Air conditioner manufacturer, Blue Star Ltd., is aggressively targeting the residential segment of the AC market to improve its positioning in the industry. During a recent visit to Goa, B Thiagarajan, joint managing director, spoke on range of issues. In the interview with Shoma Patnaik, he talks of the potential market size, the fight from foreign brands and of make in India.
Q: Blue Star is ramping up its presence in domestic or room air conditioners. Are they more profitable than other ACs?
It is not that room AC is more profitable than others. All segments of the market are profitable. However the room AC market in India is the largest. The market for it is valued at around Rs 15,000 crore while the rest of all ACs put together should be around Rs 5,000 crore. The residential AC market is the largest in terms of size. The sheer size of the segment means it cannot be ignored. In volume terms the size is estimated at 5.5 million units. At the same time, the penetration rate of room ACs in India is only four per cent vis-à-vis the global rate of 30 per cent. It means that there is a serious potential for growth as more households start using ACs. We have a market share of 11.5 per cent in this segment which we aim to increase to 12.5 per cent in 2018-19.
Q: What are factors driving sales of room ACs?
Sales are being driven by increasing heat and consumers getting used to an AC in the home. Tier three/four/five markets are driving the growth. Experience shows that consumers in non-metro markets are high in aspiration and prefer premium brands. Further the quality of ACs have also improved. The energy consumption of ACs are decreasing due to better technology. In 2017-18, the first half of the year was quite bad due to GST but the second half has picked up and now the industry expects a better growth rate than 10 per cent in 2017.
Q: The foreign brands are giving stiff competition to Indian brands. Your comment?
All of the foreign AC brands are present in India. The who’s who of foreign brands are there, but if the foreign companies were not present then Indian companies would have closed down. Until 1995 it was only Voltas, Blue Star, Amtrex and few domestic companies. After MNC brands came many things changed in the industry. Because of their presence, domestic companies started innovating and upgrading in a big way. So the advent of foreign ACs changed the standards and the market started growing. Earlier most of the job of domestic companies was actually chasing payments from the dealers. When I was the sales manager about 80 per cent of my time went in going from dealer- dealer to collect cash. The MNC changed things. Now it is cash-and-carry with post dated cheques. So the MNC brands pushed us to come out with new tech. But today I can say that competition from MNC brands is not the problem. We have products superior to them. In fact some MNCs want to know how we ended up as number one in developing inverter ACs.
Q: You do not fear competition from the foreign brands?
No. One should not fear competition from MNC brands. Competition makes you think and come out with new products. As such MNC brands have the ability to grow the market and to change the game. Most MNC companies outsource manufacturing. The AC is developed by local vendors and companies add a margin of 200 per cent and sell it back.
Q: What about Make in India in ACs. How much of the component is imported for Indian companies like Blue Star?
MNC brands are trying to say that inverter-ACs , first developed by us are high on imported components. But the imported content is coming down every year. It is currently in the order of 40 per cent in inverter-AC but by 2020 it will come down to zero per cent. The reason why Indian companies invested less in R&D in the past was because of the problem of scale. Companies need to invest at least 10 per cent of the turnover in R&D to flourish.
Q: What is your strategy to increase market share in room ACs?
Our strategy is to be present in all price points which is why 100 models are launched recently. Of this, 40 models are inverter ACs- for which demand is growing the fastest. Our all- India market share in room AC is currently 11 per cent but it varies between cities. We want to cut down on the variation even as we increase the overall sales. We are also increasing awareness of our brands by way of advertising in the target market.
Q: Last, what is the latest preference among consumers?
The latest is AC cum air purifier. But inverter AC is the current trend. Theu come with extra cooling powers, purification of the air, energy saving and comfort. Our inverter ACs promises up to 30 per cent more cooling than its rated capacity. Overall most ACs these days are trouble free for the first three years. They require less of maintenance than the older models.