In conversation with Vikas Gupta, Managing Director, PG Electroplast Ltd

The company expects significant traction in plastic molding in the durable consumer goods space in washing machines, room air conditioners, refrigerators, ceiling fans and sanitary products, says Vikas Gupta, director General (Operations) at PG Electroplast Ltd.

What is your vision for the national plastic products and durable consumer goods sector? What emerging trends are you seeing?

We are quite positive on the outlook for consumer durables and electronics in India. Penetration of air conditioners (AC) is about 5%, washing machines (WM) at 13% and refrigerators at 33%. As access to and reliability of utilities like electricity and tap water increase in Tier 3 cities as well as rural areas, we see new markets opening up for ACs and WMs. Distribution and service networks for durable consumer goods are also improving for these products. They are also becoming more affordable due to rising revenues and falling product operating costs, and we expect even faster adoption due to the growth of e-commerce platforms as well as increasing access to easy financing options.

Domestic demand for air conditioners is growing at around 15% per year. A tropical climate, a large population and the growing aspirations of millions of households are all factors that are driving the demand for air conditioners in India. Hence, in anticipation of the expected rise in demand, the country remains a crucial market for the air conditioning industry and global players. Rapid urbanization and population growth have created a demand for sustainable, clean and energy efficient cooling solutions in India. The Indian government’s emphasis on “Making in India” as well as Atmanirbhar Bharat are clear and it supports the industry through various measures such as the PLI schemes, reversing the inverted fee structure created by previous administrations. Additionally, the imposition of tariff and non-tariff barriers to imports helps level the playing field for local manufacturers, which would help them become players like us to become globally competitive.

The increasing globalization will play an important role in increasing the demand for washing machines. We expect demand to only accelerate due to a combination of factors. The participation of women in the labor market is constantly increasing, which has led to a decrease in the time spent doing laundry. Middle class populations are increasing with nuclear families also becoming more common, which is expected to further increase the market penetration of washing machines. In addition, media involvement is also increasing. Fully automatic options are also becoming more affordable, which should eventually help increase the size of the market in terms of value, as it gives users of semi-automatic machines an extra push to upgrade.

Governments around the world are urging consumers to use energy efficient products. Simple energy consumption comparison tools, such as star ratings from the Bureau of Energy Efficiency (BEE) and on e-commerce platforms, also encourage customers to switch to more energy-efficient technologies. energy. The increasing scarcity of water in the world forces manufacturers to manufacture products with technologies that limit the use of water.

The short-term outlook is that increased localization will boost domestic manufacturing and reduce reliance on imports. India will become an attractive destination for global giants which will help close the disability gap that India has with its competitors. In the medium term, we foresee high domestic value added, higher penetration in all product categories and India becoming an export hub and reaching out to the world.

PG ElectroplastNet sales increased by 45.44% to Rs 267.57 crore in Q3FY22 from Rs 183.97 crore recorded in Q3FY21. What factors contributed the most to help you outperform?

Our growth is driven by our focus area, i.e. the product business, which is both in the original equipment manufacturer (OEM) and original design manufacturer model (ODM). We have seen growth of almost 100% in the washing machine sector and around 135% in the air conditioning sector. For the quarter, product revenue contributed 43% of the total. Other plastic component molding, electronics and tool manufacturing activities also increased by around 10 to 15%. However, the product business continues to drive business growth and is driven by the addition of new customers as well as gaining market share from existing customers. In addition, the company has launched several new products, which have been well received by the market and contribute to the growth.

Are you implementing cost rationalization measures to protect margins from cost inflation? What other challenges are you currently facing?

Cost inflation is largely due to the very sharp rise in raw material prices and no cost rationalization measure is sufficient to counter raw material price inflation. We are a subcontractor and work with very thin margins; thus, our ability to absorb any cost increases due to commodity increases is very limited. Nevertheless, the company is still working on value engineering and continuous improvement to maintain and improve cost leadership in priority areas. However, this commodity price inflation is too strong and too fast to be supported by improved productivity and value engineering.

We launched many new businesses and units this year, for example. in May 2021, we moved our washing machine business to Roorkee and started a new unit there. We then launched a new TV business this year. And in December 2021, in our wholly owned subsidiary PG Technoplast, we started new units in Greater Noida and Supa (Maharashtra) for AC components and manufacturing Indoor Units (IDU), Outdoor Units (ODU ) as well as fully-built units of CA, respectively. We also launched our own ODM models in the AC room this year. All of these new initiatives have had their respective start-up costs and one-time items such as product validation and testing costs. Additionally, initial issues and start-up challenges arose there as well, which we were largely able to overcome while stabilizing operations across all units. However, productivity improvement and cost optimization measures continue in all these units as well as in existing units in order to maintain and improve our competitiveness.

Can you shed some light on the products you launched during 9MFY22? Also discuss new product launches that are on the way for FY23.

The company expects significant traction in plastic molding in the durable consumer goods space in washing machines, room air conditioners, refrigerators, ceiling fans and sanitary products. Expectations are also high 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 build capabilities and capabilities for the same. Its wholly-owned subsidiary, PG Technoplast, commissioned two manufacturing plants this year, tripling the group’s alternating current production capacity. PG is also venturing into the ODM space for room air conditioners and has invested in two AC indoor unit platforms as well as two AC outdoor unit platforms, which has enabled us to offer more 50 models, covering the full range of room air conditioners from 0.75 ton models to 2.0 ton models of various star ratings, both inverter and fixed speed models. PG Technoplast has also been approved for the PLI program for white goods, where it incurred capital expenditure of Rs 321 crore to manufacture plastic molded components, sheet metal components, heat exchangers, cross-flow fans and printed circuit board (PCB) assemblies.

In washing machines, the company is targeting growth in semi-automatic and fully automatic washing machines. The company had also built substantial capacity to produce washing machines at the Roorkee plant last year and is expanding further this year to meet growing demand for FY23. We are also investing in three new semi-automatic washing machine platforms, which will allow us to offer products with washing capacities ranging from 6 kg up to 14 kg.

In the air cooler business, the company is optimistic about sales growth in FY23, helped by favorable demand and key investments made by the company. The company has developed two new air cooler platforms offered as ODM solutions to customers.

In the plastic molding business, the company has focused on the molding of specialty plastics and is gaining ground in the sanitaryware market. Riding the tailwinds provided by the shift of the global supply chain away from China and the boost given to the electronics industry by the incumbent government, the company intends to rebuild its electronics business. Apart from manufacturing 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 coming quarter?

Although we don’t give quarterly growth guidance, the company has guided revenue of more than Rs 1,000 crore for the full fiscal year 2022, and in the first three quarters we made around Rs 600 crore of revenue, implying that the fourth quarter of fiscal 2022 is expected to have over Rs 400 crore of revenue. In addition, margins should be at similar levels to previous quarters; so we think we should have strong earnings in the fourth quarter.

The important point is that the company has made a large investment in the AC sector, and has also made a large investment in the AC PLI component. These and other business investments will drive the company’s growth for years to come.