Air conditioner prices may fall further by festive season⁠— Blue Star has already cut employee costs as demand slumped

Air conditioner prices may fall further by festive season⁠— Blue Star has already cut employee costs as demand slumped
UNSPLASH
  • Blue Star told JM Financials that the market is not “absorbing” price hike due to customs duty hike and the rupee depreciation.
  • Blue star’s share price fell almost 45% so far this year.
  • Unfortunately for Blue star, the ongoing lockdown has come in during summer, the peak season for one of its biggest products - AC.
Air Conditioner price may fall further during the festive season — all thanks to the subdued consumer demand due to the coronavirus crisis.

Blue Star, the air conditioning manufacturer, told JM Financials, an investment management firm that the market is not “absorbing” price hike due to customs duty hike and the rupee depreciation — and the dealers strive to reduce inventory.


Blue star’s share price fell almost 45% so far this year. ‘
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The company told JM Financials — that its room AC segment may see a decline of 25-30% for 2021 considering the inventory levels of 60 days. Unfortunately for Blue star, the ongoing lockdown has come in during summer, the peak season for one of its biggest products - AC.

And even going forward, buyers may postpone the purchase of electrical goods, given the rising uncertainty around the economy, businesses, jobs, and salaries. The lockdown in the last quarter lasted a week, but in the second quarter, i.e. April to June, Blue Star, like other companies, has lost six weeks of business.

JM Financials said they maintain the target price of ₹415 for the Blue star shares that were trading at ₹470 this morning (May 21). It expects high channel inventory, order cancellations in the electromagnetic pulse segment and cut back in discretionary spends that are likely to drive down earnings further.
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Health authorities are also pushing for a switch to fans as there is a possibility that COVID-19 could spread due to centralised air conditioners.

Like all other companies, the Blue star has also imposed aggressive cost control measures by axing employees and other overheads by 25% — which the company said, can result in cost savings of 300-350 basis points.

In an interview with CNBCTV18 earlier Blue Star, Managing Director B Thiagarajan said, “Things are tough” but he was optimistic that non-seasonal small appliances would recover faster than ACs.
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