HIGHLIGHTS
- Epack Durables Ltd. reported a stellar Rs 382 Cr revenue for Q2 FY24, marking a 113.5% YoY growth. The company has experienced growth in its quarterly net profit, accompanied by an increase in its profit margin, signalling improved profitability and efficiency
- EPACK Durables Ltd.’s annual net profit grew by 10.64% to ₹35.37 Crore.
- The company has a massive 24% market share in its primary offering and is the 2nd largest in India.
- The company has substantially reduced its debt in the previous year.
INDUSTRY OUTLOOK
The consumer durable industry in India has grown significantly, covering products like air conditioners, washing machines, televisions, and refrigerators. In FY 2022-23, the industry reached ₹1,303 billion, propelled by increased awareness of high-end products, rising disposable income, demand for costeffective and energy-efficient appliances, higher temperatures, evolving regulations, growth of nuclear families, and rapid technological advancements. This growth highlights renewed interest in high-end appliances such as bigger LED screens, smart ACs, larger refrigerators, and top-loading washing machines. Additionally, there has been an increased preference for appliances offering connectivity, convenience, comfort, and energy efficiency.
The air conditioner market, a key segment of the consumer durables sector, is projected to grow substantially. The market size is expected to reach 165 lakh units by 2025, up from 65 lakh units in 2019. Furthermore, the air conditioner market is anticipated to grow at a CAGR of 20.8%, increasing from US$ 3.8 billion in FY21 to US$ 9.8 billion by FY26. By FY29, the Indian room air conditioner market is projected to reach ₹50,000 crore (US$ 5.6 billion). Similarly, as of 2021, India’s refrigerator, washing machine, and air conditioner markets were valued at approximately US$ 3.82 billion, US$ 8.43 billion, and US$ 3.84 billion, respectively, showcasing robust growth potential across categories.
India is anticipated to become the fourth-largest market for consumer durables by FY27, driven by strong tailwinds. Favorable government policies support the industry’s resilience. Schemes such as the Production-Linked Incentive (PLI) scheme and supportive industrial policies have further bolstered growth. This has led to a decline in consumer electronics imports and a steady rise in exports from India—a trend expected to continue.
Epack Durable, operating within this dynamic landscape, is well-positioned to capitalize on these growth opportunities. The Indian consumer durables sector presents a lucrative environment driven by increasing urbanization, the expansion of middle-income households, and evolving consumer preferences. However, challenges persist. Price sensitivity coupled with inflation remains a significant concern.
BUSINESS DESCRIPTION
EPACK Durable Limited is India’s leading original design manufacturer (ODM) of room air conditioners (RACs) and the second largest in the segment. With over two decades of expertise, the company has built a strong reputation for delivering innovative and tailored solutions to its clients.
Product Portfolio:
- Room Air Conditioners (RACs): EPACK offers a wide range of RAC products, including window air conditioners (WACs), split air conditioners (SACs), and inverter models. The product line-up caters to capacities from 0.75 to 2 tonnes, meeting diverse customer needs with multiple energy ratings and refrigerant options.
- Small Domestic Appliances (SDAs) and Components: EPACK manufactures components and other appliances in addition to RACs, ensuring a comprehensive product offering.
- Large Domestic Appliances (LDAs): During the year of reporting, they successfully launched a new segment, beginning with the introduction of air coolers. This expansion reflects their ongoing commitment to diversifying the product range within this category. They are soon announcing the planned release of several innovative products under this segment, including washing machines, room oil heaters, air fryers, tower fans, induction water heaters, and hair dryers. These launches will help them further diversify their product portfolio.
EPACK’s strength lies in its backward integration approach and a customercentric philosophy, which enable efficient production and the flexibility to deliver bespoke solutions. The company’s clientele includes renowned brands such as Blue Star, Daikin, Carrier Midea, Voltas, Croma, Havells, Haier, and Godrej which garnered a massive 80% of total revenue in H1FY24. EPACK operates 4 R&D centres staffed by a team of over 70 professionals dedicated to optimizing designs and developing innovative products.
The company continues to grow by prioritizing innovation and operational excellence, cementing its position as a trusted partner for major RAC brands in India.
FINANCIAL PERFORMANCE
The company in FY 2023-2024 stood the test of time as the early months were marked by unseasonal and erratic weather patterns, which led to muted demand for air conditioners. Also, one of its more prominent clients started their in-house production, leading to revenue declining 7.8% YoY to INR 1,419 crores. Despite this revenue contraction, its EBITDA grew by 13.3% YoY from INR 1,162 crores, highlighting the management’s capabilities to achieve operational efficiency. PAT numbers also showed a decent increase of 10.6% from INR 31.75 crores to INR 35.16 crores. In the bigger picture, its revenue has grown with a staggering CAGR of 24.47% from FY21 to FY24. The RAC and its component business segment are responsible for 81% of the company’s revenue, and as mentioned earlier, with strong tailwinds, this segment has a long runway for further growth. The company is poised to capitalize in this segment, having approximately 1/4th of the market share. The RAC component grew 700-800% YoY, though it was against a smaller base, but in the future, this can also be a significant topline contributor.
Due to operational efficiency, Epack has significantly reduced its working capital cycle days from 91 days in FY23 to 45 days in FY24. Management could unlock cash flow and strengthen the company’s financial position by refining its accounts payable strategy and implementing better collection strategies. The company believes R&D is a key differentiator in maintaining a competitive advantage and invests in that domain accordingly. Its R&D team has grown from 30 employees in March 2021 to 66 employees by March 2024. Its investment in R&D as a percentage of revenue jumped approximately 50% YoY, amounting to INR 5.22 crores during FY 24. Its short-term borrowings have decreased by approximately 29% to INR 269.6 crores, and its long-term borrowings have nearly halved by 45.5% to INR 61.75 crores. As a result, the debtto-equity ratio has decreased significantly from 1.58x in FY23 to 0.37x in FY24.
Significant cash flow improvement from the company’s operating activities can be observed, with a shift from INR 18.82 crores in FY23 to INR 256.97 crores in FY24. This improvement is driven by better trade receivable realization, indicating that management has strengthened the core business metric, and one can expect the business to grow at the speed it wants to. As the company has been recently listed on exchanges, the historical PE ratio cannot be determined. Still, currently, the PE ratio is standing at 95x, which is relatively less compared to other players in this segment.
CURRENT DEVELOPMENTS AND FUTURE EXPECTATIONS
Financials – The Company released its Q2FY25 results in November, registering 112% operating revenue growth Y-o-Y to INR 377 crore. In the first half (H1) of FY25, while the Company’s EBITDA margins have gone down, in absolute terms, it has gone up to INR 61.5 crores compared to last year’s figure of INR 37 crores. On Yo-Y comparison, Epack’s net profit in H1 FY25 has increased by a staggering 4.5x to INR 14.9 crores. This phenomenal performance can be attributed to expanding its manufacturing facilities to cater to the growing demand. The Company strategically opened the new facility in the southern region to cater to that geographical area and diversify its market.
Business and Future Expectations –
The company raised ₹640 crore through its IPO, including a ₹400 crore fresh issue, and was listed on January 30, 2024. The funds from the fresh issue went towards capital expenditure, repaying borrowings, and general corporate purposes.
The company has partnered with Hisense to manufacture air conditioners and home appliances in India locally. This collaboration involves setting up a new facility in Andhra Pradesh, scheduled to start operations by June 2025. The initiative aims to achieve $1 billion in revenue over the next five years by serving Indian and global markets. The company’s existing facilities will support this venture by supplying essential components, ensuring seamless operations integration.
A significant alliance has been formed with Panasonic Life Solutions India to manufacture components at the Bhiwadi and Sricity plants. This includes using printed circuit board controllers as an EMS for Panasonic. Also, from Q4 of FY25, the small home appliances line will be set up and operational in the Sricity plant, which will further bolster the topline.
Epack excels in product development, leveraging advanced tools and integrated manufacturing, and has a skilled R&D team. As a pioneer in designing WACs with R32 refrigerants, Epack focused on innovation, quality, and cost efficiency, delivering customized solutions that drive customer loyalty and competitive advantage. Also, the company is developing new products like washing machines, room oil heaters, air fryers, tower fans, induction water heaters, hair dryers, etc. The impact of seasonality on the air conditioner business will be counterbalanced by a diversified product range.
Recent events –
- A strategic partnership with Panasonic Life Solutions India has been entered into for manufacturing components at Bhiwadi and Sricity, and such supplies will be made available to Panasonic.
- Commissioning of Sricity and Bhiwadi plants expanded manufacturing capacity to meet rising demand. Sricity plant currently has a capacity utilization of 10%, but company plans to enhance capacity utilization in the long-term.
- Cooler lines in the Sricity plant will be commissioned towards Q4 of FY25.
- The company also has plans to increase the stake in its associate Epavo from 26% to 50% and make it its JV.
- The company actively participates in the government’s PLI scheme for white goods, focusing on manufacturing air conditioner components. It has recognized incentives of ₹15 Cr for FY23 and ₹7.5 Cr for H1 FY24.
- Hisense Group, China’s leading television manufacturer and one of its largest appliance makers, is planning to acquire up to a 26% stake in Epack Durable’s wholly owned Indian subsidiary.
Strengths –
- Price above short, medium, and long-term moving averages indicates strong momentum.
- A company with zero promoter pledge means its promoters have not pledged shares as collateral, reducing external risk and boosting shareholder confidence.
- Rising FII/FPI shareholding reflects strong institutional confidence in Aditya Birla Capital.
- Price is near a 52-week high and has significantly recovered from its lowest point, suggesting strong momentum and investor confidence.
- FII/FPI holdings have increased from 0.73% to 1.97% in the September 2024 quarter.
- The stock price surged 113.83% over the past year, outperforming its sector by 44.03%.
- The company will continue to benefit from increased demand for air conditioners due to rising purchasing power, erratic weather, and growing residential construction. Additionally, the availability of financing options has made RAC more accessible to a broader consumer base in India, evidencing the continuous growth of this sector and company for a long time.
CONCLUSION
EPACK Durable Limited stands out as a key player in India’s consumer durables sector, driven by its extensive experience, diverse product portfolio, and strong client relationships. Its focus on innovation, backward integration, and operational efficiency ensures a competitive edge in the market. With continuous expansion into new product categories and a commitment to meeting customer needs, EPACK is well-positioned for sustained growth and success in the evolving consumer durables landscape.
