AC makers eye govt projects to beat the heat

BANGALORE: The economic slowdown is prompting air conditioner manufacturers to bank on resilient segments such as government-funded infrastructure projects, hospitality and healthcare to prop up the declining institutional sales.
The rising sales of residential air conditioners ��� split and window ACs ��� this summer has come as a relief to AC manufacturers who are sweating it out in the B2B segment.

According to industry players, the size of the domestic AC-equipment market is estimated at around $1 billion in 2008, growing at a CAGR of 20%. The institutional segment ��� including commercial ACs used in retail stores, airports and corporate buildings ��� accounts for an estimated 15-20% of this.

Companies are hoping that residential demand stays robust, as always during the peak summer April-June quarter, to steer them forward as they grapple with significantly low figures in the just-closed fiscal. According to industry players, the residential AC sales have been growing at an average of 15% since March 2009.

For instance, Tata group company Voltas India saw overall growth plunge to 11-12% for FY09 compared with 41% in the corresponding period of the last fiscal. ���While the intermittent rains dragged down residential sales, the economic scenario saw corporates holding back on spending. Voltas grew by nearly 28-29% in the first quarter, it is the institutional segment which degrew, post second quarter. This is likely to continue in the current fiscal as well,��� said vice-president of operations at Voltas, Pradeep Bakshi.

The financial services sector, IT / ITES and real estate, were the primary institutional clients of the Rs 800-crore AC manufacturer Carrier. The company is now training its focus to industries that are driving ahead this fiscal.

���The institutional segment registered single-digit growth rate or even negative growth rates in the second half of FY09, which is likely to continue into this fiscal. We are, however, depending on government-funded infrastructure activities which are on track, such as airports, and the rapidly-expanding healthcare sector. The hospitality sector, which is expanding in non-metros and the NCR region over the Commonwealth games this fiscal, will also be a focus area,��� said Carrier air-conditioning & refrigeration���s director-marketing and strategy, Krishan Sachdev.

For LG Electronics India, which had witnessed nearly 20% of its sales coming from the institutional segment in FY08, the number had almost halved in FY09. Without divulging details on the company���s strategy, business group marketing head for ACs, Ajay Bajaj, said the company is preparing to beat the effect of the low-spending corporate sector. However, Samsung, which has rolled out its commercial ACs since January 2009, plans to establish its footprint in this segment so that it can compete once the market picks up.