Fresh Covid wave may be too hot for AC industry

Meenakshi Verma Ambwani New Delhi | Updated on May 04, 2021

Key summer season could be a washout for AC companies, says Motilal Oswal report

Disruptions due to Covid-19 have come at the wrong time for the AC industry; State-wide lockdowns have dented consumer sentiment and extension of these restrictions in several States beyond April poses a further risk to AC sales in the key summer season, according to a report by Motilal Oswal Institutional Equities.

In the wake of the second pandemic wave, States such as Maharashtra, Uttar Pradesh, Delhi and Jharkhand have extended the lockdown period beyond April 30, while others like Haryana have imposed a fresh lockdown for a few days.

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Stating that the current situation could lead to washout for the AC companies in the key summer season, the report said, “As per channel feedback, the impact of the second Covid wave could potentially lead to demand postponement by the end consumer, thus posing a risk to AC sales in the key season.”

A replay of last season

AC makers had been witnessing strong demand with the early onset of the summer season in March but the second pandemic wave led to the announcements of lockdowns in various key consumption States in April.

“This has been a dampener for secondary sales across key geographies in the country, with South faring marginally better than other regions — this appears to be almost a replay of last season,” the report added.

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With lockdown announced in various States in April, AC makers had been hopeful of demand uptick in May. “Feedback from the channel was that the loss of 8-15 days does not pose a high risk for summer products (fans, air coolers, and ACs) – as sales could be recouped in May ’21 based on the ongoing strong summer demand. However, the advent of the second Covid wave in India has led to States such as Maharashtra and Uttar Pradesh extending restrictions, with other States following suit,” the report pointed out.

Impact on sales

Factors such as a ban on industrial use of liquid oxygen, lack of migrant labour, and rising Covid cases have also forced AC makers to either cut back on production or temporarily suspend manufacturing. Many players had earlier told BusinessLine that there could be a short supply of AC products in May due to these disruptions. The uptrend in prices of commodities such as copper, aluminium and steel also continues.

The January-June period contributes nearly 70 per cent of the annual sales of AC in the country and the three-month period of March-May accounts for 50 per cent of the annual sales. “Any disruption during this period results in a disproportionate impact on industry sales. Moreover, since ACs require installations, implying house visits by technicians, the consumer may be hesitant to purchase ACs in the current situation although…. companies did manage this technicality last time around,” the report by Motilal Oswal Institutional Equities added.

Published on May 04, 2021

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