The Blue Star stock is in focus as heat waves scorch many parts of the country. Anticipating higher demand in the coming years, the company is planning to set up two units — one in Jammu and another near Chennai — at an investment of ₹215 crore. Speaking to Bloomberg TV India, Blue Star Joint Managing Director B Thiyagarajan said the air-conditioner and water-cooler market may grow 15 per cent and the company hopes to grow 25 per cent.

Can you take us through the details of the expansion plan? What kind of investment will go in the capacity that is being added?

We have been growing well in the unitary products business — the room air-conditioners as well as deep freezers and water coolers. We have two old units — one is in Thane and another one is in Baruch. Both the factories are being closed down. And our room air-conditioners are manufactured in Himachal Pradesh. There are two plants there and there is another plant in Ahmadabad, which manufactures deep freezers.

The raw material from Mumbai port moves to Himachal and the finished goods from Himachal move to all over India. The share of the market in South India is 50 per cent of the total number of units we sell. We are confronting the problems of 12-15 days of finished goods movement, raw materials and finished goods transportation expenses. Therefore, we felt the need for a manufacturing unit in southern India. The Himachal unit was under excise exemptions. That period was over. So that factory can now run without excise.

But for the additional demand growth that is coming in, we wanted a location which can provide us with Cenvat exemption. So we zeroed in on Jammu. There, we will have one factory and another unit in Sri City SEZ (near Chennai). Put together, the two units will come up at a cost of ₹215 crore.

We will be going ahead with the commissioning of the Jammu unit by May 2017 and the Sri City unit by May 2018. Unfortunately, due to a delay in government formation in Jammu and Kashmir, there was some kind of delay. But I think we will get through that and acquire the land and go ahead with the commissioning. By chance if the Jammu unit is going to be delayed further, we may have to give priority to Sri City and then take up Jammu. Both the factories will be state-of-the-art. It will have full backward integration in line with the Make in India theme. The new units will manufacture room air-conditioners, deep freezers and water coolers. It has a provision to manufacturer water purifiers, the business we have entered into last week.

Since you will be saving on transportation charges and taxes. What kind of margin expansion can we look at after you commission these facilities?

In the cooling products segment, we have been managing an operating margin of somewhere around 9.5-10 per cent. Our goal in three years will be something like 12 per cent. But as you can very well appreciate, when you set up a factory it won’t go into full capacity. The second thing is you will incur interest and the depreciation charges till it pays back. Our goal or the strategy is to improve the margin by 200 basis points.

Talking about your core business which is of course AC and refrigerators, what is the growth that you expect in this season? Do have any targets for sales and market share?

We have stated that the market should grow 15 per cent. But every year, we have grown at least 100 basis points more than the market. Against market growth of 10 per cent last year, we have grown around 20 per cent. In FY17, my forecast is that the market should be growing 15 per cent and we should grow 25 per cent. But going by the summer heat waves at many locations, I think the market has the potential to grow 20 per cent. In which case, we should aim to grow 30 per cent. I am very optimistic.

A good summer also brings good monsoon and monsoon is equally important to us because more than 55 per cent of our sale comes from tier III, IV, V cities. If the monsoon is good, we get higher spending on durables during the festival season. Therefore, on the whole the prospect seems to be very good.

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