Ladies and gentlemen, good day, and welcome to PG Electroplast Q1 FY 2027 earnings conference call hosted by Axis Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero, on your touchtone phone. Please note that this conference is being recorded. This presentation has been prepared for informational purposes only. This presentation does not constitute a prospectus, offering circular or offering memorandum, and is not an offer or initiation to buy or sell any security, nor shall part or all of this presentation from the basis of to be released on in a connection with any contract or investment decisions in any securities.
This presentation contains forward-looking statements based on the currently held beliefs of the management of the company, which are expressed in good faith and, in the management's opinion, are reasonable. The forward-looking statements involve known and unknown risk, uncertainties, and other factors which may cause the actual results, financial conditions, or performance or achievements of the company or industry to differ materially looking forward statements. I now hand the conference over to Mr. Nikhil Kandoi from Axis Capital. Thank you and over to you, sir.
Thank you, [inaudible]. Good morning, everyone. On behalf of Axis Capital, I welcome you all to PG Electroplast Q1 FY 2027 earnings conference call. Today we have with us senior management represented by Mr. Vishal Gupta, Managing Director, Finance; Mr. Vikas Gupta, Managing Director, Operations; and Mr. Pramod Gupta, Chief Financial Officer. Without taking much of time, I hand off the floor to the management for the opening remarks, post which we will open the floor for Q&A. Thank you, over to you, sir.
Thank you, Nikhil. Good morning, everyone. Thank you for joining PG Electroplast Q1 FY 2027 earnings call. I am Vishal Gupta, and I am joined by Mr. Vikas Gupta, our Managing Director, Operations, and Mr. Pramod Gupta, our Chief Financial Officer. We are pleased to start this financial year on a strong note. The season progressed smoothly, demand played out broadly in line with our expectations, and our teams executed well across the board. Consolidated revenue crossed INR 2,000 crore for the first time in the company's history, and the room AC and washing machine verticals posted their highest-ever quarter sales. Growth this year came from a combination of volume and price. We saw double-digit volume growth and a similar quantum of ASP increase as commodity costs and rupee depreciation costs passed through to our customers. Our order book remains healthy across all product lines.
I will now let Pramod take you through the numbers in detail, then I will come back to cover our capacity roadmap and few operating priorities for this year. Pramod?
Thank you, Vishal. Good morning, everyone. As all of you would have seen the numbers, consolidated revenue for the quarter was INR 2,034 crores, up 35.2% year-over-year. EBITDA came in at INR 156.2 crores versus INR 139.4 crores last year, with a growth of 12.1% and EBITDA margin of 7.7%. Net profit was INR 75.3 crores versus INR 56.7 crores, which was up 12.9% year-over-year. Product business was a key contributor for the growth, it contributed 80% of sales, growing 40.7% year-over-year. Within that, AC grew 38.1% to INR 1,401 crores. Washing machine grew 67.2% to INR 211 crores, coolers grew 3.4% to almost INR 19 crores. Electronic business has grown 6.3% year-over-year, contributed 5.3% of the revenues. Plastic molding and components contributed INR 294.6 crores and were up 7.4% year-over-year.
Our JV, Goodworth Electronics, posted sales of INR 177.3 crores versus INR 147.5 crores last year. EBITDA for the JV was INR 6.3 crores versus INR 4.3 crores last year. Our subsidiary, fully-owned subsidiary, PG Technoplast, reported strong sales of INR 1,600 crores for the quarter. On margins, gross margin as a percentage profit both quarter-on-quarter and year-on-year, driven by elevated commodity prices, particularly copper and aluminum, along with the rupee depreciation. I want to be clear on the mechanics here: product pricing in the industry is typically structured on a per-unit margin, not a percentage. When commodity price rise and we pass through where ASP increases, the same per-unit margin shows up as a lower percentage of larger revenue basis. On per-unit basis, margin remained stable versus last year, commodity cost increases have been partially passed through to the customers. On balance sheet, things are quite healthy.
We are a net cash company now. Cash and bank balance is stood at INR 491.3 crores, we have a modest debt at the end of [inaudible]. With this, I will hand it over back to Vishal. Vishal,
Thank you. Pramod, let me now cover where things stand on our capacity, along with a couple of other developments for this quarter. First, our flagship washing machine manufacturing facility has come online in a new campus in DMIC, Greater Noida, Uttar Pradesh. It's a state-of-the-art plant, one of the best in the industry, with a capacity of 1.8 million washing machines annually. Our fully automatic washing machine business has grown 150% on a year-over-year basis in this quarter, we are launching a brand-new 18 kg-20 kg range washing machine platform. This will let us go after a higher capacity, higher value segment, which we have not addressed fully before.
Secondly, on our refrigerator facility at Sri City in South India, it is progressing well. We are targeting commercial production by quarter four of this financial year. With this, we are becoming a meaningful revenue stream for FY 2028 onwards. We have also tied up with our anchor customer for this business. We are already active discussions with other customers also, where we are getting some soft commissions from them. This facility will have a capacity of 1.2 million units. In the first phase, we are starting with direct cool and side-by-side refrigerator. In the next phase, we will expand to cross-free and multi-door category of the refrigerators. On the compressor front, this project, which is coming up at Salarpur, is also on track for mass production in this financial year. Things are progressing well.
We expect our 2 million capacity line to come online in this financial year, as already planned and conveyed. Our new facility in Rajasthan, which is under the subsidiary PG Technoplast, is also becoming online. Given our anticipated growth, we are consolidating operations by relocating some of our units in Greater Noida to this new Salarpur facility. Alongside that, our strategic priorities for this year are R&D, new product development, backward integration, and capability enhancement, all aimed at building longer-term resilience and improving capital efficiency, which Pramod has touched upon. We will now open the floor for questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. A request to all participants: please restrict your questions to two questions per participant. For more questions, please rejoin the queue. The first question is from the line of Achal Lohade from Nuvama. Please proceed.
Good morning, team. Thank you for the opportunity. Sir, if you could help us understand, A, in terms of the RAC, the largest segment, in terms of how has been the industry trends in terms of primary and secondary sales volume growth. Also for the EMS industry, how has been the volume growth, and what kind of market share gain have we seen? If you could comment on that first.
For RAC, at the industry level in this first quarter, we have a sense where we can give you some idea on the primary level what the growth and the numbers have been. Secondary level, we don't have very direct access to the data, but still, primary level, we see that improvement, I think, overall industry has done around 10%-15% better, 15% better as compared to last year. On the couple of that, if you combine that with around 10%-12% value growth in the ASP, the combined is around 20%-25% is the growth at the primary level for the RAC. Secondary level, we believe, and as per the information we have got from our client, secondary level, the sales have been a little better. Some people are giving it very mixed signals.
Some people are saying it's a little better. Some people are saying it's much better. We don't have a very exact idea on this. Overall, secondary sales are better than the primary. Maybe at the due end, the channel and the brand-level inventory must be at a little lower side than what we had in the last year on the same time. Yeah.
How about, as in, you're saying June end inventory is lower than last year, but last year was actually pretty high. Is it still higher than usual, or it is now kind of normalized?
It is very near to the normal inventory levels now. What is happening, sir, now, the competition intensity is so high, so nobody wants to lose any opportunity of any sale. People tend to keep inventory at a higher level in order to ensure that they don't miss any sales opportunity. We see elevated level of inventory going forward, seeing the competitive intensity of this industry now. This is, I believe, so. This is my very personal view.
Fair point. Sir, on the EMS front, if you could call out how has been for the EMS business. Have you seen more outsourcing compared to last year?
The EMS electronics is not a very large business for us. We are still doing so large capacity what we have.
Sorry to interrupt, sir. I meant for the RAC, the outsourcing percentage, has it gone up for the RAC?
Yeah, RAC outsourcing percentage is definitely going up. It is definitely going up if you see the numbers. Overall percentage of RAC outsourcing is definitely going up, sir.
Got it. Got it. Second question, if I may ask, with respect to RAC growth for us, was there any spillover positive impact? Given fourth quarter end, we had logistical challenges. Has that also kind of benefited? On a six-month basis, how do you see that number or the market share gain, if you could call out?
It is a very seasonal business, you have to be present at that moment of time to meet your client's requirement. Definitely, we had some spillover, it was not a very large gain from that point of view. If you are not able to meet your sales or you are not able to service your client in the time he wants that, sometimes you lose that opportunity. Overall, six months for this quarter, I would say, we will see a growth, it will not be a very large growth. It should be around 15%-20% growth should be there on a six-month level for this year.
Got it. Thank you. I'll fall back in the queue for follow-up. Thank you.
Thank you. Thank you.
Thank you. The next question is from the line of Tanay Shah from DAM Capital. Please proceed.
Yeah, hi sir, good morning. Thank you for the opportunity. I have two questions. First is, we spoke about the fact that almost chunk of the commodity increment and passed on. What percentage of the cost increase has been passed on to our customers, and what is yet left with us? How do we see that sort of playing out over the next few quarters in terms of a gross margin?
Cost increase has been passed through to the clients. I cannot give very specific numbers on that, and it varies from customer to customer. We are confident that we will be able to, again, go for a price increase going forward because today, the copper has crossed INR 40,000, and the INR is also hovering around 95.5 and 96. That impact will still be passed on to our clients. It will be there, but right now, see, it is so soft, even the demand is not there. I don't think this is the right time to go for a price increase right now. I think the price increase will happen in the December quarter only with our clients.
Sir, the other thing which you had mentioned, even in the previous call, is that you expect competitive intensity to only go higher this year as well. Given the fact that brands are increasingly getting competitive with a lot of new brands coming into the RAC segment as well, do you see that pressure sort of coming down to even EMS players like us across the board because they will try and be more competitive?
Definitely, sir. We cannot be away from this. We are part of this whole value chain, so we cannot be very away from that. If you see our numbers closely, you can see last few quarters, we have been trying to restructure our company and try to control our operating expenses. We have been able to improve our operating expenses ratio also. Our focus is that to improve this efficiency in our operations so that we are able to match with the competition and maybe do a little better. If you see the numbers also across industry, some of the people give very clear numbers on their RAC performance and other category performance. You can see that relatively, our numbers or maybe our margin profile is a little better than the others.
We are very conscious about this fact, and we are preparing ourselves for this battle which is going to come in next few quarters.
Sure. Sir, just one more. Could you possibly split the RAC growth into volume and value for us? Since you mentioned there is double-digit growth for both, that would be helpful.
RAC at a volume level has grown around 20%-22% for us in this quarter, and the rest of the value has come from the price increases. ASP has increased by around 10%-12%.
Okay, sure. Thank you so much. I'll just come back in the queue. Thank you so much.
Thank you, [inaudible]. Thank you, Tanay.
Thank you. The next question is from the line of Neel Mehta from Equirus Securities . Please proceed.
Hi sir, good morning. Very thank you for the opportunity. Sir, just wanted to know, at the industry level, what would be the inventory levels now in terms of volume, including brands as well as the channel inventory? That's my first question, sir.
Neel, we don't have a very exact idea. Nobody in my industry has any definite data on this. There are guesses to that. As I told earlier to one person which was asked by me right now sometime back, that we believe that inventory levels have come down in this industry right now. Okay? Yeah. I think it should be a little lower. It should be anything between INR 4.5 million-INR 5.5 million at both industry and the brand level and the channel level.
Perfect, sir. Sir, how do we summon to the price guys in July month at the industry level, if you can highlight that?
July, August, September are the lean periods when the consumer is also not there. Some brands have been able to take some price increase, but brands have taken and then they have rolled back. It is a very brand-specific strategy. Every brand has their own strategy. I can't comment on that. Yes, there is a people are trying, brands are trying for price increase, but they are very limited success on that. Because of the maybe some of the brands are not taking the price increase, there is a pressure on everyone because of that.
Thank you, sir. Sir, just last question, if may I ask. Sir, related to our compressor project, where are we stand now in terms of, let's say, ordering of standard machinery? The second thing is that are we doing any kind of leadership hiring in that? And if you could just highlight, what would be the CapEx number for the quarter particularly, and if you could bifurcate it within the segments, like the compressor or like chain RAC, if you can just bifurcate.
Our compressor project is online, as I told you in the call right now. I can't give you very specific inputs right now because let me tell you, sir, we are very much trying to keep it under low profile and targeting that we start mass production by December, January. That is the target for us to start the mass production in December, January. Everything is online. I can only tell you only this thing. By December, January, when the mass production will start, we will be in a position to share a lot of things in detail with you people. On the CapEx side, I will take this question offline with you. Right now, I don't have the figure handy. For the CapEx specific numbers, yeah.
Sure, sir. That is from my side. Thank you very much, sir.
Thank you. The next question is from the line of Dhruv Jain from Ambit Capital. Please proceed.
Hi team, thanks for the opportunity. My first question is related to the question of outsourcing versus insourcing. Over the last few years, what we have seen is that insourcing has risen because brands have put in capacity. With PLI going away, do you think that, say, over the next two or three years, this number of outsourcing as a whole for the industry rises materially, benefiting people like yourself?
Dhruv, first of all, you just need to recheck the numbers. I believe in the last three, four years, if you see the growth of some brands who are listed and some of the outsourcing companies like us, and they are listed, and what is their growth, and what is the industry growth, what is the brand growth. I think when you do that number crunching, you will come to know, in spite of PLI and last three, four years, the outsourcing at the industry level has increased as a percentage of overall risk. Coming back to what is going to be next three, four years, as I told you, at a brand level, the competition intensity is so high that they are not able to make money. They tend to come to people like us in order to conserve their margins.
When they make in-house and then they outsource from people like us, there is always a price arbitrage. They have realized this thing post-PLI, post-putting up their own plants. They have understood what is more economically senseful for them to go to outsourcing. Having said that, see, lower-end models, entry-level models are largely outsourced where the competition intensity is very high, and premium-level models, they try to make in-house. That is the way how industry works.
Fair enough. Sir, my second question is on your washing machine and refrigerator ramp-up. We've seen a very sharp growth in the washing machine side and with you getting into refrigerator and also your new plant with respect to washing machine. Just want to understand in terms of any revenue guidance or a ramp-up guidance that you'd like to give for those two segments over the next, say, two or three years.
We don't tend to give any we have stopped giving revenue guidance. As we told in the call earlier, washing machine, we have seen a very robust growth for the last two to three years. This quarter also, this business has grown at 67%. We are seeing a healthy growth going forward also for next at least two to three years. We are getting more customers. We are increasing our wallet share. We are increasing our product offering. We are offering top-load models, fully automating models. We are getting into higher capacity washing machines. That is helping grow our business. As for a refrigerator function, it should start mass production in, again, December, January of this calendar year. We have already tied up with the anchor customer where we have already got a capacity commitment of around 30%, 35% from that customer.
In addition to that, our side-by-side business, the refrigerator, which we are going to start in maybe October, we will start manufacturing. October or November, we will start manufacturing our side-by-side refrigerators also in India. Second phase, we will go for direct cool and, sorry, this grocery and this multi-door category also. That also, going forward, when we have a 1.2 million capacity in FY 2028, which can be utilized, and even if we are doing 600K, 700K, if we are able to achieve in FY 2028, we see a very meaningful revenue coming out of this.
Got it, sir. Thank you so much.
Thank you. Thank you, Dhruv.
Thank you. The next question is from the line of Achal Lohade from Nuvama. Please proceed.
Yeah, thank you for the follow-up opportunity, sir. In terms of the RAC margins, ex of PLI incentives last quarter, how do you see that moved actually QoQ? Have we got to a normal level, or it is still below normal? How do you see it in the coming quarter?
Pramod, can you take this, please?
Hello. Yes, sir, I'll take this.
Yeah, please.
See, margins are slightly under pressure still, but we are hopeful that in the coming quarters, we should be able to pass on better the commodity price increases. Commodity prices increased very sharply. That is one. Second thing was rupee depreciated also very sharply in the previous quarters. Full pass on was not possible. Hopefully, with the stability in the rupee in the coming quarters and maybe the commodity stabilizing here, we hope that passing on of the commodity in the next season should be better. We are hopeful that margins will trend to a normalized level. There has been a quite sharp improvement in the margin in the AC business on quarter-on-quarter basis ex of PLI.
If you will adjust for PLI last quarter, which was there, and this quarter we have no PLI, nothing in this numbers which we have posted, you will realize the margins are actually quite significant improvement is there in the margins.
Fair point. Sir, in terms of the margins for the washing machine or electronics, how have they trended? Have they improved, or they are also in some pressure on percentage basically?
On electronics, it is more of a job work. There, the margins are typically stable kind of number. We do not see a huge challenge there. In washing machine, because of the fact that the resin prices, plastic resin prices have risen very sharply, the full pass on of the commodity prices has not happened in this quarter. We are hopeful that in the coming quarter, we will be able to get some price increases from the customers to take care of the resin prices, which have risen very sharply in the last quarter.
Will you be able to quantify, sir, how much was the impact of this for washing machine margin?
I will not be able to give you very specific numbers. We don't actually share the margin on the specific.
In fact, I mean, was that like 20 basis points, 30 basis points of the overall margin?
No, no.
It was that large?
No, it was larger than that. It was much larger than that.
Understood. Just last question. With respect to plastic molding business, was there any element of any inventory gain in terms of the margins for plastic molding business?
No. There is nothing there. In plastic business, it's more, again, like a component business where the plastic prices typically pass through is faster because the inventory levels are typically low, etc. There, we are having more like a job work kind of a relationship where most of the time, the client itself tells from where we have to buy, at what price we have to buy the resin. Plastic resin, where the margin impact is not so much.
Got it. Got it. Would you be able to quantify what was the RAC volume for the quarter?
I'll give you this number. Just give me some time.
Thank you so much. Thank you. Those were all my questions. Thank you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life. Please proceed with your question.
Thank you. Thanks for the opportunity. Sir, first question is on volume growth for this year. You mentioned 20%-25% of volume growth.
Mr. Pandya, can you hear me?
Hello?
Your line is not clear. Can you please speak a little loudly?
Sorry. You are not clearly very audible.
Please try again. The next question is from the line of Natasha Jain from PhillipCapital. Please proceed.
Thank you for the opportunity, sir. Good morning to all of you. My question is more from a consumer point of view. We understand there were a lot of price hikes that happened in [inaudible], but it was pretty much offset by the GST cut, and there was still low-cost inventory that was in the system. Now we're seeing that continuously there is another set of cost hikes that's happening. From a very consumer point of view, how do you see the demand panning out? I mean, historically, if such cost hikes have been taken, immediately what happens to the consumer sentiment? Do you think that going forward, even if there are seasonal quarters, say, four to. Shopping, we could see tapering off of demand itself for some time?
I'll take this question, Natasha. I can't give you. If you look at it, the consumer sentiment till now in other sectors, especially auto, etc., has been pretty strong. If you see the numbers of all the auto companies, etc., are pretty decent. AC as such, a product has not seen a very huge inflation. If you look at over the longer period of time, yes, this huge copper price increase and rupee depreciation is impacting on a last year basis and this year basis. There will be a price increase. Last year, they tried to pass on some price increase, and this year, again, there will be more price increases, which will be coming, especially if commodity price remains there.
Overall, after GST cut of 10%, I think the price increase is going to be in the range of maybe another 10%-15% for the brands, which should be, I think, absorbed by the customer without much issue, because there is a latent demand in the system for these things. That is one. Second, and a bigger important thing is that over the last so many years, the prices of AC has actually not increased, especially if you see the kind of improvement which has happened because of the energy efficiency rating, etc., in the overall product. My sense is it should not actually impact usually the sentiment or any such thing. Anyhow, my opinion always has been, and our opinion in the industry has always been that it's not the price of the equipment which is actually the deterrent for the buyer.
It is actually the electricity consumption because of the cross-subsidy which we have in India, where higher consumer, higher user pays, higher price for the electricity, which actually prohibits people from buying a product like AC at home. AC is actually still available at INR 30,000-35,000 for a user, which is much lower than most of the consumer electronic items or consumer durable items which are there. It's not actually the product price which is going to have such a huge impact in our opinion.
Got it. Just one related question here. Going forward, I mean, you mentioned 10%-15% is over and above cost hike post GST. Do you think at a channel level, because of overcrowding and too much of cost hike, teams will have to be continuously passed on in order to move demand at least for the mid-to-mid brands? Therefore, the structural margins in this industry is going to remain under pressure?
I don't agree to that also. Every I mean, this is my personal view and nothing to do with any particular brand or anything. If you look at the industry, last year was a very unusual year. We had a bad year. Then there was a rating change also, which happened during the season, actually just prior to the season. There was a huge inventory which was lying in the system for the old-rated ACs. Therefore, brands and channel was actually playing the old inventory game. Basically, that led to some kind of a pricing pressure, and the pricing could not be the cost could not be passed on fully. This year, we don't think that is the case. Most of the brands and most of the companies are under tremendous pressure because of the high price of the commodity.
I don't see a reason why price increase should not be passed on this year. Coming to the competitive intensity has always been high in the mid-brand value. I've been saying every two, three years, there has been a new player who has been coming and trying to gain market share by dropping prices. People are getting used to it, and the whole industry is actually suffering because of the very high commodity price, especially copper, aluminum, etc. My sense is this year, industry will probably take a good effort to increase the prices, and I don't see a reason why it should not happen this year.
Got it, sir. This is helpful. Thank you so much and all the very best.
Thank you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life. Please proceed.
Thank you. Sir, first question on the volume growth. You mentioned 20%-23%.
Sir, can you please be a little louder?
Hello? Is it better?
Yeah.
Hello? Okay. With low base for most of the quarters from year on, especially Q2 and Q4, and the price hike, is it fair to assume that whatever volume growth, 20% + volume growth is achievable for the full year, considering, say, low-channel inventory and all the other factors of unfavorable base, etc.?
Yeah. We think that should be a possibility for us, given the fact that for us, for the next nine months, barring December, base is pretty low. Yes, if industry is even normal, in the sense that we see industry normalizing and unlike last year, the channel inventory is not high, etc. We think that we should be having 10%-20% + kind of a volume growth for the full year.
In that, just one follow-up. I mean, as you mentioned, except for December, for most of the months or quarters, we have much lower base. The 20% you are saying about 20% +, because I think 20%, considering industry growth and low base, isn't it a low number? The derivative question is that FY 2027 earnings, do you think can surpass or meet FY 2025 earnings? That is one follow-up.
We are hopeful that we coming to the earnings, we are very hopeful that we should be able to surpass the 2025 numbers this year. We don't see a reason why we should not if the sales is good in the second half. Coming to the volume, I'll tell you, see, as I was saying, we are hoping that this is a base case, but we are prepared for a higher volume if we will get an opportunity to have those higher volumes. We are prepared for that. Given the competitive positioning is going to increase significantly once our compressor plant is going online in October or November, we hope to gain further market share in the outsourcing market. We don't see a reason that if industry grows at, say, whatever, say, 15%, we should be able to do 20%.
If industry grows at 20%, we should be able to do about 4%, 5% better than that.
Noted. Sir, the second question on just a slightly longer-term outlook. You have highlighted ref, expansion, washing machine, and compressor. Even if I add, say, at least in the first phase of all these three products, the EBITDA that can contribute on the current high base won't be significantly higher, say, probably two years down the line. From, say, exit at the time of FY 2028, what are the growth plans? How are you thinking about, say, over the next three, four years? New category addition or second phases for this product in whichever way?
First of all, I want to highlight here that this financial year and next financial year, we think we have a very strong growth trajectory because this year, we have a low base of last year, and we are having a lot of new projects which are coming online. Like washing machine has already come online. In the second half, we will have compressor and refrigerator plants coming online. Next year, again, these things will be ramping up, and we will be probably adding some capacity in the compressor side if the first line goes on the way we are expecting. Therefore, we don't see any challenge on that side.
The third thing which I want to highlight is that because of the competitive positioning which we will be having, which is going to improve after the compressor plant, the volume growth should be good for us, and we should be continuing to gain market share. We will now be able to offer the whole bouquet at a single company level, in the sense that we will be able to offer washing machine, refrigerator, AC, and TV through our joint venture. All these things put us at a very strong positioning for anybody who is looking to outsource and doing partnership with us. We don't see a reason for at least next two, three years in terms of growth.
Second thing I want to highlight is from the point of capital efficiency point of view, and not only looking at growth, but also looking at margins and the floating of assets. In the last three years, we have actually, including this year, we have done very significant CapEx. Our gross flow is more than doubling at the end of this year from three years back, if you will see. Now it's high time that we try for the next at least one in a half to two years to sweat this asset, get all these capacities online, focus on profitability, get to a sustainable margin, invest in more R&D, backward integration, so make the margins more sustainable, because these things are also very important. Even if, say, 2027, 2028, I don't see any reason why we will not have 25%-30% growth for us.
Even if, say, for 2029, if it is a consolidation year, we don't mind, because in that year, we will be actually consolidating our position, getting our operations much more efficient, and getting the profitability, which is ROCE, ROE, which is very important for us, at a respectable level so that we can have money to invest in the next phase of growth. That is what is going to be the strategy. We don't think that growth is going to be a challenge at least for the next two, three years, at least with the current kind of CapEx and the things we have done in the last two, three years.
Understood. Sir, just last question. On ref and compressor, which are new product.
Sorry to interrupt you, Mr. Pandya, but I may request you to rejoin the queue.
Sure. Thanks a lot and all the best.
Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please proceed.
Yeah, [inaudible]. Hi. Good morning, sir. I'm the [inaudible] here. Sir, broadly, I want to understand more on this R&D capability we are building. In terms of capital allocation towards human resources, in terms of hiring, and what exactly are we building with the two, three-year period in terms of, say, capabilities in terms of technology and then manufacturing on the compressor side. That's all I want to understand. Over the medium term, what are you trying to build?
Vikas, will you like to?
Praful , at a company level, at an organization level, we are undertaking a lot of initiatives. Like SAP is being implemented across all 14 units, across all group companies also. SAP that we started a year back, and now we are very well confident that we have done a lot of integration in SAP now. A lot of inventory visibility across the group is there. Operational efficiency is improving, inventory efficiency is improving because of the improved visibility of the raw materials and the material across the group companies. A lot of management development programs are also undergoing, and we have also hired one company, one part of a Big Four audit firm who is helping us define SOPs for key business processes in the company. We are undertaking all such steps in order to make sure that this growth is sustainable.
His question was more on R&D. R&D, we have I missed that one. [inaudible],
Yeah, please.
We have actually, we were till now more of a design where we were designing largely the system. We were not getting into the component design phase. We were largely picking up the components which were available off the shelf and designing the whole system. That was the capability which was there in the company. Now, realizing the fact that Government of India is keen and is putting up more and more focus on doing more higher value addition, and therefore, the backward integration is becoming very, very key in this industry and across all the manufacturing industries, I believe. Getting into the component-level R&D and design is becoming critical and very key for long-term, I will say, survival as well as long-term competitiveness in the industry.
We have, therefore, started focusing on those aspects, and we have been building teams to get into that. I will not be able to give you very specific things on compressors or controllers or motors which we are doing. I can just tell you one thing, that we are very well aware that given the fact that Government of India is very keen that they are putting QCOs first, they put it on the products, and now on component level, it is very, very likely that the imports of these things are going to get restricted in the future, and it makes high sense for companies which have a very high market share in the domestic market to focus on these components. Reliance on imports has to be reduced.
With that thought process in the mind, we are working and building teams in India to take care of immediate and future requirements. We are keen that we should be having backward integration because that is only the way to actually increase the competitiveness in this industry in the longer term. You visit us, and probably you will once see our facilities and meet the people. We have now a new CEO who has come who has a very vast experience in the RAC. He is driving our strategy and also the whole operations and the team. You meet him, and you will realize from his vision what we are trying to do. I think that is all I can say.
I can't actually disclose a lot on the public thing that what we are trying to do in R&D on compressors or motors or controllers, etc.
Yeah. Okay. Thank you very much. Thank you.
Thank you. The next question is from the line of Bhavya Gandhi from Bajaj Alternate Investment. Please proceed. Mr. Gandhi, are you there?
Yeah. Are you able to hear me? Sorry, I was on mute. Yeah. Thank you for your opportunity. A couple of questions. One is regarding the EBITDA margin. You said there is commodity inflation and that it will take some lag. With the lag, you'll be able to pass it on to the customers. In your experience, sir, can we expect we are a year away from getting back to 10% historical EBITDA margin? Is that the right understanding? Because you said somewhere in December you will be able to pass on before the commodity inflation.
I think 10% EBITDA margin, that is not the way our business works. Actually, our business is not on a percentage margin. Percentage is an outcome. It typically depends on per-piece basis, how much money you are asking for making all the components and doing the assembly of the product. That is the way this industry works. When the commodity prices are low, typically the margins look high. When a couple of years back, when the copper was at maybe INR 7,000, INR 8,000 per ton, now it has gone to INR 14,000 per ton. The customer doesn't give you money based on that higher commodity price as a percentage. He gives you fixed money for making the AC, maybe INR 2,500 or INR 2,300 or something like that. In that scenario, your percentage margins will look low.
Coming to the 10% question, I don't think 10% is something which you should look at. What we are saying is that in a very high commodity price environment, typically getting that INR 2,500 or INR 2,000 or whatever amount you are charged also becomes a challenge because you are not able to immediately pass on the very high cost price in the same season. That is likely to see a change, we are going to get back to that number. Percentage is something which I will not commit to, but I think we will be going back on a per-piece basis to the normalized level soon, both in AC and washing machines. The commodity prices have actually been the commodity inflation has been very, very high, and it has been a big challenge last year because of the rating change, etc., and high inventory.
The brands also do pass on the full commodity price increase, therefore, the whole value chain has suffered. This year, I don't see that kind of a reason. We think that price increase will be passed on in the whole value chain, therefore, things should start normalizing.
Got it. Fair enough. The second question is regarding the compressor. What would be the value of compressor in the R&D? If the number, whatever the number is, can we assume that that would be the same value for one unit of compressor that we'll be manufacturing?
Today, the compressor price in India is roughly around INR 2,800 - INR 3,000. That is what we also hope to sell the compressor once we start doing the manufacturing of the compressor in India.
Okay. Sir, what would be the average realization for R&D for us, at least?
R&D realization average will be probably close to INR 21,000 now.
Okay. Fair enough, sir. Thank you so much. Really, that is so much.
Thank you.
Thank you. The next question is from the line of Akshay from AK Investment. Please proceed.
All my questions have been answered. Thank you so much and all the best to the management.
Thank you.
Thank you. The next question is from the line of Mohit Jain from Tara Capital. Please proceed.
Hi. Can you hear me?
Yes, I can hear you.
Okay. The margin only. I understand that the December we are expecting to reach back to the normal margin level in the absolute sense. Should we see a year-wise flattish margin % as compared to previous year? Second is, how much should be the absolute EBITDA growth that we can expect for the current year?
The guidance we are not giving, last year was a bit unusual year for us because the season of RAC went bad, and there was a rating change because of which December quarter probably had a bump up in the volumes, which is typically not the case for us in a normal year. For us, the best quarters are Q1 and Q4. What actually happened last year was because of the huge pressure in the whole value chain and the kind of inventory which was being carried, especially the older inventory, passing on of the full commodity price became a bit of a challenge. That scenario should start changing for the whole industry, in my opinion, in coming quarters. We are hoping that we will get back to the normalized margin.
This year, on an overall basis, I am expecting margins at the operating level, which is basically X of PLI, X of any incentive, etc., to improve significantly because that pass-through should be there. On a reported basis, we should be having a slightly better margin than last year. Initially, at the beginning of this year, we had guided that we should be probably close to 8% kind of a margin for the whole year, at least at the operating level, which is this quarter about INR 720. We are hopefully going to reach that number on a full-year basis. Therefore, we are expecting that second half, I mean, the next nine months should be better for us, especially the fourth quarter when all these things start coming, which is going to be the high quarter also for us.
Understood. 8% margin is what we can expect for the full year.
Yes.
Okay. Thank you.
Thank you. The next question is from the line of Santhosh Seshadri from Avendus Spark. Please proceed.
Yes. Thanks for taking my question. My first question is on the compressor side. You mentioned about the potential import restrictions. Can you help us understand how much of the current at the industry level, how much of the current requirement is still being imported, and whether the domestic capacity, both the current capacity and those that are in pipeline, is sufficient to offset this inflow? Also, from a PGEL standpoint and maybe perhaps at the industry level, what are the key risks that you see that these capacities, plant capacities, coming online probably won't come online on time as expected?
Pramod, do you want me to take this?
Yes, sir. Please take this.
Okay. At the industry level, I think we are still importing around 60% of our compressor requirements in India right now, around 50%-60%. Government of India has already announced a notification has come where any compressor import is allowed, but that is restricted to 25% of your FY 2025 imports. The industry, if industry has imported in FY 2025 around maybe around 10 million compressors. At the industry level, we can import only 2.5 million compressors. That too up to 31st March 2027. After that, compressor import is not allowed in India.
We believe that with this quota, which is available to the industry and whatever new expansion of capacity is happening in India in compressors by the Chinese companies and some other Korean and Japanese companies in India, we will see still a shortfall in the capacity in availability in India. As Pramod has said earlier also in the call, that when our production starts in December, January, and we are able to stabilize that production, and by that time, March after, we will have a clear visibility of how the season of 2027 is turning out. Once we have some clarity on that and whatever capacities are there in India, we are planning for another line immediately after that. In April, May, we might take a decision adding one more line for 2 million compressor capacity in our existing plant in Supa.
At an industry level, we believe that we might see some tightening of compressor availability in India from January-February onwards. This all depends on how is the demand playing out, right? Supply side, we might see some content if the demand is good. That is our estimate, internal estimates.
Thank you very much. The second part of the question, do you see any operational risk or any sort of risk to the existing capacities sorry, to the new capacities in pipeline? What could potentially go wrong here?
There can be a lot of geopolitical factors right now. We are living in such uncertain time. You don't know what will happen tomorrow. A lot of still supply chain in India, whatever things we make in India, there are a lot of things which we are dependent upon overseas suppliers. If we get any constraints on land, then that is one risk which is there for the whole of the industry, not only for us.
On the companies point of view, are we covered in terms of technology and the machinery that are needed?
Yes, sir. We are very confident the product what we are developing at a compressor level, and we are quite confident, and we have already got initial positive feedback from our clients. We are hopeful of starting our mass production from December, January, and we will be able to start supplying compressors to our customers.
Thank you very much. Yeah. All the best.
Thank you.
Thank you. The next question is from the line of Bala Muralik rishna from Oman Investment Advisor. Please proceed.
Yeah. First of all, I want to.
Sir, can you speak a little loudly? We can't hear you.
Yeah, yeah. Is it okay now?
Yeah, very good.
Yeah. Vishal, first of all, I'd like to put some concerns before asking questions. I was waiting in call since one hour, and the operator is giving opportunity to other people to also follow up questions. When I asked that, then they told that it's management call. I don't think it's a call to select the user. Maybe you can comment later on that.
Sorry, sir. I will comment it. Sir, I need to comment on this here. We don't select the calls. We don't select the question asked. We don't do that. As a trustee, whenever a person is asking a question, they are allowed to ask a follow-up question. Only one follow-up question is allowed. That is what SOP we normally follow in such annual calls, sir. Please continue with your question.
Yeah. My opinion was the same. After completing the question, they give a second chance to other people for the follow-up questions. It should not be the case when people are waiting in the call to ask their first questions. Secondly, sir, on the industry relation communication, you invited people to plant visits also in so many calls. When you send the email for that one, there will be no response. Also, when you send any questions after call, then you give me an opportunity to ask questions. There will be no response from the investor emails. Last time, in the last call, after completion of call, I sent an inquiry regarding the PLI benefits, whether it will be accounted in Q1 or not. I didn't have the questions.
Maybe that's a mistake from our side, sir. What I will do once this call is over, I will have your mobile number with me. I will ask the coordinator to share your mobile number with me. Pramod's number and my number will be shared with you. We can directly interact on this, sir, at a direct level, sir. Sorry for the ignorance, sir.
Thank you so much. Thank you so much for the clarification. The next question is regarding the inventory, sir. Last year, we have increased in the gross inventory, this time, we thought that it will reduce substantially. Still, I think we are at around greater than INR 1,000 crore inventory by the end of June. How is the level adjustment, sir, do you see any reduction in the maybe in the coming quarter?
I'll take the question. Okay. First of all, you have to realize that commodity prices are continuously increasing. Second thing is, supply chain is also getting a little bit constrained because of the QCOs, etc. For example, I'll tell you, as Vishal already told you, that compressor import is not going to be allowed in India from 1st of April. This year itself, the total compressor availability is constrained because only 25% of what you imported in 2025 is being allowed to be imported. Second thing is, similar thing is happening on the copper tubing, which typically is imported, especially the inner-grooved copper tubing, IGT, if it's called. That import is getting restricted from November. Post-November, you cannot import IGT into the country.
If these kind of things are there in the system, then keeping some strategic inventory level becomes very important to continue to the operation. That is point number one. Point number two is that the prices itself of commodity have gone up. For example, till last year, if I was keeping an inventory of, say, 580,000, that was constituting close to INR 700 crore. This year, the same 580,000 inventory is probably at something like INR 940 crore or so. That is the kind of difference which has happened in terms of the increase, especially because of the copper and all the other components, even the controllers or the other things. That is leading to a higher inventory level.
Yes, there has been some softness in the month of June also, which actually led us to let the inventory levels by maybe INR 100 crore or so lower if that would not have been there. One of the key reasons is that the very high commodity prices, which is reflected in the sales as well. If you see the average selling prices of both AC, washing machine, etc., are up 12%-15% on a year-over-year basis because of the higher commodity price. The input prices have also risen very sharply.
Great question for the estimation. The second question is regarding the washing machine. Washing machines, I think, compared with the regular machine, it is consistent, which will sales will be consistent all over the quarter. What was our previous capacity and what was the capacity utilization before commissioning this new facility? And in the new facility, what kind of utilization level you are expecting maybe by the end of the year?
Vikas, will you like to take this question?
Basically, sir, this new capacity which is coming online will bring our total capacity to around 3 million. We are hopeful that in next quarter, maybe in by not by end of this year, maybe by the FY 2028, we should have almost around 70%-80% utilization of our total capacity. We are seeing a rapid volume growth in our washing machine business. We are trying to position this plant to take care of the demand that comes up in next two to three years.
Just a follow-up on this, sir. We added capacity. What was the.
Sorry to interrupt you, Mr. Muralikrishna, may I request you to rejoin the queue?
Okay. Just hold on. Let him continue, please. Let him continue. Yeah, tell him.
What I'm asking, sir, we have added a capacity because the previous capacity would be reached from optimum level of capacity utilization. I'm asking about what was the previous capacity utilization because maybe this when this capacity will also reach some optimum level of utilization in your year, then we will go for again for some CapEx. That's why I'm asking.
Mr. Muralikrishna , the current capacity utilization that we were able to achieve was almost on the annualized basis, almost around 70%-70%, which now because during the peak season, the capacity utilization goes above 100%. Usually what happens, we have to create a capacity to take care of the peak demand. Peak demand may not be so high during the normal months. The capacity utilization if you look at on the annualized basis for the previous capacity was almost around 70%. With the new plant coming up and within next two to three years, we should be able to have a utilization of almost around 70%.
Thank you so much for that.
Thank you. The next question is from the line of [inaudbile] . Please proceed.
Hello, sir. Can you hear me?
Yes.
Sir, after the compressor unit comes online, what kind of margins do we expect and what is the fixed asset term that we're expecting post-commissioning of all our equipment?
Overall, on a company basis, we all the time target that fixed asset term should be more than 4X. Compressor contribution to the margin, I will not be able to spell out right now, but it will also depend on the competitive positioning and how the people behave in the compressor pricing, etc. We hope that given the fact that first time that we will be commissioning will be largely used for in-house manufacturing of AC, compressor will be margin additive for us. That is the hope that we have. We think that if the compressor QCO is implemented from 1st of April 2027, then compressor pricing should also remain good and it should be giving us good decent margin because pricing power will be there in the system because imports will probably be restricted.
Okay, sir. You said 4X. This is on gross basis and any margin guidance for the next year as well?
No, no. Margin guidance is not there even for this year. This is the expiration which we have that I have told you that 8% kind of a margin is what we want to reach for the full year. This is please don't consider anything as a guidance. We are just telling you on what is what will be expiring. Given the backward integration and new CapEx, etc., and hopefully the better volumes in the coming quarters, we think that 8% is something which we should be able to achieve.
All good. Thank you.
Thank you.
Thank you. The next question is from the line of Aditya Mehta from GK Capital. Please proceed. Mr. Mehta, can you hear me?
Hello. Am I audible?
Yeah.
Thanks for the opportunity. I just have one question on the seasonality of the business. Since we are diversifying to refrigerator, washing machine, compressors, what impact it will have on the seasonality which we have been seeing more dependence on the RAC business? How it will go on in the next few years?
Obviously, with all the diversification initiatives which we are taking and there are certain more things which we are doing in terms of new product lines as well as new lines of business, we hope that the overall dependence on AC will surely come down. Today, AC contributes almost 60%-65% of the sales in the company, which we want to bring down closer to 50%-55% over the next two to three years, especially given the fact that the new lines of business will be added and some lines like washing machine and electronics and even in the plastic, etc., there are certain things which are increasing at a much higher, faster growth. We are hoping that will bring down the dependence as well as the seasonality on the overall business.
Secondly, what peak revenue can we expect on the compressor business at full utilization?
See, it is the first line which we are commissioning. One line can give you roughly about 2 million kind of an output at 80%, maybe about 1.6 million-1.7 million compressor. You can take for the calculation point of view about INR 2,850 or INR 2,900 kind of a pricing per compressor. That is the kind of output which you can have. The plant which we have commissioned has the land and building is good enough to totally deploy four lines. First line has taken us is going is taking us to about six months to commission.
The next line, we think we will be able to commission in a much shorter time, maybe three to four months, because there are some critical part components which critical plant and machinery components which have a long lead time which will not be required in the second phase of growth. We can actually in the same plant go 4X the initial capacity and also the future expansion will be much faster.
Thank you, sir.
Thank you.
Thank you. The next question is from the line of Kumar Divyanshu, an Individual Investor. Please proceed.
Yeah. Hello. Is my voice audible?
Yes. Yes.
Good morning, sir. Thank you for the opportunity. I just have one to ask two questions. The first one is regarding the order books. Could you please comment on that? What is the order book as of Q1 FY 2027 and what order book you have executed? The second one is of the CapEx that any CapEx plan if you are having.
No, we do not share any order book numbers. Typically, the order book is not in terms of any firm commitment. It is basically the brands with whom we work, the partner brands, they typically give us the forecast of how much numbers of washing machine or ACs they are looking to outsource in the season. AC season is coming to an end. There we don't have a fresh order book as of now.
That fresh order book will be starting to get built from October, September end, October beginning time for the coming season, which will be starting from December onwards. In washing machines, we do have some commitments in terms of volumes from our client partners, but I am not allowed to basically kind of share the numbers from that. We have never had a practice of sharing those numbers.
Let me ask you, sir, any CapEx plan if you are having?
This year, the total CapEx that we have is about INR 400 crore, which is going to actually be utilized in completing the ongoing projects of compressor and refrigerator. We are, as Vishal had mentioned, recently kind of taken up a big land parcel in Salarpur where we are consolidating our plastic molding and some of the other business which we were doing in Greater Noida, etc. Those are the only CapEx for this year. This year, more focus is on completing these projects and start basically starting these assets.
Okay, sir. In considering of Q2, just I want to ask any approximation that do you see any like festive demand opportunity which will be there so it will benefit to the Q2 revenue or something like that?
We do not give any quarterly basis guidance. We have never given. We are open to this just only approximation that the festive season is approaching and is going to start in some days or in some months within one month.
Do you see that any benefit of this will affect on the Q2 results or something like that? Any benefit?
No, no. We don't comment on that. No thing. Q2 numbers, etc., I don't comment on that actually.
Okay. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you.
Thank you all. Thank you for attending this call. Meanwhile, [inaudible], can you share the contact number of the gentleman who wanted to have some direct interaction? You can share my number with them and share his number with me so that whatever queries he has, he can take it on later. All others, whoever have any questions, they can take our numbers from Nikhil. Nikhil, you need to coordinate whatever questions there. Follow-up questions, we need to take care that those questions are addressed effectively by us. Please. Thank you. Thank you all. Thank you.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line. Thank you.