Organised segment increases share in AC market

By Ramnath Subbu

MUMBAI, APRIL 1. The Rs. 2,000-crore air conditioner (AC) industry is likely to witness smart growth this summer. With an estimated 35-45 per cent growth in volume terms in the year 2000, thanks to vibrant sales in the household AC segment, the industry is sure to exploit the summer demand.

The industry was earlier hit by sluggish growth due to flat demand but with the household segment for ACs leading the way and the entry and aggressive plans of multinationals, activity has been hotting up. The intensified competition has led to price cuts and aggressive offers and consequently, ACs are today within the reach of many more people.

Multinationals entered the market about two and a half years ago and their entry signalled a change in the face of the industry. Players like Samsung and LG have successfully carved out a niche for themselves in the Indian market. The entry of MNCs, to an extent, has led to overcapacity which, it is likely, will lead to a shake-out.

A favourable factor for entry into this segment is that at present, the penetration level in India for ACs is a mere 2 per cent and this could go up with increased industrialisation. China which has comparable demographics boasts a market which is perhaps ten times the size of India's.

The industry can be broadly classified into three segments - unitary products, packaged air conditioners (PAC) and ducted splits and central plants. Unitary products can be further classified into window air-conditioners and mini-splits. These are with capacities of less than three tonnes while the PAC and ductable units cater to segments with requirements less than 15 tonnes while central plants cater to requirements of about 30 tonnes and above.

Earlier, the excise structure was in favour of the unorganised players but declining excise duty over the last decade has helped the organised sector compete with the unorganised sector on a more equal level. In the year 2000, the duty was raised marginally from 30 per cent to 32 per cent under the rationalisation of excise but there was also a shift towards a maximum retail price based system for excise levy. The MRP system provided for an abatement of 40 per cent which mitigated the impact of the increase in duty.

The windows and splits segment is about Rs. 1,000 crores in size and has been growing at rates above 15 per cent and is expected to be strong this year.

The household sector demand, which accounts for a smaller portion of the total, is still the fastest growing segment. Understandably, demand is pronounced in summer months so manufacturers usually maintain large stocks between February and June. A large chunk, above 60 per cent, of demand comes from eight major cities, including the four metros.

Corporates dominate room air conditioners accounting for about 80 per cent. The major players in window airconditioners are Carrier Aircon, Voltas, Amtrex Appliances and Blue Star. Other players include LG Electronics, Videocon, Godrej-GE, Samsung, National, Shriram and Hitachi. The mini-split segment is dominated by Carrier, Voltas, Amtrex and LG.

The central plants segment is around Rs. 400 crores in size. The demand is dependent on the user industries and is therefore susceptible to industrial cycles. Major players here are Voltas, Blue Star, Carrier Aircon, Thermax and Trane. Carrier has a small 12 per cent share but plans to increase its presence as it is a global leader with a 40 per cent share in this segment.

In packaged and split airconditioners, there is a demand lull. This is largely due to a shift in preference to mini-split ACs. In this segment, Voltas and Blue Star are the majors.

There are a number of assemblers in the unorganised sector though there has been a gradual shift to the organised sector in the last few years. From a 42 per cent share in 1994, the organised sector in the year 2000 accounted for slightly more than 60 per cent and this is likely to go up to almost 70 per cent in the current year.

It is interesting that the western region accounts for more than 45 per cent of the total AC sales followed by the north and the south with 33 and 17 per cent respectively. The eastern market accounts for less than 5 per cent. However, the bulk of the window AC sales comes from the north and specifically Delhi.

It is expected that the southern market is likely to show faster growth in the future largely because of the low penetration base there and also the fact that the region has attracted huge foreign investments. With the software and telecommunications industries also concentrated in this region, the demand for split AC and central AC plants of over 15 tonnes capacity is expected to grow significantly.

The latest technology cannot be introduced here owing to the poor quality of power supply. Environmentally, use of chloro-fluoro- carbons (CFCs) which has been banned in ACs in the U.S. since 1995, was in use here till recently. But of late, most players have consciously shifted to the use of hydro-chloro-fluoro- carbons (HCFCs), a more environment-friendly product.

A number of companies have lined up new products for the summer some of which have just been launched. Voltas, a Tata group company, is relaunching its airconditioners under the `Verdant' brand. The company, which leads the institutional AC segment with a market share of 20 per cent plus, plans to increase its share in the retail segment, around 4 per cent. In the current year, the company plans to manufacture and market one lakh units of Vectra and Verdant brands. While the company generated a turnover of Rs. 250 crores through split and room air conditioners last year, for the current year, it has targeted a growth of 35 per cent.

Blue Star also has launched its range of turbo rotary room ACs in capacities of 1.25 and 1.75 tonnes. Samsung has introduced a line of imported Instachill airconditioners, Hitachi has offered its Logicool while Godrej Appliances has just launched its new Intelli range of window ACs. The 1.5 tonne Intelli has been developed on the basis of in-house R & D. Besides, it has also expanded the AC range to include capacities from 0.75 tonne to 1.5 tonnes in window and 1.5 to 2 tonnes in split ACs.

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