Blue Star Confident Of Making Up For Lost Summer
Local lockdowns have slowed down demand for makers of air conditioners this summer and rising costs will only make matters worse. Yet, Blue Star Ltd. expects to make up for that when normalcy returns.
By the last week of May, even if not fully normal, things will improve significantly from where they are now, B Thiagarajan, managing director at Blue Star, told BloombergQuint in an interview. Going by last year's example, the loss in the first quarter will be made up, he said.
“I will not write off this year at all. If we were planning a 25-30% growth over Q1FY20, it will be degrowth (this quarter) and therefore a disappointment,” he said. “But if you look at FY22 as a year, things will certainly be not pessimistic.”
Upbeat On Demand For Room Air Conditioners
Blue Star expects two factors to boost demand—lower penetration and higher demand as people are able to move out of their homes during the pandemic. While the summer may not show the 25% growth as expected, Thiagarajan said this segment will grow 10-15% in FY22.
Inventory will fall but the company is taking measures to ensure enough production to prepare for the reopening of activities, he said. The management, said in an analyst call, that reverse migration of labour has not been as bad as 2020, and factories will be able to ramp up quickly when states lift restrictions.
Balancing Act In Commercial Refrigeration
Thiagarajan said the company saw record orders in April, driven by commercial demand.
The company, because of restrictions during the summer, losing demand from ice-cream refrigeration, a segment that was otherwise expected to grow 15-20%, he said. But healthcare, pharma and food delivery business is making up for that, he said.
Optimistic On Margins
Low demand, higher commodity costs and competition is likely to put pressure on margins. Thiagarajan, however, said Blue Star will be able to manage the challenges and would maintain margins in FY22.
A combination of price hikes taken thus far (Blue Star increased prices twice since December), lower advertising expenses, promotional schemes, and rescheduling of capex or postponing recruitment will manage costs, he said.
He said central air-conditioning will maintain a margin at 6-6.5%, cooling products at 8-8.5%; and professional electronics and industrial equipment at 18-19%.
Watch the full interview here: