Air Conditioner Makers Stare At Not-So-Cool Summer
Makers of air conditioners, coolers and fans stare at a poor summer as an extended cold wave has only piled up more inventory on the stock that remained unsold because of a weak Diwali festival season last year.
The weather department forecast that the cold wave will continue, extending the winter. It’s expected to hurt demand in the fourth quarter ending March. What that means is the unsold inventory will only start getting exhausted in the summer, and there won’t be much fresh demand from dealers from March to May, a period that accounts for half of yearly sales.
The industry, reeling from weak demand last summer because of unseasonal rains and energy-rating changes, was hoping to clear the inventory going into this year’s summer, Chirag Shah, analyst at CLSA, said in a note. The cold wave has put growth in fresh sales from the manufacturers at risk, the brokerage said.
Volume growth is expected to fall to its slowest in six years for the ongoing financial year, according CLSA. And a weak summer season will be a double whammy for the companies as they haven’t been able to pass on higher custom duty imposed in September on air conditioners and compressors.
Market leader Voltas Ltd. said the industry volume of room air conditioners segment contracted 4 percent in the nine months ended December on account of poor summer and lukewarm festive sales during Diwali.
Shrinidhi Karlekar, analyst at HSBC, wrote in a note that the peak summer season has been weak for secondary sales for the last two years, hurting volumes and profitability of all manufacturers.
Voltas, in its post earnings conference call, said margins were impacted due to raw material costs and hike in customs duty. Havells, which sells Lloyds air conditioners, admitted that the industry is facing growth challenges and the channel inventory is still above the levels preferred by distributors.
Besides higher costs, rupee depreciation and higher discounts also impacted margins, Blue Star said.
Still, managements of Blue Star and Symphony are optimistic about the revenue growth pick up and expect margin to widen as demand returns in the summer.
“The product portfolio has been rejigged so that margins return to their original level. As far as room air conditioner business is concerned, we are optimistic about demand revival from March,” said Neeraj Basur, chief financial officer at Blue Star.