Government's AC import ban may prove disruptive for industry

With the Indian government recently announcing a prohibition on import of air conditioners (AC) in a bid to bolster domestic industry and reduce import dependence, experts say that the move may disrupt the industry but also lead to a complete revamp of its functioning in the long term.

The ban may also be a precursor to more announcements from the government, including the raising of import duties on components as well, said a report by Motilal Oswal Financial Services.

"Thus, we would like to believe that over the next 5-7 years, India would perhaps be able to reduce its import dependency to almost nil," it said.

The report noted that India's AC industry is highly competitive, with 35-40 brands. While the top 6 players enjoy 75-80 per cent market share, the tail end forms the remainder and largely operates on a trading business model.

"We believe such business models would be massively impacted as India shifts toward becoming more self-reliant in the AC industry. In the short run, this would imply greater business to OEMs as well as consolidation-led gains for leading brands (top 5-6 players)," it said.

It further said that that some of the brands are contemplating offering their excess capacities to other brands.

Over the longer term, disruption is likely in leading brands too, and their capital intensity is expected to go up.