Release Date: February 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pakka Ltd (BOM:516030, Financial) has shown significant growth in its compostable business, with a 26% increase in revenue compared to the previous quarter.
- The company has initiated strategic partnerships and tie-ups for both food services and flexible-based materials, with commitments for off-takes already in place.
- Pakka Ltd (BOM:516030) is expanding its Ayodhya site with a turnover potential of $250 million by 2025 and aggressively working on its North America operations facility in Guatemala with a turnover potential of $750 million.
- The company has been recognized as a noteworthy water-efficient unit by CIA for the third consecutive year.
- Pakka Ltd (BOM:516030) has launched new products, including a 22 GSM wrap and new compostable molded products under the flagship brand Chuk, contributing to its growth and innovation.
Negative Points
- The paper segment has seen a consistent fall in revenues, dropping from INR102 crore in December 2022 to INR86 crore in the current quarter.
- The company faced headwinds from market conditions, including a slowdown in FMCG and international markets, impacting overall performance.
- There was a planned shutdown in the quarter, resulting in a loss of about 10 days of production, which affected turnover.
- Pakka Ltd (BOM:516030) has experienced delays in securing outsourced partnerships for its molded products, affecting its ability to meet demand.
- The company has set ambitious targets but has struggled to meet them, with projections falling short of the initially stated goals, leading to potential investor concerns.
Q & A Highlights
Q: What is the reason for the consistent fall in the revenues from the paper segment?
A: The market has changed significantly with imports increasing from 18% to 46%. Additionally, there was a planned shutdown in this quarter, which took away about 10 days of production. However, we are seeing some upward trends and hope to make up for it in the fourth quarter. (Jagdeep Hira, India Business Head; Ved Krishna, Strategy Head)
Q: Have we added any new clients, especially in the Flexible Packaging segment?
A: Yes, we have started adding new clients both globally and domestically. The significant turnover change will come once the Jagriti project starts producing at scale. (Jagdeep Hira, India Business Head; Ved Krishna, Strategy Head)
Q: What is the sustainable EBITDA margin of the compostable business? Why is it growing at a slow rate?
A: The sustainable EBITDA margin is expected to be between 14% to 20%. The slow growth is due to limitations in closing outsourcing partners domestically, but we are seeing increased revenues from overseas partnerships. (Satish ChamyVelumani, Compostables Business Head)
Q: Are there any plans to expand into products beyond food packaging?
A: No, we are currently focused on food packaging and food services. We have a significant market to tackle in this space before considering other products. (Jagdeep Hira, India Business Head; Ved Krishna, Strategy Head)
Q: What are the expected funding plans for the US or Guatemala operations?
A: The target is to raise equity by June-July this year. Debt is already spoken for, and banks are waiting for the equity to come in. We hope to provide positive news by the next investor call. (Ved Krishna, Strategy Head)
Q: How does Pakka's solution for compostable flexible packaging compare to other leading players?
A: Our focus is on protecting the contents, ensuring shelf-life, puncture resistance, moisture resistance, and oxygen resistance. We are working on reducing costs and improving performance, and we are optimistic about launching new products soon. (Ved Krishna, Strategy Head; Ramjee Subramanian, Innovations Head)
Q: What went wrong with the revenue targets for FY24?
A: Market dynamics changed significantly in the last four and a half months. We were optimistic about outsourced partnerships, which got delayed. Additionally, FMCG offtakes were lower than expected. We aim to achieve around 85% to 90% of the target this year. (Jagdeep Hira, India Business Head)
Q: What is the plan and strategy for targeting religious pilgrimages like Ayodhya?
A: We are working with Vaishno Devi Temple and ISKCON, among others. While we cannot put a specific number on it, these partnerships will be part of our next year's plan. (Satish ChamyVelumani, Compostables Business Head)
Q: What is the metric tons of chocolate packaging launched and its pricing?
A: The current pricing is around INR35 per square meter, with a target to reduce it to under INR26. We aim to establish a 33,000-ton plant in two years. (Ramjee Subramanian, Innovations Head; Ved Krishna, Strategy Head)
Q: What are the plans for the biodegradable polymer segment?
A: We are focusing on flexible and rigid packaging alternatives, looking at multiple materials, performance, and cost-effectiveness. (Ramjee Subramanian, Innovations Head)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
