The residential air-conditioner (RAC) segment is expected to post 15-20 per cent volume growth in FY24, despite a high base, due to robust growth of 26-28 per cent in FY2023, according to ratings agency ICRA Limited. It added that the Centre’s production-linked incentive (PLI) scheme for AC components has received a strong response with a committed capital outlay of ₹4,806 crore from both global and domestic RAC companies, which will help reduce imports and support industry margins through backward integration.

Sheetal Sharad, Vice-President and Sector Head–Corporate Ratings, ICRA Limited, says, “ICRA foresees a healthy 15-20 per cent jump in RAC volumes in FY2024 supported by an under-penetrated market and expected harsh summers this year. The industry has significant growth potential considering its low penetration of 7-9 per cent of total urban Indian households, compared to 90 per cent in developed countries. Increasing urbanisation, growing disposable income, improving consumer finance availability, and increasing RACs per household are further expected to support the volume, as well as revenue growth.”

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The ratings agency has estimated the domestic RAC market at 64-68 lakh units valued at ₹17,000-18,000 crore in FY2022, having recovered from the pandemic-induced low in FY2021. In FY2023, the industry witnessed significant improvement in sales volume due to a strong pent-up demand and an intense summer.

“With increasing RAC usage and, consequently, growing electricity expenses, companies are launching more models in the 4- and 5-star higher energy efficiency categories owing to shifting consumer demand towards these energy-efficient models,” she added. The cumulative share (by volume) of 4- and 5-star inverter RACs is expected to increase to 30–40 per cent in FY2025 from 20–23 per cent in FY2022. However, the 3-star AC segment continues to dominate RAC category.

ICRA projected that in the medium to long term, the PLI scheme will enable capacity addition, reduce import dependence from 60-70 per cent to 20–30 per cent, and provide impetus to AC exports in the long run.

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Currently, RAC manufacturers in India have 30-40 per cent localisation. Key components like compressors, controllers, motors, fans, heat exchanger coils and PCBs are imported from China, Thailand and Malaysia, it noted.

“The government’s PLI scheme has received a strong response from both OEMs [original equipment manufacturers] and contract manufacturers, who have committed a capital outlay of ₹4,806 crore during the implementation period of FY2022–2029. Both global as well as domestic RAC players have committed capex for high-value AC intermediates, sub-assemblies, and low-value intermediates under the scheme. RAC players with backward integration in high-value intermediates such as compressors are expected to reach 65–75 per cent of domestic value addition,” Sharad added.