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Marching towards longer-term aspirations; upgrade to BUY

EPACK’s 3Q results were impacted due to higher expenses attributable to the newly commissioned Sri City facility not yet operating at optimal utilisation levels. Besides this, the broader story is intact. Key growth drivers for EPACK are expected to be (1) its partnership with Hisense fructifying into stronger volumes, and (2) its efforts to deepen its product portfolio into domestic appliances and components improving its overall margin profile. Key risk, however, is Hisense being unable to gain share in the Indian market. While our EPS estimates are unchanged, we cut our target multiple to 40x (from 55x earlier) considering the broader derating in the Indian EMS space. However, the 33% correction in the stock over the past month implies an upside of ~29% from CMP, hence, we upgrade to BUY. Our revised target price stands at INR 540 at 40x Mar’27E EPS.

* Impact of new Sri City facility impacts profit growth: 3QFY25 consolidated revenue at INR 3.7bn (+35% YoY, flat QoQ) missed JMFL estimate by 6%. EBITDA at INR 241mn was a ~17% beat on our estimate, driven primarily by stronger gross margin and lower-thanexpected other expenses, while EBITDA margin at 6.4% was ~130bps higher than estimate (5.1%). On a YoY basis, EBITDA growth was only 2% given the base quarter did not include operating expenses from the newly commissioned Sri City facility (commissioned in 4QFY24). EBITDA margin declined ~210bps YoY (6.4% vs. 8.5% YoY), on this account. 3Q PAT was INR 25mn vs. INR 49mn YoY. Besides, weak EBITDA growth, higher depreciation expenses and finance costs contributed to this PAT decline.

* Diversification strategy in place: EPACK is strategically ramping up its presence in small domestic appliances (SDA) and large domestic appliances (LDA), which are complimentary to its existing RAC business. This serves two fold benefits to EPACK: (1) utilisation of idle capacity during off-season, and (2) expansion of margins as domestic appliances are inherently higher margin than EPACK’s core RAC business. EPACK’s focus on ramping up its RAC component portfolio further supports its margin expansion endeavours and also acts as a hedge to the RAC business as brands look to backward integrate into manufacturing. Over the long term, the management aspires to bring down AC revenue share to ~65% from ~80% today.

* Partnership with Hisense to be a key driver of growth: EPACK’s strategic alliance with Hisense for RACs and washing machines gives visibility on its volume growth journey. EPACK will invest a total of INR 2.4bn over the next 3 years and will create a new manufacturing facility in Sri City with a capacity of 1.5mn RACs by FY28; initial production is set to begin in 2Q/3QFY26. This agreement with Hisense is likely to garner additional total revenue of ~USD 1bn over the next 5 years for EPACK. Key risk here, however, is Hisense’s ability to gain market share in India's consumer electronics market.

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SEBI Registration Number is INM000010361