Air-conditioner (AC) demand continues to strengthen this year

At industry level, Indian room air-conditioner (RAC) market stood at ~10 mn units in FY24 which is expected to grow at strong pace of 25%+ in FY25E with rising temperature levels. Specifically, for Q4 the growth is expected to cross 30% level. 

The penetration level of ACs is estimated around 7-8% among Indian households which is quite low considering India's tropical geography and rising temperature levels each passing year, making it a healthy case for medium-term growth too. 

This year, there have been concerns about potential compressor shortage as BIS certification of Chinese vendors required for certain critical components had lapsed and are taking a while to be renewed from government's end. Besides, Chinese imports had diverted their supply to US earlier owing to expected tariff increase. However, Indian industry remains well-prepared for 25-30% growth this fiscal while in case of higher growth, compressor shortage may play its role. Recently, Government has made certain exemptions for mandatory BIS certification for AC compressors with capacities of 2 tonnes or more which shall be supportive. From medium term perspective, companies like Voltas and select contract manufacturers are investing in manufacturing compressors in India itself and not depend on imports, which shall be backed by government’s component PLI scheme.   

Price hike of 3-4% has been recently taken by AC companies in order to offset cost pressure of escalations in prices of commodities like copper, elevated compressor prices owing to its shortage and rupee depreciation. Considering the demand supply scenario, expect pricing power in favor of companies and hence shall be able to maintain their margins.

Going ahead, even for FY26, the growth is expected to stay healthy at 25-30% levels. The AC theme could be played with manufacturers like Voltas (~20.5% market share), Blue star (~14% market share), Johnson Hitachi and also through contract manufacturers like Amber Enterprises and PG Electroplast.