Summer tends to bring distinct cyclical consumption patterns—travel, holidays, ice cream, and more. Rising temperatures also boost demand for essentials like cooling solutions, water access, electricity usage, and rural infrastructure. In this series, we focus on three key summer-driven themes within the smallcap space:
- Agro irrigation and water pumps
- Air conditioners and cooling products
- Power backup and related equipment
In the last article, we focused on agro irrigation and water pumps. This week, we’re looking at air conditioner and cooling products, a must across homes and commercial spaces in India as temperatures rise.
An overview of the AC and cooling products industry in India
India’s air conditioning market sits at an interesting intersection: low penetration + high growth potential. According to research from IMARC Group, India’s AC market stands at approx. $6 billion today and is expected to scale to $15-21 billion during the period from 2026-2034, at a CAGR (compounded annual growth rate) of 14-17%. The report indicates that room ACs account for 48% market share in 2025, driven by rising urban housing and electrification; and ductless ACs hold 22%, gaining traction in commercial and hospitality segments. The split between residential and commercial + retail air conditioning stands at 44% vs 24%, supported by strong construction activity in Tier 1 and Tier 2 cities.
A separate research report from Enrich Money for the year 2025 estimates the annual unit sales to be in the range of 16–17 million, with demand coming largely from Tier I and Tier II cities.
What makes the AC and cooling segment an interesting market is low penetration. Only 8-10% of Indian households own ACs, startlingly low compared to developed markets. This creates room for growth, especially as 80–85% of purchases are still first-time buyers, and not existing buyers looking for upgrades or replacements.
The AC and cooling market itself is layered:
- Top brands dominate consumer-facing sales, like Voltas, Blue Star, LG Electronics, and Daikin.
- OEM/ODMs (Original Equipment Manufacturers/Original Design Manufacturers) produce units for these brands.
- Component manufacturers (makers of compressors, heat exchangers, and plastic moulded pieces etc) supply to the OEMs.
- Adjacent categories like air coolers and fans address price-sensitive segments.
The beneficiaries in this space are not just the AC brands themselves, but the entire ecosystem that supports it, from manufacturers and suppliers to after-sales service and repairs.
What drives demand higher?
Rising temperatures are just one of the factors that push sales and demand higher. There are several others, as well.
- Temperature intensity: AC demand is highly sensitive to heatwaves, rising temperatures and the severity of summer heat. A strong summer can drive 20–30% spikes in sales, while a mild season or early monsoon can lead to inventory build-ups and weaker earnings. This makes the sector inherently cyclical in the short term, even if the long-term trend remains intact.
- Low penetration and first-time buyers: Despite being a large market, India is still in the early phase of AC adoption, and penetration is low. Much of the growth is led by Tier 2 and Tier 3 cities and many households are upgrading from coolers and fans to ACs. This ensures a structural demand tailwind independent of short-term weather fluctuations.
- Rising incomes and urbanisation: Rising disposable incomes, smaller household sizes, and rapid urbanisation are driving higher adoption of consumer durables. Air conditioning is increasingly being seen as a quality life upgrade and necessity, instead of a luxury.
- Electrification and better consumer financing schemes: Improved power availability and the rise of consumer financing via EMIs and BNPL (buy now pay later) schemes have made ACs more accessible and affordable. Plus, e-commerce and distribution expansion have widened reach beyond metros to Tier 2 and Tier 3 cities.
- Premiumisation: There is a clear shift by both manufacturers and consumers toward energy-efficient inverter ACs and high-rated models driven by Bureau of Energy Efficiency (BEE) norms. With these models being more expensive than entry-level ACs, companies may stand to gain as revenue outpaces volume/units sold.
- Replacement cycle (nascent but growing): And in parallel, as the installed AC base increases, replacement demand will gradually emerge as a secondary growth driver. While still small today, it acts as a predictor for future growth.
Smallcaps in focus
Cooling is not a purely discretionary consumer segment and spans both essential and aspirational spending, especially during peak summers. While room ACs remain a discretionary purchase for many homes, extreme heat conditions often trigger sudden purchase decisions, especially among first-time buyers who are looking for an upgrade from coolers and fans.
While the end-product may be an AC, a large part of the industry actually operates behind the scenes, through manufacturers, component suppliers, and contract assemblers that support the big brands. When demand rises in the summers, these companies often see faster growth in volumes. And many of these suppliers lie within the smallcap segment, where businesses are closely tied to overall industry demand.
- Amber Enterprises India Ltd: Amber is a leading OEM/ODM company in the air-conditioning industry, supplying to major brands such as Daikin and Voltas. It holds an estimated 23% share in the room AC market and operates as a comprehensive solutions provider. The company manufactures complete air conditioners (CBUs) as well as a wide range of components used in consumer durables. Its product portfolio includes split and window ACs, along with commercial systems such as ductable, cassette, and tower ACs. Beyond finished units, it produces key components like heat exchangers, motors, metal and plastic parts, and copper tubing. Amber also offers integrated and customised solutions for mobility applications, catering to customers such as Indian Railways, metro networks, RRTS systems, buses, and the defence sector.
- PG Electroplast Ltd: PG Electroplast, established in 2003 under the PG Group, is a well-diversified EMS (electronics manufacturing services) company with exposure to air conditioners and a wide range of consumer durables. The company operates across ODM, OEM, and plastic injection moulding, serving over 50 Indian and global brands. Its wholly owned subsidiary, PG Technoplast, manufactures air conditioners, air coolers, and key components for consumer durables, and is among the largest suppliers of room AC finished goods to brands/OEMs in India.
- KRN Heat Exchanger and Refrigeration Ltd: KRN specialises in the manufacture of heat exchangers, a critical AC component, making them more of an upstream supplier within the value chain. The company produces fin-and-tube heat exchangers for the HVAC and refrigeration industry, along with a broader range that includes shell-and-tube, plate-type, finned tube, and air-cooled exchangers. Its client base includes leading names such as Daikin, Blue Star, Voltas, Carrier Global, Schneider Electric, and Kirloskar Chillers. (Watch our interview with KRN President Pragnesh Jethva here.)
The air conditioning and cooling products industry in India sits at a compelling intersection of cyclical demand and structural growth. In the short term, growth is driven by intense weather, pricing, and seasonal demand spikes. And over the long term, the story is anchored in low penetration, rising incomes, and urbanisation. As more households adopt air conditioners and usage spreads across markets, the sector is becoming a larger part of overall consumption, closely linked to India’s economic growth, improving living standards, and seasonal demand spikes.
Sources
Amber Enterprises India Ltd share price | About Amber Enterp. | Key Insights – Screener
Consumer Durables | AC & Motor Manufacturing | Amber Group
PG Electroplast Ltd share price | About PG Electroplast | Key Insights – Screener
Markets and Data: India Room Air Conditioner Market Assessment
IBEF: India’s heat waves drive air conditioner sales, defying consumer slowdown
Indian Consumer Durables Presentation | IBEF
Reuters: India’s top AC maker bets on first-time buyers to drive summer demand rebound
BIS Research: India Room ACs Market
Bajaj Finserv: India Room ACs Market
From Heatwaves to Market Waves: Decoding India’s AC Industry
Cooling appliance demand jumps up to 55% this summer amid early heat, premium push