Blue Star to decide on Jammu and Kashmir plant in October

Though the Rs 4,400 crore company is in favour of such economic measures, it has had to re-evaluate its expansion plans, even as it awaits the tabling of the KPMG report in October when the prudence of setting up its greenfield plant in J&K will be known.

B Thiagarajan, Joint MD, Blue Star, said the Board is meeting next month, when the final decision as to go ahead with its expansion in J&K would be taken. As a mitigating measure, the company had opted for setting up a manufacturing facility in Sricity Special Economic Zone in Andhra Pradesh. The logistical advantage of being in the SEZ works in its favour, given that 65 per cent of its market is in South, he pointed out. 

However, the advantage that J&K offers outshines that of the Sricity, he said, elaborating on the factors that had driven the company to consider the northern location. The listed entity had announced setting up of two major manufacturing facilities, one each in Samba in Jammu and other at Sri City SEZ involving an outlay of Rs 215 crore over a fouryear period. These two new factories were intended to replace its defunct units in Thane and Bharuch. Besides these, the company has plants at Wada, Dadra near Mumbai, Ahmedabad and in Himachal Pradesh.

But, the tweak in the roll-out of GST from the originally scheduled month of April to July had caught them unaware. The strategic business planning had also gone for a toss as the assumptions made by the company on the impact of GST was wrong, he conceded, noting that the disruption from May to June on account of shifting the GST implementation schedule, had not been “foreseen by them.” Adding to this was the freezing of the rates structure. When the tax slabs were formalised, the 28 per cent bracket was a “disappointment,” Thiagarajan said, stressing on the need for education and healthcare sectors too to benefit from air-conditioning amenities.

Also, there was complete chaos as the inventory accounting in view of the delayed clarifications on the GST front had hit the business hard, he said, lamenting that after the rollout of the destination-based GST, the benefit quantum had changed. So, though the ground-breaking for J&K facility was over and also the letter of intent for equipment had been completed, Blue Star has put this project on “evaluation” mode. 

Terming the November 8 demonetisation drive as an “essential experiment,” he said this exercise was an “interruption or disruption” as it had to alter its plans.

With close to 11 per cent market share in residential air conditioner segment, which contributes Rs 1,300 crore of its turnover, the company is confident of growing at 10 per cent with festive sales expected to bear the brunt of GST.