Release Date: June 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pakka Ltd (BOM:516030, Financial) reported a 1% increase in PBT compared to the previous year, indicating improved profitability.
- The company achieved the highest ever production in the wrap and carry segment, with a 4% increase from the previous year.
- Significant progress has been made on the international front, including the near completion of basic engineering for the new facility in Guatemala.
- Pakka Ltd (BOM:516030) has added new products to its portfolio, including a unique 22-gram wrap made from non-recycled fiber, positioning it as the only producer in India.
- The company has initiated a strong leadership development plan and aims to improve its net promoter score, reflecting a focus on customer satisfaction and internal growth.
Negative Points
- The market conditions have been challenging, with conflicts in the Middle East and the ongoing Ukraine war impacting business operations.
- There has been a significant increase in cheaper imports, rising from 19% in 2022 to 47% last year, affecting domestic market dynamics.
- The FMCG sector has shown slower movement due to international conflicts and domestic imbalances, impacting overall demand.
- The company faced a goodwill write-off of INR4.08 crores and ESOP expenses of INR3 crores, which affected profitability.
- Despite the progress, the company refrained from providing revenue projections for the upcoming year, indicating uncertainty in achieving financial targets.
Q & A Highlights
Q: My first question was regarding the Guatemala CapEx, which is around INR2,000 to INR2,500 crores, and approximately 40% of that will be equity funded, which comes to around INR1,000 crores. So this INR1,000 crores fund raised in Pakka Incorporated, which is indicated to be done in the next one to two months, will it be in one phase only or in more than one phases?
A: The first thing to understand from an Indian investor perspective's that there is no recourse to India. So India doesn't get impacted at all. The total commitment from the India Pakka Limited is of [10 million], which is about INR75 crores or INR80 crores, which limits our exposure to that much. In terms of the Guatemala fundraise, we've already -- like I said, the debt has already been committed. The raise for equity is about [110 million], which is about INR900-odd crores. That is underway now. And yes, it will be done hopefully in one phase. And the target for us is September, and we're targeting that that will result in ideally not too much of a dilution. So Pakka Limited owns Pakka, Inc., which is the US company where the equity is being raised 100%. And there will be a dilution of that holding. But in the end, the Indian investor only gets to gain because there is no recourse to India. And of course, the consolidation will be there of a much bigger project into the Indian balance sheet in the next couple of years.
Q: In the last con call, we discussed about the [asset line] model for tableware, and Satish had indicated around 14% to 18% EBITDA margins in this model. Can you tell us more about this with respect to how we will manage to pull this off? Will pulp be supplied by Pakka or only technology know-how will be transferred? And a follow-up to this, have we seen any strong success yet? Because we've been trying this for a while now.
A: So I'll answer one by one. The first question is, yes, pulp will be supplied by Pakka. And we're not giving any further -- again, we are continuing to use the technology that the outsourced facilities are using. Again, I don't want to give any promise on the numbers because the market has been really challenging for us, and we are trying to maximize as much as possible.
Q: And are we getting any good response in the US markets with this?
A: Again, we have just scratched the surface on the US market potential now. It's too early to tell.
Q: So as we mentioned that the Guatemala project will have no recourse to Indian cash flows. But India will have to divert up to INR75 crores, INR80 crores next towards Guatemala. So considering this requirement in the Indian balance sheet, I think we will fall short of some cash flows up to INR100 crores, INR125 crores since we have Jagriti project in our hand as well. So my question is, are we looking at and when will the fundraisers happen at India level? And it will be of what size? And is this going to happen before or after the Guatemala race?
A: Indian project is already underway. So most -- as Jagdeep mentioned, most of the orders also have been placed now. Most of the major orders, including the power plant, the recovery boiler, the tie-up for paper machine, the pulp expansion, the PM3 expansion -- all those orders have already been placed. So as far as India goes, the fund is being structured already. And the way we are doing it is that instead of raising INR675 crores, which is the India fundraise, we will be raising INR750 crores in total. So -- and that said, you're right. There is a commitment of about INR75 crores to INR80 crores from the Indian, internal accrual, but that's pretty straightforward in terms of the cash availability. And as you may realize, these projects take about two years to set up. So the project setup time will be two years. So in a year, there will only be a movement of about INR30 crores, INR35 crores. And that's the cash that is available with us. So we don't see any challenge in terms of the Indian balance sheet to support the commitment towards Guatemala. And the only reason why we are doing that as well is because we don't want to slow down the speed in Guatemala. Because we have already moved in a significant pace, and we want to make sure that while the fundraise is being done, the project keeps moving. So that's the reason for doing that.
Q: Can you provide more details on the progress of the basic engineering for Guatemala project? Are we on track with the initial timeline?
A: So basic engineering, we again scanned the whole world for excellent basic engineering providers. There were four contenders that we had identified. In the end, we found actually a Chinese company. We found it much better than a European company. It's a company called CTE, which has actually designed the world's biggest plants. And we didn't realize how good they were until they actually came on board. And we've had an amazing experience with them so far. Really thorough in their work. And we've now reached almost the conclusion stage of basic engineering. And we are going to start our detailed engineering work in the next month or so. That said, we've also appointed two project engineers already. A couple of project engineers from India have been supporting the project. So those guys are also onboarded. And we are hoping that in the next six months or so, the final detailed engineering would also be complete.
Q: My first question is like, as in the initial remarks, we are facing some headwinds like a lot of imports, people imports are coming from other countries. So anything we are doing to really mitigate this problem for the coming year?
A: Yeah, Pawan-ji, we are doing -- we are aggressively doing on that. Adding up -- as I mentioned in my presentation also, we are looking for new product in the basket so that we have less of a competition and very high on the pricing competitiveness. One, as we said, in case you see the graph year-on-year basis, every year there is a jump of around 2% on the efficiency level. Right now, we are operating at around 97% of efficiency, and we are looking to-- for this year again -- another 2% of efficiency increase which will eventually give us a competitiveness amongst imports. Second, we are also looking for more of exports from our domain wherein there is a huge market and demand as well. So all these factors are being considered and we will look forward for better results over the last year during this year.
Q: So previously, the management has
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
