Rajshree Polypack Limited (RPPL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rajshree Polypack Limited Q3 FY '24 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Stuti Beria from Prabhudas Lilladher. Thank you, and over to you, ma'am.

Thank you, Nirav. On behalf of Prabhudas Lilladher, I welcome you all to the Q3 FY '24 Earnings Call of Rajshree Polypack Limited. We have with us the management represented by Mr. Ramswaroop Thard, Chairman and Managing Director; along with Mr. Sunil Sarma, CFO. I would now like to hand over the call to the management for their opening remarks. After which, we can open the floor for the Q&A. Thank you, and over to you, sir.

Thank you, Stuti. Good evening, everyone. Welcome to the earnings call for Q3 FY '24 of Rajshree Polypack Limited. I'm thrilled to have you all here. Before we dive in, I hope everyone had a chance to check out the investor presentation we have uploaded. Let's jump into the numbers. In Q3 FY '24, our company achieved a turnover of INR 64.82 crores, showing a growth of 20.27% compared to the same quarter last year. The turnover was INR 53.90 crores. The EBITDA for Q3 FY '24 stood at INR 9.51 crores, 35.5% increase from INR 7.02 crores in the corresponding quarter of the previous year. Notably, our EBITDA margins improved from 13.02% in quarter 3 FY '23 to 14.67% in quarter 3 FY '24. Profit after tax for Q3 FY '24 amounted to INR 2.75 crores, reflecting a remarkable 162% growth over the previous year. PAT margins for the period increased from 1.95% of the sales in quarter 3 FY '23 to 4.25% in quarter 3 FY '24. Now looking at our 9-month performance, the company achieved a turnover of INR 205.02 crores, showing a growth of 9.42% corresponding to the current -- compared to the corresponding period of the previous year. The EBITDA for 9 months FY '24 was INR 27.35 crores, a 4.53% increase from INR 26.17 crores in the previous year. However, the profit after tax for 9 months FY '24 was INR 7.16 crores reporting a decline of 13.45% over the previous year. Breaking down product-wise sales, packaging products saw a significant increase of 23.84% reaching INR 45 crores from INR 36.34 crores while sheet sales experienced a slight drop of 1.45% reaching INR 17.03 crores as against INR 17.3 crores. Geographically, our export revenues soared by 121%, standing at INR 10.85 crores compared to INR 4.9 crores in the corresponding quarter in the previous year. In terms of capacity utilization, our injection molding products are at optimum levels, and we are optimistic about its growth alongside our thermoforming business. Moving on to product development. We introduced 6 new products during the quarter, bringing our aggregated product base to over more than 250 products for the Food Packaging segment. We served more than 465 international and domestic customers during quarter 3 FY '24, along with 41 new customers added in this quarter. We have been making ways internationally participating in events like Gulf Food, Dubai and making strides in building of a digital presence with the online product catalog and global social media profiles. Regarding Olive Ecopak, the machineries have right, installation is underway, and we plan to commence commercial trial runs in March '24. We have invested a cumulative sum of INR 22 crores till date with approximately INR 2 crores invested in Q3 FY '24. In terms of fundraising, we have raised INR 22.5 crores through the issuance of equity shares and warrants. This will help us drive the right balance between the debt and equity fascinating faster growth. Now I would like to hear your questions. Over to you, Stuti.

[Operator Instructions] The first question is from the line of Ankit Agrawal from Yellowstone Equity.

Yes. Hello Ramswaroop Ji. Thank you for the update -- my first question is on the injection molding side, it seems we have achieved the optimum capacity utilization, and we have mentioned that there are some growth opportunities we are looking at. Can you please elaborate what kind of opportunities we are looking at?

We are looking at the options of increasing the capacities further in injection molding. The proposal is under evaluation phase. As and when it gets materialized, we will make an announcement on that.

Okay. Is it possible to mention whether this will be in-house or it will be still a third-party contract?

No, the method remains the same. We will follow the same process, it will be a third-party arrangement.

Okay. Understood. And in terms of exports, are we currently exporting to U.S. as well?

Yes, we are exporting to U.S.

Is it possible to share like what kind of numbers we are doing?

Maybe that breakup at the moment is not available with me exactly, but I'll ask my team to send that information to you.

Okay. And what about Europe, are we exporting there as well?

We are not exporting to Europe, but we are exporting to U.K.

And is this barrier packaging products?

Barrier packaging products we are exporting to Middle East.

So for U.K., is it like sheet sales or is it product?

Packaging products.

And you have mentioned in the presentation about digital assets. Is this related to Olive Ecopak or something else?

No, currently, we are looking to we, I would say, make our own website of Rajshree little more inclusive because traditionally, we have been working on brick-and-mortar model only. However, we understand that going digital is the need of our and redeveloping the corporate website and making it more vibrant and appealing and as well as reaching out to customers through the digital mode is what we are looking at.

And in terms of -- I mean, we have also highlighted that we are growing the presence of distributors in our channels. So -- what -- and typically, we have had like a strong B2B institutional clientele. What is the need for distributors? What are the end clients we are targeting?

Basically, the end clients in the distributor segments remain from Horeca Industry and the whole idea is to increase the basket of the customer so that there is less of seasonability effect onto the business.

Okay. And will be -- is this also like we are trying to develop this also ahead of our Olive Ecopak thing or will there be like cross-sell opportunities?

No. Olive Ecopak, there may be certain customers who may be common, but the customers in this segment will far, by and far, remain different from Olive.

But I mean since that is also paper packaging and it's relevant to Horeca industry, why is the clientele different?

As I said, some customers may be common, but not all of them deal with the entire basket of products together. The one who are dealing with plastic generally deal with the plastic, the one who are into paper and other segments. So it depends, like some maybe doing entire range and some customers may be doing only limited range.

Okay. Understood. Understood. And for Olive Ecopak. I mean you already mentioned that we are going to run trials in a month or so. But in terms of order book, like have you already started taking orders? And is there like guidance you can say in terms of the order book?

Look, as we are in constant touch with the customers, and we have given an indication on the volumes which each customer can pick up. And we will be having our first marketing presentation of Olive at AAHAR Exhibition at Delhi on 11th of March. And -- so looking at the numbers like whatever sales we have projected for the first year, we look confident that we'll be able to achieve those numbers.

And lastly, on the bonus shares you mentioned, what's the rationale behind this?

See, I would say like the paid up capital of the company is around INR 12 crores, while the reserves, including the last bonus issue is around INR 150 crores. So hence, we thought the Board felt it is appropriate to reward the shareholders by issuing the bonus.

[Operator Instructions] The next question is from the line of Hiral Desai from Anived PMS. Hiral, can you speak a little louder?

Is it better now? I actually had a few questions around the business. So one was if I look at your last 3 years operating cash flow that is at about INR 23 crores versus the operating profit cumulatively for last 3 years at about INR 77 crores, which implies there's almost INR 50 crores of incremental working capital investments that have gone into the business. So just wanted to understand what has led to such a sharp jump in the working capital?

So we have entered into various segments in last 1.5, 2 years, whether it is barrier packaging or whether it is injection molding, so also, the turnover also has been increasing over the last 3 years almost, we have doubled the turnover more than double the turnover is there -- so definitely due to those reasons, there is an increase in the working capital cycle, I would say. This cycle will go down over a period of next 6 to 9 months that we have already mentioned in our previous calls also, that in next 3 to 4 quarters, as we stabilize and we know the exact requirements of this new business, we will able to reduce the inventory.

And the core packaging business, which was there sort of outside of this barrier packaging and injection molding, there the working capital stays what it has historically been at.

Yes. I would say like the clear demarcation between all the categories of business. We can check and let you know. But yes, for the new categories, definitely, we have to keep certain inventories because there are certain raw materials which are import raw materials and the lead time for the supplies are high.

Got it. And the other question was really on the Olive JV. So when you talk about sustainable packaging, what does this essentially imply? So pardon my ignorance for that, just wanted to understand like what products are we talking about here?

These are basically paper-based packaging product, which will be used in food service segment. So when we say Rajshree is more into food packaging and from Olive, we will be making products which are made from paper-based material, and this will be for Food Service segment.

Okay. And who would be currently operating in this space? So people who currently, let's say, supply to QSR chains. Who would be the other large players here?

There are players like Huhtamaki foodservice international papers, I think so. Is that the correct name, I don't know, but a company called International Paper, DJ printers in North of India, Nippon Paper.

Got it. And I think on one of the earlier calls, I think you had mentioned that once you start the commercial production, you're expecting the revenues to ramp up to about INR 200 crores over, let's say, a couple of years from that date. So sort of what gives you this kind of confidence that you will be able to do INR 200 crores of revenue because that's almost like probably like 70% of revenues that we do right now. So just wanted to get some sense on that.

So there is a market mapping, which we have done. And based on the current evaluation of market survey what we have done, we are confident that we will be able to achieve that number because if you see the export which is happening from India on a year-on-year basis on this category of products is to the tune of INR 500 crores to INR 600 crores per year, only the exports.

Okay. So this INR 200 crores broadly would be a mix of exports and domestic demand?

Yes.

Got it. And what would be the sustainable ROCE of Olive JV, if I just sort of broadly look at the P&L -- because broadly, if I take a INR 200 crores kind of sales, INR 100 crore kind of CapEx and some working capital assumptions. The post-tax ROCE does not end up in excess of like 12%, 13%. So just wondering if what is like the ROCE barrier that you would have on a business like this?

We are looking at around 18% ROCE on this particular basis.

And this is post tax, right?

Yes, post tax.

Okay. So what would be the margin profile in that case? Because I think you had indicated that the margins will be similar or slightly better than the current business. So would that be meaningfully different from, let's say, the 15% that we typically talk about.

Yes, 15% to 17% range, it will be in that particular range for Olive business.

Got it. And the working capital requirement will be similar or lower?

A little lower, I would say.

Got it. And the last question was on the power and fuel cost. Now if I look at your FY '23 number, I think power and fuel costs were up 80% Y-o-Y. So just wondering what has caused this. And given that power is almost 5% of our revenues, is there any thought of sort of getting into renewables given that you are based in and around Gujarat and there are a lot of incentives that the state government gives on the renewable side?

Yes. As you rightly mentioned, the power cost has gone up because we have moved to Gujarat last year only. And the [Technical Difficulty] in Gujarat, one of our facilities in Daman and one is in Gujarat. So the rates of electricity in Gujarat on the higher side. And we are evaluating the proposal of having a solar-based power generation. So that particular work of the project is under discussion and evaluation phase.

Got it. Perfect. And Mr. Thard, we just wanted to have a quick chat with you sort of around the business. And the website, there's no real investor relations e-mail ID or something mentioned. So if we could have those details?

It's available, but I will ask somebody to get in touch with you.

[Operator Instructions] The next question is from the line of Nikhil Shetty from Nuvama Wealth.

Congrats on a great set of numbers and sir, have all the necessary machines for beginning the production of Olive Ecopak arrived our facility? Or is anything in the transit?

I would say 60% of the machines have arrived and balance 40% machines will arrive in the next 10 to 12 days of time.

So is it getting delayed because of this Red Sea issue?

No, because that is not creating any issues. The goods are in transit and it is as per the estimated arrival time. So we are good to install them and start the trial runs by end of March '24.

Okay. And when we can expect the commercial production to start from this facility?

Within 2 weeks of trial runs, we should be able to start the commercial runs.

Great. And sir, in our base business, I believe you have added some capacity during the last quarter. So can you quantify that how much capacity we have added during the Q3? And how soon we can expect that to get absorbed?

In Q3, what we have done to some technological upgradation in our extrusion process and printing process, we have increased the capacities of the existing machines. And with respect to thermoforming, we will be adding thousands metric tonne per annum of capacity. So that is going to start commence production by March '24.

And what kind of revenue we can expect, INR 20 crores to INR 30 crores?

Around, no, that will give a revenue of around INR 12 crores to INR 15 crores from that additional capacity.

And with this modification I mean, combined revenue generation possibility?

So with this, this will give an overall increase of around 3% to 5% from the current revenues, what we are doing.

Okay. And sir, when we look at the presentation, so we can see 40% growth in the packaging despite being a seasonally weak quarter. So is it because of new client addition or we have mitigated the impact of seasonality? Is it a right understanding?

Yes. Of course, we have added new customers and also with the addition of our injection molding range of products and adding certain plants into distribution channel segment. So all this have paid off, and that's the reason why we've been able to increase the sales in this particular category.

So since we are operating at an optimum level in injection moldings, are we generating any profitability there or still...

I will say it will start giving profitability maybe from this quarter as the numbers have got better now. So from this quarter, we could see profitability coming from this segment also.

So overall things, I mean, the impact -- I mean, negative impact of injection molding is now and positive operating to start kicking in. So can we expect the EBITDA margin improvement trend, which we have seen in the last 2 quarters to continue even in Q4?

Yes, definitely, we will see an improvement.

All right. Great, sir. And lastly, on a barrier packaging, how much revenue is generated from barriers in Q3 and 9 months '24?

In Q3, we have generated around INR 5 crores. And overall, we have generated around INR 17.2 crores of revenue in 9 months.

[Operator Instructions] Next question is from the line of Ashish Merchant, an individual Investor.

Congratulations on your results. It's been amazing to see the growth of this company I have been tracking. Sir, do we make tube laminates? And if we do or we don't -- is there any plans to start them? Because I've been tracking the tube laminates segment with other peers and I have been seeing some good demand in that. So are we planning to start that if you don't have that product yet?

So tube laminates as I mentioned previously, we have started the production of this particular segment, and we have entered -- it was technically and commercially I would say we were able to establish the product, but the wastages a little or more in the current machine and we decided to stop this particular segment for time being. And we will need to invest into a specific machine which can serve this particular segment. So I would say this particular investment is not planned at this current stage. But as and when it comes up, we'll let you know.

[Operator Instructions] Next follow-up question is from the line of Ankit Agrawal from Yellowstone Equity.

Yes, Ramswaroop Ji -- any -- what is your -- how has the raw material prices behaving now? I mean they were volatile through the year, but has it stabilized now? Any outlook?

Yes. I will say from last 2 quarters, the raw material prices, I would say, for the last 3 quarters, the prices have started coming down. It is stable from last 1 or 2 months, with slightly upward trend from last 15 to 20 days.

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you very much, ladies and gentlemen, for taking your time off and asking relevant questions. I appreciate each of your questions, and I hope I was able to answer to your satisfaction. With this, I wish you a great last quarter ahead for this year and all the best to you and your families and good health. Thank you. Thank you for joining us today on this call. I'll ask Stuti to take over the call and conclude.

Thank you very much. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.