High inventory, weak demand dent prospects of air conditioner makers

Rain came early, sales didn't as cooling firms face a bloated inventory and damp volume squib

After a decent run in the January-March quarter (Q4) of 2024-25 (FY25), air conditioner (AC) manufacturers are bracing for a steep drop in volumes in the current 2025-26 (FY26) April–June quarter (Q1). With the peak season derailed by a sluggish summer and early rains, room air conditioning (RAC) firms are staring at a possible 25 per cent year-on-year decline in Q1FY26 volumes. Shares of key players have slid as much as 20 per cent in the past three months and may remain under pressure amid a weak near-term outlook.

 

In Q4FY25, scorching summer forecasts and import barriers on AC components had stoked demand and driven up distributor-level sales. This helped companies deliver solid revenue gains: Lloyd (Havells) saw 39 per cent growth on a low base, while Voltas and Blue Star reported 17 per cent and 15 per cent growth, respectively, despite a high base, according to BOB Capital Markets analyst Vineet Shankar.

 

But sentiment has soured sharply this quarter. Off-season showers have hit sales during what is usually the industry’s busiest stretch — Q1 typically accounts for a third of the year’s revenue. Channel partners had stocked up in anticipation of a prolonged heatwave and compressor supply disruptions. The result: a glut of over 1.5 million unsold units going into Q1FY26.

 

IIFL Research analysts Anupam Gupta and Mudit Bhandari, citing Blue Star’s management, warn that the lack of summer-like conditions in northern India, even in May, could drag down Q1FY26 volumes by 25-30 per cent. This comes off a high base: Q1FY25 had clocked 57 per cent growth.

 

While channel overstocking remains a concern, Blue Star still expects 10-15 per cent full-year growth in FY26, citing hopes of a strong festival season, pre-buying ahead of the energy-rating overhaul in January, and underlying demand for ACs. Institutional RAC sales — around a quarter of the segment — have held steady, and the commercial refrigeration business (another quarter of the product mix) continues to grow, albeit on a low base. 

 

The current mismatch between supply and actual offtake is likely to erode both revenue and margins. Centrum Research analysts Chirag Muchhala and Rahul Kumar Mishra noted that while April saw a 15-20 per cent volume drop, companies had hoped to recoup some of it in May and June. But patchy rainfall and early monsoons disrupted those plans. With dealers sitting on surplus stock, manufacturers may need to offer incentives to clear out inventory, putting further pressure on margins. Centrum maintains an ‘add’ rating on Blue Star, Voltas, and Havells.

 

Emkay Research also expects a muted FY26 for the RAC industry. Still, it sees the recent price correction as a potential entry point, based on historical patterns. Analyst Chirag Jain’s team points out that weak summers in the past were often followed by sharp rebounds, with revenues rising 15-20 per cent and stock prices rallying 40-160 per cent over the next year or so — driven by premiumisation, wider adoption, and improving affordability.

 

Emkay projects a 3 per cent volume dip in FY26 but finds valuations attractive after recent declines. Voltas is trading near pandemic-era lows, and Blue Star is also at appealing levels. The brokerage has a ‘buy’ call on both.