Huhtamaki India Limited (509820) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Huhtamaki India Limited Q3 CY '26 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Mishra from ICICI Securities. Thank you, and over to you, sir.

Yes. Thanks, Tharun. Good afternoon, everyone. Thank you for joining Huhtamaki India Limited Q3 CY '26 Results Conference Call. We have the Huhtamaki India management on call represented by Mr. Kamal Taneja, Managing Director; and Mr. Amit Gupta, CFO. I would now like to invite Mr. Kamal Taneja to initiate with opening remarks, post which we will have a Q&A session. Thank you, and over to you, sir.

Thank you, Mohit. I hope everybody can hear me. Welcome to the quarter 3 call. I think as you noticed here, we are doing a different format this time. So instead of conference call, we're doing a video call. My request to you would be that if you're asking questions after the call -- after the presentation, please put your video on if possible. And so first of all, I'm going to start with the first slide, which is about the disclaimer. As you know, whenever we present something to the investor community, there might be some things that are kind of forward-looking. Again, this is our best estimate on what we are saying. They depend on a lot of external factors such as the markets, industries and of course, a lot of things that go within our company as well. So you need to take that into consideration as a risk to what we are saying. The second one, which is very important here is that we are not seeking any investment advice or services, any investment from your side. We are just presenting the way it is and how we have seen the quarter go and partly how we see the market go in future as well. So with that, I'm going to start the presentation. This will only take a few minutes. So me and Amit will share this. Before we share with you the financial numbers, we internally always start every presentation with a safety slide. This is our way of working. So I thought this time, I'm also going to share that with you because safety is our foremost priority and it is also our group's zero ambition -- zero-harm ambition. So I'm pleased to tell you that in the third quarter, we actually had no incident. So no first aid, no medical incident or no lost time. We monitor this through the year. We also look at moving average -- moving month average over the last 12 months. And we are also making huge significant actually improvement there. Now a lot of companies look at just the numbers specific KPIs. But in Huhtamaki, we actually focus on the leading indicators, which actually impact the safety of our coworkers. So we, for example, give a lot of emphasis to things like near-miss reporting. So we have thousands and thousands of near-miss reporting from very smallest to very high severity impact near-misses, which we record every year and take action on that. And we mainly focused on preventative safety observations, yes. So this is how we work in Huhtamaki, when the safety is concerned. Now Amit will give you the numbers. I think you've seen our disclosure to the stock exchange as well. We had a pretty good month, pretty good -- sorry, quarter. As you have seen from the last few quarters, especially since beginning of this year, every quarter, we have shown volume growth. So no difference again. We had a pretty successful run in third quarter as well despite what you are seeing geopolitically, all the disruptions, supply issues and sometimes also cost issues. I think we are pretty good in handling that already. In fact, some of our best practices are also shared within the group as well. So despite all that, we have made sure that our customers have uninterrupted supply of materials from our side and also products that we built for them are on time and with the right quality that they've demanded. Because of that, our revenue has grown, as you would have seen almost 23%, 24%. And that revenue growth is a mixture of inflation or the material inflation pass-through that we do to our customers as per our contract with them, but also a very healthy mix with the volume growth as well. I think one thing that you would have noticed is that our EBIT -- reported EBIT was kind of flat compared to third quarter last year. But the third quarter last year, we also had some one-offs gains, which were not repeated. So if you look at comparable basis, we were almost 18% up year-on-year for the third quarter. So if I can summarize that, net sales increased by 23.7% or 24%. EBITDA 1.2% and 0.1% with a caveat that like-to-like on a comparable basis, more like 18%. But nevertheless, we still kind of kept it flat or slightly up. You would have also noticed that we actually announced a closure of our factory in Baddi. So this is a labels plant during the quarter. So it's undergoing that period, 2 months' notice period at the moment. So we are closing in fact by tomorrow. It's gone very smoothly and our customers are okay with that, and we've made sure that there's no, let's say, disruption to the supply to them. So we've essentially moved those volumes to the other 2 label plants we have in India. So because of that, there's a charge of INR 96 million, which actually impacts the 19.1% decline that you see on PAT. Again, it's a onetime item. And actually, it is going to improve our efficiency and optimize cost in near future as well. So with that, I'm going to ask -- one more thing, yes. So we -- in the calls, we always get a lot of questions on blueloop, how we're doing, et cetera. Now what you see here is that we just recently actually just last month, we won these 3 awards from IFCA. So IFCA is the Indian Folding Carton and Flexible Packaging award community. And it's kind of neutral with whatever product that we do. So they've actually awarded with this very prestigious 3 product groups. And you see OmniLock, this is actually a stand-up pouch for the cocoa powder, blueLite, which is actually where -- it's actually for an export customer where the tomato ketchup sachet you see in the market. So it has a very high complex barrier aluminum foil and multiple layers of plastic material. So we managed to actually produce a product which is reducing the use of plastic. So instead of 3 or 4 barriers -- 3 or 4 layers of plastic, we went to duplex structure, and we totally eliminated the aluminum foil. So very good product sustainability wise, but also cost wise, significant saving for the customer. We also did a very unique label for one of our customers in U.K. Again, this is done on a very metallic film, very unique. And the reason we are not showing the products here is because we didn't have time to actually get the approvals from the customers. So hopefully, I'll show you that in our next presentation. But very excited, very proud of showcasing this with you guys. Yes, Amit, do you want to take us through the financials then.

So, all the investors on the call, a very good afternoon to all of you. I would now maybe run through the financials and give you some perspective behind the numbers. As Kamal talked about, we had a great quarter. In fact, we actually recorded a sale of about INR 748 crores in the quarter, which is almost 24% up versus last year. And this is also the highest sales that we have amongst the different quarters over the period of last couple of years. The good thing about the growth that we're demonstrating in this quarter and also YTD, is the fact that we have a very healthy composition of the volume as well as mix and pricing in this growth. On a quarterly basis, our volumes actually were up by about 7 percentage points. And if you have to look on a YTD basis, we have actually delivered a 4% volume growth coming over from a couple of years where the volume has been stagnant. This particular year, we have been able to drive a top line with a healthy mix of volume as well as pricing and mix, all 3, coming into play. Consequently, the EBITDA margins, which, again, as Kamal reflected upon for the quarter have a bit of a one-offs with respect to the baseline. But if you look at the 9 months period, we actually closed 9 months at about total EBITDA of about INR 204 crores, which is almost 10 percentage points of sales growing by about 25 percentage points. So against the top line growth for a 9 month period of 16%, we are actually growing the bottom line by 25%. Again, a good reflection of the various productivity initiatives as well as steering our customers and the pricing in a very volatile scenario where the RM prices have been fluctuating on almost like weekly, if not daily basis. Our EBIT margins, if I have to talk specific about the quarter, there are one-offs in the last year and those one-offs are primarily related to some employee retirements related reversals or corrections, which happened, which were helped in the last year P&L and are not there in the current year. And that's why the 2 period EBITDA margins are not directly comparable. So -- but if I have to, let's say, exclude those and do a comparison on a like-for-like basis, the EBITDA margins actually improved by 18% versus the 1.2%, which is reflected here. EBIT margins, again, from a year-to-date perspective, we were at about INR 153 crores, up by about 22 percentage points from last year. The INR 153 crores number that we are reporting here is actually after offsetting close to about INR 8.8 crores of depreciation, the prior period depreciation correction that we passed in quarter 1. Excluding that onetime implication of the depreciation and the one-offs on the retiral fronts, our comparable EBITDA margin growths are much higher as compared to what is reported here. On a quarterly basis, when we are looking at our EBIT margins, again, this has a reflection of the one-timers. Excluding the one-timers, our EBIT margins have actually improved by 18% during the same period. When we look at the overall PAT, while our PAT profit and loss for the period looks 19% lower as compared to last year at about INR 30 crores versus INR 37 crores last year However, this primarily is on account of the restructuring charge that we have posted in this particular quarter. And as Kamal alluded, this particular decision that has been taken is in the interest of the company and the shareholders because we had a bit of a challenge, operational as well as financial challenge with respect to the Baddi side. And with this particular action, we are looking at improving the things further. But that particular charge is actually hitting our P&L in this particular quarter. And hence, the profit after tax is looking lower by about 20 percentage points. In spite of this charge, if you have to look at a 9-month profit, we are still growing at about 13 percentage points in our profit after tax, which is a reflection of a healthy margins that we are delivering for the business in a very volatile scenario. Our earnings per share have improved by about 13 percentage points for the 9 months ended September '26. And again, this is a reflection of the profits that we have been able to generate along with a healthy top line being here. So I'll stop here, but I look forward to answering any of the questions which are there going forward.

Thank you, Amit. Like Amit said, you see on the left-hand side, this is actually one of the highest quarter we had in terms of sales. I think one thing I also want to qualify there, if you look at -- this is a period when you see a lot of results from some of our customers also in the market. And as you see, they are all reporting higher, let's say, sales number, but they're also saying that they are seeing a volume decline. But in our case, we actually also have a volume increase, not decline. So I'm very encouraged by that. On the right-hand side, you will see EBIT and EBIT margin. Again, like we said, this is after taking into account all the costs as reported. However, if we did not have those onetime costs, we would be looking at upwards of 8% again, which again, in our industry is quite a good number. Next one. I think I have to spend a little bit time like I always do on not just financials. But for me, it's important to share with you what we are doing in terms of safety and sustainability. So we have 4 pillars like we always talk about. A people pillar, this is about safety, like I said. I think the important thing here is, like I mentioned before, we look at a leading indicator, which also means that we look at things like behavior safety, not because I think it's easy for us to form policies, et cetera, but we want to kind of change our behavior towards safety from the core. So we have a lot of programs that are designed to address that. On climate pillar side, we've been sharing this with you earlier, but we actually started getting a gain from this solar captive generation plan that we did for Khopoli. With that -- it actually started in August, so actually in third quarter. But with that, we are increasing our renewable energy electricity share to 23%. Decarbonization and energy efficiency, all those actions like we spoke about always in the past, they are ongoing, and we are committed to supporting our delivery of 2030 Scope 1 and Scope 2 commitments. On the nature pillar, no change from last time. We keep on doing good things on water treatment and reuse. I also shared with you last time in Taloja, we have a very unique plan for the water recovery and we're doing rain water harvesting and wherever groundwater discharge we have, we are trying to kind of recycle that wherever possible. On the product pillar, we've done a lot of actually work on that. The IFCA award, for example, you saw that this is all being fed from our innovation team, where they're looking at not only using more recyclable material, more mono-material, but also reducing the use of materials as well at the same time. And we are doing a lot of work on the source of our material purchase as well. So for example, here, one example we do is our 3 plants, label plants, they are all FSC certified. So I think this is what we wanted to share with you. And if you have any further information that you need, please feel free to contact us on the e-mail address on the screen and also through our website. And with that, I thank you, Amit, on behalf of Amit and myself and also wish you happy Diwali in advance. Happy to take question now. Yes.

[Operator Instructions] Our first question comes from the line of Aditya Khetan. The current participant seems to have dropped from the queue. We will proceed to the next participant in the queue. Apologies, we have Aditya Khetan with us. Aditya, are we audible to you? You may proceed with your question.

Sir, my first question is in this quarter, sir, we have witnessed moderation of margins. How much of this is attributable to higher inventory costs like we had built up in last quarter? And subsequently, are these current margins sustainable going ahead? First question is this, sir. Second question is, sir, when we look your overall top line over the last 3 to 4 quarters, when we look -- so 3 quarters back, like we were hovering at around INR 600 crores to INR 620 crores top line. Now we are at INR 750 crores, INR 770 crores top line. How much of this jump, this -- so INR 150 crores to INR 170 crores jump in top line is attributable to volumes and pricing. If that breakup, if you can give, that would also help. And sir, third question is like at what utilization level, sir, we are operating the plant today? And how much of incremental revenue jump we can see if we utilize the plant at full utilization levels, how much incremental top line we can generate?

Thank you, Aditya. Three questions, so not 2, but I'll answer all 3 of them. So let me start with the top line first, right? So a very good question. So our top line has increased, like we mentioned a few times because of 3 factors. So there's pricing, obviously, because we -- in our contracts, we normally have pass-through of any inflation for the raw materials. The second driver for the top line growth is actually mix. So I think Aditya, if you joined our calls before, you would have noticed that we always talk about the quality of products, yes. So we kind of look at places where we are making less margin or the complexity is low or commoditized, et cetera, et cetera. So we focus on products which are, let's say, more aligned to our value proposition. So the more products we do like that, obviously, they will carry more value, let's say, volume of the product. So that's the second one. Third one is actually volume increase. So physically, we are doing, like Amit mentioned, about 7%, let's say, in quarter 3 that we did not do for a while, so which I think -- so those 3 are contributing to that. Now how much of that is -- I mean, we can't tell you exactly because of many reasons. But I think you would say almost like 1/3 or something like that. They're close to equal to each other, but not exactly. But I think we are pretty happy, frankly, firstly, with the volume increase because we haven't done that for a while, as you know, which also brings me to the third question that you had in terms of utilization, yes. So we always say that we have enough capacity available. We are actually making a lot of effort in becoming more efficient. So productivity, efficiency improvement is also top of our operations agenda. What that helps us in doing is to make sure that we have more and more capacity available for future growth. So at the moment, we see that we do not have any issue at least for next 2 to 3 year cycle where we wouldn't need to do any huge investment to meet the market demand or increase in our volumes. Now your first question was on the margins, whether it's sustainable or not. Now what happens is that -- so there are 2 factors here. So firstly, like I said, like-to-like, the margin is more like 8%, yes, for EBIT margin because we had one-offs, which are not repeating. But I think there's also sometimes a delay. So for example, depending on the contracts we have with customers, any raw price pass-through or cost pass-through does not happen in the same month, right? So there might be a lag. So sometimes it goes to next month, sometimes it's immediate, sometimes it takes a couple of weeks, yes. So we experienced some of that in September because the raw material cost actually went up significantly and more aggressively in September and more sudden, which we were unable to pass-through in the same month. So we would see the impact of that over the next quarter. But at the same time, so there's a delay, but we also benefit from that sometimes because when the costs go down, we are also late in implementing that. So it's give and take, but it just happened, the timing is such that we had that issue in third quarter. So I hope I answered your questions, Aditya.

Aditya, may we request you to please announce your company name as well?

SMIFS Institutional Equities.

Our next question comes from the line of Ajit Darda.

Sir, my first question is related to the previous participant only. Sir, as you said, there was a strong volume growth in the previous quarter. So how much of the volume growth was contributed by high value-added products?

I would say majority of that because I think that's what we are focusing on. I mean, I can't tell you exactly the split. But usually, we are focusing on higher value products, yes.

Okay. So sir, my next question is, are you seeing any regulatory changes, particularly around stricter food packaging requirements, front of pack nutritional labeling? And I mean, do you see any growth for our business going forward due to that?

Yes. So I think you are referring more to the artwork, is that right, or more on material?

Yes.

Okay. So on...

Any mandatory recycled plastic content or stricter packaging requirements, any sort of that thing, I mean, labeling things and all.

Right. So I think -- so our value add comes from a couple of things. So obviously, like you mentioned, artwork, yes. So for example, when you have festive seasons, right, you have different artwork because there are festive packs, et cetera. So we work with our customers. That, in our case, would have happened in the second quarter, not so much in the third quarter because we produce the product, we supply to our customers who put on their products, et cetera, et cetera. So that would have gone already unless there's more Christmas coming, but I think Diwali, Dussehra is now, we are stable. Now I think what you also want to know in terms of materials, what the regulations are coming. So actually, there are -- there is an existing regulation in the industry for use of recycled plastics, so PCR. So there is a plastic content regulation. So the government actually specifies how much of recycled plastic should be used in our laminate. Now it depends on different types of laminates, so let's say, A, B, C or 1, 2, 3. So for example, if it's a simple mono-material, there's a larger requirement of recycled plastic, let's say, 40% or 30%. And it actually progressively goes up every year. The more complex laminate we have, for example, which requires multiple materials, aluminum foil, for example, there the regulation right now is about 10% of using recycled plastic. Now that obviously gives us opportunity, firstly, in terms of changing the spec on the job. And also sometimes the complexity or the technology of doing that may be different from, let's say, the laminate, which is made from the virgin plastic. So we do benefit from that. I think what we do benefit even more is through innovation. So like I mentioned before, is where we will try and convince customers to use our blueloop product, mono-material or go from multilayer to, let's say, single-layer or double-layer. I think that's more encouraging for us to see. And yes, so I think overall, it benefits us. I just hope that the regulations were also imposed so we get more benefit, but I'm pretty sure the government knows that and make sure that they are used more and more in future. And by the way, this recycled content will also increase in future with the regulation.

So if regulations get implemented since we have already capacity...

Yes.

Yes. So unlike our smaller players, we will be at a stage that we can start the production as soon as possible probably. Right, sir?

Yes. So I think all I can say, we are well prepared for that.

Okay. Sir, I just have last question. Sir, how much time -- I mean, it's a broader question. How much time does typically takes to convert a new customer into a commercial client and probably existing customers, new orders or expanding existing business? I mean if you could answer this in a broader way, yes.

Well, so again, new customers, they always say, right, getting more business from existing customers is always easier and faster new customers, because they have to kind of -- so the process goes like this, right? So they have a requirement, they develop an artwork then they work with that, they will go through pre-press, we go to and for to make sure the design is good, then we propose to them a technology or product or laminate that will suit them. And then there are a lot of trials. And by the time it comes to market, sometimes it can be anything from 3 months to a couple of years, right, depending on the complexity. The good news is that we have a very set team which does that day in, day out. Yes. Again, it depends. Larger customers are -- take longer because they also have a lot of verification and control and approval process within their system as well. So usually working with the smaller customer, regional customers is faster.

I am Equity Research Analyst at Nirzar Enterprises.

Our next question comes from [ N. Modi. ]

My question is regarding this land held for disposal. So what could be the approximately market price for this land, sir? Approximately. Sir, am I audible?

Mr. Amit Gupta, I'm sorry, we are not getting your audio coming through. One moment, sir. We're just checking on the audio for the management.

Can you hear me?

Yes. Sir, you are audible now. We request you to please start from the beginning because we missed the entire.

Yes. My question is regarding this property held for sale, what could be the market price for this property?

Yes. So thanks for the question, Mr. Modi. This is Amit here. The pricing for the land is -- it would be consistent with the prevailing market rate. We don't have kind of a fixed quotation right now because we are still evaluating different bidders. So I would not be able to give you an exact pricing for that.

Sir, please suggest very roughly.

Yes. Actually...

Do you want to buy Mr. Modi.

Maybe. I can get you the customer.

Yes. I'll probably recommend that if you have -- if you would like to connect with us with respect to certain offer, you can drop us a mail, and we will connect you with the right team.

I think it will be speculative, if we say something like that, yes.

Okay, sir. I understood. Okay, sir. Sir, other thing sir, this depreciation sir, which was not charged in earlier year, so has it been taken care in income tax assessment, sir, there also we might have claimed less depreciation. So how we are going to account for that, sir, in income tax assessment?

Yes. Actually, Mr. Modi, there was no challenge with respect to depreciation charge from a tax perspective. As you know, the depreciation calculation for tax purposes and as per Indian -- as per the IGAAP for the -- as per the Indian companies and IGAAP is different. Hence, the adjustment that we have passed is only with respect to the IGAAP. Under the taxation depreciation, there's no kind of correction that we have done in the current year. So there's no challenge in that.

Our next question comes from Vipul Shah. We do not seem to be having a response or getting a response from Vipul Shah. We will proceed to the next participant in the queue. Our next question comes from [ Dinesh Parekh. ]

Congratulations to you Mr. Taneja and Mr. Gupta. Very good number. Can you listen me?

You are audible, sir.

Not audible? It's audible?

You are audible.