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Pre-buying in RAC leads to good performance

Blue Star (BLST R IN, Not Rated) reported good top-line growth of 4% YoY, driven by growth in electromechanical projects (EMP) pre -buying in RAC , leading to flat growth for the unitary cooling products (UCP) . The p rofessional electronics and industrial systems (PE & IS) segment fell 7% YoY. Management expects Q4 to be good for RAC in anticipation of a robust Summer . However, it has moderated growth guidance for the EMP segment to 8 -10% in the medium term , due to select ive orderbook ing . Management target s an EBITDA margin of 6.5- 7.0% for EMP in Q4FY26, and 8.5% for UCP . It expects to reach an exit market share of 15% in the RAC industry in the near term .

Steady overall performance led by RAC pre-buying, steady EMP: BLSTR reported revenue growth of 4% YoY to INR 29. 3bn, 5% lower than Consensus estimates of INR 30.8bn. Growth was led by pre -buying in RAC ahead of price hikes , due to BEE norm changes and commodity price rises, with the overall UCP segment sales remaining flat YoY while the EMP segment saw steady 9% growth YoY , led by healthy execution of a growing orderbook. The PE & IS segment saw a decline of 7% YoY , due to persisting issues in the medical t ech segment .

RAC demand led by pre-buying; Q4 also likely to be robust: The RAC segment saw a revival in demand after a few quarters of slowdown , led by channel filling ahead of BEE norm changes . During the quarter, BLSTR gained market share and retains its target of achieving 15% market share in the near term . Channel inventory currently stands at 5 -6 weeks , which is slightly higher than the normal level of four weeks. As per management, the BEE norm changes and a sharp rise in commodity prices are likely to result in a price hike of 10% for the end -customer ,which is likely i n Q4. However, no price hike has been taken despite higher commodity prices to date .

EMP to moderate at 8-10% growth in the medium term: T he EMP business revenue gr ew by 9% YoY to INR 16.9bn. In 9MFY26, the EMP business has grown by 18% YoY. However, management has a moderate growth target of 8 -10% in the medium term in this segment as BLSTR looks to become selective in orderbook, reducing its exposure to low -margin infrastructure projects orders with long execution periods. During the quarter, order inflows fell 17% YoY to INR 14.6bn , due to deferment in order finalization s to the next quarter, resulting in orderbook falling 7% YoY to INR 47.8bn.

EBITDA margin sustains on lower cost: EBITDA margin remains flat at 7.5% in Q3 , due to cost reduction initiatives , which helped offset higher discounting provided in RAC to liquidate inventory. Segment -wise, EMP EBIT margin declined 80bp to 6.8%, due to change in product mix towards infra projects, while UCP margin grew 40bp YoY to 8.5%, led by healthy demand . Professional electronics margin expanded 140bp YoY to 9.1%. Management reiterates margin of 6.5 -7% for the EMP segment in Q4FY26 and UCP margin of 8. 5% for Q4FY26 and FY27. Consequently, Q4FY26 is set to see margin improvement YoY , led by healthy demand.

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