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Airconditioners: LG in bid to beat seasonal nature

15-November-2004
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Airconditioners: LG in bid to beat seasonal nature

LG Electronics India Ltd is planning a big push for its room airconditioners (RACs) during 2005 in a bid to sustain its leadership position in the Indian AC market. The South Korean electronics major is currently firming up plans to promote a range of its ACs on the ‘heat & cool’ dual benefit platform, targeted primarily at the North Indian market.

LG’s product group head for RACs Ajay Bajaj told FE that North India currently accounts for almost 40% of total AC sales in India which is set to grow during 2005. However, the company will not be creating a separate sub-brand for the heat & cool range of ACs.

“In India, ACs are no more a luxury item. Therefore, there is a distinct need to promote it as a round-the-year product. This way, we are trying to create more space in the market,” Mr Bajaj said.

According to rating agency ICRA’s estimate, LG had a 28.6% marketshare in RACs during 2003. However, according to LG, the company currently has a 35% marketshare in overall AC sales in India.

However, LG is less optimistic on the outlook for AC sales during 2005. “We are anticipating a global shortage of compressors next year. All the AC manufacturers are sure to be hit adversely once there is shortage of compressors, in spite of an overall surge in demand for ACs in India,” Mr Bajaj added.

Currently, LG imports more than three lakh compressors for making its ACs from LG’s headquarters in South Korea. The company sources another one lakh compressors from local vendors in India.

According to Mr Bajaj, the shortage will be more acute for certain rotary compressors that LG currently imports from Korea. Other AC manufacturers like Voltas, Hitachi, Electrolux and Samsung source a lot of their compressors from Korea, China, Thailand and some other South Asian countries.

LG recently launched an AC range targeted at kids. Industry watchers claim that it is a ploy to grow the AC market in India further.

During the current year, LG expects 30% of its sales from the split AC segment. Mr Bajaj added that LG is likely to close 2004 with sales of 4,00,000 AC units in a market that is pegged at around 11,00,000 units.

However, in its latest survey on RACs, ICRA has maintained that due to a significant decline in price realisations and increase in selling expenses, the operating margin in the AC industry have shown a declining trend over the past five years. According to ICRA, the margins have been squeezed mainly due to stiff competition in the market.

When asked how market leader LG views this trend, Mr Bajaj said prices of AC components like compressors, fan motors, steel sheets, copper tubes and aluminium sheets have all gone up sharply in the past couple of years which have actually resulted in declining margins on AC sales.

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