Blue Star data centre MEP momentum offsets unitary products margin pressure

Investment View and Valuation

In its August 08, 2026 Q1FY27 result update on Blue Star, PL Research downgraded the stock to Accumulate from Buy and reduced its target price to Rs 1,653 from Rs 1,873. The downgrade followed weaker-than-expected Q1FY27 profitability, as input-cost inflation and competitive intensity weighed on Unitary Products margins.

PL Research cut its FY27E and FY28E EPS estimates by 10.1 per cent and 4.8 per cent, respectively. The revised target is based on a sum-of-the-parts valuation and implies a FY28E P/E of 40 times.

Q1FY27 Financial Performance

Blue Star reported Q1FY27 revenue of Rs 3,377.9 crore, up 13.3 per cent year on year but 5.6 per cent below PL Research's estimate of Rs 3,578.5 crore. Gross margin contracted 170 basis points year on year to 21.7 per cent. EBITDA declined 12.5 per cent year on year to Rs 175 crore, 19.9 per cent below the broker estimate, while EBITDA margin fell 150 basis points to 5.2 per cent against PL Research's 6.1 per cent expectation.

Reported PAT was Rs 102.5 crore, down 15.3 per cent year on year. Adjusted PAT was Rs 93.3 crore, down 22.8 per cent year on year and 25.2 per cent below the broker estimate.

Unitary Products: Margin Pressure Persists

The Unitary Products segment recorded revenue growth of 12.7 per cent year on year to Rs 1,689.3 crore, but EBIT margin compressed 290 basis points to 2.9 per cent.

PL Research attributed the pressure to unprecedented commodity-cost inflation, rupee depreciation, delayed onset of summer, channel inventory overhang, and higher advertising, trade-scheme and consumer-finance spending to support tertiary sales. Management said Blue Star aimed to protect market share despite the margin pressure.

Although cumulative input-cost inflation was about 13 per cent, only about 5 per cent of price increases could be implemented because of market conditions. Management expects gradual margin recovery through product portfolio optimisation, value engineering, cost-reduction measures and improved market operating prices, and reiterated FY27 Unitary Products EBIT-margin guidance of above 6.5 per cent.

EMP and Commercial AC Systems

EMP and Commercial AC Systems revenue increased 15.1 per cent year on year to Rs 1,625.1 crore, while EBIT margin declined 110 basis points to 6.8 per cent.

Data-centre MEP remained the major positive driver. Order inflow was about Rs 1,500 crore in Q1FY27, and management expects FY27 data-centre MEP order inflow of about Rs 3,000 crore and revenue of about Rs 1,400 crore. Management reiterated that data-centre MEP could contribute around 20 per cent of Blue Star revenue, or about Rs 4,000 crore, by FY29.

Blue Star holds about 30 per cent share in data-centre MEP projects and about 10-12 per cent in data-centre chillers. Management expects the overall MEP business to grow around 12 per cent for the next couple of years, supported by data-centre demand.

Commercial Refrigeration and Investment

Commercial refrigeration was weak, with deep-freezer sales declining about 15 per cent due to muted demand from ice-cream OEMs, although management expects festive-season demand to improve.

Management expects FY27 EMP and Commercial AC Systems EBIT margin of 6.5-7.0 per cent. Growth-related investment, including capex, R&D and digital expenditure, is expected to be about Rs 300-350 crore.

Earnings Outlook

PL Research forecasts FY26-FY28E revenue, EBITDA and PAT CAGR of 17.8 per cent, 19.4 per cent and 26.3 per cent, respectively.

Key Risks

• Sustained input-cost pressure
• Limited pricing power
• Competitive intensity
• Weak seasonal demand
• Delayed recovery in Unitary Products margins