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

Ladies and gentlemen, good day, and welcome to AGI Greenpac Limited Q1 FY '25 Earnings Conference Call hosted by Arihant Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Miraj Shah. Thank you, and over to you, sir.

Hello, and good evening to everyone, and thank you for joining into the Q1 FY '25 Earnings Conference Call of AGI Greenpac. Today from the management, we have Mr. Rajesh Khosla, President and CEO; Mr. Om Prakash Pandey, CFO; and Mr. Sandeep Sikka, Group CFO. So without further delay, I'll hand over the call to Mr. Om Prakash Pandey for his opening remarks. Over to you, sir.

Good evening, everyone, and welcome to AGI Greenpac Q1 FY '25 Earnings Call. We have already uploaded our earnings presentation Q1 FY '25 on the stock exchange website and on our website. I'm pleased to say that we started the year on a very positive note. The company total income increased by 1.7% on a year-on-year basis, increasing from INR 567 crores in Q1 FY '24 to INR 577 crores in Q1 FY '25, despite a schedule, furnaces are down for relining and de-bottlenecking. The company recorded an EBITDA of INR 147 crores, achieving 4.7% year-on-year growth with a stable margin of 25.4%. EBIT for the period amounted to INR 105 crores with a margin of 18.2%. The net profit for the year was INR 63 crores and margin of 11%. Our consistent performance is driven by operational efficiency, a strategic product mix and a focus on premiumization. Our ongoing furnace relining and de-bottlenecking project, which we initiated this quarter, is on track for completion in early August '24. With the next scheduled relining plant for FY '28, we are strategically positioned to meet the rising demand of glass containers while optimizing our operational efficiency. Now I will 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. We continue to build on our growth momentum this quarter, driven by the strategic initiatives and is set for commitment to the operational excellence and sustainability. Our state-of-the-art specialty glass plant is well positioned to capitalize on the growing demand of high-margin products, such as Cosmetics and Perfumery, driving overall profitability. We expanded our global reach through strategic participation in exhibitions across the UAE, U.S.A., Europe, strengthening our brand and building valuable partnerships. Our specialty glass plant, which commenced commercial production in financial year '23/'24 is performing well, capitalizing on the forgoing demand for high-margin products in the Cosmetics and Perfumery sector, is coupled with our continued expenditure, demonstrating our commitment to sustainability. We successfully commissioned 2.8 megawatt solar rooftop project at our Hyderabad plant, increasing the company's overall solar capacity to 19.56-megawatt. This project significantly reduced our carbon footprint, lower our energy costs and enhances the operational efficiency. AGI Greenpac's Specialty Glass state-of-the-art plant achieved the prestigious IGBC Green Factory Building Platinum rating for the underscoring of our sustainability leadership. Our R&D Center and Chemical Lab secured NABL accreditation, demonstrating our commitment to deliver high-quality innovative solution to our customers. Additionally, our Bhongir and Hyderabad plants were well recognized with Gold and Silver awards at the CII EHS Excellence Awards '23, highlighting our strong environmental performance. Our achievement highlights our commitment to stakeholder value and sustainability with the strong foundation and strategic focus, we are twice for growth and long-term success. Now we would like to open the call for any questions you may have. Thank you very much.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Pranay Roop Chatterjee from Burman Capital.

Sir, my first question is with respect to your unit economics over the last 3 years, FY '21 to FY '24. So simply, what I was looking at, in fact, your gross margin per tonne basis, like if I divide all your P&L numbers by your volume numbers, gross margin per tonne has grown from around INR 19,000 or INR 20,000 to about INR 30,000 per tonne over FY '21 to FY '24. What exactly has led to this? And connected to this, given that we are in a cyclical industry, the RM prices, gas prices, furnace oil prices seem to have peaked out and now started to come down. Now as you pass on these lower prices to your customers, how should your EBITDA per tonne of about INR 10,000 behave in the coming future?

Okay. If I understand your question properly, if you mean to say, the cost per tonne, which used to be around INR 20,000 a tonne, it has gone up to INR 30,000 a tonne.

No, no, sir. So what I mean is your revenue minus your COGS, the gross profit, that when you divide it by your tonnage. So per tonne, how much are you earning, the ASP minus your RM cost per tonne. That has expanded over FY '21 to '24, because we have managed to pass on more prices, seems like you have managed to consume more prices than the cost has increased. So what exactly is that?

I may like to tell you that whatever is the gross margin we are talking about, it is a -- it depends on your the cost side and your selling price. So you are assuming right now that whatever increase of margin has happened, they might have happened because of the increase in the prices to the customer, which may not be the right thing to say. Because a lot of efforts and de-bottlenecking has been done on the cost side and the bottom line has been gone high, or the cost side also with the big margins. So that is the reason. But I'll be very sorry to say that we are not opening or we are not publishing our data on a per tonne basis. So my comment on the exact number on per tonne will be right thing, we are giving on the total gross numbers. So -- but the real answer is the total, our gross margin, whatever has gone up, the big part is on the cost side and other part is on the selling price side. So selling prices can be adjusted now and then, because of the change in the formula or whatever is the cost, but the real cost reduction, which has happened with the de-bottlenecking and other synergies, they will certainly be always with the company, and it will be a permanent bottom line to the company.

Just to plow on it a little further, given in gross profit, the only cost we are really talking about is your raw material and direct manufacturing costs, right, soda ash and et cetera and on the daily manufacturing costs. If you could just throw some light, because I think this has been discussed in the past couple of calls as well. If you could just throw some light on what de-bottlenecking has happened, which has led to reduction of some of these manufacturing?

See when you do a lot of de-bottleneckings in the capacity side or on a technology side, the total consumptions on raw material, on the fuel, on the efficiency, productivity, everything they contribute in your gross margin. So there have been a lot and a lot of projects which has been happening in with us to increase the productivity, even the efficiency. That is very important. The efficiency of your products. See, if you are able to produce, say, 100 bottles, it's not like that all 100 bottles are good to go to the customer. There may be 80% or 85% or 90%. So the economic curve will change drastically when you improve on these parameters. So these parameters have contributed a lot in giving us the gross margin.

So just to put forth, let's say, our efficiency on machining, the bottle 5 years back was somewhere around 83%, 84%, which as year-on-year, we have been able to increase. So that's...

That will substantially increase with the help of technology, additions and defective piece and our managerial commitments.

I can add just one point, that in the past also, we have mentioned that we have a lot fuel mix. And depending on the fluctuation in the market prices, we keep on recycling or the use of fuel from one room to the other. So this optimization of the both side on the cost side as well as on the efficiency side, it contributes directly to the gross profit.

My next question is on generally to industry demand and supply scenario. So I've been starting how the industry has behaved since FY 2008. So I think 2008 to 2014 were the up cycle in the alcohol sector and your revenues on CAGR basis for the packaging segment grew more than 20%. Now at that point of time, the industry has fully utilized. But what happened after 2013, 2014 is, lower nuclear payments and the industry capacity is sort of more than doubled. But the remarks remain flattish because of multiple reasons. Now as we stand today, industry seems to be optimally utilized, it's basically the commentary of some of the alcohol majors. How do you -- how does the manager of the second largest government, such a industry, plan for the next 5 years in such a scenario from a growth perspective. And right now, if you can please answer this without considering the acquisition as if it was not happening.

Let me answer with one of my comments, which I always give it to my people. So the work is always -- the commercial work is always started by the price and we bought by cost. So we always focus on the cost, because it is on the defensive side of the game. So what you have been referring in 2008 to 2014 when there was an upswing and on. So those are two type of battles and wars here. The price is fighting the war. But for the longer wars, winner if you have to win, it has to be bought with the cost. And that is exactly the answer which I've given in your earlier question, where you have been asking your gross margins have gone up. And I told that it has been -- it has grown up because of the cost side. So our efforts are there just to increase the price with the valuation, but we have to fortify about the cost part, which we are doing with the technology and best practices. So this is the way we are trying to. And beside that also, there can be a market position up and down. Yes, the whole company will be win, but we are quite resilient now to sustain the those type of double lenses.

Got it. And is this for current EBITDA per tonne sustainable, is there a downward dip?

I think we have been with you guys for the last so many years, and we are talking the same story. So it is a sustainable year-on-year, on quarter-on-quarter, the numbers have been same, is similar or whatever we are projecting. And market risk is always there, which is in every business. No business is insulated from the market risk. So market risk is there. But besides that, I think from the operational side, the commitments are always there to make it sustainable.

[Operator Instructions] The next question is from the line of Abhishek Jain from Alfaccurate.

Congrats on the different set of numbers, despite a few hurdles on the production. The first question is on the volume and the realization side. So how was the first quarter volume and the realization? And second that, how do you see the volume growth and pricing trend there?

The first question is, you are looking for our comment on volume and realization.

Yes, in the first quarter.

Okay, first quarter. Since we are not giving the volumes in our -- any of our declarations, so FX volume or FX metric tonne we are not offering in our publication. But I can just give a small view on that. First quarter was a little difficult for the sales, because of the elections. So there have been some prohibitions and restrictions on the consumption of one of the biggest segments in our glass industry, liquor and beer segment and alcoholic segments. So the numbers what we could have done or we could have achieved are slightly less than what actually has happened. This is the part of the market reality, and we have to face it. Regarding [ systems ] realization is more or less flat. It has been more or less same as it has been the earlier one with a small adjustments on reprice because a major part of our supplies are adjusted with the formulas.

And how is the pricing trend looking a lot of the increase in the pricing on the glasses, mainly because of the supply side issues. So -- just if you can throw some more light about this?

So you mean to say there has been some supply issues in the market, so prices might have gone up. You mean to say like this?

Yes, yes.

So it's not like that. There was -- there is a reasonable level of capacity available in the market. And secondly, as I told you, the first quarter was during an election time where the demand was little suppressed and supplies were normal. So there is no such skewness towards the demand supply gap. So it has been quite normal. And since we have a long-term contract, understanding with our customers, so we have been less impacted with such demand supply scenarios.

Okay. And sir, currently you have added the capacity of around 154 tonnes per day in your specialty labeled glasses. So assuming that 1,800 tonnes per day capacity and adding another 80 tonnes per day capacity exactly and another 54 tonnes per day capacity for the special glasses, what would be the total capacity for the year?

Our capacities are same as of last, we are just de-bottlenecking to extract maximum out of those capacities.

So what is the current capacity per day -- tonnes per day?

The same as we have been publishing on our website and everything, but we are expecting more glass by way of technology, productivity and other such efforts. So we are expecting or utilizing the glass furnaces or exploiting the glass capacities much more than the using. I can say like that, in some of the furnaces, we are running with more than 100% of the rated capacities with the debottlenecking.

And how much increase in capacity because of these sort of the advertisers?

As we explained to you by de-bottlenecking, we have done that close to 100 tonnes last year. And you are talking of 154 tonnes, which is a Cosmetic plant. Here, we have added a new line. We have added a new line and de-bottlenecked that capacity also by having around 30 metric tonnes more.

Okay. So last year, it was around 1,700 tonnes per day. You have added 100 tonnes and again 154 tonnes for the special glasses?

For the original one.

Original one. Right. So that would be around 1,950 plus something, if you add anything?

So the base capacity, what Mr. Khosla has said, the base capacity remains at a figure of somewhere around 1,600 tonnes, but it can get extended if we use exploit the furnace. That's how it is technically configured.

Okay. And my last question on this -- and in the time [indiscernible] acquisition, what is the progress there?

So the matter is subsidized and it's in front of Supreme Court and NCLT. Hearing is expected in middle of September. So we feel that now it should be sorted out for us in October, at the earliest. And after that, I think we can move ahead and then complete the acquisition.

And would you require any CapEx for this acquisition?

So these are all parts of the resolution plan, which I can't disclose on the call right now.

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

Just to clarify regarding the volume part that you just mentioned. Earlier, we had 1,854 tonnes in which 154 tonnes was the specialty unit. In that, we de-bottleneck one furnace of 270 tonnes per day capacity in which we are adding roughly 80 tonnes. Besides that, is it -- did I hear it correctly that, we've also added another 30 tonnes in the specialty units?

I think so, let me put the numbers in a right way. 1,600 tonnes is the capacity, which we had the initial capacity and 154 is whatever we have added up. So once you start running the furnace out of 154 tonnes, we have de-bottlenecked 30 metric tonnes further in specialty glass, and we have de-bottlenecked 100 tonnes in the commercial glass. So this 1,600 tonnes plus 100 tonnes, 1,700 tonnes plus 119 tonnes or 118 tonnes, you can call it. So [ 17, 18, 19, ] so it is a share below 1,900 tonnes. So the new furnace, which we are building up, we have de-bottlenecked by 70, 80 tonnes. We expect that the furnace is going to behave and to give us the output, which is more than the earlier one. But these are all technological efforts. We hope so that when we will start taking out the glass, it is going to be nothing more glass than what we have been earlier taking out and as per our plan of around 70, 80 tonnes more than the earlier capacity.

Okay. So current capacity would be just under 1,900 tonnes, right?

Again, I'm saying the capacities are defined by the furnace supplier. And exploiting the furnace with the highest possible capacity, which is a job of the manufacturer. So capacities of these furnaces remain same as earlier, but the exploitation is much more or we are using exploitation maybe negative growth, I can say, but we are expecting the glass much more than the rated capacities.

Okay. Understood. Understood. Okay. And just one more question before I get back in the queue. Sir, if let's say, you have a land and on that land, if you want to do a brownfield CapEx, starting from all the way from ordering machines. So roughly how much time will that take from the moment you end or do the machines do the commencement of the facility?

See, it all depends upon so many factors, but you can say anywhere between 2.5 years to 3 years should be the normal one.

2.5 years to 3 years. Okay. Okay, I understood. That's it from my side. I'll get back in the queue.

The next question is from the line of Darshan Jhaveri from Crown Capital.

And all of my questions have already been answered. So I just wanted to understand currently, like in terms of operation terms, we had because of the shutdown, we had some lower capacity utilization than what our norm is. So, now in the going ahead quarters, can it come back to what we used to do of near 94%, 95%? How would it pan out?

Yes, you are right. So once the furnace will start delivering the glass. So our capacity utilization will be the normal one as we used to have.

Okay. Perfect. And sir, just wanted to get after being at such high capacity utilization, what kind of maybe revenue could we see right now? Because with the de-bottlenecking, we will get some benefits. So currently, like quarter or revenue growth could we expect in FY '25, sir?

We expect -- I think, we have given a guidance that we should be able to maintain our growth of around 10% with the current existing facilities by way of debottlenecking, enhancing productivity, enhancing product mix. So we just hold on to that, that then was -- some growth with the existing facilities is a viable option.

[Operator Instructions] The next question is from the line of Pulkit Singhal from Dalmus Capital Management.

My first question is on the demand from the alcohol industry, again particular figure. My understanding is that some of these MNC players have actually switched from glass to pet bottles at least for the lower end brands in their portfolio. So just wanted to get your view on what kind of risk of shift away from glass can one foresee, because alcohol is the big segment. Obviously, for beer, it is not there as much. But I'm talking about particularly spirits. And what kind of demand do you see from product industry over the long term, given this kind of substitution risk?

If I pick up the numbers from the public domain, and whatever is being published in the newspaper or maybe in other news items, the alcohol industry is growing by around 8%, 9% numbers. So this 8% to 9% number and the alcohol industry has to expect the people, the different segments of the people with the new packaging ideas whatever it is possible. So we bet the first. So there are two types of plastics, which was being used in the -- by the alcohol people. One is a very generic type of plastic and one is a high-end plastic, which has been used in view of glass, which is even more expensive than the glass. So there is a novelty sector, which has attracted the glass, attracted the people and novelty factor has a time line or they have a life and which we have to expect that. So what we expect that these type of conversions or these type of switching and swapping common is very common. Is very common. It has been happening earlier also, it is happening now also. So it is not about matter of a very big concern. But secondly, the whole industry is well quite. And I think so. So even after the conversion and there is a growth in the liquor market, particularly everything looks to be almost the same stage as it used to be. So we are not much concerned. It's a normalcy. And as a glass industry, I think we have to bring more innovation, more novelties to make sure that more and more conversions and attraction happens towards the glass. So this is what is normal, sir.

Understood. Second question is from a supply side on a quantity, intensity perspective. So at one end, obviously, HNG as a competitor has kind of gone down and they are doing what they're doing when they required. But at the other end, we've also had, the Khairatabad cluster, which earlier was not well penetrated in this segment, but seems to have kind of got its share within the MNC manufacturers as well. And they seem to be doing well. Now the question is how do we compete with someone in that cluster, because they have a much more favorable pricing in terms of gas, et cetera. So what's your views on that?

So now you're talking from the supply side of that. So if I understood your question very well, you are asking me how you are going to strategize your fighting or competition with people like Firozabad people?

Yeah. Sorry. Firozabad people.

Firozabad people. Okay. See, the market is well poised, and glass is a very straight sensitive market. So we are basically placed in the Hyderabad side and we are keeping to all the year by or all the possible industries here. And besides that, our technology -- our products are so superior technologically. So we have been innovating, putting up the new technologies and everything. So that the right type of product goes to the customers. So if I can say very well, we are also one of the most preferred companies on the glass side, where the people prefer to have our glass as compared to anybody's glass in the competition. So we are giving a value back to the customer, and these values are in form of the product quality in form of the straight part in form of the commitments, in form of the timely, these things. So these things add up and give a total integrated products, which is basically gives the value to the customer. So I think we are not much concerned. Okay. We are keeping the eyes, but we are not much concerned on these parts because our clients, our customers, they are quite committed because we have been giving technological products to them.

Understood. Just a last question on the longer-term export opportunity out of India for glass, and I'm not talking about the next 2, 3 years. But has there something changed in the overall -- I mean, basis your study on the overall glass sourcing market globally that allows India to be more competitive now than it was earlier?

Okay. I can give you this answer. China Plus One policy. Number one. The average age of the people in Japan is 50 years. The average age of the people in U.S. is 38 years. The average age of the people in Europe is more than 40 years. So the working people will be quite less and there will be more on the leisure side of the life. So obviously, the growth potential from India, with China Plus One policy is there. I'm not talking with respect to glass, but it is with respect to everywhere. And secondly, that glass be a little more energy intensive, a little more industry, which is countries like India will be able to sustain more better way, so the potential exists and potential will grow in the glass industry for the export purpose, in the times to come.

The next question is from the line of Vijay Agarwal from [ Secom ] Family Office.

Yes. Yes, sir. Congratulations on a good set of numbers. In context of the previous question, I will ask how long is it takes for a brownfield actually to set up? So could you also just give us an idea of the cost per tonne on a brownfield project versus a greenfield project? And also in terms of the timeline you may put for brownfield, how long will it take for someone like a fresh person to come into the industry and set up the capacity?

The answer is -- to answer in one particular line will be too much, because it all depends upon the project management side. There are few projects which has been taking quite a long time when you are not able to finish and few people are able to do a little faster on that. I think for all practical purposes, you should take anywhere between 2.5 to 3 years is a reasonable period in which they're very standard, they're very up-to-date and very techno study projects can be implemented. So this is the timeline. Now you are talking of per tonne, this is of how much is the CapEx cost on that? Again, very difficult because it all depends upon what type of machines you are buying, and what type of products you want to cater. So if the product -- for a product mix of A, will cost you INR 100 a product mix of this will cost of you INR 170 also. So it all depends upon the -- on your type of products, on the type of machine, technologies and other things, what you are looking for. So two ways answer to be given like that, as on -- at this point of time.

So sir, just to empathize the same question again. So in 2019, you had done a greenfield CapEx of 100,000 tonnes. I think it cost you INR 75 crores, and you have done recycling investment as well of another INR 150 crores. So if one could get an idea of the same capacity today based on commodity inflation, what would be the same cost of that CapEx if I wanted to do that today?

If I understand your question, you're talking INR 130 crores of CapEx you're talking about. Am I right?

No, no, sir. So in 2019, you have done a greenfield CapEx up to INR 75 crores. And you have also done a recycling investment in technology for INR 130 crores. So cumulative announced our foreign income investment was done for 100,000 tonnes per annum capacity. In that same capacity today based on some commodity price inflation, what would be the same CapEx that we have to do it in today's time, the cost?

I think, I have to relook to your numbers, what you have been telling me in 2018 -- '19, I mean to say, with a CapEx of INR 275 crores you are talking, because most of our complex, they are the integrated list of further relining. They are the integrated list of the other technology upgradations and everything. So to me and to the best of my knowledge, there is no such new furnace, which has been added in 2019, but there has been the furnace rebates which has been done. So I have to relook to the CapEx number again, and the breakup of those numbers like that. So -- but there is no such greenfield projects we are talking of adding. But in 2019, if you are referring to some of these technological upgradation, where we converted fuel furnace from our normal fuel furnace to the specialty furnace to make the beers and to who we have invested in the new lines. Okay. That is a separate thing. That is just a technology upgradation on those furnaces.

And one last question. So generally, call it, in terms of pricing, how does it work? I mean percentage uses for AGI versus the broader industry as a raw material, what is the percentage usage that maybe we do versus the broader industry? And is there some price sort of parity over there or some cost comparison versus the virgin material?