Premium water heater and water purifier manufacturer, AO Smith has reported 50 per cent sales decline in 2019 compared to previous few years due to slowdown in the real estate sector, Parag Kulkarni, MD, AO Smith, told Bismah Malik in an interview.
The US-based company, however, grew at 13 per cent from January to December 2019. The sales had touched a record high of 40 per cent in the previous year due to rising inventories in the sector. Its water heaters and purifiers are generally bought by construction companies.
The company had made an investment of over Rs 500 crore in various manufacturing facilities in India.
Tell us about the journey so far for AO Smith.
We are now about a decade-old company in the country. Our first plant came in 2010. We made investments in Bengaluru and Karnataka manufacturing plants. We have invested in Harohalli. We are one of the first possible investors in the area. Our net investments till date may be close to about more than Rs 500 crore. In that manufactory, we have 20 acres of industrial plot in the first phase.
The second phase started in 2014. We have built up a facility of about 276 thousand square feet, which includes manufacturing of both water heaters and water purifiers. The facility has an air-conditioned area. We manufacture in a completely safe and controlled area. There is no chance for infection to spread.
Is the company looking for expansion? Tells us about your plans.
No. We have enough scope to expand in Bengaluru. We manufacture everything internally, however, there could be some import dependency. We have a large manufacturing base in China and we get some components from our China factory.
So there is a focus on localisation. We are the fastest-growing geography in the AO Smith corporation and growing at double digits...Over the last three years, it staggered at 30 per cent. We grew at 13% in India, a high double-digit growth.
The kind of water heaters we manufacture can last for about 7 to 10 years, so we sell over 60 per cent to those who buy new houses. Amid the slowdown in the real estate sector, 13 per cent growth is good for us.
What is your business outlook for coming fiscal?
The consumer has become wiser these days while spending money and running for value for money.
When a customer applies his or her mind while spending money that is good for brands as they have to deliver more value to them for what they are spending. In that sense, I feel there is a general optimism in the market.
Has AO Smith been able to expand in tier 2, 3 cities apart from metros?
AO Smith was largely seen as tier 1 brand in the last 3 to 4 years but over the last 2 to 3 years our focus has been aspirational. There is India outside that 7 to 8 metros. About 53 cities in the country have a population of more than one million, AO Smith has virtually represented itself in all these places including cities like Coimbatore, Madurai, Kochi, Chandigarh, Surat, Baroda, Nagpur, Indore etc. We have been growing at about 4 to 5 per cent faster in tier 1 cities...I think the gap between tier 1, tier 2 and tier 3 cities is fast diminishing.
Are you developing your own omni-comm channel?
We obviously are present on the platform where they go to and if we have to give you some statistics maybe 2 years back we had 4 per cent of businesses coming from e-commerce.