Epack Durable Packs A Healthy Q1
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00:00Okay, joining us now, we have Ajay D D Singhania, Managing Director and CEO at EPAC Durable
00:14to talk to us about what trends are playing out, of course, what have played out in Q1,
00:19but what to expect going forward as well as they diversify. Welcome, Mr. Singhania. Talk
00:24to us about both the Q1 overall in the context of the full year FY25, as well as how Q2 is
00:33playing along for you. Hi, good morning. So see, being a pioneer in air conditioning,
00:40OEM, ODM business, obviously, Q24 was a subdued year wherein we faced a lot of challenges in
00:46terms of the weather uncertainties and time variants and all. But obviously, Q125 has been
00:52exceptionally well for us. We grew almost 80%. The industry has been growing at almost 35,
00:5740% plus. So one of the best times for EPAC Durables. And coming to Q2, definitely the
01:02growth momentum continues. The market is responding very well. And India being
01:08underpinned in terms of AC, we can really feel the heat not only in the climate, but also in
01:13terms of sales. Mr. Singhania, you know, you've recently acquired IPAO Electricals,
01:19Pvt. Ltd. Now, from what I understand is that it manufactures DC motors. And this is probably,
01:25you know, a raw material for what you manufacture. So I want to understand that you will be utilizing
01:31this for your own consumption. So I think that this will impact your margins overall. And,
01:36you know, this could be margin accretive for you. So I want to understand that
01:39going forward with this acquisition, will your margins improve? And if yes, by how much?
01:45Okay. See, first of all, we have not acquired IPAO. So it was a 26% impact and 74%
01:52RR wire. So we have increased our equity from 26% to 50% now. So it's now a 50-50 GV
01:57between both the companies. Definitely, see, the idea behind starting of IPAO and now increasing
02:03the shareholding has been that we understand one that will be utilizing the motors effectively for
02:08our own consumption. At the same time, we have a large customer base available to supply to.
02:13So this would be, I mean, the results would definitely be independent, but it would help
02:16us secure the supply chain, reduce our dependence on China further. So that's the whole idea.
02:23Mr. Singhania, good morning, sir. It's Puneet this side. I just wanted to ask
02:27on your backward integration currently, you know, you are manufacturing a lot of components for
02:32air conditioners currently as well. And you also commissioned a new plant in Andhra Pradesh for
02:37the same. I wanted to understand within Andhra Pradesh, is it only for room air conditioners
02:41also will include small appliances, which you are, which is another segment that you're currently
02:46in. And I also wanted to just ask you one key question on components because PCB is only
02:51currently in Bihari facility. Is there any particular reason that you don't have the
02:56PCB manufacturing? Because it's going to be one of the most important components going forward
03:02for you as well. So I just wanted your idea on both these queries. So one's on PCB specifically
03:08being in Bihari and also on, you know, the current product lines which are there in new facility.
03:13So see, coming to the product lines in the Andhra facility. So we started off with the AC as the
03:18first product, but at the same time, our manufacturing facilities are fungible in terms
03:22we can utilize them to manufacture the smaller appliances as well. So now in this quarter,
03:26we have started putting up facilities for the smaller appliances as well. And Q3 onwards,
03:30we believe that we'll start production of the smaller appliances in the Andhra facility.
03:35So it is already in the phases. We've been taking a step-by-step approach.
03:39So smaller appliances will start, the mass production will start from end of October
03:44onwards. And especially the washing machine, which we are launching is going to get manufactured in
03:47the Andhra facility first. The second question in terms of the PCB, so the PCB assembly,
03:53we started off in our North facility first because we have created enough capacities here.
03:57Now, as we are using the same facility to even supply to our Andhra facility.
04:02So in phase two, we will be in a position to put up the PCB manufacturing even in Andhra.
04:08So currently we are utilizing our capacities, which we've installed here in the North.
04:12So once these capacities get utilized for the North itself, we'll be in a position to invest
04:16for the same in the South. Right. Mr. Singhania, talk to us about
04:20revenue contribution going forward. So you're expecting, of course, these new products to start
04:26to contribute to revenue. Is H2 the likely expectation, H2FI25, in a significant fashion?
04:35Is that how one can look at it? So I'll put it this way. Previously,
04:40if AC was contributing almost 85% and 50% of the other appliances. Now going forward,
04:45as we are increasing our footprints in the other appliances, also the larger appliances like
04:49coolers and washing machines going forward. And as we are growing our portfolio of the
04:52small domestic appliances, so this H2 definitely the contribution is going to improve for the other
04:58appliances, the non-AC appliances. So even if I give an outlook for the current year, FY25, I'll
05:03say AC would be, let's say 78 and almost 22% from the non-AC business. So this is the way how we are
05:11improving our capacity utilization on the H1 and H2 basis. And how would FY26 mix be like? Because
05:18that will be a full year when you'll be doing pretty much all appliances. So just trying to
05:23get context there. So gradually we aspire to bring it down at least 60-40 in terms of AC and
05:29non-AC business. But FY26, we should definitely be able to achieve like say 74-75 and 25-26.
05:35So gradually we will keep on improving. All right. And Mr. Singhania, in terms of
05:41finance costs, you've guided that finance costs will reduce in Q2 and Q3. So I want to understand
05:49what is the progress there and where do you see that going by the end of FY25?
05:54In terms of finance cost, our core focus has been one to improve our working capital cycle. So this
06:00is where we see a lot of capital getting blocked. So we have already reduced our working capital
06:04cycle from almost 90 odd days to 45 days in the last quarter. And we gradually keep on improving
06:10that. So that's somewhere we have tried to unlock our blocked capital. And this is how we've been
06:15able to improve our finance cost as well. We don't have now a large exposure in terms of the
06:25debt, especially the long-term debt. So it's only working capital which contributes towards
06:30our financial cost. Mr. Singhania, I just wanted to get back to your room and
06:35room RIC segment specifically, your air-conditioned segment. Now,
06:39you have mentioned that you have roughly 24% market share in the ODM segment specifically.
06:44Could you quantify specifically what would be the ODM share for your current revenues for
06:49say historical for FY24? What would be the total ODM share specifically that you might be getting
06:55for room air-conditioners? And I also want to ask if you have been receiving, are you compliant
07:00with PLR benefits for room air-conditioners as well? And if yes, have you received anything in FY24?
07:07Firstly, in terms of the RIC market, let's say the overall RIC market was close to 10
07:11million in the last year. So OEM-ODM put together do almost 35% so it could be 35% to 37%. So that
07:18means almost 3.5 to 3.7 million units get manufactured by all OEMs-ODMs put together
07:23and we contribute almost 24% of it. So that's in terms of quantifying the total RIC market in India.
07:30For the PLI benefit, so we were one of the top four companies to commit the highest investment
07:38in PLI. So we committed almost 300 plus crores in PLI from Impact Durable and we got our PLI
07:44benefit for FY24. We are on way to achieve it. So hopefully we should get it by the end of this year
07:55we are expecting it. So last year in the first year we already received it and for the FY24,
08:00the amount is close to 30 odd crores which we should get. I just had one follow-up sir on this
08:06particular facility. Now currently you did mention that newer segments will also be added.
08:11Now washing machine one of the key segments which has caught my eye. I wanted to just understand
08:16because it's not a segment that everybody has entered to but it has very high growth opportunity
08:21because I think the penetration is still around 20-25% if I'm not wrong. So I just wanted to
08:26understand the opportunity here and what could be the margin picture going forward. You have been
08:31around the 6-7% range in the last couple of years. Do you see the addition of non-AC components or
08:38the consumer durable business specifically because there's a lot of competition in this segment. So
08:43just wanted to understand on these two factors. See firstly, all the segments we are into like AC
08:49the lowest penetration is almost 6-7% different reports claim different things and even washing
08:54machine is not that high as 24%. So it's like 12% is the penetration for washing machine. So both
08:59the products are on high growth phase and next 10-12 years definitely every year we will see
09:04them multiplying and the forecast is at least 50% growth year on year for each of the both segments.
09:12So definitely I mean these are both the high growth thrust area products and OEM
09:16OEM is something very unique because see for us the capability to manufacture AC
09:21helps us utilize almost 100% of our capacity during the first half of the year. So for us
09:26to improve our margin profile and to improve our asset turn it is very important that we start
09:31focusing on products which are predominantly H2 products. So washing machine is one such product
09:36which starts picking up from May onwards till July, August, September. So these typically four
09:40months help us utilize our capacities better and definitely then it will help us improve our margin
09:45system because we are not making an additional substantial new investments to manufacture
09:50washing machines. Mr. Singhania, one last quick question. Your FY24 revenue did take a 7%
09:57hit as compared to FY23. So I want to understand by the end of FY25 where will your revenues be at
10:02and quickly even commodity prices are expected to improve. So where will the margins be then?
10:08So FY25 we are on track to at least clog a growth of anywhere between 45 to 50%
10:14growth organically. So we will definitely clog a growth of 45 to 50% plus for this year and similar
10:21growth is what we are working on for the next two to three years definitely. So we continue our
10:25growth journey on the top line and bottom line. Definitely the commodity prices have softened but
10:36at the same time since we are an OEM at most of the times we are kind of insulated with any changes
10:41in the commodity prices both upside and downside. So that does not impact us much.
10:46Got it. Okay. Thank you so much, Mr. Singhania. It has been a pleasure chatting.
10:50We are completely out of time on this edition of this mid-show from Puneet,
10:53Mahima, myself, everyone who puts the show together. Thanks so much for watching.
10:56Hope it was productive. Stay tuned to NDTV Profit. More action on the other side.