Should You Consider AC Stocks This Summer?

Last month, I read the management interviews of two AC companies.

The first was from Haier India. The management wants to scale up domestic capacity from 1.5 million units to 4 million units. That could make it a US$ 2 bn brand in 3 to 4 years. From 2024-2028, it plans to invest Rs 10 bn in AC plant.

In another interview, the management of BlueStar , a leading brand in ACs, sounds quite confident, projecting a19% CAGR (compound annual growth rate), in ACs.

These interviews have come along with the news of IMF issuing warnings for heatwaves in Gujarat.

You see, last year, during a record-breaking heatwave, the AC sales shot through the roof.

While the sales were booming across regions, it was the tier 2 and tier 3 cities that took even the leading brands and entire supply chain by surprise. Demand outstripped supply. The stores were out of stock.

While AC supply chain players literally made hay with the sun shining, they want to be even better prepared now.

And there is more to it than just heatwaves.

Amid uncertain times, the one thing that looks structurally strong is the rise of the aspirational middle class in India.

Indeed, ACs and other consumer durables and electronic goods are not a luxury anymore. They have found new markets in tier 3 and even tier 5 towns. Under penetration, urbanization, affordable electronics, and access to power connectivity, have paved the trend of rise in consumer durables.

Consumer financing, ecommerce, modern retail...brands are embracing whatever it takes to meet the demand that seems to have exploded.

And then it's not just brands like BlueStar, Voltas, Haier, Daikin and the likes.

Some of the other companies that have benefitted by the rise of sales of electronic goods and consumer durables include Aditya Vision Ltd - a market leading electronic chain in Bihar that is further capturing market in the other states like UP.

Similarly, Electronics Mart India Ltd is a market leader in Southern States, especially dominant in Telangana and Andhra Pradesh.

And how can you miss the contract manufacturers - PG Electroplast, Amber, ePack Durables. Amber, PG and EPACK command over 90% of RAC (room AC) industry ODM (original design manufacturer) needs.

However, to capitalize on this boom, there is a need for localization of the supply chain. Already, the shortage of compressors and other components is expected to lag demand. With BIS standards, the Chinese imports are not as cheap anymore. For the rise of consumer durables in India, self-sufficiency is needed.

While many players are realizing this now, some have been faster than the others.

Take for instance Styrenix Performance Materials.

The company is a market leader in ABS and SAN business in India, a niche manufacturer of a product that was primary imported.

These are engineering thermoplastics used across industries like automobiles, electrical and electronic products, household consumer durables, construction, healthcare products, stationery, cosmetic, packaging, toys, and extrusion segments.

It is recently in news for acquiring Ineos Styrolution Thailand Co., Ltd. This is with an aim to avail synergy benefits of technology, capacities, products and geographical markets, and for import substitution in India.

Some of the similar companies in engineering plastics that are worth keeping an eye on include Supreme Petrochem and Bhansali Engineering Polymers.

While there is always an element of commodity risk in these players, these market leaders are focused on value addition. Along with strong balance sheets, they enjoy healthy return ratios.

And if the manufacturing theme, especially the rise in consumer durables and discretionary consumption interests you, these could be some interesting candidates for your watchlist amid market correction.

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Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)