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MOSL: ROOM AIR CONDITIONERS-CY18 to be another year of strong industry growth-Inverters’ share in industry volumes to rise to 50% by FY20

Room Air Conditioners: CY18 to be another year of strong industry growth; Inverters’ share in industry volumes to rise to 50% by FY20

 

Another scorching summer is coming, India!

The Indian Meteorological Division (IMD) has warned of above-normal temperatures in the CY18 summer season (April to June) across most parts of the country. We, thus, expect continued strong momentum in room air conditioner (AC) sales, which are highly levered to the soaring temperature. Led by healthy demand, the room air conditioner industry is likely to grow at 15% (in terms of volumes) in FY19/CY18, in our view.

 AC penetration to inch up from current low levels

Increasing disposable income, cheap financing and lower running costs for ACs are expected to further drive demand for air conditioners in India, in our view. We took a deep dive into the room AC market in urban India and discovered that AC penetration remains very low at 10%. There are 9.1m/24m households with washing machines/refrigerators but no ACs. Thus, as more households install ACs going forward, demand could reach 18-48m (which is equal to 3-8 years of annual industry AC sales) and penetration levels could increase significantly from current low levels of 10% in urban India.

 Brand, distribution, service network and dealer margins are key differentiators

Our discussion with channel partners/manufacturers indicates that brand, distribution (~50–55% of AC sales now in tier 2/3 cities), service network and dealer margins are the key success factors in the industry. In our view, Voltas has been able to retain/grow its market share in India’s room AC industry, primarily due to its strong competitive positioning across all the aforementioned parameters.