Elin Electronics Limited (ELIN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Elin Electronics Q1 FY '26 Earnings Conference Call hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bhavani Kumawat from Axis Capital. Thank you, and over to you, sir.

Thanks, Shruti. Good evening, everyone. On behalf of Axis Capital, I welcome you all to Elin Electronics Limited Q1 FY '26 Earnings Conference Call. Today, we have with us management represented by Mr. Kamal Sethia, Managing Director; Mr. Sanjeev Sethia, Director; Mr. Praveen Tandon, Chief Executive Officer; and Mr. Akash Sethia, Business Strategy and IR. We thank Elin Electronics for giving us the opportunity to host the call and would now like to 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.

Yes. Thank you very much, Bhavani. Good evening, ladies and gentlemen. This is Sanjeev Sethia. And we also have on call today our Managing Director, Mr. Kamal Sethia; our Strategy Head, Akash Sethia; and our CEO, Mr. Praveen Tandon. Thank you for joining our earnings call for first quarter fiscal year March 2026. Coming to our overall performance for the quarter. Operating revenues for the quarter was INR 295 crores against INR 293 crores in the same period last year, up 1% on a Y-o-Y basis. Quarter-on-quarter was down because of seasonality. Our revenue growth was impacted because of two key reasons: higher-than-expected rains that impacted our cooling product businesses; fans, fan motors and AC motors and components thereof. Decline in lighting business from our key customer, Signify, who has created a JV with another contract manufacturer, as you know, Dixon. This is as per our guidance shared earlier by us. We will cover the entire lighting business update and way forward later in the call. Consolidated EBITDA for the quarter was INR 17.6 crores against INR 13.3 crores in the same period last year. This has been driven by 130 basis points of higher gross margin due to better sales mix and efficiency in procurement and quality. Also, it is pertinent to note that within employee cost, there are nonrecurring items of INR 1 crore, and therefore, recurring EBITDA is INR 18.6 crores for the quarter, with an adjusted EBITDA margin of 6.3% against a reported margin of 5.9%. Therefore, even with a modest 1% increase in revenue, adjusted EBITDA has increased by 40%, showing the strong operating leverage in the business. Consolidated PAT for the quarter was INR 9.4 crores against INR 5.9 crores in the same period last year. Our liquidity position remains strong with net cash of INR 103 crores as at June 2025. Our CapEx spend in Q1 FY '26 was tightly controlled at INR 6.5 crores. We remain confident to deliver on our stated guidance. I would like to take this chance to reiterate our aspiration and strategy for the coming year. The aspiration is to be one-stop shop for all high-volume home appliance and durable needs of OEM and our customers. This includes our existing business, lighting, fans, small appliances and our planned new businesses, medium appliances such as air fryers, air coolers, chimneys, OTGs, et cetera. We will continue to look for such products to add in our portfolio over the next several quarters. Now I would like to share with you the performance and strategy in each of our business verticals going forward. In Lighting, Fans and Switch segment, the revenue for the quarter was INR 80.1 crores against INR 89.4 crores in the same quarter last year. This was primarily driven by a decrease in revenues from Lighting, which was partially offset by increase in revenue from Fans. LED lighting ex flashlights declined from INR 63.4 crores last quarter to INR 39.5 crores in the current quarter. This was largely led by volume decline from our key customer, Signify. They have moved businesses to its recently formed JV. Compared to quarter 4 fiscal year '25, we have experienced a revenue decline of INR 10 crores for the quarter or INR 40 crores annualized. As shared in the last quarterly call, this is in line with our estimated -- estimate of reduction in revenue of INR 50 crores on an annualized basis for the year. Now coming to the positive effects of the change in competitive scenario. In Lighting business, we have added three new customers in the lighting space, one of whom is a top 5 player in the Indian market. We expect to add another 2 to 3 customers by the end of this fiscal year. While they have started off small, we expect that these customers will ramp up to their peak requirement over the course of next 2, 3 quarters. Our outlook is that by the end of quarter 4 of this fiscal year, our monthly run rate -- as compared to our business with Signify, our monthly run rate will be substantially higher because of the addition of these new customers. So Lighting business, which has been flat for us for the last 3 years, I think from end of this year and the coming fiscal year, we should see substantial growth. Moving to our Fan business. While our ceiling fan business has done well on a year-on-year basis, it was impacted by higher-than-expected rains. Our revenue for the quarter is up 2x year-on-year. While Q2 is seasonally weak for fans, we expect this to pick up strongly again in quarter 3 and continue to do well in quarter 4 as well. I would like to highlight that our launch of BLDC products in the last 2 years with customer Signify has gone quite well, and the market reception has been very encouraging. Signify itself is very bullish for the fans business in the coming season. And we will be adding another 3 or 4 new products in this segment with Signify. Traditionally, in the off-season, our fan business has seen a major decline, but due to the good acceptability of our new designs, the business -- we have -- average business is much higher than what we have experienced earlier. So I think our fan business, especially BLDC fan business is going to do fairly well in the coming year. And similarly, our TPW business is also picking up. We have -- we are streamlining our TPW business from Goa to Ghaziabad in the coming season. We expect that this will help us generate increased business. As an overall product, we can offer a customer a much better deal from our Ghaziabad unit. Moving on to the Home Appliance segment. Revenue increased from INR 63.6 crores last quarter to INR 68.6 crores this quarter. Kitchen and Home Care revenue increased by 8% year-on-year. This was on the back of improvement of revenue from mixer grinders and toasters. We are particularly enthused about growth prospect of OFR for the upcoming season. Given that we started this only last year, this has scaled up well in a short span of time. Personal segment -- Personal Care segment was up 9% year-on-year basis. We expect this to further get stronger in the coming quarter. Future growth is going to be driven by this segment on our strong focus on also growing ODM share of the business. While still nascent, we expect this to grow strongly over the next several quarters. A quick update about the medium appliance category. While these will be built out of Bhiwadi, which will start next fiscal, we have already initiated discussions with customers for this. For select products such as chimney, we are in reasonably advanced stage of discussions and are hopeful of getting business from one of the leading OEMs of this segment in the country. For other products such as coolers, we will provide an update in the subsequent quarter. We had shared our optimism in last call about our relatively nascent export business. We remain in exploratory talk with few OEMs to localize in India and export to the U.S., Western world. While still in early stage, the engagement levels have been encouraging. Further, the government's stance on local manufacturing and disincentivizing imports via BIS and QCO makes us further optimistic on our business going forward. Moving on to the FHP motor segment. Revenues were flat at INR 47 crores, INR 48 crores. This segment has also been impacted by the rains. We expect this segment to pick up strongly in Q2 and Q4. We see -- specifically, we see the chimney motor business growing very -- having a very healthy growth in this coming quarter. And of course, what I'm talking about motors is just reflecting on third-party sales. Going forward, we are adding cooler motors to our category, which we expect to launch by the coming October, November of this year. We have also started the BLDC motors for chimney, and our first billing will happen in this month. BLDC chimney is also -- chimney motors is also a rapidly growing segment, and this will also further add to our overall growth in the motor business. There are two other categories which have a fairly large market in India, but are currently dominated by imports. With BIS coming in September of next year, we see that there's an opportunity in these two categories, namely washing machine motors and AC IDU/ODU motors. We are having extensive talks with suppliers of lines of these motors, and we will shortly be taking a decision to enter these categories also. Now I would like to set our guidance. For the full year FY '26, we believe revenue will be in the range of INR 1,350 crores, representing a growth of 15% over FY '25. EBITDA for the year is forecast at 6% to 6.5% margin. CapEx for the year will be INR 100 crores to INR 120 crores split at INR 60 crores to INR 65 crores for Phase 1 of the new plant in Bhiwadi and INR 50 crores for growth of the existing business and factories. Once the new facility is stabilized in 2 years from starting, this would also help us drive our return on capital employed since cash sitting idle on our balance sheet has been a drag on the capital employed. A quick update on the Bhiwadi factory. Construction has commenced in July '25, and we expect the plant to be ready and operational by March or April of '26. We expect revenues of around INR 140 crores in FY '27 and INR 250 crores in FY '28 from this facility, reiterating that full revenue potential of the plant is INR 550 crores to INR 600 crores. Further, we expect a steady-state EBITDA of 7% to 7.5% for this plant. At these levels, return on capital employed for the plant will be 20%. With this, we conclude our opening remarks. We can now open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Kunal Mehta from Sunidhi Securities.

This is Bajrang Bafna. Congratulations for a good set of numbers, though top line was flat, but you kept on the margin improvement, what we have seen in last quarter. So just a strategic question purely from a macro perspective. We have constantly seen the government is embarking on a journey where they are pursuing an agenda that most of the items that India is importing from China, almost 70 to 80 products, which currently most of the larger brands are importing from China and putting their brand and selling in India. So that thing government wants to hand in India, and there are multiple articles and multiple announcements that has come from the government side where the deadlines are somewhere ranging from March '26 to almost September '26. So we just want to understand that what is the ground reality on this? Are the brands are really moving to companies like us for the contract manufacturing? And what is the response that we have seen in last 2, 3 months, whether larger brands are coming forward for contract manufacturing to us? And how this particular thing is going to move? If you could elaborate on that will be really helpful for a broader direction for companies like us.

Yes. So definitely, we are seeing this movement happening post the implementation of BIS. Certain categories, if we see where we ourselves have benefited is like steam iron, kettles, OFR heaters. Two categories, which I mentioned in my call is like one was the washing machine motor and the AC IDU/ODU motor, which have a fairly large market demand in India. But unfortunately, more than 80% to 85%, to my knowledge of the demand is currently fulfilled by the Chinese companies. So I think we are seeing a lot of movement of companies taking a call of investing in infrastructure in India to gear up for the capacities as and when BIS comes in. So definitely, I mean, across product categories, like I've just mentioned a few, but I hope -- for example, flashlight torches is another category BIS has just come in for July of this month. There, again, we are seeing a localization happening. So overall, I think there's actual movement happening on ground. Companies are trying to source more and more from India. That's our -- I mean, our thought process in this matter.

And just one more aspect to this. We are also seeing the most of the global brands are also have a tendency for China Plus One, where a couple of brands wants to move their production on the side to India as well. So are we seeing some inquiries on that side as well where this could be a reality. We know that the tariff issue has recently emerged where India is right now getting charged higher than China. But hopefully, going forward, this structure will change and probably we will be -- it's a strategic question, suppose the China becomes, let's say, the 40% is the final rate and India becomes, let's say, 20% is the final rate. And if there is a 20% rate differential between India and China, can we see some of the products in our basket becomes viable to be exported to these global brands? Is there a possibility of that sort exist in this sector or not, just your sense on that, sir?

Definitely, there's a possibility. So we have a live example for us. So out of our Goa factory, we have just started exporting a category of exhaust fans to the American market. Of course, like you mentioned, just with the duties coming, there is a slight of a question mark and how it goes. But this thing has started happening. And we have also got certain queries of companies willing to import from India as part of China Plus One. We are hoping that this duty aberration for India is very temporary and it gets resolved soon. But definitely, companies are looking at moving supply chains from China. And we have an example of a category where we've already started exporting. We've already, I think, sent in about 11 containers for this particular product to our U.S. customers. So it's happening, but probably not at the speed at which the companies want because there is a reality also that the general manufacturing ecosphere in China -- China is far more advanced than what it is here. Component availability, whether it's electronics or other assemblies and thereof. And in China, availability because of the strong 20-plus years of manufacturing, the biosphere is much more conducive over there as compared to India. So it's happening. So it's developing here, but it's probably a little much slower than what these companies would like. So my overall take is that, yes, that shift is happening. Companies are coming over here. But overall, I think across India, we have to speed up our speed of response so that it happens much faster.

[Operator Instructions] the next question is from the line of Dhruv Shah from Ambika Finance.

I just have one question. Sir, how confident are you on still maintaining the 15% growth considering there has been unseasonal rain in Q1. And you -- is it -- so I just wanted to understand that part of the business.

Dhruv, thank you for your question. Look, like we highlighted, we are reasonably confident that we should be in and around the INR 1,350 crore mark. Not all of this is going to be back-ended. You'll start seeing reasonably strong growth coming from quarter 2 itself. The structure of the business is such that there is a little bit of seasonality where Q2 and Q4 are higher revenue quarters followed by Q1 and then by Q3. So that's the nature of the business. So we are reasonably confident that we should hit our guidance, and you will see proof of that coming in, in Q2, Q2 itself.

Okay, Akash. And Akash, just one more thing. We mentioned that by Q4, we should see a monthly run rate more in lighting more than what Signify used to give us the revenue, right?

Sure. That's correct.

[Operator Instructions] The next question is from the line of Bhavani from Axis Capital.

So sir, first question on the inventory side. I just wanted to understand at what kind of inventory we are currently sitting at particularly in...

Currently -- as of June, we are operating at approximately 40, 42 days of inventory. While this is higher than what we would like, but the fact of the matter is that Q2 is a big kind of quarter for us. So keeping in mind the upcoming offtake that we have planned basis discussion with our customers, we are carrying slightly higher amount of inventory in order to kind of meet the demand.

Sure. Sir, what is the normal level of inventory which generally we keep?

So historically, this used to be the normal. It was in the range of between 35 and 45 days. However, one of the targets that we have kind of set out for ourselves and we've established at the start of the year was to bring down overall working capital levels to about 45, 50 days kind of number on a net basis. So this will largely be driven by improvement in inventory as well as some improvement on the payable side. So it is in that context that I mentioned that inventory is higher than what we would like. It is not out of the ordinary from a historical perspective, just that not as reduced as we would like relevant in respect to our guidance.

Got it. And sir, what is the current capacity utilization across all the segments, if you can just help us?

There's no -- I mean, easy answer to that because it varies by segment. But if I were to just give you a very, very rough number, it would probably be in the range of early 70s kind of number. I mean, 70%, 72%, 75% on an average.

Across the categories. Okay.

Yes. Obviously, some are better, some are lesser.

Understood. And last one question is particularly just to understand -- sir, how the current demand is shaping up because we are also hearing about that the festive season should do well. So are we witnessing some kind of uptrend over now or there is some early signs from your customer that with regards to orders, particularly for the season?

No, no. For -- I mean, if you're talking about festive demand, which is in the current quarter where we are sitting in the run-up to Diwali, which is a large part of Q2 and 1 month that falls in Q3. So far, so good. We are happy to share that inquiries are good, demand is good, orders are good, more importantly. So we -- like we said, we should be doing quite well in Q2.

[Operator Instructions] The next question is from the line of Kunal Mehta from Sunidhi Securities.

My first question would be, sir, in this quarter, we saw a gross margin improvement of about 1.6% Y-o-Y. But over last quarter, if you see the employee benefit expense has gone up from 12.9% to 14.5%. Can you just explain this [indiscernible] analysis a little better, why the gross margin has improved but why the employee benefits have again gone up?

So okay. So I'll just take it step by step. So gross margins have come up, like we have said, two parts. So one is on the sales mix, where if you have a certain category of products that have a relatively higher gross margin, the share of those products goes up, which in our case is the components business. Then obviously, overall gross margin tends to move up. Second is, like we mentioned, we've put in place an operational excellence team that is working on improving quality, reducing wastage, rejection, all of that as well as efficiencies in procurement. So these are the reasons why gross margin has improved on a Y-o-Y and a Q-o-Q basis. Regarding the slight decline in employee metrics, there are two reasons. One is, obviously, there is an element of increments that have come in. So last quarter was last fiscal. From 1st April, there have been certain increments that have come in, which is normal for, I guess, everybody. So one is the impact of that. And two, like we pointed out, there is a nonrecurring element of gratuity to the extent of about INR 1 crore that is sitting in this quarter that was not there in the last quarter. So if I adjust for these, then we are good. You'll see the benefit that we kind of spoke about very clearly visible in upcoming quarters. We totally stand by the guidance that we've given, and those numbers will become kind of clear in the upcoming quarters.

The next question is from the line of Sahil Doshi from Thinqwise Wealth Managers.

Congratulations on a great set of operating metrics in this quarter. Firstly, I just wanted to clarify on the lighting comment. You said at the exit rate, we should be at a higher rate this thing. So could you just quantify, is it from the March end? Or how are we looking at this?

What I mentioned was in terms of revenue, so if I can quantify it, our average revenues from Signify used to be at around INR 19 crores to INR 20 crores kind of number a year for last 2, 3 years. In fact, it's been declining. So what I mean is by the end of quarter 4, our per monthly revenue will be significantly higher than INR 19 crores a monthly rate. So even after a drop in the average rate of procurement, Signify is not becoming absolute 0, they will still be our customers. But our addition of 4 to 6 customers by that quarter should give us at least a 20% to 30% increase of the nominal buying what Signify used to do from us.

Understood. And just to clarify this further in terms of -- do we have any more clarity from Signify as and how do they plan the entire transition? And do we envisage further losses in the years forward?

So we do have clarity. So there are basically two types of the business at Signify is divided into two segments. One is what they call the consumer segment and the other is the professional segment. Professional segment business as of -- as per the information given by them will not be moved to the JV. So that will continue with manufacturers like us and a few more like us. So that business stays with us. And a portion of the consumer business will move. I believe a major chunk of what had to move has moved, they will still also buy consumer products from us. So I expect that probably the majority of the movement which has to happen has happened. Maybe it could be a little more. But at the same time, we are confident that the addition of these new customers will more than make up for the loss of business from Signify and then add to our overall revenues. So that in the coming fiscal, I think our lighting businesses overall should see a significant growth.

Okay. So when you -- so FY '26, we should close as a positive growth versus last year is what you would indicate basically?

Sahil, FY '26 could be touch and go. But FY '27, most definitely is going to be a very strong growth over '26. I think, look, the way to look at it is orders have already started to come in. But you will appreciate that when there is a supplier shift, there are all of the formalities such as BIS and all of that to be done again, right? Because BIS is a production concept, not a customer concept. So that has to be redone, which takes some amount of time. When -- once that is done, the whole shift in supply chain is gradual, right? So like I've mentioned, we already have three customers who've come in, one of whom is a top 5 in the Indian lighting space. We are very confident that the numbers will come in based on detailed discussions with the new customers. Now whether FY '26 overall will grow or not, very honestly, as of now, it's a little bit tough to say. But FY '27 definitely will be a very, very strong growth over '26 in terms of the lighting business.

Perfect. I appreciate that. And I just want to check that I'm hoping that this will come at a much higher or a better profitability metrics as a whole.

Look, I won't say much higher or much [ lower ]. It would be, in some cases, marginally better, in some cases, somewhat similar. So I don't want to guide you to expect much higher profitability. Yes, what one could expect is that while gross margin should be similar with maybe a marginal upward bias, EBITDA should start to get better because once your overall revenues tend to go up, the concept of operating leverage kicks in.

I'll just add to that. There will be another advantage. So some of these customers who we have added or are in the process of adding will be lighting first, but they are also selling similar appliances of what we make. And so maybe we begin with lighting, but once our engagement with them increases, I'm hopeful that we'll be able to add some other categories with that we'll be able to cross-sell. So I think you'll see the benefit of this in our other businesses as well.

Understood. Understood. And just other segments, I just wanted to check. So we've seen strong growth in medical diagnostic cartridges for the last 2, 3 quarters. If you can just talk about if there is any traction we are seeing, how this business could evolve over the next 2 to 3 years? Or what is the potential there? And second is on personal care. I think for the last 8 quarters, we've been in the range of around INR 25 crores, INR 30-odd crores, and the growth seems to have stagnated there. So what's the outlook here on for both?

Sure. I'll just take it step by step. So on the medical cartridge, piece, look, it's a fantastic business to be a part of. So firstly, we are the only third-party manufacturers aside of the principal company that does this, right? So company is Molbio. Aside of them doing it themselves, only we do it, and this is primarily because of geographical proximity. We are situated in the neighboring region of the factory. Just in terms of how the business works, this is primarily from our principles perspective, a tender-based business, right? So both the Indian as well as global governments release tenders, which these guys participate in based on when they win and if they win, orders kind of get passed on to us. So you will notice that this is a bit of a lumpy business. It's difficult to predict with a high degree of accuracy in terms of how this will pan out. But we do have visibility for the next 6-odd months that numbers should broadly continue in terms of the run rate we currently are at. Beyond that, I don't have visibility, so I don't want to give guidance with this specifically. I'll just pause here. If there are any queries around medical, let's just address that first and then move on to the other questions.

Sure. No, that helps. Any new wins or can we add capabilities in this business is something medical is something...

So look, as of now, this business is single product, single customer kind of segment. Yes, we are on the lookout. But as of now, no real news to share. As and when there is, we'll be, of course, intimating all our shareholders of the same. Sorry, what was your...

On personal care...