After two consecutive failed summers, the air conditioner (AC) industry is bracing for a very volatile but promising FY27, Blue Star MD B Thiagarajan says, projecting the growth rate at around 25-30% but adding riders such as the summer season, the duration of the West Asia war as well as consumer sentiment. In an interaction with Narayanan V, he talks about the demand outlook, price hikes, rising commodity costs, and export plans. Excerpts:
How do you expect to close FY26?
I have not seen two consecutive failed summer seasons in my nearly five decades in the industry. FY26 began with a failed summer. The GST reduction was announced on August 15, and until September 22 there were virtually no sales. Inventory levels had gone up to nearly 180 days.
This was followed by the energy label regulation change in January 2026, and then an unprecedented increase in commodity prices. FY25 had seen a historic summer, pushing the market to about 15 million units from 10 million in the previous year. I think the industry will end up with volumes 5-7.5% lower than FY25.
What is your outlook for FY27?
The market looks very volatile and at the same time promising. The expectation is around 20% growth in volume terms and about 25% growth in value terms over FY25. If you take FY26 for comparison, it will easily be about 25% volume growth and around 30% value growth.
But 20% volume growth and 25% value growth over FY26 is more reasonable because I don’t think so much of a price increase will work in the market. Consumers will push back and there are enough players who will try to gain market share. The production capacity is twice the estimated market size.
If the market becomes around 16-17 million units, there is already capacity to produce about 35 million units today. At Blue Star, we want to grow 25% by volume and 30% by revenue, but nothing can be said today. It all depends on the summer, how long the war goes on, and consumer sentiment.
Have you effected any price hike?
The prices of air conditioners would have gone up by at least 13-15%. We have taken the price hike in a phased manner — partly in this quarter and partly in the next quarter. About 8% hike has already happened and another 7% or so will happen in the next financial year, and April is around the corner. Right now, people are not feeling the price hike because dealers buy in large numbers and stock up whenever there is going to be a price revision.
But all these stocks will get exhausted in the peak summer. I think the real impact will be felt from the first week of May onwards when consumers will feel the pinch. Between 2023 and 2025 the dollar was stable, but now the exchange rate is volatile. Secondly, if petrol prices go up, transportation costs will increase, which is about 4% of the total cost. Around 8.5% of the material cost accounts for the commodity price increase alone.
There is an unprecedented price increase that consumers are facing. I don’t think the industry will be able to absorb any of this because it is already not a highly profitable industry.
Will the ongoing gas shortage impact your production?
There are two important inputs dependent on West Asia — liquefied natural gas (LNG) and piped natural gas (PNG) — which are used in powder coating and brazing lines. While we have all received the notification that there will be a 50% cut, we are not huge consumers… It has not stopped production yet, and one hopes it will not interrupt operations in any manner. But we have been warned that there may be disruption. The government has constituted a committee to look into it… I think alternative supplies are being arranged.
Has the West Asia crisis impacted your exports?
We are not exporting room ACs to any country. We will never be competitive with China in this space. We are making products for US and European brands, which is known as custom design manufacturing. They want a design, we develop the design and manufacture it. We have a couple of customers now and it is in the process of taking off in a big way. In their supply chain, as an alternate destination, they have chosen India and they have chosen Blue Star.
These are actually not commercial or residential products. US homes are much larger, so I am not treating them as room air conditioners. These are heat pumps and very large systems. In between we had some hiccups due to tariff issues. We expect about 15% of Blue Star’s revenue by 2030 to come from exports, which means we will be a 20,000-crore company and exports should contribute around3,000 crore. That is a secured business and should not face any problem.