AC Demand Expected to Rebound in FY27 on Stronger Summer
The Indian room air-conditioner (RAC) industry will rebound in FY2027 with volume growth of 12-14% to 12.6-12.9 million units. In FY26, the industry had recorded an estimated 10-12% decline as volumes moderated to 11.1-11.5 million units.
Chennai: After a decline in FY26, air conditioner demand is expected to rebound in FY27 due to a stronger summer. The industry is likely to record 12-14% volume growth in the fiscal.
The Indian room air-conditioner (RAC) industry will rebound in FY2027 with volume growth of 12-14% to 12.6-12.9 million units.
In FY26, the industry had recorded an estimated 10-12% decline as volumes moderated to 11.1-11.5 million units.
The anticipated recovery is likely to be supported by a stronger summer season in CY2026 and favourable structural growth drivers like low AC penetration levels in India and rising disposable incomes, aided by increasing urbanisation, finds ICRA.
Demand in FY2026 was affected by unseasonal rainfall and lower heat wave intensity during the peak summer months, resulting in weaker sales and elevated inventory levels across the channel.
Supported by a stronger summer and a low base effect, the domestic AC industry volumes are estimated to have increased by around 15% YoY in Q1 FY2027.
While demand recovered in Q1 FY2027, profitability remained under pressure as the industry faced a cumulative cost increase of 10-13%, driven by the Bureau of Energy Efficiency (BEE) norm transition, higher copper and aluminium prices, and rupee depreciation.
Though the reduction in the Goods & Services Tax (GST) rate from 28% to 18% with effect from September 22, 2025, partially mitigated the impact on retail prices, manufacturers were unable to fully pass on the higher input costs.
Consequently, margins compressed across the industry.
Domestic AC manufacturing capacity, currently at 28-30 million units annually, is projected to expand to 40-42 million units by CY2030, reflecting a 40-50% increase to meet rising demand.
Capital expenditure (capex) plans of Rs. 4,500-5,000 crore by manufacturers in FY2027 and FY2028 will drive the capacity expansion and backward integration as compared to Rs. 2,000-2,500 crore capex incurred in FY2026.
Aided by the Government of India’s (GoI) production-linked incentive (PLI) scheme, resulting in increased investments in domestic manufacturing of key components such as compressors, printed circuit boards (PCBs) and controllers has increased indigenisation.
ICRA expects indigenisation in the industry to increase to 70-75% by FY2028 from the current 60-65%, which should lower import dependence.