AC sales set to soar with rising mercury

New norms and rising commodity costs push up prices, but are unlikely to dampen demand, say industry captains

April 01, 2018 02:30 am | Updated 02:30 am IST - NEW DELHI

HYDERABAD, 16/03/2012: BUDGET: Air conditioners to cost more in the Union Budget 2012-2013. A scene at a showroom in Hyderabad on March 16, 2012.
Photo: G. Krishnaswamy

HYDERABAD, 16/03/2012: BUDGET: Air conditioners to cost more in the Union Budget 2012-2013. A scene at a showroom in Hyderabad on March 16, 2012. Photo: G. Krishnaswamy

Amid forecasts for a hotter summer in 2018, air conditioner makers in India are expecting up to 50% growth in sales despite the increase in product prices as a result of new energy efficiency norms and a rise in commodity prices.

“We have already seen a growth of 52% in the first quarter compared to Q1 of 2017. We have not seen such high growth in a quarter, previously,” Vijay Babu, business head-RAC, LG Electronics India, said.

In 2017, the company, which sold about 8.5 lakh ACs, saw a growth of 34% over 2016.

South Korean giant Samsung too is aiming at healthy double-digit growth in the Indian AC market this year, outpacing the industry, while Panasonic India is targeting 17% growth in FY18-19.

Homegrown firm Mitashi said it was eyeing 50% growth this summer, aiming at close to 80,000 units. Its CMD Rakesh Dugar said, “The growth in the first quarter was lower at about 30%... because of major sales in the quarter ended December due to discontinuation of the old series of ACs.”

‘Unusually high growth’

Mr. Babu attributed the ‘abnormally high’ growth to the shifting of the entire line of ACs to inverter ACs. He added that the high growth is likely to continue in the second quarter as well.

The Bureau of Energy Efficiency has introduced new star rating methodology called the Indian Seasonal Energy Efficiency Ratio (ISEER) for air conditioners, under which the earlier Star-3 AC would now become Star-1.

Eric Braganza, president, Haier Appliances India, is expecting a growth of 60% in air conditioner sales this year, driven by factors such as increasing disposable income boosting the buying capacity of individuals.

“However, a key factor is changing weather conditions. Summers are harsher than ever and the temperature is going up every year... This is expected to trigger early sales and will bring in a lot of first-time buyers in the market. Therefore, having an AC will gradually become a necessity taking into consideration the rising temperature,” Mr. Braganza said.

‘1 degree above normal’

The annual summer forecast issued by the India Meteorology Department has predicted that the summer of 2018 will be hotter, with maximum temperatures going up by at least one degree above normal. Several parts of India — ranging from Palakkad in Kerala to Delhi — have already reported temperatures in excess of 40 degrees celsius.

The change in energy efficiency norms coupled with rising raw material prices has driven up AC prices by 5-6%, with manufacturers such as LG readying for another round of price increases.

“AC prices have gone up. In January, we increased our price by almost 5%. From April 1, we are again increasing the price by 3%... mainly because cost of copper and other raw materials has gone up,” Mr. Babu said.

The price rise, however, is unlikely to impact demand. “The demand is always there if you give the right product. We need to give value addition. For eg, now consumers don’t need an inverter with our AC. We are also giving 10 years’ warranty on the compressor. So, you can convince the consumer with a value proposition,” Mr. Babu said.

Asked about buying patterns, Mr. Braganza said they were different across tier I, II and III cities. In tier I cities, consumers usually spend on upgrading their existing products with new ones. For instance, upgrading from a normal AC to an inverter technology AC. However, in Tier II and III cities there are a lot of emerging buyers who are looking to invest in an air conditioner for the first time “Owing to this fact, the demand for ACs in tier II and III cities has been very encouraging...,” he said.

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