EPACK Durable Limited (EPACK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the EPACK Durable Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manan Goyal from ICICI Securities Limited. Thank you and over to you, sir.

Thank you. Good morning to all. On behalf of ICICI Securities, we welcome you all to Q1 and FY '27 Results Conference Call of EPACK Durable Limited. Today, we have with us senior management represented by Mr. Ajay DD Singhania, Managing Director and CEO; and Mr. Rajesh Kumar Mittal, CFO. Now I hand over the call to the management for their initial comments on the quarterly performance. Then we will open the floor for Q&A session. Thank you, and over to you, Mr. Rajesh sir.

Thank you, Manan. Good morning, everyone. Welcome to our earnings conference call for the first quarter of financial year 2027. I would like to thank ICICI Securities for arranging today's earnings call. The key financial highlights for the quarter 1 of financial year '27 are as follows. For the first quarter under review, revenue from operations stood at INR 886 crores, which grew by around 34% on a year-on-year basis. During the current quarter, the company has not accrued any PLI income. However, the company had accrued the PLI income of INR 13.31 crores during the first quarter of financial year 2026. The EBITDA for the quarter was INR 55 crores, increased by around 0.70% on a year-on-year basis. The EBITDA margin reported at 6.21% as against 8.24%. The net profit was INR 11.8 crores. An important comparability on PLI income. Before going further, I would like to flag 1 item that affects how should we read the margin comparison. The company has not accrued any PLI income in the current quarter of financial year '27, whereas we had accrued around INR 13.3 crores of PLI income for the previous quarter on a year-on-year basis. This margin was in the quarter revenue and because it carries no associated cost flowed almost entirely into EBITDA. If you strip that INR 13.3 crores out of both the revenue and EBITDA base for financial year 2026, last year, underlying EBITDA margin was closer to 6.4% and not 8.24%. On a like-to-like basis, our year-on-year margin improvement this quarter is closer to 15 basis points and not 203. 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, Rajeshji. Good morning, everyone. EPACK Durable continues to strengthen its position as a leading living appliances original design manufacturer. While room air conditioners remain an important part of our portfolio, we are steadily expanding into higher growth, better margin categories as part of our long-term diversification strategy. Over the last few quarters, we have made significant progress scaling our small domestic appliances and large domestic appliances as well as component businesses, which are seeing encouraging customer traction and growing order pipeline. This is gradually delivering a more balanced revenue mix and reducing our dependence on limited set of customers for finished product. Our focus remains on broadening the customer base, deepening relationships with existing customers, scaling new product categories, improving resilience, supporting margin stability, lowering customer risk and building a stronger foundation for sustainable profitable growth. As results are already shared by Rajeshji, I'm pleased to report a strong start to FY '27 with company delivering its highest ever quarterly revenue of INR 886 crores with a growth of almost 34% year-on-year. This reflects healthy momentum across the portfolio. Our core RAC business continued to grow strongly, while small and large domestic appliances as well as components scaled up encouraging pace, led by air fryers and washing machines. The growth was broad-based and reflects continued benefit of our diversification strategy. We now serve more than 72 customers across 19 product categories, thereby sharply reducing our customer concentration and materially derisking our revenue base even as absolute revenue from these customers has grown significantly. We have added 3 new product categories in this quarter alone, while 4 new categories are in pipeline for later in the year. On branded side, our partnership with Hisense continues to build well. Through the season of up to June, which is Jan to June, we produced close to 60,000 air conditioners under this partnership. It contributed approximately INR 65 crores of revenue in just quarter 1 of this financial year. While the quarter saw some pressure on margins and prevailing commodity and currency conditions, our focus remains on sustaining growth momentum by improving operating efficiencies and strengthening profitability as we scale. Our read on quarter is straightforward. We are winning share, scaling the top line strongly and near-term profitability is being held back by the investment cycle and increase in input costs rather than by weakening in demand or competitiveness. The path ahead is to convert this scale into operating leverage. Our priorities are threefold. First, scale the growth engines, sustain RAC margins while ramping washing machine and LDA capacities, which remain our fastest-growing and most margin accretive categories. Second, deepen strategic partnerships and position EPACK as preferred manufacturing partner across multiple product categories with our key customers, enabling deeper integration and long-term contracts. Third, rebuild margin, convert scale into operating leverage as new facilities absorb volume, localization deepens and our value addition and product mix normalizes towards higher margin categories. We have new product and new customer pipeline across SDA, LDA, and components heading into the rest of FY '27, and we remain confident in long-term growth opportunity across our business, supported by our expanding product portfolio, strengthening order book, new customer acquisitions and ongoing capacity expansion. With this, we now open the floor for Q&A.

[Operator Instructions] The first question comes from the line of Sucrit Patil with Eyesight Fintrade.

I have two question and first to Mr. Ajay is I just want to understand the forward guidance. Beyond the regular outlook, what are the top 2 to 3 execution priorities you are focusing on in the next few quarters? And alongside that, what do you see as the biggest risk in demand shifts, regulatory changes or competitive pressure? And how are you preparing to manage them while strengthening EPACK's position in the appliance manufacturing? That's my first question. And my second question after that.

Sucrit, can you please repeat? There's a lot of echo in your voice or I think you're on the road or something.

I'll just repeat my question. Just want to understand beyond the regular outlook, what are the top 2 to 3 execution priorities you are focusing on in the next few quarters? And alongside that, what do you see as the biggest risk in demand shifts, regulatory changes or competitive pressure? And how are you preparing to manage them while strengthening EPACK's position in the appliance manufacturing space? Just want to understand forward-looking guidance on this. That's my first question. I will ask my second after this.

Sucrit, although your question is not very clear, there's, I think, a lot of voice moderation which is happening because of the background. I'll try to answer it what I understood. So in terms of the outlook for the appliances industry for the coming 2, 3 quarters, definitely, first of all, air conditioners is having -- the tailwinds still continue, and we see long-term growth story for air conditions, our core manufacturing product category. On top of it, the other appliances in which we are expanding very aggressively like the small and the large domestic appliances, each of the newer categories, whichever we are adding, we see strong growth momentum, a lot of customer traction. And as we continue to add newer customer across categories, we believe that the growth momentum for the smaller domestic appliances and especially for large domestic appliances like washing machine, there is a long-term growth potential and the growth momentum is going to be much more than even RACs.

My second question to Mr. Mittal is, from a financial point of view, what key risk or challenges do you anticipate in the coming quarters? And what specific measures have we taken to manage margins, cash flow and strengthen the balance sheet, especially in areas like raw material cost volatility, receivables or compliance?

This top line, you have already seen, we have grown around [ 34% ] in this current quarter. As far as the cash flow situation is -- cash flow situation of the company is stable, and we don't see that there would be any requirement to increase the working capital or other requirement with respect to the growth in the business. Generally, with respect to the cash-to-cash cycle, we have the working capital days around 50 to 60, depending on the season of the company.

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

I have a couple of questions. And congratulations on a strong top line. I wanted to understand if you can break up the 44% growth which we reported in RAC between volume and value?

Tanay, so first of all, in terms of breakup, the total growth for RAC reported is 44%, approximately 30% of which is volume growth and 12% to 15% is typically the value growth in terms of the increased [ ASOPs ] and the pass on of commodities. So a breakup of 44% is 30% volume growth and 14% value growth.

Sure. And sir, this 30% volume growth would be largely driven by our anchor customer, correct?

Absolutely.

Understood. And while we spoke about this 12% to 15% pricing growth, what percentage of pricing has to yet be -- or let's say, the cost escalation yet has to be passed on in terms of pricing to our customers, which would then sort of normalize our margins?

Tanay, since we are doing -- it's contract wherein the prices are updated every quarter. So the price increase for the previous quarter was already passed on. And there isn't any significant increase since then for the current quarter. So there's hardly anything remaining...

I'm sorry to interrupt, sir. Sir, your voice is breaking up every now and then. I would request you to come closer to the microphone.

Tanay, am I audible now?

Yes, if you could just start again, yes sir, please.

Okay. So Tanay, first of all, since basis our contract with the larger customers, the prices are updated every quarter. And hence, most of the price increase was normally passed on. Where there is always a time lag between passing the price increase and when it actually impacts, especially in the turbulence of the global supply chain and the global scenario, especially impacting March, April. So there was a time wherein the price increase was not totally passed on. But yes, contractually, it is being passed on and there is hardly anything balance to be passed on as of now. What impacted us most for the last quarter was especially the ForEx exchange rate. So that is 1 line item we'd like to flag, which like the ForEx loss is something which has impacted us largely. But otherwise, most of the commodities -- after a time lag is typically passed on.

Understood. So we are saying that chunk of the pricing has been passed on in terms of commodity increases and ForEx is something which impacted our margins.

Absolutely.

Understood. Sir, the other question which I had is now, obviously, given that the season is largely behind us, what are the current inventory levels? Are they comfortable? Or any insights on that in terms of demand trends, inventory levels, et cetera?

So Tanay, I think especially for the AC industry, this current situation is one of the most comfortable situation for the entire inventory point of view, especially from finished goods point of view. Compared to last year wherein we were -- there was a lot of pain in the industry because of the inventory overflow and the equipment inventory, I think this is one of the best year or time wherein the trade has mostly liquidated its inventory and the inventory levels are at the lowest than the acceptable level. So my estimate here would be all put together, the trade and the brands and everything put together, the inventory level would be anywhere at 3.5 million to 4 million maximum. So inventory levels are lower than what actually is at this point of time.

Perfect. Perfect. And one last thing is, how has our working capital and debt moved, let's say, between 4Q and 1Q year on? Rajeshji, if you could possibly help us with that?

I already explained that the working capital days, we are -- because if you see in the first quarter, the working capital days are usually lower because you see the balance sheet is computed on the proportionate basis. Practically, if you see the working capital with respect to A/R inventory is coming from 60 days. And it was a little lower compared to the March end...

So Tanay, just to add on to Rajeshji's comments. 2 things interesting to note here is especially on account of the BIS and the revisions which are happening, I think industry has communicated its pain that we have been carrying more than the requisite inventories. So like at times, we have known that the compressor PLI or the QCO getting amended and then again, the copper QCO getting amended. So the timeline or the time available at the peak season mandates us to maintain more than the required inventory. So last few quarters, we see the inventory levels have been highly escalated on account of this. So this is 1 area which has led to a greater requirement of the working capital. So as we move through the season, definitely end of the season, we again are left with inventories because when we build up inventories in anticipation of the upcoming season. So for us, the key focus area remains from a working capital point of view is to normalize the inventory. Currently, inventories are at much comfortable level as compared to the last year, but then still slightly escalated. So our efforts continue to normalize them as we move forward.

Understood, sir. Understood. And just on this note, since you mentioned about compressors, do you expect any sort of trouble, let's say, down the line into the new calendar year, given that the BIS would be expiring in March '27? Or do you feel like there is sufficient capacity which are coming on stream by the end of this year, which should take care of our domestic demand?

Especially in terms of compressors, the QCO allows us to import for the next few months. But at the same time, the domestic capacity ramp-up has happened significantly. And as an industry, we believe that there is sufficient capacity to cater to the industry for the coming season. So we don't see much of a challenge as far as compressors are concerned.

The next question comes from the line of [ Nishita ] with Sapphire Capital.

Am I audible?

You're sounding quite muffled. Please use the phone on the handset mode in case it's on handset free...

Is it better now? I had a few questions. Sir, first question is that in the presentation, you mentioned that our PAT is lower and it's been impacted due to high depreciation and finance cost. Just wanted to understand is the depreciation cost that we had in Q1, should we take that as a base depreciation and finance cost for the whole year? Or is it going to be from here on?

So Nishita, to answer your question, the Q1 numbers for the depreciation are more or less aligned for the rest. So it has increased as compared to Q4 because the new capacities have been put to use. So there isn't any significant CapEx in pipeline or CWIP pipeline for the rest of the year. So we can safely assume that there is not any significant upside to the current depreciation level.

Okay. And what about the finance cost?

Finance cost has also gone up slightly because there is a requirement with respect to the scale of the operations. The company has seen a growth of 40% in this current quarter as compared to the previous one. Accordingly, there is an increase in the working capital requirement and the finance cost has also gone up by around INR 3 crores to INR 4 crores as compared to the previous quarter...

Going forward, can we expect this number to come down?

Yes, see Nishita, as I was answering to the earlier question, for us, the area of improvement with regards to working capital finance cost currently is the inventories -- I mean, normalization of the inventories, where it has happened largely over the last few quarters if you see. But yes, a lot of work still needs to be done there. So yes, there is an opportunity and scope to improve the finance cost.

Okay. Okay. Understood. And my next question is on CapEx. What was our CapEx spending in Q1? What is it going to be for the whole year?

For Q1 ended, there hasn't been any significant CapEx. Roughly INR 10 crores is what has been booked. And going forward, based on our earlier plans, which was announced last year, we were looking at a total CapEx of around INR 450 crores, of which currently INR 330 crores to INR 340 crores has been already booked and INR 40 crores, INR 50 crores is something which is currently in CWIP...

Ladies and gentlemen, the line for the management has dropped. Please stay connected. Management has been reconnected. Please go ahead with your question, Nishita.

Yes. So you were talking on CapEx.

Yes.

You mentioned that we've already booked INR 40 crores to INR 50 crores in CWIP.

Yes. So Nishita, I was answering your question on CapEx. So out of a total budget of INR 450-odd crores, which we announced in the beginning of FY '26, out of which INR 340 crores to INR 350 crores is something which is already booked. An additional INR 10 crores of CapEx has been booked in the last quarter, Q1 of FY '27 and almost INR 40 crores to INR 45 crores is something which is in CWIP. So we are estimating a total additional CapEx of around INR 60 crores to INR 70 crores for the balance of the year.

Okay. Understood. And my last question would be on -- so we've seen very good top line growth in Q1, around 34%. So what sort of growth can we see for the full year FY '27? And like is there any scope to improve our EBITDA margins from the current level? Or are they going to stay in the same range of 6% for the whole year?

In terms of top line forward-looking numbers, as you know, we don't share any forward-looking numbers. But yes, for AC, we are very confident that this year, the industry is expected to grow at around 20%. So we would definitely surpass the industry growth as we have done it in Q1. And our other sectors, our other product categories the small and the large domestic appliances are definitely growing at a much faster rate. So yes, we are looking to grow much faster, much better than the last year. On EBITDA side, currently, yes, 6.5% has been the typical EBITDA net of PLI or excluding PLI for the last couple of quarters. But here, the important thing to note is approximately 1.5% to 2% has been the PLI benefit, which was typically partly passed on and partly retained by the company. So since current year is the last year of PLI benefit available for EPACK, we have already started rolling back the PLI discounts or benefits what was shared with the customer. And we are looking at almost completely reversing the PLI discount passed on to the brand customers by the end of the year. So we are hopeful that by the end of the year, the entire PLI discount would be reversed. And next year onwards, we will be able to see more of a normalized EBITDA.

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

Actually, in this quarter, what is the total volume that we have done in first quarter? And if you can give the particularly from the fully built up unit and the indoor and outdoor units, how much we have done in this quarter and total INR 622 crores sales, that would be helpful. So I will come to the next question after that.

Rabindraji, we don't typically give out the number of units sold. But like I was answering the earlier question, in terms of the number of units sold, the growth for -- especially for air conditioner is...

Sir, I cannot listen to you properly. Sir, voice is completely -- I'm not able to hear you.

Okay. So in terms of the number of units, we have never historically given out the number of units sold data. But like I was answering the previous question, in terms of the number of units sold, the growth for last quarter is 30% vis-a-vis FY '26 and overall revenue growth is 44% as far as air conditioning is concerned.

Okay. And sir, regarding the compressor issue, you actually did this question from the previous participant, but I cannot hear you properly. So can you please repeat your comment on what is the compressor outlook for the industry? And what is the compressor for -- we have booked for now for our requirement in '27. And one of your competitor has actually mentioned in the call that there is a [indiscernible] ban is going to be effective from 1st April next year. So how you are placed for the compressor booking and how the industry is placed for the compressor booking? If you can give a comment, that would be helpful, sir.

Mr. Rabindra, as far as compressor is concerned, the government has allowed import of compressors till end of this year. So that is until the imports can be done. At the same time, the domestic capacity already installed and in pipeline, which we believe will be operational by end of December is mostly in line with the overall industry demand. Hence, we don't foresee any significant challenge in terms of procuring compressors. So we see that there is enough domestic capacity already installed and in pipeline, which is sufficient for the industry's demand. To your next question in terms of peers setting up compressor capacity, we don't comment on peer strategy. But as far as EPACK's strategy is concerned, we are not looking at setting up any compressor capacity in near term. And we believe that we have strategic tie-ups with both the large compressor suppliers, and we will continue to harness our relationships with them.

Okay. Okay. And sir, this disputed sales receivable that you mentioned in the note, is it related to air condition, right?

Rabindra, can you please repeat your question?

The disputed sales that is around INR 190 crores that you have reported in the notes and accounts, is it related to the air conditioner business, right?

Mr. Rabindra, are you on loud speaker or something? We are not actually able to understand.

Okay. So sir, regarding this for the -- I'm just coming to the light and the domestic appliances, small and large domestic appliances. Can you please give the breakup of how much it is from the light and small?

Mr. Rabindra, to what best I could understand your question is, I think you're on the loud speaker. So the growth of domestic appliances for the last quarter is 68%. So there has been a growth of 68% in the small and large domestic appliances as compared to Q1 of FY '26.

The next question comes from the line of [ Ayush Jain with Equity Advisory Services. ]

I just wanted to know about ex-RAC, your outlook and capacity utilization for the whole year?

In terms of capacity utilization across 3 plant categories which we have, Dehradun, Bhiwadi, and Sri City. For Q1, Dehradun and Sri City capacity utilization was closer to 90%. And as far as Sri City is concerned, we have seen a significant improvement in utilization of Sri City from previous reported of less than 25%, we've achieved almost close to 50% utilization of Sri City for the...

Pardon, how much?

Closer to 50% is what we have seen the utilization of Sri City. The other 2 older plants, Dehradun, Bhiwadi, for Q1, where the utilization level was more than 85%.

Okay. And this is ex-RAC, right?

Including RAC.

Including -- I just wanted to know ex-RAC, RAC actually.

So there is no split because the manufacturing facilities are fungible. So it's not just the assembly line, it's the overall manufacturing because we have huge amount of backward integration components getting manufactured within the same facility. So when we talk about capacity utilization, we talk as a whole.

Okay. And this kind of level is sustainable for the whole year?

This is the Q1 number, Q1 FY '27.

Yes, Q1, but the outlook for the whole year actually.

So last year's FY '26 numbers, the overall plant utilization of Bhiwadi and Dehradun again was close to 55%, and that of Sri City was less than 25%.

For this year, your outlook for FY '27...

So we are looking at overall utilization of all 3 plants put together at more than 60%.