In an interaction with Vikas Gupta, MD-Operations, PG Electroplast Ltd

The company's focus on research and development, new product offering, and capacity enhancement across categories will drive future growth, believes Vikas Gupta, MD-Operations, PG Electroplast Ltd

What is your outlook on the domestic plastic products and consumer durables sector over the medium to long term? What demand trends are you witnessing?  

Our outlook for the sector is very bullish. Presently, if we look at consumer durables like Air Conditioners and Washing Machines, it is clear that they are very underpenetrated and have a lot of potential. As the per capita income surges in India, discretionary spending is expected to rise significantly, which is likely to benefit our products. This is particularly promising given India's rapid urbanization, growing young population with increasing incomes, and the emergence of a large middle class, all of which suggest considerable potential for growth in the consumer appliance and durable market in the coming years. 

The air conditioning (AC) market in India is well-positioned for expansion. It remains very underpenetrated (7 per cent) in comparison to the global average. Climate Change, with the accompanying higher temperatures, is expected to further add to the demand for the product as perceptions are quickly shifting from ACs as luxury items to utility products. Improved consumer financing options, as well as new features, energy efficiency standards, and the emergence of smart ACs, are expected to spur the market further. 

Meanwhile, the washing machine (WM) market in India has a penetration rate of just 12 per cent, compared to the global average of 80 per cent. However, several contributing factors suggest growth is likely. These include a growing working population, an increase in nuclear families, rising female participation in the workforce, and improved access to tap water and electricity in rural areas and Tier-3 cities.  

We are already seeing a demand explosion for our Semi-Automatic Washing Machines, the entry-level product. We have quadrupled our capacities in the past two years, and our capacities are still short compared to the demand from our customers.  

The government is very clear that whatever is sold in India should at least be Made in India. For that, it is providing all kinds of assistance to make manufacturing easier in India, while also making imports tougher. All these measures are very important for the nation if it hopes to reduce its import bill and for it to be able to capitalize on its demographic dividend.  

PGEL’s Q3FY23 net sales and profits rose by 75 per cent and 150 per cent, respectively on a YoY basis. What factors are responsible for your consistent growth and outperformance?  

The company's product business has doubled its capacities from the previous year in all three categories- ACs, WMs and Air Coolers. The company’s strategy to grow its product business is playing out well, and major growth is all from product revenues. We have strong order books for both the air conditioning (AC) and washing machine (WM) businesses, and we are continuously adding new clients. 

During 9M2023, the AC business achieved sales of over Rs 497 crore, and the WM business grew by 80 per cent. The company's focus on research and development, new product development, and capacity enhancement across all product categories are further expected to drive future growth. We plan to expand our product offerings further and are very confident about the future of our product business. 

PGEL’s net debt is currently close to Rs 470 crore. Are there any debt reduction plans for the company in the coming quarters?  

At the moment, our debt levels appear to be higher owing to the sharp ramp-up of production of air conditioners. Inventory levels are also high, and receivables will also look higher at end of March as we expect Q4 sales to be Rs 680 crore+. Looking at the current demand outlook and season forecasts, we are expecting a longer season with ACs and coolers production to remain quite strong until the end of Q1FY24. Following that, the working capital requirements taper off, as both inventories and receivables normalize.  

 Can you give us some insights on your current capex plans for the company?  

Our focus currently is to scale up our product businesses further, to first attain cost leadership and subsequently focus on achieving product leadership. We intend to continuously invest in R&D and backwards and forwards integrate as and when we get suitable opportunities. We are striving to reduce the impact of product seasonality on our facilities and are working on a multi-location multi-product strategy. We are also going to invest to launch new segments in our existing product categories and are also scouting to expand our product portfolio’s offerings by entering a new durable category. 

What is your earning outlook for the upcoming quarter? 

We have guided that Q4FY23 will be our biggest quarter ever with a projected revenue of at least Rs 680 crore, in addition to the Rs 1,320 crore earned in the first nine months. The first half of the calendar year typically tends to be large for us due to the AC season, and expectedly there has been a significant change in the monthly run rate in Q4. In the first nine months, our monthly run rate was about Rs 145 crore, however, we are now expecting a run rate of about Rs 230 crore this quarter.  

Our production ramp-up has been better than our expectations, and the demand is also very strong. As a result, we have upgraded our guidance from Rs 1800 crore to at least Rs 2000 crore, and we are very confident of maintaining our operating margins too. Our operating profit guidance is around Rs 140 crore for FY23, so we should do an operating profit of at least Rs 50 crore in Q4.  

PGEL's recent entry into the TV business has shown significant growth in the current quarter. Can you elucidate the future outlook for the same?  

We are still very new to the LED TV business, having only started making them less than 15 months ago. The growth numbers look impressive, albeit mainly due to the very small base in FY22. However, we are very optimistic about the future growth potential of our TV business that we consolidate under our Electronics vertical. We currently service five regional brands for TVs and are in the process of developing our ODM (original design manufacturer) solutions for the product. We are also talking to some other customers who we hope can help us grow our volumes in the future.