Informist, Friday, May 7, 2021
By Jatin Grover, Sai Ishwarbharath and Satyanarayan Iyer
PUNE - Blue Star Ltd's comments in a post-earnings conference call with analysts today point to the scale of challenges before room air conditioner makers in India over the next couple of years. From a supply glut and plant closures to rising input costs, the industry is looking at unprecedented hurdles.
For Blue Star, sales of room air conditioners were down about 20% in April compared to April 2019. April Last year was a washout month for all manufacturers due to the nationwide lockdown. The latest fall has been sudden for the company, which draws 60% of its revenue from room air conditioners, as it was gaining market share in Jan-Mar.
The company also sees the impact continuing in the June quarter, with no clear end in sight for the restrictions imposed locally across the country.
Group Chief Financial Officer Neeraj Basur told analysts that the company had already built good inventory and would now look to moderate it.
Blue Star's peer and market leader Voltas Ltd and Whirlpool of India Ltd are yet to announce their quarterly and full-year earnings. The outlook of the management will be keenly watched by analysts and investors for clues on changes in a volatile environment. The companies could not be reached for comments.
In the few micro markets where lockdowns or restrictions haven't been imposed yet, the myth around air conditioners contributing to the spread of COVID-19 has not helped matters.
Localised lockdowns have also meant that a realignment in the market share of leading companies is likely because in some places, plants are shut while in others, they continue to be operational. For instance, manufacturing plants of LG Electronics, Whirlpool of India Ltd, and Godrej Appliances, among others in Maharashtra have been shut for over three weeks now on account of the local policy that has only prioritised essential and export-related units will function.
At Godrej Appliances' plant in Shirwal near Pune, manufacturing of medical refrigerators alone is underway, while LG's plant in Ranjangaon MIDC area near Pune is shut till at least May 9.
Across the country, the first six months of 2020-21 saw a sharp 79% decrease in air conditioner production. Cumulatively, AC makers made only 340,000 units against 1.6 mln units in the same six months of 2019-20, according to CARE Ratings.
This, however, improved sharply as pent-up demand returned and companies made good of the time lost in Oct-Mar (2020-21).
However, as the second and more virulent wave of the pandemic raged across the country in late March, hope of a recovery in sales was dashed.
Air conditioners are a seasonal product, with two of every three sold between January and June. About 5-6 mln air conditioners are sold in India every year.
Many industry watchers feel demand will return in the long term as penetration of the appliance is still low in mid single digits across India's 250 mln households. This is where the industry could find itself in a quandary, despite the demand when markets eventually and fully open.
Manufacturers have been forced to increase prices 5-8% in recent times as input products like steel and copper have become dearer. A price increase might deter consumers from choosing an air conditioner and instead opt for cheaper substitutes like air coolers or high-efficiency fans. This is especially true at a time when millions have either had to take a pay cut or have lost jobs as the pandemic continues to roil the economy in more ways than one.
Consumer durables maker TCL India hopes that in the Delhi-National Capital Region, things will improve from Jun-end. The company has enough inventory to meet the demand as it comes.
"The current state-wise lockdown is indicating towards lots of restrictions in terms of delivery and other logistical issues and installation issues... We have filled our inventory since the beginning of February, we are ready to meet the demand as it comes," said Mike Chen, general manager, TCL India.
The ripple effect of the inability to sell is being felt across the value chain, with electronic stores such as Vijay Sales, Maharashtra Electronics Corp, and Viveks sitting on a big pile of inventory.
"The current situation is very dicey and supplies are almost at standstill," said Vishal B.S, vice-president (marketing) at Chennai-based retail consumer durables chain Viveks.
Compounding the problem for even small standalone stores, the government has banned online marketplaces such as Amazon India and Flipkart from selling "non-essential" items in many jurisdictions. Consumer durables makers are believed to be in a dialogue with distributors and retailers to offer them some one-time support to tide over the crisis. However, nothing concrete has emerged in the form of any support commitments. End
Edited by Avishek Dutta
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