AC prices may rise 2.5% on GST heat

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Blue Star says air conditioners likely to be taxed at 28% under GST regime, related services to also get dearer.

Room air conditioner prices are set to increase once goods and services tax (GST) gets implemented in July this year. Industry players are expecting air conditioners to be taxed on the higher side in the GST regime. As a result, customers will have to pay additional 2.5% for purchasing the air conditioners while also incurring a higher cost for availing related services.Speaking with DNA Money, B Thiagarajan, joint managing director, Blue Star Ltd, said that GST will be a huge transition and three months (post implementation) will be a big thing to cope with as the entire value chain will have to be brought into its ambit. “It is more or less clear that air conditioners will be taxed at 28% in the GST regime. The product alone will cost 2.5% more than what a customer will be paying now. That apart, the overall services cost will also go up as it will be taxed in the 18% bracket,” he said.

Sensing the challenges and consumer sentiments, Blue Star has pushed reasonable inventory into the market.

“If you are going to carry old inventory post GST, it will create certain other problems,” said Thiagarajan, adding that for GST to result in cost reduction it will take at least two years, if not more.

Additionally, starting January 1, 2018, the government will be introducing new energy rating norms. “This will further push up the prices,” he said, adding that the five-star air conditioners sold at present will become three-star next year.

According to Thiagarajan, 40% of air conditioner sales happen before June but consumers will end up preponing their purchases considering GST will increase their cost of purchase once implemented.

While air conditioner industry is not on the government’s priority list, Thiagarajan said, that it (government) will end up reviewing the 28% and 18% rate at some point in time.

On the current business season for air conditioners, he said that it’s going to be a great summer. “However I will keep an eye on monsoons as well given 50% of the sales come from tier 3, 4, 5 markets,” he said.

Last year, the air-conditioner market grew by 20% and Blue Star registered a 35% growth. This year, Thiagarajan said the margin may not be that high. “If the market grows by 15% to 20%, then we will grow by 20% to 25% because commodity prices are going up and so is the competitive intensity in the market.”

Margins are also witnessing minor pressure but it is manageable. “The margins for summer are protected but we will have to see how things pan out thereafter,” he said.

On getting the company’s new plants operational at Jammu and Sri City, Andhra Pradesh, Thiagarajan said, the company is awaiting GST-related clarity. “Hopefully, it will be available within a month’s time,” he said.

Source: http://www.dnaindia.com/money/report-ac-prices-may-rise-25-on-gst-heat-2355733

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