Season not warm enough for AC, refrigerator makers

"So far, things don't look so bright... by April, it should become hotter," says Videocon COO C M Singh

This summer, high inflation, the changing sociopolitical environment and the muted consumer sentiment are likely to hit makers of air conditioners (ACs), air coolers and refrigerators. With demand growth expected flat, these companies are focusing on targeted marketing and increasing the value proposition and operational efficiencies, say experts.

Typically, April-June accounts for 35 per cent of a year’s AC, fridge and air cooler sales. This year, the new energy-efficiency norms that took effect in January forced companies to raise prices. Also, there is substantial inventory from the previous season. What is likely to hit these companies the hardest is the weather. C M Singh, chief operating officer, Videocon, says, “So far, things don’t look so bright on the weather front. We are hoping it will improve next week. By the time April sets in, it should become hotter.” The onset of summer has been delayed in north India, which contributes to a quarter of overall AC sales. Sales in the south, which accounts for 35 per cent of the AC market, are yet to pick up, too.

“Volumes are unlikely to increase this year. But the sector will see growth in revenue because of the increased average selling price,” said a senior executive of a multinational consumer durables company. AC manufacturers are expected to record single-digit growth in revenue this year, and no company is in favour of any further price rise.

“Anticipating the bad market and to keep inventory under control, some companies, including Samsung, have cut production of ACs,” said a senior executive of a consumer durables company.

Market sources say the average selling price of ACs has risen about Rs 5,000 in the past year; this year, split ACs cost Rs 5,000-7,000 more.

Shantanu Dasgupta, vice-president (corporate affairs and strategy), South Asia, Whirlpool, said, “We see offtake being marginally ahead of what it was this time last year. Demand will be muted due to inflationary pressures.”

Kamal Nandi, executive vice-president (sales & marketing), Godrej Appliances, said, “We expect five-seven per cent growth in sales of ACs and refrigerators this summer, in line with last year.”

Pradeep Bakshi, president and chief operating officer (unitary products business group), Voltas, said, “With just 3.8 per cent penetration, there is enough potential to expand and grow the AC category. This season, with the upgrade of energy-efficiency norms, we have lined up a new range of models in spilt and window AC segments, giving our consumers a wide choice of new power-saving models.”

Korean company LG has lined up about 80 new AC varieties. “This summer, we aim to record about 20 per cent growth in revenue, at Rs 2,500 crore, from ACs,” said Saurabh Baisakhiya, business head (air conditioners), LG India. According to sector estimates, Voltas and LG are the top two AC makers in India. Other key companies in this space are Samsung, Hitachi, Daikin and Panasonic. According to data by an independent market research agency, Voltas has a share of about 20 per cent in the AC market, followed by LG (17 per cent), Samsung Electronics (10 per cent) and Panasonic (8.5 per cent). While Voltas’ market share increased two percentage points this January, compared to January 2013, LG and Samsung lost share. A few companies such as Samsung have stopped manufacturing window ACs, as this category isn’t seeing growth in India. Samsung refused to comment on its plans for this summer. An executive of a media-buying agency said usually both LG and Samsung started their summer campaigns and advertising by the first two weeks of March. “But they are yet to start promotions this year,” he said.

B Thiagarajan, president (air conditioning and refrigeration products group), Blue Star, said, “We expect to grow about 20 per cent this summer, ahead of the sector, which we estimate will grow 15 per cent. We have kicked off our advertising for the season and expanded distribution, in keeping with the escalation in demand.”

In India, AC sales stand at about 3.4 million every year. Of these, 80 per cent are in the split AC segment. The refrigerator segment records about 7.5 million sales a year, of which 70 per cent are in the direct-cool category.

How manufacturers plan to tide over this summer

* Targeted marketing
* Increasing value proposition
* Higher operational efficiencies  
* Cutting production