PG Electroplast Ltd

Consumer Durables - Domestic Appliances

Little Masters

CMP

Rs. 2575.95

Rating:

Buy

May 24, 2024

Stock Info

BSE

533581

NSE

PGEL

Sector

Consumer Durables - Domestic Appliances

Face Value (Rs)

Equity Capital (Rs cr)

Mkt Cap (Rs cr)

6,484.14

52w H/L (Rs)

2640.00 - 1446.00

Avg Daily Vol (BSE+NSE)

220,361

Shareholding Pattern

(as on 31-Mar)

Promoter

53.70

FIIs

11.02

DIIs

10.94

Public & Others

24.33

Source: Ace equity, stockaxis Research

Price performance

Return (%)

12m

Absolute

23.42

35.60

70.66

Sensex

2.28

3.11

21.68

Source: Ace equity, stockaxis Research

Indexed Stock Performance

PG Electroplast Ltd Sensex

Source: Ace equity, stockaxis Research

Strong Growth in Q4; Healthy outlook

Company profile

PG Electroplast Limited (PGEL) is the flagship company of PG Group, which had started its journey in 1977. PG Electroplast, formally set up in 2003, and is a leading, diversified Indian Electronic Manufacturing Services provider.PGEL specializes in Original Design Manufacturing (ODM), Original Equipment Manufacturing (OEM) and Plastic Injection Moulding, providing One Stop Solutions to 70+ leading Indian and Global brands. It manufactures a comprehensive range of consumer electroniccomponents and finished products such as colour television (CTV) sets & components, air conditioners (ACs) sub-assemblies, DVD players, water purifiers and Compact Fluorescent Lamps (CFL) for thirdparties.As backward integration, it also manufactures plastic injection moulding and manufacturePrinted Circuit Boards (PCB) assemblies for CTVs, DVD players and CFL. PG has 11 manufacturing units in Greater Noida (UP), Ahmednagar (MH), Bhiwadi (RJ) and Roorkee (UK). The company caters to industries such as automotivecomponents, consumer electronics mobile handsets and sanitaryware.

PGEL specializes in Original Design Manufacturing (ODM), Original Equipment Manufacturing (OEM) andPlastic Injection Moulding, catering to 50+ leading Indian and Global brands. PG Technoplast Private Limited (PGTL) is a wholly owned subsidiary of PG Electroplast which is engaged in the business ofmanufacturing Room Air Conditioners and various components for the Consumer Durables andConsumer Electronics industries. The business verticals in which company operates is showcased below

Investment Arguments

Established market position
The group is one of the leading contract manufacturers/vendors for air conditioners (ACs), washing machines and otherplastic moulding components for white goods the plastic components segment. The promoters’ experience of more than 30 years in the consumer durables industry, the group's established position and their healthy relationships with customers will continue to support the business. PGEL has the capacity to offer product development and manufacturing solutions from designing, tooling to final assembling and testing. Most of the operations are backward-integrated and the processes are carried out in-house. Backward integration gives it the flexibility to control the manufacturing processes and reduce dependence on external suppliers, which has enabled it to become a consistent and reliable ODM supplier and contract manufacturer.

Long – standing relationship with marquee customers

The group supplies to leading brands such as LG electronicsIndia Pvt Ltd, Whirlpool India Ltd, Voltas, Sansui, Honeywell, Hyundai, Daikin, Godrej, Blue Star, Astral etc. It supplies to all the leading players in the washing machine and domestic refrigeration and air conditioning (RAC) market. The group has large product portfolio manufacturing plastic parts for a comprehensive range of consumer electronic products such as air conditioners (ACs), air Coolers, refrigerators and washing machines. PGEL is one of the leading, diversified Indian manufacturing services provider and among the few companies in India specialising in ODM, OEM and plastic injection moulding for the consumer durables industry, thereby providing one stop and end to end solutions to consumer durable brands.

Strong Industry Tailwinds

The Rapid rate of urbanization, growth of young population with rising income levels is leading to largeemerging middle class in India Implying huge potential demand for the consumer appliance and durablemarket in coming years. Low penetration levels, falling prices of durables and electronics and changinglifestyle of the Indian consumer are expected to remain big demand drivers for the consumer durable and electronics Industry in India in near future. Government reforms such as Digital India, Make in India, Power for all and Jan Dhan-Aadhar Mobile Trinity are providing fresh impetus to the Consumerappliance and durable Industry. Further the Government’s initiatives of promoting electronicmanufacturing and treating the industry as one of the key pillars of the Digital India Program, opens newand exciting opportunities for the Industry. The Management is enthused about the overall opportunitysize and anticipates high growth rates in the industry segments where, company has presence.

Q4FY24 Financial Performance

PGEL showcased remarkable earnings growth for the quarter ended Q4FY24 driven by growth across all its key business segments. Consolidated net sales rose 30% YoY to Rs.1077 cr as compared to Rs.827 cr registered in the same quarter of corresponding fiscal. On the operational front, consolidated EBITDA witnessed a growth of 56% YoY to Rs.120 cr. EBITDA Margin expanded by 180 bps at 11.1% YoY. PAT surged 78% YoY to Rs.72 cr led by solid topline growth and robust operational performance.

Other Key Developments

FY2024 has been strong growth period as Consolidated Revenues grew 27.2% and closed at INR 2746.50 crores for the company. This is despite the ASPs falling sharply across the board for all our product categories.
The Product business contributed 60.7% of the total revenues in FY24. Room AC business at Rs.1,317 crores grew 26% during the period while the Washing Machines business had a growth of 20% YoY.
PGEL’s 100% subsidiary, PG Technoplast, crossed Rs.1,456 crores in revenue in its third year of operations. Company’s Bhiwadi AC Unit became operational during the year.
Order book for product business remains robust and the company hopes to accelerate the product business growth in FY2025.
During the quarter and Financial year, operating margins have improved QoQ and YoY due cost control, softer commodity prices and operating leverage.
Net debt has decreased by almost Rs.325 crores in FY24 despite Capex and acquisition of NGM. The operating cash flow during the year has been strong and working capital optimisation remains key focus area for the company.
Company is seeing increased interest for business from new and existing clients, and we remain very confident on the future growth prospects of the business.
For FY25, creating building blocks for next level of growth and improving capital efficiency will be the major priorities. R&D, New Product Development and Capacity Enhancement are the focus areas for future across product businesses. Company plans to strengthen its product offerings further in both AC and WMs.

Key Conference call takeaways

For PGEL, Management has guided for consolidated revenues of Rs.3400 cr, which is a growth of 24% YoY over FY24 revenues of Rs.2,746 cr despite TV business revenues shifting to JV company Goodworth Electronics Ltd.
Management expects Goodworth revenues to be at Rs.600 cr.
Implying Group Revenues is pegged at Rs.4000 cr
PGEL Net profit guidance is pegged at Rs.200 cr which is a growth of 46% over FY24 Net profit of Rs.137 cr.
In FY2025, Management expects EBITDA margins to have slight upward bias.
The growth in product business i.e., WM, RAC and Coolers is expected to be around 44% to over INR 2400 crores from INR 1668 crores in FY2024.
Capex for FY2025 will be in the range of 350-370 crores. New Integrated Unit for Manufacturing RAC in Rajasthan, New Building in Greater Noida and new building along with further AC capacity expansion in Supa is being planned.

Key Risks & Concerns

Exposure to intense competition in the consumer electronics segment:

The domestic consumer electronics market is intensely competitive on account of entry of several large players over the past fewyears, which has affected profitability of most players such as PGEL.

Volatility in commodity prices and currency fluctuation:

Any adverse movement in raw material pricesaccentuate the pressure on profitability because of the players’ inability to pass on cost increases totheir customers.

Outlook & Valuation

PG Electroplast reported an all-round performance in Q4FY24 driven by strong growth across all its business segments. PGEL reported Growth in the product business driven by RAC and strong margin due to operating leverage. PGEL is receiving significant enquiries and commitment for new business across business segments. New customers are shifting from China to India. The company is uniquely positioned in the consumer durable & plastics space in India and would derive higher revenue growth by growing its market share in the customer outsourcing wallet. Management foresees large opportunities in plastic moulding in consumer durables in appliances like a) Washing machines b) Room Air Conditioners c) Refrigerators d) Ceiling Fans and e) Sanitaryware products and opportunities in the ODM space for products like a) Air coolers, b) Washing Machines and Room Air conditioners. PGEL will sustain its growth momentum aided by the emerging opportunities in the EMS space like Strong industry tailwinds, Capital expenditure, strong execution capabilities, new product launches, encouraging guidance from the management, improving operational efficiencies leading to better profitability & higher cash flows, established client relationships and diversified product profile.

The company is pursuing an organic growth strategy by ramping up its existing capacity and capabilities in each of its product verticals to achieve higher value addition, better economies of scale on the back of backward integration. At CMP of Rs.2565, the stock is trading at 29x FY26E. We recommend BUY rating on the stock.

DISCLAIMERS AND DISCLOSURES:

Opulent Investment Adviser Private Limited (hereinafter referred to as 'Opulent') is a SEBI registered Research Analyst (Registration No. INH000007669) and Investment Adviser (Registration No INA000011644) registered under the SEBI (Research Analysts) Regulations, 2014 and SEBI (Investment Advisers) Regulations, 2013 respectively. Opulent prepares and shares research data and reports with clients and investors in compliance with SEBI (Research Analysts) Regulations, 2014. Opulent also offers investment advisory services in compliance with SEBI (Investment Advisers) Regulations, 2013. Opulent is a member of the BSE having Enlistment No 1092 and 5383 for its roles as an Investment Adviser and Research Analyst respectively. Opulent also ensures compliance with other applicable directives, instructions or guidelines issued by the SEBI from time to time.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendation(s) or view(s) expressed in this report.

Opulent has no material adverse disciplinary history as on the date of publication of this report.

Opulent has no holding or position in the subject company as on the date of publication of this report.

Other disclosures by Opulent Investment Adviser Private Limited and its Research Analyst with reference to the subject company(s) covered in this report-:

Research Analysts or his/her relative's or Opulent or its associates does not have any financial interest in the subject company. Also Research Analysts or his/her relative's or Opulent or its associates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the research report. Research Analysts or his/her relative's or Opulent or its associates do not have any material conflict of interest in the subject company. Research Analysts have not served as officer, director, or employee in the subject company. Opulent or its Research Analysts has not been engaged in market making activity for the subject company.

Opulent or its associates in the last twelve month has not:

received any compensation from the subject company;
managed or co-managed public offering of the securities for the subject company; and
received compensation for investment banking or merchant banking or stock broking services or for any product or other services from the subject company

Opulent or its associates have not received compensation or other benefits from the subject company or any other third-party in connection with this report.

Our salespeople and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein.

Opulent holding in the subject company: Nil

TERMS AND CONDITIONS

This report is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. The report and information contained herein are strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of Opulent.

The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The source of the data is from ACE Equity. The information is obtained from publicly available media, Company website www.pgel.in or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. Opulent will not treat recipients as customers by virtue of their receiving this report.

DISCLAIMER

Explanation of Investment Ratings
Expected return (over 12-month)

BUY: >=10%
HOLD: <-10%to +10%
SELL: <10%

A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com.

Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient's specific circumstances. The securities and strategies discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient.

This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions, including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors.

Opulent, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

Opulent and its affiliated companies, their directors and employees may; (a) from time to time, have long or short position(s) in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities or earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or investment banker, lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting this document.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Opulent to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors.

General Risk Factors
An indicative list of the risks associated with investing through the services is set out below:

Equity and Equity related Risks: Equity instruments carry both companies specific and market risks and hence no assurance of returns can be made for these investments.
Price/Volatility Risk: Equity Markets can show large fluctuations in price, even in short periods of time. Investors should be aware of this and only invest in equity or equity-related products if their investment horizon is long enough to support these important price movements.
Clients are not being offered any guaranteed/assured returns.
The value of the asset may increase or decrease depending upon various market forces affecting the capital markets such as de-listing of Securities, market closure, etc. Consequently, we make no assurance of any guaranteed returns.
Our past performance does not guarantee the future performance of the same.
Investment decisions made by the Investment Adviser may not always be profitable
Not following the recommendation or allocation may impact the profitability of the Portfolio.
System / Network Congestion: Recommendation communicated via electronic modes i.e. Email exists a possibility of delivery failure, which may be beyond our control.

SEBI Registered Investment Adviser Details:
Registered Name: Opulent Investment Adviser Private Limited Type of registration: Non-Individual
Registration No.: INA000011644 | Validity: Sep 06, 2018 - Perpetual

Opulent Investment Adviser Private Limited:
Office No.61, Maker Tower E, G D Somani Marg, Cuffe Parade, Mumbai-400005
Telephone: +91 22 6639 3000 | Email: research@stockaxis.com | rincipal Officer: Vrushali Jadhav,
Email: principal.officer@stockaxis.com | Telephone: +91 22 66393000

SEBI Office Details:
SEBI Bhavan BKC, Plot No.C4-A, 'G' Block Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra
Tel: +91-22-26449000 / 40459000 | Fax: +91-22-26449019-22 / 40459019-22 | E-mail: sebi@sebi.gov.in | Toll-Free Investor Helpline: 1800 22 7575