Key takeaways of the call

The industry has moved past the excess inventory situation. Almost all major players in the industry have liquidated their excess inventory by end of Feb 2019 and are entering the peak summer season on normal inventory levels. Thus the heavy discounting witnessed during Q2 & Q3 of current fiscal is not likely to continue going into the peak season.

Summer has started off well and the company hopes it will be a good season unlike last one. The company has launched new models (numbering about 75) that are stylish and superior in performance. These new models include energy efficient inverter ACS capable of delivering 30% extra cooling over and above its rated capacity.

Unitary products segment having registered an YTD margin of 7% in 9mFY19 is not expected to get back to 9-9.5% of usual segment margin (not considering the 150 bps negative impact of water purifier) for FY19. So it may end up with a segment margin of some-where around 8-8.5% for FY19.

Investments on new product development as well as on research and design by the company is set to go up by Rs 10 crore in FY20 to Rs 50 crore from about Rs 40 crore in FY19. Similarly the company will be spending about Rs 55 crore in advertising and brand communication in the forthcoming summer season as against Rs 45 crore in last peak season.

Commercial refrigeration (part of unitary products segment) segment was driven by steady growth from deep freezer. Deep freezer market is expanding with strong demand coming ice-creams market retail segment. The market size of deep freezer is currently about Rs 1100 crore per annum in the country and the company is clocking a revenue of about Rs 340 crore. This segment is growing at a 5 year CAGR of about 12%.

The new line of business in commercial refrigeration such as i.e. Medical Refrigeration, Kitchen Refrigeration and Refrigeration units for Retail Market is expected to see good growth and the company has clocked revenue of Rs 50 crore in this segment in current fiscal.

Window Room AC segment volume is stagnated at about 9 lakh units out of total industry volume of about 55 lakh units. The window Room AC segment numbers is largely a replacement demand especially in northern part of the country such as Punjab, Haryana and Delhi. With volume not going up the company in order to capture higher value and offer better product, has launched a window inverter AC. So the company will be the second major player having launched inverter window AC apart from Voltas.

The company having touched a market share of 12.8% in 9mFY19 is expected to reach a market share of 13.5% in FY20.

Room AC market is expected to growth by 10% in FY19 and the company will surely register a growth rate higher than the market.

On the back of painful FY19 the company managed to get the production out of its existing facilities. The company proposes to invest Rs 80 crore in modernization and automation of its existing units. The company has excess land in Wada unit in Maharashtra and the part of the Rs 220 crore capex earmarked for now dropped J&K plant will be invested in Wada and HP units. Commissioning of green field SriCity plant in Andhra Pradesh is pushed back to FY2021.

Hope to end FY19 with a revenue in excess of Rs 5000 crore up from a sales turnover of about Rs 4600 crore in FY18.

Sales momentum comes to a standstill a month before the scheduled GST council meet as there was an anticipation of cut in GST for air-conditioners from 28% to 18%. Dealers were reluctant in taking delivery as they face difficulty in GST credit in case of cut in GST rate. With election code coming into effect hope there is no GST council meeting impacting the sales.

The company is also rejigging its product portfolio, reengineering its products and increased domestic sourcing to offset the rise in costs.

For each of the last few years, atleast one of the players had disturbed the market employing aggressive pricing strategy. But last year being a painful one for the industry everyone seems to make some money and not likely to go after the market share. This along with return of stability in commodity prices as well as forex rates and normal inventory in the market are expected to ease pressure on margin.