For air-conditioning makers, India is where growth is

Photo: Shutterstock
A literary-minded room air conditioner (AC) industry executive confesses that during winter, which is particularly harsh in northern and eastern parts of the country, he will recite to himself the concluding lines from Ode to the West Wind: “The trumpet of prophecy! O wind; if winter comes can spring be far behind.”

In India, spring unlike in the West is short and summer starts soon after winter. What warms the cockles of an AC maker’s heart is when the weatherman says the country is heading for a long punishing summer. The initial weather forecast for 2017 of a searing summer could not be any better for AC makers. 

As it works for the AC market, the four to five summer months are the busy season when the machines travel from factories through the long chain of dealers and retailers to buyers’ homes. The busy season, as it was seen in recent years, gets extended by a couple of months if after the monsoon the warm weather returns before making way for winter. Ahead of the busy season, AC makers, including the foreign entities, will be ready with new models to entice buyers. The new models on close scrutiny often will appear like old wine in a new bottle. But once in a while ACs launched during summer are embodied with breakthrough technologies that truly guarantee energy saving. 

According to B Thiagarajan, joint managing director of Blue Star, inverter split AC with compressors changing speed depending on ambient load is an “amazing power efficient machine which is designed to set temperature in steps of 0.5 degree for comfort of users.” To the relief of environmentalists, high-end inverter ACs use the advanced R-32 refrigerant with a global warming potential (GWP) that is at least one-third lower than the more commonly used R-410A refrigerant. Though their numbers are still small, some will satisfy themselves about “nil ozone depletion and very low GWP” of an AC before they would buy one. 

A report by investment management group Motilal Oswal says Japanese companies such as Daikin, Mitsubishi and Hitachi were in the forefront in introducing inverter ACs in India and they continue to enjoy leadership status in that segment. Voltas, which with over 20 per cent has the biggest share of the overall AC market, and Blue Star, the upstart in room AC segment since it got into the act in 2011, have on offer a fairly large number of inverter models. The focus on building capacity to make inverter ACs on a fast pace by select local companies is because of realisation that the market is ready for a rapid transition from split ACs to inverter ACs whose share could become 50 per cent by 2020. 

Of all the countries, India offers highest growth potential for room ACs since the “market size in India is only around 5 million units with household penetration of 4 per cent,” says Thiagarajan. AC makers here are making large investments in building new capacity. In a simultaneous move, they are also making liberal fund allocations for development of new products. All this is being done since the industry is sure that room AC demand growth in the country will continue to be at a high double digit rate for many years. 

In the first three quarters of 2016-17, the demand for room ACs grew 20 per cent. Fortunately for the industry, invalidation of 86 per cent of bank notes happened when winter had already set in and sales were low in any case. Among the demand triggering factors, the Motilal Oswal report cites are popular perception about room AC changing from luxury to necessity with growing numbers of households going for multiple machines, rising disposable income improving affordability and progress of urbanisation. Market feedback is, more and more people are acquiring room ACs on “need basis rather than as planned purchases.” A three-tier brand hierarchy obtains in the room AC market: premium, popular and economy. Some of the popular brands are arming themselves to make it to the premium slot, while not forsaking space in the ‘popular’ category. 

Ahead of summer and through the hot season, AC makers will be found spending heavily on promoting their products. The year on year sharp rises in the industry’s advertisement budget is proof such campaign is yielding rich dividends in terms of sales. The Voltas campaign for its ACs with lots of jollity thrown in and Blue Star promising “office like cooling at home” drew public attention to their products and which got converted into sales. 

An interesting feature of the industry is that some leading AC manufacturers are registering more than half their sales in smaller towns. Those who will be buying ACs during summer should be ready to pay 8 to 10 per cent more. Manufacturers have made it known that with prices of all the metals used in making ACs firming up and the US dollar staying perched at a high level vis-a-vis the Indian rupee, price rises are unavoidable.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel