Mold-Tek Packaging Limited (533080) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mold-Tek Packaging 2Q FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference over to Mr. Abhishek Navalgund from Nirmal Bang Institutional Equities. Thank you, and over to you, Abhishek.

Thanks, Malcolm. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you all to Mold-Tek Packaging Limited Q2 FY '24 Earnings Conference Call. We have with us Mr. Lakshman Rao, the Chairman and Managing Director of the company, along with the finance team. Without further ado, I would request Lakshman, sir, to start with his opening comments, post which we can open the floor for question and answers. Thank you, and over to you, sir.

Hello. Do we have the management online?

Hello? Can you hear me?

Yes, go ahead. Yes.

Good afternoon, everybody. Thank you very much for your interest in our company's operations and results. I wish to state that we have a flattish quarter in Q2. The growth was marginal at about 5% in terms of volume terms in the Q2. Overall, H1-on-H1, we had a 3.4% growth in volume terms. This basically, we have growth coming up in our square packs and lubricants and also Food & FMCG. But paints continue to be on the decline. As I have stated in the past, we are not chasing the small term paint companies and letting go some of those paint companies. And also, there's a flattish performance of all the major paint companies, if you noticed in the market. And that has resulted in our paint sales dipped by about 8%. Being the largest contributor at around 50% of our total sales, this has impacted our growth to a reasonable extent. However, the positive thing is the lubricants have grown 9%. Food & FMCG is at 15%. And Qpack, which is our square pack has gone up by a huge 80% growth in volumes because of the new segments have been opened up and other details, which I will talk over your Q&A session. So I now would rather go back to the operator to let us take the Q&A so that we can cover more details.

[Operator Instructions] The first question is from the line of Avadhoot Joshi from Bryanston Investments.

Am I audible?

Yes, Mr. Joshi.

Sir, three questions. First, on the lubricants, we have seen an increase in the volume. I would just like to know what has contributed to it? And there are 2 or 3 major companies are also getting into the lubricant businesses like Amara Raja is getting into lubricant business plus Goodyear. So are we able to add new clients into this segment? That's first for the lubricant. And do we expect this growth for the lubricants to keep on going further also?

In Amara Raja and Goodyear, we are just in touch with them. They have to go into commercial production in a big way. And the growth we are seeing is mainly because of continued movement of lube companies into IML, and also some of them into QR coding -- coded IML containers. Shell is moving one by one of its grades into QR code. And apart from that, I would say IML movement from ordinary decoration to IML decoration is what's causing the growth in the lubricant sector. Adding new clients will be still on the platter for next few quarters. So we expect the lubricants to do well. In spite of the lubricant sector volumes may not grow considerably, we may still have about 7% to 10% annual growth for the next 1, 2 years.

Okay. And on the Food & FMCG, the Qpack segment has been doing well for the last 2 quarters. It could be majorly due to the reduction in palm oil prices. How do we see growth into the core FMCG sector that you have mentioned in the beginning that core FMCG has grown 15%. Do we expect to grow more going further because we were expecting 20% plus growth into this segment? How do you look at it?

Yes. Even in the half year, the growth of 14% is much lower than our expectations. Basically because the ice-cream sector in the first quarter especially was really affected due to the rains in the summer season, which impacted their sales considerably, you might have noticed and read the news items also on that, which is a major contributor to our top line growth. So having said that, the quarter -- this quarter, 15% growth is also because of the ice-cream -- slack in ice-cream demand. Otherwise, we have added several clients, and it would have been more than 20% as envisaged. Coming to the Qpack, the demand rise is not just because of edible oil at all. It is mainly because of our other sectors like cashews and fertilizers, nutrients and other applications, which our marketing could open up is the contributor towards the increase in the Qpack sale. And one news, which we also gave in our press note is that a few months ago, we received patent for the square packs, which we have been fighting for the last 4, 5 years. And that has been awarded to us a few months ago. And then we completed some legal formalities. And through various courts, I don't want to name the courts, we have got the injunction orders against a couple of duplicators. We have copied our container as it is and manufacturing them in a very unscrupulous, unhygienic atmosphere and offering lower prices, impacting our margins indirectly and also our market size. So those effects just started a month, 2 months ago. From September, we started taking action on people who are -- copied our patent and design. And courts are also supporting this time because the Delhi High Court itself has given us an injunction order to seize one of the competitors. Similar orders are now being given by other high courts, and we hope to stop at least 3 or 4 very low-end competitors who have copied our design in total. And that may also gradually improve our margins and volumes in that segment in the next few quarters.

Lastly, on the guidance, you have guided that in the last quarter, the volume growth would be around 10% for this year. Do you still maintain that guidance?

Yes. The third quarter is moving good. We are looking at around 14%, 15% volume growth in this quarter. So far, the volume growth in this 2 quarters is only 3.4%. So even if we can do at least 15% growth in the next 2 quarters, we can still be there. But we may slip a little bit to the extent of 8% to 9%, but not severally down because our pharma packaging will start production from December in one of the segments. And the second segment will start from January. So in the fourth quarter, there could be some numbers added in both pharma and also ABG plants, 2 plants of ABG, 1 at Panipat, 1 at Cheyyar. They will go into production by the end of December, beginning of January. So there will be some numbers, not huge numbers, but some numbers will be added in the first quarter. So I'm still positive that we may be able to reach a double-digit growth in the overall volumes in the full year.

The next question is from the line of Jaiveer Shekhawat from Ambit Capital.

So firstly, on your pharma packaging front, can you update us where are you in terms of your plant production, customer audits and client sign-ups?

We are really bullish about our entry into pharma packaging, thanks to the good guidance and some of the market research done by our marketing team. We are instead of coming out with just the tablet packs, which we envisaged 1.5 years ago, we are now coming out in the fourth segment, that is OTC, of course, it was there in the beginning also, the over-the-counter products. And then the regular tablet packs, which we have envisaged in the beginning itself. And -- but we have added effervescent tubes and canisters, which are also very critical inputs for the pharma industry. And there are very few suppliers and some of these products are still imported at least canisters and distributed by some companies here in India. So these products will give us an edge in terms of quicker entry with the pharma companies, we hope. And that will open up the avenues to get into other areas of pharma packaging like nasal drops, eyedrops, inhalers gradually. But going forward, one thing we feel in our management is that pharma is going to be the torchbearer for our growth in the next -- at least 5 to 10 years. Like what IML did 10 years ago, we hope pharma will be able to do for our company in terms of improving EBITDA, especially and taking us forward in revenue growth later. So we have done the starting and we have created the team in place. The final stages of clean room work is going on now. We hope to start commercial production in the beginning of December for one of the lines. And probably by January, we'll have all the 4 segments up and running. So we have created the team of technical people, quality control, and we are in the search for a couple of -- a couple of marketing people also joining, but we are still in the search for a top-ranked person. And meanwhile, our initial talks with some of the pharma giants have indicated that they will be welcomed to join the club because there are very few operators, 3G and Gopaldas and DrPak like that, there are only 3, 4 known operators of decent size. And there is a tremendous growth coming up and even Indian like, as I said, there is a council for medical production and packaging. They are also becoming more stringent in terms of packaging production, packaging, quality of the ambience and manufacturing practices of packaging companies also, apart from just pharma. So if that happens, even in a country like China it happened now. They have strong standards like FDA. So if the standards in India starts tightening, the domestic market is a very huge opportunity. So we'll be placing ourselves in time to grab those opportunities apart from the huge pharma city coming up at Hyderabad. Of course, the work is still going on and probably in a year or two, we see pharma companies ramping up their production capacities in Hyderabad in that pharma city. So it will also take us a year or 2 to build up our capabilities, numbers and relations with these pharma companies. And we will be well set for a long innings in pharma packaging as our growth strategy.

Sure, sir. That's helpful. And moving on to your lubes and F&F business. So while on a Y-o-Y basis, you've grown 10% to 15%, but that's also because of a low base in the base quarter. Because if I see quarter-on-quarter, the decline is roughly 15% to 20% in your lubes and F&F business. So can you just explain the reason behind that? And what is your outlook for the rest of the year in lubes and F&F?

In Food & FMCG, you mean?

Yes, in your lube pack as well as in your Food & FMCG, sir.

Compared to Q1, you're saying?

Yes.

Yes. Compared to Q1, Q1 is always our best year -- best in terms of F&F, mainly because dairies and ice creams and all other products continue to be the best year. So when it comes to the Q2, you have a lot of rains and the consumption of mainly the ice creams and the dairy products will come down sharply. That is the reason. Otherwise, Q1 is historically highest all the time. But if you compare our current performance with the last year performance of Q2, we have grown by 15%.

Yes. So I see that. And lastly, sir, in terms of your guidance for F&F business. So I understand this year, you've seen challenges but in terms of your expectation about this business over the next 2 to 3 years, do you still maintain your 30% plus volume growth guidance in F&F?

Yes. Going forward, we always aim at 20% to 25%, at least, if not 30%. 25% is possible because now we are going to set up our first plant in F&F at Panipat with a basic machinery of about 4 to 6 machines by February, March this year '24. By then, the summer also will set in, and hopefully, we'll catch up with the summer season in Panipat area, and that is not an area. So we hope to maintain that 25% guidance in F&F going forward for the next couple of years. In Qpack, we'll continue to grow in something like 30% to 40% at least, if not 80%. And that is because we are not only getting new segments coming into this pack, but you might have noticed Gemini Oil, which is one of the largest oil manufacturers in the country has adopted our 10 liters in a big way, and they're advertising the pack and pushing the quantities very -- in a very big way. So there is a lot of inquiries coming in our way for the edible oil packs also now. Because one of the leaders has adopted it. So far, midsized companies only adopted. This is the first time the -- I mean, a company like Gemini Oil have adopted this pack in their portfolio and giving it a very good test. So we hope that this will create further demand for the Qpacks in the coming quarters.

Sure. That's very helpful, sir.

[Operator Instructions] The next question is from the line of Jenish Karia from Antique Stock Broking.

The first question is with regard to data maintenance, if you can just help us with the volume and value share and Food & FMCG lubricants and Paint segment, volume and value both.

Sorry? Volume and value of Paints and Lubes segment?

Yes, Paints, Lubes and Food & FMCG.

Okay. See, Paint, the value is INR 78.32 crores, tonnage is 4,460; Lubes, INR 37.7 crores, tonnage is 2,160; Food & FMCG, INR 32.86 crores, tonnage is 1,117; Qpack is INR 19 crores, tonnage is 8,779.

Okay. And sir, similar numbers for IML or non-IML?

Sorry, Qpack is 1,117 and Food is 1,040. Qpack is 1,117. Food & FMCG is 1,040, 1-0-4-0, tonnes.

Okay. Okay. And similar numbers for IML, non-IML segment.

Yes. IML, non-IML, we have 62% IML, 38% non-IML. In terms of value terms, 66.7% and 33.3%.

Okay. Sir, second is on the CapEx. So we have -- we are guiding for around INR 120 crores CapEx for FY '24. In first half, we have spent approximately INR 25 crores. So second half, we have...

In the first half, we have spent around INR 54 crores.

Okay. I was referring to the cash flow statement. So...

The cash flow statement, you showed INR 25? He says in the cash flow statement, you have showed only INR 25 crores for CapEx.

The intangibles is a separate line item, sorry.

Working process is not shown in there.

Okay. That was mine. Okay. So -- and so how do we plan to fund the second half CapEx?

We have applied for INR 20 crores of term loans from Citibank, and the rest will be coming through our internal generations. So our overall total INR 120 crores to INR 125 crores investment is planned, which is on card as for the estimate. Already machinery and molds are ordered to the worth of around INR 40 crores as of today, they'll be arriving in the next 3 months, and there will be construction activity still going on at Panipat, Mahad, Cheyyar. And Panipat has to -- sorry, Mahad has to start from probably end of December because we just got the land clearance, and now we need to complete the registration formalities with the government of Maharashtra. And then probably in December, we will be able to start construction at Mahad. That plant is supposed to go into production by June next year. So all these expenditures will be crossing the projected INR 120 crores in this...

Okay. That's helpful. Sir, any guidance on the EBITDA on per kg basis for this year and in the long term?

See, this year, we noticed that there is increased pressure on EBITDA mainly because we have to take people and trying them for various plants across India already, people have been taken for Panipat and key personnel, not everybody, key personnel have been taken in there under various levels of timing. Some of our internal people are being transferred to those areas. And these new people will be absorbed in the plant either ways. So the team, both in pharma, both in payees, there is increased manpower that's reflected in the increase in manpower cost by more than 14% this quarter. So that is one of the reasons for reduced EBITDA. And also, we have the challenge of adding RCP material for the paint and lube industries, especially because they are under the government statutory obligation to use the recycled plastic. And in turn, they ask us to mix those material. And of course, pricing-wise, they take advantage. But more than the pricing, this involves lot of price to establish the products and changes in the molds. So last several months, at least, say, 7, 8 months, we have been doing these changes and bringing those molds compatible with the RCP. So that work is now just getting completed. So this is another reason where we are finding more rejections and more trial work going on -- as a percentage wise, I'm not saying it is very high. Let's say previously, it is 2%. Now it is in the range of 4% to 5%. So that is indirectly cause you a little extra costs. So this is why the EBITDA is a little decline towards 37, 38 levels. And I hope this year will continue to be in the similar range. Probably in the fourth quarter, it may look up a bit because of pharma adding. But for the next full year, that is '24, '25, we certainly want to see it in the range of 41, 42 with the addition of pharma business that will add at a very high EBITDA and also improving Food & FMCG through our north plant.

And just one last thing. In your earlier question, you were implying that October has started on a good note, and you should close the quarter at 13 -- 14% growth. So is it across segment? Or is it driven majorly by Food & FMCG recovery?

Yes. It is mainly in the Food & FMCG and Qpack. Lubes and paint will be probably stagnant or little bit growth in lubes. Paint also might grow by a few points, but not much because Diwali is the season when in October, they pick up the max. But in November onwards, once Diwali is over, generally, paint industries volumes dip a bit. So third quarter will be generally the worst quarter for us if you see the past record. But this time, it is not bad. So we hope there will be a decent double-digit growth in the Q3.

Okay. That's helpful.

[Operator Instructions] The next question is from the line of Harsh from Marcellus.

Am I audible?

Yes, Harsh. Go ahead.

Right. So sir, just wanted to check what is happening in the Paint segment, I mean volumes are down by almost 8%. And we also track Asian Paints and Berger Paints, and their volumes are sort of flattish. And even one of the competitors reported number yesterday, and even from the numbers, it seems that their volumes are also sort of flattish. So what explains the disconnect?

Yes. As I told you -- as I told you in the beginning, we have consciously dropping some of the low-end paint companies from our customers list. We are not trying to chase them because of the pricing pressure, one of the main reasons is that. And we wish to use that capacities for better products and use that for our -- mainly maybe our Qpacks which are equivalent in terms of EBITDA or better than some of the small players. So that is one of the reasons we're moving away from small paint companies, which has impacted to some extent the volumes, not only just this quarter, for the last 2, 3 quarters. Now the Satara plant of Asian Paints is back in operation, but the numbers are still catching up. So that is another setback continue to be there. There are much better than in previous quarter, but with the flattishness, I would say whether there is a little decline also in the case of paint companies other than Asian Paints by 2% to 3% volume terms. So that has also caused the reduction in our paint sales.

And where would the utilization levels be for the Satara plant?

Sorry, Satara plant utilization is now around close to 60%.

Okay. And sir, regarding the cost, why won't be able to pass on the pricing to the paint companies since you have a better product quality and we have been sort of the market leader in the Paint segment? Then are we seeing an increased competitive intensity in the Paint segment or is there some other reason, sir?

No, I missed your first part of the question.

So basically, sir, my question is that if you are seeing pricing pressure, then ideally you pass on the pricing to the end customer, so why haven't we been able to do so?

No, we are able to pass on the prices of raw material increase or decrease very easily. That is a common understanding. In the smaller Paint segment, there are small companies who are manufacturing paints at a lower price with a lower overheads and they're competing with us. In those segments, we don't want to further compete and reduce our margins. Rather, we use those capacities for our Qpack, which has a much better valuation than those paints. So that's where we are shifting our capacities towards Qpack that is on 5-liter, 10-liter, 15-liter, 20-liter square packs.

My question is, sir, basically, have you seen increased competitive intensity in the lower-end paint market?

Yes. There is not only now. It has been there for the last several years. It's getting more and more aggressive because the smaller clients don't mind adding second RCP material arbitrarily, and they will be cutting the prices to save their costs. But not so with the major clients. They always go for better materials and consistent quality. So we still stick with the top 4, 5 companies in the paint industry.

And what would be our current volumes from these small, small customers in the Paint segment? Like are we still...

I would say, it's down to, I would say, 5% of our overall paint sales, not even 5%. It's coming down. It used to be 7%, 8% last year, it's almost come down to nil now.

Okay. Got it. And sir, regarding the explanation for lower EBITDA per kg. Now I understand that because of using the RCP material, we have to go through a lot of rejection rates. But I thought that this would be sort of temporary and -- but from your commentary, it seems that for the entire year, EBITDA per kg would be at the lower end. So...

The other reason also I explained to you, we have already taken the staff for pharma, staff for Panipat and Cheyyar, who are working in the current plants to pick up their knowledge and adopt our way of working. So their costs are also one of the reasons. But that won't be too much, maybe a couple of rupees drop may -- it may be around INR 50 paisa to INR 70 paisa is due to that factor. The rest will be due to the increased trials and rejections and some of the -- I would rather attribute this drop to the -- drop in our growth in Food & FMCG, which we anticipated to be at least 30% is only around 15% in the first half, 14-point-something. So that is mainly contributed because the Food & FMCG is our breadwinner in terms of highest EBITDA as of today, but that didn't grow the way we anticipated.

Sir, where I was coming from is the gross profit per kg, the gross profit per kg number has gone down from around INR 89 to INR 83. So -- and that is -- so employee cost and everything won't be a part of this. And this decrease is, I guess, is mainly because of the rejection rates increasing, right?

Rejection rate increase is one of the reasons. Another reason is also -- this also causes -- I don't know whether you added maintenance costs in it. Use of more RCP increases the maintenance costs also -- so because there will be more wear and tear of the machine and there will be extra process to be used. So power consumption may go up. So indirectly, this causes higher cost of production. Actually, we are taking up this point with all the top paint companies, even our competitors are speaking that if you need to add RCP material, you also need to change the conversion prices. So that discussion has just started probably in the next few quarters, we may try to convince them for increasing the conversion price.

Okay. Okay. Got it. And sir, lastly, in the Food & FMCG segment, we see some increased competitive intensity in this segment because the volumes in this quarter are 15% growth compared to last -- same quarter last year. However, the same quarter last year also the numbers are depressed because we were facing some issues on the labeling side. So to that extent, actually, the volume growth is more like 10% to 12%, sir. So are we seeing any increased competitive intensity in this segment?

There, definitely, competition has started picking up in Food & FMCG also. There are small players here and there who are with 1, 2 robos and 5, 6 containers they are competing. But none of the big players would go for that because they know they need in season capacities and volumes and also uninterrupted supplies. So like what happens in the paint industry might happen over the next 5 to 7 years in the food industry, where you will have more pockets of competition coming up. That's why we're also setting a plant in North. We are also planning a plant in Daman. Like that, we will also try to be there locally present so that we will be competing because our cost advantage comes from in-house manufacturing of labels, in-house manufacturing of molds and robos, which will always give us an edge over the -- even a local supplier. So that will continue to be there in our favor. But as you said, the competition is definitely increasing, where there used to be only 1 or 2 competitors 5 years ago, there are at least 7 or 8 competitors now who are having a small, small product range. It's not that they make variety as big as ours, but they have 7 or 8 or 9 products for ice cream or some dairy, like that. So that competition is also slowly growing, but that I won't add it as a reason for our dip in growth. The main dip in growth is because of the complete washout of ice cream business during the summer months. Up to June, July, we used to have excellent demand from this industry that has dipped by almost 40%, 50%. So that is the reason in the first half, you see this number. But I'm confident that in the second half, the number will be more than 20%, 25%.

The next question is from the line of Richa, who's from Equitymaster.

Sir, my question is ice cream and a washout has been one of the key reasons for a decline in FMCG growth. What is the share of ice cream related to that within the FMCG for you? And within Food & FMCG, what is the share of Qpacks value-wise?

No, I'm not counting Qpacks in Food & FMCG. We treat it as a separate entity, though they are used for food products because their EBITDA margins are at par with the payees. It's not as high as the Food & FMCG. That's the first, second part I'm answering. The first question of food and ice cream as a percentage in Food & FMCG, in the first 4 months or 6 months of the year, they contribute almost 50% of our sales. So that has fallen by about 30%. So 15% of our growth in the first half -- or 10% to 12% of the growth in the first half has been evaporated due to that fact.

Okay. So -- but sir, typically, your Food & FMCG segment margins in terms of EBITDA per kg is around 80, if I'm not wrong. And with all this impact, what kind of margins do you -- are you making within that segment?

No, we are still at around 80, not much of a price pressure on that. Coming to the volume growth, we are now entering various other sectors, mainly restaurants and sweets. Sweet boxes growth is considerable in this quarter that is starting from August, September till October, there will be a good growth even November beginning. Thereafter, they will taper off because of Diwali season is over. And that might pick up again in the New Year time. So the seasonality of the product is always there. That's why you need to have a wider range of products to compete and stay fit in the Food & FMCG segment, which we are doing. We are every year adding a couple of new segments so that we stay ahead and widen our product range.

Okay. And sir, if you could also talk about the installed capacities at the end of 1H FY '24? And where do you expect your capacities to be by the end of FY '24 and '25?

I would tell you by the end of April '24, that is March 31, '24 that is end of this year, we'll be reaching almost 55,000 to 57,000 tonnes from 45,000 tonnes at the beginning of the year. So almost 23%, 25% -- 24% jump because of the investments that we are making both last year and this year. So we'll be touching somewhere around 55,000, 57,000, all put together.

[Operator Instructions] The next question is from the line of Amnish Agarwal from Prabhudas Lilladher Private Limited.

Lakshman sir, I have a couple of questions. Firstly, I missed out on the numbers, which you have given for volumes for paints, lubes and Food & FMCG in 2Q. Can you please repeat the same?

Sir, your voice dropped.

Yes. I'm talking about that I missed out on the volume numbers, which you have given for paints, lubes and Food & FMCG in second quarter this year, in volume terms and value terms.

You want the terms is it, volumes -- quantities you want?

Yes, yes, yes.

Okay. In paint, it is 4,460 tonnes; lubes, it is 2,162; Food and FMCG 1,040 and Qpacks 1,117.

1,117, okay. And sir, in value terms?

Value terms INR 78.3 crores, INR 37.7 crores, INR 32.86 crores and INR 19.1 crores.

Okay. And sir, my second question is that we are making a lot of investments further, you can say in, I think, one site in North and another site for one of the large new paint entrants. So what is the progress on that? And by when it will start contributing to our top line?

Yes. We'll be starting commercial trials in December this year at Panipat and commercial production may start from January 2024. Similarly, trials in January will happen in Cheyyar and probably end of January or beginning of February. Cheyyar plant also will be up and ready for supplies. Whereas the third plant, Mahad, we had just acquired the land. Clearance has come from the government of Maharashtra and then we need to get the registration done and probably start the construction from December. And by June, July, we should be ready there for the first phase. So these 3 plants will be going up in the commercial production from January, 2 plants and the third one in June, July.

Okay. And sir, how much capacity will these 3 plants have for us?

Starting with, we are going very -- buildings and land have been acquired for huge capacities. But for the present plant, we have 1,500 tonnes each at Cheyyar and Panipat and the third one also may be starting somewhere around 1,200 tonnes because smaller requirement there. So it will start with about 4,000 tonnes, let's say, for ABG.

Okay. And how much will this capacity be as a proportion of the total capacity for paints, which we are having today in our system?

See, today, paint and lubes together, we have about 30,000, 33,000 maybe, and that is going up to 40,000. So the 4,000 contributes to around 10% to 12%...

Of paints and lubes put together?

Of the paint and lubes put together. Because they're are fungible. Paint containers and lube containers are more or less fungible.

Okay. Okay. And sir, finally, on the -- how much has been the EBITDA per kg in 2Q? And what is the outlook for 3Q and 4Q?

We have achieved only INR 37.2 in Q2 and INR 38 for the H1 overall. I think it will be similar for the next half year also. Probably a little bit of improvement can be seen in the Q4, where we hope that the pharma and ABG products, which will be starting commercial production sometime in January might start adding some numbers and better EBITDA for the Q4. And going forward, next year, we are positive that it should be in the region of INR 41 plus or minus INR 1, maybe INR 41 is possible with the pharma sales picking up numbers and also our Northern Food & FMCG products going on stream. And fortunately, we have a decent price agreement with the ABG, at least in the first 5 years. So that will certainly also help us in improving our EBITDA.

[Operator Instructions] We have the next question from the line of Richa from Equitymaster.

Am I audible?

Yes, you are. Go ahead.

Yes. My question is on the pharma capacity that will start producing from last fourth quarter. So for FY '25, do you have any kind of visibility or can you give any guidance of the range of revenue that we can expect from this segment? And also with the 3, 4 products, do you expect the margins to be in the range of, I think, you have suggested INR 150 per kg. So would the existing basket or the products that we have planned will be able to get those kind of margins on this segment?

Yes. Coming to the margin side, I'm confident it will be in the region of at least INR 150 per kg for any of these products or at least the average of all these products put together. But I can't give you exact detail of the sales for the next year because it is a new line we're entering. The overall capacity wise, we can achieve INR 60 crores to INR 70 crores turnover with the product mix that we are starting. But how much capacity utilization would happen, I would only be able to comment probably after 1 quarter at least, that is end of March '24. So by then, probably we'll have a picture how the demand is emerging and how many big clients are really giving us orders. So more clarity will come probably in the next 4 to 5 months.

Okay. And sir, for the new paint client, we have around 4,000 to 5,000 kind of capacities planned. So by the end of FY '25, what kind of utilization do you expect in these incremental capacity?

See, as you know, these 4,000 tonnes are meant for a new player who is coming into the paint industry. So these numbers are very optimistic, but I would only know as again, how the market responds to their product and how well they will be able to penetrate into the paint industry. So that is a little bit uncertain as of now. But given the fact that Panipat and Cheyyar are their first 2 plants out of the 6 locations they are planning, there will be certainly demand from these 2 plants to start with and seed market in the rest of the country. By the time they go ahead with the rest of the plants by middle of June '24 or March and June, I think they have plans, there will be good reasonable demand for these products from the first plant that is Panipat and Cheyyar. But it all depends upon how aggressively and how well their products are received in the market and how they market themselves that depends upon the utilization.

Okay. And sir, given all the developments that are happening in terms of capacity addition and whatever is happening with the paint segment, would you like to -- is there any kind of revision warranted in 18% to 20% kind of growth guidance that you had hinted in the earlier call?

No. I'm still bullish that we will be able to be in that growth region from '24, '25 onwards because of all these several plants and the new segment of pharma is opening up. We are still aiming at that range of growth for next year.

The next question is from the line of Avadhoot Joshi from Bryanston Investments.

Two questions. You have -- in the press release, you briefly mentioned about the export potential also. So which -- I think the focus would be on the Food & FMCG packaging. So what's the value proposition when we are approaching the clients overseas? And how do we want to go ahead with which areas we are focusing? And how do we plan to export it? What's the price differential we have with the people at other overseas players? If you can elaborate on that.

Yes. This is a very nascent stage, but I'm glad that we are reaching at least INR 5 crores, INR 6 crores of turnover in exports which is about less than 1% of our overall sales. But we noticed that there is quite a good demand for not only the Food & FMCG products, but also the proposed products of our pharma division. So we are now participating mainly in the food segment as of now, because that is the area where we have a range of products to offer for different industries abroad, like restaurants or ice creams or food products and dairy products. So all these -- while our focus and even now for the next few months, we'll continue to be on exporting the Food & FMCG containers. But once our products, canisters and effervescent Qpacks come out, they will be also having a good export potential, not only in Middle East and the African countries, but also in Europe and developed countries because we are manufacturing them under DMF certified plant. Our products will be acceptable in even U.S. So we would like to take the focus to bring the experts also growth area hereafter and have a team working on it in the near future so that they will be able to start contributing to the growth.

So going further, let's say, 3 to 5 years down, how do we see the potential from this business?

Yes, it certainly can grow to at least 3% to 5% of our sales with better margins and better utilization.

Okay. And lastly, in the annual report, you had mentioned about the medical equipment manufacturing also for the Pharma segment. Is there any such plans going further you have?

Not medical equipment, medical devices...

Medical devices, sorry. Yes.

Yes. Devices means these inhalers and that depends and products like that, which fall under injection molding or IBM or maybe a combination.

Understood. Understood. So it is in line with our current goal?

Yes, yes. That will be a long shot, not in this next year because next year, we have to augment our capacity to expand in the product range, what we are already entering in the 4 segments. And definitely because it's a huge market. In my opinion, it is overall, including the export market itself is around INR 5,000 crores, that is FDA exports and through our -- I mean, exports of our pharma products into U.S. and Europe uses about INR 4,000 crores to INR 5,000 crores of packaging materials like bottles and caps. So apart from the segment, we are entering into canister, effervescent tubes and the OTC, of course, that's local product. This will be able to generate growth that can be really needing higher investments and faster improvement of the capacities, if things go well. So that's what we will review this sometime in March, April. By then, we will have at least 3 months of experience in the pharma market.

The next question is from the line of [ Kanishka Sorcar ], who's a private investor.

I just want to bring you back to that particular point almost 1.5 years back. You had mentioned that the second line of leadership, the young guys, I think it was your son and the person, they were working on certain projects, which is primarily, they were working in terms of exploring markets that is international markets. And just talk about building business that export business has been kind of in talks for some time now. So I want to really know what's actually happened, because it's quite some time now. And by now, we should have done some meaningful work on that, right? That's one. And second thing, sir, is about the pharmaceutical business. So I just want to understand, you also -- you had mentioned that some kind of prototypes were made and you would have got some kind of feedback. So I wanted to understand how do we as a company start? How was it received? And how -- what is the kind of traction that you're -- either preliminary interaction that you're getting from these pharma companies? And are these like big pharma companies? Or these are like typical biotech companies? What are these companies? And third point is the packaging, which you mentioned about in terms of medical devices and also in terms of those caps for FDA. Where are we on that? And are these some sort of a differentiator products that we are creating, which is not available in the market right now?

Yes. I'll answer the first question of exports. If you notice 3, 4 years ago, our exports were stuck to only Middle East and that too only 1 or 2 companies like Shell and Gulf, Elf, total that is Elf. So now we have exports going to U.S.A. in the last 1 year. The numbers have shot up, not very big numbers from INR 1 crores, INR 2 crores per annum to INR 5 crores, INR 6 crores now, which is a reasonable increase, but that gives us now credentials and references to showcase and try to get more and more export opportunities. I will never say that the exports will be our major contributor, it will also add to the growth numbers even in the future. But in pharma, we have better export opportunities because most of the developing countries and even some of the developed countries have restriction -- I mean, restricted capacities are high costs associated with pharma products. That is where we can pitch in and try to grab a part of the exports business. So going forward, exports can grow up to, let's say, as I said, 3% to 4% of our sales in the next few years. But it will never be the top contributors like 20% of our sales and all that unless our product range changes drastically in the next few years. So coming to your second question about the pharma, our interactions are with big companies only. We also have small companies, 1 or 2 of them showing interest in our products. But we also met with one, I can say, a very large company. I can't name it now. And there are 2 auditors in December probably they'll come for audit in December, January, once we have completely set our product lines and plant. So the traction looks good because one of our products is an import substitute, other 2 are, of course, already there in the market, but with limited capacities in one of them. So we hope that the export traction in pharma will start picking up in the next couple of quarters. And we'll be in a better picture to see the performance maybe in April when we have the Q4 results, then we'll be having some names to tell you. And then coming to the last question of caps and devices, that is a long shot, I just said. It's not for the next year. We'll be looking at devices when the time comes up because the moment we start our association with the big pharma companies with typical products, what I mentioned, all these 4 products, there will be demand and opportunity to develop devices for their particular medicines. And they could be different from the current designs available in the market or could be somewhat similar. But that is where we can step in because we have a design studio with about 7, 8 engineers working on product development for several years. And we are also planning to add 1 or 2 with a pharma background. So that will be a little longer shot. But certainly, Mold-Tek with its ability to design new concepts and work with MNCs in various product development has the necessary background and necessary skill set. That main skill set is mold development after all the end of the day in injection molding or IBM, the mold development defines your ability to develop new products. Of course, the designing of a product itself is an art, which we need to acquire. So that is why I'm saying this is a little longer shot a year down the line. And coming to our second generation, their main focus as of today is in the pharma and taking the new Food & FMCG products, widening the product range. These are the areas where they have been assigned to work on. And until now, the contributions look good. And as I said, after maybe another 4 to 5 months, we can have a review on how pharma is shaping up.

As there are no further questions, I would now like to hand the conference over to the management for the closing comments. Go ahead, sir.

I take this opportunity to thank Nirmal Bang, and thank all the participants who have taken their time to hear our story and our future plans. And thank you also to the operator, Malcolm, for being there and assisting us. Thank you very much.

Thank you very much, sir.

And I take this opportunity to wish you all a very happy Diwali and a great year ahead. Good luck.

Good luck. Wish you happy Diwali as well sir. Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.