PG Electroplast Ltd

NSE:PGEL

Q2-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to PG Electroplast Q2 FY '26 Earnings Conference Call hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded.

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 security, nor shall part or all of this presentation from the basis of or to be relied on in connection with any contract or investment decisions in relation to any securities.

This presentation contains forward-looking statements based on the currently held beliefs of the management of the company, which are expressed in good faith and in the management's opinion are reasonable. The forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, financial conditions or performance or achievements of the company or industry to differ materially looking forward statements.

Those forward-looking statements represent only company's current intention, beliefs or expectations and any other forward-looking statements speaks only as of the date on which it was made. The company assumes no obligation to revise or update any forward-looking statements.

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

[Deepak Agarwal, analyst]

Thanks, and good afternoon, everyone. On behalf of Axis Capital, I welcome you all to PG Electroplast Q2 FY '26 Earnings Conference Call. Today, we have with us senior 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 hand over the floor to management for their opening remarks, post which we'll open the floor for Q&A. Thanks and over to you sir.

[Unknown Executive]

Thank you, Deepak, and good evening, everyone. Thank you for joining this call today. Hope all of you are doing well. And sorry because there was a little delay in uploading the results because the Board meeting got over at 4:40 only, so we didn't get much of the time to upload the results earlier. It has been done. I think you people can have a look at that.

So let me start by saying this, that this quarter and first half of FY '26 has been softer than what we have expected. The room AC business was impacted due to early monsoons and then GST cut announcement, which was done on 15th of August. Nonetheless, we have been able to grow our RAC business by around 2.5% in first half despite the industry posting almost 25% decline. The washing machine business has done extremely well, and we have seen a very good growth compared to last year, washing machines were up by 55% in this quarter. The JV, our Goodworth Electronics has also ramped up well and has posted sales of INR 483 crores with INR 10.33 crores of EBITDA in first half of FY '26.

We remain optimistic that room AC business will see increased penetration-led growth with the recent rationalization of GST, and we believe that in medium-term growth in room AC business will remain robust. We are expanding capacities in RACs, washing machines and coolers. Client engagement across large and emerging brands remains strong. As we have guided in our previous call, FY '26 will now likely shape up to be a more measured year, and that's fine.

We are maintaining the guidance we had shared last quarter. We will be using this year to consolidate, focus on operational levers and execute our platform and capacity investments with 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 durables market and in PGL's positioning to be a key enabler in that space. Our focus remains unchanged to scale profitably, 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]

Hello, and good evening, everyone. I'm sure all of you have seen the financials. Although I also apologize for putting up the data and financials and presentation with slight delay.

Now I'd like you to go through along with me all the numbers for Q2. Consolidated revenues stood at INR 655 crores, which was a 2% decline over Q2 last year. Of this, product revenues contributed almost INR 319 crores or 49% of the total revenue. The AC business contributed INR 131 crores, and it declined almost close to 45% versus last year. The AC business accounted for around 20% of total revenue. Washing Machines business was up 55% during the quarter, and it contributed about INR 188 crores to the sales during the quarter. Our 100% subsidiary, PG Technoplast reported revenues of INR 295 crores during the quarter.

Coming to the profitability. EBITDA for the quarter stood at INR 45 crores and net profit was at INR 2.4 crores. The net profit dropped almost due to lower operating leverage. Also, we had a ForEx loss of INR 8.4 crores during the quarter versus a gain of INR 1.2 crores during the same quarter last year. We have worked on all our costs during the quarter and optimized wherever possible.

From a balance sheet standpoint, the company remains on a strong footing. Cash and equivalents at the end of Q1 are -- at the end of quarter 2 are INR 630 crores, and we are net cash still. Return on capital employed stands at 20.8%, and our fixed asset turnover remains healthy at over 5x on a trailing 12-month basis.

Now coming to guidance. We are maintaining our guidance shared in first Q 2026, that is for FY '26, we expect PGL to be having revenues in the range of INR 5,700 crores to INR 5,800 crores and 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 sales to cross INR 6,550 crores to INR 6,615 crores. We are continuing with our investment in Greater Noida, [indiscernible], Rajasthan and South India, and our FY '26 CapEx will be in between INR 700 crores to INR 750 crores. Again, reiterating that our long-term investment, operational model and growth priorities remain unchanged.

With that, we are happy to take your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of [indiscernible] from [indiscernible] Investment Advisors.

[Unknown Analyst]

[indiscernible]

[Unknown Executive]

[indiscernible] Can you just repeat the question because first part was not very clear. It was not audible. Can you [indiscernible] and louder please.

[Unknown Analyst]

Yes. My first question is regarding the [indiscernible]

[Unknown Executive]

First of all [indiscernible] that agreement that we have entered into with the [indiscernible] technologies. And we are expecting to start some pilot production within the quarter 3 of FY '26, which is the current quarter. And it is too early for me to comment on the what will be revenue potential of this, but we are hopeful that it should become a sizable business in coming months, in coming quarters. We'll keep the stakeholders updated on the exact revenue potential of this. Maybe by next quarter, we should have much more clarity on that.

And as far as INR 1,000 crore MOU we have signed with the state government of Maharashtra, actually, we are in the process of acquiring a large piece of land in Maharashtra, and we have entered into this MOU agreement. And we intend to start CapEx on that piece of land from FY '27 onwards, we intend to start doing CapEx. This INR 1,000 crores CapEx we are supposed to do in the next 4 to 5 years. So we will be doing that. And once we have more clarity, we can share details on that maybe next 2, 3 quarters on that. But that is the plan. That is a long-term plan, but we are trying to create a bigger land piece and bigger infrastructure for our future growth potential. We are trying to create future growth with these investments.

[Unknown Analyst]

[indiscernible]

[Unknown Executive]

We have intention to set up a [indiscernible] plant in the state of Andhra Pradesh. And so for that, we have already acquired the land parcel of almost around 54 acres there, and we are starting construction. And we hope to start the production by quarter 4 of FY '27.

[Unknown Analyst]

[indiscernible]

[Unknown Executive]

The CapEx will be in the range of almost around INR 350 crores in the first phase for the [indiscernible]. But as we go forward, we'll be expanding further into other product categories like air conditions and washing machines as well going forward. So the CapEx plan of INR 1,000 crores is spread over a period of 4 years to 5 years in Andhra Pradesh.

[Unknown Analyst]

[indiscernible]

[Operator]

Sorry to interrupt you Mr. [indiscernible] but your voice is coming muffled. Could you use a handset while asking your questions?

[Unknown Analyst]

Is it better now?

[Operator]

Yes, it is better now.

[Unknown Analyst]

[indiscernible]

[Unknown Executive]

So as per our estimate, the quarter 3 and quarter 4 should see improved inventory at our end. Right now, we are carrying a very similar inventory as we were carrying in the -- at the end of quarter 1. Channel inventories also remain on the higher side as of today, but we are hopeful that given the GST cut and the buildup, which happens during the pre-summer should help us and the industry to get rid of the inventory. And we think that coming months will be good from the point of view of production at our end, and we should be -- we are hoping that by November end, we will be normalizing our inventory given the plans that we have. And we have actually maintained our guidance, and we are hoping that second half will be much better for AC and other businesses as well.

[Unknown Analyst]

Okay, sir. If I may squeeze one last question. So any update on this compressor part? I think we are waiting for permission from China government. [indiscernible]

[Unknown Executive]

No, sir, it is still pending. It's -- nothing is getting resolved as per the latest updates what we have from our partner. We are still waiting for the go ahead from the Chinese government side on this.

[Unknown Analyst]

[indiscernible] cannot be put forward, then there is some restrictions on the import of [indiscernible]

[Unknown Executive]

Your voice is quite muffled. It's not clear.

[Operator]

The next question comes from the line of Vipraw Srivastava from PhillipCapital.

[Vipraw Srivastava, analyst]

On the cash flow side, where do you see [indiscernible] for full year because we have seen a significant cash burn in H1. So where do you see for full year?

[Unknown Executive]

So cash flow for us in the Q1 -- first half has been okay. We are having higher inventory, and that is probably showing a negative cash flow at the operating level as well as at a free cash flow level. Second half should be much better, largely because of 2 reasons. One is, obviously, we are hoping to normalize the inventory. And second thing is that because of this GST rationalization, this should help better working capital cycle at the manufacturing end because we were paying -- we were paying GST at 28%, while the input credit on most of the raw material was at 18%. And we were able to recover the 10% additional GST only at the time of collections, which used to be about 60 to 70 days post the sales. So now that will be also going to be better in the second half.

So all these things put together, we are hopeful that second half will show a good operating cash flow and also a decent free cash flow should be there because in the first half, almost INR 377 crores of CapEx has already been done. And second half remaining CapEx will be -- we hope should be coming out of the inventory rationalization, which we will have.

[Vipraw Srivastava, analyst]

Sure, sir. Sir, secondly, sir, on the guidance part, sir, you are maintaining your guidance for full year. How much of that is due to the derating changes happening next year?

[Unknown Executive]

Derating was actually known at the time of the guidance when we gave after the first quarter also. So there is nothing new in that. So we have written a decent amount of growth, which should come from December onwards because of the derating and overall business also, and that has been accounted for.

[Operator]

[Operator Instructions] The next question comes from the line of Koushik Mohan from Ashika Group. The line from Kaushik is busy. We'll move on to the next question. Our next question comes from the line of Achal Lohade from Nuvama Institutional Equities.

[Achalkumar Lohade, analyst]

The first question I have, if you could talk a little bit about -- you did make a comment with respect to the industry decline. But just to be clear, in the first half, what has been the decline for the industry in terms of the primary sales and secondary sales volumes according to your estimates? And also, if you could touch upon the...

[Unknown Executive]

Yes, yes, please.

[Achalkumar Lohade, analyst]

Yes. And if you could also touch upon the inventory situation for the companies plus the channel put together as of September and as of now in your estimate?

[Unknown Executive]

So see, primary sales have degrown by around 20% to 25%, but secondary sales have seen a deeper decline. That is why we are seeing an elevated level of inventory in the channel. And as per see, we don't have very accurate data on the channel inventory, but our estimate is still, I think as of 1st November, it should be anything between at least 1.5 million to 2 million, sir, at least. That is the number our estimates are there.

[Achalkumar Lohade, analyst]

And this would be usually what number...

[Unknown Executive]

Normally, what happens every year during this time of the year, in month of November, December, normally, all the brands do a lot of schemes and give a lot of discounts and a lot of selling is -- primary selling is done, channel filling is done. Maybe we might see a little slowdown or maybe a little late pickup in this channel filling because of that overhang of the last 1 or 2 quarters. Having said that, because of the change in the energy rating, so that opens up some opportunity for this channel filling happening.

So we have 2 things: one energy rating change, which will push up the channel filling. And there might be something because of the channel is already [indiscernible] up, there might be some pushback from the channel from taking energy further inventory. So that we have to keep evolving. But as far as we are concerned, sir, the kind of forecast we have got from our clients, so we are quite confident that -- see, December, we are seeing good production. The dispatches are also started, but they will start pick up by end of this month or December 1 week. And then Jan, Feb, March also, the outlook what we have received from our clients looks quite healthy. That is why we are able to maintain the guidance what we have given in the first quarter.

[Achalkumar Lohade, analyst]

Got it. The second question I have is with respect to the pricing, given we will be now in discussion with the customers with respect to the pricing. If you could talk a little bit about even the cost has seen increase, what is the extent of, first of all, increase in the BOM? And b, how does the pricing will work out according to you, given the inventory situation?

[Unknown Executive]

Competitive industry is very high right now at a manufacturing level also at the brand level also because everybody is stuck up with inventories and everybody is trying to clear up their inventory. So competitive intensity will be very high, at least, I believe, maybe till end of January or February.

[Achalkumar Lohade, analyst]

Right. But if you could talk what is the extent of cost increase? And how do you see that pricing playing out or margin playing out?

[Unknown Executive]

So I think I have answered this question. Why? Because let me tell you, I can't give you such numbers because the pricing depends on the commodity and the exchange rate. Having said that, since competitive intensity is very high right now, so you may not have a very high bargaining or a leverage on the pricing with your clients. And branch may not also have with the channel and channel may not have with the consumer. So it's a whole value chain, which is under pressure right now.

[Achalkumar Lohade, analyst]

Got it. Got it. Just one clarification on the CapEx. If you could just lay out the plan in terms of '26, '27, '28. See '26, you have said INR 700 crores to INR 750 crores. If you could spell out which location, how much is growing? And similar details, if you could talk about '27, '28, that would be very helpful given the number of locations we are looking at a number of things happening. I think that would help.

[Unknown Executive]

'26 we have spelled out very clearly, INR 700 crores to INR 750 crores of CapEx is going to be there, out of which, as Vikash Ji mentioned, almost half of it, which is INR 300 crores to INR 350 crores will be for refrigerator, which will be happening in [indiscernible] City. And then there is INR 100-odd crores, which we are going to be spending, which we have already almost -- almost spent in washing machine business in Greater Noida. There is INR 200 crores, which is getting spent in RAC business in [indiscernible] as well as [indiscernible]. So you can assume about equal INR 100 crores each. And rest will be actually spent in [indiscernible] only in a new plant, which we are creating for tooling as well as coolers and some plastic -- specialized plastic molding. So that is the breakup that we have.

[Achalkumar Lohade, analyst]

And sir, how about next year?

[Unknown Executive]

Next year, we will be able to update you in the quarter 4 at the end of the quarter 4, but I can assure you it will be much lower than this year. And it will also depend on the business plan and the opportunities which we foresee. But as of today, we think it will be probably much lower than what we are doing right now.

[Achalkumar Lohade, analyst]

Sounds good, sir. Just last question, if I may, with respect to the applications, how many applications have you filed under ECMS and in what aspects, if you could clarify on this?

[Unknown Executive]

Vikas Ji, can you please take this question?

[Unknown Executive]

Yes. So we have filed the ECMS applications in 4, 5 different component categories through [indiscernible] our JV entity, Goodworth Electronics. So that is under camera modules, display modules, mechanical enclosures, some -- I think on the PCB side also, we have put up the ECMS application. So that is still under review. It has not been approved as of now. So we are keeping a close watch on it.

[Achalkumar Lohade, analyst]

Did you say, sir, PCB?

[Unknown Executive]

[indiscernible].

[Operator]

[Operator Instructions] The next question comes from the line of [indiscernible] from ICICI Prudential Life Company Limited.

[Unknown Analyst]

First question is on the AC part. So you have maintained the revenue and profitability guidance. I mean from Q1 where we stand today, probably everyone's estimate has got cut of primary or secondary sales because of the extended monsoon and its ripple effect. So what gives confidence because when back of the analyst calculation suggests that the aspect for H2 would be much higher pressure on channel [indiscernible] we have higher base for Q4 as well. So I mean, is it visibility from the brand? If so, is it for Q3 or Q4? I mean, just you can give more bridge to how confident you are or what gives you confidence, that would be helpful.

[Unknown Executive]

So we actually were the first one, and we actually -- in the last quarter itself had anticipated a very weak second quarter. And things have more or less been in our expectation, at least for us from the second quarter point of view. And given the kind of inventory levels, et cetera, which were there and the way things have played out, things are actually going in line with what we expected. And the visibility that we have is based on the order book that we have from our clients. And we are quite confident of achieving the numbers which we have guided for in the second half based on the firm and committed orders from the clients which we are working with.

[Unknown Analyst]

Okay. Sir, second question on both AC and washing machine. I mean in washing machine, we have a little lower base, but if you can just share any specific wallet share addition or new client addition, which will drive growth, which is higher than industry growth, both for AC and washing machine?

[Unknown Executive]

In AC the same brands continue with whom we were working. We have added a couple of more names, but they will not be contributing so hugely in the very first year. So it is mainly the wallet share gain, which we continue to see at our end. Similarly, in the washing machine also, it is largely the existing client where we are seeing the wallet share gain and also some share gain from in-sourcing to outsourcing, which is helping us to post robust growth in washing machine. And we hope to continue to do the same in the second half also.

[Operator]

[Operator Instructions] The next question comes from the line of Koushik Mohan from Ashika Group.

[Koushik Mohan, analyst]

Sorry, my call got disconnected last time. Sir, I just wanted to understand how are we seeing in the volume terms, the growth in the ACs? And like from -- it's been like currently we are in the Q3, right? In the Q3, one month is completed and now [indiscernible] is completed. So can I understand are we gauging that the growth is coming back to us? And how about the branded players and what their inventory levels are currently with them?

[Unknown Executive]

So there are 2 parts to the question. One is what do we see the volume growth for the industry first? And second is how do we see the volume growth for us? See, probably the industry on a full year basis is likely to remain flattish in our opinion. But in our case, in the first half, we had a growth -- a very small growth despite the industry being in a decline. And in the second half, we hope to have about 15% or so growth in the volume -- overall volume, largely due to 2 or 3 factors. One is, obviously, we're gaining some wallet share. Also, we continue to see some of the brands with whom we work, they are gaining market share in the marketplace, and they are growing faster than the industry, and that is leading to better volume growth at our end. So these 2 factors are actually helping us to hope for about 15% kind of overall growth for the full year in this AC business.

[Koushik Mohan, analyst]

Got it. And sir, my second question is on the CapEx part. So currently, this year, CapEx is ranging in INR 700 crores to, I think, INR 750 crores. So like majorly, this CapEx is going for the refrigeration part in the South India. But other part of the CapEx, where exactly is this going? What exactly the components which is going on?

[Unknown Executive]

I told you about it. We have actually started almost INR 100 crores has gone for washing machine business in Greater Noida. Then INR 200 crores is probably equally split between [indiscernible] and [indiscernible] for AC business. And then we are also actually putting up a new plant for coolers tooling basically and some specialized plastic injection molding in [indiscernible] again, in [indiscernible]. This is a different new plant which we are setting up. So there we are making some CapEx. So that is the way it is broken up.

[Koushik Mohan, analyst]

Perfect. So now majorly our concentration was coming from AC. Now we are more diversifying into our more products. So the growth will be on the normal side. Is my understanding right?

[Unknown Executive]

Yes. The diversification is a part of the strategy. We are looking to reduce our percentage dependence on AC, which will actually start becoming much more visible from financial year '28, '27, only fourth quarter, the refrigerator will start actually contributing maybe to some extent. But we are trying to get into and grow faster than existing non-AC business. And also, we are focusing on new segments, which can actually help us take care of the seasonality in the off-season, especially for the room AC business.

[Operator]

[Operator Instructions] The next question comes from the line of Achal Lohade from Nuvama Institutional Equities.

[Achalkumar Lohade, analyst]

If you could talk a little bit about plastic molding business that's seen fairly strong growth for last 3, 4 quarters. So if you could elaborate a little bit in terms of what is driving, what is the outlook, what kind of margins? And what is the capital deployment here, please?

[Unknown Executive]

So as we have been highlighting that the plastic injection molding business, we have not been pursuing very aggressively. Although I must highlight that this quarter, there was not much growth. There was, in fact, a small decline in the Y-o-Y basis, not because of volumes, but because the pricing is down there because the raw material prices have come down, especially the plastic there. And that has led to about some decline, although on a full year -- on the first half basis, we have seen a very small about 10% kind of a growth in that business. That is a component business for us, including plastic and other components.

So there, we are not trying to pursue or go after that business on a dedicated basis. We are not putting up any capacities or any new capital allocation is being done there. Only in very specific certain areas where we have focused, where we think the capital allocation makes sense and it meets our basically criteria of ROIC and ROCE, where we are putting in or allocating capital there. But to take care of the off-season business and when we have excess capacity, there some of the businesses are being pursued so that if we have to make some small CapEx to take and supply some components, which we can do from the facilities where we have off-season excess capacity, we are trying to gain those businesses. But as such, we have not been allocating much new capital to the plastic component business on a stand-alone basis.

[Achalkumar Lohade, analyst]

Got it. If you could just clarify what is the number for the plastic molding business for the second quarter and the first half, sir?

[Unknown Executive]

Second quarter, the number is about INR 211 crores. And for the first half, it is INR 485 crores.

[Achalkumar Lohade, analyst]

Okay. Understood. And the second question, I wanted to understand, is there any opportunity from exports perspective, which we are pursuing in any of our product categories? And any visibility you could provide on that?

[Unknown Executive]

Right now, we do not have any large opportunities. There are some small opportunities which we are pursuing, but there are nothing to talk about and then unlikely to contribute anything significant in the short term.

[Achalkumar Lohade, analyst]

Got it. Wonderful. Sir, just last question with respect to the -- following up on the ECMS, the applications. Any thoughts if this was to go through what kind of capital it would require to be deployed?

[Unknown Executive]

Yes. Please understand, the capital allocation will depend upon once our applications are approved and once we are able to tie up with the technology partners. So that is too early for us to give any kind of a color on that, working with the amount of investment that we go into that. So once we are able to get the approval of the applications done, second, whenever we are able to get the technology partners. So then we'll be able to update you on that.

[Operator]

[Operator Instructions] The next question comes from the line of [indiscernible].

[Unknown Analyst]

My question is around demand after the GST cut. It's been about 1.5 months and we entered the festive season. Then how is demand for the end user shaped up since the GST cut?

[Unknown Executive]

See, at our end, we do not have a firsthand experience. But from whatever we have been hearing from the brands is that the off-season has nothing spectacular or unusual has happened because of the GST cut yet. Probably it will help a bit in the -- when the season starts. See, in India, largely AC still remains largely an impulse purchase product. It is not a planned purchase. And therefore, even when the prices have come down, the spurt is probably not seen yet. But we are very hopeful that given the fact that GST has been cut, the penetration-led growth will start to see good improvement, especially in the second half this year and probably in the season when this -- in the first half next year when the season starts. So right now, I can say there is nothing much which has changed.

[Unknown Analyst]

So in that context where consumer demand hasn't picked up and channel inventory is still somewhat elevated, would the pickup in our growth be more back-ended more towards the summer season and less [indiscernible]?

[Unknown Executive]

In our case, there are 2 other things which are playing out as we were elaborating. One is that there is a deal rating change and there is an inventory which is going to be built up for that in the month of November, December. And also, as I was telling earlier that we are working with certain brands which have been gaining market share, and we are seeing a wallet share increase in certain of them. So these 2 are helping us to show a decent volume pickup hopefully in the second half. I think, yes, it will be more back-ended maybe, but not solely in the month of February, March. It will be -- some spurt should come in the month of -- towards the end of December and then probably February, March, we'll see a [indiscernible].

[Operator]

Our next question comes from the line of [indiscernible] Jain from 3A Financial Services.

[Unknown Analyst]

Hello, am I audible?

[Unknown Executive]

Yes, you are audible.

[Unknown Analyst]

I have a couple of questions. So first, could you please throw some light on brand strategy, RAC brand strategy? Are we focusing more on manufacturing in-house or outsourcing, sir?

[Unknown Executive]

This is a endless debate, and there is a view certain people have and certain analysts believe that it is going to be more in-house and certain analysts are of the view that outsourcing will continue. We are a little biased. I will make it upfront because they are dependent on outsourcing of the brands, but we continue to believe that in a highly seasonal business where exports are not so much there for the Indian brands. Actually, it doesn't make a lot of economic sense to do their own plant and do the manufacturing in-house because capital efficiencies are low for most of them -- I mean, for any single brand. And given the fact that if you want to put up backward integrated plants, they are capital intensive, the value accretion or value creation from going into heavy CapEx is actually not visible even in most of the brands which have put up their own capacity in our opinion.

[Unknown Analyst]

Okay, sir. Got it. And sir, on the washing machine side, what -- are the margins better than RAC? And where do you see the product shaping up going forward in future?

[Unknown Executive]

Margins are, yes, slightly better than RAC. I mean -- and what was the second question? What is the volume -- how do we see the volume catching up there, right?

[Unknown Analyst]

Yes, yes. How do you see the demand growing up in washing machines?

[Unknown Executive]

See, right now, we are gaining wallet share in certain clients and also, we are seeing increased -- we are actually a beneficiary of increased outsourcing in that space, and we are gaining some market share from shift happening from in-sourcing to outsourcing. So we continue to see good volume growth at least in the foreseeable future in the medium term. And we have, therefore, expanded our capacity, invested significant money in expanding the capacity. A new plant has been constructed in Greater Noida for that. And we remain fairly optimistic going forward on the washing machine business.

[Unknown Analyst]

So sir, any percentage of total revenue you are targeting that should come from washing machines?

[Unknown Executive]

We will like washing machines to contribute about something like 15% or so in the medium term, and we are working towards it. Right now, it is this year, probably just about going to be 11%, 12%. And we are hopeful that in next 2 to 3 years, it should reach at about 15% on a much higher number for the overall company's revenues.

[Unknown Analyst]

Great, sir. And one last question, sir, on the new energy norms, what would be the effect on the older inventory and the realization per unit of the new inventory, that would be manufacturing?

[Unknown Executive]

From manufacturing point of view, it is not going to have much impact. The inventory which we are carrying right now is largely for raw material, finished good inventory is very minimal. And therefore -- and most of it, almost 99.9% can be actually used in the new energy rating as well. So we don't see any impact on the inventory that we are carrying. That is point number one.

Point number two is that in general, we have seen the prices of some of the raw material have gone up largely because copper and aluminum prices have gone up and also the currency has depreciated. So from that point of view, there is going to be a pressure on most of the brands to actually increase the pricing of the existing and new models because there is a cost inflation, which is there in the key raw material.

[Operator]

[Operator Instructions] The next question comes from the line of Dhaval Jain from Sequent Investments.

[Unknown Analyst]

Am I audible, sir?

[Unknown Executive]

Yes, yes.

[Unknown Analyst]

Yes. Sir, just a question on booking. I was going through our half year balance sheet. Our debt has increased from INR 301 crores to INR 482 crores, short-term and long-term book. I was just checking on the Q1 numbers. Q1, our finance cost was around INR 34 crores. And right now, it is INR 16 crores. So can I have understanding how our finance cost has almost gone down by 15% whereas our debts have increased?

[Unknown Executive]

Yes. Actually, we explained this very well in the last quarter itself when we had given our outlook for the full year and this quarter. See, last quarter, we had some liquidity challenges because on one hand, we had a high inventory. And on other hand, we were also facing some challenges on our receivables because receivables got delayed because of the lower sales of some of the brands. So we resorted to 2 aspects to take care of that. One was to basically discount some of the receivables. And also on the payable front, we extended the payables by honoring our LCs while routing to buyers' credit and that led to some of the finance charges getting upfronted. And that actually was almost close to INR 20 crores, as I explained last year -- last quarter. And that was the onetime thing which happened. And if you knock off that, then you will come to the conclusion what the numbers are showing actually.

[Unknown Analyst]

I understood, sir. And just a question on -- if you can let me understand what are other expenses consist of?

[Unknown Executive]

See, the other expenses have several heads, but key out of them are basically things like transportation, logistics, inward and outward logistics, some of the other admin fees, et cetera. I just read out for you what all we take into the other expenses and also ForEx loss and gain is also one of the component in other expenses. So the key things are -- just give me a second. Basically rent, rates and taxes, subcontracting expenses, power and fuel, repair and maintenance, travel and conveyance, vehicle running and maintenance, communication costs, printing and stationery, security expenses, legal and professional fees, director sitting fees, then ForEx maintenance. But this year, the big swing has happened largely because of the ForEx. Almost there has been a INR 9.4 crores kind of a swing. This year, we had a ForEx loss of INR 8.4 crores versus gain of INR 1.2 crores last year.

[Unknown Analyst]

Just one last question on our margins. On the call that we have had that we could possibly do the revenues that we have guided for. Is there going to be a margin pressure in terms of we have to fulfill our target?

[Unknown Executive]

See, the margin guidance is actually built in the numbers that we have guided for. And we are aware of what we need to do. And after doing all the consideration only, we have given the net profit and sales guidance. But yes, right now, as Vishal Ji had explained, the whole value chain in the AC business is under pressure because of the high inventory and last year or the last season not going well. But we are hoping that from January, February onwards, things will start easing as the season starts.

[Operator]

The next question comes from the line of [indiscernible] from Dolat Capital.

[Unknown Analyst]

So what is our current capacity in RAC washing machine and coolers? And after the new lines are commissioned, what will be the new capacity in these categories like for FY '27 and FY '28?

[Unknown Executive]

Right now, our capacity in AC is almost close to 3.5 lakh ACs per month on the split side and about 50,000 ACs on the window side. And once by December, we are hoping to increase it to about 4.25 lakh in the split side and 50,000 in the window side. And in washing machine, the capacity is already expanded, and we have about close to 2 lakh washing machines per month capacity today. In coolers, it is about 50,000 coolers per month.

[Unknown Analyst]

Okay. And after the CapEx is incurred, what would be the new capacity which we are planning?

[Unknown Executive]

See, CapEx in washing machine is almost completed. AC, as I told you, it will go from 3.5 to 4.25. And coolers right now, the capacity is about 50,000 per month, but we are not going to see an increased capacity benefit in this year. That will be probably visible much more in the second -- next year, and we will be putting a line probably of 25,000 per month in the new plant.

[Operator]

The next question comes from the line of Ayush, who is an individual investor.

[Unknown Analyst]

So I have 2 questions. So one is about a couple of months back, we have announced the foray into the [indiscernible]. So any update on that? Are we still pursuing things or not? The second question is on the AC compressor manufacturing with the Chinese partner. So any update on that?

[Unknown Executive]

So that EV thing is getting delayed and our partner for whom we were supposed to start manufacturing in India, they are not able to get their motorcycle approved from ARAI. And at the same time, they are -- they have shifted some of their focus to Africa market. They are trying to grow that business in Africa market. They already have a strong presence in Africa. And at the same time, they maybe -- but I can feel that they have shifted their focus to Africa market.

And coming back to your compressor thing, we have stated in this call earlier also, we are still waiting for the approval that -- our partner is waiting for approval from the China government for this thing -- for this compressor thing. So we are still waiting for that right now.

[Operator]

[Operator Instructions] As there are no further questions from the line of participants, I now hand the conference over to the management for closing comments.

[Unknown Executive]

I'd like to thank you all for sparing your time, and we are available to answer 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. Thank you.