Informist, Tuesday, Mar 21, 2023
By Narayana Krishna
HYDERABAD - Air conditioner manufacturer Blue Star Ltd is targeting a consolidated sales growth of 25% in the next financial year starting April, on the back of robust demand across product segments, especially room air conditioners.
"If the room air conditioner segment is determining the growth and setting the tone, Blue Star will aim to grow by 25% next year. I am not saying it will grow (that much), it looks possible,” B. Thiagarajan, the company's managing director tells Informist in an interview.
The company, which posted a consolidated revenue of 60.45 bln rupees in 2021-22 (Apr-Mar), expects it to rise 36% to 82 bln rupees in the current financial year.
The air conditioner manufacturer expects to have a market share of 13.75% in room air conditioners by the end of this fiscal and has set a target of 15% by March 2025, Thiagarajan says.
Apart from room air conditioners, Blue Star also manufactures commercial refrigeration products, which includes deep freezer products.
After gaining a strong foothold in the domestic market, Blue Star is now looking to expand overseas and plans to launch its commercial refrigeration products in the US and Europe.
“Our decision is very clear. I will be in market expansion mode and I will not be getting into a new category,” says Thiagarajan, adding that he is in no mood to get into other white goods segments such as washing machines.
Capacity expansion is also in the forefront of its growth strategy. In January, Blue Star commenced production at its new plant in a special economic zone at Sri City (unit-I), in Andhra Pradesh with an initial capacity of 300,000 room AC units per annum. So far it has invested around 3.5 bln rupees in this unit and plans to invest another 2.5 bln rupees to expand capacity to 1.2 mln units per annum in the next two to three years.
It has also bought 40 acres of additional land near unit-I to set up a second unit (unit-II) which will cater to the export market.
Below are edited excerpts from the interview:
Q. Blue Star has been doing well for the last few quarters. What are your revenue projections for the current fiscal and next year?
A. We are expecting to close the current fiscal (2022-23) with $1 bln revenue...at around 8,200 crores (82 bln rupees). We did 6045 crores (60.45 bln rupees) last year (2021-22). You have to extrapolate with Oct-Dec results and quarter four (Jan-Mar) is always a big quarter.
If the room air-conditioner segment is determining the growth, setting the tone, Blue Star will aim to (grow) 25% next year. I am not saying it will grow (that much). It looks possible year-on-year.
[According to consensus estimates of seven brokerages for Blue Star for 2022-23, consolidate nets sales are seen at 73.7 bln rupees, while for 2023-24 it is seen at 85.5 bln rupees.]
Q. While heatwave predictions are positive for companies like Blue Star, there are concerns that the economy will slow down. Also, there are factors like interest rate hikes...how do you see the growth possibility in this context?
A. You can’t bet on the weather, right? First, the product is seasonal, no doubt about it. Second, if you see one week to 10 days of hot nights, people decide to buy (ACs). Because, if it rains, they are not going to say summer is going to be a soft summer. In fact, after the rain, the humidity will go up. The third is, what is the disposable income that is there in the hands of the people and the fourth is, how the overall economy is doing and what is the penetration level.
So, my bet is that, whatever happens, I expect summer to go by 20% growth in room AC sales. Between the period March to June. Some years, (the) summer peaks in March and sometimes it is April last week and sometimes in May first week, it depends, when the peak summer is.
And, look at this, in room ACs, 95% buyers are first time buyers. 65% buying (is) happening from tier-III, tier-IV, and Tier-V cities. 50% are consumer finance. So, the growth is driven by the aspirational middle class. So, what was sold last year, it will get sold with zero growth from affordable segments. The additional growth is driven by the aspirational middle class.
It is an air conditioner, unlike a refrigerator, it is not one at home, but two or three at home. So, therefore, you can see at least 20-25% growth should happen. This year, India market size is crossing 8 mln units. It will touch 10 mln next year. For the first time, in FY24, India will cross 10 mln units. China is 80 mln already and 10 mln for India is nothing.
Q. So, which are the key drivers of growth? Room ACs or other segments?
A. It is driven by all businesses. If you want to name it, it is electro mechanical projects, room ACs and commercial refrigeration. About 15-20% sales come from commercial refrigeration, around 30% comes from room ACs (and) remaining from projects and some unrelated business like electronics.
In projects, we are doing airports, manufacturing units, data centres, hospitals, metro railways. Our order book is at around 5000 crores. (50 bln rupees). Normally, we execute these orders in 18 months.
Q. Do you have enough capacity to meet these numbers? What are the capex plans going forward?
A. So far, we have invested 350 crore (3.5 bln rupees) in Sri City (unit-I) and another 250 crore (2.5 bln rupees) will be invested soon. With 300,000 room AC units (per annum), the first phase started in January and another 300,000 units capacity will be added by 2024 end. By March 2026, the total capacity at Sri City unit-I will touch 1.2 mln (room AC) units.
For Sri City-2 (proposed unit-II), we have bought 40 acers land. The construction (for unit-II) will start only in 2024 and it may be ready by 2026. There, we will invest around 250-300 crore (2.5 bln to 3.0 bln rupees). This is for commercial refrigeration for export markets.
There is another factory coming up in Dadra. That is a small one. This may need some 50 crores. (500 mln rupees)
Q. Your input costs are high due to component imports? Margins are also somewhat low? How do you see this situation going forward?
A. There are multiple things happening. A. Government has increased the duty (on component imports). B. Government has introduced non-tariff barriers. The third one is that dollar fluctuations make imports unattractive. The fourth is, China themselves have increased the prices. So, therefore, in this whole context, components manufacturers are coming here. Also, Chinese manufacturers have started setting up shops here. This is happening for every major manufacturer. All of us will mitigate this (China imports dependency) in the next 18 months’ time. This is all under Atmanirbhar Bharat.
Q. So, is it going to improve margins? Are the margins going to improve once you start procuring the components from local manufacturers as you had said earlier?
A. I am not very sure. This is what we keep on telling. The fact of the matter is, China is a very cheap manufacturer. To match China's cost with domestic manufacturing is a bit tough. For example, the copper tube, through the PLI (production linked incentives) scheme, Aditya Birla will make, but, Aditya Birla won’t be making it at China cost. But, fact of the matter is, China supplies throughout the world at the lowest cost. We take a year to achieve this.
It is difficult to compare China with India on the cost side.
On the margin side, Oct-Dec margins will be generally low. We have indicated that it will be between 7.5% to 8% for the room ACs. Overall, it will be at 6%. Because the projects’ margins are low. Always B2C is higher than B2B.
Q. Where do you stand in terms of market share in the overall air-conditioning business?
A. In room AC business this year, we are expecting to end at 13.75% for the current fiscal. We have stated that, by March 2025, we will be at 15% market share.
Blue Star will be growing at over 20% every year. There is no problem. Participating in India’s growth story even more aggressively, with the new range of products and growing faster than the market, which means, we have to gain the market share.
Second is, (Blue Star) didn’t get in to any white goods related business, but focus on ACs across the globe, that is how our strategy is. We are not going to waste our time on mergers, acquisitions and other things. Normally, when companies do well, they all do these things. We decided not to do.
Q. Besides domestic growth, what are the other areas of growth that you are exploring?
A. We are looking for market expansion, rather than working on product expansion. We are looking for new markets for our existing products. We are looking at the US and Eastern Europe. Our air-conditioners, refrigerators, VRF (variable refrigerant flow) systems. That is what we want to take in to newer markets. As I said, we are not interested in new products like washing machines and other white goods.
I know about room ACs, cold rooms, VRF Systems and I can introduce those in to newer markets. Our decision is very clear. I will be in market expansion mode and I will not get into a new category.
Q. When do you launch your products in the US and other markets?
A. We are in the design stage of products for those markets. India has a different energy label and US has a different energy label. We have to tweak the product, and it has to be tested. We are confident of meeting the standards of those countries. There is huge R&D (research and development) capex needed to begin with. On manufacturing capex, we have already bought land at Sri City for Unit-2. The 40 acres of additional land we bought is meant for exports.
What we have done on R&D side is, you would have already seen the announcement 15 days ago, one of our promoters decided to donate 100 crore (1 bln rupees). That is basically, to expedite the R&D process. I think we would have secured some orders by the end of 2023. By December. Mainly, commercial refrigerators.
At 1040 IST, shares of Blue Star were up 0.9% at 1,459.70 rupees on the National Stock Exchange. End
US$1 = 82.66 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Informist, Tuesday, Mar 21, 2023
By Narayana Krishna
HYDERABAD - Air conditioner manufacturer Blue Star Ltd is targeting a consolidated sales growth of 25% in the next financial year starting April, on the back of robust demand across product segments, especially room air conditioners.
"If the room air conditioner segment is determining the growth and setting the tone, Blue Star will aim to grow by 25% next year. I am not saying it will grow (that much), it looks possible,” B. Thiagarajan, the company's managing director tells Informist in an interview.
The company, which posted a consolidated revenue of 60.45 bln rupees in 2021-22 (Apr-Mar), expects it to rise 36% to 82 bln rupees in the current financial year.
The air conditioner manufacturer expects to have a market share of 13.75% in room air conditioners by the end of this fiscal and has set a target of 15% by March 2025, Thiagarajan says.
Apart from room air conditioners, Blue Star also manufactures commercial refrigeration products, which includes deep freezer products.
After gaining a strong foothold in the domestic market, Blue Star is now looking to expand overseas and plans to launch its commercial refrigeration products in the US and Europe.
“Our decision is very clear. I will be in market expansion mode and I will not be getting into a new category,” says Thiagarajan, adding that he is in no mood to get into other white goods segments such as washing machines.
Capacity expansion is also in the forefront of its growth strategy. In January, Blue Star commenced production at its new plant in a special economic zone at Sri City (unit-I), in Andhra Pradesh with an initial capacity of 300,000 room AC units per annum. So far it has invested around 3.5 bln rupees in this unit and plans to invest another 2.5 bln rupees to expand capacity to 1.2 mln units per annum in the next two to three years.
It has also bought 40 acres of additional land near unit-I to set up a second unit (unit-II) which will cater to the export market.
Below are edited excerpts from the interview:
Q. Blue Star has been doing well for the last few quarters. What are your revenue projections for the current fiscal and next year?
A. We are expecting to close the current fiscal (2022-23) with $1 bln revenue...at around 8,200 crores (82 bln rupees). We did 6045 crores (60.45 bln rupees) last year (2021-22). You have to extrapolate with Oct-Dec results and quarter four (Jan-Mar) is always a big quarter.
If the room air-conditioner segment is determining the growth, setting the tone, Blue Star will aim to (grow) 25% next year. I am not saying it will grow (that much). It looks possible year-on-year.
[According to consensus estimates of seven brokerages for Blue Star for 2022-23, consolidate nets sales are seen at 73.7 bln rupees, while for 2023-24 it is seen at 85.5 bln rupees.]
Q. While heatwave predictions are positive for companies like Blue Star, there are concerns that the economy will slow down. Also, there are factors like interest rate hikes...how do you see the growth possibility in this context?
A. You can’t bet on the weather, right? First, the product is seasonal, no doubt about it. Second, if you see one week to 10 days of hot nights, people decide to buy (ACs). Because, if it rains, they are not going to say summer is going to be a soft summer. In fact, after the rain, the humidity will go up. The third is, what is the disposable income that is there in the hands of the people and the fourth is, how the overall economy is doing and what is the penetration level.
So, my bet is that, whatever happens, I expect summer to go by 20% growth in room AC sales. Between the period March to June. Some years, (the) summer peaks in March and sometimes it is April last week and sometimes in May first week, it depends, when the peak summer is.
And, look at this, in room ACs, 95% buyers are first time buyers. 65% buying (is) happening from tier-III, tier-IV, and Tier-V cities. 50% are consumer finance. So, the growth is driven by the aspirational middle class. So, what was sold last year, it will get sold with zero growth from affordable segments. The additional growth is driven by the aspirational middle class.
It is an air conditioner, unlike a refrigerator, it is not one at home, but two or three at home. So, therefore, you can see at least 20-25% growth should happen. This year, India market size is crossing 8 mln units. It will touch 10 mln next year. For the first time, in FY24, India will cross 10 mln units. China is 80 mln already and 10 mln for India is nothing.
Q. So, which are the key drivers of growth? Room ACs or other segments?
A. It is driven by all businesses. If you want to name it, it is electro mechanical projects, room ACs and commercial refrigeration. About 15-20% sales come from commercial refrigeration, around 30% comes from room ACs (and) remaining from projects and some unrelated business like electronics.
In projects, we are doing airports, manufacturing units, data centres, hospitals, metro railways. Our order book is at around 5000 crores. (50 bln rupees). Normally, we execute these orders in 18 months.
Q. Do you have enough capacity to meet these numbers? What are the capex plans going forward?
A. So far, we have invested 350 crore (3.5 bln rupees) in Sri City (unit-I) and another 250 crore (2.5 bln rupees) will be invested soon. With 300,000 room AC units (per annum), the first phase started in January and another 300,000 units capacity will be added by 2024 end. By March 2026, the total capacity at Sri City unit-I will touch 1.2 mln (room AC) units.
For Sri City-2 (proposed unit-II), we have bought 40 acers land. The construction (for unit-II) will start only in 2024 and it may be ready by 2026. There, we will invest around 250-300 crore (2.5 bln to 3.0 bln rupees). This is for commercial refrigeration for export markets.
There is another factory coming up in Dadra. That is a small one. This may need some 50 crores. (500 mln rupees)
Q. Your input costs are high due to component imports? Margins are also somewhat low? How do you see this situation going forward?
A. There are multiple things happening. A. Government has increased the duty (on component imports). B. Government has introduced non-tariff barriers. The third one is that dollar fluctuations make imports unattractive. The fourth is, China themselves have increased the prices. So, therefore, in this whole context, components manufacturers are coming here. Also, Chinese manufacturers have started setting up shops here. This is happening for every major manufacturer. All of us will mitigate this (China imports dependency) in the next 18 months’ time. This is all under Atmanirbhar Bharat.
Q. So, is it going to improve margins? Are the margins going to improve once you start procuring the components from local manufacturers as you had said earlier?
A. I am not very sure. This is what we keep on telling. The fact of the matter is, China is a very cheap manufacturer. To match China's cost with domestic manufacturing is a bit tough. For example, the copper tube, through the PLI (production linked incentives) scheme, Aditya Birla will make, but, Aditya Birla won’t be making it at China cost. But, fact of the matter is, China supplies throughout the world at the lowest cost. We take a year to achieve this.
It is difficult to compare China with India on the cost side.
On the margin side, Oct-Dec margins will be generally low. We have indicated that it will be between 7.5% to 8% for the room ACs. Overall, it will be at 6%. Because the projects’ margins are low. Always B2C is higher than B2B.
Q. Where do you stand in terms of market share in the overall air-conditioning business?
A. In room AC business this year, we are expecting to end at 13.75% for the current fiscal. We have stated that, by March 2025, we will be at 15% market share.
Blue Star will be growing at over 20% every year. There is no problem. Participating in India’s growth story even more aggressively, with the new range of products and growing faster than the market, which means, we have to gain the market share.
Second is, (Blue Star) didn’t get in to any white goods related business, but focus on ACs across the globe, that is how our strategy is. We are not going to waste our time on mergers, acquisitions and other things. Normally, when companies do well, they all do these things. We decided not to do.
Q. Besides domestic growth, what are the other areas of growth that you are exploring?
A. We are looking for market expansion, rather than working on product expansion. We are looking for new markets for our existing products. We are looking at the US and Eastern Europe. Our air-conditioners, refrigerators, VRF (variable refrigerant flow) systems. That is what we want to take in to newer markets. As I said, we are not interested in new products like washing machines and other white goods.
I know about room ACs, cold rooms, VRF Systems and I can introduce those in to newer markets. Our decision is very clear. I will be in market expansion mode and I will not get into a new category.
Q. When do you launch your products in the US and other markets?
A. We are in the design stage of products for those markets. India has a different energy label and US has a different energy label. We have to tweak the product, and it has to be tested. We are confident of meeting the standards of those countries. There is huge R&D (research and development) capex needed to begin with. On manufacturing capex, we have already bought land at Sri City for Unit-2. The 40 acres of additional land we bought is meant for exports.
What we have done on R&D side is, you would have already seen the announcement 15 days ago, one of our promoters decided to donate 100 crore (1 bln rupees). That is basically, to expedite the R&D process. I think we would have secured some orders by the end of 2023. By December. Mainly, commercial refrigerators.
At 1040 IST, shares of Blue Star were up 0.9% at 1,459.70 rupees on the National Stock Exchange. End
US$1 = 82.66 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
