On project business, with raw material prices going up and some fixed-base contracts, how to think about margin impact in next 12 months?
Not a concern - it's all covered for price variation. Having said that, if delay is attributable to us, price variation will not be applicable during delayed period. No major impact at the moment from input cost increases.
On international business, 1-year and 3-year outlook for new customer approvals and revenue potential. Growth outlook for FY27 on commercial AC, commercial refs and projects. And on balance sheet - what changed for payable number, looks like inventory stocking and creditors dropped considerably.
International: wrong time to talk long term given trade-deal uncertainty. We have approvals for several products with several customers in air-to-water/air-to-air heat pumps. US market is stagnant/de-growing for our customers. Europe is slow but new Energy Security pushing heat pumps over boilers. Critical portfolio for Blue Star - may not contribute significantly to revenue, but in about 3 years should grow significantly. Blue Star not entering with own brand, not acquiring, not setting JV - it is CDM manufacturer making products for others. Commercial refrigeration: dominated by ice-cream segment; FY26 was bad, FY27 wait-and-watch. RS.35,000 Crore RAC market vs RS.5,000 Crore commercial refrigeration market addressed by Blue Star. Huge growth potential but yet to grow.
RAC industry outlook for FY27 given favourable base of FY26. Have excess trade schemes (free installation, higher trade discounts) been discontinued? With commodity prices up, margin outlook? And does Blue Star plan to enter other white goods/durables since AC penetration will mature post-FY30?
RAC industry: given the penetration, fastest-growing market in the world. By 2030 should more than double. CAGR at 18% to 20%, it should happen. FY26 was ~17.5 million units (clarified later as 14.5-14.75 mn). Will not be surprised if 40-50 million units by FY30. Margins under extreme pressure given competition and manufacturing capacity additions - not sure industry will provide 8% to 9% operating margin. Commercial AC: steady, more T3/T4/T5 town penetration, but competitive intensity not as high as RAC. Tech changes in VRF very rapid. Indian residential AC market RS.35,000+ Crore, commercial AC RS.5,500 Crore. We are not chasing market share; focus on protecting margins/cash flows. On white goods: no plans whatsoever - focused on air conditioning and refrigeration. India itself is high-growth market.
On margin outlook?
Annual capex RS.250 Crore to RS.350 Crore - normal spend including maintenance, R&D, product development, IT investments. FY27 growth - too early to comment, depends on how summer plays out. Margin outlook: given cost pressures and commodity pressures and constrained ability to price increase, there is going to be margin pressure this year. Headwinds will be there.
RAC business: volume numbers for FY26 and utilization levels at factory? On MEP, data center and manufacturing being growth markets where pricing environment is favourable - why are margins still expected at 7-7.5% level and not improving as project quality improves?
Portfolio is not only manufacturing and data center - also buildings and infra projects; it's a blended margin. Industry size ~15.5 million; in volume terms we are ~11% of the market. Within projects there are data centres, factories, buildings, infra - we have been operating between 7% to 7.5%. Will not say it's going to become 8% to 8.5%. Data center will grow significantly within segment. Sri City/Himachal operating at 100% capacity (~6.5 lakh units). Balance of 1.6 mn comes from Sri City - around 9 lakh units. Sri City built in modules of 3 lakh units - 3->6->9->12 lakh. This year if growth is good, will operate close to 100% capacity. In October we will decide to expand one more line. Currently operating close to 100% capacity in RACs and commercial refrigeration.
In UCP, RAC being hypercompetitive needs constant ad spend. Are you protecting margins or will ad spend stay elevated? In April, first 15 days were flat due to rain, second 15 only secondaries picked up. How are you reading near-term given season ends end of June? And are you seeing sharp down-trading given costs have increased so much?
In Q4FY25 there was huge advertising spend anticipating a great summer. In Q4FY26, summer had not set in (set in only 13 April), so spends were very low including in-shop promotions, which are now being stepped up post-onset. There is no intent to stop investments which are in the order of 1.5% to 2% of products business revenue. On weather - summer set in 13 April. Whether secondary/tertiary or primary pickup is now a function of how severe and how long summer will be; primary movement has commenced in many markets. We are happy summer has set in, not celebrating like 2024. Pass-on of cost increase is a function of demand.
How much price increase have you taken in air conditioners since January 1st including BEE norm change, and how much more is needed to cover raw material price increase?
Roughly around 8% SKU-to-SKU including ~5% for energy level change alone. Subsequent to that till April beginning, additional 8% for raw materials and exchange rate. Total ~13% price increase warranted. Of 13%, ~8% realized so far on primary already happened; 5 more % will happen as May/June billings. 13% will cover the desired margin levels. This does not account for further plastic/styrene/polystyrene/petroleum-based input cost rises post-war.
Commercial AC and project segment outlook on revenue growth for FY27?
Commercial air conditioning outlook 8% to 10% kind of growth, driven predominantly by manufacturing sector. Projects driven by manufacturing and data centre - market leaders in both. Data centre MEP: market size ~RS.3,500 Crore, Blue Star does ~RS.1,000 Crore. Likely to more than double within 3 years - RS.1,000 Crore has potential to go to RS.3,000 Crore within 3 years. Roughly 15% of Blue Star's revenue may come from data center MEP business alone. Manufacturing connected with semiconductor, EV battery, solar cells - growing tremendously over next 3 to 5 years. Buildings and infra projects (airports, metro) - very attractive: no financing/cash flow worry, 9-10 month execution. Blue Star is not having complete range of data centre cooling equipment - leaders in MEP part. Few chillers but no CDUs (cooling distribution units); discussing with partners but nothing material.
Inventory level in RACs vs start of year. Will required price hikes lead to demand destruction? Capex and FY27 revenue/margins outlook?
Inventory: reasonable - around 45 to 60 days. If summer active, should get exhausted in 20 days. Today Blue Star inventory is not an issue - locally manufactured, can regulate. Concern is how pricing will be passed to consumers. Segment 1: maintain 7% to 7.5%. Segment 2: maintain 8% to 8.5%. Market share goal 15% (currently ~14.25%). Demand destruction: 13% price increase minus 10% GST benefit = ~3% net to consumer. Not very sure offtake will be reduced. But if war pushes petrol/diesel up, consumer sentiment may force not to spend. A 5-star buyer may end up buying 3-star, or premium 5-star buyer may buy normal 5-star, or cheaper brand - that can happen but no postponement.
Given 13% price increase needed and 8% taken, will Q1 have margin pressure with recovery if commodities cool off? If commodities stay, will plastic/crude derivatives impact hit from Q2 onwards?
Additional price increase has come into effect in May. Pass on is function of secondary demand. There will be margin pressure throughout the year, and unless something dramatically changes in Q2 or Q3, we are still maintaining that 8% to 8.5% is the outlook for the market. In a good summer it should be 8.5% to 9%. We are saying 8% to 8.5% should be the thing. Margins will continue to be under pressure until 2030 - I am not seeing 8% to 8.5% continuing as market expands further. All costs since war broke out yet to be reflected in 13% increase.
Of RS.1,000 Crore MEP data center business, how much equipment can we source internally?
These are MEP contracting - cooling equipment is bought always separately by data center provider, our cooling equipment content negligible. Material for our MEP part is bus duct, sheet metal, insulation - not connected with cooling.
Industry size clarification - did you mention 14.5 million pieces for FY26? Volume market share at 11.25% and value at 14.25%? Given season started 13 April, what kind of delay and could we have extended summer in South? And Q4 UCP margins - is provision reversal/lower cost driving improvement?
FY25 was ~15 million units. FY27 should be 17.5 million. FY26 final figure ~14.5 to 14.75 million - degrown around 5% in volume. Volume share 11.25%, value share 14.25%. On extended summer in South: weather patterns have completely changed; delayed monsoon may begin first week of June, setting in by 15 June. Look forward to rest of May and first half of June being active. Provision reversal: provision was made in exceptional item, taken back in exceptional item - no provisions in business, does not go into business numbers.
On MEP side data center: how much in-house product vs outsourcing? Order book size for MEP data center segment?
In MEP of data centers, we do not have any cooling equipment at all - all electrical/mechanical equipment. Cooling equipment is bought always separately. In cooling equipment business we don't have complete range - few chillers, no CDUs, no fan wall units, developing partnerships. MEP order book size: market is RS.3,000-4,000 Crore, our order book ~RS.1,500 Crore at any given point of time. Broadly translates to annual revenue of around 1,000, inquiry inflow is very huge.
Because of stocking mentioned in Q4, should we expect lag between primary and secondary sales in Q1 looking at the inventory situation?
Your statement may be true for April. Generally April first week itself it should start, it began only in May first week.
If summer progresses as it is right now, kind of primary sales growth over last year? And would Q1-end inventory be lower than last year?
Given 10% average price increase over last year, a good performance means 25% to 30% growth over last year for Q1. Over last year Q1 for industry if it's 25% growth, that means very good summer. Of 25%, 15% is real growth and 10% is from price increase. Probability that it will happen - function of summer. Inventory: yes, Q1-end inventory adjustment will be far better this year - last year had multiple compounding factors (raw material shortage assumption, weather forecast, festival season dampening, energy label change). This year inventory management will be far better - issue will be how to pass on price increase fully now and post-season; war-related cost increases means this year will be about margins rather than inventory.