In India’s cooling business, the weather is the real CEO.
A few weeks of unseasonal rain can upend sales projections, throw inventories out of gear, and make balance sheets sweat.
Voltas learnt that the hard way this year when its profits halved in the first quarter of FY26 as summer demand fizzled out.
Blue Star too took a hit.
Bule Star’s consumer-facing business, which sells room air-conditioners, refrigerators and water purifiers, shrank by more than 13% in the quarter. Normally, that would have meant a poor set of results. But the company managed to report overall revenue growth.
The reason? Institutions, not households.
Large contracts for factories, hospitals, retail outlets and data centres kept the topline steady. That tells you something important about Blue Star: it is neither just a consumer discretionary play like Voltas nor only an industrial contractor. It straddles both.
A company of two halves
In Q1 FY26, Blue Star posted consolidated revenues of Rs 29.8 billion, up 4% year-on-year, but down 27% on a quarter-on-quarter basis.
But the growth came entirely from projects.
- Unitary Products, the consumer side of the business, contributed Rs 14.99 billion, half of total revenue, but fell 13.3% from last year. Margins here slipped to 5.8% from 9.1%.
- Electro-Mechanical Projects and Commercial Air Conditioning contributed Rs 14.12 billion, or 47% of revenue, and grew 35.9% YoY. Margins dropped to 7.9% from 9.9%, but the sheer scale of orders offset the consumer slump.
- A small third division, Professional Electronics and Industrial Systems, made up the balance.
Overall, operating margins compressed to 6.7% from 8.3%, and net profit declined to Rs 1.2 billion from Rs 1.7 billion.
Yet, the numbers could have been worse without the cushion of institutional demand.
The consumer dilemma
Household demand for ACs in India remains volatile. Penetration is still below 10%, which means the long-term growth story is intact.
But sales remain hostage to weather and disposable incomes. In Q1 FY26, the timing of rains cut into peak summer demand.
Financing schemes, premiumization into inverter ACs and energy-efficient models and a new manufacturing plant are meant to give Blue Star a larger share of this pie.
Management believes RAC (Room Air Conditioner) volumes in India can compound at nearly 19% a year over the next five years.
That may be true, but investors need to accept that the business will remain lumpy.
The institutional cushion
Blue Star’s project’s business is different.
Companies, hospitals and data centres don’t change their cooling needs just because the monsoon arrives early. Orders tend to be stickier, tied to long-term capital expenditure.
Blue Star has built credibility here over decades, from central air-conditioning to large turnkey contracts. Its order book at the end of Q1 FY26 stood at Rs 68.4 billion, up 12.5% year-on-year, giving visibility for the next few quarters.
Margins are thinner than consumer durables, and execution risks are real. But this institutional ballast ensures that one weak summer doesn’t entirely derail results.
A hybrid identity
This dual structure raises the bigger question: is the hybrid a strength or a trap?
On the one hand, diversification protects Blue Star from the swings that Voltas faces.
It’s worth noting that Voltas too has an EPC business, but it contributes only about 13% of revenues, compared with Blue Star’s 27%. That makes Blue Star much more of a balanced hybrid between consumer and institutional demand, while Voltas remains predominantly a consumer story.
On the other hand, when the summer is scorching and households rush to buy ACs, Voltas benefits disproportionately, while Blue Star only partially shares the upside.
For investors, Blue Star offers a different kind of cooling play. It is the kind that balances the volatility of consumer demand with the stability of institutional projects. The trade-off is fewer dramatic swings in either direction.
The financial base
For FY25, Blue Star reported revenues of Rs 119 billion, up 23% year on year.
At the end of Q1 FY26, it was in a net cash position of about Rs 3.7 billion, with debt levels modest and interest coverage of over 55.
This clean balance sheet is another point of contrast with peers. It gives the company room to invest in new plants, expand distribution, and push exports without straining.
Risks to keep in mind
The risks are straightforward.
Consumer demand is fickle.
A cooler summer, tighter household budgets or aggressive price wars from global brands can quickly erode sales.
Project revenues, while steadier, depend on the capital expenditure cycle and government spending, both of which can slow.
And exports, though promising, are still small and vulnerable to global shocks.
The biggest risk may be that Blue Star remains stuck in between: not dominant in consumer durables like Voltas, not a pure-play contractor either.
For investors, that means middling multiples and middling returns if the balance doesn’t shift decisively.
Valuation picture
The market is already assigning a premium for stability. Blue Star trades at a price-to-earnings multiple of around 73 and a price-to-book ratio above 12.7.
Return on equity is about 20.6%.
The premium valuations suggest the market is willing to pay up for stability, even if it comes with moderated upside. Blue Star’s hybrid model makes earnings steadier, but less likely to swing wildly in either direction.
Blue Star offers stability, but the upside is capped.
The bottom line
Blue Star is a company of two halves.
When households cut back, institutions keep the lights on. When projects slow, consumers chip in. That balancing act is both its strength and its limitation.
For investors, the question is not whether India will buy more ACs.
That seems inevitable.
The question is whether they prefer the rollercoaster of a pure consumer play like Voltas, or the steadier, if more restrained, ride that Blue Star offers.
Either way, the weather will keep having the final word.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
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