Indian summers are incomplete without record-breaking heat temperatures. The collaborative effect of equatorial position, rising global warming, deforestation, etc., has catalysed this rise. Indian households and offices are getting attuned to room air-conditioners (ACs), for lowering the temperatures.
The industry, as a whole, is known as HVAC&R (heating, ventilating, air-conditioning and refrigerating). Some key players in India dominate this industry. Moreover, being an electrical appliance, brand reliability is crucial for a customer.
Companies with good fundamentals in terms of business provide an excellent investment opportunity. The expected rise in the sales of ACs can potentially be this opportunity, for the investors. Let’s discuss the top five stocks of this sector.
Air Conditioner industry in India
The Indian room air-conditioning (RAC) sector seems to be in the bright spot for the upcoming years. The growing market in Tier III, IV, and V cities can potentially become the engine for this growth. The overall industry reached the mark of ₹27,500 crores in FY24, and RAC contributed nearly 83% to it.
However, the industry is still considered to be under-penetrated. The growing per-capita income and rising heat level in the country may help bridge this gap. Moreover, the industry is growing competitive, which drives innovation for the products. The RAC market in India is about to grow at 12% CAGR by 2028-29.
Here are the top 5 stocks from the RAC industry. Voltas, Blue Start and Johnson (Hitachi) are AC manufacturing companies. Amber Enterprises and Epack Durables are indirectly related to the industry.
- Voltas Limited [NSE: VOLTAS, BSE: 500575]
It is one of the most popular RAC brands in the country. It was created jointly by TATA Sons and a Swiss company. It also has an international expansion in the Middle East region, such as Dubai, Bahrain, Qatar, etc. Moreover, its revenue has been growing consistently. Since FY23, sales have increased by 31%, and net profit has grown by 82%.
As of August 27, 2024, the share is trading at ₹1,735.7/-. However, the price to earnings (P/E) is high at 126.
- Blue Star Limited [NSE: BLUESTARCO, BSE:500067]
The company is famous for its strong corporate client base in the country, such as Ola Electric, Nippon, Wells Fargo, JCB India, etc. It has a global footprint in 18 countries internationally. The company is planning to focus and strongly establish itself in Europe and the United States of America. Since FY23, the revenue has increased by 21%. However, the net profit growth is slow.
The share price of Blue Star is ₹1,717.35/- on NSE as of August 27, 2024. It has a stock P/E of 71.8, less than the industry median.
Must read this: Decoding strategies: The growth journey of Voltas and Blue Star
- Johnson Control – Hitachi Air Condition. India Limited [NSE: JCHAC, BSE:523398]
Hitachi is a Japanese brand and stands strong among the most trusted brands in India. Its business is spread across SAARC countries like Nepal, Bangladesh, etc. It has a manufacturing facility of nearly 90,000 RAC in Gujarat. In this joint venture, Hitachi has 40% shares. In FY24, its revenue decreased by 20%, and its net profit has been negative for the past two years.
As of August 27, 2024, the share of this company is trading at ₹1.917.3/- However, its stock P/E is comparatively very high at 186.
Also read: Johnson Controls-Hitachi Air Conditioning India Ltd.
- Amber Enterprises India Limited [NSE: AMBER, BSE:540902]
The Original Design Manufacturers (ODMs) provide the main raw material for the air-conditioning products. Thus, they constitute a core part of the industry and have a keen effect. Amber Enterprises is one of the most trusted brands in the ODM line. It has strong client collaborations like LG, Hitachi, Mahindra, etc. It has a nearly 23% market share in the industry. In FY24, its revenue and net profits dipped 2% and 15%, respectively.
The company’s share is trading at ₹4,305.75/-. The stock P/E is at a considerable level of 90. This industry is unique and crucial as it provides raw materials to AC companies.
- Epack Durable Limited [NSE: EPAK, BSE:544095]
Epack is also an ODM company. The company has a 3.24 Million, RAC units manufacturing capacity, mainly in Uttarakhand, Rajasthan and Andhra Pradesh. The company has clients such as Blue Star, Voltas, Haier, Godrej & Boyce, etc. Its revenue from operations has dipped by 7%. However, its net profit is constantly moving upwards.
As of August 27, 2024, the company’s stock is trading at ₹258.7/- and has stock P/E of 49.
Key financials
| Particulars(Amount in ₹crores) | Voltas | Blue Star | Johnson Control (Hitachi) | Amber Enterprises | Epack Durable |
| Revenue from Operations | 14,042.37 | 10,324.73 | 2,347.48 | 7,428.57 | 1,756.54 |
| Net Profit | 248 | 414 | (76) | 139 | 35 |
| Return on Equity (ROE) | 4.4% | 21.2% | (7.9%) | 6.7% | 5.8% |
| Return on Capital Employed (ROCE) | 8.5% | 25.5% | (7.4%) | 10.2% | 8.3% |
SWOT comparison
| Particulars | Strength | Weakness | Opportunity | Threat |
| Voltas | Strong 18.7% market share despite tough competition. | The operating and investing cash flow for the company is in the downtrend. | Under penetrated tier 2,3,4 cities in the country are the company’s focus. | Presence in the international market of the Middle East may be affected by war-like instability. |
| Blue Star | Strong corporate client base for RAC. | Net profit margin as low as 4%, inefficiency in converting operating income to profits. | Healthy dividend payouts and operating cash flow in an uptrend. | Intense industry competition on national and international level. |
| Johnson Control (Hitachi) | Company is debt-free. | Net profit is negative. | String distribution network and manufacturing facility will help in plan for international expansion | Heavy losses in operating and net income since past two years. |
| Amber Enterprises | Market share of 27% in RAC ODM. | It has a strong presence in the RAC space, but it has only one manufacturing facility for it. | It has products in Electric Vehicle (EV) and other mobility appliances. | Promoters decreased their holdings and ROE steady for three years. |
| Epack Durable | Original Design Manufacturer (ODM) for big RAC brands. | Stock underperforming industry and market benchmarks | Net debt reduced in FY 2024. | Revenue concentrated among top clients. |
Takeaway
The air-conditioner market in India may see a surge in the upcoming years, owing to increasing temperature and per capita income. Investment in companies manufacturing RAC, like Blue Star, Voltas and Johnson (Hitachi), can provide investors with a chance to be part of this growth. Moreover, raw material suppliers like Epack and Amber may also experience a surge.
However, investment should be done, only after proper analysis of the industry and these five stocks.
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