Rising disposable incomes and better availability of electricity will augur well for the domestic room air conditioner market that will continue to grow at 12- 13 per cent CAGR for the next 5-6 years, a report said.
The room AC market at present is estimated to be around Rs 11,600 crore.
"Given the growth in disposable income, better availability of electricity, higher propensity to spend coupled with hot and humid climatic conditions, we believe the room AC segment will continue to grow at 12-13 per cent CAGR for the next 5-6 years.
"Government spending towards urban infrastructure and transportation coupled with the expected recovery in the commercial real estate market will support project segment growth," an ICICI Securities report said.
It noted that within the room AC market, the share of inverter ACs is expected to rise as consumers would prefer the energy efficient option.
"Relatively higher energy consumption of room AC compared to other household electrical appliances will prompt consumers and government towards energy efficiency. We expect the contribution of inverter ACs to grow at a faster rate compared to fixed-speed compressor AC with the former's share estimated to increase from the current 13 per cent to 50 per cent over the next five years," it said.
It added that the government's energy efficiency programme will accelerate adoption of inverter ACs while keeping pricing competitive.
"We believe market share of inverter ACs will gradually grow post the new rating change from January 2018... Consumer awareness has improved and they have become more informed of the benefits of energy efficiency, longer lifecycle advantages and lower noise of inverter ACs.
"Hence shift from fixed speed AC to inverter market will be a key development and companies that are able to adapt themselves and cater to this with more inverter SKUs are likely to dominate in the medium-to long-term perspective," it said.
It noted that the goods and services tax (GST) would reduce logistical cost and favour in-house manufacturing.
"GST favours own manufacturing over imports. Various state governments used to provide additional sales tax and income tax benefits to companies who set up manufacturing. Some states used to charge octroi duty for inward movement of goods.
"With introduction of GST, there is no octroi and some of the additional sales tax benefits will gradually reduce. This will result in reduction in warehousing cost, usher in benefits of large centralised manufacturing and reduce the overall transit time for interstate transfer of goods," it said.
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