India's room air conditioner market is experiencing a 15% growth in the first quarter of FY27, significantly below the 20-25% growth that was anticipated at the beginning of the season. According to Praveen Sahay from PL Capital, while retail demand has been strong since mid-April, primary sales to dealers have remained weak, preventing the industry from fully capitalizing on the seasonal opportunity. As reported by The Economic Times, manufacturers have not seen a proportional increase in shipments to dealers despite healthy secondary demand throughout May.
The industry's biggest challenge this year has been dealers' cautious approach despite favorable weather conditions. According to Sahay's channel checks, dealer inventory levels have dropped significantly from over 30 days to approximately 20 days. This conservative stocking approach has led to softer primary sales and prevented the expected growth surge. The dealer inventory reduction from previous years' levels of more than 30 days to current levels of around 20 days has been a key factor in the subdued primary sales performance. Sahay explained that "dealers were not very enthusiastic about the extended or harsh summer in terms of building inventories," leading to the softer primary demand despite good secondary market traction.
Despite the first quarter's disappointing performance, Sahay believes the extended summer could benefit the industry during the traditionally weaker second quarter. As reported by The Economic Times, RAC sales are expected to reach around 58 lakh units in Q1, compared with approximately 51 lakh units last year. The El Niño impact may extend the summer season into July, with Q2 sales potentially reaching 18 lakh units in the secondary market, up from last year's 15 lakh units. This would result in Q1 and Q2 combined growth of around 17% plus, though still below the anticipated 20-25% growth. Sahay noted that "Q2 is usually a lean quarter for RACs, in good years the industry sold nearly 17-18 lakh RAC units in the secondary market, while last year it was around 15 lakh," and expects the El Niño impact to push Q2 volumes to 18 lakh units.
While manufacturers announced price increases of 10-11% in April to address inflationary pressures, only 5-6% has been implemented so far due to intense competition and soft consumer sentiment. According to Sahay's channel checks reported by The Economic Times, the first price hike in January was absorbed by all brands due to GST reduction benefits, and consumers did not face any price increases. The gap between announced and implemented price hikes is creating margin pressure for all players as companies struggle to fully pass on higher input costs. Sahay explained that "competitive intensity has increased, maybe consumer demand is also getting impacted because of inflation," which is why the entire price hike has not been taken, leading to significant margin pressure for all players.
Performance across brands varies significantly, with some companies being more aggressive in volume growth. As reported by The Economic Times, Voltas is currently performing well in terms of volumes, demonstrating how brand-to-brand performance differs significantly in the current market conditions. Sahay noted that "brand-to-brand, these numbers are varying, some companies are very aggressive and are doing very well in terms of volumes, and one of them is Voltas right now." The industry's overall performance will largely depend on whether dealers become more confident in rebuilding inventories and whether manufacturers can protect margins amid competitive pricing pressures.
