Blue Star puts J&K plant on hold over tax breaks

cAccording to joint managing director B. Thiagarajan, the company has already written to the state government seeking clarity over tax benefits.

“We plan to or will exit Jammu if the benefits are not available,” Thiagarajan said, pointing out that Blue Star as a public limited company is answerable to its shareholders.

In 2016, Blue Star took land on lease in Jammu after being told that even after the implementation of the goods and services tax (GST), tax concessions will continue in some form.

Earlier, Cenvat benefit of 14% was the key attraction for companies to set up manufacturing facilities in Jammu and Kashmir. Blue Star also has manufacturing facilities in Himachal Pradesh, one of which was constructed in 2005 and enjoyed tax breaks for 10 years. The other was started in 2011.

Under the GST regime, consuming states are at an advantage over manufacturing states. Jammu and Kashmir’s consumption is less than 5% of its total production.

According to Thiagarajan, while the central government is ready to compensate partly, the Jammu and Kashmir government is unlikely to make up the difference. He said a letter has been sent to the state government, saying that the company will wait till 31 March for clarity to emerge.

“We can’t wait any longer,” he said. The cost of execution is estimated to have gone up by at least 12% since the project was conceived. The company does not have capacity constraint till the summer of 2019, but will have to make alternative plans to meet demand in 2020.

Since taking the land on lease in Jammu, Blue Star has spent around Rs3 crore on designs and site development.

The company had acquired another plot at Sri City in Andhra Pradesh to double capacity for manufacturing room air-conditioners from 550,000 units per annum to 1.1 million units by 2020.

With the Jammu plan almost shelved, the company would focus entirely on its new factory in Andhra Pradesh. An investment of Rs220 crore was earlier planned for the two new facilities combined.

The construction of the factory in Andhra Pradesh, where most of the budgeted investment will be pumped in, will start by the middle of 2018 and the first phase would be completed by December 2019.

With a turnover of Rs4,400 crore in 2016-17, the company would fund its expansion entirely from internal accruals, Thiagarajan said. The room air-conditioner segment is the highest contributor at one-third of the company’s total revenue, followed by commercial refrigeration.

On Thursday, Blue Star shares fell 0.92%, or Rs7.05, to Rs760.50 on BSE while the benchmark Sensex lost 0.39%, or 129.91 points, to end the day at 33,006.27.livemint

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