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

Ladies and gentlemen, good day, and welcome to the AGI Greenpac's Q1 FY '21 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sachin Bobade from Dolat Capital. Thank you, and over to you, sir.

Thank you, Carol. On behalf of Dolat Capital, I welcome you all to the Q1 FY '21 earnings conference call of AGI Greenpac. Hope you all and your family members are staying safe and healthy. For the management side, we have with us Mr. Rajesh Khosla, President and Chief Executive Officer; Mr. Om Prakash Pandey, Chief Financial Officer; and Mr. Sandeep Sikka, Group Chief Financial Officer. Now I hand the floor to the management for their opening remarks, and then we would have a question-and-answer session. Over to you, sir.

Members of the management, over to you. You may please proceed.

Actually we have missed the management.

So they are very much connected. Management speakers, you or connected to the call. You may please proceed.

And Mr. Pandey has to speak.

Mr. Om Pandey, you may please go ahead, sir.

Or else, I'll speak it on behalf. So good evening, everybody, and welcome to AGI Greenpac quarter 1 financial update call. We have already calculated our earnings presentation, which is also available on the website -- on the stock exchange machine website. We hope you have gone through the presentation, and we'll be happy to answer any questions afterwards. We are happy to announce that we started the year with a positive note with a strong quarterly performance. Company's revenue from operation increased by 7% Y-o-Y, increasing to INR [ 522 ] crores in Q1 to [ INR 558 crores ] year. Despite a scheduled and planned furnace shutdown for relining the 25 tonne furnace for INR 140 crores achieving an impressive [ 52% year ] stable margins of around 25%. EBIT for the period amounted to INR 103 crores to 63% increase on a year-on-year basis with the margin EBIT margins of [indiscernible]. Basically, the overall performance improvement is attributable to various factors, including our emphasis on high value-added products, our favorable product mix, market demand and also the internal efficiencies on which we have worked on. The profit before tax for the period totaled INR 85 crores, increased by 55% as compared to the previous. As far as the net profit for the period is totaling INR 63 crores, indicating a marginal decrease of 3.5% compare to previous year, mainly attributed to tax-related impact. Most of this is there under [indiscernible] results. The company had opted for exercise of a lower tax action under Section 115BA of income tax at last year, which led to a tax reversal in Q1 FY '23 relating to various deferred tax expenses and liability. As a result, if you see Q1 of the last financial year, the PAT was higher than the PBT. Consequently, the tax expense and then profit after tax between Q1 FY '24 and Q1 FY [indiscernible] actually apple-to-apple comparable. And the net profit margin for the period stood at 11%. I would request Mr. Khosla, if you can give a brief on the business and operational performance, and then we can take Q&A. Thank you.

Thank you, Sandeep. Thank you very much. Good evening, ladies and gentlemen. I am delighted to share with you some of the key highlights of our company recent performance. During the quarter under review, our glass container business achieved remarkable growth, driven by a rising market demand, a more favorable product mix and our focus on high value-added products. Even with the planned shutdown for relining of one of the furnaces, our glass container capacity utilization during the quarter was close to 90% on the back of efficient planning, operational flexibility, optimize production, processes and strategic inventory management. The substantial investment in digitalization and automation have further optimized our operations, significantly improving efficiency. Our commitment to growth, value delivery and building a sustainable future is resolute. We harness our competitive advantage to ensure effectiveness and efficiency in serving our clients. Thank you very much, and we are now ready to take any questions from everybody.

[Operator Instructions]

There is some background noise, I think...

We take the first question from the line of Priyansh an Individual Investor.

I have 1 question and 2 like suggestions also. Regarding the question, the finance cost is compared to June '22, I'm comparing like Y-o-Y it has almost doubled, like although compared to March, it has reduced, but -- and June it was INR [ 8.3 ] crores, now it is INR [ 17.9 ] crores. So what efforts are we taking to reduce the finance cost like refinancing or reduction of working capital and so on. So can you please expand on this one?

So basically, if you see the primary impact of this is on account of 2, 3 reasons. One is the commercial production of 154 tonne furnace has started. So basically, the interest and depreciation relating to that furnaces are coming through. Last year, there was -- and we -- because we have an ACV and that ACV is hedged. On account of exchange fluctuation last year, there was a gain of around INR 2.5 crores. And this year, there is a marginal loss, which is there. So -- plus, apart from this as compared to last year, if you see the overall interest rates have increased because of the overall inflationary trend. So 1%, 1.5% interest rate increase has also happened. We actively monitor our treasury. Right now, the overall cost of debt is at around 7.7%, 7.75% weighted average cost of debt. But as the interest rates soften and we are very aggressive on this in terms of renegotiating with our lenders on this.

So can we expect some reduction like in the coming quarters?

It is all linked to the interest rates basically how interest rate flows. If it [ comes down ] definitely will renegotiate with us.

But like you allow me to go in a bit detail so even for example this interest rate change or whatever, like this entire INR [ 2 ] crores, but here in [indiscernible] of almost INR [ 10 ] crores. So I think there is a need to just go in detail like at the company level to see that how we can optimize on this one in regards to the hedging or the products cover whatever required because the amount is from INR 8 crores to INR 18 crores, so INR 2 crores even interest actually become only [ INR 10 crores ]. So still there is like jump of INR [ 8 ] crores. So this is one point.

Yes.

Okay. And my second, my submission, like the company has gone through this shutdown of [indiscernible] furnace. So it's a material event. But I'm surprised that neither is still like -- is a shutdown notice nor it's restarting notice has been given in terms of the material event at announcement or the [indiscernible]. So in future, can you please ensure that whenever any shutdown is being done over the furnace restarted do intimation like other companies, for example, this Andhra Paper. They have like gone for shutdown, they announced like 1 month before they announced or like even before starting like this one shutdown as you start and then restarting should also be announced?

So basically, if you see -- if you go through the transcript of our last results, which we did in the month of May, we clearly told that there will be a shutdown. The disclosures to stock exchanges, we are very high on the compliance to that. So we make call the disclosures as requirements of the exchanges and also the requirements of the market. Apart from it, we always keep communicating, but I would request that if you can refer to our last investor presentation transcript, so we had stated that in Q1, the sales and the quantities will be impacted because there is a planned furnace shutdown, which is a very normal part of the glass of operating system. But definitely taking your point going forward, if required because -- we didn't -- as a percentage because the normal maintenance it is not a capacity change. The exchange requires that the capacity changes has to be informed.

No, sir, just -- I have already gone through the transcript, and I know it was mentioned there, but there is not enough because it was only like 6 weeks before or 4 weeks before. What I am saying...

We'll take care of it going forward.

Sir, what I'm saying that it when you are really going to shutdown so means like it's going to impact our capacity. It's not only increase like little decrease also number one. Number two, when the furnace is like this -- like shutdown is finished. So when you were restarting. So the -- so like just another material event, which requires disclosure. So kindly just to -- if you have a concern compliance officer to take it through, this will be really helpful.

Yes, we'll take your point.

Okay. Number two, sir, like today, like there is also -- in case of any query we can approach to your investment advisor, Churchgate. On [ 21 July ] this was announced, right. But today, our representative called to the number, and I'm sad to inform you that the telephone operator did not even transfer the line to Anvita Raghuram or Rajiv Pandya in spite of 3 time requests to him. Mr. [ Sakib Sheikh ] who was the operator. He was just saying that this is the board line, and you can leave a message. So we left message also and requesting to that like Anvita or Rajiv can call back, none of them called back us. So in your letter, you are very clearly mentioned that is we can call Ms. Anvita or Mr. Rajiv Pandya on numbers so and so. So that number is like useless. And the other company are also like now a days disappointing investment advisor and they are giving the mobile number of the contact person in the investment advisor, and we have called many times and the person will be very receptive to receive the call and then they come back. But in this case, like there is an urgent need to take some action from your side so that like either they behave properly or we change their investment advisor.

Sure. Point taken.

[Operator Instructions] The next question is from the line of Nikhil Gada from Abacus EMC.

Congrats on a decent set of results. Firstly, just a couple of data points I need. If you can share what was the volumes that we did in this quarter? What was the EBITDA per metric tonne? And what was the same for the Specialty division as well?

So basically, we are not disclosing separate numbers in each of the segments as such. So what I can disclose as a part of this call is as a result of the shutdown, we lost around 25,000 tonnes of tonnage in the market during the period of the planned shutdown.

So if this volume come in, what kind of growth would we have seen in our volume?

So on an average realization at around 37,000, 38,000 tonnes and an EBITDA per tonne of ranging around INR 10,000.

May be around...

Yes, please, Nikhil?

Yes. Sir, actually, what I was trying to say is that if we would have made this 25,000 metric tonne of business, what would have been the volume growth that we would have achieved?

What would have....

It could have been around INR 80 crores or something.

So INR 80 crores of revenue was lost basically?

Yes.

Yes.

Okay. Understood. 10,000 tonne metric EBITDA. Okay. And 37,000 was the realization, right?

On an average utilization basis. That's an opportunity calculation. And EBITDA -- and the impact on the EBITDA would have been maybe around INR 25 crores higher. So we made an EBITDA of INR 140 crores for the quarter. So if you adjust that opportunity cost during the shutdown period, the EBITDA would have been around INR 165 crores.

Understood. And this does not include the specialty numbers, right?

So specialty numbers are already there as a part of the results in INR 140 crores.

Okay. Fair enough. Okay. Sir, just secondly, on the overall pricing scenario now that we are seeing the power and fuel cost are sort of going down. How do you see the realization that we are maintaining. What is your view whether we will see correction over the other clients coming back to us with the option of revising the price downwards.

Rajesh, I would request...

Sure. The market has multiple price mechanism systems. One is a price mechanism system, which is based on formula, which you might have seen that we have been harping on this issue in last 3, 4 times, where we have been telling that the customers have been giving us whatever cost increases there, they give us on a formula basis. So similarly, I think we have to adjust our prices once the fuel prices and other prices come down, we have adjusted, and we will adjust. So this is our commitment. This is our formula. This is a transparency. So one thing is there. And on the other part of the business, it is not the related to the formula-based price. It again depends upon demand and supply gaps. And thirdly, it also depends on the type of products that we are [indiscernible]. There's some [ base fuel ] and these type of costs, it doesn't matter and just something. More things are there which are impacting us. So it is quite a complex mix of so many things. But rest assured that if the cost comes down, so certainly market will adjust accordingly. The same thing as the cost has [ gone up ] the market had adjusted accordingly.

And sir, how much would be the formula pricing versus spot?

As we have already informed earlier also, almost 50% to 60%] of our customers, they are with formula pricing.

Got it, sir. And just one last question on the finance part while you alluded about the impact. Was there any reduction in debt from 4Q to 1Q?

So if you see the debt last year, on 31st March 2023, total debt -- the total net debt was [ INR 523 crores ]. Now we have a total net debt of [ INR 566 crores ]. So that has slightly increased because we invested into this relining of furnace and the other thing which we did.

So then any specific reason the debt came down from 4Q to 1Q?

Debt didn't come down.

Sorry, finance cost, my bad.

Basically, in Q4, there are such set of entries like exchange fluctuation. There are some bill discounting charges and other things which are there. So -- and the utilization has also dropped down on an overall basis during the quarter, and as a result of which the interest rates have reduced. So it's a mix of debt -- long-term debt and a short-term debt. So the continuity of the long-term debt is there, but in the interim, in this -- the spend which happened on the relining, it happened in the middle of the quarter. So let's just say, for 1 month or 1.5 months, so less usage of the debt was as a result of which with the profits which we are [ earning ].

Okay. Okay. So is it fair to assume that the interest expense will remain in this range for quarter, or it will go a bit higher?

It should remain in this range only, but slightly go higher because, as I said, some part of the debt was taken in the second half of the quarter. But then going forward, we'll have the incremental EBITDA and the cash flows also. So more or less in this way, maybe INR 1 crore here and there around that.

Sir, I have one more question. Should I...

Yes, please continue.

Yes, sir. Sir, just last question on the power and fuel part. Do we expect any further improvement in the power and fuel expense? Or do you think most of the benefits are more or less priced?

Rajesh, you can talk.

Okay. Let me answer. So there are 2 aspects on the power and fuel. One is the consumption and one is the price. So price impact is purely on the basis of whatever government announced the price because fuel prices are more or less regulated by the government. So we have to follow with that. And otherwise also the world trend. Regarding the consumption part, there is a continuous exercise because of our sustainability efforts and even because of our cost saving efforts, where we try to reduce the consumption of the fuel, or the consumption per tonne of the glass, whatever we produce continuously. We have been engaging with the agencies -- global agencies. We have been engaging with other consultants to reduce our fuel cost. So right now, so these are the two things. The third thing is also important, which is the mix of the fuel. So right now, whatever is the mix available in the market, we are using those mix on our maximum advantage. But no any further type of fuel, which is now going to be available in the future, which can impact our fuel mix. So there is no such thing hindsight. So only we can rely on the global prices or I can say, regulated prices. The rest, everything is a very linear type of curve, which is continuously going down and the results are also showing the same thing.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, just reconfirming on the capacity now. So this [ 1754 ] tonnes that you had get added by 100 tonnes after the debottlenecking and is it done?

Yes, the capacity has been added since the whole CapEx got completed only on the back end of the quarter. So the utilization of capacity effect will come in the coming quarters.

I did understand that you mentioned that container glass capacity utilization was 90%, which was 99% in quarter 4. So did the -- was there any fall in capacity utilization for the specialized glass and also the revenue on account of specialized glass as well?

Sorry.

Yes. So basically, if you see the drop when you say that the drop is there because the furnace to utilization during the entire quarter was not full. But if you see on an weighted average basis on overall stuff, we are still operating ranging between 95% to 100% capacity utilization.

Okay. So this 90% you're calculating on the expense...

Yes, because furnace was shutdown for a relining -- so during those periods, the capacity like the furnace, which has shutdown for capacity utilization effective capacity utilization during the quarter was only 30%. So it pulled down the numbers for the rest of the...

Okay. Okay. Understood, sir. Can you give some outlook on the -- either the capacity utilization that you expect in FY '24 on expanded capacity or a volume growth outlook either or whichever you are comfortable with?

So basically, the focus today... Yes, Rajesh, please go ahead.

Okay. The expected capacity utilization will be the same range whatever we have been doing in the earlier year, which is anywhere close to 97% to 99%. So we do not see any unforeseen, or we don't see any negative impact on the market or anything as such. So we expect the capacity utilization full.

Which means you will have a volume growth of about 10% for FY '24? Is it the correct assessment?

I think mathematically, we can calculate that part. But from the operations side, I can always say that we'll be -- capacity utilization will be close to whatever we have been doing in the earlier year.

Okay. Lastly, sir, on the -- before that, just 1 more question. The beer bottle and the soft drink bottle, what is the portion of your container glass business?

We do not disclose segment-wise revenue or segment-wise share of this. So we keep the confidentiality on these matters. But I can say like that, because since you have asked the question, and I'm answering for the sake of answering. The beer quantity is quite large as compared to our capacity. And soft drink is small because soft drink market is not a very big market. It's a growing market. It's a new market, which has come out of sleep after a long, long time.

So seasonality-wise, will quarter 1 and quarter 4 will be a bigger revenue, or you will have a similar capacity utilization all through the year? Or there's no seasonality?

Thank you very much for our customers or I can say consumers. Earlier, they used to drink a beer only in some hot season and summer season. Now throughout the year, there is a party. So thanks to the Indian economy, which is doing quite well [ in this ] all 365 days. So that has really impacted us to remove the seasonality in the beer market also.

So we'll have an equal capacity utilization throughout the year, right? That's...

I'm not saying 100%. I'm not saying a flat curve, but very close to. So yes.

Yes, quite close to 10%, 5% variation year-on-year is okay, but beer...

See, you are asking a question of the future. So regarding the future, I'm not...

Not future. I'm saying in history, you have seen that or...

The H2 consumption, whatever H2 consumption is going on. It is as per our thinking. There is not much of the fluctuation we are able to see now.

And last is explained that [indiscernible]. Would you now like to share some details on this acquisition from the NCLT?

No. Still, the transaction is pending with the adjudicating authorities. There are litigations going in NCLT and NCLAT. So we are restricted under the confidentiality not to talk about it.

Okay. And last quarter, in quarter 4, in your comment, you had mentioned that you will grow 15% to 20% in top line in FY '24. Does that hold true? Or there are any changes there?