AC makers feel the heat as consumers stay cautious

With the rising mercury levels it is not just the common man who is feeling the heat. Even the air conditioner makers are reeling under tepid demand.

Rising prices and the slowing demand for the consumer durable makers have led to a significant slowdown in growth in the AC market at the start of the season.

Anup Bhargava, senior general manager and product group head, air conditioners, Godrej Appliances, said that at an industry level, the AC category has seen de-growth of 10% in volume in January-February 2014 as compared to the same period last year. "The primary reason for this is the fact that prices across the industry have gone up due to the star rating regime getting stricter (An AC that was 5 star energy rated last year is only 4 star energy rated this year)," he said.

On an average, AC prices were increased by 15-20% from January1 2014.

For AC manufacturers, Jan-May period accounts for 80% of the total sales in the AC market and the first three months of this season have failed to show any significant uptick. As per industry players, the AC market size is estimated to be around Rs 7,500-8,000 crore.

What's not helping is the fact that summers have set in later than usual this year.

Ramesh Shah, MD, Sony Mony Electronics, said, "Post the euphoria witnessed in 2013, the period from January to mid-March in 2014 has been disappointing for the air-conditioning category in terms of sales.

The demand has been sluggish primarily due to the fact that majority of the players hiked rates by up to 20%. And extended winter until a week ago only added to the woes."

Eric Braganza, president, Haier India, said that this year demand is not expected to be stellar. "This year, we don't believe that the industry will grow in double digits at all, it will be a single digit growth even in the peak season for the entire industry."

This will be very different from last year, when as per the Gfk-Nielsen data during January-May, the AC segment grew by 23%. What had helped last year was the fact that there was pent up demand for two years as the growth was sluggish in the years before that.

This year, apart from the residential sales even the commercial sales are down so far. This is because as industry players explain several projects are stuck as corporates are on a wait-and-watch mode before the elections and hence the subdued demand.

Players have begun to see a slight improvement in the past couple of weeks but they believe real demand will happen only from mid April onwards.

In order to woo consumers, white good makers have launched a series of products this year and are trying to differentiate it with innovative offerings. Saurabh Baisakhia, business head for air conditioners, LG India, said, "Consumers seem to be focusing on energy efficient products that have value proposition and also have a differentiated features. In order to improve growth of the segment, we are looking at increasing the AC usage throughout the year and have come out with products with such specific features."