DAIKIN INDIA: Intends to double room AC capacity by FY18; targets 16-17% market share by FY20

DAIKIN INDIA

India a key focus market for Daikin

Intends to double room AC capacity by FY18; targets 16-17% market share by FY20

We visited Daikin India’s plant at Neemrana, Rajasthan, which manufactures room air

conditioners, variable refrigerant volume (VRV) units, packaged air conditioners and chillers.

Our key takeaways:

20 September 2016

The InSites

Daikin India’s

manufacturing

plant in Neemrana, Rajasthan is

spread over 40 acres of land and

is an integrated manufacturing

facility

for

room

air

conditioners,

packaged

air

conditioners,

chillers

and

variable refrigerant volume

Strong focus to maintain and improve product quality:

The Neemrana plant too

(VRV). The factory employs

imbibes Dakin’s global philosophy of “Safety and Quality First”. With multiple quality

1,500 people full-time.

Expansion underway to take room AC capacity to 1m by FY18:

Daikin India’s state-

of-the-art integrated facility at Neemrana, Rajasthan manufactures room air

conditioners (0.5m units/annum), VRVs (15,000 units/annum), chillers (500

units/annum) and packaged air conditioners. It has been set up with an initial

investment of INR10b. The second phase of expansion is underway to take room AC

capacity to 1m in FY18. This facility is part of Daikin’s 60 global manufacturing sites

and is among the most automated in the world.

tests for product performance, power consumption, etc, the plant has been working

on near-zero fault rates over the past few years. Quality assurance is being

The facility began production in

maintained via ASME certification for pressure vessels (chillers), ISO 9001 certification

FY09 and currently operates at

for processes, and AHRI certification for product performance.

near full capacity. The total

High localization to reduce production cost:

Conscious attempts have been made to

increase local sourcing and achieve higher localization across products. ~70% of the

components used for room ACs localized (exceptions: compressors and refrigerants).

This has enabled Daikin to reduce the price gap with the market leader from 50% in

2009 to 15% and it aims to further reduce the gap to 5% by FY20. The localization

content in case of VRVs stands at 40-50%. Daikin is the market leader in VRVs in India,

with 60% share and expects this market to grow in high double digits over the coming

years. In chillers, ~60% of the components are imported.

R&D center to develop and localize products for Indian market:

The India R&D

center was started in May 2016 with an investment of INR0.6b and with the aim to

develop and adapt air conditioners to Indian and state-specific requirements. The

four key objectives for the R&D center are (a) quality testing, (b) cost reduction by

localizing parts, developing vendors and benchmarking with peers, (c) differentiation

by using market feedback, and (d) improving efficiency in production.

Aims to be India’s number-1 air conditioning (HVAC) company by FY20:

Under its

‘Fusion 2020’ five-year plan, Daikin aims to replicate its global success in India and

become the number-1 air conditioning player in India. Key measures planned are: (a)

higher localization to reduce price gap with market leader, (b) more retail touch

points via

Daikin Solution Plazas

and independent retailers, (c) higher ad spends to

increase awareness for the brand and educate, and (d) improve service quality by

increasing the number of service centers (310 currently).

Ankur Sharma

(Ankur.vsharma@MotilalOswal.com); +91 22 3982 5449

Amit Shah

(Amit.Shah@MotilalOswal.com) +91 22 3029 5126

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

investment in this facility has

been at INR10b in the first

phase. Another INR5b-6b is

being invested to: (a) double

capacity of the room air

conditioner plant to 1m units by

FY18, and (b) set up R&D Center,

which has become operational

from May 2016.

By FY20, Daikin India aims to

take its room AC capacity to

1.2m units and targets to be

India’s number-1 player, with

18% market share. Its market

share stood at 12-13% in FY16.

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