scorecardresearchHow will this summer be for AC stocks? Should you start buying?

How will this summer be for AC stocks? Should you start buying?

Updated: 17 Apr 2023, 11:14 AM IST
TL;DR.

The rise in temperatures throughout the country also leads to an increase in the demand for air conditioners, leading to a surge in sales for AC companies. Let's find out how the AC industry will perform this summer.

Amritsar: Students use a scarf to shield themselves from the hot summer sun, in Amritsar, Thursday, April 13, 2023. (PTI Photo)(PTI04_13_2023_000170B)

Amritsar: Students use a scarf to shield themselves from the hot summer sun, in Amritsar, Thursday, April 13, 2023. (PTI Photo)(PTI04_13_2023_000170B)

Summer is here and the Met Office has predicted extreme heat waves this season. While a difficult period for many states in India, it is a boon for the air conditioner (AC) industry. The rise in temperatures throughout the country also leads to an increase in the demand for air conditioners, leading to a surge in sales for AC companies.

However, the stock price trend of AC firms shows that while most of the AC stocks did not perform well in the short term, over a longer period, they have posted strong gains.

For example, since March 2023, Voltas has shed over 7 percent, Johnson Controls - Hitachi Air Conditioning India is down 5 percent, and Amber Enterprises is down 1 percent, however, Whirlpool has risen over 2.5 percent in this period.

Meanwhile, on a YTD basis, Johnson Controls - Hitachi and Amber have lost around 3 percent and 1 percent, respectively, while, Blue Star has gained 20 percent and Voltas is up 3 percent.

In the last 1 year, Amber and Johnson Controls - Hitachi have tanked 48 percent each and Voltas has declined 37 percent, on the other hand, Blue Star has advanced 28 percent in this period.

However, in the long-term 3-year period, all except one AC stock have given excellent returns. Blue Star and Amber have given multi-bagger returns, up 183 percent and 103 percent, respectively, while Boltas is up 87 percent. Johnson Controls - Hitachi is the only stock in the red, down 39 percent.

How is the AC industry going to perform this summer? Let's see what the experts have to say:

Nirav Karkera, Head of Research at Fisdom noted that air conditioner sales experienced a slowdown in CY2022, mainly due to unseasonal rains and an uncertain market environment.

However, he added that despite external challenges such as geopolitical tensions and inflationary pressures, the industry can look forward to a positive trend in rural and urban consumer sentiment post-pandemic. This is good news for companies such as Blue Star and Voltas, which are well-positioned to take advantage of the seasonal demand, stated Karkera.

He believes that the sector is poised for structural growth, driven by rising per capita income, increasing discretionary spending, strong financing options for consumer durables, and robust demand for air conditioning units. With their strong market presence and proactive approach to customer needs, these companies are ready to capitalize on the favorable market conditions and drive growth in the upcoming season and beyond, the market expert expects.

Khadija Mantri, Associate VP Research Analyst at Sharekhan by BNP Paribas also highlighted that during January – March quarter, February month had good volumes following the heat wave. Further, an increase in off-take from channel partners for the summer season in the last quarter has also built optimism. It is expected that unseasonal rains in March may have disrupted the sales for a week or so. However, Mantri believes the overall summer season to be good in terms of volumes for AC players as the temperatures are expected to remain high. She likes Blue Star in this space.

Suman Bannerjee, CIO, Hedonova expects the summer of 2023 to be a healthy season for air conditioner (AC) manufacturers due to soaring temperatures and a higher probability of heat waves across cities. He believes that demand will pick up in March, and dealers have already started stocking up inventory in anticipation of good sales. He further added that the Indian government's ban on imports of ready-to-install ACs since October 2020 has provided a boost to AC manufacturers in India, thus the Consumer Electronics and Appliances Manufacturers Association expects sales in the summer of 2023 to be anywhere between 15 percent to 20 percent higher than last year. He prefers Voltas, LG India and Johnson Controls-Hitachi Air Condition.

Vinit Bolinjkar- Head of Research - Ventura Securities also noted that Air conditioners are likely to become more affordable with the government's production-linked incentive scheme on all white goods and heightened infrastructure activity, according to industry leaders and experts.

The Indian summer, which has broken heat records multiple times over the past decade, has made air-conditioning an important fixture in Indian homes and offices. AC sales have nearly quadrupled since 2010 to nearly one crore units in 2022-23, according to data by Statista.

The government's PLI scheme is to be implemented between FY22 and FY 29, with a budgetary outlay of 6,238 crore. The plan is to reduce the import of components, which makes up to 50 percent of the cost of an air-conditioner by promoting local manufacturing, he added.

Meanwhile, Jefferies likes Amber. It said that this company has a 70 percent market share in contract manufacturing of ACs in India, and can be viewed as a demand aggregator for the under-penetrated AC industry in India. "We expect 15 percent YoY Q4 sales growth, with 70 bps QoQ EBITDA margin expansion," it predicted.
 

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First Published: 14 Apr 2023, 02:11 PM IST