India Room Air Conditioners: Lloyd Electric

Capital Goods: Sector Update | 7 November 2016

India Room Air Conditioners

Please refer our detailed

report dated April 2016

Lloyd Electric

Channel checks indicate strong volume growth and market share gains

We recently interacted with distributors/dealers of Lloyd Electric & Engineering

(LEE) to understand growth trajectory of the Indian air conditioning market, as

well as to cognize factors that have led to LEE’s strong growth in recent years, with

its market share increasing to 13-14% in CY16 (<8% in CY13). Key takeaways from

our meeting are as follows:

Key drivers of strong market share gains: distribution, pricing, advertising,

dealer margins and a reliable product

LEE, one of the top four players in the industry, has witnessed strong growth over

past 2–3 years, with its market share increasing to 13-14% in CY16 (<8% in CY13).

Key drivers of this robust performance are:



Distributor network:

LEE has focused on growing its distributor network;

however, it has adopted a strategy of having only one exclusive

dealer/distributor per district to avoid competition among dealers/distributors.

This is unlike competitors, and has helped it convert dealers to store its

products.



Reliable brand/product:

Lloyd has laid strong emphasis on product quality,

which has helped it earn customer trust and faith.



Advertising:

Lloyd is a 60-year-old brand with strong recall in the commercial air

conditioning space. Over past three years, it has increased ad spends and also

taken share in the room air conditioning space. Ad spends were particularly

stepped up during cricket tournaments like IPL and T20 World Cup.



Pricing:

Lloyd is priced ~INR2,500-3,000/unit below Voltas. This has helped it

take share from Voltas over past two years.



Dealer margins:

LEE this year has offered additional incentives to

dealers/distributors of up to 8-10% on top of regular margins, which too has

helped it gain market share.

Aircon industry up 20-25% in CY16 YTD

Indian air conditioner industry growth has been 20-25% YoY in CY16 YTD, driven by:

a) cheaper financing options for customers, b) higher customer affordability, and c)

increased electrification and reliability of power across the country. LEE has a tie-up

with Bajaj Finance, under which 4% abatement is offered to Bajaj for aircons

financed by the company. LEE’s revenues have increased 50% YoY in CY16 YTD, led

by market share gains.

Dealer margins – highest in the industry

LEE offers regular 20-25% dealer margins on billing price. In CY16, it has offered

additional incentives of up to 8-10% on top of regular margins – the highest in the

industry, which has increased preference for the company’s products among

dealers. Extra discounts were offered under the Lloyd Diamond Celebration Offer

Ankur Sharma

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

Amit Shah

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

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8 August 2016

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