Voltas vs Blue Star: Identical Q3 challenges, but different stories

On a consolidated basis, Blue Star’s Q3 revenue grew by 4.2% year-on-year to ₹2,925 crore, while Voltas saw 1.1% drop in revenue to ₹3,071 crore. The contrast is sharper on profitability. While Blue Star maintained its Ebitda margin at 7.5%, the parameter for Voltas contracted to 5.8% from 6.4%.

The segment performance shows a clear picture of the divergence. In the core unitary cooling products (UCP) segment, which includes room air conditioners (RACs) and commercial refrigeration, Blue Star’s revenue fell by 1%, while Voltas’s revenue was up a stronger 8.6%.

However, Blue Star improved UCP Ebit (earnings before interest and tax) margin to 8.5% from 8.1% last year in the same quarter, showing better pricing power and cost control. On the other hand, Voltas’ UCP Ebit margin declined sharply to 3.8% from 5.9%, mainly due to higher channel support, commodity inflation, and currency depreciation as the company cleared old BEE-rated inventory.

Simply put, Voltas grew volumes but paid for it through margins. Blue Star, on the other hand, protected profitability even in a soft demand environment.

In the electro-mechanical projects and commercial air conditioning segment, Blue Star’s revenue increased by 8.6%, led by strong execution in central air-conditioning, MEP, and infrastructure-linked projects.

Demand remained healthy from data centres, factories, hospitals, and malls, including tier-3 cities. Voltas saw 18% drop in this segment.

Voltas’s management has flagged that margins could moderate going ahead. As several infrastructure projects approach completion, the profitability mix is likely to soften. This is because infrastructure projects typically earn lower margins than other verticals within the project’s business.

Cautious optimism on demand

The management commentaries from both companies suggest Q4FY26 should be stronger. Voltas is entering Q4 fully aligned with the new BEE efficiency norms, with refreshed room AC line-ups, calibrated pricing, and expanded manufacturing capacity at Pantnagar and Chennai. The focus is clearly on execution, cost optimisation, and inventory discipline to rebuild margins over time.

Blue Star acknowledged that the first nine months of FY26 were challenging, but expects Q4FY26 to be strong across RACs, commercial air-conditioning, and refrigeration. The company continues to invest in R&D, manufacturing, digitalisation, and brand building while simultaneously working on productivity improvements.

Why Blue Star looks better positioned

The balance-sheet quality and cash discipline are where Blue Star gets an edge over Voltas. Blue Star has previously funded growth largely through internal accruals, whereas Voltas has relied more on debt. Blue Star also enjoys higher margins in its UCP business and is focused on higher-growth, higher-quality segments, such as data centre cooling, commercial air conditioning, and MEP projects.

On valuations, Blue Star trades at 48 times FY27 estimated earnings per share, versus Voltas at 43x times, as per Bloomberg. Given Blue Star’s stronger margins, healthier cash flows, and better capital allocation track record, the valuation premium it is getting appears justified.