Buy EPACK Durable Ltd For Target Rs. 460 By JM Financial Services
Epack’s 1Q performance was impacted by unseasonal rains, which drove a 34% YoY decline in the RAC business. For FY26, growth in this vertical is expected to hover around 10-15%, with hopes pegged heavily on 2H. However, small and large domestic appliances are picking up well supported by new client additions, expansion of the product portfolio and increasing wallet share with existing customers. Incrementally, as the Sri City facility ramps up, the components business is also expected to contribute meaningfully. Hence, FY26 guidance remains unchanged at 30-35% revenue growth with 7.5% EBITDA margin, with the share of the AC business at 60-65%. We cut our FY26-28E EPS estimates by 3.3-4.8% and maintain BUY with a revised target price of INR 460 (INR 480 earlier) set at 40x Mar’27E EPS.
* 1QFY26 PAT in line with estimates: EPACK's 1Q revenue registered a 14% YoY decline to INR 6.6bn. This was a 5% miss on our estimate. However, strong growth in the components business drove up gross margins 170bps higher YoY to 15.7%. This supported with lower-than-expected operating costs drove a 7% beat on EBITDA. Absolute EBITDA stood at INR 546mn, +6% YoY and margins stood at 8.2%, +150bps YoY and 90bps ahead of expectations. However, due to higher depreciation and finance costs, PAT at INR 228mn, -3% YoY was in-line with estimate of INR 231mn.
* RAC business weak owing to seasonal trends; components and appliances doing well: The revenue decline was primarily owing to a weak season for the RAC business which contracted 34% YoY impacted by suboptimal demand. Further, the SDA (small domestic appliances - induction cooktops, mixer grinders, air fryers, and water dispensers) segment recorded a 16% YoY growth driven by strong order intake across both established and newly launched products, with notable growth in demand for Air Fryers. EPACK's LDA (large-domestic appliances - washing machines and air coolers) segment grew 29% YoY, with customer base expansion being a key strategic growth driver.
* Ramp up of Sri City facility aiding components business: Incrementally, as the newly set up Sri City facility ramps up, the component business has also shown good growth, rising 556% YoY, albeit over a low base; supported by a robust order pipeline for PCBs, copper parts, and plastic moulding components. EPACK also diversified into the energy meter sector in its component vertical thereby expanding beyond its high reliance on the consumer durables business.
* Revenue and margin guidance unchanged: Management has maintained its FY26 guidance of 30-35% top-line growth despite weak 1Q. This will be driven by diversification into components, small domestic appliances, and large domestic appliances. Company is targeting EBITDA margin of 7.5% for FY26, with a medium-term ambition of touching 8%, which is a sustainable range. Margin improvement will largely be driven by increasing share of higher margin products, including components, and small and large appliances. With overall margin strategy is to diversify the air conditioner portfolio, meaningfully grow the appliances business, and expand into components.
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SEBI Registration Number is INM000010361
