Here Comes the Sun: Cooling Industry’s Hot Opportunity

The world is slowly becoming a giant sauna, and there’s no off switch. As temperatures across the Indian subcontinent are set to soar to higher levels in the summer of 2025, the demand for air conditioners is flying off the shelves. 

According to the India Meteorological Department (IMD), this summer will bring six to eight extra heatwave days, with Punjab, Haryana, Rajasthan, Andhra Pradesh, and Odisha taking the brunt of the scorching heat. The result? A sizzling demand for ACs and a stock market rally for cooling solution providers.

The Heat is On

The evidence of climate change has become increasingly difficult to ignore. The World Meteorological Organisation data says that the number of average heat wave days per year has steadily risen over the last three decades and warned that 2025 will likely be the third warmest year after 2023 and 2024!

This prediction is particularly concerning for India, where annual mean temperatures have increased by 0.2 degrees Celsius between 2010 and 2023 compared to the previous decade.

Further, the IMD’s recent yellow alert signalling an early onset of heat wave-like conditions, with early March temperatures already soaring close to 40°C in parts of interior Maharashtra, Kerala, and Telangana, underscores the severity. Recognising the urgency of the climate crisis, the Indian government introduced ‘Mission Mausam‘ in September 2024 with a budget outlay of ₹2,000 crore over 2024-26, aiming to make India “Weather-ready and Climate-smart”.

Enter: The AC Boom

Blazing summers and rising disposable incomes have created the perfect storm for India’s AC market. The industry is in turbo mode, growing at an estimated 25% annually over the next five years.

In FY22, India sold about 8 million AC units. By FY23, that number had jumped to 10 million. Fast forward to FY25, and the Indian Credit Rating Agency (ICRA) estimates record-breaking sales of 12-12.5 million units, with another 10-12% growth expected in FY26. The International Energy Agency (IEA) predicts that by 2050, home air conditioner ownership in India will increase nine-fold, surpassing ownership growth for all other household appliances such as TVs, refrigerators, and washing machines.

 ^{Source: ICRA, IEA data}

These projections reflect fundamental changes in India’s economic landscape. Rising urbanisation levels, improved disposable income, and favourable consumer financing options are driving growth. Additionally, replacement demand is increasing as consumers upgrade to energy-efficient models amidst rising energy costs.

The real game-changer? First-time buyers.
According to a news report quoting Ajay DD Singhania, Managing Director and CEO of EPACK Durable, an original design manufacturer for AC brands, a whopping 95% of AC purchases are from people who’ve never owned one before, and 65% of sales are happening in smaller cities and towns (Tier 3, 4, and 5). ACs are no longer a luxury—they’re becoming household staples, like fans and coolers.

How we Buy ACs is Changing

India’s AC shopping habits are also changing rapidly due to changing climate conditions and economic factors. An interesting trend is emerging in India’s smaller cities and towns, where demand for air conditioners exceeds expectations. Leading air conditioning solutions company Blue Star Ltd, in its annual report 2024, stated that AC sales are growing at 20% annually in Tier 3, 4, and 5 cities, compared to 10% in metros and Tier 1 cities.

Compared to the global AC buying trends, India is considered the fastest-growing market despite a significantly lower penetration rate than other established markets like China. For context, as per Statista, in early 2025, the revenue in the AC market in India amounted to $7.07 billion. China generates the highest revenue in this segment, reaching $16.42 billion in 2025.

The soaring temperatures have also shifted the AC buying season earlier in the year. Historically, peak AC sales occurred in April and May. Still, retailers now report significant sales beginning in February and March as consumers prepare proactively for the anticipated heat waves, as per industry analysts.

Supply-side Challenges

If demand is skyrocketing, what could go wrong? 

Well, there are some constraints. News reports revealed that the AC industry experienced an estimated 10-15% production loss due to compressor shortages in late 2024, with stock shortages potentially persisting until June 2025. That’s because at least 40% of components used in making ACs are still sourced from China, which is currently fighting a trade war with the US.

The challenges are multi-faceted:

• BIS certification delays for Chinese suppliers have created bottlenecks in the supply chain
• Supply shortages of critical components like compressors and copper
• Potential black marketing of copper due to supply constraints
• Prioritisation of exports to the US by Chinese manufacturers amid the tariff hikes

While the government’s Production-Linked Incentive (PLI) scheme has increased domestic component production from 25% to 75%, critical raw materials such as copper and aluminum are still imported. The room AC industry is still import-dependent, dominating on average around 60-65% of product value.

Blue Star stated that the industry was prepared for up to 25-30% growth, and no one had planned for a 70-80% rise in demand.

Stock Market: AC Stocks Rally

The stock prices of AC manufacturers are soaring in sync with rising temperatures. Blue Star’s stock surged almost 10% last week (March 3-7 ) to ₹2,100.75 on the BSE. 

Voltas has also shown strong momentum, gaining 4% over the last week and touching an intraday high of ₹1,425 in the first week of March. 

These gains reflect investor confidence in the sector’s growth prospects amid forecasts of above-normal temperatures and rising consumer demand.

Note: The above information is extracted from Tickertape’s stock screener and is only for informational purposes.

Blue Star’s financial performance supports this market optimism, with the company reporting a 56% year-on-year jump in net profit at ₹397.28 crore for the first nine months of FY25, while revenue from operations surged 25% to ₹7,949 crore.

Similarly, Voltas has posted robust financial results for the first nine months of FY25, with a record net profit of ₹599 crore. Their consolidated total income grew 28% to ₹10,890 crore.

Who’s Leading the AC Market?

Blue Star: Introduced 150 new AC models, aggressively expanding its distribution network.

Voltas: The Tata Group’s is pushing for energy-efficient models.

Daikin Industries Ltd: Plans to expand in India, targets to double its sales by 2025.

Local Brands: Competing fiercely on price and after-sales service.

Analysts are also betting big on Havells India Ltd and Voltas Ltd, while Whirlpool of India, Crompton, and Orient Electric are also riding the cooling wave.

Investment Takeaways

For investors considering exposure to India’s cooling sector, the long-term growth narrative remains compelling. Industry analysts estimate the market will double by FY2030, supported by infrastructure growth, rising urbanisation, and evolving consumer preferences.

However, investors should remain mindful of several risks:

Supply chain vulnerabilities persist, with dependence on imported components creating potential bottlenecks during peak demand periods. Compressor shortages in particular could limit sales growth in the short term.

Competition is intensifying, with new entrants and existing players vying for market share. This could pressure margins, especially if component costs remain elevated.

Climate patterns, while trending warmer, remain inherently unpredictable and can lead to inventory buildup with milder summers or heavier rainfall (although that seems unlikely for the near future).

To Wrap Up

As India faces increasingly severe summers, air conditioners are transitioning from luxury items to essential appliances for millions of households. An anecdote from a sweltering Delhi street captures this reality perfectly: When temperatures soar past 45°C, an air conditioner becomes less about comfort and more about survival.

The industry stands at an inflection point, with demand growth outpacing supply capabilities in the short term. In the summer of 2025, as temperatures climb and heatwave days increase, the question for many Indian households is no longer “if” they should buy an AC but “which one” and “how soon can it be installed?” For the industry, meeting this demand while overcoming supply challenges represents an unprecedented opportunity and a significant test of resilience.

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