Air Conditioner Sales Lag Due to Monsoon, Muted Demand; Companies Eye Q4 Recovery and 2026 Efficiency Norms

The Indian air conditioner market is facing a significant slowdown due to a combination of adverse weather and subdued consumer spending. A prolonged monsoon season has directly impacted sales, a trend compounded by muted retail demand, which has offset the positive effects of the Goods and Services Tax (GST) reduction from 28% to 18%.

Companies experienced a brief surge in sales following the GST adjustment, particularly around the festive season, but demand has since dwindled. B. Thiagarajan, Managing Director of Blue Star Limited, noted a substantial sales increase of over 35% between September 22nd and Diwali, but observed a subsequent lull. The company aims to grow faster than the market, control expenses, and maintain margins, hoping for an early summer next year to boost sales.

Voltas Limited, through its Chief Financial Officer KV Sridhar, indicated that the Unitary Cooling Products (UCP) business had an unusual quarter due to lean season purchasing and delayed consumer decisions post-GST rate reduction, leading to higher channel inventory. Sridhar expects significant traction in the coming quarters as channels restock for the upcoming season and prepare for the Bureau of Energy Efficiency (BEE) energy efficiency transition, effective January 2026.

Whirlpool of India Limited, which had been consistently gaining market share, saw a decline in Q2 due to the overall weak demand. The management is hopeful for a demand resurgence in the current quarter.

Inventory management remains a challenge, with companies holding higher-than-ideal stock levels. Blue Star's inventory stood at 65 days of sales, compared to an optimal 45 days, indicating a need for stock liquidation in the coming months. The industry's inventory levels are believed to be even higher.

Looking ahead to the second half of FY26, Voltas expresses renewed optimism, anticipating that retail momentum will pick up, production will normalize, and inventory levels, along with cash cycles, will return to healthier levels.

Impact

This news directly impacts Indian AC manufacturers, their sales figures, profitability, and stock performance. It highlights challenges in the consumer durables sector and provides insights into future demand trends and inventory management strategies. The upcoming BEE norms could also drive new product development and sales.

Explanation of Difficult Terms

• GST (Goods and Services Tax): A comprehensive indirect tax levied on the supply of goods and services in India. A reduction in the tax rate is intended to make products more affordable and boost sales.
• BEE (Bureau of Energy Efficiency): A statutory body under the Ministry of Power, Government of India, established in 2001. It is responsible for developing programs and policies aimed at improving energy efficiency in India.
• Inventory Days: A financial metric that measures the average number of days it takes for a company to sell its inventory. A higher number indicates that inventory is sitting longer, potentially leading to storage costs and reduced liquidity.
• Unitary Cooling Products (UCP): Refers to air conditioning systems designed for cooling individual rooms or spaces, as opposed to large central cooling systems.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, technology, or equipment. Controlling capex helps in managing costs.