Blue Star expects AC sales bump from GST rate cut, as well as ‘short-term pain’

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Blue Star Ltd. expects AC sales to beat its own forecast this financial year, thanks to upcoming GST reforms, according to a top executive, underscoring the consumption optimism amid the threat of higher US tariffs.

Blue Star MD B. Thiagrajan.(Twitter)

The Chennai-based white goods maker, which had forecast growth of 10% to 15% in room AC sales volumes for the year to March 31, now expects an increase of up to 20% in India’s price-sensitive market, Managing Director B. Thiagarajan told Reuters on Friday.

The eventual GST rate on ACs is not clear but it is now at the maximum 28%, so the planned cut should help dealers and manufacturers, who have struggled this year due to a cooler summer, he said.

“From 28% for ... ACs to (potentially) 18% is something which nobody would have dreamt of,” Thiagarajan said by phone. “Now this is an extraordinary step, and it will boost demand especially in a year where the summer season has failed.”

Prime Minister Narendra Modi, in his Independence Day speech on 15 August, announced GST reforms in India’s biggest tax overhaul since 2017. That’s aimed at boosting consumption in the world's most populous nation as trade tensions with the US grow. The GST Council, led by Union Finance Minister Nirmala Sitharaman, will decide on GST rationalisation when it meets early September.

The optimism masks a bigger problem: Indian companies have seen the steepest earnings downgrade in Asia amid the threat of US tariffs. GST reforms may do precious little to cushion the blow. A sustained 50% US tariff can cut India’s GDP by 1 percentage point over time, even as GST rate cuts add 0.35-0.45 percentage points by FY27.

Blue Star's unitary products business, which sells room air-conditioners and commercial refrigeration systems, made up nearly half its revenue of ₹11,977 crore last year, when it commanded a market share of close to 14% in room ACs.

To be sure, there is going to be short-term pain for Blue Star and the $4 billion sector that also includes Tata Group’s Voltas Ltd. and Japan’s Daikin, as consumers postpone AC purchases until the GST rate cuts take effect.

Industry watchers say electronics retailers could experience slow sales in the run-up to the Hindu festival of Diwali in October, by which time Modi said the cuts would take effect.

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