The document analyzes the market segmentation for air conditioning solutions in India. It segments the market by income group, accommodation type, and AC type and capacity for residential use. For commercial, it segments by business size. The largest residential opportunity is for 1.5 ton window ACs, targeting the middle income group. Small and medium enterprises present a sizeable commercial opportunity. Overall, the AC market in India is in the early stages with high growth potential, particularly for mid-range residential units and solutions for small businesses.

1. Indian Market
for
Air Conditioning Solutions
-Segment Sizes
--Tushar Gupta

2. Segmentation Criteria
• Domestic/Commercial
• Type of AC (Window/Split/Central)
• Capacity of AC (only for residential)
• Income Group
• Accommodation Type
– Assumption: Rented accommodation has bigger rooms
than owned for the same income group

3. Criteria – Residential
• Low Income Group
– Comprises 25% - 35% of total population
– Comprises 10% - 15% of total urban population
– Low Growth Rate of approximately 1% - 2%
– Mostly rent accommodation
– Capacity required = 1 Ton
• Middle Income Group
– Comprises 25% - 30% of total population
– High growth of up-to 1000% projected till 2025
(Mckinsey Global Institute, 2007)
– In comparison, Total population growth is 20% to 30%
– Might live in own house
– Capacity required = 1.5 Ton

4. Criteria – Residential
• Upper Income Group
– Comprises 20% - 25% of total population
– Low growth rate : 2%-3%
– 1.5 tons for small, owned house
– 2 tons for rented, bigger house
• High Income Group
– Comprises approximately 10% or less of total urban
population
– Growth Rate insignificant
– All people in this group live in their own house
– All people in this group own an AC

5. Criteria – Commercial
• Small and Medium Enterprises
– Comprises up-to 90% of total industries in India
– Approximately 29 million units in India
– Contributes ~40% of GDP
– Average Growth Rate around 10% – 12%
– Average Cost of Installation per SME unit = INR60000
– Low percentage of units with good solutions installed

6. Criteria – Commercial
• Large Scale Enterprises
– Comprises around 10% of total industries in India
– Average Growth Rate <10%
– Average Cost of Installation = INR 300000
– Approximate No. of Units = 3.3 million
– Almost all units installed with good solutions

7. Residential Segments
Accommodation
AC Type AC Capacity Income Income Group
type
Window 1 ton 3 - 5 lpa Low Income Group Rented
Window 1.5 ton 5 - 10 lpa Middle Income Group Rented/Owned
Window 1.5 ton 10 - 20 lpa Upper Income Group Owned
Upper - High Income
Window 2 ton 10+ lpa Rented
Group
Window 2 ton 20+ lpa High Income Group Owned/Rented
Upper - High Income
Split NA 10+ Owned/Rented
Group

8. Commercial Segments
Size of Business Employment size
SME 50 - 500
LSE 500+

9. Assumptions - Residential
• 20% in Low Income Group own an AC
• 40% in Middle Income Group own an AC
• 100% in Upper and High Income Groups own an AC
• Average life of an AC = 10 years
• Implies only 10% existing owners will buy new AC
• Average number of AC per person
• Low Income Group:- 0.25
• Middle Income Group:- 0.5
• Upper and High Income Group:- 1

10. Sizing – Residential Units
Total Urban Low Income Middle Upper Income High Income
Population Population Group Income Group Group Group
Percentage of total 100% 35% 10% 25 5% 1%
Actual 1.2 billion 420 million 120 million 300 60 million 12 million
Growth Rate 2% 6% 1% – 2% 6% 2% – 3% 1% – 2%
Projected Population
1.22 billion 445 million 122 million 318 million 62 million 12 million
Size in 1 year
No. of People Owning
226 million 226 million 25mn 127mn 62 million 12 million
AC
Total No. of AC units
144 million 144 million 6mn 64mn 62 million 12 million
owned
AC units to be changed 14.4 million 14.4 million 0.6 million 6.4 million 6.2 million 1.2 million
Total Market (units) 90.5 million 90.5 million 20 million 69 million 6.5 million 1 million
Window,1.5 ton*
Window, 2 ton*
AC Category NA NA Window, 1 ton Window, 1.5 ton Window, 2 ton
Split
Split
* Total number of units assumed equally split among AC Category

11. Price Assumptions
• Window AC, 1 Ton
– Average Price = INR 12,000
• Window AC, 1.5 Ton
– Average Price = INR 17,000
• Window AC, 2 Ton
– Average Price = INR 25,000
• Split AC
– Average Price = INR 35,000

12. Projected Opportunity Size
Product Category No. of Units Average Price (INR) Projected Revenue
(Million) (Billion USD)
Window, 1 Ton 20 12000 4–5
Window, 1.5 Ton 71.2 18000 25 – 27
Window, 2 Ton 2.7 25000 1 – 1.5
Split 2.7 35000 1.5 – 2
Commercial - SME 25 – 30 60000 30 – 36
• AC market in India is still in early stages
• High growth potential overall
• Not surprisingly, Window AC with 1.5 Ton capacity
holds largest opportunity in Residential segments
• SMEs present a viable commercial segment

13. Data Sources
• Demographic Data
– http://censusindia.gov.in
– Wikipedia
• Commercial Data
– http://dcmsme.gov.in
– http://msme.gov.in
– Wikipedia

14. Thank You