The impending implementation of GST has forced AC major Blue Star to consolidate and restructure its manufacturing sites. The company that makes ACs and AC components from six locations across India plans to open a plant in South India by the later part of this year.
“Over seven decades, we set up plants at different points of time at various locations for different reasons. Some were for tax concessions including excise and CENVAT; others were opened for earlier products that were discontinued later but the facilities were used anyway. With GST coming in, there would be no tax benefit and it would make no sense, say for example, to import a component and carry it all the way to Himachal,” said B Thiagarajan, executive director and president of AC and refrigeration products business at Blue Star.
The company has manufacturing plants in Ahmedabad, Dadra and two facilities each in Thane and Himachal Pradesh. “We have been cramming these facilities. With newer requirements, we need different manufacturing processes and testing facilities. So, we are mapping for locations around ports to start a new plant. We also want to be closer to our markets and hence we are looking for a location in Tamil Nadu, Karnataka (Bengaluru), Andhra Pradesh or Telangana,” he added.
The company has appointed KPMG to help it in finalising the location for its new plant. The selection process is expected to be completed by September end.
“We are taking calculated steps to come to a decision. Earlier, in the other plants, our decisions were a bit fuzzy, I must say, mostly based on tax benefits. We end up spending about Rs 150 crore every year on logistics, which is the second biggest cost component for us after employee costs. We have planned to cut that cost while we intend to spend around the same amount for the new manufacturing plant,” he added.
Blue Star also plans to increase its exports, backed by the confidence given by its latest product the inverted VRF (variable refrigerant flow) AC system.