Rising temperatures are expected to support demand for air conditioner manufacturers, although the sector continues to face pressures from higher production costs, LPG shortages, and price increases impacting margins.
As summer intensifies, investor focus has returned to companies manufacturing air conditioners. During the current season, companies are encountering multiple challenges, including uneven temperature trends, LPG shortages, and rising costs. Despite these factors, a report by brokerage firm Nuvama states that selective companies present long-term investment opportunities. In the fourth quarter of FY26, companies may report limited revenue growth alongside improved margins, while Electronics Manufacturing Services (EMS) companies could face pressure on both production and costs.
LPG Supply Constraints Affect Production
According to the report, three key factors are exerting pressure on the industry. The first is LPG shortages, which are affecting production. LPG is essential for the brazing process, and limited supply could impact EMS companies in particular. Government prioritisation of domestic LPG usage has contributed to supply constraints.
Unseasonal Rains and Price Increases Impact Sales
The second challenge is unseasonal rainfall. Demand had shown improvement in North India from mid-February, but recent rainfall has weakened sales over the past four to five days. Companies have also implemented price increases of 5–10 percent, which may affect demand. While alternative fuels such as oxy-acetylene are being used to maintain production, these have increased costs.
Rising Input Costs and Currency Weakness
The third factor is rising costs. Depreciation of the rupee and higher raw material prices have added to cost pressures. As of January 2026, LG had increased AC prices by up to 10 percent. Intensifying competition has limited companies’ ability to fully pass on costs to consumers, resulting in continued margin pressure.
Mixed Temperature Trends Delay Demand
The Nuvama report noted mixed temperature trends. Year-on-year temperatures across the country are higher by approximately 0.5°C, with North India recording an increase of around 1.3°C, while South India has seen a decline of about 1.0°C. This has contributed to a delay in demand.
Forecasts indicate improvement in weather conditions from April, with higher temperatures expected through June and July due to the El Niño effect, which could support demand for cooling products. The report also noted that the impact of the West Asia crisis on consumer spending remains to be assessed.
Selective Opportunities Identified by Brokerage
Despite near-term challenges, Nuvama stated that the current weakness could present investment opportunities. Companies such as Amber Enterprises, PG Electroplast, and Havells are identified as having long-term growth potential, supported by demand, production capacity, and brand positioning.
EMS Sector Faces Cost Pressures
EMS companies are facing pressure from rising production costs and higher raw material prices. Limited LPG availability and elevated costs are impacting operations. However, the long-term growth outlook for the sector remains intact, contingent on sustained demand recovery driven by higher temperatures.
Pricing Actions and Margin Impact
Companies have increased prices by 9–12 percent, but competitive intensity has constrained the ability to fully pass on cost increases to consumers, maintaining pressure on margins. Despite this, the AC and EMS sectors continue to present long-term opportunities.
Demand for cooling products is expected to rise during the summer season. As temperatures increase, sales of air conditioners and other cooling devices may strengthen, supporting the sector’s demand outlook.
