Air conditioner sales up after two dull years

The increase in temperature in last two weeks has led to a pick-up in numbers...

For the first time in two years, air conditioner (AC) sales are expected to grow at least 10-15 per cent in the summer, driven by rising mercury levels.

Consumer durables retailers, such as Mumbai-based Vijay Sales, say the past 10-15 days has seen a good pick-up in numbers, a point corroborated by AC makers.

LG India's business head for ACS, Saurabh Baisakhiya, says the past fortnight has been a good one. "We are expecting to grow ahead of the market, at a rate of about 20 per cent this summer. Our estimates are based on our performance on the ground," he says.

Voltas and LG are the top two AC makers, according to industry estimates. The other key ones are Samsung, Hitachi, Daikin and Panasonic.

Suresh Kumar Bandi, divisional deputy managing director, Panasonic, says: "Certainly, there is a spike in sales this year, which gives us reason to believe that this summer will be different from what it was over the past two years."

The 3.4-million unit AC market in India was flat last year and fell about 15 per cent the year before. The reason was a cool summer. A depreciating rupee did not help and manufacturers had to raise prices by 10 per cent last year. While prices have been up this year, too, by about eight to 10 per cent, trade sources say manufacturers and retailers have pulled out all stops to encourage sales, from free installation services and zero per cent financing on higher-priced models to making available more energy-efficient ACs.

Typically, installation charges are up to Rs 1,500-2,000 for a unit sold. By waiving these, says an executive from Hitachi, the attempt has been to make the cost of acquisition a little lower. Finance-driven sales in ACs has also risen by seven to eight percentage points over last year, trade sources say. "Last year, finance-driven sales were 22-23 per cent of total AC sales. This year, it stands at nearly 30 per cent," says Bandi of Panasonic.

New energy labels for ACs that will kick in next year have been one more reason for sales shooting up this year, B Thiagarajan, president (AC & refrigeration products group), Blue Star, explains. "The moment new energy labels come into the picture, prices shoot up by eight to 10 per cent. Dealers, therefore, have been pushing hard at the store level to drive sales, using this point as a hook," he says.

Energy labels basically prescribe the norms for energy efficiency. For ACs, this translates into a star rating. The higher the star rating, the more energy-efficient the AC is. With new norms, the bar will be simply raised, with a five-star rated AC today becoming a four-star rated one and so on. Prices shoot up because the scale moves up, Thiagarajan explains.

AC prices went up significantly in the past three years, so a new round might drive away new consumers, companies say.

On an average, an entry-level window AC costs Rs 15,000 today from roughly Rs 13,000 three years earlier. An entry-level split AC has gone from Rs  17,000 three years earlier to  Rs 19,000-21,000 now. SALES GRAPH SET TO GO UP

• The size of the AC market in India is 3.4 million units
• This summer, AC sales expected to grow at least 10 to 15 per cent
• Last summer, AC market was flat and the year before the market declined 15 per cent
• Typically summer constitutes a big peak for manufacturers giving them 65 per cent of their sales between March and June