In conversation with Vikas Gupta, Managing Director, PG Electroplast Limited

PG Electroplast is focussing on capitalizing on these opportunities and is working on growing its product business, in both the Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) capacities.

India’s nationwide penetration for consumer durables is less than 10 per cent across major categories which provides a massive headroom for growth. Here's our conversation with Vikas Gupta, Managing Director, PG Electroplast Limited.

What is your outlook on the consumer durables and plastic products sector?

COVID-19 has caused economic fallout across sectors. That being said, the Consumer Electronics and Consumer Durables industries have proven to be resilient and have outperformed expectations. Due to the continuance of the work from home (WFH) culture, the demand for products that offer convenience like ACs, Washing Machines, TVs, Dishwashers etc. has significantly increased.

During the pandemic, e-commerce sales saw a huge uptick, as people were forced to shop online due to the closure of brick-and-mortar stores. The online sales for domestic appliances – small and large – rose 10 per cent in calendar 2020 over 2019. Online growth did not stop once the retail stores opened, showing a change in consumer buying habits. Consumers preferred to buy solutions that would support them and save time in a busy work and schooling from home scenario, which drove the demand for high-quality and energy-efficient products.

With lockdown restrictions having eased around the country, reports suggest robust liquidation of inventories in the channels. Production plans are seeing month-on-month increases, with the industry being cautiously optimistic. Strong demand is expected, especially for washing machines and refrigerators in the coming months. The industry is hoping that the pricing of open-cell panels, which are inputs for manufacturing TVs, also sees rationalization soon, which should further drive the demand for LED TVs. The season for Air Conditioners and Air Coolers unfortunately suffered due to the pandemic for the second year in a row, but should the country manage to hold off the third wave, we can expect to see a good season coming for the Indian Air Conditioning industry, with strong demand in CY 2022.

PG Electroplast is focussing on capitalizing on these opportunities and is working on growing its product business, in both the Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) capacities.

PG Electroplast's net revenues for Q1FY22 stood at Rs 138 crore, witnessing a growth of 270 per cent annually. EBITDA was Rs 9.8 crore versus a loss of Rs 2.4 crore in the corresponding quarter last year. What factors have contributed the most to help chart a turnaround?

As you mentioned, we closed the first quarter of FY22 with revenues of Rs 138 crore and an EBITDA of Rs 9.8 crore. Despite the difficult quarter, the EBITDA margins remained stable due to strict cost and overhead controls. Working capital was retained at normalized levels despite the disruption. Our revenue growth outlook has improved, while margins outlook remains stable. This was primarily due to macroeconomic factors that are detailed below.

After the government lifted the lockdown in India, the consumer durables sector saw healthy growth, led by a strong surge in online sales across product categories. Restrictions and paranoia caused a drastic shift in the working style – which is now firmly WFH for many job profiles. Compared to metros, consumer durables sales saw a sharper rise in non-metros due to lower penetration of appliances, combined with lower intensity of lockdowns, which resulted in many first-time buyers. Sales of laptops and tablets saw a sharp uptick due to schooling from home and WFH. TVs also saw robust sales, as the majority of houses had only one TV and found the need for a spare one, with more members spending most of their time at home. The need for washing machines, air conditioners, dishwashers, microwaves increased for the same reasons.

The fact that India’s nationwide penetration for consumer durables is less than 10 per cent across major categories, provides massive headroom for growth. With an increasing shift towards work-from-home and a ban on imports of ACs with refrigerants and LED TV imports, domestic companies are set to gain. The uptrend in the growth of the consumer durables sector could continue as the GDP per capita increases, which could lead to higher consumption and higher consumer spending.

Could you shed some light on your plans for capacity expansion and new product development?

The company expects significant traction in plastic moulding in the consumer durables space in washing machines, room air conditioners, refrigerators, ceiling fans and sanitaryware products. Expectations are also rife in the ODM space for air coolers, washing machines and room air conditioners.

The management is optimistic about the AC business and is investing to create capacities and capabilities for the same. Its wholly-owned subsidiary, PG Technoplast is coming up with two manufacturing facilities that will triple the group’s AC manufacturing capacities. PG is also venturing into the ODM space for Room ACs and is investing in two platforms of AC Indoor Units and two platforms of AC Outdoor Units which will enable us to offer more than 50 models spanning the complete range of Room ACs from 0.75-ton models to 2.0-ton models. Discussions are in the conclusion stage with the customers for the same. PG Technoplast has also applied for the PLI Scheme for White Goods and has committed capital expenditures of Rs 300 crore pending approval under the scheme.

In washing machines, the company is targeting growth in both semi-automatic and fully automatic washing machines. The company has also created substantial capacities for producing washing machines in the Roorkee plant and is likely to witness a significant increase in sales in FY22.

In the air coolers business, the company is optimistic of growth in sales in FY22, aided by favourable demand and key investments made by the company. We are also in the process of developing two new platforms of air coolers to be offered as an ODM solution to the customers.

In the plastic moulding business, the company has been focusing on the speciality plastics moulding business and gaining traction in the sanitaryware market. Riding on the tailwinds provided by the shift in the global supply chain away from China and impetus provided to the electronics industry by the incumbent government, the company intends to rebuild its electronics business. In addition to making PCB assemblies for LED TVs for few customers on an OEM basis, the company’s new LED TV manufacturing line in Greater Noida is expected to drive the growth for this segment.

What are your growth levers?

We see these five factors pushing the industry’s growth to the next level:

1. Low penetration of products; much lower than the global average.

2. Positive GDP growth outlook.

3. Huge push from the government to become self-reliant (reduce import dependency) and to increase exports by introducing various schemes (EMS is a big part of this).

4. Rising discretionary incomes.

5. Evolving of physical and social infrastructure, better logistics, and expanding e-commerce industry.

 What are your top three strategic objectives?

Our top 3 strategic objectives are:

1. To provide the industry, integrated solutions for all their manufacturing needs.

2. To continuously adapt, improve, and grow as per the dynamic business environment.

3. To protect the interests of all our shareholders and to create the maximum value for them.