Blue Star Ltd. shares fell 5.45% to Rs 1,581.90 on Friday after the air-conditioning and engineering company reported its September-quarter results, despite revenue and operating profit growth beating consensus estimates. The stock touched an intraday low of Rs 1,551, against its previous close of Rs 1,673.
The market reaction came even as UBS maintained its Buy rating on the stock with a target price of Rs 2,000, implying an upside of about 26% from Thursday's closing price.
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The brokerage said Blue Star's Q2 revenue, Ebitda and profit after tax grew 21%, 10% and 2%, respectively, year-on-year, exceeding consensus estimates. However, profitability in the company's room air-conditioner business remained under pressure, while higher material costs continued to weigh on margins.
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Unitary Products Margins Under Pressure
Blue Star's Unitary Products segment, which includes room air-conditioners and commercial refrigeration, reported a 29.4% increase in revenue to Rs 897.66 crore in Q2FY27, compared with Rs 693.81 crore a year earlier.
However, segment profit declined to Rs 20.74 crore from Rs 42.72 crore, while the segment's margin contracted to 2.3% from 6.2%.
The company attributed the pressure to rising material costs and its limited ability to pass on the increases to customers, despite periodic price revisions. An extended summer and delayed monsoon supported demand for room air-conditioners during the quarter.
Blue Star said it was rationalising its product portfolio through differentiated and cost-optimised models to improve profitability.
Data Centre Orders Support Outlook
UBS highlighted data-centre demand as a key driver of order inflows in Blue Star's electro-mechanical projects business. The brokerage cited order inflows of Rs 1,400 crore during the quarter and expects stronger mechanical, electrical and plumbing (MEP) orders in the coming months.
Blue Star's Electro-Mechanical Projects, Commercial Air Conditioning Systems, Service and International Business segment reported a 16.3% increase in revenue to Rs 1,935.99 crore. However, segment profit declined to Rs 133.15 crore from Rs 147.14 crore a year earlier.
The company said data centres were the primary drivers of order inflows in its electro-mechanical projects business, while enquiries from the factory segment also remained strong. Project execution delays, however, kept billing growth subdued.
Vir S Advani, chairman and managing director of Blue Star, said the company continued to see strong demand for room air-conditioners through the festive season.
"A healthy pipeline of Data Centre MEP projects is expected to translate into significant order inflows in the coming months," Advani said.
He added that the company was witnessing a revival in demand across commercial air-conditioning and commercial refrigeration businesses.
Advani said Blue Star would focus on calibrated price revisions, product cost optimisation and operational efficiencies to strengthen profitability in the second half of FY27.
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