Expect 15-20% growth in AC biz by FY16-end: Blue Star

Air conditioner and refrigerator major Blue Star is confident of 15-20 percent demand growth in the second half of the year from the festive season, says B Thiagarajan, ED, of the company. Speaking to CNBC-TV18, he says there is ample demand including the deep freezers segment and expects a growth of 15-20 percent in the air conditioner business by the year end.Thiagarajan is confident of improving the company's margins in second half and sustaining the growth rate going forward.Below is the verbatim transcript of B Thiagarajan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Have you seen any improvement as far as demand is concerned and what does the festive season look like? What kind of growth do you expect to see for the next couple of months? A: While many were surprised about the numbers when it got published yesterday, I was anticipating a robust growth. For example, the Onam season, Blue Star saw around 70 percent growth. Right now the demand for the festival season is very robust. It is between 15-20 percent in Kolkata for example or Mumbai, Chennai it is all indicating that we are going to have a great festival season ahead. So, I am very optimistic about the festival season which comes after a backdrop of a bad summer we had. Latha: Can you tell us exactly what are the products for which you are seeing good consumption demand? A: Specifically room air conditioners followed by refrigeration products like deep freezers driven by ice-cream segment. Also, earlier in the morning, I saw you referring to whether this is one-off kind of a growth or it is going to be sustainable. I think it will be sustained over a long period of time and goods and services tax (GST) happens, I think it will give a further boost to the industry. Latha: To what extent do you see it sustain, for the second half for instance what kind of consumption growth can you expect, volume growth? A: I think it will be at least 15 percent; that is my guess I would say going by the indications; we are talking about compared with the previous year. The second part is I also want to add two riders; one is whether this growth will directly result in the bottomline growth? I don’t think entirely because there is one advantage that the import prices from China has dropped and that is going to help us many others in a big way but partially offset by the rupee depreciation. So, if the growth is good the prices may not drop so much in the market. So, I think it will also mean our ability sustain the margins after the first half which was very tough.The second part is that in the long-term interest of the consumer durable industry, it is the employment generation, whether this growth is going to result in adequate employment generation in this industry as well as many other industries. I am not yet seeing employment generation growth. In India we do not have the numbers being published or shared. For consumer durable clear indicator is employment generation, the disposable incomes will have to go up. Sonia: You mentioned 15 percent growth, what would your own growth be for room air conditioners by the end of FY16, will that be 15 percent? A: We attempt to do anything between 15 percent and 20 percent. Sonia: For the industry itself what will the growth look like? A: I think it should be somewhere between 5 percent and 10 percent; I am talking about the full year. If you are talking for the second half alone, industry also should be seeing somewhere at least 15 percent growth. Latha: You are seeing 15-20 percent growth in topline revenues in rupee terms or is it volume growth? What was your skepticism about, that prices will not uptick and therefore revenues may be an issue? A: Whenever there is a difference between volume growth and the revenue growth, the price levels would have gone up due to one or two reasons, whether the industry increased the price or due to energy level change there is always an upward revision. This particular region there is no energy level change per se. If at all there is going to be only a product mix like the inverters or five star air conditioners being consumed. So, for practical purposes the volume growth in second half should be equivalent to the revenue growth. They should not be any different. However, Blue Star’s own ambition has been that grow 10 percentage or 100 basis points more than the industry. I think at least 5 percent we will do, if the industry grows by 15 percent, we should be growing by 20 percent. However, at the same time I am only hoping the others in industry share the same sentiment. The question is that normally I am seen as a pessimist person but at this point of time I am very optimistic.