Blue Star relies on ‘Virat’ factor to penetrate tier 3, 4, 5 towns

B Thiagarajan, MD, Blue Star, shared plans on these lines, at the launch of the company’s latest range of ACs (30 per cent better cooling efficiency, integrated air-purifier and AI-assisted voice-controlled), here on Tuesday.

Anticipating a ‘big’ surge in sales through a re-jigged brand approach to target customers beyond the major locations, he said the re-positioning would help it to reach 15 per cent market share by 2024 from its current 12.75 per cent. “With the penetration of residential ACs in India as low as 5-6 pc there is ample scope for growth. We see a big growth in this socio-economic classification, as over 45 per cent are those availing the zero per cent finance schemes and a bulk of the first-time buyers are in the tier 3, 4 and 5 regions,” he pointed out.

The company has already made deep inroads these towns, pegging over 60 pc of its sales coming from these markets. India being an extremely price-conscious market, all price points across products had to be assessed. To rope in more customers, it is the Virat factor that Blue Star is banking upon, he said, explaining the rationale of pricing its latest range at Rs 31,990 and Rs 37,990. Virat has a mass appeal cutting across geographies and demographies.

The firm is shifting strategy to accelerate growth by foraying into ‘premium-yet-affordable’ segment with a new line-up of products.

These ‘future ready models’ conform to the need that arises from customers in tier 3, 4, 5 towns. New TV commercials and other promotional activities are on the cards, with the company scaling up its brand spend by Rs 10 crore to Rs 65 crore this year.

Blue Star recorded a revenue of Rs 5,200 crore last year and has five manufacturing facilities across the country. Incidentally, Chennai is its largest market, which is pegged to be 6.5 lakh in size. “We have 17.5 per cent share here and the market is similar to Delhi,” he said. The company expects to sell about 6.50 lakh units this year and for next year, it has projected 7.50 lakh units.

Thiagarajan said the company also hiked its R&D spend to Rs 45 crore from Rs 35 crore. While 60 per cent of revenues are from residential air-conditioners, the rest is from other commercial businesses. He also spoke about the company’s plan to spend of Rs 120 crore for expansion at Sri City. The unit is scheduled to be commissioned in 2021, Thiagarajan said, adding it is mulling on setting up a subsidiary – Blue Star Sri City Ltd, on the lines of Hindustan Unilever Ltd. The FMCG giant had announced its plan to set up a subsidiary for manufacturing purposes, to take advantage of the 15 per cent corporation tax available to new manufacturing firms.

Finance Minister Nirmala Sitharaman had reduced the base corporation tax for existing companies to 22 per cent from 30 per cent, and to 15 per cent from 25 per cent for new manufacturing firms set up after October 1, 2019, and starting operations before March 31, 2023.

“We would like to build our market share,” Thiagarajan said, citing the four per cent logistical gains that the brand can get apart from efficient inventory management owing to its upcoming facility in Sri City.

It will not face any production disruption till mid-April, he said, to a query on coronavirus. “Till mid-April there will no production disruption at our plants due to non-supply of components by our overseas vendors. Even though we source our electronic components from Japan, the vendor in turn sources his components from China,” Thiagarajan said. It had imported sufficient stock of components ahead of the Budget to avoid impact of increased duties, apart from gearing up for the Chinese New Year.