Release Date: August 13, 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 successfully hired key leadership positions, including a new CFO and CTO, which are expected to drive significant improvements.
- The company has initiated equity funding for the Kawok project, with investor interest rising and expected closure within two months.
- Pakka Ltd (BOM:516030) has commercialized new high-spec paper and two new molded designs, contributing to product diversification.
- The company has reduced water consumption by 3% and increased export volume by 1%, reflecting its commitment to sustainability and market expansion.
- Financial performance has improved, with top-line revenue surpassing the previous quarter and a slight increase in bottom-line figures.
Negative Points
- The company is facing significant market headwinds, including a price war with competitors, which is impacting profitability.
- There is a noted decline in revenue from INR408 crore in 2023 to INR405 crore in 2024, indicating potential market challenges.
- The effective tax rate has increased from 31% in 2023 to 36% in 2024, which could impact net profitability.
- The company is heavily reliant on the successful execution of large-scale projects like Jagriti and Guatemala, which carry inherent risks.
- There are concerns about the cost competitiveness of new delivery solutions in the fast-growing quick commerce sector.
Q & A Highlights
Q: Could you elaborate on the primary factors contributing to the revenue decrease from INR408 crore in 2023 to INR405 crore in 2024? Are there specific challenges within the industry that the company is currently facing?
A: The reduction in the top line has primarily been driven by two factors: NSR (Net Sales Realization) and volumes, almost in the same proportion. We don't see any specific challenges, but it's more industrial, and we are gearing up for that. In terms of EBITDA margins, we have actually improved due to operational efficiencies and a better product mix.
Q: What is the purpose behind the recent QIP fundraising, and how will the funds be utilized?
A: The fundraising is for setting up a project worth about INR700 crores in India. Our total top line right now is about a little over INR400 crores, which is not enough for internal accruals. Hence, we raised about INR250 crores from equity and the rest from debt. This project is for building our flexible packaging capability.
Q: How are you planning to integrate with the fast delivery space, such as companies like Zomato and Swiggy?
A: We are growing along with quick commerce, with revenue from D2C growing from 5% to about 15-20%. We are also coming up with new delivery solutions expected to perform well under current delivery conditions, to be launched in the next two to three months.
Q: What are the expected financials and revenue potential for the Guatemala plant?
A: The total outlay of capital for the Guatemala plant is $340 million, with $140 million in equity. The plant will come online in late 2026, a year after Project Jagriti. We are looking at introducing numerous products through co-manufacturing in North America, with some turnover expected by next year.
Q: What are the risks associated with the large-scale projects like Project Jagriti and the Guatemala project?
A: There are numerous risks, from raw material availability to market shifts. However, we mitigate these risks through long-term contracts for raw materials, operational tie-ups, and off-take agreements. The key is to focus on daily execution and continuous improvement.
Q: What is the ultimate equity stake Pakka Limited aims to retain in the Guatemala project?
A: The target is to retain management control, ideally upwards of 50%. Currently, we are targeting a 30% dilution, retaining 70%. The final stake will depend on negotiations and the value brought by investors.
Q: Can you provide a breakdown of the INR675 crores for Project Jagriti?
A: The detailed breakdown will be available in our annual report. However, the investment covers various aspects, including pulping, chemical recovery, power plant, base paper machine, and coating machine.
Q: Are there any soft commitments from clients for the new facility in India?
A: Yes, we have numerous trials with significant players. The plan is to have strong commitments and sales before we start producing ourselves. The capacity is relatively small, and the key is to crack the market.
Q: What are the current financials of the Guatemala plant, and where can we find these numbers?
A: The Guatemala plant is still in the fundraising stage, with no current financials available. The plant will come online in late 2026, and we are looking at introducing products through co-manufacturing in North America.
Q: Are we expected to maintain the current EBITDA margin for the next two years?
A: We are working towards building efficiencies and maintaining the current EBITDA margins. However, it will depend on various factors, and we aim to sustain or improve these margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
