No chill for AC stocks as unseasonal weather dampens demand, delaying demand recovery

Demand recovery delayed for AC makers amid unseasonal weather

For air conditioner makers, winter seems to have set in early as unseasonal rains and lower temperatures have dampened demand, melting away any hopes of a rebound after the recently announced GST rate cut, at least for this fiscal.

Key players in the room air conditioner (RAC) space like Blue Star and Amber Enterprises have posted muted performance in the September quarter, with commentary pointing to a prolonger recovery.

From cautious optimism to flat guidance

Blue Star saw a 12% decline in RAC volumes compared to an industry-wide contraction of 17–35%, as per JM Financial, a relative outperformance in a tough environment. Yet, the company has guided for flat growth in FY26, trimming margin expectations for to 7–7.5%, from 8% earlier. The brokerage said the festive demand and GST cut did support a brief pick-up till Diwali, but growth has turned sluggish again.

“Unfortunately, this is a product segment which is very season dependent, most of the sales happen during the summer and, to some extent, the festive season,” said Rakesh Vyas, CIO and Portfolio Manager at Quest Investment Advisors. “…this year, unpredictable weather and prolonged rains delayed demand. Customers also realised the GST cut is a more permanent measure, so they are waiting closer to the summer season to buy,” he added.

Still, Vyas said he is constructive on the long-term story. “Structurally, we are still in a phase where air conditioners and other discretionary items are becoming necessities. With higher disposable incomes, demand will likely improve over time. But for now, it’s advisable to look at a broader set of consumer durable companies, rather than those purely dependent on cooling products,” he added.

Also Read: InterGlobe Aviation likely to join Sensex in December rebalancing; Grasim also in race

Hoping for a Summer Revival

Amber Enterprises reported an 18% decline in its consumer durables segment, weighed down by the same headwinds. While the company expects the RAC industry to remain flat in FY26, it is targeting 13–15% growth in its consumer durables business, supported by the component and mobility verticals. Margin pressure remains a concern, with consumer durables margins slipping to 3.7% and electronics margins to 5.8%, though the management expects a recovery in the March quarter as seasonal demand picks up. Elara Securities has cut its earnings estimates for Amber, lowering the FY26 EPS by 26%, FY27e by 16%, and FY28e by 8% citing weak demand weighing on sales and profitability.

Weather and regulations cloud the outlook

Voltas too saw a weak summer season for its cooling products in the June quarter. In an earlier note, Nuvama Institutional Equities said the high inventories and the upcoming BEE energy label change effective January 2026 could keep the industry under pressure for a few more quarters. The brokerage said liquidation of record channel inventories remains a key challenge, with brands likely to see a recovery only after the new norms take effect.

FY26 recovery may stay elusive
According to Mayuresh Joshi, Director–Research at MarketSmith India, a meaningful recovery in FY26 may prove elusive for AC manufacturers. “Seasonality is causing heartburn for them as we have witnessed extended monsoons across most parts of the country, and the expected October–November heat never really came. With winter now setting in, Q3 and Q4 are expected to stay soft,” he said.

Also Read: Mutual Funds keep cash buffers high in October amid market gains

Joshi said that despite GST relief, the volume growth may remain subdued in the near term. “Both factors, delayed demand recovery and seasonal variations, are weighing on manufacturers’ balance sheets. Softer volumes mean softer EBITDA and bottom-line growth. There’s some hope post Q4, as summer approaches and volumes start coming back, but the second half of FY26 might remain muted for AC players and their ancillary suppliers,” he said.

For now, there seems to be no respite for AC makers - at least not until the weather patterns normalize, warming up the consumer sentiment. With muted guidance across the board, elevated inventories and margin resets already underway, a meaningful rebound for the cooling products segment may have to wait until beyond FY26.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.