Companies hope for extended summer as AC sales dip

Consumer durable manufacturers are also hoping for renewed demand in north India, which accounts for 40% of countrywide sales

Consumer durable manufacturers are hoping for a delayed monsoon to save them from falling short of their sales targets in 2015-16. The companies are also hoping for renewed demand in north India, which accounts for 40% of countrywide sales.

According to Krishan Sachdev, president of the Refrigeration and Air Conditioning Manufacturers' Association (RAMA) and managing director of Carrier Midea India, sales in April were 10 per cent below industry estimates.

Low sales in early summer may not reflect to a great extent in the year-end accounts of most companies. Unseasonal rain and low temperature during April have taken a toll on sales of air conditioners, but the south and east are more affected. "April is the peak month for AC sales in the south and east, but May matters most in the north," said Kamal Nandi, business head and executive vice-president of Godrej Appliances.

According to the Consumer Electronics and Appliances Manufacturers' Association (CEAMA), the south and east account for 41 per cent of AC sales in the country and the north 37 per cent. "With the monsoon expected on time, the response from the AC segment is anticipated to be weak, but we are optimistic about sales in other regions," said Manish Sharma, president of CEAMA and managing director of Panasonic India and South Asia.

According to the Indian Meteorological Department (IMD), the monsoon will arrive on time this year. However, with 22 per cent of AC sales in the west, the IMD's forecast of rainfall 7 per cent below average during the year is a breather for the industry.

"Demand for ACs in Rajasthan, Gujarat, parts of Maharashtra and central India will surge because the temperature soars there during summer even when rainfall is normal," said an industry veteran who did not wish to be named because he is not authorised to talk to the media.

"Last year the southern Indian market did very well," Nandi said. AC sales witnessed 8-10 per cent volume growth in 2014-15 after remaining flat for two years.

This year, while urban buyers are postponing purchases due to a mild summer and subdued economic activity, rural buyers lack dispensable income. "There is a significant amount of growth in Tier II and III cities, which have a low base," Sachdev said. Nearly 65 per cent of AC sales occur in metros and Tier I cities.

Shantanu Das Gupta, VP, corporate affairs and strategy, Asia South, Whirlpool of India, said, "The sentiment among buyers is not right."

Changing buying behavior and awareness are also affecting AC sales during early summer. A recent report released by EY and Ficci shows penetration of ACs and refrigerators in India are three per cent and 21 per cent, respectively, far lower than the global average of 60 per cent and 85 per cent. But consumer durables account for 40 per cent of household spending in the country.

"People are more aware nowadays. They tend to factor in the cost of operation of an AC, instead of just the cost of the product," said Nandi. With electricity costs surging in many parts of the country, the running cost for ACs has also gone up in the last few years.

Tony Navin, senior vice-president, electronics and home, Snapdeal, has observed this change in buying behaviour. "More people are buying split ACs than window ACs from us now," he said.