AC prices heat up on weak Re, supply woes

MUMBAI: Temperatures are soaring, so are AC prices. AC makers are facing a double whammy ahead of the peak business season - weakening rupee has inflated import bills, and supply chain constraints which have delayed shipments of key AC components like compressors. This means you are likely to shell out more to buy an AC, which may not even be from a brand that is your top choice, this summer.

"Ongoing global geopolitical tensions have further strained supply chains and increased logistics costs, affecting production timelines and the availability of critical components," Pradeep Bakshi, MD & CEO at Voltas told TOI.

The rupee has fallen over 5% against the dollar over a year translating into an increase in imported and locally sourced raw material costs, said Kamal Nandi, business head and executive vice-president (appliances business) at Godrej Enterprises Group. "We are expected to undertake price adjustment decisions by the end of the month," said Nandi.

The rise in inputs costs is affecting the final product cost, said Voltas's Bakshi, adding that the company is tapping into its domestic manufacturing capabilities to reduce reliance on imports.

Local AC manufacturing ecosystem has improved, supported by govt's PLI scheme but local production of components is still not enough to meet demand. So leading companies rely on imports, mainly from China.

There is demand for about 14 million AC units but the local compressor capacity can support around eight million units only, industry sources said. "The local ecosystem is developing but it will take time. There is still significant dependency on China and we cannot escape that fact," said an industry executive.

At least 35% of AC components, if not more, are still sourced from China, industry estimates suggest. Good growth in China's domestic market and attempt by Chinese manufacturers to advance shipments to the US to circumvent higher duties expected to kick in around April-May have hit supplies of compressors to India, said Vishal Gupta, MD (finance) at PG Electroplast. "The AC industry is anticipating an impact on AC production in April due to the delay in compressor and compressor components shipments," said Manish Sharma, chairman at Panasonic Life Solutions India & SA.

Besides, some Chinese suppliers are also facing delay in securing recertifications from the BIS, adding to the supply issues, said B Thiagarajan, MD at Blue Star. The BIS licence of one of the large Chinese suppliers will expire in June and it will add to the industry's challenges, added Gupta. "We have two large Chinese suppliers of compressors and they manufacture in India as well but their production capacity in India is about 25% of the total demand," said Gupta.

Although price increases are unlikely to dampen AC sales due to the availability of EMIs, stocking (of AC units) is going to be a concern. "There are chances that consumers may not be able to get a brand or model of their choice," said Nilesh Gupta, director at Vijay Sales. The onset of summers is expected to be early this year and companies are bracing for huge demand. Blue Star expects the industry to clock a 25% growth in sales despite the challenges given the growing necessity of ACs amid changing weather patterns marked by severe heat waves.

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