Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Huhtamaki India Ltd (BOM:509820, Financial) reported an increase in net sales for Q2 CY24, showing a 2.5% rise compared to Q2 2023 and a 4.6% increase from the previous quarter.
- The company has a strong liquidity position with a healthy debt-equity ratio of 0.2% and surplus cash invested in bank deposits or mutual funds.
- Huhtamaki India Ltd (BOM:509820) is focusing on long-term profitable growth through innovative product offerings, particularly in sustainable packaging solutions.
- The company has successfully completed the Thane land transaction, adding INR429 crores to its financials.
- Huhtamaki India Ltd (BOM:509820) is actively engaging with regulatory authorities and stakeholders to drive its sustainability initiatives, including CO2 reduction and water consumption improvements.
Negative Points
- Despite increased volumes, EBITDA and EBIT for Q2 CY24 have decreased compared to the same period last year, reflecting a 12% and 9% decline respectively for H1 2024.
- The company faced adverse sales and customer mix, along with challenging supply chain issues due to the Red Sea crisis and geopolitical tensions, impacting margins.
- There was a reduction in export volumes due to supply chain constraints, which affected overall profitability.
- Huhtamaki India Ltd (BOM:509820) experienced higher inventory and receivables, leading to a temporary strain on operating cash flow.
- The company's margins remain under pressure due to competitive challenges in the domestic market and the overall inflationary environment.
Q & A Highlights
Q: Why are the OPM margins lower compared to peers in the packaging industry?
A: It's important to understand which peers are being compared. Different segments within the packaging industry, such as cartons and flexibles, have different margin profiles. For example, TCPL Packaging is heavily into cartons, which typically have different margins than flexible packaging. The diverse business models and levels of integration also play a role in margin differences.
Q: What was the total amount received from the sale of the Thane land, and how was the cash utilized?
A: The total value disclosed last year was INR429 crores, with a small portion pending that has now been concluded. The majority of the cash was received last year and used for retiring external borrowings and investing in financial instruments. Additionally, a slightly higher dividend was paid than the average.
Q: How do you see the plastic waste management efforts by the government, and what are the challenges?
A: The regulatory environment is evolving rapidly, with increased expectations for using recycled plastics. Huhtamaki is partnering with stakeholders to develop solutions like blueloop, which offers recyclable plastic structures. The main challenges include developing an ecosystem for collection, segregation, and recycling, as well as the perceived higher costs of innovative products.
Q: What kind of utilization can be expected for blueloop in the next three years, and when can full utilization be expected?
A: While specific numbers are not discussed, Huhtamaki is in advanced stages of trialing with customers. Initially, utilization will be lower, but the equipment can also produce existing films. By 2030, the company aims for 90% of its products to be sustainable, with additional investments as needed.
Q: Do you see a downtrend in BOPP prices due to expected higher supply, and will raw material contribution fall going forward?
A: Predicting future raw material prices is difficult due to geopolitical situations and market uncertainties. However, Huhtamaki is focusing on cost reduction projects to mitigate these challenges.
Q: Will Huhtamaki India achieve the EBIT margin of 10% to 12% guided by Huhtamaki Limited in the long run?
A: As part of the global business, Huhtamaki India is striving to achieve the global guidance. However, specific segment and country-specific guidance are not discussed.
Q: How do you see the impact of the Red Sea crisis on exports, and how do you plan to recover?
A: The Red Sea crisis has impacted vessel and container availability, affecting exports. However, positive developments in target markets and stability in certain countries are expected to help regain volumes. The geopolitical situation will be crucial for recovery in the third and fourth quarters.
Q: How do you see gross margins for the entire year given the challenges around freight costs?
A: Margins will be challenging due to competitive market conditions and inflationary pressures. The focus will be on improving product mix, business mix, and cost management to mitigate these challenges.
Q: What is the current status of blueloop product trials and customer adoption?
A: Huhtamaki is in advanced stages of trialing blueloop products with customers. The company aims for blueloop to contribute 40% to 50% of revenue by next year and over 90% by 2030. The products are manufactured in-house, which should ideally improve gross margins.
Q: How much has been spent on blueloop so far, and what are the future investment plans?
A: The first phase of investment in blueloop is more or less complete. Any future plans will be disclosed as needed, but there are no specific plans for the next 6 to 12 months.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
