EPL Limited (500135) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the EPL Limited Q2 FY '22 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix Institutional Equities. Thank you, and over to you, sir.

Yes. Thanks, Faizan. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged in to this conference call of EPL to discuss the second quarter and half yearly results. From the management team, we have Mr. Anand Kripalu, Managing Director and CEO; Mr. M. R. Ramasamy, Chief Operating Officer; Mr. Parag Shah, our CFO; Mr. Amit Jain, Senior Vice President, Corporate Finance; Mr. Suresh Savaliya, our Senior Vice President, Legal and Company Secretary; and Mr. Deepak Ganjoo, our President, AMESA Region. On behalf of Systematix, I would like to first thank the management for giving us the opportunity to host this conference call. I would like to request Anand to kindly start the call by giving his opening remarks. Thank you, and over to you, sir.

Thank you very much, and hello, everybody, and good evening, and a very warm welcome to this call. I'm Anand Kripalu, and I must say it's a pleasure to connect with each of you today for the first time after moving into the role of Managing Director of EPL, after nearly 8 years at USL or United Spirits. Looking at the quarter under review, which is Q2, we believe we have delivered solid competitive revenue growth at plus 12.8%. On a like-for-like comparable basis, that growth is plus 10%. In the half, we have also delivered double-digit growth at 10.3%. What's good is that this growth is broad-based across regions and across categories. Specifically on the regions, our revenue growth in AMESA was plus 18.3%. In East Asia Pacific, it was plus 11.9%. And in the Americas, it was plus 21.6%. As you may have seen from the deck that we have shared, Europe was challenged due to a temporary decline, and we believe it's a temporary decline in the Personal Care category. Importantly, there was no wallet share loss in Europe. And incidentally, we grew sequentially our revenue by 5.5%. So there is a relative improvement in our Europe performance. As far as categories is concerned, Oral Care grew by 10%; and Personal Care, in line with our strategy, grew at a faster plus 14.2%. As far as input costs are concerned, the quarter saw continuing hardening of commodities, and not just commodities but also freight and packaging. Like many other companies, we are experiencing unprecedented inflation, and not just inflation but also levels of volatility, right? And the latter, which is volatility also adds to unpredictability. Despite all of this, through a combination of pricing and a tight control of discretionary costs, we have delivered a sequential EBITDA margin expansion of 20 basis points to record 18.3% margin. In the quarter, our net profit declined by 24.3%, which also included a onetime write-down of assets of INR 59 million or INR 5.9 crore by an associate company. Net of this and other one-offs, PAT was down 12.3%. So that was the quarter under review. Looking ahead, I just want to underscore the fact that growth is our priority. And we will keep our foot on the accelerator of growth, of course, with the right balance on margins. However, inflation and volatility of input costs across the board continues unabated. So we are mounting renewed efforts to get judicious pricing from our customers and also drive further cost mitigations. Given not just the pricing challenges of commodities but also challenges on availability, as a business, we are prioritizing supplies or service above costs to ensure that we are able to deliver the service levels that our customers expect from us. While doing that, we are also doubling our efforts on cost savings and savings that will have medium- to long-term impact on our cost base itself. Firstly, we are continuing the focus on Project Phoenix. I believe this has been shared with you in the past, which is a very comprehensive internal management-driven cost savings program, which has delivered over several years now. In addition to that, we are accelerating investments to drive in-sourcing of caps and closures, which will help us to mitigate costs and improve margins. As a company, we have always prided ourselves in being super cost efficient and being really tight on costs. Having said that, we said it's worth relooking at our cost with an outside-in benchmarking exercise, so bringing a fresh pair of eyes to look at those costs. And we are looking at every single cost end-to-end to explore even further opportunities. Our vision is to make EPL the most sustainable packaging company in the world. We see this as a source of sustainable competitive advantage as companies around the world and importantly, most of our customers notify and pursue their ESG goals for 2030. Therefore, we are particularly delighted to have partnered with Colgate, one of our critical customers, to launch tubes with our 100% recyclable Platina laminate. We are also encouraged by the engagement from customers around the world for the supply of this Platina laminate. Net-net, we are confident on driving strong top line growth based on our innovation pipeline and continuing wallet share gains. The commodity headwinds, and I must underscore the fact that this is not unique to us, in terms of inflation and volatility, it's likely to continue. In this challenging environment, we are doing what it takes to securitize supply so that we can deliver the right service levels to our customers. There also exists a phase lag between cost and pricing for contracted customers, and this could have some shorter-term impact. Overall, we remain focused on growing the business by double digits on revenue with capital-efficient, consistent earnings growth. So with that, we're going to open up the line for your questions.

[Operator Instructions] The first question is from the line of Sameer Gupta from IIFL.

Great to hear Mr. Anand's voice again. Sir, first question is on margins and specifically on Europe. So here, EBIT margin now has come at 4%. And the question also pertains to some of the events that have happened in the previous quarter. So I believe you discontinued operations in Russia. The understanding was that it probably was a higher-cost manufacturing and hence, discontinued. So now we are looking at a lower margin, lower sales. So what exactly was the reason for discontinuing operations there in the first place? And how long in your view would you take to restore the margins in Europe back to the 8% levels, assuming that inflation is where it is today?

So I'll give the answer to your question, and then I'll ask my colleagues to chip in as appropriate. So first and foremost, in business, you have to constantly evaluate your portfolio of products and offers and geographies and markets that you service, right? And active portfolio management is a very important part of strategy. Therefore, the evaluation of Russia as a market which we believed was not going to be accretive to the ambitions of this business, right, that was evaluated by the team. And therefore, the decision was taken to exit that market. Now as far as margins in Europe are concerned, I just want to underscore the fact that this is a priority for the management team, right? And we are doing what it takes to enhance our margins in Europe. The team has developed and is pursuing an active margin improvement plan, which we're obviously going to keep track off. Now I don't think we're in a position to tell you by when the margins will be restored to the levels that you indicated because there are multiple levers at this point in time that I've already spoken about, right? Multiple headwinds that businesses like ours are facing, right? But suffice to say that is the priority for the business, right? And our attempt will be to restore these margins to levels that are acceptable to us, right, in the quickest possible time. Ram, do you want to add something on Europe beyond that?

See, some of the product segments like Personal Care in Europe is muted for many people, to us also. But that is temporary because of COVID, COVID-related issues and travel-related issues. But we are hopeful in the near future, it should restore back to a normal level. When it restore back to the normal, we will see a leverage on EBIT, too. Does it answer?

Sir, just one follow-up. I'm sorry to dwell on this more. But -- so can you just elaborate a little more as to what exactly were the reasons for discontinuing operations in Russia? Was it a product category which you thought is not going to grow? Or I don't know.

No, no, no. Not that. We were in Russia for a very longer period of time. We were looking at larger contracts. Larger contracts are not available because many of the inventories are moved to manufacturing out of Russia, they start supplying from China and things like that. So that was one of the reasons, that in the near future that we were not looking at many big opportunities were [ around it ]. Second -- that was one reason. The second, because we were traditionally dealt with a core contract for retail customers, retail customers were fluctuating based on a COVID demand and things like that. As Anand said, it is a call for a time being. We could -- we are still trading out of Europe or other locations to Russia. When the volume grows up, we could reverse that decision and go back to Russia. That's not an issue.

Got it, sir. That is very clear. And second question, if I may. So you've always maintained a guidance of modest improvement in margins, and I know these are times of unprecedented inflation as we have noted from other companies as well. But just to clarify, do we still have that guidance for FY '22, given 18.5% kind of a margin this quarter and FY '21 finished on 20%?

So we are not going to give specific guidance about short-term margin movements, okay? I tried to explain the scenario as it is, and it's a dynamic and evolving situation, right? Now there's little that management or indeed anybody can do when commodities inflate and fluctuate. The question is, what are we doing? We're driving growth much harder, right? And we're going to keep our foot on the accelerator of growth, right? And that's important, and we hope to continue to deliver the kind of top line growth that you are seeing, right? We want to do that. And we are doubling and tripling up everything that we can do to drive costs out of the business, all right? So that's the reality. And finally, we're having active conversations on further price increases with key customers, all right? So the contracted customers will happen in this normal rhythm, but for the rest of the customers as well. Beyond that, I think it is inappropriate to give any kind of guidance of what's going to happen in the next half, right? I think that is something that we would not like to comment on. But our longer-term or medium-term ambition, right, is exactly what you said, that [ space ], right, albeit given the road bumps or the immediate period that we're going through.

The next question is from the line of Sanjesh Jain from ICICI Securities.

First, on the revenue growth side, close to 13% growth, including inorganic, and 10% growth on an organic basis in a scenario where raw material costs have gone anywhere between 25% to 50%, which implies that there is a significant volume compression, which we have seen in the business. This is on the backdrop that we are coming out of the lockdown, the travel is booming, and we were anticipating a big offtake in the travel side of the category and the duty and cost metrics. Given all this background, it really looks an underwhelming number from the revenue growth perspective. So can you just help us understand what is happening on the volume side? And have you lost any meaningful market share in any of our geographies?

So first of all, I must tell you that the travel-related volumes have not really come back yet. But looking at the trend of travel, we have every confidence that it will come back and quite -- could come back quite fast, all right? But we'll have to wait and see as far as that is concerned. Now we don't really comment on volume growth, right? But what I can tell you is that there is -- of course, there is some amount of price, right? But it's not all price, right? There are other components that are contributing to the revenue growth as well. So I think that's what you should take away, the fact that, that is it. And I'm not sure what your benchmark is. But in our assessment, having seen reported numbers across industries, right, our assessment was that 12.8% growth with organic or like-for-like comparison of 10% was pretty much up there in terms of performance.

If I may add to Anand's point, Sanjesh, I'd draw your attention to the region-wise growth. AMESA is 18.4% growth. Americas is 21.6%, and EAP is 12%. You already heard the questions of the prior participant and our answer on Europe. So if you were to really look at it, it's a very strong growth in all the 3 regions. And it's not subdued growth. And I repeat, 18.4% in AMESA, 21.6% in Americas and 12% in EAP.

And your point on share, right, I can tell you quite categorically that wallet share is greater than or equal to what it was. It is not less than what it was, okay? That, I can tell you quite categorically. And then I can tell you categorically across our regions.

Got it. Got it. Second question is on the margin. Well, it will contain a couple of -- bundled into one. Our employee cost and other expenses continues to remain sticky, and the other expenses we quoted that increase was on account of COVID-related costs over time and all what we were seeing during the COVID, that was anticipated to come down with the lockdown. And number two, the mix change has always been a positive for us in terms of margin. Number three, now that you're telling that there's no market share count, so I will take margin at a face value, we expect to pass on the margin, and the margin compression is only 200 basis points. And that's the kind of compression we have seen in the EBITDA margin. But the other benefits which should have flown in the continuous effort on the cost side to bring that down, the benefit of mix change, all those are still missing adding to the benefit of Russia synergy, what we've spoken about in the last earning call. So all those things are still missing in the margin. So can you just help us understand what's happening on the cost side? And how should we read the margins from here on?

Yes. So Sanjesh, first of all, let me reiterate, in this environment, which I'm sure you acknowledge about the unprecedented inflation and volatility, our EBITDA margin has improved from 18.1% to 18.3%. So I'm just sort of reiterating the context of where we are. Secondly, to your point on expenses and other expenses, you've explained, and that still holds true that those expenses are largely on account of freight and packing. And as far as our employee costs are concerned, I'm not sure if you're aware, but there are labor shortages in America and to an extent, even in Europe. And therefore, the spend on employee cost does tend to be a little bit higher than the normal spend. Again, I think I don't want to go there and be any specific, but I know you have more information than I have, if you look at what's happening to EBITDA margins of players in packaging industry or my customers and look at how we have managed it environment that we are. So I think I would still say that we have done a very, very good job in this environment to grow our margins. Fine, it's 20 bps, but I think it's a great performance.

Got it. Got it. Got it. And just one last bit of data point, if you can provide. What is the CapEx spend we are looking for this year?

So we've always guided that if you look at a 3-, 4-year span and look at an average of that period, it would go back to the depreciation spend of around INR 240 crores, INR 250 crores. So we stand by that.

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

Mr. Kripalu, it was a pleasure speaking to such a focused, short and crisp presentation. And it was a wonderful performance during the precrisis period. But on a lighter note, you have inherited what you've left in terms of United Spirits' debt. The new MD there has [ thoughts ] in terms of some quarters -- in which quarter they'll reduce it. They are not [ comfortable ] feeling having that there. Any news on that? You're [ on the rare ] MNC which has got a huge debt.

So I'm not going to comment on that, honestly. I'm not going to comment on United specifically. So if you have questions on EPL, we'll be delighted to take those.

No, no, you have already answered that extraordinary write-off has resulted in lower PAT. The rest of it [indiscernible] as in top line growth is fantastic.

The next question is from the line of Chirag Maroo from Keynote Capital.

Yes. Sir, my first question is that, do you have any kind of...

Mr. Maroo, sorry to interrupt you, sir. The volume is very low. Please increase the volume of your device.

Am I audible now?

Yes.

Yes.

Yes. My first question is that I just want to understand what is your view regarding the company for the growth. Is it like similar to what Mr. Sudhanshu had? Or is it something different what you're trying to do?

What is my view of the company?

Growth.

Yes, for the growth.

What is my view of the company's growth?

Your view on company, how you're trying to grow the company, is it different from what Mr. Sudhanshu was trying to do? Or are you working on the same pathway?

No, no. I'm going to walk on the -- pretty much the same pathway, I would say, as a broad pathway, all right? But what I would like to do is to be maybe a bit more focused on a few things. One is, I think we really want to make sustainability the cornerstone of our business vision, ambition and our strategy, right? Because I believe that as I said in my opening comments, that sustainability will be the single biggest source of competitive advantage in serving the kinds of customers that we service in this industry, all right? So if we can help our customers achieve their goals, in turn, that's going to help our business. The second is, we are absolutely focused on driving top line growth. If anything, I would like to push the accelerator even harder, right? That may be easier said than done. But as an ambition, that's what we'd like to do. And that will in turn force a set of actions within our teams to go and look for more business and be more aggressive about wallet share gains. So broad contours of the strategy that was there, I don't think we'll change that, but I'd like to just be a little more focused and sharp about what we want to get out of that strategy.

Okay. Sir, my second question is on -- is it possible for you to give the data on what amount of revenue have we generated from replacement and how much have you generated from the newer demand?

How much from replacement and how much from newer demand? And by newer demand, you mean new business?

Yes, sir.

No, I don't think we would share. That's like telling you what percentage of our revenue is coming from innovation and how much of it is from continuing core business, right? That's what you're asking.

Yes, sir.

No, I don't think we're in a position to share that information.

I'd just like to add to Anand's point that our business pipeline continues to be very strong, and we are very much focused and confident of our double-digit growth.

Okay. Sir, last question. The earlier -- one of the earlier participants had a question related to the Europe geographical area margin level. And you have commented that you want to be in the acceptable, your margin levels for Europe. So can you just tell what is the acceptable level for you in Europe?

Right. So I think our EBITDA margins were 10.9% in Europe. And our objective is to get there to the mid-teens, get them to the mid-teens. And yes, our endeavor is also to do it as well as possible. But in these unprecedented times, it's difficult to put a time line to it, but our target would be mid-teens.

[Operator Instructions] The next question is from the line of [ Rikshab Dugar ] from CD Equisearch.

So my question is, I just want to understand what sort of pricing power do you people have with your Oral Care client.

Ram, do you want to take that? What kind of pricing power do we have with our Oral Care client?

In a difficult time, each one of the product managers are trying to add more value to the product, right, premium product. So we -- currently, what we do is we equip ourselves with best of the technologies that what we can have so that more and more premium products are introduced in the Oral Care, thereby, customer growth; thereby, our margin growth. That's a line of action that we have taken. When value is added, you have far better pricing point.

And if I can just add to what Ram has shared. So one is absolutely supporting premium innovation in Oral Care, where the customers get a higher revenue, right? And because we supply more value-added tubes, right, we get higher revenue. But apart from that, the core vanilla business of Oral Care, a very large part of it is contracted in terms of price increases, right? And that contracted means that when costs go up, right, within a certain rhythm, the price goes up, right? So the pricing power is not about appearing and negotiating every time for a very large part of our Oral Care business. So if you add that, which is our core vanilla business, to the icing on that cake, which is the innovation business, both put together, I think, gives us both pricing power and margin power to an extent because of the premium nature of the innovation that we are supporting.

Just let me add data to that. We grew by 16.5% in Oral Care in quarter 1 and 10% in quarter 2. That translates to 13% Oral Care growth in H1. And that 13% Oral Care growth has meant double-digit Oral Care growth in 3 regions out of 4 regions. So I think that speaks to our ability to grow our overall business.

Okay. So I just -- basically, I want to understand that your margins on a year-on-year basis have fallen slightly. So just can you give me a bit idea that what sort of resistance you are facing in passing on the price increases to your clients, Oral Care clients specifically?

So I'll share as much as is sensible to share. So first of all, our contracted volumes by design, and that has stayed in place for decades, right? There is a fair lag of a few months between the commodity is going up and us [ suffering ] those increased costs and us getting the price increase, all right? So that happens. Now apart from that, for the non-contracted volume, we got pricing, by the way, for all the cost increases that happened in the previous cost cycle. Now it so happens that in the recent months, costs are going up again, which means we have to go and again get price increases from customers. So it's not as if there's a resistance, but this is such a volatile environment that in the past, if you had a conversation on pricing once a year or once in 2 years with the customer, now you need to do it once a quarter or sometimes even twice a quarter. That's the difference, right? And that's the reality of the game we are playing, right? So it's not about resistance. It's about changing the agility with which we go and get price increases from customers.

Okay. So basically, sir, the contracted -- tenure of contracts with your clients are generally are long term or shorter term. Can you give a bit idea with that?

These are long-term contracts typically ranging from 3 to 5 years.

The major part with the major lines?

Oral contracts or oral customers tend to be all long term, and the period tends to be in the region of 3 to 5 years.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

I just had one simple question. You are just looking a little bit into Europe. Europe has been a challenge for the business a year, several years ago as well, and the margins in Europe used to be much poorer than the rest of the world. And this problem seems to have resurfaced again. And I'm just trying to figure out that are there any common threads compared to the challenges that the business used to face in the past and what you are witnessing right now. And connected to that is that in Europe, specifically, you won a very large oral contract in Germany from what I recall about 6 months ago. And I would have expected both growth and margins to see a lift from that. But that hasn't happened. And I'm a little puzzled as to why you say that cosmetics haven't grown in Europe, but the rest of the world seems to be okay. So I'm kind of confused. If you have any insights into why personal products or cosmetics haven't grown in the U.S. -- in the European region, that will be a great thing to understand.

Let's say, probably that we need to see this differently. If you look at last 5 or 6 quarters, it's about setting up an organization for a region, then leveraging the cost by growing volumes, okay? What we have seen in the last 4, 5 quarters is that quarter-on-quarter, we have shown improvements in Europe. That's why a specific focus on Europe that -- which you would have seen. What we are seeing in this quarter is very, very temporary related to current uncertainty because of COVID and travels, right? For many companies, the volumes have not grown because of first, personal products have not grown very much. But I think it's temporary. The setup for leveraging the volume is already there. We got the contracts, as you rightly say. We have won our large Oral Care contract. It's not one contract. No, we have 3 contracts in Europe. So it's, of course, now we're passing the difficult time. I'm sure this time will go away in the next 1 or 2 quarters, and we will see a continuing growth again.

Does it answer your question?

I mean, I'm just trying to understand that there is no structural challenge you face there in terms of the new contracts being at a significantly lower margin, and you need to work -- improve them over the next 2 or 3 years, and therefore, the margins in Europe can continue to be a drag in the medium term.

No, no, I -- we don't think so. See, most contracts are -- longer period of contracts may come out with appropriate margin for such a period of contract, but it will never be lower. It will be -- it's -- you have seen the last 4 quarters, let say, this quarter. This is the first quarter that we have some issue because of an uptick, but that has nothing to do with the contracts. Contract for margins are always tight.

So actually, just an obvious point, and I think you're probably aware, unlike the other regions, Europe region has about 65% of its revenue composition in Personal Care. What we all do, sort of agree and appreciate is that in COVID times, Personal Care are obviously more impacted than Oral Care. And therefore, it's the Personal Care business in Europe that has been impacted. And Europe has seen in recent times strong emergence of COVID once more. And we're also experiencing labor shortage even in Europe, which was so far confined to Americas. So therefore, clearly, in our view, and we are confident of what we say when we say this is a temporary setback in the Personal Care category.

And one I will underscore that if you look at Europe organically, without Russia, and the hand sanitizer explosion that happened in the early part of COVID, as you know and I'm sure you're experiencing that, everyone was hungry for hand sanitizers 6 months, 12 months ago. No one is using it today, right? Same thing has happened. So if we remove Russia and hand sanitizer from the base, Europe has actually grown by...

2.8%.

2.8% in revenue this quarter, all right?

And one last question I had, you've taken a promise to go into details as to the effort the company is making towards sustainable products and a partnership with Colgate. I know you don't comment on product-wise margin, but would it be fair to assume that these [indiscernible] at the margin should be here -- margins over a period of time? Or that's not a very clear-cut equation?

But there's a lot of background sound. So in your question on the -- whether the sustainable tubes will be margin accretive?

That's correct. That's my question.

So that will be like commenting on SKU-wise the profitability, honestly. So I don't think we would like to share level of information to that level of granularity, right? But what I can tell you is this, that driving innovation through sustainable offerings is like pushing water downhill. Every customer is hungry to do more and more and more, right? And as we can also securitize the right raw materials and everything else, this will drive wallet share, right, and will drive our top line growth, right, and drive our competitiveness. And that is something that's absolutely there.

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

Sir, I just had 2 questions. One is based on the recent uptick in the raw material prices again, have we taken the price increases already to ensure that the margins are protected from here on? And second is, could you just tell us what's the mix of contracted versus spot in terms of clients or revenues or [ as a split ] on 2021?

All right, 2 questions. So the -- on the second one, have we shared publicly the split of contracted volumes versus the rest? No. All right. So that unfortunately we can't say because I think that's the level of granularity beyond what we would like to make public. Now having said that, your point on have we taken enough pricing to cover the most recent inflation, this is a moving target, to be honest with you, all right? And like any moving target, the target is always a little ahead, all right? Because there are inflation that has happened that was unexpected 2 weeks ago also, which is on top of what happened in September and August before that, right? So the reality is because of volatility, right, the reality is we are always going to be a little bit behind. It is impossible to be ahead on pricing because you will understand that you can't go to customers for price increases before the cost is with you, right? That's not a conversation that they will encourage or entertain. It will always, by definition, be a little later after the cost is with you and you have the information to go ahead and tell them, hey, costs have gone up, now we need a price increase. So by definition, there is going to be some lag.

Okay. Understood. And lastly, when addressing to the previous participant question on Europe Personal Care, this COVID impact or the probability of COVID in coming and going in several regions will remain, I think so, for the foreseeable future. So how would -- how do you guys plan or kind of internal planning perspective from revenue as well as cost and EBITDA for region-wise? Because it is obviously all the more difficult for us to do it. I mean, how are you guys doing it is what I wanted to understand. Or is there anything that you guys can -- I mean, because of wave 2 versus wave 3 versus wave 1, the learnings and implications are very, very different, right? So any comments on that will be helpful.

So you guys are focusing more on Europe that I think there is [ war ] on this call. See, in any business, right, at least 40 years of experience that I have, you will have a portfolio of countries or a portfolio of states or a portfolio of brands. There will always be some that are better and some that are worst, all right? That's the reality of the business, right? I haven't yet seen a business where everything is perfect and everything is going at the same rate. Now the reality is that Europe has had its own unique problem because of which there has been this impact, right? The structure of business, the fact that it's more of a Personal Care business for us, and the fact that this category has been impacted because, well, by definition, these are categories that people who go out, right, consume. But at the end of the day, we need to obviously get Europe right, and I've emphasized and underscored that already. But nobody wants to understand why the other regions have grown so fast on this call, right? And that's interesting because we can always focus on one smaller part of the business that has had some challenge rather than we focus on the positives and the wins. And you just have to recognize that we are all playing a portfolio game here. That, I spoke about the importance of portfolio management in the Russia conversation as well, and that's the situation here, right? And just so I can underscore, Europe contributes less than 1/10 of our business, right? But today, the share of [ voice ] has been [ 50% ] of the call, right? And also less than 10% of the EBIT of the company. So I'm not trying to run away from the Europe conversation, right? But honestly, I think we've said what is there to be said on Europe, and we're all aligned on the fact that we need to pull up our performance in Europe, right? And we are absolutely agreeing to that.

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

Yes. So sir, I would like to understand overall growth, how volume trajectory because we are unable to understand how volume is growing for us in this scenario.

So we are not sharing volumes. And the reason is that we use revenue as a core metric of performance in this business, particularly as this business focuses more on Beauty & Cosmetics, as this business focuses more on premium offerings in tubes, right? As I would say in my previous company, you can't add 1 case of McDowell's No.1 and 1 case of Johnnie Walker Blue Label and say I sold 2 cases, all right? You just can't do that, right, in a market that's premiumizing. So I think we are absolutely focused on driving volume in this business but even more focused on value through mix and getting the right kind of pricing through. So I'd like you to really use revenue as the core metric of evaluation of the business rather than try and overanalyze the subsegment of it.

Okay. So can you talk about the overall -- we have a long-term -- on the lag of 3 months. So next quarter also, we are expecting to have an impact on the margin. So overall, the price pass-on, on the other side, how possible and how easy are?

So you're talking about the price pass-through on non-contracted volume? Is that the question?

Yes, sir.

No, no. So we are absolutely at it. Just to be clear, we are not sitting and just waiting. We are absolutely at it, to go and get pricing as quickly as possible. We have been, I would say, very successful at getting pricing in the last cycle, right, just a couple of months ago based on the initial increase that I saw in commodities through April, May, June, July and so on, right? We're very successful in negotiating price increases. And therefore, I have every confidence that we will be very successful even this time around. But the question is it just takes a little bit of time. And yes, there is that little bit of phase lag that you will see. But it's not as if there is a longer-term erosion of the fundamentals of this business, right? The price increase will always catch up.

Okay. Sir, how is the client -- customer [ reduction ] side, the momentum has gone up? Or overall, it has moderated?

The customer momentum?

Yes.

No, I'm saying -- actually, I have to say this, generally speaking, apart from a few pockets again in the portfolio conversation, demand is, I would say, pretty strong in most parts of the world, right? And therefore, I have to believe that our customers are doing well, okay? Demand is strong. And in fact, some of the challenges we're having with -- happening or having with people and so on in the Western world, right, is because demand is robust. So I would think the customers are doing well, right? And we have a very powerful customer base, probably the best customer base that you will find the choices customers from around the world. And they do what it takes to make sure their brands grow and their categories grow, and our growth will follow that. So I have no reason to be pessimistic as far as that is concerned, barring like I said, a few pockets, like again, Europe, we discussed where we've had some challenges, obviously, and you know that.

[Operator Instructions] The next question is from the line of [ Kashyap ] from Theleme Partners.

Yes. I think performance has been reasonable. I think double-digit growth and Q-o-Q margin improvement more or less underscores what you had discussed earlier. I just had 2 questions. First and foremost, just a clarification. In Q2 last year, I think Creative was acquired. So would it be fair to assume that when you basically have reported the adjusted EBITDA of INR 173 crores and this year around INR 166 crores, the last year's base, Creative is not part of the last year's base, whereas it's part of the current quarter's base? Would it be a fair understanding?

Can you repeat the question? I'm sorry, I just want to be clear I understood you.

Creative, the EBITDA of Creative.

You acquired Creative Stylo Packs last year.

Correct.

In Q2 last year, when you actually have reported INR 173 crores as your adjusted EBITDA in the presentation that has been shared, and this quarter, you kind of put across INR 166 crores. We are kind of saying the decline is more or less 3.5%, correct me if I'm wrong. So would it be -- in the last year's base, Creative is not part of the last year's base? Or is this part of last year's base when...

No, it is not part of the last year's base. It is part of this year only.

Okay. So if you were to kind of adjust that, could it be a comparable EBITDA? What was that, adjusting that?

So let me put it in a different way. When we made the acquisition, we said about the criteria that we use this, it will be revenue accretive and margin accretive. I can confirm that, that is true with respect to the acquisition.

And maybe I'll just add a bit here. Of course, we can dissect numbers in any which way. But I just want to say that M&A is an absolutely key leg of our strategy, all right? And as this business evolves, the attempt will be to bring in strategically relevant acquisitions into the EPL fold, relevant from a portfolio standpoint, from a technology standpoint and from a growth and margin standpoint, okay? I mean, just want to underscore that and say that it is -- and therefore, Creative was one such example, and hopefully, there'll be more in the fullness of time as well.

Sure. Fair enough. I understand. Well, another question is while you've kind of made it very clear at various points in the call that you took the price increases, but they were in the previous cycle, and then you again saw unprecedented increases. And I understand you can't keep going to customers constantly until things settle down for a renegotiation. But -- and you mentioned that this is going to be a moving target, so to speak. So -- and I don't want to ask you to comment any number that, okay, this is where the margin target would be, et cetera, et cetera. But qualitatively, would it be fair to assume that a Q-o-Q margin improvement that we've seen in the current quarter will be the story for the remaining part of the year, that Q3 will be better than Q2 because you will constantly go and make this iteration either on costs or product mix, customer negotiations, et cetera, et cetera? So for the full year, we will evolve, but every quarter, the margin reported should be logically better in the previous quarter, at least until things settle down. Would that be a fair assumption?

So you're asking me to comment qualitatively on something that will have quantitative outcomes, effectively, right? So listen, I don't want to belittle your question. I understand your question. Honestly, there is only so much that I can say as far as this is concerned because otherwise it will be like giving you a categoric guidance for the next quarter or 2 quarters, and that's something that we do not do and don't intend to do. But on pricing, I just want to say that there is absolutely no apology in this environment to keep going back to customers any number of times, okay? Because it is an unprecedented environment, and therefore, it calls for unprecedented actions. There's absolutely no apology that we will need to make, right, in going back, and we are not going to be ashamed or hesitant to do it. In fact, if anything, we will be very aggressive on going back to customers and getting price increases as quick as possible after the cost increases hit us. I think this should be the last question, please.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Pratik Tholiya for closing comments. Thank you, and over to you, sir.

Yes. Thanks. On behalf of Systematix, I would like to once again thank all the participants for logging on to this call. Again, I'd like to thank the management for giving us the opportunity. Mr. Kripalu, would you like to make any closing comments, please?

No, no. I just want to thank everyone for joining this call late in the evening. And the questions really reflect your understanding of the company, the rigor with which you track it, but most importantly, your support of this company for which we are very much appreciative. Thank you very much.

Thank you, sir. Thanks a lot.

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