Indian AC Industry Poised for Growth Amid Supply Challenges

The Indian air conditioning (AC) market is off to a great start this summer, building on last season’s strong performance. After a tough time with shortages of important parts like compressors and copper in early this year, companies have found ways to solve these issues. They secured backup suppliers and are slowly but surely getting back on track.

The hot temperatures and more people having extra money to spend are making more folks want to buy ACs. It’s predicted that demand will grow by about 19% each year, which means there will be a bigger need for compressors and copper parts as well. Although there were some hiccups in production this January, many businesses managed their inventory well thanks to alternative sources, like Highly and GMCC. Some big names like LG and Daikin, which make their own compressors, are in a better spot.

To keep going, the industry is importing parts from places like Taiwan, Japan, and Thailand, and they are hopeful about getting supplies from China soon. They also asked the government to extend some certifications until local manufacturers can meet the demand.

India is set to become a major player in electronics manufacturing soon, thanks to increasing local demand and better export opportunities. The electronic manufacturing services (EMS) industry is growing, with many big companies planning to expand under a government program called PLI for white goods. Since the PLI scheme started, the local value of products has increased from 25% to 45%, and it’s expected to reach 60-70% by FY27 as even more parts are made locally. We anticipate a growth rate of 14% for the RAC industry from FY24 to FY27, mostly thanks to more people buying ACs and rising incomes.

Company Highlights:
– Voltas: Target price is Rs 1640 (current price Rs 1400) with an upside of 17%. In 3QFY25, Voltas had an 18% revenue increase to Rs 31.1 billion. Although one segment saw lower profit margins, the company is positive about the hot summer and expects strong growth ahead.

– Amber Enterprises: Target price is Rs 7800 (current price Rs 6340) with an upside of 23%. It saw a 65% revenue increase this quarter, driven mainly by its AC and electronics divisions. While the railway segment is facing delays, the company is ready to take advantage of increasing AC demand.

(Note: The author is the head of research at Motilal Oswal Financial Services Ltd. The views expressed are personal and do not necessarily reflect those of thellv.news)