TCPL Packaging Limited (523301) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to TCPL Packaging Limited 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 Q3 and 9M FY '26 Earnings Conference Call. We have with us today Akshay Kanoria, Executive Director; 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 an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's 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 to make his opening remarks. Over to you, Akshay.

Good afternoon, everyone, and thank you for joining us on our earnings call. I will begin by taking you through the business highlights for the period under review, and then we can open the forum for Q&A. After a measured start to the quarter, demand improved gradually across key segments, enabling us to deliver healthy double-digit growth in the domestic market. This domestic performance helped offset the decline in export volumes, which remain subdued amid continued softness in international markets. In this environment, we remain focused on strengthening customer relationships across geographies while taking a calibrated approach. Coming to our financial performance. Consolidated revenue for Q3 stood at INR 471 crores. On the profitability front, we reported a strong improvement with EBITDA increasing by about 15% year-on-year to INR 81 crores. And margins expanding to 17.2%, reflecting an improvement of over 240 basis points. This expansion was primarily driven by better gross margins, supported by favorable product mix and tighter cost control. During the quarter, we recognized an exceptional loss of INR 11,57,00,000 related to the implementation of the revised labor code framework. This represents a onetime impact. Reported PAT for the quarter stood at INR 25 crores, while cash profit was INR 56.5 crores. I would also like to highlight the commissioning of our gravure cylinder manufacturing facility at Silvassa, established under our wholly owned subsidiary, Accura Technik Pvt. Ltd. This marks an important milestone in our backward integration journey. By bringing this critical input in-house, we enhance process control, improve print precision and quality consistency and reduce dependence on external sourcing. The facility has been designed with surplus space, providing flexibility to address external demand over time and further strengthening our integrated capabilities. Alongside our operational milestones, we were honored to receive important recognition during the quarter. We were awarded the most preferred workplace award '25 to '26 in the manufacturing category, reflecting our continued focus on building a strong, inclusive and performance-driven organization. In addition, TCPL secured 6 wins at IFCA Star Awards 2025, reaffirming our commitment to creativity, innovation and excellence in delivering differentiated packaging solutions. These recognitions reflect the strength of our people, processes and product capabilities. To close, domestic demand continues to remain healthy and is expected to be a key driver of growth, supported by policy measures aimed at boosting consumption and strengthening manufacturing competitiveness. In addition, recent trade developments involving the EU and the U.S. as well as some other markets are expected to improve export sentiment and to create a more favorable operating environment over time. With our expanding manufacturing footprint, diversified product portfolio and disciplined capital allocation approach, we believe we are well positioned to capture growth opportunities as the industry continues to consolidate towards organized players. Before we move to the Q&A session, I would like to acknowledge that the Board conferred the honorary title of Chairman Emeritus on my grandfather, Mr. K. K. Kanoria. As the founder of TCPL Packaging, he laid the foundations of the company and shaped its early growth trajectory. Over the years, he has served the organization in various capacities, including as Chairman and has been instrumental in building a strong institution anchored in values, governance and long-term strategic thinking. The guidance and principles he has instilled continue to shape the company's culture and direction. The Board has also approved the appointment of my father, Mr. Saket Kanoria as Chairman and Managing Director. Over the years, Mr. Kanoria has been instrumental in shaping the company's strategic priorities and enhancing operational excellence. We look forward to his continued leadership as he guides the company into its next phase with a strong emphasis on sustainable growth and innovation. On that note, I would request the moderator to open the forum for any questions or suggestions that you may have.

[Operator Instructions] First question is from the line of Nishant Bagrecha from Incred Research.

Sir, I have 2 questions on domestic business and a couple of on exports. So firstly, on domestic business, again, with the GST-related trade disruptions largely behind us now. So how is the domestic business currently performing? And what growth outlook are you setting for the next year?

Yes. So there was a disruption of about 2 months, I'd say, and then there was a bump because of the restocking. So now we'll see how the performance pans out this quarter and in coming quarters. So far, it's okay. I wouldn't say there's any issue as such. But we'll see how it goes now over the next few months.

Sure, sir. And second, with respect to the sharp price hike underway in cigarettes, what kind of volume or realization impact are we expecting on that portfolio?

Yes. So this is a big increase in the tax. I think this has happened after, I think, almost 5 years, if I'm not mistaken, that there's been this kind of an increase in the tax. So definitely, it's a negative sentiment for the domestic cigarette business. However, being a very inelastic consumption kind of item, I'm not sure what our end of the day, the volume impact is going to be. So we have to wait and watch. But yes, certainly, if there was a growth happening, it will hit that. But whether there will be a negative effect on the volume is -- we'll have to see, I suppose.

Okay, sure. And secondly, on the export business, so export remained under pressure in 3Q as well. But now that the trade deal has been made with U.S. and Europe and both of them were low to mid-single-digit contributor each to our export business. So how are we looking at this segment -- these regions going forward? And can we expect a significant ramp-up from these regions?

Yes. So people had asked me this in previous quarterly calls as well that if it gets resolved, then how fast we can ramp up. So I would say that now the inquiries will start coming or have started coming. So for it to translate into business will still take a little bit of time. And in some cases, customers do their planning well in advance. So then once they've already done their developments for the coming quarters, then that gets locked. But overall, it's very positive, and there will be some good momentum coming out of this, but it will take some time to play out. It's not that it will just suddenly restart the momentum which was there earlier.

Okay. And sir, on the Middle East also, how is the demand from the Middle East shaping up for us? By when, again, can we expect a meaningful recovery, particularly in the Middle East?

Yes. So we can't comment on specific markets or customers. But overall, I'd say it's a bit choppy and sometimes up, sometimes down, but no major cause of concern as such.

And lastly, sir, on the -- particularly on the January month, so how has January month been for us for exports. Would we have come back to double-digit growth in January?

I can't comment on month by month.

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

Yes. Could you kindly give us the numbers for your domestic growth volume as well as ASP.

Sorry, I didn't get your name and company name. Can you repeat that, please?

Anupama from RatnaTraya Capital. Yes. So I just wanted on domestic numbers for volume and ASP.

So there's a low double-digit growth in the domestic volume.

Low double-digit growth in the volume. Okay. So ASP also has declined, you could say because...

I don't understand, what.

The selling price has also declined or is that flattish? Have you taken any hit on the realization.

Flattish? Flattish.

Okay. Okay. And also on the Chennai plant, what is the utilization? And yes.

Chennai utilization is less than 50% right now, but we are expecting some good improvement in coming quarters. Audits and all are done, so it should start improving now.

Okay. And like what kind of time line are you looking at like for it to scale up?

Next few months.

Sure. Okay. And could you also just give us the utilization for your overall capacity and flexible packaging and the paper part also?

Overall, about 75%, I'd say.

Right. And for flexible packaging?

A bit higher than that?

The next question is from the line of Ranjan, an Individual Investor.

See, I would like to know total gross block capital expenditure for the next 2 years, how much will it be. And what will be the turnover likely in the next 3 years? And what will be the current year's capitalization of the gross block. I would like to know that. And what is the market size of the packaging -- your industry in this line? And what is our market share? Is it growing or is it static. I would like to know that. That's all.

Yes, just a second. Last year, we have about INR 150 crores of CapEx approx. How much was capitalized in that year versus the -- it's pretty much the same number. And the total gross block, we -- I think...

226, how much.

These are all numbers you can get from the balance sheet, but total gross block is over INR 1,100 crores gross fixed asset. And about INR 150 crores was the CapEx last year.

'24, '25. Or '25, '26.

'24, '25.

'25, '26?

The INR 100-odd will be added on top.

Okay. For the next 2 years, for every INR 1, you put it, how much turnover will be -- I mean, you will be generating?

We're adding about INR 150 crores, I think, to the top line year-on-year.

That will be 1.5x only every year, like every rupee you put it.

Yes, basically.

What is the cash conversion ratio. It is 60 or 90 days or is it going -- extending actually.

90-odd.

You're able to add -- tell me?

Tell me?

You are able to add more customers from Chennai plant. Chennai plant will be very good, I think, looks like that.

Yes, it's positive. We're quite happy.

The next question is from the line of Shrinjana Mittal from MS Capital.

I have 2 questions. One is a clarification of something you mentioned earlier. You said that the volume growth for the domestic business is low double digit. Was that for 9 months or for this particular quarter?

Both.

For both. Okay. Understood. And second is, can you help me understand that the gross margin like for this quarter, particularly has expanded by 2.5%, close to about 2.5% from 40% to 42.7%, right? So what would be -- what would explain that when just based on our understanding from what you mentioned, the export business has not grown as such and export tends to be a higher gross margin. So what would explain the rise in the gross margin?

I would advise not to get into it on a quarterly basis because these things change based on the stock changes from quarter-to-quarter can vary quite a lot. And it's not really going to help you to look at it quarterly. It's just too granular. I would not look at it quarterly.

The next question is from the line of Pulkit Singhal from Dalmus Capital Management.

First question is on the domestic side. We seem to have done quite well if it's a double-digit growth, 9 months and last 3 months. But the commentary from FMCG companies has shown like quite a bit of pickup. So is that something that we are also seeing and therefore, the growth would pick up for us as well.

You're saying the commentary is showing quite a bit of pickup or quite less pickup.

Pick up to be good from FMCG companies, the commentary is better this quarter. The delivery is also better and commentary is also better. So to that extent, if we've already done double digits for 9 months and even the last 3 months, then would -- is it fair to assume that whatever would be the growth rate, it will pick up for us as well?

I hope so, but we don't know. We will see how it goes. But it's very -- it varies customer to customer. Some customers are doing very well. Some in similar category are not doing that well. So I mean if you want to say that is there like a broad-based, all our customers have just suddenly picked up post this thing, I would not say that. But there are pockets where there's been a very good pickup and then there's pockets where it's not really showing much. So I just don't understand, it's a bit funny.

It's overall, yes, I get that. For the exports to -- I mean, the overall numbers are impacted by exports, which suggests a high degree of decline in exports because if you have done double digits in domestic, the only way it gets offset is if exports is down significantly, which is a bit surprising given that we've done very well in the last 5 years. I mean, what has led to this? And how much time would it take for it to stabilize at a certain level in your view.

I think it's a bit too much reading of tea leaves, but basically, we've done very well over the last several years. And last year, in particular, there was a very big growth in our exports in general. So it's a bit of a stabilization here, I'd say, I don't know. And is there any great underlying factor cause? Or is it just customer to customer sort of incidental factors, that is the point. So I mean, there's not too much detail we can get into on a public call. But I mean, I would not say there's some great cause of alarm or something like that, no.

Understood. Lastly, I mean, these various FTAs, I mean, U.S., EU, which one are you most excited by? Where could we see like in 2, 3 years, how big could these regions be for you? What is the sense do we have?

Okay. So obviously, the U.S. is the one which was the most -- I mean, that was a big stumbling block to any work happening because at 50%, you just can't do any business or you can do just for the sake of like the customer waiting for the tariff to come down, so he's keeping you alive. But with 18%, you can do business. So at least that opens a door which was completely closed. So that's positive. With the EU, our folding carton was already at 0. So there's no impact there. But on the flexible packaging side, we save a few percent on the tariff. That's positive. And then with both markets, the upshot is on other industries exporting from India, which will require packaging. So where we get a sort of second order benefit. So that is the main positive, I would say, like things like toys, textiles, those kind of things. Now that's -- how long it takes to play out and all that, it really depends customer to customer and brand to brand and then what benefit we get out of it also versus other people. So overall, it's good because the rising tide lifts all boats. So...

But direct customer sales, we don't anticipate much like in the sense this is a second order impact, as you rightly say.

Direct customer sale also, the main benefit will be with the U.S., but even the EU like with flexible packaging is very positive, even the U.K. also had a high tariff on flexible packaging. So that's also come down. So all these things are very positive. But they take time to play out. It's not that there's like orders sitting and waiting for me for the tariff to reduce and then they just come in one fine day. Like the development starts and it takes months to play out. But yes, it's overall very positive. We're happy.

So it's FY '28 story, that one. I mean the U.S., EU reflecting in our numbers significantly.

See, now you're asking very specific that...

The next question is from the line of Harini Dedhia from Tamohara Investment Managers.

Just one question. Should FY '18, '19 kind of scenario play out in paper prices, is there something that we've built differently into our business style and operations now that our margins would cave but not cave as much? Or would -- like just trying to understand the resilience of these margins should a scenario like that play out again.

You're talking about that post-COVID boom in the paper prices?

No, no, pre-COVID, '18, '19 when we saw China coming and really dumping a lot and then we had that severe margin compression of 400 basis points. Just trying to understand what happens if we see a very similar kind of scenario happening in paper prices again?

No. Paper price going down is not necessarily bad for us. But only thing is that when there's a very down market in commodities, then the differentiation between the larger player and the smaller player tends to go down, which is not good. The difference between that period and now apart from our own company being bigger and scale and all that stuff, the difference would be now there's a lot more protectionism in the world. So it's not so easy for people to dump. Like right now, even in India, there is a minimum import price that's been imposed on virgin paperboard. So there is, therefore, no dumping possible. So that negative effect is not really felt. Yes, okay, if there's dumping, it affects the global markets, and it's not as easy to win new orders. But I mean, I don't know how transient these things are. And there is a lot of commentary coming from China about this anti-involution and cutting down on excess capacity in many industries, but it's easier said than done. But at least the government over there is cognizant of the fact that this is now a problem. So I don't know the way the Chinese government reacts to these things is very complex and cannot be understood or anticipated. But I mean, I don't think the scenario can get much worse. Otherwise, these mills have to start shutting down over there. So -- but generally, this protectionism trend is there. So it is protecting the market to some extent. But that's mainly protecting our suppliers rather than us.

Got it. And so you -- so if there was a flip scenario where we had a significant acceleration in paper prices, how much of it would we have to absorb. How much would we be able to pass on? Because I'm also asking this that 2 of our larger competitors have gone through some issues, otherwise, a largely unorganized sector domestically. Do we have a little more ability to stand our ground in such a scenario or we'll still have to bite the bullet?

See, I would point you to our history. There was a significant increase in paperboard prices in 2022, and we dealt with that. So I think there's no reason why we can't -- yes. I don't see that happening right now because that was because of the COVID and massive disruption. That can happen again if there's some sort of a war or something, but these things are now beyond anyone's ability to predict, right?

The next question is from the line of Resham Jain from VVD Asset Management.

So just on this last question, further extending. So MIP has been introduced on paperboard from August. And obviously, if there is an import price parity is not there, then competing in the global landscape becomes a little difficult. So is there any exception for exporters that they can at least import at certain price because in a way, they are in turn exporting. So...

Yes, MIP is only if you're using for domestic use. If you're exporting, then you can import it in advanced license and then reexport. There's no problem.

Okay. So it's not uncompetitive for us, even if MIP is there.

No. But then the domestic market otherwise would have been softer. So we would have just bought domestic. But it's okay. I think overall, it's fine.

The second one is with respect to Creative. Now that you have acquired it 100% and you have full control, you had control earlier as well, but is there anything which you are planning because that was something which was looking quite exciting in India, especially the electronics, packaging and stuff like that. So any thoughts?

So we have a lot of plans and things in motion. But in the past also, I have sounded too upbeat and then investors were disappointed. So then this time, we'd rather just keep it to ourselves until something actually happens.

Okay. But things are moving in that direction. Obviously...

We are constantly trying something or the other. It's just whether it happens on time.

The next question is from the line of Heta from Monarch AIF.

Akshay, sir, I just had 1 -- a couple of questions. I want to understand from our domestic business, are we heavily dependent on the tobacco segment? Or is it diversified amongst other segments as well?

Yes, it's quite diversified.

Okay. So even if there was a volume impact, it wouldn't be substantial on our top line.

No.

Okay. Sir, could you also please just help me you mentioned that Europe had high tariff on flexible packaging, which has now reduced. Could you just help me understand what was the tariff earlier and what is the tariff now?

It was high single digit. Exact number is not coming to mind, but it was not in double digits, but in high single digits. So that is now going to come to 0 from, I think, next year, that will be positive.

All right. Understood. And are we still looking to proceed with any mergers, any acquisitions that we were earlier considering?

Yes. We are constantly working on something or the other, but then we are very unforgiving in our assessments. So every time it's not possible always. So -- but we keep trying something or the other in motion at any point of time. So nothing I can tell you right now on the call.

Okay. Understood. Understood. Sir, going ahead, considering this Chennai facility now will start seeing operating leverage and with the gravure cylinders also commissioned, do we anticipate any margin expansion led by these initiatives?

We don't budget for it.

Understood. And sir, what would be your estimated CapEx for next year, FY '27.

It should be along the similar lines of this year, about INR 100 crores odd.

The next question is from the line of Anupama from RatnaTraya Capital.

Yes. I just had a question on your outlook on the exports, like from now onwards, where do you see growth coming from? And what countries like Europe, U.S. specifically, like...

I believe I've answered this, but broadly, we are positive on all these markets. And apart from that, our immediate neighborhood and Africa, these are also positive. But yes, definitely, Europe, U.S. would be amongst the top priority.

Right. And what percentage do they contribute right now?

I can't.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.

Thank you. I hope we've been able to answer all your questions. But should you need any further clarifications or like to know more about the company, please feel free to contact us or CDR India. Thank you again for taking the time to join us on this call. We look forward to interacting with you next quarter. .

On behalf of TCPL Packaging Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.