Blue Star Limited (BLUESTARCO.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Blue Star Limited Q1 FY '26 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.

Thank you. Good morning, ladies and gentlemen. You might have seen the results, which were published yesterday. So I take it as what was a disappointing quarter that had ended. And I do not know, I leave it to your judgment that it was better than what you expected or worse than what you expected. As you're aware, we had commenced the financial year with the hope that the summer season will be an impressive one with over 25% of growth during the summer season, 25% to 30% market will grow and Blue Star also will grow. This is for Room Air Conditioners. But unfortunately, due to unseasonal rains, as I would have or Nikhil would have explained to you during the course of the summer season several times in the media or in one-on-one meetings or telephonic calls, it was a disappointing summer. So I had also expressed that it is not disaster. It is a disappointing one, but the long-term prospects for Room Air Conditioners business at a CAGR of 19% over the next 5-year period should happen. And we firmly believe in that. And this particular disappointing summer season obviously calls for some corrective actions so that we maintain the profitability, we improve our efficiency, and we do not lose momentum in terms of research and development or market expansion or the talent acquisition and other initiatives which are strong pillars for Blue Star. Fortunately, Blue Star, as you are aware, is not only dependent on B2C businesses, it's also depend on B2B businesses. And fortunately, that part of the business is doing well. In fact, order book for the B2B businesses is at all-time high, and we continue to grow at double digit. With that, I will hand it over to Nikhil for his remarks. Later on, we will answer your questions. Thank you.

Thank you, Mr. Thiagarajan. Good morning, ladies and gentlemen. This is Nikhil Sohoni, and I will provide you an overview of the results of Blue Star Limited for quarter ended June '25. So following an exceptional year of growth, FY '26 started on a softer note, driven primarily by unseasonal rains across the country which resulted in a muted demand primarily for Room Air Conditioning segment. Despite this headwind faced by Room AC business, the company has delivered robust revenue growth across other key businesses. Backed by healthy order book and prospects of demand reviving during festive season, we are optimistic about the growth for full year. Financial highlights for the quarter ended June 30 on a consolidated basis are summarized as follows: revenue from operations for quarter 1 FY '26 grew by 4.1% to INR 2,982 crores as compared to INR 2,865 crores in Q1 of FY '25. EBITDA, excluding other income for quarter 1 of FY '26 recorded at INR 199.99 crores, an EBITDA margin of 6.7% as compared to INR 237.8 crores, which was EBITDA margin of 8.3% of the revenue in Q1 of last year. PBT before exceptional items dropped by 27.8% to INR 163.23 crores in Q1 of FY '26 as compared to INR 226.02 crores in Q1 of FY '25. Tax expenses for Q1 FY '26 was INR 42.4 crores as compared to INR 57.26 crores in Q1 FY '25. Net profit for quarter 1 FY '26 [ degrew ] to INR 120.82 crores as compared to INR 168.76 crores in Q1 FY '25. Carried forward order book as of June 30, 2025, grew by 12.5% to INR 6,843 crores as compared to INR 6,085 crores as of June 30, 2024. Carried forward order book as of March 31, 2025, stood at INR 6,263 crores. The capital employed as of June 30, '25 stood at INR 2,821 crores as compared to INR 1,738 crores as of June 30, 2024. We continue to invest in manufacturing capacity, research and development and digitalization. The company reported a net cash position of INR 370.9 crores as on June 30, 2025, as compared to the net cash position of INR 1,042.9 crores as of June 30, 2024. Coming to business highlights for the quarter 1. Segment 1, that is Electro-Mechanical Projects and Commercial Air Conditioning Systems. The Segment 1 revenue grew by 35.9% to INR 1,412.5 crores in Q1 FY '26 as compared to INR 1,038.9 crores in Q1 of FY '25. Segment result was INR 111.6 crores, which was 7.9% of revenue in the current quarter as compared to INR 103 crores, a 9.9% of revenue in Q1 of last year. Order inflow for the quarter was INR 1,963 crores in Q1 FY '26 as compared to INR 1,466 crores in Q1 FY '25. Coming to individual businesses within this segment. Electro-Mechanical Projects business, we experienced strong order bookings in the Projects business during the quarter, driven primarily by continued demand from factory, data center and healthcare market segments, indicating sustained interest and healthy pipeline for upcoming quarters. Inflow of inquiries and tenders in railway electrification and metro railway sectors remained subdued and we continue to maintain selective approach to infra projects. Carried forward order book for Electro-Mechanical Projects business was at INR 5,080 crores as compared -- as on June 30, 2026, as compared to INR 4,557 crores as on 30th June 2024. Commercial Air Conditioning Systems during the quarter, Blue Star's Commercial Air Conditioning business delivered robust growth in line with the overall market trends, reflecting sustained demand and strong execution. All key product categories like ducted air systems, VRF and chillers registered healthy growth during the quarter. Key demand contributors included the manufacturing and education sectors, driven by infrastructure expansion and increased investment in climate control solutions. However, demand from government and public sector remained muted due to low capital expenditure and commercial retail demand was also relatively modest. The International business is also part of this segment, where we continue to pursue our international foray as steadily progressing in the U.S. markets. The engagement with European customers is also underway with discussions at various stages of finalization. Uncertainty due to geopolitical factors, including the U.S. trade negotiations may act as a short-term impediment. We are also focused on strengthening our presence in Middle East and African markets. Segment 1 margin at 7.9% for quarter 1 of FY '26 versus 9.9% in Q1 of last year. The quarterly margins are influenced by projects and product mix and hence may not be comparable with the previous periods. Coming to Segment 2, that is Unitary Products. Segment 2 revenue degrew by 13.3% to INR 1,499.4 crores in quarter 1 of FY '26 as compared to INR 1,729.5 crores in Q1 of last year. Segment result was INR 87.5 crores, which was 5.8% of revenue in Q1 of FY '26 as compared to INR 158 crores in Q1 of last year, which was 9.1% of revenue. Individual businesses within this segment, Cooling & Purification Products business, this quarter presented unexpected headwinds due to the early onset of monsoon across India, making this an unusually soft summer season. However, as in the past, we have done marginally better than the industry, and we estimate that our market share has slightly improved above 14%. While the near-term environment remains challenging, we remain confident in the underlying strength of the category and are strategically positioned and focused on navigating this phase effectively as we look ahead to a stronger demand revival during the upcoming festive season. We continue to invest in expanding our distribution footprint across the country. We remain confident in our outlook for the rest of the year and expect to close FY '26 with reasonable growth. Commercial Refrigeration business witnessed strong growth in Q1 of FY '26 as we are now on a firmer footing. The regulatory challenges we faced in storage water coolers category last year has been resolved. Growth in this quarter was primarily driven by strong demand from processed food and pharmaceutical segment, reflecting a positive turnaround in key end user industries. In Q1 of FY '26, this segment reported a margin of 5.8% as compared to 9.1% of Q1 FY '25. Margins for the current quarter were impacted by a sharp decline in Room Air Conditioning business. With the lower volumes, the operating leverage benefits witnessed in Q1 of FY '25 could not be replicated in this quarter, thus resulting in the drop in margins. Coming to Segment 3, which is Professional Electronics and Industrial Systems. The Segment revenue degrew by 27.3% to INR 70.4 crores in Q1 of FY '26 as compared to INR 96.9 crores in Q1 of FY '25. Segment result was INR 7.7 crores, which was 10.8% of revenue in the current quarter as compared to INR 9.6 crores, which was 9.9% of revenue in Q1 of last year. The segment faced a decline in revenue, driven by continued challenges in MedTech and Data Security business. The MedTech business has been impacted by regulatory uncertainty with the government temporarily stopping the import of refurbished medical devices. However, Industrial Solutions business is experiencing steady growth, supported by manufacturing and testing demand. Segment margins at 10.8% for Q1 of FY '26 versus 9.9% in the Q1 of last year, the improvement was majorly due to favorable change in product and service mix. Coming to business outlook. While the first quarter of FY '26 was impacted due to poor Room Air Conditioner sales, [ going ] to unseasonal rains during the summer season, it is expected that the demand will revive during the festive season. Further, our strong portfolio of B2B products and solutions comprising of Electro-Mechanical Projects, Commercial Air Conditioning and Commercial Refrigeration should help us partly offset the shortfall during the rest of the financial year. Aligned with our long-term vision for growth and innovation, we remain committed to strategic investments in manufacturing, R&D and digitalization, while ensuring sustainable value creation for our stakeholders. With that, ladies and gentlemen, I'm done with my opening remarks. I would like to open -- pass it back to the moderator, who will open the floor to questions. We'll try to answer as many questions as we can. And to the extent that we are unable to, we'll get back to you via e-mail. With that, we are open for questions.

[Operator Instructions] The first question is from the line of Aniruddha Joshi from ICICI Securities.

Sir, in case of UCP business, if you can indicate the revenue growth rates in RAC, Air Cooler and even Commercial Refrigeration separately, it will be great. Then secondly, what is the inventory as of either 30th June or even 31st July, if you can indicate in that space? And thirdly, what are the initiatives that the company has done to clear the excess inventory, means, either free installations or additional trade discounts or consumer discounts, or what are the additional initiatives the company has done? And lastly, now the new norms will come into picture from 1st of January. So whether the company will be able to exhaust all the trade inventory by that time? Or how should we read the situation panning out? Yes, that's it from my side.

Thank you. We -- unfortunately, I think you are new to the call. This has been clarified several times. Unitary Cooling Products is the segment classification and anything we -- further breakup there will be selective in disclosure. So we will not be able to. All that I can say is that, that particular segment comprises Room Air Conditioners and Commercial Refrigeration products such as water coolers, deep freezer or cold chain equipment. It does not include like our competitor -- some of the competitors have the service business of central or packaged air conditioning that is not in that particular segment. It is purely products. Now the -- unfortunately, that this has been going on for some point of a time. If we have to reclassify, we have to look at the industry how they report and then we have to -- then it involves regrouping, et cetera. The fact of the matter is, in this particular quarter, what is impacted is Room Air Conditioners. Now Room Air Conditioners market size is around 6x of the Commercial Refrigeration market. Then you can make a guess what it is. In our case also, it will be the same, what our share there, what share here. So therefore, the question is, unfortunately, not answerable. Second part, inventory is not an issue at all. This also I had clarified in many television interviews or one-on-one interactions. Nikhil or Swati also would have clarified that the moment the market was not picking up, it all it takes is 2 weeks to correct the manufacturing. Now those days, some 3 years ago, it used to be China imports. So what you have committed, it will be in high seas and you will be saddled with the inventory till the end of the festival season. Now normally, in the system, 30 to 45 days of inventory will be there always. Now it is not just in, just out. In addition to that, we will excess the inventory, if that is the terminology, it is a 1 month of sale. That is all the excess inventory Blue Star has got. And if the inventory is not an issue at all, that 1-month inventory will be sold off. And there is -- the correction in not billing began in April first week itself. So therefore, with the dealers, there is nothing need to be done to be giving additional discounts or whatever it is. Whatever is the market operating prices that's in the schemes existing that is going on. The real issue is when the demand will pick up. So I -- to you and to the other participants, I would request that inventory is not an issue. It is just 30 days more inventory is there, that will move away. The real question is that whether the festival season will be good. Early indications are it begins with -- in Tamil Nadu, it is called Aadi like that, and there is Independence Day sale. And there are some early indications, it will be good. But really, we have to see in a volatile trade situation across the globe and in India, what all will happen, we do not know. We wish and pray that the festival season is as good as last year. Your last question was connected with the -- what was the last question?

New norms in energy label.

Energy label norm, we are well prepared. We -- see, usually, what happens is in anticipation of the energy label change, many people end up buying in Q3 itself because a new 5 Star will be costlier than the existing 5 Star. So there are a lot of people who end up buying. So it is a question of production planning, the new products as well as the old products, how we will do in Q3. Anyway, from 1st January, you have to make the new label. And this energy label change happens in consultation with the industry, and we all know what is the new norm, and we all know which date it is coming into effect. So therefore, research and development, supply chain issues are already over. So there is absolutely no concern about that.

Sure, sir. Just last one question. You had indicated earlier that Blue Star is also looking for a JV partner for compressor manufacturing. While we have got 1 year additional window, but any update on this JV?

I have not stated -- no, I have not stated as we are looking for a JV partner. I will -- again, this question should not come up later in the call. There is -- Blue Star is not manufacturing compressors today. And it is a question of scale. And we know that within a couple of years, we will reach 2.5 million kind of quantity. Therefore, we should look at compressors. Now there is -- and the QCO extensions may happen, may not happen. And there are manufacturers in India who are planning to expand. So we will keep monitoring both. What are the import restrictions, what are the manufacturing capacity expansion that is happening here within India. We have kept all the options open, procuring from Indian manufacturers as and when they expand to keeping our ears and eyes open. If we have to manufacture, we will go ahead and manufacture. Three, if few Indian manufacturers have come together to make compressors, we are open to that idea. Right now, our supply chain is secured for some -- for about 12 months' time in the sense that till end of next summer season, we are covered. So we will keep reviewing it. And compressor supply chain resilience is no longer bothering us because we have kept multiple options.

[Operator Instructions] The next question is from the line of Shivkumar Prajapati from Ambit Investment Advisors.

So my first question is the other peers have also reported their numbers. And for the UCP segment, the numbers are drastically down, say, 34% and 50% for 2 players, while we managed just about 13% to 14% of decline. I just want to understand what did we do right? And you have also highlighted that we have gained some market share. So would you be able to quote some figures as I think in Q4, we ended at around 14%. And what would be the current market share?

These are your -- this is your second question or you have some other question?

Sorry, this is my first question.

Second question also you complete, I'll answer both together. What is your second question?

Sir, second question is basically on the inventory with the dealers and distributors. So post the BEE norms, would we be sharing some burden with these players? Or we will be helping them for their inventory?

That question I've already answered. There is -- it's only excess inventory of 30 days is there, and that is a -- BEE label change is a long time away. So there is -- it's not an issue at all. So inventory is not an issue, and I request all participants, please take note of, I -- as far as Blue Star is concerned, it has got 30 more days of inventory. And all they wanted to look for is that when the growth will take place, and so that I maintain that still full year, this industry has got an opportunity to end the year with 10% to 15% growth. That stuff will happen whenever there is a summer season, which is not good. So one has to watch for if at all, there should be anxiety, how well the economy will progress, how well the festival season will progress. So inventory is not an issue. Coming back to your first question that is connected with the -- a market share of 14%. It would have moved up in my view to 14.2% or something like that, going by. And why we should have done well? We have been gaining market share. That has been our history. Every year, we have even during the COVID period, we have gained market share. And we started with the momentum. Our goal was to end the year with 14.5% market share. So this is happening with multiple initiatives. Number one is having products at every price point and expanding our distribution footprint in Tier 3, 4, 5 cities, specifically in Northern region and places where our market share was lower than all India average improving it. It's all because of that.

The next question is from the line of Natasha Jain from PhillipCapital.

My first question is on the channel expansion that you have mentioned. Because we've got market share gains primarily because of that, I just want to understand if you could call out what is your footprint in South versus non-South? And what is the scope to expand them further? How much are we non-indexed in the rest of India? And therefore, what can be the growth opportunity just by channel expansion? That's my first question. My second question is, if you could throw some light in terms of how different geographies are doing? How is South doing? Is it any better than it was before because South disappointed the most and Blue Star is indexed to South versus probably North, how is it doing? You are lower indexed there. Therefore, on that account? And lastly, in terms of exports, while I understand U.S., the tariff uncertainties, but in non-U.S. markets, what's the scope there? And are these high margin businesses? If yes, what kind of scale up can we expect and by which year? That's it, sir.

So the first is the market share gain is not just due to distribution footprint expansion alone. It is having products at all price points that there are -- India is a vast country, different types of consumers are there. There are entry-level products are consumed, heavy-duty air conditioners are consumed somewhere. Someone is asking for Wi-Fi enabled, the AI-enabled air conditioners. Someone is asking for sophisticated controls there. Someone is asking for purification and health-related features. So you have to have a product portfolio at the right prices. That is the first part of it. Distribution footprint, it is not by sheer numbers, it will be happening. You can go and say my distribution has become now 20,000 channels or 25,000 channels. That is not the point. Blue Star understands in every town, what is the market size. In that each of the counter, what is the potential of the counter, in that, what is my current share and therefore, what I have to do. Even in Chennai, I may be having more than 20% market share. But I should be looking at in a particular counter, whether I'm getting 20% or not. All India market share may be 14%. There are markets in which we will have 7% or 8%. There are markets in which we will have 10%. So each of these markets, where we internally call it as a surgical strike, go ahead and work there in order to take the market share higher. So the sheer number of expanding the distribution footprint will not get the market share at all. For a simple reason, your dealer will agree to be your dealer and display a product because you are actually compensating for the space that you occupied, in-shop demonstrator, you will be deploying. And that alone is not going to help. It will help, but that alone will not help. So that is the answer to that. Now coming to the geographical thing, we have not thought when Kerala failed, we thought in Tamil Nadu, Andhra Pradesh will be -- that was not picking up. Then I thought it is going to be picking up in West and then North. All over, the same thing happened. So according to us, the degrowth is common across the country by coincidence. And the last part of your question is connected with the international. First of all, our exports -- the international footprint itself is low. And we are on a program to improve our international footprint on 2 conditions: one is, it will not bring down our ROCE; two, it will not bring down our profitability. Our approach has been we will not enter there in Blue Star brand name. We will be making for other players there, established players there. We have acquired around 3 customers across United States and Europe. Now the tariff uncertainty has been there. Today, it has got aggravated. But the question is, all along, there has been a doubt what will happen to the tariff and both the sellers like us and the buyers, they have been very careful in arriving at what needs to be done. Now our dependence on exports is total, all exports put together is 2% of our revenue. If you take United States, it is 1% of our revenue. So it is not going to be impacting our operations either manner. And what can happen is our -- we had got our products approved, and we are in the process of getting our products approved for other players. We are -- in the international market, we have to be doubly sure that product has to be performing well, complying with all their international standards, and it is new to us, every market. And therefore, we have been going slow and we were about to ramp-up. That may get delayed. That's about all. So it is not going to impact the financials in any manner. Our decision is please wait and watch what happens because what happened today, maybe changed later, we do not know at all. So we are focusing on working with our customers to keep developing the product and figure out what is the best way they would like to source. That's where we are.

The next question is from the line of Akshen Thakkar from Fidelity.

Congratulations on seeing through a relatively tough quarter. My question was around the Electro-Mechanical Project business. You've seen 4 quarters of 30% plus growth in this business. I mean, obviously, the base is fixed, but could you give us some color on what kind of growth you're expecting in this business in the coming quarters or maybe for the full year? And then on the Unitary Products business, I think the comment on TV this morning by Vir was that you're still guiding for double-digit growth. That would imply sort of close to mid-teen growth for the rest of the year. Is that something which is an aspiration, a target or a guidance?

I will comment to the second part of it. The thing is that if you plot all the years where the summer has failed, summer sales have not been good, eventually, the industry ends up growing at least to 10%. And so that is going by the past record. It is not necessary it will repeat now, but it is a question of a pent-up demand. It's not that they don't want the AC. They wanted the AC. Summer was not hot. They postponed it. And see, remember this, I mentioned this last investor call as well that May, June or July are very important months for the consumers in terms of schooling, vacation. They do have additional burden. So if they can shift their expenditure, that is fine. And they come back during the festival season. This particular year, there is energy label change. So therefore, all the energy label changes, just before the energy label change, huge purchases take place. So therefore, there is an expectation going by the past data that growth can be 10%. And that's why I mentioned to the earlier question also, eventually, we should look at how the festival season plays out and aim to close anywhere between 10% to 15% growth. That's what it is. Now Electro-Mechanical Projects, that particular segment has got the EPC business of contracting. It serves many segments. It's infrastructure projects, data center projects, manufacturing unit or factories, buildings, hotels, hospitals, so on and so forth. It also has the packaged air conditioning equipment, like VRF, chillers, so on and so forth. In the particular quarter, it all depends on a closure of a job or somebody is ready to lift the equipment there if it is packaged air conditioning. So the B2B part of the business is doing good. And at the same time, it is also cyclical. That's why I keep mentioning in our case, we are not entirely dependent on Room Air Conditioner. There is something else too. Now your question is that can we assume this kind of a growth full financial year? That is not the guidance. The thing is that we would like to grow somewhere around 15%. That's about it. And we have always said that the margin should be 7% to 7.5%, for the benefit of other participants, I'm clarifying that also here. So Unitary Cooling Products, the growth should be 10% to 15%. That is the aspiration going by the past record of the industry. And margin, our aspiration is 8% to 8.5%. But in the summer impacted year, it may be tougher. It may be 7% to 8%. It all depends on how the festival season is and the last quarter is going to be. As far as Segment 1 is concerned, 15% growth is possible and 7% to 7.5% margin, we will be able to maintain. And the situation is highly volatile. It is not -- the U.S. tariff is not connected with the exports alone. There will be other implications that is in the market. For example, the exchange rate and other industries, which are dependent on, therefore, the consumer sentiment. So it is going to be an important period and it could be volatile period as well. And we have to watch out and pray that the festival season goes on and the Indian economy maintains its momentum.

The next question is from the line of Ravi Swaminathan from Avendus Spark.

My first question is once again on the first segment with respect to what is the -- if you can do the order book breakup of the key categories like commercial real estate, residential real estate, retail, data center, infra and each of these -- if you can give some commentary on each of these subcategories which is doing great, if you can, which is doing average?

Ravi, I will answer this question. The thing is that we -- I do not have the data. And the second part is basically, we have -- first of all, understand this, why that is important, how fast the projects will get closed, how healthy is that order book. That's what you are trying to assess. First of all, I'm assuring you that we are not interested in any unhealthy orders. If it is a commercial real estate versus infrastructure projects or data center, what orders we book and carry according to us is a healthy order with good cash flows and decent margin. That's why we are not going ahead and building the order book or fighting for a market share, okay? Broadly, the buildings, factory and the infrastructure are equally divided. And in a particular quarter, the manufacturing may go up, in a particular quarter building, because the orders are not being finalized based on Blue Star strategy. Orders get finalized in the manner in which the consumers want. And therefore, you can assume always it is 1/3, 1/3, 1/3, and that is what we would like it to be as a part of our risk mitigation itself. Second question of yours?

Yes. My follow-up on this is, I mean, are we adding new products into this project segment category like equipping ourselves for advanced projects in categories like data centers, et cetera? This is leading to this kind of growth vis-a-vis other companies, several other competitors who are not growing that [ fast ] in the projects business?

I won't underestimate any competition at all. All are competent players, everybody wants to grow. So all should be doing the right things to build their own competitiveness. As far as Blue Star is concerned, you are talking about the Segment 1, I suppose, because the equipment addition means it has to come from the Commercial Air Conditioning Systems or what used to be called as the packaged air conditioning. Yes, there are specific chillers meant for data center application. There are chillers meant for brine application. The product portfolio expansion is driving the growth, and we continue to focus on that. Now even in VRF, there are -- next-generation VRFs are getting developed. And if you are pointing towards specific data center like liquid cooling, we are working on that as well. But the question is that as and when the market will be there for a particular product, our intention is to be ready with a particular product. And that is why compared with others, see, in case of multinational, their R&D happens internationally. The Indian companies need not to bear that R&D expenses. In case of Blue Star, you have seen that significant amount of investments are taking place there. Close to around 1.5% of our revenue is in R&D. That is what is making us grow. We will continue to do that.

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

Sorry if I'm asking a repetitive question, sir. Sir, if you could help us with the volume decline for the industry for the quarter, just a broad sense, what kind of decline? Is it -- because the range we keep on hearing is a fairly large number, but just your sense on the same? And b, in terms of the margin, we've seen for the UCP segment 330 basis point margin contraction. At the gross level, have we been able to maintain or if there is a contraction even at the gross margin level? And if you could also help us in terms of A&P spend in that segment, how much has been the reduction or if it is same or increased?

Second part, Nikhil will answer. As far as the first part is concerned, our understanding is from various reports because there is a [ indiscernible ] in some part of it. There are institutional sales as well. My guess is that the industry, the growth would have been around 30%. And again, it is not degrowth over last year is something we are going to look at it at all. As analysts, we always look at it because that's important for you. We look at it from the point of view of a 3-year CAGR. See, summer of 2023 was a bad summer. Summer of '24 was a 57% growth summer. And now there is a decline. So the question is if you take a CAGR, it continues to grow. is a second thing we look at it within Blue Star is January to June, how it looks like rather than April to June. For the simple reason, April purchases got preponed to March itself. So if you look at it like that, the degrowth will be in single digit. Now why that is important? While the market should do whatever it is doing, for us, it is connected with the strategic direction. It is connected with the investments that we have to make and the competitiveness that we have to build. In other words, we will not sit with a long face and worry about 1 quarter is washed out what to do. I do understand from stock market point of view. So here, we are very clear that whether the industry is growing. So therefore, if you look at a 3-year CAGR, still it is -- it has grown. And if you look at January to June, the deal growth is single digit. That's all I worry about. But what I hear is there is a 30% degrowth in the industry. And so in a period like this frightening numbers, it is better to ignore. And the second part, Nikhil will answer.

So as far as margins go, if you would have heard my commentary also, it was mentioned that when the volumes drop definitely, there is some amount of operating leverage benefits that you normally get, you will not be getting it in the current quarter. That said, last year's quarter 1 was an exceptional quarter. So definitely, the economies of scale benefit was there. Hence, you are going to witness the contraction in the margins the moment the volumes have come down. In addition to that, the mix between various components within this segment will also have a role to play. So it is not -- of course, at the gross margin level will be a function of how the material costs have moved, which all of us are aware of, the movements in copper, aluminum and what are the inventory. So that is not going to impact it in a major way. Definitely most of this kind of comes from the play of volumes. So that's as far as the overall margins go. Coming specifically to your question on what are the ad spends and all, that again kind of -- at the moment we see the volumes kind of degrowing, there is some amount of control, which definitely comes on the spends. So they will not be to the extent they were done last year. And accordingly, some contraction in those spends will also happen. So there are certain unique expenses which also come every year which are industry level expenses. We are aware of costs like e-waste, et cetera, also come. So they will have the play on the margins. So this margin drop, which you are saying is a combination of all of this. So it's not a gross margin impact. It is more an impact which comes because of scale economies and certain unique expenses which come every year.

Got it. Just a clarification, sir, on the first answer. Sir, again, I'm sticking to the first quarter at this point in time, April to June quarter, you said industries declined 30% Y-o-Y. And we have said we have -- our market share is marginally higher. Does that mean that our volume decline is also in the similar fashion or slightly lower than that or it's substantially lower than that?

Yes. I mentioned the market share went up by 0.2%, which means our decline is lower than the industry.