Blue Star lines up capex of Rs 200 cr; introduces 150 new models

CHENNAI: Blue Star has earmarked Rs 200 crore as capex, as the air conditioner major intends to invest in production capacity expansion, R&D, digitalisation and brand promotion. It is eyeing a 25 to 30 per cent growth to reach its desired market share of 14.25 per cent, which is backed by factors such as improved energy efficiency, consumer financing options, and changing lifestyles/urban environments.

“The room air conditioner market in India has been growing rapidly, with an expected 20-25 per cent growth this year,” said B Thiagarajan, MD, Blue Star, here on Tuesday, while announcing the launch of 150 models to tackle the summer heat.

Blue Star’s facility in neighbouring Sri City, is operating at full capacity with 6.50 lakh units, which is to be scaled up to 8.25 lakh units next year to reach 1.2 million units by FY27. Its Himachal plant has reached its maximum capacity of 6.50 lakh units.

The company’s wide range of products straddles across price points, focusing on reliability, quality, and features like heavy-duty performance and smart connectivity, he added.

Thiagarajan recalled the previous summer season, when the industry would have witnessed close to 60 per cent growth despite shortage of material. Elections and slowdown put the company on a cautious mode as it braced for the tough possibility of achieving 25 per cent growth.

Incidentally, Blue Star lost out some market share during the summer season despite growing by over 57 per cent. “And because we did not have material, in the process we would have lost market share of around 0.25% during the summer season,” he said, noting that people were beginning to advance their purchases.

Blue Star is close to around 50 per cent growth in terms of volume. “And next year, obviously we are looking at close to 1.75 million units of air conditioners,” he said, adding the room conditioners, as a category, continues to drive growth. In fact, “we ended up growing more than 35 per cent in Q2 as well as Q3 and as we are in Q4, the market will still be strong. It will be an unprecedented year for the air conditioner industry,” Thiagarajan sought to point out, as he gave an overview of the industry and the performance of the company.

“It is an unprecedented year for this particular category. Not only for Blue Star, but for the entire industry,” he said, listing out the reasons including the penetration level picking up.

Another enabling factor has been the energy labeling program, which has been happening in a systematic manner, with the power bills becoming bearable. “It is no longer for an average user, who uses AC only during summer season or the days when it is very hot,” Thiagarajan said, as he dwelled on the discerning customer’s changing preferences.

He also talked about the influence of consumer finance, that has led to a significant amount of purchase “which is new to India.” Cash back offers, online payment, credit cards and other schemes have made it possible to reorient the buyer’s mindset. “Close to 37 to 40 per cent is through consumer finance. It is next only to home and automobile finance, as this category (AC) is being purchased that way,” he pointed out.

Thiagarajan said humidity too has played its part in determining the comfort aspect for people especially in a scenario when the air conditioned environment has become a part and parcel of the day-to-day life. If disposable incomes have increased the penetration of mobile or smartphones, there is a growing trend of people slowing down their replacement requirements. This has led to uptick in air conditioner sale for in some cases instead of one smartphone, one can end up buying two or three ACs.

Anticipating this category to grow again, he said Blue Star is upbeat about posting 20 to 25 per cent growth. Having missed the 15 per cent target by FY25, the veteran leader believes by FY27, this would be achieved as the company is focused on the reliability factor.

Thiagarajan said, it would continue to invest in advertising, R&D and backward integration. He also spoke about the shift in volume in a three-year time period as from 8 million units in FY23, it crossed 10 million in FY24. “FY25 is going to be 14 million or 15 million. It can happen and it is moving to 18 million. And it is a dramatic shift that is happening in terms of volume in terms of installed base from what it is today. By FY30, it will be four times the number of machines in the field,” he said.

Blue Star is betting on the product lineup, to drive sales. “I think we will end up selling close to 1.5 million this year (1 million last year). So more than close to around 50 per cent growth in terms of volume. And next year, obviously we are looking at close to 1.75 million units of air conditioners,” Thiagarajan said.

COOL FACTORS

* Number of dealers in TN 1,800

* Southern region to have 4,500 dealers

* All India we have around 10,000

* So close to 45% of dealers are located in southern region

* Blue Star holding number two position in TN

* TN to be the location with the highest market share

* R&D spend Rs 32 crore this year

* Proposed investment on R&D is Rs 51 crore next year

* Chairman emeritus has contributed Rs 100 crore

* Has earmarked Rs 20 cr towards digitalisation and technology upgradation

* Brand spend to increase from Rs 50 cr to Rs 65 cr this year