Boycott China effect? AC-maker Johnson-Hitachi India to halve import, double export

Johnson Controls-Hitachi Air Conditioning India is a 60:40 JV between the American and Japanese companies, respectively, and enjoys 12.5 per cent of the Rs 16,000-crore market in value and 11 per cent of the 65-lakh units domestic AC market as of FY2020.

Leading air-conditioner maker Johnson Controls-Hitachi India is planning to halve its import dependence and at the same time to double its exports over the next one year. The move comes amidst the shrill calls for boycotting Chinese goods following violent skirmishes on the Leh border earlier this month that lead to the killing of 20 Indian soldiers.

The government sees the air-conditioning industry as a priority sector for generating jobs along with furniture, leather and footwear. The domestic AC industry meets almost half of its parts through imports, primarily from China, and turn it to be a key export driver.

The company closed FY2020 with a turnover of Rs 2,300 crore, selling 7.5 lakh units, giving it a market share of over 12.5 per cent, chairman and managing director Gurmeet Singh said. On profit, he said on average they make 8-9 per cent net margin but this year it may slip to 6-7 per cent, as he does not expect to add volume due to the COVID-19 pandemic.

With 12.5 per cent market share, Hitachi is the fourth largest player after Blue Star, Voltas and Daikin overall, and the third largest in window & split segment, he claimed. The company runs a 9-lakh per annum plant (in single shift, and up to 15 lakh in double shifts) at Kadi, on the outskirts of Ahmedabad since 2009 and has made a cumulative investment of over Rs 800 crore.

“We import around 40 per cent parts, of which 50 per cent are China-sourced. The import supply chain suffered due to the pandemic since February and the lockdown since March has left us with huge inventory pile. And I don’t want to have a repeat of either.

“Therefore, my idea is to focus on cutting down imports by half over the next one year and at the same time also to double my exports to 50,000 units or thereabout from the present 25,000-odd units to the middle East and Africa–both of which are under the India,” Singh told PTI over the phone from his New Delhi headquarters.

Singh said on a net basis 70 per cent of the AC market is imported in terms of parts and 30 per cent of the Rs 16,000-crore overall market is fully imported units. Of the remaining Rs 11,200 crore, around 50 per cent parts are again imported, reducing the domestic market pie to just about Rs 8,000 crore.

There are great synergies between India, Africa and the Middle East markets in terms of weather conditions, which demand only minor tweaks in the India made units, Singh explained underlining the scope for exports and noted that while our AC exports are close to nothing, China ships out 4 crore units annually.

“But we can easily do an encore of what we have done in mobile phone manufacturing,” Singh said, adding we can serve Africa, the Middle East, and the SAARC markets. Stating that he does not see an opportunity to grow bigger this year, he said he’d be happy not to lose his people (to the virus) and also market share this year. He said while sales were down 80 per cent in March, the same plunged over 90 per cent in April (he sold 2,000 units to government for COVID hospitals) and June volume is down 65 per cent so far.

@Martin_Christopher