Blue Star Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

In the context of Blue Star’s business operations and strategic proposition that are detailed in the Board’s Report and Integrated Report, an in-depth analysis of the market environment, its operating businesses and financial performance are enumerated in the following sections.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Blue Star is a leading player in India’s Air Conditioning and Refrigeration industry, as well as in the Mechanical, Electrical and Plumbing (MEP) and firefighting segment. An overview of the industry structure and prevailing market dynamics is provided in the Integrated Report (refer to the Industry Structures and Segments section on page no. 26).

SEGMENT-WISE ANALYSIS

The consolidated revenue and results break-up in terms of business segments for FY25 are as follows:_

ELECTRO-MECHANICAL PROJECTS AND COMMERCIAL AIR CONDITIONING SYSTEMS

Electro-Mechanical Projects

In FY25, the Electro-Mechanical Projects business experienced a significant increase in enquiries and order finalisations. The division maintained a robust order flow across a broad range of sectors, including factories, data centres, shopping malls, hospitals, railways, and office complexes. During the year, the business further strengthened its position in the data centre segment, securing a consistent stream of new and high-value repeat orders from satisfied existing clients. The Company anticipates continued growth in demand for data centres and remains committed to a selective and strategic approach to project bidding across other business segments.

Operational excellence remained a core priority, with notable marked improvements in project execution and delivery, despite headwinds arising from market volatility, increased competition, and other external challenges. The business responded with adaptive strategies, leveraging its core engineering expertise, robust project management capabilities, and advanced execution methodologies. The Company remained steadfast in its pursuit of best-in-class project management practices across all engagements. The leadership team continues to focus on driving sustainable growth and ensuring client satisfaction, which continues to be a cornerstone of the Company’s success. Notable clients partnered with by the Electro-Mechanical Projects business during the year included ST Telemedia, Apollo Hospitals, Amazon Web Services, CapitaLand, Indian Railways, Carl Zeiss, and Michelin, amongst others.

Commercial Air Conditioning Systems

The Commercial Air Conditioning business reported growth in line with overall market trends, driven primarily by the demand from educational, hospitality, retail, and Government sectors. During the year, the business undertook several strategic initiatives including product repositioning,channelexpansion,andentryintopreviously underrepresented markets. It successfully launched new products such as centrifugal chillers, data centre chillers, brine chillers, and VRF Lite. Additionally, it introduced a new range of scroll and screw chillers, compliant with Government norms effective July 1, 2024. To enhance brand visibility, the business actively participated in key industry events, including Design Conclave 2024 in

Mumbai, BW Hotelier Summit in Gurgaon, IID Event in Lucknow, and BW Healthcare Excellence Summit in Delhi. In recognition of performance of channel partners, the Star League Awards were hosted in Shillong, honouring top dealers across various categories.

The business also intensified its digital marketing efforts targeting the Variable Refrigerant Flow (VRF) residential, educational, and data centre segments. These initiatives significantly enhanced visibility for products such as VRF Lite, VRF V plus, and data centre chillers. The Company maintained its leadership position in the ducted air conditioning segment and ranked among the top three in both VRF and chiller categories. Market share stood at approximately 20% for VRF systems and screw chillers, and at around 50% and 45% for ducted systems and scroll chillers, respectively.

Notable orders during the year were secured from prestigious clients including AIIMS, Madurai; Vidhan Sabha, Raipur; KIIT, Bhubaneswar; Rail Vikas Nigam Limited, Vadodara; Lloyds Metals, Konsari; Chevron Hotels, Noida; Shiv Nadar School, Noida; Brigade Twin, Bengaluru; AL Softweb Greater, Noida; Vantara Zoo, Jamnagar; Birla Vidya Niketan, Delhi; Vayu Bhavan, Delhi; and YOTA Data Centre, Navi Mumbai, amongst others.

International Business Group

The Company continued to expand its global footprint in the Middle East and Africa through channel expansion and a stronger emphasis on Blue Star-manufactured applied products and systems such as ducted splits, VRFs, and chillers. Additional investments have been made to enhance service networks in the UAE with further expansion planned in the coming years to support the growing installed base in the region. Despite the global economic downturn, business activities in the Middle East remained resilient. Overall, the Company achieved a 5% growth across Middle East and Africa regions. However, the project business in Qatar experienced a decline following the conclusion of the FIFA World Cup, while the Malaysian joint venture faced a sluggish restart due to a slowdown in construction activity and delays in order finalisations amid challenging macroeconomic conditions.

In addition to the Company’s focus on the Middle East and African markets, it is also working to establish itself as a CDM (Custom, Design & Manufacture) player for OEMs in the US and Europe for commercial air conditioning products. During the year, the Company has developed products for three OEMs, and following the completion of field trials, commercial shipments have commenced. Although supplies have started, recent tariff-related uncertainties have delayed the original scaling-up plans. However, considering the level of enquiries received from OEMs in the US and Europe, the Company believes the long-term prospects for this business are strong.

This global ambition necessitates that the Company prioritises investment in R&D, product portfolio expansion, and brand building in select geographies.

UNITARY PRODUCTS

Room ACs

The Room Air Conditioners industry continued to perform strongly, supported by prolonged heatwaves across India and the increasing purchasing power of the expanding middle class. Demand remained buoyant, particularly in tiers 3, 4, and 5 markets, and was further fuelled by replacement purchases and those installing units in additional rooms. The Company sustained its growth momentum, with Q4 FY25 witnessing an exceptional uptick as channel partners stocked inventories in anticipation of a severe summer and potential supply chain disruptions.

In response to this demand, the Company launched a new range of ACs, including a premium flagship series covering all consumer segments and price points. This range featured energy-efficient 3-star and 5-star models, available across capacities from 0.8 TR to 4 TR, starting at an attractive price of _28990. Nearly 40 smart Wi-Fi AC models were introduced, offering advanced features such as customised sleep modes, voice command compatibility with Amazon Alexa and Google Home (in English and Hindi), and energy management tools to monitor and limit power consumption.

The new models also incorporated innovative technologies such as AI Pro+, a self-regulating system for optimal comfort, and Defrost Clean Technology, a three-stage cleaning process that enhances performance and extends product life. Additional features included Convertible 6-in-1 Cooling, Turbo Cool for rapid performance, Nano BluProtect and Hydrophilic Blue Fin coatings for corrosion resistance, precision temperature control in 0.5 deg C increments, DigiQ octa sensors for accuracy, wide-angle louvres for uniform airflow, and multi-layer filtration systems with HEPA, PM2.5, and anti-microbial capabilities. All inverter ACs are smart-ready, allowing for future smart upgrades, and designed to operate across a wide voltage range without stabilisers.

The flagship portfolio included Super Energy-Efficient ACs with dynamic drive technology achieving an ISEER of 6.25 - 64% more efficient than standard 3-star models, Heavy-Duty ACs capable of cooling in ambient temperatures of up to 56 deg C with a powerful 55-foot air throw, Hot & Cold ACs tailored for year-round comfort with specific models operating in sub-zero climates such as Srinagar, and ACs with Anti-Virus Technology that also function as air purifiers. Blue Star’s ACs are widely recognised for their quality, reliability, and durability, with compelling after-sales offerings including a lifetime inverter compressor warranty, five-year PCB warranty, and easy financing options.

Since entering the residential AC segment in 2011, the Company has consistently outpaced industry growth and is targeting a market share of 15% in this segment by FY26. It has also strengthened its market position through targeted campaigns to drive ecommerce sales and by deploying in-store demonstrators in modern trade outlets. With its ‘Gold Standard Service’ programme, supported by over 2100 service centres and more than 150 service vehicles, Blue Star remains focused on delivering reliable and accessible customer service across the country.

Air Coolers

The Company introduced a new range of air coolers during FY25, featuring innovative cross-drift and dual-cool technologies to deliver faster and more effective cooling in harsh and dry summer conditions. The range offers best-in-class cooling efficiency and is available in various water tank capacities, from 10 to 150 litres, catering to diverse customer needs. To strengthen its presence in this category, the Company also expanded its distribution network by onboarding several new distributors, enabling deeper market penetration.

Commercial Refrigeration

Blue Star, with over eight decades of expertise, offers a comprehensive portfolio of commercial refrigeration solutions catering to sectors such as horticulture, dairy, ice cream, poultry, pharmaceuticals, and healthcare. Its product range includes deep freezers, storage water coolers, bottled water dispensers, visi coolers/freezers, cold rooms, and specialised kitchen and healthcare refrigeration equipment.

In FY25, regulatory changes in the first quarter temporarily impacted supply and profitability. However, the business regained momentum in the latter part of the year, driven by strong demand from fast-growing segments such as ice cream, QSRs, HoReCa, quick commerce, food retail, and healthcare.

The Company launched an expansive new range of products for the summer of 2025, including energy-efficient deep freezers with cooling capabilities as low as -26 deg C, offered in capacities from 60 to 600 litres. These are designed for applications in dairy, ice cream, restaurants, and supermarkets. A new line of BIS-certified water coolers was introduced, suitable for schools, offices, and commercial spaces, featuring eco-friendly refrigerants and rapid cooling in capacities ranging from 15 to 120 litres.

Bottled water dispensers with hot, cold, and normal options include food-grade stainless steel tanks and a bottom-loading design for convenience. Visi coolers and freezers now offer uniform cooling with enhanced brand visibility through LED lighting and illuminated canopies, in sizes from 50 to 1200 litres. The Company also provides advanced cold rooms with integrated solutions using PUF-insulated panels, alongside kitchen refrigeration products such as reach-in chillers, blast freezers, and minibars. Specialised medical refrigeration solutions continue to support temperature-critical storage in healthcare. For supermarkets, multideck chillers and freezers with energy-saving night curtains and flexible shelving address a wide range of display needs.

The commercial refrigeration products are manufactured at the Company’s state-of-the-art facilities in Wada and Ahmedabad, aligned with the ‘Make in India, Make for the Globe’ vision. Demonstrating its commitment to sustainability, the Company uses low-GWP refrigerants and eco-friendly insulation materials. Wada Plant, in particular, has been awarded a prestigious Platinum rating by the Indian Green Building Council.

Blue Star retained its leadership positions in the deep freezer, storage water cooler and modular cold room categories while recording notable growth across other segments. With a broad product portfolio, strong technological capabilities and a robust pan-India sales and service network, the Company continues to strengthen its position in the commercial refrigeration space and remains well-positioned for sustained growth.

PROFESSIONAL ELECTRONICS AND INDUSTRIAL SYSTEMS

The Professional Electronics and Industrial Systems (PEIS) business, managed by Blue Star Engineering

& Electronics Limited, a wholly owned subsidiary of the Company, has been a trusted provider of advanced professional electronic equipment, industrial systems, and services for over seven decades. Having transitioned from a traditional distribution model to that of a systems integrator and value-added reseller, the business has steadily moved up the value chain, enhancing its strategic relevance and customer value proposition. Organised across three focused verticals, namely MedTech Solutions, Data Security Solutions, and Industrial Solutions, the business continued to deliver stable performance in FY25 despite a dynamic and challenging external environment.

The Indian refurbished medical devices market is gaining momentum in Tier 3 and Tier 4 cities; however, the MedTech solutions business is currently facing headwinds in the import of pre-owned medical devices, where regulatory clarity is expected in the near term. Data Security Solutions continued to face headwinds with customers moving from on-premises IT infrastructure to the cloud. However, it continued to strengthen its positioning within the BFSI sector and among large enterprises undergoing digital transformation, although decision-making cycles remained prolonged. Industrial Solutions witnessed strong traction, supported by national priorities such as manufacturing self-reliance and infrastructure development, resulting in increased demand from sectors like automotive, aerospace, heavy engineering, power, and oil and gas. These tailwinds enabled the PEIS business to play a key role in enabling technology-led transformation across industrial and institutional ecosystems.

Key priorities included business development, brand-building, digital sales automation, service excellence and project execution, each contributing to improved competitiveness and supporting long-term, sustainable growth.

MEDIUM-TERM AND LONG-TERM STRATEGY

Strategic planning for the medium to long term, along with its execution and periodic review, remains integral to the Company’s overall governance and growth framework. The Board continues to play a pivotal role in shaping and steering this strategy, ensuring alignment with the evolving business landscape. The Company actively monitors its internal strategic priorities in the context of a dynamic external environment, while also identifying and assessing key strategic risks and opportunities that may impact on the Company and its business (refer to Strategy Planning and Development in the Integrated Report on page no. 84).

FINANCIAL PERFORMANCE ANALYSIS

Following are the financial highlights of the Company for the year ended March 31, 2025, on a consolidated basis: During the year, the Company performed remarkably well, reporting its highest ever revenue, profitability, and order book. Strong demand for air conditioning products and robust performance by the Projects business helped the Company maintain its growth momentum during the financial year.

Consolidated financial performance analysis is provided below:

1. INCOME

The Company posted record revenue during the year, driven by strong performance across major businesses. With robust demand across segments, Blue Star ended the year on a strong note, with Total Income for the year ended March 31, 2025 growing by 23.7% to _12042.65 crores, compared to _9732.78 crores in the previous year.

2. COSTOFSALES,WORKBILLSANDSERVICES

The cost of sales, work bills and services during the year was _9074.34 crores compared to _7391.97 crores in the previous year. This cost declined to 75.8% of the Revenue from Operations compared to 76.3% in the previous year. Cost optimisation was driven by a combination of benign commodity prices, enhanced operational efficiencies and cost reduction initiatives.

3. EMPLOYEE REMUNERATION AND BENEFITS

Employee costs for the year at _918.87 crores increased by 22.6% compared to _749.48 crores in the previous year. The increase in headcount to support the scale and annual increments lead to this growth. However, Employee Cost as percent to Total Income was 7.6% in FY25 as compared to 7.7% for the year ended March 31, 2024.

4. OPERATING AND GENERAL EXPENSES

Operating and general expenses increased to _1098.52 crores from _878.97 crores in the previous year. The increase was largely on account of increased sales, general and administrative expenses, to support an increase in scale. As a percentage of Total Income, the Operating and General Expenses for the year were at 9.1% as compared to 9.0% in the previous year.

5. FINANCE COST

Finance cost for the year was at _48.80 crores compared to _58.08 crores in the previous year. The finance cost for the year decreased to 0.4% of the Total Income compared to 0.6% in the previous year. The Finance costs have reduced due to lower average borrowings, highlighting improved cash generation and more effective working capital management by the Company.

6. DEPRECIATION

Depreciation charge for the year increased to _128.37 crores compared to _97.61 crores in the previous year. This increase is mainly attributed to higher capitalisation during this year.

7. PROFIT BEFORE TAX

Profit before tax and exceptional items for FY25 increased by 38.6% to _772.42 crores compared to _557.16 crores in FY24. Profit before tax and exceptional items improved to 6.4% of the Total Income compared to 5.7% in the previous year, mainly driven by improvement in operating margin.

8. KEY FINANCIAL RATIOS

Sr. No. KEY FINANCIAL RATIOS	UOM	FY24	FY25
1 Debtors Turnover Ratio	Times	5.5	6.1
2 Inventory Turnover Ratio	Times	5.2	5.1
3 Interest Coverage Ratio	Times	15.1	33.4
4 Current Ratio	Times	1.3	1.3
5 Debt Equity Ratio	Times	0.1	0.1
6 Operating Profit Margin	%	6.9	7.3
7 Net Profit Margin*	%	4.3	4.8
8 Return on Net Worth*	%	21.0	20.6

* Net Profit Margin and Net Worth ratios have been computed based on Profit After Tax (before exceptional items).

Explanation for variation of 25% or more in key financial ratios:

Interest Coverage Ratio: The ratio improved significantly to 33.4 times in FY25, compared to 15.1 times in the previous year. This improvement was primarily due to a reduction in finance costs, driven by lower average borrowings, along with enhanced profitability during the year.

Return on Net Worth (RONW): The RONW is marginally lower compared to previous year as the Company continues to focus on Capital Investments.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has established a robust internal control system commensurate with the size, scale, and complexity of its operations. To further strengthen its control environment and governance standards, the Company has adopted the COSO 2013 framework, ensuring effective internal financial controls across operations, financial reporting, and regulatory compliance. Additionally, the internal audit function periodically reviews and reports to the Audit Committee on the effectiveness of internal controls, operational efficiency, and key process risks. During the year, as part of the Management’s control testing initiative, these controls were rigorously evaluated and were found to be effective.

RISKS AND CONCERNS

RISKS

The primary operating risks that could impact the Company include a slowdown in the construction, environmental, and investment cycles as well as seasonality in certain businesses such as air conditioners. Other risks involve intensified competition from both domestic and global players, volatile exchange rates, rising interest rates, credit risks, import dependence, procurement concentration, evolving regulatory norms and tariff/non-tariff barriers, fluctuating commodity prices, and changes in tax and other legislation. Additional concerns include inflation, particularly in fixed-price contracts, environmental, health and safety risks; exposure to fraud; inadequate cybersecurity; and rapid technological changes that may affect the Companys product portfolio. Furthermore, given current market dynamics, geopolitical developments present a significant business continuity risk, in addition to the broader impacts of a general slowdown in global and domestic economies.

Blue Star places strong emphasis on enterprise-level risk management and has implemented a robust system for risk identification, assessment, and mitigation, with stringent internal controls at both business-group and corporate levels, in line with the COSO 2017 Enterprise Risk Management Framework. Significant risks across the organisation are reviewed periodically by the Risk Management Committee. Mitigation plans are aligned with the Company’s strategic objectives, performance management systems, and internal audit framework (refer to Risks and Mitigation Strategies covered in the Integrated Report on page no. 80).

CONCERNS

Global and domestic factors, such as geopolitical tensions, the use of tariff and non-tariff barriers to address trade imbalances, and price volatility in crude oil, commodities, currencies, and ocean freight, could impact consumer confidence and may disrupt supply chain. The Company remains vigilant and will continue to monitor macroeconomic and microeconomic trends, both globally and within India, taking appropriate measures to proactively address emerging challenges.

OPPORTUNITIES

The Company’s demonstrated ability to innovate and deliver products and solutions that align with evolving market dynamics continues to present significant growth opportunities, even amid challenging conditions. These opportunities are related to the Company’s product, projects, and service businesses across multiple sectors and are discussed in greater detail in the Integrated Report (refer Ample Opportunities section on page no. 88).

HUMAN RESOURCES

Through CHRO town halls, managers meetings, and HR interactions with employees at all levels, Blue Star systematically gathers the Voice of the Employee, ensuring that queries are addressed promptly, and employee-focused initiatives are integrated into policies and processes. The ‘Chai Pe Charcha’ sessions for management staff provide a platform for open dialogue and collaboration in a relaxed environment. Additionally, HR help desks established across various locations effectively address employee inquiries related to payroll, facilities, and grievances, offering timely assistance.

Blue Star also believes that pursuing sports professionally lays a strong foundation for developing life skills and nurturing childrens overall growth. The Award for Excellence in Sports, launched last year, continues to provide financial support to four deserving children of employees who are pursuing professional sports at national and state levels each year. At the manufacturing plants, daily production achievements are recognised and celebrated, boosting both individual and team morale. Factory visits for students and industry peers showcase Blue Star’s manufacturing capabilities and enhance understanding of its products.

Blue Star has also established a Worker Facilitation Centre (WFC), aimed at equipping local workers near the

Wada Plant with information on legal and social security benefits, as well as facilitating access to Government services through targeted outreach programs. From December 2024 to March 2025, the WFC reached out to over 1750 workers, providing more than 300 services. This initiative has significantly benefited the local worker community and strengthened Blue Stars reputation among stakeholders.

Throughout the year, Blue Star organised a variety of employee engagement activities across its offices and factories, including annual picnics, sports days, family days, festive celebrations, and events for employees children. Signature programs like ‘Sparsh’ and ‘Kutumbh’ connected blue-collar workers and their families at the plants, fostering a positive and inclusive work culture. These initiatives enhanced morale and work-life balance by encouraging personal interactions beyond the workplace, thereby improving collaboration and reinforcing a sense of belonging within the organisation. By involving employees families, Blue Star demonstrated its commitment to holistic employee well-being, contributing to a more engaged workforce and supporting long-term retention. The Company had a total of 3,523 permanent employees on its rolls as of March 31, 2025.

CORPORATE OUTLOOK

FY25 was a landmark year for Blue Star, marked by outstanding revenue growth, record profitability, and broad-based performance across all business verticals. Each segment gained market share, reflecting strong execution, operational agility, and customer-centricity. The Company’s strategy, anchored in reinforcing core businesses, investing for scale, driving innovation and sustainability and amplifying digitisation, has delivered tangible results and laid a solid foundation for future growth. Key growth drivers included robust demand in Commercial Air Conditioning, strong execution in ElectroMechanical Projects, and continued momentum in Room Air Conditioners and Commercial Refrigeration businesses.

Looking ahead, the Company is scaling with purpose by expanding its product portfolio, strengthening its supply chain, and investing in digitalisation, sustainability, and people capabilities. A deep commitment to customer experience, underpinned by digital tools and service excellence, remains central to this vision. At Blue Star, the focus is clear: to grow faster than the market, expand global relevance, and create long-term value by shaping a future-ready, resilient organisation poised for its next transformative decade.