Blue Star Ltd (NSE: BLUESTARCO) Q3 2025 Earnings Call dated Jan. 30, 2025
Corporate Participants:
B Thiagarajan — Managing Director
Nikhil Sohoni — Group Chief Financial Officer
Analysts:
Natasha Jain — Analyst
Nitin Arora — Analyst
Aniruddha Joshi — Analyst
Bhoomika Nair — Analyst
Naushad Chaudhary — Analyst
Rahul Gajare — Analyst
Shrinidhi Karlekar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Bluestar Limited Q3 and Nine Months FY ’25 Earnings Conference Call. We have with us today from the management, Mr B. Yagarajan, Managing Director, Bluestar Limited; and Mr Nikhil Sohoni, Group Chief Financial Officer, Bluestar Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr Garajan. Thank you, and over to you, sir.
B Thiagarajan — Managing Director
Thank you. Good morning, ladies and gentlemen. It’s a pleasure addressing you today. I have with me Mr Nikhil Sonin, our Group Chief Financial Officer. I am happy that we could close the quarter-ending December 2024 on a high once again. And you may — remember, it is almost 12 consecutive quarters. I believe we have delivered good results. In quite a few quarters, we have even outperformed the market. I think Q3 FY ’25 with the revenue growth of 25% and an operating profit growth of around 35%, we would have done better than the market and peers. It’s specifically in the room air-conditioners — sorry, sorry, product segment, which you all closely track, you have seen the revenue growth of close to around 22% and even margin expansion by around 100 basis-points.
The market continues to be good for this particular category, while quite a few other categories within consumer durables or FMCG are yet to witness the revival. We continue to see offtake from the market. And the dealers are stocking up for the forthcoming summer season and we are ready with the new products that are to be launched for the forthcoming season. Equally is the fact that there are quite a few headwinds, which we are preparing for. The number-one is connected with the supply-chain restrictions that continue to happen and which is getting intensified post the US elections. The escalation and the cost of raw materials and some liquidity crisis in the market.
There is union budget around the corner, what it will have in-store for us we do not know at the moment. Most of the market segments are doing well apart from residential segments. For example, manufacturing investments continue. Data center investments are continuing and tire three, four, five towns, smaller shop, showroom boutiques are doing well. We had a setback in commercial refrigeration part, which forms part of segment two, which we had explained to you by rising out of certain regulatory changes. Consequently, water cooler business not going the way we would have liked in the first two quarters. 3rd-quarter it has stabilized and we are fully ready now for the 4th-quarter.
The professional electronics and the Industrial systems part, which is segment three, there are headwinds and the growth in terms of reductions impacting that and the domestic demand yet to pick-up because of the capex cycle. Overall, we have been not only managing the cost and the growing scale, we have also been focusing on preparing for future. The investments in research and development, investments in digitalization, investments in manufacturing is continuing as planned. We are keeping a tight control on the operating costs and the profit margin improvement is attributed to this, the scale benefit combined with tight control on costs.
Capital allocation is closely monitored by the Board and we are happy to report the collections are being good. If there is a working capital impact in certain segments, it is due to certain types of projects that are being executed or it is connected with scale, which requires working capital. We are confident that we will manage the balance sheet also well. On the whole, so-far, we have done well and we are on-track. We are confident that we will close the forthcoming quarter also on a high note, which means the third year in succession, we will deliver good results for the whole financial year.
With that, I thank you for your support and quite often interaction with you also adds value to us. And I will hand it over to Mr Nikhil Soni for his opening remarks. Yeah.
Nikhil Sohoni — Group Chief Financial Officer
Thank you, Mr. Good morning, ladies and gentlemen. This is Nikhil Soni and I will provide you an overview of the results of the Limited for the quarter ended December 2024. Coming to financial highlights, on the back of unprecedented growth experienced in the earlier quarters of this financial year, in the current quarter, as well Room AC business continued on its exceptional growth trajectory. Benefiting from the strong fish season demand, the room AC industry stood as an outlier amongst all consumer durables. Other key businesses also delivered robust growth supported by demand from some key sectors. The growth in revenue and profit is achieved due to our continued focus on expanding distribution footprint, investments in innovation, R&D and digitalization and strategizing supply-chain.
Financial highlights for the quarter ended, 31 December 2024 on a consolidated basis are summarized as follows: revenue from operations for Q3 FY ’25 grew by 25.3% to INR2807.36 crores as compared to INR2241.19 crores in Q3 of last year. EBITDA, excluding other income for Q3 FY ’25 improved to INR209.38 crores, an EBITDA margin of 7.5% of revenue as compared to INR155.35 crores, the EBITDA margin of 6.9% of revenue in Q3 of FY ’24. PBT before exceptional items grew 24.5% to INR167.20 crores in Q3 of FY ’24 as compared to — sorry, in Q3 of FY ’25 as compared to INR134.29 crores in Q3 of FY ’24. Tax expense for Q3 FY ’25 was INR46.53 crores as compared to INR33.93 crores in Q3 of FY ’24.
Net profit for the current Q3 grew 31.8% to INR132.46 crores as compared to INR146 crores in corresponding quarter of last year. EPS for Q3 FY ’25 stood at INR6.44 as compared to INR4.89 for Q3 of FY ’24. Carried forward order book as of December 31, 2024 is at a record-high of INR6801.99 crores as compared to INR6038.53 crores as on December 31, 2023. This was a growth of 12.8%. The capital employed as on December 31, ’24 stood at INR2763.4 crores as compared to INR298.9 crores as of December 31, 2023. Net cash position as on December 31, 2024 was INR102 crores as compared to a net cash position of INR157 crores as of December 31, 2023.
Coming to business highlights, electromechanical projects and commercial air-conditioning, segment one revenue grew 32.2% to INR1,562.41 crores in current Q3 as compared to INR1182.30 crores in Q3 of last year. Segment result was INR118.7 crores, which was 7.6% of revenue in the current quarter as compared to INR96.7 crores, which was 8.2% of revenue in Q3 of last year. Order inflow for the quarter was INR1748.3 crores in Q3 of FY ’25 as compared to INR1260.8 crores in Q3 of FY ’24.
Coming to electromechanical projects, which is a part of segment one, in this quarter, there has been a good progress in order finalizations from the factories and data center market segments. On the other hand, we saw muted demand from commercial real-estate and infrastructure segment. The company remains committed to faster execution of projects while maintaining a strong focus on healthy cash-flow. Carryforward order book for this business was at INR5,146 crores as on December 31, 2024 as compared to INR4,648 crores as on December 31, 2023. This was a growth of 10.7%.
Coming to commercial air-conditioning, during this quarter, the commercial air-conditioning business delivered reasonable growth compared to the same-period last year, reflecting strong demand. Significant contributions from manufacturing, educational, retail and auditorial sectors fueled this improved performance. We further strengthened our market position, maintaining leadership in ducted systems while maintaining the number two position in VRF and product categories. The market potential for commercial air-conditioning continues to be good. We are also witnessing liquidity issues in certain market segments and in the process, order are getting delayed. The profitability of the business also experience volatility due to the impact of adverse exchange rate and material cost movements. Amongst this mix scenario, we remain committed to providing innovative and customized solutions for addressing the evolving needs of our customers.
Coming to international business, we are focused on positioning ourselves as manufacturer of innovative and reliable products for European and North American markets. We have been successful in developing and getting a few products approved by three OEMs and the initial shipments have commenced. However, slowdown in European market and uncertainty around US trade policies is likely to have some impact on the potential scaling up of these businesses. We are committed towards our international strategy and as this external factors settle down in future, we are optimistic that our global ambitions will bear fruits. Segment one margins at 7.6% were in-line with the long-term guidance that we have provided for this segment. This segment comprises of both projects as well as products, each business having a very different margin profile, which influences the quarterly returns.
Coming to segment 2, that is Unitary Products. The segment 2 revenue grew 21.9% to INR1164.4 crores in Q3 FY ’25 as compared to INR95.4 crores in Q3 of FY ’24. Segment result was INR94.8 crores, which was 8.1% of revenue in Q3 of FY ’25 as compared to INR67.9 crores, which was 7.1% of revenue in Q3 of FY ’24. In the Cooling and purification Products segment buoyed by successful fish due season and sustained strong demand, our room AC business continued on its unprecedented growth purchase trajectory, achieving remarkable growth during this quarter. The strong demand for our products helped us improve our market-share for the quarter to 14%. We are proactively addressing the supply-chain challenges arising from regulations and non-tarif barriers and are confident that our planned investment in strategic inventory will enable flawless servicing of demand that the forthcoming season will provide.
Coming to commercial refrigeration, the regulatory issues faced in water coolers and freezers in the previous quarters are behind us and now we are focused on preparing for the forthcoming summer season. We are expecting the upcoming quarter to be a promising one as market demand is likely to be strong. The quick commerce and food delivery market segments are driving growth for model of coldrooms. Apart from deep freezers, the market for vesic coolers is growing with many retailers across the country investing in upgrading their stores. Overall margins in this segment registered a strong 100 bps improvement in the current quarter and the return, as you have seen was 8.1% in the current quarter as compared to 7.1% in the last corresponding quarter. This was fueled by strong revenue growth in Room AC business, which has led to the benefits from economies of scale.
Coming to segment three, that is professional Electronics and Industrial Systems. The segment fee revenue degrew 22.1% to INR80.6 crores in Q3 of FY ’25 as compared to INR103.5 crores in Q3 of FY ’24. Segment result was INR6.2 crores, that is 7.7% of revenue in Q3 of FY ’25 as compared to INR15.2 crores, which is 14.7% of revenue in Q3 of FY ’24. In this quarter, while the Industrial Solutioning business continues to show momentum and growth, both the MedTech and data security business have been muted. The operating cycle in this businesses are yet to revise, which is impacting order inflow. The challenges in this segment continues to impact revenue growth and profitability and we expect to revive in FY ’26. Therefore, we are focused on controlling costs and managing working capital.
Coming to business outlook, as we close this quarter on a positive note, we remain optimistic about the growth prospects and the favorable look-forward to — and favorably look-forward to opportunities that the forthcoming quarter will provide. The coming quarters should benefit from three drivers like onset of summer season, potential rever in government spending and accelerated capex spending by private sector. However, there are headwinds owing to depreciation of Indian rupee, escalations in commodity prices and possible supply-chain disruptions due to huge demand. We have strong mitigation action in-place to tackle these challenges and continue to deliver value to our stakeholders.
With that, ladies and gentlemen, I’m done with my opening remarks, I would like to pass it back to the moderator who will open the floor to questions. We’ll try to answer as many questions as we can. To the extent we are unable to, we’ll get back to you via email. With that, we are open for questions.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press RN1 on their touchstone phone. If you wish to withdraw yourself from the question queue, you may press star N2. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Please press star and one to ask questions. The first question is from the line of Natasha Jain from PhillipCapital. Please go-ahead.
Natasha Jain
Yeah. Thank you for the opportunity and congratulations, sir, on a great set of numbers. I have two questions, both on the UCP side. So first question is, 3rd-quarter is usually an unseasonal quarter, but we have seen a good growth on RAC, mainly on account of prolonged summers. Now, having said that, do you think the channel is a little cautious in terms of stocking for 4Q because there could be a chance of a prolonged winter and any which ways you’re sitting on very-high basis. So how does that looks like
B Thiagarajan
First part is it is not due to prolonged summer, the summer had ended by July. It is demand that is — that has been good during the festival season commencing from Diwali new year, it continued. Now many, many people keep asking this question, whether it’s financial press or investors, fund managers, analysts where when FMCG is not doing well or other consumer durables are not doing well, why room air-conditioners alone should be first of all I reach the continues so I would like the demand to slow-down for the is the first is this is a category in which the penetration levels are low.
We — obviously it will — it will grow beyond 8% towards — it should move towards 30% or something like that over the next few years. So the CAGR projected by various studies stand at 30% — sorry, 19% to over the next five years in order to reach a penetration level that India should have. So 19% CAGR is the guidance, okay. Second part, I mean on one particular year, the growth can be 30 in another year, it can be 10, it depends on various events like whether how hot is the summer or how the economy is doing, how the disposable income is, our forward planning or many other government programs that is connected with refrigerant or PLI, supply-chain, new programs. So based on this 19% CAGR for room air-conditioners.
Second part is connected with the prices have remained stable thanks to the competition and no connectation that is happening. The manufacturing capacity is almost doubling from what it was a couple of years ago. And therefore, prices are stable and it is — one will not like 8% to 8.5% kind of operating margin, but the industry is heading towards. Now the third-part the consumer finance options that are available. People’s attitude to avail that. They are — there are more-and-more customers who are ready to go-ahead and buy today and they pay over 12 months and that 35% 40% of the sale-in a year is good at through consumer finance.
Yeah. The next reason is unlike earlier years where I can buy an AC power bill who will pay, thanks to the energy labeling program, the power bills are affordable. If someone is using for six hours, seven hours, that to on hot days, it is not unaffordable. Next is the urban heat effect or even entire three, four how the homes are constructed. Hardly there is cross ventilation. Humidity levels are going up and you — one is used to air-conditioned environment wherever they go, whether it is a restaurant or whether it is metrolware, whether it is car, whether it is office, they experience air-conditioning in — in the non-air conditioned environment, they are not so people are beginning to buy.
Last reason, this is my best subject, the disposable income substantially is taken away by smartphones and mobile phones, which are more than two at a home and there used to be a time when people used to keep buying mobile phones once in six months, once in a year that people are using smartphones for a longer period now. And I understand the smartphone sale growth has moderated, which means the disposable income, the priority is for buying something what they do not have or essentially they need to have. So air-conditioning industry is benefiting. And in all categories I’ve seen, whether it is refrigerators or televisions or washing machines, there is a particular period when it comes — when it will grow and I think we are in a step-change in penetration because concerned. And that’s how the industry is also planning and moving forward and the demand has held through Q3.
Usually before Q4, the dealers end-up stocking. There is no inventory. I am seeing. The secondary movements continue to be good for the few months in the GFK report as well. And the key point is how is the summer season going to be? And you mentioned about winter and North India people are disappointed that the winter has gone up and they are feeling that it should have lasted for some more time. And usually we pray that the March week onwards there is summer and February onwards, again, stocking takes place. So the bottom-line is, it is for various reasons, this category is doing well and much depends on how severe the summer season will be. But irrespective of what is happening in one season, 1/4, 19% CAGR is a widely accepted figure by multiple agencies. Thank you. I taken more time because this question need not to be repeated later.
Natasha Jain
Thank you so much, sir for that detailed answer. That helps. And my last question is on the EBIT margin side. Now if I look at both your segment one and segment two margins, you are already at peak as per your own guidances, specifically outperformance in your segment one. So from here on, how does the margin growth trajectory look like, given the fact that commercial refrigeration is yet to pick-up. So what kind of expansion can we expect? Thank you. And all the best off. Thank you.
B Thiagarajan
I want to clarify, commercial refrigeration, the issues are all over. I think we will — it will pick-up, then there is nothing to worry about it. It’s again a segment which is expected to grow at 20% CAGR. So we the margin guideline we are again the 7% to 7.5% segment one, 8 to 8.5 segment two is the headline. And unless until something dramatically changes. Let us say, commodity prices crash, the margin can go up. And if there is price and there is going to be a you know, escalation in commodities, it can significantly go down or the ForEx. As of now, I think 77.58, 8.5 holds. Good.
Natasha Jain
Got it. Thank you, sir. Thank you.
Operator
Thank you. We’ll take the next question from the line of Nitin Arora from Axis Mutual Fund. Please go-ahead.
Nitin Arora
Hi, sir. Thank you for taking my question. Just on the market-share part, the kind of improvement what we have seen over the past two, three years and now standing at 14%, how do you think this penetration, especially in the North market in the affordable category, which you did, how has been the response of the consumer. If you can talk about that and you think that can further help you inching more or you want to calibrate your moves that this 13% 14% is good enough and let me focus on the profitability given there are some supply-chain changes disruption which are coming. I hope that’s for the near-term. So just your — wanted your take, how you think about your market-share from here?
B Thiagarajan
I we are it is a category which is growing and which will continue to grow. Therefore, the competition will be intense. All the players have set-up manufacturing capacity and obviously, they will be interested in gaining market-share. And unfortunately, only 100% market-share is possible. Now our goal was to achieve a market-share of 15% by FY ’24, which didn’t happen. And FY ’25, we said that we will achieve a market-share of 15%. But as you can see, if we reach 14%, we should be happy. And 15% is what we will attempt. I — our sense is that anywhere between 12.5 to 15%, you are a significant player, you will be able to leverage many things and continue to grow.
Now our immediate goal is 15% market-share. Our goal is to keep that operating margin intact of that 8.5%. You have to be — for this itself, you have to keep in mind, there are many other costs which other categories may not have. So the first thing I explained in the earlier question is the consumer finance part of it. 40% of the sale is happening through consumer finance, you have to reckon that. Whatever be the reason, the industry offers a warranty of five years. So therefore there is some warranty costs. There will be — there will be costs arising out of e-waste regulation complaint, which is the extended producer responsibility.
Now the import tariffs will continue to happen and one cannot help it because it’s completely beyond control, what can be imported, what cannot be imported, what you have to consume locally, how to find alternate material. So there will be costs arising out of that as well. Now keeping all that in mind, we will — our goal is to reach a 15% market-share within a couple of years and then keep delivering that 8.5%. That is what is our goal. If we do beyond that, that we will see — we will be very happy if we are able to reach this. Thank you.
Nitin Arora
Thank you, sir. Thank you for detailed answers. Second, I think Nikhil said that in starting comments that there is — and you also articulated that the scale is coming in, which is helping the profitability as well. We understand there are challenges, supply-chain challenges ahead of the industry, whether it’s respect to compressors and all. But let’s say if the season goes good, okay, that’s everyone’s hope. Do you think there are further levers because of the scale where you can improve your profitability going-forward?
B Thiagarajan
So multiple things are there. The scale has only begun. The — as it continues to grow that it stays, isn’t it. So there is a scale advantage will be perpetual, will continue to be there, first part. The second one is connected with the affiliate customers moving up the value chain. And so you are — we are very clearly seeing year-after your heavy-duty air-conditioner or Wi-Fi enabled air-conditioner this going up. And so therefore, it is not — you will be able to improve your margins in certain SK issues. The third one is connect with the ability to innovate and continue to enhance the reliability at the same time optimize the product in terms of input costs. Costs and including alternate materials that may be possible like aluminum, microchannels in-place of copper, for example, I’m saying. And these are the levers that will continue to be available. And — but if you’re translating into 8.5% margin will change to 10%, perhaps in some quarters it could be, but it is not our guidance because we are keeping in mind multiple factors, including competition and keep maintaining the growth.
Nitin Arora
Got it. Thank you very much and all the best, sir.
Operator
Thank you. Sir, your voice is breaking at times. Can I connect you back?
B Thiagarajan
Yeah. So that we can —
Operator
Yes, sir, I’ll connect you. Ladies and gentlemen, please hold the line while I connect the management again Ladies and gentlemen, thank you for patiently holding. The management’s line has been reconnected. Over to you, sir. Sir, We’ll take the next question from the line of Anirud Joshi from ICICI Securities. Before I go-ahead and promote the participant, I would request all the participants to limit their questions to two per participant. Should you have a follow-up question, please rejoin the queue. We’ll take the next question from Anirud Joshi from ICICI Securities. Please go-ahead.
Aniruddha Joshi
Yeah. Thanks for the opportunity. Sir, two questions. One, there was a campaign by WJs our partner in Oman and that was around INR461, INR462 crores. So any update on that and any likely impact considering almost six months are over post that now? And then second question is in terms of the professional electronics. So we have seen a significant margin deceleration in this business almost for — back-to-back 3rd-quarter in a row now. This used to be the highest profit-making segment — profit margin segment for us. So where do we see the margin outlook for this segment? And in general, in a way, revenue recovery also in this segment, any — any color that you can share maybe FY ’26 or H2 FY ’26, any update on that? Yeah, that’s it from my side. Thanks.
Nikhil Sohoni
I’ll take the question on WJT. So that arbitration, as you’re aware, is in-progress. There is a certain timeline to which the arbitration is working. As per that timeline, we were required to file a statement of defense, which we have done, there are certain things on which the submissions have been done. And of course, we are confident as we had told earlier also that the — this company in which we were joint-venture partners and which we had kind of exited almost seven years back, we have a strongly strong case and the same thing holds today too. So I don’t think there is any risk-on that count. So of course, we’ll wait for the arbitration to play-out, but the necessary timelines are being adhered to and we are doing the filings as per the timelines.
Aniruddha Joshi
Okay, sir, in terms of timeline means any — is there any particular end debt or there
Nikhil Sohoni
As per as per the timeline, it will — it will go for another around 12 to 15 months.
Aniruddha Joshi
Okay. Okay, sure, sir. That’s helpful.
Nikhil Sohoni
Yeah. Yeah. On CNIS, that is the second — the third segment, as we have mentioned, see the — earlier the segment used to return the profits when the data security business, et-cetera were kind of doing quite well. Today, as we have mentioned that there are certain headwinds in both data security as well as MedTech, while Industrial Solutions is doing good. So the margin profile for each segment is different and accordingly, the margins get influenced. So say that is the reason why you see the margin kind of moving in a particular manner. The current drop-in the margins is because out-of-the three segment lines that are there within that segment, two are not doing well and one is doing well. So as we said, we expect the revival to happen slowly over next year and by that time probably the segment margins could improve a little.
Aniruddha Joshi
Okay. So sir, in near-term, maybe next two, 3/4 we believe the status quo or the similar weakness in the two sub-segments may continue and one segment may continue to do well. Is that right?
B Thiagarajan
I know the whole thing will be for — as far as segment one segment is concerned, segment one is concerned, enough order book is there, this should momentum should be maintained. Segment two, it much depends on the summer season that depending on the summer, there are years in which the growth is only 10, there are years in which more than 50, we have 50% growth we have seen. Three segment three, the — in certain segments, the capex cycle will have to revive and this can be beginning with the union budget and announcements how the sentiments change. That’s how we will look at it.
Aniruddha Joshi
Okay. Sure, sir. Thanks. Very helpful. Thank you.
Operator
Thank you. The next question is from the line of Nayer from GAM Capital. Please go-ahead.
Bhoomika Nair
Yeah. Good afternoon, sir. Sir, one, I just wanted to check if I missed out the volume number growth for both 3Q and nine months. And second, in terms of continuation on the UCPL, you know, the base is very-high for last year, both for us is also the industry. So while the outlook is strong, do you think we can continue to as an industry to grow at 15% 20% plus, particularly in view, not so much in terms of demand, but also in terms of the supply-chain issues where compressor availability is a bit of a challenge is what our channel checks tell us. So if you can just throw some light on this aspect.
B Thiagarajan
No, first question is volumes, i.e., we don’t disclose any of the volumes that you do have the data from GFK indicating all that we know. See, first of all, GFK is only one part of our business. We do have very large institutional share being a company, which is much focused on that as well. Now all that we know is that the months of October, November, December that we seem to have performed exceedingly well, much, much better than the industry. So volumes we do not disclose at all. All that we know is that it is very likely the industry closes above 15 million and we will close much higher than 1.5 million this year and that we are more or less aware that guidance can be given.
Now coming to whether the growth will be, yes, I’m saying that the growth of — if the summer season is good, even if 25% growth has to be achieved, we have enough raw-material. Right now the — I am not only close, sir, all players should have secured their components for the summer season because it’s planned much in advance. I — if you’re sharing about, I want to clarify on the issue of supply-chain in general. What is the direction — direction of Government of India and the DPIT has been create the component ecosystem, that’s why PLI was brought in. Almost all components have been indigenised important item like a inner group corporate tube, also the factories are coming up. Imports are restricted basically because one will have to create high-quality components, not because it some poor quality comes into the country.
Second is that, look, underwake in India, people will have to make it here. Now the — if there are restrictions that are there through what is known as the DIS license or the quality-control order, it is kept in mind what — whether it is available, not available, whether the quality is a reasonable import, depending on that government keeps extending those licenses. So there has been no problem, but it is a headache to be watching this, whether you can’t take for granted it is going to be available, but at the same time there hasn’t been any shortage so-far. It’s not the issue the but the government will keep telling that, look, how long I should be allowing this, why it is not happening within the country.
The electronics, enough manufacturers are available, which is the next important item which imports have been coming in. Now in electronic, there is a global shortage of microprocessors, which is a — which will be an event of a different nature altogether. Otherwise, air-conditioner related electronics, there is — there is no supply-chain constraint at the moment and we don’t see that. Compressors, the domestic capacities are coming up. It will take the time for it to meet the country’s demand as a whole. There are imports that are delivering and there are enough sources that are available.
The question here is whether the industry any other technology support or investment support in order to the future is asked from the government rightly so and the industry has been working with the government. What kind of other measures we should do so that we are completely self-relent. This is coming from the fact that we are the fastest-growing market for air-conditioners. We are the fastest — we are the world’s largest market by 2045 to 2050, we should be the largest in the world and therefore, the government is insisting create this ecosystem. As far as Blue is concerned, our stand has been very clear.
For us to make compressor, we have to reach somewhere around 2.5 million and investment that you make will have to pay-back. The investment that you make should be able to deliver compressors which are not meant for the future because the energy labeling norms will keep becoming stringent. So the compressor desires are very important keeping in mind. If we are investing that investment should take into account new refrigerants that will have to come in future. Keeping in mind the Paris agreements. We have to keep in mind that the country will continue to consume products that are affordable. Therefore, the technology should be something that is not very expensive as well.
And lastly, Indian consumer would like the product to be highly reliable. So therefore we should be. Now keeping all these in mind, we don’t see, yes, at the moment, we have the right, we will take a decision to get into that also. This question had been many of you have been interacting with us for more than a decade. BRF when the technology came, what will do and where-is this technology going to come from, we are leader here in fact, in VRF, we are number two. And came what BlueStar will do, we have mastered the. So the focus is actually to grow profitably and the focus is to also keep ahead of the curve.
So there is a — there is no concern. But with the — with the tariff restrictions that are happening across the globe and it is a very unpredictable situation who will stop supplying what to whom and that is — that one will have to — the whole world is undergoing this tension, especially for since January. We will have to go through this. There is no other go. Summer season, the material is secured. There is nothing to worry. This will clarify for many of the other participants as well.
Bhoomika Nair
Yes, sir. Sir, the second question is on our capacity addition where we are doing the second phase of expansion at ShriCity. So one is obviously the capex and the timeline. But second, I also wanted to understand how is the first phase kind of helped us in terms of margin expansion as also go-to-market from meeting the demand in a much more timely manner production, et-cetera. If you can throw some lights on what we can expect as we ramp-up, this would benefit us.
B Thiagarajan
The second part I will answer first part, will answer there has been no kind of delay or constraints or anything like that at all that when whether there is energy labeling or our own decision to be competing on all price points with affordable, affordable premium and premium products, our heavy-duty machines or WiFi enabled or in commercial refrigeration, lower capacities for import substitution or sophisticated cold rooms or fillers including centrifugal chillers or certain cillers meant for data center applications that we have our investments are the largest in the country in R&D and we continue to deliver.
There is absolutely no doubt about it. If at all, the question will be whether you know to which product-line first we introduce and how we go-ahead and expand the product-line, always that will be the case. So we may introduce to move to a glass top — curved glass in faces. That may be the thing that we’re doing. But otherwise, I don’t — it is a well oil mission in that respect. It is for this reason we are not we are not promising or committing into some unrelated lines we want to get into. We — let’s say, often the question is, will we get into consumer durables as a whole, all category. We are not. In air-conditioning, refrigeration, we are deepening and deepening becoming stronger and stronger. So there has been no problem. As far as the capex is concerned, Nikhil will clarify.
Nikhil Sohoni
Yeah. So coming to capex, we have told earlier also our investments are modular in nature. So capacity is not a constraint. And as and when we see demand coming up, we are ready to invest. So the capacity at HPE plant was already in the region of around INR600,000. And in this at Sri City, we were investing, we started with 300,000. We have now reached up to INR600,000. And as and when we want, we can scale it up. So in the current year also, the capital investments have happened and this will keep happening as we see the demand. We can go up to around 1.8 million to 2.4 million as the demand scales up.
Bhoomika Nair
So the capex amount for FY ’25 and likely in ’26, that’s it. Thank you.
Nikhil Sohoni
So the CapEx amount that we have already told — we have told over a period of around three years and so that over a period of three years, if you see our capex will be in the region of around INR750 crores to INR800 crores and that will be moving towards both manufacturing as well as a product development and certain amount of digitalization. So all of these three will be the end-use of this company.
Bhoomika Nair
Thank you, sir, and all the best.
Operator
Thank you. Thank you. We’ll take the next question from the line of from Birla Mutual Fund. Please go-ahead.
Naushad Chaudhary
Yeah, hi. Thanks for the opportunity and congrats on a decent set of numbers, sir. Again, clarification and on the margin side, so two things are the AC Energy rating changes due in next one year-plus a step-up capacity coming in this time in the AC industry and it is slightly different versus what historically it has been this time, the OEMs bringing the capacity in the market. So along with these two points, what gives us confidence that we should be able to maintain 8.5% or do you also fear or have some risk-on the margin side because of these two things?
B Thiagarajan
No one has now fear and how fear will help it is not. So there it is about what all can happen. So the — as if you look at first of all, the energy labor change is due on 1st of January 2026. The product meant for that is already developed. So there is nothing to worry about it because energy labeling the sufficient time is given for people to develop. And the — it is always a discussion with the industry by consensus when what table change has to take place that is — and it is an ongoing discussion. Going-forward, it can even become much more stringent because the installed population is going up and it is in the interest of the regulators. It is in the interest of the industry.
We don’t want the industry to grow, but in summer, power cut is there. How is it going to help us? It used to be the story when I used to be young summer season means there will be power cut, AC sale will be impacted. We don’t want that. So energy label change will be a continuous program. And when we plan our strategy, we keep in mind that we have to continuously invest in technologies, which will improve the energy efficiency at the same time remain competitive. The margin management is connected with refers to the scale. The market will have to grow and we have to — we have to ensure that the growth is maintained. So the entire industry will have to also play a role in that.
The second part is connected with your ability to manage the total cost, the — how you designed the product, what value engineering has happened, where are the procurement sources, how you’re driving down the cost, which we have demonstrated over the years and simply our focusing repreciation player, we believe that we understand the subject, we continue to learn what all can be done. The third one is that the — in the — in the value chain, there are other costs and the customer expectation also changes that A, I should be able to buy through consumer finance, B, I need the delivery the same day will force them to think differently, how often — how quickly I’ll get the product, how quickly it will be installed and this particip playing an important role in it.
And the reliability will have essentially improved so that you reduce even though it may be a five-year warranty, how the warranty can be kept and checked. So multiple factors result in the margin management. Now the question has been the other way around. The scale is happening, industry is growing, local manufacturing, backward integration is happening and you had a factory in North earlier, you also have a factory in South now, there should be a logistic saving. Why this 8.5% should not become 10%. We are saying it is because of the competition because many other things have to be done. We are not guiding today. If it happens 9% or 9.5%, one will see. Thank you.
Naushad Chaudhary
Sir, to follow-up on this, sir, you are indicating about the scale, but we have seen the scale player also not able to enjoy such a kind of margin. Can you be a little more specific, which specific cost or line-item should help you once you scale it up and that should help you in the market.
B Thiagarajan
I’m saying that let’s say, for example, you are you — our the room air-conditioner, full-year, let us say, we are growing over 35%, it is not necessary advertising expenses goes up by 35% or the headcount goes up by 35%. So the scale benefit comes through that. Now if when your scale is high, you will be — you will drive down the input costs also because you have water purchasing power and logistic cost of incoming material comes down because of that scale. So the scale is an important lever. So this scale should obviously improve the margin, but I’m saying that we are not telling you this 8.5% will become 10 or something like that is basically because there are certain new costs that are coming like e-base, consumer finance, these are new costs and there is competition. So the prices will be under check because of the competition.
Naushad Chaudhary
And this time, if I’m not wrong, especially on the OEM side, capacities would be PLI linked, so they would be having more incentive in terms of pushing the revenue, they would be having timeline to achieve that shouldn’t that.
B Thiagarajan
This is a whole story, right, because all of us also — they are also in PLI. All players are in PLI, finished goods guy as a little competent manufacturer. The question is that all will have to grow their revenue in order to earn the PLI. The market is growing. So there is no problem. It is — it was known for yearning the PLI, you have to show incremental sale over FY ’21 figure and all will be handed. It is not different in my view. It is good.
Operator
MR., I would request you to rejoin the queue for follow-up questions. Thank you. Ladies and gentlemen, due to time constraint, we’ll be taking only one question.
B Thiagarajan
No, I can — we can extend by other things. I’m available.
Operator
Sure, sir. We’ll take only one question from the participants now. So that everybody get a chance to ask questions. Thank you.
B Thiagarajan
Just one per okay.
Operator
The next question is from the line of Rahul from Haitong Securities. Please go-ahead.
Rahul Gajare
Yeah, hi. MR. With respect to the UCP business, I want to know, given that the energy efficiency norms are changing from January, what is the price hike that you would have to take given that the growth momentum is strong and easier to past the higher prices? And connected with this, I want to know if the 3rd-quarter had any pre-buying because of the change of energy label, were you able to identify that? Thank you.
B Thiagarajan
No, the energy level changes from 1st January 2026 and 1st January 2025, no change has happened. And what can happen potentially is somewhere in festival season, it can be pre-launched that you know the future-ready like that, that can happen. So right now, there is no energy level change.
Rahul Gajare
Okay, okay. Sir, and the PLI, how much is the PLI that was booked in the 3rd-quarter and nine months and whether this is the reason also that can be attributed to the higher operating profit of the UCP business? That’s the question.
B Thiagarajan
So the question is that, look, the — we are — all that I can say is that we had indicated earlier that we are eligible for somewhere close to over four-year period INR78 crores of PLI benefit for eligible investment of somewhere around INR155 crores or something. I don’t remember the exact figure, but it is in the order of around between INR75 crores to INR80 crores. And we are on-track on that. We will be fully receiving and these applications are made on a yearly basis. At the year end, we will be. Then what PLA benefits we received for a particular year, we can disclose in the May call. Right now, it is of no relevance whatsoever. But I’m committing to you that for our scale and our investments, we will fully a while what we are eligible for in the Phase 1-off. You might have read that in Phase-3 of the PLI, also we are an applicant. We have to begin the investments of that.
Rahul Gajare
Sure, sir. Thank you very much.
Operator
Thank you. The next question is from the line of Srinidi Karlekar from HSBC. Please go-ahead. Please go-ahead.
Shrinidhi Karlekar
Yeah, hi. Thank you for the opportunity and congratulations on amazing set of results. Sir, you briefly commented on outlook for some of the key end-markets in your projects business. May I request to please elaborate that a bit more for some of the end-markets?
B Thiagarajan
In the — in the projects business, we are asking,
Shrinidhi Karlekar
Yeah, like the manufacturing data center, commercial building. Can you please elaborate a bit?
B Thiagarajan
Yeah. So the other — our portfolio there, if you’re looking at segment one, first clarification, it comprises electromechanical projects, it comprises the commercial air-conditioning products like package air-condition system, back to the air-conditioning system, VRF systems chillers, data center, so on and so forth, process fillers and all. There is a third thing is aftermarket revenue. All these are B2B in nature and we are leader. We are number-one in quite a few, we are number two in quite a few. And in electromechanical projects, we do the electrical part of it, we do the air-conditioning, we do firesighting, we do plumbing. And the — these — these projects are executed for, yeah, office complex.
So it can be an IT park or it can be an airport, it can be a hotel, it can be a hospital, it can be an airport, it can be it can be a metro railway system. Now the direction for this business is that focus not on-market share, focus on our profitability, focus on free-cash flows. That’s the direction. And in that, the emerging segments in the past couple of years has been also the manufacturing at the data center in addition to what all I told you. And so it is broadly categorized into four verticals and one is the infra projects which are metro railway or water project distribution project or airports, etc. The second big one is big commercial buildings. These are mall offices, IT — ITES, this part of it, which are generally done through developers. The third one is manufacturing you [Technical Issues]
Operator
I hand the conference over to Mr Nikhil Soni for closing comments. Over to you, sir.
Nikhil Sohoni
Thank you. Yeah. So thank you very much, ladies and gentlemen. With this, we conclude the earnings call. Do feel free-to revert to us in case we were not fully answered your questions and we’ll provide additional details either by email or in-person. Thank you.
Operator
Thank you, members of the management. On behalf of Blue Sar Limited, that concludes this conference. We thank you for joining us and you may now disconnect your lines. Thank you.