Scorching summer to boost AC volume by 15-20% this fiscal: Report

Mumbai: On the back of a record 26-28 per cent volume growth in FY23, the air conditioner market is set to log in another healthy year with 15-20 per cent sales growth this fiscal, according to a report.

A report by Icra Ratings also said that the production-linked incentive scheme will help reduce import dependence for components to 20-30 per cent from the present level of 60-70 per cent.

The Air Conditioner (AC) makers are expected to register an operating profit margin of 8.8-9.2 per cent in FY24, the report said based on four AC makers which represent 55-58 per cent of the domestic market.

The room AC industry volume will witness 15-20 per cent rise in FY24 following the robust growth of 26-28 per cent in FY23 on the back of an expected harsh summer this year, and the industry is expected to log in an 8.8-9.2 per cent improvement in operating margins too, the ratings agency said in the report.

The Production-Linked Incentive (PLI) scheme has received a strong response with a committed capital outlay of Rs 4,806 crore from both global as well as domestic AC companies, which will help reduce imports to 20-30 per cent for components and support industry margins through backward integration.

According to Sheetal Sharad, sector head at the agency, the industry has significant growth potential considering its low penetration of 7-9 per cent of total urban households, compared to 90 per cent in developed countries. Urbanisation, growing disposable income, improving consumer finance availability and increasing adoption are further expected to support the volume, as well as revenue growth, with a harsh summer excepted to further boost sales.

The market stood at 6.4-6.8 million units or Rs 17,000-18,000 crore in FY22, recovering from the pandemic-induced low of FY21. In FY23, the industry saw significant improvement in volume owing to an elongated and intense summer season along with pent-up demand.

The manufacturers are heavily dependent on imports for critical components. The PLI scheme, which offers incentives of Rs 6,238 crore to manufacturers, has garnered an encouraging response. The agency believes that over the medium to long term, this will enable capacity addition, reduce import dependence from the current levels of 60-70 per cent to 20-30 per cent and provide impetus to AC exports in the long run.

Currently, manufacturers have only 30-40 per cent localisation levels as key components like compressors, controllers, motors, fans, heat exchanger coils and PCBs are imported from China, Thailand and Malaysia.