our sense is that anywhere between 12.5% to 15%, you are a significant player, you will be able to leverage many things and continue to grow. Now, our immediate goal is 15% market share.

    — B. Thiagarajan, Managing Director

Profitability

  • Segment-I Operating Margin Profitability · long-term · High confidence 7% to 7.5%
    The margin guideline was 7% to 7.5% in Segment-I, 8% to 8.5% Segment-II. Unless and until something dramatically changes, let us say commodity prices crash, the margin can go up. If there is supply chain disruptions and there is going to be escalation in commodity, it can significantly go down, or Forex. As of now, I think 7% to 7.5%, 8% to 8.5% holds good.

    — B. Thiagarajan, Managing Director

  • Segment-II Operating Margin Profitability · long-term · High confidence 8% to 8.5%

    — B. Thiagarajan, Managing Director

  • Room AC Operating Margin Profitability · long-term · High confidence 8.5%
    Our goal is to keep that operating margin intact of 8.5%.

    — B. Thiagarajan, Managing Director

Market Share & Profitability

  • Overall AC Market Share & Margin Market Share & Profitability · within a couple of years · High confidence 15% market share, then 8.5% margin
    Now, keeping all that in mind, our goal is to reach a 15% market share within a couple of years, and then keep delivering that 8.5%.

    — B. Thiagarajan, Managing Director

Volume

  • AC Industry Volume Volume · this year · Medium confidence above 15 million units
    All that we know is that it is very likely the industry closes above 15 million, and we will close much higher than 1.5 million this year.

    — B. Thiagarajan, Managing Director

  • Blue Star AC Volume Volume · this year · Medium confidence much higher than 1.5 million units

    — B. Thiagarajan, Managing Director

Revenue Growth

  • AC Industry Revenue Growth (Summer Season) Revenue Growth · summer season · Medium confidence 25%
    Now coming to whether the growth will be, yes, I am saying the growth, if the summer season is good even if 25% growth has to be achieved, we have enough raw materials.

    — B. Thiagarajan, Managing Director

PLI Benefits

  • PLI Benefits Realization PLI Benefits · over a four-year period · High confidence ₹75-80 crores
    So, the question is that, look, we are already in, say, we have indicated earlier that we are eligible for somewhere close to over a four-year period Rs. 78 cr of PLI benefits for eligible investment of somewhere around Rs. 155 cr or something, I do not remember the exact figure, but it is in the order of around between Rs. 75 cr to Rs. 80 cr, and we are on track on that.

    — B. Thiagarajan, Managing Director

CAPEX

  • Total CAPEX CAPEX · over three years · High confidence ₹750-800 crores
    The CAPEX amount over a period of around three years will be in the region of around Rs. 750 cr to Rs. 800 cr, and that will be moving towards both manufacturing as well as product development, and certain amount of digitalization.

    — Nikhil Sohoni, Group Chief Financial Officer

Capacity

  • Sri City Plant Capacity Capacity · current year · High confidence 600,000 units

    Previously 300,000 units → 600,000 units

    at Sri City we were investing, we started with 300,000, we will now reach up to 600,000 and as and when we want, we can scale it up. So, in the current year also the capital investments have happened and this will keep happening as we see the demand. We can go up to around 1.8 million to 2.4 million as the demand scales up.

    — B. Thiagarajan, Managing Director

  • Sri City Plant Scalable Capacity Capacity · as demand scales up · Medium confidence 1.8-2.4 million units
    We can go up to around 1.8 million to 2.4 million as the demand scales up.

    — B. Thiagarajan, Managing Director

What to watch in Q4 FY25

Commercial Refrigeration Business Performance

Q4 FY25
Current Regulatory issues behind, Q3 stabilized.
Target Promising Q4, strong market demand.

Why it matters

This segment faced setbacks and its revival is key for overall Segment-II performance.

The regulatory issues faced in Water Coolers and Deep Freezers in the previous quarters are behind us and now we are focused on preparing for the forthcoming summer season. We are expecting the upcoming quarter to be promising one as market demand is likely to be strong.

Risks & concerns

  • Supply Chain Restrictions

    medium

    Ongoing supply chain restrictions, intensified post US elections, impacting Professional Electronics segment.

    Management acknowledged

  • Raw Material Cost Escalation

    medium

    Escalation in raw material costs is a headwind, potentially impacting profitability.

    Management acknowledged

  • Market Liquidity Crisis

    medium

    Liquidity crisis in the market is a headwind, and liquidity issues in certain market segments are delaying order finalizations for Commercial Air Conditioning.

    Management acknowledged

  • Union Budget Uncertainty

    medium

    Uncertainty regarding the Union Budget's impact on the economy and CAPEX cycles.

    Management acknowledged

  • Headwinds in Professional Electronics Segment

    medium

    Supply chain restrictions and muted domestic demand impacting revenue growth and profitability in Segment-III, with revival expected in FY26.

    Management acknowledged

  • International Business Slowdown

    medium

    Slowdown in European market and uncertainty around U.S. trade policies may impact scaling up of international business.

    Management acknowledged

  • Indian Rupee Depreciation

    medium

    Depreciation of Indian rupee is a headwind.

    Management acknowledged

  • Competition and New Costs Impacting Margins

    medium

    Intense competition, along with new costs like e-waste compliance and consumer finance, keep operating margins in check despite scale benefits.

    Management acknowledged

  • PLI-linked Capacities and Demand Volatility

    medium

    If demand is low, PLI-linked capacities across the industry could lead to inventory issues and margin pressure, which is 'part and parcel of the game'.

    Analyst acknowledged

Q&A highlights

7 direct
Room AC Q3 Growth Drivers and Channel Stocking for Q4 Direct
The first part is, it is not due to prolonged summer, the summer had ended by July. It is demand that has been good during the festival season, commencing from Dussehra, Diwali, New Year, it continued. ... The key question is: how is the summer season going to be? You mentioned about winter and North India people are disappointed that the winter has gone, and they are feeling that it should have lasted for some more time. Usually, we pray that March first week onwards there is summer, and February onwards again stocking takes place.

Clarified that Q3 growth was demand-driven, not weather-driven, and highlighted the critical role of the upcoming summer season for Q4 performance, while noting healthy channel stocking.

Asked by Natasha Jain

EBIT Margin Trajectory for Segment-I and Segment-II Direct
The margin guideline was 7% to 7.5% in Segment-I, 8% to 8.5% Segment-II. Unless and until something dramatically changes, let us say commodity prices crash, the margin can go up. If there is supply chain disruptions and there is going to be escalation in commodity, it can significantly go down, or Forex. As of now, I think 7% to 7.5%, 8% to 8.5% holds good.

Reiterated the long-term margin guidance for both key segments, indicating stability unless major external factors like commodity prices or forex rates change significantly.

Asked by Natasha Jain

Market Share Strategy and Profitability for Room AC Direct
Now, our immediate goal is 15% market share. Our goal is to keep that operating margin intact of 8.5%. For this itself you have to keep in mind, there are many other costs which other categories may not have. So, the first thing I explained in the earlier question is the consumer finance part of it. 40% of the sale is happening through consumer finance, you have to reckon that. Whatever be the reason, the industry offers warranty of five years, so therefore there is some warranty cost.

Provided clarity on the company's dual focus on achieving 15% market share while maintaining 8.5% operating margins, explaining the cost factors unique to the AC industry that influence profitability.

Asked by Nitin Arora

Levers for Future Profitability Improvement Direct
Multiple things are there; the scale has only begun. As it continues to grow, it stays, isn't it? So, there is a scale advantage, it will be perpetual, it will continue to be there. First part. The second one is connected with the affluent customers moving up the value chain. So therefore, you will be able to improve your margins in certain SKUs. The third one is connected with the ability to innovate and continue to enhance reliability, at the same time in the product in terms of input cost, including alternate materials that may be possible like aluminum microchannel in place of copper, for example.

Outlined specific internal levers for margin expansion beyond current levels, including benefits of scale, premiumization, and innovation in product design and materials.

Asked by Nitin Arora

W.J. Towell Arbitration Update Direct
So, that arbitration, as you are aware, is in progress. There is a certain timeline to which the arbitration is working. As per that timeline, we were required to file a statement of defense which we have done. There are certain things on which the submissions have been done. And of course, we are confident, as we had told earlier also, that this company in which we were joint venture partners and which we had kind of exited almost seven years back, we have a very strong case, and the same thing holds today, too. So, I do not think there is any risk on that count. Of course, we will wait for the arbitration to play out. But the necessary timelines are being adhered to, and we are doing the filings as per the timelines. ... expect 12-15 months for resolution.

Provided an update on the ongoing arbitration, confirming adherence to timelines, management's confidence in their case, and an expected resolution timeframe of 12-15 months.

Asked by Aniruddha Joshi

Professional Electronics (Segment-III) Margin and Revenue Outlook Partial
Today, as we have mentioned that there are certain headwinds in both data security as well as Med-Tech, while Industrial Solutions is doing good. So, the margin profile for each segment is different, and accordingly the margins get influenced. So, that is the reason why you see the margins kind of moving in a particular manner. The current drop in the margins is because out of the three segment lines that are there within that segment, two are not doing well and one is doing well. So, as we said, we expect the revival to happen slowly over next year, and by that time probably the segment margins could improve a little.

Explained the reasons for margin deceleration in Segment-III due to mixed performance of sub-segments and indicated a slow revival over the next year.

Asked by Aniruddha Joshi

Continuation of UCPL Growth and Supply Chain Issues Direct
Now coming to whether the growth will be, yes, I am saying the growth, if the summer season is good even if 25% growth has to be achieved, we have enough raw materials. Right now, not only Blue Star, all players should have secured their components for the summer season because it's planned much in advance. I want to clarify on the issue of supply chain in general. What is the direction of the Government of India and the DPIT has been, create the component ecosystem, that's why PLI was brought in. Almost all components have been indigenized.

Addressed concerns about sustaining growth on a high base and supply chain, confirming raw material readiness for summer and highlighting government's push for indigenous component ecosystem.

Asked by Bhoomika Nair

Margin Impact from AC Energy Rating Changes and OEM Capacity Direct
No, there is no fear and how fear will help? it will not. It is about what all can happen. First of all, the energy label change is due on 1st of January 2026. The product meant for that is already developed, so there is nothing to worry about it because in the energy labeling sufficient time is given for people to develop. It is always a discussion with the industry by consensus when what table change has to take place. It is an ongoing discussion, going forward it can become even more stringent because the installed population is going up, and it is in the interest of the regulators and the industry.

Clarified that the company is prepared for the upcoming energy label changes in 2026 and views it as a manageable, ongoing process, mitigating concerns about its impact on margins.

Asked by Naushad Choudhari

2 min read 5 chapters

Detailed narrative

Strong Q3 FY25 Performance Driven by Room AC

Blue Star reported a robust Q3 FY25, with revenue from operations growing 25.3% YoY to ₹2,807.36 crores and operating profit increasing by approximately 35%. The Unitary Products segment, particularly Room AC, was the primary growth driver, achieving a 21.9% revenue increase and a 100 basis points margin expansion. The company's market share in Room AC improved to 14%, benefiting from strong festive season demand and proactive inventory management ahead of the summer season.

Segmental Performance Overview

Segment-I (Electro-Mechanical Projects and Commercial Air Conditioning) saw revenue growth of 32.2% to ₹1,562.41 crores, with its carried-forward order book increasing by 10.7% to ₹5,146 crores. Segment-II (Unitary Products) recorded an 8.1% segment result margin, up from 7.1% YoY, primarily due to the strong Room AC performance. In contrast, Segment-III (Professional Electronics and Industrial Systems) experienced a 22.1% revenue de-growth to ₹80.6 crores, with its segment result margin contracting to 7.7% from 14.7% in Q3 FY24, due to headwinds in Med-Tech and Data Security businesses.

Strategic Investments and Future Preparedness

The company continues its investments in research and development, digitalization, and manufacturing, ensuring future readiness. Capital employed increased to ₹2,763.4 crores as of December 31, 2024. Blue Star plans a CAPEX of ₹750-800 crores over the next three years for manufacturing, product development, and digitalization. The Sri City plant capacity is being scaled up from 300,000 to 600,000 units and can further expand to 1.8-2.4 million units as demand grows.

Market Share and Margin Outlook

Blue Star aims to achieve a 15% market share in the Room AC segment by FY25 and maintain an operating margin of 8.5%. Management believes the AC market has significant penetration headroom, with a projected CAGR of 19% over the next five years. While scale benefits are expected to improve profitability, new costs related to consumer finance, warranty, e-waste compliance, and intense competition are expected to keep margins within the guided range of 7-7.5% for Segment-I and 8-8.5% for Segment-II.

Business Outlook and Macro Factors

The company is optimistic about the forthcoming quarter, anticipating benefits from the summer season, potential revival in government spending, and accelerated private sector CAPEX. However, headwinds such as Indian rupee depreciation, commodity price escalations, and supply chain disruptions persist. Management highlighted mitigation actions in place and is closely monitoring external factors like the Union Budget and global trade policies, which could influence future performance.

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