The scorching heatwave sweeping across India may not be pleasant for everyone, but it’s certainly a cause for celebration in the air conditioning (AC) sector. As the Indian Meteorological Department forecasts a significant rise in heatwave days this summer, the AC industry is gearing up for substantial growth in Q4 FY25, fueled by a combination of early summer and proactive stocking by retailers.
Rising Temperatures Boost AC Sales
With temperatures soaring across the nation, particularly from January to March, the demand for cooling solutions is set to skyrocket. The expectation is that major cities will experience more heatwave days than in previous years, which bodes well for manufacturers in the cooling industry. Companies are optimistic about achieving impressive sales figures this summer, especially as early indicators point to a favorable season ahead.
Industry Insights from Kotak Institutional Equities
According to Kotak Institutional Equities, while many manufacturers have secured their compressor supplies for the upcoming season, some are in a stronger position than others. They note that:
- Primary growth trends in AC sales are promising.
- Monitoring secondary sales and profit margins will be crucial, especially in light of rising raw material costs, currency fluctuations, and fierce competition.
In the short term, challenges regarding profitability may arise for brands like Voltas and Lloyd (Havells), though Lloyd may benefit from a lower sales base in the previous year.
Blue Star’s Growth Projections
Blue Star, a key player in the RAC industry, anticipates over 30% growth in volume for Q4. Their leadership attributes this surge to two main factors:
- Early indications of a robust summer.
- Aggressive stocking strategies by retailers, especially after last year’s supply issues and fears of potential compressor shortages.
Despite these optimistic primary sales trends, the company remains vigilant about consumer sentiment and secondary sales performance.
Potential Compressor Shortages
Concerns have been raised about possible compressor shortages due to the expiration of BIS licenses for foreign vendors. For instance, the license for Highly (China) is valid through June 2025, and GMCC (China) until January 2026. From April 2024 to February 2025, compressor imports to India surged by 40% year-on-year, alleviating immediate supply concerns for the current season.
Understanding Margin Pressures
The RAC sector is currently grappling with raw material inflation, particularly in metals and refrigerants, along with the depreciation of the Indian Rupee. The Kotak report emphasizes that, amid stiff competition, market leaders are prioritizing absolute profit growth over percentage margins. Some companies are implementing price hikes, but increased rebates may pressure overall profitability. As a result, while revenue growth is expected to be strong, profit growth may lag behind for many businesses in the industry.
In summary, the Indian AC market is on the brink of a bustling summer season, driven by soaring temperatures and strategic preparations. Companies are optimistic, but they must navigate potential challenges in supply chains and margins to fully capitalize on this opportunity.
