Room air-conditioner industry is expected to garner 20-25 per cent sales volume growth compared to last year and reach a record high levels of 12-12.5 million units in FY2025, as per a latest report by ICRA.
Rising temperature levels, increasing need for the number of RACs per household, rising urbanisation levels, improved disposable income, and favourable consumer financing options are expected to drive the growth in the next few years, the report noted.
Increase in replacement demand with a rising preference for energy-efficient models amidst increasing usage and higher energy costs also augers well for the industry.
Srikumar Krishnamurthy, Senior Vice President and Co-Group Head – Corporate Ratings, ICRA, said, “The domestic RAC industry surpassed the pre-Covid peak levels of sales volumes in FY2024, aided by changing climatic conditions and favourable consumer trends.”
“The number of average heat wave days per year over the last three decades has been steadily rising and CY2024 is likely to report the highest ever thus boding well for RAC demand. This was observed in the recently concluded summer season wherein most of the original manufacturers (OEMs) reported robust volume growth of 40-50 per cent YoY during this period.”
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“With a conducive climatic environment and favourable structural factors, RAC demand growth is likely to sustain its momentum for the next two years although the pace of growth is likely to moderate to about 10-12 per cent in FY2026; the performance of key markets like North India (which contributes 35-40% to industry sales) is a critical monitorable,” he added.
On the supply side, the domestic household capacity of room air-conditioners is likely to increase by over 40 per cent in the next three years from the current level.
“The key OEMs and contract manufacturers have been adding RAC capacities rapidly to support the growing demand in the domestic market. Approximately 80% of the OEMs’ capacity is concentrated with the top six OEMs and the capacity for contract manufacturers is restricted to three to four players.”
“The fiscal benefits of the Government of India’s production-linked incentive (PLI) scheme for components manufacturing for the consumer durable industry have been instrumental in the sharp increase in localisation levels in the Indian RAC industry.”
“The industry is likely to achieve substantial indigenisation of about 75 per cent in the next three-four years through the ongoing backward integration by most industry players,” Krishnamurthy stated.
ICRA said its sample set of three key listed RAC brands( Voltas, Blue Star and Johnson Controls-Hitachi Air Conditioning) witnessed a YoY increase of about 53 per cent in revenues in Q1 FY2025 on a YoY basis due to strong demand conditions in the just-concluded peak season led by severe heat waves and a long summer.
The industry’s operating profit margin (OPM) is inherently moderate at 6.5-7.5 per cent, led by the volatility of input costs amid intense competition. With the benefits of operating leverage, the industry is expected to command gradual expansion in operating margins despite the elevated level of competition, the report noted
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