EPL Limited (500135) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of EPL Limited, hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vipul Sanghvi from Systematix Institutional Equities. Thank you, and over to you, sir.

Thank you, Rutuja. Good evening, ladies and gentlemen. On behalf of Systematix, I welcome you all to EPL Q1 FY '22 earnings call. From the management team, I'll quickly introduce them. We have Mr. Sudhanshu Vats, MD and CEO; Mr. Ramasamy, COO; Mr. Parag Shah, CFO; Mr. Amit Jain, Senior VP, Corporate Finance; Mr. Suresh Savaliya, Head Legal and Company Secretary; and Mr. Deepak Ganjoo, Regional VP for AMESA region. I will hand over the call to Sudhanshu for his opening remarks. And post that, we can open the call for Q&A. Over to you, Sudhanshu.

Thank you Vipul, and very good evening, ladies and gentlemen, on the call. It is indeed my pleasure to welcome you all to quarter 1 FY '22 EPL earnings call. Thank you for your patience. Thank you for waiting for a couple of minutes because some of your colleagues were joining me. So let me start by sharing with you our quarter 1 FY '22 results. As the Board and management team of the company, we are very satisfied with the progress which we have made in quarter 1 with -- under the given circumstances. Let me start by sharing with you our mission once again, so EPL 2.0 mission. This is -- we are basically committed to delivering market-leading revenue growth, and we've defined it as double-digit growth year-on-year. And at the same time, we stay committed to delivering capital-efficient, consistent earnings growth. Against that backdrop, let me once again share with you the performance of EPL in quarter 1. We are very satisfied with the performance we've delivered. And under the given circumstances, these are a very good set of numbers. Let me share with you the revenue growth. So on a pro forma basis, we've delivered 12.8% revenue growth. When I say pro forma basis, as some of you will remember, we have shut down our Russia manufacturing operations, which was in the base last year. And also, we had opened up a new category called hand sanitizer, which was in our base in quarter 1 FY '21. So when we talk of 12.8% growth consolidated for EPL in quarter 1, we are taking out the -- we have basically knocked off the numbers which are there for Russia manufacturing operations. So the Russia number because we've stopped manufacturing in that geography. And we've also taken hand sanitization pipeline out. When I say pipeline, this does not include the total sales which we did. It includes a number which would have gone into pipeline. Like for any FMCG company, when you launch a new product, there is a pipeline impact which is there. For us, this was an important big category which we've launched, and there is a pipeline impact which is there. So 12.8% growth, double-digit growth. And on growth, I am equally delighted, and as a matter of fact, very happy to share with you our India stand-alone growth. Having had the chance to look at a few numbers which have come of some of the leading FMCG companies that have announced their results, I can share with you our numbers. So our India stand-alone reported number is 17.3% revenue growth. This does not include our acquisition on CSPL. So our actual growth in India in quarter 1 leading to 32.5% with CSPL acquisition built into it. So we've delivered a 32.5% growth, both organic and inorganic; and 17.3% revenue growth. So on India stand-alone, whatever numbers are seen, our growth -- are better than anything which has been reported up until now. The second thing which I want to share with you, which is something which we had talked to you last quarter, is we've also delivered sequential margin expansion of 66 bps. Incidentally, most of the numbers which I have seen which have come in for India, I think the impact of supply chain and supply disruption is being felt by almost every company, especially in the FMCG space. And I've seen that many people have had challenges with margin, both year-on-year and quarter-on-quarter. In that backdrop, 66 bps sequential margin expansion is something we are very satisfied with. And with these 2, I want to once again reiterate we stay committed to double-digit revenue growth, which is what we've been talking about year-on-year. And at the same time, we have -- stay committed to delivering sequential margin expansion quarter-on-quarter from quarter [ 4 ] onwards in this year. This is a tough year indeed. How have we managed to achieve it? We will talk about it in great detail. But one thing which I wanted to highlight to you is that we've taken price increases across the board. So my colleagues in all the regions have been proactive in taking price increases across the board. 90% of our portfolio now -- 90% plus of our portfolio actually had price increase which has already been agreed to. We are also -- from a quarter 1 perspective, I wanted to share with you that we are ahead of plan on our price increases. So that is one big thing which is helping us as we go forward. Having said all of this, it would be amiss on my part if I did not talk to you about the unprecedented supply disruption challenges that we are also facing along with many of our customers and other companies that you may have heard about. So we've managed to navigate these unprecedented supply chain disturbances because -- I call them now disturbances because not only the raw material price is high, not only is freight cost actually skyrocketing, it is becoming difficult to be able to supply in certain cases. So supply security, being able to push out from one to the other is becoming challenges -- challenging. So just to give you a few anecdotal examples. China to U.S. container, and we used to -- we move a lot of laminates from China to U.S. to some of our -- and to some of our other geographies, where a container would normally be available for $4,000, we are currently struggling to find a container at even -- when we are willing to pay anywhere between $15,000 to $18,000. So you can imagine it is 4 to 5x the cost, but despite that, it is not easy to find containers. Even between -- even within Asia, between Thailand and India, the numbers have gone from $600 to $3,000, almost a 5x increase. So the impact of this is tremendous. As a matter of fact, that leads me to the final point I wanted to talk to you about in terms of the key messages I wanted to give on Q1 FY '22. So the numbers we've delivered, we are very happy with, but our intrinsic performance is better. And the reason I say that is that in this quarter, we navigated 3 one-offs, which are basically -- so you know we have our operations in Colombia. In the month of May, because of disturbances in the country, our plant was shut down for entire month. So we lost almost 1 month out of the 3 months of this quarter in one of our geographies in Colombia. We also faced challenges in the severe second COVID wave in India. And one of our leading customers actually had to shut down his plant for a longest period of time, about 2 to 3 weeks. And based on that, let me share with you, and I generally believe this is a one-off and hopefully will not repeat, this quarter is the very first time we also had to shut down one of our plant for 3 to 4 days because of this [ disposition ]. And finally, as I was telling to you -- telling you about supply, maintaining supply security, I think in the last 2, 3 days of the quarter as the quarter was ending, we were not able to ship out of China into U.S. some of the stocks which were supposed to go. And if I were to take these 3 instances which I have given you, they are one-off and hopefully will not be repeating in future, and they are also one-offs which were not anticipated at all from the point of view we had anticipated increase in raw material prices, we didn't anticipate a reasonable increase in freight. But I think some of those things were not anticipated. If I was to build this in as well, we've actually lost, at the bare minimum, about INR 180 million in revenue. And that would have taken our revenue growth to mid-teens, which, in my opinion, is the intrinsic performance of our business and is indeed very good performance. So lastly, this is also signified by our performance of month -- June month between the quarter because some of these one-offs which we saw were in April and May, and barring the China episode which I told you, our June performance is better than the full quarter performance on all key parameters. So we've delivered a very good quarter, but more importantly, we've delivered a June month which is better than the consolidated quarter numbers, which you see. With that, let me share with you the financial highlights of the numbers as we have reported there. So revenue growth from operations is at 7.8%. As you can -- as you know, we've delivered INR 7,991 million in revenue, which is a 7.8% growth at the global level. And India stand-alone, I told you that number is a robust 17.3%. The pro forma revenue growth, as I told you, continues to be 12.8%. That number for India is actually a robust mid-20s number. So India operations have done very well. AMESA this time has again had a standout performance as a region. We've delivered about 29% growth there. EBITDA has come nearly equal to last year, so almost flat with a margin at about 18.1%, and margin expansion of 66 bps sequentially over quarter 4 of FY '21. Our PAT, actually, reported number on PAT, which you will see, is 30.4%. But apples-to-apples comparison here, when I tell you pro forma on revenue which is higher, I must also share with you that last year, we had a one-off where we had impaired our Russia -- some of the assets in Russia, if we take that into account, our PAT has come in at about 1.1% adjusted, again, nearly flat. So I think with this performance, with the cash which this business continues to generate, our net debt over EBITDA ratio continues to improve. That is at about 0.4x now, marginal improvement from even previous year's quarter 1 FY '21 despite the acquisition which we announced in quarter 4 of FY '21. So the acquisition which we announced and the borrowing which we did, despite that, the number over -- number is INR 2,457 million. It's marginally lower than the number a year ago. And more importantly, the ratio is at about 0.4x. Because of the capital efficiency and the prudent capital allocation which we are beginning to demonstrate quarter-on-quarter and year-on-year, our ROCE now is at 20.7%. So this is indeed are the highlights. If I was to move on the raw material prices and talk to you a bit about raw material prices. So raw material prices, in our opinion, continue to remain high. They are a bit volatile. So they have come down from their peaks, but they are still quite high. And just to share with you a few examples of a couple of polymers. So LLDPE, quarter -- while quarter 1 FY '22 year-on-year growth, which is compared to quarter 1 FY '21, is a 55% growth over last quarter. Even sequentially, when already -- we talked about this when our polymer prices have started going up and were going up very sharply, even sequentially LLDPE has grown at 16% over last quarter. So quarter 1 FY '22 versus quarter 4 FY '21. The same number for LME, the aluminum, is 61% year-on-year and 15% quarter-on-quarter. HDPE is very similar at 52% year-on-year growth and 8% -- even 8% growth quarter-on-quarter. So this is something which we will need to navigate through the year, and I'm glad that we've put together a very robust plan in the beginning of the year. And I'm happy to share with you the progress which has been made on this plan. The progress is indeed very heartening, and I will share with you against all the 3 things which we talked about. So the first and foremost thing which we talked about was judicious price increase. So here, as I was telling you earlier as well, 90% of the portfolio has been covered. We are ahead of our plan. All these price increases have been agreed. Some of them have flown in quarter 1, some more will flow in into quarter 2. And I think with the -- whenever these are contractual, these pass-throughs will continue, although with a lag. So I think that's the piece which is there. So very good progress on price increase, ahead of the plan, and that's why we've signaled it with a green traffic signal. The second important pillar to navigate a tough year like this is our Project Phoenix. And you've heard the management talk about Project Phoenix now for couple of quarter -- actually, 5 to 6 quarters year-on-year. So this is cost-saving initiatives and cost saving is becoming part of our DNA, and there couldn't have been a better time to actually go all out to be able to do more of this. So as I shared with you, we've got detailed projects, actually with very small projects to reasonably large projects, 350-plus projects that we are working on, clearly identified targets set, teams ready, clear accountability. So we are making very good progress on this piece. We are also making progress on multiyear Phoenix projects, which I told you. So particularly, I want to highlight here the in-house manufacturing of caps and closures. So we've started doing work on this. And this is something which we'll deliver towards latter part of this year, but more importantly, a lot into next year. And you will see us doing a lot in this area. So again, very, very strong progress on Phoenix and cost-saving initiatives. We are confident of delivering a number which is -- which we have not done in the past. It is a substantially higher number than what we had even thought of even in our planning and in our budget estimates. And that is important for a year like this because, as I was sharing with you, the raw material prices continue to remain high, and this is a challenge which we will need to navigate. Not only do we have a problem and not only do we have an issue with raw material prices, we now have challenges of cost going up on other fronts, whether it's freight and secondary packaging. So I think our cost-saving initiatives are going to be very important. Lastly, our mix improvement is on plan. You will see some of the numbers across regions where Personal Care portfolio is holding or the growth has not been that high. I want to once again highlight to you that we know subcategory growth within these, which are very heartening. We know that in the quarter 1 of last year, there is a hand sanitization pipeline sitting across geographies. And that's why the progress which we've made on some of these as well is on target, and that's how we are talking about this. So judicious price increases ahead of plan, a clear [ green ] productivity initiatives and cost-saving initiative, Project Phoenix, ahead of plan and mix improvement on plan. This -- and therefore, I'm not surprised and I'm happy to report to you that we've delivered sequential margin expansion of 66 bps which you will find many organizations finding very hard to deliver under these circumstances. And with our holistic margin improvement plan, we are very confident that we will continue to deliver sequential margin expansion quarter-on-quarter through FY '22. Continued focus on capital efficiency. Basically, our CapEx is always been prudent. But just to share with you the number for quarter 1 FY '22, the CapEx stands at INR 531 million. I think we will continue to judiciously spend capital wherever it is needed for growth, wherever it is needed for innovation, wherever it is needed for us to pivot to sustainability, and that we will continue to see. And we talked about the point on reduction in net debt, and I think that's very heartening again. So if you look at -- despite INR 1,675 million of cash proceeds pegged to Creative acquisition, we've managed -- our Q1 FY '22 net debt is at INR 2.457 billion or INR 2,457 million, already lower than the FY '21. And therefore, this is something which we are -- which is the cash engine which we have in the organization will continue to deliver. And our ROCE has improved at 20.7%. We've made consistent progress across all our identified levers, and I am not deciding to go into each one of them for -- to keep this brief and to be able to answer your questions as we go forward. But I do want to talk about sustainability because sustainability is a very, very critical lever and something which we've made very good progress. So here, I want to talk to you about 3 key points. First of all, you may have picked up in the media or otherwise that we are now forming sustainability partnerships with our key customers. We talked about it, about 2 of our global customers, and you will hear from us about other global customers and large Indian players or Chinese players or even big local customers. And that perfectly segues into one innovation which we've done with an important local customer in Europe and -- on a category where I'm delighted that I'm sharing with you. This is our Platina success story on a brand called Hela in Europe. So first and foremost, it's a food brand. So I think that's the fact that we've been able to deliver a sustainable solution for a food brand, I'm delighted. Secondly, as you know, ketchup is not an easy product to handle. You need to have -- so the customer was very clear that they require -- they need a requirement of sustainability. But at the same time, we were aware and the customer was aware that they needed very high oxygen barrier. We were packing a food material, and top of that, ketchup here, which you know is not an easy material to handle. And what I'm delighted to share with you is our innovation team, our sales team in Europe and all our business development teams have done an outstanding job to come together and to be able to deliver EPL's Platina Pro solution, which allows Hela to pack challenging material like ketchup in a safe and odorless way. It gives them the barrier which is needed. This technical breakthrough will open up many new things as we go forward. So our confidence of continuing to build our competitive advantage on sustainability is growing with every quarter, with every month. And this also I want to share with you that we will, this year alone in FY '22, and I still believe journey has just begun, we will be delivering on our sustainable portfolio almost a 4x just over previous months -- previous period, FY '21. And in FY '21, we just started. But in FY '22, where I still believe that the journey has just started, but our volumes on sustainable portfolio will be at least 4x as we go forward. We continue to be socially responsible and our journey on ESG as we begun. And the work which we are doing on corporate social responsibility is heartening, and we will -- you will see more of this being done. We are fully conscious of our responsibility in COVID times. And in this period, again, we've partnered with Akshaya Patra to be able to give family happiness kits. These are -- this is dry ration to families in and around our plants where we operate. With that, let me sign off with the key messages and once again for FY '22 and on quarter 1. So first and foremost, we continue to remain committed to deliver double-digit revenue growth and for the second consecutive year and year after year from now. Our pipeline has become robust. The quarter 1 FY '22 pipeline growth has been better than any quarter 1 or any quarter growth in the past which we've seen. So with very strong wins, particularly in Beauty & Cosmetics, with some of the global majors which we see here. So our pipeline continues to strengthen, continues to give us the confidence that our volumes will grow, and we will deliver double-digit revenue growth in FY '22. Our quarter-on-quarter improvement on EBITDA margin, I spoke about a lot on this, but just to reiterate that we stay committed to on this journey. 9% of the portfolio already covered for price increase, ahead of our plan. And I think we need all of this and more because I think the challenges on the raw material front and now on freight front are equally strong. Cost [ reduction ], the initiatives we talked about, the projects which have been agreed. And I think mix improvement journey, you will see an impact of this moving forward in quarter 2, quarter 3, even more, I think, has strongly begun. Sustainability, I believe, is a key driver for our business, and we continue to lead the way in the industry here. I just talked to you about the partnerships. I talked to you about innovation on Hela. And I spoke to you about how we are talking about multiples of growth when it comes to volume [ on ] sustainability. We are confident of delivering at least 4x in this year. With all of this, we are very confident and committed to delivering market-leading revenue growth, which is double-digit growth as we've defined, and we will continue to do this in capital-efficient, consistent way. One thing I do want to share with you, which I'm sure many other leaders may have, severe COVID wave 3 and the volatility of raw material prices and the continued freight prices remain a concern. Having said that, at EPL, we are confident of navigating it. We have done it very successfully in quarter 1, and we are confident of maintaining this rhythm as we go through this year. So this is unprecedented times. It's a tough year. COVID has not gone away, along with it, has come few challenges on raw material inflation, freight inflation, supply [ security ]. But we are confident as a company to be able to navigate this well. And with that, I want to thank you all for patiently listening to me, and we are open -- me and my team are now open to questions. Thank you once again, and we'll be happy to take the questions.

[Operator Instructions] The first question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Congratulations on a very good set of numbers in very, very trying environment. Sir, 2 or 3 questions there. One is, I was a little puzzled by the change in mix in Europe in favor of oral and against some of the higher-margin cosmetics and beauty products. And I was also a little worried about the U.S., where I would have expected to see stronger growth considering most of the U.S. did open up during the quarter under review. So that's one question. And second is, you guys have done a marvelous job on sustainability, and I really applaud all the effort you guys have put in. But could you also help us understand how does -- these partnerships on sustainability, how do they feed through to long-term profitability? I mean do the R&D and material costs offset whatever higher realizations are there? Or is there a meaningful contribution difference on the sustainability products? It would be great if I could get your comments on these.

Thank you. Thanks, Ashwini, and thank you for being generous with [ the obvious ] thing. We are very happy with the performance. So let me first share with you the thing on Europe. So 2 things are happening here. You will see these as we go forward. First thing which is happening in Europe is if you remember last time I had said that we won an oral contract with a global major, which is the contract which has started from April onwards. So in a way, we are happy about that because we have -- that allows us to balance our portfolio better, and we now have 2 large global oral majors whom we work with in Europe, so this -- with this, the new addition. So that is one thing which is happening and which you are seeing this in this quarter. But the reason it's got a bit accentuated, and you are absolutely right that you were surprised to see Beauty & Cosmetics coming down a little bit, on further 2 counts, I think in the base, in Personal Care, what is sitting is -- when we say Personal Care in our context, as you all know now, it is Beauty & Cosmetics, Pharma and everything else, actually, everything outside of Oral Care. So I think last year, Europe has taken a lot of lead in hand sanitization as well. So therefore, there is a lot of hand sanitization sitting here in the base. So I think that's one other thing. The second thing is that the -- our Russia manufacturing operations were also largely everything outside of oral. So I think that operations we've discontinued. We believe in the long term, that's the right decision we've taken, and we will see margin impact of it in the long term as we go forward. So I think that has also come into play here. So that explains Europe. I think as the year progresses, you will begin to see Beauty & Cosmetics coming in again into Europe. I think there has been some -- so therefore that demand picking up. You will also see some of the new contract which we have won in Europe also playing out towards definitely the second half of the year, and that will start -- begin. And fortunately, we've won -- a lot of our new wins are in Beauty & Cosmetics with 2 of the global majors. So I think that's the Europe piece. That also -- on the U.S., see, what we are seeing is Americas here. So I think -- and let me break this down into 3. I think, one, if you look at Colombia, there's a big setback. It was off not being able to do almost for 1 full month there. Our Colombia portfolio incidentally is also very strongly skewed towards Beauty & Cosmetics. So I think that has 2 impacts, not only that we're not able to sell, but we weren't able to sell what would have been stronger from the Personal Care point of view. I'm happy to share that Mexico growth are good. Mexico is doing really well, which is part of the numbers which are here. And U.S., you are absolutely right, is coming back. And I think you will begin to see a lot of those in this quarter and quarter onwards. So I think even last quarter, we delivered about an overall growth in Americas of about 9%. But I think this will continue to gain in momentum as we go forward because the macros in U.S. are strong. And I think some of this impact, particularly with the summer this time, some of the travel now coming back, which we saw only towards the end of the quarter, I think, will begin to take shape. So that's on Americas. And I think your point on U.S. macro is absolutely right, we are equally bullish. We are actually, as a matter of fact, installing additional machinery to be able to cater to that demand. And I -- so therefore -- so U.S. remains strong, and you will see that as we go forward. And I think Europe, I spoke to you. On sustainability, very quickly, I think the way I will address this is sustainability will give us competitive advantage and continues to give us competitive advantage. Now one of the things which comes with -- and I just mentioned to you in context of Europe that we won 2 contracts in Beauty & Cosmetics with 2 global majors. And I think one of the key drivers there has been sustainability. So I think sustainability, therefore, will continue to improve our share of wallet, will allow us to continue to upsell to our existing oral customers. And to that extent, when we get that Beauty & Cosmetics on sustainability and get that from some of our competitors, I think that is going to improve the margin and mix. And in certain cases, I've always maintained, we will get a pricing advantage. We are not likely to get pricing premium on every case. But I think we will definitely gain share of wallet, we will gain additional categories or upselling, as I'm saying, and in some cases, premium. Thank you.

I had one small follow-up question there. So for example, the Colombia plant being shut down was probably unanticipated by you. But a lot of your products, your end products are essentials in many sense. Do your contracts incorporate a failure-to-supply penalty? How do you deal with that? Did you airlift materials from other geographies? Did that have any bearing on your margins for the quarter?

So I will briefly answer this, and I'll leave -- I'll ask Ram to comment on it also in some more detail for you. But I think this was a 1-month disruption. So I think we have -- we've been able to carry forward some of it into -- we will deliver in June and thereafter. But overall supply disruption, your question on being sort of airlifting some raw materials to be able to make in some one place versus the other is something which we have to now anticipate and we are beginning to do. But on the contract front and a little bit more detail, let me pass it on to Ram. Ram, over to you.

Colombia, primarily, entire country is closed, right? It's not only we are closed. So that way the demand of -- has not gone away. The demand -- in the course of time, everybody's supply chain is stressed. So everybody is building up like we're building up. So going forward, those will see a larger portion of it recovering in the coming months. So that will happen. But there are disruptions in raw material supplies because of 1 month entire supply chain was disrupted that we are trying to see to airlift materials because most of those material goes from China to there or India to there. So we are trying to export those materials. Mostly, Colombia is a retail business and more so in Beauty & Cosmetics and Pharma. Oral care is a very small market there. So those products will bounce back.

[Operator Instructions] The next question is from the line of Sanjesh Jain from ICICI Securities.

Couple of questions from my side. First on the volume growth, considering that we had such a sharp inflation in the raw material, and our revenue growth of 7.8% if we adjust for the Creative acquisition probably is lower. How has been the volume trajectory for us? It looks like it has significantly declined for us. And when we talk about a double-digit revenue growth and where the inflation for the raw material on a Y-o-Y basis for all of them is upwards of 50%, it looks like the situation may not normalize sooner and it will be more gradual. That means for the full year, we are again looking at a significant decline in the volume for the EPL. How should we think about volume growth for the EPL in FY '22 and for the Q1, particularly? That's my first question. I will ask the follow-up question [ post that ].

Yes. So let me share with you on the volume piece. So I think the assumption that volume trajectory is -- or volume is declining is incorrect. As a matter of fact, we have seen one of the most robust volume growth in quarter 1, and we continue to remain committed to a strong volume growth through the year. So the reason we're seeing a 7.8% value growth, and you are assuming there is price in it, which is absolute current assumption -- correct assumption, but the volume is -- it's not that volume is not there because in our case, there is also a play of mix. And just to explain to you, if you look at my comparable quarter last year, I think that quarter had very -- had lower oral because India was shut down for almost 1.5 months, all of April, for sure. Travel tubes were very adversely affected in Europe and U.S., which are beginning to come back now. So for -- and we compensated a lot of that through the opening up of hand sanitization tubes and a sharp V-shaped recovery in China, where the China recovery also had a lot of Personal Care built in into it. So I think this quarter now, as you see, one, my pipeline has gone. That's why I'm trying to tell you that. So therefore, there is an adverse mix impact. So I think between my pricing and mix, there is a play. We don't, unfortunately, share these numbers, and therefore, I will not be able to share exact numbers with you. But I can tell you, and I'm telling you with confidence with our numbers, our volume growth in quarter 1 is better than in many quarters we've seen and our volume growth in FY '22 will be one of the best volume growth we've seen in many years. So I would allay that fear of you or yours totally. And that volume growth gives us the confidence that we will deliver strong double-digit growth in FY '22.

Fair enough. Now this Russia impact, previously when we spoke about it, we said that we will be able to [ lease ] those supplies through the other manufacturing plants in Europe. Where are we in the plan? Are we setting up the supply chain and hence, we are looking at an adjusted growth rate for Russia? And how much time you would see before reaching the previous levels of supply in Russia?

This is a good question. So let me try and explain the Russia. And I think we talked about it briefly in one of our earlier calls, but let me spend a couple of minutes because that's important. See, when we looked at our portfolio, and we keep doing this from time to time, our plants and our portfolio and particularly Europe in our journey of improvement of margin, one of the things which we realized that rationalization of manufacturing and basically shutting down manufacturing operations in Russia is going to be long-term beneficial to us from the margin point of view. So I think that is something which we stay committed, and you will see that impact coming in in this year itself and fullness of time. I think in terms of being able to supply to the key customers, I think we are going to look at them as long-term strategic customers, where we are building up additional capacity in our Poland plant, and you will see basically us being able to service those. And then there were some tactical customers, where we will decide whether we service them out of Poland, does it make sense for them or we do not service them. I think those are the calls which we will take as we go forward, depending on how we want to margin-maximize our geography. Because one thing you are aware we stay committed to in the medium term is to drive up the margin and the profitability of Europe business. So I think -- so that's how -- so to answer your question, are we gearing up to supply to strategic places and do we have plans in place? Yes. And then there are a few customers with whom we have the pipeline discussion as well as following this. Some of the people whom we already had, are we be able to supply from there? The answer is yes. But are we rationalizing our operations in Russia? The answer is yes. That's why we have shut down our manufacturing plant there. So I think -- so therefore -- and that impact in this quarter is significant for us to call out. I think as it goes forward, I think this will be an impact which may not be that significant.

Got it. Just one last question, more of a...

I'm sorry to interrupt you, Mr. Jain. May I request you to please rejoin the queue? We have participants waiting for their turn.

Fair enough.

The next question is from the line of Sameer Gupta from IIFL.

Sir, I have 2 questions, and I'll probably ask them together just in case there is some interlinkage. So first, on the AMESA portion, even adjusted for acquisition, I look at the revenue run rate in absolute million rupees is still better than 4Q. Now in a COVID-impacted quarter, India, we know that May was a lot impacted here. So what exactly is driving such a good top line performance in India or AMESA? And in U.S., our EBIT margin has seen a very sharp decline. And I understand that there is a lower Personal Care contribution and one of the customers is moving production from Colombia to Asia. So is that the only thing? Or is there something else in this margin decline? And also this Colombia to Asia movement, are we servicing that customer from Asia?

Yes. So let me take up both the questions. First -- Sameer, first, thank you for highlighting our India top line performance. Deepak is sitting with me. You are also complimenting him and his team. I can see him smiling as you shared that comment. So thank you. I think indeed, we've done very well. I think the reason you see this is something which we've been talking to you for a couple of quarters now. I think a lot of the work which we have done in last year in FY '21, and of course, it's continuing, but the work which we've done in last year in AMESA, I think is highly commendable on particularly opening up of pharma. So I think there is a lot of growth which you will continue to see with our addition of Pharma customers. Opening up of entirely or building a new category, I think, which is very interesting, a local innovation where we are converting a lot of mehndi cones into tubes. I think just to give you one illustration of that, but working with flair. I think India team, along with our China team to be fair, but India team working with a lot of start-ups with very, very strong responsive time, with what we call new emerging brands. So I think it is share of wallet gain, it is competitive gain. And I think you are now beginning to see those results, you saw a robust performance in quarter 4. And relatively -- both these quarters, the competitors have been weak, so the numbers look very, very strong. But I think relatively speaking compared to other companies and others, I think our performance was very good. It was true for quarter 4. It is true for quarter 1 of FY '22. And I'm confident that in the year of FY '22 and then moving forward, AMESA would have turned a new leaf, and I think you will see AMESA delivering strong growth as we go forward. So a lot of competitive gains, a lot of share of wallet gains. Some sustainability gains here as well, which you will see and therefore, our sustainability portfolio coming into play, and we will talk about it. On the EBIT margins in U.S., I think in U.S., the -- some of the challenges continue to remain, and I must be absolutely upfront with you, particularly in U.S. I think the challenges which we've spoken about earlier, so very briefly touching upon them again, I think our ability to get people into the factories, ability to get them to continue to work when we hire them, continue to retain them, especially at the starting level. And so I think that's where we have the challenge. Because of the very peculiar circumstance in U.S. at the moment, you are aware it is not true only for us, it is true for many companies. I think with the current program of the U.S. government and I think the help which we are getting from the U.S. government, there is a huge pressure on industry in terms of manpower. But what we are all confident of is, I believe this is going to last and will build sort of -- anniversary out in September, I think -- so which is just a couple of months from now. And hopefully, that will bring back people back into factories, back into workplaces. And I think with the vaccination drive which U.S. has taken, that will make it further -- will make it even better. So I think the point I'm making is that U.S., what you are seeing is, again, I would request, somewhat one-offs because these are costs which we are incurring disproportionately higher because of COVID in this particular geography. And I think as you will see in quarter 2 of this year and from there onwards, I think we will build on these EBIT margins and build them back very quickly to where U.S. used to be. So I think -- so therefore, I wouldn't worry about U.S. margins at all.

The next question is from the line of Trilok from Aditya Birla Life Insurance.

I just wanted to kind of get some more of some clarity on European operations. So we understand, obviously, the Russia plant is -- has been shut down by the company. But couldn't you sort of supply it from other plants? I mean I'm just curious to understand more in detail why would -- why should a plant decision have an operational impact on the business [indiscernible]?

Yes. So I explained, Trilok, to, I think, one of your colleagues earlier, Sanjay (sic) [ Sanjesh ], I think in that context. See, Europe operations and the Russia decision has both immediate-term and a medium-term implication for us. So I think in the medium term, I think the reason we've looked at that operation is because that was not, from a margin perspective, long-term viable for us. We were -- and we stay committed to improving Europe margins in the medium term and taking them to high teens. I think in that context, we have taken that decision. And I think my definition, when we've shut down the plant there, we are rationalizing our Russian business. So the -- where we need to supply, we will supply. Where we need to perhaps supply and build maybe even pipeline for the future, we will do that. We are building capacity, as I told you in that earlier one, in Poland. But I think we do have a near term or an immediate-term impact, and that's what we've highlighted here.

Now is it fair to conclude that the reported number in European region is primarily because of that particular plant?

Yes. So I think it's fair to assume 2 things in case of Europe, and I said that, and I want to reiterate. I think one is because of Russia, which is basically you're absolutely right. And I think the second is also, like many other geographies, but even in Europe and maybe Europe a little bit more than other geographies, our hand sanitization category building work which was done was brilliant last year. So I think, therefore, that is also in the base. And I think because of that pipeline also, there is an impact which you have seen in this quarter. But I think moving ahead, you will basically -- so these 2 will begin to come down and you will see European numbers continuing to grow. Because what I'm confident of is that in Europe as well, and I spoke about it, I think, in my opening remarks, we have won Beauty & Cosmetics orders with 2 global majors. Now these will start, I think, playing out -- they will play out towards second half of this year. So I think that impact will also begin to come in. And I think we will continue to gain more and more competitively, both share of wallet with existing customers and also new customers. So that work will happen. And then therefore, from a share of wallet perspective and our competitive position in the market, we are very satisfied with where we are in Europe.

The next question is from the line of Sumant Kumar from Motilal Oswal.

Can you talk about the Creative Stylo performance? And it is, I think, in AMESA. So can you segregate the -- ex the Creative Stylo [indiscernible] AMESA?

So I think, one, broadly on the Creative performance, we are very happy with the progress which we made in the first full quarter of our -- of the acquisition. I think we've seen very robust growth in Creative, and I'm here talking Creative growth quarter-on-quarter. So very robust top line growth, strong EBITDA growth. I think the -- and the work done by the Creative team along with our team in AMESA on pricing is again commendable. So I think both -- on both sides of their portfolio, the plastic portfolio and laminate portfolio, they have made very good progress. I think on the AMESA number, we -- you have the numbers here. The AMESA growth is 28.5% with Creative. And I think if I was to look at organic comparable growth, that number will be in very high teens. So I think it's a high teens growth without -- so on a comparable basis, we have to look at organic without Creative. So I think that's the way it is. And overall creative performance is good. Their growth are far superior to the growth which you are seeing for the AMESA region. So as we said, revenue growth accretive, their EBITDA growth are far superior, their margins are superior. So from the hypothesis which we went in with on growth -- revenue growth accretive, EBITDA growth accretive and margin accretive, I think this acquisition is playing out to our plan, integration is progressing very well, and we will be -- you will hear more from us on this as we go forward.

And the client moved from the Colombia to Asia, so will we get the business in Asia from that client?

Can you repeat the question? I lost the question. Can you just say the question again?

The client moved from the Colombia to Asia, so will we get the business from this client in Asia immediately?

Yes. We keep looking at it. We don't comment on individual clients. But yes, you are absolutely right. I think between our EAP business and this, so I think -- there are places where -- when these businesses move, our other regions clearly benefit.

The next question is from the line of Punit Kumar from Reliable.

Mr. Sudhanshu, you were very enthusiastic and energetic in terms of presentation and so are the numbers of profitability, et cetera, which gives us a lot of confidence in EPL. That's point number one. I have a small question that our return on net worth TTM 12 months would be 12.5, which is very -- not very happy to [ be around ]. That's one. Number two, if you see maybe 12 quarters have been jumping up or going up. And India continues to be high cost country in terms of [ capital ]. I would like to bring your attention to that. Whatever you want to reply, I'm feel very happy investing in EPL.

Thank you so much. Thank you for your confidence in EPL. I think I just wanted to share with you that as a consolidated -- as EPL global and at consolidated level, we continue to evaluate our cost of capital. And I think you know, Amit. Amit is sitting here. He manages our price relatively really well. So I think we continue to look at how do we manage the cost of capital at which we borrow, how do we borrow and how do we maximize some of these things as we go forward. I can assure you as a concept that this is -- the rate of interest at which we borrow from across the world, what is the weighted average interest for our this thing, how are we utilizing our capital in different geographies and how are we optimizing it and maximizing it as we go forward is top of our agenda. Unfortunately, I didn't follow through the numbers you spoke about and maybe we can take them offline and -- so that you know our finance team can understand better from you. But I can tell you, capital efficiency and consistent capital efficiency is at the heart at what we do. And I can assure you that our team is doing a very good job on this. So I think we can -- you can perhaps take it offline with our finance team. And thank you once again in your confidence in EPL. It's a great company. It will continue to grow and go from one [ milestone ] to the other. So therefore, continue to grow as we go forward. Thank you.

The next question is from the line of [ Siddharth Kanodia ] from Ratnamani Securities.

Sir, I have a couple of questions. First, sir, how many days of raw material inventory do we maintain?

So Parag, would you address that, our number of days of inventory which we maintain?

So the ideal inventory would be in the region of about 45 to 50 days. These are difficult times in terms of the supply chain disruptions that we are seeing. So we would build a bit of safety stock there until these challenges and supply disruptions are -- completely abate.

Okay. Okay. And the second question will be, what will be our utilization levels?

So we do not give out utilization levels. Suffice to say that we have always invested and we'll continue to invest CapEx for the growth of the business. We've said this many times that you will see CapEx expenditures grow in time, but we do this in a prudent fashion. So again, to repeat, we don't need to build greenfield plants, and we are able to grow our business with adequate cash flow for CapEx.

The next question is from the line of [ Shivaji Mehta ], an individual investor.

I had just one question. This is regarding the recent acquisition of Piramal Glass by Blackstone. Now that Piramal Glass is a part of the portfolio company of Blackstone, is there any synergies that we could get from this? Just if you could share some thoughts on that.

So we are -- you're talking to the EPL management, maybe the audience, maybe the people whom you sort of -- so I think Blackstone invests in different companies from time to time. We always explore wherever there are synergies. I think in case of Piramal Glass, it is very early for me to comment. But conceptually, we always explore synergies wherever we can. And I think at an appropriate moment, if we have something more to share with you, we will. Thank you.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you, Rutuja. Thank you, ladies and gentlemen, on the call. Thank you once again for your energy and your enthusiasm and your confidence in EPL. And I want to share with you that we've begun FY '22 very well. In an extremely tough time with some unprecedented supply security and supply chain issues, we've done very well. We, along with the management, are confident of [ sharing ] this and navigating it really well as we go forward. EPL is a great company. On a personal level, I want to thank all of you for your support for this organization. I also want to tell you that I'm moving on for personal reasons. I have enjoyed the 17, 18 months which I've had with this organization. They've been short, but they have been very, very enriching, challenging and enjoyable personally for me. Thank you for your support to the organization. Thank you for your support to me, and thank you for all your good wishes. Thank you so much. Thank you. Bye-bye.

Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.