EPACK Durable Limited ($EPACK)

Ladies and gentlemen, good day, and welcome to the EPACK Durable Limited Q4 FY '26 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manan Goyal from ICICI Securities. Thank you, and over to you, sir.

Thank you. On behalf of ICICI Securities, we welcome you all to Q4 and FY '26 Results Conference Call of Durable Limited. Today, we have with us senior management represented by Mr. Bajrang Bothra, Chairman and Whole-Time Director; Mr. Ajay DD Singhania, Managing Director and CEO; Mr. Rajesh Kumar Mittal, CFO. Now I hand over the call to the management for their initial comments on the quarterly and annual performance. Then we will open the floor for Q&A session. Thank you, and over to you, Mr. Rajesh sir.

Thank you, Manan. Thank you, and good morning, everyone. Welcome to our call for the fourth quarter of the financial year 2026. I would like to thank ICICI Securities for today's call -- the key highlights for the quarter 2 and the financial year ended 31st March 2026 are as follows. For the fourth quarter under review, revenue from operations stood at INR 591 crores, which declined by 8% on a year-on basis. EBITDA for the quarter was INR 25.8 crores, decreased by around 6.2%--.DAed4.3% as against 1.21% profit INR 2.4oroodNR crores, which declined by 12.7% on a year-year basis. The EBITDA for the year was INR 139 crores, decreased by around 27% on a year-on-year basis. The EBITDA margin reported at 6.1% as against 7.26%. The net profit was INR 3.3 crores. During the fourth quarter, the company has recognized incentive income amounting to INR 21.78 crores under the risk 2024 scheme based on the management assessment of compliance with the prescribed eligibility condition. This also includes an amount of INR 4.96 crores pertaining to the financial year '25, '26 and an amount of INR 16.82 crores pertaining to the earlier period. During the fourth quarter, the company reversed previously recognized PLI income amounting to INR 32.42 crores accrued during the 9 months ended December 31, 2025. Now I would request our Managing Director and CEO; Mr. Ajay DD Singhania, to brief you on the operational highlights. Over to you, sir.

Thank you, Rajeshjee, and once again, good morning, everyone. FY '26 was a challenging year for Room Air Conditioner industry, impacted by multiple temporary external factors, including unseasonal weather conditions, general mentation commodity inflation and demand deferment across parts of the industry. Despite these near-term headwinds, we remain focused on strengthening our long-term business fundamentals through diversification, localization customer expansion and strategic capacity creation. Q4 also witnessed temporary pressure in RAC segment due to revised BE norms uneven seasonal optic and elevated inventory levels across the industry, which resulted in higher promotional intensity and discounting during the second half of the year. While these factors impacted industry-wide profitability and utilization levels, we continue to execute our long-term strategic priorities. During the fourth quarter, we added 5 new customers, which supply has already commenced. Taking our overall customer additions 217 during the FY '26 and our total active customer base to 72. This reflects continued spending of our customer relationships increasing market acceptance across categories and our focused efforts towards reducing customer concentration risk. Our debt suction strategy continues to progress well. While RC segment witnessed approximately 25% year-on-year decline during the quarter, our SDA, LDA component business continued to domistate encouraging momentum. The SDA and LDA segment delivered robust growth of approximately 53% Y-o-Y supported by healthy order inflows across both existing and newly launched products. Demand trending categories, such as air continue to remain encouraging, and we see increasing customer engagement across multiple product categories. Our component business also delivered strong performance with approximately 50% Y-on-Y growth. during the quarter, supported by increasing localization garments and deeper customer integration. We continue to see strong long-term opportunities in rice exchanges induction moated components, PCB and corporate components as domestic manufacturing ecosystem evolves further. We believe our continued investments towards that qualification component capabilities will not only improve operational efficiencies over time, but also support higher value addition, improved supply chain resilience and broader participation across efficient manufacturing opportunities. We are also pleased to share that investments made towards iSense partnership through our wholly-owned subsidiary, EPACK Manufacturing [indiscernible] Limited has become operational since Q4 of FY '26, making another important milestone in our long-term manufacturing expansion journey. As operations scale up progressively over the coming quarters, we expect the subsidiary to gradually contribute towards revenue product mix enhancement and future growth opportunities. During H2, we continue to invest in strategic capacity expansion, localization initiatives, new product categories. During Q4 FY '26 alone, we incurred a CapEx of about INR 79 crores, primarily towards washing machine capacity expansion and components manufacturing capabilities. The new greenfield facility at varies also expected to come as meaningful contribution over the coming quarters. While the margin profile during forensics remained below our earlier expectations due to lower utilization innovated industry discounting, commodity inflation, for is volatility, we believe the structural drivers for long-term margin improvement through localization, better integration and scale finishes remaining tech. During the quarter, the company reversed previously recognized PLA income equaled during the first 9 months of FY '26 based on evolving assessment and ongoing procedural review. Excluding this onetime impact the operational performance during Q4 of antics provides a more normalized reflection of the underlying business performance during the quarter. The company continues to engage with rebid authorities regarding the metric and has submitted the necessary representations. At this stage, management believes it is prudent to await further clarity. On the positive side, we are pleased to share that during Q4 FY '26, the company recognized incentive under the Rajasthan investment promotion scheme grips based on management's assessment of the compliance with describe eligibility conditions. We believe this represents an important milestone in selling of the long-term competitiveness of our manufacturing ecosystem. The current proposal proteins to fast investments, and we continue to evaluate further expansion opportunities under subsequent phases as a part of our long-term growth strategy. Looking ahead, early trends for FY '27 appear relatively more encouraging compared to 26 supported by improved customer conditions and normalization in industry inventory levels. At the same time, we remain focused on disciplined execution improving utilization levels, scaling newer categories and standing operational efficiencies. With the embedded portfolio, expanding manufacturing ecosystem, improving nucleation capabilities and growing customer engagement, we believe parable remains well positioned for sustainable long-term growth and value creation. With this, we now open the floor for Q&A session.

[Operator Instructions] Our first question comes from the line of Balasubramanian with Arihant Capital.

Sir, the PLA reversal was due to the voting assessment and ongoing procedure review. Can you specify was this disqualification event like a localization shortfall, export datedness or any sales target within this specific state?

So Mr. Bala, regarding the TLI reversal, this is based on certain commitments made by the company and since when we applied for the PL incentive. There were 2 criteria, 1 related to investments to be done in the previous year and second was a 5x growth in incremental revenue for the packable components. So during the first 3 quarters, the company had done the preferred as we have been following the practice in the previous years as well. The company has been following the same practice and recognize the benefits as being achieved. Whereas in end of the quarter 4, we realized that due to the sales shortfall there is certain anticipated fall in achieving the incremental revenue growth However, the incremental investment and CapEx has already been fulfilled, but [indiscernible], revenue growth is something which has been still evaluated and verified by the auditors. Hence, we took a productive decision not to recognize the benefit as of now. And also to involve with the relevant governmental agencies and get further verifications. Until we get the clarification, the company stands that we will not recognize it until it is properly the good use is complete.

Okay, sir. Sir, under iSense JV. I think we have planned a tenor washing machine line, which is planned annual capacity. So I just wanted to understand how much the annual capacity and what is the target utilization in FY '27?

So in City, we have 2 operational facilities. One is the EPACK durables owned facility where we will have the company. And the second facility by the name of PAC manufacturing is the unit, which is dedicated to iSense manufacturing for a generation. The facility started operations in the last week of March. And since then the AC production for the iSense design products has been scaling up over the last 2.5 months now, almost 2 months now. The other set of products we infected there, which include different load washing machine, as you said, is something which is currently under different road versing machine, which is on a trial. And we are currently expecting the production to commence towards the mid of Q2.

Okay, sir. My third question. I think you have seen a sharp increase on the inventory level is nearly INR 837 crores. So like how much roundel further sense JV startup as finished goods in transition clearance. And if you cut when we can expect the normalization of inventory days as well as payable days also will increase to 130, 140 levels, which is usually nearly 90 to 100 days.

Mr. Bala, sorry, I didn't get the first question.

[indiscernible].

Let me answer you on part of the inventory days the questions on inventory days and the conversion cycle. So an working capital deterioration in FY '20 reflects basically 3 factors. First, we built inventory in anticipation of the strong summer season for this year. At the same time, 1 of the very key components which goes into our product and is currently largely import-dependent is compression for which the BIS was expiring in second week of April, hence, to keep manufacturing for the entire season on the peak season of Astra May during Q1 of this year, a lot of inventories helped to be created since the local ecosystem is not the local manufacturing capacity is still not enough to meet the industry demand in the limited inventory, what we see today as of March ending is basically mostly of the imported component, which has been built up to support the Q1 of this year. That's with regards to the inventory level. And the first question around iSense is not clear to me if you can just please repeat.

Actually, we have INR 87 crore inventories. How much is the raw material for the iSense JV start-up compared to finished goods awaiting the transition clearance?

Okay. So I don't have the company-wise inventory data ready with me as of now. But it's largely that I said the INR 827 crores of total inventory is there overall in the entire ecosystem put together. And that's roughly the......

Approx. [indiscernible] in percentage times, the fine.

INR 50 crores to INR 60 crores. Yes, INR 50 crores to INR 60 crores at max, but this is a very approximate -- sorry, the audited numbers is INR 13 crores, I'm sorry.

And Bala just to confirm this, you are saying that 80 days has increased to 130 from 90 earlier. I'm sorry. And actually, you see that with respect to the 80 days, which has gone up by around 50 days, if you see the inventory days have to go up. This is parallel actually. When you are buying the inventory, there are the trade papers also standing the books of account. If you can see that the inventory has also gone up in corporation to days.

The next question comes from the line of Tanay Shah with DAM Capital.

So just wanted to understand the ongoing summer outlook, right, for players like us in the EMS space, how is demand carry out for us? What are the current inventory levels? And what kind of pressures are we seeing on our margin profile?

Okay. Thanks, Tanay. So the outlook or the current state of the industry if we talk about. So post the stabilization which is largely a and March April onwards and especially from mid of April overall tailwinds into and everything has been very strong and most of the inventory levels, what we have been -- what has been the pain area for EPACK Durable also the whole industry over the last 12 months or so has now eased out. And we are seeing a very strong pull in the trade. And so the real sailing in terms of liquidation and further fresh manufacturing orders have started pulling in. And we see definitely a very strong Q1 currently. And I think it will be prudent to say that in line with the industry expectation or what we have been hearing over the last 2 weeks in terms of the results being declared by most of the other peers in the industry is that a growth of 15% approx is what the industry is expecting at least in this Q1. And definitely, EPACK believes that this is what is in line with our internal expectations as well.

Understood, sir. So growth of 15%, 20% in terms of volume is something that the industry is looking at. But even the value itself has sort of gone up. So we've been able to take the price hikes which are required from a brand perspective to be passed on. And just to that, I wanted to understand if there is any pressure on our margin profile given the costs are continuously increasing.

So 2 things here, Tanay, definitely, yes, a lot of commodity increase and FX increases what has impacted the industry. On top of it, again, the BE revision is another factor. So overall, the costs have gone up. And a lot of this cost is what has already been passed on to the brand customers for us, and we believe that even the brands have further passed on in parts in several stages or phases to the market. So yes, there has been a significant increase in the overall cost and price, and that has also been passed on from our side.

Tanay, are you there?

Hello, can you hear me?

Yes, yes. Please go ahead.

Yes. Sir, just any number which you would like to put up in terms of the current inventory levels in the channel?

Broadly speaking, that is our discussion with the industry -- the industry -- the inventory currently in the trade is normalized. And the type of selling over basis selling the sales from the brand to the distributor although the channel has picked up significantly. So just to throw in some numbers, which would be very approximate, I believe the trade inventory plus the brand inept together as of May opening if we talk about would be anywhere between 4 million, 4.5 million. That's the max kind of inventory I can anticipate, which means we are largely -- or rather slightly below the expected mentors looking at a very significant ramp up summer season.

Understood, sir. Sir, my second question is with respect to the iSense JV, while many congratulations on sort of operationalizing the plant. Just wanted to understand, given that just recently, there was news about China sort of going a little hard on the companies wanting to sort of scale up in India. -- and have sort of tightened their supply norms, their knowledge norm as well. Any impact on our JV with iSense to sort of scale up in India?

So especially in terms of our relationship with iSense, we can call it like a strategic tie-up wearing all the investments in the manufacturing facility currently has been done by per durable. And this facility currently is more of, let's say, a tech transfer when the tools and designs have come to us and the investment has been done by EPIC durable solely, and we are supplying 2 iSense for to market products both in India as well as to expose opportunities of supplying to the overseas market, especially in the Middle East and Africa. We don't see any impact in terms of any policy change or any so-called the government initiative -- the Chinese government stand on any such thing. Rather we see that as is [indiscernible] becoming a lot more aggressive or ambitious would be the correct it ambitious in taking and significant position or market share in India. And the way we have scaled up the overall distribution channel, the network is a clearer indicator of their intent to be 1 of the market leader and dominant force in times to come. So definitely increasing their overall penetration, increasing the product portfolio. Starting with TV now they have significantly ramped payer conditions going forward at Q2, Q3 when we are hiring to further increase their penetration which both top load and front load washing machines and then subsequently and more products. So they are doing very sticky and very focused in India market, we can see.

Sure, sir. Sure. And just 1 last question. The CapEx number for FY '27?

So again, Tanay, based on our last year's guidance to the market, we had visited a total CapEx of approximately INR 470 crores in 18 to 24 months, out of which INR 300 crores is what we have capitalized until end of March, and there's a balance of almost INR 7 crores, crores which we are strategically looking to invest in ramping up capacities, primarily both in Bad as well as in [indiscernible] look at newer product categories to enter. So this is something we would say INR 170 crores, INR 200-odd crores is something which is planned over the next 9 to 12 months that -- I mean, the rest of this financial year.

The next question is from the line of Pratap Maliwal with Mount Intra Finance.

Am I audible?

Yes, sir.

So I'm just trying to look at our business from a 2- to 3-year perspective. So we've got a current revenue base of approximately INR 1,900 crores to INR 2,000 crores. But we also have the high sand revenues saving. So over 2 to 3 years, do you see our revenues kind of doubling because of the lesser target that we have for Risen and then we also be moving in line with the industry based on the run rate. So over 2 to 3 years, given the scale of [indiscernible] actually double.

Thanks, [ Gautam ]. Yes, for us in MSME, the ODM ecosystem and the strategic partnerships, the 1 we have with iSense, which has an aggressive got plan, the categories we are into and the way we are expanding our overall portfolio and increasing our customer penetration definitely, that's the intent and that the kind of overall outlook we internally have and over the past the previous earnings call and every time we have shared a similar reason. So here, we eco our shared reason with you, and definitely, that's the way ahead we are looking to grow. -- year of ups and downs definitely, we believe our lending part of the lending for us, and they make us more resilient and further help us send in our result to go better and gross program.

Yes, sir. As you said that in Q1, the industry would expect maybe a 15% kind of a growth. That's for all players in for, so we should get a share of that. Now there was a notification and stress that said that Phase 1 of our CapEx has been operationalized, I believe, 0.75 million units the iSense facility, then going forward, Q2, Q3, we'd be operationalized, I believe, the washing machines and television. So is there any kind of outlook on FY '27 as that you can give us based on our high sales numbers done, what kind of scale up we can see, so we can get an idea of how EPACK can actually outperform maybe some of the other peers.

I mean, atom, we have historically refrained from giving any quantitative numbers, both in terms of subsidiaries or the current company. But yes, broadly as a guideline, we are in line that considering an industry growth of 15% around EPACK should would definitely outgrow the industry growth. This is that the way we have divested our customers' portfolio and the way have reduced our concentration risk with any single large customer. So yes, definitely, we are on the right path to outgrow the industry and especially with the dedicated facility for itch is at extremely low level currently that will help us significantly improve our growth with the new product categories, both in SD and NDA segment, yes, the kind of conditions we're talking about, it is a similar kind of growth doubling in medium term and in short-term effort 2 years outpacing the industry.

Okay. And just one last thing, sir, the even an interview, I think at the end of April, you had said that we've been able to take on the price hike and pass it on to the brands. Now a large peer in the similar space has said that FY '27, they're looking at some margin pressures, maybe 50 to 100 bps. So are we expecting any margin pressure going ahead because of our margins have been quite positive. So what kind of inning can we get on the margin going ahead?

Again, Gautam, in terms of margin, yes, we have been largely able to pass on the commodity hikes to the brand customers. But until the current geopolitical situation where the commodities and FX are changing on a daily or an hourly basis. please appreciate that it is not possible for us to anticipate the upcoming increase in Fashion in advance. Even the customers are very resilient, and they are also thorough in their analysis. So there could be a lag in terms of passing on, but it is broadly and largely be passed on. So this is why I believe that 500 basis or 1,000 basis points of strain on the margin for a shorter term could be there. But in the longer term, yes, typically, we pass on all the cost increase to the customers.

The next question comes from the line of Arshia Khosla with Ashika Institutional Equities.

Sir, just in continuation of previous participant's question, how much time increase have you already taken?

Thanks, Arshia. So the price increase is something which has been done in last 2 quarters, let us say, starting December and then because of the commodity hikes, then again in January because of the regulation change, the upgradation of products from the old debt or to the new B retail and then again mid-March because of, again, the geopolitical situation. So there have been multiple prices which have been negotiated at different points in time with the customers. Overall, again, a bit broader figure could be as of end of March, the overall price increase in the product, which has been passed on due to both the reasons revised commodities as well as the revised rating level is 15% to 20% bearing between model to model. And as after that, again, in April and May, then there has been another price increase. And I believe that a similar kind of price increase has been passed on from branch to the market as well.

Understood. That's helpful. tough. And I'm sorry, I just missed it on the gross margin front. Do you think that now the worst is designed and we'll be able to maintain these margins? Or can you see [ monetization ] on that?

So gross margins again is broadly, we have been maintaining in the past also. So our gross margins overall at the EBITDA level if we talk about barring the onetime adjustments done in Q4 are largely been stable at 7.5% to 8.25% is what has been the stability number for us over the last 4 years historically. And the type of diversification in terms of the product diversification and constitution of this reduction we are doing and the depth of the component ecosystem we are entering, we believe that in medium to short term and medium to long term, these margins are bound to improve -- so barring a onetime correction. We are very confident that these margins are largely stable in the medium to longer term, these are going to improve.

That's helpful, sir. And sir, what will be your capacity utilization for RDC in FY '26?

In FY '26, the capacity utilization would be roughly -- I mean, compared to previous year, it has dropped to almost 2-odd-percent -- so that's the kind of drop we had earlier, it was anywhere at 45% to 50% on an average annualized basis. So last year, it would be at 40-odd-percent. So that's again a very broad number, but as -- so this on annualized basis, there is the seasonal utilization if we look at AM. In previous years, it was close to 90%, especially for Q1 and Q4 period, which are the peak even period. So the last year, the hedonically to, let's say, around 75-odd percent for the peak period of Q1 and Q2.

And my last question is on the compressor front. So we are sitting with optimum inventory for compressor are we going to see some shortage for this year as well as next.

So on compression front, I mean, sure what we for, especially in terms of the inventory level, that sold ourselves with the inventory for the current season and that primarily until June or July is what we have covered up is now -- going further, there are 2 conditions: one, the government has now made the realization on import basis, and there was circular first week of May, and at me, I believe there is -- the import has been allowed up to 30% -- approximately 30-odd of import is allowed. This is the quantity which was imported. So that gives some relaxation to the industry. And at the same time, the domestic capacity ramp up and increase is on the way. And out of the 4 leading players who have estimated to Satin India, they are gradually increasing their capacity. So we think -- or we expect that the capacity is available for the next season would be sufficient include the 30% of imports allowed.

The next question comes from the line of Pawan with ICICI Bank. [Operator Instructions] Since there's no response from the participant, we move to the next question that comes from Abhishek Agarwal with Prithvi Finmart.

So first of all, I would like to appreciate the effort of the management and the way we are staring to the community for a long-term perspective. First thing on the -- I think in 2024, we have guided some revenue target of around INR 5,000 crores. That we understand that '25 has not gone the way we have thought. Are we still stick with the INR 5,000 crores of target in '28 or '29?

So I think the previous participant in Gautam had a question around the same in terms of the growth aspiration the company has. And we still reiterate that, yes, barring a year of uncertainty in the trade or the disruption we have faced as an industry as a company in FY '25, '26, we still remain very confident of a positive growth and outpacing the industry growth. And we still believe that our within of achieving INR 50 crores around in next 3 years or something, which is definitely achievable, and this is what we strive for.

Great, sir. And then what asset and we can expect the CapEx we have done or we are going to do what CapEx we have planned as of now.

So Abhishek, again, there are 2 things to look at here, compared to FY '25, wherein the asset turn was [indiscernible] the current opportunities, it has deteriorated to almost 2.6 around -- so -- but the silver lining here is that CapEx of approximately INR 300 crores we have done in last 4 quarters is especially done to ramp up capacity and capture the opportunities and to help us also take on our intent to diversify the product portfolio. So all these tanks and all these increase in CapEx are in the right direction, and we are already seeing the fruits we have approximately 50% increase in revenue of the non-EV segment. So with the continued growth which will outpace the EC growth. We are very positive that the asset turn is bound to improve and 3.2, and we are looking to achieve around as a ton of 4 in the medium to longer term.

Okay, sir. And sir, in this year, this financial year, we have added around 17 new clients. So how many customers we have added in C segment?

Again, Abhishek, since we are bound by certain signed NDAs, not to disclose the names and the categories in which we have acted them. But as the 17 new customers broadly, 5 of them are large multinational and established customers for cooling appliances -- and are significant. We had against among the top 10 players for the small domestic appliances. So that's a large breakup of the 17 new customers we have -- and sir, my last question on the net effect on the one-off item. If we see that 1 is the reversal of the PLI benefit, -- and second, on the INR 21 crores somewhere we have accounted to the IPS scheme.

So I think net effect on the net profit level to be around INR 11 crores to INR 12 crores, correct?

Yes.

I'm correct in that sense?

Okay. So again, 2 things, Mr. Abhishek here. First of all, we want to be very clear and precise the reversal of INR 32.42 crores of the previously occurred PLI incentive the total eligibility for financial year was roughly 56.5% of which we had only accured roughly INR 2 crores, which means there was an additional amount of INR 24 crores in available for us to be on the incentive available as will be taken, which we had traditionally been doing in the previous years. So we not only lost INR 32.42 crores, but currently, we have not red -- so that's the quantum -- so against this year only recognized INR 21 crores of additional tight -- so the overall reference still remains around 36 35.

The next question comes from the line of Pawan with ICICI Bank.

My question is, given the ongoing transition to BE rated air conditioners, does the company foresee any risk of inventory write-offs or markdowns on older noncompliant a models? And if so, has there any provision being made for the same in the current or upcoming quarters?

Thanks, Pawan. So in terms of old B-rated product basis, the guidelines, the company doesn't hold any inventory of hold-rated products on its own, whatever was produced was shipped out latest by 31st of December 2025. So after 31 December 2025, the company is not holding any inventory of old products because it is not allowed to be held by the manufacturers. And it was largely available with the branch warehouse or with the rates -- and again, basis the norms, it cannot be sold beyond June, I believe. So by end of average, the entire inventory of the old products would either get liquidated or has to be related again by the brands or the traders. So on this front, as an i, EPACK has no liability to be accounted for or to be replaced.

Okay. Sir, I have 1 more question. Like auditors have issued a qualified opinion citing a disputed credit receivable of INR 19.6 crores. So can management provide more details on this, the few quarters and nature of the receivable and the counterparty and expected time line for resolution. Sir, please go ahead.

So, Pawan, in terms of the reservations or being highlighted by qualifications being raised by the auditor. This especially pertains to 1 of the cases where in the receivables from a customer called [indiscernible] 19.6 currently or has not been paid by these the maturities, we have already filed legal complains and the company still believes that the receivable is good and the company has strong chance to recover it. And the customer also has the top or is worthy or has the net asset expect. And hence, we have given the same opinion to the auditors as well. And since the metastatic under legal prediction, any further amount of information cannot be shared.

Right. I wish you all the best for fiscal year '27.

The next question comes from the line of Keshav Lahoti with HDFC Securities.

Sir, you highlighted Q1 volume got can in reported in the RV side, and you have taken the price also around 1%. -- person even on the RHT in that way, the revenue growth should be upwards of at least 3%.

Thanks, Keshav. Again, yes, the price hike we shared is correct and the industry outlook of growth in the current quarter is also in line with our overall expectation of growth for the current corporate -- so largely, we are in line with the revenue growth of what the anticipated industry growth. So -- but giving any numbers currently, it would be right. But yes, we definitely foresee growth in the industry. And that kind of growth to be replicated in IPEX performance as well. So current order book is strong, and we are definitely seeing a recovery path as compared to the last year.

Got it. As you highlighted, the higher cost is retaining pool. Is it entirely also? Or will we see some margin pressure for the next few quarters?

So there is always a ignition in terms of passing on the price increase and when it is actually realized, especially the volatility around ForEx is something which is highly unpredictable, which definitely something of a better condition. But its commodity hikes are on every quarter, and we have been following the spectating any force mature, we are very requirement to pass on the price increase even in midterm is something which is always negotiated and accepted by the customers. So as the price increases are largely passed on, there would always be a lag in when it is parcel and it is.

[indiscernible] it relates just highlight what sort of margin pressure can we see in Q1 because of lag effect and possibly Q1 margin will be normalized to, let's say, future....

So we will see some improvement in -- or improvement in material margins as compared to Q4 definitely. But on a Y-on-Y basis, if you compare Q1 of this year to Q1 of last year, we will still see some lag in terms of passing the price increase.

The next question comes from the line of Siddhant with Tusk Investment.

So my question is regarding the compressor side. So what kind of -- what percentage of imports currently or for the compressor are we doing, sir? And domestically, what is that percentage that we are sourcing for compressors?

So that currently, in the calendar year '25 or from the financial year the amount of compression is imported in India, but typically at 45% to 50% of the entire consumption. So that's a broader number for the industry. And of which then again, we have seen ramp up in capacities by multiple players, including highly and in all 3 of them are ramping up capacities of local manufacturing in India. So it's an evolving situation. But yes, traditionally from 100% to today, 45% is the kind of gene we have seen in the last 3 years. And as the domestic ecosystem is -- or the manufacturing capacities are further getting improved, we believe that government's intent of allowing close to 50-odd percent of import should be sufficient for the industry to meet its requirement for the next year.

So sir, for EPACK, the current sourcing will be 50-50 or import and domestic.

For us, it yes, roughly in line with industry 60 kind of 60% of domestic in particular import.

Okay. And sir, the vendors will be highly JVs and all for the domestic compressors?

So domestically, we have 4 air point compression manufacturers highly and then GMCC, which is a [indiscernible] then Daikin and LG. So these are the 4 establish customer manufacturers for the aircon completion and today.

All right, sir. Sir, my second question is regarding the PLI reversal. Like you cited that the entire INR 56 crores, we were eligible, but take we haven't taken any of that into the FY '16 is -- so my question is, sir, though we are eligible, we haven't taken or is it that the entire INR 56 crores, we couldn't take this year?

So against that -- yes, you are right, INR 56.5 crores was the eligibility for us to receive in the financial [indiscernible], of which we had cured INR 32 crores in the first 9 months. And in quarter 4, call we have -- we found that there is a certain shortfall in terms of the growth which was required to be achieved. Hence, we have currently reversed the INR 32 crores, which is recording for , and we are still evaluating with the agencies on the applicability and qualification. So this is something which is still in the discussion or in the revolution by the DPI and the consolidation. And hence, we thought it [indiscernible] not to currently recognize it and do it only when we are -- the content on the auditors are able to allow us to recognize that kind of an incentive.

Okay. So there is a chance that we -- in the subsequent quarter, we might realize this [indiscernible].

We will ask -- or we will advise a caution in before making any such commitments. So we will still want to wait for a bid quarter or so before we get that confirmed. -- intent from the agency on this.

The next question comes from the line of [ Ravindranath ] with Nirmal Bang Securities.

Sir, actually, I have seen that in last -- in the quarter, y-o-y basis, there is a 70 basis point decline in the gross margin. And in Q2, there is a 300 basis points decline in the gross margin. So can you please highlight what is due to the mix -- and what is due to the cost inflation. If you can quantify, it would be helpful. And how the things are going to be in the coming quarters.

The gross margin has not been reduced on which basis you are saying that gross margin has been ready and you dip in the EBITDA margin that we have already explained. On what basis you are comparing -- you're comparing on a quarter basis or yearly basis?

Quarter basis, quarter basis what is due to the cost inflation and what is due to the mix because we have increased the component and also there mix better as compared to [indiscernible]. What is the -- due to the decline in the gross margin due to the mix and what it did to the cost inflation?

But there is no [indiscernible] growth at-on-quarter basis.

Mr. Ravindra, actually, the gross margins have been fairly stable across all the 4 quarters and Y-on-Y and Q2 this is both. So sorry, but we are not clear with the question. Yes. Any traction in terms of EBITDA margin is definitely visible, but gross margins are largely in....

I'm talking about the sales minus the cost of better and peas, that is the gross margin I'm talking about. Last year is at 16.3%. And this year, it is 15.1% quarter-to-quarter basis. from Y-o-Y 20% to 13%. That is what I'm talking about.

But what you're highlighting in terms of numbers is correct. So typically, if we look at quarter 4 would be there, the margins would be slightly better because certain year-end PUD discounts that are received in the end of the year. So that is a small integrant amount, but yes, that impacts to the extent of 100 basis points, so every year.

Quarter 3 also. I'm talking about quarter 3 at 16.7%, it is down to 13.3%.

As [indiscernible] already mentioned, that we have taken the reversal of the PLI amount in the quarter 4, which we had accrued in the first 9 months.

So a question in the previous quarters, the accrued line revenue. And hence, that kind of inflates slightly to metal margin that is seen, which is because the PLA income is 100% material margin. So because it has been reduced in the current quarter, hence the impact is next of quarter-on-quarter, it's normalized. If you see all the parts, it would be similar.

Okay. And sir, what is the current year debt level? And what is the capital expense for '27?

Current debt level is around INR 700 crores, which includes a term loan of INR 200 crores.

What to expect in FY '27?

'27, it's not like that it will go up, but there are some plans, as you've already mentioned in the CapEx. So there would be some payment of the term loan in the current year, there may be some increase practically, it will be near term, it will be around INR 700 crores.

The next question comes from the line of Abhijit, an Individual Investor.

I have a question regarding the inventory. I think it is around INR 837 crores. How much of that inventory has been diluted until now?

Yes, I said the inventory level as of end of March was INR 80 crores -- and as I mentioned in 1 of the earlier questions, it was largely because of the increased inventory levels, especially for compression for which the BIS was expiring in April middle -- so yes, we had certain elevated inventory at the end of March, which, as the order book and as the execution of orders in an may continue to be very strong, is getting depleted very fast. Exit numbers in terms of the current inventory to give at this point of time. But we can definitely -- what we are trying to see is that inventories have largely normalized both in our system as well as in the trade. So at both ends, we see inventory levels being normalized. And end of this quarter, we believe that our overall inventory would be in line with our earlier quarters or a similar quarters in the previous years.

Okay. The next question is regards to the compressor issues. I understand the government of India wants to push the production of compressors in India and local sourcing. That is the objective of the government. And the total AMC market, the challenge that the compressor guys are also talking about is that 60% of the sales of the entire AC happens between -- in 1 or 2 quarters, right? That is like the problem that is there. Are you guys looking at anything in regards to the compressor side because that is an opportunity that is there, which is presenting itself. So I just wanted to understand on that regards.

Abhijit, I think this is something which we face already business. Compression manufacturing definitely had been 1 key opportunities the Indian manufacturers in terms of including utilization 2 to 3 years ago. Today, in terms of the current contract and we base ourselves the are looking well. Already, we have the major global powers both highly and logistic present in India with large capacities. Each one of them, almost close to 7.5 million, and that's putting up a capacity of almost 10 million. So that's the kind of capacities they have already put up or committed to put up in India in the next few months or quarters. And it's a highly technical item wherein we definitely feel that no Indian player even the large payers and that won't have the capability to think of putting up it alone. So no, we are not even getting into compressions. We want to focus on our core competence and the customer risk concentration reduction and the product diversification, what we have -- the part on which we are currently following be that this is the journey which will take us onward and forward. and we will continue on this journey, which will definitely help us improve both our assets and improve our RORO and leverage on the investments which have already been committed to us.

[Operator Instructions] Our next question comes from the line of Siddhant [indiscernible] with Tusk Investment.

Yes. Just 1 last question. So we have started the sales from the [indiscernible] of the 7 lakh capacity?

Yes. an the plant became operational in last week of March around 30th of March, when we started operations, and we started manufacturing the hen air condition, and yes, as we talk today, the commencement of both manufacturing and supply is on way.

The next question comes from the line of [indiscernible] Research.

My question is on power for time timeline....

I'm sorry to interrupt you. I would request you to be a little louder.

Yes, please. Question is on PAMA. So if I underpin the masses, it has depend this year, and we are doing a CapEx of almost INR 100 crores for the JV and has provided a loan of INR roles -- so just wanted to understand when to expect an make even because we are less maybe as being able to genre profits for the year. So what is all the confidence time will be able to be on next year?

Thanks, [ Aryan ]. So regarding the JV company pages, the total investment today currently spent almost INR 100 crores. And we are happy to share that a new greenfield manufacturing facility for a headwind set up and has become operational since end of quarter 3. So it started mass production in January and the Q4 revenue and Q4 scale-up of operations has been extremely encouraging and taking a cue from the type of [indiscernible] which has happened in the greenfield facility in [indiscernible]. And we are very confident that now this corn being the first full year available to the company with its renewed and ramped up capacity of roughly 3 million meters installed. -- per annum. The overall ramping up the overall customer approval, the product development, whatever has been done in the previous 2 years, we now started showing results. And the management of both the company is very confident that this year will be a significant year of ramping up. And so from FY '27, '28 onwards, we will definitely see this complaint.

Okay. Got it. Sir, on the incentive side, I just wanted to understand next year [indiscernible] incentive approved and second, [indiscernible].

So these are 2 different things. In terms of P&I, FY '26, '27 is the last year of PL incentive, and the company is eligible to receive an incentive of INR 60 crores for which there were 2 criteria: CapEx of INR 300 crores, which has already been completely successful. And now the second criteria is in terms of achieving the threshold increase revenue, which is something which will be under scope me. And we will request to look at numbers without PLI especially considering the experience of the last year. So this call the company will be extremely careful before agonizing any such PLA incentive. And we will be ensured that the part achievement is sure. and that's on side of the PLI. And in terms of the turnover leak incentive, we receivable on our investments in Gary, and that is the Phase I, which was applicable for next 10 years and there is still another phase of TLI to be applied for the CapEx, which was then subsequent to 2022 because the current inter tenancy certificate is the investment, which was completed as on November '22 -- post February '22, date whatever investments have been further then we are still to make an application for that. So yes, this is something which is for next 10 years. And this is the revenue, which is related to manufacturing with generate will be something which we will keep on accuring for the next 10 years.

Just wanted to understand the down PLI will soon be the gross margin and EBITDA margin, we should expect and the next year unstained -- it is based on turnover able to the PLI like this year, but [indiscernible] incentive, we will be able to get in the next year, the committed based on turnover, not on incremental sales.

[indiscernible] now having said that, we expect the normalized material margin of roughly historical 13-odd percent, 13% to 14% is what has been historical ton, which will then slowly and get all start improving as we improve our capsule utilization call for the iSense facility and being free capacities in sect. So 13% to 14% gross margins and around 7% of EBITDA normalized EBITDA is what the company is expecting to improve. Any incentive both in terms of TLA or TLA should be above it.

The next question comes from the line of [indiscernible], an Individual Investor.

RF sales also is very low this quarter. Previous year, you mentioned some seasonal being or rainfall happens this year, no effect is there and more sales that happens still in RAC segment is also very low compared to pass. Why? And 1 more thing. What about this more with East India technology private, private limited. There we enter into any other new segment, any profitable laptops or mobile, is this MoU effectors like not entering into other segments or we can break and we can go also and I want to know this thing.

Mr. [indiscernible], 2 questions. First, around the RAC. So compared to the first 3 quarters where we saw a growth of almost 33% in R&C revenues -- so for the first 3 quarters, you see the RSU decline was close to 3% for us, whereas in Q4, there has been some recovery and the growth to 25%. So we have tried to recover the overall ACC. And like you rightly said, the line is something which has been impacting the overall growth for the last couple of years. So the climate conditions have been changing and they have been very uncertain. So yes, the current wise is something which is impacting the current quarter or the current season. The brands of the market was very cautious because of the elevated inventories, which has -- which was there in the trade for Apria June 25. And by far, margin only when the industry was able to liquidate those inventories. So that puts us in a very healthier situation as of now as an industry as an tech, we see that the inventories are normalized and we see a growth for the current quarter. In terms of MOE with is India, that is largely related to manufacturing of electronic components, which currently is not 1 of the core sensor core focus areas for [indiscernible]. Our journey and our investments are aligned towards deal of home appliances, SDAs, LDA and the other components that you see. So there is no direct conflict of interest with that as we see and -- the management at EPA durable has liability to get into any new product categories even if those are under the PB-based India when we want -- so -- but anyway, those cations currently enter our radar to are currently focusing as we have been sharing on the ACs and the smallest appliances in DM business. So that can be focused, and that is where our investments have been committed and we want to leverage in those investments only. So we want to keep our focus on the investments what we have already committed.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing remarks.

Yes. So thank you, all the participants in this annual con call today. And I hope we have been able to answer the questions satisfactively. And also thanks to ICICI for hosting the call today. So once again, thank you, everybody.

Thank you, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.