Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EPL Ltd (BOM:500135, Financial) reported double-digit revenue growth of 10.7%, with EBITDA growth of 20.8% and PAT growth of 35.4%, excluding one-off items.
- The company's EBITDA margin expanded to 19.1%, marking an improvement of 160 basis points year-on-year.
- Strong performance across all major markets, with notable revenue growth in the Americas (18.9%), EAP region (13.9%), and Europe (9%).
- Significant progress in sustainability efforts, with sustainable tube offerings now representing 29% of total volume.
- Expansion efforts in Brazil are progressing well, with new customer acquisitions and high capacity utilization at the modular plant.
Negative Points
- India's margins decreased by 170 basis points due to investments in capability building and performance-driven incentives.
- Raw material prices are increasing, which may impact gross margins if not managed properly.
- There are concerns about potential economic softening in key markets like the U.S. and China, which could impact future growth.
- Interest costs have increased due to debt in Brazil, impacting overall financial performance.
- Supply chain issues in India affected the performance of the Personal Care segment, although these have now been resolved.
Q & A Highlights
Q: Congrats on a good set of numbers. Firstly, I wanted to check if this quarter had any element of price cuts in the sales. And can one expect the high teens growth that we've seen in Americas to sustain on the back of new client sign-ups? And any geography that you think that can derail double-digit revenue growth going forward?
A: Has there been some price correction in a few places with a few customers based on cost or commodity softening? Yes, there has been. However, price corrections have largely bottomed out. Our ambition is to continue to drive growth in all regions but deliver double-digit growth globally. There are always uncertainties, but we will strive to ensure collective and global double-digit growth.
Q: On gross margins, we are seeing raw material prices etching up. Does this warrant any price hikes or can gross margins be sustained at 1Q levels? And is the Europe margin improvement sustainable?
A: Gross margins are sustainable, though they may fluctuate slightly quarter to quarter. Europe’s margin improvement is sustainable, and we are still working to improve them further. We are also focused on pushing India margins up from where they are currently.
Q: There have been price corrections, but is there an element of negative pricing carrying forward from the previous quarter? And when do you expect this to anniversarize?
A: Globally, there is no material negative pricing. Some regions have more negative price mix, but overall, we have more or less anniversarized as far as pricing is concerned. We expect more stability moving forward, with no major negative or positive price changes.
Q: While Personal Care has seen good annual growth, there is a large divergence this quarter. Is it only because of Brazil and oral care players in India?
A: We are pleased with the overall performance, driven by strong organic demand and wallet share gain with key customers. Personal Care and Beyond is seeing strong momentum in EAP and the Americas. In India, supply chain issues have been sorted out, and we expect improved performance moving forward.
Q: You mentioned that sustainability tubes are driving wallet share gain. Which geography is this particularly happening in? And how much market share improvement do you expect once the transition to sustainable tubes is complete?
A: We are gaining wallet share in India, Europe, and the Americas. While it’s difficult to predict exact market share improvement, we believe it will continue to grow. In Europe, we have gained wallet share with two more customers, contributing to our growth.
Q: There is a significant improvement in gross profit margin but not as much in EBITDA margin. Why is this?
A: We are happy with our overall P&L metrics. Revenue has grown by 10.7%, EBITDA margin by 20.8%, and PAT by 35%. Investments in people costs are part of our strategy to drive growth, and we are managing expenses effectively.
Q: What is the current capacity utilization of the Brazil plant, and what is our dependency on our anchor customer?
A: The Brazil plant is currently at 65-70% utilization. It is a modular plant, and we can add capacity as needed. We have started supplying to new customers, and the market is responding well.
Q: The tax rate for the quarter was 17%. What is the expected tax rate for the whole year?
A: The effective tax rate is expected to be between 21% to 23%, though it can vary quarter to quarter depending on the profit mix across various countries.
Q: There has been a slight degrowth in the revenue from Americas from Q4 to Q1. What is the reason for this?
A: There is significant seasonality and cyclicality in the business. The comparison should be year-on-year. Despite the base effect from Brazil, the growth momentum is expected to continue, and the overall growth rate for Americas should stay strong.
Q: Can you provide clarity on the interest cost part, particularly related to Brazil debt?
A: We leverage our accruals to drive growth CapEx, pay dividends, and invest in working capital. Debt cost optimization is part of our strategy. Local debt in Brazil currently makes the most sense due to the volatile currency and tax benefits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
