AC import ban to drive market share gains for Voltas, Blue Star and Havells

Investment in domestic manufacturing capacities will stand them in good stead; OEMs like Amber Enterprises to also benefit

The government’s decision on Thursday to ban the import of air conditioners (AC) — both split and window — saw stocks of Voltas, Blue Star, Johnson Controls-Hitachi Air Conditioning, and Havells gain up to 5 per cent on Friday.

Apart from these firms, analysts say, domestic original equipment manufacturers (OEMs), too, will benefit, the reason Amber Enterprises surged over 9 per cent. The ban is likely to drive market share gains for these leading AC players. Smaller and some larger AC brands that are significantly dependent on imports from China, Taiwan or other countries, however, will need to find domestic manufacturing options. However, even if smaller players can find local manufacturers, they may still not be able to sell at lower price points that had been their key sales strategy, say analysts. So, smaller firms might get squeezed and large listed companies with domestic manufacturing facilities are seen gaining.

Among larger players, Havells, after acquiring Lloyds’ AC business, had invested in manufacturing and saw its facility come on stream in February. The leader in AC segment, Voltas, too, after entering into a joint venture for selling white goods, has been developing its Tirupati facility to produce white goods and improve AC supplies to the South Indian market. Other large players are ramping up production as well. After the excise duty hikes on compressors and other equipment a few years back, AC manufacturers have spent on backward integration, and should reap the benefits now. Further, the import of compressors, which remains high, has not been banned and, hence, there is no adverse impact on these players, say analysts.

Voltas also witnessed a much better June quarter, with sales benefiting from North India’s heat wave, leading to lower channel inventory. The peak June quarter season sales are important to drive earnings of cooling products manufacturers. Though Havells was also a beneficiary, the gains could be lower looking at the slowdown in some of its segments like switchgears, cables, that are dependent on pickup in real estate activities. Slowdown in institutional sales will also mean limited gains for Blue Star.

Among stocks, Voltas remains the pick of Himanshu Kapadia at Elara Capital, who says that Havells, too, is well placed but is trading at stretched valuations of 52x FY22 estimated earnings.

OEMs like Amber Enterprises are also clear winners as they will get more opportunities for outsourced manufacturing, says Arafat Syed of Reliance Securities. The firm has been gaining with tightening of import norms and its share price has more than doubled in the past year. PG Electroplast, another OEM, and chemicals players like SRF, Navin Fluorine and Gujarat Fluorochemicals are also seen gaining, given the ban on import of ACs with refrigerants.