DAIKIN

A Promising, Yet Stagnant Market

A Promising, Yet Stagnant Market

The air conditioners market has everything going for it, competitive pricing, world-class products, at the consumer end-a higher disposable income, a growing trend of nuclear families along with urbanization and so many more factors, and yet 2018 was a sluggish year for the industry.

The air conditioners industry has witnessed several headwinds during 2018, led by GST transition and the change in energy efficiency ratings. Rating norms were revised from January 2018, wherein the prevalent 5-/3-star norms were downgraded to 3-/1-star. This resulted in pre-buying as prices rose at the consumer level in 2018, which further impacted consumer offtake.  Additionally, the summer of 2018 started on a weak note. Several regions in India witnessed unseasonal showers. As a result, air conditioner players increased their production to make the most of it. However, value growth was boosted by a richer mix (inverter share rising) and a commodity-led price hike of 3-4 percent.

The Indian air conditioners market is estimated at 5.5 million units in 2018. The market is forecast, by market analysts to reach 7.2 million units in 2020. Of the Rs 20,000 crore AC industry, Rs 5000 crore comprises electronic components. Expected to touch Rs 10,000 crore over the next 5 years, effort is underway by government and industry to indigenize as much as possible.

2018 saw the gap between Voltas and LG widen, with Voltas strengthening its position further. Daikin, Blue Star, Hitachi, and Lloyd are neck-to-neck, each jostling to be the preferred brand and occupy the slot vacated by Videocon. It seems the Korean brands are steadily making way for the Japanese, as Samsung lost ground this year, and Mitsubishi too became aggressive. Other popular brands in the segment continue to be Haier, Godrej, Panasonic, Cruise, Akai, Truvison, O’General, Vestar, Intex, Whirlpool, Carrier Midea, Onida, Mitashi, Electrolux, TCL, IFB, and GREE.

Anticipated growth in the market is led by rising infrastructure development in the country coupled with growing demand for residential and commercial spaces. Moreover, warmer summers; along with increasing purchasing power of the consumers are fueling demand. Additionally, emergence of technologically advanced air conditioners, such as inverter technology and smart models are ensuring the product is on the consumer’s wish list.

There has been sharper than expected transition from fixed speed to inverter air conditioners over the past 2 years, with the share of inverter ACs increasing from 40 percent in 2017 to 50 percent in 2018. Adoption has been faster in the metros, where power quality is better than Tier-II and Tier-III cities. Three key factors are driving the shift to inverters: merger of energy ratings for fixed and inverter compressors from January 2018; fall in price differential between fixed and inverter ACs; and air conditioner manufacturers’ push to inverter models by offering 10-year compressor warranty and comprehensive 5-year warranty. Rising electricity prices make the energy efficient inverter ACs an attractive buy. The share of inverters is expected to rise to 60 percent in FY20, and the introduction of new energy ratings in January 2020 would take it even higher in FY21. The consumer is being influenced by the narrowing price gap between fixed and inverter ACs, which now stands at Rs 3000 to Rs 4000; free installation (worth Rs 1500 a unit); a comprehensive warranty of 3 to 5 years for inverter ACs.

Lower than expected industry sales in 1Q19 post unseasonal rainfall across North, South, and East India resulted in high inventory (1-2 months) across players. April and May were hit by unseasonal rains across the country. With secondary sales witnessing a dip in both these months, primary sales too were impacted. While June was better than the previous 2 months, it has not been enough to offset the decline. As against the earlier expectations of double-digit growth in FY19, a mid-to-high single-digit growth is more likely, with growth reverting to 12-15 percent CAGR only from FY20.

The government, in September 2018, raised import duties on 19 items, including air conditioners to 20 percent, while that of compressors for air conditioners from 7.5 to 10 percent. This was to contain the widening current account deficit resulting from high crude oil prices and failing rupee. The makers in turn felt compelied to increase prices of air conditioners by 3-5 percent across the range since India largely imports compressors. Leading brands withdrew the sales support or subsidy of up to 10 percent they provided to retail channels, and which was further discounted to consumers. Some brands withheld price increase due to the onset of the festive season, postponing it till January 2019. GST at 28 percent has been maintained, despite regular requests from the players to pare it down to 18 percent.

Brands update

Voltas maintained supremacy with its all star inverter AC range in 2018 based on the two-stage steady cool compressor, providing power saving across weather conditions. The company launched smart ACs in October 2018 that can be controlled using simple voice commands with Amazon Alexa, much to consumer delight. Voltas brought back Mr Murthy for its all star inverter AC range ad campaign. The company plans to invest over Rs 500 crore to set up a manufacturing facility in Tirupati, Andhra Pradesh. This facility will initially manufacture and assemble air conditioners and related cooling products, with a total capacity of more than one million units to start with. The company aims to create technologically advanced products which are expected to start rolling out from 2H20, while putting together an OEM base for home appliances, and simultaneously creating local employment opportunities in the region. The choice of Andhra Pradesh as the destination for the new manufacturing unit was due to the state’s ease of doing business and growing focus on Make in India. Voltas plans to cater to the southern, western, and eastern markets through this manufacturing facility.

LG launched an enhanced range of dual inverter ACs for summer 2018 with new features like 100 percent copper with ocean black protection, which increases product durability along with R-410 green refrigerant gas that is environment-friendly. The lineup included 59 inverter AC split models which are 100 percent ISEER compliant along with the launch of the first window inverter AC. With the launch of this range, LG aims to strengthen its position in the inverter AC market. In 2017, the brand had received recognition for its commitment toward the environment and green technology, when it shifted its entire line of spilt air conditioners to inverter technology. In 2018, the brand went to mass in scale, with the introduction of this technology in its window air conditioners as well. LG expanded the production capacity for air conditioners at both its factories in Greater Noida and in Pune in 2018.

Daikin is upbeat on its India business. The company had taken to R-32 refrigerant and inverter technology and these have had a positive role to play in Daikin’s ability to provide superior products for the consumers. The company significantly strengthened its Indian operations with expanded manufacturing capacity. This is expected to enable the company to address a larger market in the country and also facilitate exports to Sri Lanka, Bangladesh, Nepal, and to select countries in Africa. The Neemrana factory in Rajasthan enabled Daikin India to consolidate its presence with a second factory. The company is in the final stages to select for its third manufacturing facility, which would be in southern India and cater the exports market. Daikin India, with now managing business across East Africa, Sri Lanka, Bangladesh, and Nepal, has set a target to achieve 100 billion yens riding on the back of exports and third factory by 2020-21. To service this large-scale products and service demand, the company is investing in creating a distribution base of 10,000 by 2020. The company at its helm has Kanwaljeet Jawa, MD & CEO who in June 2018, was inducted in the board of the parent company, the first Indian to be part of the ten-member board council that steers Daikin globally.

Blue Star unveiled 40 new models of highly energy-efficient 3-star and 5-star inverter split ACs in 2018. The range of inverter split ACs meet the 2018 BEE energy-efficiency norms. It is equipped with eco-friendly refrigerants. The company also launched a smart customer-centric mobile app. Blue Star achieved a significant landmark by completing 75 successful years of operations in 2018. As regards to distribution, throughout 2019, room ACs will be available at 4500 outlets in 550 locations, vide exclusive as well as multi-brand sales outlets, service dealers, retail showrooms, and modern trade. Around 52 percent of the company’s room AC sales are from smaller towns since consumers in these markets are aspirational and prefer premium brands.

Hitachi has a total of 102 models, with a majority of the lineup being shifted to inverter technology in 2019. The brand introduced expandable inverter AC series in 2018 that expands its capacity when the load on the AC increases either due to harsh summers or due to more people in the same room. From its manufacturing factory in Kadi, Gujarat, the brand is manufacturing a wide range of cooling solutions like room AC, VRF systems, ductable air conditioners, chillers, and spacemakers. Hitachi plans to overhaul its lineup with green refrigerant. Its entire inverter lineup is green with R-410A refrigerant. In fixed speed ACs and window ACs also, Hitachi has introduced R-32-based models in 2018. Going forward, the company plans to expand its channel partnerships and strategic alliances as a part of the strategy to increase market share in Tier-II and Tier-III cities and maintain year-on-year growth rate of 24 percent in RAC segment. With this aim, in December 2018, Hitachi strengthened its distribution network in Madhya Pradesh. In January 2018, the managing director, Gurmeet Singh was elevated as the chairman and managing director of the company. Singh took the reins from Franz Cerwinka, who continues as a non-executive, non-independent director of the company. The company bagged Frost & Sullivan’s Smart Air Conditioners Company Of The Year Award 2018 in September and Copper Excellence Award 2018 in the market transformation category in October 2018. After launching three training centers in Delhi, Chennai and Mumbai, Johnson Controls – Hitachi Air Conditioning India Limited recently inaugurated its fourth state-of-the-art Engineering Excellence Center (EEC) in Kolkata, in a move that would generate skilled manpower and create employability in the Eastern States.

Lloyd is strategic to Havells growth and it is investing significant sums in setting up an AC manufacturing facility and strengthening the equity of the brand. In February 2017, Havells had acquired the consumer durables business of Lloyd Electric at an enterprise value of Rs 1600 crore, it had not purchased the manufacturing plants, leaving Havells dependent on third-party manufacturing of the white goods. However, it is now investing Rs 1000 crore at the group level to achieve higher economy of scale for the electrical business of which around Rs 450 crore will be invested in an AC manufacturing plant. In the first phase, around Rs 350 crore is being invested in the brand’s greenfield AC manufacturing plant in Ghilot, Rajasthan which has a capacity to produce 0.6 million ACs annually. In the next phase, another Rs 100 crore will be invested to scale up the installed capacity to one million pieces annually. In June 2018, Lloyd introduced 1.5 ton 5-star copper inverter split AC. The brand also launched its latest air conditioners range – Grandè for the upcoming summer season. The series, available in two models and four variants, comply with the government mandated ISEER ratings. With the launch of Lloyd Grandè air conditioner, the brand now offers 43 different AC models in split/window/floor standing and cassette segment.

In May 2018, Samsung introduced a range of inverter air conditioners under its Wind-Free series which aims to automatically maintain the set temperature of the room delivering the cold wind blast by dispersing cold still air around the AC vent and not in one particular direction. The company is expecting further growth in the system AC HVAC business over the next 2 to 3 years. The company has several products under the portfolio, including air conditioners equipped with wind-free technology, VRF outdoor unit with 30HP, 14HP side-discharge VRF outdoor unit, and slim 1-way cassette. The company is also seeing demand from sectors like education and offices that are looking to deploy cost-effective cooling solutions at their premises. Samsung has started importing air conditioners from Vietnam through the free trade agreement (FTA) route as it has become more affordable after the recent increase in customs duty on AC compressors. The company has started importing its premium Wind-Free range and may scale up imports to other AC models and utilize the AC production facility in the Chennai plant for other products. The company plans to launch a new product line of ACs in 2019 with triple inverter technology.

After a positive response for Mitsubishi Electric’s concept-based showroom Mitsubishi Electric Quality (MEQ) Cooling Planet in various parts of the country, the company opened MEQ Cooling Planet in Delhi with its channel partner, Hi-tech Air System. MEQ Cooling Planet offers a wide range of Mitsubishi Electric air conditioners for residential and commercial establishments with quality, and durability at a lower ownership cost. As of now, the company has more than 125 exclusive showrooms in India to its credit and plans to launch several such exclusive showrooms across the country, during the current financial year, as part of its initiative to build a larger footprint for its brand in India.

Haier Appliances India is planning to invest Rs 3069 crore to set up a factory in Greater Noida. The company has signed an agreement with the government of Uttar Pradesh. The proposed factory, spread over 123 acres in Integrated Industrial Township Greater Noida Ltd, will be built in two phases over 4 years. Haier hopes to complete the first phase and start commercial production by 2020. The new factory will have the capacity to manufacture one million air conditioners, annually. This will be the second manufacturing facility of Haier in India. The company already has a plant at Ranjangaon, Pune. The factory has an annual production capacity of 0.5 million units air conditioners, besides other product segments. In 2018, the company introduced Self Cleaning Inverter Technology (SCIT) air conditioners. Haier’s smart living rooms and bed rooms concept uses U+ smart living operating system along with the advanced AI technology to interconnect the AC and other network appliances with a smart TV.

Cruise has introduced two cooling products – a 5-in-1 VarioQool split air conditioner, which can perform five unique functions in one form, as well as a 5-in-1 PortaQool movable air conditioner. The brand expects improved consumer sentiments and stability in prices to better AC sales in the first quarter of this fiscal.

Akai is bullish about its penetration in the AC market with a range of 5-star rated high-performance ACs that are designed to give maximum cooling with the least amount of energy consumed and are ideal for usage in homes and offices. The ACs boast of advanced air filters, power-saving gold fin technology, and a highly efficient compressor. Akai has now, widened its product portfolio by introducing six different models of inverter ACs.

Truvison, a Europe based consumer electronics and appliances company, expanded its air conditioner range with its Dynam Inverter series AC, with model TXSF202N (1.5 ton) – 3-star ACs in-built with TruAer technology, developed with eco-friendly measures that keeps the AC clean and also saves energy. It comes with a stabilizer-free operation, power cooling, auto-cleaning, multi-fold evaporators, 4-way air flow, de-humidification, and poly-synthetic drying, among others.

Godrej Appliances is aiming for a 20 percent growth in ACs in 2019. The company plans to introduce window inverter ACs in the north Indian market. Godrej recently launched a slew of models. The brand has more than 38 models of ACs which use eco-friendly refrigerants, R-290 and R-32.

Panasonic India plans to leverage on the increasing consumer preference toward premium AC products, mainly inverter segment. In terms of revenue, the company is eyeing 15 percent growth in air conditioners sales to Rs 1400 crore in the next fiscal driven by new premium products. The company invested Rs 300 crore on its AC plant at Jhajjar in Haryana, having an installed capacity of 10 lakh units per annum. The company also exports about 50,000 units to overseas markets such as South African nations and Middle East. It is also looking at over 30 percent increase in distribution outlets for AC to 12,000 in 2-years’ time as against 9000 in the current financial year. Panasonic India launched new products under Advance and Arch series ahead for the summer season, which accounts for bulk of sale of the air conditioner companies.

Whirlpool of India plans to launch a slew of innovative products in 2019 and focuson increasing capacity. The company will launch a new air conditioner-cum-air purifier. In the air category, Whirlpool has got an entire set of product in, both, the mass and the premium end. In the premium end, the company will also launch a voice-enabled AC. Apart from product launches, the company is investing heavily in ramping up capacity across its factories in Pune, Faridabad and Puducherry. The factories are running at 90 percent utilization currently.

O’General ACs are positioned in the super premium range. The company operates through a highly select band of over 800 channel partners and a number of exclusive General Arcades and Franchisees for after-sales.

Vestar ACs are powered by the latest Japanese technology to ensure superior performance with low energy consumption. The brand is committed to provide optimized cooling solutions for maximum comfort, with robust technology that is easy to maintain and cost effective.

Midea aims to manufacture its products locally in the country by 2019 and is setting up a new facility in Pune at an investment of Rs 1350 crore. The company has a manufacturing facility at Bawal in Haryana and is strengthening its base here with a second plant in Pune. By 2019, 100 percent of its products will be manufactured locally. The company is also evaluating prospects of exports from India. The new facility near Pune, with a technology park, will have three manufacturing units for HVAC products, compressors, and home appliances, and will also include a manufacturing facility for Carrier Midea India, a 60:40 joint venture between Midea and Carrier. The complex is likely to begin commercial operations at the beginning of 2020. For the refrigeration and air conditioning category, which contributes 80 percent of revenues, Midea is targeting to be in around 5000 retail outlets before summer 2019 apart from 800 plus sales and service dealers.

Intex launched a new range of ACs in April 2018, with the use of eco-friendly refrigerants. The ACs come in 14 models across three categories – inverter split AC, fixed split AC, and window AC. Madhuri Dixit is the brand ambassador. The brand entered the AC market in March 2017 and sold around 75,000 ACs in 1 year.

Air conditioners contribute 37 percent to the overall revenue of Onida. The brand invested in voice-driven smart technology in air conditioners, and has launched two new AC series called GENIO and ONYX-S. With the launch of Onida smart air conditioners, the brand now offers 27 different ACs with 106 total SKUs in spilt/window/inverter segments. In 2018, Onida brought back its iconic devil and Owners’ Pride campaign, with an aim to reignite the brand image in the minds of people through big investment in advertising, which will cut across all the product segments, including ACs.

The range of air conditioners from IFB Appliances features energy efficient and superior performance products at high ambient temperatures. It is equipped with features such as 52 degrees compliant compressors across all models with green gas and copper piping features designed for high-end performance.

247around serves as a unique buddy for all air conditioners post-purchase needs, from installation to disposal. Service facility is available through its Android App, website 247around.com or call center. The company caters to a market with 700 million appliance population. 150 million appliances go for repairs every year. Quality repair at an optimum price is a challenge here. 247around addressed this issue by a qualified on-ground team, which has several years of experience and enables customers to do self-diagnostics and decipher the issue on its Android app. Reasons for failure and price estimates can be seen much before the engineer arrives at home, thus saving time and money and bringing transparency in the process. Analytics combined with Artificial Intelligence and IoT form the technology backbone and eliminate key issues of quality in home appliance servicing and repair. With technology-assisted analytics based training, the on-ground engineers take better repair decisions challenging traditional models. 247around is the first company to use analytics-based approach which has found value proposition for customers.

In the anvil. A joint venture between Toshiba and Carrier is on the cards for production in India in 2019. Toshiba Carrier seeks to tap the Indian AC market. To curb expenses, the Japanese-US JV will install production lines at an existing Carrier factory, investing USD 4.5 million. Annual production capacity will be 10,000 units. The company has already set up an Indian unit near New Delhi. India will be the third overseas production site for Toshiba Carrier, after China and Thailand. The company plans to ship the output to nearby markets like Sri Lanka.

After entering India’s mobile phone market with brands such as itel, TECNO, and Infinix, Transsion Holdings, a China-based company, in 2019 is set to launch its range of consumer durables, including air conditioners under the Syinix brand.

Global scenario

The global air conditioners market is expected to cross USD 230 billion by 2023. Increasing temperature and humidity level along with technological advancements such as air purification technology will propel the market. The market is expected to see major growth on account of improving lifestyle of middle class population, increasing disposable income of consumers, and changing climatic conditions resulting in high temperature and humidity levels, globally. Moreover, global construction output is growing at a rapid pace and the same trend is likely to continue as well.

Additionally, growing travel and tourism and hospitality sectors across the globe is further pushing deployment of new air conditioners in hotels, airports, and other commercial areas. Furthermore, rising technological advancements in air conditioners such as the emergence of inverter technology and air purification technology would further steer growth in the market.

A major demand for ACs is emanating from Asia Pacific due to high demand from countries like China, Japan, and India. The Middle East and Africa region is anticipated to emerge as the fastest growing market for ACs in the coming years.

Growing demand for energy efficient air conditioners is leading to the replacement of old conventional ACs with newer ones. Additionally, leading manufacturers are offering products with in-built air purifiers, which are gaining popularity among consumers due to their dual features. Also, the average cost of purchasing an air purifier-based AC is comparatively lower than the average individual prices of AC and air purifier.

The global split air conditioning systems will expand at a CAGR of 4.9 percent from 2019 to 2024, reaching USD 127.27 billion by 2024. The global market for split air conditioning systems market is driven by stringent government regulations regarding energy conservation and emissions, technological developments, increased demand from the residential sector, rising consumer expectations, and strong demand from Asia Pacific. Growing awareness regarding the importance of maintaining the quality of indoor air is also generating increased demand for split air conditioning systems globally. Moreover, ongoing trends such as the increased demand for products with green technologies, smart homes, and energy-efficient systems are also expected to provide several growth opportunities for the split air conditioning systems market. The segment of mono-split air conditioning systems is expected to remain the dominant product segment owing to rising domestic and commercial demand.

In terms of geography, Asia Pacific and North America are expected to be the potential growth markets for split air conditioning systems in the coming years. In North America, the market’s growth will be chiefly governed by the recent changes made to the standards of American Society of Heating, Refrigerating and Air Conditioning. The US will continue to be the leading consumer of split air conditioner systems in North America. In terms of revenue, Asia Pacific is expected to be the dominant regional market for split air conditioning systems, contributing more than 60 percent of the global market’s overall revenue. Moreover, the region is also expected to dominate the split air conditioning systems market in terms of share in the market. The demand for split air conditioning systems in the region is expected to be driven by China, Japan, and India. High and rising demand across the residential sector is expected to be a key driver of the Asia Pacific market.

Europe is also expected to be a significant market for split air conditioning systems in the near future, exhibiting a 5.4 percent CAGR. Increasing awareness about energy-efficient air conditioning systems will be the prominent growth driver of the Europe split air conditioning systems. Russia is expected to contribute significantly to the market’s growth owing to factors such as improving economic conditions, uncertainty in climatic changes, and growing construction activities in the residential, industrial and commercial sectors.

Committed to energy efficiency

Without new efficiency standards, the world will be facing a cold crunch from the growth in cooling demand in coming decades. Global energy demand from air conditioners is expected to triple by 2050, requiring new electricity capacity the equivalent to the combined electricity capacity of the United States, the EU, and Japan today. The global stock of air conditioners in buildings will grow to 5.6 billion by 2050, up from 1.6 billion currently – which amounts to 10 new ACs sold every second for the next 30 years.

Using air conditioners and electric fans to stay cool already accounts for about a fifth of the total electricity used in buildings around the world – or 10 percent of all global electricity consumption today. But as incomes and living standards improve in many developing countries, the growth in air conditioners demand in hotter regions is set to soar. The air conditioner use is expected to be the second-largest source of global electricity demand growth after the industry sector and the strongest driver for buildings by 2050.

Supplying power to these air conditioners comes with large costs and environmental implications. One crucial factor is that the efficiency of these new ACs can vary widely. For example, air conditioners sold in Japan and the European Union are typically 25 percent more efficient than those sold in the United States and China.

In an efficient cooling scenario, which is compatible with the goals of the Paris Agreement, through stringent minimum energy performance standards and other measures such as labeling, the average energy efficiency of the stock of ACs worldwide could more than double between now and 2050. Making cooling more efficient will also yield multiple benefits, making it more affordable, more secure, and more sustainable, and saving as much as USD 2.9 trillion in investment, fuel, and operating costs. The issue is particularly sensitive in the fastest-growing nations, with the biggest increase happening in hot countries like India – where the share of ACs in peak electricity load could reach 45 percent in 2050, up from 10 percent without action.

As nations phase out ozone-depleting refrigerants to comply with the Montreal Protocol, the AC industry faces the challenge – and opportunity – of switching to refrigerants that have lower global warming potential (GWP). This transition to climate-friendly refrigerants also provides the opportunity to develop more energy efficient AC designs that will simultaneously help reduce growing energy demand and combat climate change. Several companies are already stepping up to the challenge, leapfrogging past transitional high-GWP refrigerants by using lower-GWP alternatives while at the same time pursuing energy efficiency.

The Global Cooling Prize. Government of India, Mission Innovation, and Rocky Mountain Institute launched The Global Cooling Prize, an international competition to find a residential cooling technology with at least 5x less climate impact than the standard room air conditioning units. Over USD 3 million will be awarded over the course of the 2-year competition. The prize is supported by GoI and Mission Innovation, and will be administered by Rocky Mountain Institute, Conservation X Labs, Alliance for an Energy Efficient Economy, and CEPT University. The prize coalition is aimed at identifying the innovative cooling technology and support incubation, commercialization, and ultimately mass adoption around the world. A winning technology could prevent up to 100 gigatons of carbon emissions by 2050, and put the world on a pathway to mitigate up to 0.5˚C of global warming by 2100.

India moving toward efficient cooling

Although India’s cap on HFCs under the Kigali Amendment does not begin until 2028, some companies have already completely leapfrogged high-GWP R-410A to more climate-friendly refrigerants, while others have introduced AC lines using low-GWP refrigerants. Currently, half a dozen additional AC manufacturers are leapfrogging R-410A as a part of India’s HCFC Phaseout Management Plan process. In addition, most major air conditioning companies in India are now offering inverter models, which are generally more efficient than traditional fixed-speed ACs, playing a significant role in transitioning the market to higher efficiency levels. The Indian government and stakeholders have moved forward with several programs and initiatives to promote the manufacture and use of improved ACs. These programs include:

Opportunities under the Montreal Protocol. AC manufacturers phasing out R-22 should continue leapfrogging traditional high-GWP HFCs in favor of lower-GWP alternatives with funding support from the Montreal Protocol, while also working with UN agencies to facilitate co-funding and/or financing for energy efficiency upgrades.

Energy efficiency, and low-GWP standards and labels. The Bureau of Energy Efficiency’s (BEE) 5-star labeling program develops a metric to measure and compare the efficiencies of air conditioner units. The program helps consumers make smart purchasing decisions and save money on energy bills, while driving competition and innovation in the industry. Accelerating performance standards under India’s efficiency labeling program and including the labeling of low-GWP refrigerants is expected to foster competition and help consumers identify the most climate-friendly room ACs. India’s minimum energy performance standards (MEPS), represented by the lowest efficiency threshold of the 1-star level in the broader 5-star program, has been steadily increasing efficiency requirements over time. The program has succeeded in strengthening AC efficiency standards by about 35 percent since 2006, representing major savings in energy and electricity cost to consumers and the nation.

Bulk procurement, programs. EESL’s debut bulk procurement program secured the production of 100,000 ACs with a minimum efficiency above that of the most efficient unit on the market in its size class at the time it was introduced. EESL will soon launch a super-efficient AC program with BSES. With the program, EESL endeavors to distribute ACs that are 40 percent more efficient but priced comparably with the 3-star ACs currently available in the market. The program addresses the prospect of a nearly four-fold increase in energy consumption from buildings and cooling appliances in India by 2032, while also addressing goals of India’s Cooling Action Plan and Hydrochlorofluorocarbons Phase Out Management Plan, enabling achievement of India’s targets under the Kigali and Paris Agreements.

Raising consumer awareness. Improving efficiency labeling and raising awareness of the benefits of cooling-friendly architecture, better cooling behaviors, distribution company incentive programs, and proper RAC sizing is expected to reduce the environmental impact of cooling. The Indian government’s plans to make 24–26ºC the default setting in ACs for all consumers, particularly in commercial establishments across the country and inform consumers of the high cost of excessively cold air is a step in the right direction. BEE sent the circulars to electricity departments and the state government. Andhra Pradesh also has received a similar order.

Draft India Cooling Action Plan. Strong national planning, such as the Draft India Cooling Action Plan, can promote synergies between different types of AC policies to support the use of low-GWP refrigerants and energy efficient designs so that they are integrated, effective, and provide design flexibility to manufacturers. India’s draft plan looks comprehensively at making ACs more climate-friendly,
while also exploring measures to reduce cooling demand through passive cooling solutions.

R-32 air conditioners. Since 2012, 43 million R-32 air conditioners have been sold by companies around the world. To date, the R-32 air conditioners deployed worldwide have achieved emissions reductions equivalent to more than 75 million tons of carbon dioxide. Switching to R-32 ACs with efficiency improvements from R-410A in a business-as-usual scenario will reduce energy-related greenhouse gas emissions from residential air conditioners in India by 31 percent by 2050. Global and free access to R-32 patents availability guarantees competitive pricing and facilitates wider adoption of R-32 in developing countries. Several global AC component suppliers are also developing compressors and components for use with R-32. Given the expansion of R-32–oriented production, the cost of appliances using this refrigerant is expected to continue declining in the future.

R-290 air conditioners. Indian and Chinese manufacturers are moving to R-290 ACs with the support of the Chinese government. The R-290 models are price competitive with other ACs of similar efficiency.

Way forward

The air conditioners industry will sustain its secular long term growth driven by rising demand for cooling products driven by growing disposable incomes, affordable financing options and increasing up-country penetration of electricity, low penetration (~5%), and improving energy efficient products. AC prices are expected to see the maximum increase from 2019 onwards. After witnessing sluggish demand in 2018, the current inventory scenario is positive for the overall AC industry that witnessed numerous challenges including erratic weather conditions, excess production, weak summer sales, and sluggish festive season. The 2019 AC sales are expected to reach its peak in June 2019. An industry-wide correction in RAC inventory is likely to pave the way for price hikes in FY20, coupled with healthy volume growth and a favorable sales mix on the rising share of inverter ACs.

Kanwal Jeet Jawa
Managing Director and Chief Executive Officer,
Daikin Airconditioning India Pvt. Ltd.
Member of the Board (non-resident) and Regional General Manager – Air Conditioning Business, India and East Africa,
Daikin Industries Ltd., Japan

Daikin is upbeat on its India business and is expecting revenue of around Rs 4200 crore in 2018 to19. It had reported a turnover of around Rs 3250 crore in 2017 to 18. The company has significantly strengthened its Indian operations with expanded manufacturing capacity with an aim to enable the company to address a larger market in the country and also facilitate exports to Sri Lanka, Bangladesh, Nepal, and to select countries in Africa.

For the company, the engine of growth has been the factory at Neemrana in Rajasthan, which has enabled Daikin to consolidate presence with a second factory. The Neemrana factory entailed a total investment of Rs 2000 crore and has the capacity to manufacture 15 lakh room ACs, 50,000 VRV units, 1 lakh cassette units, 20,000 ductable units, and 1000 chillers. The company adopted R-32 refrigerant and inverter technology and these have had a positive role to play in Daikin’s ability to provide superior products for the consumers.

The company plans to open a third factory for home air conditioners in 2021 to double its annual production capacity to two million units. The company will acquire land in western or southern India for the new plant. The manufacturer targets sales of approximately Rs 6400 crore (100 billion yen) in India for the year through March 2021 double its fiscal 2017 tally.

The company has crafted a strategy to dominate the Indian market with locally tailored products, dividing the country broadly into five regions based on factors like climate and reliability of the power supply. It has developed units geared up to work in areas with heat surpassing 50°C as well as models with heating functions that are designed for regions where there is snowfall. With Daikin’s expanded capacity and a bolstered marketing strategy, the company aims to trounce local competitors as well as international ones.

Partha Sen
Head-Marketing,
Johnson Controls-Hitachi Air Conditioning India Ltd.

The industry has been witnessing a continual shift towards inverter ACs, which contributes ~40 percent to the overall industry sales. A key factor behind this is the merger of energy ratings for fixed and inverter compressors and the decreasing price differential between fixed and inverter ACs. Air conditioning market in 2018, witnessed a steady growth despite the triple impact of GST, demonetization and unseasonal rains in North, East, and South India.

Against the industry growth of 7 percent, Hitachi Cooling & Heating witnessed more than 24 percent year-on-year growth in room air conditioners. This growth was majorly driven by company’s focus toward providing energy efficiency and green products along with easy finance options. The brand has a market share of 12 percent in the category. Hitachi Cooling & Heating is India’s most premium and third largest selling room air conditioners brand. It is manufactured by Johnson Controls-Hitachi Air Conditioning India Limited which manufactures a wide range of products, from residential to commercial air conditioners.

Being a consumer centric brand, Hitachi Cooling & Heating understands inherent need of Indian consumers and in order to provide them expert air conditioning solutions, in its new lineup focuses on improving the indoor air experience at its best. With benefits of providing an air which is clean, fresh, silent, and odorless and surrounds you, Hitachi Cooling & Heating has introduced Hitachi air concept for a perfectly balanced and harmonious indoor air experience.

With the transcending trend toward inverter ACs, all 5-star ACs in the new line up are expandable inverter ACs which is designed especially to perform in extremely hot conditions of the northern plains and extremely hot-cum-humid conditions of the coastal areas. This new series provides comfort with 60 percent faster cooling, 20 percent more moisture removal, and 10 percent higher performance than other standard inverter air conditioners.

Hitting a century with an extensive and exhaustive product lineup of 122 models (which includes split ACs, window ACs, and one is to one cassette ACs), 35 percent lineup is 5-star and 72 percent lineup is inverter this year. Keeping in mind the environmental issues, entire split AC (inverter and fixed included) lineup is green with R-410A/R-32 refrigerant. Its most energy efficient split air conditioner is Kashikoi 5100X++ (1.0 TR, 5-star) with 6.1 ISEER.

In order to bridge the gap of accessibility of RAC in Tier-II and Tier-III towns, the company has introduced new models designed specifically to cater the needs of first time and mid segment AC buyer. The company has also expanded its retail outlet presence and is now available at more than 10, 000 sales point across the country. The company has also taken many new initiatives in post sales customer service to add to the delight of the consumers.

Vikas Muker
Product Group Head,
Haier Appliances India

Air conditioners are no longer a luxury item, but a necessity. There are various factors contributing to the growth of AC industry in India including; growing residential usage among Indian middle class, higher commercial usage and greater demand from the hospitality sector. India is the second fastest growing market for room air conditioners (RAC) despite lowest penetration among leading global RAC markets.

2018 also witnessed key tax and policy reforms from the government of India. The custom duties were raised to 20 percent along with higher duties on compressors, which account for 60-65 percent of an AC’s production value.This compelled manufacturers to increase domestic manufacturing to cater to local demands. One of the early contributors to Make in India initiative, we at Haier India announced the expansion of our existing manufacturing facility in Pune, Maharashtra into our first industrial park to produce two million refrigerators and half a million units each of LED TVs, ACs, washing machines and water heaters with an investment of Rs 600 crore. To cater to the growing consumer demand in India, in August 2018 we signed an MoU with the Government of Uttar Pradesh to set up our second industrial park in Greater Noida, UP, with an investment of Rs 3069 crore.

Moving forward, growth of this segment will be driven through continued focus on innovations and advancement of technologies. For instance, Haier introduced self cleaning inverter technology (SCIT) air conditioners last year in which the evaporator of the AC gets cleaned with the tap of a button. Other emerging technologies like IoT and AI are also gaining prominence in India. Intelligent smart home technologies are turning out to be aspirational utility from novelty as noticed in the previous years. Haier’s smart living rooms and bed rooms’ concept uses U+ smart living operating system along with the advanced AI technology to interconnect the AC and other network appliances with a smart TV. Smart air conditioner adjusts the temperature according to the environment and offers better energy efficiency and performance ideal for modern Indian homes.

Saurabh Kabra
Director – Business Operations India,
Truvison Industries Pvt. Ltd.

An air conditioner was previously considered a seasonal product. Given the improving macroeconomic conditions, ACs are now considered a necessity rather than a luxury item, with many homes installing multiple ACs. On the other hand, manufacturers have started offering heating/cooling options so that the AC can be used throughout the year. The growing number of middle-class households and rising buying power would continue to accelerate the demand for room split ACs in India. Increasing office and retail spaces in the country along with booming tourism and hospitality sectors are also contributing to the healthy growth of the Indian AC market.

The Indian AC market is highly competitive and fragmented with the presence of domestic, international, and unorganized market participants. The market is broadly divided into seven segments, within that split ACs segment dominates the market and would continue to lead over the next couple of years. The demand for these ACs is primarily growing in the residential market. The VRF/VRV segment is also gaining popularity in the market. In India, the northern region has captured a major share in the overall air conditioners market followed by the southern and western region. Demand is currently emanating not just from metros and large cities but also from Tier-III and Tier-IV cities and semi-urban areas. Increased urbanization, changes in lifestyle with more nuclear families, and increase in the number of working women are the key drivers. Supply of power is no longer expected to be a constraint, with the government having declared that by April 2019, each household in the country shall get 24×7 power supply, as the major bottleneck is distribution and not production and transmission of power.

After some overall sluggishness in the Indian economy over the past several years, the Indian air conditioning market is expected to grow by 11 percent in 2019. By 2020, the market is expected to exceed a value of over Rs 50,210 crore. Additionally, the emergence of technologically advanced air conditioners, such as inverter technology, smart air conditioners, etc., is further anticipated to augment the demand for air conditioners across India in the coming years. In our view, the street is factoring in strong volume growth over the next few years as the low penetration of ACs, increasing affordability, easy EMI schemes and lower electricity costs drive demand.

Roshan Sirohia
Director,
Cruise Appliances Pvt. Ltd.

Sales spiked majorly in the second quarter of 2018, followed by growth of 5 to 7 percent during the festive season. Almost 75 percent of the sale occurred in the months of March, April, and May. Overall sales, however, has witnessed a 5 percent de-growth due to numerous challenges including erratic weather conditions, excess production, weak summer sales and sluggish festive season as well as limited penetration in the Tier-II and Tier-III areas.

On market trends. Market expansion and sales in the western and southern region has been impressive with the positive response to consumer offers launched on the inverter series. In the residential AC category, inverters are likely to pave way to a healthy growth. Last year alone share of inverter has been 30 percent. Consumers have an array of luring offers to select from the offline as well as offline platforms. E-commerce, on the other hand, is gradually picking up the pace especially in the air conditioning and air-purification category. Last year has seen almost 80 to 90 percent of shoppers exploring product information online. Ease of product availability and heavy discounts makes online buying a favorable option.

On technology trends. Introduction of upgraded air conditioning technology is on the rise. Advance functions like Wi-Fi control, optimum air purification, and integrated Artificial Intelligence are all engineered to provide maximum energy efficiency and satisfy the high standards of cooling experience in today’s modern lifestyle. This trend is mostly available in the inverter series which alone has contributed to 30 percent market share resulting in a higher rate of adoption of inverter AC owing to improvement in consumer’s understanding of the inverter technology.

Anurag Sharma
Director,
Akai India

The usage of AC has increased due to rising income levels, lifestyle needs, and rising temperature and the products are being made available affordably. These factors have also led to maximizing the market penetration of air conditioners. Presently, southern India followed by northern India is comprised of largest share of AC in the country. Increase in industrialization, urbanization, and mounting number of data centers are also expected to raise the demand for air conditioning. The domination of room or residential air conditioners will be witnessed for a longer period of time. Apart from this, the market is expecting a healthy growth in terms of overall sales in rural and urban market of India. The emerging online sales will increase the usage percentage of AC as it is not considered as a luxury but more as a necessity. The adoption of inverter AC has also increased a lot which is improving the consumer’s technology understanding and eventually saving energy. Over past few years, demand has been continually shifting toward energy-efficient ACs (5-star/inverter). Akai India’s range of inverter ACs has been designed to offer maximum cooling even in extreme conditions. Considering the rising temperature in the country, Akai ACs are manufactured in a way that will enable it to keep performing even during overload conditions.

Santosh Salian
Product Group Head,
Godrej Appliances

According to NASA GISS, the global temperature has been on the rise since 1880, at a rate of 1.9F per year. Out of the 19 warmest years recorded till date, 18 were from 2001 onwards alone. Every progressing summer has been warmer than the previous. With increasing emission of greenhouse gases, more heat is being trapped in the atmosphere, contributing to the global warming phenomena. India has also been at the heart of climate change debates and with Indian economy looking at rapid growth, the impact on global warming and climate change cannot be ignored.

In line with its brand philosophy of Soch ke Banaya Hai and the brand value of Environment, Godrej Appliances has launched its widest range of eco-friendly air conditioners. The entire range spanning 38+ models, uses only the most eco-friendly refrigerants – R290 and R32, thus offering the lowest GWP. With green at its heart, the new series of Godrej ACs uses only R-290 and R-32 refrigerant. Both these refrigerants have zero ODP, causing no harm to the earth’s ozone layer, thereby protecting the earth and its atmosphere from harmful ultraviolet radiations of the sun. Secondly, these refrigerants have the lowest GWP of only 3 for R-290 and 675 for R-32, as compared with other refrigerants with GWP of 1810 and above.

Service plays an important role especially in ACs. Godrej Smartcare, the service brand of Godrej Appliances is rated No 1 in an independent research recently. It offers the widest service network with 660 service centers and more than 4500 Smartbuddy technicians who you can track via an app24 x7 call centre in 12 regional languages, 160 Smartmobile vans for enhanced reach and faster service and complete satisfaction number (CSN) which enables the customer to rate the service offered through a unique code.

Sunil Shankar
Business Head,
Mirc Electronics

Onida has always been known for its high quality innovative products and has been an enduring brand in the Indian consumer durables space winning the trust of millions of consumers last year. The company achieved industry leading growth of 108 percent in Q3 (in turnover, 2018 over 2017) and this signals a quick comeback in AC category. We have invested in voice-driven smart technology in air conditioners in this season, and are launching two new AC series called GENIO and ONYX-S.

These ACs are powered by a smart voice integrated technology with inverter features and powerful cooling bundled with other innovative features to best serve every segment in the market. The company has also developed new magnified cooling with multiplier inverter technology, which magnifies the AC’s capacity to cool a room beyond the rated capacity. This is driven by the compressor’s increased RPM beyond standard rated RPM, based on cooling requirement inside the room. This results in faster cooling, 65 percent energy savings, 120 percent higher capacity; and ramping of highest cooling capacity to 6400W, which is one of the industry’s best. These series are also mandatory meeting the latest ISEER Ratings.

The company has also taken its smart innovations to another level by introducing its in-house developed app named Onida Smart, available on Android and IOS platforms.  With the help of Wi-Fi connectivity and Infrared, one can also connect all remote controlled devices and appliances with the help of this app. With the launch of ONIDA smart Air conditioners, ONIDA now offers 27 different AC series with 106 total SKUs in Spilt/Window/Inverter segment.

Onida air conditioners have always been in the forefront of technological innovations, and the company has launched some very category firsts features which its customers have loved throughout the years. Its customers are offered world-class ACs that are Made in India.

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