In conversation with Vikas Gupta, Managing Director, PG Electroplast Ltd
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, asserts Vikas Gupta, Managing Director (Operations) at PG Electroplast Ltd
What is your outlook on the domestic plastic products & consumer durables sector? What are the emerging trends that you are witnessing?
We are quite positive about the outlook of consumer durables and electronics in India. The penetration for air-conditioners (ACs) is around 5 per cent, washing machines (WMs) at 13 per cent and refrigerators - 33 per cent. As the access to and reliability of utilities like electricity and tap water increases in tier 3 cities as well as rural areas, we see new markets opening up for ACs & WMs. The distribution and service networks for consumer durables are also improving for these products. They are also becoming increasingly affordable due to rising incomes & lower product operating costs, and we expect even faster adoption due to the growth of e-commerce platforms along with rising access to easy financing options.
Domestic demand for ACs is growing at around 15 per cent annually. A tropical climate, large population, and rising aspirations of millions of households are all factors driving demand for ACs in India. Therefore, in anticipation of the expected rise in demand, the country remains a crucial market for the AC industry and global players. Rapid urbanisation and growing population have created a demand for sustainable, clean & energy-efficient cooling solutions in India. The Government of India’s focus to ‘Make in India’ as well as for Atmanirbhar Bharat are clear and it’s supporting the industry through various measures such as the PLI schemes, reversing the inverted duty structure created by the previous administrations. Also, placing tariff & non-tariff barriers to imports are helping level the playing field for indigenous manufacturers, which would help become players like us to become globally competitive.
Increasing globalisation will play an important role in driving the demand for washing machines ahead. We foresee that the demand will only accelerate due to a combination of factors. There is an ever-increasing female labour-force participation, which has led to a decrease in time spent doing laundry. Middle-class populations are growing, with nuclear families also becoming more common, which is expected to further increase the market penetration of washing machines. Besides, media participation is also increasing. The fully-automatic options are also becoming more affordable, which should eventually help grow the market size in value terms as it provides the semi-automatic machine users with an additional impetus to upgrade.
Governments across the globe are urging consumers to use products that are energy-efficient. Easy tools for comparing power consumption like Bureau of Energy Efficiency (BEE) star ratings and on e-commerce platforms are also driving customers to opt for more energy-efficient technologies. The growing scarcity of water across the globe is compelling manufacturers to make products with technologies that restrict the use of water.
The short-term outlook is that the increased localisation will boost domestic manufacturing and reduce import dependency. India will become an attractive destination for global giants, which will help bridge the disability gap that India has with its competitors. In the medium-term, we see high domestic value addition, higher penetration across product categories, and India becoming an export hub & making for the world.
PG Electroplast’s net sales rose by 45.44 per cent to Rs 267.57 crore in Q3FY22 as against Rs 183.97 crore recorded in Q3FY21. What factors have contributed the most to help you outperform?
Our growth is being driven by our focus area i.e. product business, which is both in original equipment manufacturer (OEM) and original design manufacturer (ODM) model. We have seen close to 100 per cent growth in the washing machines business and about 135 per cent growth in the AC business. For the quarter, product revenue contributed 43 per cent of the total. Other businesses of plastic components moulding, electronics and tool-making also grew in the range of 10-15 per cent. However, product business continues to drive the company’s growth and is being driven by the addition of new clients along with gaining market share in the existing clients. Also, the company has launched several new products, which have witnessed a good response from the market and are contributing to the growth.
Are you implementing any cost rationalisation measures to safeguard margins from cost-push inflation? What are the other challenges that you are currently facing?
The cost-push inflation is largely due to the very sharp increase in the price of commodities and no cost rationalisation measure is enough to counter the commodity price inflation. We are a contract manufacturer and work on very thin margins; so, our ability to absorb any cost increases due to commodity increases is very limited. Nonetheless, the company is always working on value engineering and continuous improvement to maintain as well as enhance cost leadership in the focus areas. However, this commodity price inflation is too sharp & swift to be taken care of by any productivity improvement and value engineering.
We have started many new businesses and units this year eg. in May 2021, we shifted our washing machine business to Roorkee and started a new unit there. We then kicked off a new TV business this year. And in December 2021, in our 100 per cent subsidiary PG Technoplast, we started new units in Greater Noida & Supa (Maharashtra) for AC components and making indoor units (IDUs), outdoor units (ODUs) as well as completely-built units of AC, respectively. We have also launched our own ODM models in room AC this year. All these new initiatives have had their respective start-up costs and one-off items like product validation and testing costs. Also, initial hiccups and start-up challenges popped up there too, which we were largely able to overcome along with stabilising the operations in all units. However, productivity improvement and cost optimisation measures continue in all these as well as existing units to maintain & improve our competitiveness.
Can you throw some light on the products that you have launched during 9MFY22? Also, discuss new product launches that are in the pipeline for FY23.
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 & capabilities for the same. Its wholly-owned subsidiary, PG Technoplast has had two manufacturing facilities come online this year, which triple the group’s AC manufacturing capacities. PG is also venturing into the ODM space for room ACs and has invested in two platforms of AC indoor units as well as two platforms of AC outdoor units, which have enabled us to offer more than 50 models, spanning the complete range of room ACs from 0.75-tonne models to 2.0-tonne models of various star ratings, both inverter & fixed speed models. PG Technoplast has also been approved for the PLI Scheme for white goods, where it has committed capital expenditures of Rs 321 crore to manufacture plastic moulded components, sheet metal components, heat exchangers, crossflow fans and printed circuit boards (PCB) assemblies.
In washing machines, the company is targeting growth in both semi-automatic and fully-automatic washing machines. The company had also created substantial capacities for producing washing machines in the Roorkee plant last year and is augmenting the same further this year to support the increasing demand for FY23. We are also investing in three new platforms for semi-automatic washing machines, which will allow us to offer products with wash capacities ranging from 6 kg, all the way to 14 kg.
In the air coolers business, the company is optimistic about growth in sales in FY23, aided by favourable demand and key investments made by the company. The company has developed two new platforms of air coolers being offered as ODM solutions to customers.
In the plastic moulding business, the company has been focussing 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 the 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 a few customers on an OEM basis, the company’s new LED TV manufacturing line in Greater Noida is expected to drive the growth of this segment.
What is your earnings outlook for the upcoming quarter?
Although we do not give quarterly growth guidance, the company has guided for over Rs 1,000 crore revenues for the full year FY2022, and in the first three quarters, we have done about Rs 600 crore of revenues, implying that the fourth quarter of FY2022 should have over Rs 400 crore revenues. Also, margins should be at similar levels as in previous quarters; so, we think we should have strong fourth-quarter earnings.
The important point is that the company has done a significant investment in the AC business and also, committed a significant amount of investment in the AC component PLI. These investments and other business investments will drive the growth in the coming years for the company.