Rajshree Polypack Limited (RPPL) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good evening. I welcome you all to the Quarter 3 Financial Year '26 Conference Call to discuss the operational and financial performance for the Rajshree Polypack Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand over the call to the management for their opening remarks, after which we will open the floor for questions. Thank you, and over to you, Ramswaroop, sir.

Thank you, Divya. Good evening, everyone, and thank you for joining us today. I'm pleased to welcome all of our shareholders, analysts and participants to the Rajshree Polypack Limited Earnings Call for the Third Quarter of FY '26. With me is today our CFO, Mr. Sunil Sharma. I hope you have all had the chance to go through our investor presentation. Let me begin with a quick overview of our performance. For quarter 3 FY '26 revenue from the operations stood at INR 71.62 crores compared to INR 72.70 crores in quarter 3 last year, reflecting a year-on-year decline of 1.49%. EBITDA was at INR 10.3 crores compared to INR 9.05 crores in quarter 3 FY '25, representing a 13.82% year-on-year growth. EBITDA margins improved to 14.4% compared to 12.5% in quarter 3 last year. Profit after tax was at INR 2.13 crores compared to INR 1.7 crores last year, reflecting a 25% year-on-year increase. While revenue declined marginally, year-on-year margins improved meaningfully due to better product mix and operational efficiencies. However, sequentially, quarter 3 tends to be seasonally softer, particularly on the domestic front. Let me now touch upon our domestic and export markets. Despite U.S. tariff headwinds, exports continue to remain a strong growth driver for us in quarter 3. In quarter 3 FY '26, exports revenue stood at INR 20.54 crores compared to INR 14.58 crores in quarter 3 FY '25, reflecting a 40.8% growth year-on-year. This growth was largely driven by strong traction in injection molding products from existing customers. However, the U.S. markets continue to remain challenging due to prevailing tariff structure. Now with the ease in the tariff, we have actively started engaging with existing customers for further growth as well as new potential customers to start the new business. At the same time, we are actively diversifying geographically and currently exports are there in 13 countries, helping reduce concentration risk. On the domestic front, revenues in quarter 3 FY '26 stood at INR 51 crores as compared to INR 58 crores in quarter 2 FY '25, reflecting a 12% year-on-year decline. The key factors impacting the domestic revenue were lower raw material prices impacting realization, especially in sheet sales and moderation in institution offtake during the quarter due to seasonal impact. We have seen an improved traction towards the end of the quarter and expect domestic volume to strengthen in Q4. Product-wise performance in quarter 3 FY '26. Injection molding products grew very strongly, up by 38% from INR 12.8 crores to INR 17.6 crores. This continues to be our strongest performing segment, driven primarily by export demand. Thermoform packaging products remained stable at INR 38.3 crores. Sheet sales were lower at INR 15.22 crores as compared to INR 18.66 crores last year, reflecting an 18.4% year-on-year decline. During the quarter, we increased the extrusion capacity to 25,600 metric tonne per annum from 24,000 metric tonne per annum, strengthening backward integration and positioning ourselves for higher volume across packaging products. On the expenses front, COGS improved from 60.6% to 56.4%. Employee cost increased to around 18% on a year-on-year basis primarily on account of annual increment done in April as well as Unit 3, which commenced production, commercial operation during the year. The same was partly offset by saving in the job work charges for sheet extrusion and thermoforming business. One of the important highlights is signing the term sheet with a renewable power producer to purchase renewable power at a lower price under a captive arrangement. As per the term sheet, we shall be investing INR 2.25 crores approximately in the renewable energy SPB while remaining investment will be done by the power company. We expect to save around INR 1.5 crore approximate per annum in power cost once the project starts generating power, which we expect to happen in around 5 to 6 months from now. Further on the interest front, we have finalized arrangements with the bank to convert the sum of INR 20 crore loan into foreign currency loan at the lower interest rate, which will help us to save approximately INR 1 crore per annum. At the same time, we are constantly working on finding ways to reduce the overall debt exposure to the company by bringing in more efficiency. We shall keep you updated on the same. On the Olive Ecopak joint venture, our JV company, Olive Ecopak, continues to make encouraging progress. We have installed capacity of 7 million pieces per day, making olive one of the largest integrated producers in the country in this category. In quarter 3, our paper coating was 1,085 metric tonnes and finished goods, we did 1,035 metric tonnes with utilization of around 28%. So we are steadily increasing our utilization. Financially, Olive recorded a turnover of INR 15.69 crores of revenue in quarter 3, significantly higher than INR 12.05 crores in Q2. EBITDA improved to INR 1.15 crores with a margin of 7.33%, reflecting meaningful operational improvement from INR 0.05 crores in Q2. We are also seeing good traction from large domestic customers, and we are gaining interest from Europe and Middle East. We remain confident of achieving sales of INR 19 crores to INR 20 crores revenue in quarter 4 and continuing the journey towards profitability. Further, with the ease in the tariff in U.S., we expect to restart discussion with U.S. customers and positively start exporting to U.S. from quarter 1 of FY '27. During the year, both Olive and RPPL participated in global exhibitions for packaging. The event helped strengthen our visibility in international markets, particularly in North America and enabled meaningful engagement with existing and prospective customers. Looking ahead, we expect recovery in domestic volume in Q4. Export momentum, particularly in injection molding, remains encouraging. Olive continues progressing towards operating scale and improving margins. Renewable energy integration will support long-term margin stability and reduction in the interest rates will also help in improving the margins. While overall quarter 3 has been relatively softer sequentially, the structural growth drivers of the business remain intact. With this, I conclude the business update for the quarter. We will be now happy to take your questions.

[Operator Instructions]

Yes, Mr. Augustine. You are audible.

Sir, I wanted to have a little bit color on this JV operations, actually. So the loss has come down. That is a good thing to know. But in your books, you have completely made the investment low because the [indiscernible]. Is that correct?

Yes.

So can you tell me accumulated what is the loss position for this company so far?

For Olive Ecopak, I'll -- just a minute. It's around INR 12 crores.

That's our share or is it for the...

Our share.

Okay. So INR 24 crores for the total company, JV. Okay. So going forward, [indiscernible]?

Yes, go ahead.

[indiscernible]

Yes, of course.

So it means that it will take at least 1 to 2 years for this whole thing to [indiscernible]?

Yes, yes. For us to get the profitability number at least 1.5 years, we'll need to first recover that loss.

Okay. So since the company is making losses, how is the cash flow position? Is it all running on bank debt? Or like how is it -- like the company might be generating -- may not be generating free cash, right? So it's all funded by bank lines? Or like how is the negative working capital or cash position of JV basically?

I would say like with INR 20 crores of revenue, we will be able to manage the cash flow with respect to depreciation and paying bank interest and the other operations. We are not taking our interest what we have invested. We are, of course, accruing it in the books. And so that much cash flow is not going, which is roughly INR 1.5 crores, INR 1.6 crores, both the JVs put together per quarter. But at INR 24 crores, INR 25 crores, we'll be probably roughly -- at PBT level, we'll be doing the breakeven. So there then -- so it's a matter of another -- I would say, we are expecting INR 19 crores to INR 20 crores in this quarter and maybe INR 23 crores to INR 24 crores in next quarter. So with that roughly we'll be breakeven at PBT level.

Sir, just one curious one to understand like this particular product you are targeting mostly in the U.S.? Or is it like Europe is also a big market?

No. It is domestic. Currently, majority of the sales is coming from the domestic market. We have around 15% of revenue coming from exports, which is in -- from U.K. and partly from Middle East. But U.S. remains, of course, one of the strong markets and there is a big demand for this category of the product in U.S. and Europe. So that definitely with this reduction in the tariff, we expect that business to get started in those markets.

So with the tariff issue almost settled with the new FDA, so like for next year, okay, Q4 is anyway INR 920 crores. But for the next year as a whole...

From Q1, we could start seeing the movement. Already, the discussions have started with the customers who were sitting on the fence. So they already -- the discussions have been initiated again. And we expect definitely to see the revenue coming from those geographies.

Sir, just one suggestion actually. This -- since you're going through by this route of accounting, it's very difficult to actually identify like what is exactly happening with the JV. Like had it been a subsidiary, like consolidated statement would have given like this much cash burn is there or financial. But like -- I mean, you've written, you've disclosed everything, I'm not denying the fact, but it's -- unless you go very minute and deep inside, you'll not be able to understand exactly what is the position for this company. So I was surprised to see that another -- I mean, it will take at least 1 to 2 years to materially see how our financials improving, at least the EPS point of view. So that's because the accounting style was like this. I mean, wherein you do a 50% direct hit on the P&L. So as an investor, I would be more happy if had you considered as a subsidiary. And otherwise, it's -- there's another option of showing the financials separately for this JV so that things become very clear. That's a humble request.

Yes, we are consolidated subsidiary. After subsidiary only we can do. What we can do is we can put those numbers or maybe in our investor presentation, if possible, so that -- there will be clarity on that. So we can start doing that from next investor presentation.

Okay. And one more thing, sir. This -- on this staff attrition point. So recently, the HR head is also [indiscernible]. So have you found a replacement for him or still...

Yes. No, we have internally promoted a person who was working with us since last 3, 4 years. So he has been promoted internally only.

[indiscernible] but generally, as a strategy for the company to...

Mr. Augustine, in between, your voice is breaking.

[indiscernible] for retaining employees, are we having any special scheme or [indiscernible]. So it's not a good sign, right. I mean [indiscernible].

Your voice is little breaking, but what I understood is about retaining of the people. We are giving ESOP also to the -- to our key people who are there in the company, apart from the salaries. But as you understand, like the -- after 5, 7 years, sometimes people want to switch over. It's not that people are switching just in 1 or 2 years. So -- and we have found replacement who can actively do the same kind of work because he was working under him only. So we are not very much concerned about that particular this thing. But of course, yes, we are trying our best in terms of retaining the people provided that doesn't affect our budget also. And we keep people motivated with this ESOP, which we give almost every year.

[Operator Instructions]

Can you please give us some outlook for -- I don't know, I joined the call a little late. So what's the outlook for the next 2, 3 years, both in terms of revenues and margins?

For plastic business, we are looking at around INR 360 crores to INR 370-odd crores revenue for '27. And without any further major CapEx, our capacity is around INR 400-odd crores. So the idea will be to reach this capacity without any further CapEx first. And on the paper business, we are looking at around INR 120 crores to INR 130 crores for FY '27 and roughly INR 180 crores to INR 190 crores for FY '28. So business will be roughly at a margin of 15%, 15.5% EBITDA and paper business will be at 16%, 16.5% EBITDA.

Which is -- kind of right now, you're achieving how much?

We are roughly at 14.5%.

Got it. Got it. And also in terms of working capital, how do you see the working capital playing out?

Working capital cycle actually also depends upon the RM prices. Sometimes if the RM is going up, we have to stock the material or sometimes during the start of the season, we have to keep certain inventory for certain customer to meet the seasonal demand. But the idea is to reduce the working capital by INR 10 crores to INR 15 crores over next 2 quarters. That is the whole idea.

Got it. Got it. And in terms of CapEx, do you need any CapEx to achieve these numbers, say, ballpark, you're saying about INR 500 crores for FY '27?

No, no major CapEx. Around INR 3 crores, INR 4 crores here and there. But apart from that, no major CapEx.

Got it. Got it. So right now, you're working at what kind of capacity utilization?

Different processes are at different capacities. But as I said, like we are roughly -- in terms of revenue in plastic, we are at roughly at INR 330 crores, INR 340 crores of revenue. So we have additional INR 50 crores, INR 60 crores of revenue to be increased. And we are -- like in some segments, we are at 70%. In some, we are at 90%. So -- and somewhere we are at 55%. So different processes are at different utilization level.

Got it. So strategically, what are you looking at? Say after FY '27, would you continue to grow in the segments that you are in? Or are you looking to go into some new segments?

Like, of course, we see a good potential in paper as a category also once we are able to stabilize that and reach to 80% of the installed capacity. There, we see a good potential. And also in our plastic business and injection molding, we see a good growth coming along with the thermoforming. So there both once we stabilize and -- for a year or so, reduce our debt, then we will definitely look forward to grow further in these 2 categories itself by at least another 40% to 50%. So the next target will be to go to INR 700 crores, INR 750-odd crores in these 2 segments itself. At the same time, we'll try to identify certain new products, which we are in process, which can add or complement to the existing range of products.

Got it. And what's the current debt level?

We are roughly at INR 9,500 crores, all put together term loan and cash credit.

And that's roughly what's the cost of debt?

7.5% to 8% on an average, out of which now we have reduced around INR 15 crore, INR 18-odd crores to 2.25%.

This is more like packing credit.

No, it was a JPY loan, which we took.

JPY. Okay. So are you hedging that loan or it's an unhedged loan?

No, we have natural exports. So we are not hedging it.

Natural exports to Japan?

More it is in USD. At the end of the day, it is linked with the USD only. And if we see the 5-year trend, JPY is more or less stable. Because our's is 1-year only tenure, it's not a long tenure.

[Operator Instructions] Thank you very much. As there are no further questions, I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you, Ramswaroop, sir.

Thank you very much, ladies and gentlemen, for taking the time off and joining us for the Q3 FY '26 conference call. Wishing you all a good health. Thank you very much.