Blue Star Navigates Challenging Quarter with Strategic Focus and Operational Resilience

Blue Star Limited, a prominent player in India's air conditioning and refrigeration sector, reported a mixed but resilient performance for the second quarter and first half of fiscal year 2026. Despite facing significant headwinds from an extended monsoon season and deferred demand following GST rate reforms, the company demonstrated strategic agility and operational discipline. For Q2 FY26, Blue Star posted a modest revenue growth of 6.4% year-on-year, reaching ₹2,422 crore. EBITDA saw a robust increase of 23% to ₹183 crore, with the EBITDA margin expanding to 7.6% from 6.6% in the prior year. Profit Before Tax (PBT) also grew by 1.3% to ₹133 crore, reflecting the company's ability to manage costs effectively amidst a challenging market.

The Electro-Mechanical Projects and Commercial Air Conditioning Systems segment, the largest contributor, showcased strong growth, with revenue increasing by 16.5% to ₹1,664 crore. This segment's EBIT margin improved to 8.8% from 8.3%, driven by a healthy order book of ₹4,840 crore, particularly from buildings, data centers, and factories. Management highlighted a selective approach to infrastructure projects, prioritizing good cash flows and margins. The Unitary Products segment, however, experienced a 9.5% revenue decline to ₹694 crore, primarily due to the subdued Room Air Conditioner business impacted by unseasonal rains and GST-related demand deferrals. Inventory levels in this segment are a concern, standing at approximately 65 days of sale against an ideal 45 days. In contrast, the Commercial Refrigeration business within this segment is expanding its energy-efficient, IoT-enabled portfolio and expects robust growth in the second half of FY26, buoyed by recent GST reductions on food products. The Professional Electronics and Industrial Systems segment saw a 20.1% revenue de-growth to ₹64 crore, largely due to regulatory uncertainties affecting the MedTech Solutions business, though its EBIT margin improved significantly to 9.6% from 6.4%.

Blue Star's strategic initiatives are clearly focused on navigating current market realities while positioning for long-term growth. The company is actively preparing for new product launches in the Room Air Conditioner category ahead of Summer 2026, aiming to refresh its portfolio and capture market demand. Furthermore, it is expanding its energy-efficient and IoT-enabled product range in Commercial Refrigeration, deepening its penetration in Tier 2 and 3 markets through localized distribution and service networks. In the high-growth data center space, Blue Star is exploring partnerships and developing liquid cooling solutions, though commercialization is not expected before the end of the current fiscal year. The management emphasized ongoing investments in product re-engineering to enhance reliability in its core segments and a strong focus on improving operating efficiency through digitalization.

Despite the immediate challenges, Blue Star's management remains cautiously optimistic about the second half of FY26, expecting it to outperform the first. The company aims for flat growth for the full year, acknowledging that the industry itself might contract by up to 15%. Management has provided specific guidance for EBIT margins, targeting 7-7.5% for Segment 1 and 7-7.5% for Segment 2. The shift from a net cash position to net borrowings in H1 FY26 reflects increased working capital requirements due to higher inventory and ongoing capital expenditure. However, the company's long-term growth prospects remain strong, underpinned by its diversified business model, market leadership, and continuous investment in R&D and operational excellence. Blue Star's disciplined approach to capital allocation and focus on customer experience are expected to sustain its competitive edge in the evolving market.