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

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of AGI Greenpac Limited, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sachin Bobade from Dolat Capital. Thank you, and over to you, sir.

Thank you, Muskaan. On behalf of Dolat Capital, I welcome you all to the Q3 FY '24 Earnings Conference Call of AGI Greenpac. Hope you all and your family members are staying safe and healthy. From 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 question-and-answer session. Over to you, sir.

Good evening, everyone. And welcome to AGI Greenpac Q3 FY 2024 Earnings Call. We have already circulated our earnings presentation, which is available on our website and the stock exchange website. I'm happy to report a robust quarter marked by growth in revenue from operations with a 10% increase to INR 622 crores. Our EBITDA experienced a substantial upstream of 36%, reaching INR 153 crores, showcasing the success of our strategic focus on operational efficiencies and a superior product mix. The EBITDA margin in group is standing at around 25% compared to around 20% in Q3 FY '23, indicating enhanced operational performance. Additionally, our earnings per share witnessed a positive upswing, rising to INR 10.37 in Q3 FY '24 as compared to INR 8.23 in Q3 FY '23. As we look at the 9 months FY '24 result, there is a robust growth trajectory. Revenue from operations stands at INR 1,796 crores, reflecting a 12% year-on-year growth, and our EBITDA for the same period reached INR 432 crores, showcasing a substantial 48% year-on-year growth. Our net debt stood at INR 585 crores as on 31st December 2023. We are committed to sustaining financial discipline, internal efficiencies and our dedication to sustainable business practices. Now, I would hand over the call to Mr. Khosla to discuss some of the key business highlights. Over to Mr. Khosla.

Thank you, Mr. Pandey. Good evening, everyone, and thank you for joining us. I would like to highlight the few points that underscore our ongoing success. In this quarter, our utilization of the glass container capacity exceeded more than 95%, showcasing our commitment to the operational excellence and the optimization of our production capabilities. In recognition of our commitment to excellence, world #1 player or, I can say, one of the #1 player in the world has honored AGI Greenpac with the prestigious Supplier Award of the Year for the second consecutive year. This accolade stands as a testament to the quality and reliability of our products. And we take great pride in being recognized by them. As we move forward, our focus remains on innovation, sustainability, strategic expansion, high-margin products, categories to consistently deliver value to our stakeholders. We are also committed to the digitalizations of all the processes, including our operations. And I would also like to express gratitude to our dedicated team and esteemed partners for their unwavering support. Now we would like to open the call for any questions you may have. Thank you very much.

[Operator Instructions] And the first question is from the line of Pritesh Chheda from Lucky Investments.

Yes, sir. Sir, is there any rise in capacity or volumes between quarter 3 and -- quarter 2 and quarter 3 of this year?

Rajesh?

Okay. There is no such increase in capacity. The capacity is same. The only thing is that the operational efficiencies have gone up and that is what it has given more volumes or the more salable volumes.

Okay. So we are at about 1,850 tonnes per day type capacity after the expansion and the capacity utilization is excess of 95% for both these quarters, right?

Yes.

Okay. So from here on, for your growth, what kind of capacities are expected to come? Or can you deliver any growth on these capacities?

See, as such, we are not adding immediate capacities, but we are debottlenecking a lot of capacities. And last time also when we have rebuilt the furnace, so we increased our capacity by 100 tonnes. Now in this year also, when furnace #3 is going to be rebuilt, so we have a plan to increase the capacity by double -- 2 digits or close to 3 digits. So these debottlenecks are going to add more value, more tonnages, more salable and better results.

Okay. So in the last debottleneck, you added about 100 tonnes, right?

Yes.

Okay. And now you're going to do another debottleneck. What -- when is this lined up?

This -- everything will complete by the end of second quarter of next financial year as per plan. The things may change depending upon so many more factors. But as per plan, it has to be end of the second quarter of next financial year.

Okay. And lastly, any progress on the HNG side?

I think, Sandeep, you can answer on this matter, please?

So matter is with Supreme Court. And we feel that hearing should start now very soon. Our next hearing is on the coming Friday, but the court takes time in terms of the -- time to dispose all those cases. So NCLAT, we had won the cases, whatever it is, and now, it's pending with Supreme Court. So once Supreme Court is done, I think then we can move very fast because we are ready to implement, but till the Supreme Court matter is there, we'll require time and patience to have an order there.

Okay. Sir, just one follow-up on this capacity expansion at our end. So you can only do these debottleneck-led capacity addition or post -- eventually after this, you'll have to actually go for a greenfield only?

I may like to answer you like this. As far as aspirations are concerned, they certainly are very, very high. But looking to the practicality of the business, so debottleneck is the best thing which can happen in this situation. Because the HNG, you know very well, we are committed to whatever we have been -- we have taken a stand of bidding, and we are in the mid of something. So we have to keep a balance on that. Putting our hands in too many things will be difficult for any management, including ours.

The next question is from the line of Chandresh Malpani from Niveshaay Investment Advisory.

Sir, what we understand is that in Q3, the realizations dropped but the volume didn't. So how is the current situation panning out?

As you know, the glass is a semi-commoditized product. When I say semi-commoditized product, it doesn't follow the rules and regulations of a commodity. But still, it is a semi-commoditized because it has to be customized as per the customer requirements. So it is highly, highly influenced by the input prices and other demand-supply gaps. So the increase or decrease in the price is quite linked, not 100% linked, but quite linked with the raw material and other input prices. So when they get little softened, it's certainly going to -- the price has to be adjusted accordingly. So that is the reason the price. And I think we have been telling in the investors call few times earlier also that we have the price variation formulas with the customer and any increase or decrease in the cost is automatically adjusted with our customers. So the price is not a very important part. More important part is how to protect your margins and keep the things healthy growing up.

Okay. Got it, sir. And secondly, on the specialty container, 154 tonnes per day capacity, sir, we have been -- it's been 1 year now that we have been operating at 65%, 70% capacity utilization level. So what challenges are we facing there to ramp up that capacity?

More the product is complicated, more challenging is the learning curve, what we have to do. So we are in a very normal process of a learning curve of the specialty glass. And every day, we are moving upwards on that learning curve. So it's a very normal thing. It's not a very -- it's nothing special or standout thing. It's a very normal thing.

So by when can we expect to reach that 90%, 95% kind of utilization levels?

I think so it will take at least next financial year. By the end of next financial year, we hope so to hit that number.

Okay. Sir, what is your target market here? Is it export?

Export also, it's not only export. Export also is there. And the company and the management is trying very hard to enter into the export market. So there is a way -- defined way of entering into the export market. First, we have to cater the domestic market, understand the domestic market, see the challenges, see the products and all, then you have to enter into nearby markets where the acceptability of any mistake or anything can be adjusted, and then you go to the Western market. So I think on this curve, we are already moving one by one. And now we have already planned to enter into the western part of the world market.

The next question is from the line of Pramod Dangi from Unifi Investments.

Yes. Congratulations for another good quarter. If you can give 2 numbers, one is, if you can share how our trend realization is going? I believe our realization peaked sometime in March or a quarter or 2 quarter back. So how the realization is going in the glasses? And if you can give the volume data for the glass on the sales side -- sales volume?

Okay. Realization, as you say, they have peaked sometime few months back. Again, realization is directly proportional to the input prices, whatever are happening. So whatever is the input prices blooming, so accordingly, the price of the glass got adjusted. So it happens like that in a COVID time -- yes, after COVID time, when there was a supply chain constraints were there because of the natural gas prices, fuel prices and soda ash prices, the prices got inflated. And now they are coming back to the normal. It may happen that tomorrow if there is a war and anything happens, accordingly, the situation can happen the same thing. So my request is this adjustment of the prices is not indicator of any of the things, except the numbers. And they have to be adjusted up and down as per the requirement. So -- and as far as volumes are concerned, and we -- Mr. Sikka, I think you can pitch in because volumes we are not giving in our results, and we don't disclose, as I understand.

Okay. Yes. Because earlier, I think till December '22, we were giving some kind of a volume. I think last 2, 3 quarters, given the volume number, either on the production or the sales report, so -- but earlier quarters, we have it. We have that in the conference call. But nevertheless, just coming on the pricing side also, I -- clearly, I understood what you are saying is if the input cost is going up, obviously, our realization will go down, but our EBITDA margin -- see, our concern is more on the EBITDA margin because we can see the spike on this EBITDA margin also in the March quarter, June quarter compared to what it was in the '22 -- year '22. So if you can throw some light or some focus on how the EBITDA margin we should look at going forward? EBITDA per tonne, I'm talking about.

Yes. In the commodity type of business where demand supply plays important role, yes, but more focus is on the cost part, and that is what we have been doing it. So we -- our complete focus is more on the cost part, how to keep a control and lower down and become the lowest cost producer in the world. That is the focus we have been doing it. So we are debottlenecking our capacities. With these debottleneckings, we are reducing our cost, we are entering into the new technologies, we are using digitalization technologies, and we are doing the industry core things so that our cost can be controlled and new practices can be attained. And this is what is giving us the edge on our results and everything, which is visible to you, sir.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Just a couple of quick questions. So can you share the EBITDA per tonne for this quarter versus what it was year-over-year?

So EBITDA per tonne this whole 9 months has been ranging somewhere around 9,500, 9,400 to around 10,000 depending on quarter-to-quarter because of the price adjustments. This I'm talking of the commercial glass. But for the high end, we have to yet fully load the furnaces. So we would not like to state the EBITDA per tonne there right now because it's more strategic also in nature. But I can give you the guidance on the commercial glass right now -- commercial container.

And what was this number -- sorry, go ahead.

Yes, please go ahead.

And what was this number last year, apples-to-apples?

Apple-to-apple, would have grown somewhere -- when you see 9 months of previous year and 9 months of this year, the EBITDA per tonne growth has been ranging to about 30%.

Okay. And what is the lag in the time period that you incur the cost and you are able to recover from your customer? Is it in the same quarter? Or is it on a monthly basis, if you can just explain that a bit?

As I told you, there are 2 sets of customers we have. One is, we have the formula understanding, and the second, it has to be adjusted as per the market forces. So there is -- some particular ratios are there, which can be 60-40 or 70-30 or something like that, 70 are the formula-based customers and 30 are the market-based customers. So normally, the formula-based customers, we have the different timelines with them. In some cases, we adjust yearly. In some cases, we adjust half yearly. In some cases, we adjust quarterly also. So there are different customers who are different. As far as the market is concerned, so that, again, depends upon the demand-supply situation. So sometimes what happens is when the demand is good, even the adjustment can happen within a month also. When the demand is not good, the adjustment happens maybe in 6 months or something like that. So too difficult to pinpoint exactly. But yes, there are mechanisms by which any cost escalation or cost decrease is to be adjusted with the market depending upon many factors.

Right. So is it fair to say that if you're taking at least, let's say, 4 to 6 months before you are able to completely pass on the cost to the customers?

I think it's just anybody's guess. I don't say your number is absolutely right, but maybe you are a little close to here and there.

Okay. And then the last question on the HNG process -- not process, but how do you plan to finance it? Assuming you win in the Supreme Court, how do you plan to finance it? And -- if you could just give a little more color on that side?

So it will be primarily a debt, but I can't disclose the numbers here because of the confidentiality.

Okay. So you're not planning to -- okay, fair enough. I'll take it offline.

[Operator Instructions] The next question is from the line of Viraj Mahadevia from MoneyGrow India.

Congratulations on stable results. Just a question in the absence of the HNG acquisition for the next financial year, can you guide us towards a revenue growth number, either through volume, debottlenecking and/or price increases?

Sorry, I missed your voice. So what was the first part of HNG?

I said in the absence of the HNG acquisition...

In the absence of HNG acquisition...

Towards the volume growth number for next year, volume based on debottlenecking and/or price increases, so a revenue growth number in the absence of HNG?

So I think overall, we should be able to achieve around 6% to 8% volume growth because -- and this is I'm talking of a run rate basis, not an absolute basis because Mr. Khosla has already spoken about additional volume buildup -- capacity buildup due to high debottlenecking in the existing system. We have 154-tonne furnace, which is a new high-end furnace, which is under loading process. So the overall volume availability can be in the range of around 6% to 10%.

Understood. Understood. And again, in the absence of the HNG acquisition for a second, given your debt is now INR 500-odd crores, are you likely to be completely debt-free within the next 6 months?

That in the way you are asking an EBITDA from me, actually, which I wouldn't be able to comment. You have to build your own model based on the current profile. Right now...

But the goal is to deleverage apart from HNG?

So there is no other definition of money right now. So we have -- we invest money in terms of creation of capacities. We invest money in terms of creating efficient business model that requires some investments as most of the money goes into reduction of debt. Only EBITDA, which we are generating, either it is for the future investments or it goes towards the redemption of debt.

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

Sir, the first question is, we are seeing some increase in the fuel cost in terms of the gas cost as well. Will that in any way impact our margins in the coming quarters? How do we see the power and fuel cost going for us in the coming quarters?

So Rajesh has already spoken extensively on this in the last 1 or 2 questions. So if there is an increase, so there is a lead-lag time, on which again a question was there, what is the lead-lag time. Very difficult to comment on lead-lag time, but it's more of -- once it is there and once it is established that some price adjustment is to be done, then the discussion starts with our customers. So if there is a price increase for definitely 1 or 2 quarters, the impact may come through, negative impact. But ultimately, it gets recouped also in the future. And similarly, when the price falls, a similar lead and a lag time is there in terms of price adjustment. So since it's not a one set of a customer, it's a varied set of a customer with varied set of SKUs and varied requirements. That's why Rajesh made a comment, it's very difficult to estimate the exact time. Like if a question comes through, whether it will happen in 3 months or 2 months, it's very difficult. It's an adjustment formula which is there. And if you see the moving averages stuff, then you will see that it automatically gets adjusted.

I will add on what you are saying, one more thing. The sensitivity towards the cost increase with the price has the 2-edge sword. On the one side, if you are too sensitive, you are destabilizing the markets. If you are too much stable, then probably you hit your other numbers. So somewhere the mid approach has to be there, where the sensitivity has to be adjusted in such a way so that the market doesn't hit us badly, and we don't hit our numbers badly, and in between some way or -- it's a very analog type of structure. It's not a very 0-1 structure like digital structure where I can say at 3 months or 2.5 months things can be adjusted. So many factors taking in consideration, the price adjustments or the cost transfer adjustments are being done.

Got it, sir. So my question basically pertains to the fact that we have seen a consistent improvement in our EBITDA per tonne metric. I think we went from INR 6,000 to INR 7,500, INR 8,000 and now we are close to INR 9,500. Definitely, a good part of it is also because of a lower power and fuel cost and also better utilizations. So...

Okay. But major part is because of debottlenecking. Debottlenecking, not quantitatively, but even qualitatively debottlenecking.

Understood, sir. So my question is that what kind of a range -- is it there a range-based working that we do or, let's say, somewhere down the line, if the margins go close to INR 7,000, we are okay to work at that or we have to take an immediate action? I just wanted your thought process on that.

Possibly, being a working executive, this is a part of a little confidential strategy at what level what we have to do and to what because this information is available to our competitors and our customers also. So we may be like to be little selective in answering these things, which may impact us in a wrong way in our business. But yes, we do understand we have to deliver to our shareholders the best possible results. And on the other side, it is our commitment to see that our customers remain happy, stable and associated with us for a long term. So keeping 2 aims in mind, so we work out the things.

Understood, sir. And sir, my second question is just an extension to this, where we are seeing the gross margins on an absolute level, it is improving to 70%-plus for last couple of quarters. Is it only because of lower raw material cost? Or is it also some benefit of product mix that we are seeing?

That's what I'm saying. When I say debottlenecking, debottlenecking qualitatively and quantitatively. Quantitatively means I add the quantity, qualitatively means product mix.

Got it. Got it, sir. And sir, just the last question on this. We have seen -- specifically, when I look at the segment data, the investment property EBIT numbers, consistently, they were at close to INR 4 crores, they've gone down to INR 3 crores. Is there any change in the entire lease terms with the other company that is impacting this?

So there are some of the times one-off quarters, you get some insurance expense or some expense, but they are consistent as such, so no much change because most of them are already set for a very long-term period.

The next question is from the line of Miraj from Arihant Capital.

Congratulations on a good set of results. Sir, a few things. Firstly, I'd like to understand what has been going on in the hearings? What discussions have been going on? Because there were a couple of hearings in December and Jan. Sir, I just want to understand what is the current -- what is the status on the proceedings right now?

So our case was last heard on 16th of October. So after -- I'm talking Supreme Court now, in the court of Chief Justice. And after that, there has been a number of listings which have happened, but we couldn't get the time for hearing. So the hearing proceedings have not yet initiated, but the case do come up for listing again and again. So we have a next listing on coming Friday.