Thematic | April 2017
Room air conditioners
Focus shifting to inverters
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 3982 5449
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Room air conditioners: Focus shifts to inverters
Contents
Summary: Focus shifts to inverters ....................................................................................... 3
Room air conditioners .......................................................................................................... 4
Room aircon industry shifts to inverters ............................................................................. 13
High competitive intensity .................................................................................................. 17
Summer strategies of AC manufacturers............................................................................. 21
Takeaways from ACREX 2017: Asia’s largest exhibition for ACs, HVAC, refrigeration and
energy efficiency ................................................................................................................. 26
Marketing campaigns – focussed on inverters .................................................................... 29
Companies
.......................................................................................................................... 37
Blue Star: On a strong footing ............................................................................................. 38
Voltas: Market share and margins near peak ...................................................................... 49
24 April 2017
2

Room air conditioners: Focus shifts to inverters
Room Air Conditioners
Focus shifts to inverters
Inverters estimated to be 30% of volumes in FY18 and 50% in FY20
Valuation snapshot
FY18
P/E (x)
EV/EBIDTA (x)
EV/Sa l es (x)
RoE (%)
RoCE (%)
28
25
2
17
16
33
20
1
25
20
25
22
2
17
16
FY19
23
15
1
31
27
Voltas Bluestar Voltas Bluestar
Room air conditioners
Focus shifts to inverters
Please click here for Video Link
Expect industry volume CAGR of 15% over FY17-20:
We estimate Indian room
air conditioner (AC) volumes to grow from 4.7m units in FY17 to 7.2m in FY20,
implying a 15% CAGR. This growth is expected to be driven by rising penetration
of ACs (4-5% currently v/s 30% global average), higher disposable income,
growing urbanization and the year-round AC usage trend. In our view, ACs could
be one of the largest discretionary items in India over next few years.
Shift toward inverter ACs accelerates – to be 50% of industry by FY20:
Over
past few years, demand has been continually shifting toward energy-efficient
ACs (5-star/inverter), which contributes ~30-35% of overall industry volumes.
According to the Bureau of Energy Efficiency (BEE), all ACs that operate on
invertor technology will have to be compulsorily rated from 2018. Consequently,
the rating for fixed and variable compressors will be merged. The split AC
market is expected to transition to inverter technology over next few years, with
inverter ACs projected to account for 30% of the market by FY18 and 50% by
2020. LG’s recent move to completely shift to split inverters will accelerate the
industry transition, in our view.
Higher commodity prices may impact margins – price hikes needed:
Star
ratings, which are normally revised every two years, have not been changed
since January 2014. Therefore, manufacturers have not resorted to any price
hikes. Also, given LG’s aggressive pricing strategy, none of the manufacturers
have increased prices of late to stay competitive. However, we believe cost
pressures stemming from a sharp rise in raw material prices would force
companies to hike prices going forward, likely post GST roll out in July, 2017.
Competition
remains intense; brand, distribution, service center network and
dealer margins as key differentiators:
Our discussion with the channel partners
indicates that brand, distribution channel (>50–55% of AC sales now in Tier 2 to
Tier 4 cities), service center network and dealer support/margins are the key
success factors in the AC industry. Competition has increased with players like
Daikin, LG, Panasonic, Lloyd Electric and Blue Star eyeing a larger market share.
Valuation and risks:
Our preference lies with Blue Star (Initiate coverage with a
Neutral, TP: INR680, 25x FY19 UCP segment EPS in line with 10 year average
which we value at INR580 and INR100 for remaining business) over Voltas
(Downgrade to Sell, TP: INR370, 25x FY19 UCP segment EPS vs. 10 year average
of 21x which we value at INR310 and INR60 for remaining business). While
Voltas is the market leader in the room AC segment, its share and margins are
under threat from players like Daikin, Blue Star, Lloyd Electric and Panasonic.
Moreover, we see increasing risks from: a) Industry convergence to inverters
where Voltas has weak share b) Inventory destocking prior to GST
implementation in July, ‘17 and new ratings for ACs in Jan,’18. The run up in
stock prices over the past two months factor in the positives of a hot summer
while ignoring the aforementioned risks to growth and margins.
3
24 April 2017

Room air conditioners: Focus shifts to inverters
Room air conditioners
Focus shifts to inverter ACs – to be at 50% of sales by FY20 (10-12% in FY16)
In our view, the Indian room AC industry is at an inflection point and poised to register
a CAGR of 15% to 7.2m units in FY20. After being strong in FY17, AC sales are expected
to maintain momentum in FY18, despite demonetization-driven weakness. We
forecast volumes to increase ~20% in FY17 and ~15% in FY18.
The shift to inverter ACs is expected to accelerate with a change in the BEE rating
norms from Jan’18. We estimate inverter ACs to account f or 50% of industry volumes
by FY20. LG’s move to completely shift to split inverters will fasten the industry
transition, in our view.
In India, AC penetration remains at a dismal 4-5%. Nevertheless, this provides
significant room for growth. More importantly, given the improving macroeconomic
conditions, ACs are now considered as a necessary rather than a luxury item, with
many houses even installing multiple ACs. In our view, ACs could be one of the largest
discretionary budget items in India over next few years
From 4.7m units in FY17, India’s AC sales are expected to rise to 7.2m units by
FY20, implying a 15% CAGR. Key drivers for room AC sales over coming years
are:
India significantly lags other countries in terms of AC penetration levels. Thus,
progress on this front could drive sales significantly.
Given the improving macroeconomic conditions, ACs are now considered as a
necessary rather than a luxury item, with many houses even installing multiple
ACs.
AC was previously considered as a seasonal product (used mostly during
summer months). However, manufacturers have now started offering heating/
cooling options so that it can be used throughout the year.
Increasing range of energy-efficient ACs, which addresses the Indian consumers’
concerns about high electricity bills.
Exhibit 1: India remains under penetrated vis-à-vis other countries
Country
Taiwan
US
Korea
China
Thailand
Indonesia
India
Penetration (%)
90%
87%
70%
53%
30%
8%
4-5%
Source: Industry, Blue Star, MOSL
24 April 2017
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Room air conditioners: Focus shifts to inverters
Exhibit 2: Consumer durables penetration across categories
Description
Fans
Water Heaters
Mixer - Grinder
TV
Fridge
Air Cooler
Microwave
Washing machine
Air Conditioner
Penetration (%)
80%
10%
35%
77%
33%
8-10%
5%
13%
3-4%
Source: Industry
We take the example of the US to highlight penetration growth of ACs within
households. As seen in the chart below, AC penetration started to pick up from
1950s – it then jumped to 15% in 1960 and to 50% by 1975. In contrast,
penetration in China grew from 8% in 1995 to 70% in 2004, implying that
penetration rates are increasing much faster versus earlier years. We highlight
that India’s PPP per capital GDP at USD6, 000 is similar to that of the US in
1960s.
According to the Indian Weather Data Handbook, 2014, the weather profile of
54 major cities shows that 65% of the total numbers of hours in a year have a
temperature above 24 degrees. This, supported by rising income levels, has
been the key driver of increasing demand for ACs. In our view, ACs could be one
of the largest discretionary budget items in India over next few years.
Exhibit 3: Consumer durables penetration growth in the US over time
Source: Industry, Motilal Oswal Research
24 April 2017
5

Room air conditioners: Focus shifts to inverters
CY17 outlook – IMD expects ‘above normal summer season’
According to the Indian Meteorological Department (IMD), CY16 recorded
significantly above normal temperature during summers (mean of +1.4 degree
above normal temp). This led to strong AC sales in the year. For CY17, it expects
mean temperature to be above normal (>1 degree higher) in the north, north-
west and plains. Also, most of the south, central and west India regions are
expected to have 0.5-1 degree above normal temperature.
Notably, above-normal heat waves (+5% degree over max temp) are likely to be
witness in north, north-west, east, Madhya Pradesh and Andhra Pradesh.
Overall, summer in CY17 is likely to witness above-normal temperature, but
should be less severe than last year, as per the IMD forecast.
For FY18, we forecast industry growth to decelerate to 15%. As the BEE’s star
ratings remain unchanged, we do not expect any price hikes on this account. On
the other hand, with a sharp rise in commodity prices, the cost of ACs is likely to
increase during the year, subject to INR movement (nearly 50-60% of the parts
of a split AC are imported, and manufactures usually offset the impact of
currency depreciation by passing on price hikes to end-consumers).
CY17 off to a good start; March end witnessed a spike in volumes:
The summer
season typically starts from March in the south and April in the north – AC
demand picks up during these months The entire country witnessed a relatively
warm February, but the temperature was higher in West India, with cities like
Mumbai seeing a 15-20% jump in AC sales.. However, the first three weeks of
March were a dampener for AC sales, with hail/snow storms leading to a dip in
temperatures across north, west and east India. However, a spike in
temperatures in the last week of March has led to a strong revival in volumes.
We note that March 2016 had witnessed record temperatures, driving a spike in
demand for AC sales and subsequently inventory stock-out for dealers in April
2016.
Although industry players have majorly relied on the summer months (50-60%
of total sales), sustained high temperatures following the monsoon (October-
December) in recent years have created a new window for AC sales. As a result,
ACs demand is for almost 7–8 months in a year, compared to 4–5 months
previously.
Exhibit 4: Room AC volumes (FY05–20e) and growth (% YoY)
Volumes(Rs mn)
20%
20%
22%
7%
-14%
25%
31%
3%
Industry gr. (% )
23%
-5%
20%
15%
12%
15%
15%
15%
1.1
FY05
1.3
FY06
1.5
FY07
1.9
FY08
2.0
FY09
2.5
FY10
3.3
FY11
2.9
FY12
2.7
FY13
2.8
FY14
3.5
FY15
3.9
FY16
4.7
FY17
5.4
FY18
6.2
FY19
7.2
FY20
Source: MOSL, Industry
24 April 2017
6

Room air conditioners: Focus shifts to inverters
Market share of key players in room AC segment:
Based on various media
articles, company interactions and reports, we have derived market shares of
players in the room AC segment. According to GfK Nielsen’s multi-brand outlet
survey, Voltas ranked first with a share of ~21% as of 3QFY17.
Market share (%)
22
16
13
12
13
13
8
6
Source: Media reports, Industry, Channel checks, MOSL
Exhibit 5: Market share in the room AC market
Name of company
Voltas
LG
Lloyd Electric
Blue Star
Daikin
Hitachi
Samsung
Others
Exhibit 6: Break-up of room AC market share (by player)
Others, 6
Samsung, 8
Blue Star, 12
LG, 16
Hitachi, 11
Voltas, 22
Lloyd Electric, 13
Daikin, 13
Source: Industry, MOSL, Channel checks
Exhibit 7: Brand hierarchy in the Indian room AC market
•O General
•Mitsubishi Electric
•Carrier
•Daikin
•Toshiba
•Hitachi
•Voltas
•Blue Star
•LG
•Whirlpool
•Panasonic
•Lloyd Electric
Premium
Popular
Economy
•Videocon
•Electrolux
•Micromax
•Haier
Source: Dealer feedback, Industry, MOSL
24 April 2017
7

Room air conditioners: Focus shifts to inverters
The 3-star-rated ACs account for 60% of overall AC sales in India. According to the
Bureau of Energy Efficiency (BEE), all ACs that operate on invertor technology will
have to be compulsorily rated from 2018 (with the same set of fixed-speed
norms). Thus, the rating for fixed and variable compressors will be merged.
Accordingly, a 4- or 5-star-rated AC will be considered as inverter AC, while the
rating of the current 5-star product will be changed to 3-star. Also, the fixed speed
AC market would transition to inverter technology over next few years. Given
their expected price fall, energy-efficient inverter ACs may eat into the market
share of the 5-star fixed-speed ACs. Consequently, inverter ACs should command
a market share of 30-35% by FY18 and 50% by 2020 (Source: Blue Star).
Exhibit 9: Breakup of AC sales by star ratings (CY17e)
1/2 Star 5 Star fixed,
5%
fixed, 6%
Inverter,
30%
Exhibit 8: Break-up of ACs by star ratings (CY16)
1/2 Star
fixed, 6%
5 Star fixed,
22%
Inverter,
12%
3 Star fixed,
60%
Source: Industry, MOSL
3 Star fixed,
60%
Source: MOSL estimates
Exhibit 10: Inverter sales for key AC manufacturers v/s industry
Description
Industry
Daikin
Blue Star
Hitachi
Lloyd Electric
Voltas
% of total sales
10%
32–35%
15%
40%
<5%
5–7%
Source: MOSL, Media reports, Company
Historically, the Japanese (Daikin, Mitsubishi, Sharp and Hitachi) brands have
dominated the Indian inverter AC market. With LG switching over completely to
split inverters in CY17, it has resorted to aggressive pricing (down ~20% YoY
driven by economies of scale and local manufacturing) to increase its share in
this segment. Our interaction with a large north- and west-based dealer suggest
that LG accounted for ~40-50% of overall inverter AC sales in February 2017
(constituted ~30% of overall sales v/s 10-15% in CY16).
Our channel checks also indicate Voltas’ share would be <10% in the inverter
category – it has been a non-focus area for the company by now. On the other
hand, Blue Star has one of the widest ranges of inverter ACs in the country, and
it aims to gain a stronger foothold in this segment. The company derives ~13–
15% of revenues from this category.
By region, north India continues to remain the largest market (38–40% of total
sales), followed by south India (30%). A key trait of the north Indian market is
the preference for window ACs. Split ACs are largely in demand elsewhere in the
country. However, since the northern region is the largest market, companies
have continued manufacturing window ACs to cater to this demand.
8
24 April 2017

Room air conditioners: Focus shifts to inverters
Exhibit 11: Voltas – Region-wise sales break-up (% of total)
West
20%
North
43%
Exhibit 12: Daikin – Region-wise sales break-up (% of total)
West
28%
North
40%
East
10%
East
12%
South
25%
Source: Company, MOSL
South
22%
Source: Company, MOSL
We observed that Samsung and LG exited the window AC market in 2012 as the
share of split ACs increased to ~75% of total sales and the price gap between
split and window ACs reduced considerably. However, LG has now re-introduced
select window AC models. For Voltas, window ACs comprise 24-25% of sales,
compared to overall industry window AC sales of 15–16%. This is because Voltas
is a leader in the northern market where demand for window ACs continues to
remain high. Also, the window AC market size has been relatively stable, with
many buyers shifting from air coolers to ACs for the first time (especially in tier 2
and 3 cities).
Exhibit 13: India room ACs – split ACs continue to gain share
Window
Split
78%
82%
84%
86%
87%
88%
22%
FY13
18%
FY14
16%
FY15
14%
FY16
13%
FY17
12%
FY18
Source: Industry, MOSL
Distribution reach is the key differentiator in the Indian AC market. This has
become all the more important since ~50-55% of overall industry volumes are
outside metros/tier 1 cities. In our view, Voltas has been able to command a
leadership position mainly because it has managed to increase its pan-India
touch points to more than 13,000, from 6,500 in FY14.
24 April 2017
9

Room air conditioners: Focus shifts to inverters
Exhibit 14: Dealer touch points across the industry
Company Name
Voltas
Blue Star
Daikin
Videocon
Hitachi
Lloyd Electric
Symphony
Micromax
Carrier Midea
FY17
~13,000
3,800
4,000
7,000
4,000
>10000
23,400
4,000
3,200
Source: Company, Industry
Dealer margins.
Voltas, LG and Lloyd Electric are very dealer-oriented and offer
high margins, while Samsung and Blue Star are not equally so. Voltas provides
35% margins to some of the bigger dealers and 28% to smaller dealers, while LG
offers 28-30%. Blue Star, a relatively newcomer to the industry having entered
the retail market only in CY11, provides lesser margins of 25-26%. O General and
Mitsubishi Electric offer the lowest margins of 18-20%.
Exhibit 15: Dealer margins offered by various AC manufacturers
Name of company
Voltas
LG/ Lloyd Electric
Blue Star/Samsung
Daikin/Hitachi
Mitsubishi
O General
Margin offered
+++++++
++++++
+++++
++++
+++
+++
Source: Industry, MOSL, **higher denotes better margins
Branding and ad spends:
Brand name and trust are the other key differentiators
in the AC industry. For example, Voltas, through its highly successful ‘Murthy
campaign’ (launched in 2012), has strengthened its relationship with the Indian
customers over past four years. The advertisement was also used to highlight
the company’s ‘all-weather air conditioners’ with both heating and cooling
functionality. In CY17, Voltas has bought back ‘Mr Murthy’ in its new TVCs that
focus on its ‘All Star’ inverter range of ACs. Blue Star has also used the ‘Nobody
cools better’, ‘Get office like cooling at home’ and ‘Daddy Cool’ advertising
campaigns to build a strong connect with the Indian customers. Companies
typically spend 1-7% of their sales on advertising. Typically, with the onset of the
summer season, AC manufacturers step up their advertising spends to capture
customer mindshare. For details of marketing campaigns being run by various
manufacturers in the 2017 summer season, please refer to the section
‘Marketing campaign being run for the 2017 summer’ at the end of the report.
24 April 2017
10

Room air conditioners: Focus shifts to inverters
Exhibit 16: Ad spends by AC manufacturers
Name of company
LG
Hitachi
Blue Star
Samsung
Voltas
Whirlpool
Lloyd Electric
Daikin
INR m
500
1,147
350
300
500
608
500
750
% of UCP sales
NA
7.4%
1.8%
NA
2.0%
1.7%
2.7%
3.0%
Source: Company, ** FY16 advertising spend
R&D spending.
Most AC manufacturers in India follow the ‘Outsource and
Assembly’ model with low spending on R&D. Compressors are mostly sourced
from China/Thailand and condensers from local vendors, with the complete AC
being assembled at the AC manufacturer’s factory. Typical, R&D spends are in
the range of 0.2%-2% of sales. Daikin has been among the front runners in terms
of R&D spending and has built its first R&D facility at an investment of INR0.6b
in Rajasthan. The center is fully operational from July 2016 and would facilitate
customization of ACs for climatic conditions in India and other SAARC countries.
Exhibit 17: R&D spending by company
Name of company
Voltas
Blue Star
Hitachi Home and Life
Whirlpool
Daikin
Symphony
FY16
44
498
61
276
NA
19
% of total
0.2%
3.2%
0.4%
0.8%
2.5%
0.5%
Source: Company. MOSL
Typically, February and March of each year see the launch of new models by AC
manufacturers to cater to summer season demand. This year too has been no
different. Key features highlighted this year by AC manufacturers:
Wifi-enabled ACs which allow users to control the machine using a smartphone.
Additionally, smartphones can be used to monitor power usage and
consumption. Both Lloyd and Blue Star are highlighting the Wifi features of their
ACs.
Increased focus on power saving and thus higher range/models of inverter ACs,
with each brand trying to highlight the energy-saving potential.
Air purifiers as a result of increasing concerns about polluted air within cities.
R410A refrigerant gas being used in ACs as an alternative to the ozone-
damaging R22 gas. The R22 gas has to be phased out by 2030, but the industry
intends to completely switch to R410 by FY20 itself. Most inverter models across
companies are using R410 refrigerant gas.
Dehumidifiers for controlling humidity, especially during monsoon, so as to offer
better comfort.
24 April 2017
11

Room air conditioners: Focus shifts to inverters
Exhibit 18: Key marketing campaigns being run by AC manufacturers
Name of company
Voltas
Tagline
‘All Star Inverter' air
conditioners with all-
weather comfort
Key features offered
In CY17, Voltas has continued with its "All Star" AC campaign launched in 2016, but has
got back Mr Murthy in its TVCs. It focuses on the AC’s significant power savings,
environment-friendly and super-silent operations, advanced air purifier, and ambient
cooling at high temperature. Its ‘All Weather Smart ACs’ can be operated by a phone
using Wifi/GPRS – senses outside temperature and adapts to the weather and keeps a
tab on power usage and consumption
Within split AC, LG has completely switched to inverters. LG inverter ACs offer 30% faster
cooling, 66% energy savings, super quiet operation (19db), and 99% sterilized air and
stabilizer-free operations with 10-year warranty on the inverter compressor and 5-year
warranty on the condenser. LG's ACs also offer ‘Mosquito Away’ technology, ‘Himalayan
Cool’ technology for faster cooling, ‘Monsoon Comfort’ for controlling humidity and ‘Hot
& Cold’ AC for all-weather usage
LG
Power savings
every day
Hitachi
‘iCare’ ACs with
‘iClean’, ‘iSense’ and
‘iSee’ technology
Hitachi's inverter ACs offer iClean Plus technology, which automatically cleans the dust in
the air filter; iSense which regulates the temperature as per the person's active body
movements; iSee which detects faces of people and directs air flow to everyone; Wifi
technology to control AC from anywhere; R410 green refrigerant which is eco-friendly
Lloyd has launched Wifi-enabled ACs with 10-year warranty on compressors and 5-year
warranty on condensers. This enables the user to control the AC through the use of a
smartphone. Wifi feature is available across inverter, 5-star and 3-star range of ACs. It
has signed on Mr Amitabh Bachhan as the brand ambassador for its CY17 marketing
campaign. With Havells acquiring the brand, we expect an increased focus on margins
and working capital
The ‘Aryabot’ range of ACs can identify a user’s GPS location, switch off the AC when one
leaves the house and switch it on before one enters the premises. It comes with a
dedicated USB slot for a webcam, which can stream live video on the smartphone. One
can also keep a tab of power consumption and, through its budgeting feature, can set
limits on electricity consumption. Other features: voice command to control the remote;
sleep graph mode to set desired temperature levels for each hour of the night; sense the
outside temperature and automatically adjust to set temperature inside
Daikin has launched AC’s with air purifiers which run on ‘Streamer Technology” – these
air purifiers helps eliminate bacteria, airborne particles, allergens, pollen and unpleasant
odors. ACs offer 64% more power savings (Good for Savings), 15.3% more comfort (Good
for Comfort), 75% less CO2 emission (Good for Environment) and Swing Inverter
Technology (Good for living). Its ACs also have dehumidifiers, streamer discharge air
purifier, intelligent eye (adjusts cooling to human presence), smartphone connectivity
for ACs, stabilizer-free operation and all-season ACs for heating/cooling
Blue Star has launched inverter aircon with Wifi, which can be used from any remote
location within network range, can work at high temperatures up to 50 degrees and
within a voltage range of 160-270V without stabilizer; 30% power saving v/s 5-star split
ACs; purifiers for eliminating odors, dust, bacteria and other pollutants
The NXW is among the most energy-efficient inverter ACs in the country with an Indian
Seasonal Energy Efficiency ratio (ISEER) of 5.8. It is adaptable to Indian climatic
conditions and delivers high efficiency with a 10-year compressor warranty, 5-year on
condenser and with free standard installation
Samsung has launched a new S inverter AC range in the affordable luxury segment. This
series is engineered to consume less power and produce exceptional cooling comfort.
Samsung's digital inverter compressor offers power savings; stabilizer-free operation;
virus doctor and easy filter to eliminate dust; multi-jet plus technology for better cooling
efficiency; tropicalized compressor for cooling till 52 degrees; turbo cooling; good sleep
for regulating temperature throughout the night; and full HD filter and dry cool for
comfort even in humid conditions
Source: Industry, MOSL
Lloyd
‘Khushiyon ki
Guarantee’
Videocon
‘Aryabot’ range
Daikin
‘Fill the air with
Goodness’
Blue Star
‘Nobody cools
better’
Godrej Appliances
Next World
AC(NXW)
Samsung
Digital inverter ACs
24 April 2017
12

Room air conditioners: Focus shifts to inverters
Room aircon industry shifts to inverters
Inverter ACs to account for 30% of industry volumes in FY18E and 50% in FY20E
The room AC industry is shifting toward energy-efficient models (i.e. 5-
star/inverter ACs) over past few years, as customers are increasingly becoming
aware of lifetime costs of ACs vis-à-vis upfront costs.
To promote energy-efficiency, the BEE initiated star labeling in 2007 for fixed-
speed ACs, where the compressor cuts off or cuts in when the desired
temperature has been achieved or the room temperature increases. This
program was conducted in 2006, involving key stakeholders such as consumer
organizations and manufacturers of ACs/components. January
2007 became a voluntary year for AC star ratings. It was made mandatory
from January 2010 for 1-star to 5-star ACs. The ratings were upgraded in January
2012 and January 2014. Also, the first energy efficiency ratio (EER) came into
force in 2015.
Inverters ACs are to be voluntarily labeled from January 2016. These ACs are
considered to be more efficient than fixed-speed ACs. Apart from power
savings, the key unique sales proposition of an inverter AC is that the set
temperature is precise, delivering comfort. As inverter ACs have variable
compressors, they have different standards compared to fixed-speed
compressor ACs.
According to the BEE, all ACs that operate on invertor technology will have to be
compulsorily rated from 2018. Thus, the ratings for fixed and variable
compressors will be merged. Accordingly, a 4- or 5-star-rated AC will be
considered as inverter AC, while the rating of the current 5-star product will be
changed to 3-star. The split AC market is expected to transition to inverter
technology over next few years, with inverter ACs projected to account for 30%
of the market by FY18 and 50% by 2020.
Since June 2015, the BEE has introduced the ISEER ratio for inverter ACs. ISEER is
defined as the ratio of total amount of heat that an AC can eliminate to total
energy consumed to remove this heat. The minimum ISEER is 4.5 for a 5-star-
rated inverter AC and 3.5 for a 3-star-rated inverter AC (equivalent to a 5-star
fixed-speed AC).
Currently, inverter ACs account for 12-15% of the overall market, while 5-star-
rated ACs account for 22%. However, 3-star rated ACs are the largest
contributors to the market.
Exhibit 20: India AC volume break-up (by rating CY17E)
1/2 Star 5 Star fixed,
5%
fixed, 6%
5 Star fixed,
22%
Inverter,
12%
Exhibit 19: India AC volume break-up (by rating CY16)
1/2 Star
fixed, 6%
Inverter,
30%
3 Star fixed,
60%
Source: MOSL, Industry
24 April 2017
3 Star fixed,
60%
Source: MOSL, Industry
13

Room air conditioners: Focus shifts to inverters
Exhibit 21: India region-wise AC sales
East India,
12
North India,
38
Exhibit 22: AC volume break-up (by tonnage)
>2 ton, 8
<1 ton, 2
1 ton, 20
West India,
20
South India,
30
Source: Industry
1.5ton, 70
Source: Industry
Exhibit 23: AC tonnage and cooling area
Tonnage
1 ton
1.5 ton
2 ton
Appropriate area
120–140sq ft
150–180sq ft
180–240sq ft
Source: MOSL, Industry
According to Blue Star, inverters ACs are likely to account for 30% of overall
industry by FY18 and 50% by FY20. This is expected to be driven by increasing
consumer preference for energy-efficient products and convergence of star
ratings from CY18.
Energy Efficiency Ratios (Watt)
Minimum
Maximum
2.5
2.69
2.7
2.89
2.9
3.09
3.1
3.29
3.3
Source: BEE; one-star rated ACs cannot be sold from January 1, 2016
Exhibit 24: Star rating for window ACs (valid from 1 January 2016)
Description
Star Level
1 Star *
2 Star **
3 Star **
4 Star ****
5 Star *****
Exhibit 25: Star rating for split ACs (from 1 January 2016)
Description
Star Level
1 Star *
2 Star **
3 Star **
4 Star ****
5 Star *****
Energy Efficiency Ratios (Watt)
Minimum
Maximum
2.7
2.89
2.9
3.09
3.1
3.29
3.3
3.49
3.5
Source: BEE; one-star rated ACs cannot be sold from January 1, 2016
Exhibit 26: Inverter ACs – Indian Seasonal Energy Efficiency ratio(ISEER)
Description
Star Level
1 Star *
2 Star **
3 Star **
4 Star ****
5 Star *****
Energy Efficiency Ratios (Watt)
Minimum
Maximum
3.1
3.29
3.3
3.49
3.5
3.99
4.0
4.49
4.5
Source: BEE; one-star rated ACs cannot be sold from January 1, 2016
24 April 2017
14

Room air conditioners: Focus shifts to inverters
The BEE has introduced a new star rating methodology – Indian Seasonal Energy
Efficiency Ratio (ISEER) – for ACs. This evolved rating methodology factors in
variance in higher temperature in India and rates ACs accordingly. The ISEER
measures energy efficiency of ACs based on weighted average of the
performance at outside temperatures between 24 and 43 degree (based on
Indian weather data).
As per Indian Weather Data Handbook, 2014, the weather profile of 54 major
cities shows that 65% of the total numbers of hours in a year have a
temperature above 24 degrees. Air conditioners in India have hitherto been
tested under the IS 1391 code at standard operating conditions (outside
temperature of 35 degrees). Star rating is given to manufacturers based on the
test results.
Ratings based on the ISEER have been introduced on a voluntary basis for
variable speed (inverter) ACs since June 2015. However, ratings of variable
speed and fixed-speed ACs are proposed to be merged from January 2018.
Shift to inverter AC gains traction – LG has the first-mover advantage
Historically, within the inverter AC segment, Japanese players like Daikin,
Mitsubishi Electric and Hitachi have an edge over Indian peers as they have
introduced these models earlier in the Indian market and have access to
technology from the parent company.
LG recently exited the fixed-speed AC segment globally. Similarly, it shifted its
entire split-AC range to inverters while still continuing with fixed-speed ACs in
the window AC segment.
LG is targeting 30% AC sales growth to 0.9m units in CY17, entirely driven by
inverter ACs. It has priced its 1 and 1.5 ton 3-star inverter ACs quite aggressively
at INR31,000 and INR35,000, respectively. This compares very favorably to fixed-
speed ACs, where the 1 ton 3-star AC costs ~INR28000-30,000, the 1.5 ton 3-star
AC is priced at INR34000-35,000 and the 1.5 ton 5-star AC costs INR37,000-
40,000 (see table below)
LG inverter ACs also come with a 10-year warranty on the compressor, 5-year
warranty on the condenser, two free gas recharges over five years of purchase,
1-year warranty on inverter chip, stabilizer-free operation (can work in a wide
range of voltage fluctuation) and subsidized installation at INR499.
Voltas /Blue Star
INR28000-30,000
INR34000-35,000
INR37,000-40,000
INR36,000-38,000
INR42,000-44,000 (copper)
LG
-
-
-
INR31,000
INR35000 (alloy)/ 37,0000(copper)
Exhibit 27: LG’s inverter AC prices v/s fixed-speed ACs of Voltas and Blue Star
Description
3 star fixed, 1.0 ton
3 star fixed, 1.5 ton
5 star fixed, 1.5 ton
3 star inverter, 1.0 ton
3 star inverter, 1.5 ton
Source: BEE; one-star rated ACs cannot be sold from January 1, 2016
Prices of inverter ACs of LG are ~INR7,000-8,000/unit cheaper than those of
peers (which are priced at INR42,000-44,000/unit for the 1.5 ton 3-star inverter
AC models and INR36,000-38,000 for the 1 ton 3-star inverter AC models); it is
also offering subsidized installation at INR499 v/s INR1,500 standard installation.
15
24 April 2017

Room air conditioners: Focus shifts to inverters
LG has been able to price its products aggressively due to benefits from localized
manufacturing at its two plants in Pune/Greater Noida and higher volumes.
Consequently, the price differential between fixed and inverter models has
come down to ~10% (INR2,000-30,000) v/s as much as 20-25% earlier
(INR7,000-8,000).
In our view, LG will completely shift from 1.5 ton 5-star fixed-speed ACs to
inverter ACs. We note that although inverter ACs are slightly expensive, they
offer much more power consumption and cooling benefits.
In our view, inverter ACs will do well in metros and large cities/towns where
power is reliable. The investor AC segment is not expected to do that well in
smaller cities/towns where power fluctuations can affect inverter/PCB chips
which cost INR5,000-7,000.
In the near term, Voltas will likely take share from LG as the latter has vacated
the fixed-speed AC space, wherein products are ~10% cheaper than inverter ACs
in the 1/1.5 ton range (Voltas’ fixed-speed 1 ton 3-star AC at INR26,000-28,000
v/s LG’s 1 ton, 3-star inverter AC at INR31,000; and Voltas’ 1.5 ton 3-star fixed-
speed AC at INR34,000-35,000 v/s LG’s 1.5 ton 3-star inverter AC at INR37,000).
As India is a very price-conscious market, consumers may prefer to go with a
fixed-speed AC, rather than spending additional 10% on an inverter AC.
Voltas may not see meaningful gains even with LG’s complete exit from
fixed-speed ACs
The street is of the view that with LG exiting the fixed-speed AC space, Voltas
may see significant market share gains. In our view, this may not be completely
correct, and overall gains may be limited to ~1% of the market (see table
below).This, in turn, would add ~3-4% to sales in FY18.
We have made three key assumptions: (1) share of inverter ACs grows to 30% in
CY17 v/s ~12% in CY16, (2) LG takes a 50% share in the inverter AC market and
(3) Voltas takes a 30% share in the fixed-speed aircon space (~23% share in
CY16, +7% YoY and 50% of the 12% share vacated by LG with the balance taken
by Lloyd Electric, Daikin, etc.)
Exhibit 28: Voltas may not see a significant market share gain even with LG vacating the fixed-speed AC segment
Industry sales in CY16
Window
Split - Fixed
Split - Inverter
LG market share CY16
Window(25% share by LG)
Split (Fixed - 16% share)
Split (Inverter - 5% share)
Total
Voltas market share CY16
Window(30% share of Voltas)
Split (Fixed - 23% share)
Split (Inverter - 5% share )
Total
100 %
15%
73%
12%
% of total market
4%
12%
1%
16%
% of total market
5%
Industry sales in CY17
Window - Fixed
Split - Fixed
Split - Inverter
LG market share CY17
Window – Fixed
Split – Fixed
Split - Inverter(50% share)
Total
Voltas market share CY17
Window – Fixed
Split - Fixed (30% - Assume Voltas
17%
takes share with LG's exit)
1% Split - Inverter(5% share)
22% Total
100 %
15%
55%
30%
% of total market
4%
0%
15%
19%
% of total market
5%
17%
2%
23%
Source: MOSL, Industry
24 April 2017
16

Room air conditioners: Focus shifts to inverters
High competitive intensity
Brand, distribution, service center network and dealer margins are key
We interacted with the some of the largest dealers and channel partners with a pan-
India presence to understand the key summer trends in the AC industry. Key
takeaways:
CY17 off to a good start; March sees a spike at the month end:
The summer
season typically starts from March in the south and April in the north – AC
demand picks up during these months The entire country witnessed a relatively
warm February, but the temperature was higher in West India, with cities like
Mumbai seeing a 15-20% jump in AC sales.. However, the first three weeks of
March were a dampener for AC sales, with hail/snow storms leading to a dip in
temperatures across north, west and east India. However, a spike in
temperatures in the last week of March has led to a strong revival in volumes.
We note that March 2016 had witnessed record temperatures, driving a spike in
demand for AC sales and subsequently inventory stock-out for dealers in April
2016.
Dealer margins:
Voltas, LG and Lloyd Electric are very dealer-oriented and
provide high margins, while Samsung and Blue Star are not equally so. Voltas
provides 35% margins to some of the bigger dealers and 28% to smaller dealers,
while LG offers 28-30%. Blue Star, a relatively newcomer to the industry having
entered the retail market only in CY11, provides lesser margins of 25-26%. O
General and Mitsubishi Electric offer the lowest margins of 18-20%.
Exhibit 29: Dealer margins offered by various AC manufacturers
Name of company
Voltas
LG / Lloyd Electric
Blue Star/Samsung
Daikin/Hitachi
Mitsubishi
O General
Margin offered
+++++++
++++++
+++++
++++
+++
+++
Source: Industry, MOSL, **higher denotes better margins
Inverter ACs to account for 30% of sales in CY17/FY18 and 50% in CY20:
Inverter ACs accounts for ~30% of overall AC sales during Jan-Feb, ‘17, and given
the upcoming summer season, this share could increase to 30-35%. Around 50%
of inverter AC sales come from LG and the balance from Whirlpool and
Panasonic. Voltas is not selling inverter ACs yet. Sales of inverter ACs are largely
restricted to metros/tier 1 cities, given their premium pricing (10-15% higher
compared to a 3-star AC with same tonnage). Moreover, the converter chip
(converts AC to DC power) is at a high risk of failure due to voltage fluctuations.
Each chip costs ~INR5,000-7,000, and can prove to be a sizeable cost for end-
customers. To avoid chip failure, inverter ACs need to have in-built stabilizers –
LG already has this in its ACs.
24 April 2017
17

Room air conditioners: Focus shifts to inverters
Exhibit 30: Inverter AC sales for key manufacturers vs. the industry
Description
Industry
Daikin
Blue Star
Lloyd Electric
Voltas
% of total
12-15%
32–35%
15%
<5%
5–7%
Source: MOSL, Company
Shift from 5-star fixed-speed to inverter; Voltas to gain share.
In the near term,
Voltas will likely take share from LG as the latter has vacated the fixed-speed AC
space, wherein products are ~10% cheaper than inverter ACs in the 1/1.5 ton
range (Voltas’ fixed-speed 1 ton 3-star AC at INR26,000-28,000 v/s LG’s 1 ton, 3-
star inverter AC at INR31,000; and Voltas’ 1.5 ton 3-star fixed-speed AC at
INR34,000-35,000 v/s LG’s 1.5 ton 3-star inverter AC at INR37,000). In our view,
LG will completely shift from 1.5 ton 5-star fixed-speed ACs to inverter ACs. We
note that although the inverter ACs are slightly expensive, they offer much more
power consumption and cooling benefits.
AC prices retained at 2016 level:
With no change in the BEE star ratings in CY17,
most manufacturers have maintained last year’s prices for ACs. However, with a
sharp rise in commodity costs, there may be a need to increase prices or else
margins would come under pressure. With aggressive pricing being offered by
LG, other players are unable to raise prices of their fixed-speed ACs, as this
would reduce the price gap with inverter ACs.
Sale promotions via exchange offers, discounts and free installations to
continue:
To promote sales during the upcoming summer season, brands are
offering exchange schemes, free installation and discounts. Typical discounts
being offered are in the range of 10-15% of MRP. For premium brands like
Mitsubishi, Hitachi, O General and Daikin, the discounts are in the range of 8-
12%, while in case of Voltas and LG, the discounts are in the 12-15% range.
Companies are also offering comprehensive 5-year warranty on ACs. In the case
of inverter ACs, companies are offering 10-year warranty on the compressor and
5-year warranty on the condenser.
Intensifying competition:
In terms of competition, our channel checks indicate
that Daikin, Lloyd Electric, Panasonic and LG are striving to increase their market
share/volumes. In fact, Panasonic had offered large dealer margins and
witnessed considerable growth in 2012, but it could not sustain this trend. We
believe Daikin and Hitachi are trying to enter the popular category, which
accounts for ~60% of volumes from the erstwhile premium category.
24 April 2017
18

Room air conditioners: Focus shifts to inverters
Exhibit 31: Sales growth for key industry players over FY10-16
Company sales
Voltas
Blue Star
Hitachi
LG
Lloyd Electric
Daikin India
YoY Growth (%)
Voltas
Blue Star
Hitachi
LG
Lloyd Electric
Daikin India
Average
29%
-3%
37%
31%
31%
35%
18%
-1%
18%
4%
19%
3%
17%
10%
-14%
34%
10%
12%
11%
19%
6%
263%
14%
47%
22%
24%
42%
15%
282%
11%
59%
2%
19%
6%
13%
44%
37%
18%
FY10
11,871
5,830
6,527
15,068
-
FY11
15,608
7,884
7,687
-
6,974
FY12
15,388
9,326
7,990
11,802
808
11,962
FY13
18,356
9,652
9,316
12,959
694
16,037
FY14
20,524
10,755
11,055
13,696
2,520
18,204
FY15
25,105
13,317
15,728
15,750
9,618
20,129
FY16
25,565
15,794
16,595
17,736
13,842
27,500
5 year CAGR
(FY12-16)
11%
11%
16%
8%
77%
18%
24%
27%
72%
18%
Source: Company, MOSL
Voltas, Blue Star, LG, Daikin and Panasonic
are the most popular brands for
dealers. O General, Carrier and Hitachi are considered as the premium brands –
higher prices for these brands could be partly ascribed to the use of 100%
copper condensers.
Exhibit 32: Brand hierarchy in the Indian room AC market
•O General
•Mitsubishi Electric
•Carrier
•Daikin
•Toshiba
•Hitachi
•Voltas
•Blue Star
•LG
•Whirlpool
•Panasonic
•Lloyd Electric
Premium
Popular
Economy
•Videocon
•Electrolux
•Haier
•Micromax
Source: Dealer feedback, Industry, MOSL
24 April 2017
19

Room air conditioners: Focus shifts to inverters
Voltas is expected to retain its leadership position in the industry, led by its
persistent efforts to enhance brand name, distribution reach and dealer
support. Voltas’ focused advertising and brand-building exercise, along with the
TATA brand, helped it earn customer trust. With more than 13,000 touch points,
Voltas’ distribution network and dealer margins are well ahead of competitors.
Blue Star primarily focuses on product quality. It offers 27-28% margins to
dealers, and has been fairly consistent over the years on its product pricing and
margins.
Panasonic resorted to aggressive strategies in 2012 in quest for more market
share. The company achieved the target by reducing prices and offering
significant discounts, but was unable to sustain at lower price points. Thereafter,
prices had to be normalized, which resulted in a market share loss. Panasonic
has resurfaced in 2016, with dealer margins raised to 27–28%. The company is
providing exclusive models to dealers to ensure no price undercutting, and has
launched a fresh marketing campaign to regain its lost share in the industry.
FY17
200
400
41
100+
194
175
485
400
100
Source: Company, MOSL
Exhibit 33: Service centers by company
Name of company
Voltas
Blue Star
Hitachi Home and Life
Daikin
LG
Carrier
Lloyds Electric
Micromax
Panasonic
24 April 2017
20

Room air conditioners: Focus shifts to inverters
Summer strategies of AC manufacturers
In FY18, competition is likely to intensify for market share among AC manufacturers.
Based on media articles/channel checks/company feedback, we highlight the key
strategies adopted by various players with the early onset of summer.
Blue Star – impressive line-up of AC models; market share target at 13%
Blue Star continues to grow ~30% in the current financial year, faster than
industry growth. The company estimates its market share at 11.5% and the
target is to reach 12.5% in FY18 with the newly launched line-up of ACs.
Blue Star has set a new standard through its latest line-up of over 135 room AC
models, 40 of which operate on the new inverter technology. The stellar array
ranges in tonnage from 0.7TR to 4.5TR across the 2-star, 3-star and 5-star
models, as well as 3-star and 5-star inverter models. For markets which face
harsh winters, there is also a complete line-up of inverter split ACs, which cool in
summers and heat in winters. 8 of the 19 models of 5-star inverter split ACs are
equipped with a ‘smart’ Wi-Fi feature, which enables users to operate the
machine from any place.
The entire series of star-rated inverter split ACs is equipped to function
smoothly within a voltage range of 160-270V, without the aid of an external
voltage stabilizer.
The company intends to increase its R&D investment to INR0.33b in FY18, as
against INR0.3b in FY17, on new product development and research & design
initiatives.
With regard to distribution, in 2017, Blue Star’s room ACs will be available at
4,000 outlets in 500 locations across the country (via exclusive as well as multi-
brand sales outlets, service dealers, retail showrooms and modern trade).
Presently, Blue Star has 85 exclusive product stores in the country, which it
plans to increase to 100 by end-FY17.
Around 52% of Blue Star’s room AC sales are derived from smaller towns since
consumers in these markets are aspirational and prefer premium brands.
The company has plans to spend ~INR0.45b in the forthcoming summer season
(as against INR0.4b in FY17) toward TV commercials as well as ads in mainline
dailies, cinema and hoardings.
The differentiated value proposition
‘Nobody cools better’
has resonated well
with the residential audience.
Voltas (~21% share) continued to lead the room AC industry in 9MFY17, aided
by its robust dealer network, strong brand name (trust in the TATA brand) and
focused advertising.
The company has continued with its ‘All Star Ratings’ AC range in 2017 based on
the unique ‘two stage steady cool’ compressor, which operates on a two-stage
inverter technology providing power savings across weather conditions. This
cutting-edge technology leads to significant power savings vis-à-vis an ordinary
compressor. In addition, the All Star ACs are environment-friendly and efficient,
with super silent operation (noise levels as low as 18 decibels), high ambient
cooling (efficient in temperatures as high as 54 degree celsius) and an advanced
air purifier. The company is offering this unique range with a 5-year warranty.
21
Voltas – targeting 15-20% growth this summer season
24 April 2017

Room air conditioners: Focus shifts to inverters
Voltas has also continued with its range of advanced ‘All Weather Smart ACs’ by
integrating three smart features: 1) Smart Access: Wi-Fi enabled ACs can be
operated from anywhere and anytime through a smartphone using local Wi-Fi
or GPRS connection; 2) Smart Sense: The AC senses outside weather conditions
and adapts to the changing environment without any manual intervention; and
3) Smart Analytics: It keeps a tab on the energy usage and consumption trends.
In addition, the company has revamped its Smart AC mobile app.
2017 has started with scorching summers, with temperatures already crossing
35 degrees across north and west India. AC sales have begun early this year, and
a good summer season is expected driven by above-normal temperatures.
CY16 had a very high base for Voltas, with March sales +45% YoY and April +80%
YoY, but still expect to grow 15-20% YoY in FY18 (we build in 20% growth in
FY18).
Commodity prices are up 20-25% over past few quarters, and competitive
intensity remains high. The company is expected to maintain margins at same
level as last year.
The company is eyeing 30% sales growth this year in this segment. It has started
manufacturing its dual-inverter AC series, which it unveiled recently, at its plants
at Greater Noida and Pune.
LG was the first brand to move completely to inverter split-AC manufacturing in
the country – it has been working on this strategy since late last year.
The products are priced in the range of INR36,000-54,000; it has launched 45
models under the new dual-inverter AC series.
Previously, the price gap between a regular and an inverter AC was as high as
25-30%. LG has leveraged on economies of scale and local production to bring
down this gap significantly.
The company sold ~7.5 lakh units of ACs in 2016. This year, it is aiming to sell ~9
lakh units.
LG believes the overall pie of inverter ACs will expand exponentially this year. It
has a market share of ~22% and aims to increase it to 28% in 2017.
The price of LG inverter AC is less than the regular 5-star AC of any brand and
marginally higher than the 3-star AC.
LG India – looking for 30% growth in CY17
Daikin India – target to expand reach and market share; doubling capacity
at Neemrana to 1.2m units
The company is not reacting to LG’s aggressive inverter pricing, and has
maintained prices for its fixed-speed/inverter ACs. Once the expansion at
Neemrana is completed, Daikin would look to aggressively take share in the
CY18 summer season.
Under the leadership of the current MD, Mr K. Jawa, Daikin plans to double
sales to 1m units in 4–5 years, with the commissioning of a second plant.
Globally, the company ranks first in ACs and targets to achieve the same
position in India by 2020.
Over past few years Daikin ACs were generally perceived as expensive.
Nevertheless, the company reduced the prices with effect from CY15. Daikin’s
aim is to sell at the right price, and use the right technology and the right
product range to capture the market, including semi-urban areas.
22
24 April 2017

Room air conditioners: Focus shifts to inverters
The company’s plant in Neemrana was set up at a cost of INR11b and produces
0.5m ACs, 6,000 ductable and 18,000 chiller units. Daikin intends to set up a
second plant at an investment of INR6b. The new facility, which will have
manufacturing capacity of 1.2m units per year, is scheduled to commence
operations in September 2017.
Daikin has built its first R&D facility at an investment of INR0.6b – it is presumed
to be the foremost in the country by an AC manufacturer. The center became
operational in 2016.
The company has tied up with the Delhi Daredevils IPL team to enhance brand
image and reach.
In 2016, Daikin had launched its marketing campaign under the tag “Fill the air
with goodness”. The campaign reiterates the company’s commitment to provide
state-of-the-art technology, which offers comfort, savings and is environment
friendly. It has continued with this campaign in CY17 as well.
Launched a ‘Sky Series’ with radiant cooling technology. Built-in air purifiers will
be provided in most ACs at no extra cost. ACs with radiant cooling technology
(aim is to cool the room by removing the heat from ceilings and walls) will be
priced at INR70,000 and INR85,000 for 1 and 1.5 ton, respectively
In FY17, Panasonic sales grew 20% to INR15b; it targets FY18 growth of 30-35%
and aims to take a 10% share in the market.
The company launched a new range of ACs with in-built air purification system
to tap demand spurred by rising air pollution. The latest series focuses on three
areas – comfort, health and beauty – and has been launched with a view to tap
the niche consumer segment.
‘Life Conditioner’, range of ACs enhances consumer experience by providing
pre-requisite cooling features and using latest Japanese technology. The range is
reported to offer 65% energy saving, 99% purer air and 35% faster cooling.
Panasonic ‘Life Conditioners’ are equipped with Nanoe-G & PM 2.5 Air
Purification, which eliminates airborne particles. Econavi inverter technology
monitors the product’s operations, while iAUTO X delivers faster cooling.
The company launched a top-end AC with radiant cooling system, and is looking
at 30-35% growth in sales in FY18.
Godrej Appliances has rolled out an energy-efficient AC under its premium NXW
brand, which was used for super premium refrigerators until date. The company
aims to capture a 20% share across the 5-star and inverter AC segments in CY17.
The company highlighted that it is the most energy-efficient inverter AC in the
country with an ISEER of 5.2. Since June 2015, BEE has introduced ISEER for
inverter ACs. ISEER refers to the ratio of the total amount of heat that an AC can
eliminate to total energy consumed to remove the heat. The minimum ISEER for
a 5-star-rated inverter AC is 4.5.
Godrej’s inverter AC is expected to be among the top 5-star-rated inverter ACs,
with 31% savings over a 5-star fixed-speed AC. It is adaptable to Indian climatic
conditions and delivers high efficiency. The NXW range would be available in
3440W and 5000W, and the company is offering a 5-year condenser warranty
and a 10-year compressor warranty.
23
Panasonic – ‘A better life, a better world’ – aims for 30-35% growth in FY18
Godrej Appliances – Eyeing 20% share in inverter/5-star AC segment
24 April 2017

Room air conditioners: Focus shifts to inverters
The 5-star category is growing at 40%, and accounts for 22% share of the
INR100b industry. Inverter ACs, on the other hand, account for 8% of the
market. Godrej has a 10% share in the AC market.
Godrej is launching 28 new models. It has doubled its ad spend to INR150m. ACs
contribute 24% of the company sales, with the share expected to increase to 35-
36% in two years.
Samsung – inverter range launched in affordable luxury segment
Samsung has launched a new S inverter AC range in the affordable luxury
segment. This series is engineered to consume less power and produce
exceptional cooling comfort.
The company official said that since the digital inverter range is equipped with
an 8-pole motor, it ensures faster cooling performance of up to 43% and
consumes lesser energy compared to conventional ACs.
The S-Inverter digital inverter technology-based ACs are priced in the range of
INR35,900 to INR66,600.
Videocon – targets 13% share and to increase presence in Tier 2/3 cities
Videocon is aiming to corner up to 13% of the AC market this year, mainly by
increased penetration in tier II/III cities and B2B sales.
The company, which recently introduced India's first green AC powered by solar
energy, is looking to achieve sales of ~6.5lakh units and turnover of ~INR17.5b
this year.
Videocon would also expand its distribution network to 13,500 points of sales
(from 9,000 currently), mainly targeting its core tier II/III markets. The firm's
current market share stands at ~10%.
Videocon, which had introduced app-controlled smart ACs under Aryabot brand
in CY16, has received good response from customers. Last year, the group sold
around 4 lakh ACs, of which ~9,000 were Aryabot smart ACs.
24 April 2017
24

Room air conditioners: Focus shifts to inverters
Exhibit 34: Key marketing campaigns being run by AC manufacturers
Name of company
Voltas
Tagline
‘All Star Inverter' air
conditioners with all-
weather comfort
Key features offered
In CY17, Voltas has continued with its "All Star" AC campaign launched in 2016, but has
got back Mr Murthy in its TVCs. It focuses on the AC’s significant power savings,
environment-friendly and super-silent operations, advanced air purifier, and ambient
cooling at high temperature. Its ‘All Weather Smart ACs’ can be operated by a phone
using Wifi/GPRS – senses outside temperature and adapts to the weather and keeps a
tab on power usage and consumption
LG
Power savings
every day
Within split AC, LG has completely switched to inverters. LG inverter ACs offer 30% faster
cooling, 66% energy savings, super quiet operation (19db), and 99% sterilized air and
stabilizer-free operations with 10-year warranty on the inverter compressor and 5-year
warranty on the condenser. LG's ACs also offer ‘Mosquito Away’ technology, ‘Himalayan
Cool’ technology for faster cooling, ‘Monsoon Comfort’ for controlling humidity and ‘Hot
& Cold’ AC for all-weather usage
Hitachi's inverter ACs offer iClean Plus technology, which automatically cleans the dust in
the air filter; iSense which regulates the temperature as per the person's active body
movements; iSee which detects faces of people and directs air flow to everyone; Wifi
technology to control AC from anywhere; R410 green refrigerant which is eco-friendly
Lloyd has launched Wifi-enabled ACs with 10-year warranty on compressors and 5-year
warranty on condensers. This enables the user to control the AC through the use of a
smartphone. Wifi feature is available across inverter, 5-star and 3-star range of ACs. It
has signed on Mr Amitabh Bachhan as the brand ambassador for its CY17 marketing
campaign. With Havells acquiring the brand, we expect an increased focus on margins
and working capital
The ‘Aryabot’ range of ACs can identify a user’s GPS location, switch off the AC when one
leaves the house and switch it on before one enters the premises. It comes with a
dedicated USB slot for a webcam, which can stream live video on the smartphone. One
can also keep a tab of power consumption and, through its budgeting feature, can set
limits on electricity consumption. Other features: voice command to control the remote;
sleep graph mode to set desired temperature levels for each hour of the night; sense the
outside temperature and automatically adjust to set temperature inside
Daikin ACs offer 64% more power savings (Good for Savings), 15.3% more comfort (Good
for Comfort), 75% less CO2 emission (Good for Environment) and Swing Inverter
Technology (Good for living). Its ACs also have dehumidifiers, streamer discharge air
purifier, intelligent eye (adjusts cooling to human presence), smartphone connectivity
for ACs, stabilizer-free operation and all-season ACs for heating/cooling
Blue Star has launched inverter aircon with Wifi, which can be used from any remote
location within network range, can work at high temperatures up to 50 degrees and
within a voltage range of 160-270V without stabilizer; 30% power saving v/s 5-star split
ACs; purifiers for eliminating odors, dust, bacteria and other pollutants
The NXW is among the most energy-efficient inverter ACs in the country with an Indian
Seasonal Energy Efficiency ratio (ISEER) of 5.8. It is adaptable to Indian climatic
conditions and delivers high efficiency with a 10-year compressor warranty, 5-year on
condenser and with free standard installation
Samsung has launched a new S inverter AC range in the affordable luxury segment. This
series is engineered to consume less power and produce exceptional cooling comfort.
Samsung's digital inverter compressor offers power savings; stabilizer-free operation;
virus doctor and easy filter to eliminate dust; multi-jet plus technology for better cooling
efficiency; tropicalized compressor for cooling till 52 degrees; turbo cooling; good sleep
for regulating temperature throughout the night; and full HD filter and dry cool for
comfort even in humid conditions
Source: Industry, MOSL
Hitachi
‘iCare’ ACs with
‘iClean’, ‘iSense’ and
‘iSee’ technology
‘Khushiyon ki
Guarantee’
Lloyd
Videocon
‘Aryabot’ range
Daikin
‘Fill the air with
Goodness’
Blue Star
‘Nobody cools
better’
Godrej Appliances
Next World
AC(NXW)
Samsung
Digital inverter ACs
24 April 2017
25

Room air conditioners: Focus shifts to inverters
Takeaways from ACREX 2017: Asia’s largest exhibition
for ACs, HVAC, refrigeration and energy efficiency
Industry growth at 15% YoY in CY17; LG inverter pricing predatory
We visited ACREX, Asia’s largest exhibition for ACs, HVAC, refrigeration and energy
efficiency, where we met the leading AC manufacturers in the country. Key
takeaways:
AC manufacturers expect the industry to grow 15-20% YoY in CY17, following a
strong FY17, where sales are expected to have grown by 20% YoY.
March-June (summer months) account for 50–55% of industry annual AC sales.
The CY17 summer season is likely to be good for AC manufacturers. The
assumption is supported by the IMD’s forecast of 1 degree higher than normal
temperature across central and north India. Furthermore, west India is already
seeing a spike in temperature. We also note that CY16 had seen record-high
temperatures across the country, leading to stock-out at dealers in March-April.
Demonetization led to inventory in the channel being higher than normal;
however, strong sales in February have led to inventory getting cleared out.
As BEE star ratings remain unchanged, AC manufacturers do not expect any
price increases in CY17. However, rising commodity prices imply price hikes
would need to be taken to offset cost pressures.
Consumers have increasingly opted for energy-efficient products; 5-star and
inverter AC sales constitute 30% of the market and are growing in high-double-
digits.
LG's shift to inverter split ACs is driven by its parent's global strategy to exit the
fixed-speed AC space. However, in India, LG would continue manufacturing
window ACs, which account for ~10-15% of its sales.
LG's aggressive pricing for inverter ACs – 1.5 ton 3-star inverter AC priced at
INR35,000 (alloy condenser) and INR37,000 (copper condenser) – has forced
peers to lower their inverter AC prices.
Inverter ACs account for 10-12% of industry volumes, and the share is expected
to increase to ~25-30% in CY17 – the shift to inverter ACs is expected to
accelerate post CY18.
With LG exiting the fixed-speed AC space, it may lose some market share in the
near term. Pricing for inverter ACs is 10-15% higher than comparable fixed-
speed models. Voltas thus may take some share over the near term, but LG
stands to benefit from a 3-5 year perspective, in our view.
5-star fixed-speed ACs segment (20% of industry) is likely to be worst hit by LG's
aggressive pricing in inverter ACs, given the similar price levels in both these
segments.
Competitive intensity remains high, with the established players in the premium
category (Daikin and Hitachi) seeking to enhance presence in the popular
category (50–60% market share). Also, players like GREE, Midea, Lloyd Electric
and Videocon are looking to increase their share in the popular segment.
Key differentiators in the AC market are brand name, distribution network and
dealer margins. Reduction in pricing alone would not lead to sustainable market
share gains.
26
24 April 2017

Room air conditioners: Focus shifts to inverters
Company-wise key takeaways from ACREX, 2017
Blue Star
The company expects industry growth of 20% in FY18. Blue Star’s sales are
projected to accelerate by 25% YoY, driven by new model launches, improved
distribution network and focused advertising.
The company has been relatively weak in north India. However, over past 1-2
years, the focus has been to improve market share in this geography by adding
new dealers and focused advertising.
Launch of LG's inverter ACs has led to peers lowering the prices of their inverter
ACs.
LG may lose some market share in CY17, as cost-conscious Indian buyers may
prefer a fixed-speed AC model available at <INR35,000, rather than paying
INR35,000-37,000 for a 1.5 ton inverter AC. However, the industry is expected to
gradually shift to inverter ACs from CY18.
CY17 is expected to be a good year for AC sales – the company recently
launched new models and would soon come up with a marketing campaign. The
company aims to increase its market share to 12.5%.
Voltas, LG and Carrier have lost market share over the past year, while Blue Star
and Lloyd have gained some share.
Hitachi India
The transition to inverters for the industry will likely be gradual. CY17 is
expected to record inverter volumes of 25-30% v/s 10-15% in CY16. The shift
could fasten in CY18 with convergence of star ratings.
LG may lose share in fixed-speed compressors to Voltas in the near term as this
space (still likely to draw cost-conscious buyers) has been completely vacated by
former. However, LG stands to benefit over the medium term.
Hitachi has an 11% volume market share in the 4.5m AC industry. The company
currently ranks third in the industry after Voltas and LG. Daikin and Lloyd Electric
rank lower in terms of volumes.
Hitachi has voluntarily rated all its inverter AC models for BEE star labeling; it is
now focusing on energy efficiency for boosting sales.
LG’s pricing for invertor ACs is very aggressive, and some customer segments
would prefer invertor ACs over 5-star fixed-speed ACs, given the cost-efficiency
benefits of the former with reducing price differential between the two
segments. Hitachi 1.5 ton 3-star inverter AC costs INR40,500, while 1.5 ton 3-
star fixed-speed AC is priced at INR34,500.
Hitachi has been targeting the popular segment, and has AC models across the
premium, popular and entry-level categories.
Competition is intense, with Daikin, Midea, GREE and Lloyd Electric aggressively
targeting the market.
Comparison Hitachi and LG’s ACs: 1) LG inverters work till 106% of capacity and
Hitachi’s at 120%; b) Hitachi has copper condenser, while LG has alloy
condenser; c) Hitachi’s compressor is tropical rotary, while LG’s is only rotary;
and d) LG uses R22 gas, while Hitachi uses R410A gas.
24 April 2017
27

Room air conditioners: Focus shifts to inverters
LG India
In 2016, the company launched the dual-inverter technology AC, which is
considered to be more efficient than the inverter AC (across 1, 1.5 and 2 tons).
Apart from power savings, it also delivers 30% faster cooling.
In terms of market share, the company undertakes significant amount of B2B
sales to residential developers. This has not been captured in the Gsk Neilson
data, which is only for multi-brand outlets.
Daikin India
The real estate sector continues to remain weak, which is impacting demand for
HVAC products both on the residential and commercial side.
The company is content with LG's move to shift to inverter ACs, as this will raise
awareness of the product, increase the share of inverters and lead to a faster
transition of the industry to inverters. Daikin is among the market leaders
globally in inverter AC space.
LG’s inverter pricing has led to peers lowering prices for their inverter models.
However, note that the INR35,000 inverter AC model has alloy condensers,
while the copper condenser model is priced at INR37,000 (~10-15% cheaper
than comparable peers).
Daikin is not reducing its prices at the moment for inverter models – it will do
this in CY18 with the convergence of star ratings for ACs.
Daikin aims to start its second facility to double capacity to 1m units by
September 2017. Sales seen at INR35b in FY17 v/s INR28b in FY16. Target to be
the market leader by FY20.
Demonetization has hurt demand, and inventory in channel is higher than
normal – the company will wait to see upcoming summer season and the impact
on prices.
Not affected by the Havells’ acquisition of Lloyd as the latter caters to the mass
market where Daikin is not present.
Lloyd Electric
Key factors for market share gains: a) Good team in place, b) strong marketing
campaign of "Khushiyon ki Guarantee" (has roped in Amitabh Bachhan in the
campaign), c) strong focus on after-sales via Lloyd app; has the highest number
of service centers across the country, d) second-highest touch points (~10,000
dealers), e) lower pricing than competitors, with 1.5 ton 3-star priced at
INR28,000 v/s Voltas’ similar product pricing at INR31,000. Lloyd is the number
three player after Voltas and LG.
After Voltas, Lloyd provides the highest dealer margin, which incentivizes
dealers to stock and sell Lloyd’s products.
24 April 2017
28

Room air conditioners: Focus shifts to inverters
Marketing campaigns – focussed on inverters
Aggressive marketing campaigns to gain market share
Exhibit 35: Voltas – betting on its “All Star” inverter range of aircon for CY17
Source: Industry
24 April 2017
29

Room air conditioners: Focus shifts to inverters
Exhibit 36: Lloyd Electric ad with the “Khushiyaan Barse” tag line
Source: Industry
24 April 2017
30

Room air conditioners: Focus shifts to inverters
Exhibit 37: Lloyd’s ‘Khushiyon Ki Guarantee’ ad campaign with Mr Amitabh Bacchan
24 April 2017
31

Room air conditioners: Focus shifts to inverters
Exhibit 38: Godrej NXW range – advertising its claim of being India’s most power-efficient
aircon
Source: Industry
Exhibit 39: Mitsubishi Electric – focusing on its inverter range
24 April 2017
32

Room air conditioners: Focus shifts to inverters
Exhibit 40: LG has completely exited fixed-speed ACs in CY17 – ad campaign highlights
benefits over peers’ fixed-speed ACs
Source: Industry
Exhibit 41: Videocon’s marketing campaign
Source: Industry
24 April 2017
33

Room air conditioners: Focus shifts to inverters
Exhibit 42: Carrier ad focusing on powerful cooling and after-sales
Source: Industry
24 April 2017
34

Room air conditioners: Focus shifts to inverters
Exhibit 43: Hitachi focusing on inverter ACs – its forte
Source: Industry
Exhibit 44: Onida – Artificial intelligence, advanced cooling
Source: Company, MOSL
24 April 2017
35

Room air conditioners: Focus shifts to inverters
Exhibit 45: Daikin – fill the air with happiness ad campaign
Exhibit 46: Panasonic – SKY Series ‘Life Conditioners’ using radiant cooling
24 April 2017
36

Room air conditioners: Focus shifts to inverters
Companies
BSE Sensex: 29,365
S&P CNX: 9,119
April 2017
24 April 2017
37

Room air conditioners: Focus shi
24 April 2017
Update
| Sector:
Engineering
Blue Star
Neutral
BSE SENSEX
29,365
S&P CNX
9,119
CMP: INR 686
TP: INR 680 (-1%)
On a strong footing
14% share in room aircon by FY19
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Plans to expand share in room ACs by focusing on northern region
BLSTR IN
95.3
724 / 408
10/22/51
67.7
1.0
24
-
Financials Snapshot (INR b)
Y/E MARCH
2017E 2018E 2019E
Net Sales
44.7
52.8
61.8
EBITDA (Rs b)
2.3
3.3
4.4
NP
1.3
1.9
2.8
EPS
14.1
20.3
29.5
EPS Gr (%)
7.1
43.8
45.4
BV/Share (Rs)
74.3
86.0 103.0
P/E (x)
48.6
33.8
23.2
P/BV (x)
9.2
8.0
6.7
RoE (%)
20.2
25.3
31.2
RoCE (%)
15.9
20.1
26.6
Shareholding pattern (%)
As On
Dec-16 Sep-16 Dec-15
Promoter
39.1
39.1
39.5
DII
19.7
19.7
20.1
FII
10.3
9.6
8.7
Others
30.9
31.5
31.7
FII Includes depository receipts
Stock Performance (1-year)
Blue Star (BLSTR) has guided to increase its share in the room AC market by 100bp
annually, reaching 14% by FY19 from 11.9% currently. The company intends to
achieve this by expanding its distribution network and focusing on the northern
market (accounts for ~38% of the country’s AC market), where its share is relatively
weak at the moment in comparison to the south and west markets. BLSTR plans to
set up new manufacturing facilities in Sri City. We believe that dealer network
expansion, new product lines (135 new models with star rating for inverter AC) and
new facilities to cater to demand from north and south would help the company to
surpass industry growth.
Capex revival to aid growth in projects business
Electro mechanical projects and packaged AC systems business (contributes ~51%
of total revenues for the company) has witnessed muted growth over past five
years due to a weak macroeconomic scenario, delayed order execution and the
company’s policy to focus on profitable growth. However, a revival in commercial
construction and urban infrastructure activity will help grow the electro mechanical
contracting business. The company is a leader in the domestic HVAC segment, with
every third commercial building in the country having a BLSTR-installed AC. Given
the healthy order book and the strong pipeline in metro rail, hospitals, hotels and
commercial real estate (specific pockets), we expect revenue growth of 12%. For
9MFY17, order inflow in the MEP segment remained strong for the company at
INR30.5b (+80% YoY). Margins are expected to remain in the 4-5% range.
Focus on exports to support growth
BLSTR intends to increase its revenue share from exports from 6% currently by
tapping new opportunities in AC&R products, MEP projects, after-sales service and
system integration and agency businesses. It plans to export these products to the
Middle East, Africa, SAARC and ASEAN countries. The Middle East Expo 2020, the
FIFA World Cup 2022, changes in rules & regulations in the GCC market in favor of
energy-efficient ACs and higher FDI limits in SAARC/ASEAN regions would be the
key drivers for the AC market.
Valuation and view
With a focus on increasing the dealer network, introducing new models and
strengthening the brand (via higher ad spend), BLSTR is well poised to increase
its share in the room AC business from 11.9% currently to 13.5% in FY18. We
initiate coverage on the stock with a
Neutral
rating and an SOTP-based target
price of INR680.
24 April 2017
38

Room air conditioners: Focus shifts to inverters
Room AC segment to grow ahead of the industry growth
Blue star has been focusing on increasing the market share in the Room AC
segment by expanding its distribution network and focusing on northern region
market. Blue Star (BLSTR) has guided to increase its share in the room AC
market by 100bp annually, reaching 14% by FY19 from 11.9% currently. The
company intends to achieve this by expanding its distribution network and
focusing on the northern market (accounts for ~38% of the country’s AC
market), where its share is relatively weak at the moment in comparison to the
south and west markets.
Exhibit 47: Focus to improve market share in the northern
region
12
20
38
North India
South India
West India
East India
30
3.5%
5.0%
6.0%
7.0%
Exhibit 48: Plans to increase market share by 100bps every
year going ahead
10.5%
12.0%
9.5%
Source: MOSL, Company
Source: MOSL, Company
UCP segment revenue to grow at 28% CAGR over FY16-19
We expect revenue to register 28% CAGR over FY16-19E, led by market share
gain, increase in distribution network and better penetration in the northern
market. We also expect Blue Star’s margin to revert back to 10.5% by FY19E
from 9% in FY17E. Margins are expected to remain under pressure in FY17 led
by higher ad spend in the air purifier segment where it has recently entered. As
the product garners acceptance and stabilizes over the next two years, we
expect the margins to revert back to 10.5% by FY19E
Exhibit 49: Revenue is expected to register 28% CAGR over
FY16-19E
Revenue (UCP) (INR m)
24%
12%
3%
9,326
9,652 10,768 13,317 15,797 21,368 26,710 33,388
901
875
804
948
1,468 1,651 1,923 2,537 3,506
Growth YoY (%)
35%
25%
25%
Exhibit 50: Margins are expected to revert back to 10.5% by
FY2-19E as new product category stabilizes
UCP (EBIT INR m)
11%
9%
8%
9%
11%
10%
EBIT Margin
9%
10%
11%
18%
19%
Source: MOSL, Company
Source: MOSL, Company
24 April 2017
39

Room air conditioners: Focus shifts to inverters
Ventures into allied segment to leverage brand equity/distribution network
To diversify business and leverage its brand equity/distribution network, BLSTR has
forayed into an allied business segment of air coolers and air purifiers.
Air purifiers:
It launched five models in the air purifier segment to tap the
nascent but rapidly growing INR7.5b air purifier industry. The air purifier
industry is expected to grow three-fold over next five years. Key players in the
Indian market catering to this segment are Sharp, Blueair, Philips and Eureka
Forbes
Air coolers:
In this category, BLSTR has introduced three models with a focus on
the northern and central market. The INR40b (8m units) air coolers market is
expected to double over next five years. This business is dominated by
unorganized players (70% of the market), while the organized segment is highly
concentrated with the top four players accounting for ~90% of revenue.
Symphony is a leader in this segment with a 50% share, followed by Videocon
Industries and Bajaj Electricals.
Water purifiers:
The company has also entered the water purifiers business – it
plans to initially focus on the residential segment and then gradually enter the
commercial space. BLSTR has formally launched 13 water purifier models, which
are priced in the range of INR15,000-45,000. The residential water purifier
market is valued at INR42b, and is growing at a 22% CAGR. Water purifier
business is highly service-intensive, and the company – given that it is India’s
largest AC&R service provider – would be able to leverage its service network in
the water purifier business. The focus in FY17-18 is on understanding customer
preferences, getting the right product and building distribution/service
infrastructure. Post 2017, the company will formulate a longer-term strategy.
Focus to strengthen distribution channels
BLSTR has 2,250 channel partners for room ACs, packaged air conditioning,
chillers, cold rooms and refrigeration products/systems. The company has also
expanded the retail distribution reach of ACs to 1,500 dealer point retailers and
distributors across the country. The focus of the company is to grow its
presence in the tier 2/3 markets by 20% YoY.
MEP segment covers the design, manufacturing, installation, commissioning and
maintenance of central air conditioning, plants, packaged/ducted systems and
variable refrigerant flow (VRF) systems.
Blue star is a market leader in the MEP segment category. Electro mechanical
projects and packaged AC systems business (contributes ~51% of total revenues
for the company) has witnessed muted growth over past five years due to a
weak macroeconomic scenario, delayed order execution and the company’s
policy to focus on profitable growth. However, a revival in commercial
construction and urban infrastructure activity will help grow the electro
mechanical contracting business.
Project segment dependent on capex revival activity in India
24 April 2017
40

Room air conditioners: Focus shifts to inverters
Exhibit 51: MEP industry witnessing de-growth led by
Central AC incl. packaged/ducted/VRF (INR b)
57
Growth YoY (%)
15
-9
30
-13
-9
-9
-13
Exhibit 52: Execution of projects in MEP segment witnesses
traction in FY16
42%
31%
34%
B Star (INR b)
31%
29%
23%
% share
36%
25%
28%
58
53
61
53
69
63
58
50
15.6
17.9
18.0
18.6
15.6
16.2
15.9
16.0
18.0
Source: MOSL, Company
Source: MOSL, Company
Revenue growth of 12% CAGR over FY16-19E
Given the healthy order book and the strong pipeline in metro rail, hospitals,
hotels and commercial real estate (specific pockets), we expect revenue growth
of 12%. For 9MFY17, order inflow in the MEP segment remained strong for the
company at INR30.5b (+80% YoY). Margins are expected to remain in the 4-5%
range.
Exhibit 54: Margins to remain at threshold level of 5% over
FY18-19E
9.2
Electro Mechanical Projects (INR m)
3.6
1,815 (982)
(5.9)
634
3.8
661
3.4
580
4.3
815
4.5
962
EBIT Margin
5.2
5.2
Exhibit 53: EMP segment to register 12% CAGR growth over
FY16-19E
Electro Mechanical Projects (INR m)
% change YoY
6.0
-15.4
-2.4
-1.7
10.1
14.0
12.4
9.4
1,249 1,366
Source: MOSL, Company
Source: MOSL, Company
Restructuring to focus on core business
Over past few years, the Blue Star group has undertaken various restructuring
initiatives with the intent to consolidate asset ownership and divest non-core
businesses. The company plans to focus on its core businesses of ACs,
commercial refrigeration, MEP contracting and after-sales service, as well as
make a foray into allied segments by leveraging brand equity and distribution
network. In FY16, Blue Star InfoTech (BSIL) sold its IT business for a
consideration of INR1.8b and retained its lease rental bearing commercial office
property. Post the transaction, the boards and shareholders approved a scheme
for merging BSIL and its residual subsidiary (Blue Star InfoTech Business
Intelligence and Analytics) with BLSTR to align group resources.
24 April 2017
41

Room air conditioners: Focus shifts to inverters
Valuation and View
With a focus on increasing the dealer network, introducing new models and
strengthening the brand (via higher ad spend), BLSTR is well poised to increase
its share in the room AC business from 11.9% currently to 13.5% in FY18. We
believe that Blue Star UCP division deserves to trade at around the same
multiples as Voltas (25x its FY19E EPS). We also believe given the market
leadership position in the electro mechanical business, Blue star deserves to
trade at a premium to Voltas (15x FY19E EPs).
In our view, management focus on expanding product portfolio, distribution
network and having presence in the inverter AC segment should help Blue Star
to improve its market share and enhance footprint in new product categories.
We believe given the clear-cut strategy laid out by management. We expect
Blue star to register earnings growth of 11% over FY16-19E. We initiate
coverage on the stock with a Neutral rating and value Blue star on an SOTP-
based target price of INR680.
Exhibit 55: SOTP Valuation
Description
Electro Mechanical Projects
Unitary Cooling Products
Professional Electronics
Total
FY19E EPS
4
23
2
Multiple
15
25
20
Value/Share
58
577
46
681
Source: MOSL, Company
24 April 2017
42

Room air conditioners: Focus shifts to inverters
SWOT Analysis
Renowned brand (top five in
the Room Ac segment)
Market leader in the electro
mechanical project segment
Strengths
Raw material price ( copper)
volatility might impact the
margins of the company
Projects business margins
highly volatile impacting the
consolidated performance of
the company
Weaknesses
Opportunities
Recovering construction
market in India and Middle
East
Low market penetration in
India’s AC industry implies
huge potential for growth
Increasing demand for ACs in
tier-2-3 cities and towns.
Threats
Increased competition from
Japanese brands in cooling
products
24 April 2017
43

Room air conditioners: Focus shifts to inverters
Bull & Bear case
Bull Case
Our bull case assumption has positive impact on sales and operating margins.
We assume higher growth in all segments over base case scenario.
We have assumed 21% revenue growth for FY16-FY19E and have assumed
operating margin expansion of 240bps over FY16-19 to 8.1% driven by operating
leverage.
This leads to EPS CAGR of 42% in FY19 to INR37.5 assuming the same target
multiple that we have taken for the base case, we get a bull case target price of
INR850 (upside of 27% to CMP) based on FY19 EPS instead of the base case
target price of INR680, upside of 2%.
Bear Case
Our bear case assumptions mainly have a negative impact on both sales growth
and operating margins for FY17E and FY18E.
We are assuming EBITDA margins to remain flattish over FY16-19E in the bear
case at 5.9% and sales growth of 13% CAGR over FY16-19E against 18% growth
in base case scenario.
In our bear case, we assume muted pick up in the consumption activity and
delay in pick up in capex cycle. This will lead to 15% in Adjusted PAT over FY16-
18E against 33% increase in base case scenario.
Exhibit 56: Scenario Analysis – Bull Case
INR m
Sales
Growth YoY (%)
EBIDTA
EBIDTA Margin (%)
Growth YoY (%)
PAT
PAT Margin (%)
PAT Growth 9%)
SoTP Target
FY16
37,980
19.4
2,149
5.7
28.5
1,185
3.1
23.9
FY17E
44,708
17.7
2,319
5.2
7.9
1,345
3.0
13.5
FY18E
54,962
22.9
3,920
7.1
69.0
2,400
4.4
78.4
FY19E
67,619
23.0
5,472
8.1
39.6
3,573
5.3
48.9
852
Exhibit 57: Scenario Analysis – Bear Case
INR m
Sales
Growth YoY (%)
EBIDTA
EBIDTA Margin (%)
Growth YoY (%)
PAT
PAT Margin (%)
PAT Growth 9%)
SoTP Target
FY16
37,980
19.4
2,149
5.7
28.5
1,185
3.1
23.9
FY17E
44,708
17.7
2,319
5.2
7.9
1,345
3.0
13.5
FY18E
50,106
12.1
2,646
5.3
14.1
1,470
2.9
9.3
FY19E
55,133
10.0
3,231
5.9
22.1
1,938
3.5
31.8
479
Source: Company, MOSL
Source: Company, MOSL
24 April 2017
44

Room air conditioners: Focus shifts to inverters
Story in charts
Exhibit 58: Room AC industry to grow at 15% CAGR over
FY17-19
Volumes(m)
20%20%22%
15%
7%
31%
25%
Industry gr. (% )
15%
15%15%
7
5
Exhibit 59: Blue Star has been able to increase its market
share over last few years
Room AC market share- Blue Star (%)
10
10.5
12
12.5
20%
12%
23%
2.9
-14%
3%
1.1 1.3 1.5 1.9 2.0 2.5 3.3
2.7-5% 3.5 3.9 4.7 5.4 6.2 7.2
2.8
Source: MOSL, Company
Source: MOSL, Company
Exhibit 60: Commercial complex, healthcare and metro had
driven EMP segment order book in FY15
Commercial
Others, 4%
Mall and Hotels, 3%
Multiplexes,
4%
Residentail,
8%
Mixed Use
development
Power and
Utility, 11%
Banks/
Offices, 11%
Integrated
commercial
complexes,
16%
Hospital and
healthcare,
15%
Exhibit 61: In FY16, order book was driven by metro,
industrial and bank segments
Hospital Others, 8%
and
healthcare,
8%
Commercial
Mall and
Multiplexes
, 8%
Power and
Utility, 11%
Banks/
Offices,
14%
Integrated
commercial
complexes
MRTS
(Metro
Rail), 22%
Industrial,
13%
MRTS (Metro
Rail), 15%
Source: MOSL, Company
Industrial,
18%
Source: MOSL, Company
Exhibit 62: UCP segment to deliver above-industry growth,
led by increase in distribution reach and focus on inverter
AC segment
Unitary Cooling Products (INR m)
30.3
23.7
18.3
3.5 11.6
18.6
% change YoY
Exhibit 63: Operating margins to be under pressure on
higher ad spends on water purifiers
Unitary Cooling Products (INR m)
11.4
11.0
9.4
8.3
8.8
10.5
8.1
7.5
8.2
EBIT Margin
25.0
20.0
Source: MOSL, Company
Source: MOSL, Company
24 April 2017
45

Room air conditioners: Focus shifts to inverters
Exhibit 64: Robust order book to ensure decent growth in
EMP segment revenue
Electro Mechanical Projects (INR m)
16.6
6.0
-2.4
-15.4
-1.7
10.1
9.8
9.4
% change YoY
Exhibit 65: Margins to remain stable given the company’s
focus on procuring better-margin orders in EMP segment
Electro Mechanical Projects (INR m)
9.2
3.6
3.8
3.4
4.3
4.5
5.2
5.2
EBIT Margin
(5.9)
Source: MOSL, Company
Source: MOSL, Company
Exhibit 66: Order inflow in EMP has improved given traction
from metro and industrial segments
Order inflow
41
27
10
(3)
(26)
(26)
10
10
Growth YoY (%)
Exhibit 67: Order book provides decent medium-term
revenue visibility for EMP segment
Order backlog
15
(2)
(26)
4
(4)
Growth YoY (%)
12
11
10
Source: MOSL, Company
Source: MOSL, Company
Exhibit 68: Free cash flow generation to remain consistent
Free cash flow (INR m)
2,700
1,096
-2,088
-500
607
3,851
1,399 1,338
1,906
Exhibit 69: Return ratios to improve
36.0
18.0
0.0
-18.0
-36.0
ROE (%)
RoCE (%)
Source: MOSL, Company
Source: MOSL, Company
24 April 2017
46

Room air conditioners: Focus shifts to inverters
Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
2012
28,204
-5.2
21,996
2,207
4,223
-222
-0.8
226
318
721
0
-1,034
11
-1.1
-1,046
-166.0
-1,051
-165.5
2012
180
3,773
3,953
0
3,670
-2
7,621
4,176
2,106
2,070
315
275
0
18,184
4,467
7,676
537
1,781
13,224
7,359
5,865
4,960
7,621
2013
29,240
3.7
21,837
2,300
4,199
904
3.1
365
334
528
0
407
25
6.3
381
-136.5
391
-137.2
2013
180
3,827
4,007
0
4,215
-4
8,218
4,692
2,419
2,273
77
272
0
18,971
5,098
8,351
165
2,101
13,374
8,036
5,338
5,596
8,219
2014
29,343
0.4
20,865
2,476
4,496
1,505
5.1
179
378
542
1
764
22
2.9
742
94.4
777
98.8
2014
180
4,605
4,785
0
4,944
-14
9,715
5,309
2,755
2,555
155
333
0
20,307
4,656
8,332
684
2,496
13,634
8,314
5,320
6,673
9,715
2015
31,819
8.4
22,143
2,675
5,329
1,673
5.3
85
431
485
0
841
-79
-9.4
920
24.1
956
23.1
2015
180
4,376
4,556
0
3,967
-165
8,358
5,694
3,128
2,566
224
363
0
18,431
4,785
7,948
443
2,554
13,227
8,860
4,367
5,204
8,358
2016
37,980
19.4
25,541
3,986
6,303
2,149
5.7
297
571
432
0
1,444
277
19.2
1,167
26.9
1,185
23.9
2016
180
6,124
6,304
10
3,629
-1,860
8,084
7,277
3,699
3,578
63
1,681
0
18,196
5,348
8,341
454
196
15,309
10,820
4,489
2,887
8,209
2017E
44,708
17.7
31,524
3,892
6,973
2,319
5.2
300
591
376
0
1,652
330
20.0
1,322
13.2
1,345
13.5
2017E
191
6,897
7,088
10
3,629
-1,860
8,868
7,877
4,290
3,587
63
1,681
0
19,953
5,512
8,574
860
230
16,315
9,799
6,516
3,638
8,968
(INR Million)
2018E
2019E
52,793
61,828
18.1
17.1
36,528
42,194
4,748
5,561
8,234
9,643
3,282
4,430
6.2
7.2
300
300
638
685
327
225
0
0
2,618
3,820
707
1,032
27.0
27.0
1,911
2,789
44.6
45.9
1,935
2,813
43.8
45.4
(INR Million)
2018E
2019E
191
191
8,009
9,625
8,199
9,815
10
10
2,685
1,660
-1,859
-1,860
9,036
9,626
8,477
4,928
3,549
63
1,681
0
23,085
6,509
10,125
539
272
19,266
11,571
7,695
3,819
9,112
9,077
5,613
3,464
63
1,681
0
27,033
7,623
11,857
629
318
22,563
13,551
9,012
4,470
9,678
24 April 2017
47

Room air conditioners: Focus shifts to inverters
Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
Investment in liquid assets
CF from Investments
(Inc)/Dec in Debt
(Inc)/Dec in Equity
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2012
(11.7)
(8.2)
44.0
1.0
-8.6
2013
4.3
8.1
44.6
3.0
69.1
2014
8.6
12.8
53.2
4.0
46.4
2015
10.6
15.4
50.7
5.0
83.0
2016
13.2
19.5
70.1
6.5
49.4
2017E
14.1
20.3
74.3
4.9
35.0
2018E
20.3
27.0
86.0
7.1
35.0
2019E
29.5
36.7
103.0
10.3
35.0
31.4
21.6
20.1
1.1
6.6
1.5
30.4
20.5
18.1
1.0
5.7
1.6
48.6
33.8
29.4
1.5
9.2
0.7
33.8
25.4
20.6
1.3
8.0
1.0
23.2
18.7
15.0
1.1
6.7
1.5
-23.2
-3.7
9.8
11.2
17.7
14.5
20.5
16.3
21.8
16.6
20.2
15.9
25.3
20.1
31.2
26.6
99
58
95
3.7
104
64
100
3.6
104
58
103
3.0
91
55
102
3.8
80
51
104
4.7
70
45
80
5.0
70
45
80
5.8
70
45
80
6.4
0.9
2012
-1,034
318
0
-7
2,105
1,382
-478
904
-3
-481
-775
-4
0
-105
-883
18
524
537
1.1
2013
407
334
0
-27
-1,008
-294
-298
-592
3
-295
545
-68
0
-270
207
-382
537
165
1.0
2014
763
378
0
-22
-557
562
-103
459
-60
-164
729
424
0
-421
732
1,130
165
684
0.9
2015
841
431
0
79
1,228
2,579
-103
2,476
-31
-134
-977
-245
0
-526
-1,748
697
684
443
0.6
2016
1,444
571
0
-277
2,328
4,066
-725
3,340
98
-627
-279
0
-657
-1,293
-2,228
1,210
443
1,653
0.5
2017E
1,652
591
0
-330
-345
1,567
-600
967
0
-600
0
11
0
-572
-562
406
454
860
0.3
0.2
(INR Million)
2018E
2019E
2,617
3,820
638
685
0
0
-707
-1,032
-502
-561
2,046
2,912
-600
1,446
0
-600
-944
0
0
-823
-1,767
-321
860
539
-600
2,312
0
-600
-1,025
0
0
-1,197
-2,222
90
539
629
24 April 2017
48

24 April 2017
Room air conditioners: Focus shi
Update
| Sector:
Engineering
Voltas
BSE SENSEX
29,365
S&P CNX
9,119
CMP: INR 415
TP: INR 370 (-10%)
Sell
Market share and margins near peak
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Valuations rich; downgrade to SELL
VOLT IN
330.8
425 / 286
7/1/25
137.0
2.1
598
69.7
Financials Snapshot (INR b)
Y/E MARCH
2017E 2018E 2019E
Net Sales
59.3
67.2
75.7
EBITDA (Rs b)
5.5
5.3
6.1
NP
4.5
4.9
5.6
EPS
13.6
14.9
16.9
EPS Gr (%)
16.6
9.9
12.8
BV/Share (Rs)
82.1
92.8 104.8
P/E (x)
30.5
27.8
24.6
P/BV (x)
5.1
4.5
4.0
RoE (%)
17.6
17.1
17.1
RoCE (%)
17.0
16.5
16.5
Shareholding pattern (%)
As On
Dec-16 Sep-16 Dec-15
Promoter
30.3
30.3
30.3
DII
27.1
27.2
27.0
FII
22.4
22.4
21.6
Others
20.2
20.1
21.1
FII Includes depository receipts
Stock Performance (1-year)
Near-term market share opportunity with LG exiting fixed-speed AC space:
As
part of its global strategy, LG (18% share in room ACs) has stopped
manufacturing fixed-speed ACs to focus solely on inverter ACs. This should
provide opportunities for other players to grab market share in room ACs.
Voltas, being a market leader in the room AC segment, stands a good chance to
grab a major pie of the opportunity, as market transition toward inverter ACs is
expected to take time. Also, given its under penetration in India, the room AC
market is expected to register 15% CAGR over the medium term.
Competitive intensity remains high:
Our channel check suggests that
competitive intensity in the room AC market remains high. Also, players like
Hitachi and Daikin are getting aggressive in their push for market share. LG has
priced inverter ACs aggressively, with its 3-star 1.5 ton inverter AC costing
INR35,000 (alloy condenser) and INR35,000 (copper condenser), similar to the
pricing of existing 5-star ACs (20% share in room AC market). Competition and
aggressive pricing should exert pressure on margins, in our view.
EMP margins to improve as legacy projects near completion:
EMP margins
had been under pressure as legacy orders which Voltas had bagged have been
executed and provided for. Voltas incrementally has started to bid for the
projects at threshold margins of 4-5%, and has also bagged major projects. We
believe that margin improvement would be visible in FY18, with legacy project
order book reducing and better-margin orders entering the execution cycle.
Air coolers to contribute meaningfully in FY18:
Voltas sold 0.14m air coolers in
9MFY17. Note that FY17 is the first year of commercial launch of air coolers for
the company. Voltas has launched new models in CY17, and the focus is on
further increasing volumes. It intends to be among the top three players in the
country’s air cooler market over next three years, and is focused primarily on
the residential cooler market (estimated at 8m units, market size of ~INR40b
(INR5,000 per unit), 70% of which is unorganized). Even if Voltas is able to gain
2-3% of the overall market (8-12% of organized market), it could add sales of
INR0.7-1.2b in the UCP segment.
Valuation and view:
VOLT trades at 28x FY18E and 24x FY19E EPS. We cut our
rating to Sell with a target price of INR370, valuing UCP segment at INR310 (25x
FY19E EPS) balance segments at INR60 (15x FY19E EPS) given expensive
valuation. In our view, there are postitives for the stock – (1) positive impact of
7th Pay Commission, (3) structural uptrend in the AC market and (3) potential
improvement in MEP business with pick-up in domestic construction activity –
but these are factored in the current price.
24 April 2017
49

Room air conditioners: Focus shifts to inverters
Financials and Valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
2013
55,310
6.7
41,670
6,325
4,934
2,380
4.3
901
278
326
121
2,798
728
26.0
2,070
-
2,070
27.8
1,955
(37.5)
2014
52,660
(4.8)
38,543
5,947
5,515
2,656
5.0
1,002
248
225
215
3,399
941
27.7
2,458
-
2,458
18.7
2,238
14.5
2015
51,831
-2
35,974
5,899
5,857
4,100
7.9
1,087
280
233
462
5,136
1,276
25
3,860
0
3,860
57
3,381
51
2016
58,574
13
41,260
6,699
6,246
4,369
7.5
1,176
278
153
407
5,114
1,761
34
3,449
0
3,856
0
3,856
14
2017E
59,282
1
41,389
6,442
5,958
5,493
9.3
1,951
268
154
0
7,023
2,388
34
4,515
0
4,515
17
4,495
17
2018E
67,210
13
48,924
6,732
6,240
5,314
7.9
2,154
279
116
0
7,073
2,051
29
4,962
0
4,962
10
4,942
10
(INR Million)
2019E
75,659
13
56,036
7,035
6,537
6,051
8.0
2,299
289
95
0
7,965
2,310
29
5,595
0
5,595
13
5,575
13
2013
331
15,926
16,256
118
2,612
(222)
18,765
4,678
2,568
2,110
0
4,074
888
38,352
9,784
21,927
3,498
3,142
26,658
17,191
9,186
11,694
18,766
2014
331
17,862
18,193
138
2,629
(239)
20,721
4,198
2,113
2,086
18
7,320
798
36,974
9,010
22,039
2,818
3,108
26,476
16,267
10,208
10,499
20,721
2015
331
20,690
21,021
161
1,217
(349)
22,049
4,114
2,223
1,891
44
10,939
798
34,844
8,671
21,051
2,516
2,606
26,466
15,414
11,051
8,378
22,050
2016
331
23,621
23,952
258
2,600
(511)
26,299
5,105
2,894
2,211
13
15,258
723
37,255
8,928
13,066
1,971
2,856
29,160
17,451
11,709
8,095
26,299
331
26,829
27,160
258
2,100
(511)
29,007
5,318
3,161
2,156
13
15,258
723
41,240
9,035
13,224
5,529
2,890
30,242
16,850
13,392
10,998
29,147
331
30,356
30,686
258
2,100
(511)
32,534
5,531
3,440
2,091
13
15,258
723
48,035
10,244
14,992
7,549
3,277
33,366
18,183
15,183
14,670
32,754
331
34,334
34,665
258
2,100
(511)
36,512
5,744
3,729
2,014
13
15,258
723
55,328
11,531
16,877
9,753
3,689
36,524
19,432
17,092
18,805
36,812
24 April 2017
50

Room air conditioners: Focus shifts to inverters
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
Investment in liquid assets
CF from Investments
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2013
5.9
6.3
6.8
49.2
1.6
29.8
2014
6.8
7.4
7.5
55.0
1.9
29.2
2015
10.2
10.2
11.1
63.6
2.3
23.3
2016
11.7
11.7
12.5
72.4
2.6
28.6
2017E
13.6
13.6
14.4
82.1
3.3
28.6
2018E
14.9
14.9
15.8
92.8
3.7
28.6
2019E
16.9
16.9
17.7
104.8
4.2
28.6
22.6
20.9
18.3
1.5
3.6
1.0
39.8
36.8
31.6
2.4
5.7
0.6
30.5
28.8
24.4
2.3
5.1
0.8
27.8
26.3
24.8
2.0
4.5
0.9
24.6
23.4
21.4
1.7
4.0
1.0
12.6
12.4
13.7
145
65
158
2.9
13.0
12.0
15.0
153
62
164
2.5
17.2
16.6
28.1
148.2
61.1
161.4
2.4
15.3
14.8
30.4
81.4
55.6
108.7
2.2
17.6
17.0
37.6
81.4
55.6
103.7
2.0
17.1
16.5
37.7
81.4
55.6
98.7
2.1
17.1
16.5
36.8
81.4
55.6
93.7
2.1
0.2
0.1
0.1
0.1
0.1
0.1
0.1
2013
2,798
278
326
(728)
(202)
2,472
(181)
2,291
(957)
(1,139)
399
(326)
(619)
(546)
787
2,710
3,497
2014
3,399
248
225
(941)
98
3,030
462
3,492
(3,247)
(2,785)
17
(225)
(716)
(925)
(679)
3,497
2,818
2015
5,136
280
233
(1,276)
1,425
5,798
58
5,856
(3,619)
(3,561)
(1,412)
(233)
(894)
(2,539)
(302)
2,818
2,516
2016
5,114
278
-
(1,599)
(262)
3,530
(213)
3,317
(4,320)
(4,533)
1,383
-
(988)
395
(607)
2,516
1,865
7,023
268
-
(2,388)
656
5,559
(213)
5,346
-
(213)
(500)
-
(1,288)
(1,788)
3,558
1,971
5,529
7,073
279
-
(2,051)
(1,652)
3,649
(213)
3,436
-
(213)
-
-
(1,415)
(1,415)
2,020
5,529
7,549
7,965
289
-
(2,310)
(1,932)
4,013
(213)
3,800
-
(213)
-
-
(1,597)
(1,597)
2,203
7,549
9,753
24 April 2017
51

Room air conditioners: Focus shifts to inverters
NOTES
24 April 2017
52

THEMATIC/STRATEGY RESEARCH GALLERY

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Room air conditioners: Focus shifts to inverters
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