Elin Electronics Limited (NSE: ELIN) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Sanjeev Sethia — Whole-Time Director
Praveen Tandon — Chief Executive Officer
Analysts:
Nikhil Kandoi — Analyst
Drashti Shah — Analyst
Arafat Saiyed — Analyst
Sahil Doshi — Analyst
Arnav Dharamshi — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Elin Electronics Limited Q2 FY ’25 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nikhil Kandoi. Thank you and over to you, sir.
Nikhil Kandoi — Analyst
Thank you, Yusuf. Good afternoon, everyone. On behalf of JM Financial Institutional Equities, I welcome you all to Elin Electronics Q2 FY ’25 Earnings Conference Call. Today, we have with us management represented by Mr. Kamal Sethia, Managing Director; Mr. Sanjeev Sethia, Whole-Time Director; Mr. Praveen Tandon, Chief Executive Officer; and Mr. Akash Sethia, Head of Strategy.
Without taking much of your time, I would like to hand over the floor to the management for opening remarks, post which we can open the floor for Q&A. Thank you and over to you, sir.
Sanjeev Sethia — Whole-Time Director
Thank you very much, Nikhil. Good evening, ladies and gentlemen. This is Sanjeev Sethia, Director at Elin Electronics Limited. We also have on call today our Managing Director, Mr. Kamal Sethia; Mr. Akash Sethia, who looks at strategy, and our CEO, Mr. Praveen Tandon. Thank you for joining our earnings call for the quarter and half year ended September 2024.
Coming to our overall performance for the quarter, total income for the quarter was INR3,071 million against INR2,754 million in the same period last year, up approximately 11% on a Y-o-Y basis. On a quarter-on-quarter basis, it was up from INR2,959 million by about 4%. The key factor for increase in revenue on a year-on-year basis is better volume off-take in the motors and small appliance category. This has been partially offset by a decline in revenue in the lighting and fans category.
Gross margins declined by 90 basis points on year-on-year and 160 basis points on quarter-on-quarter on the back of higher and more volatile raw material prices, especially aluminum and copper.
Consolidated EBITDA for the quarter was INR113 million against INR99 million in the same period last year. Key factors for this are as follows. Revenue growth of 11% year-on-year, which was partially offset by a decline in gross margins of 90 basis points year-on-year. We have strengthened our organizational structure with key hires that have reflected immediately in the cost, but will take some time to show results leading to lower EBITDA margins. We have also taken provision of INR3.5 million during the quarter pertaining to ESOP cost.
Consolidated PAT for the quarter was INR48 million against INR39 million in the same period last year. Our liquidity position remains strong with net cash of INR984 million as at September ’24. This is a substantial improvement over last year’s net cash balance of INR823 million, which is on the back of improvement in working capital.
Our capex in quarter two FY ’25 was INR183 million, and half year of ’24 — H1 FY ’24 was INR218 million. This is largely on account of new building space capitalized in Ghaziabad of INR97 million that will produce OFR, OTG, and TPW fans, and its related investment in plant and machinery and tools aggregating to INR98 million.
Our working capital cycle as at September ’24 is at net 58 days against 63 days last year and 68 days in March ’24. This is largely on the back of securing better credit terms from our vendors. We are also focusing on optimizing inventory levels going forward. We remain on track to further improve our net working capital days to 45 to 50 days by March 2025.
Now, I would like to share with you the performance and strategy in each of our businesses going forward. Please refer to Slide 5 of the presentation. In Lighting, Fans and Switch segment, the revenue for the quarter was INR666 million against INR796 million in the same quarter last year. This was primarily driven by a reduction in revenue from the LED lighting segment by INR143 million. LED lighting ex-flashlights declined from INR643 million last quarter to INR500 million in the current quarter. This was largely led by price erosion in certain categories and volume decline in the baton category. The largest volume decline has been witnessed in the baton category. The price erosion has been led by a combination of intense competition as well as changes in specification and engineering.
Regarding our fan business, revenue from our TPW fan business is ramping up. From December 2024, we will be adding a Top 5 customer as communicated earlier in our quarter one earnings call. Our ceiling fans should also see better offtake starting quarter three, which is the start of the season.
Please refer to Slide 6 of the presentation. In the Small Appliances segment, revenue rose from INR690 million last quarter to INR829 million in this quarter. This was primarily driven by strong growth in the personal care business. Kitchen and home care revenue increased by 8% from INR459 million to INR494 million year-on-year. This was on the back of improvement of revenues from irons and bar blenders, which was partially offset by a decrease in mixer grinder sales. Personal care segment showed strong growth from INR231 million to INR336 million year-on-year, largely on the back of new product launches, sterilizers, hairbrush, and new models of trimmers. Hair dryer volumes were also strong.
Please refer to Slide 7 of the presentation. In the FHP Motor segment, revenues were up from INR557 million to INR741 million, primarily driven by increase in revenues from motor of consumer durables by INR131 million, which was on the back of sharp volume growth in mixer grinder and chimney motors. Revenue from sales of fan motors increased from INR43 million to INR68 million.
Status of new products in the pipeline is shared on Slide 10 of the presentation.
Overall, quarter two FY ’25 has been a mixed quarter for us. Revenue growth of 11% would have been even better if not for the weakness in lighting business. It is also pertinent to share some perspective on the macro situation. In our view, overall demand still seems tepid in the consumer durable FMEG space. We are seeing this across categories of lighting, fans and small appliances. Further, due to sluggish demand, there’s heightened competition within brands. This has led to pricing pressure on companies like us manufacturing for them. The tepid demand scenario has also meant that our capacity utilization has been below par. Most categories are operating between 55% to 65% utilization level single shift basis, with the exception of lighting business where it is at around 70%.
For the full year FY ’25, we believe revenues will be within the original guidance of INR1,165 to INR1,200 crores, margins will be under pressure. This should be viewed in the context of the larger macro situation. As always, we remain committed to drive value for our customers and shareholders alike.
With this, we conclude our opening remarks. We can now open the floor for Q&A. Thank you so much.
Questions and Answers:
Operator
Thank you very much, sir. [Operator Instructions] First question is from the line of Drashti from Thinqwise. Please go ahead.
Drashti Shah
Hello, sir. Good evening. Sir, I wanted to understand how are we progressing in the lighting division in terms of new customers, any potential customers that we are eyeing for and when can we expect revenue being driven by them? And also in the lighting division, is this decline of 22% purely price or is — this is also because Signify has not given few products to us, so had now started looking at other customers for those products, because now they are free to go anywhere for certain categories. So I just wanted to understand more on this lighting revenue decline of 22%. And what would be the volume growth for us in this lighting division in the quarter two?
Sanjeev Sethia
Okay, thanks for the question. Let me take up the first question with respect to addition of new customers. We are in touch with four or five customers for the lighting business. They’re at various stages of approval because we have to be onboarded with certain customers where we are currently not supplying lighting products to them. And so our idea is that probably the queue between January and March, we should be able to add at least two customers to our lighting
Portfolio.
Overall, as we explained, lighting demand is a little tepid or sluggish. So even with the customers who we have a good business relation with, there is no actually strong demand that they are looking very aggressively for new customers. So that’s why it’s taking a little time. We are also trying to develop some new product categories in lighting, especially linear lighting, where we feel that there is a demand and we should be able to offer products which are a little different and unique. And those products will also help us in adding new customers.
With respect to the decline in 22%, it was mainly on the back of, let’s say, a quarter-to-quarter because of a sharp decline in the baton business. Overall, if you see on a half year-to-half year basis, overall decline is about 8%. So it’s not a thing that Signify is now free to buy and they’re not picking up volumes from us. I mean, Signify, the major buyer, always had a number of suppliers and they would share — the share of business would be divided amongst it. So overall, in a half and half year business, or even now with nine-month data available with us, the overall business by value is at around 7%, 8% down, mainly on account of the price erosion, which we are seeing in this category. It’s not that Signify — we are not a preferred or a strategic supplier to Signify. I mean, they still continue to buy, and I believe we will still be one of the largest customers to Signify in India.
Drashti Shah
Understood, sir. And sir, our gross margins have declined materially, year-on-year basis and [Indecipherable]. So what led to that? Is it just purely because of the mix change or any particular product which has led to this decline in gross margins?
Praveen Tandon
Drashti, look, in general like we outlined in our opening remarks, raw material prices, especially aluminum and copper have been both, in general, higher as well as more volatile. From our experience, as long as there is continuity of pricing, we are able to pass on pricing but volatile pricing which means it’s up for five days and then down for the next five days hurts our cause. So this is the key reason why we’ve seen margin decline. Now how this pans out remains to be seen. If it continues to remain volatile, margins could be under pressure, which is what we’ve highlighted in our opening remarks. However, if it reverts back to being stable, margins will revert back soon enough within the quarter because we follow, with most of our customers, pricing with a lag of one quarter. Hope that clarifies.
Drashti Shah
Understood, sir. Sir, what are the EBITDA margins that we are looking for, for the entire year? And what would be the employee cost that we are building in the new EBITDA margins that we are thinking about?
Praveen Tandon
Look, in our earlier call, we had guided for an EBITDA of approximately 5%, 5.2%, 5.3%. If raw material prices continue to be volatile, this could come under pressure, so which is what we’ve kind of highlighted. Now the quantum is a little bit tough for me to quantify because, I mean very frankly, even I don’t have a view on how raw material prices will behave. If they revert back to being steady, then we hold on to a stance of 5% EBITDA. If they continue to be volatile, it is very difficult for me to give you an accurate assessment of what they will be at, right? That’s point one.
In terms of what employee cost will be, so look, we are done in terms of adding the talent that we had to. All the talent that we needed to add has been added. So you can look at our current kind of employee cost for the quarter and assume that as a steady state number going forward. Of course, that remains subject to direct labor cost, which will increase if there’s an increase in revenue.
Drashti Shah
Understood, sir. Thank you. This is very helpful.
Operator
Thank you. [Operator Instructions] Next question is from the line of Arafat Saiyed from InCred Research. Please go ahead.
Arafat Saiyed
Yeah. Hi, sir. Thanks for taking my questions. My first question on capex detail. You said from the first half, the capex close to INR18 crores. So just wanted to understand where you spend this amount and again, what’s the total capex plan for FY ’25 and ’26?
Praveen Tandon
Sure. So Arafat, just a clarification. The INR18 crore number is for quarter two and for the first half entirely it is INR21.8 crore.
Arafat Saiyed
Fine, got it. And what we are looking for FY ’25?
Praveen Tandon
For the full year FY ’25, we should be in the range of INR35 crores to INR40 crores.
Arafat Saiyed
And post that, sir?
Praveen Tandon
Also, FY ’26, as of now should be within that range. Now, just one caveat. We have a plot of 4 acres in Bhiwadi, which we’ve kind of mentioned earlier. This capex does not include capex for building a new facility. So this is on the existing three plants. As and when we decide to build out Bhiwadi, that capex will be over and above in addition.
Arafat Saiyed
Got it, sir. And sir, my next question is on your major client addition, which you added in past, let’s say, past couple of quarters and also the new product which you introduced. Can you throw some light on that?
Praveen Tandon
Look, we can give you qualitative comments because with most of our customers, we have NDA issues. So we are tightly bound by NDAs in terms of disclosing specific names. So I can give you like it’s a Top 5 in a fan or a Top 5 in a lighting, so qualitative remarks, but unfortunately due to confidentiality issues, cannot name the customer directly.
Arafat Saiyed
Got it. And sir, I just want to understand what’s happening, let’s say, in terms of lighting. I know you have started in last couple of quarters the [Indecipherable] double-digit revenue growth. But I guess the pricing is the biggest issue for you guys as well, so price erosion. So throw some light on that, how the industries look like in the next couple of quarters.
Praveen Tandon
Can you — Arafat, sorry, line was a little bit disturbed. Can you just repeat your question, please?
Arafat Saiyed
Sorry, sir. So I just want to understand outlook on EMS of lighting. How it has fared in the past and what’s your outlook for next couple of quarters? And I believe the prices have eroded significantly in the past. So how you look at the pricing strategy by you guys?
Sanjeev Sethia
Okay. In general, if I look at, let’s say, some of the big players in the lighting, I mean, in their performance last couple of years and even within this year, it’s a little stagnant in terms of the market, especially Signify losing market share and overall growth is also not very bullish. So I think at least in the next quarter or so, this kind of trajectory of growth is going to continue and there will be price pressure for OEM suppliers like us to drive down the prices so that price pressure is going to continue maybe coming quarter, two quarters. We see some, especially let’s say for lighting today, polycarbonate is a big raw material. There was a substantial price increase, in fact, about two, three months back. There is some relaxation there, but overall, price pressures are going to continue
In this business.
We don’t see too strong a demand for the commoditized products like bulbs and batons, somewhere I think growth is slowing down. Growth in this product and margins in this business has come into a little like linear lighting where offices are traditionally moving to now a little bit of fancy or it’s like a designer lighting, I might say — if I can say. Instead of simple 2×2 kind of office lights which used to be used, now it’s going for linear where each architect or specifier gives a new design. That’s where we see growth coming, margins are also a little better there.
Monument lighting or building lighting, those are also certain category outdoor lighting, the fancy way we can do tunable lighting, change the colors. Those categories are also seeing better growth and little better margins. And from our point of view also, we are also looking to grow in that business so that we can increase our overall margins and improve our business performance and growth as far as lighting is concerned.
Arafat Saiyed
Got it. And, sir, lastly, on the new product launches, you launched electric trimmer, electric kettle, and all this is likely to launch in the next couple of quarters. So just want to understand, let’s say by FY ’26, what is the contribution of, let’s say, new products? And also beside these, any new product addition will be happening in the next two years?
Praveen Tandon
So Arafat, in terms of the next year, new products will still not be a very large number. The reason is that there is a kind of a general ramp-up time taken for any new product, any new category that we launch. It typically takes anywhere between two to four quarters to reach steady or peak kind of levels. So given the fact that, for example, you spoke about kettle or any new category that is launching next year, typically it takes, like I said, two to four quarters to kind of achieve steady scale revenue. So overall, if I take all the new product categories, which means that the product categories that we’ve launched this year, as well as those that we will launch next year, the contribution of these combined for the revenue of next year should be in the vicinity of anywhere between 12% to 18%.
Arafat Saiyed
Got it, sir. That’s it from my side. Thank you very much.
Praveen Tandon
Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Sahil Doshi from Thinqwise. Please go ahead.
Sahil Doshi
Hi, sir. Good afternoon. So my question pertains that last quarter, we said we’re confident of margins of around 5.5% for this year. And second was in terms of working capital. We were looking at getting it to around 45 days. So just wanted to check on this, where are we in that path, and how do we think about these two goalposts for us?
Praveen Tandon
Sure, thank you for your questions, Sahil. I’ll address your first question first around margins. Yes, we did highlight that we will be in the 5% to 5.5% range EBITDA for the full year. That said, there have been very volatile and increased raw material prices in Q2, especially in aluminum and copper. Now, assuming these prices remain where they are, margin should normalize because we work with a pricing lag of a quarter with our customers. However, if this volatility continues to persist, there could be margin pressure. The only point of highlighting this upfront was that, as a responsible management, we believe that it is our duty to communicate with our stakeholders, the business environment as we see it. I don’t have a specific view on how raw material prices will pan out, nobody does. So the idea of highlighting this was just to sensitize everyone that if they continue to be volatile, prices will be under pressure. If they remain steady, then margins will normalize, right? That’s point one.
Point two, on our working capital, we are making reasonable progress. Like we mentioned in our earlier remarks, if you look at March where we were at 68 days, September we’ve already come down to 58 days, largely again on the back of securing better credit terms from our vendors. We should be on track to get to approximately 45 to 50 days of net working capital by March 2025. Like we mentioned earlier, this will be largely on the back of creditors and also somewhat on the back of inventory. Debtors or customer days are going to continue as is or in the range that they currently are at. I hope that answers your question.
Sahil Doshi
Thank you so much. [Technical Issues]
Operator
Sorry to interrupt, Mr. Sahil, your voice is breaking.
Sahil Doshi
Thank you so much. The other question pertains to the motors for the ACs [Technical Issues]
Operator
Mr. Sahil, you’re not clearly audible. Your voice is breaking in between.
Sahil Doshi
Hello? Am I audible now?
Operator
Yes, please proceed.
Sahil Doshi
Yes. My question pertains to the ODU motors for the AC division. So could you just talk about what is the traction there and what is the outlook there for the next couple of years?
Sanjeev Sethia
Yeah. Praveen, can you come on this? AC ODU motors, please? Hello?
Operator
Sir, the line for Mr. Praveen got disconnected and we are unable to connect with him.
Sanjeev Sethia
So we have a pretty good outlook for AC ODU motors from primary customer. And we are also on the verge of adding at least another three major customers for the AC ODU motor. So I think the last season was our first season for the AC ODU motor. And we are ramping up our capacity to meet the requirement of AC motors, fairly healthy requirement for this coming season.
Sahil Doshi
Sure, sir, thank you. And just the last question, sir, on the chimney. We maintain now FY ’26 as the launch. So is there some delay there in terms of approvals or acceptance or could you just give us a status on that as well?
Praveen Tandon
Sorry, this was specifically with regards to chimney?
Sahil Doshi
Chimney and the new product launches. So we’ve seen some kind of calibration in terms of the launch pipeline date. So if you can just talk about some of those categories as well?
Praveen Tandon
So what we’ve highlighted in the presentation, there are four or five status of those new product launches. So a new model of trimmer is something that we launched in Q2 already. Similar is the case with OFRs or those oil heaters. Kettles as well as OTGs are on track to launch in quarter four of this year, which is around the Feb and March or the second half of quarter four, the fag end. Chimneys, however, earlier the plan was to be able to launch by Feb or March of this year. However, that is facing some amount of delay in terms of the whole design and prototyping process. So we’ve just mentioned that, that should see commercial launch sometime in FY ’26, that too the second half of fiscal ’26.
Sahil Doshi
Okay. And each of these categories will at least expect a INR50 odd crore revenue as a threshold. Is that a fair understanding?
Praveen Tandon
You will expect the number that you spoke about definitely for the new model of trimmer, definitely for OFRs, most definitely for chimneys as and when they launch. Kettles should be — probably first year won’t be around there, but by the second year should get to those numbers. Similar is the case for OTG. OTG won’t be there in the first year. And when I say first year, I mean first year being FY ’26 because we are launching only in Feb or March ’25. So FY ’26 for kettles and OTGs will not be near the INR50 crore mark, but probably the year after, but definitely for trimmers, OFRs definitely next year should be more than the INR50 crore revenue mark. Chimneys, as and when we launch will be more than INR50 crores.
Sahil Doshi
Perfect. Thank you so much and best wishes for the future. Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Arnav Dharamshi from Ashmi [Phonetic]. Please go ahead.
Arnav Dharamshi
Hi. Thank you for the opportunity, sir. My first question is with respect to the employee cost rationalization. By when do we see some rationalization on the employee cost front, sir?
Praveen Tandon
See, so the thing is that there is some small amount of rationalization that has happened. However, that is not visible to you because of two or three reasons. One is the fact that we’ve hired senior talent at the corporate level. That — the impact of that alone is close to INR8 million or INR8.5 million per quarter. Second, there is an element of ESOP cost that we’ve already highlighted, which is around INR3.5 million for the quarter. Third, obviously, there has been a general increase in the output of the turnover that necessarily also leads to a higher direct labor cost, right? So while efforts are ongoing to rationalize labor, I mean, one way to view it and to get a sense of how we’ve been marginally successful at least is to view labor costs as a percentage of the revenue. So if you
Look at that ratio, that has come down a little bit, not probably to the tune that we would be excited about. But directionally, yes, we have started to make progress. But in terms of meaningful progress, probably sometime in Q2 or Q3 of FY ’26 is when meaningful numbers will start to hit.
Arnav Dharamshi
Okay. And sir, secondly, after our exclusivity contract with Signify is done for few products, how are we seeing addition on new clients for lighting segment?
Sanjeev Sethia
Yeah, I had addressed this in an earlier question. We are currently in talks with at least four to five major customers and we hope to onboard at least two of them in the January, February month. Some of them, audits have happened, there are certain countermeasures which have to be taken and we hope to close those within this month and then January to February, we are pretty hopeful that we will be able to add at least two customers for the lighting business. And overall, we are looking in this coming calendar year that we are able to add at least four to five customers for our lighting business.
Arnav Dharamshi
Okay, okay. And would we continue to stick with our guidance for next year’s growth in terms of sales?
Praveen Tandon
Sorry, can you just repeat your question?
Arnav Dharamshi
Do we continue to maintain the same guidance for next year’s sales growth that we’ve given previously?
Praveen Tandon
Yes, what we have mentioned is for this year, we will be in the range of INR1,165 to INR1,200 crores, and next year should be in the vicinity of approximately INR1,350 crores. We stand by that number very strongly.
Arnav Dharamshi
Okay, okay. Thank you so much. Wishing you all the very best.
Praveen Tandon
Sure.
Operator
Thank you. [Operator Instructions]
Praveen Tandon
If there are no further questions — sorry, is there a further question?
Operator
No, sir. There are no questions.
Praveen Tandon
Then we can wrap up if there are no further questions.
Operator
As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments.
Praveen Tandon
Okay, thank you. We would like to thank everyone for their time and interest in our company. Thank you and see you in the next quarter.
Operator
[Operator Closing Remarks]