The Indian room air-conditioner (RAC) industry is poised for unprecedented growth, with year-on-year sales volumes expected to grow by 20-25 per cent to reach record highs of 12-12.5 million units in the financial year 2024-25, according to a study conducted by ICRA.

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The sales are expected to grow by 10-12 per cent in the 2025-26 fiscal, it said. Factors such as rising temperatures, increasing demand for multiple RAC units per household, growing urbanisation, higher disposable incomes and favourable consumer financing options are expected to drive this growth over the next few years, the credit rating agency said in a report.

"The domestic RAC industry surpassed the pre-COVID peak levels in sales volumes in financial year 2023-2024, aided by changing climatic conditions and favourable consumer trends," Srikumar Krishnamurthy, senior vice president and co-group head, Corporate Ratings, ICRA, said.

He said that the number of average heatwave days per year has been steadily increasing over the last three decades. The recently concluded summer season saw robust year-on-year volume growth of 40-50 per cent for most original equipment manufacturers (OEMs).ICRA, however, projected moderation to about 10-12 per cent in financial year 2025-26.

"On the supply side, the domestic household RAC capacity is anticipated to increase by over 40 per cent over the next three years. The key OEMs and contract manufacturers have been adding RAC capacities rapidly to support the growing demand in the domestic market," Krishnamurthy said.

The report also highlights the impact of the government's production-linked incentive (PLI) scheme for components manufacturing in the consumer durable industry.

It said that this initiative has been instrumental in increasing localisation levels in the Indian RAC industry. ICRA's sample set of three key listed RAC brands reported a year-on-year increase of approximately 53 per cent in revenues in the first quarter of the current financial year, attributed to strong demand conditions during the peak season.

The agency expects a healthy year-on-year increase of about 25 per cent in revenues for this fiscal for the same set, compared to about 17 per cent in the previous financial year.

Despite intense competition and volatility in input costs, the industry's operating profit margin (OPM) is expected to see gradual expansion, benefiting from operating leverage, it added.