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

Ladies and gentlemen, good day, and welcome to AGI Greenpac Q2 FY '24 Earnings Conference Call, hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Miraj M. Shah from Arihant Capital. Thank you, and over to you, sir.

Thank you, Enzo. Hello, and good evening, everyone, and thank you for joining into AGI Greenpac Q2 FY '24 Earnings Call. From the management today, we have Mr. Rajesh Khosla, President and CEO; Mr. Om Prakash Pandey, CFO; and Mr. Sandeep Sikka, Group CFO. So without further ado, I'll hand over the call to management for their opening remarks and commentary. Over to you, sir.

Good evening, everyone, and welcome to AGI Greenpac Q2 FY 2024 Earning Call. We have already circulated our earnings presentation, which is available on our website and the stock exchange website. We hope you have gone through the presentation, and we would be happy to answer any questions afterwards. Our financial performance continues to be robust, showcasing significant year-on-year growth. In Q2 FY '24, we reported revenue from operations of INR 615 crores.

Mr. Pandey, I'm really sorry to interrupt you. Sir, could you speak a little louder because your volume is not that loud?

Yes, okay. In Q2 FY '24, we reported revenue from operation of INR 615 crores, marking a substantial 20% year-on-year growth compared to INR 512 crores in Q2 FY '23. Our EBITDA stood at INR 139 crores with a commendable margin of 22.4%, reflecting a remarkable 59% year-on-year increase from INR 87 crores. Our profit before tax reached INR 74 crores from INR 47 crores, showing a corresponding growth of 59%. And our PAT grew by 65% to INR 56 crores. During H1 FY '24, we reported revenue from operation amounting to INR 1,174 crores, representing a notable 14% year-on-year growth when compared to INR 1,034 crores reported in H1 FY '23. Our EBITDA at INR 279 crores demonstrated a commendable margin of 23.5%, marking an impressive 55% year-on-year increase from previous fiscal year, INR 179 crores. Furthermore, our profit before tax reached INR 160 crores, reflecting a corresponding growth of 57% when compared to INR 102 crores reported in the same period of the previous fiscal year. Our PAT grew by 20% to INR 120 crores. Our net debt stood INR 558 crores as on 30th September 2023. We'll continue to maintain our financial discipline, maintain internal efficiency and uphold our commitment to sustain business practices. Now I would hand over the call to Mr. Khosla to talk about Packing Products business operational performance.

Thank you, Mr. Pandey. Ladies and gentlemen, I am delighted to share with you the outstanding financial result of AGI Greenpac Limited for the second quarter of the fiscal year 2024. We have witnessed remarkable growth, and I would like to highlight a few key points that underpin our continued success. Relining of one of the furnaces undertaken in Q1 '24 is now complete, and our capacity utilization during the quarter exceeds 95% on the back of efficient planning, operational flexibility, optimized production processes and strategic inventory management. Our dedication to enhancing internal efficiencies and ensuring customer loyalty has been the driving force behind our accomplishments. We firmly believe that these principles are instrumental in propelling AGI Greenpac Limited to greater heights. As we look ahead, we remain committed to these values, which we consider fundamental to our future success. Thank you for your trust in AGI Greenpac Limited, and I'm confident that together, we will continue to prosper and meet the ever-evolving demands of our industry. We are now ready to take any questions from your side.

[Operator Instructions] The first question is from the line of Harsh Shah from Dalal & Broacha Stock Broking Private Limited.

A couple of questions from my side. Firstly, on the capacity utilization that you have mentioned of 95%. So would that be on 1,600 tonnes capacity or the 1,700 tonnes capacity?

This capacity new -- or additional capacity has come in the month of June. And this, we are talking -- this is the overall capacity, which is here other than the 154 tonnes, which is right now operating at around 65%, 70%.

Okay. And secondly, so basically the utilization level that we are running at, would it be safe to assume that we would be incurring further CapEx, say, in this year, by the end of this year or next year for further capacity addition? Or would it be a case wherein we are kind of focused -- would you be focusing more on HNGIL if that acquisition goes through?

Rajesh, do you want to take it?

Okay. The capacity utilization is certainly 95%, plus 96%. And in a glass industry, capacity utilization plays a very important role for the techno-economic parameters. And fortunately, we are running to the same. As per the business principles, when you are reaching this capacity, it requires additional capacity addition. But as we have the plans for some organic and inorganic growth are already there in pipeline, we may like to fix up those issues first then -- rather than putting up anything else.

Okay. And one last question. The margins, are these kind of sustainable over medium to long term, say, above 20%?

These margins we have been getting for the last few quarters on quarters. And every quarter, we have been saying that these are the numbers at which the company is aiming, planning and sustaining. And we hope so that these are the numbers at which the company will like to remain there for the times to come.

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

Yes, sir. Just based on the capacity utilization numbers that you've shared between quarter 4, quarter 1 and quarter 2 on whatever capacity that you had, is it fair to assume that there is an 8% to 10% drop in the glass realizations?

It is not 8% to 10% glass realization. There are a number of factors which impact the realization. Actually, our market measures quarter-to-quarter definitely from their perspective. But if you see, there is a seasonality involved in the overall business. Like, in hot seasons, we have more demand from beer. And then rest of the period, we have liquor and then food. There is a seasonality to the overall realization matrices. So you will see apple-to-apple realization matching on a quarter-to-quarter will not yield anything. What is here to see because we have given a guidance that on the medium term, our margins should be in the range for AGI, that was ranging between 21%, 23%. And that's our aim, maintain those margins. Part of our contracts, we have a price adjustment fluctuation formula when we deal with the large multinational clients. So there has been some softening of raw material prices. So we have given those benefits. But the delta which we accrue in our business, and also Rajesh was saying, as we are increasing the capacity utilization, there are internal efficiencies which will start building. So this whole -- the growth in margin is more linked to how efficiently we can price.

Mr. Sikka, I think for the benefit of all, there are no price reduction, but there are price adjustments.

Okay. So then I'll put it the other way. This 1,845 tonnes capacity that we have after this 100 TPD getting added, right? These plants run at 99%, 100% utilization. Quarter 4 was a 99% utilization, if you had mentioned. Quarter 2 now is 95%. So the question is, at this 1,854 TPD based on whatever is the situation today, what is the maximum revenue is possible on glass, considering the seasonality, product/mix?

So if you see on 31st March, we had container glass capacity at 1,600 tonnes per day, but with central relining and the expansion, we have debottlenecked and increased our capacity on the container last by 100 tonnes. And apart from this is 154 tonnes, which has additionally come in. We have given a guidance that based on the last year revenues, we should be able to maintain our growth momentum range from 15% to 18% growth. So it's difficult for us to comment anything on a quarter-to-quarter basis, but...

No, sir, I didn't ask you on what number when, I just asked you what capacity you have on ground.

Okay. I'd like to answer your -- this thing. As far as this quarter is concerned, because the maximum revenue will surely depend upon the prices of the glass, which are prevailing in the market. And these prices are directly proportional to the raw material prices and the fuel prices, which are there because the final prices are adjusted according to that. If you might have seen that after a COVID period, when there was an upsurge in the fuel prices, the prices got adjusted automatically. And when there will be a softening down, so there will be the price adjustment accordingly. So today, if we want to tell you what can be the maximum revenue, that is a little -- I think it's a very hypothetical thing to talk about. But on a safer side or on a practical side, you can easily take quarter into 4x is the number which we can foresee today on that basis.

This quarter into 4x?

Yes, [Foreign Language] this is the normal thing. But seasonality factor is, of course there because quarter 3, quarter 4 normally operates a little better than the quarter 2. So these are the seasonality numbers. So you have to take everything in consideration and do it.

Okay. And you have INR 400 crores coming from the pet and the closures, right, annually?

Mr. Sikka, I think we are not giving the breakup normally in the system, I think so?

I'm not asking for a particular quarter, but just looking at the conference calls of quarter 4 and all those, just joining the dot.

So another INR 250 crores, INR 300 crores in that range...

Okay. And is there a swing in realizations between every quarter considering the product mix?

Absolutely, it has to happen because each segment has a different realization, and the mix basically decides what can be there. So it all depends.

So the richest mix is quarter 4?

Historically, it has happened like that. I hope it is going to happen like that only.

Okay. Okay. And my last question is, sir, on the expansion side now, what is the progress on HNG? And any other expansions that should be undertaken in AGI Greenpac?

So basically, on HNG, as you might be aware, there were cases in NCLAT which we have won. There were 2 cases. There were 2 underlying issues on which the cases were filed by around 6, 7 parties. So we have won that, and those parties have now put those -- put the appeals against that order and NCLAT orders into the Supreme Court. Supreme Court has yet to admit these cases. So next hearing is on 5th of December. So we feel -- I think in next, again, we can only give a guidance that is subject to judicial processes where we can't estimate the time schedule, but should be 3 to 4 months more to be honest.

Okay. And on the capacity and the capacity expansion. So first, clarifying on the capacity, you said 1,500 TPD at the end of quarter 4.

1,600.

1,600?

Yes. 1,600 is now 1,700, another 154 tonnes we have on the high-end furnace.

So 1,600 plus 100 and plus 1, so it's 1,854 TPD, right?

19 -- it will go up to 1,854 TPD.

Right, 1,854 TPD is what we have and -- which was basically 1,500 plus 154 last year. It was 1,654 TPD last year.

Last year, it was 1,600 plus 154, and this year, it's 1,700 plus 1.

Okay. So when you say 15% growth, which means, again, by year-end, you will be fully utilized, right?

That's the plan.

Okay. That's it. So what happens on the capacity expansion in Greenpac?

So basically, as Rajesh has already spoken, the focus is not to invest more money, but we have another furnace coming up for relining next year. So we'll also try to debottleneck the capacity there. So as much because the market demand is supporting the whole thing. So it's not putting a new CapEx, but whatever is coming for the relining, so we'll try to make the furnace a bigger size so that we can give the [ higher progress ].

Okay. Okay. And what CapEx do these realignments...

Sir, Mr. Chheda, sorry to interrupt you. [Operator Instructions]. The next question is from the line of Virat Pansuriya from SkyRidge Wealth Management.

Congratulations on a great set of numbers. My question is regarding the other expense cost. It has increased significantly as a percentage of sales. So what is the reason for the same? And is it a onetime thing? Or is it sustained?

So if you see right now, all this in quarter 2, especially we had many litigations for the purpose of acquisition of HNG, and these litigations were at all places, which includes NCLT, NCLAT, even at High Court and also the Supreme Court. So it includes a big chunk of legal expenses and as a part of the overall process since the matters are in courts, so I would not like to disclose what are the legal expenses. But definitely, once we acquire, these expenses will go off.

Got it. And any outlook on the margins like of raw materials and the current trend?

I couldn't hear you properly. You voice is not that clear to me.

My question is regarding the margins -- sorry, the outlook on the raw material prices and the current trend?

Rajesh, the question is on the outlook of trading.

Okay. You're talking outlook on the raw material prices or the input prices. Am I right?

Yes, yes.

As you know, the raw material prices, of course, demand and supply is one part, but the geopolitical situation is another part. The way things are happening in the West Asia part, so it is anybody's guess that what can happen to the fuel and what can happen to the freight charges, which are the shipping line because it was next to the Suez Canal. So all those aspects are there. So I think if I take it these things out of picture, which should not be there, so probably it looks to be a very flat market in the times to come. Besides the geopolitical situation, if rest of the factors I take it into consideration, it looks to be a very flat market. But geopolitical situations are too volatile and it can do anything, yes.

Just relating to the ongoing stuff which is happening in the Middle East, so can have a sort of...

Because fuel prices are directly proportional to the stability factor in the Middle East. And thereafter, even other products like, for example, a soda ash and other products, they are also directly proportional to the freight charges and the shipping line availability and even the fuel charges to extract the soda ash from the mines and from the lakes or something like that. So it is very directly proportional to the geopolitical situation. So that's what I think. It looks to be flat except this part.

The next question is from the line of [ Darshil ] from Crown Capital.

So some of the questions have been answered. So I would just like to maybe get what your sense is that we are maybe not doing CapEx on AGI and waiting for the acquisition. But due to our -- due to the various litigations, that's taking some time. So maybe from what I see by FY '24, we'll at full capacity. So what time line do we have for our whole internal use that, okay, the litigation is taking its time, but then we might just keep on adding significant capacity so that we can keep our journey of growth of 18%, 20% for FY '25? So what would be your color on that? Like how do you see it? Because we know that in our country, litigations can sometimes take more time than what we intend to.

So we have already spoken about the CapEx. So this year, the one event was we added 100-tonne capacity. And apart from it on 1st January, the commercial production on the high-end 154-tonne further started. Next year, another CapEx, other furnace is coming up for relining. And we have -- we see an opportunity for further expanding the capacity there by 50 to 100 tonnes, depending on how the whole thing works around. That's how we continue to gain the momentum on the sales growth as such. Plus obviously, the product mix will play a very critical role as we move forward. That gives -- that can give us a huge opportunity in terms of maintaining our growth. Even with the marginal increment in the volumes, we can continue the momentum on the sales.

Okay. So is it fair to assume, sir, irrespective of when acquisition goes through for FY '25, also we'll be on a similar growth trajectory with our guided margin. Is that fair to assume, sir?

So [indiscernible] we have guidance that we will continue the momentum of 15% to 18% growth and we hold it as of now. So I think you are asking a question of '25, '26 as I could understand. So by that time, we feel the acquisition will come and we'll have a bigger play on this.

And sir, any -- so my last question, sir. With the acquisition, what could be our target or maybe what -- had we maybe double the revenue? Or what would it add to us? Maybe INR 5,000 crores is something that we could look for with the acquisition coming in. How would that play out? And will it be similar margins?

Post the acquisition, we feel that in the next 2 to 3 years, once the acquisition is done and we slowly ramp up the furnaces which are in not that good situation today, we should have a total combined sales ranging INR 5,500 crores plus.

And with similar margins, sir?

No, margins at the acquired company may be different because it all depends on how the efficiencies have to be built. So when we acquire an asset, efficiency doesn't build in the same day. It's wrong to assume that to compare our efficient operations versus theirs. So we'll have to invest time, energy, resources to build those efficiencies, and this will take some time.

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

Congratulations on a great set of numbers. Sir, firstly, it would be great if you could provide the production volumes or the production numbers for the second quarter and also the volume number, the sales volume numbers.

So Nikhil, we have not been providing this as a matter of practice. So I would like to...

Is it safe to assume that when I do the calculation of 95% with the quarterly capacity, would have more or less get the production numbers?

This can be your calculation method because there are multiple more factors which are involved in that. But you being an analyst, I think you can take it for your own calculation. But the company as a policy, we are not declaring and we may not like to share those numbers.

All right, sir. But would it be fair to at least give us the volume growth numbers, as in how much we have grown in this particular quarter?

Too difficult to say this part, sir.

So because the reason for asking is, when we look at our first quarter numbers, and I assume that we had furnace shutdown as well. So some of the sales were lost, which you had also alluded in the first call. And now we are seeing this INR 550 crores, INR 560-odd crore run rate going to INR 615 crores, so around INR 50 crores, INR 60 crores of sales that we have added. So just wanted to understand whether it was from some pricing action or it was also from first quarter to second quarter we had seen the bump up in volumes?

Volume also has played, and product mix has also played the role to bring this total number to INR 621 crores, what we have declared -- sorry, INR 615 crores what we have declared.

And Nikhil, as a part of the process, just I think there is a seasonality involved. In some of the quarters, we make order to -- we make product -- we do production to stock because the demand which is there in -- technically, if you see the demand coming from Q3, Q4, so when you see the inventory numbers versus the March, so you will see that increase also happening during those -- within those. So the good part is, I think the communication to the community is that whatever CapEx we did, we started utilizing that CapEx in an efficient manner. And 154 tonne will load right now, that is at 65%, 70% capacity utilization. So which we feel that in the next 12 to 18 months, we should be able to fully load up.

Got it, sir. But I'm still assuming that a specialty glass plant, we have still not been able to generate the specialty sort of volumes, right? We're still working on the -- let's say, the beer business or the other bottling business but not on the cosmetic part of the business. So we are still awaiting orders for that, right?

Yes. If you see -- yes, Rajesh, please.

Now if I understand the question, you mean to say this furnace of 154 is not able to generate the business of cosmetic, but they are generating the business of normal glass. Is it like that?

Yes, yes.

Not really. Not really. The business from 154 is on the cosmetics side, and the business, what you're talking as the normal glass, we cannot produce the normal glass. But yes, it always happens because sometimes, you have also to produce some of the new segments to enter or to develop the new segments. So that may have been mistaken as the normal glass segment. But normally, 154 produce the cosmetic, and they sell the cosmetic only. But within the cosmetic, there are different spectrum. One is a very high-end cosmetic, and one is a medium-end cosmetic. So there are the various segments, and we have to address the various segments on the basis of the volumes availability, market availability, price availability and so many other factors.

Got it, sir. And then sir, just you mentioned that we have not done any price reductions but price adjustments. So I really did not get that. Are you trying to say that the spot prices...

The price reduction is a one-sided story, where we are the manufacturer or the company, they reduce the price to match with the market requirement. And the price adjustment, it is a 2-way understanding between a buyer and a seller on the basis of some predefined formulas or predefined requirements.

No, sir, I understand that this would be on our contract business, right? But on the spot business, we would have to pass on the price decline, right, that we have seen in the raw materials?

Yes. When we have enjoyed the upside, we have to enjoy the downside also.

So just on that perspective, have you been able to pass on all the price decline? Or we think that will be further...

See, not really because in a contract, it is the way the prices are captured. That is the way it has to be adjusted. It is not the prices as available. It is prices as defined.

Got it. Understood. Understood. And Sandeep, sir, you mentioned that these litigation costs were there in the second quarter. Do we expect them to even come in the third and the fourth quarter?

Not to that extent. So these costs are more in Q1 and Q2, more in Q2. But Q3, right now, one litigation -- there are 2 litigations in Supreme Court, which is going on. So it is not that it really becomes zero, but definitely not that quantum as we had in Q2 because in Q2, we had NCLT, NCLAT, High Court and Supreme Court, all of them.

Understood. Just last couple of questions on the P&L and balance sheet side. So we have seen a sharp increase in finance cost. Is it commensurate with the increase in bad debt that we have seen? Or is there a further increase in the cost of debt as well?

So it's more relating to the increase in debt. The cost of debt has not increased substantially. We -- and primarily, it is coming from the fact that we recently did this CapEx on capacity expansion and relining. So that is the depreciation and the interest charge towards that.

Understood. And sir, just one last question, if I may. So we are looking at FCF of close to the way we are going currently, close to in the range of INR 300 crores, INR 400 crores. So is it something which we are going to keep it for the acquisition purpose or we plan to reduce the debt meaningfully?

So basically, I don't think we have given a guidance for reduction of debt. So our acquisition is primarily debt-led here. And we'll see those opportunities of once we have the entity with us. We may go in and raise some equity and then normalize the debt level. But the initial level of debt will rise...

The next question is from the line of [ Piyush Agrawal ].

Sir, my questions have been already answered.