Despite headwinds, air-conditioner growth to remain healthy this summer

Strong summer demand, low base and inventory push to support AC growth despite price hikes, raw material inflation and evolving energy efficiency norms

With summer around the corner, the demand for room air-conditioners is expected to be strong through the next quarter and dealer feedback indicated that sales in the fourth quarter of 2025-26 (Q4FY26) were strong. However, there is channel inventory and expectations of unseasonal showers. A rise in raw material prices has triggered price hikes in new models with upgraded bureau of energy efficiency or BEE norms offsetting goods and services tax (GST) rate cuts. Manufacturers have switched temporarily to oxyacetylene to replace liquefied petroleum gas (LPG). Right now, there are no real concerns about supply chains with most players localised although raw material costs are up. 

 

Manufacturers are pushing out inventory for room air conditioners (primary sales). In Q3FY26, consumer durables majors like Voltas, Lloyd, Blue Star reported growth of 8.6 per cent, degrowth of 0.9 per cent and degrowth of 6.5 per cent year-on-year (Y-o-Y) in sales, respectively. LG Electronics posted a 6.4 per cent Y-o-Y decline in revenues, whereas Whirlpool grew 4 per cent. Operating profit margins were down, with Blue Star up 30 basis points Y-o-Y and Whirlpool up 120 basis points Y-oY being the exceptions.

 

Analysts will be watching offtake of channel inventory of room air-conditioners rated, according to previous norms and the interplay of GST rate cuts versus raw material inflation. Overall management commentary is positive for room ACs, with confidence about strong secondary sales and retailer offtake. 

Regionally, South, North, Central and West have seen strong growth in Q4 but demand in East has not picked up. Channel inventory of older models is still being cleared with price hikes on new models with updated BEE norms. Competitive intensity has increased. 

Due to a lot of rain in CY25, there’s a low base for room ACs in Q1FY27 versus Q1FY26, which could boost growth. Channel financing may be key, with over 60 per cent of sales financed in some form, including 30-60 days of interest-free credit in many schemes. Key financiers include Bajaj Finance, Tata Capital, Progcap, and Jana SFB.

 

At dealer level, feedback indicates most brands have cleared most of their old BEE inventory though there is still stock left. Weather forecasts including El Nino suggest a very hot summer. Geopolitical tensions and macro uncertainties could pull down sentiment.

 

The transition to new BEE norms has increased costs due to higher copper usage and improved efficiency standards. Prices of new five-star ACs have increased by net ₹5,000-6,000, while three-star models have seen increases of ₹2,000-3,000 with GST cuts offset.

 

Some key consumer segments are value-seeking consumers, and first-time AC buyers who are both focused on affordability, while higher income households are adding room AC units or upgrading. Mass-market brands like Lloyd, Voltas, and Godrej will benefit from value-driven demand, while premium brands cater to upgrading consumers.

 

Amid strong competition, Godrej has strengthened share, while Whirlpool is beginning to make competitive headway and Lloyd, Voltas, and LG are fighting it out in the mass segment, and Daikin and Hitachi in premium. Regional penetration differs for different brands.

 

So far, hi-tech features like Wi-Fi connectivity or AI-based functions are not differentiators, though some brands are introducing these features. Solar-powered conditioners could emerge as a potential new category.

 

The mid-range segment is most popular while premiumisation is gaining traction. Consumer search and discovery is largely digital, but purchases are largely offline. Demand is stronger in Tier II/III markets, while Tier I demand is shifting toward online platforms and large retail. BEE star rating changes seem to have limited influence on consumers.

 

Secondary sales grew in the mid-20 per cent or better through January and February, according to distributors. Industry growth off a low base is projected at 45-50 per cent for the season, until monsoon onset. Prices could rise further if there’s a squeeze on copper, plastics and resins and supply risks are a concern.

 

RAC companies such as Havells, Blue Star, Voltas, and LG could benefit from a hot summer. Localisation, outsourcing and domestic manufacturing initiatives should support growth and margins. Most companies have good balance sheets and return ratios though capex and high marketing spends and elevated investment in distribution are visible.

 

The intensity of heat in April and beyond will be critical after a cool summer in CY25. In Q4FY26, secondary sales volumes of room air-conditioners are trending high, which may mean positive volume surprises.