Ladies and gentlemen, good day and welcome to PG Electroplast Q2 FY 2027 earnings conference call, hosted by JM Financial Institutional Securities Limited. 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shalin Choksy from JM Financial Institutional Securities Limited. Thank you, and over to you, sir.
Thank you, Anna. Good morning, everyone. On behalf of JM Financial Institutional Securities, I welcome you all to the Q2 FY 2027 earnings call for PG Electroplast Limited. We have with us the management of the company, represented by Mr. Vishal Gupta, managing director, and Mr. Pramod Gupta, chief financial officer. Before we start off, a brief disclaimer. This presentation has been prepared for informational purposes only and does not constitute a prospectus, offering circular, or offering memorandum, and is not an offer or solicitation to buy or sell any securities, nor shall part or all of this presentation form the basis off or to be relied on in any connection with a contract or investment decision. 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 management's opinion, are reasonable.
The forward-looking statements may involve known and unknown risks, uncertainty and other factors, which may cause the actual results, financial condition, performance, or achievements of the company or industry to differ materially from those in forward-looking statements. These forward-looking statements represent only the company's current intentions, beliefs, or expectations, and any such statements speak only as of the date on which it was made. The company assumes no obligation to revise or update any forward-looking statements. With this, I will hand over the call to the management for their opening remarks, for which we can open the floor for question- and- answers. Thank you, and over to you, Mr. Gupta.
Thank you, Shalin, and good morning, everyone. Thank you for joining PG Electroplast Q2 FY 2027 earnings call. I am Vishal Gupta, the managing director, and I'm joined today by Mr. Pramod Gupta, our CFO, and Mr. Vikas Gupta, our managing director, operations is also joining this call. Second quarter has panned out on expected lines, and we have seen good secondary sales in the room AC business for the industry, resulting in a strong order book for us also. Our teams are gearing up for strong execution in second half of FY 2027. For the first half of FY 2027, consolidated revenues crossed INR 2,950 crore for the first time in the company's history, and the room AC and washing machine verticals posted their highest-ever first half sales. Growth in first half came from combination of volume and price.
We saw double-digit volume growth and a similar quantum of ASP increase as commodity costs and rupee depreciation got passed through to our customers. Our order book remains healthy across all product lines. I will let Pramod take you through the numbers in detail, and then I will come back to cover our capacity roadmap and few other operating priorities for the current financial year. Pramod.
Thank you, Vishal. Good morning, everyone. Consolidated revenues for the quarter was INR 934 crore, up 42.5% year-on-year. EBITDA came in at INR 69.14 crore versus INR 44.68 crore last year. A growth of 54.8% with EBITDA margin of 7.4%. Net income was INR 13.67 crore versus INR 2.76 crore last financial in the same quarter. For first half, product business has contributed 70.3% of sales revenues, growing 41.1% year-on-year. Within that, AC business saw a growth of 36.2% to INR 1,561 crore. Washing machine crossed INR 500 crore of sales and grew 60.7% for the first half. Cooler was muted at about 4.8% growth and contributed INR 19.3 crore. Electronic business has seen a very sharp growth of 90.3% and contributed 12% of revenues for the first half, and plastic molding and component contributed INR 521.6 crore and was up 7.5% year-on-year.
Our JV, Goodworth Electronics, posted revenues of INR 623.8 crore in the first half versus INR 483.4 crore last year, and EBITDA stood at INR 22.7 crore versus INR 10.3 crore last year. Our subsidiary, PG Technoplast, which is obviously a part of consolidated sales, which I told above, reported INR 2,130 crore in sales this year in the first half. On margin, I want to clarify once again that gross contribution as a percentage have softened on a year-on-year basis, largely because of the pass-through of the commodity prices, particularly copper, aluminum, plastic, et cetera, along with the rupee depreciation. As you all know, on a per unit basis, margin remained stable and we get
A fixed amount on a per unit basis and not the percentage margin for doing the contract manufacturing. On balance sheet, things remain quite healthy. Cash and bank balance stood at INR 422.5 crore, and most of the CapEx for this year is already paid for. Basically, CapEx payment that are not in gross fixed are either in CWIP or advances to suppliers. With this, I will now hand it over back to Vishal Ji.
Thanks, Pramod Ji. Let me cover some business outlook and our strategy along with couple of other developments for this quarter. Four of our flagship washing machine manufacturing facilities that came online in new campus in DMIC, Greater Noida, Uttar Pradesh last quarter. Our new campus at Salarpur, Bhiwadi is now operational, and we are consolidating operations by relocating some of our Greater Noida operations to this new facility.
This facility will have coolers, sanitaryware, plastic component, and mold-making facilities. Second, our refrigerator facility at Sri City in South India is progressing well. We are targeting commercial production as earlier committed in the last quarter of current financial year, with this becoming a meaningful revenue contributor for FY 2028. We have already tied up with our anchor customer, and we are in active discussions with other customers as well, with some soft commitments already in place. The facility will have a capacity of 1.2 million units and will start in phase one with direct cool and side-by-side refrigerator and add frost free and multi-door in phase two. On compressors also, the project at Supa is on track for mass production in this financial year. Things are progressing well. We expect our first two million capacity to come online as planned in this financial year only.
Alongside that, our strategic priorities for this year are R&D, new product development, backward integration, and capability enhancement, which all is aimed at building longer term resilience and improving capital efficiency. With that, 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 touch tone 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tanay Shah from DAM Capital. Please go ahead.
Yes. Hi, sir. Good morning. Thank you so much for your opportunity. Sir, I have a few questions. First one being, we spoke about a double-digit volume growth in AC. Maybe if you can help us understand how the industry sort of grew this quarter on a very unfavorable base, versus how we've sort of done against that.
In this quarter, the primary sales have been muted. We do not see much larger, very strong growth. But secondary sales as per the feedback what we are getting from the industry people has been very strong. But again, if you try to compare this with the year-over-year basis, July you can compare. August, there was an aberration because of the GST announcement was done, and then in September also, the sales started after September 22nd only. All said and done, still the secondary sales have been very strong in the channel, and channel inventory is on a much lower side as compared to last year.
Yes, second quarter we did not see much action, but I believe that December quarter and March quarter, we will see much better numbers for our company as per the feedback what we are getting from our clients and the kind of order book which we have been able to build up to maybe March, April for ourselves.
Got it, sir. You spoke about most of the prices being passed on to the customer. If you could quantify the percentage of price hikes taken, and is it completely absorbed now by our customers, or is there another round of price hikes which are due from our side?
See, price hike has been an ongoing activity for us. The first price increase had happened in January of this calendar year. Then it again happened in the month of April, because it is normally done on a quarterly basis, and it has been done again in the quarter starting from this October quarter. January quarter also, we are going to take a further price increase from our clients, which has been already aligned with most of the clients. So with this price increase, second price increase, which will happen January 1st onwards, most likely most of the price hikes which should be factored in till now will be taken into account for.
No, sir. I was asking from our second quarter perspective, because I think we mentioned in a press release that most of the price increase has been passed through. I just want to see that if the gross margin compression was also due to some bit of under absorption, or is just as a function of obviously the ASP hike, which is optically making our gross margins look lower.
See, first of all, gross margins as a percentage will always be lower in a high commodity price environment because we, as a contract manufacturer, typically get
Our margins or contribution on a per unit basis. That is point number one. Point number two, this quarter, which you have to keep in mind, is that we had a very high growth in the electronics business. Electronic business has a much lower margin, that is one. Secondly, this quarter, the high growth was due to the rising prices of electronic components, semiconductors specifically, rather than very huge volume growth. The reason this has happened is because we do a lot of contract manufacturing and also we supply TV motherboards, et cetera, where the memory prices have shot up very significantly. Because of those reasons, because the mix change and because the high commodity prices, the gross contribution is lower for the quarter. But on an absolute price basis, per piece basis, we are in our usual range now.
Whatever price increases was required in the AC business till September, that we have been able to pass on in October. Again, whatever will be required for the quarter starting January, which will be based on the average cost of October, November, December, we intend to pass it from January 1st.
Sure, sir. Sir, the other thing I wanted to understand was if you could help us with the incentives booked this quarter and a corresponding incentive number for the last year, same quarter.
This quarter, we do not have any PLI. PLI, we book, as you know, on the basis of the sanctions received. We are yet to file for the last financial year's numbers, PLI, this thing, because there are GST audit, et cetera, just is getting completed. That number is likely to come probably in the Q3 and Q4 for us. We will be reporting that number to you. For the full year, this year, the PLI is likely to be close to INR 70 crore+ for us.
Sure. Anything specifically booked apart from the PLI in this quarter? Obviously, there is no PLI booking this quarter, but any other incentives from a state perspective which we have booked?
PGEL, we continue to book about INR 1.55 crore of incentive, which we get for the Maharashtra government. That has been booked.
Okay, sir. Got that. I will fall back in the queue. Thank you so much for answering my question.
Thank you.
Wish you all the best. Thanks.
Thank you. The next question is from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.
Yeah. Good morning, sir. Thank you for the opportunity. Sir, if you could talk a little bit about how was the sales volume for RAC in 2Q. And if you could also help us with the corresponding number of last year 2Q. And what is the expectation for FY 2027 basis the current order book visibility what we have?
We do not give the absolute numbers on a quarterly basis. On a full year basis, we are expecting about volume growth of close to 20% for the room AC business. As this year on the quarter, if you look at a year-over-year basis, the volume growth is not much in this quarter. It is very flattish. But we have a very strong order book for the second half, and we are hoping to have about, on a full year basis, about close to 2.1 million- 2.2 million kind of a number for room AC delivered this year versus 1.7 million last year.
Got it. And basis the price increase so far and the expectation of December and March quarter what would be the realization increase as of now what we can expect on a year-over-year basis full year, average realization increase? Would that be north of 15%-20%?
It will be surely close to about 15%-20% range.
The average price increase across three, four quarters, and what we expect in January quarter, all cumulative will be somewhere around 15%.
Understood.
15%+ . Yeah.
Got it. The other question I have, and this is more medium-term question. We have called out with respect to the ref, washing machines, et cetera. But any thought on the additional growth avenues in terms of the segments, product, et cetera, if you could give us some sense? Or let's say next three to five year, beyond the current products, what we are currently looking at?
See the immediate priorities for the management and top leadership team remains operationalizing these new projects which have seen sizable CapEx in the last three years for us and trying to restore the profitability in the business to the earlier levels. We will be looking for growth opportunities. But right now, we do not want to focus on anything substantial till the time we have been able to scale up these new initiatives which we are taking.
For 2027 and 2028, the key priorities just remain to get these new projects on stream, and the requisite profitability on them. These are sizable CapEx projects which we have done, and we think that we can continue to see good volume momentum across the product lines which we are there, which is AC, washing machine, refrigerator, TVs. We do not intend to right now, defocus on them and try to look for some other new opportunity. We are right now very focused on getting these new projects up and running and in a profitable manner.
Fair point. Thank you. I have this last question, if I may, with respect to the compressor scenario, if you could give us some sense, any further update from the previous call in terms of how it is shaping up for the industry. Also, another related question was in terms of the exports opportunity for RAC, anything we can look from the medium term perspective? Those are the two questions. Thank you so much.
The compressor project, as I said in the call earlier, is on track. The machine installation is going on. The engineers are there from China who are helping in installing all those machines. We are hoping that we will try to start this trial production by end of November. We hope to start trial production by end of November, and I think by January, February, we will be able to start mass production also, and there will be a gradual ramp-up. For calendar year 2027, we are hoping that we will do something around maybe 1.5 million+ compressors. That is the target what we have set for ourselves, 1.5 million+ . By April, May, if the season is panning out well, we might take a call on adding a second line also. In April, May, we will take a decision on that also.
On exports, if you could help us understand-
Exports, sir, we are doing small number of exports right now to SAARC nations, very small number. When you try to compete with China in Europe and America markets, the products are a little different. They are quite different. On the top of that, the pricing what they are offering in those markets, in spite of the whatever duty benefits what we have because of FTA and all that, still that price disparity is very large as of now. So it looks, as of now, it is a little challenging for our exports to these countries. But yes, SAARC nations, we are doing small export, but those markets itself are very small and nothing to talk about much right now. Products are there, products are being developed, but whenever we do some kind of benchmarking, then the pricing becomes a major issue when we are talking about exports.
All right. Thank you, sir. I will follow back in the queue. Thank you.
Yeah. Please.
Thank you. The next question is from the line of Santhosh Seshadri from Avendus Spark. Please go ahead.
Hi, Ven. Good morning. Thanks for taking up the questions. My first question is on the cost savings that you have achieved. There has been some considerable savings in employee cost and other operating expense line items. My question is, how should we think about it going forward? Should we expect it at the similar levels or maybe a step up in the cost base, given that many of the new projects, especially the compressor facilities are ramping up in the second half?
I will take this question in two parts. Looking at the employee cost, obviously, we are running a tight ship and we are trying to control that, but there is a growth there. But in the other operational expenses, manufacturing expense, there is a reduction, why? Because of two reasons. One is that last year we had a Forex loss of about INR 8 crore, and this year we had a smaller Forex loss of about INR 3 crore only. So there was a INR 5 crore benefit on that account. Also, last year we had some one-offs related to some GST, et cetera, which we took in the second quarter. Because of all those things, there was about INR 3 crore of additional cost, which we have not incurred in this quarter. That is why the other expenses are looking the way they are.
Going forward, as we ramp up the new facilities and the production in the existing facilities, obviously, the manpower cost and other expenses are likely to go up. But obviously they will not be going in line with the sales growth because this year there is a significant portion of sales growth which is happening because of the commodity pass-through. So the cost will be increasing more in line with the volume increases, which will be about 20%-25% on an overall company basis, and that is what is our internal target.
Got it, sir. As a follow-up on that, how should we think about the margins in the second half and going forward vis-à-vis the price increases that you are planning to achieve further?
Second half typically is slightly better for us seasonally because there are obviously slightly higher
sales and also operating leverage kicks in. Also, the way we book the PLI, the fourth quarter typically sees better margins. So we hope to have slightly better margin in the second half than what we have reported in the first half this year.
Lastly on the finance cost, can you provide some color? How should we expect this going forward? Is there any room for optimizing working capital and bringing the finance cost down? Any color on that will be helpful.
See, we are trying to work on optimizing the working capital, but actually what is happening is because the high commodity prices, even with the optimization, the amount of inventory that you are requiring to keep is actually high, and that is leading to a high investment in the working capital, leading to higher interest rates. We are trying our best to optimize wherever possible. Hopefully, because all the CapEx has been paid off, only the working capital requirements will go up and we have some inventory. We are hoping that second half interest cost should not significantly increase from the first half interest cost. That is going to be the focus area in the company in the second half.
Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Bala Murali Krishna from Oman Investment Advisors. Please go ahead.
Hi, sir. Good morning.
Good morning, Bala.
With this new subsidiary you have created, sir, do you have any plans for any other new products, or what is the thoughts behind that, sir?
We have not created any new subsidiary. We have a subsidiary which is actually already there, which is PG Technoplast. PG Technoplast has a subsidiary called Next Generation Manufacturers. That structure remains. We have not created any new company right now.
Okay. The inventory part, the inventory levels are similar to last Q2.
Yeah, inventory levels are slightly up. The reason is because as I am saying, we are having a stronger order book in both AC, washing machine, electronics, and therefore, we are keeping the material for those things. That is one. Second thing, as I explained earlier, the raw material prices are generally higher, and that is actually leading to, despite keeping and optimizing on the volume side, that is leading to higher inventory levels in the company. We are trying our best to manage the inventory levels at our end, and we hope that in the coming quarters, if the commodity inflation is not high, then we should be in control of the inventory going ahead.
Okay. So what could be the maybe rough breakup of FG and raw material in this inventory level?
I will give you this number. Just give me some time. Just give me a couple of minutes. If you have any other question, you can continue. I will give you the breakup of this.
Sure. On washing machine front, sir, I think we have a good growth, like 60%-70% year-over-year. As we have got the new facility also commissioned, on the annual basis, sir, what is the growth potential you are expecting in washing machine, sir?
We are looking at about 40%-50% growth, at least in the washing machine. Washing machine is now getting into, maybe after a couple of months, into off-season, but we have seen a very strong growth there. We continue to have a strong order book there, and we are likely to see for the full year the amount which I told you, about 45%-50% kind of a growth.
Okay, sir. Lastly, on this, we have on POS machine product development also. Is there any update on that front, sir? Is there any progress on that?
I didn't get your question. Can you just repeat?
POS machine is a payment-
Yeah. POS machine.
Earlier we have one order from you.
Yeah. Can you just. You know, that business is not going ahead right now because there are some issues at the customer end, so there is no progress as of on that project.
Okay, sure, sir. Thank you. That is all from my side.
Thank you.
Thank you. The next question is from the line of Yash Kothari from C.R. Kothari & Sons. Please go ahead.
Just before that, I will like to give a color on the Just a minute. Okay. You go ahead with your question. I will come back to it.
Okay. Yeah. Hello. Good morning, sir. We had talked about the Supa compressor unit starting. I just wanted to get an idea, the expected EBITDA margins post, I mean, obviously the commissioning has happened, so what are the EBITDA margins that we are looking at?
Because we are going to utilize large part of the in-house only for the in-house thing. It will be a margin accretive. That number we will share with you once we start the production, probably at the end of third quarter.
Okay. Thank you, sir. That's it. Thank you.
Thank you. Sir, you wanted to say something?
No, I will come back to that inventory questions maybe slightly later. I am just asking somebody to get that number.
Sure, sir.
About the inventory in finished good and Right.
The next question is from the line of Dhruv Jain from Ambit Capital. Please go ahead.
Hi. Thank you so much for the opportunity, team. Two questions. The first question is on the electronics business. You mentioned raw material prices have gone up, and that could be one part of the reason, but if you could just provide some more color on what were the things that went right, what products did well, that would be helpful. That's my first question.
There are basically three or four product lines on which we are currently working in the electronics business. One is the TV motherboards, second is the AC controllers. Then we are also working on battery management systems and CCTV cameras. These are the four key products right now, which contribute bulk of the electronic business for us right now. We are seeing growth across all of them, and last quarter, we had a higher growth in the TV motherboards and because of the season. But in TV motherboard, the memory component is a significant portion, and the prices there have gone up very significantly. Because of that, the contribution in terms of sales looks much higher for the electronics business during the quarter. That has led to very high growth in the electronics business for the quarter and the first half also.
How should we look at the growth for the full year and for FY 2028 in this vertical?
This year, we are expecting a very high growth because of the pricing, as I said, and volumes are also decent in all the things. We should be having for the full year, maybe around INR 550 crore- INR 600 crore kind of a sales in this business on a full year annual basis. Next year, we will let you know once we freeze our plans for next year.
Okay, sir. Got it. Sir, the second question is on incentives. Last year, as part of your annual report, we saw that you had booked about INR 130 crore of incentive. I just wanted to get some clarity on that, if it was clubbed for a couple of years. For FY 2028, while you mentioned FY 2027, my sense is PLI gets over in FY 2028. What would be your incentive fee as part of the state government and PLI? If you could just throw some clarity on that. Thanks.
The way it will work is, we will have our PLI incentive in two companies, PG Technoplast and NGM. PG Technoplast, this is the last year for basically the sales, and obviously, you will get that incentive next year. We will be booking the incentive next year. We will have about INR 60 crore in PG Technoplast next year from that. In NGM, because we applied in the third round, and that will be valid only for three years. We will be getting an incentive for last year, which will be for this year, and this year we will get for next year in NGM, which will be there about INR 20 crore. This year, we will be getting INR 15 crore, and then again, in the last year, we will be getting INR 20 crore, which will be in 2029.
Apart from that, we will be having a state incentive, which will be to the tune of about INR 28 crore-INR 30 crore every year, which will continue for next 10 years in PG Technoplast. NGM, we have yet to file, and the government of Maharashtra's incentive scheme, we have committed close to INR 500 crore in the NGM, and that number should also help, and that will start probably after one and a half year or two years once we start filing for that. This is the way it is going to run.
Okay. It is safe to say that your incentive for FY 2028 will be anywhere between INR 105 crore-INR 110 crore.
That's right.
Great. Thank you so much, sir. All the best.
Thank you.
Thank you. The next question is from the line of Vedant Rathi from Blue Square Corporate Services. Please go ahead.
Hello, sir. Thank you for the opportunity, and congratulations on your results. Sir, I just wanted to ask regarding our CapEx guidance for the next year, and have we achieved all the same? Plus, I wanted to ask on our capabilities with respect to our refrigeration plant in Sri City. Will we also be adding an additional compressor line in our Sri City plant as well?
As far as the CapEx, Vedant, I will take these two questions. CapEx for this year, which we have guided for around INR 400 crore, is on track, and largely the CapEx has been done, as Pramod said in his call comments earlier. For next year, I think our idea is to consolidate the business right now and focus on the CapEx, what we have done in last two years, and try to build on those capabilities and grow that business. Still, FY 2028, we should do around INR 150 odd or INR 200 odd crore CapEx. Coming back to your question on Sri City refrigerator plant, that plant, as told, will start production in the last quarter of this financial year. For the refrigerator compressor, we are already discussing with couple of companies for that technology.
But we will take a call on that compressor facility decision after our refrigerator production is stabilized, and we get a hang of the market behavior for this product. Once we are very comfortable and confident, we might go for the refrigerator compressor also.
Understood, sir. With just respect to our refrigeration business, how much can we see an approximate margin accretion because we are now manufacturing our refrigerators end-to-end as well?
The margin profile will be similar to our current business, but we can give a definite clear on this once, after end of last quarter of this financial year, once our production stabilizes. We can give a better color on that, but it should be in line with our existing numbers.
Okay.
At a company level. Yeah.
Thank you.
Thank you. The next question is from the line of Ravindranath Nayak from Nirmal Bang Institutional Equities. Please go ahead.
Thank you, Vishal Ji and Pramod Ji, for the opportunity, and congratulations for good set of numbers. Sir, you mentioned that in the first half, we did around 36% growth in the RAC segment. Can you please tell me what is the volume growth in the first half?
About 20%-22%. 22% is the volume growth.
Okay. Now you are guiding 30% growth for the full year for this year. Then we can expect that second half would be much, much better than the first half so far the RAC is concerned. Is it right?
No, I am not guiding for 30%. I am guiding that the volume growth should be 20%-25%, 20% ± 2%, 3% for the full year. That is what I am guiding, and I think we have a very strong order book now. It is all the execution which we have to now do for the second half.
Okay. That means, we can cross around INR 4,000 crore in RAC this year or more than that?
Yeah, that should be possible.
Okay. In washing machine, you said that can we cross around INR 1,000 crore this year?
I will not say cross, but we will be nearby that number.
Okay. Sir, you mentioned that electronics business, we did around, this year, a significant growth of around from INR 80 crore to around INR 251 crore. You have mentioned that INR 560 crore guided for this year, whole for the electronics business. Is it correct, your guidance, INR 560 crore?
I said INR 500 crore- INR 600 crore. Yes, INR 550 crore is the number which we should target. This quarter was in the first half, the TV contributes significantly to the electronics business, which is basically having a lot of TV motherboards, I will say. Motherboard has a memory component, and memory prices have gone up significantly. So it is the price appreciation which has led to a high number in the electronic business. The electronic business in the second half is driven typically by the AC controllers and other businesses like CCTV, et cetera. So, cameras, sorry. So those things do not have that high memory content. So there, the volume growth will be much more normalized. The value growth will be much more normalized based on the volume growth.
Okay. If you see the Goodworth here, one of the joint venture, the growth has been spectacular from INR 180 crore- INR 455 crore this quarter, particularly. Is it something to do with the electronics business that you mentioned, the growth for the, is it related up to some extent?
That is largely driven by the TV business because Goodworth deals largely in TV. TV, as you see, the prices have moved up very sharply because of the, again, electronics and motherboard, et cetera. Because of that, the growth is also looking higher. Volume growth is in line of what we were expecting, but it is the pricing which has actually gone up significantly in the TV business this year.
Okay. So what would be the guidance for Goodworth for this year in terms of sales?
Maybe around INR 800-900 crore.
Okay. And sir, if we see then you are saying that second half would be much better in the RAC segment going ahead. Also the electronics business will actually contribute less as compared with this second quarter, because second quarter, there is a decline in gross margin. You mentioned that in the initial call that due to the electronics component price, the margin has contracted. Can we expect the gross margin to improve in the coming second half if the RAC will dominate and electronics will take some back seat in terms of growth?
No. See, the gross margins, even in the second half, on a percentage basis may not look very high for the simple reason that, as I told you, the commodity prices are getting passed and we get money on the per unit basis. See, the bill of material for AC has moved from INR 14,000, which we used to have about two years back, to almost INR 18,500 now, while the amount of money which we used to get for making an AC remains the same. So as a percentage, that number may look less only. That is the reason why the gross contribution margin or gross margins may look lower.
We actually focus on a per unit margin, which is in absolute amount, and there we think we are comfortable and we are hoping to see that money continuing, and we are trying our best to control our other expenses to make sure that our conversion costs remain low. So don't look at this business as a percentage margin business because that is not the way internally we track.
Okay. No, that is fair point. Sir, you guided the INR 800 crore of Goodworth because in first half you already done around INR 632 crore. So why
I think INR 800- INR 900 crore. TV season is little slow this year because of the very high price increase, and TV season is almost coming to an end. So we are not going to continue to see very high growth in the TV business in the second half, which is always the case. Typically, it is a low season. As I was telling you that this year price increase is there, and because of that price elasticity working negative, the volume growth is not so high in TV.
Okay. And sir, last question about the coolers. Sir, we significant growth in the cooler. Is it a trend currently or it is going to revive? How do you see the cooler market? Because very
See-
Yeah
Last two years have been little unusual for coolers. First, we had a bad monsoon last year, and then there was a very high inventory in the channel, which was a low-cost inventory. This year, cooler, as you know, has a very high component of plastic injection molded component. Basically, plastic has almost about 65%, 70% of the bill of material is plastic in coolers. Now, because the plastic prices went up very significantly, the raw material price for the cooler or the bill of material of the cooler increased significantly. That led to channel not accepting or taking the huge inventory of coolers, and they were working on basically getting rid of the earlier inventory only.
Now, this season should be a much more normalized season, and we think that the coming season should see a decent growth for the cooler as an industry because the heat is increasing and the inventory levels are now normalized across the channel. We hope that we will be able to pass on the price increase, and the whole value chain will also be able to pass on the price increase.
Okay. Sir, RAC, what is the percentage of price increase you are left with so that we can cover actually up to some extent a good amount of our cost?
Sir, RAC form price increase and commodity increase is always a moving average. Whatever prices you have averaged for the last quarter is implemented for the next quarter. It is always an ongoing activity. As we said earlier, we have already taken the price increase, which was required till now to maintain our normal margins. January onwards, we are expecting a further price increase, keeping in mind the commodity movement in this quarter. ODM, largely we see that where the copper, aluminum and dollar is moving, accordingly, we have a pricing mechanism with our client, and we are able to do that with the clients.
Okay. Sir, one last question, if I may allowed to do that. Sir, there is a change in auditor, one of the subsidiaries, Next Generation Manufacturers. Is it there anything to look at in this, and what product this subsidiary is providing us in terms of services?
See, we have got a single auditor across the whole company now, which is B S R & Co. LLP, and earlier there was another auditor whose term has come to an end, and therefore now from this quarter onward, which is Q3 onwards, we will have B S R & Co. LLP across the whole company as a statutory auditor.
Okay, sir. All the best, sir. Thank you very much for answering my questions.
Thank you.
Thank you.
Thank you.
Thank you. A reminder to all participants, you can press star and one to ask questions. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thank you. Kev from ICICI Life Insurance. Congratulations on good numbers. Sir, two questions. First, on RAC. Last year, Q3, we had a strong growth because of the shift in the inventory stocking. Now, based on current channel inventory, you think that Q3 also will have a volume growth or whatever you are guiding for now in terms of volume, all will be backended towards Q4?
We see some maybe kind of middle teens volume growth for us in third quarter also, keeping in mind the kind of volume or commitments what we are getting from clients as of now.
Q4 will be
Q4 will be much better.
Sir, you mentioned early teens, right?
Yeah, kind of early teens.
Okay. And just on follow-up on that, so if I just take base number of, say, 20% volume growth, based on what you have delivered in, say, 1H, based on what is the channel inventory plus last year's base, very weak base of second half, you see any possibility of upside or, this is more conservative or there are other reasons for which you are keeping volume growth guidance a little lower? I thought 20% is lower versus being current scenario and in the last year's base.
See, what happens, Keyur, our financial year ends on March 31. So whatever growth will be there will get transmitted to FY 2028 also. So April, May is also always a strong primary sales month for people like us. So what we are guiding is something we are. I think we are not guiding any number, we are not saying any numbers.
But we will see a decent volume growth and much better value growth in RAC in FY 2027, and some part of that growth will get percolated to FY 2028.
Understood. And just last question on newer categories, so say ref and compressor. So where have we reached in terms of, say, approvals or validations and should whatever, say, guidance or at least numbers that you are talking about for FY 2028, it takes care of that timeline?
First of all, for compressor, as I told, our trial production will start in the month of November. End of November, we should have trial production. We will be submitting our samples to our clients for compressor, which is very similar to the designs which they are using currently. We will not see much challenge in approval. Largely, we will be using those compressors for our in-house consumption. As per our understanding with the clients, most of the clients, we need not go for their approvals also. If we are able to technically clear those compressors ourselves, we need not take their approvals. This is about compressors. We have already guided the kind of number for calendar year 2027.
Should be anything between 1.5 million- 1.8 million is what we are targeting for next year, and we might take a call on the second line by month of April, May next year. Coming to refrigerator, we will start trial production in January, February. The designs and the model selection has been done in consultation with our anchor customer. The model which is being developed is in consultation with that client. When the production will try out, most likely, approvals will not be a very big bottleneck as far as for that refrigerator is also concerned.
That is 1.2 million in first phase.
So 1.2 million is the installed capacity for that.
Yes.
And I think FY 2028, we are targeting 700,000 production, not more than that. That is the number we are trying to do in FY 2028.
Sorry, just last follow-up.
That is a kind of base number. Yeah, please.
Understood. So that 700,000 is a function of Anchor plus two other customers or just based on Anchor since the other customers is more of soft commitment than-
This is on the basis of Anchor customer plus soft commitments from other customers, plus our experience and our gut feeling for this business.
Fair enough. Sir, thanks a lot, and all the best.
Thank you. Thank you, Keyur.
Thank you. The next question is from the line of Chirag Shah from White Pine. Please go ahead.
Hello, am I audible?
Yes, please.
Yes.
Hello. Thanks for the opportunity and congrats for good set of numbers. Sir, my first question is with respect to inventory, if you compare with September 2024 end, how would it be today? You said 1.7 odd million, which is estimated inventory in the system today. How would it be versus September 2024? Will it be lower? Will it be higher than September 2024? That is first.
September 2024 numbers I cannot recollect.
See, September 2025, I can say, it was much higher.
But September 2024 numbers, I don't recollect right now, Chirag Ji.
Okay. Second is your 20% volume+ kind of indicative guidance, does it take into account the so-called expected rural semi rural slowdown? If yes, generally, how does this slowdown affect the RAC demand in general? Is it a big contributor to RAC demand and hence the impact is generally higher based on your past experience? How should we look at it?
Chirag, we first try to understand AC business.
Whatever sales we do, it gets converted into secondary sales with a gap of two to three months, right?
Yeah.
The numbers we are guiding or telling you people in this call right now is the numbers up to March. So up to March,
Yeah
we don't see much challenge as far as the primary numbers, what we have been getting from our clients.
Yes, going forward, the way agrarian economy is going to behave, I don't see. Still, automobile and if you see two-wheeler sectors, they are doing decently well right now also.
Yeah.
Going forward, we will come to know about that. But till March, I do not see much challenge in the numbers what we are guiding.
Anyhow, AC is not a rural product. AC is largely an urban product, and at least whatever sales we have seen in the last two, three months from whatever we are hearing from our clients, it looks like the momentum is pretty decent and the industry itself is likely to clock more than 15% kind of a growth this year on a full year basis. That is what is the estimate most of the brands have.
Why? Because generally Tier 3 onwards, this rural-urban definition gets intertwined, in that sense.
Yes.
Tier 1, Tier 2 cities is fair urban you can say, but from-
Yeah
Basically, a large part of the industry volumes are driven by Tier 1 or Tier 2, up to Tier 2 cities, maybe 70%-80%. Is that the right way to understand?
Yes, sir. Yes, sir. At Tier 3 also, expansion is happening because you can see some kind of saturation happening in Tier 1 cities in India.
Yeah
As far as these product categories are concerned.
But all said and done, Chirag, as I told you earlier, for us, primary numbers up to March are looking very. We are quite confident about those numbers, but how they translate into secondary numbers, we will come to know about.
Yeah, fair.
with the Yeah.
Yeah, that is fair point. That is fair. That you cannot take a call right now.
Yeah.
Which I appreciate.
Yes.
Lastly, on compressor, just a clarification. We are starting with one anchor customer, but generally, can this one anchor customer number become four, five or the customer profile of AC gets converted to compressor? Or there could be different tiers that different AC customer could do for compressor, given the way the industry requirements are there, right, for localized sourcing.
The compressor what we are making is largely for our in-house consumption, and there is no one anchor customer in compressor, right?
Okay.
We have large variety of customers who have already given in-principle approval for this product to be used in the RAC, which we will make for them in our factory.
Okay. Fair point. What I understood was you clarified it. Thank you. I thought it is only for one of the key customer for whom there is a go-ahead. Fair point. You clarified it. Great.
Thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Pulavarthi Sai Kiran from Pulavarthi Finserv. Please go ahead.
Yeah. Hi. Thank you for taking my question. Just a very broad question. Five years back, India's AC manufacturing was not very much backward integrated, and then PLI has come in across. Then now when we look back, how far we have come across and in that journey, how far we are there at the PGEL in terms of total manufacturing process, in terms of backward integration? Thank you.
I think it is a good question. Please understand, five years back, India started on this journey, and we are largely becoming from an assembly country to a manufacturing country. Barring electronic components, I think most of the things now will be manufactured in India: compressor, BLDC compressor, copper tube, aluminum, and motors, which are the very large part of the BOM value. Electronic components, we do assemblies in India, but largely all those electronic components are getting still imported from outside India. That is one area which I do not see. We have not progressed very well as a country. But copper tubes, aluminum and compressor and motors will be largely coming from India. Yes, we expected this to happen a little earlier, but there has been some delays.
This year onwards, FY 2027 onwards, we will see a very large production of these things happening in India, and largely people buy from local. If you say in case of compressor, the compressor imports are not allowed after March 31st, 2027. So compressor has to be made in India, and the government has said that you cannot import compressors after March 31st, 2027. In case of copper tube also, government has now that copper import is not allowed. Copper tube import is also not allowed. So largely people are buying from local sources also now.
Got it, sir. In that, how far now that logically we understand that you are entering the electronic components, if you can explain PGEL journey as well, how well we are backward integrated. One follow-up question is that in terms of compressor, manufacturing is happening in India, but the technology is also owned by Indians, and then maybe in this case, our company as well.
See, technology is, this is a difficult thing to answer, but let me tell you, technology right now we have acquired from outside India. Going forward, we believe that once we start manufacturing these compressors in India, in next two or three years, we will have that capability of developing these products in-house only, these components.
Okay. Thanks a lot, sir. This is really helpful.
Thank you.
Thank you. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Thank you, everyone. Thank you. Bye-bye.