PG Electroplast Ltd

NSE:PGEL

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to the PG Electroplast Q1 FY '26 Earnings Conference Call, hosted by Axis Capital Limited.

This presentation has been prepared for informational purposes only. This presentation does not constitute a prospectus offering circular or offering memorandum and is not an offer or initiation to buy or sell any securities, nor shall part or all of this presentation from the basis of or to be relied or in connection with any contract or investment decision in relation to any securities.

This presentation contains forward-looking statements about the company, which are expressed in good faith and in management's opinion, are reasonable. The forward-looking statements may involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, financial condition, performance, or achievements of the company or industry to differ materially from those in forward-looking statements. Those forward-looking statements represent only the company's current beliefs, intentions or expectations.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Deepak Agarwal. Thank you, and over to you, sir.

[Deepak Agarwal, analyst]

Thanks. Good afternoon, everyone. On behalf of Axis Capital, I welcome you all to PG Electroplast Q1 FY '26 Earnings Con Call. Today, we have with us management represented by Mr. Vishal Gupta, Managing Director, Finance; Mr. Vikas Gupta, Managing Director, Operations; and Mr. Pramod Gupta, Chief Financial Officer.

Without taking much of time, I will hand over the floor to the management for their opening remarks, post which we'll open the floor for Q&A. Thanks, and over to you, sir.

[Vishal Gupta, executive]

Thank you. Thank you, Deepak. Good afternoon, everyone. Thank you for sparing your valuable time and joining this call today. Hope all of you are doing well.

Let me start by saying that, this quarter was softer than what we have expected. We have just come off a year of very strong growth, strong demand and strong execution. And naturally, we were confident heading into FY '26, and our guidance reflected that optimism. But what changed quite quickly and unexpectedly was the weather. The monsoon arrived earlier than usual, and the room AC season ended abruptly.

Sellout in the trade channel was lower than forecasted and inventory levels stayed higher for longer. In hindsight, we weren't fully prepared for that kind of shift in this quarter. Given this and the visibility we now have for the next couple of months, we have recalibrated our guidance for the full year. We believe this is a responsible thing to do to stay transparent and aligned with where the market is today.

That said, it's also important to look at what didn't change. Our room AC business still grew 15% Y-o-Y basis in this quarter despite the season cutting short, washing machines grew by 36% with strong volume growth from new platforms. Our new plant in Bhiwadi is already ramped up now. Our order book is healthy.

We are expanding capacities in RACs, washing machines and coolers and client engagement across larger and emerging brand remains strong. FY'26 is now likely shape up to be a more measured year, and that's fine. We will use this time to consolidate, focus on operational levers and execute our platform and capacity investments with more discipline.

These are the foundations we need to get in place for the next phase of growth. We remain confident in the long-term opportunity in India's consumer durable market and in PGM's positioning to be a key enabler in that space. Our focus remains unchanged to scale profitability to stay capital efficient and deliver consistent value to our stakeholders.

With this now, I will hand over the call to my colleague, Mr. Pramod Gupta, our CFO, to elaborate on the financials.

[Pramod Gupta, executive]

Hi. Good afternoon, everyone. I'm sure all of you have seen the financials in detail already. Thank you, Vishal ji, for giving the introduction.

Let me take you through the numbers for quarter 1. Consolidated quarterly revenue stood at INR 1,504 crores, which is a 14% increase over Q1 last year. Of this, the product business contributed 1,159 crores or 77% of the total revenue.

AC business contributed INR 1,015 crores, a growth of nearly 15% and accounted for around 68% of the total revenue. Washing machines were up 36%. Cooler sales were slightly lower on account of the cotton season. Our 100% subsidiary, PG Technoplast reported revenues of INR 1,211 crores during the quarter.

Coming to the profitability. EBITDA for the current quarter stood at INR 139 crores and it was up 3.5% year-on-year. Net profit was at INR 66.7 crores compared to INR 84.9 crores in Q1 '25. The drop in net profit is mostly due to negative operating leverage from AC volumes, or planned AC volumes and some input cost pressures. Due to the abrupt end of the season, we were left with high inventory levels this quarter. To manage our cash flows, we had to get a lot of our receivables discounted, which led to an additional outflow of almost INR 20 crores of financing cost.

Our overheads remained high during the quarter as we got caught off guard. We are working on optimizing our overhead costs. From a balance sheet standpoint, the company remains on a strong footing. We have cash and equivalents of around INR 911 crores and return on capital stands at 25.2% on a trailing 12-month basis. Our fixed asset turn remained healthy at over 5x.

Now, coming to the revised guidance. For FY '26, we expect PGEL stand-alone revenues to be in the range of INR 5,700 crores to INR 5,800 crores. Net profit is expected to be between INR 300 crores to INR 310 crores. At the group level, including our joint venture, Goodworth Electronics, we expect consolidated revenues of INR 6,550 crores to INR 6,650 crores in sales.

We have also pushed our CapEx plan -- some of our CapEx plans to next year. We are continuing with our investment in Greater Noida, Supa, Rajasthan and South India with FY '26 CapEx to be between INR 700 crores to INR 750 crores, down from INR 800 crores to INR 900 crores planned earlier. As always, we are watching market trends closely, and we will adapt if needed. But our long-term investment, operating model and growth priorities remain unchanged.

With this, I'll be happy to take any questions. Please open the floor for Q&A.

[Operator]

[Operator Instructions] We take the first question from the line of Saumil Mehta from Kotak AMC.

[Saumil Mehta, analyst]

Sir, 2 questions from my side. Now obviously, this season is going to be weak. But in terms of our discussion with the larger clients, what sort of pricing actions are being taken? Have they asked for a better pricing for us given they themselves are under stress? And in that backdrop, how should the overall margin profile look for the upcoming season for us? That's my first question.

[Vishal Gupta, executive]

So, I will tell you, right now, pricing is not being discussed. Right now, there are so many other issues which are being discussed with the clients because the kind of inventory what we have accumulated for our clients and those materials have not been taken by them. So, we are discussing those things right now.

Pricing things are not in discussion right now, because even if you are able to offer some discount, there is no demand for the material because the channel is totally choked up with the inventory. So that is something which is not being discussed right now. Margin profile will remain under pressure. That is why the guidance has been revised because we believe that there might be some pressure on the pricing. That is why we have factored in those things in our guidance.

[Saumil Mehta, analyst]

And is there any early indication of cancellation of orders? And if yes, will it come from the larger clients or midsized clients? Any rough indication or estimates what we are projecting for this year?

[Pramod Gupta, executive]

See, what happened was -- there are lot of cancellations happened for the month of June, July and August. In fact, all the plans which were there, they were canceled to the tune of 50% to 70% across most of the clients for the months of June, July and August. And the situation for the next year or the next season, we will get to know only post September or maybe sometime in mid-October because by that time, the whole industry is expecting that there will be some reduction in the channel inventory and then they'll be able to plan for the next season.

Right now, most of the brands as well as consumer contract manufacturers are actually slowing down the production and that to probably get rid of the inventory in the channel and the inventory that they have for the finished good. Because this year, there is an inventory -- there is a rating cycle change. And the current inventory, which people will be having, especially the brands and the contract manufacturers will be difficult to sell post January 1.

[Saumil Mehta, analyst]

Sure. And my last question, any update on the compressor tie-up? We were going to announce that very soon at what stage of negotiation that is? And ballpark, any change in economics from where we were earlier looking for that JV? That's my last question.

[Vishal Gupta, executive]

So as far as the economics is there, there is no change. But there is some delay in the -- getting some clearance from the governments on this -- especially from China government on this project. So, we are just waiting for that. There has been a delay, but in next 1 or 2 months, we will have some more clarity on this.

[Operator]

We take the next question from the line of Vishal Dudhwala from Trinetra Asset Managers.

[Vishal Dudhwala, analyst]

So, can you throw some light on your refrigerator business in upcoming this year, like installed capacity or utilization or the expected revenue contribution plus any signed clientele for this?

[Vishal Gupta, executive]

Vikas, you will be there?

[Vikas Gupta, executive]

We are in advanced discussion with our clients, and we are in process of acquiring a land parcel in Southern India. We should be able to finalize that within this month. And we have already onboarded a team for development of the complete project.

So, the time line for that project will be tentatively take almost around 12 to 14 months from now to start the mass production. So, the revenue will start kicking in, and it will have numbers that will accrue in the FY '27 only. We are in active discussion with the clients, which are already our common clients in our air conditioner business as well as in washing machine business. So, we have an overlap of clients there, and we are confident that we should be able to tie with one significant client in coming days and weeks.

[Vishal Dudhwala, analyst]

Okay. And the second thing, can you just tell us how much expectation in expansion of the RAC air cooler and washing machine capacity?

[Vishal Gupta, executive]

So.

[Vikas Gupta, executive]

Vishal I'll…

[Vishal Gupta, executive]

Please continue.

[Vikas Gupta, executive]

So, in RAC, the capacity expansion has been a little bit curtailed, but the land and building where we have already started the CapEx, we are not holding back, but some plant and machineries orders have been held back, and we are -- we'll closely watch the season, how this 2023 season will pan out. After that, we'll decide whether we have to further expand the capacities or not.

In case of washing machines, in case of washing machines, we are seeing a robust growth, and we are further expanding our capacity in washing machine. And so we will make our capacity -- we'll take it to a level of more than 2 million washing machines in the current financial year.

[Vishal Dudhwala, analyst]

Okay. And what about the air coolers?

[Vishal Gupta, executive]

Air cooler also, sir, this year season has been quite muted. So, we already have enough capacity for that. And creating capacity for air coolers, the lead time is very less. So, I don't see major challenge. Whenever there is demand, we can ramp up the capacity very fast in air cooler.

[Vishal Dudhwala, analyst]

Okay. And one last question on the costing side, like AC costing and how much they have inventory in the costing of inventory?

[Vishal Gupta, executive]

Sorry, I didn't get your question. Can you repeat?

[Vishal Dudhwala, analyst]

So question is like about the AC costing. Question is about of AC costing.

[Vishal Gupta, executive]

Right. What was the question? Can you repeat your question, please?

[Vishal Dudhwala, analyst]

Okay. The unit economics of your inventory about your AC?

[Pramod Gupta, executive]

We don't have any finished good inventory. Large part of the inventory, almost 97%, 98% of the inventory is actually the raw material for the making AC. We don't -- actually, everything is built to order. So basically, depending upon the order from the brands we make and they are typically -- we don't keep inventory of more than a week or so. So right now, we do not have much finished good inventory. It's largely the raw material inventory, which we have.

[Operator]

[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie India.

[Ashish Jain, analyst]

So, my first question is, like some of the comments you made in terms of your AC capacity expansion we are putting on hold and all this seem like quite serious comments, right? Because we are building business for the next 3, 5, 10 years and one bad season, and we are revisiting or even pushing out our expansion. So, can you just talk a bit more about that? And secondly, I think earlier, we made a comment that we had to do some better discounting for cash management and also -- sorry, I hope I heard it right. But can you just elaborate a bit more on that as well?

[Vishal Gupta, executive]

So, first question, I will take. Second question, Pramod will answer. So, I will tell you, as I told earlier in the call, we are not holding back our creation of extra land parcels and creation of buildings where the lead time is much higher. Plant and machinery lead time is 4 to 6 months. So, whenever there is a requirement that can be always taken in 4 to 6 months lead time, you can manage the capacity. The longer lead time is the land and the building, which we are not putting back those investments. And cash flow -- so in order to conserve also cash flows, we have tried to conserve some -- pull back some CapEx in order to conserve cash flows also. Second question.

[Pramod Gupta, executive]

Coming to management of cash flow. See, we had already ordered inventory for the season, which was based on the ordering from the clients. But as in the months of May, June, July, we saw that the orders were not getting canceled. Basically, orders were getting canceled, and we were not able to convert that, but we had to pay the payables basically to the vendors. So, what we did was basically whatever sales we had and we started getting those discounted from the bank to pay to the -- basically our vendors. And that has actually led to some additional costs because we are having a lot of raw material inventory.

If you see the balance sheet, which has been given on the presentation, this year, we are carrying close to INR 1,300 crores of inventory vis-a-vis last year, INR 1,356 crores, out of which almost close to INR 1,200 crores inventory is in AC business. And last year, the same number was only INR 368 crores. So, INR 1,000 crores of additional inventory we are carrying. And that actually led to our cash flow getting a bit strained because we have cash, but that cash is for a very specific purpose because of the CapEx plan, which we have and the objective of the QIP issue, which we had taken.

[Ashish Jain, analyst]

Sir, this inventory number is as of June, you are saying the INR 1,350-odd crores inventory.

[Pramod Gupta, executive]

Pardon?

[Ashish Jain, analyst]

The inventory number you said is as of June this year or March you're saying?

[Pramod Gupta, executive]

No, I'm saying June this year, June this year.

[Ashish Jain, analyst]

And secondly, on the customer side.

[Operator]

I would request you to go back to the queue as there are several participants waiting for their turn. We take the next question from the line of Aman Soni from Nvest Analytics Advisory LLP.

[Aman Soni, analyst]

Sir, continuing with the previous participant, we are pushing our investment plan to the next year. But what I am understanding is because you mentioned it is mainly because of the monsoon season, right? So, it should be a temporary thing kind of. So, in this case, if we are shifting our CapEx, so there must be some strong reason for it. So are you people witnessing any kind of change in the customer sentiment which are getting affected as the cascading effect of the global headwinds, which we are witnessing right now? Is that the core which is resulting in the shifting of the CapEx? So that's my first question.

[Vishal Gupta, executive]

So first of all, let me tell you, as I told earlier in the call, we are very confident about the long-term and medium-term potential of consumer durables business in India. There is no issue in that.

Coming back to your point, so as I explained, we are already going with the CapEx. The earlier CapEx guidance was around INR 900 crores, which has been scaled to INR 700 crores to INR 750 crores. So there is not a very big cutback in the CapEx. CapEx is happening. Some plant and machinery orders are being delayed to next year and the compressor project, which was planned was supposed to happen this year, we are estimating it might slip into the next year, right? So that is why there is some revision in the CapEx guidance. We are very confident about the long-term and the medium-term potential of this business because the penetration of the products where we are operating is very low in India.

And second point, see these 2, 3 quarters will be little soft, but going after that we see a very strong growth happening again in this business, at least 2 quarters we look maybe up to November, December we might see some softness up to November after that, I think we are going to see a strong pickup, very strong pickup.

I will just explain to you one thing April we saw 70% growth on a month Y-o-Y basis, for the month of April. May, we saw a growth of around 18%. But June and July has been down by 70% Y-o-Y degrowth is there in June and July. So, see how abrupt is the -- how volatile is the behavior right now. So, we have to -- see, we are carrying very large inventory so we have to be – we have to turn cautious right now, we have to be careful now, sir.

And but let me assure everyone we are fully geared up and fully prepared for any growth. We are very much focused on that, and the idea is to keep our focus on capital efficiency also. We are already carrying a lot of inventory. So, we have to be very careful now.

[Aman Soni, analyst]

Understood. And you also mentioned about the price erosion thing and that is why we are estimating it in our margins as well. So, I want to understand more towards it. Like is it because of -- we have to clear our inventory? Or is it like we are seeing more of raw material kind of inflation? Or -- and by when -- like you mentioned after November, there will be a pickup in demand. So, do you see like margins will also start picking up from them?

[Pramod Gupta, executive]

See, the margin picture will become clear as the new season negotiations start. Right now, the new season negotiations have still not begun. Most of the people and brands are still busy with the last season inventory and the inventory in the channel. So, we, as a cautious sense are saying that pricing is likely to be under a little pressure, but we don't know exactly how the situation is going to pan out. That will totally depend on the channel inventory and the inventory with the brands till the new season negotiations begin.

[Vishal Gupta, executive]

I will further add to one more point. So as we told that June, July has been very soft. So AC being a seasonal business, the only thing which matters is how many months -- which months you make money and which months you try to bleed very less. So what we feel this year, those months where we will have a little soft financials, those number -- those months will be a little more. That is why that guidance has been revised accordingly for that.

[Operator]

We take the next question from the line of Achal from Nuvama Institutional Equities.

[Achalkumar Lohade, analyst]

Sorry, I'm just harping on this industry part. If you could give us a broad sense about the industry from Jan to June, because what is happening is the March quarter was phenomenal and the June quarter has been a bit weak. So, if you could help us understand Jan to June, how the industry volume would have been? How much would have been the outsourcing percentage? And how have we done on the Jan to June period in terms of volumes growth? If you could help us understand that part first?

[Pramod Gupta, executive]

See, industry did very well from -- up till April, actually, although there was a bit of a weakness in the Southern market because this year, southern market never picked up. But as per our understanding, industry was still growing very well till April. And overall, the sales to the channel were very good in the sense that the probably industry basically brands sold almost close to 20% to 25% growth they posted in the month of January, February, March and April.

But then from April, mid or April end, things have started becoming slower. And May was a bit of a very bad month because towards the end of the May only, the monsoon covered the whole country. See till actually May 20 also, the sales in North India were pretty decent and North and West were doing okay, then Southern and East never picked up this year. So, there was a bit of a slow response on those markets. But post-May, I think everything has just collapsed because the channel inventory is high and out sales from the channel was very slow in the month of June and July. And that started reflecting on the sales from contract manufacturers to the brands, and it is now getting reflected in the numbers also.

Although, I will say still that the contract manufacturers have still now posted better numbers, probably the growth for the AC business, AC will it fully built AC or as we call finished good ACs have been still in the -- even in the quarter of April, May, June is positive to the tune of 10% to 15% by the contract manufacturing industry. But the brands have mostly posted a negative or a decline from last year, anywhere between 10%, 12% to 30% till now. I think we will have to watch out for the quarter ending September and maybe December and how the inventory actually reduces is going to be important.

[Achalkumar Lohade, analyst]

Understood. Sir, again, I'm going back to the question in terms of -- for 6 months, if you could give a holistic number, how much would have been our growth for us? Like if I see it's 103% Y-o-Y in fourth quarter for RAC and it's 15% for the first quarter. Does that mean that our volume growth is 50%, 60% or 70% type?

[Pramod Gupta, executive]

Our growth will be to the tune of about 65% or so in the first half this year. But as I'm saying, for the last 3 months, we have actually -- for the month of June, July and now even August, we are seeing a decline, which is to the tune of 60% to 70%. And this is largely because most of the orders canceled -- have been canceled because there is the inventory with the channel as well as the brands.

[Achalkumar Lohade, analyst]

Right. And if you could help us understand in terms of the channel inventory because we get to hear that channel inventory for a particular brand is very, very negligible or probably just a month extra considering the monsoon season. So, any color you could provide in terms of the channel inventory and also with the brands, any ballpark number at the industry level, if you have?

[Pramod Gupta, executive]

I think overall industry level, the inventory level are probably close to 2 million to 2.5 million, which should -- at this point in time, should have been less than 1 million. That's all I can say. But then there is an additional inventory of finished goods with the brands also, which in our estimate is to the tune of about 2 million.

[Achalkumar Lohade, analyst]

So, you're saying it's as large as what is with the channel is with the brands. Have I understood right?

[Pramod Gupta, executive]

Yes.

[Achalkumar Lohade, analyst]

Right. Does that mean, sir, like is there a downside risk to your numbers in that case, given the brands are stuck with so much inventory that you could have a further downside risk to the profit number what you are guiding for?

[Pramod Gupta, executive]

We have taken -- these numbers are on a very realistic basis actually, and they are based on some estimations and some calculations. And -- we are very confident of achieving these numbers. We think that these numbers are base minimum, which we should be able to do.

[Operator]

We take the next question from the line of Koushik Mohan from Ashika Group.

[Koushik Mohan, analyst]

Sir, I just wanted to understand from the last guidance that we have from -- for that guidance to this guidance, we have reduced it around INR 90 crores almost. So, is that -- how much in that INR 90 crores has been pertained to inventory costing that we're taking? And how much is for the financing costing that we are taking because it's both the sides that is affecting us, right?

[Pramod Gupta, executive]

So almost close to INR 40 crores to INR 50 crores will be because of the inventory -- additional inventory, which we are carrying. We have about INR 1,000 crores of additional inventory, which we think we will be able to reduce only in a meaningful way post October, November. So, for 6 to 7 months, you can imagine the cost of carrying -- almost INR 1,000 crores of inventory, which we are carrying.

[Koushik Mohan, analyst]

Okay. And remaining around INR 40 crores to INR 50 crores will go for the costing side?

[Pramod Gupta, executive]

Not costing, there is an operating leverage. See, in our business, the way it works is that AC business is highly seasonal. So, you make good money in the season when your plants are running at a good utilization level, and you actually lose money because in the off-season because you are never able to cover your fixed cost.

In a good season, typically, these bad months or the loss months are lower number and good months where you are running your plant at optimal utilization are high. Here that situation has changed, say, and we are seeing probably a higher number of loss months because of the very high inventory and very low offtake from, say, June till November maybe. And therefore, we are guiding for -- taking that operating leverage -- negative operating leverage into account, we are guiding for a new set of revised profit numbers.

[Koushik Mohan, analyst]

Got it. And sir, on the CapEx side, we are doing around INR 700 crores to INR 750 crores on this year. Like how much is going for the existing business and how much is going for the new businesses that we are going to cater for?

[Pramod Gupta, executive]

Almost INR 400 crores to INR 450 crores is for the existing business and INR 300 crores is going for the new business, which is refrigerator.

[Koushik Mohan, analyst]

Got it. And sir, with the new business coming into line, do we have -- how much kind of the mix in the revenue are we expecting in next year? So the contribution of the AC in the overall pie comes down? Do we have anything on that side?

[Pramod Gupta, executive]

So overall contribution of AC will be probably coming down because we are hoping other businesses to expand faster. But nonetheless, for the next couple of years, maybe this year and next year, you should assume that the number -- the change that will happen is not going to be very significant in the first.

Next year is going to be the first year, it's going to be a ramp-up year. And I don't think we should assume more than a few INR 100 crores of contribution from the refrigerator. '28 should be a year when we will see probably full year for refrigerator and full ramp-up capacity utilization in the refrigerator business.

[Koushik Mohan, analyst]

Got it. Sir, with the current balance sheet and with the new CapEx. Last one question, I'm sorry. With the current balance sheet and with the CapEx we are going to do, what is the optimum top line that we can expect, sir, when we -- if we are keeping still at 5x of the fixed assets? Or like what kind of a top line that we can visualize?

[Pramod Gupta, executive]

You should assume about 4.5 to 5x on a fully ramped-up basis on a net block. That is typically the asset turn we try to achieve in our business. So, to begin with, it should be at least about 4.5x. And then as the ramp-up happens and the capacity get optimally utilized, we should be probably close to 5x on the fully ramped basis.

[Operator]

[Operator Instructions] The next question is from the line of Neel Mehta from Equirus Securities.

[Neel Mehta, analyst]

Sir, I just wanted to understand one thing that current inventory levels are at almost INR 1,400 crores. How much it will take time to liquidate those inventory? Because I'm assuming in third quarter because of the star rating, new kind of orders will be assigned, right? So…

[Pramod Gupta, executive]

No. That assumption is wrong. I just want to correct you here that assumption is wrong. There will be good amount of orders for 5-star ACs of the old rating. And most of the components are going to be anyhow used even in the new star rating AC. So that obsolescence, the risk is very minimal, maybe very, very small, maybe not even 0.2% or 0.3% at best of this INR 1,200 crores of inventory in the AC business, which we have.

[Neel Mehta, analyst]

Okay. So, I assume no incremental capital we have to deploy for those orders, right?

[Pramod Gupta, executive]

See, also, I want to highlight one thing that in the month of May -- April and May, we were running at almost close to INR 400 crore plus run rate in AC business. So, for both months, when the season was going on, we can actually do a production of more than INR 500 crores of AC with our existing capacity. So, this inventory levels, which are looking high right now are there because there has been order cancellations for the month of June and July and August. And therefore, especially the month of June, at the month of May and June would have been normal, then the inventory levels would have been much lower.

[Neel Mehta, analyst]

Okay, sir. Got it. And sir, just one last question from my side. Sir, is there any change in unit economics of the compressor plant as of now? Or is it the same?

[Pramod Gupta, executive]

No, there has been no change in the unit economics. It's just that the partner is taking some time to get some clearance from their government.

[Operator]

We take the next question from the line of Tanish Vhora from Purnartha Investment Advisers Private Limited.

[Tanish Vhora, analyst]

Actually, I wanted to ask 2 questions. One is upon how long will it take for you to actually work with maximum utilization after the CapEx is done so that we can achieve the ratio of 5, which you mentioned earlier? And the second question is we have seen consistently promoter holding going down. Is there any particular reason for that?

[Pramod Gupta, executive]

I'll take the first question. Typically, whenever you start a new business or new capacity, it is typically 1 to 1.5 years before the optimal capacity utilization levels are reached because the new product it takes time for getting the product validated and product approved with new -- with all the customers and then finally to ramp up the capacity.

Coming to the second question, if you see the -- as you're saying, the promoter holding has come down, promoter in the last 5, 7 years have only sold only once that was in last year -- last -- in the month of May this year. Before that, we have raised capital thrice in this company, once in '21 and then '23 and then '24 December. So, because of those capital raises and QIPs and money raised in the company, there has been a promoter holding, which got diluted.

[Tanish Vhora, analyst]

Okay. If I can ask one more question. I wanted to know what is the guidance which you will give in the next year?

[Pramod Gupta, executive]

It's too early to talk about the next year right now because even this -- the next season has to start, and that will start from November, December. So, let's see how the things pan out this year and how the second half goes. We will be talking about the next year going to be sometime in April.

[Operator]

We take the next question from the line of Vipraw Srivastava from PhillipCapital.

[Vipraw Srivastava, analyst]

Sir, quickly on the ESOP...

[Pramod Gupta, executive]

Your voice was breaking, Vipraw. Can you just repeat your question?

[Vipraw Srivastava, analyst]

Sir, what I'm saying is how much is the ESOP cost for Q1 FY '26?

[Pramod Gupta, executive]

Just a minute, I'll just let you know. Just give me 2 minutes, I'll tell you. You can, in the meantime, ask me any other questions if you have.

[Vipraw Srivastava, analyst]

Sure, sir. Sir, quickly on the quarter 2, sir, I mean, August has been weak, but are you expecting revival in September and October?

[Pramod Gupta, executive]

I think we will have probably a revival probably from the month of November. October is going to be a festival month. Typically, in festival month, we don't see much uptick. What has been our experience is that if the season is good, typically, then the uptick happens in the month of October, November. And if season is a little slow, then it happens in November, December.

[Vipraw Srivastava, analyst]

Right, sir. That's all from my end. Just the ESOP costs only.

[Pramod Gupta, executive]

ESOP cost, I'll give you in the meantime. We can continue with the next question. I'm just asking my team to figure that out.

[Vipraw Srivastava, analyst]

So yes, I'm done, sir. So you can let me know.

[Pramod Gupta, executive]

Share-based expense this quarter was INR 3.27 crores.

[Operator]

We take the next question from the line of Keyur Pandya from ICICI Prudential Life Insurance Limited.

[Keyur Pandya, analyst]

Sir, just want to understand, first, on the non-RAC side. So how do you see any impact on the washing machine business? And if not, what kind of growth -- so what are the expansion plans that is first and second, what growth do you expect in the washing machine business? That is first.

And second, on the compressor side, I mean, it has got delayed for quite some time. So, if you can just let us know what kind of capital has already been deployed? And do you think that -- I mean, what time line do you expect or do you think -- is there any risk to some cost? That is the second question. And all the best.

[Pramod Gupta, executive]

Vikas, can you take the first question? Second question, I'll take.

[Vikas Gupta, executive]

So regarding washing machine business, fortunately, we are seeing a very robust demand, like as shown in our quarter 1 numbers, the growth is more than 35% in that. And we are very hopeful that we should be able to have a growth of almost from 40% to 45% in our washing machine business for FY '26. So we are expanding our capacity. We are launching new platforms. We are adding new clients. So we are very confident on the wash machine business.

[Pramod Gupta, executive]

Coming to the compressor, we are seeing certain delays, but we are very hopeful and we are very confident that this business, we will be able to do probably it will slip -- the CapEx part will slip to the next year, some part of it. We are hoping -- we have already done a CapEx of close to INR 1.2 billion in constructing the building. Building is almost completed.

Right now, we will be making it -- in the coming months, we will be utilizing it for our other purposes, maybe for keeping some of the inventory and maybe in the season. But as soon as our partner gets go ahead, we will be ordering the plant and equipment. And then probably within 6 months, we will start installing that. So we are not seeing any risk for basically any issue of the plant -- for the building that we have constructed. And by the way, that building can also be repurposed for other issues, other things if we need.

[Vishal Gupta, executive]

That building is just -- this building is part of our existing campus of AC manufacturing. So this building is being used currently for AC products only right now.

[Keyur Pandya, analyst]

Understood. Just one follow-up...

[Vishal Gupta, executive]

I just want to clarify it.

[Keyur Pandya, analyst]

I just got it. Clear, absolutely clear. So just -- so tentatively, what time line we should work with for compressor business, tentatively?

[Vishal Gupta, executive]

So you know we have been always very transparently sharing the feedback. I was in China 3 weeks back and had a discussion with them. So it's held up at their end right now. Everything is ready. All plant and machining technicals, all commercials are closed. We are just waiting for that approval. Once we have that approval, I think then we'll put the ball rolling.

[Operator]

We take the next question from the line of Rajendra Singh, an individual investor. The next question is from the line of Vipraw Srivastava from PhillipCapital.

[Vipraw Srivastava, analyst]

Quickly, sir, any other categories you plan to enter apart from refrigerator and compressors?

[Pramod Gupta, executive]

We keep on evaluating several proposals and several opportunities. But then as we have been highlighting, we have a very strict capital allocation criteria and guardrail. And based on those guardrails only if we approve the new capacities or any new category. We are in the process of evaluating certain categories. And as and when we decide to go ahead in any of them, we will be able to give you the information.

[Vipraw Srivastava, analyst]

Right, sir. And sir, lastly, one more on the TV segment, where PG has a JV with Jaina. So obviously, large players in the industry has had a weak commentary, but what's your view on this? How is it ramping up as far as PG is concerned?

[Vishal Gupta, executive]

So, for us, the television business is looking very strong. And we have given a guidance of almost around INR 850 crores to INR 900 crores of revenue as compared to last year revenue of INR 540 crores. So, we are maintaining that, and we are currently having a very strong order book and the current festival season is looking very robust in that.

[Operator]

We take the next question from the line of Mahesh Kaushal from [ MN Investments ].

[Unknown Analyst]

So just wanted to check, in May end, we offloaded a substantial stake that was a promoter entity. And then from June, July onwards, we get such numbers. So just wanted to understand what is -- what was the thought process then? And is there something that is being missed -- because this -- I mean, everything fell off a cliff post that. So just wanted to get your sense on that, what happened and what was the thought process then?

[Vishal Gupta, executive]

See, actually, as I have stated earlier also, in the month of April, we saw 70% growth. So, we were seeing very strong traction in this business. As I've already stated earlier also in this call, that's -- it was looking very great. But suddenly, there has been a drop in the demand and there is -- actually, it's kind of fallen off the cliff. It has just evaporated.

[Unknown Analyst]

So, you were not aware of anything in May end, if that's the question, sir.

[Vishal Gupta, executive]

Yes, sir. That is why we are caught up with so much inventory. That is why we are caught up with the cost and all those things have gone for a ride only because -- I will tell you what was happening. till end of April or middle of May, clients were hoping that season will open up, and people were still continuing the manufacturing. And then suddenly, by end of May, they took a call that they have to control their inventories. It was very sudden, sir.

[Unknown Analyst]

And is the reason…

[Pramod Gupta, executive]

See, I'll just tell you the reason. See, this year, till May -- and even in May end, the North market was doing fine. North and West were doing fine. There was a high temperature. See, typically, May is the highest selling month in any year for the AC business. This year, as the monsoon started getting earlier, first, the southern market closed and then abruptly in a very short period of time in May end itself, the whole of the cooling business actually saw end because the monsoon covered the whole of India by May end. And that led to a lot of cancellations in June.

So, we had budgeted when we were giving our guidance even in the 12th May was our results, we had budgeted that there will be a slowdown because there was a slow southern markets in the first half of the season, but we did not expect the season to get abruptly ended in month of June itself. And over that, July and August have also seen very, very low offtake.

In fact, I can tell you, in month of April, we had a 70% growth Y-o-Y. Even in month of May, we had a 19% growth. In month of June, we had a 70% decline. And in the month of July also, we had a 70% decline on a Y-o-Y basis in AC business.

[Operator]

We take the next question from the line of Archit Singhal from Barclays.

[Archit Singhal, analyst]

Yes. So, 2 questions from my side. Firstly, I mean, hypothetically, if we were to believe that next year, the season would be strong, then would we be able to more than make up for the loss in FY '26 -- I mean, loss in terms of guidance?

[Pramod Gupta, executive]

See, next year, yes, if the season will be strong, we will be able to make more than make up. See, if you look at our track record, in the last 4 years, we have shown exceptional growth rate in our AC business. We have had an exceptional execution track record. In fact, in a category like AC, we have been growing at 100% plus. Last year, in fact, our AC finished goods grew 120% plus. In fact, fourth quarter also, we grew 100% plus in the AC business because there was an opportunity and we could see.

Now, the environment is such that there is an inventory in the channel right now and inventory with the brands also. Market is very slow right now. So till the time this inventory gets cleared, we cannot comment or commit on the numbers. But yes, if there will be an opportunity, be rest assured, we will be the first one to bounce back and the bounce back will be very sharp. Point number one.

Point number two is, long term, we still remain very bullish and very optimistic in this business. We continue to make significant investments, and we are planning very significant, I would say, ramp-up of the capacities or building up of capacities in the coming years. We are expanding our capacities in both North as well as Western area. We are looking at building a new campus, a very large campus for AC manufacturing in Western India and in the North in Diwali, we are already going ahead with the CapEx in the existing plant.

So, we have not have any change on our long-term view of the sector of the company. It's just that this year, we have got off guard caught on the wrong side with huge inventory in the channel and with us also. So, we want to be a little cautious for this year.

[Archit Singhal, analyst]

Understood. And second question, I mean, like you mentioned about the long-term thoughts. So, second question is, I think on the -- in the last call, we mentioned the gross block should increase from INR 1,200 crores to INR 2,200 crores in the next 2 years. And you also mentioned asset turn of around 4.5x or so. So fair to understand FY '28, if everything remains, we should clock a revenue of INR 9,000 crores. Is that understanding right?

[Pramod Gupta, executive]

That is what is the internal target that we have for ourselves. And we want -- we are doing all our CapEx and whatever working we are doing internally, we are doing based on those assumptions only. So our long-term assumptions do not change because one season has gone wrong.

[Archit Singhal, analyst]

Understood. And if that happens, I mean, if you achieve that revenue guidance, the margins, which we can achieve in FY '28 should be better than the FY '25 margin because of operating leverage, right?

[Pramod Gupta, executive]

Hopefully, yes. Not FY '25, but yes, we should be able to match or should be near to FY '25 margins. Let's see how it pans out. But yes, we should be able to reach at least FY '25 margins.

[Operator]

We take the next question from the line of Ruchita Ghadge from I-Wealth.

[Unknown Analyst]

Sir, mainly my question was on the other expenses side, right? So, we've seen like a huge bump up from the last 2 quarters in the other expenses side. So, how do we see this panning across for the remaining quarters of this year?

[Pramod Gupta, executive]

See, what happened was, as I was telling you that we were caught off guard, and we did not actually control the cost, and we were still having good commitments and orders, which were canceled at the last moment. So some of those costs are on the higher side. In the coming quarters, you will see a good control on some of these costs. We remain very confident that we will be able to control some of these costs in the coming quarters.

[Unknown Analyst]

So sir, what is your -- if you could just broadly tell me as a percentage of revenue, how do you see the other expenses for the whole year?

[Pramod Gupta, executive]

In the past, they have been in the range of about 4% to 5% -- 4% to 4.5%. And in the long term, that is what we should be seeing in the normalized year. That is what should be the number, in this other expense number.

[Unknown Analyst]

Sorry. So this year you're not guiding anything?

[Pramod Gupta, executive]

I'm saying in the medium term, that should be the number. On a full year basis, that 4% to 4.5% should be the other expense number, which should prevail.

[Unknown Analyst]

Okay. Okay. And what about the employee cost, sir? Or how do you see that growing? Should this kind of reflect our revenue growth like in terms of that?

[Pramod Gupta, executive]

This year, the employee cost is looking higher and it will remain probably slightly on the higher side because of the lower growth and the kind of expenses which we are having because of the increases as well as the people which we have added. But it will also get normalized in a normal season, which we hope will happen probably from the next year.

[Unknown Analyst]

Okay. Okay. Okay. So on the EBITDA margin side, like we'll see around the 200 bps decline, right, this year?

[Pramod Gupta, executive]

Well, we have not built in that steep decline. But yes, there will be a decline on a full year basis. Actually, if you see this year from the initial guidance, additional expenses of close to INR 50 crores odd will be there on the interest cost because of the inventory we are carrying. And then there is some cost, which will be there additionally. But still, we think we should be able to control the margins in the range of about 1.25% to 1.5% from the last year at the EBITDA level.

[Operator]

The next question is from the line of [ Chavelli ] from an individual investor. Due to no response from Chavelli. We'll proceed with the next question. The next question is from the line of Kartik Soni from [ Soni & Associates].

[Unknown Analyst]

Sir, I have 2 questions. First, [Foreign Language] They are facing such big headwind.

[Vishal Gupta, executive]

[Foreign Language] I think except for Blue Star and I think Hitachi, everybody else has posted more than 20% decline in their sales in the quarter in this quarter. And second thing is, even in these companies, especially -- I mean, they have some other businesses also which have been able to probably help them withstand such a huge decline. By the way, Voltas results have just come in, probably they have also shown a good decline in the unitary cooling product business here. And I think overall margin -- overall, the brands have seen, in our opinion, at least 20% to 25% decline in the month of April, May, June in the sales to the channel. June was a total washout for most of the brands in our opinion.

[Unknown Analyst]

[Foreign Language] Okay. So sir, just a quick follow-up question. So dependent diversification, what have we planned to diverse amount rather than in terms of electronics?

[Pramod Gupta, executive]

Yes, we are planning a lot of diversification and the results of those will be visible to you in the coming years.

[Unknown Analyst]

Sir, one last question, sir. [Foreign Language] right?

[Pramod Gupta, executive]

Yes.

[Unknown Analyst]

As I can see March 31st balance sheet cash position around INR 980 crores [Foreign Language]?

[Pramod Gupta, executive]

Cash position is still INR 900 crores. We have INR 910 crores of cash on balance sheet, but short-term debt has increased for us from March to now.

[Unknown Analyst]

[Foreign Language]

[Pramod Gupta, executive]

About INR 200 crores.

[Unknown Analyst]

Okay. And sir, so the CapEx plan is still -- ma'am, just a follow-up question. The CapEx plan is still the INR 750 crores, INR 800 crores impact, sir?

[Pramod Gupta, executive]

Yes. We earlier were planning INR 800 crores to INR 900 crores. Now it is about INR 700 crores to INR 750 crores.

[Unknown Analyst]

And internal accruals, no additional debt?

[Pramod Gupta, executive]

No. We don't have -- don't require debt. We have cash in the balance sheet, and we will have internal accruals. This inventory will surely get over by month of January or February in our -- December or January.

[Unknown Analyst]

So that's a long time to hold. [Foreign Language].

[Pramod Gupta, executive]

We are aware of that, sir, it's a long time, and that's why we have cut on the guidance.

[Operator]

The next question is from the line of Arshia Khosla from Nirmal Bang Institutional Equities.

[Arshia Khosla, analyst]

I'm sorry for repeating the question. The call is dropped in between. Have you given any guidance for FY '27 on the top line as well as some margin guidance?

[Pramod Gupta, executive]

No, nothing. We have not talked about '27.

[Arshia Khosla, analyst]

So any CAGR that you would like to give from '25 to '27? I mean, what kind of growth are you seeing?

[Pramod Gupta, executive]

No, '27 is too far-fetched right now. We will be still focusing a lot on '26.

[Operator]

Due to no questions from the participants, I would now like to hand the conference to the management for closing comments.

[Pramod Gupta, executive]

Thank you all for joining the conference. Please feel free to contact me or the company for any further questions you may have. Thank you. Thank you all.

[Operator]

On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.