Riding the growth wave with strategic alliances and expansion; initiate coverage with BUY
We initiate coverage on EPACK durable with BUY rating based on its commendable value prop including (i) Strategic partnerships with key players, (ii) robust manufacturing capabilities and prudent capacity expansion, (iii) focusing on components manufacturing resulting in backward integration, (iv) Customer addition, new product launches and (iv) improving margin trajectory.
Manufacturing expansion and product diversification: EPACK is scaling up its manufacturing facility from current 5 to 7. One for EPAVO which has capacity to manufacture BLDC motors for RAC and Fans. Other facility is for Hisense business located at Sri-city where company has installed capacity of 1mn units of RAC to start with and will be further scaled up to 1.5mn units. The company is also ramping up utilization at Sri-city plant from current levels of ~40-50% to 65%. Moreover, the company is diversifying its portfolio which includes expanding into semi-commercial air conditioners, domestic air coolers and other products thus reducing reliance on RAC which currently contributes 70 75% of the revenue.
Strategic partnerships to drive growth: EPACK durable strategic alliances with Ram ratna wires (EPAVO JV), Hisense, Daikin, Panasonic and Bumjin will drive revenue growth going forward. EPAVO JV’s target is to manufacture 3 million BLDC motors for air conditioners and 1 million for ceiling fans annually. Under the Hisense arrangement the company will start with RAC manufacturing and further it will expand to televisions and potentially other LDAs, aligning with Hisense’s focus on premium and energy-efficient appliances. These strategic partnerships are expected to contribute ~30% of the revenue by FY28. We expect revenue to grow 32% CAGR from FY25-28E.
Components manufacturing and backward integration to reduce reliance on imports: Joint venture with EPAVO, targets BLDC motor production from Q2FY26. This, alongside 75% in-house component manufacturing, strengthens cost competitiveness and supply chain resilience, reducing reliance on 45-50% imported raw materials. Components manufacturing will further strengthen its value proposition and enable to capture higher wallet share from the customers. Moreover, components command higher margin as compared to RAC.
New premium product launches in SDA and LDA to be growth and margin accretive: In current fiscal EPACK is looking to launch new products like Nutri Blender, Infrared Cooktop, Coffee maker and Dry vacuum cleaner in SDA which are at the premium end. In LDA the company has launched higher capacity washing machines in the range of 7-9kgs. These new launches at the premium end will drive the revenue growth and enable the company to increase the margins. We anticipate EPACK to improve its margin by ~130bps by FY28E.
Customer additions coupled with higher customer base to reduce concentration risk: EPACK has deepened relationships with over 55 marquee clients, including Voltas, Haier, Philips, and Hisense, and plan to expand to 70 customers by FY26. Strategic focus on New Customer New Product (NCNP), New Customer Existing Product (NCEP), and Existing Customer New Product (ECNP) initiatives ensures diversified revenue streams and a healthy order book for FY26. This will reduce customer concentration risk and grow the order-book. It’s revenue from top 2 customers have come down from 72% in FY21 to 46% in FY25 and it is expected to come down further as relationship with new customer grows.
Valuation outlook: We expect Revenue/EBITDA/PAT growth of 32%/39%/45%, respectively over FY25-FY28E. Incrementally, EPACK’s margin is expected to improve by ~130bps by FY28. We stay bullish on the RAC and the Kitchen space as in the medium term led by factors like strong realty-infused demand, recent GST rates cuts, growing share of organized sector, and Govt impetus towards manufacturing and export boost will drive growth. The company’s enviable value prop should help it outperform the industry in good time. We initiate coverage on the stock with the BUY rating an PT of Rs545, valuing the company at 30x FY28EPS.
