Whalesbook
LPG Shortage Disrupts AC Production
The core issue lies in heat exchanger brazing, a crucial step for AC assembly where LPG offers the most efficient method. However, LPG supplies are restricted by government policy, which prioritizes household use amidst broader supply chain issues. This forces manufacturers to seek alternatives.
Rising Costs and Supply Chain Risks
Major manufacturers are switching to oxy-acetylene for brazing to keep production lines running. But this alternative fuel is also subject to supply risks, as it depends on crude oil or limestone. Nuvama reports highlight that 94% of India's limestone imports come from the Middle East, adding another layer of supply chain risk.
Price Hikes and Margin Pressure
These fuel supply challenges add to existing pressures. Unseasonal rains in northern India have already dampened consumer demand after a slow summer last year. To cope with rising input costs, companies are implementing retail price increases of 5% to 10%.
LG Electronics India is a prime example of this trend, announcing a 10% price hike for Room Air Conditioners (RACs) and 5% across other product categories. This follows an earlier 9-10% increase on RACs since early 2026. The combined effect of cost inflation and new, stricter star rating regulations means total price increases are now between 8% and 14%.
While brands expect modest revenue growth in the fourth quarter of fiscal year 2026, Electronic Manufacturing Services (EMS) providers face substantial challenges to both their revenue and profit margins. Using oxy-acetylene, while ensuring operational continuity, comes at a higher cost, significantly impacting profitability for those unable to absorb these expenses.