The sales volume of the Indian room air-conditioner (RAC) industry is expected to grow by 20-25 per cent YoY and reach its record high levels of 12-12.5 million units in FY2025, said a report by ICRA. The growth over the next few years, it added, is expected to be led by factors like rising temperature levels, increasing need for the number of RACs per household, rising urbanisation levels, improved disposable income, and favourable consumer financing options. Further, increasing replacement demand with a rising preference for energy-efficient models amidst increasing usage and higher energy costs augur well for the industry.
Srikumar Krishnamurthy, Senior Vice President and Co-Group Head – Corporate Ratings, ICRA, said, “The domestic RAC industry surpassed the pre-Covid peak levels of sales volumes in FY2024, aided by changing climatic conditions and favourable consumer trends. The number of average heat wave days/year over the last three decades has been steadily rising and CY2024 is likely to report the highest ever thus boding well for RAC demand. This was observed in the recently concluded summer season wherein most of the original manufacturers (OEMs) reported robust volume growth of 40-50 per cent YoY during this period. With a conducive climatic environment and favourable structural factors, RAC demand growth is likely to sustain its momentum for the next two years although the pace of growth is likely to moderate to ~10-12 per cent in FY2026; the performance of key markets like North India (which contributes 35-40 per cent to industry sales) is a critical monitorable.”
On the supply side, the domestic household RAC capacity is likely to increase by over 40 per cent in the next three years from the current level. According to Srikumar Krishnamurthy, the key OEMs and contract manufacturers have been adding RAC capacities rapidly to support the growing demand in the domestic market.
Approximately 80 per cent of the OEMs’ capacity is concentrated with the top six OEMs and the capacity for contract manufacturers is restricted to three to four players. “The fiscal benefits of the Government of India’s production-linked incentive (PLI) scheme for components manufacturing for the consumer durable industry have been instrumental in the sharp increase in localisation levels in the Indian RAC industry. The industry is likely to achieve substantial indigenisation of ~75 per cent in the next three-four years through the ongoing backward integration by most industry players,” Srikumar Krishnamurthy added.
ICRA’s sample set of three key listed RAC brands witnessed a YoY increase of approximately 53 per cent in revenues in Q1FY2025 on a YoY basis due to strong demand conditions in the just-concluded peak season led by severe heat waves and a long summer. Further, ICRA expects a healthy YoY increase of around 25 per cent in revenues in FY2025 of the same set, supported by strong volume growth, compared to around 17 per cent in FY2024.
The industry’s operating profit margin (OPM) is inherently moderate at 6.5-7.5 per cent, led by volatility of input costs amid intense competition. With the benefits of operating leverage, the industry is expected to command gradual expansion in operating margins despite the elevated level of competition.
From: financialexpress
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