Late Pramod Gupta’s entrepreneurial journey was bumpy but highly inspirational as it tells how an engineer with a passion for making big chose to quit his government job with the Defence Research and Development Organisation (DRDO) to start his own TV components manufacturing company at a time when India was heavily reliant on imports for such electronic parts.
Building on the legacy of its founder Late Pramod Gupta, who set up the PG Group in 1977, the family-run business is achieving new heights under the leadership of Vikas Gupta and his brothers. Today, its flagship company PG Electroplast Limited (PGEL), which was set up in 2003, has gained a leadership position in Original Design Manufacturing (ODM), Original Equipment Manufacturing (OEM) and Plastic Injection Moulding, providing One Stop Solutions to over 30 leading Indian and global brands. It is driving India’s manufacturing growth story by making the country self-reliant on electronic components of white goods.
“In 2003, we started manufacturing plastic moulding components to improve backwards integration, and within a few years, we became the largest manufacturer of TVs in India,” tells Gupta. But, PGEL suffered a huge blow in the year of 2011 as the industry overnight pivoted to flat-screen TVs, the manufacturing for which shifted out of the country to China, he recalls.
“We then focussed on plastic moulding and built our capabilities and capacities for the same. We started diversifying our portfolio of clients across different industries.” In 2016, the company decided to shift its business model towards delivering finished products for clients, and so it started focussing on expanding its manufacturing capabilities, adding at least one major capability every year.
Being a competitive business, Gupta says the company’s operations are decentralized, in an effort to maintain a lean structure. “All units operate as separate profit centres, with entire autonomy for plant and business operations left with the respective unit heads.”
Corporate is majorly responsible, and involved in, capital allocation, managing company finances, strategy formulation and guidance, and new business development. He further states that the company is run in a professional manner with roles being assigned on the merit of abilities and performance. “That includes the promoter group too, members of which can be found in both corporate and unit level functions.”
Gupta says the Board is always cognizant about the fiduciary duties it has to protect the interests of all shareholders. “Therefore, we strive to ensure that all internal processes and systems are evaluated regularly, with the best practices benchmarked to ensure sustainable growth for our company.”
Business bifurcations
Plastic moulding is the largest in terms of revenue for PGEL. However, Gupta points out that it is a capital-intensive business with low asset turns, and “to achieve better financial ratios, we are investing in further capabilities to improve our value addition”.
“We have identified some products like washing machines, air conditioners, air coolers etc where plastics form a large part of the bill of materials. We target these products and then gradually backwards integrate to maximize our value addition. These typically let us achieve higher asset turns, and better financial metrics, ensuring PG’s growth is sustainable,” he explains.
Gupta is confident of the Indian consumption story and feels “it has a lot of untapped potential”. “We see a lot of potential for consumer durables and consumer electronics products as they all have much lower than global averages rates of penetration in our nation. With the government’s push to increase local manufacturing, we believe India has the potential to become the global hub for the same going forwards.”
Being an electronics services provider, PGEL operates under both, the OEM and the ODM model. ODM, or original design manufacturing, is also referred to as “private labelling.” Gupta says this is where a company fully develop and design a product as per the existing market trends and demands, energy ratings, and prevailing technology. “PG’s customers can then validate PG’s products, request a few small changes and then can sell them under their brand name. This allows the brands to focus their energies on other parts of the value chain like marketing and sales, distribution and servicing,” he says.
The market penetration for most of the products that PG Electroplast manufactures is still quite low, with rapid growth in most segments, the company sees a lot of room for all manufacturing players in the market to grow.
Manufacturing plants
PG has manufacturing locations across the nation, which allows it to efficiently cater to the pan-Indian market. “PG’s commitment to continuously increase its value addition enables it to provide integrated, turnkey solutions to its customers which have made PG their preferred manufacturing partner,” says Gupta.
Currently, PG has six manufacturing facilities — three in Greater Noida (UP), one in Roorkee (UK) and two in Ahmednagar (MH). “We have one new unit coming up in Greater Noida, and another one in Ahmednagar. We expect production to start by November in both plants.”
In preparation to ramp up immediately, the company has already hired the teams which will be running the operations for these units. “All the final layouts, machine ordering and testing, material and process flows, organizational roles and responsibilities have been finalized. The new team members are being familiarized with the workings of the organization,” he informs.
Manufacturing technology
Currently, the company uses Integrated Enterprise Resource Planning and related software to track procurement, orders, sales, finances, inventory, manufacturing, supply chain and human resources to optimize manufacturing efficiency.
In an effort towards reducing its carbon footprint, PG Electroplast is increasingly sourcing its electricity from renewable sources. In FY21, its Ahmednagar manufacturing facility has installed a solar power plant capable of generating 1.28m units annually. The company has also recently signed a PPA for its Greater Noida Plant. “We are always on the lookout for more of these initiatives that will help us in reducing our carbon footprints even further in the coming years,” says Gupta.
Response to pandemic
PG Electroplast, like most other companies, was highly affected in the first two quarters of FY21 due to COVID-19. The first quarter was majorly spent in lockdown, whereas the second quarter was spent with restrictions as people slowly started moving out of their homes again.
However, since last September, due to the various government measures, Gupta says, suppressed demand and the well-performing real estate sector, the consumer durables and electronics industry have seen tremendous growth, with great growth YoY. “Despite having a washout Q1 and a slow Q2, due to these trends, financially and morale wise, we had a decent FY21,” he says.
While the second wave has been quite devastating, Gupta says their focus during the same has been to minimize the risks for their team. In a bid to alleviate some of the mental pressures brought upon by the pandemic, the company also announced a new scheme called “PG Cares”. As per the scheme, should any employee lose the fight with COVID-19, the company shall ensure that the family of the employee will continue receiving the former employee’s salary for two years. All education expenses in India for their children until graduation from high school will also be borne by the company.
Although COVID-19 has caused economic fallout across sectors, Gupta says the consumer electronics and consumer durables industries have proven to be resilient and have outperformed expectations. “Due to the continuance of the WFH culture, the demand for products that offer convenience like ACs, Washing Machines, TVs, Dishwashers etc. has significantly increased.”
The company expects there to be very strong demand especially for washing machines and refrigerators in the coming months. Should the prices of the open-cell panels see rationalization, the company expects there to be strong demand for LED TVs too.
PGEL is focusing on capitalizing on these opportunities and is working on growing its product business, in both the OEM and ODM capacities. Gupta says all their business segments have done well and their focus area, the products business has shown 30% growth in FY21 despite the sales losses in the 1st and the 2nd quarter of FY21 because of the lockdown and its aftereffects.
On a full year basis, despite complete washout in Q1, the company managed to add 10% top-line growth this year, closing FY21 with a revenue of Rs 705 crore. EBITDA grew 23.6% to Rs 52 Crores this year with the Net Profits standing at Rs 11.6 crores.
Growth drivers
Gupta says they are already developing the next generations for all their product offerings — washing machines, air conditioners, air coolers. “Each year, we are innovating and improving our product offerings, to offer our customers the most value,” he says, adding that the company meanwhile will continue trying to grow in size and market share and will enter new verticals as and when it spots exciting opportunities.
PGEL believes the majority of its growth will be coming from its products business. “Our industry is also seeing the share of manufacturing through ODMs like us increase, where companies are outsourcing their entire end-to-end production cycle to us.” Gupta says it is a significant leap for Indian contract manufacturers, as large electronics enterprises have started believing in the skills of Indian ODMs and our capabilities.
Going ahead, the company sees the share of ODMs in contract manufacturing set to increase further, as that will provide contract manufacturers higher margins and profitability, with good growth coming from products like air conditioners and washing machines.
It is also expecting increasing demand for ACs as rapid urbanization and a growing population have created a demand for sustainable, clean, and energy-efficient cooling solutions in India. The Government of India in October 2020 banned completely built air conditioner units or refrigerants – to boost domestic manufacturing and prevent Chinese companies from disrupting the local markets by taking business away from local players. Gupta sees this move is consistent with the government’s self-reliance vision and should help India to gain a greater share of the global AC market.
He says increasing globalization will play an important role in driving the demand for washing machines ahead.
Sharing his take on the Indian manufacturing industry, Gupta says a good place to start is to examine what China did to do become a global hub for manufacturing. According to him, initial conditions that favoured growth for China included a large population base, a low wage labour market and the location of the country. Additionally, the country went through many structural reforms, which helped it boost its competitiveness and efficiency.
“We should all be delighted to note that India has begun on the same journey. India’s large population base and favourable demographic profile have made the country an attractive investment destination for foreign capital.” Aware of its advantages over other countries, he says the Government of India has taken several initiatives to make India a global manufacturing destination. The government is taking multipronged approaches to facilitate a renaissance for Indian manufacturing.
As far as the component’s ecosystem is concerned, he is confident that in the next 3-4 years, India will have a large component ecosystem, starting with the manufacturing of finished goods, where the import intensity is relatively higher.
PLI scheme
The domestic electronics manufacturing sector in India is not at par with competing nations, says Gupta, as it faces a ‘disability’ of around 8.0-11.0% due to the following – lack of proper infrastructure, logistics framework and domestic supply chain, high finance cost, lack of good quality power, insufficient training in required skills, limited design capabilities, and insufficient focus on R&D by the industry.
To alleviate its debility, he points out that the government introduced the PLI (Production Linked Incentive) scheme to boost the manufacturing of electronics in India, especially attracting large-scale investments in manufacturing.
The scheme has the potential to boost the domestic manufacturing of electronics in India and make the country globally competitive. The scheme entails an incentive of 4-6% on incremental sales of goods manufactured (over the base year) under target segments, to eligible companies, for five years after the base year.
Gupta says PGEL meets all the pre-eligibility criteria required to be able to apply for the PLI Scheme for white goods for the target segments. “We have lined up capital through a round of funding led by Baring Private Equity India and we have already begun the capital expenditure cycle for the first year of the scheme. We believe we have a very good chance of qualifying for the PLI scheme.”
In numbers terms, PG has invested over Rs 220 crore towards developing additional capabilities and capacities. “With the renewed focus of the government and the tailwinds to the sector, our company is investing a further Rs 100 crore in this year. PG plans to apply for the PLI scheme under its wholly own subsidiaries and we look forward to helping India become a hub for not just domestic, but global manufacturing in the coming years,” concludes Gupta.