who makes your Voltas?

It's peak summer, so I went digging into the AC industry expecting a story about a boom.

I found the opposite instead, and how every brand you've heard of is having a bad year.

Voltas, net profit down 55%.
Blue Star, quarterly revenue down 11%.
Whirlpool India, down 32%, with its margins close to halved.

The easy explanation is the weather.

A subdued summer and an early monsoon meant the industry expected to sell 10-15% fewer ACs than last year.

But that’s not interesting when you get into the folks behind these companies.

You've probably never heard of it.

It has never sold you an AC.

Think about the time when you had to buy an AC: you read the reviews, ask that one cousin who "knows electronics," and settle on Voltas over Blue Star because it felt sturdier.

But there’s a chance the same factory built both.

Ajay Singhania runs EPACK Durable, one of those factories, and last year he said it on the record: about a third of the industry is outsourced, and the 50 to 60 smaller brands are "entirely dependent on outsourcing."

7 of India's top 10 AC brands are his customers.

The bigger one is Amber Enterprises, which builds roughly a quarter of every AC made in India.

So you spent two weeks choosing a logo, and the box behind the logo came off a line in Dehradun or Sri City anyway.

I don't want to oversell this, because some brands build their own.

LG makes its own compressors, Daikin runs its own plants, Samsung builds in Sriperumbudur and Lloyd makes most of what it sells.

Those four are about half the market, and they earned their badge.

So I'm not claiming every brand is just a sticker on someone else's machine.

My point is about the other half.

They decided the building was somebody else's problem, and in doing so they handed away the part of the business that turned out to matter most.

Go back to 2018, and the idea that a contract manufacturer could rival Voltas would have sounded ridiculous.

That year Voltas made ₹578 crore in profit and Amber made ₹62 crore.

Voltas earned ₹9 rupees for every ₹1 its supplier did.

The brand is sliding toward its supplier, not the other way around.

The stock market has seen a similar shift, over five years, Amber compounded 21% a year, while Voltas managed 5%.

Which leaves the question I got seeing these numbers too: how does the supplier keep winning while every single one of its customers loses?

Amber makes 7 to 8% on an AC, the same thin cut the brands make.

Its AC margins even slipped this year, same as theirs.

A brand carries dealers, service networks, advertising, and a Bollywood face on a billboard, and its bill arrives every month regardless of whether the summer shows up.

So when volumes dropped 15%, the brands had a mountain of fixed cost and not enough sales to cover it. 

That's how Voltas turns an 8% revenue dip into a 55% profit collapse.

Amber carries none of that. 

It builds, ships and moves on. 

The same bad summer that broke the brands barely scratched the factory.

A decade ago, Amber was overwhelmingly an air-conditioner manufacturer.

Today, a growing share of its business comes from components, electronics, railways and mobility systems.

Then it also entered into railways and defence (yet Air Conditioning), where margins run 15 to 18% double of what they get with consumers ACs.

Amber’s expansion to other industries directly gave them contracts that aren’t dependent on consumer demand.

We've been taught the brand is the business.

The logo, the trust, the name your family blurts out when the old unit dies in May.

I think that's exactly the assumption that's now wrong.

Despite manufacturing not being as “cool” or “fascinating” this should explain why boring businesses work and will continue too. 

Asset lite businesses like Voltas are great until they try to retain a revenue when demand doesn’t match it. 

When we’ve flipped the model, the barrier to entry is volume of units.

The brands used to build the factories, but now the factories let the brands in.

So here's what I keep coming back to: you spend a week every few years agonising over which AC brand to trust, and the company winning this industry is the one you were never given the option to pick.

And this is true about televisions too, but that’s a topic for next time. 

I read every email.

Until next week,
Pratham