Energy upgrade could make ACs dearer

Each one star upgrade will see average price rise of 5-7%;Weak Re already has hiked prices by almost 10 %

For AC companies, the worst isn’t over yet. Most companies in this segment fear the price impact of the mandatory energy upgrade due in January could hit consumer sentiment further. A fall in demand, they say, could lead to a 10 per cent contraction in India’s 3.5-million-unit AC market, as companies would inevitably raise prices five-10 per cent due to the energy upgrade.

In the past couple of months, nearly all AC companies have raised prices about ten per cent, owing to the weak rupee. Another price rise in January, companies fear, would hit profitability.

Currently, the Bureau of Energy Efficiency (BEE) implements a 2.2-table rating; from January 1, this would be upgraded to 2.3. As a result, an existing four-star split AC would become a three-star one, a five-star split AC would become a four-star one, and so on. Kamal Nandi, vice-president (sales & marketing), Godrej Appliances, said, “While new upgraded AC norms by BEE will result in products with higher energy efficiency, after already raising prices due to a weak rupee and the overall dull economy, another such rise would hit demand. But this is something that cannot be put on hold; we will abide by the law.”

Krishan Sachdev, managing director of Carrier Midea, said every one-star upgrade involved an average five-seven per cent price rise. Whenever a product was upgraded, material costs would rise, he said, adding more copper and a bigger compressor would add to the rising costs.

B Thiagarajan, executive director and president (AC and refrigerators business), Blue Star, said while first half this year had been good, overall inflationary pressure and price rises could lead to contraction in the market. “As things stand, there could be contraction of about ten per cent. This is inevitable,” he said, adding price rises for upgrades of ACs were normal and consumer would also get energy benefits on long term basis.

  

Last year as well the industry grew by about 6 % on the back of muted demand growth along with currency volatility. Companies are also anticipating, post BEE upgrade in January 2014, window ACs will become unviable and pie of split ACs will further swell. At present over 70 % of the market is of split ACs.