Can you indicate revenue growth rates separately for RAC, air cooler, and commercial refrigeration in UCP business; what is inventory as of 30th June or 31st July; what initiatives has the company done to clear excess inventory; and given new norms from 1st January, will the company exhaust trade inventory by then?
Product category-wise breakup is selective disclosure and not provided since UCP is a segment classification. Inventory is not an issue at all; only about 30 days of excess inventory exists beyond normal 30-45 days, billing correction began in April first week, and no additional discounts are being given. On new energy label norms from January 1st, the company is well prepared with R&D and supply chain issues already resolved, and Q3 typically sees pre-buying ahead of the label change.
On channel expansion, what is the footprint in South versus non-South, scope to expand further; how are different geographies doing especially South versus North; and on exports, what is scope in non-US markets and are these high-margin businesses with what scale-up timeline?
Market share gain is not just due to distribution expansion alone but having products at all price points across India's diverse consumer base, with surgical-strike approaches in counters where market share is below the 14% all-India average. De-growth was common across geographies including South, West, and North. International exports are only 2% of revenue (US is 1%), the company sells under other brands not Blue Star, and ramp-up may be delayed but will not impact financials materially.
Can you provide order book breakup of key categories like commercial real estate, residential real estate, retail, data center, infrastructure and commentary on which sub-categories are doing well versus average?
The data is not available at hand; broadly buildings, factories, and infrastructure are equally divided at about one-third each, which serves as a risk mitigation strategy. Blue Star does not chase unhealthy orders for market share, focusing instead on healthy orders with good cash flows and decent margins. Quarter-by-quarter mix varies based on customer-driven order finalization.
On overall room AC growth for FY26 with hope on festive season, in August are you seeing any early signs of demand revival from Onam-related demand in South or are you focused on September-October for revival?
Early indications from Aadi sales, Independence Day sales, and upcoming Onam are good but situation is changing every day. The expectation remains a double-digit growth for full year, but volatility means continued monitoring is required.
For full year, what specific revenue growth and profitability growth are expected for unitary products?
Blue Star does not give breakup within segments. For Segment-II, the guidance has been around 8% margin, but with Q1 impact this year it could be around 7% to 8%.
When do you see this picking up and after BEE norms, if there is slight growth or market picks up, do we see a quarter slow because of pre-buying?
Festival season is when pickup happens, with indications starting from Onam and Independence Day sales onwards, peaking during Diwali and New Year. Energy label change combined with festival season and postponed summer purchases should drive growth. Blue Star will manage costs through inventory management, production cuts, and discretionary expense deferrals while continuing long-term investments.
Any update on the JV partner for compressor manufacturing given the additional one-year window?
Blue Star has not stated it is looking for a JV partner; the company is not currently manufacturing compressors and will reach 2.5 million scale within a couple of years. All options are kept open including procuring from Indian manufacturers, manufacturing in-house, or joining other Indian manufacturers. Compressor supply chain is secured for about 12 months covering through next summer.
While peers reported 34% and 50% UCP segment declines, Blue Star managed only ~13-14% decline; what did we do right, and what is the current market share figure?
Market share has likely moved up from 14% to about 14.2% with a goal to end the year at 14.5%. The outperformance comes from multiple initiatives including products at every price point and expanding distribution footprint in Tier 3, 4, 5 cities, especially in northern regions where market share was lower than the all-India average. The company has been gaining market share consistently every year, even during COVID.
Post BEE norms, would Blue Star be sharing some inventory burden with dealers and distributors or helping them?
Inventory is not an issue with only 30 more days of excess inventory at Blue Star. The label change is a long way off, so there is no concern. The focus should be on when growth will resume, with the industry expected to end the year with 10% to 15% growth.
After four quarters of 30%+ growth in EMP, what growth do you expect for the coming quarters or full year; and on Unitary Products, was the morning TV comment about double-digit growth an aspiration, target, or guidance?
For Unitary Cooling Products, the aspiration is 10% to 15% growth based on industry track record after disappointing summers, with margin aspiration of 8% to 8.5% which may be 7% to 8% in a summer-impacted year. For Segment-I Electro-Mechanical Projects, growth of around 15% is possible with margins of 7% to 7.5% maintained. These are aspirations, not guidance, and the situation remains highly volatile due to US tariff and exchange rate implications.
Are we adding new products into the Project segment, equipping for advanced projects like data centers, leading to growth versus competitors who are not growing as fast?
Product portfolio expansion is driving the growth, with specific chillers for data center applications, brine application chillers, next-generation VRF, and liquid cooling products under development. Blue Star invests close to 1.5% of revenue in R&D, unlike multinationals whose R&D is global, which is making the company grow. Competition should not be underestimated.
What is the volume decline for the industry for Q1; on UCP segment 330 bps margin contraction, has gross margin been maintained or contracted, and how much A&P spend reduction has happened?
Industry de-growth was approximately 30%, but on a 3-year CAGR basis the category continues to grow, and on a January-to-June basis the de-growth is in single digits because April purchases got preponed to March. The frightening 30% number is better viewed in the context of strategic direction and long-term investments.
On margin and A&P spend portion of the question - how have UCP gross margins moved and what is happening to ad spends?
Margin contraction is mainly from operating leverage loss given last year's exceptional Q1 base, not gross margin impact, since material costs from copper and aluminum are not significantly impacting. Ad spends will be controlled and will not be at last year's levels given volume de-growth, with some unique industry-level expenses like e-waste also playing a role.
If industry declined 30% Y-o-Y and our market share is marginally higher, does that mean our volume decline is similar, slightly lower, or substantially lower?
The market share went up by 0.2%, which means Blue Star's decline is lower than the industry's 30% de-growth.
Given pre-buying before December deadline and high Q4 base from FY25 pre-stocking, the 10% growth looks reasonably high - how should we view this?
Q3 of last year was not a stocking season while Q4 was, and with energy label change Q3 of this year should be much higher than last year's Q3. Past records show that in disappointing summer years, the full year still ends up at least with 10% growth, and energy label change quarters peak. Blue Star will be prepared for both good and bad scenarios but will not plan assuming everything will be bad.
Is the inventory total one month or one month above normal, and are there any growth deceleration impacts on Commercial Refrigeration from quick commerce store count slowdown?
Inventory is one month above normal in Blue Star's case. Quick commerce is only about 10% of the Commercial Refrigeration business; pharmaceutical, food and beverages retailing, quick service restaurants, farm logistics, and ice cream segments continue to do well, so deceleration in one segment is not a concern.
When you say one month of above-normal inventory, is that an average inventory throughout the year and does that imply during monsoon or Q2 it will take more than two months to receive it?
Pipeline inventory across factory, warehouses, and field is around 45 days normally, but currently stands at about 75 days reflecting 30 days more based on monsoon sale period. During peak season, that 30-day figure would translate to only 10 days of sales.
Is there any pricing discount going on in the industry and at Blue Star?
With only one-month excess inventory, there is no reason to cut prices. Normal schemes and market operating prices continue, and gross margin is not the issue - growth has to happen.
Versus Q1 FY24 there is still revenue growth in UCP yet margins have fallen sharply; overall revenues this quarter were higher than off-peak Q2 or Q3 last year but margins came off sharply - is there gross margin erosion or other expenses involved?
Over the two-year period there has been increase in fixed and semi-variable costs along with inflation, which impacts margins in addition to volume changes. Certain new expenses like e-waste are also impacting margins. These costs are unique for the period and cannot be directly compared to two years back.
Versus second and third quarter of last year, there is also a decline in margins despite Q2 and Q3 being off-peak with lower volumes - should we be comparing those?
In summer this year the company invested anticipating 25-30% growth including advertising, in-shop demonstrators, and additional installation/service staff, but season failure caused margin erosion as committed costs cannot be quickly cut due to notice periods. In Q2 and Q3 the company will be cautious with spends; Q2 may see one month of impact since July last year was a peak month, but Q3 should not be a problem with margins managed.