Blue Star enters water purifier biz; eyes 15% market share

Below is the verbatim transcript of B Thiagarajan's interview with Latha Venkatesh & Nigel D'Souza on CNBC-TV18.

Nigel: Could you tell us about this new business that you are foraying in, what are your goals there and what are your revenue estimates and by when could you see yourself gain some kind of market share at least.

A: We have been planning for this for the past six months of time so we have now taken a decision to enter the residential water purifier business immediately and subsequently we will get into commercial water purifiers as well. So as you would have known from the press release issued this morning, it is inspired by our success in the room air-conditioners business, which has been gaining traction in fantastic manner. We have been growing much higher than the market and we have reached a market share of around 10.5 percent. We continue to be the preferred choice of the discerning customers. However, with water we had connection as water cooler player and in water coolers we started offering purified water. By water purifier standalone is a distinct category. There are established players there. They have been doing well and the good news is that the market is growing in excess of around 22 percent CAGR. Current market size is around Rs 4,200 crore. So, we took a decision that we will leverage Blue Star brand in this area and because it involves some amount of engineering, it will be a product which will continue to get innovated because of the technological changes or the water quality changes. It involves instillation, it involves aftermarket service business. So we have put together a team. We have also appointed the advertising agency. This is almost like a FMCG product right. It involves extensive promotion, so Ogilvy has been appointed as our agency. We are in the final stages of signing the contract with them.

Our goal is that we will reach a market share of around 15 percent in about three years time. So there are products as non-electric, gravity based and the electric based ones.

Nigel: Talking about 15 percent in the next three years approximately, you are saying that the current market size is at around Rs 4,200 crore, if I got the number right.

A: That's right and the 70 percent being the electric ones out of that.

Nigel: So in the next three years 15 percent would mean roughly around Rs 600 to 650 crore that should come in from this new business that you are foraying into.

A: That's our plan and that is a target toward which we are working. The entire marketing mix, the product or promotion and the distribution all are aimed towards achieving that goal.

Latha: You must have already put in the manufacturing unit or are you outsourcing it as well. What are the margins in this are they bettered than the air-conditioners.

A: Yes, both the models preferred actually predominantly it is contract manufacturing in the industry and in line with our principle that even in our room air-conditioners we are an Indian player with larger manufacturing footprint. Therefore first couple of years we may be servicing the products with certain unique IPs in our possession like the fascia or control etc, but later on we will begin manufacturing. So when we went ahead and finalised the manufacturing units for air-conditioners and refrigeration products in Jammu and Sri City we have kept this requirement also in mind. Certain amount of area will be kept aside, but it will not be immediately, in about couple of year time we should begin manufacturing because the manufacturing brings substantial amount of value addition.

Nigel: Let's focus on your core business the air-conditioner market, before we start talking about the yearend sales etc we have seen in this quarter metal prices have bounced up copper prices, aluminium prices and the likes. Will that have any kind of impact on your margins?

A: Not at all. In fact, I had stated this in couple of interviews that the commodity prices had bottomed out. It is not going to go on going down in this particular manner. It is completely factored in. There is absolutely no problem.

In the same way China's prices, there were substantial China import, price drop was very substantial. It will go down because their forecast within their domestic market is very bad and bleak. There will be some saving but I don't think it will be a dramatic drop like last year.

However, exchange rate is holding up. Post Union Budget I am not seeing any kind of fear about sharp decline in the Indian rupee, therefore prices as well as the cost, as well as the margin will be stabled in FY17. I am very confident about them at this point of time.

Latha: Give us an idea of how much your revenue will grow next year overall, total revenues for Blue Star and how will your margins shape up in FY17?

A: Given the summer season for the commercial refrigeration products and room air-conditioners both constitute more than today, it is almost 50 percent of the company's business. So this particular path I am seeing we can do around 25 percent growth. The summer is very harsh; it will rain on and off here and there but still this summer is going to be one of as the industry calls it as golden summer so we will grow by 25 percent in this part of the business which constitutes 50 percent of the company's business. The electromechanical projects as well as packaged air-conditioning business are showing some green shoots but I do not think it is going to be a huge take off year because commercial construction has not taken off. There are unoccupied or vacant premises which are getting filled in slowly. Perhaps FY18 may be a golden period for that part of the business. So the growth will come from room air-conditioners, refrigeration products as well as electromechanical projects or packaged air-conditioners are concerned we will do much better than the previous year. We had controlled our booking as well as billing. So on the whole I am unable to indicate exactly but Blue Star will do exceedingly well in FY17. I am not able to put a particular figure into that.