Won’t chase market share at cost of margins; aiming for sustainable growth: Blue Star

B Thiagarajan, MD of Blue Star

Competition in the white goods space has been intense and is likely to remain that way in the foreseeable future. But Blue Star Managing Director B Thiagrajan is clear that his company will not sacrifice margins to grow its market share. In an interview to Moneycontrol. Thiagarajan says that room air conditioners will be the focus for Blue Star as it is fast growing and still underpenetrated. And the other focus is to execute the order book fast instead of just growing it, he said. “Unless the speed of execution goes up and it gets converted into cash, there is no purpose of order book whatsoever,” he says.

Edited excerpts:

Why was your consolidated net profit down in Q4FY24?
You need to look at operating profit and not net profit. Operating profit has grown significantly. Rs 171-crore consolidated profit in Q4FY24 has to be ignored.

What is your key area of focus going to be?
We are clearly focused on the air conditioning and refrigeration. Within that, room air-conditioner (RAC) is a fast-growing market and has the potential to grow for many years because of low penetrations. As the construction activity increases, commercial air-conditioning will be required in shops, showrooms, boutiques, data centres, airports, and others. So, it is important to invest in technology, capability development, and manufacturing.

How has this summer turned out so far for your company?
There will be good summers and bad summers. We are not worried about that. But there will be a huge competitive intensity and huge regulatory requirements going ahead. This is because our products (ACs) create carbon footprint, so sustainability-related regulations will become stringent over the years.

Competition in the white goods space has been quite fierce of late, how do you plan to fight it?
We can’t control the competition; we have to improve our standing. The question is whether we are ahead of the curve in terms of the technology. We have to be ready with say a sustainability norm or an energy labelling years before it is expected to roll out. We are preparing ourselves because we cannot control actions of the competitors.

What has been your market share trends through last year?
We gained market share in RAC, but want to grow much faster. Our target was 15 percent in FY25, so we should have reached 14 percent in FY24. But we only gained 0.25 percent in market share to 13.5 percent this year because in March the competition did well. Improving ROC (return on capital), market share all at the same time is difficult. However, we are not going to buy market share by taking price cuts. We will gain market share legitimately, profitably, with an eye on ROC and not by discounting, dumping products.

What about commercial air-conditioning? How has your market share there?
We continue to improve.

Have you set any order book target for FY25?
As India gets into economic growth and construction cycle, our order book will only increase. But what will you do with the order book unless and until it gets converted into cash? Unless the speed of execution goes up and it gets converted into cash, there is no purpose of order book whatsoever. I don’t consider order book as a correct measure, however it can go up by 30 percent next year going by the pending enquiries.

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How is the demand for commercial air conditioning looking?
Demand is very good. Showrooms, boutiques, data centers, hospitals, are starting to enter the commercial air-conditioning space right now. Until recently we didn’t see hospitals or restaurants without ACs. Even in tier-3 and tier-4 towns we see air-conditioners in these spaces. We have started seeing ACs in schools as well. Also, non-AC theatres have starts to shut down. The commercial air-conditioner space is growing more than 30 percent in India, but the market size is small. We will see more traction coming here.

How is your EMP (electro mechanical projects) segment faring?
We are not chasing market share here. We are interested in growing the cash flow and finding out projects which will be executed in time. So we are not a player who is trying to grow EMP business exponentially. The opportunities in the segment may be huge but we want to grow steadily.

Any new product line you are planning to introduce?
No. All our segments are growing. So there is no need for us to enter new segments. Our stated plan of expanding our international footprint will continue.

Last quarter there was some slowdown in orders in your commercial building segment. Has it improved?
It has not improved. To some extent, a huge order book creates worry because you have to execute and collect money. So I always look for faster execution. If we are growing at 15-20 percent CAGR, that is more than enough. I do not belong to the culture where we want to grow 20-40 percent.