ACs costlier this summer

After four years of price cuts, leading air-conditioner (AC) makers are set to increase prices this summer, mainly due to the unprecedented rise in steel prices.

Market leader LG is expected to raise prices by around Rs 1,000 across all models, while Hitachi is planning to raise prices by 5-7 per cent. Samsung has already increased prices by 20 per cent.

Though Samsung might lower prices in the next few weeks, they would remain higher than last year, company executives said. LG, Hitachi and Samsung together accounted for over 50 per cent of the 850,000 ACs sold in the country in 2003.

Steel contributes to 8-10 per cent of the cost of an AC. With steel prices spiralling almost 100 per cent in the past year, AC makers said they were left with no choice but to pass on the hike to customers.

The rise in prices is, however, unlikely to affect sales. The AC market is expected to grow 30 per cent this year. With the summer setting in early, sales climbed 30 per cent in February. Voltas, for example, sold 18,000 ACs last month, compared with 12,000 in February last year.

AC sales grew just 15 per cent in 2003, well below the projection of 25 per cent, on account of heavy monsoon rains.

Higher sales expectations are encouraging several manufacturers to draw up new launch plans. LG plans to launch 30 new models this summer, and is targeting a sales growth of nearly 60 per cent from 280,000 in 2003 to 400,000 in 2004.

Samsung is also planning a new range of 1.5 tonne and 2 tonne split ACs, called the Hurricane series, for this summer.

But industry sources said the price hikes would not be sustainable. "The installed capacity of ACs in India is over 1.25 million units and it has not gone up since 2001. But annual sales in 2003 were around 850,000," said Suresh Khanna, secretary-general, Consumer Electronics and Television Manufacturers Association. "Overcapacity and intense competition means prices cannot go up," he added.