Air conditioners poised for huge growth: Voltas, Bluestar

The June quarter was a strong one for the air conditioner industry despite adverse macro-economic conditions, says Pradeep Bakshi, Chief Operating Officer, Voltas in a discussion on the industry’s prospects, on CNBC-TV18. Demand has been quite strong in July and August as well, he told CNBC-TV18’s Latha Venkatesh and Sonia Shenoy. Bakshi says Voltas’s growth in the AC segment has been higher than the industry rate, which was around 8 percent last year. 

Speaking in the same discussion, B Thiagarajan, ED, Blue Star says the air conditioners market is set for an explosive growth over the next five years. He sees a compounded annual growth rate of around 30 percent in this period. The second and third quarters of this year could see softness in sales because of seasonality, but Blue Star has set an internal target of 20 percent growth for the full year.

Below is the transcript of Pradeep Bakshi and B Thiagarajan’s interview to CNBC-TV18’s Latha Venkatesh and Sonia ShenoyLatha: What has been the experience with air conditioners? I know your Q1 was excellent but is it indicating first time buyers coming in or mere replacement demand?Bakshi: This quarter has been exceptionally good for us despite adverse economic conditions, tough environment and erratic weather, we have been able to do much better than the industry. Of course because of extended summers industry also did reasonably well, infact those has been rated about 20 percent over last year in the same quarter but Voltas has grown marginally better than the industry, our growth has been to the effect of around 27 percent over last year in terms of revenue. So it has been all-in-all very good and there has been pent up demand, for last two-three years summers did not come in time and they were short lived summers. So that pent up demand has opened up because this time summers although started late but then they were little extended and till about June-July the temperature was hovering around 40-45 degree in many parts of the country and that is what we have gained from largely.Sonia: What is the sense you are getting of how much growth you could eek out now that there is so much pent up demand in the system and also do you think your market share could substantially increase?Thiagarajan: The market is poised for an explosive growth over the next five years as the penetration level in India for room air conditioners is in the order of 3-4 percent or so compared with what is the market size of China for example 55 million. We are somewhere around 3.5-3.6 million and as you can imagine we have a long way to catch up so the market is rightly poised for an explosive growth. I would expect a CAGR of 30 percent almost for next five years of time barring some unfortunate event or so. Second point is our growth was 29 percent in Q1 and we grew better than the market. Our market share currently put together retail as well as institutional segment put together stands at around 8. Our goal is 9 and I think we will catch up that by the end of this year. As far as margins are concerned it is due to indigenization of certain SKUs and components and the next thing is the stable exchange rate, these two helped us.

Latha: India is always a great long-term story but I want to know whether things are turning now, are we on the cusp, both you and Pradeep Bakshi have spoken of a great Q1 because of an extended summer. Is that a one-off or are you seeing green shoots of extended growth already?Thiagarajan: Already I am seeing, as far as Blue Star is concerned I expect the growth for the full year will be in excess of 20 percent. It will be lower in Q2 and Q3 because it is off season but again during festival season there will be some pickup and later on in Q4 our internal estimates or what we have prepared is for growth in excess of 20 percent. Latha: Was that a one-off summer, extended summer that gave you that extraordinary 27 percent growth or do you think that even the current quarter is showing any improvement? Is there any semblance of first time buyers coming in, of the market itself growing?Bakshi: We can partly attribute it to the extended summer but if you look at last couple of years despite whatever may be the economic environment, whatever may be the sentiments of the consumers because of inflation and also interest rates and other things going up. But we at Voltas has continuously been growing. If you look at our market share, couple of years back we were hovering around 9 percent, today our market share is 21.7 percent. We are ahead of the competition by almost 700 bps. So despite of whatever may be happening, we have been continuously growing. Secondly July and August for this quarter also have already passed and we have registered growth in these months also. New admission has already set in, infact we have been looking at lot of new projects will come up. Latha: But is the market growing?Bakshi: Market of course this year has shown some positivity and it has been growing. Some growth is definitely going to be there. I am not sure whether it will cross double digit numbers overall in the year unless and until lot of moves are taken by the new government.