Steep price hike: Demand for ACs with high star ratings could dip

The new star-rated ACs will, on an average, save around 10-12% more power compared with the old star-rated products, because of the new table upgrade.

ac star ratings
Industry insiders said old star-rated products will be in the markets for at least two-three months.

With new star-rated air conditioners set to cost more compared to older star-rated models, the country’s air conditioner industry could see a fall in demand for products with high star ratings. There will be steep price hikes for these product categories from July 1. Moreover, most AC-manufacturing companies are likely to hold specific new star-rated product launches till their inventories of older star-rated models are cleared from dealers’ warehouses, according to industry insiders.

The current Indian Seasonal Energy Efficiency Ratio (ISEER) table for room air conditioners will be replaced by a new ISEER table from July 1 onwards, as per the new energy performance standards. Accordingly, whatever models companies would produce from July 1 would be under the new star-rating programme, with higher ISEER. They are allowed to sell old star-rated products produced up to June 30. A 5-Star AC in the current table will become a 4-Star AC in the new table, and so on. The new star-rated ACs will, on an average, save around 10-12% more power compared with the old star-rated products, because of the new table upgrade.

The new star-rated air conditioners are going to be expensive compared to the older ones, as the new models will have better, more efficient compressors and bigger components. According to Blue Star MD B Thiagarajan, in general, a 10% increase in energy efficiency results in a price increase of 7%.

“Customers typically have a budget in mind when they walk into the showroom. So they buy whichever model suits their pocket, so we don’t really see any impact on demand,” Thiagarajan said.

“Whenever there is a change in the star-rating programme, a price increase is inevitable. Manufacturers will be forced to hike prices to adhere to the new energy-efficiency norms; they have to increase capacity of compressors and make changes in both indoor and outdoor units, which will increase production costs,” Consumer Electronics and Appliances Manufacturers Association (CEAMA) president Eric Braganza said.

For 5-Star DC inverter ACs, the price increase could be in the region of 3-5%, while for 5-Star fixed-speed ACs, it could go up by 7-8%. “We could see a fall in demand for high star-rated products because of the price hike. One of the contentions of CEAMA with the government was that we would like to see at least 40% of the AC market fit into 5-Star rating. Then you are actually operating with energy efficiency, because the market is shifting to more energy-efficient air conditioners. But if the demand for 5-Star products hover around 15-20%, then the purpose gets defeated,” Braganza told FE.

“The industry has already witnessed multiple price hikes during the last fiscal, due to high input costs. At this point, we will have to wait and watch, to see how exactly the production costs translate into selling prices in the market. Having said that, being a consumer-centric brand, we try and absorb a part of the cost through efficient value engineering, and also help make purchases easy for our customers through multiple attractive offers, EMIs and cashbacks,” said Pradeep Bakshi, MD & CEO, Voltas.

Bakshi said with the change in energy-efficiency norms, an entire range of split and window AC models have been developed by Voltas and the models are in the mass production stage. “These would be made available in the market from July 1 onwards,” he said.

Godrej Appliances will be introducing the new star-rated products from July onwards. It will introduce the products in the market phase by phase.

First, the company will introduce the new 3-Star products. As soon as the inventory of 3-Star models decreases in the market, it will introduce the new 5-Star products too. “4-Star inverter split ACs will be a late launch as we generally want to launch it during the high season. 4-Star models typically get sold in the high seasons. We will be definitely promoting the new star-rated products and new ISEER norms during the festive season. There will be shop-floor activities for the promotion of the new products during the upcoming festive season,” Santosh Salian, product group head-air conditioners, Godrej Appliances, said.

Air conditioners are highly seasonal products. At the industry level, around 75% of the business happens from January to June. As the AC industry is entering the lean season, dealers will have an inventory of older star-rated models with them. “So, they will focus on liquidating that first. What we foresee is most of the brands will hold their specific new star-rated product launches till their old inventories are liquidated from dealers’ warehouses. So, most of the brands may delay their specific new product launches,” Salian pointed out.

Industry insiders said old star-rated products will be in the markets for at least two-three months. Of course, it would vary from market to market.

From July 1, buyers will have the option of either buying old star-rated products or purchasing new star-rated ones.

Great Eastern Retail’s director Pulkit Baid said currently, there are “some stocks” of old star-rated ACs with his retail chain, but he thought it would not be difficult to liquidate those. “We have enough time to sell it. The price difference between old and new models will be significant, so the old star-rated ACs will still have demand,” Baid explained.

Talking to FE, Haier Appliances India president Satish NS said the company is planning to start production of new star-rated ACs from July 1. “Luckily for us, the stock of old models are low. I think the stock situations are the same for most companies, as all of us knew that this change in star ratings was going to happen. And because of the good summer this time, most companies now have very limited inventories,” Satish added.

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