The air-conditioner industry has witnessed several headwinds during FY18, led by GST transition and the change in energy efficiency ratings. Additionally, the summer of 2018 started on a weak note, despite IMD predicting a harsh summer. Consumer offtake has thus been weak, as evident in Lloyd (Havells) and Blue Star’s Room Air Conditioner (RAC) volume growth in 4QFY18.
However, value growth was boosted by a richer mix and a commodity-led price hike of 3-4%. Nevertheless, we stick to our longer-term constructive view on RAC volume growth, which will drive up value growth even higher in future. Meanwhile, Voltas is down ~10% over the last month as the street is expecting a weak 4QFY18 show. However, given Blue Star’s show, Voltas can post double-digit value growth (despite possibly muted volumes). The mix improvement is possibly being ignored by Voltas’ sellers. This throws open an opportunity to buy Voltas on dips. At 25x Mar-20E EPS, our TP of Rs 710 offers an entry point.
As per Bureau of Energy Efficiency (BEE), the air conditioner industry grew at a modest pace of 7% in volume terms during FY18 to 6.9mn units vs. 37% growth in FY17. Slower industry growth was attributed to GST disruption, rating change (change in energy efficiency norms) and the high base of last year. In order to gauge the quality of data, we compared the AC industry production numbers with revenue growth of listed players (Link to table).
We noticed that directionally the trend is prevalent in previous years (FY13-18). This implies AC demand was softer during FY18 led by weak summer in 1QFY18 and the rating change disruption in 4QFY18. Interestingly, Inverter ACs continued to gain share at a handsome pace.
Blue Star stated that the industry grew by 15/11% in value in 4QFY18/FY18. Blue Star believes inverter share in the industry will rise to 40% in FY19.
By HDFC Securities