Elin Electronics Limited (ELIN) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I'm Madri, moderator for the conference call. Welcome to Elin Electronics Limited Q1 FY '27 Conference Call. [Operator Instructions] Please note that this conference is recorded. I would now like to hand over the floor to Mr. [ Devansh ]. Over to you, sir.

Thank you, ma'am. Good evening, and very warm welcome to everyone. On behalf of Sunidhi Securities, I welcome you all to Elin Electronics Limited Q1 FY '27 earnings conference call. Today we have with us the management represented by Mr. Kamal Sethia, Managing Director; Mr. Akash Sethia Head of Strategy; and Mr. Sanjeev Sethia, Director. We thank Elin Electronics Limited for giving us the opportunity to host the call. I would now like to hand over the floor to the management for their opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Akash, sir.

Thank you very much, Devansh. This is Sanjeev Sethia here. Good evening, ladies and gentlemen. I also have on the call today our Managing Director, Mr. Kamal Sethia, and our Strategy Head, Mr. Akash Sethia. Thank you for joining our earnings call for the first quarter of fiscal year March 2027.Coming to our overall performance for the quarter, operating revenues for the quarter was at INR 362.8 crores against INR 295.5 crores in the same period last year, up by 23% on a year-on-year basis. Our revenue growth was driven primarily by material inflation across our portfolio, with high single-digit to low double-digit volume growth across categories. Consolidated EBITDA for the quarter was INR 4 crores against INR 17.6 crores in the same period last year. The decline in EBITDA margin is primarily because of the following factors: sudden and massive increase in commodity prices, primarily led by plastic resins due to crude oil prices because of the conflict in Middle East region. Prices of plastics rose up to 40% to 50% in selected categories. Similarly, metals, especially aluminum, saw a sharp up of around 40% to 45% during the quarter, although of course it has cooled off partially. Again, sharp depreciation of INR against USD and CNY affecting pricing of imports, especially electronics and some key components. We also had a large, unanticipated minimum wage increase of almost 25% in Ghaziabad region of Uttar Pradesh, where our largest factory is situated, with effect from April 1, 2026. Change in product mix, with decline in motor and select lighting products which were at higher value addition, which got replaced with products at lower value add, led to impact on gross margin and therefore EBITDA margins. Therefore, our EBITDA margin declined from 5.9% last quarter to 1.1% in the current quarter. Excluding extraordinary items, consolidated PAT loss for the quarter was INR 2.8 crores against the profit of INR 9.4 crores in the same period last year. Our liquidity position is at net cash of INR 6 crores at June 2026. Our CapEx spend in Q1 FY '27 was at INR 7.5 crores. This was probably one of the most challenging quarters in my experience, with both macro and micro disruptions affecting operations. In addition to the war and conflict-led surge in raw material prices, sharp depreciation of rupee, we also had a major fire in our Ghaziabad plant in the end of May 2026, which I would like to update you about. Firstly, there was no casualty or loss of life. Our assets are adequately insured. We have provided for loss arising from the fire amounting to INR 24.6 crores. It has had an impact on both production and working capital. Filing of claim is in the final stage and we expect to recover this loss from insurance within four to five months. Now I would like to share with you the performance of each of our business verticals. In lighting, fans, and switch segment, the revenue of the quarter was INR 106 crores against INR 80 crores in the same quarter last year. This was driven by both fans category and new customer ramping up in the LED lighting category. LED lighting, exclusive of flashlights, increased from INR 39.5 crores last quarter to INR 51.4 crores in the current quarter. This was primarily driven by new customer ramping up capacity with us. While overall volumes have grown, change in the product mix has impacted us, with downlights being replaced by battens. Further, in the batten category, we could not increase customer prices despite substantial increase in input due to irrational competition, keeping margins under severe pressure. With effect from August, we have decided to scale down battens till the pricing situation improves. Moving to our fans business now, our fans business grew from INR 27.8 crores to INR 43 crores this quarter. Our BLDC ceiling fan business has done well on a year-on-year basis with 35% growth. While margins were under pressure in Q1, they have come back to normal in Q2 with the quarterly pricing settlement kicking in. While Q2 is seasonally weak for fans, we expect this to pick up strongly again in Q3 and continue to do well in Q4 as well. Moving on to the home appliance segment, revenues increased from INR 68.6 crores last quarter to INR 110.6 crores this quarter. Kitchen and home care revenues increased by 70% year-on-year basis. This was on the back of growth of revenue from mixer grinders and irons. We have seen sustained volume growth across categories. Personal care segment was up 43% year-on-year driven by strong volume growth in hair dryers and sterilizers. In this entire category, margin pressure has been severe as commodity prices moved up sharply. This has been adjusted with effect from July using average of Q1 commodity prices. We would also like to point out that customer demand seems reasonably strong, evidenced by double-digit volume growth across the category. Moving on to the FHP motor segment, revenues declined from INR 61.4 crores to INR 45.6 crores in the current quarter. Given that this is an ODM product, we undertook price hikes which led to certain customers to defer orders. Further, please note this segment reflects only third-party sales, so increase in sales of mixer grinder and increase in motor thereof is captured via increase in sales of appliances. A quick update on the Bhiwadi factory: The plant is ready and will start commercial production in Q2. We will start with OFR immediately and chimney in the next quarter. Setting out a revenue guidance of FY '27 now, as discussed earlier, given that we prioritize margins and therefore we will reduce the scale of our lighting operation, particularly battens, we estimate revenues to be in the range of INR 1,375 crores for full year FY '27. In the current times, it is difficult to forecast EBITDA, so allow us another quarter to update margin guidance. Bulk of the CapEx on Bhiwadi is now concluded, with focus now on driving commercial production and utilization. With this, we conclude our opening remarks. We can now open the floor for Q&A. Thank you.

[Operator Instructions] First question comes from Zaki Naseer, an individual investor.

Sir, I think we have been through a tough quarter and looking forward to better times. Thankfully, there was no loss of life in the fire. So going ahead, sir, do you think we have been through the worst and we can only look for better times ahead? Margins being 1.1%, how do you see the year closing on EBITDA? Do you think our aspirational 6% to 8% margin will be breached in the last quarter or the first quarter of next year? And how do you think the year will end on your product mix? These are my questions, sir, and once you do that, I will go to the next question.

Look, in terms of, I will just take, there were 2 or 3 questions, so I will just take them step-by-step. I think the first set of questions was around margin guidance. So, a) you know, we have pointed out that we are still in uncertain times, although to your point, the worst seems to be behind us, but can't honestly say that for sure. So on margin guidance, we will, you know, perhaps, like we outlined at the beginning of the call, we would like another quarter's time to update. But just to update you, you mentioned do you think we can achieve our aspirational 6% to 8%, looks unlikely as of now at least. And then question on margin, we will just take it step-by-step.

Yes, sir. But do you plan, your product mix and your strategy is planned towards achieving that next year at least, sir?

Look, we will definitely get better from here. Margins should definitely move up in Q2 itself from what we have achieved in Q1, but that said, Q1 is not a benchmark at all. It is such a low margin that I don't want to benchmark against Q1 saying that we will do better. Like I said, please allow us another quarter to update all with some sense of finality in what we can achieve.

Okay. And sir, how are the macros looking for your products? I mean, how is the demand out there and the market being in terms of, okay, lighting I understand that they are bottom of the price, it cannot go below this because I don't think it's possible to manufacture below this. But for your small appliances and your other products, how do you foresee the demand scenario, sir?

So in general, demand has been good across categories. We see and we continue to see strong demand, because of course currently we are in the season month as we gear up for Diwali, so demand is strong. Of course, a major issue has been the sharp increase in commodity prices and maybe inability to pass 100% of the increase to our customers, which has affected the margins. You see, in terms of your point on battens and lighting, of course, I think prices are absolutely rock bottom and irrational prices are where we are operating in that category, it's a fairly large category. What we were able to do, like we had mentioned in our earlier call, is that we will be able to add customers in the lighting business to compensate for the loss of business because of the Lightanium JV with Signify and Dixon, and we were able to do that. We were able to drive substantial numbers in terms of batten and overall, but unfortunately, the market prices have not corrected to the same amount as the input costs have gone up. So that we still see as a major issue because of massive capacity at certain suppliers where they don't want to lose orders, so they continue to operate at prices which seem very difficult for us. But if I leave aside batten, also in general, fan demand is strong, our projections for next year is also pretty good. We are looking at good demand across appliances. We will be adding some more categories in the coming month in terms of kettles, etc. Chimneys also, like I mentioned in the call, our Bhiwadi factory is also starting commercial production in this month with OFRs. So overall demand has been good, but pricing has been a challenge.

Okay. And sir, the minimum wage, do you think it will reset the whole macros in your particular industry, sir? That you would have to look at aspirational EBITDA of 4% to 5% instead of 6% to 8%? I mean, or do you think the pricing will be reset going down a few quarters?

Sir, see the problem currently is that the minimum wage hike has happened, such a substantial hike has happened only in Haryana and Uttar Pradesh. It has not happened across India, right? So you always have a conversation with the customer where they mention that for them, they have the option of sourcing from different factories in parts of India where there have been no such large minimum wage increases. So there is just that debate that is going on. It's been about 2.5 months or 3 months since the minimum wage has happened. Although they understand that our costs have gone up, but they ask us to understand that they have the option of sourcing from other factories. So it's a bit of a tough situation for us. Obviously, if, hypothetical scenario for us, but if minimum wage is increased across India, then again we are in a good position because then it's a level playing field. But as of now, where our largest factory is, is where the wage has been increased by a large amount. So we are pursuing all sorts of options, including discussions with customer, including some amount of say automation to reduce dependence on manual operations. But all these things, you will appreciate and understand, take time. Now, discussing pricing increase on this account with customer at a time when material itself is on fire is another challenge. So I am just sharing the background and context so that you appreciate the situation that we are in.

Sir. And do you think the material scenario, the supply chain and the prices look to be stabilizing anytime soon, sir?

We are seeing the price stabilize a bit, even though of course they are still much higher than let's say February when the war began, but there is some stabilization. So at least I think we'll be able to pass on the price increase, I mean part of it is already passed on, and then as the price correction happens, so we will be in a position to have transferred the price increases to our customers. But that being said, we still, you know, not very sure how the Middle East thing plays out. So as we speak, I think we see a spurt in copper prices. I think some today we're reading that Congo, which is probably 20% of the producer of copper, has put some restrictions on exports of copper, so you'll see copper go up. So the war is also not really behind us, we're not sure exactly how it's going to play out, so it'll be a little wait and watch. But in general, commodity prices, plastics, aluminum, have stabilized, but still much higher than what they were in Feb. I would also like to add, because now a quite a large portion of our business depends on electronics also, especially with LED and now BLDC fans, if you followed the electronic prices, there's probably anywhere from 10% to 15% hike in the basic price of all electronic components, plus you have the dollar appreciation, and currently if you look at the PCB, just the bare PCB prices, they are up from 40% to 60% because of a scarcity of laminates in the country. So I mean, it's one of the rare times where you see each and every commodity, whether it's plastics, aluminum, copper, PCB, paper, everything has seen a fairly substantial increase in the last three-four months. But to answer your question, stabilized a little bit, but still on a much higher than what they were in Feb. I think our MD would like to add something.

Yes, Mr. Zaki, this is Kamal Sethia. I just want to add that now our focus is, as you have seen in our opening remarks, that most of the products what we make, they are seeing strong demand except motors. So going forward, the focus is going to be more on margins than only just increasing our revenue. Of course, revenue increase will be there, but focus on margin will also be strongly put so that at least we are out of this situation what we are going through right now.

The next question comes from Sahil Doshi from Thinqwise Wealth Managers.

Hope I am audible?

Yes, Sahil, you are.

Yes. Just firstly want to clarify, the guidance you all gave out was INR 1,375 crores for this year?

That's right.

Yes, this seems lower than if I just had to annualize the current quarter, which is typically seasonally weak. And this is in addition to Bhiwadi plant coming in also. So what's really the thought behind this guidance, and are we seeing some pressure in the second half? Is that what we should make of this?

No, no. We've just, so this is pertaining to the lighting business largely. So battens, which is almost 50-odd percent of the lighting business, or slightly more even, we've just taken a conscious call because prices are at such a level where there are losses in manufacturing. So we don't want to increase turnover and pile on losses in terms of bottom line. So we've just taken a call to slow the batten business down. Now, you know, we were doing anywhere between 10-odd lakh battens every month at an average price of anywhere between INR 65 to INR 65-odd, that itself is INR 6.5-odd crore rupees a month of turnover that we are seeing may be difficult to immediately replace, right? So the loss of revenue that you are seeing is pertaining largely to the batten operation, but reducing this will actually increase our bottom line, because currently, at least in the quarter gone past, this was a loss-making operation for us.

I understand that. Okay, let me clarify this. Bhiwadi, since the plant is coming in, what is our outlook for Bhiwadi in terms of revenue for this year?

Look, Bhiwadi will be in the vicinity of anywhere between INR 70 crore to INR 90 crore rupees. The reason this is slightly, probably we earlier guided for somewhere in the INR 90 crore to INR 100 crore kind of range, was because some machinery that was imported, and because of the whole global situation, shipping of the machinery and getting it to our factory has just taken longer than what was anticipated. We will be starting commercial operations this month itself. So the total revenue that we estimate we'll be able to achieve for Bhiwadi should be in the INR 70 crore to INR 90 crore kind of range.

So just taking on this point further, if we remove lighting INR 75-odd crores, and we have an accretion of INR 75. crores from Bhiwadi conservatively, despite that, is there, are we seeing some kind of a slowdown? Because I think this is a quite conservative guidance or a tapered number. See, let's keep lighting out of the conversation, I understand. But the other parts of business which we've always been talking about, is there a problem, they are not getting price hike and we are willing to compromise there as well, or what is really the thought process behind this?

No, no. Look, one of the other key reasons, and we've spelled that out also in our remarks at the beginning, is that we are seeing some pressure also in the motors business, right? We mentioned that because prices have increased so sharply, we had to take sharp price hikes. Now what has happened is that we were supplying to customers all across India. Now what happens is, our factory is in the North, we are supplying to people in the South. Because of this sharp price hike, what people do is that they take a decision to sometimes source locally in and around where their factory is for these few months until pricing stabilizes. So we've seen certain customers, which is what we mentioned, who've deferred orders, who've not placed orders with us. So we've seen some impact on our motors business also. So just in the quarter, it's kind of come down by almost 25%, if I'm not mistaken. So bear that in mind as well, please.

Sure. And motors, could you quantify what's the kind of price hike or in terms of our raw material basket, and what's the kind of price hike which we require to maintain the [ Q1 ]?

No, so we've already hiked prices to come to our desired margin. So the average price increase, depending on category of motor, has been from say 10%-11% on the lower side, 15-odd percent on the higher side. So this kind of price increase within a quarter is kind of unprecedented.

Sure, understood. So, if we take lighting out of this entire equation, if we are able to pass on the prices in the other segments, and also that with Bhiwadi coming in, where essentially we are going towards higher ASP products, essentially directionally our margin should improve, right? Assuming today lighting is loss-making. So we should see a fillip in that at least. Q4 or so, maybe exit rate we should be back to possibly 6%-7% kind of margin, is that right understanding or that doesn't seem like possible in today's environment?

I'll just break that down into 2 and just give you a fair assessment. So in terms of, there are two key aspects to this price inflation, right? So there is 1 which is material-led and 2 largely which is labor-led. And labor-led when I say, that is pertaining largely to operation in Ghaziabad, not the other factories as of now, thankfully. So material, most of the price increases have already happened, we've clarified that as well in our opening remarks, at the start of 1st July, right? So in Q2, we've already repriced using the average of Q1 pricing, right? Now unless there is a further increase in material from here, so Q1 already material prices were fairly elevated, right? So using that average, pricing is already done for Q2. So we've seen from whatever price hikes we've taken, Q2 we've taken further price hikes. So that material price increase has been passed on and has been recovered by and large. In terms of labor, that pricing has not yet been done, which is pertaining to our Ghaziabad operation. So there, if you look at our direct cost in terms of labor in Ghaziabad, just for the Ghaziabad factory, it is approximately 9-odd percent. So Ghaziabad labor divided by Ghaziabad turnover, that is 9-odd percent. And there has been a 25% increase in that, so 2.25% kind of price increase that has not yet passed on. And Ghaziabad itself is say approximately 65% to 70% of the company. So just giving you a perspective of what is not yet kind of passed on.

Understood, this really helps. So, this leads to a larger strategic question or a thought if we have any. We alluded to the fact that there is strong demand, but we're not able to take a price hike. So, and this is not only in lighting, but even in other segments. So does it say our bargaining power with our customers is lesser, and strategically why are we doing some of these businesses where we're not making a decent ROCE? So what's really a game plan because time and again, we are seeing this in different segments, where even employee, where customers are saying that we have other choices. So?

Look, it's not that we've not been able to take price hikes. But let's say just for example, on a particular product [ axis ], the overall price hike is about let's say 10%. I mean, there is negotiation from the customer that we cannot give everything in one month, so what you get is maybe sometimes 6% or 7%, the 3% gets carried on. So that's the challenge. I mean, when the hike has been so high, let's say anywhere between 10% to 12% or 13%, you don't get all of it in one go. So it's probably in the first month you've been able to get let's say 7% or 8%, then 2% or 3% gets absorbed by us. And so in some product categories, I mean in general in all product categories, we've been able to get the price hike, but it has not been 100% of the hike which has happened. And secondly, what also happens is let's say we do, most of the pricing happened at let's say an N-1 kind of product cost, so you take the prevailing price, and when we start supplies, I mean last couple of months it's been that again the prices have gone up. So when you go again for a price hike, the same thing is playing out that again maybe the hike is let's say another 5% or 6%, and then you get 2% or 3%, so we've not been able to pass 100% of the hike to most of the customers, it's been a partial recovery. And as the product prices are now stabilizing, we are now getting into a position where practically by let's say somewhere late in July or August, I mean that means operative prices of September, that we will recover the price hikes which have happened. Labor hike is, it's been passed on to very minuscule customers because like Akash mentioned, what we are facing is that when you are facing a such a steep price hike, and when we go with a price hike and a labor hike, both, the customer is like currently take the price hike of what we are able to pass on for the material at least, because we are in no position to give you both the hikes. So that's what's been playing out for the last couple of months. See, most of our customers are very long-term customers, I mean we've been working with some of them for 30 years, 20 years, 10 years, 5 years, so it's not a transactional business. I mean it's more of a strategic partnership where, you know, a certain portion of the brunt has also been borne by us with the hope that things will improve in terms of this massive hike goes down and then we can go back to our normal operating situation. And if the prices stay stable, I think you will see most of the price hikes have been passed on and at least the material thing is taken care of, and then we further have to push for the labor part. We are talking to customers, I mean some we've been able to pass on, some we are still in the process. I mean it might take a couple of more months, but we will be able to pass on some of the price hike which has happened on the labor front because it's an unprecedented hike. Normally, it is at around a 7% kind of increase which happens on the labor basis. I mean it's like almost 21 plus if you do plus-plus, it's 25% hike which has been very difficult for us to absorb. And with the same macroeconomic situation right now, it's been a little difficult to pass on. But maybe in the next three-four months we are able to pass on a portion of this also on our customers. Doubt it will be 100%, but yes, maybe anywhere to 50% to 60% we should be able to convince our customers that that's the kind of price hike we will need. What we are hoping here is the material price stabilizes, so it becomes a little easy for us also to open that negotiation with our customer.

Sure. My question was more in the context where even Kamal Ji mentioned where we will now possibly chase margins and returns over revenues. So is there a really rethink in that strategy and if you can elaborate more on that?