AC, refrigerator manufacturers and cold beverage makers expect hot sales in the summer, boost production - Moneycontrol

Just like last year, summer has again arrived rather early in 2023 and day-time temperatures are already touching multi-year records in north and west India. So while consumers may be already getting hot under the collar, the early summer has already pushed air-conditioner makers to ramp up manufacturing.

LG India has started three-shift production at both its factories in Noida and Pune as it expects double-digit AC sales growth this summer. Godrej Appliances is eyeing 100 percent growth in AC production while the jump in manufacturing of refrigerators is being seen at 30 percent over last summer. And Panasonic India is also expecting double-digit growth in its summer products portfolio.

Also Read: 40 degrees in February: The Indian summer is here with record temperatures, heatwave in tow

The production ramp up-is not restricted to appliances. Companies selling aerated soft drinks, milk-based beverages, water and ice-creams are also expecting hot sales this summer. Varun Beverages, one of the biggest franchisees of PepsiCo across the globe, has said that unlike previous years, it started inventory buildup from December 2022 against the usual practice of starting in January or even February.

“The season starts around Holi and this year, Holi is 10 days earlier (compared to last year),” a top company executive told analysts in a call after the fourth quarter and 2022 CY results.

Varun Beverages to expand facilities

Varun Beverates would be spending Rs 1,500 crore in CY23 on capital expenditure, which includes two new plants in Rajasthan and Madhya Pradesh and expansion of six existing ones. Not only is production being hurried up, Varun Beverages is also eyeing half a million new distribution outlets this summer as it expands its reach into the hinterland.

The forecast of an early and prolonged summer is welcome news for Fast Moving Consumer Goods (FMCG) companies. Despite a similar trend last summer, 2022 did not see much overall sales growth.

According to an analysis by consultant Redseer, consumer spending remained tepid throughout 2022 when adjusted for inflation. The analysis included FMCG companies like Hindustan Unilever Ltd, Nestle, ITC and Spencer’s Retail to show that growth in 2022 for these companies remained subdued.

“Although most FMCG players reported revenue growth during CY 2022, their volumes dropped, particularly in rural areas. It suggested that the revenue growth was driven by rising prices, not increased consumption. Correcting for inflation using a CPI (Consumer Price Index) deflator shows almost flat revenue curves for FMCG players in CY2022--indicating low or negative growth,” Redseer said.

In this backdrop, the expectation of robust sales in some of the product categories in 2023 would be music to the ears of companies that depend largely on the vagaries of consumption demand.

LG India, Godrej

Kulbhusshan Bhardwaaj, Senior General Managner at LG India, said that as of now, demand for consumer durables has not been impacted despite persistent inflation and the arrival of an early summer has pushed up sales by double digits already. “Many enablers offered by consumer durable companies has also helped,” he said.

LG has been offering a finance scheme, called ‘LG Superstar Offer,’ since last year under which a consumer can purchase a 5-star rated air conditioner at an equated monthly instalment of Rs 2,000 per month. “The EMIs are due for 22-23 months and the final cost of the AC comes to about Rs 46500. This is virtually a zero interest option”, Bhardwaaj said. Another scheme on offer is a cashback equivalent to one year’s electricity consumption.

Bhardwaaj said all star-rated products list the number of units of power consumed in 12 months. So a 1.5 ton air conditioner will typically consume 685 units per year. Taking the average unit cost of electricity at, say, Rs 6 per unit, the consumer is given Rs 45,00 cashback for a 15 ton AC. “This works out to nearly a 10 percent discount on MRP (Minimum Retail Price). This scheme has been discontinued for now but may be relaunched,” Bhardwaaj said.

If sales indeed pick up in direct proportion to temperature increase, incentives would naturally be pared.

Kamal Nandi, Business Head and Executive Vice President – Godrej Appliances said, “We are expecting a severe and prolonged summer this year and as a result demand for the cooling categories will be high. We can also expect some upswing in discretionary spending this year with the recent announcement by the government on tax relief.

With our recently launched leak-proof split Air conditioner, we now have a range of 25+ SKUs in the AC segment (up from 21 SKUs last year) for the upcoming summer season and we anticipate over 2x growth in AC sales compared to last year. Overall, we are targeting a growth of 40% this summer over last year from the entire set of cooling appliances like air conditioners, refrigerators, air coolers and deep freezers." Unlike LG, however, Nandi believes prices will stay largely stable.

Also Read: Maggi “Chotu” price hike dents Nestle’s sales volumes and revenue growth in December quarter

Panasonic, packaged water

Questions sent to Samsung India remained unanswered. Panasonic, meanwhile said that since April last year, cooling products such as air conditioners and refrigerators have recorded 35 percent growth in sales year-on-year.

“At Panasonic, we are expecting a healthy growth for our summer products such as ACs, refrigerators etc., to name a few. For ACs, we will continue to focus on nano-e technology for healthier air and Miraie-enabled ACs.

Last year, for our cooling products like ACs and Refrigerators, we registered around 35 percent growth (for April 2022- till date as compared to the same period in 2021) this year we are hoping for a continued growth momentum, registering double-digit growth. Similarly, we have expanded our portfolio of refrigerators and introduced Prime convertible refrigerators which are a customized series designed specifically for the Indian market,” said Fumiyasu Fujimori, Managing Director, Panasonic Marketing India.

Overall, the domestic air conditioner market in India last year was about seven million units and this is expected to expand to 7.2-.7.3 million units.
When summer looms, the biggest movement is seen in the Rs 50,000 crore packaged water industry.

The landscape is overwhelmingly unorganised, with small players cornering 90 percent of the market but among the oragnised players, Bisleri accounts for one in every two bottles of water sold anywhere in India.

Coca-Cola’s Kinley, PepsiCo’s Aquafina and Ahmedabad-based Energy Beverages’ brand Clear, in that order, are the other three organised sector players. Nayan Shah, founder of Energy Beverages had said earlier that his company would close FY23 with sales of Rs 225-250 crore but the target is to double this figure in the succeeding 12 months.

Already, thanks to zooming demand, the retail price of air conditioners, refrigerators, packaged water and aerated drinks are up year-on-year. There has been a 7-8 percent increase in the MRP of ACs; the 200 ml pack of Limca and Coca-Cola are retailing for Rs 25 against an MRP of Rs 20 and a litre of Bisleri is also being sold for Rs 25 versus an MRP of Rs 20.

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