Blue Star, among the country’s leading air conditioner (AC) manufacturers, sees high inventory levels in the industry reducing this December as demand from price-conscious consumers may pick up before the new energy efficiency norms come into effect in January. Speaking to Viveat Susan Pinto on the sidelines of the 21st CII Manufacturing Summit on Wednesday, Blue Star CMD Vir S Advani highlights the firm’s road map and future targets. Excerpts:
What is the demand situation like after the GST cut?
While consumers have come back after GST was rationalised from 28% to 18%, what we are seeing is an improvement in tertiary sales, that is, from retailers to consumers. Primary sales for AC makers, that is, from companies to dealers/distributors, remains subdued despite the GST cut. But we do expect a pick-up in demand in the last two weeks of December, as dealers may stock up before the Bureau of Energy Efficiency (BEE) norms kick in next year. AC prices are also likely to rise by 5-7% in January due to the BEE norms. This may encourage some consumers to buy beforehand.
Is it feasible for AC makers to increase prices when sales are weak?
Higher energy-efficiency requirements are coming faster, and that creates an opportunity to innovate. The challenge is that improved efficiency naturally raises costs, by as high as 10%. However, we are looking to limit price increases to about 5-7% to ensure it remains affordable for a large section of consumers. Our focus is on delivering higher efficiency without proportionate cost increases. One enabler is greater indigenisation and building a stronger local supply chain.
The Indian AC market has nearly 25 brands. Do you see a shake-up in the market anytime soon?
Twenty-five brands are certainly not sustainable in the long run. Despite this, new brands continue to enter because ACs are growing faster than most other durables. Around half the brands are investing in R&D and manufacturing, while the rest are largely relabelling imported products. Both models will survive, but with fewer players. A shake-out in my view could happen in the next two-to-three years.
Any plans to expand manufacturing capacity?
We recently built two new plants — our AC facility in Sri City, Andhra Pradesh, and a deep freezer plant in Maharashtra. We’re also expanding our plant in Dadra through brownfield investments. Across India, we operate seven plants, but the above-mentioned three projects are where much of our attention has been concentrated in recent months.
There is a view that the PLI scheme for ACs, while helping local manufacturing, has also created excess capacity. Your thoughts on this?
Yes, PLI has helped, just as the GST cut has helped the AC market. But it has also added excess capacity in the industry, that is true, which has created price pressure. We are PLI investors, so we’ve benefited, but we’re also experiencing this competitive intensity. In the long term, higher domestic capacity is positive because it attracts component suppliers into India. This will be good for the domestic market.