The Hindu Business Line : ‘Supermarkets may draw big investments in cold chain’

Supermarkets have opened up a new market for air-conditioning business in India. Big players in the field are now looking at the potential of cold chain that would link the sprawling malls in cities and towns across the country with the remote farmlands. The market for cold chain alone is estimated to be over Rs 1,500-Rs 2,000 crore in the next four years.

The AC business in India, which is around Rs 7,500 crore, is expected to grow at around 25 per cent in the next few years.

Blue Star, one of the oldest companies in the cooling business, estimates that supermarkets would invest around Rs 6,000 crore in AC and refrigeration in the next four years. Of this, Rs 3,000 crore would be in AC and the balance would be in front-end and back-end refrigeration. The company hopes to bag at least Rs 1,600 crore of this business.

Mr Ashok Advani, Chairman and Managing Director, Blue Star Ltd, spoke to Business Line on the emerging business opportunities, competition and the company’s growth opportunities.

On the growing market:

The industry has been witnessing a high level of growth in the past four years. This has been the longest period of sustained growth.

I have never seen such a growth in my entire carrier. There has been a shift in the way the AC is being viewed. With the rising middle class incomes, an AC is no longer a luxury today.

They have become affordable to more people with the Government reducing taxes and manufacturers, faced with competition, cutting their cost.

The market for ACs continues to grow, primarily due to low penetration in both residential and commercial segments.

The market for comfort cooling is rising in India with ACs becoming indispensable in commercial enterprises, hospitals and even in schools.

How long will the current boom last? This is the question everybody is asking. I have no definite answer.

The strong demand may not continue in all segments. But given the country’s economic growth and the trend in demand for comfort cooling, the AC industry should have a better time ahead. Indications are that the commercial AC business will grow at least 25 per cent over the next few years.

Supermarkets have opened a large business opportunity. New retail players are entering the market.

They have to build a scalable model. This will result in huge demand for cold chain. Large investment is expected in the cold chain in the next few years.

Strong order book

Blue Star, with an order book of around Rs 1,000 crore, is expected to grow at an average rate of 30 per cent per annum in the next few years. The company’s income grew by 36 per cent to Rs 1,607 crore in 2006-07.

It is in three business segments in the industry: central and packaged air-conditioning, cooling products and professional electronics.

Of these, central AC business — the growth driver of the company contributing around 60 per cent of the revenue — grew by 49 per cent, cooling products by 42 per cent and professional electronics 90 per cent.

The cold storage business registered a growth of 37 per cent with 78 per cent increase in profits during 2006-07.

Cold storage is the fastest growing segment today. Our problem is to match the demand.

We have tied-up with ISA, Italy, to provide refrigeration and cooling solutions to retail stores and supermarkets.

The company has bagged offers from several parties including Reliance, AV Birla Retail, Foodland, Spencers and Vishal Megamart.

The professional electronics segment profits grew by 35 per cent and further growth is anticipated by expanding into industrial projects and services as well as system integration. We have tied-up with MNCs to sell their products in India. The common thread running all our business is ‘engineers’.

Today our strength is technical expertise. We are market leaders in everything except low-end products. The company ranks fourth in split ACs, which is a growing segment as the market is shifting towards it, away from window ACs.

We are also getting orders from new areas. We have signed a bulk contract with Reliance Telecom for telepacks. We have developed the product to suit the company’s requirements.

We are now getting offers from other telcom companies like Hutch, Airtel etc. There are very few suppliers of this specialised product, which are mostly imported. In fact, telepacks contribute about eight per cent of the company’s turnover and it is a growing business. Overall, business has been exceptionally good during the June quarter. With a healthy order book and a bright business outlook, this year is expected to be a good one for Blue Star.

On new capacity

We are setting up a new factory — the fifth one — at Wada in Maharashtra, which is expected to be ready by next March. The facilities at the existing plants are also being upgraded.

We are looking at expanding our presence in the south. Our next manufacturing facility could be in south. However, we have yet to identify a location.

On competition

Competition in any sector is good. We learn knew things. It forces us to bring down costs.

It brings about optimum pricing. We believe we can compete more effectively by offering more value to our customers.

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