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

Ladies and gentlemen, good day, and welcome to Mold-Tek Packaging Limited Q2 FY '25 Results Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Nitin Gupta from Emkay Global Financial Services. Over to you. Thank you, sir.

Thank you, [ Shifra ]. Good evening, everyone. I would like to welcome J. Lakshman Rao, Chairman and Managing Director, and thank him for this opportunity. I shall now hand over the call to him for the opening remarks. Over to you, sir.

Good afternoon, everybody. Thank you very much for joining our Q2 conference call. As mentioned in the press note, sales volumes have increased in the first half year by 7.2% and EBITDA is up by 3.61%. Similarly in Q2 on Q2, the sales volume are up by 7% and EBITDA is up by 4.5%. This growth was achieved through improved sales of Paints-Pack, which have grown by about 5.11%. And Food and FMCG grew by 27%, Lubes-Packs, negative 5%, resulting in an overall growth of 6.9% on Q2-on-Q2. However, PAT has been impacted due to higher positioning of depreciation and interest costs on the huge investments what we made during the last 3.5 years resulting in profit down by about 10% compared to the Q2 last year. This is basically the highlight, and I would like to continue the conversation with the question-and-answer session. Back to you, operator.

[Operator Instructions] The first question is from the line of from Gaurav from Capital Farming Consultants.

I hope my voice is audible.

Yes, sir.

Sir, if you can guide that how is the progress happening on basically in the paint segment, the major work that we are doing right now with Aditya Birla Group, how is the demand picking up from there vis-a-vis Tier 1?

Yes. The demand from Aditya Birla Group is improving and even indicated as to ramp up our capacities by end of this year. So our expansion is happening both at Panipat and Cheyyar plants. And Mahad plant production has just started from our Satara unit, we are supplying the initial lots because there will be some days in the construction of the Mahad plant. So they allowed us to supply from Satara, which is just about 150 kilometers, 200 kilometers from Mahad. So our Satara plant capacities have been enhanced to meet this demand. And maybe in a few months on the line, a few quarters down the line, Mahad plant will start taking up supplies.

So what was the utilization level in the Panipat plant and the Cheyyar plant?

Yes. Current small, it is improving. It was less than 50% in the first quarter. But currently, it has reached around 55% to 70%. I can say around 60% on average. On the initial capacity, now the new capacities are also being added.

Okay. Second question is with respect to the Pharma segment that we have started. What was the volumes and the revenues in Q2, specifically for the pharma products that we are supplying?

And we told you that the pharma products sales have just started. Over the last couple of -- last quarter, we have done about INR 1 crore sales to some of the Tube segment and also in the main Pharma segment. I'm glad to inform you, the numbers are improving. In the month of October, we did close to INR 75 lakh sales in Pharma alone. And going forward, those numbers will increase because, for instance, now [ we have lapsed ], now Gravity, Pulp and also [ our lines ] for many other companies have cleared their audits started taking our commercial line size and small-large supplies. Once we [indiscernible] and we prove them the value, I mean, that our products are acceptable, the numbers will ramp up from Q4 onwards.

Sure. Last question, if you may allow me before I come back to the queue. In cash flow statement, we can see that you have almost made an expenses of INR 55-odd crores in the CapEx side, right? So any color that in which direction, whether it is towards the augmenting the production capabilities for the Paint segment that we are doing? Or it is Food and FMCG or toward the Pharma? If you can just give a breakup that in which segment this major CapEx has been done in the last 6 months, that is from April to September 2024.

Last, the CapEx is happening in all the segments, but the overall Pharma investment is close to INR 90 crores, which is yet to really start contributing. Hardly 10% capacity is being and running now, but it will pick up pace and hopefully, from Q4 onwards, it should reach at least 25% to 30% capacity utilization. And the next 2 financial years, we hope it will be more than 50% capacity situation, we'll be able to reach in Pharma. And the current year, the overall of investments are INR 62 crores. And another INR 25 crores we are committed in purchase orders and INR 31 crores. So again, we'll be crossing around INR 90 crores investment in the current financial year because of the expansion at Panipat, the expansion of Cheyyar and also small entrance in the Pharma unit for balancing the capacities.

Have next question from the line of Jenish Karia from Antique Stockbroking.

Sir, first question is with regards to your gross margin on a per kg basis. We see that it has expanded to INR 86 per kg. So if you could just help us explain where this expansion is coming from? Is this product mix improvement? And is this sustainable?

Yes, it is sustainable because as the volumes of production improve in all the plants, the per kg conversion costs or production costs will come down. If you notice, and maybe you don't have the breakup as of now. But there are consumables and staff costs, especially have sharpened by 20%, more than 29% in the case of staff cost, basically because people in the different regions have been added in the pharma and -- but they are yet to start giving results, but their costs have been absorbed in the P&L. Consumables are included because of 2 reasons. One is our printing is under severe pressure now because of increased environment event, there is a certain spot in IML convention. And to cater to that, some of the IML we are already printed outside, we are even buying some outside and our HUL printing and purchase also have gone up increasing the consumable consumption by about 30%. All these things will be controlled later in the year or maybe toward the end of this year. Also our printing and [indiscernible] facilities are added. And as I told in the previous meetings, previous conversations, we are bringing all the printing under one roof in Sultanpur, Hyderabad unit. And that process is still going on. we have moved 70% of the machines. But other 30%, we are not in a position to move because of the increasing demand for IML and this we will be able to do only in January once our additional machines are receivable. So going forward, the economies of scale can be achieved once we are under one roof and all the operations of printing are done in one location rather than 3 locations currently happening. So this facility, this will improve the consumables control, that is wastage control and reduce the cost in the next couple of quarters. That should improve the EBITDA. And there is another major reason for the improvement in EBITDA and positive is our pharma -- growth in pharma sales we administered from Q4, especially some of the orders we received, the molds are getting ready and the molds will be arriving in December, some of them in January. And supplies, commercial supplies might start in Q4. So starting from Q4, we see pharma contributions improving, that should result in better EBITDA.

Okay. Okay. Sir, if you could just help us understand the volume and value-add breakup in each of the segment for this quarter and last year same quarter?

Yes, it was in terms of volume, Paints have improved a bit from 50% to 50.8%. Lubes also improved actually -- sorry, in the other way. Last year was 50.8%, and it is now 50% Paints. Last year lubes moves is 24.6%, it is now come down to 21.9%. FMCG side, FMCG stayed at 1,000 -- sorry, to come in. 11.85% to 11.77% and 12.72% to 16.12%. Pharma is 5% to 6%.

Okay. So lubes has increased from 12% to around 16%. And it's a low per kg margin product, right?

It is average. I would say the average of painted looks.

Okay. Okay. And so the certain volume represent revenue terms, the similar numbers?

In revenue terms the growth in [ Q2 ] is 44%.

For paint, lubricants and everything, sir?

Sorry? Lubes by 9%, Food by 3.43% and [ Tube ] pack by 44.4% in terms of revenue.

Sure, sir. And sir, similar numbers for IML, non-IML?

IML has gone up considerably this quarter. Now it is around total labeled products are 72.57%, up from 66.7% last year.

72%, you said?

72.5%.

Next is on your guidance, we had earlier guided for a 15% volume growth for full year and INR 40 per kg of margin. So do we still maintain that [ line ] considering the first half performance to be slightly off?

Yes, I think we are a little off from the projection, basically because of little delay in the takeoff of the Mahad plant, volumes has just started now. We thought that we would start it in May, June, but the client is going into steam only. I mean, supplies are starting only from September, October, mainly a small way. And it might pick up speed only from December onwards. So -- that is one reason. And also, below in our printing facilities has also kind of concern on our sales growth because we are not able to develop IML as deeply as it is required in the market now. But it certainly is coming in January. In January, we'll be ramping up our IML capacity from then and that will enable us to catch up with the growth. But I think you correctly said, reaching 15% is -- I don't think it'll be possible from the current 7% growth. Probably, we're still aiming at double-digit growth for the full year. And probably the EBITDA average, which is now currently at 36.73%, probably it will land around 38%.

Sure, sir. And sir, just one last question. Why is there -- could you just explain the reason for us postponing our new Mahad plant, specifically for supply from Satara plant?

There are some issues related to local pollution and local approvals. They got delayed that is why because the plants are delayed, we basically agreed supplies from Satara for the next few quarters. Probably in the next 2, 3 quarters, we'll set up an alternative in an alternate location and the same location declines in Mahad. Until then, we'll be supplying from Satara.

Sure, sir. And sir, full year CapEx guidance you gave of INR 90 crores. Is that understanding correct?

Yes. This also will come close to -- already INR 70 crores has been committed and we have some more printing and other equipment being ordered, which will arrive before March. So the overall cost of investment could be INR 85 crores to INR 90 crores.

Okay. And just one last one on CapEx, sir, we were planning to expand our pharma capacity once we received the certification in order to that. So any update on that front? Or we can see we can...

INR 70 crores also includes some of the pharma molds and machines and the remaining INR 15 crores is a part of it will go into pharma. This year, almost INR 34 crores has been spent on pharma equipment, apart from last 2 years, INR 55 crores. So INR 90 crores is the overall investment and it will probably go up to INR 100 crores by the end of this year, overall investment.

The next question is from the line of [ Sitan Chadra ] from Minerva Asset Advisors.

Am I audible?

Yes, sir.

So I wanted to ask my first question on the Pharmaceutical segment. So without IML, what kind of levers would we have, which would help us gain business in the Pharmaceutical sector because if we see without IML the kind of products that we do, there are -- the market is very fragmented. There will be a lot of players in EV tubes canisters. So what advantage except IML would we have in the Pharmaceutical segment?

See, in EV tubes, there are not several players. There are hardly 3 or 4 players. None of them have IML capability as of now. So that is one big derisking. Apart from that, the quality of the tubes and the [ energy cans ], which they frequently catch, we are at the top end of the quality. So at that one, there are hardly anyone else who are players who are capable of giving the quality issues. So that way, we are already getting out of some of the leading players in the EV tablet segment. So that is one. In the canisters, then single canister, whereas others a majority of them are in 2. So this will give them a lot of benefits in [indiscernible] but also in safety and nonremoval of the -- I mean, non-breakage of the canisters during these things. So these 2 benefits will go a long way to penetrate into the market. Already, in the [ interest ] we have seen that, which are our supplies have been tested in what we call 5 months. And hopefully, [indiscernible] will start coming in from December.

Okay. So just to summarize what you said, with our time and is basically the quality of -- in tubes, it's our quality. And in canisters, we are doing single-piece canisters, so there will be more safety and less breakage of the canisters, right?

Yes.

And now my second question would be, again, related to pharma as well. So could you give me some idea about the need of IML in pharmaceuticals because based on some of the conversations that we have had with pharmaceutical people, there is not -- how would you say, there's not much a need or a focus on going towards IML in packaging, but rather they are more focused on cost-cutting and with IML being a more expensive alternative to traditional labels. What would be kind of the reasons why a pharmaceutical company would need to go towards IML? Could you give me some idea on that?

No, I'm not saying that the pharmaceutical companies will go for only the EV tube segment and to some extent, these nutraceuticals and the vitamin bottle companies will be excited in IML. None of the basic pharma companies will be looking at IML because they have a lot of statutory obligations of labeling and all that, each will take care.

Okay. So it would be then again only catered in EV tubes and nutraceutical bottles?

Yes.

We have next question from the line of [ Sandip Modi ], an individual investor.

Am I audible?

Yes, sir.

On new clients, what are the new clients here other than [indiscernible] this quarter?

Your voice is not clear. Can you say it again?

Yes. Are there new clients in [indiscernible] other than [ indiscernible] this quarter?

Your voice is not clear.

Yes, one second, one second. Yes, I wanted to know what are the new clients we have added in this quarter?

[indiscernible] some of them in pharma. There's quite a few clients that have been added in [indiscernible]. Some of them are [ Navik ], Ibrahim Karten, A1 SKC and the Bio plus Life Sciences, Neutralike formulations, it is there in the press note, you can have a look.

And any CapEx we are planning in pharma for the next year, 2025?

Yes. Even in this year, there is a further CapEx of more than INR 10 crores happening in pharma, INR 10 crores to INR 15 crores. Actually, some of the last year's elections were done this year. So overall investment in pharma this year is INR 34 crores. So the total by end of this year, the pharma investment will be close to INR 100 crores.

We have next question from the line of Gaurav from Capital Farming Consultants.

Thanks for allowing to take a follow-up questions. Sir, in some of the last con calls, you were highlighting that the Panipat plant that we have established, that will also be used for Food & FMCG products that we were right. So is that plant ready because we were targeting that the festive season, somewhere around that, we will start supplying [indiscernible] clients based out the North India out of this plant. So was that done or not yet?

Yes. Just in the month of October and November, we are making some supplies of [ Panipat ] from north. But the real quantities would start only by end of December. As I said, the printing consults will be coming out by end of this year, that is December. And then, we'll be a full way to provide the containers from January in the north also. For glass, we are starting sometime in April. That is for the next year season.

Okay. So if you can share some kind of the color that what kind of clients we are targeting based out of north to supply products from this particular plant?

[indiscernible] pharmaceuticals, nutraceutical, protein powders, all these similar companies, even detergents, all these companies who are here in that will be saving transport costs also timely dispatches we'll be get to have supply from our north plant.

Okay. And there were some -- also some talks from your side in some of the last con calls, projects related to Iodex, Kissan Jam or Horlicks, they were all in pipeline, so...

Kissan Jam and Horlicks have started, but Iodex is still pending because there are some changes in their filling the assembly line there, which are kept out amounts -- of course, the amounts are invested by system. They're lying idle for the last 6, 7 months. They are yet to complete their CapEx on the line -- assembly line. Once the assembly line start sometime maybe next quarter, we'll be in a position to tell you some more details.

Okay. Next question on the Paints segment again. In the beginning of the year, we were saying that expected volume with the ABG group is somewhere around 5,000 tonnes per year. But even if they take approximately half of that, that will give us a 10% kind of a growth. So what percentage of volume they have picked up from us in the first 6 months of this financial year? Any color on that?

I'm not able to share the exact number, but we are in line. Actually, maybe the volumes are around 1,500 to 1,600 tonnes. Probably in the second half, it may go to 2,000-plus. So we are online. About 70% of the capacity utilized, initial capacity setup is about 5,000 tonnes for them, including Mahad. So maybe around [ 20% ] of that we'll be able to achieve.

Last question from my so you may allow. But then we take up the decision to invest in the CapEx, right? So since we are a manufacturing company, it would require a lot of upfront CapEx to be done. So in group, do you have any visibility that let's say, asset turnover ratio is going to be showing so much. Like for example, if you invest X amount of money in the plant setup, then what kind of turnover you expect out of that investment? That is my last question.

Yes, already is to be around 2.5%. But currently, because of very high investments that have been made, which are to become completely utilized. So going forward, we should be able to cross to 2.5%, [indiscernible] that ratio. But currently, we're below 2%.

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

Sir, firstly, on the Paints segment, I think if you see the growth in volumes as being only about 4% to 5% in the first half, so you've not really seen the benefit of volumes that possibly we're applying to ABG and also Asian Paints that also doubled the capacity at Mysore plant. So possibly next year, I mean, what are your volume growth expectation? And for the entire year of FY '25, what do you think would be the overall growth expectations from the Paint segment?

Paint segment was negative last year. But this year, I'm glad it is around [ INR 2,200 ] in terms of half year, the growth is around 4.9%, which was last year was a negative. So hopefully, this year, we'll end up with 7% to 8% growth in Paint segment for the full year because the ABG numbers are going to go up in the second half. That is the reason. But the Lubes was down by about 2.5% during the half year, which were positive last year. So that is a bit of a disappointment. Food & FMCG is up about 5.2%, and the [ Tube-pack ] is 39.7% up in the half year. So going forward, Paint will be -- this year will be -- we expected around 10%, but I think we will under 7% to 8%.

And once all your plants are operational for EV as well and then the benefit of doubling your capacity at Mysore plant also comes in, I mean what kind of within those expectations only in the Paint segment do you expect from next year onwards?

Next year onwards, we should be in the position to reach somewhere around 10% to 15% volume growth before we [ tax over ]. Due to a couple of reasons I explained, we may end up this year close to 10% growth only, volume growth. But next year, I'm more confident today because ABG is doing good and [ their effort ] is to expand their capacities and pharma will be catching up because quite a few of our products have been accepted by at least 4 large pharma companies. And 2 or 3 products are under development now, which will go into production from January, and they are committed volumes towards which are reasonably good. So those products also added next year in pharma sales will be considerably good. So with that confidence, I'm hoping next year, at least, we'll be able to see 12% to 15% volume growth.

Sure. And sir, second on the [ F&F and pack ] side, I think you mentioned this quarter, there was only about a 3% year-on-year growth for the first half as opposed to 5% growth. So what exactly is happening in that segment as to why is that the growth has been so moderated? And then do you see that reviving from next year onwards? Or are there structural [indiscernible]?

Sorry, your voice is little muffled.

Sir, on the F&F and pack side -- I hope you are able to hear me now. I mean, the growth has been very muted, only about 3% to 5% is, as you mentioned. So are there any structural reasons as to why that growth has been moderated -- and how do you see that growth positioning on next year onwards?

You mean in the Paint segment?

On the F&F side, sir, on the food side, on the [ Qpacks ].

Food & FMCG side, unless or not planned come, we may not be able to see more than 10% growth because as I said last quarter, there is quite a bit of competition in the small product segment in the South. And in the [ last ], we are completely absent. So leaving such a big geography has led to this kind of disruption. So we are now concentrating to set up the facility there by March next year. But at the beginning, we started with our [ Qpack ] there. Already the response is good. a couple of clients, we are able to supply some Panipat itself. But our capacity will be enhanced only from January. So from January, more and more number of food products will be -- food packaging products will be manufactured in Panipat. By March, April, we'll have even ice-creams and dairy packaging products will be supplied from Panipat. So then probably we'll be seeing a double-digit growth in food, FMCG segment also.

Sure. And sir, lastly, on your pharma segment. I think you have been tracking your company and your commentary as well. I think there have been consumer delays in terms of how we have been able to ramp up or get the approvals in place. In sort of 2 or 3 years out, how do you expect that revenues to sort of shape up for the company?

Yes, I agree, there was some delay in projects, especially the printing expansion project has been delayed due to construction delays and then machinery supplier delays. But however, we have initiated the process, bringing the all printing activity under one roof. Almost 75% of the equipment is now under one roof. But others, we are not in a position to move because of the -- our lack of capacity and increasing demand for IML products has made us to hold on to the shipping because it will differ by about 1 week, 10 days. So we are waiting for our next machines to arrive in January and then take the call on the shipping of these machines. One of the reasons why we have clocked the lesser growth in this year is, I should admit, is our printing capacity has been a little delayed in setting up the printing capacities. Otherwise, we could have been at least at 10%, if not more. So anyway, having lost the time, we want to catch up at least in the off-season, that is December, January is generally our off-season, that's the time to shuffle the machines and create the extra capacities also. And then we will probably see a bit of growth.

So sir, my specific question was on the Pharma segment. I mean, how do you see that scaling up over the next 2 to 3 years? I mean, what are your expectations there, I mean, once all the approvals are in place?

Yes. I'm certainly confident about Pharma because already, our products and facilities have been approved by 4 major pharma companies and at least [ 4 or 5] are in the line to visit us and audit us, including companies like Alkem, we are in touch them. MSN, Marksans, [ Gravity ], [ Pulp ] have already approved, [indiscernible] has already approved our facility, Bio plus has approved. So almost 8 to 9 or maybe 10 companies have already approved and started taking small quantities, line trials are completed, [ QV ] trials, extended testing has been approved more or less all the companies. So I'm confident that going forward, the numbers will improve, but it will take time because the pharma companies go through a lot of testing and submit their test before they'll take volumes. At least a couple of them started taking 1 or 2 products in volumes now. That's why the numbers are picking up from October onwards. In October, we did about INR 77 lakhs sale, which was a quarterly sale of last year INR 1 crore -- last quarter was INR 1 crore. So in October alone, we did INR 75 lakhs. And going forward, probably from January onwards, it may cross INR 1 crores to INR 2 crores per month. So as these are cumulative in nature, all these others should go up as we go into next year.

So sir, by FY '25, do you think you can at least take INR 50 crores or INR 100 crores in revenue. I mean, what's your ambition there?

Yes. At least we see INR 30 crores to INR 50 crores, it could be INR 30 crores or INR 50 crores. It all depends upon how products that are launching will be taking off. These products are launched based on the approvals from the clients and the commitments from the clients. So these are more efficient than [ prime ]. So now we are able to gain the confidence of some of the clients in giving new product development to us. That is a proof that multicapability, mold-making, product design will definitely help us in slowly countering a decent market share in Pharma segment.

We have next question from the line of Pranav Doshi from Adecco.

And sir, my first question is on the Paint side. So sir, the realization per kg for paint was about like INR 215 per kg 2 years ago. Now it has declined to close to INR 180, INR 190 per kg rate. So can you tell me what is the reason for that?

See, there are 2 reasons. At that time, the raw metal price went up to INR 120, INR 125. Currently, the raw material price is around INR 105. More or less in this year, the price was stagnant there. And also in the Paint segment, like in any other segment, RCP, that the recycled plastic usage has become mandatory. So slowly, companies are adopting 15% to 20% or maybe 25% RCP material, which is available at a cheaper price. So this also brings down our entire overall selling price. So that -- these are the 2 main reasons. And there is some competition in the market, especially in the Paint segment. There is also some pressure is there on pricing. But that is not the main reason. The main reason is raw material and RCP.

And sir, on the Paint side, sir, if I heard it correct the volumes from [ Grasim ] for H1 were about close to 1,400 to 1,500 tonnes. Is that correct?

Yes.

And then, yes, for H1. So also, I was just wondering that, let's say, like barring those 1,500-odd tonnes, so let's say, and there is a degrowth in the segment. So like apart from the extra [ Grasim ], there is a degrowth in the business. So like are we losing wallet share for any of our customers, especially someone like in Asian Paint?

Yes. Asian Paint, there is a continuous pressure on pricing and some volume loss is there because of mainly the pricing reason. And we are trying to -- also, we have capacity concerns, as I told you in the beginning, in the printing side, especially on IML and HTL, which is causing us also to go slow in competing. Once the capacities are in place, we'll also can take the advantage of high-end volumes and can be competitive in the pricing. So hopefully, from Q4 onwards, we'll able to standardize that pressure.

Okay. And sir, what was the reason for bad growth on the lube side? So like is it due to the end customers growing slowly or is it due to...

Sorry?

Sir, I was just asking what was the reason for degrowth on the lubricant side of the business.

Lubricant side, it is completely based on the sales of the industry because there, we are not losing any clients, we are not losing any even market share. The markets in lubricant are always plus or minus 2% annually because lubes are now more of a standardized product where more and more [ mileage ] they are offering and volume-wise growth is minimal. So one quarter, it may be 3%, 4% plus. One quarter it maybe 4%, 5% minus. But overall, it is a stagnant. This time, it is around 2% minus for the half year.

Okay. And we expect it to be in such a range, like, let's say, plus/minus...

Yes, it will be plus or minus 2%, 3%. Last year was an aberration. Last year, we had a good growth.

Okay. Okay. And sir, on the, let's say, food delivery. So on the -- do we see -- what kind of an opportunity do you see with Swiggy and Zomato and some of the other quick commerce players? Do you see any opportunity?

Swiggy and Zomato, we have tried several times, but they have a lot of logistical issues and the restaurant packs, there are thousands of restaurants. And so they will be very difficult for them to control the packaging material with their name and also the name of the restaurant. That is where I think their logistics need support and it's not moving much.

Okay. So we have some volumes where it's not moving much, so it's not significant.

We did some small quantities long ago, more than a year ago, playing containers, but everybody wants to get brand. And then the restaurant people don't want only Zomato name or Swiggy name, they want their name also. Then the numbers break between several combinations and logistics to supply those will be a very big challenge. So they didn't get them later...

Yes, sir. And sir, apart from that, I just missed the revenue breakup between paint, lubes and F&F. So can you just repeat it once for me?

In terms of revenue, 47% is from paint, 20% lubes, food and Qpack together is around 32.4%. 0.5% is pharma.

We have next question from the line of Richa from Equitymaster.

Sir, my question is for the Pharma segment. I think our revenue potential from the existing capacity is INR 60 crores, and please correct me if I'm wrong. And I also wanted to know that, let's say, you might be realized this by, let's say, over next 2 to 3 years, what is the opportunity size in a -- from the client response, what is your -- what is the sense that you're getting, how much scale-up can happen in this segment over the next 5 years?

With the current further investments we are making in the pharma during this financial year. The capacity at full range, even the supply could be even up to INR 80 crores to INR 100 crores during next financial year. But it all depends upon how we'll be able to bring the products into commercial production. Fortunately for us, there are at least 2 products which are cleared by clients with a commitment to buy back the capacity. And those products will be starting production from January. It's not huge, but both of them together would be not less than INR 10 crores to INR 12 crores per annum. So those 2 products we'll be launching in January, with a commitment of volumes from 1 particular client, 2 particular clients. So those 2 products will add to the numbers from Jan. And similarly, we are working with other clients for our regular products also, like robotics and caps, which are picking up because most of them are cleared our stability test, online test everything is cleared, MTR, EG tests are cleared. So now there will be in a position to start trying our commercial quantities. So all these numbers look positive. But as I said right in the beginning, pharma people, industry takes longer time to approve a new vendor and do several tests, including stability, online testing and they start with small batches. And once they are confident about the small batch going through well, then only they go for huge volumes. So looking at the trend, I'm confident next year, we should be in a position to reach up to -- minimum could be INR 30 crores, INR 35 crores, and it can reach up to INR 50 crores, INR 60 crores at the top line for the next financial year. And as an opportunity, it is a huge opportunity, close to INR 5,000 crores opportunity or including both exports and Indian market. So even if we reach 1%, 2% of the market share, it will be close to INR 100 crores. So our market penetration and the ability to bring in new products is what matters as we go forward.

And EBITDA per kg is ranging between INR 80 to INR 100 like you had presented in the past?

Yes. It will be in that range.

Okay. And sir, currently, like in the past, we have seen EBITDA margin per kg at INR 40, the earlier you had guided for INR 42. Currently, it is down because of no capacity utilization, but how soon can we reach that INR 40 or INR 42 per kg kind of level?

I think we should be able to see that in the first quarter of next year itself, that is Q1 of next year. It ranged toward INR 40. And overall year next year, we are aiming definitely for the INR 40 as a minimum number to achieve.

Okay. And so what kind of expansions are you taking for [ expansion ] from the existing capacity? You said that you would be expanding capacity by Jan '25. So what kind of expansion are we undertaking there?

See, currently, our capacity is at -- 3 plants together is around 5,000 tonnes per annum. Probably, it will go to 7,500 to 8,000 tonnes by March. Progress on [ emissions ] are arriving from January, which is machines, [ robots ] and molds that will be ready from January onwards. But the capacity will rate reached by March, will be close to 8,000 tonnes per annum.

Okay. And sir, my last question is any guidance on the CapEx the next year, for FY '26?

'26, I can't comment today, but because as it is our CapEx for this current year, which we thought we could control within INR 60 crores up to INR 70 crores and plus printing and die-cutting machines we are adding. So hopefully, it will be stopping somewhere around INR 85 crores to INR 90 crores for the current year. Based upon how numbers move in Pharma and new product launches, there could be similar CapEx next year or it could be less because there will be no greenfield projects to start. Next year, CapEx may be limited to INR 50 crores to INR 60 crores is my guess as of today, but we would only can comment as we go towards the end of this year.

We will take next question from the line of [ Sitan Chadra ] from Minerva Asset Advisors.

I just wanted to follow up on my last question only, when you said that in -- for the pharmaceutical companies, the EV tubes are going to be the only use case and then nutraceutical bottles as well. I didn't get like basically the kind of use case or the reasoning why for EV tubes and for nutraceutical bottles, why IML packaging would be necessary. So if you could just throw some light on that.

No, it is basically the decoration. The people who buy these tubes and nutraceuticals are people who buy the off-the-shelf, OTC content. And in OTC, people are more concerned about the looks and feel of the product as much as like -- it's not like Food & FMCG, it is somewhat closer to that kind of purchase. So the print feel and quality is much superior in IML compared to DOP or HTL. That is why in EV tubes and nutraceuticals IML would be preferred over other forms...

And it would be only because as we were discussing, traditional pharmaceutical packaging will not require, just only specifically for EV tubes and for nutraceutical companies in their bottles?

Yes.

And my second question, this is -- I just wanted to get an idea. Is that pharmaceutical companies take quite some time to onboard packaging folks, so around 3 to 5 years. So can you throw some light on the kind of existing commitments or which -- or at least the amount of companies who we would be in trial with or in discussions with? Because if it's...

3 to 5 years, I never said it will take about a year for any company to test packaging partner and start giving commercial orders. Maybe max is 1 year. It's not 3 to 5 years. So there are several companies who have already audited us. And once the audit clearance comes, they will ask for line trends. After that, stability test, after that, economics, that is commercial quotes and all. So the whole process -- and then a small commercial lot. Say, 20,000 pieces, 50,000 pieces. And once those lines are also, there's the field and supply without any trouble, then they start giving 3 lakhs, 5 lakhs kind of volumes. So the whole process will take max 12 months, sometimes maybe 15, 16 months, not 3 years.

Okay. So basically, the kind of timeline will be more like 12 to 18 months at max, not 3 years or 4 years, okay, not like that. And we would be expecting -- can you give us an idea of what kind of client additions we would be expecting in terms of number of client additions over, say, the next 3 to 5 years?

We are touching all pharmaceutical companies, right, from Sun Pharma, [indiscernible] even Alkem, [indiscernible], MSN, all of them are in contact with us. Some of them have recently cleared our premises, that list I already published in the press note. And several of them are still, we are in touch with them. The point what is trying to drive to pharma companies is our ability to develop new products faster than anybody else. Even the leaders in pharma packaging, we are in a position to meet or exceed them in terms of new product development. And all the new product developments are always time lines. Everybody takes a long time to decide. But once they decide, they want within a month. But developing molds, developing product designs is not so easy. That is the strength of Mold-Tek, which we are going to use and get into bigger pharma companies. And once they start using our new product development, they will be obliged to consider our existing standard bottles also. That is for our growth.

We have next question from the line of Pranav Doshi from Adecco.

Sir, just one question. So like on the business side, what kind of contracts do we have with our customers? So is it like order-to-order basis? Do we have to wait for it? Or like is it a contractual agreement and we have kind of a visibility for our volumes for some time?

Yes, you're correct. All the kinds of contracts or agreements are possible in pharma also. Generally, now we are at a testing stage. Nobody will give us their long-term 5-year contracts. They generally test our products, take some 1-month lot, test it in the market, on their lines, how we -- how are our caps. So let's say somebody is buying only caps, how is our cap doing with the other bottles. All the tests they do it over a period of 3 to 6 months, and then they start building up the confidence and increase the volumes. So at least 6 to 7 companies have tested our products or are testing our products. And 3, 4 of them have started giving with repeat orders. Actually, touch wood that this month we receive the 1 major order from Marksans. And hopefully, another product, which is under development will start from January -- December, January. Like that, once our relations starts with the new product, actually, our relations to Marksans started with a new product development. And then, obviously, when they see our ability to quickly give them new product and our facilities are world-class, but they also then consider us for their existing products. So similarly, we are trying with [ Telarus ]. We're trying with MSN. We are trying with Alkem. We are trying with [ Gravity ], [ Pulse ] pharma. So at least 8 to 10 companies, we are in some [ of ], Sun Pharma. So we are in touch with their packaging development teams, R&D teams and we have started. And once we have 3, 4 in the line, 5, 6 becomes easier to add. So that is a confidence I have. Again, it's coming back to our strength in product design and mold design and speed at which we can develop new products. That is our strength, which we are focusing on USP, even in the pharma segment.

So this is for the newer segment and for the segments have been established, like, let's say, Paints or F&F...

Even in the FMCG, most of the products are well established, especially come to paint pails. Those paint pails standards have become normal. They're like commoditized. So there are at least 20, 30, 40 suppliers or even 50 suppliers who are able to produce paint buckets to a reasonable quality and a reasonable consistency. So obviously, there is a severe price war and also supply options. When it comes to pharma, you can hardly count on fingers, notable players like 3G, [indiscernible], Gopaldas, [ Dr. Pack ], that another maybe another 3, 4 players. So these are all catering to the current pharma companies. We also entered into the fray with them, but our USP will be new product development and faster mold development. Because of our strength in injection molding, our ability to produce at low cycle times will also make us -- can be an economical player. So with all these strengths, we are trying to focus on pharma business.

And sir, just one final question. So like the competitive intensity, as you mentioned, we are seeing a lot of it in Paint. So like is it possible that, let's say, down the line, the same kind of competitive intensity of pressure we might see in the other segments is the -- apart from Pharma is a longer accrual prospects in the others -- like is it to that...

Competition will be always there in all segments. Even today, paint, we are now almost 35th or 36th years of production of paint. So even today, we have our own value and even today, 37% of our sales come from Paint segment. So there is a growing demand for the sales and quality sales especially with IML. So having IML advantage, which is not possible for all and sundry to start, we will certainly have our own niche market for our products going forward. However, there will be a small pressure, but then capacity utilization, in-house manufacturing of labels and [ robots ] is what brings us the economies of scale, even at under price pressure. That's how we are able to stabilize our EBITDA. Now the current EBITDA would have been [ INR 40 ], but for increase in staff cost because we have all these several projects across the country, especially pharma. We have added a lot of staff who are yet to contribute because the capacitization of pharma is hardly 10%. Similarly, Panipat and Cheyyar are now picking up. Earlier, 3, 4 months ago, hardly 20%, 25%. Now it is coming to 40%, 50%. So going forward, as the capacity improves, EBITDA margin will improve.

The next question is from the line of Ashutosh Khetan from Asian Markets Securities.

I just wanted to know the revenue mix from the Qpacks in quarter 2.

Yes, Qpacks contribute around 19%. Sorry, 14.43%.

Next question we have is from the line of Vikram who is an individual investor.

Mr. Rao, just a quick question on H2. Do you think H2 will be better than H1 in terms of top line and bottom line? And any early guidance for FY '26? I do remember on a previous call, you mentioned we should exceed INR 1,000 crores for FY '27.

My expectation of H2 is definitely better than H1 because, as I said, all the plants are now up and running and pharma started. It's not in a big way. In a reasonable way, the numbers will start adding in Q3 to some extent, maybe INR 3 crores and Q4, maybe INR 4 crores to INR 6 crores will be our valuation from pharma. So with these numbers and now the Mahad plant started picking up [ too ] recently. So that number will start increasing from December. So all this is optimism to have a better history than the previous year in H2. I'm not comparing with H1 of this year because our product sales are always seasonal. We think H2 should be up, this H2 should be better in terms of top line. Coming to the bottom line, the things can only improve as our capacity situation improves. So it may be similar or it may be marginally better than previous year H2. Going forward to '25, '26, yes, I'm positive about it because all these numbers and pharma also will contribute handsomely and our printing concerns, what we are facing now in this year will be completely eliminated because we are adding almost 60% to 70% additional capacity in IML printing by January, February. Maybe our last machine will come in April. So by April next year, we'll have our IML capacity up by around 60%. So that should give us adequate capacity to cater to all the segments including pharma [ things ].

Ladies and gentlemen, as there are no further questions, I now hand the conference over to management for closing comments.

I take this opportunity to thank all the participants for their interest in our Q2 results conference and especially I thank Emkay Global, Nitin Gupta for attending this conference. Thank you very, very much. Have a good day.

On behalf of Emkay Global Financial Service, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.