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Healthy RAC demand; weather and pricing remain key variables

* Demand trend mixed with regional divergence: Our channel checks with dealers and distributors indicate that RAC demand remained strong during the peak heat period, particularly from late April through the end of May. However, demand softened in Jun’26 as weather patterns became less favorable in certain markets. Despite this headwind, demand continues to hold up better than many non-seasonal appliance segments, such as washing machines and TVs. Although the demand environment has not been broad-based, it is increasingly influenced by region-specific weather patterns, consumer affordability, and channel execution. The monsoon outlook has been flagged as below normal due to El Niño concerns. Hence, temperature intensity and the duration of heat waves remain key drivers for sustaining near-term RAC demand.

* Demand remains more favorable in premium and replacement segments than in mass and first-purchase segments: Channel checks indicate that premium and mid-premium RAC segments are witnessing relatively stronger demand, backed by replacement purchases, energy-efficiency upgrades, and consumers who are less sensitive to price hikes. In contrast, demand for entry-level products remains weaker as customers are more cautious about higher prices and, in a few cases, are postponing purchases while waiting for better offers. As a result, a significant portion of revenue growth is likely to be driven by higher realizations.

* Raw material inflation remains a key concern, though industry players have taken price hikes to protect margins: Key input materials (copper, aluminum, and plastic), freight, and component costs remained elevated. All these together drove higher cost pressure. The industry players have taken price hikes to pass on the cost pressures. Dealers have indicated that players like LG, Samsung, and Daikin have taken price hikes in the range of ~10-20%, while Blue Star, Voltas, and Godrej have increased their prices in the range of ~5-13% (depending on the product labeling). Dealers indicated that inventory levels remained reasonable at ~30-35 days, with no significant overstocking across the channel. Margin improvement is increasingly dependent on cost pass-through, favorable mix, and efficient channel management. Further, in order to support sales, the companies are increasingly offering financing options.

* Near-term growth likely to remain uneven across regions: The RAC segment remains structurally attractive given rising temperatures, low household penetration, and replacement demand, but the immediate demand trend is more selective than broad-based. Near-term performance is likely to be driven more by regional heat intensity, product mix, scheme offerings, and execution quality than by a pan-India volume upcycle.

* Within our coverage, we estimate BLSTR/VOLT/LGEIL to post revenue CAGR of ~16%/15%/10% over FY26-28E.

Region-wise takeaways from our interactions

* West: RAC demand remained healthy during the peak summer period. However, sales moderated as temperatures eased and higher prices became more visible to consumers. Competition across channels remains intense, increasing the importance of dealer schemes, financing support, and product availability. Premium and energy-efficient models continue to see relatively better traction

* North and central: Demand remained highly weather-driven, with strong sales from late Apr’26 to May’26. However, demand was softer in Jun’26 (MTD) due to unseasonal rains and moderating temperatures. Higher prices are prompting consumers to compare brands and financing options more carefully, while dealers remain cautious about increasing inventory until sales improve.

* East: Inventory levels remain controlled, with replenishment largely linked to actual demand. Dealers indicated greater price sensitivity in entry and midmarket segments, leading a few consumers to delay purchases or opt for lowerpriced models. ? South: Demand remained relatively resilient in markets experiencing sustained heat, though higher prices are limiting growth in some segments. Inverter and energy-efficient products continue to see stronger interest, with after-sales service and dealer engagement influencing conversions.

Valuation and view

* The RAC industry has seen strong momentum from late Apr’26 to the end of May’26, supported by a strong heat wave and a favorable summer season. We continue to believe the industry remains highly sensitive to weather conditions, with summer intensity and duration being critical determinants of overall demand.

* While volume growth is estimated to be significantly higher on a YoY basis, this is estimated to be flattish as compared to 1QFY25 – the industry experienced broad-based robust growth due to an intense heat wave. Channel inventory has now been normalized with a pickup in secondary sales.

* In this space, LGEIL remains our preferred pick given strong brand equity, leadership in premium categories, and a well-balanced portfolio spanning both mass (essential series) and high-end products.

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