Epack Durable Ltd Q4 FY2026 Concall Summary

Key Takeaways

• A brutal year, but the worst looks over: Revenue fell 12.7% YoY in FY26 as the RAC industry was hit by unseasonal weather, inventory gluts, and BEE norm transitions. Management now points to a strong demand recovery from mid-April and expects a very strong Q1 FY27.
• PLI reversal wiped out recognized profit: A ₹32.42 crore reversal of accrued PLI income in Q4, driven by an anticipated shortfall in incremental revenue growth, crushed reported margins and is a key reason the company will be "extremely careful" before recognizing any future government incentives.
• Non-AC segments are the new growth engine: The SDA/LDA segment grew ~53% YoY and the component business grew ~50% YoY, helping offset the RAC decline and improving the asset turn outlook.
• The Hisense bet is now live: The dedicated Hisense facility became operational in late March, with AC production scaling up. This, plus a new Greenfield facility, forms the backbone of the ₹5,000 crore medium-term revenue ambition.
• What to watch next quarter: Whether the promised Q1 volume growth of 15-20% materializes, the pace of inventory normalization from the elevated ₹837 crore level, and any clarity on PLI recognition for the final scheme year.

The PLI Shock & Margin Reality

• PLI reversal mechanics: The company accrued PLI benefits in the first nine months following past practice, but reversed ₹32.42 crore in Q4 after realizing a sales shortfall would prevent hitting the required 5x incremental revenue growth on applicable components. The investment and CAPEX criteria were met, but revenue growth is still being evaluated with authorities.
• Reported vs. normalized margins: Management contested an analyst's claim of a 700 bps YoY gross margin decline, attributing the apparent Q4 dip entirely to the PLI reversal, which is a 100% material margin item. Net of this, they stated gross margins were largely consistent across all four quarters.
• Normalized margin expectation: The company expects a normalized gross margin of 13-14% and EBITDA margin of ~7%, with any PLI or state incentives (like the Rajasthan TLI) to be recognized above that baseline. Margins should improve gradually as capacity utilization rises, especially at the Hisense facility.
• Short-term pressure persists: A lag in passing on commodity and FX price increases to customers may cause some stress on margins in the shorter term, with Q1 FY27 margins still showing a YoY lag versus Q1 FY26.

Ajay DD Singhania: "During the first three quarters, the company had done the proper, as we have been following the practice in the previous years as well, the company had been following the same practice and recognized the benefits as being achieved. Whereas in end of the Quarter 4, we realized that due to the sales shortfall, there is certain anticipated fall in achieving the incremental revenue growth."

RAC Industry: From Glut to Growth

• FY26 was a demand disaster: The RAC segment declined ~25% YoY in Q4, with full-year capacity utilization crashing to ~20% from 45-50% previously. Unseasonal weather, elevated trade inventories from the April-June 2025 period, and the BEE norm transition combined to force heavy industry-wide discounting and promotional intensity in H2.
• The inventory overhang is clearing: Elevated channel inventory, a pain point for 12 months, was largely liquidated by February-March. The company's own ₹837 crore inventory at year-end was driven by compressor stockpiling ahead of a BIS expiry in mid-April, not finished goods awaiting BEE clearance. Management confirmed no old BEE-rated inventory remains with the company.
• Q1 FY27 tailwinds are strong: From mid-April, real sale-in and fresh manufacturing orders have been pouring in. The industry expects ~15% growth in Q1, and EPACK anticipates 15-20% volume growth in RAC, supported by a ~15-20% price hike already taken.
• Compressor supply secured: Inventory covers production through June/July, and a government circular (May 8) allowing imports up to ~30% of FY24 quantities, plus domestic capacity, is expected to suffice for the next season. Management ruled out entering compressor manufacturing, calling it too technically complex for any Indian player to attempt alone.

Ajay DD Singhania: "One of the very key components which goes into our product and is currently largely import dependent is compressor for which the BIS was expiring in second week of April. Hence, to keep manufacturing for the entire season and the peak season of April, May, June, Q1 of this year, a lot of inventory has to be created since the local ecosystem is not or the local manufacturing capacity is still not enough to meet the industry demand."

Diversification Payoff: SDA, Components & Customers

• SDA/LDA segment surges: Revenue grew ~53% YoY, supported by healthy order inflows across existing and newly launched products. Air Fryer demand remains particularly encouraging. A front-load washing machine is under trial, with production expected by mid-Q2.
• Component business scales: Revenue grew ~50% YoY, driven by increasing localization requirements and deeper customer integration. Strong opportunities are seen in heat exchangers, injection molded components, PCBs, and copper components.
• Customer base broadening: The company added 5 new customers in Q4 (supplies commenced) and 17 in FY26, taking the active customer base to 72. New additions include 5 large multinational cooling appliance customers, with the rest among the top 10 SDA players.
• Non-AC revenue jump: A ~50% increase in non-AC segment revenue is improving the asset turn outlook, with a medium-to-long-term target of ~4x versus the current level above 3.2x.

Strategic Partnerships: Hisense & Epavo

• Hisense facility goes live: The dedicated 7 lakh capacity plant, operated through wholly-owned subsidiary EPACK Manufacturing Technologies, became operational in the last week of March 2026. AC production for Hisense-design products has commenced and is scaling up, with supplies to Hisense for both India and export markets (Middle East, Africa).
• The deal structure: All investments in the manufacturing facility have been made by EPACK Durable, with a tech transfer arrangement where tools and designs come from Hisense. Management describes it as a strategic tie-up, not a traditional JV.
• Product roadmap: After ACs, the company plans to increase penetration with top-load and front-load washing machines in Q2 and Q3, then subsequently add more products. The facility is currently at an extremely low utilization level, offering significant operating leverage as it scales.
• Epavo JV ramp-up: Losses doubled in FY26, but a new Greenfield facility in Bhiwadi became operational at the end of Q3 and started mass production in January. Q4 revenue and scale-up were described as "extremely encouraging," and management is confident the JV will turn profitable from FY27-28 onwards.

Ajay DD Singhania: "Relationship with Hisense, we can call it like a strategic tie-up, wherein all the investments in the manufacturing facility currently has been done by EPACK Durable. And this facility currently is more of, let's say, a tech transfer, wherein the tools and designs have come to us and the investment has been done by EPACK Durable solely."

Balance Sheet & Incentive Watchpoints

• Working capital strain: Inventory of ₹837 crore reflects pre-stocking for the peak season and BIS-related compressor buildup. Trade payable days increased proportionally with inventory days. Management expects inventory to normalize by the end of the current quarter to levels seen in similar quarters of previous years.
• Debt trajectory: Near-term debt will remain around ₹700 crore, with some term loan repayments offset by increases tied to the ₹170-200 crore CAPEX plan for the next 9-12 months. This CAPEX is directed at ramping up capacities in Bhiwadi, Sri City, and newer product categories.
• Rajasthan incentive recognized: The company recognized ₹21.78 crore under the Rajasthan Investment Promotion Scheme 2024 for Phase I investments, based on management's assessment of compliance. The turnover-linked incentive on these investments is applicable for the next 10 years, with further phases under evaluation.
• PLI caution for FY27: For FY26-27, the final year of the PLI scheme, management will be "extremely careful" before recognizing any incentive and will wait for confirmed intent from agencies. The total FY26 PLI eligibility was ~₹56.5 crore, of which only ₹21 crore was recognized.
• Auditor qualification: The auditor issued a qualified opinion related to a disputed trade receivable of ₹19.61 crore from customer Gangnam. The matter is sub-judice, and management believes the receivable is good with a strong chance of recovery.

Ajay DD Singhania: "We will doubly ensure, that the path to achievement is sure."

Guidance & Commitments

Key Metrics