EPACK Durable Limited (EPACK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3, FY '25 Earnings Conference Call of EPACK Durable Limited, hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, Ms. Nair.

Yes. Thanks, Michele. Good evening, everyone, and I welcome to the Q3 FY '25 Earnings Call of EPACK Durable. We have the management today being represented by Mr. Bajjrang Bothra, Chairman and Whole-Time Director; Mr. Ajay Singhania, Managing Director and CEO; and Mr. Rajesh Mittal, CFO. At this point, I'll hand over the floor to Mr. Singhania for his initial remarks, post which we'll open up the floor for Q&A. Thank you, and over to you, sir.

Okay. Bhoomika, thank you, this is Mr. Rajesh Mittal, just giving the opening remarks. Thank you, and a very good afternoon, everybody. Welcome to our earnings conference call to discuss the performance of the third quarter and year-to-date results of the financial year 2025. Let me first thank you our host for today's earnings call DAM capital. Now let me give you some of the key financial highlights for the quarter and period under review. For the third quarter, under review, revenue from operations stood at INR 377 crore, which increased by 35% year-on-year. The EBITDA was [indiscernible] INR 24 crores, which increased by around 1.3% year-on-year with EBITDA margin reported at 6.37%. The net profit was around INR 2.5 crores. Talking about 9 months under review. Revenue from operations stood at INR 1,528 crore, which increased by 71% on a year-on-year basis. The EBITDA was reported at around INR 86 crores, which increased by around 41% on a year-on-year basis with the EBITDA margin reported at 5.60%. The net profit was around INR 17 crores as compared to around INR 8 crores in the 9 months ended -- for the previous financial year, which represents an increase of 132% on a year-over-year basis. The PAT margin stood at 1.14%. Now I would request our Managing Director-cum-CEO, Mr. Ajay DD Singhania, to brief you on the operational highlights. Over to you, sir, please.

Thank you, Rajeshji. And once again, good afternoon, everyone. So like shared, we had a strong performance in Q3 FY '25 with revenue surging 35% year-on-year due to strong industrial tailwinds as well as addition of new customers across all segments. EBITDA grew substantially vis-a-vis previous quarter by 150%, driven by better product mix, resulting in higher gross margins. On a year-on-year basis, the EBITDA growth working is lower because of higher costs related to our new facility at Sri City, which has not yet reached optimal utilization. The capacity utilization at Sri City gradually being ramped up as we get up to meet customer demands with enhanced production efficiency to support the growing needs of key customers across multiple product categories. And as we reach optimal levels of utilization in the coming quarters, this plant will contribute considerably well to our margins. For the third quarter, the product business has contributed 98% of total revenue and revenues from Room AC segment contributed 66% of revenue, which has grown by 37% year-on-year. Overall, in last quarter, some key operational highlights were: one, we laid the foundation of our wholly-owned subsidiary at Sri City for which the construction has already begun. And at this new subsidiary, we are targeting to start Hisense production of room ACs around Q3 of the next financial year that is in August-September, but we are targeting to start production for the license product. At the same time, we believe that our diversification strategy has definitely helped us in this quarter despite growing at 37% in RACs, the overall dependence on RAC has reduced to 66%. With this, I now open the floor for QA session.

[Operator Instructions] The first question is from the line of Aniruddha Joshi from ICICI Securities.

Sir, just 2, 3 questions from my side. One, we have seen the other expenditure as a percent of net sales has gone up and as you rightly mentioned about the initial expenses Sri City new plant. So means, in light of this, how do we see the margins for whole of FY '25-'26 spanning out? And essentially, when do we see the normalization happening at Sri City plant? That is question number 1. Question number 2 is, if you can share more details or hence what are the products that we will be manufacturing and is there any road map in, let's say, 2-year 3-year road map as far as the production is concerned? This is the second question. Third is the media news flows indicated about in a way Hisense taking a stake also in the -- at the subsidiary level. So any progress on that front as well? This 3 question from my side.

Thanks, Aniruddha. So the first question around margins normalization, like what we have been contemplating or what we have been guiding the market also from the very beginning is that as our this new Sri City facility is getting stabilized, and we are seeing quarter-on-quarter improvement in the capacity utilization. By end of this calendar year, we'll definitely see the Sri City facility reaching its normalized capacity utilization to around 50% from current 15% to 20% utilization. And for this current fiscal year, we believe that our EBITDA margins would be around 7.25% to 7.5% range, which we have been also guiding previously to the market. So we'll be -- targeting to keep the PBT margins somewhere around 7.25%, 7.5%. And further normalization of Sri City would definitely help us drive margins better in the coming years. In terms of the Hisense product road map, like I started seeing that our construction of facility for AC is already started, and we are looking to completely construction around the end of July and then the testing and everything set up of equipment will take another 2 months. So by September, we foresee that we should start the OEM production of air conditions. At the same time, our washing machine, which is currently being already set up at Sri City is now in the final stages of testing. So washing machine will be rolled out earlier around Q2 of the next year -- financial year and in Q3 AC and a more detailed road map in terms of the other appliances like refrigerators and also what we've been talking about are definitely at least 2 years ahead. So those would be somewhere in FY '28. And in terms of the stake, like I think the clarification was also given, a maximum of 26% stake is what is under discussion with Hisense in this new wholly-owned subsidiary, EPACK manufacturing. So this is currently under discussion and because it is also subject to a lot of regulatory requirements and approval by the government of India, so Hisense is waiting for us to complete the construction of the new facility. And by then, they will be initiating the process.

Okay. Sure, sir. Understood. And just lastly, 1 question. Now how do you see the, in a way, season panning out and considering the announcements regarding income tax in budget, definitely, there is a potential that the consumer discretionary segment should logically benefit like AT or in a white goods or auto, et cetera? So where are we -- how do we see the, in a way, demand panning out in the coming season?

Aniruddha, in terms of our core product deal mix segment, the strong demand continues, since last 9 months or so. And even currently also, the inventory levels in the trade are much lower or we can say, are well within the normalized inventory levels and the demand continues to grow. The order book for the season is extremely good. And with this additional impetus given by the Government of India in terms of additional discretionary income, we believe that AC is definitely 1 segment, which will see a lot of -- better attraction. So I think this definitely is a good news for the overall durables and AC especially with the heat wave continuing even in Feb, I mean definitely, we are on for a very good time.

Okay. And means, again, there are some indications that there are issues in supply chain of compressor. So is it largely resolved or we may see some issues in Q4?

So issues in supply chain definitely have impacted the industry even in the last quarter. Q3, we had a lot of disruptions in the critical raw material copper, which kind of disrupted the industry. There was no local supply available and the BIS approval was not given to the Chinese manufacturers. So that definitely impacted the industry. Currently, the BIS approval has been given to a few supplier abroad, which will help us normalize the corporate requirement. Compressor is something, which is not directly or currently impacting the industry, but definitely June onwards, when a few suppliers lose their BIS certificate, unless a renewal is done, that will definitely lead to certain disruptions. So till June, July, we believe that there are no critical disruptions in terms of the compressor, but yes, copper has already impacted us.

The next question is from the line of Rohit Tiwari from [ Finvestors ]. As the current participant is not answering, we will move on to the next question, which is from the line of [ Harshit Saini ] from [ Summer ] Wealth Advisors.

Harsith here from [ Summer ] Wealth Advisors. My first question is regarding the sales growth. So -- which seems to be quite lower than the previous quarters. We have also seen a drop compared to the last quarter. However, one of our competitor has reported strong numbers. So what do you think is the driving difference behind the performance?

Thanks, Harsith. Overall, if we see our 9-month growth in the air condition is 83%. And in 9 months, we have already crossed INR 1,550 crores, which is at 10% more than the overall 12 month of previous year. So, especially you see -- if we talk about the company has performed remarkably well by delivering 83% growth on -- in the last 9 months. And the previous quarter also, we have grown by 35%. But like I mentioned, there were certain supply chain disruptions in terms of availability of copper, which not only disrupted us, but also the entire industry, wherein maybe a few coverage from some suppliers might have helped them to sustain, but it definitely impacted us as the whole industry.

Okay. And what would be our revenue target for the next year or the next quarter?

Our previous guidance to the market was that we were looking at the overall revenue of INR 2,150 crore for the 12 month, that's been our guidance previously also. So we would like to maintain the same guidance that we are looking to close the year at INR 2,150-plus crores.

Okay. And the next year guidance?

We have not shared next year guidance as of now. So at the right time, we will share the guidance for the next year as well.

We'll take the next question from the line of [ Kaushal ] Sharma from Equinox Capital Ventures.

Sir, my question regarding the -- on the compressor side. As we see that there is a short supply of the compressor, and we can see that we are importing largely from outside India and one of the competitor is also making compressor in their company. So are we planning any manufacturing on the compressor side so that we can also get backward integration over there as well?

Thanks, [ Kaushal ]. We definitely understand the current concerns around the supply chain and especially compressor availability in the long term. Having said that, we also believe that as we have been meeting regularly with the government agencies, DPIIT and a lot of rounds of discussion along with the compressor manufacturers has happened and the kind of issuance is given by the 2 leading manufacturers, both [indiscernible] and GMCC, has been that they are going to increase their capacity in India next year. And at the same time, 2 more plants went from Daikin along with its JV partner where Rechi has been also initiated and then LG has also started the export production. So we believe that within the next 12 to 18 months, sufficient capacity will be developed within the country to meet the domestic requirement. And hence, any challenge in the long-term is not contemplated. However, in the short term, yes, there are some challenges wherein we seek the government interference to grant further BIS licenses that is for next 12 months. But in the long run, we don't see -- if we don't foresee much challenge in terms of domestic capability available for compressors. Especially, 1 more thing I'd like to highlight here is that definitely last quarter, there were some challenges in terms of compressor availability as well. The reason was very obvious that China was kind of pushing its exports to especially U.S. market in light of the change in government there and the contemplation that the duties are going to be increased -- the import duties from China are going to be increased, so there was a lot of push from China to the U.S. market, and that definitely led to a short-term supply shortage to other countries like India. But this quarter, we definitely see that supply shortage is getting normalized and there is no big challenge at least for next 2 quarters or the peak season for the AC season.

[Operator Instructions] The next question is from the line of Deepali from Ventura Enterprises.

My first question is regarding would you be able to provide us the time line regarding your small domestic appliance and larger clients, like has the reduction begun? And what is the capacity utilization of all these products?

Okay. So Deepali, in terms of our diversification into newer, larger appliances like coolers and washing machines, cooler is something for which we have already ramped up our production. And for the season, we are looking to produce anywhere between 60,000 to 70,000 coolers per month on an annualized 2.5 lakhs is what we're looking at in terms of cooler, especially. For the washing machine, the lines have been set up, the trial production has already been completed since the beginning of this -- of the previous quarter. And currently, we are waiting for a lot of approvals from our client side, which we see that would be granted by end of this quarter. So definitely, Q1 should be when -- Q1 of next financial year should be the period from where our real mass production should start for washing machine. And therein, we are looking to ramp up our capacity in a phased manner to 100,000 per month or an annualized capacity of 1 million in the first calendar year of -- or the first financial year, '26-'27 -- '25-'26 for the washing machines. Similarly, for the time lines for the small appliance that we see from our current product portfolio of just mixer-grinders and induction cooktops, we are further expanding our product offerings, and we are starting air fryers to begin with from the end of next month, so towards the mid of March, we should be starting our production for air fryers and then more categories are under additions, and we'll see a lot of newer products coming in Q2 of next financial year. Your second question on capacity utilization. The annualized capacity utilization for AC for the EPACK as well as the entire industry is around 50% to 55% that holds true for our both the older facilities, Dehradun as well as Bhiwadi. So whereas for Sri City the annualized capacity currently stands at around 15% to 20%, which we are now ramping up, and we believe that by end of Q3, we should have -- we will touch the normalized levels of 50% capacity utilization for Sri City as well.

Sure. So my second question is regarding the working capital requirements. As you previously discussed that the trade receivables were not discounted in the last quarter. Are we seeing something like -- something similar happening in the coming quarter or in this quarter, did we observe anything like that? And what are our working capital levels like? And how are we maintaining our inventory levels?

Probably this working capital requirement -- and actually, we are having maintaining around as we quoted in the last time also, around for this December around INR 350 crore. And if the requirement comes with respect to discounting the business mix, then there will be some amount of discounting, which we will need because in the month of this March, which is a major business period for us for the quarter 4, there might be some requirement that we will get the bills discounted in this quarter 4 also. And we will be maintaining this requirement around INR 350 crores to INR 360 crores.

Okay. So do you think we will still require an additional amount of debt to finance any of our CapEx requirements or any additional capacity, which we want to ramp up?

No. For CapEx requirement, there would not be any requirement. You know that we already have some funds, which will be utilized in the time to come. As far as the first CapEx requirement, there is no requirement of any fresh loan.

Okay. Do we have any revenue guidance regarding the Epavo motor supply, the BLDC motors that we want to sell from Epavo?

Yes. So Deepali for our joint venture company, Epavo Motors, the new greenfield facility has been set up at Bhiwadi, which will be completed by end of Q1 of next financial year. So currently, we are still continuing production at the [ mixshift ] facility in Silvassa. So we'll continue the production at the [ mixshift ] facility for 3 months of this peak period, and then the greenfield facility will be started in Bhiwadi around end of May or June. And we are definitely looking to achieve our PLI targets in terms of revenue for the first year of operation for this new facility. So we are targeting to achieve a revenue of almost INR 150 crores in the new facility for financial year '25-'26.

Okay. My last question would be regarding the PLI scheme. A few companies did get the PLI scheme, which was recently announced regarding the AC. Did we apply for any additional PLI or the initial PLI scheme is only valid for us? And what was the receivable for PLI during this year? And how much has been received already?

Okay. So in terms of PLI 2.2 EPACK did not apply for the -- any additional PLI in the new 2.2. We are continuing with our first application of INR 300 crores in EPACK Durable and INR 50 crores in Epavo. So we've limited our application to that amount only. In terms of receivable, our last receivable of approximately INR 50 crores is expected to be received by end of -- the before end of March. So technically, we last year also we received it in the month of March. So this year also, we're contemplating that March should be the time by when we should receive this INR 50 crores, which has been included in the last -- previous financial year. And this year, we are allowed max PLF INR 37.5 crores, of which close to INR 21 crores has been incurred in the last 9 months INR 28 crores has been included in the last 9 months.

Okay. One another question, if you can take it. There was something regarding QC on copper, and you said that there's some local manufacturer that has promised you to deliver the QCO copper by December end. Is this still happening or is this production delayed? Or are we procuring copper from some other source?

Yes. So in terms of copper, QCO this is what I was addressing in the previous question also that the domestic manufacturer, who had promised to set up facilities by September, October or before the start of season did not complete their facilities and none of them could start production. So the entire industry was put at a scenario where the domestic manufacturing capacity was not available and imports were stopped. So that highly disrupted the supply chain for corporate. Now I mean a few imported supplies, import suppliers have been granted BIS, so at least that will provide us relief in the short term. At the same time, we definitely wish that the domestic suppliers, who had promised to set up capacities completed as soon as possible, so that we can start sourcing the copper locally.

[Operator Instructions] The next question is from the line of Balasubramanian from Arihant Capital.

Sir, my first question regarding RAC side. Is there any approximate or any breakup for IDU, ODU and WNC and the domestic air coolers on the revenue side for 9-month basis?

Yes. For the 9 months ended December, we have done a revenue of almost -- AC is around INR 1,240 crores is what we have achieved for AC. I don't think, it answers your question?

Sir, I'm asking like -- like percentage in terms of AC itself, IDU, ODU and Windows air conditioner or domestic air coolers in percentage terms?

I don't have the number in front of me right now. Probably, if you can drop in the line I'll ask somebody to reply to it.

My next question, sir, regarding this CapEx for AC business like around INR 240 crores over the next 3 years and what's the current status on it?

We have already capitalized INR 55 crores in the first 9 months, actually. And we are on the track. As we mentioned last time that there will be around INR 220 crores to INR 240 crores investment in the next 2 years. The company has already invested around INR 55 crores to INR 60 crores in the first 9 months.

Okay, sir, I got it. Sir, on the PLI how much we have realized on a 9-month basis, sir?

Sorry, come again?

PLI?

PLI, means -- what is the question on PLI?

Sir, how much till the 9-month FY '25 basis, how much like PLI is realized?

Total amount would be around INR 37 crores. Out of INR 37 crores, INR 27 crores has been accrued in the first 9 months.

The next question is from the line of [ Soumyadeep ] Das from Clover Capital.

Sir, I just wanted to know the future growth path. So you had somewhere mentioned that our company will be growing by 50%. 2, 3 years down the line, so are we on track on the bottom line and the top line? So how do you foresee, sir?

Okay. Thanks, [ Soumyadeep ].I don't recall having mentioned anywhere that we will be growing at 50% over 3 to 4 years. But definitely, we said that for this current financial year '24-'25 we had mentioned 50%-plus growth, and we are on target to achieve that growth. And we've already grown at 77% in the last 9 months, I think our projection in terms of the current financial year holds good that will surpass our initial target of 50%-plus growth.

Okay, sir. And 1 more thing, sir, are we also doing something to enhance our PAT margin, which is about 1.1% in future?

Yes, right. So see enhancing PAT margin, I think we already started addressing that the current PAT -- dent in the PAT has definitely been because of the increased expenses of the newer facilities intersecting and as our utilization of this facility improves in the coming quarters, we will definitely see a better improvement in the PAT and overall margins as well. So definitely, the company is working on improving the PAT margins. As we improve our utilization and at the same time, the diversification journey, which we started 6 months ago is definitely paying us that our product diversification and the overall product mix is helping us further improve the overall PAT and margins. So like the last quarter, we see that our dependence on AC despite growing at 37% has come down to 66%. So this in itself is an indication that we are also growing well with our other areas like the components and the small appliances and also the large appliances. So each of the levers, which we have put in place have started fighting and we definitely see that with all these combinations, we will be able to enhance our PAT further in the coming quarters.

So have you kept any ballpark figure for that in the future?

So revenue guidance I've definitely shared with everybody.

No, I'm talking about the PAT margins. So like have you any ballpark figure are in mind or any calculation from 1.1% to somewhere in future?

No, no, if you see the last 9 months or so, we were having our PAT around 1% for the first 9 months or apple-to-apple basis practically. And if you see the business in quarter 4 is better than the -- because of seasonal industry, you can compare the numbers, which we have already declared with the stock exchanges, you have the annual reports also with you. You can compare the number on a quarter-on-quarter basis, it will give you a better idea.

So, actually, [ Soumyadeep ] we are not sharing any forward-looking numbers over any of the calls. We have only shared the numbers in terms of revenue. In terms of PAT guidance, still we have not shared any guidance on the PAT numbers, and we definitely curtail ourselves from sharing any such numbers.

Okay, sir. And sir, 1 more last question is like...

I'm sorry to interpret you Mr. Das, I would request you to rejoin the follow-up questions, please, there are others waiting. We'll take the next question from the line of [ Jalaj ] from Swan Investments.

Congrats on a decent set of numbers specifically on the margins. So I have a few questions. So first of all, I just wanted to understand what explains this thing? Partially, I do understand that the gross margins have improved over the -- sequentially, over the quarter. But if you could give something to it as to what is the reason behind the exact reason behind the improvement in gross margin in terms of the EBITDA margins?

Okay. So Jalaj in terms of the improvement in gross margin, like I shared earlier, in the previous quarter, our dependence on AC was somewhere around 77%, which has come down to 66%. So this means that our overall product mix in this Q3 has helped us get better margin, especially if I say that our component business is something which has grown almost fourfold from Q2 to Q3, so that definitely something, which is then driving our both improvement in material margin as well as the overall EBITDA margin as compared to Q2. So our diversification strategy, definitely, we see is helping us improve our overall gross margins.

Got it. Understood. And sir, this is a little more long-term question, understanding of the business is how we are seeing. So let's assume 2 years, 3 years down the line how do we see the business setting up moving away from the RAC industry per se with RAC share? Because I understand RCA itself for contract manufacturers is growing decent at 15%-20% or even north of that. So how do we see -- what would the revenue mix or in which direction are you moving the business? And how are you seeing that thing happening, maybe 2 years, 3 years down the line, I'm not asking for any guidance much more from a perspective of, yes.

Understand. Understood. So Jalaj especially RAC definitely is now growing -- the market is growing at anywhere between 18% to 20% is the kind of growth the market has started talking about in the near medium term for next 3 to 4 years. And we at EPACK definitely see that we will outgrow this number, and we will grow at a much better percentage in terms of AC -- RAC sales. Despite growing at let's say, was the market growth of 20% in AC, we believe that our overall dependence on AC on an annualized basis will come down from 80% to somewhere around 60% to 65% in the next 2 to 3 years, which essentially means that our small appliances, the new segment of larger appliances like washing machines and coolers as well as component business is deemed to grow at a much faster rate. So this overall diversification of product mix will help us achieve both enhanced margins as well as also improve our overall capacity utilization in 12-month period. So that's the overall strategy on which the company is working in a medium-term basis, if we talk about.

Got it. And 1 last question. Quickly, and what sort of target ROC profile or ROE profile, do we target, let's assume we reach to a peak capacity utilization onto our Sri City plant. And otherwise what directionally do we see as a peak ROC or ROE profile for the business?

The current capacity utilization on an annualized basis for RAC limits us to anywhere between 50% to 55%. In recent few years, we have seen that the seasonality keeps improving or the demand also coming in the non season of typical for AC. So going forward, we definitely are working to improve our RAC utilization from 50%, 55% to at least 60%, 65% in near short -- medium term, let's say, 3 to 4 years as the market is maturing. So that is where we see the utilization for RACs.

So, I meant more from ROC profile. What I meant was a return on capital employed for the business, basically in terms of the -- what we have invested capital, I guess we sit on a capital base of almost INR 53 crores -- INR 530 crores on the plant and equipment, and there would be some sort of working capital also invested in the business. So I meant what sort of returns are we expecting on that -- more from an IRR perspective or an ROE, ROC perspective?

So in terms of ROE/ROC, we're looking at anywhere around 15% to 16% in next 2 to 3 years, so FY '27, '28 onwards we definitely believe that we will be able to improve the ROE to a 15%-plus level.

The reason is that because as of now, the capacity, as sir has already mentioned, capacity has not been utilized completely we'll get the fruits in the coming years.

Got it. And 1 last question, if I may squeeze in. So sir, this is, per se, with regards to the 50%, 55% capacity utilization, you've mentioned for RAC. So as a conceptually, I wanted to understand, is there a possibility of fungibility of the RAC capacities being used for other components or other -- let's assume the same line being used for washing machine or a deep cooler freezer? Is there a possibility? Because as a contract manufacturer, that is what differentiates us from a pure-play brand, who has an OEM who doesn't have a much more product portfolio that way?

Absolutely, agree with you. And I think this is an area, where we are working. And when I see that we will improve our overall utilization from 50%, 55% to 65%-plus. That's the whole idea that most of the manufacturing capability is fungible and can be utilized for similar other larger appliances like washing machines and coolers and et cetera. And this is the direction we have taken. So like the impact we can see in the previous quarter also, the more we balance our capacities by adding other appliances, we definitely see the impact coming on the margins and the overall return metrics as well.

We'll take the next question from the line of Bhoomika Nair from DAM Capital Advisors.

Sir, just wanted to understand how our component revenues are scaling up? And how do you see that kind of first in the 9 months, how much it has contributed -- and which areas you're seeing brands kind of sourcing from us? And how do you see that scaling up over the next couple of years?

Bhoomika, for 9-month ended period, our component sales stands at almost 6% of the total revenue. And for the previous quarter, Q3, it was almost 14%, so that's in percentage terms. And in revenue terms, it is currently close to around INR 90 crores, which we believe we should ramp it up to at least INR 190 crores to INR 200 crores for this entire calendar year for this entire financial year, that's the number we are looking at. And the major components we see the outsourced by the brands are especially like cross flow fan, copper tubular parts and controllers. So all these 3 major components, which are both high value as well as strategic components are something in which EPACK has been getting business from all the bank customers.

Okay. Okay. Got it. Got it. And we're seeing a lot of brands kind of coming and certifying and lifting material from us from this component business per se. So this can definitely grow faster than the finished good part of it, components will probably grow at a faster pace. Sir, over the next 1 or 2 years, where do you see the contribution from that broadly about a 10% level moving over the next 2, 3 years?

So Bhoomika, like I shared in all we are looking that AC from 80% will come down to 60%, 65% in the growth phase, so component definitely from 4% in the last year, currently at almost 6% and then up to 12% to 15% is definitely 1 number we are looking at in the medium term in the next 2 to 3 years.

Sure, sure. So the other area is on exports. I know, it's very small right now, but how is that demand kind of scaling up any outlook in terms of that business?

So exports definitely for us has grown substantially in this current financial year as well as last year from -- currently, it is 4% of the overall revenue in AC. So exports contributed almost 4% of the total AC revenue, which used to be typically 1% or 2% in the previous year. So it has already grown by 200% in this current year. And going forward, we definitely see much better growth in AC as our own manufacturing is helping us drive a lot of cost leadership as compared to China. So within the next 3 to 4 years, we see a much larger and rapid growth in export as well. In the current financial year, it is 9 months ended, it's already 4% of the total AC revenue.

Got it. Got it. And lastly, sir, if I may just have the gross debt and the net debt numbers, net cash numbers?

Yes, Bhoomika, if you see the total debt as of today in the book is around INR 490 crores.

Okay. And cash on book, sir?

Cash and cash equivalent is not much, it is around INR 13 crore around.

So gross debt is INR 490 crores.

INR 480 crores, around INR 78 crores is the net debt numbers.

The next question is from the line of Shraddha Kapadia from Share India.

Congratulations on the good set of numbers. Sir, basically my question was on the capacity utilization. If you could provide the capacity utilization for all your manufacturing facilities which is there? And also a brief idea for the capacity utilization for your products, mainly RAC and the components?

Thanks, So the capacity utilization, like I shared in the previous description also, both for Dehradun and Bhiwadi it has been close to 55% to 60%. So for AC or as a whole, the plant as a whole has been 55% to 60%. Whereas Sri City is something which definitely is a concern for us currently, and it stands 15% to 20%. And this is 1 area we see that will help, at least in Q4, we should see a better utilization of Sri City and going forward in next 3 to 4 quarters, we believe that we'll achieve a similar utilizations of what we are achieving at Dehradun and Bhiwadi in an annualized business as Sri City as well.

Okay. Sir, could you provide product-wise for RAC and the components?

Product-wise utilization actually because this is a mix of the manufacturing facility. So since we are not reporting numbers on a segmental basis and the manufacturing capacities are fungible. So they are not aligned except heat exchanger, everything is fungible. Hence, the utilization is on an overall basis only currently.

We'll take the next question from the line of Amit Agicha from HG Hawa.

Congratulations, sir. Sir, my question was with respect to the employees, like what is the current workforce size? And are there any plans to increase hiring? And is there a skilling and development program in place for employees, particularly in research and development and manufacturing?

Total number of employees in white collar is currently is around 800. And in blue collar, because it is seasonal, so we have a lot of contractual workers joining us on a seasonal basis as and when required, so that exact numbers going to be there with me handy. In terms of skill development, especially for AC skill development, both in terms of the manufacturing skill as well as R&D is something for which we are highly committed and where we focus a lot -- so like in manufacturing, we have special skilling centers and brazer training centers, brazer schools and all those things, I mean, which are like the best practices in the industry, we're already doing it. In R&D, our current manpower strength stands at around 80 people, so which is almost like 10% of the total white collar manpower what we have and it has been growing rapidly since last 2 to 3 years. So R&D manpower our focus on R&D is very high for us, and this is what makes us stand out as 100% ODM for ACs.

And sir, what is the total proportion or percentage of the revenue which is being spent on research and development?

The percentage of revenue won't be significant here because we are an OEM, ODM manufacturer for us I think it is more important to look at our R&D expense in terms of the total employee cost, so which currently stands at around 15% to 17% of the overall employee costs.

15% to 17% of the overall employee cost?

Yes. Is our spend in R&Ds alone.

[Operator Instructions] We'll take the next question from the line of Rahul from LKP Securities.

I just wanted to know the bifurcation of debt, how much is the current debt out of INR 490 crores? And my second question is that how we are going to fund the working capital about the Hisense production? So do we have enough internal accruals or are we going to raise any sort of current debt?

Out of this INR 490 crores, I will say that because this is mainly the working capital and the term loan is around INR 60 crores to INR 70 crores only, so major amount because of the working capital requirement, which is known as the cash credit and bill discounting amount so INR 400 crores will be the current amount of INR 420 crores. And as far as the second question is concerned, there is no such requirement to raise any further term loan because we already have the funds with us available for the further expansion, which will be utilized for the CapEx purposes.

Okay. And I just wanted to know the contribution from RAC for the quarter 3 of FY 2024?

Sales contribution for...

RAC contribution?

Sales contribution of RAC was 66% of the total revenue of INR 370 crores for this Q3.

For the Q3 of FY '24?

FY '24 AC was on 65%.

The next question is from the line of Kunal Tokas from Fair Value Capital.

This question has already been asked, and I'm sorry because I was like late to the call. But my question is about the water washing machine industry. And specifically, if you can share of the overall industry, how much volume is outsourced versus made by the OEMs themselves? And what sort of trade-offs happen here because we are seeing strong outsourcing momentum in air conditioners? Can a similar thing be expected in washing machines?

Thanks, Rahul (sic) [ Kunal ]. So washing machine segment, if we see, today, the overall market size of washing machine is around 14 million, of which 45% is semiautomatic by value and 55% is fully automatic. Of this fully automatic, there are 2 types, the top load and the front load. Top load is something which is currently almost manufactured in India and front load is something which is essentially imported. There are only a few manufacturers which produce front load. So -- and there has been almost 8% to 10% CAGR in washing machines in the last 4 to 5 years. And it has -- the growth has been mainly driven by the fully automatic segment of top load and front load both -- and this is 1 area, where the EPACK has invested currently. So we are starting production with the fully automatic top load machines, 8, 9, 10 kgs and then also we are launch -- coming up with other platforms. So our entire range of platforms will be ready by end of June for the top load fully automatic machines. And then at the same time, we have also decided to get into the semiautomatic machines because, like we shared, semiautomatic is something which currently is an OEM and ODM-driven product and we see a good growth even in this segment. And as the brands are not increasing their own number in-house capacities, the dependence on OEMs and ODMs is increasing, which is kind of replicating the growth in RAC that as you rightly mentioned. So definitely, the growth prospects for washing machine is very high. And for us, the best thing is our manufacturing facilities are fungible and can be utilized similarly for washing machine, which kind of also help us beat the seasonality of AC. So this definitely is 1 product where we see a lot of growth and helping us drive continuous growth and better capacity utilization.

Okay. And another question I had was, are there significant synergy opportunities for making washing machines as well. Like you said your facilities are fungible? Or will washing machine, we have separate cost structure...

Yes. So Kunal, definitely, there are a lot of synergies in terms of manufacturing, like I said earlier also, the facilities are fungible. And only as a thumb rule, I'll see that the manufacturing infrastructure required for 1 indoor-unit of an AC is almost equal to the infrastructure required for making 1 desert cooler or 1 washing machine. So it is a highly -- there's a high level of synergy between the manufacturing capability required.

We'll take the next question from the line of [ Deepali ] from Ventura Enterprises.

I want to know your opinion about why we are not able to have the expected capacity utilization from the Sri City plant? Because I think initially, we were expecting higher levels for this quarter, which we were not able to achieve due to some reason. Can you explain what reasons can be behind this?

Yes. So Deepali, Sri City is a facility we started in Jan of '24. It's a 12-month old facility. And already, we have brought up the utilization to almost 17%, 18% on an annualized basis. So -- and a lot of larger customers, brands take a lot of time to validate the facility and approved. So it takes 3 to 4 months for us to get the approvals from the bank customers for a newer facility. And this has been slightly delayed, but then we are on track to utilize it in the current quarter, wherein we believe that the utilization will significantly improve. And as we get further approval from other brand customers, not only for RACs, but also small domestic appliances line, which are currently being set up at Sri City we believe that utilizations will significantly improve in the next 2 to 3 quarters.

So we actually require new approvals from our regular clients again for the Sri City plant as well?

Every new facility -- every new facility is subject to audit and approval by the clients.

Okay. So that you think is taking a little longer than expected?

Yes. It should -- but now, I mean, as we have entered the current high season type, it's already approved by most of the key customers.

All right. Would you able to comment on the realization for AC or how much do we earn from 1 AC? Would you be able to share that?

Okay. At the gross margin level, certain thumb rules of ballpark figure I can definitely share, since we are not reporting numbers on a segmented basis. But yes, RAC as a whole is something, which has a lowest material margin. So like our current annualized material margins are around 14.5% to 15%. That's a better reflection of the AC margins, gross margins, whereas the metal margins for components and the small domestic appliances are significantly better. So that's the broad guidance I can give you.

Got it. Did we observe any depreciation of the rupee effect on our margins as well during this quarter?

No. No. Last quarter, there was no loss on account of rupee depreciation. For us, the commodities as well as the exchange rate are something, which are passed through in terms of our price revision with the customers on a quarterly basis. So generally, the impact is not significant for us as a whole.

All right. Would you be able to share the gross loss numbers and what is the current asset to turnover ratio projected, sorry?

The gross book as of today is around INR 850 crores. And the turnover ratio, actually, it will...

2.5 to 2.75. And definitely, I mean we are looking to improve the asset turnover, like we have been repeatedly saying about the product mix and better capacity utilization. So we are definitely looking to improve the effect and as we move forward.

The next question is from the line of [ Gyasuddin Siddiqui ] from GS7 Securities and Trading Private Limited.

Sir, I just wanted to know the current financial year EBITDA margin? And like is there any chance that we will be able to increase our EBITDA margins, let's say, 2 to 3 years in the double digits?

The current EBITDA margin for the 9-month ended period is 5.6% and historically, we've been maintaining a material margin of 7.5% to 8% -- and EBITDA margin is 7.5% to 8% is what we have been maintaining as far as since last 2 to 3 years. And like I shared, our guidance remains that for this year also, we should be able to maintain anything between 7.25% to [ 7.5% ]. And going forward, as we change our product mix and revenue mix, definitely, there is scope to improve, but double digits is something that we have not shared and we are not giving any guidance on that, but yes, we definitely look to improve it beyond 7.5% in coming to 2, 3 years.

The next question is from the line [ Jalaj ] from Swan Investments.

Sir, 2 quick questions. So you mentioned that the gross block currently is around INR 850 crores. So what is the sort of peak revenue we can flock on this assuming the seasonality and everything? So that was first question. And second I had was, I wanted to understand the unit economics across washing machine, if you could give some broad numbers on that?

So Jalaj, the peak revenue for our kind of industry with so much of investment in manufacturing is anywhere between 3 to 3.5 kind of -- so with INR 850 crores, we can see that anywhere between INR 2,800 crores to INR 3,200 crore is an ideal or a max limited revenue possible. And second question was around?

And second question was I wanted to understand the unit economics, the asset turns and specifically margins on the washing machine business?

See now for that, like I said earlier, it is about fungibility. So all this, we are doing to improve our asset turn. So with AC, the highest limit of asset turn possibly is around 2.5 to 3. So it by additional working machines and then utilizing the capacities in the season, we are working to achieve an asset turn of 3.5 to 4 kind of figure, which is what we are striving to achieve in the next 2 to 3 years and that includes addition of washing machines.

And the margin...

So overall, the gross margins for a larger product like washing machine is generally similar to that of an AC. So again, this would be a broader thumb rule, but yes, 15% to 16% kind of a gross margin is definitely something which can be achieved even for a washing machine.

The next question is from the line of [ Mayank Kapoor ], an Individual Investor.

Thank you, ma'am, my questions have already been answered. Thank you.

We'll take the next question from the line of [ Chavli Sarveshwara Sharma ], an individual investor.

Sir, regarding that ACs what percent of compressor cost in your AC? And are the ACs are manufactured in India or imported? My second question will be, do you have any plan to manufacture this compressor in the future?

Okay. So [ Sarveshwara ], the comparison value of the total bill of material cost for AC is anywhere between 25% to 30%. That's the value of a compressor in an AC. And currently for India, 40% to 45% of compressors are manufactured domestically, and 55% of the compressors are imported from China or other countries. In terms of EPACK getting into manufacturing of compressors for AC especially if I talked about there is no plant currently for us. Within the next 3 to 4 years is definitely not what we are looking at.

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Ms. Bhoomika Nair for closing comments. Over to you, ma'am.

Yes. I would just like to thank all the participants for being on the call and particularly to the management for giving us an opportunity to host and answering all the queries. Thank you very much, sir, and wishing you all the very best.

Thanks, Bhoomika. Thanks all participants in this earnings call. I hope we have been able to answer your questions, satisfactorily. If you have further questions or would like to know more about the company, please reach out to our IR managers at Valorem Advisors or any of the numbers mentioned on our website. Thanks a lot.

Thank you.

Thank you, members of the management. On behalf of DAM Capital Advisors, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.