AC Stocks Heat Up Amidst the Summer Heatwave: Chilling Opportunities For Investors

As temperatures sizzle and heat waves become the new norm in summers, the demand for cool comforts reaches unprecedented heights.

From air conditioners that whisper chilly promises to fans that spin refreshing breezes, the market for cooling appliances is set to ignite.

In early 2022, the prolonged winter and the Omicron variant of Covid-19 affected business and consumer sentiments negatively. It led to the reduced sales of air conditioners (Acs). However, the situation improved in March due to warmer weather which resulted in increased demand.

The AC manufacturing industry saw 10 million units of ACs sold last year in FY23, with expectations to reach 11.5 million units in FY24.

In this cool revolution, India's room AC market is predicted to hit USD 5 billion (bn) by 2027-28 with a CAGR of 10%.

In today's article, let's look into Top 5 AC manufacturing stocks that could benefit from the scorching temperatures.

#1 Amber Enterprises

First on the list is Amber Enterprises.

Amber Enterprises India Limited is an Indian company, established in the year 1990. It has become the most backward integrated market leader in the Indian room air conditioner (RAC) industry.

The company not only operates in the components space but also manufactures finished goods in the HVAC (Heating, Ventilation, and Air Conditioning) industry.

Amber Enterprises' expertise lies in designing and manufacturing products to meet modern lifestyle demands. It has a positive reputation which is evident from its overall rating of 3.9 out of 5 based on feedback from over 29 anonymous employee reviews.

Amidst the scorching heat waves of summer, Amber Enterprises has shown remarkable growth in the RAC industry.

The company's sales surged by an impressive 55% in the Q4 of the previous financial year 2022-23, accompanied by a staggering 82% increase in profits.

Amber Enterprises experienced an impressive 99.5% increase in its share price showing remarkable growth in its operations.

This surge reflects not only the company's strategic initiatives but also the significant rise in demand for air conditioners over the past year. The increased demand for cooling solutions shows that more people want air conditioners which is good news for the AC industry and for Amber Enterprises as a key player in meeting this growing need.

The company's product line includes refrigerators, heat exchangers, air conditioners, home appliances, vacuum-forming solutions, and lighting products. Amber Enterprises' dedication to innovation and quality positions it as a key player in the consumer durable industry.

Amber Enterprises did really well last summer, selling more air conditioners than before.

They now have almost 30% of the market, which is more than they had the year before. This shows they can adjust to the changes and do well even when things are changing.

With more people wanting air conditioners, Amber is set to keep growing and stay a top company in the future.

#2 Blue Star

Second on the list is Blue Star.

Blue Star Ltd is an Indian company based in Mumbai which specializes in air conditioning, commercial refrigeration and MEP services (mechanical, electrical, plumbing, firefighting).

It was founded in September 1943 with just two employees and a modest investment. Blue Star has gained a strong reputation with over 60 years of experience offering advanced technology products. c

Blue Star's share price experienced a significant decline from 1440 to 785 in June 2023. A fall of approximately 45.49% was observed.

However, since September 2023 the share price started recovering and currently trading around 1369 levels. This indicates partial rebound from the previous decline.

Blue Star's share price tends to rise during summer due to increased demand for air conditioners. However, after the summer season, the share price may fall as the demand for AC typically subsides. This pattern reflects the seasonal nature of the AC manufacturing industry were sales peak during warmer months.

Managing Director B. Thiagarajan expressed optimism about the 2024 summer season and overall economy, which is likely to boost AC sales. It is anticipating a 25% increase in AC sales due to an expected hotter summer, driving strong demand.

For the past year's summer performance, Blue Star achieved strong revenue and market share gains while maintaining healthy profitability.

The company focused on expanding at its Sri City plant and growing its commercial refrigeration segment. However, the expected 25% year-on-year growth in room air conditioner sales for April 2023 fell short, with May also having seen lower demand.

Thiagarajan also noted that while summer demand was lower than anticipated in 2023, he expects better performance during the festive season.

For the year 2024, he maintains the industry growth guidance at 15-20% for FY24. He mentioned expectations of a 25% growth during the summer and a 20% growth for the full year of 2024-25 with expected sales of 12-13 lakhs units.

Thus, this strong performance anticipation during the summer contributes to positive market sentiment and share price growth.

#3 Epack Durable

Third on the list is EPACK Durable Ltd.

Epack Durable was founded in 2002 and is a prominent player in the Indian manufacturing industry, specializing in air conditioners, Expanded polystyrene (EPS) packaging, and pre-engineered buildings.

The company holds significant investments being the second-largest original design manufacturer (ODM) of RAC in India with a market share of 25% in domestically manufactured units.

Epack includes room air conditioners, small domestic appliances, and components like heat exchangers and cross-flow fans in its product portfolio. The company has achieved the milestone of being the largest processor of EPS packaging in India.

On January 30th 2024, the stock price of Epack Durable was listed at Rs 225 on the BSE. Currently, the price has declined to trade at around Rs 181 levels.

The percentage decline in the stock price from its listing is approximately 19.5%.

It also disclosed its first quarterly earnings post-listing, as it achieved a net profit of Rs 49 million (mn) for the December-ended quarter.

It showed an improvement from the net losses reported in Q3FY23 and Q2FY24. It also saw a modest 1% year-on-year increase reaching Rs 2.79 bn.

However, despite these positive indicators, the stock of Epack is trading at a discount compared to the issue price due to a lacklustre listing performance.

For the upcoming summer season, managing director and CEO of Epack Durable, Ajay DD Singhania anticipates a growth rate exceeding 15% this year due to the heatwaves expected to extend beyond May.

Epack Durable is operating at full capacity to meet this surge in demand.

Given the strong demand driven by heatwaves, it is anticipated that Epack durables stock will again align with its listing price.

#4 Johnson Controls Hitachi

Fourth on the list is Johnson controls Hitachi.

Johnson Controls- Hitachi Air Conditioning established on 1 October 2015, is a joint venture between Hitachi Appliances, Inc. (now Hitachi Global Life Solutions, Inc.) and Johnsons Controls, Inc.

Johnson Controls specializes in producing electronics and HVAC equipment, building automation systems, security solutions, fire detection systems, batteries, and other related products.

The shares of Johnson Controls-Hitachi Air Conditioning India have experienced a growth of 4.4% in the last 12 months.

Despite reaching a 52-week high of 1,393 levels, it has since experienced a decline and is currently trading at the 1143 level.

This decline is attributed to challenges such as poor demand and weak consumer sentiment.

The company's financial performance has also been impacted with a reported net loss during the March quarter and a 21% decline in revenue compared to the previous year.

The company is also known for its popular aircon brand 'Hitachi Cooling and Heating' which has shown aggressive expansion plans.

Johnson Controls-Hitachi aims to reinforce its brand leadership in North India and capitalize on the promising growth opportunities in both residential and commercial segments.

#5 Voltas

Last on our list is Voltas.

Founded in 1954 under the esteemed Tata Group, Voltas Ltd has emerged as a leader in cooling products. This is jointly promoted by Switzerland's Volkart Brothers and India's Tata Sons Pvt Ltd.

The company has a vast network of 25,000 customer touchpoints. Voltas stands out as a cornerstone of the Tata group. Voltas' air conditioners are recognized for their energy efficiency, rapid cooling capabilities, and whisper-quiet operation.

It is important to note that Voltas holds a market share of 25% in the AC segment.

Voltas witnessed a remarkable growth of 48.3% within a year.

This impressive expansion in its share price reflects the company's strategic positioning and its ability to capitalize on the increasing need for cooling solutions in the market.

It has outperformed the 30-share index which gained 26.7% during the same period. The 52-week high for Voltas stood at Rs 1299.9 while the low was at Rs 745.

Voltas is also known as the leading player in the cooling products sector and India's top AC brand under the Tata group.

It plans to capture an increased market share with the introduction of SmartAir Inverter AC series. The new ACs will come equipped with Internet of Things (IoT) capabilities and a range of smart features.

Use of IoT promises silent operation and enhances Voltas' leadership in the cooling products in the market.

The anticipation of rising share price of Voltas during the summer months is evidenced by the introduction of new series, increase in share price, brand recognition, and company's commitment to innovation and quality.

Conclusion

Investors should turn their focus to AC stocks during summer for several compelling reasons.

Firstly, the surge in demand for cooling appliances during hot months drives up sales and profitability for AC manufacturers. This trend is observed in April when temperatures start rising, signalling the onset of summer.

Secondly, the introduction of new and innovative AC models with advanced features such as IoT attracts consumers and contributes to increased sales.

However, investors must exercise caution and conduct thorough research before investing.

Make sure to consider the factors like market volatility and seasonal fluctuations.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...