We have an opportunity to replace China as global AC exporter: Blue Star MD

Amidst the pandemic, air conditioning and commercial refrigeration major Blue Star is seeing a pick up in demand for products catering to healthcare, pharma, FMCG, food industry and residential needs.

Blue Star's Managing Director B Thiagarajan spoke to T E Narasimhan on how sales are expected to touch pre-Covid-19 levels during festival time and there are chances it may increase by 10 per cent compared to last year.

What kind of impact did Covid-19 have on the AC industry?

In the wake of the coronavirus pandemic and economic disruptions, the AC industry lost most of its peak time sales in the first quarter -- the April-June period when most of the sales of cooling products happen as summer peaks.  However, the residential segment is recovering faster and is at a 90% level at present. Recovery would be slower in commercial segments such as offices, malls, hotels, cinemas, halls and restaurants. Offices are a large segment in the commercial cooling business and will take a long time to recover. However, some segments like food retail, food delivery, manufacturing, dairy, food processing, pharma, FMCG, banking, financial services, and insurance sectors are doing well.

How is the festival season expected to be? Will it reach last year's level?

Whatever lost in Q1 is lost. It was 50 per cent of sales in Q1. In Q2, the market has recovered to 80 per cent of last year's levels. In Q3, it will be 90 per cent of last year and in Q4, the industry will reach around 100 per cent. There is a possibility that the industry can even grow by 10 per cent in Q4. Government push like reduction in GST from 28 per cent to 18 per cent will make the ACs affordable and will push the sales. It is a revenue-neutral proposition, and I urge the GST Council to consider this appeal.

How did BlueStar manage to address the crisis?

We are focused on growing segments such as residential, processed foods, healthcare, pharma, and infrastructure segments. Moreover, we have curtailed operating costs as well as product costs. Since the vaccination for Covid-19 is expected to come early next year and governments and the private sector are augmenting capacities, we anticipate incremental additional demand of around Rs 300 crore from this sector alone in the next 12 months. Being the market leader with more than 65% market share in the pharmaceutical sector, we will benefit.

As people spend more time at home and residential projects have started, we also see a surge in the demand for ACs, especially for the low-end ACs and Virus Deactivation Technology (VDT) products and solutions including retrofits, which were introduced recently. We expect 15% of the sales to migrate to VDT products.

How will the government's Atmanirbhar Bharat push help Indian AC manufacturers like BlueStar?

The government has understood now that India should start manufacturing these components and scale should grow. Hence, it has put the phased manufacturing program in place and is also planning to introduce a Production Linked Incentive Scheme for mobile manufacturing. This will happen over a period of time and till then, the industry has to depend on imports for compressors, microprocessors and copper tubes from various countries, including China.

Today the major problem for Indian manufacturers is the price, not the quality because China has got scale. Blue Star is not going into component manufacturing because the scale would not justify it.

Did Covid-19 open up new opportunities outside India also? Any challenges in exports?

We have potential opportunities to replace China for the export of room ACs, VRFs as well as refrigeration products and solutions. As I had mentioned, technology or quality is not a concern. The only challenge is matching the prices offered by China in the international market. As a country, we should grow the domestic market and work with the government in initiatives such as Ease of Doing Business, so that our productivity improves. The good news is that the AC industry is one of the sunrise sectors identified along with leather, shoes, and furniture. The Union government is committed to make India an export hub and CII and RAMA are working closely with the Ministry of Commerce.

Your investment plans for the next two years?

We are planning to get our new Deep Freezer Plant in Wada commissioned next year at an investment of around Rs 90 crores. We are also setting up a chiller testing facility, and probably, it will be the largest and most sophisticated in the country. The company put on hold the Sri City project, where we were to invest Rs 120 crore. We expect the same to be taken up in FY23.