Expect growth at 15% over next 6 months: Blue Star

It's been a good year for the Blue Star. The stock has moved nearly 70 percent from the start of 2017. But, the company has moved into lean season now during the winters.

In an interview to CNBC-TV18, B Thiagarajan, Joint MD of Blue Star spoke about the likely trends for 2018.

Sale of air purifiers during these months do well, said Thiagarajan.

He further said that the total market size for air purifiers is Rs 200 crore.

We will continue to grow but our ultimate aim is to integrate air purifiers with air conditioners, he said.

He further mentioned that price level has to be brought down to Rs 10,000 for air purifiers because Rs 15,000 plus kind of a product will not open up the market.

Thiagarajan expect growth at 15 percent over next six months.

Below is the verbatim transcript of the interview:

Q: I do not want to talk about the traditional business right now but more about the new products that are gaining steam. It is unfortunate but because of the pollution situation you are seeing air purifier business see a remarkable growth over the last two-three months for the industry as a whole. You guys are planning to make some investments there as well. What kind of growth do you see here over the next two years?

A: Air purifiers during these months generally do well. It is a small base so it might have grown 8 times over the previous year. It is not relevant for the simple reason that the total market size will be around Rs 200 crore. In a large business house like ours, we will stay put there; we will continue to grow but our ultimate aim is to integrate air purifiers with air conditioners and that should eventually happen because most of the usage of air purifiers are air conditioner owners and need to save floor space and that is where we are working on.

The price levels have to be brought down to Rs 10,000 or so because I do not think Rs 15,000 plus kind of a product will open up the market. However, on the whole air purifier is not the thing that we would be so much worried about. Our investment will be in research and development for integrating it and mostly for commercial spaces. Most of the time people spend in office or workplace or a cinema theatre. Therefore, how to get the air quality level up there - that is where research and development efforts are going at this point of time.

Q: The new energy norms will come in place from January and the old ratings will be useless. Is there a way to treat the inventory? Would there be a bit of a discount sale or do you have mechanism in place to adjust to this?

A: We have almost exhausted all the old products. There is a trial or a voluntary labelling programme that was available ahead of this change. So most of the manufacturers have launched their new products one after the other and in our case we do not have a problem because we are stocking out of the old models completely. So it is not an issue at all.

The real issue will be when the energy label change takes place how the pricing is going to be. This particular energy label change is two steps ahead and therefore the current five stars will become three star products. I do not think at the current five star prices you will be able to position that product as a three star. So the price adjustments will take place, how the new four star, new five star are going to be priced and the real game in the market will be in the month of January or February - how to adjust the prices and get the volumes. This is going to be a crucial period.

Q: Therefore, how would you estimate the next six months? There are some disruptions in terms of older products as well your R&D expenses to improve the value add from your air conditioners by making them air purifiers as well. How do you expect to do in terms of revenues and more importantly margins since the R&D expense have to be factored in?

A: I am taking this opportunity to reflect back on 2017 from the beginning. We were coming out of demonetisation; there was goods and services tax (GST). We thought the GST changeover month will be an issue but unfortunately even in the month of May massive discounting started by the retailers. We passed that particular phase and then in GST there were some hiccups and commodity prices were completely out of control throughout the year and towards the end the market was about to revive then the elections and 2018 is going to be one of the election year again.

Q: What revenue and margins you can look at. I know it is premature but nevertheless if you have a sense?

A: You have to have a sense for a simple reason that the supply chain is full in terms of components -- when you run 150 stock keeping units (SKUs) everything has been estimated. I think we will grow definitely by 15 percent, if you are taking next six months. It can be stretched to anywhere between 20 percent and 25 percent but my personal estimate is 25 percent growth is very unlikely; 15 percent is the one which we will go in for. It can be stretched to 20 percent if the summer season goes on well. However, I must tell you that we are optimistic at this point of time.

Q: We heard from some of the other people who supply to building product space that the real estate space hasn't picked up. What has been your experience?

A: It has not picked up to the extent we would have loved it to be but Q2 was reasonably good. Q3 is going on well. I think we will end the year on a reasonably good note; in the sense that we wanted to show something like 15-20 percent growth. I think it will be 10-15 percent growth at least for FY18.