PG Electroplast Limited (PGEL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to PG Electroplast Q2-F527 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. Shaleen Chokshi from JM Financial Institutional Securities Limited. Thank you and over to you, sir.

Thank you, Anam. Good morning, everyone. On behalf of JM Financial Institutional Securities, I welcome you all to the Q2 FY27 Earnings Score of PG Electroclass 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 initiation to buy or sell any securities, Nor shall part or all of this presentation from the basis of 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 statement speaks 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, post which we can open the floor for questions and answers. Thank you, and over to you, Mr. Gupta.

Thank you, Shaleen, and good morning, everyone. Thank you for joining PG Electroplast Q2FI27 and this call. I'm Vishal Gupta, the Managing Director, and I'm joined today by Mr. Pramod Gupta, our CFO, and Mr. Vikas Gupta, our Managing Director of Operations, is also joining this call. Second quarter has spanned 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 FY27. For the first half of FY27, consolidated revenues crossed 2,950 crore rupees 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 a combination of volume and price. We saw double-digit volume growth and a similar quantum of ASP increase as commodity costs and rupee reposition got passed through to our customers. Our order book remains healthy across all product lines. I will let Pramuji 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. Pramuji?

Thank you, Vishali. Good morning, everyone. Consolidated revenues for the quarter was 934 crores, up 42.5% year-on-year. EBITDA came in at 69.14 crores versus 44.68 crores last year, a growth of 54.8% with EBITDA margin of 7.4%. Net income was 13.67 crores versus 2.76 crores last financial in the same quarter. For first half, product business has contributed 70.3% of sales revenue, growing 41.1% year-on-year. Within that, AC business saw a growth of 36.2% to 1,561 crores. The washing machine crossed 500 crores of sales and grew 60.7% for the first half. Cooler was muted at about 4.8% growth and contributed 19.3 crores. Electronic business has seen a very sharp growth of 90.3% and contributed 12% of revenues for the first half. And Plastic Moulding and Component contributed 521.6 crores and was up 7.5% year-on-year. Our J.B. Goodworth Electronics posted revenues of 623.8 crores in the first half versus 483.4 crores last year. And EBITDA stood at 22.7 crores versus 10.3 crores last year. Our subsidiary, PG Technoplast, which is obviously a part of consolidated sales, which I told above, reported 2,130 pros in sales this year, in the first half. On margin, I want to clarify again that gross contribution as a percentage has softened on a year-on-year basis, largely because of the pass-through of the commodity prices, particularly copper, aluminum, plastic, etc., along with the rupee depreciation. And as you all know, on a per-unit basis, margin remains 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 422.5 crores, and most of the CAPEX for this year is already paid for. Basically, CAPEX payments that are not in gross fixed are either in CWIP or advances to suppliers. With this, I will now hand it over back to Vishalji.

Thank you. Thanks, Pramodri. Let me cover some business outlook and our strategy along with a couple of other developments for this quarter. Post our flagship washing machine manufacturing facility that came online in new campus in DMIC Greater Noida, Uttar Pradesh last quarter. Our new campus at Salahpur-Vivadi is now operational, and we are consolidating operations by relocating some of our greater order operations to this new facility. This facility will have cooler, sanitaryware, plastic components, and mold-making facilities. The kit on our refrigerator facility at Shiri 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 FY28. We have already tied up with our anchor customers, and we are in active discussions with other customers as well, with some soft commitments already in place. Thus, facilities will have a capacity of 1.2 million units and will start in phase 1 with direct pool and side-by-side respirators and add frost-free and multi-door in phase 2. On compressors, also the projected super is on track for mass production in this financial year. Things are progressing well. We expect our first 2 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. This 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 run on their touchstone 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 Tanej 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, you know, if you can help us understand how the industry sort of grew this quarter on a very unfavorable base versus how, you know, we've sort of done against that.

In this quarter, the primary sales have been muted. We don't 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, you know, if you see, if you try to compare this with the YOY 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 22nd September only. But 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 didn't see much action, but I believe that December quarter and March quarter, we'll see much better numbers for our company as per the feedback that 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.

Sir, and so you spoke about, you know, most of the prices being passed on to the customer. So, 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, you know, price hikes has been an ongoing activity for us. The first price increase 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. And 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 first January onwards, most likely most of the price highs, which should be factored in till now, will be taken into account for.

So, sir, I was asking from, you know, our second quarter perspective, because I think we mentioned in a press release that most of the prices have been passed through. So, I just want to see that if the gross margin compression was also due to some bit of under-absorption or is it just as a function of, obviously, the ASP hike, which is optically making our gross margins look lower?

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. Electronics business has a much lower margin, that is one. And secondly, this quarter, the high growth was due to the rising prices of electronic components, semiconductors specifically, rather than very, very huge volume growth. And the reason this has happened is because we do a lot of contrast manufacturing and also we supply motherboards, soft TV, etc., where the memory prices have short up very significantly. So, because of those reasons, because of the mixed change and because of 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, and as whatever price increases was required in the AC business till September, that we have been able to pass on in October. And 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 1st of January.

Sure, sir. And 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.

So, this quarter, we don't have any PLI. PLI, we book, as you know, on the basis of the sanctions received. And we are yet to file for the last financial year's numbers. PLI, this thing, because there are GST audit, etc., just is getting completed. So that number is likely to come probably in the Q3 and Q4 for us. And we will be reporting that number to you. For the full year, this year, the PLI is likely to be close to 70 crore plus for us.

Sure. Sure. And anything specifically booked apart from, you know, the PLI in this quarter? Like, obviously, there is no PLI booking this quarter, but any other incentives from a state perspective which we have booked?

For PGEL, we continue to book about 1.55 crore rupees of incentive which we get for the Maharashtra government that has been booked.

Okay, sir. Okay, sir. Got that. Got that. I'll fall back in the queue. Thank you so much for answering my question. We will do all the best. Thanks.

Thank you. The next question is from the line of Achel Lohadeh from Nuama 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 FI27? This is the current order book visibility what we have.

We don't 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. And as this year on the quarter, if you look at YOY 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 to $2.2 million kind of a number for room AC delivered this year versus $1.7 last year.

Got it. And, you know, basically price increase so far and the expectation of December and March quarter, excuse me. Now, what would be the realization increase as of now, what we can expect on a YY basis, full year, average realization increase? Would that be north of 15-20%?

It will be surely close to about 15-20% range.

Average price increase across 3-4 quarters, you know, and what we expect in January quarter, all cumulative will be something around 15%.

The other question I have, you know, this is more medium term question, you know, we have called out with respect to the ref, washing machines, etc. But any thought on the additional growth avenues in terms of the segments, products, etc., if you could give us some sense, you know, or let's say next three to five years beyond the current products what we are currently looking at?

I see that 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 early levels. And we will be looking for growth opportunities, but right now we do not want to focus on anything substantial until the time we have been able to scale up these new initiatives which we are taking. And I think for 27 and 28, 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. And we do not intend to right now, you know, 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.

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? And also, you know, another related question was in terms of the exports opportunity for RSE, anything we can look from the medium-term perspective. Yeah, 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. And we are hoping that we'll 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'll be able to start mass production also. And there'll be a gradual ramp-up for calendar year 27. We are hoping that we'll do something around maybe 1.5 million plus compressors. That is the target that we expect for ourselves, 1.5 million plus. And by April, May, if the season is panning out well, we might take a call on adding a second line also. So in April, May, we'll take a decision on that also.

And on exports, if you could help us understand...

We are doing small number of exports right now to, you know, stark nations, very small number. When you try to compare with China in Europe and America markets, the products are a little different. They are quite different. And 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, Thank you.

Thank you, sir. I will fall back in the queue. Thank you.

Yeah, please.

Thank you. The next question is from the line of Santosh Sehadri from Aventus Park. Please go ahead.

Hi, sir. Good morning. Thanks for taking up the questions. So my first question is on the cost savings that you have achieved. There has been some considerable savings in employee costs and other operating expense items. And so 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 or, you know, are ramping up in the second half?

So, I'll 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 by why because of two reasons. One is that last year we had a forex loss of about 8 crores, and this year we had a smaller forex loss of about 3 crores only. So there was a 5 crore that benefited that on that account. And also, last year, we had some one-offs related to some GST, etc., which we took in the second quarter. And because of all those things, there was about 3 crore rupees of additional cost, which we have not incurred in this quarter. So, 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 costs 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. And 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?

The 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.

And just lastly, on the finance cost, can you provide some color, you know, how should we expect this going forward? Is there any room for optimizing working capital and bringing the finance costs down? So, any color on that, that would be helpful.

We are trying to work on optimizing the working capital, but actually what is happening is because of 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 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, and 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. We have not created any new subsidiary.

We have a subsidiary which is actually already there, which is PG Technoplast, and PG Technoplast has a subsidiary called Next Generation Manufacturing, so that the structure remains. We have not created any new company right now. Okay.

And the inventory part, the inventory levels are similar to the last few weeks.

Yeah, inventory levels are slightly up. Yeah, the reason is because, as I'm 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.

So what could be the maybe rough breakup of SG and raw material in this inventory?

I'll give you this number. Just give me some time. Just give me a couple of minutes. So, if you have any other question, you can continue. I'll give you the break-up of this in the meantime.

On washing machine front, sir, we have a good growth of 60-70% ROI. We have got the new facility also commissioned. So on the annual basis, what is the growth potential you are expecting in washing machine?

And we are looking at about 40% to 50% growth, at least in the washing machine. The 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 45-60% kind of a growth.

Lastly, we have a POS mission for development. So, is there any update on that? Is there any progress? No, I didn't get your question. Can you just repeat?

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.

Thank you. Thank you.

Thank you. The next question is from the line of Yash Kothari from CR Kothari and Sons. Please go ahead.

Just before that, I would like to give a color on the... Okay, you go ahead with your question and I'll come back to it. Yeah, hello. Good morning, sir.

So, we had talked about the super compressor unit starting. I just wanted to get an idea. You know, the expected EBITDA margins post, I mean, obviously, the conditioning has happened. So, like, what are the EBITDA margins that we are looking at?

See, because we are going to utilize large part of the in-house only, for the in-house thing, so it will be a margin accretive. That number we will share with you once we start the production, probably in the second quarter. Sorry, at the end of third quarter.

Okay. Okay. Thank you, sir. Thank you.

Thank you. You wanted to say something?

No, no. I will come back to that inventory questions maybe slightly later. I am just asking somebody to get that number.

Sure, sir.

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. So, you know, you mentioned why normal people prices have gone up, and that would 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.

I mean, 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, basically, motherboards, TV motherboards, and because of the season. But in TV motherboards, the memory component is a significant portion, and the prices there have gone up very significantly. So, because of that, the contribution in terms of sales looks much higher for the electronics business during the quarter, and that has led to a very high growth in the electronics business for the quarter, and the first half also.

Then how should we look at the growth for the failure and for FI28 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 550 to 600 crore kind of 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, so got it.

And so, the second question is on incentives. So, last year, you know, as part of an annual report, we saw that you had booked about 130 crores of incentive. How, I mean, just wanted to get some clarity on that, if it was clubbed for a couple of years. And for FI-28, so while you mentioned FI-27, my sense is TLI gets over in FI-28. So what would be your incentive as part of the state government and TLI? If you could just throw some clarity on that. Thanks.

So the way it will work is we will have our TLI incentive. There is in two companies, PG Technoplast and PG Electroplast. Sorry, NGM. NGM and PG Technoplast. So PG Technoplast, this is the last year for basically the sales. And obviously, you will get that incentive next year. So we'll be booking the incentive next year. So we will have about 60 crores in PG Technoplast next year from that. In fact, in NGM, this is the, because we applied in the third round, and that will be valid only for three years, so 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 20 crores. This year we will be getting 15 crores, and then again in the last year we will be getting 20 crores, which will be in 29. Apart from that, we will be having a state incentive, which will be to the tune of about 28 to 30 crores every year, which will continue for the 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 500 crores 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. So this is the way it is going to run.

Okay. So, just to say that, you know, your incentive for FY28 would be anywhere between 105, 110 crores.

Yes.

Great. Thank you so much, sir. All the rest. Thank you. Thank you.

Thank you. The next question is from the line of Vedant Rati 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 for regarding our CAPEX guidance for the next year, and have we achieved all the same? Plus, I wanted to ask on our capability with respect to our compressor plant in – sorry, our refrigeration plant in Shree City. Will we also be adding an additional compressor line in our Shree City plant as well?

As far as the CapEx, Vedant, I'll take these two questions. So CapEx for this year, which we have guided for around 400 crores, is on track, and largely the CapEx has been done, as Pramodji said in his call comments earlier. And for next year, I think our idea is to consolidate the business right now and focus on the CapEx what we have done in the last two years and try to build on those capabilities and grow that business. Still, you know, FY28, we should do around 150 odd or 200 odd crores capex. Coming back to your question on Sherry City refrigerator plant, that plant has told we'll start production in the last quarter of this financial year. For the refrigerator compressor, we are already discussing with a couple of companies for that technology, but we'll 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. So, just with respect to our refrigeration margin, refrigeration business, how much can we see an approximate margin accretion because we are now manufacturing our refrigerators end-to-end as well?

So, see, the margin profile will be similar to our current business, but we can give a definite color on this once, you know, 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.

Thank you.

Thank you. The next question is from the line of Rabindranath Nayak from Nirmal Bang Institutional Equity. Please go ahead.

Thank you, Vishal Jinn, Pramodji, for the opportunity, and congratulations for a good set of numbers. Sir, you mentioned that, you know, in the first half, we did around 36% growth in the RSE segment. So, can you please tell me what is the volume growth in the first half?

About 22 to 22%, 22 odd percent is the volume growth.

Okay. So 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 RSE is concerned, is it right?

No, I am not guiding for 30%. I am guiding that the volume growth should be 20 to 25%. 20% plus minus 2-3% for the full year. That is what I am guiding, and I think we have a very strong model book. Now it is all the execution which we have to do for the second half.

Okay, so that means, you know, we can, you know, cross around 4,000 crores in RSC this year?

Yeah, that should be possible.

Okay. And in washing machine, you said that we will be, can we cross around 1,000 crores this year?

I will not say cross, but we will be nearby that number.

Okay. And sir, you mentioned that electronics business, we did around, this year, significant growth up around from 80 crores to around 251 crores. So, you mentioned that 560 crores guided for this year whole for the electronics business. Is it correct that your guidance, 560 crores?

I said 500 to 600 crores. Yeah, 550 is the number which we should target. This quarter was, and in the first half, the TV contributes significantly to the electronics business, which is basically having a lot of TV motherboard, 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. And now the electronic business in the second half is driven typically by the AC controllers and other businesses like CCTV, etc. So, camera, 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. And, you know, if you see the Goodworth, you are one of the joint venture, the growth has been spectacular from 180 crores to 455 crores this quarter particularly. Is it something to do with the electronics business that you mentioned that the growth of it is related to some extent?

That is largely driven by the TV business, because Goodworth deals largely in TV, and TV, as you see, the prices have moved up very sharply because of the, again, electronics and motherboard, etc. So, because of that, the growth is also looking higher. Volume growth is in line of what we were expecting, but it's the pricing which has actually gone up significantly in the TV business this year.

Okay. So, good earth would be, you know, what would be the guidance for good earth for this year in terms of sales?

Maybe around 900, 800 to 900 pros.

Okay, okay. And, sir, if we see, you know, you are saying that, you know, a second half would be much better in the RSE segment going ahead, and also the electronics business will actually contribute less compared to this second quarter, because second quarter is a decline in gross margin. You mentioned that in the initial call that due to the electronics component price, the margin is contracted. So can we expect the gross margin to improve in the coming second half if the RAC will dominate and electronics will take a some base sheet in terms of growth?

No, no, no, no, 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. The bill of material for AC has moved from 14,000 rupees, which we used to have about two years back, to almost 18,500 rupees now. While the amount of money which we used to get for making AC remains the same, so as a percentage, that number may look less only. So 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 an 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, okay. No, that's fair point. Sir, you guided the 800 crores of good earth, because, you know, first half, we were already down, you know, 632 crores.

I think 800 to 900 crores, and TV season is a 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, because it's typically a low season. And as I was telling you that this year price increase is there because of that elasticity, price elasticity working negative, the volume growth is not so high in TV.

Okay, okay. And the last question about the coolers, significant big growth in the cooler. Is it a trend currently or it is going to revive? How do we see the market in the cooler market?

See, the last two years have been a 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. And this year, cooler, as you know, has a very high component of plastic injection molded components. Basically, plastic has almost about 60-70% 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 for 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 inventory only, 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 industry, because the heat is increasing and the inventory levels are now normalized across the channel, and 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. And RSE, what is the percentage of price increase or let's say that so that we can cover actually up to some extent a good amount of our cost?

See, prices, RSE, POM price increase and commodity increase is always a moving average, you know. So, whatever prices you have averaged for the last quarter is implemented for the next quarter. So, 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. So, OND, largely we see that where the copper, aluminum, and dollar is moving, accordingly we have a pricing mechanism with our clients and we are able to do that with the clients.

Okay, okay. One last question, if I may allow to do that. There is a change in auditor, one of these subsidiaries, next-gen manufacturers. So, is there anything to look at in this, and what product this subsidiary is, you know, providing us, inter-service services?

See, we have got a single auditor across the whole company now, which is BSRN company, 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 BSRN company across the whole company as a statutory auditor.

Okay, sir. All the best time. Thank you very much for answering my question. 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 K. Yur Pandya from ICICI Prudential Life Insurance. Please go ahead.

Thank you. K. Yur from ICICI Life Insurance. Congratulations on good numbers. Last year, Q3, we had a... Now, based on current channel inventory, you think that Q3 also will have a volume growth or whatever you are guiding for in terms of volume, all will be back-ended towards Q4?

We see some, maybe, kind of middle teams' volume growth, keeping in mind the kind of volume or commitments that we are getting from clients as of now. And Q4 will be much better.

Sir, you mentioned early teens, right? Yeah, kind of. So, you are keeping volume growth guidance a little lower. I mean, I thought 20% is lower versus in the current scenario and in the last year's base.

What happens, Kyoji, you know, our financial year ends on 31st March. So, whatever growth will be there will get, you know, transmitted to the FF28 also. So, April, May is also always a, you know, strong primary sales month for people like us. So, what we are guiding is something, I think we are not guiding any number, we are not saying any number, but we will see a decent volume growth and much better value growth in RAC in FF27. And some part of that growth will get percolated to FI-28.

Understood. And this last question on newer categories, so say ref and compressor. So where have we reached in terms of say approvals or validations, whatever says numbers that you are talking about for FI-28, it takes care of that timeline?

Thank you. If we are able to technically clear those compressors ourselves, we need not take their retrievals. This is about compressors. We have already guided the kind of number of our calendar year 27. Should be anything between 1.5 to 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'll start trial production in January, February. The designs and the model selection has been done in consultation with our anchor customers. The model which is being developed is in consultation with that client. So when the production will strike, most likely, you know, approvals will not be a very big bottleneck as far as, you know, for that refrigerator is also concerned.

And that is $1.2 million in first phase.

1.10 million is a small capacity for that, and I think F528, we are targeting 700k production, not more than that. That is the number we are trying to do in F528.

That is the kind of base number.

Yeah, please.

Understood. So, that 700k is a function of anchor plus to 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 commitment from other customers plus our experience and our gut feeling for this business.

Fair enough. Fair enough. So, thanks a lot and all the people. Thank you. Thank you.

The next question is from the line of Chirag Shah from White Pine. Please go ahead.

Hello, am I audible?

Yes, sir.

Hello. Yeah, thanks for the opportunity and congrats for the set of numbers. Now, my first question is, with respect to inventory, if you compare with September 24, and how would it be today? You said 1.7 million, which is estimated inventory in the system today. How would it be versus September 24? Will it be lower? Will it be higher than September 24?

September 24 numbers, I cannot recollect. See, September 25, I can say, you know, it was much higher. But September 24 numbers, I don't recollect right now, sir.

Okay. Second is your 20% volume plus kind of indicative guidance. And does it take into account the so-called expected rural, semi-rural slowdown? And if yes, generally, how does this slowdown affect the RAC demand in general? So 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?

Siraj, 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. And the numbers we are guiding or telling you people in this call right now is the numbers up to March. So up to March, we don't see much challenge as far as the primary numbers what we have been getting from our clients. Yes, yes, going forward, the way, you know, agrarian economy is going to behave, I don't see, still, you know, automobile and if you see two-wheeler sectors, they are doing decently well right now also. So, going forward, we'll come to know about that, but still March, I don't see much challenge in the numbers which we are getting.

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 cross 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, you know, in that sense. Tier 1, tier 2 cities is fair urban, you can say. So, basically, we can, a large part of the industry volumes are driven by tier 1 or tier 2 up to tier 2 cities, maybe 70-80%. That is the right way to understand?

Yes, sir. TFC also, you know, expansion is happening because you can see some kind of saturation happening in tier 1 cities in India as far as these product categories are concerned. But, you know, all set and done, as I told you earlier, you know, for us, primary numbers up to March are looking very, we are quite confident about those numbers. But how they translate into secondary numbers will come to know about the...

Yeah, that's fair point. That's fair, that you can't take a call out of now, which I appreciate. And lastly, on compressor, just a clarification, so we are starting with one anchor customer. But in generally, how should one, can this one anchor customer number become four, five, or the customer profile of AC that's converted to compressor, or there could be different type that different AC customer could do for compressor, given the way the industry requirements are there, right, for localized sourcing?

The compressors, what we are making is largely for our in-house consumption, and there are two, one anchor customers in a compressor, right? We have a 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, okay, okay.

Fair point. What I understood was, you clarified it. I thought it's only for one of the key customers for whom this, there is a go-ahead. Fair point, you clarified it.

Great.

Thank you. Thank you.

The next question is from the line of Pula Varti Sai Kiran from Pula Varti Finsov. Please go ahead.

Yeah, hi. Thank you for taking my question. So, 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. And then now, when we look back, how far we have come across, and in that journey, how far we are there at the PGL in terms of total manufacturing, in terms of platform integration. Thank you.

I think it's 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. Right. Barring electronic components, you know, I think most of the things now will be manufactured in India, compressor, B8B compressor, copper tube, aluminum, and motors, which are the very large part of the bomb value. Electronic components, we do assemblies in India, but, you know, largely all those electronic components are getting still imported from outside India. So that is one area which I don't see, we are not progressing very well as a country. But copper tubes, aluminium and compressor and motors will be largely coming from India. So yes, we expected this to happen a little earlier, but there has been some delays. But this year onwards, FY20 onwards, we will see a very large production of these things happening in India. And largely people buy from local. So, if you say in case of compressor, the compressor imports are not allowed after 31st March of 2027. So, compressor has to be made in India, and the government has said that you can't import compressor after 31st March 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.

And in third, how far now that logically we understand that you are entering electronic components, if you can explain the journey as well, how well we are backward integrated, and 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, you know, this is a difficult thing to answer, but let me tell you, technology right now we have acquired from outside India, but going forward, we believe that, you know, once we start manufacturing these compressors in India, in the next two or three years, we will have that capability of developing these products in-house only, these components.

Thanks, 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.