Air conditioners transforming from a luxury item to a necessity among the working population has led to most Indian households now opting for multiple air conditioners instead of the single window air conditioner scenario a decade ago.

In India, air conditioners are no longer considered luxury items and are being accepted as a necessity product. Although the penetration of these machines is low, the market holds a lot of potential in terms of volume and value. The Indian air conditioners market is highly competitive and fragmented, with the presence of domestic, international, and unorganized market participants.

Market Dynamics

The air conditioning market in India is expected to grow at a CAGR of over
10 percent during 2017–2021. The split air conditioner segment accounted for a major revenue share in the overall market owing to high demand from residential and light commercial applications, followed by centralized air conditioning. The market share of window air conditioners has been witnessing a continuing decline over the last few years on account of decreasing price gap and lower energy efficiency in comparison with split air conditioners. Consumers are buying more energy-efficient products and hence the 4-Star and 5-Star air conditioners are selling faster.

Within the split air conditioner segment, fixed speed air conditioner unit sub-segment dominates the market, whereas, variable speed air conditioner unit sub-segments are gaining popularity in the country. Manufacturers are also aggressively pushing the inverter ACs in the market. Also, VRF sub-segment is contributing the highest share in the market owing to increasing demand for energy efficient air conditioners; VRF sub-segment is expected to grow by double digit.

Sudden spurt in mercury levels in central, western, and southern regions in the country have increased month-on-month sales for most manufacturers. The northern region captured the major share in the overall market followed by the southern and western regions. North, north-west, and central India contribute to over one-third of air conditioner sales in the country. In India, six major cities account for almost 80 percent sales of room air conditioners. Delhi is the largest market in Northern India while Hyderabad is the largest market in Southern India, followed by Chennai and Bangalore.

India being the fastest growing air conditioners market in the Asia Pacific region – rising per capita income, presence of large number of global and local players, and emergence of mega infrastructures with surging investments have driven the markets for various types of air conditioning units in the country, thus providing the necessary push to demand. The construction activities have surged in both residential and commercial segments in the country. The demand for air conditioners which were primarily recorded in Tier-I cities is gradually shifting toward Tier-II and Tier-III cities as well.

India is witnessing significant development in the areas of commercial office and retail and government and transportation applications. Need for cooling solutions in retail stores, multicomplexes, malls, commercial offices, and upcoming airports and metro rails, would provide crucial growth to air conditioners market in the commercial, retail, and government, and transportation sectors. In addition, the developing hospitality sector has encouraged international hotel brands to invest in the sector, which is forecast to create huge demand for air conditioners.

The demand for air conditioners in rural areas is still low. Hence, companies should start attracting rural customers to increase their volumes sales. Rural customers prefer cost-effective, durable, and maintenance-free products. Vendors should invest in R&D to develop products, which satisfy the needs of rural customers. Foreign manufacturers are continuously establishing capabilities in India to capture the room air conditioners market.

Key Drivers

Increase in electronics retail store and e-commerce. Electronics retail stores are organized stores where electronic goods of different brands are available. These stores are expected to grow at a CAGR around 2 percent over the next five years. Indian consumers demand stores that offer a good ambience, multiple brands, and correctly priced goods under one roof. The increase in changing lifestyle and rise in the income of consumers are driving the electronics retail market in India.

Global warming and increase in pollution rate. The sale of air conditioners in the country increases between March-end and early-April. Due to climatic changes, temperature increases to a record high in February in cities such as Bengaluru, Mumbai, Chennai, and other
Tier-II cities. This also increases the sales of air conditioner by 18
20 percent. Some vendors experience high demand owing to early climate change from banking departments because of branch expansions and installation of new ATMs. Release of excess carbon dioxide and rise in the level of greenhouse gas have prompted makers to develop air conditioners that have built-in purifiers.

Government scheme on energy efficient ACs. The union government of India is launching a scheme to reduce the prices of energy efficient air conditioners. This scheme will encourage the middle-class to buy air conditioners at competitive prices. The implementation of this scheme is expected to lead to a price cut of 1520 percent on electricity bills. The government will procure energy efficient air conditioners from all the leading vendors in bulk and offer them to consumers at zero down payment schemes. This will encourage consumers to prefer energy-efficient products. The initial target of Energy Efficiency Service Limited (EESL) a joint venture of NTPC Limited, PFC, REC, and Powergrid is to collaborate with buyers and banks (for ATM and official purposes).

In Conclusion

Sectors such as hospitality and government and transportation, will drive the market owing to growing tourism and developing infrastructure all over India. Government initiatives such as Pradhan Mantri Awas Yojana and REITs, and demographic growth along with changing lifestyle will play a vital role in growth of air conditioners market in India. Housing for All by 2022 which would lead to higher urban development over the coming years is expected to generate additional demand for air conditioners. Most of the current market for air conditioning systems is concentrated in tier-I and tier-II cities where construction activity is the highest. As a result of the growing momentum toward smart cities, it is expected that the demand for air conditioning systems will continue to grow.

“Internet penetration, ease of online application, and busy lifestyles are some of the key driving factors for consumers to use e-commerce as a platform to purchase products. Tangible things like easy payment, home delivery, cash on delivery, order cancellation, and order replacements are some of the other features encouraging Indian consumers to use e-commerce.”

Sharan Jagannath,
Research Analyst,
Technavio