Turnaround in AC sales keeps pace with summer heat

My colleague Nupur Anand co-authored this story first appearing in DNA Money edition on Wednesday, May 8, 2013.

Makers of air conditioners (ACs) are rejoicing as sales are zooming up, thanks to the scorching summer, unlike last year when the market de-grew 26% on-year in the January-April period.

The residential AC market alone sees sales of up to 3.5 million units annually. Dealers and manufacturers said the overall AC market is growing by about 10-12% on-year this year. They attribute the turnaround to stable prices.

Mahesh Krishnan, vice-president (consumer electronics), Samsung India, said that unlike last year, prices have remained stable this year, boosting sales. “Last year, the rupee had depreciated almost 4% and this had led to a 10-15%  increase in prices, affecting demand.”

Saurabh Baisakhia, business head-AC, LG India, agreed that demand has improved. He expects it to stay strong. “Demand for LG ACs has improved by 20% on-year. Consumers are buying more energy-efficient products. So, the 4- and 5-star ACs are selling faster.”

Sanjay Mahajan, vice president-sales and marketing, Carrier Midea India, said energy-savers, though 15-25% more expensive than regular models, are viewed as ‘value for money’ by Indian consumers. For example, a typical 1.5 tonne, 3-star AC costs up to Rs 32,000, while a 5-star product could retail for Rs 37,000.

Consumers’ preference is also shifting from window ACs to split ACs. A Navi Mumbai consumer says he invested around Rs 30,000 last week on a 5-star split AC because he wanted his pet dog Toffee, an English cocker spaniel, too, to stay cool. “Heat this summer is almost unbearable. The split aircon now serves both my bedroom and the living room where Toffee relaxes.”

Krishnan of Samsung said that in south India, split ACs now account for over 90% of sales. In contrast, the window AC market has hardly seen any growth over the last few years, industry observers said.  Shifting sales are forcing AC-makers to rethink their strategies. Some are either lowering or discontinuing production of window ACs. However, industry experts believe that most AC-makers will wait for at least one more year before withdrawing from this segment altogether.

Ramesh Shah, MD of Sony Mony Electronics, a retail chain, says that easy financing options and value add-ons like free installation are also driving sales. With foreign exchange and raw material costs remaining stable, the AC industry is expected to grow by 15% this fiscal, say experts.