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MOSL: ROOM AIR CONDITIONERS-Focus shifts to inverters-Inverters estimated to be 30% of volumes in FY18 and 50% in FY20

​Room Air Conditioners: Focus shifts to inverters; Inverters estimated to be 30% of volumes in FY18 and 50% in FY20

• Expect industry volume CAGR of 15% over FY17-20: We estimate Indian room air conditioner (AC) volumes to grow from 4.7m units in FY17 to 7.2m in FY20, implying a 15% CAGR. This growth is expected to be driven by rising penetration of ACs (4-5% currently v/s 30% global average), higher disposable income, growing urbanization and the year-round AC usage trend. In our view, ACs could be one of the largest discretionary items in India over next few years.
  
• Shift toward inverter ACs accelerates – to be 50% of industry by FY20: Over past few years, demand has been continually shifting toward energy-efficient ACs (5-star/inverter), which contributes ~30-35% of overall industry volumes. According to the Bureau of Energy Efficiency (BEE), all ACs that operate on invertor technology will have to be compulsorily rated from 2018. Consequently, the rating for fixed and variable compressors will be merged. The split AC market is expected to transition to inverter technology over next few years, with inverter ACs projected to account for 30% of the market by FY18 and 50% by 2020. LG’s recent move to completely shift to split inverters will accelerate the industry transition, in our view.