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Despite the high base, the room AC (RAC) industry in India is poised to deliver robust volume-led growth in 4QFY25E, led by (1) early signs of a favorable summer season and (2) aggressive channel stocking. Even as most players have secured their compressor supplies for this season, some players are better placed than others. While primary growth trends are encouraging, we would monitor (1) secondary offtakes and (2) margin delivery in the context of RM inflation, INR depreciation and higher rebating (intense competition). In the near term, we expect margin headwinds for Voltas and Lloyd (Havells), but the latter should benefit, owing to a relatively weaker base.

Early signs of a favorable summer season for the room ACs category

Most cities across India have witnessed higher temperatures in Jan-Mar 2025 than the previous year and versus the decadal average (Exhibit 1). The India Meteorological Department (IMD) has predicted (1) above-normal maximum temperatures and (2) above-normal number of heatwave days in most parts of the country between March and May (Exhibit 2). This bodes well for the RAC industry, which is poised for another strong summer season.

Blue Star’s management expects 30%+ industry volume growth in 4QFY25E

Blue Star’s management, in an interview recently, highlighted that the RAC industry is expected to grow at over 30% in 4QFY25E. This is above our expectations and could be led by (1) early signs of a favorable summer season and (2) aggressive stocking by channels, considering the stock-outs faced last year, fears of compressor shortages and pre-buying ahead of anticipated price hikes. While primary sales growth trends are encouraging, we would closely monitor secondary offtakes (considering the weak consumption sentiment).

Compressors—no major risks for large players in the current season

Media reports indicate that there could be shortages of compressors in India due to the non-renewal of BIS licenses of foreign vendors. BIS license of Highly (China) is valid until June 2025 and GMCC (China) is valid until January 2026 (Exhibit 3). We note that compressor imports to India grew 40%+ yoy in April 2024 to February 2025 (Exhibit 4). This should ensure that the industry does not face any major supply challenges at least in the current season. Companies that have upfronted compressor imports should fare better than others, particularly since domestically procured compressors could have some margin implications.

RM inflation, INR depreciation and higher rebating are key margin drags

We reckon that the RAC industry is currently facing HSD-to-DD RM inflation (metals, refrigerants and INR depreciation). Given the intense competition, the market leader is focusing more on absolute profit growth rather than percentage margins. Our channel checks suggest that while some price hikes are announced by players, higher rebating is likely to weigh on profitability. Overall, despite robust volume-led revenue growth, profit growth is likely to continue to lag topline growth for most players.

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