‘Macro Economic Condition Not Good, Margins To Remain Tight’: Blue Star MD On NDTV Profit

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[00:00:00]Right. So Alex uh what has happened is uh so um the department of promotional industry uh and internal trade has kind of passed an order that curbs imports of compressor. Now uh the order particularly says that under the new policy refrigerator compressor imports are capped at 40% of FY25 volumes. AC compressor imports are capped at 30% of FY25 volumes and these restrictions mainly apply to units below 2 tons which account for over 85% of the market. Now uh in terms of so this is the first of course the recent development that has come in and this could impact both EMS companies as well as AC companies but blue star overall Q4 was uh uh you know a stable quarter overall um you know in terms of where the segments go. Electro mechanical projects saw strong inquiry momentum from building data centers etc. Commercial air conditioning order inflow also gained momentum during the c quarter which was supported by uh government industrial as well as retail segments. And lastly, room air conditioner business saw reasonable growth. Um I think summers being stronger and harsher this time is definitely going to impact the company.

[00:01:03]So these are you know some of the things that we would want to know from the management as to how of course firstly this order passed by DPI impacts them and secondly in terms of how summer trends are looking like.

[00:01:13]>> Yeah. Well thanks Mahima for that. The summer trends remain the biggest um how do I say variable if you will and Mr. B.

[00:01:22]Thiagrajan who calls a spade a spade. MD of blue star Johnson right now to talk about that. Mr. Rajan good morning ner if anybody that I speak to right now says so my question is sir if it's such a harsh summer but in an el nino year wherein the vagaries of monsoon might come in sooner rather than later as well how predictable is production dealer inventory and business after what has been a mixed quarter 4 for the industry at Are you on mute sir?

[00:02:05]>> Uh good morning N. It is a pleasure interacting with you. Uh yes the the summer has been uh active from April 13th. Uh it was a delayed onset of summer season. U by and large it is active. Some some places indeed intermittent rains are there. But having said that the secondary tertiary movement are very good in west. Uh it was very good in south till last week.

[00:02:37]Uh we'll wait and watch what is going to happen the rest of the May and the north is picking up. uh the the primary sales uh is somewhat uh slower than what was anticipated because the dealers had inventory had I told you that they bought it in anticipation of energy level change subsequently fearing huge price increase they stopped themselves up uh with the secondary movement very good uh the primary sales have begun I would say not to the expectation of uh the industry or blue star for that matter and I would still think that it it is not very bad but it is not uh it is not easy walk at all the important factor being our ability to pro pass on the next uh level of [clears throat] price increase as you're aware 13% price hike is supposed to be affected uh in fact some 5 to 8% has happened the balance five will have to happen and furthermore cost increase is happening due to exchange rate as well as uh components which are based on uh petroleum uh derivatives like plastics etc. Therefore, uh it is not a easy summer. The volumes will happen. The margins will be under pressure and it'll be definitely better than last year. But I don't think we are yet celebrating anything at all.

[00:04:14]>> I'm guessing we shouldn't. The the other small question is this hiccup because of compressors and the import curves I believe that are in place. Does it hamper production uh enough to meet demand or or that is not a current problem?

[00:04:32]It >> is not the issue. Uh see this is about going forward. Uh but my comment about that is the new policy framework which is linking uh imports to the previous year imports.

[00:04:47]uh so the the I I we all do understand it is very important for India to uh become self-reliant. It is important for us to reduce imports. It is important for us to enhance or grow our exports or international footprint. Now uh compressors uh is one last part which is left out to be indigenized.

[00:05:14]uh I'm certain that by 2028 uh every compressor that is used in India would have been at least for room 80 segment will be manufactured in India. There is no doubt about it. Today it is in the order of around 50% of the requirement is made in India. The key question is the between now and 2028 uh linking it to previous uh years import yeah I I am not happy about because you are incentivizing uh the people who imported more uh that's not the intention of the industry at all uh this would have kept in inadverently not through intention uh I do understand we have to restrict the imports and there is a very clear road map with the industry how this indigenization will take place uh including blue star. Uh therefore uh I am not happy with the policy but I'm sure the government always consults and takes corrective measures. So that's not an issue. The there are enough material that is available. The key issue is uh how to protect the margins in uh very inflationary trend number one. Number two is uh with the petroleum price hike already announced uh there will be consumer sentiments which will dramatically change and in the process the demand will come down. Uh so the we is not the excuse. There is summer happening. Uh but unfortunately the war overall macroeconomic environment is not good.

[00:06:58]Uh good morning. This is Alex here and you mentioned the need to possibly take further price increases. You've mentioned the increases that have already taken place. I'm trying to understand specifically with inputs like copper which are so important for your industry and the fact that the prices are continuing to go higher. If you look forward in FY27, what are the kind of increases that must take place from this point on if you can quantify that as things stand right now?

[00:07:25]Um Alex good morning. Um 5% more minimum is required in order to protect the margins at last year level till now for uh the summer season enough raw material had been bought and at old exchange rates or the old commodity prices. So that 5% increase will take care of it.

[00:07:48]But that itself is looking difficult.

[00:07:51]But every month or every week you have got additional challenges that are coming up uh in terms of input uh raw material as well as the exchange rate.

[00:08:02]Therefore if I am to fast forward from today's level additional three more% minimum will be required if for a festival season. So what I'm trying to tell you is 5% has to be passed on in May, last week and June plus three more% has to be passed on in by the festival season and uh then you have got consumers who are going to tighten their spends and they are not going to be uh affording this kind of increase once again. That's where I am. That's a good point and so therefore the followup to that Mr. Thiagar Rajan is that if sales at the primary level have not been as good as anticipated and if there could be further price increases and demand destruction there then despite the high uh temperatures you must be worried about topline growth.

[00:09:03]>> Um I am I am worried but worry will not help. You have to act. Some are in your hands, some are not. Uh so blue star is clear that that's we we indeed we will be disappointed if the plan is not working out and the industry will be disappointed I suppose equally. Uh but you have to make use of this opportunity to uh invest time and energy in improving your operational efficiency in improving uh specifically the product design how you can uh become more and more competitive. You have to look at alternate materials. For example, I have been talking about this. The copper heat exchanger is uh is not the solution. We have to migrate aluminium and we have to keep the options open and we have to participate in the movement to indigenize as much as possible because you have seen uh how the Indian rupee has depreciated and therefore helping those who are indigenizing we have to work with them to ensure their quality standards are improved and this is the period to do that. uh so uh worry is uh true but uh it has to convert into action so that we are growing in a sustainable manner uh growing forward >> Mr. Rajan good morning this is Hel on this side absolutely point taken in terms of you know that's one part of the business now the other part of your business as well when you're talking about the data center side of it I know I mean industrial again is stagnant but if you have to look at data centers do you think a scale up over there is something where you could you know probably look at diverting energies there and arrest the kind of downtake that you could see from the majority of the business.

[00:11:09]>> Uh K good morning. Uh you know indeed uh we are fortunate that we have businesses that are complimentary to room air conditioners business and it can help us to uh you know protect us in a situations like this. So data center indeed is one of the segments. The other segment is also the manufacturing those orders which are under finalization or we have just received commercial air conditioning space, electromechanical project space. The other one is the commercial refrigeration part of it which is not connected with consumer behavior like ice cream uh or uh QSR. Uh these segments can impact that business too.

[00:11:57]uh but there are uh there are uh coal chain related businesses that are available. The only thing is this entire thing will not compensate for 35,000 cr room air conditioner market. Uh the rest of it all addressable if you look at it it'll amount to some 12,000 crores market and where we are leaders but it will not. So uh you are right there are uh it will protect us to some extent we are accelerating our efforts to become larger there say for example data center I have told you by 2030 I think uh close to 15% of our revenue will come from data center segment alone um and we are investing there >> okay so data centers 15% revenues by 2030 thank you Mr. Rajan so much for joining in. Always a pleasure to speak to you. I mean it's it's always a candid conversation that we have.