EPACK - EPACK Durable Limited Share Price

The management of EPACK Durable Limited provided a cautious yet optimistic outlook during the Q1 FY '26 earnings call. They reported Q1 revenue from operations at INR 662 crores, a 14% increase year-on-year. EBITDA stood at INR 55 crores (up 6% year-on-year) with an EBITDA margin of 8.24%, showcasing a year-on-year improvement of 156 basis points. Net profit was reported at INR 23 crores, reflecting a 2% decline, although the net profit margin improved by 43 basis points to 3.46%.

Management highlighted the challenges posed by unseasonal rains and surplus inventory in the RAC segment, leading to a 34% year-on-year decline in that line of business. However, they reported growth in other segments: a 16% increase in small domestic appliances (SDA) and a remarkable 556% growth in the components segment. The large domestic appliances category saw a 29% rise, driven by successful customer expansion.

Going forward, management is targeting an EBITDA margin of at least 7.5% for FY '26, with a medium-term goal of reaching 8%. They expect the overall market, particularly in the RAC sector, to rebound with a projected growth rate of 10% to 15% despite a weak first quarter.

Management reiterated their commitment to strategic investments, having incurred approximately INR 50 crores in capex for capacity expansion in the washing machine line and other segments. Their diversification efforts, including entering the energy meter business, are aimed at reducing concentration risk and tapping into adjacent high-growth industries.

Key forward-looking points include maintaining a long-term revenue growth target of 30% to 35%, ramping up production capacities, and enhancing their component supply capabilities to cater to both domestic and export markets.

Major Questions and Answers from the Q&A Section

Question 1: "Now that EPAVO is supplying BLDC motors, what bump in revenue and margin do you expect versus buying motors from outside?"

• Answer: In our new greenfield plant, we aim for a capacity of 3 million BLDC motors, amounting to approximately 10% of India's market demand. This capacity is expected to enhance our margins and revenue growth in subsequent years. This year, we will focus on ramping up production, securing customer approvals, and fulfilling our captive requirements alongside servicing market clients.

Question 2: "How do you see overall RAC industry demand shaping up this year?"

• Answer: Despite a Q1 slowdown due to unseasonal rains affecting secondary sales, the long-term outlook for the RAC market remains robust. With the upcoming BEE revision, we anticipate strong customer demand for our comprehensive product range, given that inverters now account for over 85% of AC sales.

Question 3: "How was the industry growth in June quarter, and have you gained market share?"

• Answer: The industry faced significant degrowth in Q1, mainly due to inventory issues. However, June showed signs of recovery as channel inventories began to normalize. While it's challenging to quantify our market share gains, we continue to focus on increasing wallet share and delivering quality products, which should bolster our position in the market.

Question 4: "What is the expected margin mix of the RAC segment and your other segments?"

• Answer: We anticipate our target EBITDA margin to be approximately 7.5% for FY '26, with the mix favoring components and appliances, which generally offer better margins than RAC products, thus improving our overall profitability.

Question 5: "Could you explain the company structure and ongoing expansions?"

• Answer: EPACK currently operates multiple entities, including EPACK Manufacturing for Hisense production and our new Bumjin Audio Components venture. Our facility expansions are strategic moves intended to enhance production capacity across various product categories, including a capacity for nearly 1 million washing machines by next year.

Question 6: "Is the energy meter sector a separate product or related to existing components?"

• Answer: The energy meter business falls under our component strategy, where we produce parts like plastic molded components. This diversification helps stabilize revenue by tapping into adjacent markets beyond traditional consumer appliances.

Question 7: "Are we still on track for a growth of 30% to 35% top line?"

• Answer: Yes, we are confident in maintaining this growth target for the year, driven by diversification into new segments like components and small domestic appliances, which have shown promising results.

Question 8: "What will be the EBITDA margin guidance for FY '26?"

• Answer: Our EBITDA margin guidance for FY '26 is set to be above 7.5%, with aspirations to reach around 8% in the medium term through continued diversification and efficiency improvements.

Question 9: "What is the cash position and net debt as of Q1 FY '26?"

• Answer: While we did not disclose specific balance sheet numbers, we saw some increase in net debt as of June compared to March, though cash levels remain stable.

These responses reflect our commitment to growth, diversification, and market adaptability moving forward.