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Indian Residential Heating Ventilation & Air-conditioning Market

The total market for residential Air Conditioners stood at around 3.3 million units for fiscal year 2013-14. In value terms, it stood at around INR 80 billion. HVAC system helps in maintaining air quality in residential sector by its ventilation and filtration, and thus maintains temperature and humidity. Policies on use of refrigerant, stringent and eco-friendly norms, safety measures, advancement in technology, and efficient use of the products are forcing market players for improvement. The growing population and urbanisation along with government efforts has heightened the domestic manufacturing sector and thus infrastructure is building at a fast rate in country. Going by the prediction of Indian manufacturing sector to touch $1 trillion by 2025, India can emerge as a manufacture hub for HVAC industry.

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Definition / Scope

For over a decade, India is witnessing continuous growth in almost all major industrial and commercial sectors. The wave of development has also covered Tier 1 and Tier 2 cities besides the metropolitan cities. Heating, Ventilating and Air-Conditioning (HVAC) Systems are indoor systems, which maintain the ambient temperature and air quality at desired levels. They are used in residential, commercial and industrial buildings to provide optimum conditions for various purposes.

  The heating, ventilation, and air conditioning (HVAC) market in India is growing at a fast pace mainly owing to the rise in construction activities. Indian Society of Heating, Refrigerating, and Air Conditioning Engineers (ISHRAE) has an estimate that total market in India is about 15,000 crore. 

HVAC systems are coming fast as an indispensable units of large building facilities in India. HVAC system refers to systems that perform process to regulate the temperature, humidity, and to maintain air flow by ventilation and filtration in central systems buildings. Ventilation is the process of exchanging the air in a space to provide high indoor air quality which involves temperature control, oxygen replenishment, and removal of moisture, odors, smoke, heat, dust, airborne bacteria, carbon dioxide, and other gases. Residential HVAC market differs from commercial and industrial markets due to small unit size. HVAC has became an important part of residential structures such as single family homes, apartment buildings, hotels, and senior living facilities, medium to large industrial and office buildings such as hospitals and skyscrapers.

Market Overview

Majority of the people in India live in tropical areas and experience hot summers and moderate winters. Maximum temperature in most of the areas crosses 40 degree centigrade in summers. Therefore, there is very high potential demand for air conditioning systems in this country. Residential segment will grow significantly posting a CAGR of nearly 12% in 2015-2019. ISHRAE estimates that HVAC products market in India is valued around Rs.15,000 crore, having grown from Rs. 10,000 crore in 2010. In the years 2005 and 2010, the HVAC sector has grown to over Rs. 10,000 and had reached to 15,000 in FY’14. In 2003, major market share in terms of revenue was captured by room air conditioning segment and is expected to share its dominance by 2019. According to some analysts in 2014, split AC systems dominated the market holding about 82% of the overall market. If we consider the regions of country, the northern region has been leading the market with high revenue contribution from Delhi-NCR. In 2003, real estate market recorded a growth of 22.5%, leading to high growth in HVAC market. According to Mrs. Karan Chechi, research director with TechSci Research, rapid infrastructure developmental activities have been witnessing in the cities like Gurgaon, Noida, Greater Noida, and Chandigarh which is expected to spur the HVAC market. A lot of factors are related to residential sector which are continuously promoting growth in this sector. Some are increase in population and increase in disposable income. The total market for residential Air Conditioners stood at around 3.3 million units for fiscal year 2013-14. In value terms, it stood at around INR 80 billion.

Key Metrics

Metrics Value Explanation
Base Year 2017 Researched through internet


Market Risks

• Energy efficient products are to be produced even though they are expensive to start with. • Companies need to have larger budgets allocated for research and training activities. • With the entry of more and more multinational companies in competition the expectations of consumers are increasing for cutting edge technology equipments, state of art execution with an upgrade of commissioning, operation, and maintenance. • More focus is needed for correctly designed and executed projects as air conditioning has became the reason for spread for fire and indoor air quality issues. • With the growing concern for the safety of environment, there is no single refrigerant which can give good indoor conditions with 0% damage to the ozone layer. With the use of HC as refrigerant there is a great risk of fire.

Top Market Opportunities

Indian Government is trying to make India a manufacturing hub. To attract consumer electronics and appliances manufacturers to India, the Indian Govt. is trying to improve basic infrastructure. Indian Govt. is also trying to correct the inverted duty structure, which is dis-incentivising manufacturing in India. Many global players have started showing interest in manufacturing in India. • Considering the geographical conditions of India there is an ever increasing demand of the HVAC products in market, making it lucrative for firms to invest in this sector. • Government with the advent of campaign “make in India” is making India a manufacturing hub. Government is working towards improving basic infrastructure for attracting the investors. • With more energy certifications and with advancing interactions between the industry, various societies, and with government the happy days are knocking the door of the HVAC industry. • With anticipated growth in FDI (Foreign Direct Investment) several international players are entering the Indian market. • With growth in retail, real estate, hospitality, and commercial sectors HVAC market is also boosting up. • Taking in consideration the portability, ease of installation, less price and less space requirements of room air conditioning systems, it dominates the market over centralized air conditioning systems.

Market Drivers

• Changing lifestyles. • Increasing per capita income. • Rising expenditure of consumers on comfort solutions. • Majority of population of India lives in tropical areas facing hot summers and moderate winters. Maximum temperature in most of the areas reaches 40 degree centigrade during summers increasing potential demand for air conditioning • Rising investments by corporate in India with growth in construction industry. • Government focussing on production, marketing, and research and advancement in this sector. • Foreign investors are also attracted in India by Make in India campaign. They have came forward to invest.

Market Restraints

• A huge gap in demand-supply in power sector is major constraint that draws the HVAC market back. • Consumers are less interested in buying older HVAC systems, which are more power consuming, with the growing scenario of rising power prices. • In India, there are a good lot of manufacturers of HVAC equipments, but still industry experiences lot of imports of equipments and products from abroad mainly China due to their cheaper rates. • Now companies are shifting towards the use of hydrocarbons as refrigerant taking ODP and GWP into consideration the fire chances are increasing.

Industry Challenges

• High cost for establishment and developing efficient products of the HVAC industries in India. • For developing energy efficient products. • Policies regarding use of type of refrigerant, and for introducing eco-friendly products in market have became very strong. • Advancement in technology • Safety pre-requisites. • The industry is poised to have an exponential growth, but requires huge skilled manpower at various levels. • Projects are not executed properly. • Proper guidelines of standards tropicalised seldom exists. • Research for a cutting edge technology and training of skilled manpower is not given its due importance. • Proper focus is not given on life cycle cost that is installation, operation, and maintenance. • Major portion of the total demand of air conditioners in India is fulfilled by imports. India manufactures only 30-40% parts of air conditioners and rest is imported. Cost of compressor is about 30% of the cost of air conditioner and at present there is no compressor manufacturer in India. • Market fragmentation.

Technology Trends

New Technologies

Inverter Technology – Inverter technology Air Conditioners have variable speed compressor motor. In traditional Air Conditioners the compressor motor runs at only one speed and the compressor motor is switched on and off intermittently to regulate the temperature. Inverter Air Conditioners have variable speed compressor motor which runs continuously. 

Speed of compressor motor is changed through the inverter to regulate the temperature in these Air Conditioners. This technology was developed in Japan and most of the manufacturers in India have launched products using this technology. Inverter Air Conditioners are more efficient and have better temperature regulation than the traditional Air Conditioners.

Hot & Cold – These Air Conditioners can be used for both cooling and heating. These are useful in Northern states like Haryana, Punjab, Delhi and Uttar Pradesh.

Anti-bacterial Filter – In view of, deteriorating air quality in cities most manufacturers are now using this feature in Air Conditioners to improve

Montreal Protocol

Montreal Protocol is an International Treaty designed to protect the ozone layer by reducing production and consumption of those substances which are responsible for ozone layer depletion. As per the treaty, the use of CFCs (Chlorofluorocarbons) the 1st generation of refrigerants has been phased out completely. CFCs had high Ozone-depletion Potential (ODP) and Global Warming Potential (GWP) and were responsible for the hole in the ozone layer.  

The 2nd generation of refrigerants, HCFCs (Hydro chlorofluorocarbons) which were used as a substitute for CFCs and had lower ODP and GWP, will also be phased out gradually. There phase-out has already started in the year 2015.  

Top Air Conditioner manufacturers like Voltas, LG and Samsung use HCFCs as a refrigerating agent. They plan to shift to HFC refrigerant.  Shifting from HCFCs to other refrigerants like HFCs (Hydro fluorocarbons) will increase the cost of the product by 15%.  

HFCs are the 3rd generation of refrigerants. Many developed countries had started using HFCs as refrigerating agent in early 1990s. HFCs do not harm the ozone layer but have very high GWP and are super-greenhouse gases. Now USA is pushing India to limit the production of HFCs at the level of year 2020. India wants the production to be limited at 2030 levels.  

Daikin and Panasonic are promoting HFC-32 which has lower GWP compared to HFC-410a and has higher energy efficiency.  

Godrej has already launched a new line of Air Conditioners using hydrocarbon (HC-290) refrigerant. These Air Conditioners are more efficient than the HCFC based Air Conditioners and cheaper because the refrigerating agent is naturally available and is not patented. Hydrocarbons do not damage the ozone layer and have very low GWP. The issue with hydrocarbons is that they are flammable and there is a risk of fire.[1]

  ODP and GWP of different refrigerants[2]

Refrigerant Class

ODP

GWP

CFC

0.8-1

6000-11000

HCFC

0.03-0.06

1800-3200

HFC

0

120-1500

Hydrocarbons

0

1-4

  

Import duty & taxes

Import duty and taxes on Air Conditioners and their parts in India[3]

Duty Rates

Formula

A

Assessable Value

CIF Value + 1% Landing Charge of CIF

B

Basic Duty

10%

A* 10%

C

Countervailing Duty

12.5%

(A+B)*12.5%

D

Central Excise Edu. Cess

3%

C*3%

E

Customs Edu. Cess

3%

(B+C+D)*3%

F

Special CVD

4%

(B+C+D+E)*4%

G

Total

29.44%

H

Effective Duty

24.46%

Special CVD is not applicable at present as per the Gov. Notification no. 021/2012-82 and therefore the effective duties and taxes on Air Conditioner have reduced to 24.46%.  

Inverted Duty Structure – As per the Free Trade Agreement signed between India and Thailand, there is no import duty on Air Conditioners imported from Thailand. However, the import duty on Air Conditioner parts is still the same. This has resulted in inverted duty structure scenario, where importing Air Conditioners has become cheaper than importing Air Conditioner parts. [4]

Air Conditioner Imports - Out of total demand of 3.3 million units in FY 2014, India manufactured only 1.95 million units.  1.35 million Units were imported in India. 93% of total imports were from China and South-East Asia. [5]

Air Conditioner Parts Import – India manufactures only 30-40 % parts which go in an Air Conditioner. 60-70% parts are still imported from other countries. At present, there is no compressor manufacturer in India. Cost of compressor is about 30% of the cost of an Air Conditioner.[6]

Air Conditioner Exports – India exported Air Conditioners worth INR 6.42 billion in the FY 2014. Majority of exports was to EMEA.[7] • Working on inverter, More sensing, mosquito repellent, and auto switch off and on are some qualities on which companies are working to attract customers. • Trigeneration Vapour Absorption Machines and integrated building management systems are some technologies introduced by the companies.

Pricing Trends

With the Montreal Protocol came into existence it ruled out the use of the 1st generation refrigerants. Also companies are planning to change the 2nd generation refrigerants HCFCs which had lower ODP and GWP. Top air conditioner manufacturers like Voltas, LG, and Samsung are planning to shift the use of HCFCs to HFC refrigerant. This shift would result in increase in prices to 15%. Godrej introduced the air conditioners using hydrocarbon (HC-290) as refrigerant. They are comparatively cheaper.

Regulatory Trends

• ISHRAE is a society founded in 1981 at New Delhi works for the advancement of the arts and sciences of HVAC and related services. It gives education to its members and others by lectures, workshops, product presentations, publications, and expositions. It also encourages scientific research and also provides financial assistance to the students for progressing in the field. • As per the FTA signed between India and Thailand, the import of air conditioners has become cheaper than importing air condition parts. • In year 2014, out of the total demand of 3.3 million units, India manufactured only 1.95 million units and rest were imported. Major imports are from China and South-East Asia. • The Bureau of Energy Efficiency(BEE) has put forth many initiatives both for industry and consumers to promote energy saving. It is effecting investments and both corporates and organisations.

Market Size and Forecast

The penetration of Air Conditioners in India stands at 3-4% against the global average of 60%[8]. Penetration remains extremely low and demand potential is huge in India.

Market Segments

Indian residential Air Conditioner market is broadly divided into two categories

  1. Split Air Conditioner
  2. Window Air Conditioner

The share of Window Air Conditioner in the overall market is continuously declining and stands at 16% at present[9]. • According to a report “India HVAC Market Forecast and Opportunities, 2019,” the Indian market is estimated to reach US$ 3.97 billion by 2019. • In India, HVAC market is expected to grow at a CAGR of 10.61% over the 2014-2019. • The market has expected growth rate of 8-10% in coming years as per the Refrigeration and Air Conditioning Manufacturers Association (RAMA). • The growth in residential market is anticipated to be greater as compared to commercial market in the forecasted period 2015-2022. With the rise in population, urbanization, count of housing units there will be trigger in the demand of HVAC products. • With the strong FDI inflow, the market is projected to reach USD726.62 billion by 2019.

Market Outlook

• According to ISHRAE the Indian residential HVAC industry has grown from 10,000 crore valued industry in 2010 to 15,000 crore. • National president of ISHRAE Mr. K Ramachandran has view that as we meet the housing, infrastructure, and carbon reduction goals by promoting and developing the domestic manufacturing set up it will help in giving boost to the domestic GDP. India will emerge as a low-cost manufacturing hub for the global HVAC industry. • HVAC industry is no longer a luxury, but have became a part and parcel of everybody’s life. Stakes are very high as systems consume nearly half of connected power. • Indications say that HVAC is Rs. 25,000 crores strong industry.

Distribution Chain Analysis

An integrated approach is needed with all stake holders right from owners, developers, architects, consultants, project managers, manufacturers, contractors, facility mangers to achieve various objectives. It is the weakest link with lack of trust among them.

Competitive Landscape

Significant Players

LG

Voltas

Samsung

Panasonic

Hitachi

Other Players

Other Players in the Indian Residential Market are

  • Videocon
  • O General
  • Haier
  • Blue Star
  • Carrier Midea
  • Lloyd
  • Onida
  • Whirlpool

• Market is quite fragmented for HVAC industry. It has many segments like split AC, window AC, and others. • Fragmentation of market is main challenge faced by industry. Diminishing profit pools are responsible for the migration of talented engineers to other sectors. • Geo-political issues related to refrigerant phase-out and energy labelling influence the industry. • Companies are targeting verticals whose developmental spending are high and growing like infrastructure, certain core industries, and service sectors, premium housing and commercial real estate. • Companies are investing in solution capabilities, increasing the reach of their products and advanced use of technology to remain in competition.

Competitive Factors

Companies are competing on factors such as • Technology advancement. • For efficient use of products and services. • Energy saving products. • Working on inverter, More sensing, mosquito repellent, and auto switch off and on are some qualities on which companies are working to attract customers.

Key Market Players

LG LG in India sells Split, Window and Floor Standing Air Conditioners for residential use. It has more than 100 models across different categories with capacity 0.75 TR to 2.0 TR. The company uses innovative technologies like mosquito repellent and inverter technology to differentiate itself from competitors. It has got a very strong dealer network and enjoys good brand equity. LG is among the top three players in most of the consumer electronics and home appliances categories in India. Its products are competitively priced. It enjoys around 20%market share in residential Air Conditioner market. Voltas Voltas manufactures Split, Window, Cassette and Slimline Air Conditioners. It manufactures Air Conditioners with capacity 1.0 TR to 2.0 TR. Voltas is a Tata group company, which is the largest and most trusted business conglomerate in India. Voltas has very strong brand equity and is the market leader in residential Air Conditioning market with more than 20% market share. Voltas only manufactures Air Conditioners for residential consumers and is not present in any other home appliance category. Samsung Samsung is third in terms of market share in India. It has around 13% market share and it only manufactures Split Air Conditioners. It had exited Window Air Conditioners segment the year 2012 and since then has only concentrated on Split Air Conditioners. Samsung is the market leader in the overall Consumer Electronics and Home Appliances sector in India. Panasonic Panasonic re-entered the Air Conditioner market in 2012. In last 3 years it has captured more than 10% market share and is now a major player. Panasonic sells Window and Split Air Conditioners with capacity 0.75 TR to 2.0 TR.  Panasonic has priced its products very aggressively, compared to other major brands and has therefore been able capture good market share. Hitachi Hitachi sells Split and Window Air Conditioners with capacity 1.0 TR to 2.0 TR. Hitachi is a major player in other consumer electronics and home appliances categories as well. Hitachi has more than 10 %market share and is fast growing. Hitachi imports Air Conditioners and has no Air Conditioner manufacturing plant in India. Danfoss Industries It is one of the leading player focusing on climate and energy efficient solutions. It has gone in a collaborated project with ISHRAE known as (IADP) Integrated Approach to Project Delivery to adopt an approach to design and development of buildings involving various HVAC industry at an early stage to maximise efficiency in construction.

Strategic Conclusion

Indian Residential HVAC market is highly lucrative because of low penetration and huge demand potential. India economy has now become the fastest growing large economy in the world. A developing nation like India has a strong intellectual skill set and this is attracting the investors to come and invest in India. There is a quantum jump in residential sector of HVAC market. Infrastructure and hospitality industry, IT and ITES sector are showing positive growth which then propels the HVAC industry and growth rate can reach at 20%. A bright light is visible for country with the aid of a stable government and this scenario is attracting a lot of investments. This is also demanding growth in HVAC sector. With more energy saving certifications and with growing technology and researches this sector can give good revenue to the government.

References

  1. http://www.downtoearth.org.in/coverage/the-gas-game-42172
  2. http://www3.epa.gov/ozone/snap/subsgwps.html
  3. https://www.icegate.gov.in/Webappl/desc_details.jsp
  4. http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-and-consumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
  5. http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-and-consumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
  6. http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-and-consumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
  7. http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-and-consumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
  8. http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-and-consumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
  9. http://www.moneylife.in/article/ac-industry-bets-on-june-to-make-a-summer-killing/42062.html)

http://ishrae.in/ http://www.slideshare.net/ResearchOnIndia/hvac-market-in-india-2011-sample http://www.researchandmarkets.com/reports/3455202/heating-ventilation-and-air-conditioning-hvac http://www.indiainfoline.com/article/news-top-story/make-in-india-infinite-opportunities-for-the-hvac-r-industry-116022300456_1.html http://projectvendor.com/hvac-industry-current-challenges-future-market-growth/ http://www.technavio.com/report/hvac-systems-india-2015-2019 http://www.credenceresearch.com/report/hvac-heating-ventilation-and-air-conditioning-equipment-market http://www.business-standard.com/content/b2b-chemicals/india-can-emerge-as-a-manufacturing-hub-for-hvac-industry-ravichandran-purushothaman-danfoss-114051900945_1.html http://www.prnewswire.com/news-releases/india-hvac-market-to-reach-usd397-billion-by-2019-says-techsci-research-277206071.html http://projectvendor.com/fragmentation-hvac-industry-one-main-challenges/

Further Reading

https://www.techsciresearch.com/report/india-hvac-market-forecast-and-opportunities-2019/541.html http://www.businesswire.com/news/home/20151109006100/en/Research-Markets-India-Heating-Ventilation-Air-Conditioning

Appendix

ODP- Ozone Depletion Potential. GWP-Global Warming Potential. HCFC-hydro chlorofluorocarbon. HFC-Hydro fluorocarbon. HC-hydrocarbon.


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