INSUBCONTINENT EXCLUSIVE:
NEW DELHI: With the mercury level topping 50-degree Celsius in many parts of India in the ongoing heatwave, demand for cooling products has
revived after a tepid start to the season due to a delayed onset of the summer
Analysts say the demand recovery may not help bottom lines or stock prices, as sales have been propelled mainly by deep discounts as AC
makers have limited pricing power amid fragile consumer sentiment and intense competition.
As such, stocks of AC makers have limited upsides
margin pressure, I do not see much upside for stocks of AC makers
Maybe, some upside is left in Havells (Lloyd), which has diversified portfolios
Shares of Whirlpool have climbed 13 per cent in the last one month
Those of Blue Star have risen 7 per cent, Voltas 6 per cent, Havells India 6 per cent and Johnson Controls-Hitachi Air Conditioning 3 per
Despite a 10 per cent fall in the broader market the last one week, shares of air cooler maker Symphony are up 10 per cent from a low of Rs
Demand recovery A 20-25 per cent YoY growth in AC sales in April and May has helped dealers make up for a weak March quarter
June sales are likely to moderate as monsoon showers begin in the southern and western regions, and dealers expect quarterly growth to
moderate to 15-18 per cent YoY
create demand pull, prioritising rampup in market share
intensityThe industry saw a 3 per cent de-growth in FY19 after it failed to recover from a poor summer season last year that caused higher
To liquidate it, and beat rising competition, brands offered large discounts, taking a hit on margins.
Pricing across brands are down 9 per
cent from the highs seen in July 2018
industry prevented price hikes despite rising input costs, increase in customs duty and a depreciating rupee
select units as competitive intensity remains high.
The brokerage noted that some brands are offering discounts and have increased warranty
lowered prices of its Ex-Grande series room ACs
The industry is aiming for a 15 per cent growth in FY20, which looks challenging thanks to demand moderation and erratic weather
Consumers have shifted to higher value inverter ACs of late, but the preference is for mass-premium brands providing quality products
Motilal Oswal Securities said inventory levels have normalised and sales of room ACs have been strong, but the scope to pass through import
duty hikes and costs of currency depreciation through price hikes remains limited.
Long term prospectsShort-term concerns will keep upside
limited for AC stocks, but the long-term outlook remains good
Data showed 15 of the 20 warmest years in terms of annual mean temperature on record since 1901 were in 2001-2017
With per capita GDP rising, ACs are soon expected to become a necessity
Some estimates suggest ACs will register a 10.7 per cent volume CAGR over FY18-FY22E, largely fuelled by higher contribution from inverter
ACs, which now account for nearly 40 per cent of total sales
This is, after building in poor growth for FY19.
Prabhakar said one could accumulate stocks of industry leader Voltas and also of Whirlpool
and Hitachi for the long term, if they correct quite a bit
