PG Electroplast - Robust Guidance Intact: Systematix

Systematix Research Report

We hosted the management of PG Electroplast Ltd. at our investor conference. the management remained confident of achieving 50% YoY growth in FY24 in the room AC business on the back of new customers addition (20 from 14 in FY23) while the RAC outsourcing industry is likely to see flattish numbers due to greater in-house manufacturing by Lloyd and Voltas Ltd.

Total revenue is expected to touch Rs 28 billion in FY24 (up 30% YoY), led by 43% rise in the product business (washing machine, RACs, Coolers; likely revenue of Rs 19.2 billion), which would contribute to 68% of revenue (44%/62% in FY22/FY23).

It sees large opportunity in the consumer electronics vertical. A 50:50 joint venture with the Jaina Group will be to manufacture Google certified LED TVs.

Its WC cycle is expected to improve (by 10-12 days) gradually with shift in sourcing from China to domestic vendors. While operating margins across segments may remain stable, a change in the mix could limit overall margins.

A Rs 1.8 billion capex (funded via operating cash flows and recently concluded Rs 5 billion QIP) will be mainly on RACs (to double capacity) and backward integration.

Capital allocation remains the key focus. We expect 29%/30%/ 35% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-25E. The recent Rs 5 billion QIP will limit return on invested capital to ~17% in FY25E with scope of improvement.

While the positive outlook is intact, we expect moderate return in its scrip at ~35 times FY25E price/earning.

Maintain 'Hold' with Rs 2,342 target price (35 times FY25E P/E).

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