Daikin mulls third AC plant in India

Workers assemble air conditioners inside the Daikin Industries Ltd. plant at Neemrana in the desert Indian state of Rajasthan, October 1, 2014. The desert state of Rajasthan, derided as a poverty-stricken laggard, has taken the lead on structural reforms that, their backers argue, could also help Asia's No.3 economy as a whole to attract business and employ a fast-growing workforce. Chief Minister Vasundhara Raje has shaken up labor, land and welfare policies with such verve Prime Minister Narendra Modi, a party ally, has even poached her chief of staff and put him in charge of the federal finance ministry. Picture taken October 1, 2014. To match Insight INDIA-RAJASTHAN/ REUTERS/Adnan Abidi (INDIA - Tags: POLITICS BUSINESS INDUSTRIAL)

Bullish about the Indian market as well as prospects of making the country an export hub, Japanese air conditioning major Daikin is mulling a third plant even as its second facility in Rajasthan is taking shape to be ready by September, a top company official said.

The company, however, expects the capacity of room air conditioners, which will more than double to 1.2 million units from the existing 500,000 units once the second unit starts, to prove insufficient by 2019, said Kanwal Jeet Jawa, managing director, Daikin Airconditoning India Pvt. Ltd.

The second plant on 40 acres, with an investment of ₹600 crore, will enhance the capacity for Variable Refrigerant Volume units and chillers too.

The existing plant in Neemrana, which was set up with an investment of ₹1,100 crore, is operating at a capacity of 95 per cent. The capacity of the third plant would depend on market growth. If the pace of growth is more than 15-18 per cent, Daikin would opt to add a plant with one million units capacity, Mr. Jawa said.

Noting that Daikin’s project team is likely to a decision after March 2018, Mr. Jawa, who heads the wholly owned subsidiary, said Maharashtra, Andhra Pradesh and Telangana were being considered for the facility. While preference would be for a location near the coast so as to facilitate exports, the company would examine other options, including taking over sick units, with land parcels, in and around Hyderabad.

Key drivers

One of the key drivers would be the focus on exports. “We have already gone to Sri Lanka and made inroads in Bangladesh and Nepal,” Mr. Jawa said. Apart from increasing exports to neighbouring countries, the second plant would help cater to the Middle East market. The idea was that, over time, India instead of Europe should cater to the Middle East, he added.

Stating that Chief Ministers of four States had already been to Japan to woo Daikin, he said availability of skilled manpower, power, water and infrastructure besides a conducive industrial environment would influence the decision on the location of the third plant.

Mr. Jawa, who was in Hyderabad to open the first Daikin Smart Studio in South India, said the Indian arm had posted a turnover of ₹2,750 crore in last fiscal. Going by the robust performance in the first nine months of the current fiscal, it was expected to go past the targeted ₹3,500 crore turnover by March. By 2020, the subsidiary aims to clock a turnover of $1 billion (₹6,500 crore). Daikin’s decision to tweak its strategy from being a niche market player to one with a range of products for the masses too has paid the company rich dividends in India.

“We have products for all categories, at different price points,” Mr. Jawa said. Daikin has a 15 per cent market share in room ACs, 60 per cent in VRVs and more than 15 per cent in chillers. This would increase on the back of lower air conditioner prices, better technology and GST encouraging the use of energy efficient products, he said.