However Thiagarajn does not agree with the estimates that say that there will be 80- 90% growth in the overall summer season and thinks it will moderate to 30- 40%.
It is sweltering heat in Mumbai now and I would assume that the demand for ACs would be skyrocketing. What is the overall outlook for the summer season in terms of inventory as well, where you are placed.
B Thiagarajan: As you may be aware, post the summer season of 2023, the market held up. The festival season was excellent. The industry, as well as Blue Star, had a great FY24 though the summer of FY23 was not a good one for the AC industry. Now, March saw an unexpected growth in the last week. My estimate is that the industry for the month of March alone would have grown by over 40%. In April, the industry would have witnessed around a 90% growth in terms of secondary sales. Primary sales should have been upwards of around 60%.
I am saying this because in the last weeks of April and March, a lot of inventory got pushed. The primary sale in April would have been around 60%. The secondary sales put together would have been 90% practically, by last week of April everyone was stocked out. Now, the euphoria was it is going to be a great summer season where growth will be upwards of 100%. I have seen this over the years. What is actually happening is that purchase time is getting advanced.
Instead of it peaking in May last week, it moved to May middle and it was April last week. Nowadays, it is peaking around 15th of April itself. I think the demand will continue to be good. But I do not think the estimates that are saying that it will be 80% to 90% growth in the summer season, is correct. I think it will moderate to some 30- 40%. Earlier, I had said it may be 25-30%. It may be 30-40% growth as far as room air conditioners are concerned.
But is the growth significantly better than what we have seen in the last two years? It is not that in 2022 or 2023 summer was any different. It was hot last year. It was hot the previous year also.
B Thiagarajan: You are absolutely right. The last time such a sharp rise in sales took place was in 2011. Post that, it used to be around some 20% growth in a good year and otherwise it used to be flat or 5%. Last year was a bad summer. It rained all throughout. Now, the understanding is as follows. One would have thought it is 20- 25% growth, but it is much more than that. We are all happy.
But notwithstanding that, this category is growing even outside the summer season. Second, is that the penetration levels are improving at a rapid pace. In the air-conditioner category, India is the fastest growing market in the world today. From the estimates by all agencies, whether it is for the purpose of energy efficiency norms or for refrigerant migration or UNEP or World Bank, it is clear that somewhere in the middle of 2040 to 2045 India will overtake China. That means there are a lot of growth prospects for this industry.For the last 10-15 years, the idea was that India will go where China is and compared to India, the penetration levels in China could be 5x to 10x of where we currently are. Is there merit in assuming that the natural course of direction for the air conditioning industry is going to go the China way?
B Thiagarajan: I would think so because of various reasons. Number one, our penetration will be around 8% now and it should move closer to 20% to 25% by the end of this decade itself. Second, India is using air conditioners for cooling, China uses it for heating. In China, the average size of an air conditioner is 1 tonne, in India it is 1.5 tonne. The next indicator is that more than 65% of the sale is happening in tier III, IV, V towns. 92% are first-time buyers. In April alone, close to 60% bought air conditioners through consumer finance. Last year, 55% would have been bought through consumer finance. More than 80% are entry-level products. It is 3-star, 2-star, or even if it is 5-star entry-level. What does this indicate? This indicates that the people are beginning to consume this category. Many of them are not buying from themselves, they are buying for their children or buying for their parents and making themselves comfortable at home has become a priority.
The prices have remained stable despite the energy efficiency improvement substantially. Earlier, 10 years ago, we used to say we can buy an air conditioner, but who will pay for electricity bills? Thanks to the energy labelling programme, compared to an air conditioner bought in 2001 or 2002, today it consumes only 20% of the electricity which it consumed earlier. Therefore, at last this category has arrived. I am certain that we will overtake China by 2045 or 2047. But then, it is 16 to 20 years behind China.
What is the outlook when it comes to overall production? How you are looking to amp that up in order to meet the increasing demand?
B Thiagarajan: We had planned for around 12 million units. Last year, we had touched close to 11 million units and we wanted to do 12 to 13 million units. Now, going by the summer season, the next important event will be the Union Budget and how the overall economic outlook is going to be. Another thing that you have to watch out for is the commodity prices. We are already seeing copper going up. This product category consumes copper, steel, microprocessors substantially.
Now, this growth is taking place for the industry coinciding with the growth of EVs. EVs also consume almost the same types of raw materials. So, one important aspect is how the industry will work in order to keep the sustainability-related regulations complied with and come out with innovations to make the product affordable, protect their margins and go forward. Outlook is that it is going to be close to 15% CAGR over the next three-four years. Capacity is being planned based on that.
Our Sri City plant was set up for 1.2 million. It has reached around 6 lakh units. Another 3 lakh units will come as we grow. It is a modular way of expanding the units.