‘We are planning to redesign our manufacturing footprint’

Blue Star is a leading air-conditioning and commercial refrigeration company in the country with over 2,000 dealers, 2,000 employees and six manufacturing units. The room air-conditioner (AC) segment, part of company’s cooling products business, continues to maintain healthy double-digit growth in value, aided by deeper market penetration. The company is reorganising to meet emerging business challenges and to capitalise on the imminent growth opportunities.

B. Thiagarajan, Executive Director and President – Air-conditioning and Refrigeration (AC&R) Products Business, Blue Star, spoke to The Hindu about the industry and the company. Excerpts:

Could you provide us the break-up between split and window air-conditioners (ACs) in the room AC segment and what is the current trend?

In 2009-10, about 65 per cent of the market constituted split ACs and the balance window ACs. At that point of time, Blue Star’s mix was 82 per cent split ACs and 18 per cent window ACs.

Clearly, the market for window ACs is declining. In 2014-15, the market for the same declined to 18 per cent. In the case of Blue Star, window ACs constitute just 15 per cent today. However, there is this replacement market for window ACs. Also, northern India is still consuming a lot of window ACs.

Are the customers now looking for higher energy-efficiency products now? What will be the share of 3-star and 5-star rated ACs in room AC sales for industry and your company?

Actually, consumers’ preference is determined by the affordability. The initial cost of high energy-efficient products is high, though the life-cycle cost is lower.

All consumers prefer energy efficient products, but only some section is able to afford the higher initial cost. Right now, the market for 5-star and inverter ACs is around 25 per cent. It is for this reason that the air-conditioner industry has been seeking CENVAT exemption for 5-star and inverter ACs.

Room AC market has grown in double-digits, and you aim to achieve double-digit share in this segment. What are the measures you have planned to achieve that?

Our success emanates from our wide range of world-class products, commitment of our dealers, excellent after-sales support and the differentiated positioning as experts in cooling. Blue Star is a trusted brand with rich credentials, and that is what drives our growth. Having said this, right now, we are focusing on further expanding our dealer network in the North.

There are markets in which we have 15 per cent share, and in some, we have 3 per cent share. Our entire northern India market share has not been in line with the all-India market share average.

There are quite a few states in which we have just 5 per cent or less market share. The reason for the same is lower distribution network penetration plus our not so strong presence in the window ACs compared to split ACs. We are strong in 5-star splits and the inverter ACs rather than the 3-star or 2-star because it is a price-sensitive market.

So, our strategy in northern India is to gain the share which will come through products, pricing and extensive advertising and sales promotion in these regions apart strong dealer network penetration. So that is how we have planned to achieve our targets.

Competition seems to be intensifying with other players boosting their ad campaigns and distribution network. How prepared are you to protect your growth and share?

We are committed to this business and making a lot of investments in R&D, manufacturing and advertising. Of course, there will be competition. We have gained market share every year since 2011-12, and we are pursuing our journey with determination. However, let me explain the picture.

At this point of time, business is happening from residential segment. Within that, if you see televisions, washing machines or other appliances … they are not offering growth. In most of the samples, people will have all these appliances and also two-wheeler or a four-wheeler.

The only appliance that may not be possessed by them will be ACs. So, this is a window that is available over next 5-10 years of time wherein penetration is expected to improve dramatically. Hence, most of the companies are focusing on AC as a category. In view of available growth potential, everyone is trying to grab their share.

Of course, brand plays a very important role. As you know, this is a very seasonal product. So, in a very short window of 4-6 weeks, everybody has to make a noise and it will only get louder.

Because, AC market is just 4 million units in India when compared with China’s 55 million units or world market of 105 million units. So, this 4 million units have to become at least 10 million units by 2018. Hence, the competition will be intense.

AC prices continue to rise. Could you tell us the reasons for price rise?

I think the prices were stable in 2014-15. If the foreign exchange rates or global commodity prices become unattractive, the prices can go up in 2015-16. The reason for the sharp increase over the past five years is due to energy label upgrade.

You engaged KPMG recently. What is the objective and what kind of restructuring is expected?

I will avoid the word restructuring. We are planning to redesign our manufacturing footprint. We have six manufacturing units now, and with wide portfolio of products which we manufacture now, and keeping in mind the products for the future, we have embarked on this exercise. Also, in order to become globally competitive, we have to build scale, indigenise and explore vertical integration. Moreover, for meeting the growth in demand, we need to create additional capacity.

How is the collaboration with Eureka Forbes for water coolers shaping up? Any significant achievement?

Both the brands are strong and enjoy the trust of the consumers. Therefore, water coolers with in-built purifiers are well received in the market.

The market is growing and in the past 6 months, ever since we launched, we are promoting the same aggressively. We expect that with the growing awareness levels, in-built purification systems may find acceptance and will replace stand-alone storage water coolers. In 2015-16, our goal is to migrate at least 25 per cent of the market to above category.

How strong is your R&D and how much are you spending on this area annually?

We have around 150 engineers and our infrastructure includes several laboratories. We have also employed a few experts from across the globe.

We recently launched our VRF IV Plus AC system, which was developed in-house with the help of an international expert.

We achieved this in a span of just two years and cut short the entire development cycle by bringing in foreign consultants and vendors while putting enormous effort and investment in R&D. Our R & D focus will continue and in 2015-16, we will spend around Rs.30 crore.

balachandar.g@thehindu.co.in

(This article first appeared in The Hindu dated July 13, 2015)

COMMENT NOW