TCPL Packaging Limited (523301) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to TCPL Packaging Limited's earnings conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on TCPL Packaging's Q1 FY '25 Earnings Conference Call. We have with us today, Mr. Akshay Kanoria and Mr. Vidur Kanoria, Executive Directors; and Mr. Vivek Dave, GM Finance of the company. We would like to begin the call with brief opening remarks from the management, following which we will have the forum open for the interactive question-and-answer session. Before we start, I would like to point out that some statements made in today call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now like to invite Mr. Akshay Kanoria, to make his opening remarks. Over to you, Akshay.

Good afternoon, everyone, and thank you all for joining us on our earnings call. I will initiate the call by taking you through our business highlights for the period under review. After which, we will open the forum to a Q&A session. We are pleased to report that we have commenced fiscal year '25 on an encouraging note despite soft domestic demand environment. In Q1 '25, we achieved a 9% increase in consolidated revenues reaching INR 406 crores. Furthermore, on a year-on-year basis, EBITDA registered a healthy growth of 16%, INR 71 crore with margins improving by 108 basis points to 17.6%. This strong performance was supported by a better product mix, operating leverage and proactive cost management. PBT and PAT for the quarter grew by 29% and 34%, respectively, reflecting robust profitability. Moving on to operational updates. We are making significant progress on our planned initiative to establish a greenfield facility in Southern India. We expect to commission this state-of-the-art facility by Q3 FY '25 -- in Q3 FY '25. It is strategically located near Chennai, providing excellent access to major industrial hubs and enhancing our logistical strength and service capabilities. This expansion will improve our ability to serve both new and existing customer with efficiency, broaden our Pan-India presence and align with our goal of growing geographically alongside our customers, while strengthening our position as a leading player in the industry. We are also strengthening our Board with the appointment of Mr. Sunil Talati as an independent Director for TCPL Middle East FZE or TME, effective July 18, 2024. His deep industry expertise will bolster strategic oversight at the subsidiary level and enhance compliance frameworks, benefiting TCPL Packaging International operations. Mr. Talati's role will reinforce governance practices and align TME's operations with TCPL Packaging's global standards. Moreover, we have received approval from the NCLT Mumbai for the merger of TCPL Innofilms Private Limited with TCPL Packaging Limited. This move integrates TCPL Innofilms a fully owned subsidiary, into TCPL Packaging, leading to better cost efficiency and synergy. Our focus on growth through diversification along with strategic expansion of our manufacturing presence across India has enabled us to consistently outperform our underlying industry. With the Indian organized packaging industry still in a nascent stage, we believe we are well positioned to capitalize on significant growth opportunities driven by increasing consumer demand and evolving packaging needs. Additionally, our strong performance in export markets has further solidified our position as a key player in the global arena. In conclusion, we remain committed to sustainably growing the company in the future, which will help create value for all our stakeholders. On that note, I would request the moderator to open the forum for any questions or suggestions that you may have.

[Operator Instructions] The first question is from the line of Nitish from ChrysCapital.

So the first question is our EBITDA margin used to be in the 15% to 16% range in the past, but in the last 2 quarters, we've delivered 17% plus margin. Is it fair to assume that our margin will be in the 17% to 18% range going forward?

Yes. I mean, historically, if you look at the long-term average, we've been around 15% plus/minus. And typically in a slightly better environment, it goes up by a few percent and worse environment by a few percent on the negative side. So far we are maintaining these margins last couple of quarters. And we are not in a very volatile RM pricing environment. Last one year, there was a big clawback in terms of prices of our major raw materials because the inflation of the previous year moderated substantially. This year, we are seeing raw material prices increasing again, but nothing like how it was 2 or 3 years ago. So overall, as long as the environment remains stable or benign, I think we are managing these numbers for now. So I hope to continue it.

Okay. Great. And what is our growth look for FY '25 in terms of value and volume growth?

So we don't have a guidance per se on particular year, but definitely, we have been growing at high double-digit growth rate for the last several years. So we just hope to continue that long run average. And the previous years, we had a very high value growth and less volume growth 2 years ago. And last year, it was the opposite. So this year, I think we have a normal year for once. So we should have a healthy mix of value and volume.

Okay. And the Chennai facility, could you quantify the CapEx requirement for that?

So we don't give the breakup for each unit. But overall, as a company, this year, we should be doing more than INR 100 crores on CapEx total. So there is some amount of new equipment we are putting in our other plants and then there's also the Chennai unit.

Got it. And the finance cost also have remained flat for the last few quarters. Fair to assume finance costs will also stays the same range going forward?

Yes, it should -- on an absolute basis, about similar range going forward.

The next question is from the line of Nikhil Shetty from Nuvama Wealth.

Regarding the revenue growth. So if you assume a 20% increase in the export as -- so the domestic growth might have been around 5%. So I believe there is a decent growth in the domestic market, at least. Is this a really sign of recovery in domestic demand? Or is it due to the new product or a client addition or perhaps an increase in the wallet share from the existing customer?

So we don't guide for the breakup. And -- I mean we don't give the breakup regularly between domestic and export. But basically, yes, I mean, the domestic market is growing. Last year, we had that headwind of the liquor, but this time, it's normalized. So it's already accounted for in the base this year. So we had a growth last year also, if you discount for the negative impact of the liquor. So that's continuing this year as well. And where the growth is coming from, there's a bit of a mix of everything. We have new customers, we are adding all the time. New customers we added last year, now who are increasing volumes steadily. And of course, we are gaining share in existing customers.

And the second -- for the second consecutive quarters, we have achieved EBITDA margin over 17.5%. So with a positive contribution from the subsidiary. So given the strong client addition over the past 12 to 15 months, can we expect quarterly run rate for these subsidiaries anywhere between INR 15 crore, INR 20 crore, can continue in coming quarters?

Yes, broadly.

So if that is the case, then probably we'll be able to maintain this high EBITDA margin trajectory going forward as well then?

I mean, obviously, we don't -- we hope that it will continue, yes. But it really depends on a lot of factors like the -- primarily the raw material pricing environment, the domestic market. Now we have -- it seems that the monsoon is decent this year. So let's see. We hope for the best.

My question on the -- if you can help us with the raw material price movement, like as far as some channel checks. The packaging film prices are moving sharply. So if you can quantify, at what percent it is growing.

Yes. So there has been a big increase in some packaging film prices in the last months, I'd say. Now what leads to all these things, there are a confluence of factors, whether it's global factors on raw material availability, export of their -- their exports improving, and there's some amount of cartelization. So all these things play a big role. And there has been a double-digit increase in prices for certain packaging films. But as a percent of our total RM, that's not a very large amount, but it is impacting in certain segment. .

Okay. So just to get a sense, how much of our overall requirement is supported by Innofilms right now?

Very small percent.

Less than 5%?

The flexible packaging business as a whole, as a percent of our overall business is in the low single digit. So this is one part of that unit RM. So it's not a very substantial impact on the company as a whole. Yes, for that unit, there's an impact. But like -- I mean, these film prices are very volatile, like 1 minute it is rising, and the market is going gangbusters then the next quarter, they're all sitting with idle capacity. So that's just the way the market goes. So in certain quarters, you get it; certain quarters you benefit. .

Okay. Okay. And lastly, if you can help us with the capacity utilization for carton and flexible in Q1?

Yes. So exact numbers, again, we don't give the breakout. But broadly speaking, in the paperboard segment, we are at quite a high utilization of 70% plus level. And in the flexible packaging, we had a much lower utilization level of like 50%, 60% because we added a new line just a few months ago. So that is just still being absorbed. So we expect that to improve over the coming quarters.

You also added the additional line in the paperboard as well, right? So you're including that as well in this utilization?

Yes, but that's brownfield and over a much larger base. So that doesn't really count.

[Operator Instructions] The next question is from the line of Pavan Kumar from RatnaTraya Capital.

So what would be -- technically should be the peak utilization for let say, paperboards? Can we take it up to 90%, 95% if the demand is there? And the same question for flexible packaging as well? Can it go to 100%? Technically?

There are two points. Number one is we are multi-locations. So every location at every time is not going to be fully utilized. Some units will be 100% and some units will be 60%. So as an average, meaning, yes, okay, 80%, 90% levels are very much achievable, and we hope to get there. But specifically, one unit is better, one unit is worse at any point of time. The second thing is that the business is also slightly seasonal. Like right now, we are heading into our Diwali season. So the order book and everything tends to pick up in that quarter for the domestic market. So obviously -- I mean, you can't be at 90% the rest of the year because then during the peak season, you will default. So yes. So that's a concern or a constraint, which is the nature of the business. But certainly, we should be able to take this up further, and specially for flexible there's a long way to go.

Okay. And flexible at full capacity right now, what are the revenues we can generate?

We can generate 400-plus, yes, of revenue, yes.

Okay. Okay. Got it. Then one last question from my, Akshay. Basically, on the subsidy side, basically on the hard packaging side, what can we do further to actually get some kind of traction there? Because I think we are still underutilized to the extent of 40%, 50%, if I'm right. So what can we do there? And are we still saying over the medium term, we can grow at, let's say, roughly 12% to 15% in terms of the top line? Or how do we look at it?

So in that, we have a very low base, as you've rightly pointed out. And even last year, we had a high double-digit growth in the top line. But yes, at a very low base. So that we aim to do a high double digit growth going forward, but that's not enough. Obviously, we have to do much higher, as the constraint over there is the concern. But we are penetrating into new customers all the time and with a couple of our key customers also where we have not grown to a satisfactory level. This year, we are seeing a much better outlook. And overall, we're still quite confident in the long-term prospects of this business, and there is sufficient scope even apart from the electronics customers, even in our bread and butter customers like in the FMCG space. Now they have also been quite open to exploring these types of packaging for their premium gifting and all these segments. So having this capability and being able to market it to a broader segment of customers is a big value add for us. So beyond just even the units profitability for the company as a whole also there is a big positive that it has because we increase our category that we can sort of cater to our customer and it's a similar technology and similar know-how and everything. So considering all that we are still quite positive on the business. And there's no reason why we can't grow this further substantially.

And at the company level as well, are you saying 15% kind of top line growth is achievable, maybe not over the medium term?

Yes, yes. I mean we're doing that more or less.

[Operator Instructions] The next question is from the line of Pulkit Singhal from Dalmus Capital Management.

Congrats on a great set of numbers and a good performance. My question is largely on the margin front. We now have 2 consecutive quarters of 17.5%. Now when I look at the past cycle, you mentioned about 17% kind of peak margins. But then this time announced, there are 2 or 3 things which are quite different. Export is a much higher share of our business now. And we also have other segments other than paper carton. And also, I think our size is much bigger, right? Versus competition. I think the difference has grown. The top 3 players are much larger than the next set of players. So is there a case this time to operate to go beyond what we've achieved in the past given these kind of -- given that this time things which are quite different?

Yes, I mean, I sort of answered this question already. But look, so far, we're doing this. And we hope to continue for the coming future. And of course, we always hope to improve. There's always scope for better. And ideally, if every machine is well utilized and we're running full up everywhere, then of course the margin can be further better on just operating leverage. But by then, you're doing some CapEx or the other. So long term, you have to balance the growth and the margin. So that is the fundamental balancing act, I guess, that any manufacturing business has to sort of manage, right? So we are doing that to the best extent that we can.

And -- but in paperboard, the competition -- the competitive intensity this time versus, let's say, pre-COVID or 10 years ago, I mean is there a case that because the customers themselves are preferring to work with consolidating the supplier or just because of our scale difference, is there a case to say that the competitive intensity is lower than what it was 10 years ago within paperboard?

Compared to 10 years ago, yes, I think it's more competitive, and it is a much tougher business than it was 10 years ago. I mean that may not be fair statement. But certainly, there's more competition and the scale of everything has grown, including the customers and the knowledge of the customers has increased compared to the past. So it's a competitive space. But still we try to find our way through that.

Okay. So you think it's more competitive now.