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

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Results Conference Call of AGI Greenpac Limited, hosted by Emkay Global Financial Service. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Lahoti from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Yosuf. Good evening, everyone. I would like to welcome the management of AGI Greenpac and thank them for this opportunity. We have with us today Rajesh Khosla, Chief Executive Officer; Om Prakash Pandey, Chief Financial Officer; and Sandeep Sikka, Group CFO. I shall now hand over the call to the management for the opening remarks. Over to you, Mr. Pandey.

hanks, Yousuf. Good evening, everyone. I would like to welcome the management of AGI Greenpac and thank them for this opportunity. We have with us today Rajesh Khosla, Chief Executive Officer; Om Prakash Pandey, Chief Financial Officer; and Sandeep Sikka, Group CFO. I shall now hand over the call to the management for the opening remarks. Over to you, Mr. Pande. Good evening, everyone, and welcome to AGI Greenpac Quarter 2 FY 2025 Earnings Call. We have already uploaded our earnings presentation for Q2 FY '25 on the stock exchange website and on our website. Despite the scheduled furnace shutdown, the company reported total income of INR 611 crores, while EBITDA increased 20% year-on-year to INR 166 crores with a 27% margin. Profit after tax grew 28% year-on-year to INR 72 crores. In H1 2025, the company reported total income of INR 1,188 crores. EBITDA grew 12% year-on-year to INR 313 crores, maintaining a 26% margin. Profit after tax increased 13% year-on-year to INR 135 crores. Our plant furnace realizing project completed in August 2024, which will enhance our operational efficiency and help us to capitalize on the growing demand for the glass container. We are confident in our ability to deliver a strong financial performance in the year to come. Our positive outlook is underpinned by our robust business strategy, which Mr. Khosla will outline along with the key business highlights. Now I would hand over the call to Mr. Khosla.

Thank you, Mr. Pandey and good evening to all. We continued our growth momentum this quarter. Despite a scheduled furnace relining, we maintained a strong glass container capacity utilization of approximately 93% this quarter. The furnace resumed operation in late August '24. Our focus on cost efficiency, including optimizing production and supply chain management. led to the improved margins. Moreover, our strong customer relationship and tailored product offering helped us maintain a robust market presence. We continue to expand our international presence through executions in U.A.E., U.S.A. and Europe to boost our visibility and facilitate networking with the potential clients and partners. In October '24, we incorporated Sun Reach Pack, FZE, a wholly owned subsidiary in the United Arab Emirates to expand our global footprint and increased exports. Sustainability is the cornerstone of our business strategy. We are proud to receive SEEM National Sustainability Award Gold 2023 for our community contribution towards our manufacturing plant, focusing on climate change, water stewardship, waste mineralization, employee well-being and empowerment. We continue to invest in initiatives to reduce our carbon footprint and further strengthen our commitment to sustainable practices. With a strong foundation and strategic focus, we are poised for growth and long-term success. Now we would like to open the call for any questions you may have. Thank you very much.

[Operator Instructions]. First question is from the line of Dhaval Shah from Girik Capital.

Very good set of numbers. So I have a couple of questions. So first to start with, see, if we -- if I look at the trend of other expenses over the last couple of quarters, it has steadily trended down and just inched up a bit in this quarter compared to the last quarter. So how have been able -- is there a seasonality angle to this other expenses line item? Or there are some actual reduction exercise which we are taking, which is reflective of this? Second question is...

Shall I answer?

Please, please.

So I will not be able to quantify the figure share of the response which I'm trying to give. As you know for the purpose of acquisition of Hindustan National Glass, there are subset of litigations, which have been filed at various courts, let it be NCLT, NCLAT, High Courts and Supreme Court also. There was a lean period in between. And now I think since the hearing is going on now in almost all the courts. So you -- in the short term, you may see some trend going up. And -- but ultimately, it will phase out once the adjudication is done. So this is primarily on that account.

Got it. Got it. Got it. So like in December 2023 quarter, it was INR 240 crores before that it was INR 245 crores, then last quarter, INR 208 crores and INR 223 crores. So this up and down and while the top line is almost within in the range, not being much different. So this large variation of INR 15 crores, INR 20 crores on a quarterly basis, so one of the parties is what you're mentioning. Is it that? And what else it could be.

It's primarily towards that.

Okay. Understood. Yes. So then the gross profit expansion is -- you have been mentioning in a couple of calls regarding what efficiency enhancement we have been doing along with product mix change. So I assume the expansion of our gross profit is a resultant of that. Now moving to our outlook with respect to the current capacity and plus what debottlenecking which we keep doing on. So over the next 2-year period, what sort of volume growth or a revenue growth visibility can you give us with the existing capacity, what sort of top line is achievable? Because I understand in running a furnace efficiency is the most important thing, and we are able to capitalize that through our years of experience and able to utilize the asset to the maximum. So how should we read about what sort of maximum volume or output you can get from the furnaces over the next 2-year period, which would result in the top line growth?

I think since we are operating the furnaces with a reasonably very high capacity utilization. So I don't think so we can multiply the volumes like that. But we will be all the time looking ahead for debottlenecking a lot of capacities or I mean to say a lot of areas where we can increase our product mix or production or something like that. . So it is only the debottlenecking, which is expected now, unless until there is some visibility on the CapEx side. Yes, we are looking ahead for some sort of inorganic growth with the cases which are going on in [indiscernible]. So we hope that, that goes up and then the volumes will be certainly going to multiply.

I think we lost the connection from the current participants. We will move to the next question from the line of Parikshit from Fair Value Capital.

Congratulations on a fabulous quarter. I have a couple of questions. So my first question is on the soda ash price. I understand that you have a long-term contract with the suppliers, which helping continued volatility. But considering that the Chinese soda ash prices have reduced by almost 25% year till date. Is there any contractual benefit that you might get from that significant drop?

I don't think so that the soda ash prices have fallen drastically. It's not like that. The soda ash is a commodity and the prices are purely depend upon demand and supply and plus any other cost additions. Today, because of the Israel and Iran war, so there has been a lot of disturbance on the normal freight areas and normal freight rates. So the freight has gone up a bit of that. But overall, because of the demand and supply, the soda ash, basic prices have little come down. So because of this, it is almost balanced out with, I think, small 2%, 3% here and there, it normally happens. And I think the prices are reasonably in the controlled manner. And as far as -- I think your next part was about Chinese soda ash. Am I right?

That is correct. Yes.

What exactly you want to know about Chinese soda ash?

No, no. I meant that the exchange price -- the commodity price for Chinese soda ash has fallen down, but I understand the fact considering the freight increases...

In the case of China, there is one capacity which has come up in inner Mongolia, which has a little bit changed the scenario of demand and supply. But those exchange prices of soda ash are basically for the local soda ash or the local Chinese prices. So they are not basically applicable globally, and they have not affected much on the global scale.

I understand. My second question is on the FMCG segment of the business. I believe it is about 17% of the glass container revenue mix. Can you please help me understand on a high level, how much would it be mass segment and the premium FMCG segment? Because mass segment is uncertain in terms of sustainability of using glass containers with many factors such as low viscosity liquids, cost and PET alternatives, although I remember you mentioned high-quality PET alternatives are more expensive than glass. However, there is some sort of quartz coating on the inner surface, which helps PET bottles to be having inner surface properties equivalent to glass. So if you can just help us understand on a high level, the segment split among mass and premium FMCG product glass and the sustainability of it going forward, please?

Okay. Since there is a lot of disturbance which is happening, I do not know maybe it is from what side. My request to the person who is organizing is, can you see a little bit where exactly this disturbance is going on.

It was -- the little disturbance was from the participant line only from Mr. Parikshit.

Okay. So because I was not able to understand the question exactly. But whatever I understand, it means like that in the case of plastic or PET, there has been a lot of development where they can produce the better quality of the bottles. And is it going -- is it affecting the glass industry or not? Is this the question, if I'm understanding you right?

Yes. I mean, more so just trying to understand the split between the premium versus mass among the -- in the FMCG sector and the sustainability of both the segment going forward.

Okay. If my understanding is right, please correct me there. See, this packaging is a very, very typical of the Venn diagram, if you can work it out. There are the products which are only in the glass, there are the products which are only in the plastic. There are products which are only in the cans. And then there is an overlapping area where you can use either PET or glass, it can interchange. And there is a constant, what you call transformation, which is happening from glass to plastic, plastic to glass, which is happening in country to country, product to product, company to company, area to area, time to time. So this is the reason because it works out, which is more economical as such. Sometimes because of the pressures on the sustainability, it brought change to the glass, sometimes because of the less pressure, they go back to the PET. As such, globally, there is a clear, clear signal that things should change to more sustainable packaging, which is a glass packaging. PET is gaining -- has gained a bit of points, but I don't think so on a long-term basis, they have any bright future in the times to come. So the glass will take a bit of time, maybe slow, but ultimately, the glass will take over the PET either today or tomorrow.

I understand. I appreciate your answer to this. And if I may just ask a final question about the Hindustan National Gas acquisition. So we did some primary and secondary research from which we understood that the operating costs, primarily the energy requirement for the HNG furnaces are high. Please correct me if I'm wrong. This is either due to the heat loss on account of delayed maintenance or due to the infrastructure of the plants allowing only a very smaller share of cullet, which increases the temperature required to melt the entire product inside the furnace. So if you can please talk a little bit about the entire premise of the HNG acquisition. Is it to largely control -- further control the share of the market in terms of North and Eastern markets? Of the existing primary premium clients or there are additional strategic reasons, please?

So we cannot divulge any information relating to the acquisition for 2 results. The entire proceedings are right now sub judice before the courts. And also, we have a confidentiality clause till the acquisition is done. But generally, we can make a statement that once the furnaces are not maintained over a period of time the thickness of the refractory lining comes down. And on account of which there is radiation losses happening, which results in higher energy consumption. So we won't be able to take your question specifically relating to the acquisition. But whatever public data is there on the HNG website, I think we can use that to make an assessment there.

Next question is from the line of Zaki Nasee, an individual investor.

Congratulations on a very decent set of numbers, sir. My first question is, sir, the kind of growth we had in the first half, do you think that will continue in H2? And my second question would be, sir, our plant of 156 tonnes per day of specialized glass, are we -- are we producing the kind of glass which we set out to produce in that plant, sir?

Okay. As the business leader in the glass industry and as a corporate member, we are always optimistic on the outcome of the future. And since we have done quite good in the H1, and we hope that we will continue to do the same in H2 also. Yes, there are some parameters. There has been good amount of tailwinds, which has helped us in doing the same. But we hope that these tailwinds can be continued and consistently going to help us because we are also putting a lot of efforts on the more sustainable outcomes like productivity and outcome efficiency, product quality relationship. So all those aspects are being geared up. So we hope to continue the same in the times to come.

And about the specialty glass, I mean, is the plant doing what it is set out to do?

Yes, I think we are on the track . And certainly, in these set of numbers, this specialty glass has contributed quite a lot. And still, I think there is a gap in what we expect or that we wish and aspire to do and what where we are. So these were though it's quite a, I can say, it's quite a benefit to us because that much of leverage we are expected to get in the future. So we are on track, we are doing good, and we hope to do much, much better in the times to come on the specialty glass. So things are working pretty well as per the plan.

Next question is from the line of Dhaval Shah from Girik Capital.

Sorry, my line got disconnected. My bad. So my question was regarding the volume growth expectation and what math we can do over the next 2-year period, yes, from the existing capacity and then the debottlenecking, which we have done?

See, as far as debottlenecking is concerned, I think all the numbers have already been out. And right now, there is no such greenfield project right now, which is in process or in progress. But obviously, the acquisition of HNG is in pipeline. So we hope that things will work out well in our favor, and we hope to add up the capacity in the very near future because of this inorganic growth.

No, definitely, sir. And from our AGI Greenpac perspective, what is the -- how much we can add in terms of the volume? How much growth we can do organically?

I think all the debottleneckings have already been done now. So we have to sustain that debottlenecking and more efforts are now working on fuel efficiency, productivity and product quality. So now we are trying to debottleneck on these parameters. So -- and these are certainly going to add a lot of value in our top line and bottom line. So we are working on those lines now.

Understood. Sir, if I heard it correctly, you mentioned the growth -- so the current quarter number, what we did like a similar kind of performance we can do in the next 2 quarters?

In this quarter, we were not operating one of the furnace for quite a long time because it was under relining. So obviously, those volumes are going to add up in the future.

In the future, okay. And sir, as -- I mean, where is the metal stuck in terms of HNG court case. So where is the hurdle and what makes you positive about it that you in a short term?

The subset of litigation from Hindustan National Glass, the prime litigation has been there in Supreme Court for now more than a year. But the good part is that still is continuously heard, and we feel that hearings should get completed in other 1 or 2 days whenever the next hearing is, next hearing is on coming Wednesday and after which the courts will take a decision. However, we are optimistic on the outcome of this. The matter is for the Supreme Court. I think we have to all wait for it to pass through. And then we feel that once this is done, and everything is in our favor, then NCLT can move very fast on this matter.

Okay. And once we -- once the acquisition is in our favor -- once the ordering is in our favor, how -- so what is the next step? So what will be the cost of acquisition for us then? And how do you plan to fund it?

So there are some things which are right now confidential to the entire thing because the entire resolution plan proceedings are confidential in nature until it is approved by the adjudicating authority, which is NCLT. So we'll be disclosing this upon the order from the court once the NCLT approves it. So then at that time, we'll make the appropriate disclosures as per the requirement of the laws. So till that time, I'm restrained not to talk about it.

The next question is from the line of Anil Shah from Insightful Investments.

Congratulations to the team for a good set of numbers. I have a couple of questions. One, obviously, as you said, in this quarter and even in the previous quarter, we lost some volumes because of the relining. So in the next half, that is the second half, we should be able to have better volumes. Could you put some number to that in terms of percentage increase or absolute in terms of metric tonnes?

Slightly difficult. The reason is the reason is when you reline the furnace, the behavior of the furnace is a little difficult to predict. And since this furnace, we have started in the month of August and we just started our firing the furnace and September onwards, they start selling. So signals are quite good. Normally, it takes a quarter time to stabilize the furnace with the normal volume. So we are expecting that certainly we are going to get the volumes what we are expecting or what we have indicated the investors before. So we will be able to catch up those numbers, whatever we have indicated before.

Right, right. And in general, one question related to the festive season because it's almost about 5 weeks post the September results, which we are talking about. How has that season been? Some qualitative comment from you would...

Sir, we are very lucky in India, we have throughout the festive season. So Diwali has finished and now Christmas and New Year is about to come. And after that, the Holi will be there and then Pongal and other things will be there. So nowadays, I think the Indian economy is doing quite well festive season is throughout the year. So I don't think so, with the very small peaks, I can say, very small peaks, which are affecting nowadays with the traditional festive season, what we talk about, now practically, the whole year is more or less flattened or we have the peak in practically every quarter with these small peaks in every quarter. Big and small.

In general, you're happy with the way October has gone.

Yes, yes, yes, sir. As long as Indian economy do well, sir, we all will do well, sir.

Right, right. Sir, third question is on power and fuel. How much of the power and fuel requirement of ours is now through renewals? And because of that, what's the kind of cost structure or cost change that has happened over the last few years? If you could just explain.

Sir, there are 2 aspects. One is the thermal energy, one is the electrical energy. On the electrical side, Mr. Pandey, you please confirm, I think we are close to 17%, 18%, something like that.

Sorry?

No, I'm just asking my colleagues. Mr. Pandey?

Yes, yes. You're right.

Okay. So we are close to 17%, 18%. And we are now trying very hard to increase this number to a much larger number, maybe close to 40% or something like that, we are in process of discussion and finalization. As far as thermal energy is concerned, so in case of thermal energy, we have started using the biofuel. The biofuel is under the test now, results are yet to be seen. So I think maybe in that 1 quarter or so, probably we may have the better results to talk about. But, yes, a as a country, as an organization and as the management people, we are committed to make the glass more green, as much green as possible.