Blue Star faces the heat in Q1 from a milder summer season
Blue Star Ltd's shares are down as much as 35% from their 52-week high of ₹2,417 in January as a weak summer season is expected to hurt room air-conditioner (RAC) demand, and in turn, sales.
Despite the significant underperformance vis-à-vis the Nifty 500 index so far in 2025, the stock's sharp rally of about 125% in 2024 means valuations don't bring a lot of comfort. Blue Star's shares still trade at almost 47 times FY26 estimated earnings, as per Bloomberg data, which is not particularly cheap.
The company ended FY25 with a 32% consolidated Ebitda growth to ₹876 crore, and a 45-basis points (bps) expansion in margin to 7.3%. However, FY26 has begun on a softer note, thanks to a milder summer season and the early arrival of the monsoon. This means the seasonally strong June quarter (Q1 of FY26) now appears less exciting than initial expectations.
Also Read | As temperatures soar, consumers rush for air conditioners, coolers to beat the heat
Blue Star executives told analysts recently that they expect a 25-30% year-on-year decline in volume during Q1 for the RAC industry (and Blue Star) on the high base of Q1FY25's growth. Plus, elevated channel inventory remains a concern.
'But management is still optimistic on FY26 full year RAC growth of 10-15% banking on stronger festive season (second summer), pre-buying in Q3 (energy label change w.e.f. January 2026) and healthy underlying structural demand for AC," IIFL Securities said in a report.
On the other hand, the commercial refrigeration sub-segment could perform relatively better due to a favourable base and the limited impact of unseasonal rains. With overall unitary product segment revenue poised to take a hit in Q1, investors should watch out for the impact on the Ebit (earnings before interest and tax) margin even as the management told analysts that it plans to increase its focus on controlling variable costs.
Total revenue
Revenue from Blue Star's unitary products segment, which includes RACs and commercial refrigeration, was up 22% to ₹5,621 crore in FY25, contributing 47% of the company's total revenue. The segment's FY25 Ebit margin rose 54 bps to 8.4%. Blue Star's FY25 RAC market share was close to 14% and it now aims to reach 15%.
Half of the company's FY25 revenue came from electro-mechanical projects and commercial air-conditioning systems, which grew 27%. The electro-mechanical projects business delivered a strong performance in FY25, aided by robust demand across factories and data centres, while demand was muted in the commercial real estate and infrastructure sectors.
Also Read | Hot summer forecast to boost consumer durables, beverage sales in India
The remaining small portion of Blue Star's revenue comes from professional electronics and industrial systems. Thus, Blue Star's total FY25 revenue was up 23.5% to ₹11,968 crore.
It should be noted that rival Voltas Ltd's shares, too, have underperformed in 2025, declining by about 30%. In recent months, FY26 earnings estimates have largely been cut for both companies, but analysts are generally not losing sleep over this.
Emkay Global Financial Services' 15-year analysis suggests three similar periods of weak summers (2012-13, 2015, and 2018), where unitary cooling products (UCP) revenue growth was soft, while stocks fell about 30-40%.
Also Read | Voltas rides the summer wave. But is the stock still a cool bet?
'Notably, each weak summer was followed by a sharp rebound, with UCP revenue rising about 15-20% amid structural tailwinds like premiumization, low penetration, and improving affordability driving stock rallies of about 40-160% over the next 12-18 months," Emkay's analysts said in a report on 28 May.
Against this backdrop, from a near-term perspective, investors are likely to wait for meaningful clues on demand conditions from the Q1 results and management commentaries before getting enthused about the anticipated rebound later on.
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