While most consumer durables may see moderated performance, room air conditioner (RAC) makers are set for a strong March 2025 quarter growth. A high base, falling prices, and weak demand could hurt sales of kitchen appliances, lighting, washing machines, and TVs. In contrast, an early summer is expected to lift RAC revenues. Earnings previews from brokerages like Prabhudas Lilladher, Systematix, JM Financial, and Nuvama indicate a strong March 2025 quarter for RAC companies, including original design manufacturers. Higher retail demand and aggressive channel restocking are seen as key growth drivers. Additionally, expectations of a hotter summer are likely to support RAC stock performance into the June 2025 quarter.
Systematix expects the RAC industry to grow 20% year-on-year, potentially touching 40% if summer intensifies. While rising input costs may pressure margins, favourable pricing should offset some impact. According to Emkay, companies have already raised prices by 5-7% between October 2024 and January 2025, with a similar hike likely in the coming months.
Beyond seasonal demand, the RAC segment has strong long-term growth drivers. Motilal Oswal projects a 19% CAGR in industry volumes from 2023-24 to 2026-27. Increasing urbanisation, rising disposable incomes, growth in real estate sector, increasing affordability, low penetration levels and improving power availability are some of the long-term growth drivers.
According to the Emkay report, RAC penetration in India is 11-12%, compared to over 150% in China. Government support for local AC component manufacturing is boosting the industry. The import ban on fully assembled ACs and the PLI scheme have created new opportunities for domestic firms.
Industry challenges
RAC companies are facing compressor shortages due to the import dependence on China. Rising Chinese demand and the BIS (Bureau of Indian Standards) certification expiry for a large Chinese player have created shortages.The industry is handling the shortages by importing from Taiwan, Japan and Thailand, but the demand-supply issues will continue to pose challenges. The supply is unlikely to match the growing demand, and the industry will continue to rely on compressor imports. Furthermore, the industry is also facing issues with shortages of copper tubes. The Motilal Oswal report states that the ramp-up of domestic production is expected to ease supply from October 2025 onwards. Analysts are bullish on Voltas, Bluestar and Amber Enterprises.Cool gains
Voltas
The story so far
- Maintains market leadership due to its strong product portfolio, brand positioning and robust distribution network.
- Aggressively investing in marketing and sales promotion.
- Sub-segments of the company’s UCP (unitary cooling products)—air coolers, commercial refrigeration and commercial air-conditioning—are doing well.
What lies ahead
- Estimated revenue and net profit growth for the March 2025 quarter are 16% and 130%, respectively, on a year-on-year basis, according to Reuters-Refinitiv estimates.
- The management has made adequate arrangements for the sourcing of compressors to manage supply shortages.
- It is seeking a partnership to set up a compressor facility to cut imports.
Analysts’ talk
ANTIQUE STOCK BROKING: Voltas should deliver strong earnings due to the upcoming summer season leading to a strong demand for its RAC product portfolio.
DAM CAPITAL: Focus on balanced profit growth and long-term supply chain resiliency will help Voltas leverage structural growth in RAC segment.
Blue Star
The story so far
- Focus on superior quality products for the affordable segment, comprehensive product range and wider distribution network is helping the company.
- Cost management initiatives, focus on supply chain efficiency and investments in research and development (R&D) aid in margin improvement.
- The commercial refrigeration segment is expected to help its growth.
What lies ahead
- Estimated revenue and net profit growth for the March 2025 quarter is 22.3% and 30.8%, respectively, on a year-on-year basis, according to Reuters-Refinitiv.
- Its better after-sales service, attractive dealer margins and investment in strategic inventory will support performance.
- Its capex plans for the next three years aim to increase manufacturing capacity and product development.
Analysts’ talk
PHILLIP CAPITAL: Blue Star is well positioned with adequate compressor supply, positive channel feedback, and central AC business
as a fallback, if RAC growth slows.
EMKAY: Various structural initiatives undertaken over the past few years around in-house manufacturing, sustained R&D, and marketing spends with deeper penetration in tier 2/ 3/ 4 markets make Blue Star a steady performer.
Amber Enterprises
The story so far
- The original design manufacturer (ODM) for RAC companies maintained its growth momentum aided by its diversified clientele (Voltas, Panasonic, LG, Daikin, Hitachi, Whirlpool, Godrej, Blue Star) and pan-India presence.
- Continuous acquisitions, product diversification and in-house R&D strengthen its business profile.
- Enjoys high operational efficiency due to backward integration in the components space.
What lies ahead
- Estimated revenue and net profit growth for the March 2025 quarter is 28.8% and 38.5%, respectively, on a year-on-year basis, according to Reuters-Refinitiv.
- The company is sourcing compressors from places other than China to manage shortages. It’s also adequately placed to set up a compressor facility.
- It will also benefit from the strong order book for commercial ACs.
Analysts’ talk
AMBIT CAPITAL: With limited incentives for brands to create new capacities and expectations of another strong summer, high growth for AC ODM players like Amber Enterprises is expected to continue.
MOTILAL OSWAL: Amber is adequately positioned to benefit from the strong RAC demand and unlikely to be impacted much by the compressor shortage. Moreover, the addition of new clients in the RAC segment bode well for the company.
Source Link
