Blue Star Limited , a leading air conditioning and commercial refrigeration company, is bracing for a significant short-term impact on its sales due to anticipated GST reforms. B Thiagarajan, Managing Director of Blue Star, has warned that air conditioner sales could decline by up to 50% in the near term as consumers delay their purchases in anticipation of proposed tax changes.

GST Reform Expectations

The Indian government is expected to implement a new two-slab GST structure, reducing the tax on air conditioners from the current 28% to 18%. This reform, announced by Prime Minister Narendra Modi during his Independence Day speech, is likely to be rolled out by October, coinciding with the Diwali festival season.

Short-Term Sales Impact

Thiagarajan highlighted that August sales are expected to be severely affected as customers postpone their purchases to benefit from the lower tax rates. He emphasized the importance of early notification of the new rates, ideally before September 1, to minimize the industry's challenges during the festive season, which includes Ganesh Chaturthi, Navratri, and Diwali.

Consumer Behavior and Industry Response

While B2B customers may continue their purchases due to input tax credit benefits, individual consumers are likely to delay their buying decisions. In response to this trend, dealers are expected to focus on taking bookings rather than immediate sales.

Long-Term Growth Outlook

Despite the short-term challenges, Thiagarajan remains optimistic about the industry's future. He projects that the AC industry could achieve 15-20% growth for the fiscal year 2026 once the GST reforms are implemented.

Industry Implications

The anticipated sales decline highlights the significant impact that policy changes can have on consumer behavior and industry performance. While the proposed GST reduction is expected to benefit consumers in the long run, it poses immediate challenges for manufacturers and retailers in the AC industry.

As the industry navigates this transitional period, companies like Blue Star will need to adapt their strategies to manage inventory, maintain customer relationships, and prepare for the expected surge in demand once the new tax rates are implemented.

Blue Star Limited , a leading air conditioning and commercial refrigeration company, reported mixed results for the first quarter, with revenue growth offset by a decline in profitability due to unseasonal rains impacting the Room Air Conditioner (RAC) segment.

Revenue Growth Amid Challenges

The company's revenue from operations grew by 4.1% to Rs. 2,982.00 crores, compared to Rs. 2,865.00 crores in the same quarter last year. However, net profit declined to Rs. 120.82 crores from Rs. 168.76 crores in the previous year, primarily due to the impact of unseasonal rains on the RAC segment.

Segment Performance

Electro-Mechanical Projects and Commercial Air Conditioning Systems

This segment showed robust growth, with revenue increasing by 35.9% to Rs. 1,412.50 crores. The segment result was Rs. 111.60 crores, representing 7.9% of revenue. The order inflow for the quarter stood at Rs. 1,963.00 crores, up from Rs. 1,466.00 crores in the previous year.

Unitary Products

The Unitary Products segment, which includes RACs, faced significant challenges. Revenue declined by 13.3% to Rs. 1,499.40 crores, with a segment result of Rs. 87.50 crores, representing 5.8% of revenue. Despite the overall decline, Blue Star managed to slightly improve its market share to approximately 14.2% in the RAC category.

Professional Electronics and Industrial Systems

This segment experienced a 27.3% decline in revenue to Rs. 70.40 crores, with a segment result of Rs. 7.70 crores, representing 10.8% of revenue.

Profitability and Margins

The company's EBITDA (excluding other income) was Rs. 199.99 crores, with an EBITDA margin of 6.7%, compared to 8.3% in the same quarter last year. The compression in margins was primarily due to the impact on the RAC segment and the loss of operating leverage benefits.

Order Book and Future Outlook

Blue Star's carried-forward order book grew by 12.5% to Rs. 6,843.00 crores, indicating a strong pipeline for future projects. The company maintains a positive outlook for the full year, expecting demand revival during the festive season and anticipating double-digit growth, supported by a strong B2B order book and upcoming energy label changes.

Management Commentary

B. Thiagarajan, Managing Director of Blue Star Limited, commented on the results: "While the first quarter was disappointing due to unseasonal rains severely impacting Room Air Conditioner demand, we remain optimistic about the growth prospects for the full year. Our B2B segments showed resilience, and we expect demand revival during the festive season. The upcoming energy label changes typically drive pre-buying behavior, which should contribute to our growth."

Blue Star continues to focus on expanding its distribution footprint, particularly in Tier 3, 4, and 5 cities, and maintaining a diverse product portfolio to cater to various market segments. The company remains committed to its long-term vision for growth and innovation, with ongoing investments in manufacturing, R&D, and digitalization.

As Blue Star navigates through these challenging market conditions, it aims to leverage its diverse business portfolio and strong market position to drive growth and maintain profitability in the coming quarters.