PG Electroplast Navigates Headwinds with Strategic Expansion in Q2 FY26

PG Electroplast Limited, a prominent Indian Electronic Manufacturing Services (EMS) provider, reported a challenging second quarter for fiscal year 2026, marked by a slight dip in consolidated revenues. The company's top line for Q2 FY26 stood at INR 655 crores, a 2.3% decline year-on-year. This was primarily attributed to softer demand in the Room Air Conditioner (RAC) business, which faced headwinds from an early monsoon and anticipatory GST rate cut expectations. Consequently, the RAC segment experienced a significant 45% year-on-year decline, contributing only 20% to the total revenue for the quarter. Operating margins also softened both quarter-on-quarter and year-on-year, impacted by negative operating leverage in the RAC business and rising supply costs. Despite these immediate pressures, the management remains confident in its long-term growth trajectory and has maintained its full-year guidance for FY26.

Segmental Performance and Strategic Diversification

While the RAC segment faced a downturn, other business verticals demonstrated resilience and growth. The washing machine business emerged as a strong performer, registering a robust 55% growth in Q2 FY26 and contributing approximately INR 188 crores to the quarter's sales. The company's 100% subsidiary, PG Technoplast, reported revenues of INR 295 crores. Furthermore, the joint venture, Goodworth Electronics, ramped up successfully, posting sales of INR 483 crores and an EBITDA of INR 10.33 crores in the first half of FY26.

PG Electroplast is actively pursuing a strategy of diversification and backward integration to mitigate seasonality and enhance value addition. This includes significant investments in new product categories and capacity expansions. The company is setting up a refrigerator manufacturing campus in South India, specifically in Andhra Pradesh, where 54 acres of land have been acquired, and construction has commenced. This project, with an initial CAPEX of INR 350 crores in its first phase, is expected to begin production by Q4 FY27 and is part of a larger INR 1,000 crore CAPEX plan over 4-5 years. Additionally, PG Electroplast is venturing into POS (Point of Sale) machine manufacturing through an agreement with PAX Global, with pilot production anticipated in Q3 FY26, aiming to establish it as a sizable new business vertical.

Capital Allocation and Future Outlook

The company's capital allocation strategy remains focused on long-term growth and enhancing strategic capabilities. For FY26, a CAPEX of INR 700-750 crores is planned, directed towards new projects and capacity expansions across various locations including Greater Noida, Supa, Rajasthan, and South India. This includes increasing AC capacity from 3.5 lakh to 4.25 lakh split ACs per month by December and establishing new facilities for plastic components and coolers. The management emphasized that capital allocation decisions are made based on criteria like ROIC and ROCE, ensuring disciplined investment.

Despite the current challenges, PG Electroplast's management expressed confidence in a stronger second half of FY26. They anticipate a 15% volume growth in the AC business for the full year and expect the washing machine business to contribute around 15% of total revenues in the medium term. The company is actively working on optimizing costs and improving working capital efficiency, which was impacted by higher inventory levels in H1. The recent GST rationalization is also expected to positively influence the working capital cycle. The overall outlook remains positive, driven by India's robust consumer durable market, increasing urbanization, and government support for electronic manufacturing.

Concluding Thoughts: Resilience and Strategic Vision

PG Electroplast Limited is demonstrating resilience in navigating short-term market headwinds through a clear strategic vision. The company's focus on diversifying its product portfolio, expanding manufacturing capacities, and disciplined capital allocation positions it well to capitalize on the long-term growth opportunities in India's consumer durable and electronics sector. While the Q2 FY26 results reflect the impact of external factors, the underlying strategic initiatives and management's commitment to operational excellence suggest a path towards sustained growth and improved profitability in the coming quarters.