Teji Mandi explains: After a strong start to summer season, AC sales falter in April, here's why

The summer season had started well with a strong uptick in demand for air conditioners in March 2021. Yet, the sentiments have tapered off in April. In this TM Feature, we assess the key reasons behind the muted industry sentiments.

After beginning the summer season on a strong note, the AC sales have come down in April. Channel checks suggest that retail demand has not been as strong as expected, as lockdowns across the key states have proven to be a major dampener.

A Wash-Out Summer Season?

The dealers were expecting to make up for the loss of 8–15 days due to lockdown in May when summer is at its peak. Yet, the situation is different now. The lockdowns are likely to prolong well into May. Even the central government is under pressure to announce strict lockdown across the country. This is likely to impact consumer sentiments further.

Moreover, consumers could also be postponing their purchase decision as ACs need house visits by technicians for installation. And, the consumers would want to avoid that in the current situation.

There was an aggressive pre-buying from dealers in March in anticipation of a price hike in April. Yet, that has not happened as all the major companies have refrained from taking a price hike.

Pre-buying, combined with low customer demand, has resulted in high inventory levels in the system. If retail offtake does not improve, this will have an effect on sales in May.

Commodity Inflation Remains a Major Headwind

While demand has remained muted during the peak season, commodity prices have continued to rise. Prices of copper/aluminum/steel have risen by 16% /7% /10% QoQ in the March quarter. It continues to add margin pressure on AC manufacturers.

Competitive intensity is also increasing for listed players as Samsung has turned aggressive in the AC market. It has gained market share in the current quarter and poses a risk to the Top 5 players with its strong distribution network in the durables segment.

Disruptions Came at a Wrong Time

Summer is the most crucial season for the AC market, with ~70% of annual sales taking place during this period. Hence, the disruption in this period could have a major impact on industry sales. Moreover, the industry was expecting high pent-up demand this year and make up for last year as well. In this context, these disruptions have come as a double whammy for the industry.

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