ACs will get expensive in your festive season; 4% price hike expected

In order to control widening CAD and depreciating rupee, the government has hiked import duty on some 19 items. Now this hike in import duty will impact you, especially when it comes to your festival season shopping. Next month will kick start with Diwali festival and there is heavy buying in home appliances especially Air conditioners, washing machines, furniture etc. Due to import duty hike, it is being expected that ACs would become very expensive going ahead. 

Air conditioners, Household Refrigerators and Washing machines less than 10 Kg have seen a rise from 10% to 20% in  their custom duty. While, compressors for air conditioners and refrigerators have seen an increase to 10% from 7.5%. 

Talking about AC, Motilal Oswal said, "India imports ~70-75% of its compressor requirement from China and manufacturers will need to hike prices to pass on the increase."

In case of indoor units, Indian manufacturers like Voltas, Blue Star, and Lloyd depend primarily on imports, while multinational companies (MNC) like Daikin, Hitachi make/source it within India.

Ankur Sharma and Amit Shah, Research Analysts at Motilal Oswal said, " We believe higher duty will be advantageous to MNC players till Indian players also start sourcing the same domestically. Indoor units constitute ~25% of the overall costs and the compressor another 25-30%; these together constitute ~50-55% of the cost an air-conditioner."

The duo added, "Overall, we expect an increase of ~4% in prices on account of the higher customs duty. Lastly, CBU imports comprise ~10-15% of industry volumes, and doubling of import duty implies that these players could lose share till they shift to domestic manufacturing/sourcing."

Lastly, the analysts said, "Over the next few years, we expect sourcing of indoor units to shift to India, in line with the intention of the government."

Basic customs duties have been raised on 19 products that accounted for an import bill of approximately Rs 86,000 crore in FY18 by 2.5-10% points.