Cooling Appliance Makers Bet On Summer Heat To Revive Fortunes

The white goods industry is expected to grow 15-20% in FY24.

<div class="paragraphs"><p>A customer checks a refrigerator at a home appliance store. (Reuters)</p></div>
A customer checks a refrigerator at a home appliance store. (Reuters)

Manufacturers of appliances, particularly cooling products, are betting on a surge in summer demand to revive their fortunes, as consumers face unusually early heatwaves even as concerns of scorching weather in the coming months looms.

According to the India Meteorological Department (IMD), the average maximum temperatures in February shattered records across India. The weather office has further predicted extreme heatwaves between March and May, with central and northern states likely to be hardest hit.

A heatwave for the second straight year may add an extra burden to the ongoing challenges many people already face from inflation to high energy costs. But for appliance manufacturers, this is good news as they prepare for increased demand for coolers, fans, air conditioners and refrigerators.

Executives of several companies told BQ Prime that they are launching new products, building inventory and rushing to stock retail shelves well ahead of time.

“With the summer setting in early, we could see a surge in demand for all cooling products,” said Eric Braganza, president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA), the apex industry body representing the sector in India. He expects air-conditioner sales to grow by 20% and refrigerator sales by 10% this year compared to the previous year.

In FY24, the white goods industry is expected to clock a growth of 15-20%, said Braganza.

According to Gurmeet Singh, chairman and managing director at Johnson Controls-Hitachi Air Conditioning India Ltd., consumers have begun purchasing air-conditioners earlier than usual this year in response to changing weather patterns.

"We are targeting growth to the tune of 25% in the first of this year, betting big on volume sales and market share in the room AC category," he said.

Among new product launches, Orient Electric Ltd. has unveiled Cloud 3 fans, which according to the company is blend of a fan, an air cooler and an air conditioner.

“Fans usually become less effective as temperatures go beyond 34°, and thus the idea of developing this product was born with cloudchill technology,” said Rakesh Khanna, managing director and chief executive officer at the company.

The Cloud 3 fan is priced at Rs 15,999, hefty tag for a fan, given the current inflationary environment. However, Khanna is not concerned. According to him, wealthy individuals are relatively more insulated from the impact of inflation and continue to purchase high-end goods.

Several companies like Godrej Appliances, Haier, Hitachi, Panasonic, Voltas, Lloyd are also ready with new launches anticipating higher sales this year.

The new line-up of air-conditioners is not just equipped with technology and higher cooling capacity but also five-star rating for efficient energy savings, according to Satish NS, president, Haier Appliances India Pvt. Ltd.

Also, several companies are rethinking strategies to revive rural demand, which has been reeling under pressure for the past few quarters.

Voltas Ltd., for example, is strengthening its distribution reach, beefing up marketing efforts and rolling out more inclusive after-sales-service support to drive consumption, according to managing director & chief executive officer Pradeep Bakshi.

"We are already witnessing demand picking up for air-coolers and we expect a sizable business coming in from the tier-II and tier-III markets," Bakshi said.

"From the middle of February, we have seen a significant increase in primary demand for electric fans, particularly table, pedestal, decorative, BLDC fans, and premium ceiling fans," Sashi Prabhu, vice-president and business unit head, indoor air quality business, Panasonic Life Solutions India Pvt. Ltd. said. The company intends to increase inventory this year compared to last year.

The mandatory star-rating norms for ceiling fans have led to an increase in the consumption of commodities like steel, aluminum, aluminum alloy, and copper, according to Prabhu. Due to this, the company is facing cost pressures as the input prices remain inflated compared to the previous year's figures for November and December.

Despite the challenges, the company is looking to absorb the cost and not pass it on to customers, indicating intense competition in the market and stagnant demand.

Kamal Nandi, business head and executive vice-president, Godrej Appliances, is aiming for 40% growth this year for its range of cooling appliances.

"Other than prolonged summer, we also expect some upswing in discretionary spending with the recent announcement of tax relief," Nandi said.

While the general consensus is that a scorching summer will lead to a significant valuation upgrade for fan, cooler or air-conditioner companies, analysts at ICICI Securities Ltd. hold a different view. They believe there is stiff competition among air-conditioner companies, and most of them are operating at a higher cost of capital compared to the return on capital employed.

"Market leader Voltas has not raised prices in the second half of FY23 in spite of higher cost pressures. We believe growth with low profitability might not lead to any valuation upgrade," the brokerage said in note on Feb. 28.

It also said that its channel check suggests there is no material change in consumer offtake. "Higher trade discounts (and not necessarily heatwave) are leading to slightly higher volume growth," it said.

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