EPL Limited (500135) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to EPL Limited, formerly known as Essel Propack Limited, Q2 FY'21 Results Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Ankit Gor from Systematix Institutional Equities. Thank you, and over to you, sir.

Thank you, Vikram. Good evening, everyone. On behalf of Systematix, I would like to welcome all to 2Q FY'21 and 1H FY'21 earnings call of EPL Limited. From the management side, we are joined by Mr. Sudhanshu Vats, the CEO; Mr. M.R. Ramasamy, who is the COO; and Mr. Parag Shah, who is the CFO. Along with it, we are also joined by Mr. Amit Jain, who is the Head of Corporate Finance; Mr. Suresh Savaliya, Head Legal and Company Secretary; and Mr. Deepak Ganjoo, who is the Regional Vice President, AMESA region. Without taking much time, I would like to hand over call to Mr. Sudhanshu for opening remarks, followed to which we can have Q&A session. Thank you, and over to you, Sudhanshu.

Thank you, Ankit. Good evening, everyone, on behalf of my colleagues at EPL Limited. First of all, a very happy Dhanteras to all of you. It's a special day; it's an auspicious day for all of us in India and it is also a very special day for us at EPL. It is one of the -- it is I must say a very special investor call because today I have the privilege on behalf of my colleagues to share with you 3 important pieces of news. So I think let me without further ado start with what we have to share with you. The first and foremost is, as you already know, but I think I thought I would spend a couple of minutes on this, is we are now EPL. The new name, EPL, is a simple, crisp and global name that is an effortless shorthand for what we always stood for: for our customers, for our clients, for all our stakeholders, EPL. It is also our vehicle for a new purpose-driven journey ahead. And you will continue to hear from us from time to time. It reflects a transition from high to higher. It's a company which is nearly 4 decades old which has done very well but has a desire to do even better. And this is a desire to shift gears on new way of growth, a growth that is suited for today, but more importantly, suited for tomorrow. Built in EPL, as you will see with that blue line -- and with that logo which is identical but our colors now are deep blue and green, is our commitment to sustainability, is our commitment to the future, is our commitment to the world that we would like all of us to live and we would like to play a small role in building that world. It is about shaping the future of packaging as we celebrate everything that has made us what we are today. And in that we've summarized our tagline now which is we call, Leading the Pack, our humble effort to understand packaging, lead packaging and hopefully do well as we go forward with that. So that, ladies and gentlemen, is the first announcement, and I'm delighted to share it with you today. So we are now EPL. I think the second and arguably an equally important announcement on the auspicious day today is our acquisition of Creative Stylo Packs. Creative, as you know, is a young organization about a decade old, but has made a mark for itself in India. I think they have rapidly grown. They were founded by 2 young entrepreneurs, Bhavik Shah and Darshan Shah, very dynamic young individuals full of energy and enthusiasm. And we have decided to acquire Creative. Let me first give you a quick overview of Creative for some of you and then talk to you about how we are structuring this deal. So, this company founded in 2012 by these 2 young entrepreneurs, I talked about. In FY '20, delivered a revenue of INR 1,031 million. So INR 1 billion, with an adjusted EBITDA of INR 305 million, giving them an EBITDA margin of 29.5%. They have a manufacturing facility in Himachal Pradesh, with an annual production of close to about 200 million tubes. They do a lot of tubes in plastic. So I think their specialty is more plastic and decoration, and to that extent, is a very complementary fit to what we do. The second interesting thing about this acquisition is that almost, actually most of their business comes from Beauty & Cosmetics, and the remaining part comes from Pharma. So it would not be incorrect for me to say that their entire business comprises of Beauty & Cosmetics, about 85% to 90%, and the balance, 10% to 15% of Pharma. So from our point of view, it is a perfect fit in our journey towards Personal Care and therefore further strengthening our portfolio. They also have a marquee clientele of customers: L'Oreal, Marico, Zydus, Himalaya, just to name a few. And I think it's a list which goes on. Many of them common to us, but quite a few complementary. So with that listing, we are confident of taking our offering to these customers in a more -- in a way that will delight the customers even more as we go forward. Now onto the transaction. The transaction -- basically, we've acquired them at an enterprise value of INR 2,539 million. So INR 2.539 billion. So that's the transaction value at the enterprise value for Creative. And the deal structure is, we will be purchasing 72.5%, approximately 72.5% of their stake through cash and the balance 27.5% will be a share merger. So therefore, 72.5% stake through cash and 27.5% stake through EPL shares to Creative founders pursuant to the merger of Creative into EPL. So we've filed the SPA today. We've informed the markets and the authorities and it is indeed my pleasure to share with all of you that EPL 2.0 is now gearing to grow faster, both organically, but also through strategic and right acquisitions, and I think Creative, in that context, is the first step in that direction. I'm also happy to share with you that Creative founders, which is Bhavik Shah and Darshan Shah, will become part of EPL senior management team after transition and will play a very important role in the expansion of EPL's global business. Closing of the transaction, as you know, is conditional upon satisfaction of customary conditions, and we expect the transaction to close early calendar '21, but the merger to go through in about a year from now. So with that, that is about our transaction. And lastly, let me once again sign off with the strategic rationale for the transaction. So 5 key pieces. Revenue growth, if you were to look at, revenue growth for Creative in the last 3 years has been 8.3%; revenue growth for EPL in the same period has been 6.2%. So it is revenue growth accretive. EBITDA margin for Creative is, as I shared with you, about 29.6%. Our margin in FY '20 was 20.3%. So it is EBITDA margin accretive. We are confident of operational improvements as we go forward. We can already see synergies to the extent of INR 35 million, but I'm confident, along with my colleagues, we should be able to do even better than that. It will continue to drive our Personal Care and therefore continue to balance our portfolio, something that I've spoken to many of you in my one-on-one conversations and also on this investor call. Already with these numbers, if I were to assimilate and aggregate these numbers and share with you our contribution of Personal Care category from 45% in FY '20, will shift to about 47%. We also add plastic tube capacity in North India, and as many of you would know who follow our company and this sector that a lot of our customers are placed in North India. So therefore, for us, it is also a strategically important geographic location. So, very strong strategic rationale; fit with our Beauty & Cosmetics and Personal Care ambitions. Revenue and EBITDA growth accretive; operational improvement which we can immediately see; and finally, it will allow us to drive India with our strategy where we continue on laser-sharp focus on lami tubes, but we also have better and futuristic capacity for plastics as we build our double-engine growth driver for our customers and are able to do and accelerate our growth in Beauty & Cosmetics. So that indeed, ladies and gentlemen, was our second announcement. And finally, to the one which we talk about every time, but indeed it is great news. As we've closed first half, let me share with you our numbers for the first half and then thereafter with the quarter. So, for first half FY '21, we've delivered 11.1% growth from -- revenue from operation, delivering INR 15,118 million in revenue, which is 11.1% growth on a similar period this year. This, in our judgment, in the times we are living in, in COVID pandemic, is a performance we are all very proud of. In the same period, we've also delivered EBITDA growth of 20.1%. So we've delivered EBITDA of INR 3,136 million in H1 of FY '21 which is a 20.1% growth, but equally and more importantly it is that our EBITDA margin has also expanded to 20.7% from 19.2% in the previous period. So this is about 150 bps margin improvement in EBITDA. All of this translates to our PAT growth of 18.2%. We've delivered a PAT in first half -- profit after tax at consolidated EPL level at INR 1.275 billion, which is a growth of 18.2% and more importantly, our earnings per share now is at INR 4.44. We've crossed the INR 4 mark on our earnings per share. While doing all of this with our ability to create -- to basically generate cash, our net debt continues to come down. Our net debt in H1 FY '21 is INR 2,332 million, so INR 2.3 billion, which is almost half of where we were in H1 FY '20. All this is leading to our return on capital employed at above 20% -- well above 20%, actually 21.4% in H1 of '21, and this is a 506 bps improvement over the same period last year. So we are very proud and happy to share these numbers with you today. If I was to continue with our mission, and we've said, we want to deliver market-leading growth -- revenue growth while we deliver capital-efficient, consistent earnings growth. So if you were to look at revenue growth, which I told you already, 11.1%, clearly tells us that we are leading the market in this space. But more importantly, our adjusted EBITDA has grown even better, which is at 23% growth and INR 3,245 million. And our adjusted EPS is better than what I just shared with you at INR 4.24. So that, ladies and gentlemen, is our performance for first half of the year. This performance basically has come with our robust and continued good performance in quarter 2. So if you were to look at our quarter 2 numbers, despite all the issues, both on the growing pandemic, as you know, I think it is now going deeper into India. It has started affecting people in our plant. It's also across the world, there is also talk of second wave. So there is a lot of headwinds which we are battling as we go forward. We've delivered revenue growth in quarter 2 of 5.4%, with the number of INR 7.7 billion, so INR 7,703 million, which is a 5.4% growth in this -- in the quarter which has just concluded. This has translated into an EBITDA growth of 9.5% with an EBITDA delivery of INR 1.67 billion and an EBITDA margin of 21.7%. Now, once again, our EBITDA margin has expanded by about 80 bps points over the previous period last year. So it was a healthy 20.9% last year, but our number is better this year at about 21.7%. So this is the performance of this quarter. And as I shared with you, our return on capital employed at the end of this quarter is at about 21.4%. Our PAT number, on the face of it, looks a little down over last year, but that is because of certain exceptional items and tax, repayments and adjustments across the globe which were there. So suffice to say that our period-to-period growth impact, apple-to-apple, if we were to take out all of these would again be in double digits. I think it would be in mid-teens I think. So that is our performance on this piece. Moving forward, if you were to look at how have we been able to deliver it, it is about, basically our approach, which I have always emphasized that we continue to remain. We are a disciplined, determined bunch of people, so basically it is our discipline, determination and creativity which is helping us deliver this. When I say discipline and determination, all 20 plants are operational. Despite all the hiccups, our plants are working to near capacity and being able to service customers and delight customers, if I may say, day in, day out. At the same time, we continue to look at demand generation and look at newer avenues. You would remember I had talked about hand sanitizers last time. What we are really convinced of is that health and hygiene as a phenomena is a sticky phenomena during COVID and post-COVID. So health and hygiene, as a consumer habit, and dialed up health and hygiene is sticky and it's here to stay. And therefore, we are also now building additional categories of hand wash; tubes available in hand wash, moving forward hand creams, so hand sanitizers, hand creams and hand wash, in some way go hand in hand, if I could say. So we are quite confident of continuing to grow this. So this is new categories. While we do this, we continue to service our customers, gain share of wallet wherever possible and also make new pipeline wins and competitive gains, which is what we have been working for over the past 12 to 18 months. So it's a culmination of our effort of 12 to 18 months; in some cases, it is our ability to service the customers today and therefore be able to gain competitive share, and finally indeed our ability to build and launch new categories which comes into force and that has been responsible. At the same time, we are committed to basically employee wellness, and this is one area which we continuously look at, a very senior team from our company constantly monitors this. We are committed to people's health, their safety, and we will continue to remain steadfast on the journey, because we believe with our employees' wellness and with their safety and their growth, comes the growth of the company. And lastly, but equally and more importantly is that we continue to have war on costs, if I could use the word. We are basically managing costs and looking at every cost item. So, we are -- and we want to manage it across each cost items, across function, across regions, so that we basically progress on this journey and our Project Phoenix, this Phase II of that, but in general, our war on costs is something which will continue to happen, and that is one of the area -- one of the reasons why you continue to see margin expansion in these tough times. And this is something which we remain committed to because we need this fuel, we need this fuel for stakeholders, for return to stakeholders, but equally, and more importantly, we need this fuel for our growth and we are committed to growth as we go forward. Very quickly, as I spoke to you already, we continue -- I think health and hygiene, is a trend, which we think will stick. And we are continuing to do work in this space, both on hand sanitizers, but more importantly now on hand soaps and hand creams moving forward. Our focus on capital efficiency will remain. So, we will be prudent on CapEx spend. This is a year in which, in any case, it's very difficult to deploy CapEx at the pace at which we would like to, but all I want to assure you is that we will put adequate capital where it is needed and for growth and that is something which we will continue to drive towards. Basically, our growth, expansion in EBITDA and growth impact leads to cap generation and leads to debt reduction in net debt. I talked about that. It has already come to almost half of the period at this point in time and it now stands at INR 2,332 million. So I think that is something which we will continue to do. Our return on capital employed, which continue to grow as you can see over a period of last 4 odd years, we've expanded the return on capital employed by over 400 bps. So, on an average at about 100 bps. And I think this is a journey, which has got accelerated in the last 12 to 18 months. We are confident of being able to steadily build on it as we go forward. And finally, I want to talk about our ability because of all this to be able to deliver higher dividends to shareholders. So if you look at in the last year, we had delivered a full-year dividend of INR 3.3 per share, which was part of our interim and final dividend. In the last year in the second half or at the end of FY '20 we had declared INR 2.05 per share as our final dividend last year, we think that this is a rhythm we can sustain with the profit we are generating. And therefore, I'm happy to announce that even if our -- actually for first half of FY '21, we are declaring an interim dividend. The Board has approved the dividend of INR 2.05 per share, and this is to let you know that this is the kind of rhythm you can expect as we go forward. So, in last -- second half of FY '20 which is the final dividend of FY '20 was INR 2.05, interim dividend of FY '21 is INR 2.05 and this is a number for you to keep at the back of your mind as a steady number which we should drive and work on. On our fundamental levers, in this slide. Let me quickly glance through that. It is there with the investor presentation, which has been put. So let me very, very quickly glance through that. We continue to progress on Personal Care. That progress we made and you can see that. And that is -- so FY '21 is now at 47% versus 45% of FY '20, there is continued growth across our regions. So I think that is good progress. At the same time, we remain focused on continuing to build on leadership on Oral Care and there we continue to deliver growth HY FY '21. We have -- H1 FY '21 we've already delivered a growth of 8.4% on our Oral Care business and this is something which we will continue to do. I'm very happy to announce to you that our focus on Europe is yielding results. Our performance in Europe is indeed very heartening both on top line growth, but equally and more importantly, on our margins. So what we've basically been indicating our ability to now take these margins to mid-teens is something which we are demonstrating in first half of FY '21 already. We are at about 14.8% and we are confident of being able to deliver that through the year and therefore continue to build on it as we go forward. This, let me remind you is a very, very sharp progress from where we were almost about 2 years back. So I think you know. So from about a 10% share, we already into mid-teens. Lastly, I think I just wanted to touch upon our industry leadership in eco-friendly solutions. Sustainability, as I started out, is indeed at the heart of what we will do as we go into the future. We've been developing a whole range of laminates and commensurate tubes. And we are basically focusing -- now we have -- as you would know, we basically called our original laminate Platina but we now have a portfolio being developed around it. As I speak to you, we've already developed Platina PRO, which is also got qualified and is in testing and in some places, commercialized as well. Platina is already happening. We are also going to look at Platina Clear. So as we go forward, we will continue to build a portfolio of sustainable solutions. And no surprise we are getting a lot of traction and acceptability to our sustainable offerings by leading global customers and even leading local players. So I think overall, the acceptance of this offering is very encouraging. Our customers are as committed to sustainability as we are. So, it is in one way a marriage of like-minded organizations and that is really good news for us. And we will continue to build on this. We will continue to deliver on all 3 pillars on recycle, reduce, reuse. There is work happening on the circular economy and PCR tubes as well. So, we will continue to do that. There is work happening on biomaterial. So, there is a lot of work happening in this space and we will continue to drive that. Let me finally sign off with our focus on corporate social responsibility. We are basically defining our vision for corporate social responsibility. We are calling it Greening Lives. Our focus area will be, as I said, our -- EPL's strategy will focus on sustainability and sustainable development. It will be built around 4 pillars of facilitating collaboration, meaningful impact in a microcosm and you will see this around some of our plants, forging strong stakeholder relations in order to be able to get better multiplier effect of all our work which we do and capitalizing impact, especially from the point of view of scaling and job creation. I'm happy to share with you that we are partnering with Samhita, a known social impact firm. They are -- basically, they are working with us and they work with marquee companies in India. So we should be able to join them and then with their help, be able to join hands with others to build our corporate social responsibility agenda. It will be governed by the CSR Board Committee. But more importantly, it will also be managed by the CSR Governing Council with 5 apex members, senior members of our company. In operation of Greening Lives, we look at green community, working on waste management program in order to build and encourage communities to manage waste better and moving forward, facilitates circular economy. We are equally committed to self-sustaining communities and we are therefore work -- will work on skill development and entrepreneurship programs with local communities and financing them with a rather innovative returnable grant schemes. And finally, in time of COVID, we are also committed to all our health workers or people who've been helping up, all are COVID warriors, so to say, and we have already committed ourselves to donate about INR 1 crore or INR 10 million towards PPE equipment through India Protector Alliance, again, I have -- dedicated to the cause of healthcare and sanitation workers. India Protector Alliance is an alliance of like-minded organizations who are committed to this cause who come together and we are very much part of India Protector Alliance. So with that commitment to Greening Lives, but at the same time continuing to deliver sustained capital efficient, consistent growth and market-leading revenue growth, I would like to sign off. Thank you very much and I would also like to take this opportunity before we take the questions to wish all of you a very happy Diwali and a big festive season ahead. Stay safe, stay healthy. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have a first question from the line of Harit Kapoor from Investec.

Just had a few questions. The first question was on the acquisition, so congratulations for the same. Just wanted to get your sense on what attracted you to this asset the most? Is it the fact that you acquire new customers? Is it the people who've led this organization? Or it's the capacity that you inherit on the plastic tubing side?

So it's -- if I could answer this question, it's a combination of all. But as I was telling you, first and foremost, it fits into our strategic direction of building Beauty & Cosmetics and maybe wider Personal Care category, continuing to drive that faster. And as I told you, this is a company that has entire business -- its entire business is in Beauty & Cosmetics, and Pharma. So therefore, I think from that point of view, it is a great fit and a strategic fit. The second thing is, you are right, it has a strategic -- important strategic location in North India with capability in plastics. Best-in-class modern decoration and tube-building capability especially. And with the customer based in north, it gives us that strategic advantage also and will allow us in future to reorganize and basically strengthen our play in plastic tubes even more with our own operations in the west and this operation now in the north. We will hopefully be able to build a stronger portfolio in plastics as well. So I think that is indeed the case. And as you rightly pointed out, we've got 2 young entrepreneurs, educated, capable, hungry, and I think they will bring their energy in enterprise and will work with us closely and then therefore be able to -- and they are going to be part of the EPL team now and we'll be able to drive our EPL 2.0 agenda as we go forward.

Understood, Sudhanshu. Just to understand on the margin side for Creative, I'm just wondering how a plastic tubing business actually achieved such high margin. Is it the product category, because my assumption was that laminates would be higher margin business than plastic, so you can just help me understand that?

So I think it depends a lot on the category. So therefore, you are right. So I think the category also depending on basically the capability which you derived. So, I think which you basically -- or the kind of tubes that you make, first of all, as I told you, we've spoken about that ad nauseam, that Beauty & Cosmetics as a category has a higher ASP, the average selling price per thousand tubes and we've talked about that several times to the investors, so it plays out in this as well. Average selling price per thousand tubes is independent of the type of tube in that category, so therefore, that is a real simple. You can see we've talked about doing our [indiscernible]. That translates into better margins. Also the value, which you add. So I think the -- this is what has attracted us, so I think, as Ram was doing due diligence on them. I think the capability which we are also acquiring is best in class, very modern facilities and therefore, it's a combination of what you deliver to the customer, the quality of decoration, the quality of printing and the quality of tubes and also the category which they operate in, which has them achieved this much.

Got it. My last question is on the Americas business. Would you just take us through what's really happened in this quarter leading to the decline, is it more led by some level of down-stocking, et cetera?

So Americas business is -- first of all, it is a temporary phenomenon, I want to tell you. I think, yes, the number you are seeing this quarter are the numbers in this quarter, but I must tell you, Americas, as our business got very hard hit by what we call travel tubes or sampler tubes and to just to put in perspective, roughly 25% of our business in that geography comes from travel tubes or sampler tubes and with the COVID phenomena, this is a category which got very adversely affected as you would understand. And therefore, that is an area, while the drop has been substantial, we've been able to cover it up through improvement in share of wallet with some customers through more premium tubes, which we've done and we will continue to do with some of our leading global customers and through pipeline wins in some beauty customers and Pharma customers. So the net impact is still adverse in this quarter. We are confident moving ahead in Americas. We will be able to deliver growth and you will see that quarter 3 onwards. I think so -- we are confident of that. So this is a very strong COVID headwind, if I could call especially because of their over dependence as the geography on particularly on travel and sample tubes.

Sudhanshu, a followup is that, would Oral Care also have been impacted on account of the same reasons in Americas? The sampler tubes?

Yes, of course. Most of the travel tubes are Oral Care tubes. But all I wanted to assure you is -- that it is a blip. It's a one-time thing. We are very confident, we are already seeing it. We are very confident of a good Americas performance in quarter 3 and thereafter.

We have next question from the line of Sameer Gupta from India Infoline.

Thanks for taking my questions. Just a kind of a follow-up only from the previous questions. So, regarding the acquisition, sir, just wanted to understand. So, we already have manufacturing capabilities in plastic tubes. Is it the geography we are getting and we weren't there? And can you also elaborate on the synergies as to how we are going to derive INR 35 million of synergies through this acquisition or is -- or was it a case of it was available at 8x EV/EBITDA and the valuation seemed pretty reasonable to acquire other than go on an organic build in this category.

So, I will answer a little bit of this and I will ask Ram to also talk you through that and maybe give you a bit of historic context and for the future. But let me first again reiterate a few points because I think it's an important thing. See, first of all, for us it is a strategic fit from the point of view of the category they operate in, the customers they bring, the capability -- so therefore this is-- these are best-in-class modern plants, both from tube making, but more importantly from decoration capability point of view and it is also at a strategic location in north which is important. So I think you know. So that is very, very clear. I think -- and also as we continue to drive our Beauty & Cosmetics agenda, what we are beginning to debate and also work on is that Beauty & Cosmetics, in order to accelerate our Beauty & Cosmetics, it may be a good idea to drive it through twin-engine, which is our laminates, which of course we are continuing to do great work on, 360-degree printing all the work which we will do, but also -- and equally also through plastics because customers and certain brands have requirements, which are very independent and unique, and it is our ability to be able to offer solutions on both of them, which will help us do that. And I think in that context, this helps us. And finally, it also augments our capacities. While the capacity is there, but it will further augment our capacity and also in a strategically important location in North. I'll hand over to Ram to talk you through this a little bit more.

Sameer, good evening. You know, we operate plastic tubes out of west. The north plant really helps us to meet north demand. We currently send it from west. This is one. As you know, we are heavily concentrated towards lami tubes in India as well as globally. The capabilities over a period of time we've built in lami tubes to meet Personal Care markets and Pharma markets is substantial. Many times, we've explained to you our capability in terms of decoration, our capabilities in terms of refreshes, zero-defect programs, there are lots of capabilities we've built in India and globally on lami tubes. So over a period of time, because our efforts were trying to convert from bottles, from plastic tubes into lami tubes, that we did that correctly. But there will be always be a market, which will continue to remain in plastics. So we thought, this is an opportunity that we could have a relook at our strategy, so that we could also concentrate on plastics in India. Even though we have plastic operations in India, this fits really well, that is one of the reason that we acquired this. As Sudhanshu was explaining, they have a good asset base which complements our asset bases. They have a good people and they have a very good -- in terms of decoration capabilities on plastic tubes, which will actually help us to further add. I think it's a good fit, and we also have to -- and as you take entrepreneurs with us as employees going forward. I think with our ability to optimize resources, bring in better productivity and things like that, we'll get that business to improve further margin, that INR 3 crore, INR 3.5 crores that you are seeing as the synergy benefits probably will flow through quickly.

Got it, sir. Just 2 follow-ups on that, sir. So, one is that the capacity that you are acquiring, what kind of sales can it do on a full capacity level and what is our current plastic tube sales in India, excluding the acquisition?

We don't actually segregate plastics and lami. For us, it's a Personal Care business, that's what that you'll probably will be seeing. What you have seen is our Personal Care business also has grown up in Q -- this year that we are already almost about 200 basis points higher than the last year. We will -- in the H1 of this year and we'll continue to grow that. And this business, Creative, is purely on Beauty & Cosmetics and Pharma that will add up further.

And, sir, the capacity question? Full capacity, what kind of revenues can this supply and generate, the North India that you've just acquired?

Currently, they are doing such -- I think the reports say -- report you might have seen it that going about INR 103 crore, INR 105 crore business currently, but they have a good plan to grow and our objective is to always grow in double digit. I think I'm sure that we will able to do that.

Let me rephrase the question, sir. Then, what is the current capacity utilization of this plant, which is touching a INR 100-crore revenue.

No, I think -- thank you for asking the question in 3, 4 different ways. Suffice to say there is enough headroom. Unfortunately, we don't want to share the exact number at the moment with you.

You could have said that.

Enough headroom. There is a lot of headroom. To just build on Ram's point, I think they currently do about INR 100 crores -- vertically INR 103 crores as he said INR103 million, INR 105 million but there is a lot of headroom, there is a lot of it.

Can I squeeze in a second?

Sir, I'm sorry to interrupt. Would request you to please come back in the question queue. Thank you. [Operator Instructions] We have next question from the line of Chirag Sureka from DSP Mutual Fund.

I think I am going to ask your debt strategy. I just had 1 question. Your CapEx -- sir, a lot of data around that. The CapEx is about INR 130 crores a year. Is that the kind of capital you will except for the next 2 years? Given this acquisition, your net debt has come down from, let's say, INR 430 crores to INR 233 crores. How will it move over the next 1, 2 years and as a company when you look at net debt-to-EBITDA, any net debt number? What is the ratio that you look at?

So very quickly, I will hand it over to Parag to talk to you in some detail. But first of all, I do want to tell you, I don't know where you've got this INR 130 crore number because -- so I think, there was only 1 year in which the number was that much. And I think it's incorrect to make 1 year as a trend. I think we've always maintained that our CapEx will be more in the vicinity of -- if I could use a number of close to about INR 200 crore or maybe a little bit more than that. We've said that depreciated value or our depreciation give the clear indication of how much we may be deploying year-on-year. So I think that is the number to sort of look at, but with that, let me hand it over to Parag to more specifically address.

Yes. First let me, just reiterate, what Sudhanshu said in his opening comments. And he said that CapEx for growth is never going to be a barrier or a reason not to invest. And so, I think your reference to INR 129 crores or INR 130 crores is with respect to last year, perhaps you are further sort of influenced by the fact that the CapEx so far is INR 64 crores and therefore you are arriving at a conclusion that the CapEx level is INR 130 crores. We have said this several times before to various investors in investor calls that our CapEx can be and would be up to our annual depreciation, which is there in our consolidated financials of around INR 230 crores. So, again, to reiterate, there is absolutely no reason to believe or think that CapEx is being controlled. CapEx is -- will be provided amply for our growth. And therefore, I would suggest not to assume that number of INR 130 crores. And as Sudhanshu already said, the number is more towards INR 200 crores or thereabouts. Can you repeat your second question, please?

Sir, second -- the second question is for the net debt to come down from about INR 430 crores to about INR 233 crores. With this acquisition and CapEx, as a financial policy, how do you look at net debt? What is the number that you strive for because you are improving the numbers sequentially. How do you look at net debt to EBITDA or is there a certain ratio that you have to guide us with?

Look, at the end of the day, we need to -- the use of cash -- the number one reason for cash is to plowback and grow the business and that will never ever change. And it's keeping that in mind, which will actually determine what level of net debt we need to maintain. That's the best guidance that I can give you.

Yes, and without sharing a number, I do want to let you know, just to build on what Parag said, as the Board and as management, we clearly have markers on net debt to EBITDA ratio. You are aware of it, actually, what our healthy financial ratios. The good news is, we are very well under it and therefore there is enough room for us to be able to grow and if need be, borrow to grow. I think that's where we are.

We have next question from the line of Trilok Agarwal from Birla Sun Life Insurance.

I have 2 questions. One on the -- I'm not sure whether you have covered this, but the reason for a subdued America performance. And second, with regards to the acquisition, obviously I heard on the previous participant when he was alluding to, you said this is the combination of growth, margins as well as clientele -- marquee clientele of customers. But I just was wondering -- given that you guys have enough sort of presence and bandwidth, so I was wondering couldn't you yourself have built this business, I'm not saying it's overnight hypothesis, but -- I mean just very curious to know what kind of thought process led to this acquisition?

Yes. So -- see, a good question and let me address both of them. So, I think Americas we've talked about, but let me first quickly talk about Americas once more. See, the point is that you are seeing a subdued performance in Americas in quarter 2 of about 7.4% decline in this quarter period to period, but I must tell you once -- this is a one-off. It's a blip and also it's a blip because we have Americas. Our Americas portfolio has a very large component of travel and sample tubes for 1 or 2 marquee customers in U.S. and that has got very badly hit by COVID. So if I was to share that their contribution of that component is close to about almost 20%, 20-plus percent. So, therefore they are -- that has got really badly hit and despite that, I think because of our nimbleness and agility, our ability to have share gains, wallet share gains with some of our beauty customers, our ability to do pipeline work and build the pipeline, we've delivered these numbers and we are confident that in quarter 3, we should be able to deliver growth and then hopefully build it from there. So, I think that is the question. So, it's a very peculiar thing there. They have a very large component of travel. And as you know, travel has got really badly affected at least in the last couple of quarters during COVID. The second thing, which is basically on the rationale for the -- for Creative. I think the Creative rationale, I've explained this in quite some detail, but I want to just again bring it. I think it's a good question. The very simple question to ask is the build versus buy and the question you're asking it why can't you build it yourself. I think the point here is that in terms of the portfolio and strategic fit of this portfolio, it's extremely high. I think it is exactly in the area of Beauty & Cosmetics. And so -- and therefore dials up our Personal Care and Personal Care ambition which you've heard us talk about subsequently. So -- and therefore it's kept up with that. Second thing is also in terms of capability in plastic and therefore within plastic, decoration and tube making and the strategic location in north, are very powerful drivers for us to look at that and in our due diligence, basically all we've done, I think that has really helped us. Because -- and then finally because the kind of customers they had and the kind of capabilities that they have built, they are able to get much more from the -- from a revenue per tube and revenue growth perspective and also margin per tube and EBITDA margin. So for our business, it is EBITDA margin accretive, it is revenue growth accretive. It's got strategic fit to our Beauty & Cosmetics. It's got a very well located -- strategically located plant in the north with best-in-class modern facility and we think we've got it at a -- it's a good sweet deal for both the players and the entrepreneurs are keen to work and drive with EPL and that's why it's a cash plus share merger. So therefore, basically, they will be owners of EPL in that sense through the shares they will own and then they are keen to participate in our journey as we grow this forward. So the fit we thought was very good. Conceptually speaking, I've always said this. See when you look at any new acquisition, what is it that you look at? You look at new customer, new category, new geography and new technology. So technology is a little layer -- little rare in our business, but if you look at the other 3 -- so this clearly brings new category and it strengthens the Beauty & Cosmetics category, it brings in a few new customers or strengthens our position in many other. So, it clearly ticks 2 boxes and it is in the existing geography, it further strengthens our position in India.

And lastly, are you -- I mean, obviously this is -- this could be in the future, but are you guys still open -- so what -- I mean are you open to any inorganic acquisitions going ahead as well? I mean because I believe most of the portfolio fit you already have it. So that's what I was trying to understand, even in the past you've added. So I just thought I'll -- using this one.

This is an ongoing process, we never give any guidance, but we continuously explore opportunities. We are doing well by God's grace. So therefore with a strong balance sheet and a good commitment. So whichever there is a -- whenever there is a good strategic fit and at the right price, we will be absolutely open to acquisitions. So our growth, we are committed to growth, organic growth and if need be and from time to time, it could be inorganic growth as well.

We have next question from the line of Varshit Shah from Emkay Global.

My question is likely on the Creative again. I am sorry if the question is repeating. What I understand from the conversation so far is that, EPL is more tinier in terms of a suite of offerings in laminated, but maybe probably, we had some offering at the -- in the plastic tubes, especially on the decorative side, which can give you a higher margin portfolio and when -- and specific inroads into your customer and which is something, basically you are acquiring from this acquisition. I mean all other obviously are plus points but probably it seems to me that this is a key pillar in the acquisition and just probably then you can -- since EPL is a global company, you will be able to replicate it across the globe. Is that understanding correct? That's point number one.

Yes. Your understanding is correct. You're absolutely right. We get best-in-class modern plastic facility. It allows us to play this segment even more powerfully as we go forward or even -- and you're absolutely right. They bring that to table. And moving forward, you are absolutely right, it may also become a launch pad for us to do things globally.

Sure. And 2 things. I will refer to this question -- 2 questions in one. If you see -- if you exclude the hand sanitizer or the hygiene segment, which are probably not been in the base quarter. That means the like-to-like, the business that would have maybe declined because of the headwinds related to COVID and probably does this come back maybe in Q3 or Q4 onwards. Is that correct? And secondly on margins. So whatever Y-over-Y margin improvement we have seen, is that largely because of Phoenix I and Phoenix II is yet to flow into it?

So 2 -- let me answer both the questions. I think first of all, it's wrong to assume. See, let me tell you, I think hand sanitizers tube last time also I told you that our growth independent of hand sanitizers tubes in quarter 1 was a double-digit growth. Our growth this time also which you are seeing 5.4% growth, our growth net of hand sanitizer is -- there is still a growth. So it is incorrect for you to say because there was a lot of pipeline filling in quarter 1 on hand sanitizers there. So therefore, the sales on hand sanitizers in quarter 2 is very different from the sales of hand sanitizers in quarter 1. That's point number one. Point number 2 is that, having said that, are we going to build the entire health and hygiene? Yes. We talked about that. We will look at hand soaps. There is work happening on that and we will start seeing that. So, first answer to your question, despite COVID headwinds have we delivered on growth on our business as usual without this hand sanitizers, the answer is yes. We have delivered that because hand sanitizers numbers are much lower in quarter 2 compared to quarter 1, because of the pipeline filling which had happened there. So that is the first question. The second question, which you had, if you can just sort of rejig my memory. This is a -- first one was this and the second one was on?

Yes. On margin improvement. So whatever improvement you're seeing...

Margin improvement, see, I will -- basically, I've said this many times. Cost consciousness is an intrinsic part of EPL DNA. A strategic well-planned program, Phoenix, which has Phase I, Phase II is continuously on and that gives fuel for growth. But at the same time, we continue to look at every line and we continue to look at multiple programs. Phoenix is one of the big programs which we talk about and it's good to sort of bring you around that, but we look at multiple programs, all line items, all line items I want to say that, across regions to be able to work on costs and as I was saying a war on cost will continue in times like this and in general, because we need that ammunition to grow. Basically, we need that -- that becomes an arsenal for our growth intrinsically in the business and also to give better returns to stakeholders and shareholders.

No, actually my question was very different. So, my question was more like the improvement has largely been on account of Phoenix plants, fuel is yet to flow in. That's my only question in the margin.