Expected heatwave to thaw the freeze on air conditioner stock gains

DEMAND BOILS OVER, PRICE HIKES SIZZLE: Room air conditioner majors eye scorching double-digit growth

Barring Blue Star, most listed air conditioner manufacturers lagged the BSE MidCap and BSE Consumer Durables indices over the past six months. While volume growth remained strong, the absence of price hikes, rising competition, and a focus on market share dented profitability.

 

Voltas, the market leader in room air conditioners (RACs), saw a 240-basis-point year-on-year drop in earnings before interest and tax margins for its unitary cooling products segment in the October-December quarter of 2024-25 (Q3FY25), hitting a multi-quarter low of 5.9 per cent. However, air conditioning stocks have rebounded over the past month as expectations of a harsh summer drive demand optimism.

 

The India Meteorological Department forecasts above-normal maximum temperatures across most of the country between March and May 2025, with a higher number of heatwave days. Bajaj Financial Securities notes, “Historically, hot summers have resulted in a spike in sales for companies manufacturing air conditioners, coolers, and refrigeration products. In 2025, this trend is expected to be even more pronounced.”

 

Higher demand, combined with price hikes, could push growth into double digits over a high base. Some brands have already raised prices by 2 per cent, with others expected to follow. After an uneven Q3, demand has also picked up.

 

Yes Securities analysts Aakash Fadia and Sharan Shankarnarayan note that summer-focused products — RACs, air coolers, and fans — saw a slowdown after the festival season but are now regaining traction. RACs, in particular, are outperforming, with inventory restocking gaining momentum in February. Dealers anticipate strong RAC demand, especially with summer setting in early in some regions.

 

Dealers are also stocking up in anticipation of higher sales. Analysts Nirransh Jain and Geetanjali Saladi of BNP Paribas Securities India report that some large-format retailers are building inventories at 1.5 times last year’s levels. Despite ongoing supply chain challenges, especially with compressors, dealers have not yet encountered inventory shortages. 

 

The market will now track demand trends and commodity cost movements. While management commentary remains optimistic on cooling product sales, Centrum Research analysts Chirag Muchhala and Rahul Kumar Mishra highlight that broader demand recovery, especially in rural areas, will be crucial for budget and economy-range products. Price adjustments and margins will also depend on commodity cost fluctuations and rupee depreciation. Centrum Research has a ‘buy’ rating on Havells and an ‘add’ rating on Blue Star and Voltas.

 

Havells India has indicated that rupee depreciation may lead to further price hikes for its RAC business under Lloyd. Blue Star has flagged near-term margin pressures due to currency volatility, fluctuating commodity costs, and evolving trade terms with the US. Both Blue Star and Voltas have guided for high single-digit margins in the near term.

 

Yes Securities maintains a positive outlook on the sector, projecting double-digit growth despite last year’s high base. Its top picks in the RAC space are Voltas and Havells.

 

The brokerage has also upgraded Johnson Controls-Hitachi Air Conditioning India. After losing half its market share in 2023-24 (FY24), the company has shown strong performance since Q4FY24, with sustained improvement over the past nine months of FY25. “We believe its new strategy is delivering results, and market share is recovering,” the brokerage notes.

 

Last month, Elara Capital upgraded Voltas to ‘accumulate’ from ‘sell’ after the stock underperformed the Nifty by 21 per cent over two months. The brokerage sees potential rerating triggers in rising RAC exports, a faster turnaround at Voltas Beko, and the recovery of provisions in the electro-mechanical projects and services segment.