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    Epack Durable

    EPACKGood
    Consumer Durables·13 Nov 2024
    Management Summary

    Epack Durable reported strong revenue growth in Q2 FY25, with operations revenue increasing 112% YoY to ₹377 crores, driven by robust AC demand. Despite a net loss of ₹8.5 crores in the quarter, H1 FY25 saw a significant 452% YoY net profit increase to ₹15 crores. The company is diversifying its product portfolio with new lines like washing machines and coolers, and expanding capacity, including a new facility for Hisense, to achieve a $1 billion revenue target over the next five years.

    Highlights

    9

    • Q2 FY25 Revenue from operations: ₹377 crores, up 112% YoY.

    • Q2 FY25 EBITDA: ₹9.6 crores, up 25% YoY, with a margin of 2.55%.

    • Q2 FY25 Net loss: ₹8.5 crores, compared to ₹6 crores net loss in Q2 FY24.

    • H1 FY25 Revenue from operations: ₹1,151 crores, up 87% YoY.

    • H1 FY25 EBITDA: ₹62 crores, up 66% YoY, with a margin of 5.34%.

    • H1 FY25 Net profit: ₹15 crores, up 452% YoY, with a PAT margin of 1.29%.

    • AC business contributed 70% of Q2 product revenue, growing 187% YoY.

    • Company targets minimum 15% ROE/ROCE within 2-3 years and 17% in the long term.

    • New Hisense facility in Andhra targets $1 billion revenue over five years, with production starting June 2025.

    What Changed1

    vs Q3 FY25

    Guidance items19 → 17 (-2)
    Key financials

    Metrics

    9

    Periods

    2

    Q2 FY25

    4
    • Revenue from Operations
      ₹377 Cr
      YoY+112.0%
    • EBITDA
      ₹9.6 Cr
      YoY+25%
    • EBITDA Margin
      2.5%
    • Net Loss
      ₹8.5 Cr

    H1 FY25

    5
    • Revenue from Operations
      ₹1,151 Cr
      YoY+87%
    • EBITDA
      ₹62 Cr
      YoY+66%
    • EBITDA Margin
      5.3%
    • Net Profit
      ₹15 Cr
      YoY+4.5%
    • PAT Margin
      1.3%

    Segment breakdown

    Product Business (Q2 FY25)
    98% Contribution to Total Revenue
    Air Conditioners (Q2 FY25)
    70% Contribution to Product Revenue1.9% YoY Growth
    Non-AC Business (Q2 FY25)
    30% Contribution to Product Revenue
    List

    Guidance & targets

    17
    CategoryTargetPriority
    Revenue
    Overall Revenue Growth
    50%+
    		High
    Revenue
    AC Business Revenue Growth
    50%+
    		High
    Revenue
    Overall Revenue Growth
    40-50%
    		High
    Revenue
    Hisense Partnership Revenue
    $1 billion
    		High
    Profitability
    EBITDA Margin
    8%
    		High
    Profitability
    EBITDA Margin
    8%
    		High
    ROE/ROCE
    Return on Equity (ROE) / Return on Capital Employed (ROCE)
    Minimum 15%
    		High
    ROE/ROCE
    Return on Equity (ROE) / Return on Capital Employed (ROCE)
    Minimum 17%
    		High
    Capacity
    Hisense AC Capacity
    1.5 million units
    		High
    Capex
    Hisense AC Capex
    INR 240 crores
    		High
    Capex
    Existing Facilities Capex (fine-tuning)
    INR 40-50 crores
    		Medium
    Capacity Utilization
    Sri City Plant Utilization
    Minimum 30%
    		High
    Capacity Utilization
    Sri City Plant Utilization
    60%+
    		High
    PLI Income
    Total Contemplated PLI Income
    INR 37.5 crores
    		High
    Asset Turn
    Current Asset Turn
    3.25 to 3.5
    		High
    Asset Turn
    Target Asset Turn (diversifying into new product segments)
    Minimum 4.5
    		High
    Asset Turn
    New Company Asset Turn
    5 to 6
    		High

    Risks & concerns

    4
    RiskSeverity

    BIS certification expiry for plain copper

    Industry facing challenge as current domestic capacities are insufficient; company is making representations to the government to extend timelines. — Analyst acknowledged

    medium

    Customer concentration (one major customer setting up own manufacturing)

    While there will be some impact, the company's current scope of business with the customer continues, and diversification efforts are bringing better growth. — Analyst acknowledged

    low

    Underutilization of Sri City plant

    Sri City plant was only 10% utilized in H1, dragging down performance, but new product lines (small home appliances, washing machines, coolers) are being commissioned to improve utilization to 30% by year-end and 60%+ next year. — Management acknowledged

    medium

    Areas of Evasion(1)

    • immediate short-term plans for consumer electronics beyond EMS

    Q&A highlights

    3

    “First of all, like you can see in the results, yes, there has been an extremely strong growth in demand and revenue. However, on the margin side, I think if you look at H1 to H1 of last year, you will see that the margins have been fairly stable. So there is no degrowth in margins as such. Obviously, when you compare Q2 of last year to Q2 of this year, we might see some dip in the margin which is actually because of the increased contribution of sales from air conditions. So air conditions being a slightly low margin business, can support slightly low overall margins.”

    Directly addresses investor concern about profitability despite growth, explaining the Q2 margin dip due to product mix and reiterating H1 stability. Also clarifies funding strategy using IPO proceeds.

    asked by Amarnath Bhakat

    3 min read7 chapters

    Detailed Narrative

    01

    Strong Q2 Revenue Growth Driven by AC Segment

    Epack Durable reported a robust Q2 FY25 with revenue from operations reaching ₹377 crores, marking a significant 112% year-on-year increase. The AC business was a primary driver, contributing over 70% of total product revenue and achieving an impressive 187% YoY growth. Despite this, the company recorded a net loss of ₹8.5 crores for the quarter, attributed to the higher contribution of lower-margin AC sales and initial underutilization of new facilities.

    02

    H1 FY25 Profitability and Margin Performance

    For the first half of FY25, Epack Durable's revenue from operations stood at ₹1,151 crores, an 87% YoY increase. EBITDA for H1 was ₹62 crores, up 66% YoY, with an EBITDA margin of 5.34%. The company achieved a net profit of ₹15 crores in H1, representing a substantial 452% YoY growth, with a profit after tax margin of 1.29%. Management noted that H1 margins remained fairly stable compared to the previous year, with the Q2 dip being a seasonal product mix effect.

    03

    Strategic Diversification and Capacity Expansion

    The company is actively diversifying its product portfolio and expanding manufacturing capabilities. New product lines for small home appliances, washing machines, and coolers are being set up in the Sri City plant, with utilization expected to commence from Q3 and Q4 FY25. This diversification aims to improve overall capacity utilization, which was only 10% in H1 for the Sri City plant, targeting a minimum of 30% by year-end and over 60% next year.

    04

    Hisense Partnership and Future Growth Initiatives

    A significant development is the partnership with Hisense to manufacture ACs and home appliances in a new Andhra facility, targeting $1 billion in revenue over the next five years. EPACK Durable plans to invest ₹240 crores over three years to create 1.5 million units of AC capacity for this venture, with production starting in June 2025. Additionally, a strategic tie-up with Panasonic for component manufacturing further strengthens the company's position.

    05

    Margin and Return on Equity Outlook

    Management expressed confidence in achieving a minimum ROE and ROCE of 15% within 2-3 years, with a long-term target of 17%. The company aims to maintain an EBITDA margin of around 8% for the current year and the next 2-3 years. Current asset turn is between 3.25-3.5, with a target of minimum 4.5 for diversified segments and 5-6 for the new Hisense company, indicating efficient capital deployment.

    06

    Raw Material Sourcing and Pass-Through Mechanism

    Epack Durable manufactures 75% of components by value in-house, reducing import dependence. However, raw materials like copper and aluminum for heat exchangers are still imported, resulting in 45-50% of total raw material being imported. The company has a complete pass-through arrangement for commodity and forex fluctuations with its major customers, covering 95% of overall revenue, with a typical time lag of one quarter, effectively mitigating raw material price volatility risks.

    07

    PLI Benefits and Debt Management

    The company has accrued ₹30 crores in PLI benefits from the last year, which is receivable. For the current year, the total contemplated PLI income is ₹37.5 crores, with ₹21 crores already accrued in H1. Regarding debt, the increase in gross debt by ₹100 crores in H1 was attributed to the company's intentional decision not to discount debtors, utilizing lower-interest bank working capital facilities instead of higher-interest customer discounting. The ₹230 crores from IPO proceeds remain unutilized and are earmarked for future capex.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.