EPL Limited (500135) Earnings Call Transcript & Summary

What I wanted to share with you in terms of our journey where we've come from, where we want to go and how we're looking at shaping the future for this business. We will open it up for Q&A now, where I'll be joined by Ram and Amit. I also have here the visual of our sustainability box. The sustainability box has a sustainable view. They're also filtered product, by the way, not just air. There are real products inside and hopefully will have follow-up when you use some of the products, good quality product, in a box with a sustained copy of our sustainability report. And this has been sent to our key customers, right, everywhere, right? Just to make the statement, that's our commitment to the sustainability. We have a box for each of you as you exit the room, right? And if you're happy to carry it, it's not too light, if you're happy to carry it, we'd be delighted for you to take one. I think somewhere in the exit, it will be available to you. All right. So folks that's it, we'll just now open it up for Q&A. All right. Questions have started. Let me settle down and I'll just be with you in a second.

Okay, please. Yes, please go.

First on number of dues. I have been seeing that 8 billion tubes now for 5 years. I hope it has increased because we talked about a double-digit growth while the 8 billion number has been stagnant. Can you help us understand in the same period, so we get more hands on the real underlying growth of what has been the premiumization benefit we have seen? And what kind of premiumization benefit are we anticipating from here on? Number two, what has been the volume growth? Because when we say margin, there is an optical dip, so there is an optical increase in revenue also because of the cost inflation, it works both ways. So I want to understand what is really underlying volume growth premiumization benefits and whether Platina is adding to any of these? I can understand volume, but is it adding to the premiumization benefit? And overall, if you look at each of your customers, they are promising the 0 carbon. And a lot of emphasis is led on the recycling of the plastic. So if you look at Unilever or anybody, a lot of this is achieved by the recycling of the plastic and we are one of the largest suppliers there. How are we participating in that? So when they say recycling, where are we with them, in this cycle? And what does it mean for overall business from now to say 10 years when all our customers will be taking closer to net-zero? That's one part of the question. The second is competition. My earlier discussion with Amit, he said that we are at 8 billion. My next nearest competition is less than 1 billion, right? So we are naturally big, right? So what is stopping us from taking the price increase? It's just the relationship we have bothered about or it is a competition which is looking for an opportunity to grow? What it is stopping today from taking the price increases which is an accord. So we have a contracted pricing with a quarter lag, right? But we don't see that fully playing out for us. So what is competition? Or what -- or we are seeing any benefit of consolidation, we can go for more acquisitions? That's -- On the product side in growth, we are talking about extruder now. Earlier, we used to say that laminate is a big thing. Now we are adding extruder. We bought Creative Stylo, so which also gives us an indication that we are looking at the plus category along with laminate. How do we see this extruder adding to the group? And just aluminum to now laminate is -- yes, we have been ordering for many years. Are we really seeing it now that aluminum price is going up? Has it really pushed many of our customers to work with us on it, what is the R&D pipeline it looks like? And what does it all mean in terms of growth? That's my question.

Okay. There are lots of questions, and I'll start and Ram and Amit please add as appropriate. So first, as far as premiumization is concerned, okay? See, we have refrained and I believe for good reason from talking volume growth in the business, right? 8 billion is a big rounded number in billions, right? I've not even put a decimal, right? And we have restrained because volume is not a measurement of the strategy that we have had or the strategy that we wanted to pursue, okay? Just to give you an example, right? Travel tubes are reducing which are the small sellers, right? And big tire tubes are increasing significantly, and 1 tube is not equal to 1 unit. So all I will say is this, that, of course, there has been some pricing to your point, right? I mean it goes without saying, otherwise, the margins wouldn't have been what they are, absolutely is there. But there is significant volume and mix, right? And volume mix has been one thing right? Because there's just no other way of measuring it in terms of the progress against that. Okay? Now premiumization just tells you that -- listen, I mean, we are getting a ticker. It was very simply. If you're going to Beauty & Cosmetics and Pharma, that's richer than Oral Care. Within oral tubes, a lot of our innovation, right, at a premium to the core business. Premiumization is happening through category ship and through our trading within the categories that you're in, okay? Then recyclable -- what was the question on recyclable?

Customer talking about having a target to reach carbon neutral. So the most of the emphasis to the carbon neutral is via recycling the plastics. And we are one of the largest plastic supplier for them. How does it benefit or is the negative impact on us as a business?

So first and foremost, every one of our major customers is gradually converting to recyclable tubes, right? Many have started the journey, restarted their smaller brands. And I think you will see a leap in adoption of recyclable tubes as you go, right? I don't have a metric of how much is actually recycled, right? And that's why I spoke about PCR, which is post-consumer recycling, right? Over time, the percentage of PCR in our tubes will keep increasing, right? Currently, the availability of PCR, there is a cost issue on PCR, et cetera, et cetera, right? And that's how you will then more tubes coming back into the system as a recycled plastic, correct? So every one of our customers is embracing recycle tubes. And you will see this happening. So they will be able to say 2 things: one, what percentage of that tubes are recyclable, right? Second is, as the gates start going down, which it will, there's a certain amount of absolute plastic space. These are, I think, the 2 things that people will hear. I'm not sure if any of them is going to claim that 100% of their plastic is recycled. So that will mean that it has to be 100% PCR, right? I don't think anybody has committed in for that kind of -- right, at this stage. So I think that's the point on this. I'll just...

Whether Platina is the premium product or...

So I'll explain that. So Platina is at a slight premium. But I think the -- first of all, I think it's a big source of competitive advantage and ability to grow market share, right, with that slight premium. And that's what we want to do. And secondly, I think we have got to reduce barriers to conversion for customers as well in the Colgate, which customers will embrace what you'll have, right, provided there isn't too much of a penalty to pay. So what we're trying to do is to make sure that these barriers to conversion is kept modest. So that's what we are doing.

Just one thing on the recyclables. The extruders are much better recyclable than the laminates, right? Do you think this will -- so we were earlier of the belief that extruder will convert to the laminate because of the benefits, which laminate offers in terms of the barrier properties and the printing properties and so on and so forth. Do you think this recyclability has stopped the process? People are okay using the extruder because it is much more easier to recycle than the laminate? Is this happening? And is that the reason why we are also exporting extruder as...

I'm going to let Ram comment on that for because he is knowledgeable on this and then I'll add to it if necessary.

Whereas different purposes we have has extruded tube as limitations in terms of what kind of combinations that we can have. The laminated tubes has endless possibilities of combining various types of materials to get that final [indiscernible]. So now when you started originally with laminated tube, all the laminated tube had one layer of aluminum which was in the [indiscernible] barrier at product [indiscernible]. We all deliberately used aluminum tubes. When you collapse an aluminum tube, it [indiscernible] products. Now that means the product formulated inside the tube was not capable of taking layers from inside. It was reactive. So if the [indiscernible] is one of the criteria in the tube. Over a period of time, formulations have undergone lot of changes. Now the formulations are more excusable and, that is, it can take [indiscernible] doesn't react [indiscernible]. Similarly, we have reduced the oil significance from 30 micron to come down as much lower as possible to roll down. Now we're using even 9 micron, 10 micron. Over a period of time, polymer sizes have improved. At 9 microns barrier of an aluminum, what barriers it could be, there are polymers which can give the similar kind of [indiscernible]. Now we are using -- eliminating that. So having said that, that you have [indiscernible] for all plastics laminated tubes versus all process extruded. Process of extrusion is expenses. So process of lamination is faster and cheaper. So most of the mark brands will convert into laminate. At least what that's that we started [indiscernible] on that. But there are now [indiscernible] at the product in the sense. Now there are a lot of small players who comes in as we look in it. So when we compare to the mass product, it's not on the product quality than a certain attributes in terms of attracting customer like to play. So extrude tubes will continue, okay? So our go -- now we have, say, INR 100 we wanted to put in a faster-growing marketplace. That's what we did in the laminate tube, that so far. Now we are coming to a the sale space that there are products and categories are coming in with more Internet coming in. There are -- brand's value is something different. The other thing is that a mark brand. So those brands to create a differentiation in are looking for products to look slightly different than the mass products. So those extrusion tubes are -- we've seen an opportunity. So wherever that needs to exist, we'll continue to also start focusing on extruders. So they're most different in terms of material, right? We think in terms of positioning in the sell the customer [indiscernible] to have. Now coming back to skill. Laminated tube all plastic laminated tube will dominate us. Then you asked another question, what happens to the laminated tube if it's a premium. Platina is our all recyclable. Now the price comes out of a 2 factor. One is material. Second is processability of the [indiscernible] like any rigid material. Like for example, when you use an aluminum it is easy to process. When you remove the aluminum it is difficult to process. Now this is where companies like us play technologically. Now we have an equally, not exactly, equally, easily processable plastic combination of [indiscernible]. That's the R&D that goes behind the lines. Okay, now customers are also working to improve that formulation to extra 100% plastic product right, you are seeing a market all toothpaste is to be only in aluminum-based plastic. Today, you will see in the [indiscernible] there are brands which had come without aluminum, right? So product is simple. Our processes needs simple. That's how we get; so till everything stabilizes, we'll have a margin of extra profit, okay? But that's not the game. The game is that if you are able to make more cost opportunity to our previous product, who are markets, that's what he was mentioning that, we are using sustainability as a good thing to do for society at the same time and good thing to gain [indiscernible].

So platina or plastic tube same or they're different?

Okay. Platina is a very general word that we use. Platina is our own brand name of recyclable [Audio Gap]

So all plastic tubes may not be fully recyclable, but all platina will be fully recyclables, but both are plastic tubes because you remove the aluminum layer basically. And I just want to finish this and then take -- sorry, go ahead. No, no. CBS that's the difference. Yes. And then I think you were talking about is aluminum conversion happening, right? It is happening, which is a brand now that is going from aluminum into laminate this year? Glenmark Candid, right? Now the thing is that the barriers to conversion, I'm not a technical expert, but it requires changes in the filling line, right? And there is an on-cost versus aluminum, right? So what happens is hardcore pharma takes much longer, particularly if you're in a category with price control and so on and so forth, right? But more consumer-facing pharma brands tend to move. Last year, Soframycin moved, right?. Now Candid is moving. So it's happening, right? You have to keep chipping away and bit by bit, it will convert because consumers convert, right? Now the ultimate test for a laminated tube and excluded tube is, can you deliver the gold standard barrier properties of aluminum, right? Aluminum is still the best in terms of barrier properties, right? Everything else is approaching gold -- not gold standard, aluminum standard, right, as far as that is concerned. So when [indiscernible] in the world, right, remain aluminum because the highly acting product, that is the [indiscernible]. So it takes more R&D, more effort. But I can tell you that whenever we put our mind to it, we've cracked it, right? So I think bit by bit, that conversion is happening. So competition, I don't know which competitor you spoke about with 1 billion tubes. Who is that? There's no competitor like that. No, but our biggest global competitor is Albea, French company. And then there are lots of other regional local competitors, right, in the whole tube space. I'll tell you on pricing. I think the -- I think, if I'm honest with you, it's like that probably hot water. With hindsight, I can tell you exactly what we should have done, okay? Nobody knew that the commodity market will move the way it moved month to month to month over the last 18 months. Nobody could predict that. If anyone could then I'm willing to have a [indiscernible]. So now the question is this. I think I will say this. First of all, there was huge resistence on pricing. I think we have refrained from telling customers who we work with for 20, 30 years that we don't do the price increase and walk away. I think we don't -- we didn't miss the wood for the trees here. So I think there was huge resistence for that. To be honest, there was hesitation that, yes, it is a competitive environment. And I'll tell you, forget [indiscernible]. There are local tube makers in India also. This is the time they are fitting to say let me undercut and [indiscernible] take some. So it's a proper competitive environment that this happens in any industry, right? So I think -- therefore, there was a hesitation of how hard we should push. And I'm just telling you practically how the whole thing is on. I think sitting where we're sitting today, I think both our determination and customer effects, the price increase is higher, I still won't say 100%, okay, but it is much higher potentially to get pricing, right? And our effort and conviction to [indiscernible]. So that's the situation, right? It is a competitive environment. You are fighting for share. I've spoken so much about share. And at the end of the day, we have only 10% share of B&C and pharma globally, and we have a long way to go. So there is a battle for share, right, it always there. And remember, one more thing. This is a sticky business. It's not easy for a customer to drop you and walk away to somebody else tomorrow. However, if they do then it takes longer to get it back, right? So it's not like changing from one brand of soap to the next, right? It's much more sticky because it's a B2B business. So I would just say that a bit of it is from the customer side, bit of it is from our own conviction and confidence that we have to go and get it and just look at history how many years that we have to take more than 2% pricing. Almost never. So if you think about -- and suddenly, you're going to take 10%, 20%, 30%, whatever be that number. So that's all you have taken. This is an exceptional situation, which requires some behavior change on the customer side also and on our side. And I just think we're getting better at it with each passing day. I don't think we've left it, right? I will tell what happens. If the recent little bit of tempering of input costs over the last few weeks, if it stays. I think life will be a little better.

Again on the margin side, but it should reflect somewhere, right? It should reflect at least on the balance sheet, we are the largest one. We are taking all the 3. Are just customers talking about rewarding us?. So I'll give an example to the business, okay. Chemical, specialty chemical in agrochemical segment was very bad. There was a take-or-pay contract for 2 large speciality chemicals. There was no pay. They were guaranteed that when the things will improve, we will be given a disproportionate business, '18 to '22, we have seen that disproportionate business [indiscernible]. One of them has grown at 85% a year. Are we being promised something like it? Not 85%, are we promised of a long-term better [indiscernible]? What is the game we are looking for?

So I think, first of all, the margin is invested so to speak, right? It's not unique to us. We have not invested relatively more margin loss than other players have. If anything we've lost there margins than others have. So it's not just we have suddenly lowered pricing to become competitive and take share. So that's one part, right? So that has not been our strategy. To lose margin to gain share is not the fact. I don't believe in that kind of strategy. But I think absolutely, now there are no very precise measures of this winning share. What I can tell you in each of our regions, based on the business wins we are having and some leakages that, it's a dynamic world. You will win some new brands, some new SKUs every year, and you lose something. And you might lose because some of the brands you invested in disappear, right? Or they are losing share or whatever, right? And I can tell you, across the regions, our assessment is that we're growing share, right, that's our assessment. There's no hard external data like you'll have -- I don't know [indiscernible] retail audit. So our assessment is based on the discussions that we are having and based on the granular details of business wins and losses that we are seeing, right? And we're absolutely winning more than we are losing everywhere in all regions. So that's how it is. Not at all. Let's go to somebody else, yes please.

If the Board or shareholders saving to double our growth rate and really accelerate things, what are the implications of that? And is that really possible?

If the Board says that we should double our growth rates?

So let's say we say...

10 goes to 20.

Yes. How do you achieve that? And at what cost?

See, I think that -- so we've not done the mathematics, so I can't tell you how we'll do it and at what cost. Having said that, I believe this strategy, right, can deliver more, right, and we've to just start and see, right? I mean as we develop and execute that strategy completely, I do believe it can deliver more, right? Because to put it simply speaking to value growth numbers, we believe Oral Care, our business can grow high single digits for sure in value terms, right? I believe the Beauty & Cosmetics, Pharma can grow in strong double digits, right, both through the way the category is growing through premiumization of the category and through the share gain that we can make because our shares are much lower in Beauty & Cosmetics and Pharma. Therefore, on a blended basis, right, I still think we can grow strongly. And if we were to just dial this up a bit more, I think the numbers can be better. [indiscernible] to talk about it, right, because we have not planned it like that. But the way these things happen is that I think we need to just -- honestly, right now, we need to maneuver the current situation we're in, right, by growing out of the situation that we're in, like I said. I think once we are in little bit more of peace time, I think your provocation is absolutely a valid one. And we should absolutely be ambitious, right, and go for much more. Right now, I'm lost to even talk about it.

So let me speak in other way that are there large pockets of the market where you won't participate either for price or for other reasons? Is there a way to get in there?

No, see, there are virgin market now the world and virgin means within forth because where we are very low in terms of share like Brazil. Now there'll be a step change in our overall market share as our Brazil plant start delivering, okay? And we are looking at opportunities. And like I said, across different countries in the world where we are under-indexed on share. There's an opportunity for us to choose a few of those and really go after it, right? And then the strategy tactically, right, of how you will get share in the short term may require to do certain different tactics in those markets to unsettle somebody else, right? And you make progress. So I think -- see, first of all, we have 10% share of Beauty & Cosmetics and Pharma, which means there will be many countries in the world where we may be 1% to 3% share. There are lots of opportunities. And I just want to underscore the fact that the headroom we have, right? Oral Care is 1/3 of the market. And Oral Care, we will gain only by making a disruptive entry into markets where we are very, very small like this, okay? In Beauty & Cosmetics, I think we have an opportunity to grow in many possible ways. It's requires slightly different strategy in terms of selling, the size of customers, the nature of the solutions in terms of design and capability. Wherever possible, we'll convert them from extruded tubes to laminate tubes. Where not, we will give them extruded tubes. And -- but that's how we are seeing this whole piece. So I think there is enormous opportunity. The question is, do we have the right capabilities in-house to exploit those? And do you have the investment power, investment capability to do that? And I think that's why Blackstone comes in too because Blackstone is ambitious and aggressive and willing to support a robust plan. I don't think we will be wanting of investment if we have a clear strategy and a clear plan of how to go about it. But I'm with you. I think there is opportunity to raise the ambition for the business, right? I'm just wary of doing this at a time like this, just wary. I think we need to see a few quarters where the sun shines and business is okay, done well and then say, all right, now how can we [indiscernible]?

2 questions I have. One is on history and one is on the future. So this 34 billion tubes that we mentioned in laminated and extruded, can you give a split how much is laminated today and how much is extruded? And if a trend possible, like how was this number or mix 10 years back? That is number one. The second question is, sir, we also mentioned that we want to be only into the tube as our packaging solution. And we want to position ourselves on sustainability. Now my question is that when we are getting sustainable solutions, why restrict ourselves to tube? Or is it too early to say that tomorrow we can give a complete suite of sustainable packaging solutions, whatever you need in a form of a tube or a flexible packaging or a single used plastic, whatever? Just your thoughts on it.

Do we -- I don't think we readily have the split between extruded and laminated?

2/3...

2/3 will be laminated roughly.

1/3.

And 1/3. Trend over 10 years I don't think we have, right? See data is not available of this, right, it's based on some internal estimates that we put together. See, on sustainability and if you are -- go ahead.

Just to [indiscernible] that, any trend which is giving us the confidence that this shift is happening?

Shift from?

Extruded to laminate, it would be helpful.

All the [indiscernible] we don't know exact numbers. All the [indiscernible] brands like -- sorry, at conditions what we're seeing has already transferred into a plastic [indiscernible]. That's happening. Brands now in the last 2 years, slight change in the plastic tube because of more internet selling in more service. People are not to traveling, people are not going to the stores, people are not going to the [indiscernible], but lots of opportunity for a newer brands to emerge -- emerging brands, right? Even if they may or may not be doing it a long time well, but there are many brands that are coming. Those brands are coming in [indiscernible]. Only volume is lower. They are willing to pay a little higher price. When [indiscernible] plastic and extruded tubes would be lower and in a laminated tube, the expectation is slightly higher. So they are emerging. But over a period of time that we could say that laminated tube has grown faster than extruded tube. But extruded tube has not gone away. It is still remaining the same 1/3.

And the other question you have?

So we also mentioned during the course of this presentation that we would want to be a...

So you know -- I've got a mic -- the best definition of strategy has been clear about what you will not, okay? And I can tell you one thing in business and in life, less is more and more is less. Now the day I see or we feel that there's not enough growth potential into, right? Then absolutely, right? But what is sustainable in tubes may not be exactly the same specification that is sustainable in, I don't know, some other form of fact, okay? I think the headroom of tubes is enormous. I think there's something called power of focus, right? And if -- and the most important thing about strategy and focus is being clear what the management team should focus on, right? If we refuse how they spend their time, then we'll refuse the efforts behind something. So I think we are quite clear that till we believe we have squeezed the lemon drying tubes, which I think is a long way away, right, I think there's a pride in being the best tube company in the world, right? So big fish, smaller pond is okay. All right. Others? Yes, please.

One classical example of sustainability, which creates a win-win situation is something like [indiscernible] is basically, you buy back all the cans from the market. You convert -- you press it, you convert into aluminum again and you reconvert it into cans. So is that something that we are looking to do? Is that possible from a cost benefit perspective because we are talking about plastics here and not aluminum?

One is technologically, is it possible that you have cost benefit?

Technically, theoretically possible. But practically, even in a developed country, segregating tube as a separate item to collect and recycle is not easy. Because it's not such a [indiscernible] item that you can collect in a week say...

I think tubes is more mass than something like a Pepsi can, right? Pepsi can wouldn't be in each house, but tube in every house.

See, what happens is it is easily [indiscernible] by people who is collecting. There is a tube -- you go in a -- for example, in India, collection mechanisms are still mixed, but in developed countries like Europe, collection mechanisms are far better. Even in a city, how many tubes in a day you can get? So exact reusable for the same applications could be a pursuable as a group over a period of time. But what we are trying to do is every tube you make, you make it a reusable, whether it's in the same application or in the different application. So that statement every company has made, everybody could do. Now -- and there are challenges in terms of reusing it, you have to clean because most of tooth paste has [indiscernible], so how do we clean that? Such mechanisms are now coming up and is getting developed. So now what's happening is portion of that wastage, say, 5% or 10% [indiscernible]. If it is 100% collection [indiscernible] are little challenged in terms today, but over a period of time that will come on. So we have to [indiscernible] 2 things. One is all materials you make have to be recycled, it's recyclable today. Usage is not increasing. Maybe in the next 3 to 4 years, you'll see everything is recyclable. That's where Platina range that we have. [indiscernible] also have a different games. That's why we will achieve. We will reduce plastic content. See, we used to have 300 micron, 350 micron. Today, we have far lower thicknesses given the same process cost reduce. We use for the same application needs to develop, but reuse for another application [indiscernible]. So then it is one side. And it's a [indiscernible] because it goes into [indiscernible]. Now this needs an FDA approval, the material which is used for the toothpaste or a cosmetic, it is lower, food is little higher, pharma is little higher [indiscernible]. Now the recycled material for this particular application at an FDA is another process, okay? So it makes the availability for the same usage becomes a little more difficult, and it needs to develop over a period of time. But today you'll see...

So if reusable is a bigger proposition than recyclable because of the practical difficulties, then is reusable a threat for EPL because then we are not making new tubes, right? We're just reusing those tubes, maybe Colgate can do it by themselves.

No, the regulations are very, very clear. See, the preference will be to use it on the same product. But it is not that you have to use it on the same product. Regulations cannot [indiscernible]. Over a period of time, it's a pride of a manufacturer. I say I use today, whatever is recyclable, whatever is reusable into my product that I say PCR [indiscernible]. That's why it's not PCR [indiscernible] only a tube portion. The PCR [indiscernible] product which is equally mixable with my product. I say I can go up to 40%, 45%. That's the statement we will make. Nobody makes it that recycled content in my product is my own product. That is very small applications like [indiscernible] bottles...

I'm saying if I'm able to collect all those tubes from the market, if Colgate is able to collect and just clean it to some process and refill it with Colgate and then sell it back, is that possible?

Theoretically, yes, but practically, collection mechanism doesn't work like that.

So then what is the purpose of sustainability? Because then basically, you are not collecting the plastic, you are just throwing it in some garbage.

If you see every one of the tube, just for a technicality that you see, there will be a symbol for recycle. It's recyclable code. 2 code means, [indiscernible] material. 4 means, it's [indiscernible]. Now our tube will -- what we are trying to do is our tube goes into code 2, 3 STPs. When it goes there, it's not only tube material, any other STP material is recyclable into 2 [indiscernible]. That is how it gets recycled.

So can EPL collect all this and recycle and make tubes out of it? Is there cost benefit?

See, over a period of time. Today, collection, PCR is premium. You get 2 types. Because over a period of time that they need to develop this technology. Now I use 40% PCR in some of the products, we've called product [indiscernible]. PCR -- FDA approved PCR is actually 2 types. What we on -- it's not cheaper. It could become cheaper over a period of time. Today, recycled materials are not cheaper. Recycled commodities are cheaper, [indiscernible]. It goes for a [indiscernible]. It goes for a common application which doesn't have a product, those products...

So something like aluminum cannot be replicated here at least in the foreseeable future?

The right way of -- yes, where you are coming I can understand. Aluminum products you're saying easily recycled. But it has other disadvantages in terms of, let's say, product to product comparison. An aluminum tube versus...

No, not a tube. For example, what Novelis does. Basically collects all the Pepsi cans, crushes them together, convert it into aluminum liquid again and then aluminum solid then the sheet and then they are made cans out of it. So instead of buying fresh -- instead of converting bauxite into aluminum, they're just converting the aluminum that there in this world, again into aluminum which is reused. Is this possible here?

Yes.

Yes, that's the process. But in aluminum and wafer, traditionally, we have done. All papers which are recycled goes to the paper recycling for a very long time likewise aluminum [indiscernible]. This is a combination of material, you need to segregate it and start using it. And aluminum [indiscernible]. Any impurities in the aluminum or any contamination in the aluminum can just [indiscernible]. In this process, we don't melt. Slight difference in terms of processing. But over a period of time, which will become -- even in India, probably, you will see a lot of startups in terms of recyclable process [indiscernible]. It's application is Code that they are able to segregate like Code 2, Code 4, Code 3 to segregate [indiscernible] collection start happening...

Others? Yes, please.

Harit from Investec. Just 2 questions. You mentioned in your presentation about the wallet share from new markets. Starting with business, which I already mentioned a while back, and then I think the picture of Sub Saharan Africa and Southeast Asia as well. If you could just give us a sense of how you're thinking about this from a longer-term perspective? Any time line from a 3-, 5-year perspective in terms of market entry? Also, fundamentally, are these -- when you look at any of these market entries to -- for how long do these businesses are ROE or ROC dilutive for you? Is it a 3-, 4-year cycle before you kind of start to make company where the ROC scale up? So that's my first question on new category -- new market entities.

I'll talk about that and I'll request Amit to talk about ROC and what happens. And what has happened actually with the plants that we have set up in the past and what is likely to happen with our Brazil investment. Yes, as far as wallet share is concerned, yes, I showed certain visuals. So what we're trying to do is to make sure we do segmentation by country, select major countries, choose them 1 or 2 that we believe we want to go after and then go and try and improve our wallet share in those countries. Brazil is a case in point, which happened probably not with all that science but because it was a backlog of customer commitment that was made and we knew that it's a virgin market for us pretty much, right? It was relatively a no base. Now we do very little business in Sub Saharan Africa. We -- I mean we are big in Philippine, right. In Indonesia, we have a minority stake in a JV. And Philippines is a [ 1 billion-plus ] market, right? Philippines -- sorry Indonesia, I'm saying. Philippines, we do most of the tubes there. Indonesia is [ 1 billion-plus ] market, we have a minority stake. But in terms of wallet share, we don't add that, right? We have 30% stake in that investment. If it is 51%, our wallet share would be much higher in Indonesia, right? But it's a big market there. And we actually don't have much of a presence in Thailand where there's a big local manufacturer in Thailand. It is the big market, Thailand, Indonesia, Philippines and then there's Vietnam, again, where we have relatively -- I think do we export into Vietnam at all from China? Very less. All right. Now these are all opportunities in the future. Each of them will have a business case and you will decide what you want to do. Brazil was relatively, I would say, more straightforward because that's the model that EPL has used in the past to set up greenfield sites, right, go and partnership with the customer, right, and go and make that happen. What this will show up is the segmentation, the map that I showed that we will choose a few markets of our business and say, how do you unlock that market and get wallet share? In Indonesia, maybe can we get a 51% stake and improve the wallet share, right? In Thailand or Vietnam, it could be something else, it could be M&A, right? Or setting up a green field or saying no. We don't have a right to win in those markets, but there are no other places in the world that we will go after. So I think this is part of our sales growth strategy. That -- I mean, we already have done, I would say, reasonably well. We are giving more of a focus through more detailed segmentation to identify opportunities. So that's how we are approaching this whole thing. The idea is to go for growth, and for hunt down opportunities, I said that right, both sales and marketing to hunt down opportunities. So yes, we want to go and look for it, right? We also want to hunt down M&A targets, by the way, right? We are hungry in terms of our quest to pick up a few companies, right? And we are constantly evaluating. But obviously, the strategic fit and the price has to be right, obviously, we're doing. ROC, Amit?

Yes. It all depends on the category, which we are adding. So assuming that if we are going into Oral Care initially for the ramp-up period and all those [indiscernible] will be lower. But when we enter into any market with an anchor customer, what we explore is the other category, which is Beauty & Cosmetics, Pharma. And as we improve those compositions, we try to bring those ROC better compared to when we entered. So that's how we look in and it depends on project to project and what's the purpose of doing that but also...

The second question was on new customers and customer wins. So prior to the significant innovation about 12, 14 months back, management had mentioned that we've seen significant customer wins and we continue to see that. Is there a way that you can map that in your communication to investors, analysts on an annual basis? So for example, you look from the FMCG world and we talk about percentage contribution from new products, et cetera. Is there a way that maybe on an annual basis, you can map, say, percentage contribution from, say, new customers or stuff like that? And I'm sure you have all that data, and you can help us with that? Because I think incrementally, getting market share from the same customers, it's still possible, but I think the greater opportunity is new customers, new markets.

So this is a good input, and we'll look at that on -- the thing is that, see, you can get more business from an existing customer or you could get completely new customers. And the reality is you also have some leakage, right, in any business. Even FMCG or winning new customers, they're also losing some old ones, right? And I think how do we change the metric that is relevant to give you as a symbol for how the business is progressing then you're actually gaining more than you're losing.

Any direction because if you look at core Oral Care growth globally or all BPC growth Beauty & Cosmetics, Pharma growth globally, we will typically want to map our growth ahead of that growth led by market share gains with new customer wins and gaining new market entities. So obviously, not on a quarterly basis. But on an annual basis, if you could just map that [indiscernible] really good input for us...

That's a good one. We look at it, the data makes sense. And yes, then it's helpful, then yes, we look at it. Because, I mean, it is core. I can tell you every month, every region, what we are discussing is the business development pipeline. Because recognize that in this business, it takes 18 months of work before you crack a new brand or a new customer. You'll talk to them, then they'll look at all options, and they'll put your product in storage, see if it works, it may not work perfectly, then you'll switch the laminate, then you'll again go and put it back and store it. So before you crack, it is not a take off a switch, right? It takes time, right? And this is something that core to how we think about growth of the company, which is to constantly look at our business development pipeline and what's happening and what is going to happen next month and what's going to happen 18 months later, right? This is core to how we think. We don't have a simple metric of contribution to growth. That's what you mean?

Yes. I mean just any kind of labor because -- so for example, I think 12 or 15 or 18 months back, I don't remember, but you opened a West Coast office in America, right? The context was to tap those customers and get a larger share. So is there anything which kind of gives us a sense of how that progress in terms of what contribution? Not particularly in the U.S., but just an overall context, some of these investments, which are front-ended in people, especially in markets like the U.S. where salaries and great executions and all those things are happening. So if we can get a metric to kind of look at that in any way, that would be interesting?

So we'll look at that. But anyway, the West Coast [indiscernible] is going well. Like you were just looking at the number of regions I think and the plans for this year also are very, very strong. So I think we're putting a couple of people there and tapping into brands and customers who we were not tapping any, right? I think it's positive moving the right direction. Thank you so much. Others? Yes, we'll just come back [indiscernible] somebody also said? No, no one else -- the right behind you. I mean we have -- I don't want to keep you guys late because it's raining and we started late, but we wouldn't like to close at 7.

So just a question on the margin side. First is you wait for almost 19% to 20% of revenue, is this something structural because of your location of your plant, which is quite high overall. And the second on margins, assuming raw materials cost stabilize at these levels, how long would it take you to get back to 20% margin? Or do you think the optics [indiscernible] 20% for the shorter period of time?

On the wage cost, particularly this year, '21, '22, you see there were, like western geographies, absenteeism, overtime and everything was there. So that's one because you are seeing that was higher. Second is [indiscernible] cost is also sitting there. So that's also -- otherwise, if you ask me, if you have a blend of geographies that's the normal for any of the company, which is globally present because in the Western geographies, you have a higher cost and emerging countries favor lower cost. But on the blended basis, I think it's normal as far as the wage cost is concerned.

And sorry, the other question was on...

On the margin. Can you get back to 20% of revenue?

Can you get back to 20%? So the thing is this. So first of all, obviously, we can't give you any kind of sensible guidance on that. There is some amount of the translation loss that is there at these prices. And I would say we talked of last year 300 basis points margin reduction, right, 19.9% down to 16.8%, right? Roughly half of it is the translation loss. Half of it is the real margin. I would say that input costs are stabilizing, right? With the efforts that we put in, we will start the journey of recovery. And I feel confident about it. That will start the journey of recovery that we would have bottomed out with no further input cost increase. Unfortunately, last year in September, we recorded cost of [indiscernible], and again, it started going up again in October, November, right? And it's a situation of never say never kind of right now. But I would say that if we can continue our momentum on growth, if we continue all the efforts that we've put in on costs, right -- these controllable costs, right, and not costs that are out of control. And the input costs, right, are temporary. I think we will start the journey of recovery. How fast it will take to go back to what it was? And would it ever go back to the number it is? I don't want to comment on that because I think that's giving too much of information on an unknown, okay? I don't think that makes sense. But absolutely, I think -- and I actually say this, right? I mean we are also as -- obsessed is the wrong word, but as focused, right, on starting the journey of margin recovery. So you must know that. I mean it's the one thing that gives us peace of mind, right? How are we going to start the journey on recovery? How do you want to get more volume growth? How will you get more pricing? How will you cut costs fast? All right. That's exactly the 3 verticals that I shared right in the end. That is what is keeping us awake today. So I mean surprised that you all know that we are also consumed by it, but I have to say it is as simple as it is on the slide. I just have to say this. And I can say that we started the journey late, but in the last few months [indiscernible], it has not been for lack of time. I can tell you that, not for lack of focus within the management team, not for lack of effort and so on. Just the -- instead of -- just the situation, right? And we're learning some of the stuff, right? We never knew this -- the kind of situations could happen and how you would have to deal with it, right? And every crisis has its own lessons. So I mean that's the -- I mean that's the honest situation, but we are absolutely focused on getting this bottoming out as quickly as we can. I can't say exactly when, but bottoming out and starting the journey of recovery. We want to do it. We want to do it now. Okay? Okay. Probably that's the last one, folks. No one else? You have a question. Would you mind if I go there because we gave you some airtime in the beginning?

Sir, my question is that how much is the share of beauty and Pharma in each and every region so that I can just get an idea of how much EBITDA growth is possible. So like if you can share some numbers on that from the introduction?

We shared that data. You can give us flavor, maybe?

Yes. And so like...

We'll give you a flavor. We can't give you precise numbers.

AMESA is around 50-50. Europe is 60-40 but in favor of nonoral care. That's in Europe. As far as EAP is concerned, it is around 65-35, 65% oral and 35% nonoral. And Americas is around 75%.

75% oral and...

75% oral.

And sir, like in the span of 5 to 7 years, how much do you actually anticipate the growth of the nonoral? Like if you can give some ideas in the CAGR terms, like in each region or some like -- some idea that is possible like if you have to data because...

That's like an outlook by category, right? I wouldn't want to hazard that. But what I did say is that we believe that our Oral Care business should continue to grow at kind of high single digits. And our Beauty & Cosmetics, Pharma should grow at strong double digits, right? But strong double digits because the categories are growing faster and our shares are much lower for both those things, right?

And the size is also much higher or...

The size is higher? No. Sorry?

Size of the market is much greater in case of Beauty & Cosmetics as compared to the Oral Care size?

In terms of number of tubes?

Yes, yes, yes.

No, but I said the number of tubes, right, on the slides -- well, not tubes but value, could be. I have not looked at that, right? But to you, oral is larger by the way. Both put together, what did I share with you?

It was, I guess, somewhere around 42 billion tubes, I guess, of [indiscernible].

Yes. So around 42 billion, oral is 17 billion. So yes. And then 22 billion is Beauty & Cosmetics and Pharma, so it is larger, right? And value will be even more, right? Food and the others is small.

Okay. And like, sir...

So that includes Pharma. So B&C and Pharma together is bigger than oral.

Okay. And sir, like just one last question of how much like the difference on the EBITDA margins if you commit to oral and the nonoral. Like how much nonoral EBITDA margin is significant as compared to the Oral Care, if you can give some idea?

As we actually talked on ASP, so if oral is x times, the Pharma and beauty, cosmetics can be 2 to 3x on ASP. So that's right. The margin is a little better in the non-Oral Care. That's what I can share on the margins.

You might have sold tubes which can hold 50 kgs of toothpaste because as you said, there are toothpaste tubes which are small and then there are [indiscernible] as big as well.

But that keeps changing. The tonnage is not a correlation to volume. It just isn't -- the [ assumed mix ] changes dramatically, right? So it just isn't. And because we've been through choppy periods, there's been far more choppiness in consumer behavior as well, right? I mean I can tell you from my previous company in alcohol, right? Large pack sales [indiscernible] 750 ml exploded, and small packs went down because people couldn't shop at the retail store and buy the packs in the evening. So they were buying big bottles and taking them home. So there's been so much of change in consumer behavior in the recent past because of all these kinds of external impacts that happen.

Yes. But also the alcohol consumers remain same, right?

Of volume.

The toothpaste volume...

As -- yes, yes.

So similarly, total amount of toothpaste use will remain same. Could it be the packaging that is changing?

It's only the packaging. So you are saying, why don't you look at tonnage of the product and size that your tubes are holding.

So maybe in this quarter, your tubes -- so we'll add like one [indiscernible].

We'll look at it. I don't think we've ever tried to correlate tonnage of product inside with number of tubes?

For Oral Care, I think the weightage would remain more or less same. So Colgate is not going to be heavier than Pepsodent and so on?

No.

Product is made by [ injection ] in this case. That means your processes are set by how many number of tubes you will make, what is the capital investment. Therefore, your pricing is based on pieces. So you make a small one or a big one. You do some adjustments to that to get a ratio. But it's not, we said -- because it would cost 2x, why don't we [indiscernible]?

No, that I understand. This is from -- more from a perspective of growth.

So he's saying, will tonnage growth of toothpaste be closely correlated to volume growth of tube irrespective of whether it's a single-use travel tube or a large-[ dia ] 250-gram tube? That's his question. I don't know. I don't know, actually. Have we ever mentioned [indiscernible]? I'll find a person where I could get tonnage of toothpaste. So tubes will be [indiscernible] out and tonnage of toothpaste, but it is there. I'm sure Unilever and people like that, the big oral guys reported, so we can see. But you'll also need it by geography because the mix there is very different in different geographies. But that's an input. We'll make a note and see if we can make some sense that helps in some way to be a lead indicator for categories. But the bigger thing is not just volume. The bigger thing is value. That's why we keep saying volume is a core indicator because what's happening even in Oral Care, even in India, if you talk to Colgate or you follow Colgate, their strategy in Oral Care is all about premiumization, right? Their volume growth has subdued, but the value also coming was all about premiumization. So all the new variants that they're doing have all the bells and whistles, right? They also have better a tube, which is good for us, okay? That's how it is. That's why we're just wary of giving cost without volume discussion or correlation because just it's about value growth and premiumization. I spoke about it as 1 of the 5 key trends. Premiumization is very significant. And we're seeing that in all categories we operate. Sorry, last one.

Capital allocation strategy. So how do we see, for next 5 years, the cash flow we generate? What is towards the CapEx? What is towards the dividend? What is towards the M&A? And if there is something else beyond that.

Yes. So first and foremost, the priority is growth, okay? And CapEx, you know we discussed earlier also that CapEx basically remains the same. Depreciation amount, not every year matching, but 4-, 5-year average term, the depreciation will be invested as it happens. And that will be more or less sufficient to deliver this double-digit growth, which we are talking.

I have a question. How come the replacement CapEx gives you a double-digit growth?

No. So these are all growth CapExes as far as the CapEx is concerned because you know that the additions are modular between printing, tubing lines and others. These are all majorly growth CapEx. So that's the investment as far as the CapEx is concerned. So first priority is growth. And then if there are extra cash flows, that's the dividend.

So if we are giving depreciation in CapEx, then PAT is free cash flow?

Yes. But then the cash flow, but then you have opportunities like the strategic CapEx. Brazil is there, then laminators...

So strategic CapEx doesn't include the projects. So this CapEx, which is a normal CapEx, doesn't include the strategic greenfield CapEx or M&A?

Brazil or M&A or projects like laminator, which we talked about, and those other strategic CapExes.

So what is the dividend with and [indiscernible]? So are we saying 30%, 35% dividend payout will sustain and 70%, 75% will be a growth-focused strategic investment we will do over 5 years? Is that what we tell...

I can't be specific on the number on the dividend. But yes, we will maintain consistent dividend policy.

So what is it then? What is the dividend policy now? Is there any policy for dividend?

Policy means we'll be consistent on the dividend payout, which we are if you see historically, and that's how we will continue. And we are confident...

And prosperity will be the goal, here.

Yes. So we are confident that the remaining capital because [indiscernible] we have invested a lot more cash, and we are already very comfortable on the balance sheet side.

Are we willing to go ahead then, say, that we want to invest aggressively if there are opportunity enough? So we are not averse in terms of larger M&A. Is that clear? Can we buy a company with 1 billion tubes as well?

Yes, we can do that because as far as balance sheet is concerned, it's a strong balance sheet. We can leverage it further. And if we need a bigger investment, like you are saying, that bigger M&A, yes, the current balance sheet and the backing of [ Glaxo ], we definitely can go with that, based on the size of the M&A and other things.

So for the right opportunity, I think we will be willing.

What are the right opportunities? A question there.

Well, that's a million-dollar question, right? So but we are constantly evaluating, right? And I tell you, after we've evaluated 3 or 4 -- apart from [indiscernible], 3 or 4, which we didn't progress on. So highly. Strategic [ decisions ], right, have to all work. There are things that we're evaluating even today.

So more of a value decision. So valuation, which is more of a barrier, or you think a lot of other matters more than the valuation product. So what made those 3, 4 deals fall?

So you've looked at them, right? The 3, 4 deals of last year. They were largely in Europe.

So one is valuation definitely. That is one. Then second is the synergies, which you can get out of that. That is another thing which is there. And there are printers on the customers, whether we are getting new set of customers or what kind of categories we are getting in, whether it is within cosmetic-nominated or a Pharma-nominated. So these are the filters which we normally apply on this. I can't be very specific on those 4 deals that...

No, I just wanted to understand what was the dominant reason.

Yes, I can't share those reasons...

Principally, it was those. And I think our acquisitions are -- so we would love to do some acquisitions in Beauty & Cosmetics because for all the reasons that I've already talked about the others today, right? If you can get in the right valuations in the right geographies, right, then we'd love to do it.

I think Europe, we said we are dominant. So I don't think [indiscernible].

No, we are not. No, we are not dominant.

We have 60%.

No, that's 60% of the our business, but they are a small share of the total market. So there is a headroom if you look at Europe. So our business is 60% Beauty & Cosmetics. Our market share in Europe is single digit of the total market on the total tube market. So in Europe, particularly, M&A could be a good way.

But the way I look at it is Europe, I don't feel comfortable because our margins are so low. Competition will be same. And acquisition in Europe will be significantly ROC-dilutive versus an acquisition, say, in [ AMESA ] or EAP or U.S. So why would we do a capital allocation in Europe, which is ROC-dilutive?

We will not do it if it's dilutive. So -- and part of it, therefore, comes back to valuation, right, and what you're getting. So I think the idea is if it is margin-dilutive, ROC-dilutive, then why the hell are we doing it? So you have to look at the right opportunity, and I think [ it goes down to ] opportunity.

And are these big opportunities?

I mean not massive but big enough to fulfill some of the gaps we've spoken about in terms of our country's opportunities, right, or our smaller customer segment opportunities, right? There are bigger companies, bigger customer player. There are people who may be smaller than us in terms of size and so on, but they are big with small customers. So that helps you to then take a strategic position in a segment where you want to grow, right, and finally, at the right price, right? Now we talked about your margins have gone down and your competitor, all that stuff, right? The reality is why will you pay multiples today that you were willing to pay 1 year on in packaging? You shouldn't, right? I mean multiples globally have come down on packaging terms around the world. So then you have to get it at the right price.

Today is the time for that, right? You will get it at a cheaper price. Business [indiscernible].

Provided the sellers are willing to sell. Provided the right opportunity, the seller is willing to sell it in a lower valuation. So that is the -- so these are exactly the conversations we are having. And I can just tell you, we are hungry for opportunities, right? If anybody has any ideas in the room or leads, please send those to me. We will absolutely evaluate, right, because that's what we're trying to do. Anyway, listen, I want to thank every one of you for being here, having an engaging conversation as well. And with all the rain and everything else, just making it possible to come here physically. I think it is different from doing it in Zoom, I have to say, right, whether we like it or not, the little bit of extra commute. But I think it's more engaging than a Zoom call. So thank you, everyone. All right.