5 days ago
New Delhi-based PG Electroplast remains confident about meeting its revised guidance for the financial year ending March 2026, Managing Director Vikas Gupta said in an interview with CNBC-TV18.
The company expects net profit of around ₹310 crore for this financial year ending March 2026.
Gupta dismissed concerns that one poor summer season could alter the company’s long-term prospects. He expects inventory levels to normalise by October–November as it prepares for its peak production months starting in November.
“We start ramping up our production in November and December, and the brands also start picking up the inventory from our factories,” he said, adding that the company’s long-term outlook remains intact despite a weak summer season.
He also clarified that there is no plan for a share buyback at present.
The company, which has a current market capitalisation of ₹14,546.83 crore, has seen its shares gain more than 16% over the last year.
These are edited excerpts of the interview.
Q: The guidance cut from you came as a big shock to this market, as you can well imagine. Because, even at the end of the previous quarter, there was enough indication that the AC season was going to be weak. We heard it from OEMs that we speak with. We heard it from others as well that generally things were looking a little weakish. The season was not going to be all that great, but we've heard it from you after the quarter ended, so let's just start there. What happened?
A: I'll try to first answer the question on quarter one head-on, as that is a more important thing. Everybody was expecting that the overall AC sales would rebound in June and July. We were operating at more than full capacity in April and May. And so it was looking like the momentum was going in our favour. But as the channel inventory built up, and there was no rebound in AC sales, the secondary sales of ACs in July and August, as we are seeing now, we had to revise our guidance accordingly.
Q: If you allow me to ask you this, and you've been in the business for so long. But in general, the peak months, where the best offtake for ACs happens, are much earlier. February, March are when people start buying to build up for the summer months. If anything, June and July usually are not the peak season, isn't that so? So, how is it that you didn't see this building? Because from fan makers to cooler makers to AC makers, Blue Star, Crompton - everybody was telling us that it's a weak summer and to expect a sluggish quarter one. So, how did you not see it?
A: Let me clarify on that. If you look at the peak months for production for a company like ours, they start, in fact, in the months of November and December. So we start ramping up our production in November and December, and the brands also start picking up the inventory from our factories. The channel partners also start picking up the inventory, and that's the primary sales which start happening in January, February and March. So there is a lot of anticipation in the channel and in the industry that the sales will be good. So that's why everybody built up the inventory for that.
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As we progressed in May, we were hoping that the market would improve, and the demand would improve. We had the order book, we had the forecast from our brands, our customers, and it was quite robust, and we were building on it, and we believed those numbers. We went ahead with those production numbers. It was only later in June that we saw that the secondary sales were not picking up, and the channel inventory was becoming huge. That's when the demand from the brands fell off the cliff for us, and we realised that we were sitting on huge inventory.
Q: March 25 promoter shareholding, 49.37% as on the Bombay Stock Exchange. End of June quarter, promoter shareholding, 43.72%. So when people tie this together, they're saying, “What is this? Why weren’t we given an advance warning?” So many companies do business updates. You could have given an early indication. Could you not have done that? Was that a miss?
A: Yes, the optics and the timing look like that, and it is unfortunate that it is looking like that. Please understand, as I told you earlier, in May also, we were operating at more than our capacity. The sales were looking good. And, the block deal that the promoters did does not change our outlook on the business.
The long-term outlook on the business remains intact. And we also did the QIP - we raised ₹1,500 crore from investors in December 2024 - so we are already working on the capex guidelines that we have given earlier. We are building on our new product diversification. We are working on the new launch of product platforms. We are building up new capacities, so the long-term story of the business remains intact. It cannot be impacted by one single weak summer.
Q: You have created big wealth for investors over the last five years. The problem is, what has just happened? So let's get a couple of those questions out of the way. You have guided for a net profit of around ₹310 crore for this fiscal. Is there a downside risk to that number?
A: As of now, we do not see any downside risk to that number. The margins are getting impacted, but as of now, we do not see any downward risk to that.
Q: Even after this correction, you're still at ₹15,000 crore of market cap, which doesn't make the stock look very cheap. So that's why investors will be fretting if that ₹310 crore net profit guidance will be missed. You're saying no, as of now, right?
A: If you've seen the history of the company, we have always tried to outperform the guidance.
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Q: Your promoter holding from around 65% because of dilution and the QIP, because of the block deal, has come down to 43% now. Analysts will say this and that, but the promoter is the best analyst on a stock, and if he's going to back up the stock, then it's going to be important. Since this sort of untoward event has happened, would you consider buying 1-1.5% to give some confidence to the shareholders? Because currently, all those marquee names are fretting a little bit. They're saying Mr. Gupta was promising us big growth, and that has not taken place. Wouldn't that be an option?
A: As per the block deal filing terms, we are not allowed to buy for a period of six months. So given an opportunity, we would like to participate.
Q:
Exactly, so that's my next point. Then six months down the line from that May 26 when you sold that block, will the promoter entity try to come in and increase their stake? Because as of now, there's no visibility. Quarter one has been an absolute howler. You've gone ahead and cut your guidance. The next two months will be plagued by discounts and heavy inventory in the system. So, probably, post this cooling-off period, Mr. Gupta and family could come in and increase their stake?
A: We will participate when the time and the rules permit. We will look at that opportunity also.
Q: Where would you want your stake to be? It's just a question of confidence. Like Nigel said, your stake has come down from the 60s to now 43–44%. When this window opens, where do you want your stake to be in your company? How much equity do you want to own?
A: I don't feel that we are sitting at a small stake in the company as a promoter family. Look at our peer group - we are sitting very decently at the stake that we have in our company. And as I told you, we are fully committed to this.
Q: When you met investors in May for the promoter stake sale, you're saying there was no indication at all of the fact that this was coming, and all this happened in June?
A: I told you what happened. We were already running full steam in April and May, and in June as well. We were hoping that the recovery of demand would happen. It didn’t happen that way.
Q: By when will this return to normalised inventory?
A: For us, the normalised level of inventory is almost one month’s production. So we feel that by October or November, we should be normalising the inventory levels to that. We already have some indication from the customer for the coming season. We are working with them to see how to recover the situation.
Q: Could you give us a sense of margins as well - a 125 to 150 basis point cut in margin guidance? What levers do you have?
A: Currently, the margins have been impacted. There are broadly three factors that have impacted the margins. First is the finance cost - with the kind of inventory that was there in the system, the whole working capital was tied up, and we had to use a lot of discounting and factoring to manage our cash flow. Secondly, the AC season is highly seasonal - profitability is highly seasonal.
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We usually make our money in the peak months, then we have to manage our fixed costs during the lean months. But in the current year, as the summer season shortened and sales fell off, the number of lean months has gone up. That has an impact on the margins, where the operating leverage turns against us. Thirdly, the input costs have also gone up - the dollar exchange rate and copper tubing have had an impact on the margins as well.
Q: Will you maintain your shareholding when the regulatory window opens up again?
A: When we did our QIP of ₹1,500 crore, our shareholding went below 50%. In our family, there was a lot of discussion on whether we should lower our stake below 50% or not. But we had to see what was good for the company and how we could grow our company. Even if that required us to dilute below 50%, we went ahead and did that. The equity holding of the promoters - whether 43%, 45% or 47% - does not make any difference. The commitment of the promoter family towards the business is more important.
Q: Would you maintain it at least 44%, could it go down, or would you want to go up towards the 50% mark?
A: The intent of the promoter family is clearly to look at how to grow the business. We will be engaging with our long-term investors, meeting them in the coming days, and reassuring them about how the business is going to play out in the coming months and years. One weak summer cannot define the destiny of the company.
Q: What about the compressor facility? The deadline has been pushed numerous times. Which quarter onwards do you expect things to start moving ahead?
A: For the compressor project, we acknowledge that it has been delayed. But from our side, we have done our bit. We have constructed the building. We are ready with that. We have already evaluated all the RFQs for the equipment of the plant and machinery that we need to buy. We are just waiting for certain approvals. Our Chinese partner is waiting for certain approvals at their end. As soon as they come, we will be placing the orders for the equipment. Timelines have been pushed again, so we are hoping to have clarity from our partner in October.
Q: So, FY27 is the safer timeline?
A: FY27 looks better.
Q: Has something caused demand to crater like this?
A: If you look at last year, when the demand went through the roof, nobody could anticipate that either. There was talk in the market that there was a shortage of inventory in the channel, and there was a lost opportunity of more than 1–2 million ACs because of that shortage. It is very difficult to anticipate. But there is still a lot of impulse buying of air conditioners in India, and when there are longer dry spells, people tend to buy ACs. That may change over time. But the long-term story for this business looks very robust. We should not define this business based on a single summer.
Q: Will you consider a buyback?
A: The current capex is already going ahead, so there is no scope for a buyback that we are looking at. We are building our capabilities. We are not stopping here.
Watch the interview in the accompanying video
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