Accelerated growth in an under-penetrated category

In India, many basic consumer categories have grown rapidly over the last decade. Their distribution networks are now well penetrated and we believe growth is likely to slow. As such, the most attractive growth opportunities are likely to be found in other categories.

One example is the air-conditioning industry. At present, only 6 million air-conditioners are sold per year in India, compared to 70 million per year in China. But as consumers’ incomes rise and purchasing power increases, we believe India’s aspirational consumer base will start to upgrade their lifestyles – and we expect the air-conditioning industry to benefit.

Blue Star is a leading air-conditioner manufacturer in India, which has a dominant consumer franchise and has strengthened its market share consistently, from 5% in 2011 to 13.5% in FY2023. We have been shareholders of Blue Star for many years and the company recently launched more affordable models and has entered into adjacent categories such as air coolers, air purifiers and water purifiers. In the coming years these new categories, which also have low penetration rates, could develop into large businesses and become new growth drivers for Blue Star. Given India’s current level of per-capita income, we believe that demand for air-conditioners should start to accelerate and grow significantly over time.

Low air-conditioner penetration in India

Blue Star’s market share has more than doubled

Source: Company Presentations, Kotak Securities, as of 31 May 2023.

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