Blue Star Ltd (NSE: BLUESTARCO) Q3 2026 Earnings Call dated Jan. 30, 2026
Corporate Participants:
B. Thiagarajan — Managing Director
Nikhil Sohoni — Group Chief Financial Officer
Analysts:
Natasha Jain — Analyst
Rahul Agarwal — Analyst
Aniruddha Joshi — Analyst
Sonali Salgaonkar — Analyst
Keyur Pandya — Analyst
Renu Baid — Analyst
Naveen Baid — Analyst
Deepak Lalwani — Analyst
Naushad Chaudhary — Analyst
Manoj Gori — Analyst
Presentation:
operator
Ladies and gentlemen, good morning and welcome to The Blue Star Limited Q3 and 9 month FY26 earning conference call we have with us today from the management, Mr. B. Tagarajan, Managing Director Bluestar Limited and Mr. Nikhil Sohani, Group Chief Financial Officer Bluestar Limited. As a reminder, all participant line will open the listen only mode and there will be an opportunity for you to ask questions after the presentation. Conclude should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Bthyagarajan. Thank you. And over to you Sri.
B. Thiagarajan — Managing Director
Good morning ladies and gentlemen. It’s a pleasure and privilege to interact with you. You might have seen the press release yesterday after the board meeting. I had been indicating from November onwards that this quarter is also going to be in a subdued month and if at all one can expect some revival in the room air conditioners growth with the energy label change that was scheduled on 1st of January 2020 and therefore you will see the results. Almost it is same as what I had indicated. It is modest revenue growth, a flat or slight modest increase in the operating profit.
Even the carry forward order book indicated a modest growth. The highlight, you know while nickel will deal with it, the silver lining is that the room air conditioner business seemed to be returning to the growth paths and building up to the Q4 onset of summer season and the cost control measures that we had implemented that seemed to be resulting in managing the margins. Otherwise it’s a quarter which one would like to forget and move forward the 3/4 and look at an excellent Q4. That’s where we are. In other words, 2025 was a year I think after many many years of quantum quarter after quarter significant growth we faced these challenges.
Having said all this, I believe that we are doing better than the industry peers and we would have shown higher margins, we would have gained market share modestly some decimal points and we would like to now focus on Q4 and FY27. That’s where we are. And with that I will hand it over to Nikhil for highlighting the details of Q3 as well as nine months entered December 2025 returns both in a country.
Nikhil Sohoni — Group Chief Financial Officer
Thank you Mr. Agarajan and good morning ladies and gentlemen. Let me take you through the financial. Highlights for the third quarter. So during quarter three FY26 the company has recorded modest revenue growth despite prevailing market headwinds. The good news is that for the first time in this fixed the room air conditioner business has witnessed modest growth owing to challenges building up the inventory ahead of the energy level change deadline of January 26th. Financial highlights for the quarter ended December 31, 2025 on a consolidated basis are summarized as follows. Revenue from operations for Q3FY26 grew 4.2% to Rs. 2,925 crores as compared to rupees 2807 crores in Q3FY25 EBITDA excluding other income. For the third quarter FY26 improved to rupees 2, 221 crores.
EBITDA margin of 7.5% as compared to rupees 209 crores. EBITDA margin Of 7.5% also in last year’s quarter. 3 PBT before share of profit and loss of JV an exceptional can you hear me?
B. Thiagarajan — Managing Director
Yeah.
Nikhil Sohoni — Group Chief Financial Officer
So…
operator
Yes sir.
Nikhil Sohoni — Group Chief Financial Officer
So PBT before share of profit and loss of JV and exceptional items was marginally lower at rupees 165 crores in quarter three of FY26 as compared to rupees 167 crores in Q3 of last year. Tax expense for the quarter three was at rupees 27 crores as compared to rupees 47 crores in Q3 of last Year. Pursuant to the Notification of the Labor Codes as required by ICAI Guidance Note, the company has recognized an incremental impact of gratuity and leave encashment amounting to Rs. 56 crores on an estimated basis. This non recurring item is shown as an exceptional item in Consolidated Statement of Profit and Loss account for the quarter ended December 31, 2025.
Consequently, the net profit was at Rupees 80.5 crores in Q3 of FY26 as compared to Rupees 132.5 crores in Q3of FY25 carried forward order book as of December 31, 2025 grew by 1.3% to Rs. 6,898 crores as compared to Rs. 6,810 crores as of December 31, 2024 carried forward order book as of March 31, 2025 stood at Rs. 6,263 crores. The capital employed as of December 31, 2025 increased to Rs. 3,551 crores as compared to Rupees 2. 2,763 crores as of December 31, 24 net borrowings as at Rupees 352 crores as on December 31, 2025 as compared to a net cash position of Rupees 102 crores as of December 31, 2024.
Coming to Business Highlights for the Third Quarter Segment 1 Electromechanical Projects Commercial Air Conditioning Segment 1 Revenue grew 8.6% to Rs. 1,696 crores in Q3 of FY 26 as compared to Rupees 1562 crores in Q3 of FY25. Segment result was Rupees 115 crores I.e. 6.8% of revenue in Q3 of FY26, as compared to Rupees 119 crores which was 7.6% of revenue in Q3of FY25. Order inflow for the quarter was lower by 16.5% compared to previous quarter. The quarter order book was Rupees 1459 crores in Q3 of FY22 as against Rupees 1748 crores in Q3 of FY 25.
Coming to Electromechanical Projects business in the third quarter, equity momentum from buildings, data centers and factories was encouraging but a few large order finalizations were deferred to next quarter. Hospitals and malls have witnessed strong growth potential including in tier 3 cities supporting a favorable medium term outlook. Commercial office demand remains healthy in select pockets while data center and factory segments continue to see stable and robust inquiry traction supporting a steady order momentum. We continue to remain selective about new order bookings as we focus on effective capital deployment since the infrastructure project profitability is lower than commercials, buildings, factories and data center verticals.
As we approach closure of these projects, the segment margin gets impacted to that extent carried forward. Order book of electromechanical projects business was at rupees 4777 crores as on 12-31-25 as compared to rupees 5146 crores as on 12-31/24, a negative growth of 7.2%. Commercial air conditioning Systems the commercial air conditioning systems business saw healthy order bookings in this quarter supported by strong demand while the revenue during this quarter was subdued as some product deliveries were shifted to next quarter. The strong order book gives confidence in the future prospects. International Business Given that the tariff related uncertainties poses, the future prospects of the US Business are highly dependent upon the outcome of the India U S trade deal.
Despite this headwind, our foray into the US and Europe is progressing well on account of the above change in the business mix, segment 1 margins were lower at 6.8% of revenue in Q3 of FY26 from 7.6% in Q3 of FY25. Segment 2 I.e. unitary products the revenue was flat at Rupees 1154 crores in the current quarter as compared to Rupees 1164 crores in the quarter 3 of last year. Segment result was Rupees 98 crores which was 8.5% of revenue in Q3 of Fy26 as compared to Rupees 95 crores 8.1% of revenue in quarter 3 of last year.
Coming to room air conditioners as anticipated, the energy level change with effect from 1-1-26 helped in reduction of inventory and we witnessed revival of growth. The company would have gained market share slightly during this quarter. The cost reduction initiatives undertaken since Q1 of FY26 have contributed to the improved margins. The production of new range of products as per the new energy level norms has begun and the company is preparing for the summer season 2026. We have taken short term long term measures to achieve supply chain resilience. The depreciation of INR and rising commodity prices will compel us to revise the prices upwards in Q4 of FY26.
The dealer network expansion is progressing as per the plan as far as commercial refrigeration business goes contrary to the expectations that the commercial depreciation business will rebound during the festival season onwards, the the market remained looted. Consequently all the product lines other than the storage water coolers degrew. The anticipation is that the demand will revive only during the summer season due to focus on cost optimization and overall cost management. The segment margins improved to 8.5% in Q3 of FY26 as compared to 8.1% in Q3 of FY25. Coming to segment 3 I.e. professional electronics and industrial systems, the revenue degrew by 7.1% to Rs.75 crores in Q3 of FY26 as estimated to Rupees 81 crores in Q3 of FY25.
Segment result was Rupees 6.8 crores which was 9.1% of revenue in Q3 of FY26 as Compared to Rs 6.2 crores which was 7.7% of revenue in Q3 ofFY25. The uncertainties around the regulatory policy framework pertaining to the Medtech solutions business are yet to be resolved. Consequently, the business has slowed down. However, industrial solutions continue to grow driven by strong demand in the automotive and steel industries and data security solutions maintain steady performance. Coming to Business Outlook While three quarters of this fiscal had been challenging, the signs of market revival are encouraging. The company expects Clear Q4 FY26 to be a strong quarter for room, air conditioner, commercial air conditioning and refrigeration products in electromechanical projects business.
The demand from factories and data center vertical continues to be healthy in anticipation of a robust growth in FY27. The company is focused on expanding distribution reach and continues to invest in R D, manufacturing and digitalization while persisting with cost optimization measures.
B. Thiagarajan — Managing Director
We now.
Nikhil Sohoni — Group Chief Financial Officer
With that Ladies and gentlemen, I am done with the opening remarks. I would like to now pass it back to the moderator who will open the floor to questions. We will try and answer as many questions as we can and to the extent that we are unable to, we will get back to you via email. With that we are open for questions.
Questions and Answers:
operator
Thank you so much sir. Ladies and gentlemen, we’ll now begin with the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two participants are request to use handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. Our first question comes from the line of Natasha Jain from Philip Capital. Please go ahead.
Natasha Jain
Thank you for the opportunity and congratulations team on a good quality set of numbers. Very quick three questions. First, your UCP top line is flattish high margin. Commercial business is muted and yet you have posted margin improvement. So can you call out the kind of cost rationalization that you have done this quarter? Yeah, that’s the first one.
B. Thiagarajan
Thank you Natasha. The first thing is that as you are aware this question will keep coming. It’s blended revenue and results pertaining to room air conditioners and commercial refrigeration. As far as revenue is concerned, commercial refrigeration there seem to be a problem that is connected with. You know, we keep wondering why that is happening. It is basically because of the FMCG related demand that has not come back at all. So the ice cream, QSR and other segments will have to go into expansion mode. We thought with the substantial reduction in GST for food and processed food products there should be huge demand growth and at least we have not seen till now that part reviving so the room air conditioners is the one which has helped us to we have not only grown in revenue, which the breakup I won’t be able to disclose.
You all will get it once the GFK numbers get published. The margin improvement is basically our own decision not to get into discounting in order to improve the numbers. First of all, you are aware that 1st of January was the energy level change. Now the inventory pressure was there for for all the brands. And as I had indicated in the Q2 results, our inventory situation was much lesser. We stopped producing the products in order that we won’t be saddled with inventory. If you are saddled with inventory, you will be heavily discounting in order to get rid of the stock before the deadline and for the benefit of others.
Five Star would have become four Star, four Star would have become three Star, so on and so forth. And obviously three Star being the highest selling sku, we would have got into trouble if we are going to produce inventory in anticipation of the market demand. We took that decision much earlier not to slow down the production and move towards the new energy label products. The second part is connected with the variable cost, connected with the room air conditioner business we had been moderating ever since May 2025 and those are resulting in improved margins. Now you have.
I will have to also deal with what will happen in Q4. I think in January there would have been enough inventory which the brands would have pushed into the channel. And I do not see January to be a great month. It should pick up in February. All depends on how the summer season is going to begin. In the meanwhile, three things have happened. Number one, due to GST there would have been a 10% reduction to the consumer. The energy label change would have pushed up the prices. Depending on the sku, depending on the brand, I’m talking about Bluestar, it would have increased the prices at least 5% to 7%.
This is what would have happened then you have got the commodity prices and the exchange rate. All this put together, the price is going to be much higher. So. So GST reduction is available whereas the other three energy level change plus you have got the commodity prices which are continuing to shoot up and the exchange rate. All these put together will result in my estimation is that somewhere around at least 10% of net increase to the consumers. Whereas the consumer would have been believing that there is a 10% reduction than last year. They are going to get it because the GST reduction will translate into which is not going to be the case.
So therefore we will need much more discipline going forward in Q4 and in the summer season itself that we have to watch how the demand will be which is dependent entirely on summer season to how the pricing will be in the marketplace from February onward. January is anyway old inventory would have moved in second half of February onwards. What it is the good news is the demand seem to have revived and there will be pent up demand as well. And our intention is to maintain this kind of margin levels in Q4 as well. For the simple reason.
See again I’m disclosing the costs that are being owned by the industry. Number one is connected with the consumer finance itself that it is 40% of the sales and it will continue to grow the consumer finance cost base burdens to share with the dealers. The second part is connected with the e waste liability as you move every year that you know, for Bluestar it will be 2016 numbers multiplied by 70% of that that will become a liability. That is what it is. And in the industry in the marketplace, five year warranty seem to be a thing.
And five to 10 year warranty cost, that is the other part of it. And in shop demonstrators is an additional cost. So with all this the meaningfully one should be running the business for delivering an ROCE. And I think that 8.5% kind of a margin is bare minimum. One should look at it. If it is a great summer year, one should try to do 9.5 in the best interest of the category. Thank you.
Natasha Jain
This is extremely helpful. Just one clarification. So you mentioned that 10% will be the net increase to consumers, right? This is after incorporating the GST discount.
B. Thiagarajan
Approximately all the time. This can vary in the sense that you consume the old raw material. You keep buying the raw material. The volatility is very high in the marketplace of the commodity prices and the exchange rate. And you are building up to the summer season. Your consumption of the raw material will depend on. Also I think it should be around 10%. I am not categorically saying in the region of around 10% increase is inevitable.
Natasha Jain
Understood. One last question. So I mean, the entire thesis is based on a good summer, right? So let me just ask you a slightly reverse question. Just hypothetically Speaking, if calendar 26 is also bad in terms of summer, then how does Bluestar navigate the challenges? What are the other sharp growth levers which can keep us afloat despite RAC and commercial not working in case of a bad summer? Thank you.
B. Thiagarajan
So the very first thing is that the history shows that you will not. It has not two consecutive summers have not happened like that. But the pent up demand, given that the category penetration is very low. It should be much better than last year. Okay. The people are not going to be postponing forever. We are still our market size is nowhere comparable to. So that should be that. That should be kept in mind. Then I said that the weatherproofing Blue Star is a program which means you need to look at the B2B businesses as well.
Like the commercial refrigeration is not that seasonal dependent there is it. It is also it is not that much impacted. There is some impact out of summer season getting washed out there. But commercial air conditioning. Part of it is another portfolio where we have a strong presence. And in electromechanical projects, whether it is connected with the traditional segments, the buildings or the factories and data centers, we should not have any infrastructure comes with its own risk. So the weatherproofing Blue Star is connected with portfolio how you manage. The second part is connected with how much of expenditure you can keep it variable.
For example, advertising. If anticipation of the summer we will begin in the middle of March with the ipl. I am saying one example with the IPL matches beginning you will end up spending. You will commit for that and hoping that April will be better. April 2nd half will be better. Something like that. But then you last year that’s what happened. You spend the money, nothing will happen. And you can’t set it right. So we do have the variable expenses how you can make manage. The third part is the localization is happening in a significant manner.
Whether it is the finished goods or whether it is connected with the component ecosystem. Therefore, you will be in a position to manage the inventory. See, the 2025 Summer Washout was managed for better than 2023 Summer Washout in 2023 the inventory lasted for a much longer period. So therefore the weatherproofing Blue Star we call it internally that is a program. But having said that, I am again saying the two summers cannot be. We have not seen it. But even if the summer is going to be bad, that demand will not be that bad. First of all, remember this the when you compare next year, you will compare with the bad year.
So obviously the result will be. But internally we will be looking at how we do with the FY24 rather than. Sorry, with the FY25 rather than FY26. That’s answer by answering the initial questions elaborately so that these questions do not come up late. Data. Thank you.
Natasha Jain
Thank you so much, sir. All the best.
B. Thiagarajan
Thank you.
operator
Thank you. Ladies and gentlemen. In order to ensure that the management will be able to address all the question from the participant, we Request you to kindly limit your question to two questions per participant. If you have a follow up question, please rejoin the queue. Our next question comes from the line of Rahul Agarwal from Ikegai Assets. Please go ahead.
Rahul Agarwal
Hi, good morning Mr. Tagarajan and Nikhil sir, firstly just a clarification on Natasha’s question. The 10 net hike, 8 to 10% is basically after the GST cut, right? It’s adjusted for the GST cut.
B. Thiagarajan
Yeah, yeah, yeah. The look has been very clear that the any reduction will be passed on to the consumer. Any increase will be passed on to the consumer if you have to maintain the margins. So GST reduction will be completely, it was completely passed on. Then you have got the energy label change pushing up the prices. Then you have got the commodity prices, then you have got exchange rate. So it is, it is. So there is.
Rahul Agarwal
Understood sir. Yeah, understood sir. So basically now getting to questions, just couple of them. Firstly on the growth outlook so you know on segment one and segment two and segment one essentially on the projects and CAC typically we discuss 12 to 15% CAGR is what the growth rate should be. I think if I Look at past three years we’ve done you know way better than that 20% kind of growth. Just wanted to understand in your sense how should we model like a medium term growth here, right? Because projects have been doing extremely well for you plus commercial plus international.
I think mix of the segments is actually doing better. Some color on that will be helpful over a two to three year time frame.
B. Thiagarajan
The problem as I’ll set up answer the thing was that for varied reasons FY26 is muted, the order finalization and we didn’t see the liquidity in the market and you are aware that we are extremely cautious in getting into infrastructure projects because infrastructure projects are of low margin, long duration and as these projects get to the closest stage which will be two, three years later, usually you start booking many costs and therefore we have been very, very cautious in chasing market share out there. Commercial air conditioning is connected with multiple sectors, factories, the shop, showroom, boutiques, hospitals, so on and so forth.
But unfortunately the shop, showroom, boutique, retail, all these segments we have not witnessed any great growth in FY26 but in FY27 there are signs that it will come back in a good manner. Keeping all this in mind, I think if you ask me at the moment I will take it as CAGR of around 8, 8 to 10% then look at and revising it depending on how first six months of next fiscal goes.
Rahul Agarwal
Sir, nine month growth rate is almost 20%, right?
B. Thiagarajan
Which one?
Rahul Agarwal
The nine month growth rate for segment one is almost 20%, right?
B. Thiagarajan
Correct. The pending order book was there. But the thing is that I will slow it down for six months because you have seen order inflow has not been good. Right?
Rahul Agarwal
Okay, got it. And secondly sir, on the commercial raft similar question. A nine month growth rate. If you just comment on growth rates for nine months for commercial refs and how should we build a medium term. CAGR for this segment? Thank you so much.
B. Thiagarajan
You don’t have the breakup of that actually to for me to disclose. But the category is supposed to grow at the CAGR of anywhere between 12 to 15% given the processed food penetration. Or dairy or anything pharma. Anything. You take it. We are a very very small market sized country given our size. But it was a bad year again there you can take it. 12 to 15% CHR is is a good modeling and room air condition. Despite a failed sum up. I will still model it on anywhere between 18 to 20%.
Rahul Agarwal
Thank you so much sir. Wish you all the best.
B. Thiagarajan
Thank you.
operator
Thank you so much. Our next question come from the line of Aniruddha Joshi from ICIC Securities. Please go ahead.
Aniruddha Joshi
Yeah. Thanks sir. Thanks for the opportunity. So in the opening comments you indicated about there are while nine months were muted for ucp. But there are demand drivers now. So if you can elaborate a bit more on this means like which regions you are seeing the growth. East, west, north, south or rural versus urban. Are you seeing growth in coming back in metros or in terms of the product profile. Whether the growth is more in premium versus the value for money air conditioner. So if you can share more details on these aspects.
B. Thiagarajan
All regions have done well. It is not one region has done well like that. And obviously the tier 3, 4, 5 are the ones which will continue to drive the growth. I think that is true for many categories because the penetrations are relatively lower there. But it will depend on the agricultural income actually. And that is the driver of the rural economy of India. I have been saying this. The tire 3, 4, 5 consumers and the tire 3, 45 geographies will constitute close to 70%. That is reflected in the consumer finance schemes being availed. That is reflected in the question that you ask.
It is the entry level products and whether it is airline, whether it is car, whether it is two wheeler or whether it is mobile wi fi services. You will see this. That Indian market is driven by aspirational middle class. It is highly price sensitive. It is Entry level value for many products and you. You see number one, number two in many categories. It is a fact. And that should be true for air conditioners as well. Thank you.
Aniruddha Joshi
Okay, sure. Sir, just last question. Mr. Mohit Sood is appointed as executive director of UCP segment. So for a period of five years. So hottest congratulations to Mr. Mohit. And what will be the five year care is in terms of for Mr. Mohit from the board? Whether it will be driving market shares, diving profitability or entry in new products. Etc. So if. If you can elaborate on that. Yeah, that’s it. From my side. Thanks.
B. Thiagarajan
No, the annual KRAs are set by the NRC approved by the board. So that is. That will keep happening. That’s a internal process. The broad drivers of the for the company will translate into KRAs, right? That what is company strategy that determines the strategy of that drives the Kras of let alone Mohit. Whether it is Veer or me or Mohit or the entire top management the company strategic KRAs and operational KRAs. That’s what will determine ours. Now broadly, if you want to understand what we are looking at is our track record has been growing faster than the market and gaining market share.
We have not yet reached our first goal of reaching 15% market share that we are somewhere we have crossed 14. And even in the challenging year I think we have gained marginally some market share. So. So that we need to do. The second important part is that growth has to be a profitable growth. Which means the margin guidelines that I mentioned somewhere around 8.5% EBIT margin is absolutely important. And in ROCE Blue Star is a benchmark outlier in the industry that we. We look at anywhere between 25 to 30% ROCE. That is an important KRA.
There are other numerous KRAs, right? Like for example my brand salience. That brand has to be made relevant to the new consumers and it should continue to be stronger in terms of of salience. The next is that the customer experience which differentiates us. That is an important strategy of Bluestar to provide a world class customer experience. So broadly the company strategy is this and that will translate into including things such as that I will be ahead of the curve in terms of sustainability initiatives. Like if it is a energy labeling, if it is connected with refrigerant new refrigerant migration, carbon footprint.
We have been ahead of the curve. That is what we would be. So this is where. This is what will determine all our top management. Thank you.
Aniruddha Joshi
Yeah, sure sir. Just last thing in this entire trade inventory summer Etc the issue which is forgotten is the compressor. From 1st of July again we will the industry as well as Blue Star will have to manufacture compressors in India. So how do you see the preparedness of Blue Star on this aspect? Thanks.
B. Thiagarajan
So the. The thing is that first of all the it is not Blue Star as a manufacturer. The weather there is enough component ecosystem that is available for us to source and I have stated till at least 2028 and if we need to reach a particular scale for considering manufacturing of compressors. But supply chain resilience is an important program and I think we are well secured with the domestic manufacturing capacities that are coming up from many players. Thank you.
Aniruddha Joshi
Yeah, thank you. Thank you sir, very helpful.
operator
Thank you. Our next question come from the line of Sonali s from Jeffries, India. Please go ahead.
Sonali Salgaonkar
So thank you for the opportunity and congratulations on a good operational result. So my first question is could you help quantify maybe on an industry level or the company specific level, whichever you are more comfortable with the inventory situation for aircons now versus say start of October.
B. Thiagarajan
Thank you. But I don’t think we deserve any congratulations. It’s a very modest growth. It’s not a great result I would say but we may have done better than the industry our home. The inventory level, my estimate is that it may be eight to 10 weeks for the industry and it may be. I think it may be five to six weeks is my estimate. But others I am sure industry, I am guessing it that’s what it should be. And from second part I couldn’t follow that. From October onwards there has been substantial reduction. Now I would say you see inventory will not be zero in any case it has to be some two to four weeks.
Inventory will always be there. In our case I think there is at least some two to three weeks of more inventory is there. But it is always manageable. That’s what it is. The industry again first of all you had produced anticipating a great summer. Then during the GST transition there was bottleneck blackout period there. Then you were left with a winter season coming in and the energy level changed. So there was a pressure. But I wouldn’t consider inventory as a great bottleneck for February, March. The one and the only event that we should be watching out for is onset of summer.
If the summer sets in there is nothing to worry about.
Sonali Salgaonkar
So just a clarification over here five to six weeks is company plus channel. Right. And secondly, what is the normal inventory level? Four weeks.
B. Thiagarajan
Yeah, it will be around four weeks. You know normally from January onwards We will start building up inventory for the forecast season. Okay. And because you won’t be able to meet the demand in March, last week or March 2nd of April, May. So we wouldn’t have. We will be even comfortable with in our case 8 weeks of inventory being there in January, 10 weeks of inventory being there in February, 12 weeks in the month of March if the summer, summer is going to be definitely going to be stronger. But you will be very cautious having gone through the past.
Right. And also the systems have changed. Now you have a local component ecosystem and your own manufacturing units. You are not dependent on some China imports of finished goods. And I would say that in the build up to the summer even eight weeks is okay.
Sonali Salgaonkar
Got it sir. So my second question is regarding the price hikes that you mentioned that about 10% price hike, sir, would it be able to bifurcate this price hike between a the hike because of energy efficiency and secondly because of the rising input cost? I believe energy efficiency has already entailed a 7 to 8% price hike. So is it fair to assume that just 2, 3% have been passed on to the consumers because of the price hike?
B. Thiagarajan
No, no, no. First of all this will vary. This is not a universal norm. Depending on the product design it can vary from manufacturer to manufacturer. So don’t take it as I am talking for the industry. My estimate is that there are certain products in our in our portfolio that the the new energy label would have costed only 5%. There are models which are energy label is pushing up the price between 7 and 8 in our portfolio. The other part of it is entirely dependent on when you bought the inventory and what pipeline you have got because week to week it is changing so it is very difficult to estimate.
So I am broadly I am saying that on some 7% may be due to energy label change and you may have around 8 to 10% arising out of commodity then 10% reduction you have got in GST. So therefore net I am saying ballpark is 10% but very difficult to estimate at this point of time. Again you can’t be, you know we are not a forex dealer to be determining daily rate. When you announce the price it will be for a at least three month period, right? Or two and a half month period. You can’t be altering prices every day so you have to pass a judgment and increase the prices won’t be able to manage.
He can’t tell sell it or on price they have to borrow, change it, etc. Because the customer who is bought will be fighting. So therefore I am saying we will be looking at price increase so soon as the inventories get liquidated.
Sonali Salgaonkar
Sir, any quantification ballpark as to how much price increase would you want to pass on the input cost pressures?
B. Thiagarajan
I think it will I am telling it maybe in the order of 10
Sonali Salgaonkar
10% more.
B. Thiagarajan
That is right.
Sonali Salgaonkar
Got it.
B. Thiagarajan
We will determinate and let us say there is a US deal is signed the dollar may come down and what are all going to happen I don’t know because every day is something is changing but if you ask me to take a call today it is it is important to increase the price by 10%.
Sonali Salgaonkar
Got it sir. Thank you very much. All the best.
operator
Thank you. Next question come from the line of Kur Pandya from ICC Prudential AMC. Please go ahead.
Keyur Pandya
Thank you sir. First question on the the margin that you mentioned 8 and a half percent kind of margin for UCP I think in last conclude I mean looking at the slowdown you guided for send 7% around margin for the segment. So now this is more of 8.5 aspiration or do you think you can achieve that in Q4 and FY27 despite all the inflationary challenges.
B. Thiagarajan
So what I indicated two parts. Number one is what could be the margin for Q4. You have seen the Q3 margin and you have to look at the next next year steady state. That is what is it means it’s it’s not full year is going to be changing to this definitely not. You can’t make up for the summer. Right.
Keyur Pandya
But FY27?
B. Thiagarajan
Q4 of FY26 and the FY27 the margin outlook is 8.5% another until summer is going to be so very harsh summer it can go up to nine and I’m not forecasting anything now. It can be looked at closer to March and my estimate is that if you do 8.5% that’s a reasonable margin looking at it today especially with the higher prices.
Keyur Pandya
So just one clarification on this. The assumption is that the operating leverage of good summer and good volume growth would would allow you to take the price hikes that you mentioned. And there were 8.5% kind of margin.
B. Thiagarajan
Not at all. You have seen our margin. It’s above 8 already in Q3 and Q4 irrespective of the summer season. Irrespective of the price increase 8.5 is doable. FY27 8.5 should be the target. If the summer season is extremely good it can go up to nine. We don’t know now that call has to be taken. Price hike has to be taken. In any case, it is not optional. In a category in which the margin is in the order of 8 to 8.5. You can’t absorb this kind of commodity price increase or the exchange rate issues.
That is not your option. You have in my mind. It has to be done.
Keyur Pandya
Understood. And just last…
B. Thiagarajan
Remember one more thing. While the base code related cost is in the exceptional items, it is a permanent burden. So your conversion cost, service cost, warranty service cost, all will have to be borne and it has to be passed on. There is another element of cost. We can’t ignore that because this quarter it is under exceptional items. Right. It is going to push up the cost of the product or the services.
Keyur Pandya
Understood.
B. Thiagarajan
And what can happen is. And it is level playing field. It is not that one brand can absorb, another brand cannot the industry level in different intervals. The timing may be different. All will have to. What it means is that the overall prices will go up. Consequently, whether the demand will be lower than if only saying 19% CAGR whether because of this CAGR will reduce reduced to 17 or 16. We can see that can happen. But I don’t think there is a choice. If it is a very high margin industry, one can have the discretion. I am not passing on absorbing which is not the case.
Keyur Pandya
Understood. And second question on the segment one where considering the order book, you are saying for the full year FY27, the growth should be in single digit. It may be by choice because of the better quality of order book. But then it should see lower growth because of the lower order book. And will that have an impact on the guided margin range? Thank you.
B. Thiagarajan
No, I don’t think there is a. There is a reason to worry about margin there. There again in the commercial air conditioning products, prices have to be increased. In electromechanical projects the price escalations have to be obtained for higher labor cost because it’s a people business there. And there is indeed a wage code related burden that is existing. The last point is the whether the the infra projects. You know, roughly one third of our revenue is infra projects and quite a few projects will come to a closure now because these are all metro railway projects or water railway, electrification etc.
So when these projects is nearing a closure, usually the costs go up and you it pulls down the overall margin. So you would have seen already the margin is lower than last year in Q3. I think this will be a trend for next 2, 3 quarters because the infra Projects are coming to a closure and otherwise I don’t see a concern for huge correction in the market.
Keyur Pandya
Notice that. Thank you and all the best.
B. Thiagarajan
Thank you.
operator
Thank you. Our next question come from the line of Anupam Goswami from Sud Life please. Mr. Anupam, please proceed with the question. Please proceed with the question. And move forward to the next participant. Next question come from the line of Renu bed from IIFL Capital. Please go ahead.
Renu Baid
Yeah. Hi, good afternoon team. While others have been answered, if you can just help us understand a bit more in terms of updates with respect to how are we working on new product development or JV tie ups for the data center market chillers as well as the H Vac solutions.
B. Thiagarajan
So the. You know we are a very large player in chillers. So therefore I don’t think we need an external collaboration for developing a chiller for the data center market. So we have, I think those developments are going on. The second part is connected with certain other solutions meant for data center segment which is actually called the liquid cooling or the CDU cooling distribution unit. These we are exploring multiple tie ups across multiple geographies which are classified in nature because we have signed non disclosure agreements and I think we will. You know this is the same as once in three, four years something new happens and you need to figure out at that point of time clarity completely doesn’t emerge.
But our track record has been that we are able to catch up like the VRF at some point of a time. What we will do for VRF was a question and it happened. Indeed that’s the market for one part of the data center market. We need that.
Renu Baid
And for our own in house products by when would be commercially ready.
B. Thiagarajan
I think many models are in advanced stages. Let us say 12 months.
Renu Baid
Got it. Thank you.
B. Thiagarajan
In the NEP part of data center or the EPC part of it. We are, we are the leaders.
Renu Baid
Correctly already executing them.
B. Thiagarajan
Even in the semiconductor related space of air conditioning which are sophisticated electromechanical projects that happen. We are market leaders. We are building our leadership in that sector as well. And so these two combined with factories. These are the factories is a regular one data center or semiconductor. We are building leadership in a significant manner in EPC part of it. Because of that we believe that pillars again we will be able to build the market share and be a leader there or be a choice of the customer preferred choice of the customer.
But the products are to be tested thoroughly. That’s what is happening.
Renu Baid
Got it. Thanks much Steven. Thank you.
operator
Thank you. Our Next question comes from the line of Naveen Beth from Norma Asset Management. Please go ahead.
Naveen Baid
Oh, thank you. My questions are being answered. Thank you.
operator
Thank you. Our next question come from the line of Deepak from Unifi Capital. Please go ahead.
Deepak Lalwani
Thank you. Sir.
operator
I’m sorry, I’m sorry Deepak to interrupt you, but you it’s very disturbance from your end.
Deepak Lalwani
Is it better now?
operator
Yes, please go ahead.
Deepak Lalwani
Yeah. Okay. Thank you. So we’re fairly new to the business, but we have two questions if you could please help us. The first is just on the EMP segment. We noted that you’ve given a single digit growth guidance. Could you give us some nuance as to what is generally the split of this business and which pocket you’re seeing some slowdown in and why is it that these margins tend to come down close to the closure of these projects?
B. Thiagarajan
Number one is it includes multiple things. It includes the electromechanics projects and commercial air conditioning broadly. Okay. For obvious reasons I can’t tell you the breakup of that. But the entire thing is slow. In other words, the B2B business order inflow has been muted for a very long time and for various reasons. And there is a GST related some description was there then there was. There is a liquidity issues as well. Other than some infra projects, none of them have. The order finalization has not been happening. Having said that, January has begun very well and many inquiries are coming up for finalization.
So that should be happening. But when your pending order book is lower, your growth will in the subsequent month will be impacted. That is why I said that one should look at a single digit growth or a just a 10% growth. That’s all one should look at it. The impact is. I’m repeating again. There is a infra segment, there is a building segment, there is factory data center segment out of which infra is lowest profitable segment. Within that then that those infra projects takes many years, three to five years. Like you’re aware, we are part of Mumbai Metro, for example Bangalore Metro.
We are executing. There are some railway electrification projects, There are certain water distribution projects. All these when it is moving towards the the cost overrun can happen as they as it is coming to the closure you are in a great hurry to close and hand over. Then at that point of a time the margin will further come down. That is where we are. So that is the only reason. Otherwise there is the other parts are all doing well.
Deepak Lalwani
Understood. So should I understand this? I mean in summary, the basis the current order book you feel next Year it’s going to be single digit for the reasons you explained. And would you say this is the bottoming out for order inflows and inflows could start improving from here or do you think inflows will also continue to stay at these levels?
B. Thiagarajan
Looking at the customer’s behavior and what has happened in January, I think it has bottomed out and it is taking off. The. That’s what is my. Our sense. See the. The. It cannot be, you know, in any business it cannot be down when the penetration levels are lower forever. It cannot be down. It. It has to revive at some point of time. That is what is happening. The like, like I, I can tell you that close to, in January itself we will have close to 400 crores worth of orders already, which is, which is a record month again.
So I think it is taking off after a subdued period.
Deepak Lalwani
Okay, sir, that’s very clear. And just my second question is the margins in the unitary product segment are very strong. Right? If you had to call out one or two primary drivers as to why you’ve been able to sustain these margins despite how these last few quarters have been, what would those be?
B. Thiagarajan
I don’t think it is very strong. It is good as I told you that our guideline has been 8.5 should be. And the reason being that we were very clear that we will not force ourselves into an inventory pressure so we stopped our controlled production. And therefore you could. You are not desperate to liquidate the stocks at a lower price. That is first part of it. Second part of it is connected with the variable cost. Ever since April when the summer was not happening, those measures were implemented meticulously. And like the marketing spends or the employee sales incentives itself will be lower as well because some part of the compensation is through the quantities sold.
And the third part is that systematic income ensuring that your input costs are controlled. That’s why it happened. And it is a continuous process. This challenge will continue and we have to deliver.
Deepak Lalwani
Understood, sir. And lastly, any initial trends that you’re getting from the channel retail side on how these summer months are shaping up in Q4 and probably what it might what they’re thinking for Q1. Thank you.
B. Thiagarajan
All that we know is that compared to the previous months it is better. So it is not spectacular and we have to see when the summer sets in. As of now it is not setting in. The weather everywhere seem to be very pleasant. Winter continues and let us see when it is going to set in.
Deepak Lalwani
Understood. Thank you very much, sir.
operator
Thank you. Our next question come from the line of Naushat C from Aditya Billa Mutual fund. Please go ahead.
Naushad Chaudhary
Thank you. Just one clarification again on the project business. That if EMP is slowing and commercial AC is growing faster, should the. Should we expect margin improvement in this business in FY27?
B. Thiagarajan
No. Yeah. It is not all that I mentioned. It is not. It is becoming zero, Right. You do have significant amount of projects are to be. We are talking about a growth. Whether it will be a significant growth. It is again I’m saying that will be a growth the CAGR of 8 to 10%. So there is. It is not stopped. Okay, that is first part of it. Second part is that there are factories, data center and buildings. These are good margin projects. And margin may not improve dramatically, but it is not going to deteriorate. On the other hand, infra project will be at the peak of its execution because we want to expedite the closure.
And in the process it’s a lower profitable segment. Commercial air conditioning order inflow was muted. Now it is picking up. So if you ask me broadly the margins, whether FY27 should be better than FY26, that’s what one can guess. But always you have seen that we were exceeding the estimates that the questions used to be this, right? That how come 8% margin you are delivering? Our guideline has been that we will be some seven and a half percent margin. Seven to seven and half is supposed to be the margin. Sometime it used to be 8.
So in the order of 7. In FY27 modeling you can assume it is not going to become some eight and half because some project is slowing. It has not slowed down some part. There is a slowdown. That’s about all. In other words, I am summarizing for the benefit of everyone. The output for Q4 is 7%, 6.5 to 7%. So closer to 7, maybe for segment one and it should be 8.5 for segment two. That is the guideline.
Naushad Chaudhary
And from a three to four years point of view, should we expect higher CAGR growth from a commercial EC subsegment versus emp or should both grow balanced.
B. Thiagarajan
By all estimates, the commercial or any B2B part of the business, it is expected to grow only at 10 to 12%. CAGR room air conditioners is durable and its penetration level is very low. So it is projected at a CAGR of 19%. You know, if it is a bad summer here, it will be worse. That’s about all. So this is not going to change. I don’t see some significant 20% growth. Nor we are into any inorganic growth at all. See, when there is a see, the market is going to be like this forest. To grow it has to be inorganic growth.
There is nothing and it is not. We were not present in some segments. Now I am going to enter that segment. There is no such thing. We have been in all parts of the segment.
Naushad Chaudhary
Right. Anything you want to talk about on. The export side, we are, you know, tracking quite well. We have reached to not sizable but at least two 200 crore rupees of odd or run rate. We have reached on a quarterly basis. How big?
operator
Really sorry Naushat, but please rejoin the queue for more questions.
B. Thiagarajan
The thing is that first of all FTAs are getting signed. It has not meaningfully translated into any significant business. Our interest has been with Europe which anyway the heat pump market is very slow. It has not taken off at all. But on the other hand the US market is because of this trade barriers. That’s where it is now. It is suiting us actually because you can keep developing more products and you have got domestic challenges as well. Right? So the thing is, if the market would have opened up, there is a huge demand and we have to go ahead and do all this.
We would have. But as of now we are very clear that we are not entering there with our own brand. We are investing in our own R and D and manufacturing in order to become globally competitive. And we have developed products which are successfully tested abroad. The customers whom we acquired, they are all very happy. But the conditions are in Europe market has not opened up. The European market consumers expect some subsidy from the government to switch over to heat pump or green products. And in the US there is a trade barrier. So therefore it is fine.
We are moving steadily and we are building that foundation. The direction is as follows. When China grew in exports, it was not that China was going and marketing anywhere. The people the way went to China to shop. Same way we should build a capability where somebody should say can you make for us? That is the situation or a position we would like to build. That’s where we are. So 200 crore, 300 crore, 400 crore, $1 doesn’t matter at this point of time. We know very well we are poor in our export footprint. But I can tell you in three year time I think 15% of our revenue should come from exports.
Thank you.
Naushad Chaudhary
Thank you.
operator
Thank you. Ladies and gentlemen. Due to the interest of the time, we will take the last question from Manoj Khoury from equivalence capital. Only one question Mr. Manoj, please go ahead.
Manoj Gori
Thanks for the opportunity sir. So I just need one clarification. Most of the questions have been well answered. Just one clarification on the project business. So 8 to 10% range that we. Are talking about is for the entire EMP business, right? And not only for the infra business.
B. Thiagarajan
No, Electro mechanical projects business in totality.
Manoj Gori
Yes, that’s what.
B. Thiagarajan
And even commercial air conditioning business.
Manoj Gori
Got it sir. Thank you sir and wish you all the best.
B. Thiagarajan
Thank you.
Nikhil Sohoni
Thank you very much ladies and gentlemen. With this we conclude this quarter’s earning call. Do feel free to revert to us in case any of your questions were not fully answered and we will be happy to provide you additional details by email or in person. Thank you.
operator
Thank you so much sir. On behalf of Blue Star Limited that concludes this conference. Thank you for joining us and you may now designate your lines.