Blue Star Limited (500067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Blue Star Limited Q4 and FY '25 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. [Operator Instructions] 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.

Good morning, ladies and gentlemen. It's a pleasure and privilege to address you this morning. I have with me Mr. Nikhil Sohoni, who is the Group Chief Financial Officer. And you have seen the results published yesterday after our Board meeting, both for Q4 and the full financial year. You might have noticed that the total income for -- that is the consolidated income for Blue Star for the financial year ended 31st March 2025 has crossed INR 12,000 crores, and it is another landmark for the company. The net profit before exceptional items had grown by 40% to INR 581 crores. The profit before exceptional item again grew by 38.6% to INR 772.42 crores. These are a consistent performance for the third year in succession ever since the COVID recovery happened. Now it's an all-around performance, except for the commercial refrigeration business, the performance of which was impacted due to regulatory changes, which we had disclosed to you in Q1 itself. So these are regulatory changes that continued and the business has recovered and it had been somewhat flat compared with the last year in Q4. And as we speak, that business is growing significantly from April onwards. In fact, the March was a flat quarter, given that last March, it was very, very significant quarter for that business before the regulatory changes came into effect. I'll hand it over to Mr. Nikhil Sohoni for his opening remarks, but I am preempting a few things from the reactions, questions from many investors' financial press or the -- my own wealth adviser or even neighbors and relatives about our results compared with our competitors, whichever results have been published so far. Now the results, obviously, you all may be confused with what is going on in the industry. I'll begin with the first part, which is here and now, which is how is April going. I had -- from January, I have been saying last year was a very, very significant summer season with April more than 75% growth happening and Q1, more than 59% growth happening. The backdrop of it this summer, how it will be, has been the debate for a long time ever since weather forecasts have been available. We have been maintaining it should be anywhere between 20% to 25%, we should be happy. Now April had not been a month, which delivered in line with that outlook. First problem was in March itself, materials were lifted in significant quantities, which resulted in, in my estimate, more than 4 million units in the market. In my view, it was anywhere between 1.5 million to 2 million more inventory than what should have been there. And then there were sporadic rains across the country, including Mumbai for the past few days. And April sale would have been -- I understand the industry would have degrown anywhere between 15% to 20%. In our case, as I can disclose this, since the Board meeting is over, we would have grown by around 5%. Our own internal target was to grow by 25% to 30% because if the industry is growing between 20% to 25%, we wanted it to grow by 25% to 30%. Second concern will be with regard to commercial refrigeration because it is forming part of the segment 2. The -- that business, as I had mentioned earlier, is growing significant -- has grown significantly in April. It's more than 25% growth, whereas in the last quarter, it was flat. The third information you will be -- it will be in the questions that will come up, the energy labeling program, whether in January 1, 2026, whether it is going to change or it is going to change in 2027 again or it is also going to be in 2028. The discussions are on. It is in the advanced stages. Our anticipation is there will be indeed a change in 2026 and the next change will be 2028 with higher parameters. So the -- as originally envisaged, 2026 change should happen. That is what the industry is prepared for. Now I also want to reiterate the Blue Star segment 2 results, which I have been explaining for the past 2 quarters. It does not include commercial air conditioning. It does not include commercial air conditioning service in our case. In our case, it includes the room air conditioners, it includes the commercial refrigeration products. I explained to you, till such time we reclassify what is the path of room air conditioner, what is the path of commercial refrigeration, I'm unable to disclose that figure. But I can tell you that room air conditioner business has grown significantly. Commercial refrigeration business has been flat. In the first half of the year, it had degrown. In the last quarter, it has been -- it was flat. Now only way I can indicate is that had it not been commercial refrigeration degrowth, if it has been business as usual, our estimate is that our growth in revenue for Q4 would have been 500 basis points higher, revenue growth. The margin would have been higher by 50 basis points. It is even to disclose this, we took the Board permission that this is how we will disclose. Now the -- it does not include the commercial air conditioning or commercial air conditioning service, which will be close to more than INR 150 crores kind of profit at any given point of time, in any particular year or the average I'm talking about over the years. That is not part of the segment to at all in our case. It is purely room air conditioners and commercial refrigeration products. Then the industry, this is the last point I wanted to make, had been undergoing many supply chain challenges. And it is somewhat stable now with the extensions that are given for the compressor imports. And you might have read about an article about e-waste extended producer responsibility. The companies are filing suit against the government for increasing the rates. Now Blue Star also has filed a petition. The question here is the revised rate when it came into effect, whether it was provided for or not provided for. There are companies which would have provided for, there are companies which would not have provided for. Next part is you would have read an article or many articles about copper duty, whether it is under FDA and whether localization has happened, the good news is localization has happened. And we have signed an MOU with Hindalco for sourcing locally significant amount of material next year should be coming from within. Now in the last financial year, we would have imported copper. There had been, again, the question of whether the FDA-related disputes have been provided for or not. These are all business as usual. Some companies would have provided for, some companies would have not provided for. But as far as Blue Star is concerned, what needs to be provided for has been provided for. In other words, for example, in the e-waste matter, we might -- we have provided for that additional money. And if the court case goes in other favor, we will be writing it back. That's how the life will go on. Now the results of ours, to an extent, may not be comparable with others because it is a pure operating income that is there purely for the businesses that I told you in segment 2. I thought I must clarify this because numerous questions will come later. Our limitation is related to bifurcating this wide only. And we indeed consider this and at some point of a time, it may happen. But as of now, we are not able to. The way you should be able to also figure out our room air conditioner performance may be from GfK. There, you would have seen or some of you would have seen, we have gained market share by 100 basis points. And for 3 consecutive quarters, we have been leading in terms of the tertiary sales as well in many markets. So with that, I hand it over to Mr. Nikhil Sohoni for his opening.

Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. I'll be providing you an overview of the results of Blue Star for quarter ended March '25. FY '25 on an overall basis has been an exceptionally good year, delivering a 23.6% revenue growth on the back of the strong performance of FY '24. Profit before tax grew by 40.9%. EBITDA margin improved by 40 bps from 6.9% in FY '24 to 7.3% in FY '25. Carry forward order book rose to the highest ever level of INR 6,263 crores as compared to INR 5,697 crores in FY '24. This reflects on the operational rigor and efficiency and at the same time, depicts an extremely good pipeline to support growth. The company remained committed to its stated path of investments in research and development, manufacturing, sales and distribution, digitalization, talent development and capacity enhancement in order to strengthen its position in times to come. Coming to quarter ended March 31, 2025, financial highlights for the quarter on a consolidated basis are summarized as follows. Revenue from operations for Q4 FY '25 grew 20.8% to INR 4,018.9 crores as compared to INR 3,327.7 crores in Q4 of FY '24. EBITDA excluding other income for Q4 FY '25 INR 279.4 crores and EBITDA margin of 7% of the revenue as compared to INR 241.9 crores and EBITDA margin of 7.3% of revenue in Q4 of FY '24. PBT before exceptional items grew 16.2% to INR 248.8 crores, which is 6.2% of revenue in Q4 of FY '25 as compared to INR 214.1 crores, which is 6.4% of revenue in Q4 of FY '24. Coming to year ended March 31, '25, the financial highlights on the consolidated basis are as given below. Revenue from operations for FY '25 grew 23.6% to INR 11,976.7 crores as compared to INR 9,685.4 crores in FY '24. EBITDA, excluding other income for FY '25 improved to INR 875.9 crores and EBITDA margin of 7.3% of revenue as compared to INR 664.9 crores and EBITDA margin of 6.9% of revenue in FY '24, recording a growth of 31.7%, mainly due to impact of scale. PBT before exceptional items grew 38.6% to INR 772.4 crores in FY '25 as compared to INR 557.2 crores in FY '24. Tax expense for FY '25 was INR 193.6 crores as compared to INR 142.8 crores in FY '24. The effective tax rate was 24.7% for FY '25 as compared to 25.6% for FY '24. Net profit for FY '24 grew to INR 591.2 crores, which is 4.9% of revenue as compared to INR 414.3 crores, which was 4.3% of revenue. In view of the record revenue and profits earned by the company, a dividend of INR 9 per share, previous year's INR 7 per share, is recommended by the Board of Directors of the company. Carried forward order book as of March 31, '25 grew by 9.9% to INR 6,263.4 crores as compared to INR 5,697.6 crores as of March 31, '24. Capital employed as of March 31, '25 increased to INR 2,427.3 crores as compared to INR 2,156.7 crores as of March 31, '24. This was primarily owing to investments in fixed capital. The company reported a net cash position of INR 640.35 crores as of March 31, 2025, as compared to a net cash position of INR 455.9 crores as of March 31, 2024. Coming to segments, the business highlights for quarter 4. Segment 1, that is Electromechanical Projects and Commercial Air Conditioning Systems. The revenue grew 30.6% to INR 1,966.2 crores in Q4 FY '25 as compared to INR 1,506.8 crores in Q4 FY '24. The segment result was INR 149.9 crores, which was 7.6% of revenue in Q4 of FY '25 as compared to INR 112.5 crores, which was 7.5% of revenue in Q4 FY '24. Segment revenue for the year grew 27.2% to INR 5,998 crores as compared to INR 4,715.5 crores in FY '24. Segment result was INR 490.9 crores, which is 8.2% of revenue in FY '25 compared to INR 341.1 crores, which was 7.2% of revenue in FY '24. Order inflow for the quarter increased by 17.5% to INR 1,439.9 crores compared to INR 1,225.1 crores in Q4 of FY '24. Coming to Electromechanical Projects business, continuing with the trend of the previous quarter, this quarter also witnessed strong order finalizations primarily from factories and data center market segments. The commercial real estate and infrastructure market segments saw muted demand. The focus remains on faster execution of projects with healthier profitability and cash flow. The company is hopeful that growing data center investments and focus on manufacturing will result in fruitful opportunities in FY '26. The carried forward order book of the business stood at INR 4,755 crores as of March 31, '25, as compared to INR 4,344 crores as of March 31, '24, a growth of 9.5%. Coming to Commercial Air Conditioning Systems. The commercial air conditioning business delivered a good performance this quarter by maintaining its market leadership and improving profitability. Growth was led by resilient demand from health care, hospitality and education sectors. While the industrial and BFSI sectors remain muted, the government orders showed signs of revival during this quarter. Coming to International business. In FY '25, we have developed products for 3 OEMs in U.S. and Europe. And after completion of field trials of the products, commercial shipments have begun. While volatile global trade policies have led to the slowdown, the inquiry levels are higher in anticipation of India-U.S. trade deal and supply chain derisking by these OEMs. We expect more clarity to emerge in H2 FY '26. Segment 1 margin overall at 7.6% for Q4 FY '25 versus 7.5% in Q4 FY '24 and the margin for FY '25 is at 8.2% in FY '25 as against 7.2% in FY '24. As this segment comprises both projects and product business, the mix of which influences the margins. Coming to Unitary Products segment 2, revenue grew 14.7% to INR 1,960.2 crores in Q4 of FY '25 as compared to INR 1,708.9 crores in Q4 of FY '24. It is to be noted that this growth has to be seen in connection with Q4 FY '24 growth, which was 34.8%. Segment results improved to INR 164.5 crores, 8.4% of revenue in Q4 of FY '25 as compared to INR 141.4 crores that is 8.3% of revenue in Q4 FY '24. Similarly, the revenue for the year grew by 22.4% to INR 5,621.1 crores in FY '25, as compared to INR 4,592.2 crores in FY '24. Consequently, segment results improved to INR 471.2 crores, which was 8.4% of revenue in FY '25 as compared to INR 360.3 crores, which was 7.8% of revenue in FY '24. FY '25 was a landmark year for room AC business with sales volume crossing 1.53 million units. Coming to Cooling & Purification Products business. The room AC business recorded a strong growth during this quarter, driven by the upcoming summer season and rising demand in Tier 3, 4 and 5 markets. FY '25 witnessed a very strong demand growth and the overall performance of this business has been exceptional. Our market share now stands close to 14%. To capitalize on demand momentum, we have introduced a comprehensive new range of room ACs during this quarter, including a flagship premium lineup catering to every consumer segment across all price points. We continue to strengthen our presence across various distribution channels through targeted promotions and in-shop demonstrators by expanding distribution, especially in Northern India. With 2,100-plus service centers, 150-plus vehicles and its gold standard service, we continue to focus on reliable nationwide aftersales support. Coming to Commercial Refrigeration business, which also is a part of segment 2, the commercial refrigeration business was impacted due to regulatory changes in H1 of FY '25 and -- as well as supply chain constraints. Further, the slowdown in FMCG sector impacted the dairy and the frozen products, including ice creams, which resulted in lower demand for deep freezers. In Q4 FY '25, the demand has revived and the business has recovered. With the revival of demand from ice creams, frozen food and growth of quick commerce delivery platform, the outlook for this business is encouraging. In Q4 FY '25, this segment reported a margin of 8.4%, which is marginally better than 8.3% in Q4 of FY '24. The margin for FY '25 has improved to 8.4% from 7.8% in FY '24, aided by strong revenue growth in room AC business, leading to a benefit from economies of scale. Coming to segment 3, which is Professional Electronics and Industrial Systems, the revenue degrew 19.2% to INR 90.6 crores in Q4 FY '25 as compared to INR 112.1 crores in Q4 FY '24. Segment result was INR 8.8 crores, which is 9.7% of revenue in Q4 FY '25 as compared to INR 13.6 crores, which was 12.1% of revenue in Q4 FY '24. Segment revenue for the year degrew by 7.7% to INR 348.6 crores as compared to INR 377.7 crores in FY '24. Segment result was INR 29.7 crores, which was 8.5% of revenue in FY '25 as compared to INR 51.5 crores, which was 13.6% of revenue in FY '24. The MedTech business is facing headwinds from regulatory developments and the same has resulted in the loss of revenue and profitability for this business. Industrial Solutions business is showing momentum, but it is not compensating for lost opportunities. Coming to business outlook. For the second consecutive year, the company delivered exceptional financial results with a total income crossing INR 10,000 crores and profit before tax crossing INR 750 crores. The weather forecasts have predicted a strong summer, and we are hopeful that the momentum for the room AC business will pick up in May and June, even though the growth in the month of April was not in line with expectations. The hurdles faced by commercial refrigeration business are behind us. The strong order book of segment 1 and the growing demand from manufacturing and data center market segments will contribute to growth. The proposed India-U.S. trade deal should help us to scale our international business. Overall, we are optimistic about the prospects for FY '26. Of course, we have to keep a close watch on geopolitical developments, potential volatility in commodity prices and supply chain disruptions. With that, ladies and gentlemen, I'm done with the opening remarks. I would now like to pass it back to the moderator, who will open the floor to questions. We will try and answer as many questions as we can. To the extent we are unable to, we will get back to you via e-mail. With that, we are opened for questions.

[Operator Instructions] The first question is from the line of Natasha Jain from PhillipCapital.

Sir, first of all, the detailed commentary was helpful. My first question is on RAC. Now that you've mentioned and all your peers have also given out numbers, the top line growth was strong, could be because of channel filling. And the start of this quarter has been slightly tepid and May has any which way seen continuous rains in North of India. Given that all of our major players have backward integrated are now sitting with massive capacities and the season has kind of at least started with slight disappointment. And you said the BEE rating is due just probably 7, 8 months down the line. Does that mean that for the remaining part of the year, there will be pressure both in terms of volume because inventory will be high in the channel and then therefore, there could not be any pricing advantage?

So if you look at -- if you are in this business, you should always be a watch on [indiscernible] that, look, if it is going to be not that good summer, what one needs to do. That's what one will look at it, isn't it, that you won't be in the business. When we -- the risk, this will be -- already be there. It's almost like a cricket team. If that season is going to be rainy playing in Australia, England, they will know very clearly they are trained to do that. If you ask me before 2021, there was a serious problem because you are ordering for the material, many SKUs coming from China or Far East, you will not be able to do anything because you have already opened the LC, they started shipping it. And the inventory pressure will be huge. Thanks to Make in India, all of us have -- majority of us have already started producing in-house. It is a question of raw materials and what you have planned and how that is being imported or locally sourced month after month. So I do not see inventory as a problem. It is something very quickly, it will be corrected. So if you recollect, we are -- our memory short, including many Blue Starites. The whole bad summer was in FY '24. It is only 1 year, it changed. In FY '24, if you look at it, the -- as far as Blue Star is concerned, it started exactly like that. IMD forecast, March is becoming very, very hot and people started buying. It peaked in quite a few locations in March. April 15, suddenly it stopped. And the Q1 growth in FY '24 for us in room air conditioner volume terms was just 2%. And however, the year ended -- financial year '24 ended with 20% growth. And in fact, the Q4 -- Q3 itself showed 25% growth, the festival season part of it. And -- whereas if you look at FY '19 was -- FY '20 was a COVID-impacted year, 1 year prior to that was a very bad summer year. It was a huge preparation, and Q1 was minus 10%. Q2, however, showed 14% growth because in July, North India did well and some parts of the Madhya Pradesh, et cetera. And Q3 was a flat quarter. Q4 was again some single digit. Full year was a flat year. So I'm giving you 2 comparisons. Now it can -- we are again talking about a year on a base, which was very, very high. I am of the view that energy label change will not be an issue at all. For the simple reason, the production of those products would not have commenced and raw materials would have been ordered only for the summer season, finished good inventory when we -- in case the summer sales, I'm still hopeful something will happen in May and June because the weather forecast says from 12th onwards, it is going to be tough summer. Whether this year, again, 20% growth will be full year, you have to wait and see. But I'm not seeing it as a crisis and -- because we are seasoned players in this. It will be a disappointment if rain continues towards the summer.

That was helpful. Just one last question. In terms of commercial AC, I understand that VRF technology is the fastest growing and you have indigenously developed your own technology. Now what I've understood from the industry is this technology needs to continuously go through R&D in order to be with the updated technology. So here, because we have already made this technology probably a year before, are we going to see huge R&D spends on this? And therefore, can margins be impacted?

See, the -- not only commercial air conditioning, in fact, even room air conditioning requires technology for multiple reasons. So number one is connected with. You had a gap vis-a-vis competition, you will end up making. Centrifugal chillers, for example, it was not in our portfolio. We have invested in that. We are growing. We will keep developing that. So there's a product portfolio gap. There is a second type of R&D expenses where you want to become competitive. You launch a product. It is functioning very well, but you want to make it very, very cost effective, improve the margins and which means you will try out alternate vendors for many components. There is a second type of R&D. There's a third thing, which is actually energy label change or a refrigerant change in order to improve the sustainability, it will go on. Fourth is the developing technologies in digital or AI in order to improve the performance, in order to improve the reliability, in order to improve the energy efficiency itself. So you incorporate those technologies therefore. Now in all these, it is not only current year. You keep a 5-year road map and you start developing that, investing in that. So clear guideline is that whether it is room air conditioner or a deep freezer or it is a commercial air conditioning system, 1.5% to 2% of our revenue will be invested in R&D. It will keep on happening. And as you can imagine that we are not a global company, some global headquarters is going to develop a technology and give it to us. Whatever we have achieved, if we are able to compete with the multinationals or if our products are comparable to multinationals, thanks to our efforts in R&D. The last point is connected with the backward integration or vertical integration, whenever that needs to be done. So in make versus buy in component ecosystem, it's not only regulatory. In order to improve the margins from time to time, we will take such decisions. So our investments in R&D will continue to happen at around 1.5% to 2% of the revenue.

[Operator Instructions] the next question is from the line of Naushad from Aditya Birla Sun Life.

Highly appreciate the detailed explanation and almost everything, all queries have been resolved. Just one on the EPR side, if at all, it is possible, if you can quantify how much we have taken a provision last year, either in absolute term or as a percentage of revenue? And what was the expected increase on that base, for which we are fighting?

The exact figure, Nikhil will be able to tell you. What happened was the recycling was at some INR 9 per kg. It got increased to somewhere around INR 23 a kg. That is the issue. Now what is EPR? 10 years ago, whatever number of air conditioners I sold, equivalent material there will have to be recycled. And in India, generally getting this material back is a problem. One air conditioner becoming old, that is shifted to another bedroom and it is bought by somebody. And even if you pay INR 4,500, INR 5,000, it doesn't happen. So you are supposed to be going to the recycler, give the material that you have collected. Apart from that, you also buy the certificates for recycling. That rate tripling is the issue. So you assume approximately some INR 10 crores, what it was, it will become INR 30 crores. That's a type of formula as far as Blue Star. Exact figure, don't worry, it is in the order of INR 10 crores, which will go up to INR 30 crores and in the coming year. Last year, midway through, it came in. So the differential has been provided for.

And this INR 9 to INR 23 is for retrospective or for the fresh material?

Fresh material, whenever it came into -- in the middle of last year, it came into effect, which is what you are reading in the newspaper as being contested.

The next question is from the line of Rahul Agarwal from IKIGAI Asset.

Sir, you alluded to some outlook on how do you see RAC ahead. Just wanted to understand similarly because last 2 years, most of the revenue for segment 1 and 2 has grown like 20% on an average. Going forward, obviously, in the industry looks -- the outlook looks great, but I think these numbers are, I think, very good. So just in terms of sustainability, if you could help us qualitatively understand the outlook for commercial AC, commercial RAF and projects also going into next year, it will really help. That's the first question. And secondly, similarly on margins, I think if you could just highlight what could be additional levers from where we are at current levels on both segment 1 and segment 2? Do we see margin expansion further? And is that more organic? Or is it going to be more effort driven? Those are my 2 questions.

So thank you. If you -- the room air conditioner business is growing, is poised to grow in the coming years, and there may be a good year of significant growth beyond 20%, 25%. Another year, it may be a flat year, if it is going to be a washout summer, both can happen. But all taken into account, between now and 2030, the CAGR estimate is 19%. It was a Ernst & Young report, CII National Committee on consumer durables and the electronics did that. And in that research, it is widely accepted by many stakeholders. And even for many government representation, we continue to use that. And in fact, air conditioners will be the fastest-growing category within the consumer durables and electronics at 19% CAGR market expected to more than double. Now the commercial air conditioning product is connected with the infrastructure development, whether it is a core infrastructure or a social infrastructure, where the product goes, shops, showroom, boutiques, hotels, hospitals, data centers and manufacturing, education institutions, et cetera. Our estimate is that it should grow at a CAGR of somewhere between 12% to 12.5%. That is our estimate. Now electromechanical projects, there is a big canvas. It's a question of where you want to compete, what kind of risk appetite that you have in terms of cost overruns or the time overruns and numerous -- compared with what we are doing in many number of projects we can get into, our principle has been that, do the project selectively where your cash flows are secured and the profitability is reasonable. It doesn't bring down the average profitability of the company as a whole. That has been the approach. So I'm not really worried about the market growth as far as the electromechanical project segment is concerned. Commercial refrigeration is a fragmented one. It may be a water cooler, it may be a deep freezer, it may be a cold chain related cold room. It can bear ripening chamber and many, many sectors, whether pharma, quick commerce or the QSR segments and warehouses, a number of customers keep buying. It has a potential to grow at 30% because India is underpenetrated. And -- so the growth potential there is very high. And it is yet to reach a room air conditioner kind of a scenario. Room air conditioner struggle like that for many years till 2020, '21. Then post that, it is showing signs of it. I expect at some point of a time, there are signs now. There is no doubt that the demand is coming back in many sectors, driven by the modernization of the traditional kirana stores itself. You are seeing Tier 3, 4, 5 towns, every kirana store want to sell ice cream or want to sell cold beverages. So the AC, cooler, deep freezer market is growing. Processed frozen food consumption is growing. And health care sector is getting modernized. And therefore, you should be -- and if you look at it, the QSR players keep on announcing more number of stores come more, restaurants getting opened even on the high base. And quick commerce is the last year phenomenon that huge amount of 10% of the total market now is the requirement from the quick commerce segment for delivery-related cold rooms or deep freezers. So this is the overall scenario. Margin, this is my view. My view is that the -- to dramatically grow the margin in this particular period, 2025 to 2030, is to be looked at in the context of many investments are to be made that when you are trying to penetrate the market in Tier 3, 4, 5 towns, you have to make investments in brand and brand promotion related. Next, you are complying with newer and newer regulations like the extended producer responsibility. There is a cost that comes to that. Next, in-shop demonstrators. When you are expanding your network to 15,000 from 10,000, that additional 5,000 will be coming with some costs like in-shop demonstrators. Consumer finance-related costs. It is 40% of the sales coming from consumer finance, that is a cost that comes to you. So therefore, if you -- there is a phase that you go through, keep on making investments. So therefore, you make investments for the scale. Let us imagine the industry was only 8 million in 2024 -- sorry, FY '24. And FY '25, it crossed 10 million. It has crossed 15 million in FY '23. Blue Star itself from 8 to 11 to 15.75 lakh kind of volume we have grown. It will require investments in even digitalization, et cetera. So in this particular period, it is going to be a journey -- a tough journey and the competition will be intense to improve the margins dramatically because you are making simultaneously many investments that are needed. The guidance for FY '26, unless until something dramatically changes, remains for segment 1, 7.5% and segment 2, 8.5%. And we will attempt to take it to 9%, and that will be with the great difficulty, I think. And if the summer is not going to be that great, that 8.5% to 9% will be very difficult.

And we should assume that in whatever growth rates you mentioned on all segments, we should be gaining market share. That's just a follow-up, yes.

That's very clear that we want to grow faster than the market. And we were not happy with room air conditioner in Q1. Despite a great summer, we were stocked out at some point of time last year, and we didn't gain market share in that summer. But if you look at it in Q3, Q4, we have done better. And that 100 basis point market share gain happened in the later part. Now our goal, we have stated that we would like to be -- see that 15% market share quickly. And so our distribution, branding, everything will be happening that way.

The next question is from the line of Dhruv Jain from AMBIT Capital.

My first question is on the MEP business. So I know that you cater to various segments and do a lot of things there. But just wanted to understand that which segments particularly would be higher than median margins and which would be lower than median margins that you've reported. Some color there would be very helpful.

See, generally, the projects in which the equipment content is higher will obviously have a higher margin. The projects in which is are all 12 to 18 months kind of completion will have higher margin. Projects in which you have a price variation class that is built in will have. But broadly, what we have seen is that manufacturing, data center, these kind of projects have more than average margins. For the simple reason, they have got a completion period certain and their revenue is suffering, these projects will happen. And infrastructure projects like metro railway or railway electrification, substations and all can -- 6 months to 1 year, it can get delayed.

Get the point. And sir, the second question is on exports. So I know that you've embarked upon an export initiative program. But just wanted to understand where are you in that journey from an SKU approval perspective? And if you could just share some thoughts there.

Yes. So the situation remains the same that we have 3 customers, and we have got products approved for them. These are in the decarbonization area, and they have started lifting the material. As one would like to scale, you know from January what is happening and the complete uncertain situation provides. Therefore, we are -- we have to wait and see. And there are a huge number of inquiries that are flowing in. And there are -- a record number of people are now asking for samples, et cetera, but it may not straight away translate into orders because I think all of them are trying to secure their supply chain. So as we speak, we have to wait and watch whether U.S.-India deal when it will happen, U.S.-China deal they are talking about, what will happen and whether U.S. own or euro, whether they will get into inflation or whether they will be into recession. A number of questions are being asked. So we are -- to that extent, it is a disappointment. There is uncertainty in the whole international exports landscape. And in the meanwhile, we are speeding up to give the samples, understand the specifications for numerous inquiries that are coming in because their problem is if China doesn't open up and whether India is -- they will evaluate. It will to go on for another 1 year, I suppose.

The next question is from the line of Aniruddha Joshi from ICICI Securities.

Sir, one question. Now in your career, you would have seen such weather-related issues like early monsoon or late summer multiple times. So just wanted to understand from the experience that whether these things really impact in the medium term or not? And secondly, are these things in a way helpful? Because I guess the smaller stroke, unorganized players would be getting relatively more impacted compared to players such as Blue Star. So do we end up gaining market share in such periods? That is question number one. And in terms of secondly, in case of, in a way, commercial refrigeration, if you indicate about the market size and the market position of Blue Star, let's say, the market share roughly 3 years ago, what it was, what is currently and the shares of other players also? Yes, that's it from my side.

The last part of your question is commercial refrigeration.

Correct.

Okay. Now many times it has happened that it is -- see, the first thing is it is seasonal product that sets the tone. And the corrections were not happening. As I explained earlier, we have seen in 2024, when the summer failed -- that is FY '24, when the summer failed in 2023, the recovery happened significantly. And so the situation is different from what it was in the past. But having said that, for that particular year, the -- instead of growing by 25%, the industry can grow by just 10%. That is a possibility. The weather is becoming unpredictable and no one would think that in Mumbai, this kind of rain will happen in the month of May. Now equally is the fact that the -- it can suddenly become hot. Unbearable temperature can happen. So whether it will impact medium term or long term, I do not think so. It depends on the company. Like, for example, will you postpone expansion of your network? Will you postpone recruiting people or initiating new R&D projects? We do not believe in that at all. We continue to invest some discretionary expenses one may. It can create pain for the employees associated because the variable pay or sales incentive will be linked to the sales growth. So there is a pain they will undergo indeed. There is no doubt about it. Now you -- in one particular year, you earn a significant amount because it was an unexpected bumper sales. And another year, you are losing it. So we have seen this again and again happening of -- if there is -- I have not come across, fortunately, 2 summers consecutively disappointing, in my 45 years of career. So therefore, I have a feeling -- I am of the view even May, June should bounce back, is my view. Let us see. I can be entirely wrong. But the good news now, as I have told you, is you can quickly correct the supply chain. And you asked me a question whether the smaller players will be impacted. I don't think so. We are now mature players. We handhold each other, if you mean the vendors or the OEM suppliers, and we should be doing better. I'm not -- we for one, I can put it the other way. 10 years ago, it used to be a huge tension, moaning and disappointment and all that, it is not. It's part of the game. It will happen.

Okay. Sure, sir. And on the commercial refrigeration part?

Commercial refrigeration. If you take deep freezers, which are chest freezers, many types, whether it's glass top, hot top and the water cooler or the negative temperature storage, all these put together, we will be having close to 31% market share there. And we would like to maintain, if possibly improve. But that market is significantly growing. And second part is modular cold rooms, which are walk-in coolers, we call it, which was in very large numbers to restaurants, pharma industry, logistics warehouses, et cetera. And there, again, we hold 32% market share. Water cooler is a small part. We have been leaders there. There is nothing to worry. And so market leadership is not an issue there. The issue is connected with the market to open up. It is opening up. Last year was a disappointment for a different reason altogether, which you are all aware, the many regulatory changes connected with the import. Most importantly, we all imported from China, many, many equipment -- commercial refrigerated equipment. When you indigenize, it will not be as price competitive as China was able to deliver. The customers are used to Chinese pricing. So therefore, even though you are trying hard, the question that comes up is, when the margin will go up. So this is the issue. The customer got used to a Chinese price for many decades. You suddenly stop importing. When you make locally, it is going to take time for you to improve the competitiveness. That's where it is.

The next question is from the line of Anupam Gupta from IIFL Capital.

So the question is on the RAC business, primarily RAC and commercial refrigerant, if you can talk about. Basically, where are you in terms of backward integration at this -- let's say, at the end of FY '25 in terms of in-house, third-party and imported sort of sourcing? And over the next 2, 3 years, how do you see it changing incrementally also because there is pressure from the government to indigenize as we saw in case of compressors very recently. So if you can just give a color here.

So there are a few items which we should deal with here. The number one is connected with the compressor. Second item is the motor. Third item is the copper tubes. Fourth item is electronics. Fifth item is refrigerant. All of them are critical items from the supply chain point of view, constitutes a significant part of the cost that goes into air conditioner. Refrigerant, we will not be manufacturing at all. We are working with the manufacturers in order to ensure that adequate capacity is available. As the refrigerant phase down begins in -- by 2028, we should not be ending up paying huge price due to shortage that I do not mind saying this, but there have been press articles there. The industry should work together to help create more capacity for our 32 refrigerants. I do not think that it's going to be a challenge per se. Copper tubes, inner grooved copper tubes, we are getting imported and the -- from [ APA ] countries like Vietnam predominantly. And there are issues related with the certificate of origin, whether it is mined within -- the copper is mined within us in countries in order to arrive or pay a full duty. There have been clarifications from the Ministry in March. If that is so, it is -- there is a cost that gets added. Whether there are domestic capacity that is available that was initiated 2, 3 years ago, good news is that domestic capacity commissionings have taken place. As I mentioned in the opening remarks, with Hindalco, we have signed -- we were the first one to sign the MOU as well for sourcing. There are 2 other players as well, who will be making copper tubes here, including Adani and Mettube. And so therefore, the -- it may be expensive than what the industry was getting because of the reasons I told you, but it is -- there is no supply chain problem there. The third item is the electronics and significant amount of electronic EMS players are available. Our policy has been clear that we will invest in R&D for developing our IPs, but get the PCBs or electronics assembled outside because that is -- that enough capacity is there. That is not a value-adding job. The money comes from the IP. And so we are not going to be setting up a PCB assembly unit in-house and all. We will -- there are enough players. That is the model even multinationals follow. That is where we are, and we are no longer worried about it, but we are speeding up our efforts to develop the IPs. The next item is the motor. Because of the automobile and other industries, BLDC motor ecosystem has developed completely. And their quality standards have improved, and there is no problem anymore and -- so even if restrictions come in place in a much bigger way. And even multinationals who were prevented from exporting to India, they have set up a manufacturing facility here. So there is no problem with that. Now the question is compressor. That is one big item. There are multinationals, who have their technology and they are setting up their own facility. They are in the process of scaling. There are compressor manufacturers. There are 2 Chinese compressor manufacturers, GMCC and Huayi. GMCC is part of the Midea Group. They are telling us that they are expanding their manufacturing capacity within India. There are also the players, who are trying to get the components and assemble in-house. There are a number of players, who are attempting to do that. As far as Blue Star is concerned, we are -- we have kept all our options open that we will continue to source from the players from whom we source. We have assumed the players who will have excess capacity because when they set up, they are setting up a larger capacity than they would consume. Therefore, we are in discussions with them. We are testing these compressors. In principle, we have agreed to source if they will be giving. The third option of getting the components in CKD form like another model that is being proposed that set up assembly line. We have no problem with that at all. It's a low-cost investment. Last item, as in 2030, if you have to look back, you are leaders in air conditioning and your volumes have reached 5 million plus kind of in this situation, why you shouldn't be making compressor can come. Therefore, we are looking at how to design a compressor, what it takes. And we are in the primary school there. But the program is very much on, and this is where we are. So the bottom line is there is -- there are supply chain challenges. There are mitigation measures. Now the mitigation measures have to come with 2 important conditions. Number one, the quality standards -- actually 3, quality standards, continuous supply, third is the cost. And on all angles, we believe at least for FY '26, we are fully secured till end of summer 2026, we are fully secured. Nothing to worry. Thank you.

Okay. And will it be right to assume, so let's say, if we look out FY '27, '28, except compressor, everything would be India-based to a very large extent?

Yes, yes. I think even by FY '27.

The next question is from the line of [ Ulhas Gandhi ] from Investec.

This is Aditya Bhartia from Investec...

Sorry to interrupt, sir, there's a lot of echo from your end.

Is it better?

Yes, please carry on.

Sir, my first question is on something that you mentioned in your opening comments that in April, we have seen 15% to 20% decline for the industry sales. Just wanted to understand, was it the primary sales that you were speaking about or secondary sales? Because in case we are speaking about secondary sales, then is it fair to assume that primary sales would have fallen by even a sharper percentage, given that the inventory in the system was fairly high?

No, I -- at this point of time, we will have visibility only to the primary sale and secondary sale visibility is some extent we will have because the information coming from the stores. The thing is our understanding based on whatever data that we have got, indeed, the opening inventory was higher than what it should be because there will be a compressor shortage, the ACs will not be available, the dealers ended up stocking. In our case, I do not know the market data. We have to wait and see for the GFK report whenever it is published for the month of April. In our case, primary sales as well as secondary sales are up by marginal 5%. We would have expected it to be 30%. And it is 25% lower than what we thought. We have not degrown compared with last April. And for your information, last April, we were 79% higher than the previous April.

Understood. Understood. And given, sir, that this year, industry has been operating with higher-than-usual inventory for compressors, given all the shortages that we were kind of hearing about, what implication can a weak summer have on the compressor scenario?

Yes. One month ago, I had said a question what happens if summer happens, compressor shortage will be there. Now I'm answering it is good in my view, in the sense that you are -- you need not to go and pay a higher price. See, today, the world is highly volatile, right? We don't even know what will be the exchange rate and what will be the ocean freight rate. Now you see that the effects of this will start following. The logistics sector will be impacted, and there will be seaports which are closed, and that's what will happen. And yes, compressor inventory of 3 or 4 months more you have, it is good.

The next question is from the line of Sonali Salgaonkar from Jefferies India.

Sir, my question is on pricing actions. In your media interviews earlier towards the start of this year, you did mention that you will be evaluating price hikes. So my first question is, have you taken any price hikes in Q4? And with this scenario of sort of muted demand, do you think it will impact the industry's ability to take pricing actions, despite supply chain disruptions?

First thing, the principle. The principle is that if there is a raw material cost increase or cost increase due to exchange rates that is passed on to the consumer in -- after waiting for 2 or 3 months. And therefore, we implemented price increase with effect from 1st January, which coincided with the release of new models. Again, in April 1 week, we have increased the prices. That is the input cost that has gone up. Now when the demand comes down, so what happens is that you end up introducing some schemes. We are not there yet. In other words, there is no desperation. If the demand itself is not there, and you are taking some 2%, 3% price lower for the sake of getting away. We will rather manage the inventory than trying to play with the prices, but there could be some schemes in order to keep your market share. So what it will mean? It will mean how the industry as a whole is going to operate. The desperation has to happen industry-wide, then some player will drop the price, and that's what will happen, but we are not yet there as of now. It can change only later. Because the general belief is that the news you would have read, May 12 onwards, the sky is supposed to clear up. The temperatures are to peak. And anyway, the industry is not operating with some 25% margin to be taking this decision. We are talking about the industry. Some 8% to 9% margin industry it is. And if there is a cost and it has to be -- you have to manage the inventory well, which means you have to regulate the incoming material and the production in line with what you need for the summer.

So sir, what has been the quantum of price increases that you took in April? And also what is the cumulative amount YTD?

From January, we don't calculate like that. If there was a 3% to 4% taken in January, 4% to 5% from April 1.

And that has not impacted the demand so far in your view, the price increase?

Q4, we did exceptionally well. It didn't impact at all, but it is not that it resulted in margin improvement because the input costs had gone up at that point of time. Now we have increased it by 5%. And in any case, the first month went with some 5% growth only. And we have to wait and watch. So 3% to 4%, 4% to 5%.

The next question is from the line of Achal Lohade from Nuvama Institutional Equities.

Sorry if I'm hopping on the same question. Sir, I wanted to just quickly get your sense in terms of the April, May and June, what would be the mix in terms of the primary sales for the industry? Would that be like 40%, 40%, 20%, 20% or any proportion, if you could highlight, just a mix?

No, I couldn't follow. The mix of primary?

Yes, primary sales perspective, how large will be April, May and June individually, if you would have any proportion?

No. It has been radically changing. All that I can tell you is April, May and June together, if you look back many years, it will be some 45% of the sale happening.

Okay. Understood. And just...

Yes. See, what we have seen is some 4, 5 days of heat in any particular week, immediately, it peaks. And so it is not that -- your question -- hidden in your question is what is lost in April, whether it will come back in May or June. If that is a thing, no one knows. There is -- I would also pay heed to the fact that how the sentiments also change in the market. There are border tensions that are there. And we -- I keep telling it is not the U.S. trade war is impacting the stock market alone or the company exports, the stock market for the U.S. trade war related issues or the immigration issues. The entire South India, there are numerous people who are dependent on that. The IT-related jobs, new jobs or people who wanted to migrate, people who wanted to study there. So there are sentiments also have dramatically changed and as we see, it keeps changing. So put together all, nobody knows, and I should not pretend so much growth will happen. All that I can say is we thought going by what was the forecast, et cetera, 20% to 25% growth should happen. Blue Star should grow 25% to 30%. As we sit and see now with a muted April, I would doubt it to say 10% to 15% growth and if we're extremely lucky, it will be 20% growth because 1 month has gone, another 7 days have gone.

Understood. And just a second question. In terms of the South mix for the industry as a whole and for us, would it be possible to get some sense?

My guess is that it will be roughly 30%.

And for us, sir, would we be similar or a little higher?

In our case, it will be higher. Close to around 40% of our sales will be coming from South because we hold more than 20% market share in quite a few markets there.

Right. And that has seen a 25%, 30% drop, right, in April?

No. Our 5% growth is thanks to those locations also...

No, for the industry, sir. Sorry, that is my last question. For the industry, was that a drop as much?

I don't know region-wise drop. All that I know is that I hear that anywhere between 15% to 20%, all India drop. And given that summer sets early in Kerala and Tamil Nadu, it is likely South India contributed more than -- because North can come back in, either summer goes on until July.

The next question is from the line of Arshia Khosla from Nirmal Bang. Sir, the current participant has been disconnected.

We can take one more question.

The next question is from the line of Keshav, an individual investor. As there is no response, we'll move on to the next question. It's from the line of Shivkumar Prajapati from Ambit.

So my question is more on the data center front. So we are seeing that data center is about to boom in the coming years. So I want to understand the liquid cooling opportunities available for us, like just want more clarity, are we present in this segment or we are planning to foray into this segment? And what would be the opportunity size and margin profile?

See, the -- number one, we are a leading player with a huge market share in the MEP related to data center, which are mechanical, electrical, plumbing putting together the data center-related equipment, okay, other than the server part of it. So in MEP, we are present in a big way and will be a preferred vendor as well. Now if you look at the equipment that goes into, we are a manufacturer of chillers meant for -- we make a few types of chillers meant for data center applications as well. And we are expanding that range. Now liquid cooling has not penetrated in India much. And we do not have that, but we are in talks with many players abroad for getting that technology.

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Mr. Nikhil for closing comments.

Thank you very much, ladies and gentlemen. With this, we conclude the quarter's earnings call. Do feel free to revert to us in case your questions were not fully answered. We'll be happy to provide you additional details by e-mail or in person. Thank you.

Thank you. On behalf of Blue Star Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.