Release Date: February 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q3 sales volumes increased by 14%, marking the first double-digit volume growth this year.
- Commercial supplies to Aditya Birla Group (ABG) have started, with significant growth expected in the paint segment.
- New products for Asian Paints are set to launch, potentially adding 12% to 14% growth in the paint segment.
- Pharma packaging segment shows promise with unique in-mold labeling (IML) solutions and single-piece canisters.
- Expansion plans include adding balancing equipment to achieve better capacity utilization in FY '24-'25.
Negative Points
- EBITDA growth was only 5.23%, lagging behind the volume growth.
- Net profit decreased by approximately 13% due to increased depreciation and financial costs.
- Paint segment volumes have remained sluggish over the last six quarters.
- EBITDA per kg has decreased from INR40-42 to INR35-38 this year.
- High overhead costs due to staffing and training for new plants have impacted profitability.
Q & A Highlights
Q: Sir, on your paints segment, what you've seen is the volumes have remained sluggish over the last six quarters or so. Can you explain the reason behind the sluggish volumes, especially from your top customers over the last many quarters? And when do you expect the volumes to uptrend for your existing clients, that is ex of Grasim?
A: Yes, paint volumes are at least not dropped this quarter. One of the major plants for Asian Paints at Satara was underutilized due to various maintenance and remodification work. Now it is back to normal. We are not chasing any more new paint other than the new ABG, that is Aditya Birla Group. Commercial supplies to ABG have started in January and are picking up pace. By the time we close this financial year, there will be some numbers coming from ABG, and they will strongly improve the paint numbers in the coming quarters, starting from Q1 of next financial year.
Q: On the pharma packaging side, where would you be in your process of starting commercial supplies? And what would be your revenue expectations from the segment over the next two to three years?
A: Pharma packaging, we are coming out with small USPs in all the segments. For effervescent tubes, we are the first company to establish IML, in-mold labeling. Our samples and first lots of trial samples are well accepted. In the case of effervescent tubes, the process has already started. For regulatory markets, the stability test and the process of commercial supplies would take three to six months. Next year, the overall capacity of the plant, if it turns at full capacity, would be in the tune of around INR50 crores per annum in terms of revenue. We aim to reach around INR20 crores to INR25 crores turnover in the year '24, '25.
Q: On the F&F segment, given you had earlier highlighted that you're confident of growing the tin pack segment at 20% to 25%, do you stand by that? And what will be the levers for that?
A: The main lever for Food and FMCG going beyond the current team level is our plant at North, that's Panipat, which is starting in February for ABG and March for thin wall. We already identified six products to be introduced in March, April, and another four more products in June, July. These 10 products would be having numbers in the year '24, '25 at least for eight to nine months. Going forward, CD also will be expanded.
Q: What is the outlook going forward for fourth quarter and for FY25 in terms of margins?
A: We have the expenditure or costs, which are being spent on creating the teams that are meant for all these three plants. Once these lines of activity become productive, I think we will be back to the INR40 level in the next financial year. Currently, this year, we might end up at around 37 kg only. But for Q1 onwards, we will see a definite improvement in the EBITDA per kg.
Q: What growth are you expecting in thin wall F&F?
A: Thin wall F&F, we are looking at least 20% growth in the next financial year because we already are seeing about 14% growth in these nine months so far. With the North Plant getting operative, that will be adding to at least another 5% to 6% growth. So we are aiming at 20% growth for food and FMCG in the next financial year.
Q: How do you see realization going for the next two to three years, specifically for F&F and paints?
A: Paints would improve because we have a good understanding with ABG and Asian Paints where our EBITDAs are protected or even improved. Food and FMCG, by expanding our presence in the north and widening our product range, will continue to give us a 20% volume growth at least for the next two, three years. My main growth in EBITDA per kg would be coming from pharma in the next couple of years.
Q: What is the total pending order book of Mold-Tek Packaging? What happened to the pump business? What happened to the dough container export business? Is the Gemini oil started production?
A: We always have open orders with all the clients. As for their demand, they keep giving us on a monthly basis, the orders. On the Pumps side, we have not been really successful. Only about 7 lakh to 8 lakh pumps per month we are selling. Regarding the dough container business, we are exporting to the US for various containers for restaurants, sweets, and some food products. Gemini Oils started production two, three months ago, and the numbers are picking up pretty well.
Q: When do you expect to reach the three-digit top line figure and about 20% margins? Will it be possible for us to reach in FY25?
A: We are almost there with 18.91% EBITDA margin. We will attempt to cross the 20 percentile during '24, '25. If pharma goes as per our plans, it should be in that region. Otherwise, it may take one more year. Regarding the INR1,000 crore figure in sales, raw material prices have fallen considerably, impacting our revenue number. We are aiming at 15% to 20% volume growth for the next financial year.
Q: What proportion of our volume or revenue would have come from the new customers that we have added in the last 1.5 to 2 years?
A: Last 1.5 to 2 years, we have added several clients, especially in food and FMCG and qpacks. Their growth is definitely in double digits. Majority of them are qpack customers and not the high-margin food and FMCG.
Q: What proportion of our volumes would be export and is there any export deferred or impacted because of the Red Sea crisis?
A: There was some dip last two months because of freight shot up due to the unrest in the Middle East. Our exports are not a major first area for growth. However, both our effervescent tubes and canisters have very good export potential. Once we start producing them in the next few weeks, we will be looking at export opportunities in the next financial year to get better realization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
