Epack Durable: New products Like Washing Machine To Come Onstream In Q3FY25
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00:00Hello and welcome.
00:10You're watching the SMID show here on NDTV Profit.
00:12I'm Harsh Saita.
00:13With me is Puneet Javeri.
00:15And two interesting managements we'll speak with.
00:17One on the back of earnings, another on the back of festive demand.
00:20We want to try and gauge as to how that's playing out, especially in the EMS space.
00:24Let me bring on board Mr. Ajay Singhania, Managing Director and CEO of EPAC Durable
00:29for just that.
00:32So talk to us, you know, Mr. Singhania, just talk to us about how demand is playing out.
00:39Is that strong demand post Q1 continuing?
00:43Is it holding up?
00:45And what's the outlook going into the rest of FY25, H2?
00:49Yeah, so good morning, first of all, and thanks.
00:53See the demand for the appliances in general, I mean, being a very strong with Q1, continues
00:57for Q2.
00:59And even now we see a strong pull with minimum inventory, especially for air conditions.
01:04And fortunately, AC is still playing very good and with a lot of schemes in place for
01:08the off-season right now, it still continues to grow.
01:11And even the smaller domestic appliances, we see a definitive growth at least 15% to
01:1520% even in the smaller appliances compared to last year, wherein, especially Diwali being
01:20a smaller appliances market, it was kind of muted last year, but this year we see a definite
01:24growth of 15% to 20%.
01:26AC continues to grow probably beyond 40%.
01:30Good morning, Mr. Singhania, and thank you so much for joining us today.
01:33Season greetings to you.
01:34Now, you know, we did speak after your Q1 results, really strong results that you reported.
01:39Just wanted to take the conversation forward because you did mention that you're expecting
01:4340% growth for ACs in this particular year.
01:46Now, while I know you are in a silent period for Q2, if you could just give us an indication
01:51because you did mention a very interesting point last time that inventory levels are
01:54at a very record low after Q1.
01:57How has that panned out in Q2 and also like in the first 10 days of October as well, because
02:02we are expecting a bumper season for most consumer durable companies as well.
02:07How do you see these two factors playing out for EPAC as well, as well as the industry?
02:13Especially on the industry front, like being on a silent period industry front, I can definitely
02:16talk about.
02:17So industry front, definitely the momentum continued throughout Q2 and even Q3 now.
02:22Part of North India is still witnessing kind of a hot season and the cooling products continue
02:26to grow.
02:27The inventories even now are not sufficient or are at reasonably acceptable limits.
02:33So going forward, it seems that most of the brands are preparing themselves for the upcoming
02:37hot season for the next year in a very robust way and definitely very aggressively.
02:42So having witnessed kind of or caught up in a supply chain situation where we are caught
02:48up and prepared, I think everybody is preparing very strongly for the upcoming season.
02:52So we will see a start of manufacturing season much earlier as compared to previous years.
02:57Also just one follow up, just on inventory, could you give us some kind of quantification
03:03on industry level?
03:04Where do you see, what is the normal inventory level that they maintain for something like
03:08an air conditioner product and where would we be right now?
03:11So just to estimate of how big the next three quarters after Q1 could be.
03:17See, generally the trend is when we enter the hot season, let us say Feb-March when
03:21the sales really start picking up, the industry is kind of prepared with 30 to 40% in advance.
03:27So we will be having like 40% inventory, I mean trade and channel all put together 40%
03:31plus inventory to open with.
03:33So that, but currently we feel that it is reasonably low and hence the manufacturing
03:38is actually picking up very fast.
03:39So in general, if the manufacturing starts let us say from 15th December, this year we
03:43would see it start, it is continued and even the momentum would further pick up from mid
03:47of November, let us say.
03:49Right.
03:50And you know, we are entering festive season.
03:52What's the kind of traction looking like?
03:54What's the pulse like on ground?
03:57How are orders coming through?
03:59What are companies telling you?
04:01What are the feelers that you're getting?
04:02See, firstly, I mean, compared to last year's muted season for small domestic brands, especially
04:07this year, we see that even smaller brands are seeing good amount of growth and to 15
04:12to 20% like I talked about, this kind of growth we are seeing in the small appliances.
04:16On top of it, it's the premium products which we see are getting more response.
04:21So moving away from the traditional entry level or low end products, I mean, the market
04:26is definitely seeing a more faster growth in the premium and the aspirational kind of
04:30products.
04:31Understood.
04:32So premium products is what consumers are preferring in this particular season.
04:36Now, continuing with the small appliances segment that you operate in, now you have
04:40a very decent capacity of induction cooktops about 20 lakhs, while you also have a six
04:45lakh mixer grinder capacity and more upcoming products in this as well.
04:48So do you see that the current growth of 15 to 20% is coming from one of these products?
04:54And how are you seeing what is the next in line in terms of product addition in the small
04:59appliances segment?
05:00See, in small appliances, beyond the three products which we currently do, the mixer
05:05grinders, I mean, they all continue to grow, but these are kind of mature products.
05:08So we are adding up washing machines and our washing machine trial production has commenced
05:13from the first week of this month and the mass production will start from the first
05:16week of November.
05:17So that's another product category which we are adding up and diversifying into its larger
05:21appliances, which we see will help us definitely utilize our capacities in a better way beyond
05:27March, April when the season for the washing machines picks up.
05:30So that's where we are preparing onward to really utilize our capacities and capabilities
05:35and also diversify into a newer category of washing machine.
05:38And we'll further keep growing our washing machine category by adding more SKUs and more
05:42product lines.
05:43Right.
05:44On the small appliances side, we are looking at import substitution and that's where our
05:49air fryers are now ready and we will commence production from mid of December.
05:53So air fry is another category which is definitely growing and falls into the aspirational kind
05:58of a product.
06:00And commodity prices playing for you.
06:03I know a lot of this is adjusted in your contracts.
06:08I remember speaking with you last time and you suggesting that.
06:11But nonetheless, that should only aid the numbers for your clients, right?
06:16And therefore, should help you as well in terms of growth.
06:21Commodity prices have been relatively stable throughout the last 12 months or so with marginal
06:26dips or ups here and there, but has been relatively very stable.
06:29So that's a positive note that with less amount of fluctuation, especially on commodities
06:34which play relatively very heavy impact on the price side or cost side of it.
06:37So have been relatively stable.
06:38So that's a good sign for the industry.
06:41Just wanted to understand on washing machine, I had a follow up question.
06:44You didn't mention that it's going to be one of the major products and you didn't mention
06:48about last time that the penetration is still low for products like these.
06:52What is your current capacity?
06:54You already have a new plant, I think in Andhra Pradesh that has come on stream.
06:57What's your current capacity for washing machines specifically?
07:01And how does that compete with in the EMS industry?
07:05If you can quantify, what's the current percentage of the total industry?
07:09How much was sold last year and any kind of production, any kind of numbers that you can
07:12give us for washing machines specifically, because it's a very large market, addressable
07:16market with very low penetration currently in India.
07:21Washing machine market as of last year was somewhere between 14 to 15 million.
07:25So that's almost 1.2 times of the AC market, but still relatively low penetration and of
07:29which close to 45 to 50% is outsourced or manufactured by the OEMs and ODMs.
07:35So that's a large chunk which OEMs and ODMs are scattered to.
07:39Mostly the OEM market is concentrated around the semi-automatic, whereas the fully automatic
07:44is something which is lower amount of contribution by the OEMs and ODMs.
07:50And this is one category we have strategically selected to enter the market with.
07:54So we are getting into the fully automatic first.
07:56This is in line with the way the market is changing very fast, like I shared premium
08:01product, the penetration of premium product is growing relatively faster as compared to
08:06the entry-level products.
08:07So we foresee that fully automatic is something which will grow faster in the coming years
08:11since we are entering the market with fully automatic and we will grow our portfolio of
08:15the fully automatic machines.
08:17In terms of capacity, phase 1, we have created a capacity of almost 0.2 million to begin
08:21with and which will keep on increasing as we acquire more customers and develop more
08:27SKUs.
08:28So beginning with 0.2 million, we definitely want to ramp it up to maybe a million numbers
08:32of capacity within the next 12 to 18 months.
08:36And just on margins, would it be possible for you to just give us a range for margins
08:41for something like a washing machine and your air fryer also which will be coming in December.
08:44Will it be higher than the current margins that your current portfolio in the small appliances
08:49will be making?
08:50Because you are also increasing the share from roughly about 19% of your revenue to
08:55around 30 to 40% in the next few years now.
08:58So how do you see the margins for the new entry products especially in the small appliances
09:02segment?
09:03See, since we are not reporting margin on segmental basis, but in terms of the overall
09:09material margin what we talk about at a very broad contribution level, the margins for
09:14all appliances are relatively in similar range.
09:16So definitely washing machine would also fall in at an average value of AC, it would
09:20be almost similar.
09:21But more than the margin, I think for us, it is critical that we improve our asset.
09:26So these products will definitely help us improve our asset and hence the ROI and ROCE
09:31would improve.
09:32And where should utilizations therefore go?
09:35Roughly 40-50% was what your utilization number was at the end of Q1.
09:39I am not asking you Q2, let us talk about end of the year, give us some visibility.
09:45The objective here by way of adding the smaller appliances and like these larger appliances
09:49like washing machines and coolers is definitely improve the overall plant utilization from
09:5545-50% to at least 60% or so in next year and beyond.
10:01So that is the whole idea is to further improve it beyond the 45-50% traditional to at least
10:0560% in next 12 to 18 months.
10:09With regard to your guidance, you have guided for 45% odd growth in FY25 vs FY24.
10:18You believe you are well-placed to beat that very likely?
10:21Yes, definitely yes.
10:23By how much?
10:24The new guidance would be like 45-50%, so I think we will beat by another 5%.
10:31I hear you.
10:34One question on air conditioners, to round up this discussion now, you mentioned the
10:39growth numbers currently now, specifically for air conditioners, do you see margins also
10:45for this year to be better than last year because you also backward integrated quite
10:49a bit.
10:50So this growth of course will be volume led as well as margin led because of backward
10:54integration as well?
10:56See margin led improvement because of backward integration we already witnessed last year.
11:01Just a word of caution here is that since the Andhra facility had only come up in January,
11:06so a lot of the costs in terms of manpower were getting pre-operative.
11:11So now being getting built onto the operation side of it, I mean, we will see our costs
11:16going up slightly on account of the new facility and the utilization being relatively low during
11:21the first year.
11:22So, I mean, that's a word of caution that yeah, Srila city would help us acquire more
11:27business and get into more customers, but at the same time being first year, we'll see
11:31that the cost impacts slightly negatively on the overall.
11:35So on that aspect, I'll say we aspire to keep margins at a similar level what we had achieved
11:40last year.
11:41About 8.2% is what you did last year and that was higher by roughly about 160-170 basis
11:47points in FY23.
11:48So for this year, I think a 40-45% to 50% growth as you're mentioning, with margins
11:53around 8.5%, 8-8.5% is what you're targeting.
11:56Well, Mr. Singhania, thank you so much for joining us today.
12:00It was a really good conversation and we look forward to our next chat after your Q2.
12:04But thank you so much for joining us today and giving us perspective.
12:06Thank you so much.
12:07Thank you so much.