AC Sales May Dip 15% in FY26, Yet Sector Eyes Strong Growth on GST Relief, Rising Temperatures

Due to unseasonal rains between April and July, room air conditioner sales are expected to decline by 10-15% in the current financial year, 2025-26. Rating agency ICRA estimates that industry sales could reach 11.5 million units during this period. A record 13 million units were sold in 2024-25.

According to the report, North and Central India experienced prolonged unseasonal rains during the peak summer months of April-July, which reduced demand for ACs. However, a partial recovery is expected in the second half, between July and September, driven by forecasts of further warming in 2026, especially in the southern and western regions.

ICRA stated that the reduction in the Goods and Services Tax (GST) rate will more than compensate for the price increase associated with the new star label guidelines in January 2026. This is expected to boost pre-season purchases in the next quarter. The GST reduction on ACs from 28% to 18% effective September 22nd also aims to boost demand. The long-term strength of the AC industry is supported by factors such as rising temperatures, decreased household access, urbanization, and increasing replacement demand driven by a shift towards energy-efficient models.

Capacity is projected to increase by more than 40-50%, from the current 26 million units, over the next two years. Capex of ₹4,500-5,000 crore is planned for this growth in the next two to three years. The Government of India's Production-Linked Incentive (PLI) scheme for manufacturing aims to increase indigenisation in the Indian room AC industry from the current 50-60 percent to 70-75 percent by 2027-28.