EPACK Durable Limited (EPACK.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the EPACK Durable Limited Q3 FY '26 Earnings Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Tanay Shah from DAM Capital Advisors Limited. Thank you, and over to you, sir.

Thanks, Zikra. Good morning, everyone, and a very warm welcome to the Q3 FY '26 Earnings Call of EPACK Durable Limited. We have the management today being represented by Mr. Bajrang Bothra, Chairman and Whole-Time Director; Mr. Ajay Singhania, Managing Director and CEO; Mr. Narayan Lodha, Executive Director and Group CFO; and Mr. Rajesh Kumar Mittal, CFO. At this point, I'll hand over the floor to Mr. Bothra for his initial remarks, post which we'll open up the floor for Q&A. Thank you, and over to you, sir.

Good morning, everyone. I am Bajrang Bothra, Chairman of EPACK Durable, and I warmly welcome you all to our Q3 FY '26 earnings conference call. The Board of Directors have approved Q3 FY '26 results on 20th January '26, and I trust you all had the opportunity to review them. As many of you know, EPACK Durable is India's second largest ODM in the Room Air Conditioner segment. While RAC continues to remain a strong and scalable core business for us, we are consistently diversifying into higher growth and structurally better margin categories. Our revenue mix is becoming more balanced and dependence on the top customers are steadily reducing. This reflects both the broadening of our customer base across product categories and the increasing contribution from new verticals. Over time, this will make our business model more resilient, improve margin stability and reduce concentration risk while positioning EPACK for more sustainable and profitable long-term growth. Joining me on today's call are Mr. Ajay DD Singhania, Managing Director and CEO; Mr. Narayan Lodha, Executive Director and Group CFO, EPACK Group; Mr. Rajesh Kumar Mittal, Chief Financial Officer, EPACK Durable. They will take you through the details of our operational and financial performance for the quarter. Thank you. With that, now I hand over to Rajesh Mittal, our CFO, EPACK Durable, to take you through the key financial highlights for Q3 FY '26. Thank you. Thank you, sir. Good morning, everyone.

Welcome to our earnings call for the third quarter of the financial year 2026. I would like to thank our host, DAM Capital, for arranging today's earnings call. The key highlights for the quarter and the period under review are as follows. For the third quarter under review, revenue from operations stood at INR 427.8 crores, which increased by 13.5% on a year-on-year basis. The EBITDA for the quarter was INR 31.7 crores, increased by around 31.5% on a year-on-year basis. The EBITDA margin reported at 7.41% as against INR 6.39 crores -- 39% on a year-on-year basis. The net profit was INR 2.6 crores, which increased by 4% on a year-on-year basis. However, net profit margin contracted by 5 basis points to 0.61% due to higher depreciation and finance costs. Now I would request our Managing Director and CEO, Mr. Ajay DD Singhania, to brief you on the operational highlights.

Thank you, Rajesh. And once again, good morning, everyone. The company reported a healthy performance during the third quarter with performance broadly in line with our internal targets. Despite a challenging external headwind, we delivered a resilient performance. We also continued to strengthen our core business fundamentals during the quarter. We added 2 customers during the quarter for whom supplies have already commenced. With this, our total customer base has increased to 67 for first 9 months of the year in line with our growth objectives. Our washing machine business is also ramping up well and is expected to become a meaningful contributor to both revenue and margin over the coming years. With an improving product mix and better asset utilization supported by strong execution and continued focus on operational discipline, we remain firmly on track to deliver EBITDA margin expansion and stronger profitability on a year-on-year basis. From a segmental perspective, our AC business segment witnessed a marginal 1% year-on-year decline during the quarter. However, there is a strong performance across our other business segments. Hence, our overall revenue has grown, reflecting the success of our diversification strategy. The Small Domestic Appliances segment grew by 30% year-on-year basis, driven by healthy order inflows across both existing and newly launched product categories. Demand for air fryers have been very encouraging and is gaining good traction with customers. Our Components segment delivered a standout performance, recording a strong 61% year-on-year growth, supported by robust order pipeline for PCBs, copper parts and plastic molded components. The Large Domestic Appliances segment reported an impressive 74% year-on-year growth, driven by our continued focus on expanding product and diversifying customer base. Notably, our product business contributed [ 75% ] total operating revenue during the quarter, reaffirming strong customer confidence in our core offerings and highlighting healthy market adoption across categories. In line with our strategic scale and diversify, we have also taken a significant step in expanding our Component segment. This is a deliberate and strategic move to reduce concentration risk while positioning the company in adjacent high-growth industries. We see this as an important long-term growth lever that strengthens our business portfolio, enhances resilience and opens up new cross-sector opportunities for sustainable value creation. We remain committed to long-term value creation through strategic capital investments aimed at expanding capacity and supporting our diversified growth road map. By the end of Q3 FY '26, we made steady progress across multiple key locations. We have incurred INR 44 crores of CapEx in Q3 FY '26, primarily directed towards capacity expansion and equipment installation for washing machine lines, Component segment at our new CCT plant. Additionally, investments made at our JV facility with Hisense and our new greenfield plant in Bhiwadi are expected to commence production in coming quarters. These investments, along with the upcoming growing customer engagement, continued expansion of our product portfolio position us well for the future growth. With strong foundation in place, focused execution, we remain confident in achieving our full year target and sustainable healthy revenue and gross margin going forward. With this, we now open the floor for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Sucrit Patil from Eyesight Fintrade Private Limited.

I have 2 questions. My first question is to Mr. Ajay Singhania. As RAC now contributes less than 60% of the revenue, what specific initiatives are being taken to accelerate scale in SDA and LDA over the next 12 to 18 months, how do you see EPACK positioning itself to capture demand across Tier 2 and Tier 3 markets? And what role will backward integration or design play in strengthening the competitiveness? That's my first question. I'll ask the second question after that.

So regarding our specific initiatives, especially to grow the small domestic appliances and large domestic appliances, as shared earlier, we are diversifying both by increasing the product offerings as well as diversifying into acquiring of new customers. So especially in small domestic appliances, we have increased our product portfolio by introducing 2 new products in the current quarter and the last quarter, air fryer and nutri blenders. Going forward, we have plans to further expand our product portfolio and introduce new products like coffee makers, tower fans, air purifiers, et cetera. So with this expansion of product categories and acquisition of more customers, we are poised on strong growth. Similarly, for large domestic appliances, our washing machine category, we already started the fully automatic top load washing machines. Going forward, the company is also launching the front-load washing machines as well as the semi-auto machines. So with this, we believe that we will have a complete basket of product offerings to the customers. And definitely, the growth in both the SDA and LDA categories is more -- is very high.

My second question is to Mr. Lodha. With EBIT margins improving over 100 bps year-on-year, how are you planning to balance cost efficiency with capital requirements for scaling SDA and LDA? Could you share how the company is approaching working capital optimization and funding to support multi-category growth while still protecting the profits?

So while evaluating any product, whether it is SDA or LDA or any line, we deploy the capital allocation very diligently. We monitor the cost on product-wise and return on each and every product. Before launching any product, our internal team and every R&D team develop the product. And once the product is validated and approved by the customer and desired IRR and return is being calculated, that's why we make the investments. So despite the increase of our portfolio and other things, our EBITDA margin is increasing. And going forward, when the scale will be there, definitely it will broaden our overall margins.

Thank you for the guidance and I wish the entire team best of luck for the next quarter.

Thank you.

Thank you.

The next question is from the line of Aniruddha Joshi from ICICI Securities.

Congrats to the team for a good set of numbers given the volatility in the entire segment. Sir, 2 questions. One, how do you see the overall AC industry panning out? One -- what was the growth in December quarter? Secondly, now from January, we have shifted to new BEE tables. So what has been the price hike? Again, copper and aluminum prices have gone up. So how it will have an impact on the pricing of the products, e-waste cost has also gone up. So considering all these things, how do you see the impact on the pricing of the products? That is question number two. And three, in terms of overall, how do you see the entire sector panning out at least in Q4? Because at least so far, we have seen or whatever channel checks we have done is we understand the growth has been a bit slower in December and again, even in initial 15 days of January also.

Yes, Aniruddha. I think you are already aware that the first 2 quarters where the industry degrowth was anywhere between 25% to 30% kind of degrowth is what the industry has been experiencing on primary sales, whereas as far as secondary sales is concerned, the degrowth has been close to 15% for the first 2 quarters. Post the GST reduction, there was some slight recovery. And so Q3 was a cheer for the industry that the degrowth has reduced and presently, it seems that on the secondary side, the degrowth is anywhere around 10% to 12%. On top of it, especially for manufacturing, there was a big push, especially in Q3 to ramp up production considering the upgraded BEE norms coming into effect from January. So the demand for RAC is gradually improving. With implementation of new BEE norms, the industry has begun that especially from mid of January, the production ramp-up has again started for the newly rated BEE production. Q3, there has been liquidation of primary inventory by most of the brands as far as we know, since these products could continue to be sold in the trade till the end of June. So the channel inventory, yes, is definitely a little high, but it is expected to normalize post Q4 FY '26, supporting healthier demand and production planning going forward. And especially with the new BEE products, there is definitely a cost escalation on account of the newly designed product as well as commodity impact of Q3 getting passed on to Q4 could be minimum. So both BEE as well as the commodity impact currently seems around 8% to 10%, especially for the production, ongoing production in Q4 currently. And any further increase in commodities definitely will have further impact on the pricing going forward. Having said that, for EPACK, the margins are still protected because for us, all commodities are passed through. So that protects us, but that definitely remains the concern, considering the market demand outlook if the commodities continue to grow at such significant high levels.

Understood. But do you see the primary sales would have happened? Like the brands like Voltas, Blue Star would have sold to the trade and hence, the inventory at the brand level would have gone down. So there will be more need for manufacturing and they will be sourcing more products from us in Q4. Will that be a fair understanding?

Absolutely, yes. So yes, both Q3 and now Q4, the demand outlook is very robust. And all the brands are planning growth over financial year '24, '25 because FY '25, '26 has anyways been a bad year. So most of the brands are planning anywhere between 15% to 20% kind of growth over FY '24, '25 numbers. And based on it, the current order book is very robust for us. And we firmly believe that this momentum will continue and the demand outlook as of now is very positive.

The next question is from the line of Praveen Sahay from PL Capital.

Just a clarification. To what you had given some numbers like 25% to 30% of a decline in the first half of the primary sales, which has reduced to 10% to 12%, what you said by 9 months?

So Praveen, 25% to 30% degrowth was in primary sales, whereas the secondary sales was still at 10% to 12% over the last 9 months, which means that the inventory buildup which has happened in previous year was kind of sold out.

And secondly, on the -- you had also guided for the way forward 20% to 25% of a growth for you. So you are expecting whatever the liquidation by the brands, especially in terms of the primary sales, which has happened in the Q3, that giving you indication that's the way forward, the growth for you?

Yes. So currently, in line with our discussion with most of the large brand customers, most of the brands have planned 15% to 20% kind of growth over FY '24, '25 numbers. And the current RFQs and order book is in line with such escalated demand.

And on the pricing, 8% to 10% of our price hike to pass on the inflation. So that is for you, you were talking on or at the brand level or the sector level, you are talking about, 8% to 10% of the price?

Across industry -- sorry, Praveen, this is across industry for both us as well as the brand, the kind of increase which has already impacted the ongoing production with the new BEE-rated products. So part of it, accounts -- is on account of the new star rating and part of it is the commodity impact, which has already -- which has already impacted the industry in Nagpur.

And now moving to another part of your business, which is the component. And in the component, you had mentioned that there is a good order pipeline of PCB, copper parts and the plastic molding. So which product order pipeline is on the higher side. Is it more towards a plastic molding or some other products?

So for us, component business as a whole, all the 3 categories, the copper parts, plastic and PCB are rapidly growing. For plastic, especially, we are doing a lot of components like [ flow fans ] wherein we have approvals from almost all the marquee clients. So plastic parts, PCBs, copper, all 3 -- the entire component segment is what we see growing at a much faster rate. And not just components for AC, these are also for other diversified appliances.

Also, if you'll give us some indication on all the 4 segments, like RAC, SDA and LDA and the component, how is the margin profile?

Since we are not reporting margins at segmental basis, I can briefly talk in -- at a very high level, I can talk in terms of overall gross margins category-wise. So even in my earlier calls, I've said that for AC being a high ticket size products, the margins are -- the gross margins are the lowest, whereas for the small domestic appliances, the low ticket size products, the gross margins are relatively better. So considering our overall gross margins, net of [indiscernible] BOM costs at around 14% to 15% level, which is largely indicative of the gross margins in air conditioning. For small domestic appliances and large domestic appliances, the gross margins are comparatively better at around 16% to 17% and similar is the case with the components. So hence, like we see for the results declared in Q3, the margin improvement has been on account of the increased revenues from the other sectors, the other segments.

Right. And any indication like how your ex of the RAC segment contribution for next year.

So going forward, we continue that our growth in SDA, LDA and components will be much bigger and whereas the AC will also continue to grow. So our overall guidance remains that AC will be at around 60% to 65% of our total revenue. Small domestic appliances at around 12% to 15% and components again at around 20%. So that is the kind of overall guidance we have for the product mix and the revenue mix.

Right, sir. And just a clarification, sir, lastly, that 20%, 25% value terms you had indicating growth?

Yes. Yes.

The next question is from the line of Raman KV from Sequent Investments.

Can you hear me?

Yes.

Sir, I just have one clarity. You have spent 20% to 30% revenue growth in the coming year, FY '27. Sir, this is on the FY '24 base -- or sorry, FY '25 base or FY '26 base, growth?

FY '27, we have not especially shared any revenue guidance as such. We are talking about the industry growth and the growth in air conditions. So we are discussing that the growth of AC market is currently seems to be around 15% to 20% kind of growth in AC numbers for the industry for current calendar year FY '27 [indiscernible] discussion, yes.

So you are expecting -- after 3 quarters of degrowth, you are expecting a 20%, 30% growth in Q2 with respect to AC, if my understanding is right?

We are talking again, I repeat. So this is in line with the calendar year discussion for the seasonal AC market. So for the current coming season of AC, the market is planning a growth of around 15% to 20% over the FY '24, '25 number because the calendar '26 was a degrowth. So calendar '26 seems that the market will grow at around 15% to 20% over calendar year '24. This is the industry growth.

And sir, I just want to understand your CapEx plan. Can you give us a ballpark update on the CapEx -- current ongoing CapEx and future CapEx with respect to washing machine and component manufacturing expansion?

In our opening for this financial year, we have given a guidance that the company is looking at an investment of around INR 450 crores over next 12 to 18 months. In line with that, the company has already incurred a CapEx of almost INR 220 crores in last 9 months. So in quarter 1, we had an investment of around INR 45 crores. in quarter 2, INR 130 crores and quarter 3, the last quarter, another INR 45 crores. So totally INR 218 crores is something the company has already capitalized in last 9 months. And another 6 to 9 months, we are looking at an additional INR 225 crores.

Understood, sir. And sir, my final question, if possible, can you give us a guidance for the coming year?

The growth in AC is expected to be around 15% to 20% for the coming 4 to 5 years. And the company is poised strongly to grow at a much faster rate, at least like 25% to 30% growth in AC in next 4 till 2030 is the kind of outlook we have, whereas our other segments like LDA would grow at a much faster rate. So while we continue to grow for AC, our growth in SDA, LDA component would be much higher.

The next question is from the line of Anupam from SUD Life.

So if you can highlight the answer, what is the whole year [indiscernible]?

Can you a bit louder?

Yes, sir. Am I audible now?

Yes. Yes.

Yes. Sir, if you can give us some light on the old rated stock in the industry and what sort of our brand seeing on the new rated and how the order pick up and ramp-up is happening? As such, what is the strategy from the brand and the new rated units?

So Anupam, as far as the old rated product is concerned, the last date of production for the same was 31st of December. Our estimate is currently and the trade inventory put together, the overall inventory level in the market is approximately at 4 million to 4.5 million is the kind of inventory currently in the trade, which includes the inventory with the trade partners, brands, everywhere put together. As a manufacturer, we are not allowed to carry any inventory of the old rated product. So we have 0 inventory of the old rated product. This inventory [Audio Gap] over Q4. However, it is allowed to be sold until June of FY '26. The new rated production -- production for the new rated product for everybody, this is gradually ramping up. Going forward, the entire production has to be done with the new rated product only.

Sir, just one more, you may have repeated. On the summer outlook, how are we ready? Do we see, let's say, first half any growth than the last year? Because last year, there was a good sort of production happened? How production or sales do you expect in this first half of next FY '27?

So for the current calendar year, Jan to June, if I talked about last -- like I've been repeating, the industry is preparing itself for a growth of almost 15% to 20% on calendar year '26 numbers. Hence, we are very positive that both Q4 Jan to March as well as April to June are going to be significantly better as compared to the last financial year. And the industry is looking at a growth of 15% to 20%. However, having said that, for the entire financial year, '25, '26, we believe that the industry degrowth would be close to 10-odd percent overall.

The next question is from the line of from [ Trisha ] from Sapphire Capital.

So I think you mentioned that around AC, I think you're targeting 60%, 65% and SDA/LDA around 15%, 20% and components were at 20%, right? For next year, the product mix. But like going ahead, because you mentioned that we see LDA, SDA, and component growing much faster than the AC growth. So what is the sort of average product mix we have, say, 2, 3 years down the line?

So [ Trisha ], for medium- to long-term horizon, this is the outlook that we are trying to diversify and reduce our overall dependence on AC. And as we can see over the last 3 years, we have gradually reduced dependence on AC from 80% to now currently 57% or 60%. And it will further reduce to around 55% in the medium term, let's say, till FY '28, '29 kind of. So that's the overall guidance that AC contributing 55% of the overall revenue and our SDA/LDA growing to 25% and component another 20%, 25%. So that is the overall revenue mix the company is looking in the medium-term horizon.

Okay, in the medium term. And sir for FY '27, what kind of EBITDA margins are we targeting?

Again, we don't give guidance on financial year to financial year basis. But overall, the company is confident that we will maintain margin -- EBITDA margin of 7.5% to 8% in medium- to longer-term horizon.

The next question is from the line of Tanay Shah from DAM Capital Advisors.

Just one question, a couple of questions.

Tanay, can you be louder?

Yes. Am I better now?

Yes.

Yes. Just a couple of questions, right, starting with AC. We've spoken about how channel inventories are yet at around 4 million, 4.5 million. And commodity inflation to that extent, also cause for price hikes, which are pretty steep. So going ahead, while you're expecting -- while the brands also expecting 15%, 20% sort of a growth for the calendar year, how can -- what are the potential risks to this growth which you are seeing obviously with this whole commodity inflation sort of playing out. So there is one bit where the brands are sort of positive on demand, but at the same time, you have these costs coming up as well. So what would you sort of comment on that?

So Tanay, you are an industry expert. You know that the risk with any industry and especially seasonal industry like AC, especially the demand in terms of the seasonal lift is always there. But however, especially when we are talking about the India market and the overall potential, the tailwinds are still strong with the lowest penetration. One of bad season does not indicate that the overall industry is not poised to grow. So like I've been repeatedly sharing 15% to 20% kind of growth in medium- to long-term horizon is what the industry is definitely poised to achieve. And by almost 2030, the industry is looking at a demand of anywhere up to 28 million to 30 million is the kind of numbers what everybody is projecting. So the overall tailwinds still remain very strong, and especially with now the BEE ratings improving year-on-year, the efficiencies going high, the electrification, the incomes -- per capita income improving, we don't -- we have witnessed that in last 3 to 4 years. The overall seasonality effect has reduced and AC is becoming more of a uniform demand across quarters, although not to that level, but then it is significantly improving every quarter. Hence any seasonal risks are getting reduced year-on-year. And especially if we are worried about bad of season in calendar year '25, it has to be also looked from the perspective that the year previous to it, it grew at almost 30% plus. So already at a much higher level, this kind of risks are always there. But now the overall demand situation seems to be more rational and uniform. Hence, the risks are there minimum.

And second, in your opening remarks, you also spoke about how washing machines can be a meaningful contributor to revenues and margins. So any comments on how they're sort of scaling that up? You spoke about getting into top loads and then front loads also. Given that in the industry, there is barely any outsourcing which happens for front loads, almost minimal, what is our plan out there in terms of washing machines?

So Tanay, in terms of washing machine, we had started our top load, fully automatic washing machine almost 2 quarters ago, and now we see significant ramp-up happening with the acquisition of 2 key new multinational customers with whom the demand outlook is extremely good. And this gives us a lot of confidence. We have -- we are already witnessing a large ramp-up happening in our washing machine category. And with our Hisense JV, we have already started now the setup of our new line for the front load, again, wherein we see Hisense as one of the key customers and then other customers are also in the pipeline. So like you rightly said, currently, there's no meaningful outsourcing happening for the front load. But at the same time, there are no established manufacturers also in India for the front load. So that gives us confidence, and this is what we see as a growth contributor, which will then drive our further growth in washing machine category. Semi-automatic or twin tub is more -- is a category just to fulfill the entire product catalog -- the product offering. So for us, the focus remains largely on the fully automatic, both top load and front load, and we see significant ramp-up happening in the next 3 to 4 quarters.

The next question is from the line of Ashish Jain from Macquarie.

Sir, my first question is this 15%, 20% growth you're talking about is volume terms, I assume?

Yes, Ashish.