Published on 11/03/2017 11:45:31 AM | Source: Motilal Oswal Securities Ltd
Sector Update Room Air Conditioners - Motilal Oswal Sec
Transition to inverters gathers pace
LG a key beneficiary; Voltas takes share in fixed-speed 3-star range We highlight below feedback from one of the largest retail chains for consumer durables in North and West India on air conditioner (AC) sales and the impact of LG’s exit from fixed-speed ACs. North and West India together account for 55-60% of pan India AC sales.
LG inverter ACs taking share from 5-star fixed-speed ACs; pricing aggressive, offering 10-year compressor warranty and subsidized installation
* LG has completely shifted from fixed-speed air conditioners (ACs) to inverter ACs for split models. It continues with fixed-speed window ACs for sale through small retail shops in tier-2/3 cities, but not through large retail chains.
* LG's pricing for inverter ACs is aggressive at INR31,000 for a 1-ton 3-star version, INR35,000 for a 1.5-ton 3-star alloy version, and INR37,000 for a 1.5-ton 3-star copper version. Voltas/Blue Star’s 1.5-ton fixed-speed ACs are priced at INR34,000-35,000 for 3-star versions and INR36,000-40,000 for 5-star versions.
* LG’s 1.5-ton 3-star inverter ACs are priced INR7,000-8,000/unit cheaper than peers (INR42,000-44,000/unit). On its inverter ACs, LG is also offering (a) 10-year warranty on compressor, (b) 5-year warranty on condenser, (c) 1-year warranty on inverter chip, (d) subsidized installation at INR499 versus the standard INR1,500, and (e) two free gas charges in the next five years.
* Sales of 5-star 1.5-ton fixed ACs, which account for 20% of industry volumes, would completely shift to inverter ACs, given that LG’s 3-star inverter ACs are priced lower and yet offer superior cooling and lower power consumption – this trend is already evident.
Inverter ACs account for 20-25% of sales in February; strong sales seen in Mumbai, driven by warm weather
* AC sales in February jumped 30-40% YoY, driven by unexpected warm weather in Mumbai/Maharashtra. Demand in the North has not been as strong since the weather has not been as warm.
* Inverter ACs constituted 20-25% of sales in February for the retail chain; in the summer season, this share could increase to 30-35%. In CY16, the share of inverter ACs was 10-15% for the AC industry.
* LG accounted for 50% of inverter AC sales at the retail chain’s outlets, with Whirlpool and Panasonic accounting for the balance. Blue Star and Voltas are yet to announce revised inverter AC prices for CY17.
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