2020 may just be the first year, when the AC market is heading for a decline since 2011.
The Indian air conditioners market is estimated at 6.8 million units in 2019. As the industry sales spiralled 33 percent year-on-year for leading brands in the period April-September 2019, firms gained by way of robust growth in revenue and profitability. The air conditioners market is highly competitive and fragmented with presence of domestic, international, and unorganized market participants. Voltas continued to lead the pack. LG, Daikin, Hitachi, and Lloyd are neck-to-neck, vying for the second position. Blue Star, Haier, Godrej, Samsung, Mitsubishi, and Carrier Midea each have an aggressive presence in the market, while Whirlpool, Panasonic, Cruise, and Fujitsu General are each in the vicinity of 3 percent. Onida, IFB, Akai, Truvison, TCL, GREE, Sharp, Croma, Intex, Azure, Vestar, Mitashi, Reconnect, Koryo (Big Bazaar), AmazonBasics, and MarQ (Flipkart) are gradually cementing their position.
The market was impacted during the year by multiple macro-economic headwinds like unseasonal rains and erratic weather conditions in some parts of the country, especially the northern part, which accounts for more than 40 percent of the demand, and a subdued festive season, leading to a de-growth both in volume and value terms.
Split room air conditioners segment dominated the market and is expected to gain traction, especially in the residential market. There was enhanced demand from Tier-III, Tier-IV, and Tier-V markets. Fixed speed split air conditioners as well as window ACs are usually preferred in Tier-II and Tier-III cities owing to higher power fluctuation, the type of accommodation, and the perception that these are easier to repair. Notwithstanding, the semi-urban and rural markets showed healthy demand momentum, and now account for a considerable market share of the overall industry volumes. Companies with robust distribution network and last-mile connectivity are best placed to make the most of this trend. Though the prices of air conditioners have been increased by a few companies in the last couple of months, some are offering schemes like EMI and seasonal discounts.
The Indian Seasonal Energy Efficiency Ratio (ISEER) as per the new standards will range from 3.3–5.0 for split, and 2.7–3.5 for window air conditioners, which will be applicable from January 1, 2021 onward. A change in energy efficiency norms is bound to have an impact on the cost price as higher raw material content will need to be utilized by the manufacturers to improve and sustain star-rating. Typically, keeping other things constant, a 1-star jump in the energy efficiency rating translates to a 4–5 percent increase in product prices. Even though a revision in energy efficiency norms is done every 2 years, and the benefits of 5-star ACs are often bandied about, customer awareness about what exactly it entails remains insufficient.
In air conditioners, key components, including compressors, IDUs, PCBs/controllers, motors, and valves are majorly imported. The share of imports is targeted to gradually decrease over the next few years as domestic industry aims to indigenize. Ultimately the efficiency of the EMS and ODM player defines the growth of individual companies.
Voltas strengthened its position in the market by launching its range of adjustable inverter ACs in 2019. The product range includes over 100 SKUs, with 39 SKUs in inverter ACs, 26 in split ACs and 32 in window ACs, besides cassette and tower ACs. The company also introduced a model, Maha adjustable inverter AC. The company also launched 39 SKUs of fresh air coolers with smart humidity controller, under various sub-categories, such as personal, window, tower, and desert air coolers. The maker set up brand shops in Asansol, Thiruvananthapuram, Visakhapatnam, and Jharkhand.
Daikin has expanded rapidly over the past decade. After 2 years of research and development, on the occasion of its 95th anniversary, the company launched an indigenously developed split room AC, targeted at the growing middle class. This AC serves the compact cooling needs and features the patented R32 refrigerant. The company also sees it as a catalyst to drive up AC penetration in the 93 percent market that remains unaddressed. The company is using various Japanese training programs to uplift and improve the standards of air conditioning industry, and society as a whole. Daikin India formed the first all-women branch of the Japan-India Institute of Manufacturing.
Pushing forward the concept of dual inverter technology in ACs, LG Electronics India launched 54 models with 5- and 3-star rating. Without compromising the cooling performance, the AC range works on variable tonnage technology which adjusts the cooling as per user requirement by controlling the compressor speed. The range also features smart ThinQ technology, which allows the users to control and monitor AC at anytime and from anywhere with an app on the phone. Consumers can also get filter cleaning notification and control multiple home appliances through smart ThinQ. LG’s air conditioners are also equipped with Ocean Black Protection which gives long lasting protection against rust and corrosion.
Johnson Controls-Hitachi Air Conditioning India showcased its latest range of energy-efficient and expandable inverter AC solutions in 2019. With the transcending trend toward inverter ACs, the 5-star ACs in the lineup are expandable inverter models. The company is slowly moving toward having 100 percent inverter-ACs in their portfolio. JCH-IN also underwent a brand revamp to cater to young customers. In terms of pricing, the company is looking to have more thrust on better pricing. The company inaugurated four Engineering Excellence Centers (EECs) in Delhi, Mumbai, Chennai, and Kolkata to enhance the skill set of technicians directly employed by JCH-IN and the technicians employed by the trade partners. In October 2019, the company opened a Global Development Center in Kadi, Gujarat, India. The facility is aimed at driving the company’s innovation capabilities with a strong focus on developing residential air conditioners and commercial packaged air conditioners for India as well as the Southeast Asia, Middle East, and European markets.
Lloyd Consumer was acquired by Havells in February 2017 for Rs 1600 crore as a strategy by the latter to enter the mainstream white goods space. In 2019, Havells undertook distribution realignment for Lloyd Consumer, enhanced the product range, and set up a supply chain for AC business. Havells commissioned a new AC plant for Lloyd.
Haier India proposes to set up its second manufacturing unit in Greater Noida, which is expected to begin operations in the second half of 2020. The manufacturing unit will produce one million units of air conditioners with an aim to strengthen its focus on Make in India initiative. In 2019, the company launched an integrated marketing campaign for its PuriCool range of air conditioners. It spent the marketing budget on traditional advertising, combined with digital and strategic brand sponsorships. The company has recently introduced IoT-based air conditioners tuned to contemporary lifestyle and convenience of end-users.
In 2019, Blue Star launched RACs with in-built air purifiers. The company also rolled out a festive season campaign, which unveiled Virat Kohli’s association with the RACs range. The company launched a range of residential air conditioners in February 2020. With this strategic foray into the premium-yet-affordable segment, the company rolled out a range of 3-star inverter split air conditioners. The complete range runs on eco-friendly refrigerants.
Fujitsu General plans to double its market share India in the next 2-3 years. The company is considering setting up a manufacturing unit in India. It has recently unveiled inverter split ACs aimed at the mass Indian AC market. The company’s products are currently retailed under the O’General brand. FGL has training centers in different parts of the country. The next center will be set up in one of the four major cities during in 2020. This is expected to be followed either by an R&D center or a manufacturing unit. In a recent development, the company has ended its long-standing joint venture agreement with the ETA group for its Indian operations and, henceforth, will operate under a wholly-owned subsidiary Fujitsu General (India) Pvt Ltd. The JV termination process is ongoing and will be completed shortly. With the restructuring, Fujitsu General (India) aims at faster growth in India. Though the company’s products are sold through about 4000 outlets across the country, it seeks to revise its sales channels by launching retail stores with own direct operation, and developing new dealers and distributors.
Sharp ACs are marketed by Chennai-based Eltech Appliances Pvt Ltd (EAPL). Sharp Corporation signed a distribution agreement with EAPL for the Indian market, with initially launching its air conditioners fitted with the proprietary Plasmacluster technology. The technology eliminates germs and allergens present in polluted air, and ensures clean air. The company offers both room ACs and light commercial models. In the RAC segment, the range includes inverter splits, splits, window, and fixed speed models.
Taking the heat off
The air-conditioning sector has very less penetration at around 7–9 percent in India; however, the rise in demand is expected to mark an increase in emissions with high global-warming potential (GWP) refrigerant usage and electricity consumption. Innovation and new technologies in the cooling industry are especially crucial for India.
Policy framework for energy efficiency
The cooling requirement is cross-sectoral and an essential part for economic growth. Most importantly, synergistic actions with respect to cooling across sectors will have a higher impact than any other action taken in isolation.
This was the core idea of the Government of India to develop a comprehensive cooling strategy for the country through the India Cooling Action Plan (ICAP). Various governmental and non-governmental initiatives are being undertaken to address the efficiency and environment-friendly refrigerant issues in the cooling sector.
Under the provisions of Energy Conservation Act 2001, the Government of India has initiated many activities for improving energy efficiency in different sectors. The Bureau of Energy Efficiency (BEE) has been given the mandate to formulate policies that can transform the market toward energy efficiency.
To leverage the advancement in technology and progressively improve the efficiency of RACs, BEE has been continuously ratcheting up the energy efficiency standards. The government too is shifting the goalpost and tightening the norms in response to market transformation.
The demand for 3-star labeled products has always been higher, and continues to be till date. In October 2019, the 24°C default setting was made mandatory from January 1, 2020 for all air conditioners covered under the ambit of BEE star-labeling program.
Apart from regulatory approach, the government has also initiated market interventions through business models to deploy super-efficient products. India is the first country to use government procurement processes through the initiative of Energy Efficiency Services Limited (EESL) to buy super-efficient air conditioners, showcasing a leadership role in the transition toward super efficiency and low-GWP refrigerants.
A strategy borne out of India’s imperative to reduce consumer-energy bills and meet climate mitigation commitments, needs to leapfrog and accelerate the introduction of super-efficient air conditioners.
India’s refrigerant demand and type of refrigerant used in the air conditioners segment is expected to have long-term implications on its power sector, climate commitments, and the AC industry. Improving the energy efficiency of air conditioners is one of the most viable and cost-effective methods to address the power sector challenges.
International commitments. Kigali Amendment to the Montreal Protocol appeals to the nations to undertake the dual tasks of phasing down high-GWP refrigerant use alongside improving equipment energy efficiency. While, India has placed mandatory standards and concurrent refrigerant phase-down plans, the amendment provides an opportunity to look deeper into novel methods to accelerate to super-efficiency and low-GWP refrigerant use, in tandem with its international counterparts.
In the 2030s, significant focus would be needed on developing new low-GWP products and/or promoting existing low-GWP products, to meet the refrigerant requirements.
The business-as-usual (BAU) scenario indicates a phase-out of HCFC use by 2030 in line with the Montreal Protocol requirements. The BAU HFC rise is significant and unchecked; however, with interventions such as increasing penetration of low-GWP refrigerants inter alia this rise is seemingly in control, allowing for a slightly faster start of HFC phase-out planning.
Rapid rise of low GWP refrigerants is seen to rise in the new policies and ambitious scenarios, which show a positive outlook for the sector.
In parallel, India’s international commitments are ambitious and have enabled faster adoption of measures in the country. The Article 5 nations function as cooperative peers that share common goals and objectives, besides sharing common HFC phase-down schedules beginning from 2031.
HCFC substitution. HFCs are substituting HCFCs as the HCFC phase-out began in 2012. HCFC-22 use in RAC segment has already started transitioning to HFCs. All these transitions have taken place largely due to the market forces and availability of viable substitutes.
The air-conditioning and refrigerant production industry. Owing to Kigali commitments and national level interventions like the ICAP, the air conditioners technology tilt toward highly efficient equipment is imminent. From Minimum Energy Performance Standards (MEPS) of 3.1 ISEER, a possible leapfrogging can occur within the forthcoming years.
As far as the refrigerant industry is concerned, key changes are centered at increasing penetration of low-GWP refrigerants and HFC alternatives. And since policies are built around refrigerant transition pathways, the industry is likely to see rapid change in not just the upstream sector but also the downstream sector, where servicing would be ramped up in tandem with manufacturing. In other words, it would affect the entire supply chain of the refrigerant industry.
HCFC Phase-Out Management Plan (HPMP) – Stage II. India adopted an ambitious target to phase out hydrochlorofluorocarbon (HCFC) earlier than 2040 to 2030 and has set developed strategies to this effect. The country is moving toward adoption of comparatively low GWP refrigerant like R32 and low-GWP refrigerant R290 in the second HCFC Phase-Out Management Plan.
To implement the building sector interventions under HPMP the MoEF&CC has collaborated with EESL. Ozone cell, MoEF&CC through EESL will mainstream HCFC issues with energy efficiency and building sector which forms part of the non- investment component of India’s HPMP stage – II.
The Global Cooling Prize
Recently, a global coalition led by the Government of India along with Rocky Mountain Institute (RMI) selected the finalists of the Global Cooling Prize, an international innovation competition to develop super-efficient and climate-friendly residential cooling solutions for homes. The competitors showcased technologies that reduce or eliminate refrigerants linked to climate change, advances that will be vital as the number of air conditioners nearly quadruples by 2050.
The finalist teams are Gree Electric Appliances Inc. of Zhuhai, Daikin Airconditioning India Private Ltd., and Godrej and Boyce Mfg. Co. Ltd.; start-ups and corporations, including S&S Design Startup Solution Pvt. Ltd., Transaera Inc., M2 Thermal Solutions, Kraton Corporation; and Barocal Ltd, a new spin-out from a University of Cambridge lab. The eight teams selected pitched a wide range of technologies, including smart hybrid designs of vapor-compression designs, evaporative cooling designs, and solid-state cooling technologies that use little or no global warming refrigerants.
Global market dynamics
The global air conditioners market is expected to cross USD 230 billion by 2023. The market is expected to be driven by the promising growth of the construction and tourism industries. The increasing disposable incomes are also expected to encourage the uptake of a variety of air conditioning systems. Additionally, rising inclination of consumers toward energy-efficient systems and the growing popularity of portable systems are also expected to positively impact the air conditioners market growth.
The residential sector is exhibiting stronger demand than the commercial sector. The growth in the residential construction market and the replacement market are the major drivers for the demand. Soaring temperatures across regions, due to global warming, have increased the demand even from those regions, which were earlier characterized by ideal climatic conditions.
The global air conditioners market is highly competitive with a high influx of global, regional, and local players. To maintain a competitive edge with other players, the global players are focusing on developing innovative products and increasing their product portfolio by making considerable investments in R&D.
Global companies have come up with new strategies like the introduction of new products, marketing, and promotional activities, investing in joint ventures, and following dual-brand strategies in some regions to capture the market.
The competitive intensity for the air conditioners market is higher in APAC currently on account of a largely untapped market. Vendors compete on various factors like brand, geographical presence, product portfolio, features of the products, refrigerants used, power consumption, and efficiency of the products developed.
Growth in Asia-Pacific is largely driven by metropolitan and Tier-II cities with high disposable income. China, India, and Southeast Asian countries are some of the regions, which have a high potential for the market. The largely untapped Tier-II and Tier-III cities’ growth rate for AC consumption is slow and offsets the rapid growth witnessed in major urban hubs.
The North American AC market is growing on the back of high capital investments and the rise in the consumer income, aided by tax cuts. The trend is positive and bullish in the market. The competition is high and the pricing structure plays an important differentiating factor.
The demand is mainly for high-energy efficient devices. Stringent administrative guidelines on reducing the energy consumption will have a major impact on the industry with respect to cost and selling price. The US market is driven by the rise in residential construction and the growing demand for replacements.
The Europe market has been growing steadily with respect to value; however, the volume has been stagnant. The long-term outlook for demand in Europe is moderately positive, while the short-term outlook is very bright. Extended summers and heat waves are increasing the demand in the short term. The demand is on the rise in Latin America, as the temperatures soar in summers to very high degrees, and also, the disposable income of the population has grown significantly.
The demand for single and multi-split models is growing rapidly. The growing electricity consumption has driven the high adoption of grade 1 RAC, with better energy efficiency and low cost. Although window air conditioners are inexpensive, the popularity is declining globally as they restrict the natural flow of air and light and produce a high level of vibration and noise.
Single split air conditioners are majorly replacing window AC models in the residential sector. Non-inverter types single split models are in demand in developing countries as the inverter type has a high installation cost. The multi-split is one of the fastest-growing segments. The decline in window AC has resulted in the growth of both single and multi-split models. The demand for multi-split models is growing rapidly across Asia-Pacific, driven by steady economic progress and commercial office construction growth.
Split air conditioners. The market is poised to grow by USD 34.66 billion during 2020–2024, progressing at a CAGR of 6 percent. The market is fragmented, and the degree of fragmentation will accelerate over the next 4 years. The preference for split ACs will offer immense growth opportunities. To make the most of the opportunities, market vendors are focusing more on the growth prospects in the fast-growing segments, while maintaining their positions in the slow-growing segments.
The emergence of smart ACs that can be controlled using mobile devices, like tablets and smartphones, has further propelled the adoption of split ACs. With the emergence of smart split ACs, the market for split AC is expected to showcase a positive outlook. The increase in the use of R32 refrigerant in split ACs and rising demand for VRF systems are some other major factors that will boost market growth.
Geographically, Asia-Pacific is the leader in the demand for split air conditioners. The consumer acceptance of new and efficient products is low in the region while the same is high in North America and Western Europe. The APAC region led the split AC segment in 2019, followed by Europe, North America, MEA, and South America. APAC is further expected to register the highest incremental growth with the change in climatic conditions and presence of major vendors.
Stringent regulatory compliances are expected to increase as the greenhouse gas emission, and electricity consumption is growing at a rapid pace. In many of the regions, 70 percent of the electricity consumption at residential spaces is on account of using air conditioners. More than 40 countries have implemented standards and labeling policies for the models. Therefore, on-going improvements in technology are mainly driven by regulatory compliance and amenability.
Going forward, demand for air conditioners is expected to be driven by first-time users, replacement, second-buy users, and high-end buyers, who look for exclusive additional features.
At the same time, owing to rising temperatures, increasing disposable incomes, and aspirational levels, a stronger rural demand is anticipated. Moreover, environment-friendly and more efficient products with greener gases will push the demand.
The industry will continue to move toward the use of HFCs and relatively low-GWP HFCs. In addition, amidst low clarity on the plausible replacements for HFCs in the context of technology readiness and affordability, the industry’s stance toward HC needs to be recorded.
The policymakers, however, have favored HCs as they have shown tremendous potential as climate-friendly replacements for HFCs. The favorability may also have been influenced by the beginning of the HFC phase-down and replacement in the developed world. As the market opens up more for HCs, the industry might find greater clarity in adopting HC-based refrigerants in the coming decade.
The increasing-cum-aggressive competitive environment along with uncertainty on currency, duties, and commodity prices may impact pricing, resulting in lower margins. Competition will further heat up in 2021, resulting in a price bloodbath as several international brands, which were earlier in the premium segment, are entering into entry level models.
The entry of premium brands into mass segment will narrow the price gap with the current leading brands. A few manufacturers are also planning to re-enter the window AC segment, which will restrict the existing brands in the segment from increasing prices.
March-April is when sales start to get brisk. However the ongoing coronavirus pandemic has disrupted the entire air conditioner industry’s expectations. Some of the AC manufacturers are going ahead and increasing the AC prices by 3 to 5 percent across models as planned.
This translates to an increase of Rs 3000–4000 for premium and large capacity models. In addition, the increase in the basic customs duty on February 1, 2020 from 10 percent to 12.5 percent on air conditioner compressors, may further impact the pricing.
The situation has been somewhat contained as the industry is planning to airlift components, such as controllers, compressors, and other materials from China, Thailand, and Malaysia, albeit it will add to logistic costs, and further put pressure on input costs.
Though factories in China have started working at 50–70 percent capacities, it will take time as they require several clearances from the Chinese government as well from the Indian authorities. There is not much clarity on when components supply will normalize.
While the virus has been contained in China, the jump in cases outside of China has sent a shudder through global markets. According to the Organization for Economic Cooperation and Development (OECD), the world’s economy could grow at its slowest rate since 2009 this year and a longer lasting and more intensive outbreak could halve growth to 1.5 percent in 2020 as factories suspend their activity and workers stay at home to try to contain the virus.
As travel is increasingly contained, the number of flight cancellations increases, large-scale events are cancelled, and shipments are affected, the industry could take a bigger hit. But the concern is now shifting from the impact on supply chains because of closed factories to the potential of the deadly disease to put a sudden break on consumer spending. The risk is no longer of empty shelves, rather it is of empty stores.
However, this also translates to more time being spent at home, which is when the need for an AC becomes imperative. As the year and the summer heat progresses, the AC industry is keeping its fingers crossed!
Director – Sales,
India has huge potential for air conditioners as the penetration level of ACs in India is mere 5 percent in Indian household as compared with developed nations like the US, China, Japan, and Australia, where it hovers above 90 percent in their households.
Seeing the vast potential and opportunity for ACs in India, last year MEPL also decided to enter the air-conditioner industry. MEPL Group is now setting up the most advanced air-conditioner manufacturing plant at Greater Noida in the close vicinity of their existing two manufacturing plants. An air-conditioner testing lab has also been set up with German technology in the plant to ensure high quality and top performance of the air conditioners manufactured here. MEPL Group will be manufacturing ODU and also IDU in this plant with very attractive and innovative indoor unit designs to suit the decor of Indian households. Initially MEPL Group will be manufacturing residential split air conditioners with both fixed speed and inverter technology.
MEPL Group will also be unveiling new patented technology for enhancing air quality. Nine air-conditioner models have been planned by MEPL Group to enter India air-conditioner market for their own brand Wybor, and some other models will be available for other domestic brands as well.
In the last 2 years, air-conditioner market has witnessed slightly low growth as compared to expectations. Last year, 4.5 million AC units were sold by around 20 companies operating in India. Now, the established brands are going to introduce upgraded technology, energy efficiency, and health and lifestyle value in their air conditioners, which will boost up the replacement market for high-end existing users.
This year, IMD has predicted prolonged heat waves causing a very strong summer in India; some green shoots are already visible with temperature rising in Gujarat, Maharashtra, and southern India in March itself. All the markets in India are showing trend of having huge demands for air conditioners in the next quarter (Apr 2020–Jun 2020). Apart from projection of strong summer, the wide coverage of rural electrification across the country, availability of electricity in metro cities, Tier-I, Tier-II, and Tier-III cities, rise in disposable income, and aspiration level of customers will help ramp up sales volumes of air conditioners in 2020.
Now, the AC buyer is having many finance options to choose from including zero-percent interest EMI schemes, offered by many banks and non-banking financial corporations. Air-conditioner market scenario, with the projected double-digit growth of around 14–15 percent, will accommodate new entrants like Wybor, which will offer high-quality air conditioners with advanced features at suitable price for the consumers.