AGI Greenpac Limited (AGI.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of HSIL Limited hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to remind all participants that some of the statements or comments made on today's call may be forward-looking in nature. This may include, but are not necessarily limited to financial projections or other statements of company's plans, objectives, expectations or intentions. The company disclaims any obligation to update these forward-looking statements to reflect future events or developments. Kindly refer Slide #19 of the earnings presentation for a detailed disclaimer. I now hand the conference over to Mr. Umesh Raut from Dolat Capital. Thank you, and over to you, sir.

Thank you, Jakob. Good evening, everyone. On the behalf of Dolat Capital, we welcome you all for Q3 FY '22 Post Results Conference Call of HSIL Limited. We are pleased to have senior management team from the company represented by Mr. R. B. Kabra, President and CEO of Building Products; Mr. Rajesh Khosla, President and CEO of AGI Glaspac and Garden Polymer; Mr. Om Prakash Pandey, HSIL CFO; Mr. Sandeep Sikka, CFO, Group HSI. I would like to hand over the call to management now for their opening remarks. Over to you, sir.

Good evening, everyone, and welcome to the Q3 FY '22 Earnings Call of HSIL Limited. I hope you and your family members are safe and healthy. I will read the disclaimer. The actual outcome being as they are dependent on several external aspects as well. The participants will leave their own assessment. We have already circulated our earnings rendition, which is available on our website as well as on the stock exchange website. I hope you have had the opportunity to go through this presentation, and we would be happy to take any questions afterwards. We will begin this call by providing you with the details of the recent announcement, of building product division followed by a discussion on the company's financial performance. And then I will hand over the call to Mr. Kabra and Mr. Khosla to share the details of the business division's performance. Our Board of Directors has approved the function of assets and liabilities of the Brilloca Limited, a wholly owned subsidiary of Somany Home Innovation Limited for a cash consideration of INR 630 crores, [indiscernible] closing date adjustment. Sales proceeds will be utilized towards 3 payment of interest-bound borrowings and will enable headroom for escalated growth.

This is the operator. Sir, we are getting an echo. May I request you to be on the handset mode?

I'm on handset.

Okay.

This transaction has been carried out, will be objected that HSIL has completely focused on the growth of business and capitalized on both organic and inorganic opportunities. In the past few years, the company has emerged as the most profitable glass packaging company in India. Our current market position and a very defined growth strategy will help the country to unlock value for all the share -- stakeholders. Moving to the financial performance of the company. In the third quarter, the company delivered a total income of INR 645 crore, a growth of 18% on a year-on-year basis and 14% on a sequential basis. HSIL delivered strong revenue growth driven by increased demand for glass bottle in the beer and wine industries in the Packaging Product business and sustained demand momentum in the real estate sector driving Building Product division. We registered a strong year-on-year growth, even in the comparative quarter in the last year had a high risk due to pent-up demand post-COVID-19. EBITDA for the quarter stood at INR 96 crores with EBITDA margin of 14.8%. Profitability margins were impacted in Q3 FY '22 due to the spurt in the input commodity prices. We expect the situation to normalize going forward. as these are passed on in the coming quarters. EBIT for the period was INR 61 crores, with EBIT margin of 9.4%. Profit of tax at INR 28 crores with a margin of 4.4%. Now I will hand over the call to Mr. Kabra to take us to Building Product division.

Thank you, Mr. Pandey. A very good afternoon to all the -- all of you who are here for attending this call. In Q3 FY '22, revenue from operation of the building products was INR 243 crores registering a growth of 35% on a year-on-year basis. Revenue growth was primarily due to sustained demand in the real estate sector with supportive interest rates and EBIT for the period was INR 7 crores. Some of you are already aware that for the information of all I would like to mention that currently, we are under the process of completing the slump sale, which is expected to close with customary closing date adjustment on or before 31st March 2022, and subject to necessary approvals. Building Products division operation post slump sale will be part of Brilloca Limited, which is a wholly owned subsidiary of Somany Home Innovation Limited. So this is a brief about this business and since it is getting transferred so now this we get past with Brilloca. So I would now hand over the call to Mr. Khosla to talk about the Packaging Product division. Mr. Khosla, please.

Mr. Khosla, may we request you to unmute yourself.

Thank you, Mr. Kabra, and good evening to all the participants. The packaging products division saw the growth in production, capacity utilization, sales volume and revenue. Revenue from operation was INR 398 crores in Q3 FY '22, registering a growth of 10.2% on a year-on-year basis and 29.2% on a quarter-on-quarter basis. Revenue growth for this period was driven by the beer and wine industry. The Packaging Products segment contributed 62% of the total revenue. EBIT margin stood at 15.6% in Q3 FY '22, compared to 17.6% in Q3 FY '21. As mentioned earlier, total fuel and power costs for glass container manufacturing has increased by 48% per metric ton on year-on-year basis, which has put the pressure on the margins, but we are expecting the retrieval of margins due to strong operational efficiency in the manufacturing process and to plan to pass on the increased cost to . Relining process of 1 of the furnace has been completed and glass container capacity utilization during the quarter was 92%. In the same quarter as compared to 83% in the same quarter last year and 66% in the previous quarter. Looking ahead, we are expecting incremental growth from a high-value product segment as we will soon operationalize our specialty glass manufacturing units at Bhongir, capable of reducing 154 tonnes of glass per day. With the announced realignment of the business, packaging product division will be the core operation of the company and supported by numerous favorable sectors such as dedicated focus of the management, strong capital structure, new product offering, strong operational efficiency and improvement in macroeconomic environment, which will propel the net pace of growth in the company. Thank you very much. Now we are ready for any questions.

[Operator Instructions] The first question is from the line of Zakir Hasan an individual investor.

We've been, in fact, looking forward to this transaction by the management, where the Building Products division would be separated. And I think congrats to this division. Sir, there was a press release 2, 3 days back, where your Bhongir plant has started, 154, 155 tonnes per day. That's on Monday, I think. And in that press release, there was a mention of HSIL being able to achieve INR 1,700 crores turnover in March '23 with this new facility. So could you give a brief on that, sir? And my next question is, after this transaction just completed of the sale of the Building Products, what would the net debt be on HSIL book, sir?

So I'll answer the question on the net debt first. Today, we have a total debt of INR 1,200 crores on HSIL and of which INR 630 crores, we will get from Brilloca, so which will pay off the debt, which is being utilized today. But there are certain kind of capital work in progress which is there like we are trying to debottleneck capacities. Mr. Khosla will talk about it. And also other normal CapEx, which is there and also some relinings which are coming up for the next financial year. So debt may increase by another INR 200 crores to INR 250 crores over next 12 to 18 months after the dip, but that will also lead to the incremental sales coming from 154-tonne furnace. We are also trying to debottleneck the capacity, which will also enhance the overall sales. I'll request Mr. Khosla to throw light on the overall sales question, which was the first question. I hope I answered your second question.

As I understand your question, you want to know that the 154 tonnes furnace, which is a specialty glass furnace has been started on Monday. Furnace of 154 tonnes has been fired on Monday. It is a process before we start this in, it is a preheating of the furnace, and it takes around 15 to 20 days for the preheating before the actual production starts coming. So we expect that by mid of February, the production will start coming, and then it will take further around a few weeks to stabilize the connection, and we hope so by the end of this financial year or early next financial year, the right product is going to come out of the furnace. Regarding the INR 1,700 crores remark, yes, because the new furnace is 154 tonne, so which is going to produce almost 50,000 tonnes of the products of a high margin products or a high-end product. If we add the top line of these traditional quantities, plus the extra quantity which we are going to utilize from our existing business, the total top line will be close to -- in glass I'm talking, will be close to INR 1,700 crores or maybe you more than INR 1,700 crores. So this is the pickup as on date on the glass part.

Best wishes for your journey next year. Just another add-on question, regarding the furnace. Sir, see, at this very moment, Hindustan National Glass has gone for [indiscernible]. There was some -- I don't know where there was some kind of a new bid or something where it is written that HSIL may be interested in bidding for it. I mean is there any truth in that, sir?

So market opportunities are huge for the glass, both organic and inorganic for us. We keep looking at various opportunities. So this opportunity is there. But it has to run through the process of IBC as we are given to understand based on the public knowledge. So we cannot assure on what time frame it will be available or how much will be -- it will be a bidding process under the IBC. So definitely, it makes a lot of synergy for us for this type of event. It gives us an ample opportunity to grow. But at the similar time, we also -- we are also evaluating various other opportunities so that we can further enhance the sales, further add to more value-added products, I think Rajesh talked about the new furnace, then we are putting some finishing lines so that we can give more value to our customers, have more margins on the bottom line. So that's the whole thought in the plan.

But the thought would be there, sir. I mean, depending on how the opportunity pans out, the thought is there.

Thought is there, but this is all subject to...

And sir, just that question, sir, see, don't you think once we got down our debt to reasonable INR 600 crore level, getting it back again to INR 700 crores, INR 750 crores, INR 800 crores would -- I mean, would the balance sheet be able to take such debt comfortably, sir?

So you see most of these businesses, which we do on the glass side are very high capital intensive businesses. You have to understand where the money is going. So money is going towards further the major chunk of expenditure next year would be realigning of another furnace because that is very essential for the life of the furnace to properly return, upgrade -- then we are also investing to see how we can debottleneck the existing capacity so that we can generate slightly higher tonnages because right now, we feel that by making some incremental investment rather than putting a whole plant, if you can debottleneck the plant. So all these investments will go towards this, but this will definitely lead to incremental sales also going forward. It's not that it is all in maintenance . So idea is to enhance the sales, debottleneck and do efficiencies of the plant on better margin on the bottom line.

Interesting. And sir, on the macro level, sir, are we getting the China plus 1 advantage out of whatever has happened lately. And can you throw some light on the increased fuel cost, I think natural gas prices have been that gas prices have started falling. So could you just throw some light on that as well, please.

Rajesh, if you can take this?

Yes, I can do that. Thank you very much for that. And regarding the cost increase, the quarter we started from October, there has been an exponential increase in the prices of raw materials, the prices of fuel. And this is a worldwide phenomena. It is not related with the people, it is not related to India, it is related all over the word. If you talk about the price movement of fuel prices, I'm talking on a quarter-to-quarter basis, Q2 to Q3, the prices of natural gas has gone up by more than 100%. What we used to buy at around INR 20 per SCM, it has gone to INR 44 or INR 45 per SCM. The furnace oil has gone up by almost 9%. The LPV has grown by almost 16%. The oil has gone by around 7% to 8%. So the prices of all the 2 items are on fire. And the bad part is it's exponential. And the good part is all your customers, all your stakeholders, they understand this phenomena. And it is a very good set of a part that we have been able to optimize the use of fuel by using the right product mix. That is the reason the impact on us is very, very low. Part of that impact has already been passed on to the customer. And the worst part of that is already under discussion, we have -- to be passed on to the customers. So our condition will be -- look to be quite healthy in the times to come. But yes, it is -- there is a time lag between the cost increase and the price settlement -- so there is a time lag. And it depends upon industry to industry. In our industry, it can go up to 1 quarter to 2 quarters. So we look forward for the next quarter where the results should be reflecting the compensation of cost increase.

And about the China business, sir, I mean do you think we are getting advantage out of the China plus 1 side?

Sir, regarding China, we were not much impacted earlier also with the China because in a glass item, it's a very localized type of business, where the freight plays a very important role and sending the glass, which is a basic material, it is -- it's not very effective. So what happened is there were some special glass...

The special glass, which were imported.

Yes, like pharmaceutical and all, which we do start manufacturing in 154, and we hope to capture this market. And rather now [ freight ] containers and the [ crates ] are very, very high. So we look forward that the advantage of this freight escalation will help us in realizing better prices in these local markets.

Interesting, sir. And sir, if I may just add, what is the depreciation impact on this moving the gross block into Somany Home? I mean how much depreciation benefit HSIL will get the current year .

Sikka, please reply on this.

Yes. So if you see the total depreciation, which is charged in the BPD for a quarter was around INR 7.2 crores, just annualize this maybe around odd INR 29 crores to INR 30 crores of depreciation will get observe.

Thanks, thanks a lot for your patience answering and best wishes for the new innings in HSIL to the entire management.

[Operator Instructions] The next question is from from [ RD ].

My question has already been answered.

The next question is from the line of Adil Kotari, an individual investor.

My question is -- can you hear me? Am I audible?

Yes. You are.

My question is just on -- Mr. Sikka or I can't remember the name on the depreciation benefit, what was the figure mentioned? I couldn't picture that.

So quarter 3 depreciation for Building Products division was INR 7.2 crores, quarter 3.

[indiscernible] figure.

So then analyze just the annualized impact should be somewhere around INR 28 crores to INR 29 crores.

Now my next -- my main question is, which I would like to understand , what would be movement in debt at the gross level on the net level, if you could please explain?

So we already answered this, I'll respond to this again. So we have a total debt of INR 1,200 crores today. And the slump sale, the value is INR 630 crores, subject to closing that investment if I just subtract -- so by that level, the debt will come down. So the debt will come down by INR 630 crores from INR 1,200 crores based on the current date valuation.

There are some fresh additions also. Like INR 200 crores will be added.

That I already responded.

Now my next question is what is the plan to raise capital because there are some CapEx involved also.

So generally, the combo we use is that 60% to 70% of long-term CapEx should be long-term loans and balance 30%, 35%, we should put internal accruals as such because we generate internal accrual, so that can be deployed towards creating further growth.

One last question, sir. I have read somewhere that there an announcement came that company may go for -- post slump sale may go for outprice sale of the glass division also. Is this correct?

No. I think nobody has communicated that.

Report in [indiscernible] to that effect.

No, no, no. I can't respond to it. I haven't seen it, but there is no plan as such to sell the glass business.

So for glass, are there any other opportunities available in related products?

So glass itself has provided good opportunities. We feel so that will help us grow continuously for the next few years because glass is a sustainable material. It's classified as a green material because it can be 100% recycled, and it is not harmful as such. So we feel that on a sustainable basis, this material has a good market potential to grow over the next few years. So we'll unleash our values. We will invest into the money, we'll invest the money for the growth of this business going forward.

And a related question, the latest trend, I gather is specialty glass for solar panels, is that correct?

Yes.

Are you interested in that segment?

The interest -- we'll keep evaluating various options as such. But as of now, Board hasn't approved anything, so I can't make a response to that.

[Operator Instructions] The next question is from the line of Pravin Sharma, an individual investor.

Am I audible?