- Blue Star had a strong performance in the second quarter with growth in top line, EBITDA, and expanded margins.
- The festival season has been going well, with room air conditioner sales up by around 30% compared to the previous year.
- The growth in sales may be due to pent-up demand and the overall improvement in the economy.
- Consumer finance-aided sales account for close to 50% of the sales, driving significant demand.
- The tightening of consumer finance regulations by RBI may impact sales, but Blue Star remains confident in its growth outlook.
- Blue Star aims to achieve a market share of 15% by FY25 and maintain operating margins of 8-8.5%.
- Competition in the industry is expected to remain intense, but the increase in manufacturing capacity may lead to more affordable products and market growth.
- Blue Star is operating at around 90% capacity and plans to expand capacity further in the next year.
- More work needs to be done on product-related costing to improve margins.

- The company still needs to work on product-related costing
- Competition will be intense and more affordable products will be launched
- The company plans to invest 600-650 crores in expansion at Shree City
- The target asset turnover is 7.5 times the capital invested
- The plant will be commissioned in about 18 months
- The company aims to generate 4,000 crores in revenue over a three-year period
- The company follows a thumb rule of generating 750 crores of revenue for every 100 crores of capital invested in manufacturing
- The company is prepared for increased competition in the future.

#2QWithCNBCTV18 | Consumer finance-led sales is close to 50% now says B Thiagarajan of Blue Star in the context of RBI's crackdown on unsecured loans. Tells Prashant Nair, Nigel D'Souza, and Surabhi Upadhyay he does not see any slowdown in sales in H2FY24.

#bluestar #bluestarshare #cnbctv18 #businessnews #businessnewstoday #businessnewsinenglish #sharemarkettoday 

Read web story: https://www.cnbctv18.com/business/blue-star-md-explains-why-rbis-new-consumer-lending-norms-may-not-impact-sales-18351641.htm

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Let's move on to some corporate conversations then.

The company came up with a pretty good performance for the second quarter.

Strong growth was seen on the top line and at the EBITDA line as well.

Thyagarajan, MD of Blue Star to talk about the second quarter and of course the outlook as we look at the second half of the year.

Thyagarajan, thank you for joining in and season's greetings to you.

Well, the Diwali was already showing up in your numbers, right?

Whether we look at the top line growth, whether we look at the EMP segment or the UCP segment, margins expansion coming in.

So tell us, I mean, your thoughts on the second quarter and more importantly, demand trends and just the outlook that you've seen festive season on in the second half.

Season's greetings to you and your audience.

Q2 was good, as you pointed out, but then we now look forward to Q3 and Q4 as usual.

The festival season has been going on extremely well.

It commenced with Onam sales in Kerala, where we grew by more than 100%.

And so far, till last week, compared with the previous year, room air conditioner sales is up by around 30%.

That is festival season to festival season up to Diwali I am comparing.

The reasons are being asked why it should be so much of growth.

I suppose it is the pent-up demand because summer sales, as you can recall, were washed out due to unseasonal rains.

So there could have been a pent-up demand that is driving the sales.

The second 1 is overall economy is doing well.

People are beginning to buy the second and third air conditioners.

And we witness consumer finance-aided sales is close to around 50 percent now, which means people are availing that 0% final scheme.

I'm so sorry I'm interrupting, but since You brought this up, you've touched upon the hottest subject of the morning, consumer finance.

And you led me to the question, so therefore I had to interrupt because that's where the RBI slammed the brakes.

You feel this can impact demand now in the near term?

Actually, Tyre 3, 4, 5 towns is 65% of the sales now.

And the first-time buyers are going for more than 90 percent.

And we are also witnessing the – we don't have data in the country as yet.

The average age of the buyers are coming down.

When the air conditioners, typically 1 would imagine it is about the average age of about 40 years plus.

Now, youth are trying to buy, but they are probably buying for their parents or the families and so there is there is significant shift that is taking place whether it is consumer finance or credit card sales the story is on as far as this category is concerned.

Sorry, could you give us a number you know you would have the data sorry sorry for pressing But out of the sales that happen, what percentage comes from these kinds of financing schemes?

Thyagarajan, then we'll get to the important question.

Since the RBI is tightening the screws, you know, you have already grown better than what the industry is growing at.

And in the past as well you have told us you will grow at around 1.5 times if I remember correctly.

Do you think there is a risk to that growth now?

RBI is going to be tightening the screws on some of these financers.

First thing is that it is not 50% growth.

I said that we should be growing faster than the market and we have demonstrated that.

And my outlook for the full year has been that the market will grow at least to 15%, we should grow by 20% at least.

I maintain that as of now because much of the sales will have to take place in February and March, closer to summer, so how the summer will build up, et cetera.

The second thing is this happens to be the second largest category, I think, in consumer finance, because two-wheeler, four-wheelers will be ahead of us.

Now, indeed, there will be opportunities as well as threats for the financing companies.

So they are in a better position to advise how it will go.

But what has been happening is that the consumers are advancing the purchase.

So in a 10 to 12 installments they are availing.

I do not know the dynamics, how it will work.

Usually the dealers have gone ahead financing till around 7, 8 years ago.

Okay, but you know, whatever might be the new contours as they emerge of the financing model, like you said, the reliance on credit cards and on NBFCs, which was as high, unsecured, as high as 50 percent, that reliance is going to reduce.

So therefore the question, sir, are you not anticipating a slowdown in sales maybe in the second half of this year or as we look at the full year picture of FY25?

For the simple reason, the penetration levels of this category is just 7%.

And there is, you know, irrespective of what is going to happen, the CAGR of 10% is definitely possible.

In between, there may be some bad summers as it happened.

But the clear direction is this, The country will have to consume air conditioners.

So you believe the category itself is growing and you're sounding confident and you know you've maintained, I said 1.5 times what the industry grows.

So roughly around, you know, that's what you're indicating as well.

You know, I recall a few quarters ago, quite a few quarters ago, when you were saying we are heading towards 15% in terms of market share.

So could you tell us by when do you hit this 15% mark?

And also in deep freezers, I think you have a larger market share out there.

Could you tell us where do you see this number headed as well.

So both on RAC as well as on deep freezers.

Our market share as of now is 13.75 percent.

So I had indicated that operating margin of 8 to 8.5% is the target that we have got.

Once upon a time, we used to think this category is 10%, I don't think so, it may be 8 to 8.5%.

The deep freezers, we have market share close to 30%.

The emerging trend today is smaller capacities are consumed in a big way, with the ice cream penetrating entire 345 markets, which means 100 litre, 150 litre, 200 litre deep freezers.

That's the focus area where we are indigenizing and expanding our manufacturing capacity.

Thyagarajan, I just come back to 1 other thing which we've discussed before which is competition.

Right, you know the segment will grow but just look at the sheer amount of competition out there which is a newer and newer players have come through players with reach and distribution how does that you know does that make you want to moderate You know what you'll be able to do or no you think you'll be able to sort of battle it out?

No this is my 44th year of career and all throughout I have seen competition to be intense worse than what it was.

I do not think it is going to moderate at all.

It will become much more intense for the simple reason the manufacturing capacity in the country has gone up by almost 180% thanks to the PLI scheme.

So if the capacity is expanding, whether the market will be able to support that.

And I stated this earlier, that the entire PLI money of close to around 5000 crores, it will be diluted in the pricing.

So I think the products will become affordable, market will grow, therefore scale benefit will follow.

I do not think that it is going to soften at all.

Considering that Mumbai has 9 months of intense heat.

But just to round things up, again, pricing, let me flip that question and talk about margins because your margins expanded in the second quarter.

So just give us an outlook on margins and also the capacity utilization level that you are currently operating at.

We are operating at around 90 percent capacity level.

And I think phase 2 of CCT will have to be implemented next year.

So our target is to, we will hopefully cross 1000000 units.

Last year we were at 8 lakhs, 1000000 units, that capacity is just touch and go.

We will have to expand CCT phase 2 next year, which means 3 lakh more units we will manufacture.

As far as the margins are concerned, there is still a lot more work to be done in actually the product related costing.

As we discussed, the competition is going to be intense and as we get into the season a few more products in affordable range will be launched.

Thyagarajan, very quickly you briefly mentioned about the expansion at Shree City.

I think you have a year-mark closure on 600-650 crores of capex in the next couple of years.

What should be the asset turn be from this particular capex that you're putting down?

If we invest 100 crores, 750 crores of revenue should be generated.

So this will be a good 4,000 crores then?

The plant itself will be getting commissioned in about 18 months.

So every 100 crores of capital invested in manufacturing, you can imagine around 750 crores of revenue should be generated.

That has been the track record, that has been the thumb rule that we follow.

Years competition has been worse and you're ready for more going forward thank you very much for joining us with all of that as always and season's greetings sir from all of us here to you to your team to your family thank


Speaker 0: Let's move on to some corporate conversations then. Blue Star is on our radar. The company came up with a pretty good performance for the second quarter. Strong growth was seen on the top line and at the EBITDA line as well. Margins also expanded.

We have with us Mr. B. Thyagarajan, MD of Blue Star to talk about the second quarter and of course the outlook as we look at the second half of the year. Mr. Thyagarajan, thank you for joining in and season's greetings to you.

Hope you had a fantastic Diwali. Well, the Diwali was already showing up in your numbers, right? Whether we look at the top line growth, whether we look at the EMP segment or the UCP segment, margins expansion coming in. So tell us, I mean, your thoughts on the second quarter and more importantly, demand trends and just the outlook that you've seen festive season on in the second half.

Speaker 1: Good morning. It's a pleasure interacting with you. Season's greetings to you and your audience. Q2 was good, as you pointed out, but then we now look forward to Q3 and Q4 as usual. The festival season has been going on extremely well.

It commenced with Onam sales in Kerala, where we grew by more than 100%. And so far, till last week, compared with the previous year, room air conditioner sales is up by around 30%. That is festival season to festival season up to Diwali I am comparing. It is good. The reasons are being asked why it should be so much of growth.

I suppose it is the pent-up demand because summer sales, as you can recall, were washed out due to unseasonal rains. So there could have been a pent-up demand that is driving the sales. The second 1 is overall economy is doing well. People are beginning to buy the second and third air conditioners. And we witness consumer finance-aided sales is close to around 50 percent now, which means people are availing that 0% final scheme.

Speaker 0: Sir, allow me to come in over there. I'm so sorry I'm interrupting, but since You brought this up, you've touched upon the hottest subject of the morning, consumer finance. And you led me to the question, so therefore I had to interrupt because that's where the RBI slammed the brakes. You feel this can impact demand now in the near term?

Speaker 1: It is driving huge demand. Actually, Tyre 3, 4, 5 towns is 65% of the sales now. And the first-time buyers are going for more than 90 percent. And we are also witnessing the – we don't have data in the country as yet. The average age of the buyers are coming down.

When the air conditioners, typically 1 would imagine it is about the average age of about 40 years plus. Now, youth are trying to buy, but they are probably buying for their parents or the families and so there is there is significant shift that is taking place whether it is consumer finance or credit card sales the story is on as far as this category is concerned.

Speaker 2: Sorry, could you give us a number you know you would have the data sorry sorry for pressing But out of the sales that happen, what percentage comes from these kinds of financing schemes? Which is unsecured?

Speaker 1: Close to 50%, I said.

Speaker 3: Yes, 50%. 50%

Speaker 2: of the sales comes from, wow.

Speaker 3: So Mr. Thyagarajan, then we'll get to the important question. Since the RBI is tightening the screws, you know, you have already grown better than what the industry is growing at. And in the past as well you have told us you will grow at around 1.5 times if I remember correctly. Do you think there is a risk to that growth now?

RBI is going to be tightening the screws on some of these financers. So will that impact sales?

Speaker 1: So I will put it like this. First thing is that it is not 50% growth. I said that we should be growing faster than the market and we have demonstrated that. And my outlook for the full year has been that the market will grow at least to 15%, we should grow by 20% at least. That's what I had indicated.

I maintain that as of now because much of the sales will have to take place in February and March, closer to summer, so how the summer will build up, et cetera. The second thing is this happens to be the second largest category, I think, in consumer finance, because two-wheeler, four-wheelers will be ahead of us. Now, indeed, there will be opportunities as well as threats for the financing companies. So they are in a better position to advise how it will go. But what has been happening is that the consumers are advancing the purchase.

So in a 10 to 12 installments they are availing. I am not from a consumer finance firm. I do not know the dynamics, how it will work. Usually the dealers have gone ahead financing till around 7, 8 years ago. Eventually it moved to NBFCs.

Speaker 0: Okay, but you know, whatever might be the new contours as they emerge of the financing model, like you said, the reliance on credit cards and on NBFCs, which was as high, unsecured, as high as 50 percent, that reliance is going to reduce. We know that. So therefore the question, sir, are you not anticipating a slowdown in sales maybe in the second half of this year or as we look at the full year picture of FY25?

Speaker 1: Not at all. For the simple reason, the penetration levels of this category is just 7%. And there is, you know, irrespective of what is going to happen, the CAGR of 10% is definitely possible. In between, there may be some bad summers as it happened. But the clear direction is this, The country will have to consume air conditioners.

Speaker 3: Okay. All right, Mr. Tiwari. So you believe the category itself is growing and you're sounding confident and you know you've maintained, I said 1.5 times what the industry grows. So roughly around, you know, that's what you're indicating as well.

Tell us about market share. You know, I recall a few quarters ago, quite a few quarters ago, when you were saying we are heading towards 15% in terms of market share. So could you tell us by when do you hit this 15% mark? And also in deep freezers, I think you have a larger market share out there. I think it's late 20s.

Could you tell us where do you see this number headed as well. So both on RAC as well as on deep freezers.

Speaker 1: Our market share as of now is 13.75 percent. That's what I would estimate it at. 15 percent is the goal by FY25. I think they are on track. We will be able to do that.

And without impacting the margin. So I had indicated that operating margin of 8 to 8.5% is the target that we have got. Once upon a time, we used to think this category is 10%, I don't think so, it may be 8 to 8.5%. The deep freezers, we have market share close to 30%. That's a very fast-growing category.

The CAGR there may be around 20%. The emerging trend today is smaller capacities are consumed in a big way, with the ice cream penetrating entire 345 markets, which means 100 litre, 150 litre, 200 litre deep freezers. That's the focus area where we are indigenizing and expanding our manufacturing capacity.

Speaker 2: Mr. Thyagarajan, I just come back to 1 other thing which we've discussed before which is competition. Right, you know the segment will grow but just look at the sheer amount of competition out there which is a newer and newer players have come through players with reach and distribution how does that you know does that make you want to moderate You know what you'll be able to do or no you think you'll be able to sort of battle it out?

Speaker 1: No this is my 44th year of career and all throughout I have seen competition to be intense worse than what it was. I do not think it is going to moderate at all. It will become much more intense for the simple reason the manufacturing capacity in the country has gone up by almost 180% thanks to the PLI scheme. So if the capacity is expanding, whether the market will be able to support that. And I stated this earlier, that the entire PLI money of close to around 5000 crores, it will be diluted in the pricing.

So I think the products will become affordable, market will grow, therefore scale benefit will follow. Competition will be intense. I do not think that it is going to soften at all.

Speaker 0: As consumers, that sounds fantastic, Mr. Thyagarajan. Considering that Mumbai has 9 months of intense heat. We can do with more and more ACs, right? But just to round things up, again, pricing, let me flip that question and talk about margins because your margins expanded in the second quarter.

You were at 6.5%. So just give us an outlook on margins and also the capacity utilization level that you are currently operating at.

Speaker 1: We are operating at around 90 percent capacity level. And I think phase 2 of CCT will have to be implemented next year. So our target is to, we will hopefully cross 1000000 units. Last year we were at 8 lakhs, 1000000 units, that capacity is just touch and go. We will have to expand CCT phase 2 next year, which means 3 lakh more units we will manufacture.

As far as the margins are concerned, there is still a lot more work to be done in actually the product related costing. As we discussed, the competition is going to be intense and as we get into the season a few more products in affordable range will be launched.

Speaker 3: Okay all right Mr. Thyagarajan, very quickly you briefly mentioned about the expansion at Shree City. I think you have a year-mark closure on 600-650 crores of capex in the next couple of years. What should be the asset turn be from this particular capex that you're putting down?

Speaker 1: So our term rule has been 7.5 times. If we invest 100 crores, 750 crores of revenue should be generated. That's how we look at it.

Speaker 3: So this will be a good 4,000 crores then?

Speaker 1: That's right. But over a three-year period, right? The plant itself will be getting commissioned in about 18 months. So every 100 crores of capital invested in manufacturing, you can imagine around 750 crores of revenue should be generated. That has been the track record, that has been the thumb rule that we follow.

Speaker 2: Years competition has been worse and you're ready for more going forward thank you very much for joining us with all of that as always and season's greetings sir from all of us here to you to your team to your family thank

Speaker 1: you

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Consumer Finance-Led Sales Is Close To 50%, Says Blue Star Amid RBI's Clamp Down On Unsecured Credit