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

Understood. Understood. And this is quarter-on-quarter, I'm assuming?

No, I'm talking -- sorry, quarter-on-quarter. Yes, you are right.

Understood, sir. Got it. Sir, just in terms of the demand scenario, now that we are listening to a lot of commentary where a lot of consumption level slowdown is being witnessed across multiple sectors. And we sort of indirectly cater to the consumption demand. So how do you see this panning out in the upcoming quarter? And what's your view for FY '24 from that perspective? Do you think there can be any impact on the volumes?

Okay. We are not immune with the whole thing. But I think we have developed a system where we have spread out our risk parameters, and we are present in the various segments so that we are able to absorb any fluctuations in the demand side. Now second part is, in our products, we have also worked on which are the products which are on the lower side of the spectrum of fluctuation. As you...

Rajesh bhai?

I think there some disturbance. Hello? Am I audible?

Yes, Rajesh. Please continue.

Okay. When we see on a recessionary trend in spectrum, there are the luxury goods, which are there, which are hit on the first part. And there are the necessity goods which have hit on the last part. So some of our segments to whom we are supplying, they fall on the lower side of the spectrum means they are the last one to get hit in the recessionary trend. So still, there is a lot of buffer which still exists to take care of the recessionary trend. So I hope so since we have spread our risk, we are on the lower side of the spectrum. So we should be the last one to get hit on the recessionary trend. And risk if the earthquake is more than 9 Richter scale or 10 Richter scale. So nothing can be done. But if it is on the lower scale, certainly, there is a good amount of savings we have already imbibed in our system.

Understood. Got it, sir. Sir, just considering this switch from plastic to glass, and in this kind of a scenario, do you think that the switch, which we have been witnessing from plastic to glass can also reverse because of this kind of an inflationary pressure in your opinion?

It's already there. See, it's very difficult to calculate and to identify the change from glass to PET or PET to glass. It is an ongoing thing which is there. And -- and yes, with the increase in the prices of glass, a lot of glass have already switched to the PET and other things. But then there is an overall growth also. So we are not quite concerned about that. It's an ongoing thing, which is today and always will be there. So -- but overall, the glass market will be okay. It is quite balanced, and we hope that in the future also it will be reasonably balanced.

Understood. Sir, just then on the EBITDA part, the margins part. If I understand in the previous call, you had mentioned that we would be comfortable with an EBITDA per metric tonne of somewhere around INR 7,500. And if my calculation serves me right, I think we have already surpassed that number in this particular quarter. It would be somewhere around INR 8,200 to INR 8,500 range. So do you think that this is a new normal and you believe that this is something we should work with in terms of our numbers? Or you feel that it's more of a benefit where we're getting lower cost structure vis-à-vis the higher realization and that might once again reverse in the upcoming quarters?

So very difficult to answer this on a very long-term basis, but I think we answered this in a short to medium-term range, we expect that we should be able to maintain this. But if there are changes in the external environment, like what happened around almost 6, 7 months back with noxious changes in the prices, input raw materials, especially soda ash, availability of raw materials. So then all those quarters may get impacted by this because definitely, when you operate in a macro environment, anything happening in the macro environment will impact you. But on a medium -- short term to medium term range, we feel that we should be able to maintain this range bound of EBITDA per tonne.

Got it, sir. And sir, just 2 questions on the specialty glass division. When we say that we might achieve somewhere around 85% plus utilization, what would be the EBITDA per metric tonne that we will make? Would it be like -- I think you had mentioned it would be 25%, 30% higher than what we make in the current packaging division. So that statement still holds or do you think that it can even improve from there?

See, because the realization is higher in the specialty gas, so obviously, on an absolute term, this EBITDA will be higher than the normal glass. Yes.

But can you give a broad range, what kind of EBITDA per metric tonne can be possible from the specialty business?

Little difficult, little difficult. But I think so it will be -- on a percentage wise it should be close to what we have been achieving or maybe a little better than what we are achieving on a percentage wise. On an absolute term wise, obviously, when the realization is higher, the number will be much higher accordingly.

So EBITDA per tonne can be higher around 20%, 30% from what we do right now. And this is based for next 12 to 18 months. But once the furnace will get loaded, we have a full flow of orders, the things may be better than this.

So we can work with around 11,000-odd EBITDA per metric tonne, INR 10,000 or 11,000?

Ranging...

I think it is just the extrapolation of the numbers, what you are doing you should be practicing accordingly.

Fair enough. Understood. Sir, and just lastly on the balance sheet front, looking at the run rate that we are doing in terms of EBITDA, we might close anywhere between INR 380 crores to INR 400 crores of EBITDA on a full year basis. And you mentioned that there's a repayment of debt of INR 100 crores. So just wanted to understand because I think somewhere down the line, we'll make some free cash of maybe close to, if my numbers serve me right, close to INR 300 crores, INR 350-odd crores. And if you're just doing that INR 100 crore of payment, this INR 250-odd crores, are you saying that we are just budgeting it for when HNG comes through and apart from the realigning of the furnace? Or do you think if HNG does not happen, then the focus would be on a new CapEx and hence the debt would remain at these levels?

So if hypothetically, you assume INR 400 crores of EBITDA for the year, then you have to charge for interest also and the taxes and the dividend. And then also, we have to provide for the core working capital margin because of the changes in the input raw material prices. So any -- the point which I was trying to say is, any surplus free cash flow which we generate obviously goes towards reduction of working capital. So that was the point which I was trying to put.

And that would be right now, the working capital?

I don't have the working capital increase. So I don't have the number right now. I can get back to you on this.

Got it, sir. And sir, any increase in the interest cost -- interest rate from the last quarter?

It's almost the same because again most of this gets linked to repo rates. But in last 1 year, interest rates have increased by around 2% by around 30%, 33%.

[Operator Instructions] We'll take the next question from the line of from Pradeep [indiscernible] from Centra Advisors.

Actually, I wanted to understand what countries do we export to? You've mentioned that around approximately 20% of our sales come from exports. So what countries do we export to?

We export to North America, we export to Europe, we export to Africa, and we also export to Middle East. So these are the countries we have been exporting.

Okay. And secondly, a procurement of raw materials. It is mainly from Kenya, and you have also said that we also prepared some few local players as well. So what is the share? Are we highly dependent on Kenya or is that also diversified?

No. Even our raw materials, whichever we import, it is well diversified. And the Kenya plant belongs to Tata. So we are dealing and assuring that it is risk-free. So we are covering up like that, say if anything happens in Kenya, tomorrow we have the fall back arrangement in India or elsewhere also. And it's a continuous exercise. We have been doing it in other countries also. So now we are importing from even America and other sources also.

Okay. So even that is diversified? All right?

Yes. And we are working to lower the risk..

Okay. And do we have any plans of expanding more in the PET enclosure business?

We already have a capacity there. The focus is right now to build on that capacity and increase the turnover. And right now, we are focusing there. There can be some machines put into debottleneck for certain machinery with sort of specific purpose. But right now, the focus is to utilize the capacity.

The next question is from the line of Kunal Bhatia from Dalal & Broacha Stock Broking.

One question was sir, in this quarter what was the revenue which we did from the Telangana plant?

Sorry, go again?

What was the revenue which we generated from the new Telangana plant?

So revenue right now because the commercial production has started only on 1st of January 2023. So the sales of the new Telangana plant, 154 tonne has not been recognized. One element of cost has been recognized, which is interest on working capital, which is relating to -- because it is under trial and production, which has been recognized as per the accounting standard. From this quarter onwards, revenues from 154 tonnes furnace will be recognized as a part of P&L.

Okay. Sir. And so this quarter onwards, it will be fully utilized towards net of 80%, 90% odd? Or how is it?

Rajesh, can you...

I think we have already replied to that. All the efforts have been there to use the capacity utilization around 85%. So we are trying to use the 85% capacity utilization. And the product is well established in the market, well acceptable in the market. And now we have to see how the market overall behaves in the overall scenario.

Okay. And sir, this 250-odd-crore revenue, which we expect on peak, what kind of EBITDA margins can this generate?

I think just -- before that, I replied that. As a percentage EBITDA margins, we expect that should -- it is close to what we have been generating right now on a percentage basis.

Sir but your -- it won't contain those special products, which will have an EBITDA higher by 25%, 30%?

It will come slowly, slowly. It's not like that because once we have started our production we have started entering in a market. So slowly, slowly we will be entering to more value-added customers, value-added marketing, adding more of the characteristics to the glass. So certainly, we will be trying to reach to those levels. But because the realization is higher, even if the percentage is same, so the absolute number is much higher than what we are getting now.

The realization would be higher, so absolute EBITDA per tonne will be higher, percentages may be in the range bound.

Okay. Okay. And sir, in terms of this -- if you could just let us know what is the raw material inflation in this quarter vis-à-vis last quarter?

The inflation on the raw material is reasonably controlled because majority -- fuel is there, fuel is well under control. It is not rising as much. It is stabilizing with some numbers. And once the fuel is stabilized, we have seen that the other commodities also stabilized normally. So we hope so that if we see Q2 versus Q3 or Q3 versus Q4, things will be much more stable now. There may not be much of the inflationary trends, except the dollar, whatever dollars will depreciate, so there can be impact on that part. Others, everything will be well under control. .

Okay. Sir but if you were to compare it to on a Y-o-Y basis or on a Q-o-Q basis, in terms of absolute raw material inflation, what would be the number?

If you see on a Y-on-Y basis, we have already discussed that. Almost, if you see, say, around 30% has been the cost increase, which has happened. And same has been on the Y-on-Y basis Q3 versus Q3 businesses, right? So the same price has compensated us, so that is how the working has gone up.

Okay. Okay. And sir, you mentioned that in terms of fuel, we are using still the alternative of gas. So at what price does gas become viable for you?

See, it all depends. It's a relative term, the price of gas versus price of other alternate fuel. It's very relative. Every day situation changes. For example, like furnace oil. Today, the price of furnace oil is close to around INR 45 and the gas price is around INR 52, so it doesn't match up. And looking to the calorific value of the gas and the furnace oil, I think we can always calculate accordingly. All these numbers are well in the public domain, the calorific value of the gas, the calorific value of the furnace oil and the prices of the furnace oil and the prices of the gas. They all are in public domain, and they are very dynamic in nature. So you have to calculate on a daily or a periodical basis to have a decision.

Okay. Okay. And sir, do we have anything like order book sort of a thing in hand or even that is very dynamic?

Say again, I have not understood.

Do we have any order book in hand?

Order book in hand?

Yes.

What do you mean by order book in hand, please?

So meaning we will be supplying to these OEMs, right? So -- or these 500 players. So do we have any kind of an order already in place for the next quarter? Are we booked in terms of...

Yes, yes. See in our -- we are a very integrated supply chain support system. So all our customers, they are dependent on us or even our counterparts -- our competitors to have their regular supply chain arrangement. So we have the long-term broader understanding with the customers and the order comes on the month-on-month basis which are basically SKU-wise orders which are being described to us. But on a broader level, we have the understanding on a year-to-year business. So customers tell us that in this year, they are going to lift approximately this much of tonnage, and we plan accordingly.

Okay. Okay. So sir, any volume guidance would you be able to give for the current year or next year?

We are already running with 95% capacity utilization in quarter 3, which is quite high with the -- as compared to the normal conditions. So I think a few percentage or a small percentage here and there can move out because it's very difficult to achieve even 100% of the capacity utilization. But obviously, then there is a demand in the market, so we will try to achieve maximum capacity utilization. So that is the -- that is what is the controlling factor on the volume side to us.

Okay. Okay. And sir, if you could just give some understanding on the current working capital cycle?

So if you see right now, we use a cycle of odd 90 days as such, which includes inventories, receivables and trade payables. So as a part of our industry, in many quarters, we make orders to stock with some visibility of our customers. And in some quarters, like when the beer season comes it's not that we produce bottle only during the season. So we keep producing the bottles and then the customers demand, we can offload those bottles as such. But right now, the overall cycle is odd 90 days. We intend that there's an opportunity here, but we can reduce it by another 10, 15 days. But that again depends on quarter-to-quarter how it works.

[Operator Instructions] We take the next question from the line of Mr. Sanjay Shah from KSA Securities.

Sir my basic -- like to have some basic understanding from you regarding HNG asset. And as you said that few furnaces are closed and maybe I understand few may be insufficiently run because of loss making. So how long these assets are good for us to acquire because it takes a lot of time from authorities? So is it that machinery equipment gets worn out or get -- but don't give that efficiency what we require. So is there any time line what we feel that we should wait for that?

So it's very difficult for us to answer anything on HNG right now because all these are part of resolution plans. Only thing I can say is that we can't put a time and a date when the acquisition will happen because these are all under the proceedings of the courts under the National Company Law Tribunal. And the assets when we acquired it, that will be more or less on an as in, wherein basis of the furnace condition of that particular time. So I know I can't answer you -- fully answer your question, but then there are confidentiality clauses, which constrain us to talk about this.

I appreciate. I don't want anything which is confidential. But just to need basic understanding when furnaces are closed for such a long time, are they viable to get operated with some small CapEx for any acquirer?

So basically, if you see the glass -- for making glass, you require a furnace and you require molding machines and the packing machines. So furnace has a life. And once you restart the furnace, you can do a cold repair or you can do a full level of repair as such depending on what is the condition of the furnace and -- but you can definitely upgrade it. But again, it is all linked to what quantum of efficiency you want to build it from the furnace that is contingent, I'm not talking per se from HNG, I am talking in general right now.

Sir, after this HNG going into difficulty, was it possible us to gain market share from the customers from that side because they are also a very large player, I suppose, and we both command a very large...

I can't take that question, please. .

The next question from the line of Mr. Nikhil Gada from Abakkus AMC.

Sir, just I think you already alluded to this point but just wanted some amount of confirmation on the same. So in a declining price scenario, both in terms of RM as well as power cost, would it be -- how prudent would we be in terms of keeping a certain part of it with us and passing on? Or is it because I generally believe that it happens at a lag of maybe 2, 3 months. But do you think that we have to pass on all the benefits that we have achieved because of this power and RM as and when they go down?

So Nikhil, we have given this -- it's not fair that -- on a short-term to medium-term range, this is sustainable because it's not that the -- everything is coming from selling price, Mr. Khosla talked about selling prices. Many of things are coming from better product mix. We are working with more and more customers, which can create more value for us. Given the fact that we are right now constrained on the capacity side, we are talking to more customers. So we'll sell more value-added material to them or a higher realization material to them. So a major chunk of -- when we make a statement that we should be able to sustain it based on the fact that we should be further able to enrich our product mix. Definitely, if there is a substantial price reduction based on our contracts with our customers, we'll have to do that, the adjustments over a period of time.

Understood. And sir, just on the CapEx front, what kind of a CapEx cost would be there for FY '23 and for FY '24 now that we are also planning for realigning of the furnace?

Mr. Khosla, you have that figure or Mr. Pandey?

Mr. Pandey has the figure. Yes.

Can you repeat your question?

So I need the CapEx cost for FY '23 and if we have any budget for FY '24 as well.

So basically, if you see overall, we'll be spending around INR 150 crores to maybe INR 175 crores more. This includes the relining costs as well as upgrading the furnace for line another 100 tonnes. But this is on the horizon of next 12 months, but all these machineries we keep investing into further upgrading as Mr. Khosla said that a majority of our initiatives are focused right now on creating internal efficiencies. And like historically, we invested money on the fuel mix. And today, we are getting those benefits out of the fuel mix. So there are a number of projects which are internally benchmarked and a few of them would require CapEx. And -- but our guidance is that on a cash front basis, maybe INR 150 crores to INR 175 crores in the next 12 months in terms of relining of the furnace and as well as the expansion of 100 tonnes per day.

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

I'd like to thank everybody who joined us today. I think a very good set of questions asked. A few of them, we couldn't answer due to the -- our constraints, especially relating to HNG. Maybe once the deal is fructified and gets approval -- all the approvals, we'll talk more extensively on this. Thank you everybody for joining us today. Thanks.

Thank you, sir. On behalf of Dolat Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. .