Rajshree Polypack Limited (RPPL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '24 Earnings Conference Call of Rajshree Polypack Limited, 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.

Thank you. On behalf of Prabhudas Lilladher, I welcome you all to the Q4 and 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 Sharma, 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 Q4 FY '24 and FY '24 at Rajshree Polypack Limited. Great to have you all on the call. From Rajshree Polypack, we have Mr. Sunil Sharma, our CFO, on the call as well. I hope everyone had a chance to check out the investor presentation, which we have uploaded yesterday. Speaking about business, financial year '23-'24 was very eventful for us at Rajshree. Right from setting up a new plant of Olive Ecopak to building demand of injection molding products category, to increasing capacities in traditional sheet extrusion and thermoforming through technology upgradation, to increasing production and sales to building exports, to working on next growth plan, it was all a training journey. And while we delivered on so many counts, what we could not deliver in last year is growth in profitability. In fact, our profits for the year dropped by about 13%, while our turnover improved by 9% in value terms. And for the coming financial year, we have set our eyes on correcting this while achieving new milestones in our growth journey. Looking at numbers, we achieved a turnover of INR 274.39 crores for the financial year '23-'24, a growth of 8.8% over previous year turnover of INR 252.19 crores. This was essentially contributed by volume growth of 17.56%, while the overall realization per ton dropped by 10.5% on account of lower raw material prices. Our EBITDA for the year 2023-'24 stood at INR 36.77 crores, up 3.5% over previous year. However, the EBITDA margins marginally dropped to 13.4% as against 14% for the previous year. The major reason for the drop in full year margin was driven by sudden and significant drop in raw material prices during H1 of FY '24, taking away almost INR 3 crores of our profits. While we recovered and managed to kept material costs in control in later half of the year, an unexpected additional onetime cost of INR 70 lakhs towards power and fuel added another dent in our profits. However, things are very much stabilized now, and we look forward to a much better time ahead. Speaking of profit after tax, we achieved PAT of INR 9.5 crores for the year as against INR 10.88 crores for the previous year. The PAT margin of the company stood at 3.46% as against 4.31% for previous year. Let's have a quick look at our performance for Q4 as well. In Q4 FY '24, our company achieved a turnover of INR 69.37 crores, showing a growth of 7% as compared to the same quarter last year, while turnover was -- where turnover was INR 64.8 crores last year. The EBITDA for Q4 FY '24 stood at INR 9.36 crores, almost similar to INR 9.32 crores in the corresponding quarter of the previous year. Profit after tax for Q4 FY '24 amounted to INR 2.38 crores as against INR 2.58 crores for Q4 FY '23. On sales front, aided with visibility in various exhibition and also the injection molding product category, our export sales have grown up by 3x to INR 42 crores as against INR 13.5 crores for previous year, with major contribution from Middle East, U.K. and U.S. and Southeast Asia. At the same time, we expanded our customer base to 13 countries as against 9 countries earlier year. Most of our buyers have been large global distributors, and we are constantly working with them to expand our business base globally. In domestic market, while the volume sale grew, the growth in the value remains muted due to metal price reduction. At the same time, we have kept adding more distributors to our network, thereby diversifying our customer base. And today, we are supplying material to almost every state and UT. In near future, while our institutional business will grow steadily, we intend to strengthen our general market product division as well as by adding more products to the basket. I'm glad to announce that our decision to enter the injection molding segment has paid out well and the company achieved a revenue of INR 20.86 crores by selling injection molding products during the year as compared to INR 4 crores in the previous year. We see this division shaping up well, and we have already announced increase in our injection molding capacity up by 3x from 1,000 metric tons per annum to 3,000 metric tons per annum. This increase in capacity comes with minimum investment towards mold bank as the primary investment shall be done by the toll manufacturer. At the same time, we have renegotiated our job work charges towards downwards by factoring in the benefits of scale, which will help us improve our profitability from the IM products. At the same time, we have added IML capabilities to the injection molding machine, which will help us getting better price realization and higher profitability. I'm happy to share that we have already onboarded first large institution customer in the IM segment and the business has started. At the same time, we are seeing constant growth in the demand of thermoform packaging product as well as we are looking to add another 4,000 metric ton per annum of extrusion capacity and 1,000 metric ton per annum of thermoforming capacity at our Gujarat unit. This will take our installed capacities to 24,000 metric ton per annum in case of extrusion and 10,717 metric ton in case of thermoforming. As you all may be aware that we have secured land allotment at Odisha for our next growth journey and have applied for requested approvals. We are working on further plan at this location and shall come back with details at appropriate time. Talking about Olive Ecopak, we achieved major milestone by successfully commencing commercial production in March '24. We are already in market seeding stage with submission of product samples with scores of customers for approval and look forward to start building sales in next quarter. We shall keep sharing more updates as business progresses on this front. I would like to conclude with a quote of Mr. Narayana Murthy who said, "Growth is painful, Change is painful, but nothing is as painful as staying back where you do not belong." And let me assure you that we are here to grow and scale newer heights. Now I look forward to hear your questions.

[Operator Instructions] First question from the line of Nikhil Shetty from Nuvama Wealth.

Congrats, sir, for a decent set of numbers. So sir, when we look at our overall sales for FY '24, so our growth was mainly driven by the volume. It was around 18%. But when we break up that from domestic and export, our export grew almost INR 29 crores on FY '23 base and -- but the domestic business witnessed a decline. So I believe that largely whatever the volume growth we have witnessed during '24 was mainly driven by the export. So despite adding, I think, 150, 200-odd clients every year, what is the reason why we are not able to grow in the domestic market?

There was a growth in terms of volume in domestic market also, but we are not reflecting that into value, as we mentioned, due to the decrease in the prices of the raw material. There is around 8% growth in the volume terms in the domestic sales also. And what we will also see is we have almost reached our capacities with respect to thermoforming and extrusion. And with the addition of further this capacity, we'll be able to further increase the sales in the domestic market as well.

Great. Sir, we are adding roughly 40 to 45 products every year. And I think we have also increased our reach in the export market. What kind of growth do you foresee in this existing plastic packaging business?

We expect roughly 15% growth for this coming year in this -- from the plastic volume.

Volume growth?

15% on the top line, I would say. Volume -- if the sales -- if the raw material prices remain stagnant, then this particular -- on the top line, we could see 15% growth.

Okay. But if you look at the last year's base, now prices are almost stabilized or how the prices are? For example, when you compare the Q1 prices versus last year Q1 prices, so is there any big difference?

Yes. I would say the prices have stabilized now. I would say last 2 quarters, they are stable now.

Okay. And the next question is on the injection molding part. So we are increasing our capacity almost 3x. And I believe this is mainly for the U.S.-based customer where I think supply has already started. So what kind of revenue you foresee from this particular business this year?

Injection molding, the capacity probably will be ready to -- the new capacity will be ready in next 2 months' time. So we -- for this year, we are looking roughly at increasing by around 70%, 80% into the revenue from the current level.

70%, 80%. Can you quantify in numbers?

See, I would say around INR 30 crores to INR 35 crores is what we are looking at from injection molding.

INR 30 crores to INR 35 crores. And what was the figure last year?

INR 20 crores.

Okay. Incremental INR 15 crores from this business. And can you help me with the Barrier packaging number for '24?

Barrier Packaging, we were roughly at INR 21.5 crores for '23-'24. And we look at around INR 28 crores to INR 30 crores for this year.

INR 28 crores to INR 30 crores. I mean any reason why we are expecting this kind of a growth?

Yes. Basically, as I said, like this particular segment will grow at the rate of 25% to 30% year-on-year. So based on that numbers, and we have onboarded one or two new customers, which we are in discussion with. So looking at that, we should be reaching at this number of INR 28 crores to INR 30 crores for this year.

Okay. And sir, as per expansion, geography expansion and meeting the maximum part of the country, you now intend to add a capacity in Odisha as well. So what is the status there? And how big the capacity will be and the CapEx plan, if you are -- if you have done anything on that? And what kind of opportunity size you look after establishing Odisha plant?

So the detailed working with respect to CapEx and the capacities we are still working on. So we'll come back to you on that at the appropriate time. But at the moment, I would only say the land has been allocated and the process is on for getting all the initial approvals and permission to start the first stage of construction activity.

Okay, sir. And lastly, on the Olive Ecopak part, like I think it's already commercialized and production is already commenced. And previously, you talked about INR 100 crores kind of a number at a JV level and our share INR 50 crores. So if we go by that number, then probably this year, our PAT, our PAT will be around negative INR 2 crores INR 1 crores or INR 2 crores, right?

Yes. You're right.

And next year, probably we'll be making around INR 8 crores to INR 10-odd crores. Is that a right understanding?

Yes. Next year, we will be looking at INR 170 crores to INR 180 crores of revenue from Olive.

So these numbers will come -- so this year, you are going with the JV structure and probably next year, you'll add that to the subsidiary because of saving your margin side?

Yes. So we will take advice of the legal team and see what is the best suited, and we'll take a call accordingly.

[Operator Instructions] Next question is from the line of Rohit Shah from Ladderup Wealth Management.

Am I audible?

Yes.

Yes, Rohit. You're audible.

Sir, one question was that in this quarter 4, we've seen quite a fall in the margins at an overall level that we see, despite...

Rohit, your voice is a little echoing.

One second, sir. Is it better?

Yes.

So what I was asking is, sir, in quarter 4, we have seen a sharp dip in our margins at an overall level despite the gross margins being pretty stable. So as you said, what is the cause of this margin decrease in quarter 4.

As I mentioned in my speech, in quarter 4, we had an unexpected expense of INR 70 lakh towards diesel because there was some technical breach in power supply from the main grid line. And we had to keep the plant running on DG set. So there was an additional cost of INR 70 lakh on that account.

And sir, going forward, what range can we look at margins to be at?

We will look at 14% plus/minus 0.5% EBITDA level.

Okay. Secondly, sir, obviously, you've said that -- was there any revenue from Olive Ecopak during the year since we have already commercialized in March?

Yes. Yes. We have some revenue of around INR 20 lakh, INR 30 lakh already. The orders are coming from the customers and as I mentioned...

And sir -- because in the presentation, numbers that you've given for plastic packaging and sheets, if you add them up and if you reduce them from the total revenues, there is a difference of around INR 11 crores.

Production has started on 30th only, so that the revenue is for this year, not in last year, there was hardly any revenue of INR 1 lakh or INR 2 lakh...

So but anything on why there is a INR 11 crore difference between the 2 segment revenues and if you add them up and the total revenues, the total revenues are higher than the segment revenue added up?

That is other income on the account of development charges and other things, yes.

Okay. Thirdly, sir, what I want to ask is there has been some fall in our payable days this year from around 30 days to 20 days is calculated on sales. Any reason for that, sir?

I would say like we are trying to take package material and other things on earlier payment terms and trying to reduce with the suppliers on the cost of the material.

But sir, going forward, when can we kind of see this trajectory coming down because your working capital cycle is at an all-time high now. Because you also have inventory from for Olive Ecopak, which is there in your books for the new plant that has been commissioned?

So we see working capital cycle coming down in next 2 quarters by around 10% to 12%. And further, it will take another 2 quarters to bring it to 100 days cycle.

At least we should see some improvement in next first half results that we see in September results this year.

Yes.

Another one, sir, is that -- I just want to understand your export revenue has grown very sharply this year. Any big orders that you've got from the export side has caused this? And going forward, how should we look at it? Will those orders continue? Or will it come down to a normalized level?

Definitely, it will go further because as we are also focusing on having a significant revenue from the export segment. So for this year, we are looking at around INR 60 crores of revenue coming from export as a segment.

[Operator Instructions] Next question is from the line of Suresh Jain from NB Investments.

First question is how is our Barrier Packaging machine is running? And what was the revenue done during last year?

We did around INR 22 crores -- INR 21.5 crores of revenue to be very specific from the Barrier Packaging segment. Machine is running fine. The product is well established. And as I mentioned previously, we are looking at a revenue of around INR 28 crores to INR 30 crores from barrier packaging for this year.

Sir, 2 follow-up questions. One, when do you expect to run only at a full capacity only for barrier packaging only? And how much revenue it will contribute at that time?

That's around INR 50 crores to INR 60 crores is the overall revenue we can expect from the barrier packaging if we run at 100% capacity.

So currently, you would be running for the other products also, not the same machine?

Yes.

Okay. Sir, it was supposed to contribute higher margins for these products. So are you able to achieve that at least?

Yes. Barrier packaging is giving us the higher margin. It is around 4% to 5% higher than the conventional products.

And how much is our -- the conventional one, sir, as in like in FY '25?

Conventional is around 13%, 13.5%. So this is at 18% level for this year.

Okay. Sir, my next question is, sir, this 4,000 metric tons, you're increasing the capacity at our Vapi plant and all. So you said this would be ready by June, right? Sorry, another 2 months means August?

Yes, I would say end of August or September mid, it should be ready.

Okay. So assuming that it will be available for full run from H2 onwards. And since you are running it from the existing plant, so the margins for the 4,000-odd capacity products should be on the higher side?

I would say the other expenditures won't be there because everything has been accounted for as the capacity go up. So whatever additional sales we bring will help us in improving the bottom line.

Okay. Sir, my third question is about the toll manufacturing where now you are increasing the capacity. Now when it is running at 1,000, I think we were not making money out of that. But -- so by what capacity, by when we will start making PAT positive in that toll manufacturing.

In fact, that capacity will also get ready in next 2, 2.5 months' time. So in H2, the 3,000 tonne capacity will be available. Like there has been an increase of 400, 500 metric tons already being done in the month of April. So balance 1,500 -- 1,800 will come by H2. So this year, as I mentioned, we will be looking at the revenue of around INR 32 crores to INR 34 crores. So definitely, that will give us profitability. And on full scale as it runs, we can look at the revenue of around INR 45 crores from this capacity. And it will -- even at INR 32 crores to INR 35 crores, it will turn profitable and INR 45 crores, it will give us the real benefits.

So this INR 30 crores to INR 35 crores, the target you have given for the current year, we will be making money at PAT or EBITDA?

PAT.

PAT. Okay. Fair enough. Sir, the next question is your Olive sales, sir, how much we are targeting in FY '25?

INR 90 to INR 100 crores is what we are looking at.

In the current year, that is FY '25?

Yes.

Sir, will it be EBITDA positive at this scale? Or does it have to be ramped up to INR 170 crores, INR 180 crores in FY '26?

It will be EBITDA positive. But at the PAT level, there will be a loss.

There will be a loss. Okay. Sir, my last question is about the debt. In spite of raising money through QIP and the raw material price having come down, but still debt has not come down. So is there any plan from the management to reduce the debt during the current year?

Yes. As all the investments now has -- majorly Olive major investment has gone. So that is now almost done. So over a period of next 4 to 6 quarters, we should see a significant reduction in the CC, I would say, limits. Our long-term debt is around INR 15 crores. So the short-term debt definitely will be using lesser CC limits over the next 4 to 6 quarters.

Okay. So how much we can reduce by both long term and short term put together, how much we can expect by the year-end, sir?

Around short -- long term will reduce by around INR 5 crores. And short term, we can look at around INR 10 crores to INR 12 crores for this -- end of next year.

So that would mean less than INR 20 crores from the current level of around INR 80 crores or so?

INR 15 crores to INR 16 crores from the current level.

Sir current debt is INR 87 crores, sir?

No.

Long term.

Long term is INR 15 crores and short term is...

INR 58 crores.

INR 58 crores.

Short term is INR 58 crores. So from INR 58 crores plus INR 15 crores is INR 73 crores. So you are saying from the level of INR 73 crores, we would come down to almost INR 25 crores?

No, no. I said INR 5 crores will be reduced from long term.

INR 5 crores will be reduced from short term, okay?

Long term.

Long term, okay.

And we will look at reducing our short term from INR 58 crores to INR 45 crores to INR 48 crores.

Okay. So there also another INR 10 crores to INR 15 crores reduction. Okay. Sir, my last question is, we have generated a cash flow of around INR 21 crores during the current year. So how much we can expect in the next year?

We can look at a number of anywhere between INR 28 crores plus/minus 1.

[Operator Instructions] We have a question from the line of Rohit Shah from Ladderup Wealth Management.

Sir, earlier you said that next year in Plastic Packaging, we can see kind of 15% revenue growth at a value level. But given that currently, the raw material prices are kind of stable or at least inching up slightly and your volume growth is very good at 25% plus. I mean, shouldn't we expect a higher growth in next year?

As we are adding the capacities, which will start contributing in H2, so we feel like we'll able to generate at that level only for this coming year at the rate of around 15%.

Sir, do you expect any realization improvement in the next year? Or because I understand your volumes will come down because of capacity constraint, but do we expect any realization improvement?

Realization, we are continuously engaging with our customers to have better prices and the marketing team has been working on that constantly. So we'll try to increase our margins by 1% to 2%. We are working on that with the customers. Let's see how we can -- we are able to get the support from the customers.

Raw material prices have stopped falling, sir, right? They are stable, as you said, over the last 2 quarters.

Yes. Raw material prices more or less are stable. They are range bound, I will say, between 2% to 5% plus/minus.

[Operator Instructions] We have a question from the line of Nikhil Shetty from Nuvama Wealth.

Sir, my question is on the overall margin. So I think based on your guidance, we can be near to around INR 318 crores to INR 320 crores in FY '25 in terms of revenue? And what kind of a margin you are expecting? Because I understand PAT will be lower by INR 1 crores or INR 2 crores this year compared to whatever the numbers flowing from the benefit of increasing revenue. But I wonder what kind of a margin you are expecting this year and next year?

So for this year, like as I mentioned, like EBITDA margin, we'll be looking at 14% plus/minus 0.5%.

And PAT, excluding JV contribution?

PAT, excluding JV contribution, we can look at around INR 14 crores to INR 15 crores.

INR 14 crores to INR 15 crores for this year, right? And next year, we will get a full benefit of the increased capacity. And any further expansion we are aiming for in second half or the first half of next year because then with this kind of a pace, probably we'll be exhausted with the capacity in next, say, 2 or 3 quarters, then again, planning in advance would be a better idea?

Yes, we are evaluating to add some little small capacity in and around Western or in the current location only. We are evaluating that at the moment. Nothing is concluded. So as and when it gets concluded, we'll come back to you on that.

The incremental capacity will be coming with a better margin because then the operating leverage can be the trigger?

Yes.

[Operator Instructions] Next question is from the line of Anant Shenoy from AS Capital.

Am I audible?

Yes. Very much audible.

Sir, my first question is despite like not so high sales growth, our inventory has gone up again. So like what is the reason why we are -- why the inventory has gone up from INR 66 crores to INR 71 crores despite not increase -- not much increase in sales?

Just a minute. The inventory for last year was INR 66 crores, and this year is at INR 71 crores. So we make a lot of finished products for our customers by the end of the year because we enter into the season period, and there are certain agreements with the customer to build inventory for them. That's why we see this particular inventory a little on the higher side. And this year, the -- also the summer started little late. So whatever inventory they were supposed to lift in month of March, they have not lifted and the lifting actually started after 15th April.

And like where do you see this one for the next year also, like March '25, how do you see this event? Because the reason I'm asking is because our working capital and even the short-term debt is at high around INR 58 crores. So how do you see this. Like do you see this will continue this trend?

We look forward to reduce by 10% to 12% in next 2 quarters as well as for the working capital finance, we'll be looking at reducing that by INR 8 crores to INR 10 crores by the end of the year.

Sir, is this due to the seasonality because the ice cream, curd and all happens in Q4, Q1? So again, next year, again, in the March quarter, again, the same trend would be there? Or do you think like as a percentage of sales, you will see the inventory days coming down?

By certain efficiency and stability into product mix, we will be able to bring it down by at least 10%. And our target is to bring it to 100 plus/minus 10 days. That is what we are looking at.

[Operator Instructions] We have a question from the line of Anant Shenoy from AS Capital.

Sir, on the Orissa plant, do you think this year or next year, again, there will be increase in the debt because of the Orissa plant? Or do you think like we have a sufficient headroom for growing for next year, say, FY '25 and FY '26 also without the Orissa plant?

The max, as I said, like is going on at the moment in terms of the investment and the capacity. So as and when we are ready with the actual investment, what we are looking at, we'll let you know. But for this year, definitely, we don't foresee any further increase in the -- major increase in the debt as such.

Okay. Sir, even if the -- so roughly, how much time it will take for us to set up this plant?

15 plus/minus 2 months is what I feel we should take to set up this capacity.

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

Thank you very much, ladies and gentlemen, for joining us on the call and asking the relevant questions. I really appreciate each of your questions, and I hope that I have been able to answer them to your satisfaction. With this, I wish you a great last quarter ahead this year and wish you all the best to your family and good health. Thank you very much for joining us today.

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