Good times ahead for AC makers: Here's how experts react

He further said that if the US and China trade war to continue, we will benefit from that as far as pricing of Chinese manufactured components are concerned.

According to him, commercial refrigeration is doing extremely well driven by ice-cream segment, processed food. Deep freezers and cold rooms witness growth of around 25 percent.

Below is the verbatim transcript of the interview.

Latha: The MET department is forecasting a scotching summer, have you already seen demand increasing for air-conditioners?

Gupta: Yes, we are already seeing a demand generating and this time compared to the last time, we are seeing that demand has already been preponed by a week’s time because the summer has set in, the temperatures which were there last year, this year they are definitely 2-3 degrees up. So the demand is definitely picking up.

Sonia: Could you quantify the growth you have seen so far and what do you expect in the next couple of months?

Gupta: Compared to last year, first three weeks of March that we have seen, nearly 5-8 percent growth we are seeing in the air-conditioners over the last year and this primarily is a very good indicator because normally the main season will start in April and May.

Anuj: Do you guess that it is time for good business this time?

Thiagarajan: It is a fantastic time. We are celebrating despite being a GST transition year, the market should end up with around 12 percent growth. I expect Blue Star to close with 17 percent growth for the financial year. My own prediction is that the summer season growth should be at least 20 percent. The indications are very high. Secondary movement, as Nilesh Gupta mentioned, has been good across several markets. Kerala is the first one to indicate that, Kerala and Tamil Nadu, the secondary movement has started in a big way.

Therefore, I think it is going to be a great year for air-conditioning, refrigeration companies.

Sonia: What about on the margin front then, do you have a lot more pricing power now than you had perhaps six-eight months back? Your margins have recently doubled almost sitting at about 6 percent margins, you think it could get better?

Thiagarajan: I wouldn’t say that it is all that comfortable but the prices seem to be stable as of now. If the demand is going to be good, I think the prices will hold. We have been under pressure due to the commodity price increase over the past few months but I do not know which figure you are referring to 6 percent. Our operating margins are in the order of around 10.5 percent. Our outlook is 9.5 to 10.5 percent, operating margins we will look at it.

So as of now, I do not foresee any issue with regard to the margins. I also hope, my dream is that if US and China trade war is going to continue, I think we will benefit from that. As far as the pricing of Chinese manufacturer components are concerned.

Latha: Sales number of 17 percent and 20 percent only in summer – do you also say that you could do 15-20 percent higher sales this summer compared to last?

Gupta: Yes, we are expecting a growth of minimum 15-20 percent this year. Secondly, this year, we are also seeing according to the MET department the summers are going to be extended. In June also we are seeing – the first week, they are talking of little showers but the entire month of June they were showing very high temperatures. So we may have an extended summer and if that happens, the growth can be 20 percent and above also.

Anuj: Which brand is seeing the most salience right now?

Gupta: It is very difficult to point out to one single brand but more or less, everybody is doing the best. But our top recall brand is Voltas, Daikin and Whirlpools have started doing very well. The Godrej – all the brands, I think this year if the things go right, we may have even shortage of air-conditioners.

Sonia: What about central air-conditioning products, you even have commercial refrigeration, what kind of growth are you seeing in those spaces?

Thiagarajan: Commercial refrigeration is doing extremely well driven by ice cream segment or the processed food, deep-freezers and cold rooms witnessed a growth of around 25 percent. It was so even last year. The margin pressure there is much higher and this particular season both deep-freezers as well as cold rooms are doing extremely well.

As far as central air-conditioning is concerned, I am not witnessing a huge growth in the market, though our order book has been growing significantly, speed of execution is the issue. Nobody seem to be in a great hurry. So it is basically the consumption story, which is driving the growth not the corporate sector investments at all.

Latha: Nilesh Gupta is telling us that we may even run short on air-conditioners. Can you respond to that, will that mean you all will have a pricing power? Do you see prices being raised for air-conditioners?

Thiagarajan: I wouldn’t be greedy. If the prices are stable, it is fine. I do not think that the prices should go up. I do not see the situation.

My guts is that the entire industry would have planned for growth between 15 percent and 20 percent. Outer limit of 25 percent growth they will be able to cope with. If the demand is going to be beyond 25 percent, there may be shortages of certain models. But between SKUs, you will be able to manage. This situation had prevailed couple of years ago also. Our preparation is for a growth of anywhere between 25 percent and 30 percent during summer.

Going by the forecast that we have got, I think we will be able to manage during summer season around 30 percent growth. We play both in institutional segment as well as residential segment, I think it will be a great year.