Leading air-conditioner and refrigerator makers are expanding production capacity

Leading air-conditioner and refrigerator makers such as LG, Voltas, Blue Star and Godrej Appliances are expanding production capacity by 50% to even 100% at a cumulative industry investment of over Rs 1,500 crore to reduce dependency on China.

The companies are forecasting a good year for both these products this summer after a washout 2020 due to lockdown and they also plan to take advantage of the production-linked incentive (PLI) scheme.

The industry is also pegging 10-15% surge in business for AC and refrigerators over 2019 after these two categories grew by 5-10% in the last two quarters. This is despite an 8-12% surge in prices since December for these two categories due to increase in commodity prices, components and surge in ocean freight.

However, on a full-year basis, AC and refrigerator sales declined by 20-30% in 2020 over 2019 due to loss of the crucial summer, with March to June accounting for 50-65% of their annual sales.

The industry has to reduce dependency on China with the government making it clear to be self-reliant with hike in import levies, said Pradeep Bakshi, MD of Voltas, India’s largest AC maker. The Tata-owned entity is going to set up a new AC plant in South and is scouting for 100 acres, he said.

Last October, the government prohibited import of finished AC units filled with refrigerant. India imports almost 30% of ACs sold in the country. Some companies are still importing but have set up lines to fill the refrigerant in the country.

LG India vice president Vijay Babu said the company has expanded capacity since it expects a huge boost in sales this summer. The country’s largest appliance maker has expanded AC capacity by almost 35% and refrigerators by 10% to build the pipeline before the season.

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Blue Star’s managing director B Thiagarajan said every company would want to invest to make the most of the PLI scheme and “we can expect at least Rs 1,000 crore investment by the industry every year now.” The company has lined up Rs 200 crore expansion apart from projects on localisation due to import restrictions.

All companies including LG, Samsung, Voltas, Daikin, Blue Star and Panasonic have lined up their highest-ever new model launches in both AC and refrigerators this summer.

The industry expects more curbs on imports as part of the government’s self-reliant Aatmanirbhar Bharat initiatives. Godrej Appliances business head Kamal Nandi said the industry has also proposed phased manufacturing programmes to set a timeline to import restrictions and build local capacity.

According to a recent report by Equirus, pent-up demand along with price increases should lead to significant volume and value growth for AC makers in 2021-22. In FY22, the industry could clock volumes of 8.5–9 million units supported by normal demand of 7 million units and pent-up demand of 1.5–2 million units, it has estimated.


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