AC market rebounds

As India learns to live with Covid, the Indian AC market sees a major rebound. Estimated at INR 293.37 Bn in FY 2021 by Quadintel, it is poised to reach INR 991.57 Bn in FY 2027, expanding at a CAGR of ~24.30% during the FY22-27 period.

Technical advancements such as cost-effective equipment and decrease in prices of components have fueled the growth of the air conditioner (AC) market. High energy consumption and fall in electricity prices are the major challenges.

Segmented as split-type (wall mounted), window-type, cassette (ceiling-mounted), and tower (floor-mounted), the split-type AC segment is estimated at INR 124.24 Bn in FY 2021. It is anticipated to reach INR 473.47 Bn in FY 2027, expanding at a CAGR of ~26.79% during the FY 2022 FY 2027 period. Owing to increased income and rapid urbanization, the demand for split ACs has picked up.

In FY 2021, the window-type AC segment was valued at INR 112.51 Bn. It is expected to reach INR 142.79 Bn in FY 2027, expanding at a CAGR of ~4.43% during the next five years. Following the second wave, the preference for window AC increased among the middle class because of its affordability.

In FY 2021, the cassette (ceiling-mounted) AC segment was valued at INR 18.34 Bn. It is estimated to reach INR 154.19 Bn in FY 2027, expanding at a CAGR of ~42.69% during the forecast period. Although these ACs are energy- and space-efficient, they are not ideal for multi-storey households. The tower AC segment held a revenue of INR 38.29 Bn in FY 2021. It is expected to reach INR 221.12 Bn FY 2027, expanding at a CAGR of ~35.38% during the forecast period. The demand for tower ACs from the household sector is limited. They sell in the commercial sector because of their portability and also large area is required for its installation.

Due to the global outbreak of COVID-19 in 2020 followed by nationwide lockdown, the air conditioner market was highly affected travel restrictions, workforce shortages, disruptions in world trade, and bottleneck in logistics impacted the supply chains of companies. Top players such as Voltas, Daikin, Blue Star, Panasonic, and Haier registered a drop of almost 75% in sales volumes between April and May 2021 collectively. While India’s AC industry is highly competitive, with 35–40 brands playing the penetration story in India, the six players, Voltas, LG, Daikin, Hitachi, Lloyd, and Blue Star command a 75–80% market share.

Almost 70% of sales take place between March and June. Last year, sales plummeted because nearly all stores were closed due to lockdowns imposed across states in view of the second wave. The market gained momentum in October during the festive season because of market players collaborations with major online and offline retail partners such as Amazon and Reliance Digital. They helped to attracts customers through attractive offers.

Owing to evolving customer preferences, major players, Voltas Limited, Havells India Limited, and Blue Star Limited made huge strides in technological advancements. Innovations such as ubiquitous sensor networks and copper condensers with anti-corrosive hydrophilic blue fins will improve the efficiency of ACs.

One of the biggest challenges for the brands is to hold a further hike in prices. The industry has already been subject to multiple double-digit price hikes during the fiscal of 2021-22, the latest being in JFM2022 quarter. This is as direct impact of soaring prices of components, metals especially copper and aluminium and rising crude oil after the Russia-Ukraine conflict. Companies are trying to support the customers with offers and easy EMI schemes.

The segment is still highly dependent on imports with an average of 25 per cent local value addition only. Last year, the government had approved 26 applications for manufacturing of components of the air conditioner with a committed investment of Rs 3,898 crore under the production linked incentive scheme.

The air conditioner is one of the lowest penetrated product categories in India with only 5% penetration. With harsh summers and a need for comfort in every home/non-residential unit, consumers are expected to increasingly look at solutions to beat harsh summers, followed by monsoon-led oppressive humidity.