Blue Star Limited ($500067)

Ladies and gentlemen, good afternoon, and welcome to the Blue Star Limited Q4 and FY '26 Earnings Conference Call. We have with us today from the management, Mr. B. Thiagarajan, Managing Director of 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.

Thank you. Good afternoon, ladies and gentlemen. It's a pleasure interacting with you once again in connection with the financial results for Q4 FY '26 and FY '26. You all have seen the results approved by the Board yesterday. And we are here to explain the results in detail. As you would have seen, we have more or less delivered in line with expectation though some of you feel that we exceeded the expectations. FY '26 was a very challenging year with many headwinds one after the other. It started out with a weak summer season. Then we had interruptions due to GST reduction announcement on 15th of August till September 22, the secondary sale and therefore, the primary sale was impacted. Post that, we had the energy label change and connected with that, you can see the trade stocking prior to that and the trade trying to liquidate that stock. In between, there were trade war-related hiccups all throughout the year, it still continues, which impacts us in terms of the supply chain itself on numerous raw materials that we get. One is about the availability. The second is about the prices. As we were beginning to build up towards the summer season, you're aware of the war and the war-related impact. It's not much to do with the LPG, availability of LPG pricing alone. That's the minor one, how the supply chain overall will be impacted and the overall market sentiments that will play a role in the coming days. We have been waiting for the summer season to take off in a big way, which indeed happened on April 13. As we speak, we are in a great summer season. One place that this summer loss for another 8 weeks for managing the huge inventory in the trade and the inventory buildup that we may have, which we will deal with as a part of the questions and answers. Before that, I will pass it on to Mr. Nikhil Sohoni for the opening remarks. Over to you.

Thank you, Mr. Thiagarajan. Good afternoon, ladies and gentlemen. This is Nikhil Sohoni, and let me take you through the financial highlights for the quarter and year ended 31st March 2026. FY '26 has been a challenging year with multiple headwinds affecting revenue and profitability across businesses. However, demand for room air conditioners picked up towards the end of the year, helping the company to post highest ever quarterly revenue in Q4 FY '26. Coming to quarter ended March 31, 2026, the financial year highlights are as follows. On a consolidated basis, revenue from operations for Q4 FY '26 grew 1.3% to INR 4,072 crores as compared to INR 4,019 crores in Q4 FY '25. EBITDA, excluding other income for Q4 FY '26 improved to INR 326.3 crores, EBITDA margin of 8% as compared to INR 279.4 crores an EBITDA margin of 7% of the revenue in Q4 of last year. PBT before exceptional items was higher at INR 282.6 crores in Q4 FY '26, as compared to INR 248.8 crores in Q4 FY '25. Pursuant to the notification of the labor courts as required by ICI guidance note, the company has recognized the incremental impact of gratuity and leave encashment amounting to INR 56.4 crores for the period ended 31 December 2025 on an estimated basis, and this was shown as an exceptional item. In the current quarter, the liability was reassessed and finalized at INR 38.83 crores and accordingly, the provision of INR 17.5 crores has been reversed in Q4 of FY '26. Tax expense for Q4 FY '26 was INR 72.9 crores as compared to INR 54.8 crores in Q4 of FY '25. Net profit was at INR 227.2 crores in Q4 FY '26 as compared to INR 194 crores in Q4 of FY '25. For the year ended March 31, 2026, the financial highlights on a consolidated basis are summarized below. Revenue from operations for FY '26 grew 3.6% to INR 12,402 crores as compared to INR 11,967.6 in FY '25. EBITDA, excluding other income for FY '26 improved to INR 9.4 crores, an EBITDA margin of 7.5% of revenue as compared to INR 875.9 crores and EBITDA margin of 7.3% of revenue in FY '25, recording a growth of 6.2% mainly owing to overall focus on cost management. PBT before exceptional items degrew 3.9% in to INR 741.9 crores in FY '26 as compared to INR 772.4 crores in FY '25. Pursuant to the notification of the labor codes as required by ICI guidance now, the company has recognized the incremental gratuity and leave encashment amounting to INR 38.8 crores. This nonrecurring item is shown as an exceptional item in consolidated statement of profit and loss for the year ended March 31, 2026. Tax expense for FY '26 was INR 175.8 crores as compared to INR 193.6 crores in FY '25. The effective tax rate was 25% for FY '26 as compared to 24.7% for FY '25. Net profit for FY '26, degrew to INR 527.3 crores, 4.3% of revenue as compared to INR 591.3 crores, which was 4.9% of revenue in FY '25. The Board of Directors of the company have recommended a dividend of INR 8.5 per share. Last year, the dividend was INR 9 per share. Carried forward order book of March 31, 2026, grew by 10.5% to INR 6,923 crores as compared to INR 6263 crores as of March 31, 2025. The capital employed as of March 31, 2026, increased to INR 3,258 crores as compared to INR 2,427 crores as of March 31, 2025. Net cash position was at INR 175.5 crores as of March 31, '26 as compared to a net cash position of INR 640.3 crores as of March 31, 2025. Turning to business highlights. For electromechanical projects and commercial air conditioning, that is segment on1, the segment one revenue grew 1.1% to INR 1989.9 crores in Q4 FY '26 as compared to INR 1,968.2 crores in Q4 FY '25. Segment result was INR 128.5 crores, which was 6.5% of revenue in Q4 of FY '26 as compared to INR 149.9 crores, which was 7.6% of revenue in Q4 of FY '25. Segment revenue for the year grew 12.8% to INR 6,762.8 crores as compared to INR 5,998 crore in FY '25. Segment results was INR 501.9 crores, which was 7.4% of revenue in FY '26 as compared to INR 499.9 crores, which was 8.2% of revenue in FY '25. Order inflow for the current quarter was higher by 35.7% compared to corresponding quarter of FY '25, which was INR 1954.39 crores in current quarter. versus INR 1,439.9 crores in quarter 4 of last year. Coming to Electromechanical Projects business. Q4 FY '26 saw strong equity momentum for buildings -- inquiry momentum for buildings, data centers and factories with bookings growing 5%. Order inflow for the year was lower by 10% compared to FY '25 as the order inflow was sluggish in previous quarters. The carryforward order book of Electromechanical Projects business was at INR 4,664.5 crores as of March 31, 2026 as compared to INR 4,755.2 crores as of March 31, 2025. Coming to commercial air conditioning systems. The commercial air conditioning business gained momentum during the quarter, supported by healthy demand from the government, industrial and retail segments, while the bookings from office, education and IT sectors remain subdued. The revenue growth in ducted systems and chillers during this quarter has been good and VRF is showing steady progress. We remain confident in the medium-term prospects of the business with steady growth expected across key product categories. International business, which also forms for of this segment, the geopolitical uncertainty, including tariff-related uncertainties [indiscernible]. Future prospects of the U.S. business is highly dependent on the outcome of the India U.S. trade deal. However, despite this headwind, our 4 U.S. is progressing well. Our supplies to Europe has also commenced, and we remain optimistic on the prospects for this business. On account of the change in the project mix enter the business is within the segment 1. The margins were lower at 6.5% of the revenue in Q4 of FY '26 as against 1.6% in Q4 of FY '25 and the margin for FY '26 year ago was 7.4% as against 8.2% in FY '25. Coming to segment 2, that is [indiscernible] products. The revenue grew 1.3% to INR 1,985 crores in Q4 of FY '26 as compared to INR 1,960.2 crores in Q4 of FY '25. Segment result was INR 206.9 crores. That is 10.4% of revenue in Q4 of FY '26 as compared to INR 164.5 crores, which was 8.4% of revenue in Q4 of FY '25. Revenue for the year degrew by 5.1% to INR 5,332.4 crores in FY '26 as compared to INR 5,621.1 crores in FY '25. Consequently, segment results declined to INR 434.8 crores, which was 8.2% of revenue in FY '26, as compared to INR 471.3 crores, which was 8.4% of revenue in FY '25. Within Segment 2, the room air conditioner business witnessed reasonable growth with primary demand picking up in March and channels across all regions stocking up for the summer. The dealer network expansion continues to progress as planned. Despite the multiple challenges, we gained market share marginally during the current quarter. Quite a few cost rationalization measures taken in Q1 FY '26 owing to poor summer season continued till the end of the financial year, and it resulted in improved margins for the quarter. Commercial refrigeration business due to muted demand from frozen food and QSR segment throughout the year, the market for deep freezers and cold rooms remain stagnant. However, storage water coolers witnessed double-digit growth driven by strong demand from government and corporate sectors due to delayed onset of summer season, advertising and field marketing campus had not commenced in March 2026. This, combined with prudent pricing and other cost optimization measures undertaken since April 2025 resulted in improvement of segment margins to 10.4% in Q4 FY '26 as compared to 8.4% in Q4 FY '25. Coming to segment 3. The revenue grew 7.3% to INR 97.18 crores in Q4 FY '26 as compared to INR 90.56 crores in Q4 FY '20. Segment result was INR 14.3 crores. That was 14.7% of revenue in Q4 of FY '26 as compared to INR 8.8 crores, which is 9.7% of revenue in Q4 of FY '25. Segment revenue for the year degrew by 12% to INR 306.8 crores as compared to INR 348.6 crores in FY '25. Segment result was INR 34.9 crores, which was 11.4% of revenue in FY '26 as compared to INR 29.7 crores, which was 8.5% of revenue in FY '25. The uncertainties around the regulatory policy framework pertaining to MedTech Solutions business are yet to be resolved. And consequently, the business has slowed down. However, the Industrial Solutions business continued to grow driven by strong demand in automotive and steel industries and the Data Security Solutions business maintained steady performance. Coming to business outlook. From the second week of April '26, summer had set in and secondary sales of room air conditioners have picked up momentum. Driven by encouraging demand from manufacturing and data center sectors, electromechanical projects and commercial air conditioning business segment is expected to maintain growth momentum. With rising input costs and volatile exchange rates, there will be challenges in managing the margins. Further, the ongoing Middle East prices can lead to supply chain disruptions and also dampen growth. We remain cautiously optimistic about the prospects for FY '27. With that, I would now like to pass it back to the moderator, who will open the floor for questions. We'll try to answer as many questions as we can. And to the extent we are unable to, we'll get back to you via email. Thank you.

[Operator Instructions] We'll take our first question from the line of Natasha Jain from PhillipCapital India.

I have 3 questions. First, in terms of UCP, RAC being a hypercompetitive market requires constant add and promotional spend. So could you throw some color in terms of your strategy that are you now protecting margins -- or will we see elevated ad spend later in the year? And if you are protecting margins, will that impact our volumes. Second question, in terms of April, what we observed with the first 15 days is pretty much flat because of rain. Second 15 days, only secondaries have picked up, it seems. Primary either the channel is pretty much stopped in south or people do not want to stop because of the rapid weather condition. So with that background, could you tell us how are you reading near term given that season will probably end towards the end of June? And lastly, given costs have increased so much, are you seeing a very sharp down trading happening because what we're seeing is lower tier brands are gaining market share at the cost of all higher ones. So any color on that will help.

The first question is connected with the advertising and marketing. So if you know in March 2024, we were anticipating a great summer season, even the IMD weather forecasted so and the dealers, they are stocking anticipating the compressor shortage in a big way. So in Q4 of FY '25, there was huge advertising that took place. And subsequently, it is very difficult to correct. Say, for example, our IT now you would have made a huge commitment to you bought a media. But when the summer failed, we suffered. Few things could be corrected. That's about all, but a significant amount of marketing spends were there. In Nikhil's remarks meant was actually in Q4 of last year, that is -- I'm not talking about FY '26, FY '25, there was huge advertising spend in Q4 of FY '26, we were clear about it because someone had not set in, summer set in actually on April 13 only. So therefore, in Q4, in preparation, specifically ending end of February-March, the spend there very low. This includes also many in-shop on promotions like in shop demonstrators, so on and so forth, which we are stepping up post onset of summer season. The other advertising happens in some measure for overall brand visibility. And the real advertising for room air conditioners including tactical is indeed a function of how the demand in the marketplace is. Again, during the festival season last year, we had to -- there was a GST announcement, and it was not picking up. So 1 or more subsequent period, we had to call it off. That's how it works, right? So there is no intent to stop our investments, which is in the order of around 1.5 into 2% of our products business revenue, that's what is advertising, plan building, marketing expenses. That will continue depending on the demand. If there is an extreme situation like that, we will do. And it will not affect because if the summer itself has not set in and you go and keep advertising sale is not going to happen. But because you had not advertised despite it is not that you are brand in the that we are very conscious of that. The second question is connected with the weather. I told you, April 13, the summer season had set in and you have to -- it has taken well from April 13 and obviously, you have to wait for the dealer field inventory to get liquidated. They had bought inventory in December because there was an energy level change. Post that, they know the prices will keep going up and they stocked up. And indeed, in February and March, they would have bought it because they know the price increase has been announced. And the new material that will go into the market will be at higher prices. So whether the secondary [indiscernible] movement, or whether it is primary pickup, it is now clearly the function of how severe the summer will be and how long it will last. The question here is, are the 6 weeks, whether summer will be active. And as we speak to the primary movement has commenced already in many markets and we have to wait and see. So in 1 single sentence, we are happy that the summer season as setting, we are not celebrating like it was 2024 summer. We have still 2, 3 weeks to go to assess how it is going to pan out. And your third question is part and parcel of that. The function of the increased cost to be passed on is again dependent on the demand in the market.

Next question is from the line of Ravi Swaminathan from Avendus Spark.

Yes. My first question with respect to the price increase in a conditioners. How much amount of price increase you would have taken since January 1, including the B norm change? And how much more needs to be taken to compensate for the raw material price increase that has been -- that has happened?

We have stated this in many media interviews of mine, it will be there roughly around 8 days varies from SK. It is around 5% is the price increase on account of energy level change alone average. Subsequent to that, till the April beginning, it will be around 8% for the raw material price increase and the exchange rate, all put together. So there would -- it should have been around 13% price increase that is warranted. We would have taken until now the -- you know very well, again, I'm repeating, the inventory was enough. The primary sale is beginning to pick up. So for whatever primary had happened, we would have realized up to 8% out of 13% price increase, 5 more percentage of increase will happen as the April, May -- sorry, May, June billings are happening. That is the reality. It may vary from model to model. On the average, you can assume it to be so.

And is it completely enough to cover the cost inflation, which is there and protect the EBIT level margins for the Cooling Products segment?

13% will cover the desired margin levels.

Okay. Got it, sir. And you had highlighted that there might be...

And here again, it does not take into account going forward what cost increases will be there, like what has happened in our post-war is the plastic petroleum-based input costs, like, for example, [indiscernible] in polyster and all those costs will go up.

Got it. And with respect to the project business also in terms of raw material prices going up, -- and that some of the costs might be -- some of the projects might be fixed base contract, how to think combo any margin impact that can happen in the next 12 months because of the raw material price increase and currency depreciation that has happened?

I don't think we have any separate contract there. early, they will be -- it's all covered for the price variation. Having said that, if you have delayed or the delays attributable to us, during the delayed period, price variation will not be applicable. I do not think we have any kind of an impact at the moment in terms of input material cost has gone up. See, how it was is that you always assume that price variation will provide for something and there is some contingency that is available and so that is not the major concern there.

We'll take our next question from the line of Rahul Agarwal from IKIGAI Asset.

Sir, 3 questions. Firstly, on the international business. If you could just provide some color on what's the 1-year outlook and a 3-year outlook in terms of new customer approvals and the growth you see the revenue potential there? Second question was qualitatively, if you could talk about the growth outlook for fiscal '27 on commercial AC, commercial refs and projects. And third 1 on the balance sheet. Just wanted to know what's changed for the payable number. I'm assuming that there is a bit more inventory stocking and hence, the creditors actually look like maybe you paid in advance and hence they dropped down considerably. Just if you explain that in terms of what's the change there? That's all from my side.

So the international, it is a wrong time to be talking about long term. Honestly, many trade deals are -- they are taking out there in the web signing and huge uncertainties provide. All that I can say that we have approval for quite a few products with quite a few of customers. And these are connected with the air to water or air to air heat pumps. As far as United States is concerned, the -- you might have read already, the U.S. market is stagnant or it is degrowing for our customers. Correct? The HVAC market there is was doing not that great last year. Now with many other economic factors there that is likely to slow down. That is the information we have got. Having said that, we are new entrants. Even if we sell 100 units, it is a growth for us. It is an additional market. So the trial marketing or the validations and all that continue to go on. Today, that is not a very, very significant part of the business. But we have approvals, acceptance and even customer preferences for quite a few products for quite a few OEMs in these markets. That's where it is. Europe, it has been slow. It continues to be slow. But now with the new NFC security, the countries are beginning to insist that the people should begin to use heat pumps rather than the boilers. That's where we are. Now we have mentioned repeatedly that it is a very important and critical portfolio for Blue Star. It may not contribute significantly to the revenue, but in about 3 years, depending on how the global economy is going to pan out, we should be beginning to grow that business significantly. In all this, Blue Star is not entering with its own brand. Blue Star is not acquiring any brand from those markets. Blue Star is not setting up any joint ventures there. It is Blue Star making products for others as CDM manufacturer. That is our strategy. And the second part, the commercial refrigeration business, again, to a very large extent, like quite a bit of cooling for frozen food. It is impacted by -- it is dominated by the ice cream segment. And the last FY '26 was a bad year, FY '27, we have to wait and watch. It all depends on how the ice-cream retail network is expanding. And that significantly impacts this business. Pharma or other sectors are very, very minimum. We are not into fresh produce later, like pack houses or vegetable fruit processing, we are not into that. Those are large EPC contracts. In the modular cold room business, or model refrigeration products it is somewhat muted market. And in any case, for you all, the -- we are talking about INR 35,000 crores plus room air conditioner market versus INR 5,000 crores of commercial refrigeration market, which is addressed by Blue Star. So this is one particular segment, which has a huge growth potential but it is yet to grow. What was your third question?

If you can comment on the commercial AC and the project segment outlook for growth outlook on revenue for?

In commercial air and design, the last year it was impacted by the multiple factors, including GST in some ways, -- the outlook continues to be around 8% to 10% kind of growth. And the growth is today driven predominantly by manufacturing sector. And the -- in case of projects, it is driven by manufacturing as well as the data center both -- in both these segments, we are market leaders, we continue to do well. To give you a rough idea that the data center, the MEP part, where we are leaders, we would estimate the market size to be somewhere around INR 3,500 crores and we do a business of around INR 1,000 crores there. This is likely to more than double within 3 years, going by the inquiries in hand and going by the order finalization speed that is there. So therefore, the MEP part of that INR 1,000 crore has the potential to go to INR 3,000 crores within 3 years. Roughly 15% of Blue Star's revenue may be coming from data center, MEP business alone. So that is the outlook. The [indiscernible] is sector is there. In manufacturing, it is connected with semiconductor EV battery, solar cells. These are the segments which require air conditioning and expert cooling solutions. And we continue to do well there. And quite a bit of orders are under attribution, quite a bit of honor on that -- and here again, this will be next 3 to 5 years that is going to be growing tremendously. So both in commercial air conditioning and the electromechanical projects while buildings or infra projects like airports, metro, these are -- these will continue to happen. Very attractive part of that segment is attractive in the sense, it is financing, there is no worry. Cash flow, there is no worry. These are very fast-track projects, 9 to 10 months you have to complete. And these kind of projects are very attractive to us. This is where we will bet on. Blue Star is not in -- not having the complete range of data center cooling equipment. We are leaders in MEP part of it. We have a few chillers, but if you have to talk about the CDUs, which are coding distribution units, cooling that particular space, we are on the lookout for technology. We are discussing with the many partners but nothing material as of now.

[Operator Instructions] We'll take our next question from the line of Aniruddha Joshi from ICICI Securities.

Sir, if you can share any outlook for the air conditioner industry as well as Blue Star for FY '27, considering there was a -- there is an extremely favorable base of FY '26. Secondly, whether the excess trade schemes like free installation or higher innovate discounts for the trade. So whether all of them have been discontinued. So -- and at the same time, commodity prices have increased. So considering all these things, what will be the outlook for margins as well? Question number two. And last question. In terms of now Blue Star has solid market share in air conditioners. And in a way, connected with dealer distributor manufacturing capability. So is there any potential to end? Is there any plan to enter other products in either white goods or durables like washing machines, refrigerators or any other matter for that matter? Because if AC penetration reaches a very good level in FY '30, so what will be the key driver beyond that. I guess, the feeding will have to be done now for the growth to be seen maybe after FY '29 '30? , yes, these are the questions.

So your first question is about industrial air condition. No, no, sir. .

Air conditioner industry itself. Overall RAC industry. .

So the -- first of all, runs industry, given the penetration, it will be the fastest-growing market in the world. And I still maintain by 2030 it should more than double the CAGR at 18% to 20%, it should happen. There may be a year with lower growth, they may be here with very high growth. And one more summer season may get washed out in the coming years. All that part the outlook very, very encouraging. And this is for the growth of the industry. And what is today around perhaps FY '26 and we say it is going to be 17.5 million units. I will not be surprised many things happen and it ends up with 40 million to 50 million units by FY '30. It has the potential, it can happen. But what I will not very sure is whether it is an industry which, given the number of players, the compete -- increasing competition and increasing investments in manufacturing capacity, whether it will provide that 8% to 9% of operating margin. So the question will be the margin will be under extreme pressure. It is, again, a function of how rapidly the demand builds up and what is going to happen to the commodity prices, specifically copper in the other electronics conference, this is what is the thing that the industry players will have to look at for. It is just because the market is growing -- it is not necessary that the margins will expand. It will continue to be under pressure. That is the outlook for the industry. Commercially, air conditioning industry is steady. It's a function of many infrastructure getting built there, the penetration level is higher. It is urban-centric -- but you see more and more tire 3, 4, 5,000 having a conditioned restaurant or air condition marriage halls or air conditioned hotels, hospitals, so on and so forth, it will go inside with the construction cycle and the infrastructure development. And we are market leaders there. The competitive intensity is not that high like room air conditioner, but you do have the technology-related changes, the product innovation cycle or the time it takes to develop those products like VRF, and today, it is advancing very rapidly because energy efficiency requirements, reliability requirements, automation requirements are very high in that particular part. Unlike United States, in India, the residential air portation market size is very big. It is more than INR 35,000 crores. And the thing you are dealing with something like INR 5,500 crores market in commercial air conditions, that's -- EPC part of the market will is huge. It will continue to grow. But then the question is there, you are able to present your margins where you are able to protect your cash flows. That is what we are focused on. We are not chasing the market share we have repeatedly catered this. And where the expertise is paid for or you're getting sufficient returns for the expertise that you have built in that particular domain. Today, it is manufacturing and data centers and some other point of time, it may be something else. But it will continue to grow because these 2 sectors, India is reinventing itself, and it is attracting a lot of investment. The margin outlook given the commodity prices, it is a wrong time to predict anything because when you are in adverse situation, you swing to the other extreme. But it is bad. You don't have any visibility at all, whether it is a exchange rate or whether it is the commodities. And at peak, they say that there will be a huge shortage of electronics because of helium-related issues. So it is a core rate that we are in that situation. That you have to deal with quarter-to-quarter. And right now, we are focused on how to ensure that our prices or our price realization is in line with the cost increase that has already taken place. And once this quarter ends, there will be additional input cost increase if the war is not ending. That's where we are.

Okay. Sure, sir. This is very helpful. And the last question on...

Can I request you to join back the queue?

No, no, no. I had already asked the question. The entry in possible other products like refrigerator washing.

We will have as on date, the foreseeable future, we don't have any such plans at all. We will be focused on air conditioning and refrigeration. There will be geographical expansion, which we have begun. And India itself is a very high-growth market. We have no plans whatsoever to get into white goods.

We'll take our next question from the line of Sonali Salgaonkar from Jefferies India.

Sir, I have the following questions. Firstly, what is the inventory level in RACs right now versus the start of this year, say, January '26. Secondly, the quantum of price hikes is definitely required to cover up the margins. But in your view, do you think it will lead to a demand destruction industry-wide, not only limited to Blue Star? Thirdly, your CapEx and FY '27 outlook in terms of revenue or margins, please?

The last part, Nikhil will deal with. The inventory level will be reasonable as of now. The question is that the dealers have to begin stocking. So already March, a huge billing took place. April 13 onwards, it is selling in the secondary tertiary very well. And my estimate as on date, if you ask me, it would have come to a reasonable level, which means around 45 to 60 days of inventory should be there. But if the summer is active, this 45 to 60 days of inventory should get exhausted even within 20 days of time. That is how it should happen. So I do not think today the inventory of the company or Blue Star is an issue at all because it is locally manufactured, you can regulate it in a particular manner. The challenge is that to monitor how much is moving out and how much will be the primary billing and how I will moderate the production. That's where it is. As of now, that is not the concern. The concern is connected with how the pricing will be passed on to the consumers. And I cannot talk about other brands. In our case, it is very important for us to pass on the increase. It's not that we operate with huge margins. It is very important that the margins are in the order of -- again, I'm -- for the benefit of everyone, I'm saying the segment 1, we want to continue to maintain that 7% to 7.5% outlook. Segment 2, we want to maintain 8% to 8.5%, okay? That's where it is. Now at the same time, we have to march towards our market share goal of 50%, which is currently at around 14.25%. So this is a function of how long the summer will be active, how much price realization can be improved. So this is a very critical period to judge that. Now the consumer demand will drop. It is -- again, if the summer is active, it's not going to be, as I have told you that, let us say, last year to this year, 13% price increase, but there is a 10% GST benefit. Actually, the consumer is going to pay around 3%. And that's where we are. So I am not very sure there will be -- the offtake will be reduced because of this price increase. I am not seeing that the summer is going to be hot. And -- the issue will be due to the war, let us say, tomorrow, the petroleum prices are increased or diesel prices are increased and the inflation peaks during this period, the consumer sentiments may force the consumers not to spend. That can happen. I am not able to comment on that, but I know for sure that the consumer sentiment will dramatically change if, say, for example, petrol prices are going up or diesel prices are going up. But this 3% net of GST increase may not pulled down. Probably a 5-star buyer will end up buying a 3-star or somebody in a high-end 5-star may end up buying a normal 5-star. And one may end up buying a brand which has priced it cheaper. That all that can happen. I don't think they will postpone the purchase for this particular aspect. Thank you. Sorry, Nikhil, about the balance sheet and CapEx.

Yes, sure. So can you hear me?

Yes, sir.

Yes. So with regards to CapEx, see, the annual CapEx can be anywhere in the region of around INR 250 crores to INR 350 crores. So that's the normal spend that we have. And when I say this CapEx, it includes all type of CapEx that is the normal routine CapEx, maintenance CapEx, your investments in R&D, product development as well as whatever IT investments that we'll be doing. So all of that will be in that region. As regards what growth we can expect for the next year FY '27, I think it is too early to comment. You already heard Mr. Thiagarajan that summer is just set in, and we would like to wait and watch because it entirely depends on how the summer actually plays out to predict for the year. .

And the margin outlook?

The margin outlook, what we have said already, again, that given the cost pressures that we are having in terms of commodity pressures that are there and unlimited the kind of good way in which we price increases can take place, that is going to be margin pressure this year. The headwinds are going to be there.

Next question is from the line of Aditya Bhartia from Investec.

So given that you pointed out of 13% kind of a price increase that was required, around 8% has been taken so far. Does that mean that in Q1, we are likely to have margin pressure and the margins hopefully then recover through the course of the year if commodity cost cool off. And if commodity costs stay where they are, then the impact of higher plastic pricing and other crude derivatives has yet to hit us, that starts hitting us from quarter 2 onwards.

Yes. Again, it is -- I have stated very clearly, the additional price increase will -- has come into effect in May itself. We have to pass it on. It is a function of the secondary demand, then the dealers will have to buy. That's where we are. And we are also stating that there will be margin pressure throughout the year and undergoing to something dramatically changes in Q2 or Q3, we do not know. And we are still maintaining that 8% to 8.5% is the outlook for the market.

Sure, sir. So we are still aiming for 8% to 8.5% kind of UCP margins in this year, in which case...

As we said today.

Understood. Understood. So there are cost pressures, but we feel fairly confident that we should be able to pass those on. Is that understanding correct? .

That's right. In a good summer here, it should be 8.5 to 9 for your information. We are saying 8% to 8.5% should be the thing in my very open remarks or to the first question, I have stated, the market will continue to grow. The margins will be continuing to be under pressure until 2030. And I am not seeing that it is 8% to 8.5% continuing as the market expands further. And also as far as this financial year is concerned, as we see today, we believe 8% to 8.5% is possible.

Understood. Understood. And all the costs that have gone up since the war broke out, those costs are yet to get reflected in the 13% kind of price increase that we spoke about. Is that what you would...

[indiscernible]

Understood. So plastic pricing for the goes?

Sure, sure.

We'll take our next question from the line of Pulkit Patni from Goldman Sachs.

Just 1 question. You spoke about INR 3,500 crore cooling opportunity right now for data centers out of it, you can do INR 1,000 crore as an MEP contractor -- can you highlight of those INR 1,000 crores, how much equipment can we source internally?

So these are MEP contracting equipment, if you're talking about cooling, it will not be there is -- it will be negligible. Market is completely separate.

Sure. So basically, as a contractor, we can do about -- I mean we are doing INR 1,000 crores, which is the part of market.

Those material will be something like [indiscernible] metal installation such things, it's not connected with cooling.

Next question is from the line of Renu Baid from IIFL Capital.

Two questions from my side. First, on the RAC business for the Unitary Cooling, can you help us with the volume numbers for 26 and at what utilization levels are you sitting at the factory? And second is on the MEP portion of the business, where you've highlighted data centers and manufacturing fee-growth market. These are also successful typically customers or 1 would presume the pricing environment is relatively favorable. So just trying to understand in these segments, especially is under kind of markets likely to double up in the next 2 to 3 years. Any reason why we are still expecting margins to be at 7%, 7.5% level only and not expecting the product margins to improve as the quality of projects that we're using on the core HVAC side or the MC side are also improving?

The last part I'll answer it, it is not -- our portfolio is only manufacturing and data service. We do have buildings. We do have infra projects. So it's a blended margin we are talking about. Your other question is that I am -- my estimate is that the market would have in any way, we don't know the final numbers of the market. It should be somewhere around $15.5 million or something like that. And we have already said that in the volume terms, we will be somewhere around some 11% of the market we will be. Now the -- as far as the segment 2 margins are concerned, I'm saying that we have a juncture where we have to necessarily pass increase. If it is not passed on now, it will be even more difficult later because the -- this is the time the increase will look like only 3% over last year. The more you delay, it will look like that we are increasing over, correct? There is a justifiable reason for. I suppose I've answered all question.

Sure. And my perspective was that its data center is growing at almost 40%, 50% CAGR for you. net share in the project business would increase some current 15% levels to close to 20%, 25% 3 years out. So should that not have a positive tail effect on the segment profitability when we look at the blended for the company?

Within the segment, it is at 33%. -- within the segment, okay, data center. I mentioned Blue Star's revenue will be INR 20,000 crores, it will be INR 3,000 crores. In that core 15% of the company's revenue could be. So do not mix up that statement with this. Within the projects business, it is -- there is -- there are data centers. There are factories, there are buildings, there are infra. Now in that particular business, we have been operating between 7% to 7.5%. I will not, at this juncture say that it's going to become some 8 to 8.5 or 8.9%. Indeed, it is true that the data center market will grow and that part of the business will be significant within that segment. And I'm -- we are not making a statement. I'm not going to be in buildings or I'm not going to be in other verticals. So as of now, that is all the guidance that we are giving.

Got it. Got it. And the average utilization level for our RAC facility? .

I want to remind that CCT Himachal is built in such a manner that it is operating at full capacity, okay? The whatever little we can improve, we keep improving. But otherwise, it is operating at 100% capacity, which is somewhere around 6.5 lakh units. The balance out of our something like 1.6 lakhs comes from CCT factory, not exactly 1.6 lakh, it will be something like -- it is not 1 lakh. It will be somewhere around 9 lakh unit because we also buy window air conditioner and few SKUs from outside. CCT is built in the module of INR 3 lakhs. So INR 3 lakh, became 6 lakhs, 6 lakhs became 9 lakhs. This 9 can become 12. And therefore, this capacity is added in line with the market reverent. Today, if we are saying this year, the growth will be good, it will be operating close to 100% capacity. Then we will be deciding by October to expand 1 more line. And the factory is built in such a manner, the building is available. It is an assembly line that we need to invest. What we were to invest last year, we said that we will postpone and look at it in October. So in October, we will go ahead and take that call. So you can -- therefore, the answer is it is operating close to 100% capacity in room air conditioners or commercial refrigeration.

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

Just wanted a clarification. With respect to the industry size, did you mention from a fiscal year FY '26 perspective, the 14.5 million pieces for the industry, sir? .

No. I didn't say FY '26 will be somewhere around 15 million only. And I think it should be 17.5% for FY '27. I also mentioned FY '26 finance here, I don't know what it is. It should be -- in my view, it should be close to 14.7% or 14.5% to 14.75% because it would have degrown only by around 5% in volume over the previous year.

And our market share is 11.5%, like what you said in value -- in volume terms and value terms, 14.25%. Have I understood right, sir? .

That is right.

Got it. The second question I had was with respect to -- given where we are currently, what is it -- you said the season actually started only on 13th of April properly? What is it typically when it starts according to you? I mean, what kind of delay we have had seen? And do you think the way the -- whether it's progressing, we could have really an extended summer season, particularly for south?

It has happened in the past like that. The question is weather turns have completely changed. And so it is just impossible. You have to keep your fingers crossed. And only the good news is that the forecast one week prior to that is becoming much more accurate. And the delayed monsoon means it may be in so January first week, it is setting in by January -- sorry, begins of June, it is setting in by June -- it's not that it is going to get delayed to July or something like that. And again, I'm stating if it is going to be a disaster monsoon, it will have other consequences, actually. So it is, again, not worst paying for that as well. All that 1 should look forward to the rest of May and the first half of June, if the summer is active and perhaps in a few pockets of north until June end, that is good enough.

Understood. Understood. And just a clarification on the 4Q UCP margins. Fair to say that there is an element of the provision reversals and the lower cost, which has improved the margin?

what provision reversal I'm not able to follow.

Labor Court provision, the final assessment and the reversal of that INR 7 crores, INR 8 crores?

So that is in the exceptional in provision was made in the exceptional item, provision is taken back an exceptional item. So there is no provisions out there.

And that does not go into business also. .

We'll take our next question from the line of Karan Gupta from [indiscernible].

Most of the questions on the MEP side has been answered, but just want some clarification on that in overall data center project -- as you said, you are providing the chillers. And for the CDU side, we are doing some partnership. So how much is the announced products? And how much it is the outsourcing in the MEP side. So Chiler and we are the market leader?

In MEP of data centers, we do not have any cooling equipment at all. It is all heretical or mechanical equipment, okay? -- cooling equipment is bought always separately by a data center provider, okay? In that cooling equipment business, we do not have the complete range we have few chillers. We do not have PDUs. We do not have fan wall units, for example. These we are in the process of developing making partnerships. The MEP part of it, it is broadly the electrical mechanical actual -- again, main electrical equipment will be bought by them separately.

Okay. And the Okay. And what about the order book size in that segment side for the data center? .

I told you that we estimate the market to be anywhere between INR 3,000 crores to INR 4,000 crores and our order book will be somewhere around INR 1,500 crores. Yes. I'm saying at some -- at any given point of time. You are talking about order book, right?

Yes.

Yes, yes. Broadly translate into annual revenue of but the inquiry inflow is a very huge, very big numbers.

Next question is from the line of Keyur from ICICI Prudential Life Insurance.

One question that because of the stocking that you mentioned in quarter 4, should we expect a lag for at least in quarter 1 between the primary sales and secondary sales looking at the inventory situation? .

I don't think so. The April statement may be to the primary sale.

Keyur, can you please mute your line?

Sure.

Your statement may be true for April. The generally April itself, it should start in and it began only in May.

Next question is from the line of Manish Raj from Canara HSBC.

Just 1 question. If the summer progresses as the way it is progressing right now, what is the kind of primary sales that we can expect on the last year's base, if you could give us a growth number?

So I've always said that the -- given there is a price increase of, I'm saying average you take at least 10% to last year, the good performance would mean anywhere between 25% to 30% over last year.

And will that result...

So I'm saying that over last year Q1 for the industry, if it is a 25% growth that means it is a very good summer. That's what 1 will have to imagine. And imagine last year, summer was not a great summer. -- to 25% because I intact real growth, some 10% is rising out of the price -- that's all it is. And it looks like there is a probability that it will happen. Again, it depends on summer.

Sir, just adding to that part. If it pans out as where the expectation is, then now at the end of Q1, are we going to be sitting on a lower inventory versus what we were sitting last year? Is that a thought process right? .

Yes, yes. The inventory adjustment even last year was not that difficult. The problem last year was that it was compounded by 1 factor after the other factor. So you're starting with an assumption, there will be shortage of raw material. And therefore, you would produce. Then the weather forecast says that weather is going to become hotter by April 15, then it says May will become hotter. And it continued like that. Then the next part of it is the petal season was completely dampen. When you get into energy, it will change, what will happen to only inventory, new inventory. So that -- those are all the issues there. But I am saying inventory management of the industry and Blue Star will be far better this year because the moment somewhere has to checking people have moderated the production and they know very well that we have to wait for a lag in the primary sale. It already happened. And now they will be moderating, what is the production and what is the sale that is happening and I don't think that will be the concern at all. I am, again, repeating, the issue will be how to pass on the price increase fully now and how to pass on the price increase post the fee there will be war-related increase in costs. So this year will be about margins rather than inventory.

Ladies and gentlemen, we'll take that as a last question for today. I now hand the conference over to Mr. Nikhil Sohoni for closing comments. Over to you, sir.

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

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