Kanpur Plastipack Limited (507779) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kanpur Plastipack Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vinay Pandit from Kaptify Consulting IR. Thank you, and over to you, Mr. Vinay.

Thank you, Nirav. Ladies and gentlemen, on behalf of Kaptify Consulting, Investor Relations team, I welcome you all to the Q2 and H1 FY '27 Earnings Call of Kanpur Plastipack. Today on the call from the management, we have with us Mr. Manoj Agarwal, Chairman and Managing Director; and Mr. Shashank Agarwal, Deputy Managing Director. I would now request the management to brief us about the business and performance highlights for the period ended September 2026, the growth plan and vision for the coming year, post which we will open the floor for Q&A. Over to the management.

I welcome you to Kanpur Plastipack's earnings call for the second quarter financial year '26-'27. Thank you all for joining us today and for your continued trust and confidence in the company. On behalf of Kanpur Plastipack, I extend a warm welcome to all our investors, analysts and stakeholders to our earnings call for the quarter and half year ended 30th September '26. Building on the strong start we made in the first quarter, Q2 financial year '27 has been another quarter of healthy growth for the company. Revenue for the quarter stood at INR 235 crores, the highest quarterly revenue in the company's history and Profit After Tax more than doubled year-on-year to INR 15.1 crores. Compared with the first quarter, EBITDA grew by about 14.5% and the Profit After Tax by about 24%. This performance reflects the resilience of our business model, the confidence of our customers and disciplined execution by our team. The global business environment remained challenging during the quarter. Polypropylene prices moved back close to the high levels seen in March '26, owing to the continued geopolitical situation in the Middle East. High energy costs in Europe continued to weigh on the chemical industry, one of the key users of FIBCs, particularly in Germany. Although ocean freights eased during the quarter, they remain elevated and constrained container availability continued to disrupt supply chains. Despite these headwinds, our diversified export presence, long-standing customer relationships and agile approach to procurement enabled us to deliver a robust growth and profits. Our focus remains unchanged. We continue to execute our long-term strategy of strengthening the quality of our business while creating new avenues of growth. Rather than pursuing growth purely through higher volumes, we remain committed to improving our product portfolio, expanding into value-added applications and building capabilities that support sustainable profitability over the long term. FIBC remains the cornerstone of our business, contributing approximately 66% of our manufacturing revenue for the quarter. Over the years, we have built lasting relationships with customers in international markets, which has helped us maintain a stable business through changing market conditions. Our customer base across Europe, North America, South America and other markets gives us resilience and a broad base for growth. Our continued participation in international trade fairs has strengthened our inquiry pipeline and helped us expand our reach into new markets. As informed earlier, the capacity expansion of FIBC to add about 6,000 metric tons per annum in phases over five years and take the total capacity to about 24,000 metric tons per annum remains on track. Production has already started on the ground floor of the new building at Unit 3. The first and second floors are now expected to be completed shortly. Our joint venture with Essegomma, Italy through ESSEKAN Private Limited continued to build its presence in premium Taslan Yarn segment. Internationally recognized certification Global Recycle Standards also for GRS and OEKOTEX will strengthen our positioning in markets, enhance customer confidence and support value creation. These certifications are marking a significant milestone in our journey towards sustainable innovation, superior quality and global competitiveness. The response received from the customers has been encouraging, and we are confident of scaling up sales in the next half of the current financial year. Our entry into the non-woven technical textile segment remains one of the company's key strategic initiatives. We see significant long-term opportunities in this business across automotive interiors, geotextiles, artificial leather, carpets, footwear and other industrial applications. Despite slight delays due to heavy rains, we remain on track to commission the non-woven fabric facility in this current quarter with the first line expected to be commissioned by the 15th of November '26. Once operational, this business is expected to gradually become an important contributor to our growth while complementing our existing packaging portfolio. Together with our investments in premium polypropylene yarns and specialized applications, it reflects our vision of transforming Kanpur Plastipack into a well-diversified industrial packaging and technical textiles company expanding our addressable market while also improving product differentiation and value addition. Our entry into these spaces will also open up opportunities in select B2C linked applications and further diversifying our business model. Sustainability remains central to the way we operate. During the quarter, about 52% of our power requirement was met from renewable sources. We continue to strengthen our ESG practices for responsible manufacturing, energy efficiency, recyclable product designs and internationally recognized certifications. Overall, while near-term market conditions may continue to see volatility, we remain confident in the strength of our business model, our customer relationships and the strategic investments we already have. Our objective remains clear to build a stronger, more diversified and future-ready organization capable of delivering sustainable growth and long-term value for all stakeholders. With that, I would like to invite our Deputy Managing Director, Mr. Shashank Agarwal, to take you through the operational and financial performance in more detail. Thank you, everybody.

Thank you, and good afternoon to everyone joining us today. As the Chairman highlighted, we have continued the momentum of the first quarter into Q2. Let me briefly take you through the financial performance for the quarter. For the second quarter of FY '27 on a stand-alone basis, despite a very challenging global environment, the company reported a total income of INR 238 crores, reflecting a growth of about 43% year-on-year. EBITDA for the quarter stood at INR 25.4 crores, registering a 55% growth year-on-year. The margin improved from 10.67% to 9.83% in the corresponding quarter of the previous year, broadly in line with 10.69% in Q1. PAT stood at INR 15.10 crores, almost doubled on a year-to-year basis, while basic earnings per share increased INR 6.16 compared to INR 3.25. For the half year ended 30th September, the total income stood at INR 445.64 up by 28%, EBITDA at INR 47.59 crores and PAT at INR 27.25 crores, more than double of INR 13.07 crores of H1 FY '26. Basic EPS of the year stood at INR 11.11 compared to INR 6.26 in the corresponding period. On a consol basis, total income for the quarter was INR 240.22 crores and PAT at INR 16.06 crores, up by 100% year-on-year. Export realizations remained strong. Export sales were INR 119.81 crores, marginally higher than INR 119.16 crores, even though the export volumes were lower at 4,757 tonnes against 6,591 tonnes. During the quarter, realizations continue to remain strong with an average selling price increasing by 14% compared with the previous quarter. PPE prices rose again during the quarter, which was seen towards the end of March '26, but our pricing discipline enabled us to largely pass on the increase in the input costs. As a result, manufacturing segment margin improved to 11.65% from 8.95% in Q1 FY '27 and 6.34% in Q2 FY '26. This, coupled with our disciplined procurement strategy and improved product mix contributed to stronger margins during the quarter. On trading, segment revenue was INR 78.6 crores compared to 16.87 in Q2 FY '26. The company reported a trading profit of INR 1.16 crores compared to INR 0.59 crores in the corresponding quarter of the previous year. As I mentioned earlier as well, primary focus continues to remain on our core manufacturing business, given our understanding of the polymer market and established procurement capabilities, selectively capitalize on opportunities arising from market dislocations globally, price volatility wherever they align with our risk management framework. On the other operating incomes and other incomes. Other operating income for this quarter was INR 13.11 crores, of which INR 12.4 crores was export incentive under the DFIA scheme against INR 2.64 crores in Q2 FY '26. Since DFIA income is recognized on realizations of the licenses, it varies significantly from quarter-to-quarter. Also, this was suspended in quarter 1 FY '27 by the Government of India. Other income for quarter was INR 3.52 crores, which includes foreign exchange gain of INR 2.24 crores. Other income for half year was INR 7.85 crores, of which INR 5.57 crores was a net gain on foreign exchange. As an export-oriented company, a large part of our receivables are in foreign currency, and the gain reflects the exchange rate movements during this period. We treat this as linked to our export business, but it depends on currency movements and should not seen as a recurring trend. Higher employee cost. Employee benefit expenses for the quarter stood at INR 21.41 crores, an increase of about INR 4 crores or 23%. As I explained in the last quarter, this primarily reflects the annual salary revision and increase in minimum wages in line with the state government's revised wage policy. This also includes the directors' commission increase due to higher profits as compared to the corresponding period. Compared with Q1 FY '27, employee costs were broadly stable. While this has increased our operating costs, the company continues to implement focused initiatives around cost optimization, operational efficiencies, productivity improvements and value-added products to mitigate the impact and sustain healthy margins going forward. Borrowings. On the debt side, total borrowings as on 30th September stood at INR 162.61 crores, out of which INR 39.76 crores was long-term borrowing and the balance INR 132 crores short term -- sorry, INR 132 crores was the total borrowing on 30th June '26 and the long term stood at 22.83% at that time. This increase is due to new term loan for our non-woven project. Our net worth stood at INR 290.56 crores and debt equity remained at 0.56x. The increase in borrowings during the half year was driven by capital expenditure. The capital work in progress rose by about INR 37 crores during the half year to INR 45.67 crores as an ongoing projects move towards completion. YES Bank has sanctioned a term loan of INR 40 crores for these projects, out of which INR 27.38 crores has been availed as on 30th September. Higher receivables. Trade receivables increased by INR 26.32 crores to INR 120.6 crores, in line with the higher selling price. GST refunds and other current assets increased by INR 11.19 crores. IGST refunds of INR 12.64 crores were receivable as on 30th September '26. Exports and product mix. Exports continue to be the backbone of our business. During the quarter, Europe contributed 65% of our geographical mix followed by North America at 17% and South America at 14%, the balance coming from Australia, Asia and Africa. The diversified geographical presence helps us mitigate regional demand fluctuations. Based on product-based revenue mix, FIBC grew to 66% from 54%. Fabrics shrunk to 18% from 20%. Multifilament remained stable at 9% from 8%. UV MasterBatches, Small Bags and Geo Fabrics all remained under 3% in this quarter. From an end-user perspective, our revenues remained well diversified across food and agriculture, industrial packaging, construction, automotive and mining, reducing the concentration risk across demand. Coming to the projects update. Against a total project cost of INR 106.9 crores, we had incurred INR 78.86 crores or about 74% up to 20th October 2026. Some activities have taken longer than planned, mainly because of exceptional heavy rainfall in Kanpur during the monsoons and also machine commissioning issues related to overseas visa regulations. FIBC capacity expansion was updated -- the update was given by the Chairman. Non-woven agreement textiles, Needle Punching and Ironing Machine was received in August '26 and commissioning of the first line is expected to complete by 15th of November within our Q3 FY '27 target. Civil work was held up initially due to the heavy rainfall and then the late arrival of the suppliers' engineers. The project is slightly delayed but within our targeted schedule. Modern Roll Management System and warehousing, the building for this shall be completed between 15th and 30th November. The warehousing for trading division for IOCL has already been completed. On the manufacturing front, we continue to invest in automation, process optimization, infrastructure debottlenecking across our facilities to improve productivity, quality consistency, operational efficiency and agility in the lead time. Valex Ventures, as we had indicated last quarter, our U.K. subsidiary, regained its profitability regime in Q2 FY '27 after a small loss in Q1, supported by customer supplies scheduled after the implementation of the Free Trade Agreement and structural changes that have been undertaken there. Order book and outlook. During Q2 '27, the order book and demand was affected by a couple of factors. First, the polymer prices historically remained at the highest levels. At these prices, customers are reducing their inventory levels. Second, the energy crisis in Europe caused by shortage of oil and gas has driven up power costs and hit industrial activity, particularly the chemical sector in Germany. Europe is our largest market accounting for almost 65% of geographical mix. And the weakness in the European demand remains our area of concern going forward. The third factor was the El Nino weather conditions that affected agriculture output and also fertilizer demand in agriculture-based economies such as Brazil, reducing the demand for bulk packaging in these segments. Fourth, the ocean freight cost remains high and container availability at Kanpur ICD was also affected during this period. This raised the landed cost of our products for overseas buyers and had led some customers to defer purchases. We continue to issue regular market advisories to our customers to enable timely commercial discussions and fair pass-through of cost increases. We do see some easing out on this front. Our diversified customer base across Europe, North America, South America and markets with long relationships give us resilience during these tough times. Despite lower volumes, our focus on realizations and improved product mix helped us to continue with the profitability. Customers are buying closer to their immediate requirements. Most of our order book continues to be for dispatch within a month, consistent with the demand visibility of three to four weeks, as mentioned earlier. We have seen a slight dip in the average order quantity during this period. Looking ahead, we expect these conditions to persist in the near term and volumes in the quarter may also remain affected. We are monitoring demand extremely closely, particularly in Europe and remain focused on protecting realizations, managing working capital carefully and widening our customer base. At the same time, FIBC capacity expansion nears completion, the completion of non-woven facility and our continued focus on value-added products and new markets. We remain confident about our medium- to long-term prospects of the business. We are also exploring inorganic growth opportunities, both in India and overseas to strengthen our market presence, customer base and product portfolio. While we are actively scouting suitable opportunities, nothing material is visibly present today. We will remain selective and financially disciplined, focusing on acquisitions that create long-term value for our shareholders and fit well into the culture of the organization. With that, we conclude our opening remarks. Thank you once again for joining us today. We would now be happy to take questions.

[Operator Instructions] The first question is from the line of Agastya Dawe from CAO Capital.

Congrats on very good numbers. Especially, I was very positively surprised with the inventory and the receivable numbers. They did not spike disproportionate to the revenue given what all has happened on the raw material side. Sir, the three months during the quarter were all very different, right? The raw material costs were all over the place. So can you provide some commentary what happened when the prices corrected and then the prices again went up? I'm looking at the crude prices here. So I'm assuming that the product prices were also all over the place. So did you see any particular challenges? Is there any supply bottleneck in terms of raw materials [Technical Difficulty] that is the first question. And second, a broader question, over the next two years, can you give the effective increase in your capacities across all product lines now in terms of actual numbers, volume numbers?

Yes. So I'll take the easier one first, which is the capacity expansion. So FIBCs are currently -- the capacity is about 18,000 tonnes, and we plan to move to 24,000 tonnes over the next five years. Non-woven, the capacity will be around 12,000 tonnes a year. This capacity will be visible only in the next financial year because half of this capacity is going to come up in this quarter and half of this capacity will come up by the end of the next quarter. On the Multifilament side, the Yarn business, the capacity is 10,000 tonnes a year as well. This used to be about 7,000 tonnes. And due to this expansion, this is around 10,000 tonnes. On the Geotextile front, the capacity is around 2,500 to 3,000 tonnes. On the Polymer side, yes, we did see a dip in July when there was surplus of polymer, mainly due to the softening of the war situation at Hormuz and the government regulation on LPG production going away. But then by the time September came, this all started coming back again as it was the case in end of March. So yes, you are absolutely right. We have seen extreme volatility during this quarter. And yes, despite the troubles in the freight and despite the inventory buildup that is there, we have tried to remain extremely disciplined with our inventory and our long-term relationships with our customers have helped us to keep the receivables in line.

Sir, this volume destocking that you talked about in your opening remarks, to what extent it has already happened to channel inventory, how much of it has gone down by? And if, let's say, the war resumes?

Can you please repeat again?

Sir, you said that your customers are destocking because of the high prices in anticipation of lower prices. So how much of that destocking has already happened? So let's say, the peak numbers [Technical Difficulty]

Sorry, we are losing your audio, can you repeat your question once again, please. It is still breaking

So I'll try to answer it and then if something is left, then you can please ask. So I mean if the capability to destock is, let's say, 100, our understanding is that they've been able to destock by about 40 in the previous quarter, and we are expecting that they would destock by another 30 this quarter.

Okay. Okay. Okay. Understood. So even after such a large amount of destocking, you have seen reasonably good volume growth, right?

Volume growth is not visible. Our manufacturing volume has actually gone down.

Okay. Okay. I understand that. Okay. Okay. So probably this continues for one more quarter. After that, sir, do you think there will be further? Will they like destock further? There would be a bare minimum that the channel generally keeps, right, for normal operations?

We are in extremely volatile situations. We do not know what will happen. In the beginning of next week, we do not know how the war will escalate. We do not know how long the energy crisis will go. We are unaware of how the winters will go. What is in our control, we are very confident of that. That is consistency and discipline. And we will continue to remain extremely disciplined and consistent. Obviously, the relationship really comes out during this period. So our customer relationships have been very strong. We are receiving a record number of customer visits during this period. We have made a record number of customer visits during this period. So relationship is getting stronger.

I was missing a couple of points. You clarified everything sir. Thank you.

[Operator Instructions] Next question is from the line of Vishvender Singh from Prudent Equity.

Debt has gone significantly higher. So what sort of peak debt are you looking at to end with this year and next year post the CapEx commission?

Sorry, I have not understood the question. Could you be a little louder and clearer, please?

Is it better now? My voice is better now?

Yes

[Foreign Language] What sort of peak debt are you looking to have a debt to equity on our books for FY '27 full year and FY '28 post the commission of the CapEx.

I'll just hand it over to CFO to answer the long-term debt, how much it will be, but the short-term debt is basically based on the raw material price increase. And if this remains the pricing at what it is today, we should be increasing our debt on the same number of days worth of revenue and inventory. But on the long term, CFO will answer.

So as already announced in the last quarter that we are going to introduce a new project in which we are taking a INR 40 crores of loan, out of which we have already taken near about INR 27 crores of loan. So the peak debt will be near about INR 40 crores to INR 45 crores by the end of this year.

Got it. And on the expansion part, you mentioned that you had some delays due to monsoon and other construction activities. So post the commissioning, what sort of top line growth are we looking at in FY '27 and FY '28.

Non-woven revenue expected in FY '27, '28 is between INR 100 crores and INR 120 crores.

Sir, can you please repeat? Your voice was a little unclear.

Non-woven revenue expected in FY '27, '28 is between INR 100 crores and INR 120 crores.

And on the margin side, you mentioned 14% to 15%. Are we sticking on that or we see pressure...

That's the expectation.

And what sort of revenue would you be seeing from that segment?

I am sorry I cannot understand.

[Foreign Language]

So this year, we are not -- so I mean if you talk about manufacturing volume, the expectation is only a minor 5% to 10% increase because the demand continues to be a problem. Next financial year, the expectation is about 20% growth in FIBC manufacturing volume. Revenue growth will definitely be there this year because of the increased prices. But manufacturing volume-wise, we are talking about 20% growth next year.