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

Ladies and gentlemen, welcome to the AGI Greenpac Limited, formerly known as HSIL Limited, Q4 and FY 2022 Earnings Call. [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. These may be include -- these may include but are not necessarily limited to financial projections or other statements of the 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 to Slide #21 of the earnings presentation for a detailed disclaimer. I now hand over the conference to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.

Good afternoon, everyone, and we welcome all the participants to AGI Greenpac Limited, formerly known as HSIL Limited, Q4 FY '22 Earnings Call hosted by Dolat Capital. Joining us today from the management side, Mr. Om Prakash Pandey, AGI Greenpac Limited CFO; Mr. Rajesh Khosla, President and CEO, AGI Glaspac and Garden Polymer; Mr. Sandeep Sikka, Group CFO. Now I will hand over the call to Mr. Om Prakash Pandey for his opening remarks. Thank you, and over to you, sir.

Good afternoon, good evening, everyone, and welcome to AGI Greenpac Q4 and FY 2022 Earnings Call. I hope you and your loved ones are staying safe and healthy. We have already circulated our earnings presentation, which is available on our website as well as the stock exchange's website. I'm sure you would have gone through the presentation, and we would be happy to take any questions afterwards. I would like to highlight that the company has changed its name from HSIL Limited to AGI Greenpac Limited. The rebranding exercise is linked with our transformational journey and reflects our current growth strategy and product portfolio as we become a focused packaging product player. The company has undertaken a strategic restructuring program that has been implemented in the past last quarter with a clear reason. To be a focused packaging product player, we have divested Building Products division to slump sale transaction, and now the Packaging business is the core business of the company. The transaction has been consummated from the closing hours at 31st March 2022, and the slump sale consideration is subject to closing rate adjustment with around INR 700 crores. As of 31st March 2022, INR 109 crores received by the advanced under slump sale, and the balance slump sale consideration is being paid post-31st March 2022, which will be utilized to reduce borrowings. We had also started trial production at our greenfield facility at Bhongir for specialty glass, which has a total capacity of 154 TPD and has 1 new furnace and 5 manufacturing lines. These initiatives are expected to augment our efforts of fulfilling our reason to remain the most profitable glass packaging company in India. Now I would like to present the financial performance highlights. Kindly note that the Building Product division, which has been classified as discontinued operation, and the previous year financials have been restated accordingly. In Q4 FY '22, the company delivered revenue from operation of INR 711 crores compared to INR 633 crores in Q4 FY 21, a growth of 12.3% on a year-on-year basis. Net profit stood at INR 128 crores compared to INR 33 crore in Q4 FY '21, a growth of 286.4% on a year-on-year basis. If we look at continued operations. Total income was INR 453 crores compared to INR 419 crore at Q4 FY '21, a growth of 8.3% on year-on-year basis and [ 6% ] on sequential basis. The revenue growth was primarily driven by an increase in glass container packaging volume by 10%, led by growing demand for glass bottles from liquor and pharma industries. EBITDA during the quarter was INR 93 crores, a growth of 5.1% on a year-on-year basis. The company continues to maintain a strong EBITDA margin of 20.5% despite the sharp jump in commodity and fuel prices and inflation costs. Profit before exceptional item was INR 57 crores with a margin of 12.6%. Net profit from continued operations for the quarter was INR 38 crores with a margin of 8.4%. On a full year basis, the company delivered total income of INR 1,473 crores, a growth of 15.7% on a year-on-year basis; EBITDA of INR 307 crores, with margin of 20.8%. Profit before exceptional item was INR 179 crores, a margin of 12.1%. Now I would like to take you through the Building Products division. The Building Products division has delivered revenue from operations of INR 279 crores in Q4 FY '22, registering a growth of 29.2% on year-on-year basis. And the EBIT was [ INR 23 crore ] with a margin of 9.2%. Revenue growth for the year was primarily due to a revival in business, general macroeconomic environment and an uptick in the real estate sector. In light of the company performance, the Board of Directors has recommended a dividend of INR 5 per share FY '22, subject to approval from the shareholders. This will be equivalent to a payout of 250% on face value. Now I will hand over the call to Mr. Khosla to talk about Packaging Products division.

Thank you, Mr. Pandey. The Packaging Products division, which now represents the core and overall business of the company, saw growth in production, capacity utilization, sales volume and revenue during the quarter. Revenue from operation was INR 438 crores in Q4 year '22, registering a growth of 4.6% on a year-on-year basis and 10% on quarter-on-quarter basis. EBIT was INR 76 crores, with margins of 17.4%. The revenue growth is supported by increasing demand from the food, alcohol, beer, beverages and pharmaceutical industries. The period also saw margin pressure from cost inflation present in commodity and raw material pricing, but strong operational efficiencies in the manufacturing process have helped us to mitigate the same. We have begun trial production of our greenfield specialty glass facility of 154 tonnes per day in the year '22 Q4. We will manufacture high-quality specialty glass products catering to the industries such as pharmaceuticals, vials, perfumery, cosmetics, high-end liquor customers spreading all over the world and particularly in the U.S.A. side of the geography. Australia and big European countries also will be on our target list. We also have successfully produced and dispatched our first consignment direct shipment to the U.S.A. market. We enter the fiscal year with the confidence in delivering a sustainable growth and creating a long-term value for our shareholders. Post this investment -- sorry, post divestment, we are now the pure play packaging company and with a single focus on core business. We will be reinforcing the company's preliminary strategic plan of improving efficiency, effectiveness and profitability. Thank you very much, and we are now ready to take the questions from all people.

[Operator Instructions] The first question comes from the line of [ Zakin Aser ] with retail investor.

Yes, Mr. Sikka and Team AGI, I think it's a good set of numbers considering the environment, sir. Sir, since we've now [indiscernible] the Building Products division has been hived off, and as per the investor presentation, the trial runs for the new 150-tonne plant has started, how would you see the quarterly run rate from now on, sir? That is my first question. Second would be the INR 600 crores which is pending from Somany Home, when is that amount expected? And how has the -- would it be deployed? And what would be the finance cost in AGI during the current year, sir? And I think last con call, you also said that the new facility which has been added, the EBITDA margins will be much better. I mean, could you also please throw some light on that?

Okay. Thanks, [ Zakin ]. So we'll start with the second question first, and then I'll request Mr. Khosla to give you a broad guidance. Although from the confidentiality side, we generally don't give very short-term guidance, but we'll give an overall guidance as such. So if you see, we have a total -- when we did the slump sale in the month of January 2022, we had a total slump sale consideration at INR 630 crores. But this was subject to closing rate adjustments. And post the closing rate adjustments, the slump sale consideration is now working at around INR 700 crores, INR 699-point something. And again, this INR 700 crores, Brilloca Limited as on 31st March 2022, has already given us an advance of INR 109 crores, and balance money is being paid in the due course as a part of the settlement procedure. So if you see the total debt in the balance sheet of AGI Greenpac, what is appearing is INR 1,156 crores. So if you subtract INR 700 crores minus INR 109 crores, so balance will be reduced and balance -- the debt after the settlement should be around INR 556 crores, if we give a full effect of the slump sale on the settlement of that debt. So this will be the total debt, including long-term and short-term loans. The weighted average cost of debt of, all the debt of which we are carrying today, which includes both rupee term loans, ECB loans and some sale deferral loans are there, the weighted average cost right now is working at 5.25%, wherein rupee term loans are right at around 6%, 6.5% and then ECBs and other things, make it much lower. As far as your question on the future growth is concerned, I would request Mr. Khosla, if you can give a broad guidance on the volume growth both on the new project as well as the existing operations and the value. Thank you.

Thank you, Mr. Sikka. As he rightly told, the new project, which is 150 tonnes per day, so it will be producing approximately 4,000 tonnes a month. And now this plant is on a trial, fully operational, fully settled, and we already have the customers, the material has started getting shipped out. So we hope so that plant will be operating in the first half of this financial year at around 85% of the capacity utilization, this new plant. So the volumes can be approximately anywhere between 3,000 to 3,500 tonnes per month in addition to our normal volumes, what we have been doing. Regarding our normal business, which we call commercial glass business, we do expect a volume upside of approximately 7% to 8% in this financial year. So those numbers, 7% to 8%, will be higher in this year, plus the new project will deliver around 3,000 to 3,500 tonnes. So maybe 7% plus approximately 5% on a volume term will be approximately 10% to 12% upside on the volume you'll be able to see in the near future. And anything else to be answered...

And sir, regarding the margins in the new facilities. We had discussed that it will be higher. And also, the realizations of this new plant, I believe this is a fine glass plant, what you have put. So the realization will also be higher, I guess. So would it be possible to -- once it is fully operational, cross that magic number of INR 500 crores a quarter?

We wish and -- we wish the same that we should cross this magic number of INR 500 crores, but every journey will take its time. Regarding your margin, the realization is absolutely higher than the normal glass. It is double the margin of the normal glass. But on the other side, the cost is also high when we produce in the specialty glass, looking to the uncertainty in every year in the energy sector, in the other sectors, in the commodity sector. So projecting on a static angle, the margins will certainly go up, but projecting on a dynamic angle, when we see the overall market, it is quite difficult to say. But we are certainly and very hopeful that the margins will be better than what we have already done last year.

And sir, the price of natural gas has gone up. And our plant, AGI plant has the capacity to shift into different means of energy. Sir, what -- how do you -- how would you try and control the energy cost from the next quarter? Because I think we're already touching INR 100 crores of power and fuel against our normalized INR 60 crores, INR 65 crores, what we do. So what is your views and opinion on that front, sir?

Something is in our hands, something is beyond our control. Beyond our control is the prices of the natural gas, pricings of the fuel which are quite regulated by the government. There, we cannot do anything much. We just have to wait for the right numbers to come there. What is in our hand is we can always be on an outlook where we see that what is the right mix of the fuel which we use, and we can save some money. Secondly, we are doing lot of exercises where we are trying to increase the effectiveness, efficiency, productivity of our material, of the fuel and other things. Even in those cases, the managerial decisions are being taken where all sort of energy audits or energy-efficient things are being taken up. Even we are trying to work out with the best of the agencies globally to suggest or to implement or to guide us what we should be doing to save the energy. Regarding price of energy, of course, it is beyond our hands. But saving the energy, using less fuel, we are doing all of our best to do that. And that is also one of the reasons that the margins, what we have seen in the last year, are much, much ahead of the expected and the situation which was existing last year.

Yes. Last quarter, I think you all did a commendable job seeing the prices. And sir, what about the plant shutdown -- and last -- my last question is what about the plant shutdown? You were going to take a small break. Has that happened? And is the plant back on track, sir?

The overall situation in the global industry is not good. So even if we take -- even if we would have taken a plant shutdown, we may not be getting the right materials to rebuild our furnaces. So what we have done...

No, no, you had some maintenance shutdown. It was 15 days. So how has that happened...

So that is around operational things, which go on. So these are nothing to be -- special to be highlighted to the investors on that.

I think that question there is one of the furnace was rebuilt last year. So that is...

Yes, one of the furnaces. Yes. That is correct.

Yes. That has been rebuilt.

That is already over. That is already over, and they are working quite well and we are getting the full production with that. But you were talking of 15 days shutdown, so those are the marginal shutdowns which are coming. So it is the 3 months furnace we will shut down, you are talking? That is already over.

And sir, very conservatively, considering what you've given 7% to 8% growth and 10% to 12% in terms of -- after adding. So I guess it would be very easy to cross INR 500 crores in the second half of the year, sir. Wishing you a fantastic year ahead, sir, and best wished for the Team AGI.

[Operator Instructions] Next question comes from the line of Nikhil Gada with [ AMCES Sales ].

Sir, so a few questions from my end. Firstly, sir, in the building materials segment results, that is the EBIT, is there some one-off? Because the margins look optically quite high. We have done around 9.2%, which we generally used to do 3%, 3.5%. So...

So if you see, one exceptional item are there. If you refer to the notes to the accounts, it has a reference. We've got some subsidies and grants from the government which were relating to the pipes division. And we have -- based on our accounting policies, we have accounted them as a part of other income since it was relating to the pipes division, which is being under slump sale. So the relevant amount has been shown under the discontinued operations. So this was stated in the notes to the accounts.

Sir, I have referred to that. But there, we have mentioned an amount of INR 38 crores, right? INR 38 crores.

Yes.

And is then that entire amount been accounted for in this particular quarter for Building Products?

Yes, yes. It has been accounted. So if you recall, if you see the profitability is still low even after that, because of the fact that we had a COVID shutdown twice in the year. And during these COVID periods, whenever the key production drops, the fix cost production goes down. So INR 38 crore, as you rightly said, has been accounted in Q4 only.

So if I remove that, then basically the division has done losses -- operational losses, right?

Yes, yes, yes.

Understood. So -- Okay. Understood.

So I think going forward, BPD will not be part of this company.

No, sir, I understand because in spite of -- if you have said that we've taken some shutdowns, the overall growth in Building Products still has been quite reasonable. It's around 30%. So in that context -- was there any loss of production because of this?

The loss of production happened in the quarter 1 when COVID was there. And then, that time, we lost money.

But not in quarter 4, the current quarter, right?

In the current quarter, it was slightly down because the Wave 3 impact that was not that high, but it was slightly in the market.

Okay, sir. I understood, I understood. Sir, then the second question is, in comment, so management had mentioned in the presentation that we have done a volume growth of close to around 9%, 10% for the quarter in Packaging division. And when we look at the value growth, it's only been around 4%, 5%. So the realization dropped year-over-year. Has it been because of a product mix thing? Because in a rising scenario of fuel cost, we were trying to pass on the higher prices, right? So I just wanted to understand that.

I think that 10% volume increase is on a year-on-year basis.

It's not for a quarter?

Yes. It's for the year-on-year basis, 10% volume increase.

If you can help me with what we have done for the quarter?

I don't have a figure right now. I can get back to you on that.

Okay, sir. Okay. And then, sir, I think now that we have removed the Building Products division to Schell, the slump sale, we have added an investment property of around INR 410 crores in our balance sheet.

Yes, yes.

So what sort of EBIT numbers we'll make over there in terms of the lease?

So if we expect the overall rentals, which will be a form of EBITDA, it should be around INR 20 crores, INR 21 crores annually.

Okay. I understood, I understood. Okay. And then, sir, just a few questions on the balance sheet as well as the cash flow because of the changes that we have done. Sir, the CapEx cost, when I look at it from a cash flow perspective, it's around INR 430 crores. If my number is right, around INR 482 crores that we have seen the changes. But I assume that the specialty glass packaging CapEx was around INR 220 crores to INR 240 crores. So the additional CapEx cost, can you help me on what is the additional CapEx cost?

So we are setting up additional some decorative lines also. Because when you go into high-end perfumery, so customers would like to give the value-added service also. So these are additions there which is there. And then apart from it, we had a full relining of furnaces, which was there. So on all these accounts that CapEx is at INR 482 crore.

So sir, this additional -- value addition, is there additional capacity over and above this 154 TPD that we have?

No, the capacity remains at 154. So basically, let's say, a customer -- Rajesh, can you just explain what can be the decorative things? Like what are...

Okay. See, when we say 154, it is only the beer glass. But you see, in these perfumery, cosmetic, high-end liquor, beyond the glass, there are lot of decorations and covering and a lot of other things are there which adds a lot of value to the glass. So all the customers, they prefer not only a specialty glass, but along with that, they want a decoration and all those things also. So we have also put up along with this because our customers and the market has pushed us so that we can supply them the total package rather than just a beer glass. So it's not like that the beer glass will not be sold. Beer glass will also be sold. But along with that, decoration will also be sold, where the margins are much, much better. And the total supply chain, the total value chain, we'll be able to -- we are able to grab that.

Okay, sir. I understood. So then in that case, the asset turns, which you were saying would be around 0.8 -- 0.7, 0.8, if my number is also right, with this additional INR 400 crore -- now that the entire CapEx cost is around INR 400 crores, what sort of revenue potential we sort of envisage from this, the entirety?

See, If we talk about the number of these -- beer glass, if we talk about only beer glass, we expect that the revenue will be close to around INR 250 crores. And if the decoration number is also added up, because decoration is a very subjective and a very peculiar, it is not easy because there is no such capacity. Even 1 bottle can use the multiple type of machines which can be beer. So it depends upon the type of decoration isn't beer. But we still hope that maybe around, depending upon our 100% capacity utilization, we may add up INR 50 crores more from the decoration part. But then it is all subjected to requirement and the type of orders and the market demand, which we are going to get it.

So basically, more or less, we should do INR 300 crores on a best case scenario?

We can. We can do. We may not, but we can do.

And the payback would be 5 years, which was -- earlier, we had projected for this?

Yes.

I understood. Sir, I just have 1 or 2 more questions. Do you want me to ask right now or should I come back?

Yes, sir, please go ahead.

Okay, sir. Sir, then just on the cash flow statement itself. When I look at the inventory changes and the overall working capital changes, I just wanted to understand, is the FY '21 numbers restated or they are like additive? And FY '22, we have done only the restatements for the Building Products?

So these are numbers which have been posted as part of discontinued operations because these other things that have been transferred. The balance sheet is net of Building Products division.

But for FY '21, it includes Building Products, right?

Yes.

So since -- when I look at the inventory changes for FY '22 and when I look at it from -- compare it from a balance sheet perspective, there is -- maybe I should take this off-line, but then the gap is around INR 60 crores, INR 70-odd crores.