Room AC mkt share may improve to 12.5%, growth at 30%: Blue Star

In the uncomfortably hot summers this year, Blue Star is targeting a growth of 30 percent in the air conditioner market, which is growing at 25 percent, says B Thiagarajan, Joint MD of the company.Speaking to CNBC-TV18, Thiagarajan says Blue Star is not focussing on summers alone, but it also has plans to keep growth intact for the monsoon and festival season this year. While the company is doing well in its commercial refrigeration segment— cold rooms, deep freezers and water coolers, rural demand has picked up considerably to 25 percent for room air-conditioners and ice-creams refrigerators, he says.Thiagarajan says Blue Star's market share will improve to 12.5 percent and expects the prices and margins to be stable. He credits this stability to commodity prices bottoming out and a downfall in Chinese imports.However, the only challenge will be the marketing cost, where despite a 30 percent increase in the ad spends, Blue Star's media exposure will remain more or less the same. Below is the trasncript of B Thiagarajan’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Latha: How have sales been? It is so uncomfortably hot. Does it mean more revenues?A: It has been very good. The month of March was excellent. April is doing extremely well. The signals are that May will be another fantastic month. I think we will exceed the forecast that we had given. I had stated that the market will grow at least 15 percent. Our own goal will be to grow by 25 percent. But I think the market will grow beyond 20 percent, so our goal has shifted to 30 percent growth. We will achieve that. And combined with that, because we are an air conditioning company, we should not be focusing on summer alone. Given the fact that 55 percent of our sales come from Tier-III, Tier-IV and Tier-V markets, monsoon is also an important thing and the forecast is that the monsoon will be very good. So, going forward, even the festival season will be excellent. So, both for room air conditioners and commercial refrigeration products that is water coolers, deep freezers, cold rooms, things are looking bright.Sonia: That is very good to hear – 30 percent growth expectation for FY17. What is the exact growth you have seen in the rural markets in the last 2-3 months?A: More than 25 percent in these markets for room air conditioners. And ice cream is doing extremely well now. So, therefore, the deep freezer market is growing on the back of the ice cream consumption growth.Latha: What is your sense about the margins? Are you still having the advantage of lower commodity prices? How would you guide on margins?A: The margins will be stable in the sense that we had two benefits. One is the commodity prices bottoming out. I do not think it will bottom out much more. So that will be stable. The China related imports were substantially down. The forecast for Chinese domestic market is negative growth this year again. So, therefore, they are trying to fill in their factories. Many components, such as compressors and all get imported from there.So therefore, I have a feeling, the prices will be stable as well as the margins will be stable.Sonia: So, when you talk about a 30 percent growth overall for FY17, what would that do to your market share? Earlier you had said that your market share would rise to 12 percent. But now, do you see further improvement there?A: Perhaps, 12.5, but the question is everyone also would like to grow. If at all I can state one challenge, it will be the marketing cause, to be very transparent. What is actually happening is that even though we have increased our advertising spend by around 30 percent, the media exposure that we will get will more or less remain the same. Everything is becoming expensive there in a short span of time.And the air conditioning players would like to – this particular season, the primes being occupied by ITL and ITL also, is expensive. So, when we want to raise the market share, our own priority should be to promote the brand in quite a few markets in which we may not be so very well known – in the northern India belt. And this is the challenge I equally face.So, market share 12 is possible definitely. 12.5, we are trying. Let us see what happens.Latha: So, what the hot summer giveth, the advertising expenses taketh away? Would you say that net profit and net margins would be under pressure?A: Not at all. While I will grow like any other successful brand in this place, I am not saying that it is being taken away. I am answering a particular question that the market share of 12, the goal will move to 12.5 percent. There is a possibility, but I have to invest more in advertising.Latha: My limited question is, will earnings before interest, taxes, depreciation and amortisation (EBITDA) margins remain at around 4-5 percent?A: No, for this particular category, the EBITDA margins are in the order of 9-10 percent. Latha: For the company as a whole?A: It has been around 4.5-5 percent, but there are many other things simultaneously happening. We have got out of our legacy electro mechanic projects jobs which were pulling down the margins. And equally, shop, showroom, boutiques kind of medium sized air conditioning business is doing well. So, therefore, the margins should improve from last year though I do not have the figures as of now. We have to wait for a couple of months before attempting to give you the forecast.