Blue Star MD explains why RBI's new consumer lending norms may not impact sales

Fueled by robust festive sales, consumer durables giant Blue Star is targeting a 20% revenue growth this financial year, surpassing the projected industry average of 15%.

Despite a significant portion of their sales being driven by loan-financed purchases, including popular zero finance schemes, Managing Director B Thiagarajan remains optimistic. He believes the new lending norms set by the Reserve Bank of India (RBI) will have a minimal impact.

“The penetration level in the air-conditioners category is only 7%. Irrespective of what happens, a CAGR (compounded annual growth rate) of 10% is definitely possible. There may be some disruptions in sales in between. But the clear direction is that the country will have to consume air conditioners,” he explained.

On Thursday, November 16, RBI increased the risk weight on various personal loan categories extended by commercial banks and non-banking finance companies (NBFCs) by 25 percentage points. This simply means the lenders must set aside more capital while extending such loans.

Thiagarajan noted that consumer finance is particularly fueling demand in Tier-III, Tier-IV, and Tier-V towns, constituting 65% of sales. First-time buyers account for over 90% of these purchases, indicating a growing market among newcomers. The average age of the buyer is also coming down, which is a significant shift.

During the festive period leading up to Diwali, Blue Star's room air-conditioner sales have grown by nearly 30% over the same period last year, he noted.

He attributed the strong growth to pent-up demand following a challenging summer marked by unseasonal rains that disrupted sales. Another contributing factor, according to Thiagarajan, is the overall positive economic climate, leading consumers to invest in multiple air-conditioning units, with second and third purchases becoming increasingly common.

In terms of market share, Blue Star aims to reach 15% by the financial year 2025. The current market share is around 13.75%.

In the deep-freezers category, where Blue Star enjoys a market share of close to 30%, the focus is on indigenisation and expanding manufacturing capacity to meet the growing demand for smaller capacities.

“That is a very fast-growing category. The CAGR there is around 20%. Smaller capacities are consumed in a big way, which means 100-150-200 litres deep-freezers. That is the focus area where we are indigenising and expanding our manufacturing capacity,” he said.

The consumer appliances maker reported solid earnings for the quarter ended September 2023 (Q2FY24). Revenue from operations grew 20% to ₹1,890.4 crore from ₹1,576.2 crore a year ago on the back of strong demand from industrial areas and hospitality segments.

The Mumbai-based consumer durables company's market capitalisation was at ₹19,916 crore as of November 15, 2023. The company specialises in air conditioning, commercial refrigeration, and MEP services, competing with industry giants such as Daikin, LG Electronics, Voltas, and others in the ever-evolving home appliances sector.

Shares of the company have gained over 6% in the last month while the benchmark Nifty 50 has remained flat.