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Competition heats up AC market

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Just as the India Meteorological Department warned of above-normal temperatures in the Calendar Year 18 summer season (April to June) across most parts of the country, Indian air conditioner manufacturers started getting ready to make most of the impending opportunity. For example, Blue Star has launched 100 new air conditioners including 40 highly energy-efficient 3-star and 5-star inverter split air conditioners, designed to deliver extraordinary benefits. Panasonic India is offering new range of inverter ACs which come with company’s patented Nanoe technology. Samsung India has introduced world’s first Wind-Free Air Conditioner in India. AKAI India recently launched three new models of Inverter Air-conditioners. Around 40 air conditioner brands are there in India and all of them are vying for a larger share in the Indian AC pie.

So, AC manufacturers are resorting to all sorts of tricks to push up sales. According to the feedback we received from the market, Voltas, LG and Lloyd Electric are very dealer-friendly and provide high margins. Our channel reports say that Voltas provides 35% margins to some of the bigger dealers and 28% to smaller dealers. Similarly, LG offers dealer margin of 28-30%. On the other hand, Samsung and Blue Star are not so dealer-friendly and are known to keep their purse strings tight. It is believed that Blue Star offers not more than 25% in dealer margin. O General and Mitsubishi Electric offer the lowest margins of 18-20%.

AC manufacturers are also aiming for higher market share as the market has just started growing. B Thiagarajan, Joint Managing Director, Blue Star Limited said, “We are optimistic about the future prospects and once again expect to outperform the market and achieve a market share of 12.5% in FY19.” Indian AC market is expected to see a CAGR of 15% during the period from FY 18 to FY 20. In other words, Indian AC sales are expected to jump from 5.2m units in FY18 to 7.7m units by FY20. So, even if a brand is able to maintain its present market share it can see considerable growth in its sale! 

Demand for ACs are growing and at the same time there is visible shift in consumer preferences seen in recent times. According to market reports, there is visible shift in demand for inverter ACs. The new energy ratings which have become effective from January 2018 prescribe that 4- and 5-star rated ACs would operate only on inverter technology. The split AC market is expected to transition to inverter technology over the next few years.

Primarily this is happening because customers are increasingly becoming aware of lifetime costs of ACs vis-α-vis upfront costs.  Also, the narrowing price gap between fixed and inverter ACs, which now stands at only Rs 3,000-4,000 is encouraging the shift in consumer preferences. Further, every year electricity rates are increasing and energy efficient ACs can insulate the consumer against the hike in utility bill. Above all, inverter AC makers are offering free installation and comprehensive 3-5 year warranty to lure the customers. If markets reports are to be believed the share of inverter ACs has already increased to more than 50% of overall sales in metros/tier-1 cities.

Indian AC manufacturers are relatively late comers in the inverter AC market which is dominated by Japanese players like Daikin, Mitsubishi Electric and Hitachi. LG was the first player to completely switch to inverters in January 2017 and therefore, the brand enjoys leadership position in this segment. It is believed that LG enjoys 50% share in the inverter AC segment.

Inverter AC was a weak point in case of Voltas which otherwise enjoyed a leadership position in room ACs. To overcome this weakness, Voltas has now come up with the cheapest product in the market, with its 1-ton, 3-star inverter AC priced at Rs 31,000 and 1.5-ton, 3-star inverter AC priced at Rs 35,000. Daikin, too, has cut prices and its products are now priced in line/marginally higher than Voltas and LG. Strangely, Blue Star has maintained a premium to Voltas/LG/Daikin, with its products priced around 5-10% higher across the fixed and inverter AC categories.

Demand for ACs are going up but at the same time competition among the manufacturers too is hotting up. Higher discount and lower price may be the order of the day. And competition may further hot up as the summer comes to its closure.

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