PG Electroplast: Meeting FY24 guidance with PAT up 96% & Revenue up 32% in H1-24 at a PE of 47
PGEL is positioned in the consumer durable & plastics space and would derive higher revenue growth by growing its market share in the customer outsourcing wallet.
1. Electronic Manufacturing Services provider
pgel.in | NSE : PGEL
Largest manufacturer of plastic moulded components for Consumer Durables industry in India
2nd largest ODM for room AC’s & Washing Machines
PG Electroplast Ltd, (PGEL) specializes in Original Design Manufacturing (ODM), Contract Manufacturing (CM) and Plastic Injection Moulding and across multiple product lines
PGEL has seven manufacturing units across Greater Noida in Uttar Pradesh, Roorkee in Uttarakhand and Ahmednagar in Maharashtra and has 3400+ employees
Entered into a 50-50 joint venture with Jena India to manufacture LED televisions. Now company has an access to Google OEM license and we will start manufacturing Google certified LED TVs and other products also in the future. The JV company has already started setting up an integrated TV manufacturing facility in Uttar Pradesh and which we are very hopeful will be operational by the end of this financial year.
This business should scale up very significantly over the next couple of years in our opinion.
2. FY21-23 growth of 74%; FY16-23 growth of 35%;
3. FY23: PAT up 346% on revenue growth of 174%
FY2023 has been strong growth period as Consolidated Sales grew 95.7% and crossed INR 2147 crores for the company.
The Product business contributed 62.4% of the total revenues in FY23. Room AC business at INR 1041 crores grew 251% during the period while the Washing Machines business had a growth of 56.6% YoY and company sold over 4.58 Lakh washing machines during the period.
Order book for product business remains robust and the company is on track to scale the product business significantly in FY2024.
Operating margins have improved QoQ and YoY due cost control, softer commodity prices and operating leverage.
4. Q1-24: 2X+ PAT on a revenue growth of 26% YoY
Improvement in Margins
Operating profit margin to 9.71% in Q1-24 vs 8.2% in FY23
PAT margin to 5% in Q1-24 vs 3.6% in FY23
5. Strong Q2-24: PAT up 73% and Revenue up 40%
New customer addition and deepening existing customer relationship remains the foundational to the product growth strategy and good progress is visible on the same. The two new facilities, one each for RACs and TVs respectively, along with the expansion of the Supa facility are on track and the Company is well placed for the coming RAC season with increased capacities and brand-new product offerings.
6. Strong H1-24: PAT up 96% and Revenue up 32%
In 1HFY24, Operating Margins improved by 257 bps YoY due to tight cost control and moderation in commodity prices. The Operating Cash Flows were strong at INR 2.08 billion in 1HFY24 versus INR 403 million in 1HFY23.
7. Return ratios: High quality earnings
6. Outlook: 30% revenue growth & 28% growth in operating profit
Company is seeing increased interest for business from new and existing clients, and we remain very confident on the future growth prospects of the business.
Guidance for FY24
i. Don't see any very specific risks to the guidance
We don't see any major risks into this. There might be, you know, general risks, but you know, the way government is trying to ban imports of a lot of things from other countries. So, we have a very high dependence on imports from countries like China. And it is true for the whole of the AC industry and the consumer electronics industry. So, we have to be very watchful on those things. But other than that, I don't see any very specific risks to the guidance.
ii. PAT margin to increase by Product Linked Incentive (PLI) Scheme
PLI benefits of FY23 not yet claimed
We are eligible for the PLI benefits of the last year, but government has still not opened and finalized the formats and application for claiming that PLI.
PLI benefits to be booked by Q4-24
We hope to get the PLI benefit probably in the fourth quarter but once the application is lodged and we get our confirmation that is the time we will start booking.
Example to understand impact of PLI on margins:
The PLI scheme provided a subsidy of 4% to 6% on the value of the additional production firms generate. The value of the production includes inputs purchased from the outside. For instance, if a Rs 10,000 mobile phone assembled in India contains Rs 9,000 worth of purchased components, the production unit only adds Rs 1,000 in value, with a potential profit of Rs 200. However, under the PLI scheme, the company would receive a subsidy of 5% of Rs 10,000, which is Rs 500. This would increase the profit on additional production to Rs 700, raising the profit margin from 20% to 70%.
ii. PAT to grow by 44% in FY24 with PLI
PAT without PLI at 3.5-4% on sales guidance of Rs 2800 cr implies that PAT would be Rs 112-98 cr leading to a 26-44% growth in FY24. If we add PLI, one can easily expect PAT margins at 4% delivering 44% growth in FY24
PAT margins: We think that 3.5% to 4% without the incentives is probably something which is sustainable over a long term period.
PLI for FY23: This year we are supposed to get INR15 crores, which is for the last year
PLI for FY24: For next year we will be getting INR30 crores of PLI benefit which will be for this year.
7. On track to meet FY24 guidance with PAT up 96% and Revenue up 32% in H1-24 at a PE of 47
8. So Wait and Watch
If I hold the stock then one may continue holding on to JWL.
Coverage of PGEL was initiated after Q1-24 results. The investment thesis has not changed after a strong H1-24. The only changes are the delivery of a strong H1-24 and the increased confidence in the management to deliver a stronger FY24
The business is after the H1-24 results is on track to at least meet or even exceed FY24 guidance on both the top-line and bottom-line.
One can hold with the expectation of the exciting time being promised by the PGEL management
Product business to drive growth for the company
Company is developing new offerings in focus segments and will be launching the same in coming quarters
Company’s management see exciting times ahead for all its business segments.
9. Or, join the ride
If I am looking to enter the stock then
PGEL had delivered PAT growth of 96% and revenue growth of 32% in H1-24. PGEL at a PE of 47 makes valuations reasonable as long as the growth momentum sustains till FY26.
PGEL is indicating a PAT growth of 44% for FY24 which makes the PE of 43 look reasonable.
For a new entrant into PGEL the money in the stock will be made based on FY25 and FY26 outlook and execution.
With a PE of around 47, one bad quarter can make the stock quite expensive very quickly
Positions need to be built over time over bad days when the stock is not doing well.
Previous coverage of PGEL
Don’t like what you are reading?
Let us know at hi@moneymuscle.in
Will make it better.
Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades