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The sales of room air-conditioners in India have surged to a record high of 12.5 million units in India in FY2025, according to a report on Tuesday. 

The report by credit rating agency ICRA estimates the room AC industry sales volumes to grow by 20-25 per cent YoY.

Factors like rising temperature levels, increasing need for the number of room ACs per household, rising urbanisation levels, improved disposable income, and favourable consumer financing options are expected to drive the growth in the next few years.

Further, increasing replacement demand with a rising preference for energy-efficient models amidst increasing usage and higher energy costs augur well for the industry.

“The domestic room AC industry surpassed the pre-Covid peak levels of sales volumes in FY2024, aided by changing climatic conditions and favourable consumer trends. The number of average heat wave days/year over the last three decades has been steadily rising and CY2024 is likely to report the highest ever thus boding well for room AC demand,” said Srikumar Krishnamurthy, Senior Vice President and Co-Group Head – Corporate Ratings, ICRA.

“This was observed in the recently concluded summer season wherein most of the original manufacturers (OEMs) reported robust volume growth of 40-50 per cent YoY during this period,” Krishnamurthy added.

Krishnamurthy shared that the growth of the room AC industry is likely to sustain its momentum for the next two years. However, the pace of growth is likely to moderate to about 10-12 per cent in FY2026. Further, the performance of key markets like North India (which contributes 35-40 per cent to industry sales) is a critical monitorable.

On the supply side, the domestic household AC capacity is likely to increase by over 40 per cent in the next three years from the current level, the report said.

“The fiscal benefits of the Government of India’s production-linked incentive (PLI) scheme for components manufacturing for the consumer durable industry have been instrumental in the sharp increase in localisation levels in the Indian room AC industry. The industry is likely to achieve substantial indigenisation of approximately 75 per cent in the next three-four years through the ongoing backward integration by most industry players,” Krishnamurthy added.

Meanwhile, the Ministry of Commerce and Industry announced that the PLI scheme is expected to lead to a total production of components of ACs and LEDs in India of about Rs 1,81,975 crore.

The room AC industry’s operating profit margin (OPM) is inherently moderate at 6.5-7.5 per cent, led by the volatility of input costs amid intense competition.

With the benefits of operating leverage, the industry is expected to command gradual expansion in operating margins despite the elevated level of competition, the report said.