TCPL Packaging Limited ($523301)

Ladies and gentlemen, good day, and welcome to the TCPL Packaging Limited Earnings Conference Call. Please note that this conference is being recorded. I will now hand the conference over to Ms. Jenny Rose from CDR India for opening remarks. Thank you, and over to you.

Good evening, everyone, and thank you for joining us on TCPL Packaging's Q4 FY '26 Earnings Conference Call. We have with us today Akshay and Vidur Kanoria, Executive Directors; and 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 Akshay to invite his opening remarks. Over to you, Akshay.

Good afternoon, everyone, and thank you for joining us today for TCPL Packaging Limited's Q4 FY '26 Earnings Call. I will begin by taking you through our business highlights for the period under review, after which we will open the forum for a Q&A. FY '26 was, of course, a challenging year for the industry, marked by a subdued global demand environment, continued volatility in international trade and geopolitical disruptions in the Middle East during Q4. At the same time, domestic demand conditions remain relatively stable, supported by healthy consumption trends across key categories. In this environment, our domestic business performed well with volume growth ahead of underlying consumer market growth trends in India. This helped mitigate softness in export markets, particularly in Q4 when shipments were affected by disruptions in the Middle East. During the year, we also made progress in strengthening our presence across other international markets and deepening global customer relationships, which should support improved export momentum as external conditions normalize. On the financial front, consolidated total income for Q4 '26 stood at INR 465 crores, reflecting over 9% year-on-year growth. EBITDA, including other income, was INR 81 crores, translating to a margin of 17.4%. The inclusion of other income is primarily on account of operational ForEx gains arising from exports during the quarter. Cash profit for the quarter came in at INR 61 crores. For the full-year, consolidated revenues reached approximately INR 1,836 crores, registering a growth of 3% year-on-year, while EBITDA stood at INR 317 crores with margins at 17.3%. Margin performance during this quarter was impacted by elevated RM costs and the timing lag in passing on cost inflation. We remain focused on calibrated pricing actions, product mix improvement and operating efficiencies to support margin improvement over the coming quarters. Our Flexible Packaging business delivered a strong performance during the year with healthy capacity utilization across plants and the last commercialized line operating at optimal levels. In the Paperboard segment, the Chennai Greenfield facility has scaled up nicely, supported by encouraging customer traction. The recently commissioned Gravure Cylinder facility at Silvassa has also ramped up well, strengthening backward integration, improving operating efficiency and supporting faster turnaround for customer requirements. From a balance sheet perspective, the company remains well positioned. On a consolidated basis, net debt stood at INR 554.7 crores at the end of FY '26, while leverage metrics remain comfortable with debt-to-equity at 0.77x and net debt-to-EBITDA at 1.75x. Importantly, our debt position is supported by the company's consistent operating performance with EBITDA margins remaining within a stable range across several years. This provides us with the flexibility to invest in growth opportunities, operational capabilities and sustainability initiatives while maintaining prudent financial discipline. In line with our commitment to shareholder value and our consistent dividend philosophy, the Board has recommended a dividend of INR 25 per share for FY '26. This marks our 26th consecutive year of uninterrupted dividend payouts. During the year, we also made meaningful progress across innovation, sustainability and people-focused initiatives. Innovation and customer centricity remain key differentiators for TCPL, and we continue to invest in advanced technologies and future-ready packaging capabilities to address evolving customer requirements across FMCG, Food and Beverage, Pharmaceuticals and Consumer product sectors. On the sustainability front, TCPL was awarded EcoVadis Bronze Medal in its debut sustainability assessment, placing the company among the top 35% of companies assessed globally. We also formally became a participant of the UN Global Compact, reinforcing our commitment towards responsible business practices, ethical operations and long-term sustainable growth. Our efforts during the year were also recognized through several industry accolades as well as from several customers such as Marico Industries for industry best practices, 6 honors at the SIES SOP Star Awards, including the President's Award for Innovation and Sustainability, recognition as a most preferred workplace in the manufacturing category as well as the Best Suppliers award from our customer Abbott. Looking ahead, domestic demand conditions remain encouraging. Our focus is on expanding our footprint, broadening our product portfolio and pursuing new growth opportunities across businesses. Our strong innovation and new product development capabilities enable us to deliver differentiated value-added packaging solutions, while close customer collaboration helps us align these offerings with evolving market needs. Together with a strong balance sheet, prudent capital allocation and continued investments in capabilities, we believe we are well positioned to drive healthy long-term growth and create sustained value for all stakeholders. With that, I would like to request the moderator to open the forum for any questions or suggestions.

[Operator Instructions] We take the first question from the line of Rohan Kalle from InCred Research.

A few questions from my end. One is on the exports. So throughout the year, it's been under pressure. In terms of your expectations for the coming year, where do you see things move on the export side? And in terms of regions, other than, let's say, the Middle East, are we expecting any of the other regions to meaningfully scale up in this year? That would be my first question.

Thanks, Rohan. Yes. So obviously, this last year has been one thing after another. And currently, we are still going through the Middle East crisis. But of course, post the cease fire, things have improved with some more vessels sailing and a little bit of improvement, but the situation is highly uncertain and very difficult to have any outlook as such. So we play things by ear and hope for the best. However, if it normalizes, then I think the bounce back will be quite quick. So overall, we are fairly optimistic, whether it is the Middle East or outside of the Middle East, I think overall exports, we are fairly optimistic this year for some recovery. And apart from the Middle East, we are scaling up now in other regions like the U.K., the U.S., other North American countries as well as other European countries and also some of our neighboring countries, Africa, Southeast Asia, yes. So overall, a lot of groundwork has been done in the last few years, which we are seeing some benefit coming in.

Understood. And on the domestic side, in line with your -- we would have done double-digits this quarter as well. Do you expect that this momentum can continue going into FY '27 as well? Any color you can provide maybe on how you see the first half panning out?

Yes. So this first half, specifics, so we can't discuss, but I will say, generally speaking, momentum is looking okay. And we have no problem as of now in terms of the demand. But obviously, the cost impact or the impact on consumers from fuel price increases and rupee depreciation-led other inflation will play out over coming quarters, which will certainly, I mean, have some impact on the demand. But as of now, we are seeing it to be okay. So we do expect to have a good year for domestic as well.

Understood. And just a follow-up on the domestic side. I mean, if you could maybe call out an end industry, which maybe in the last 2 quarters, we've seen meaningful growth in on the domestic side, that would probably be helpful.

It's fairly broad-based, not anything specific as such. And it's very customer to customer sort of -- it varies. I mean it's not industry specific, I would say. There has been a lot of problem in the last few years with these seasonal products because the seasons are very difficult to understand now. Planning has become very tough with the climate change. We have unseasonal rainfall and record high heat spells and again, unseasonal rainfall. So it becomes a bit challenging on the seasonal front. But like general purpose categories are doing quite all right.

Sure. Just the last one from my end. In terms of margins, we would be now passing on price hikes, which probably in the last quarter, we weren't able to fully do. What -- where do you see margins settling maybe for the full year, if some outlook you could give, that would be helpful. That would be the last one.

Yes. So I think we are quite comfortable. I don't think there's any serious pressure right now on the margin front because we are passing through increases as they come. But if these cost increases keep happening over -- and this crisis gets prolonged, then it will be tough to further pass on any price increase. So we hope that this is where it ends, then I think we'll be okay. But so far, it's okay, but we hope this is where it ends. That's my point.

[Operator Instructions] We take the next question from the line of Vipul Shah from RW Equity.

There's some background noise, but maybe keep it brief.

Okay. Is this better?

Yes.

First of all, congratulations on maintaining a very stable and solid profile in the quarter, considering the situation. The world is facing because of the Middle East crisis. Just a couple of questions. First is our finance cost for the year is -- seems to be pretty high considering the debt position, which the company has. So is there anything else to read into it? Because despite the EBITDA being showing a marginal growth this year, the interest actually has taken it down for the PBT and then the PAT.

Yes. So there was one MTM INR 18 crores, which we had to mark-to-market the ECB. So that has driven the interest cost up. That is one of the reasons. But also the absolute debt has not gone down. That has grown. I mean, on a stand-alone basis, it's grown. On a consol, it's come down marginally, but the absolute debt has not improved. So the absolute interest, therefore, is what it is. But on a ratio like debt-to-equity has improved substantially...

I get the point. So what I just wanted to understand is that this ECB, which came up last year as well and in some of the earlier calls. So is the understanding that it is -- we don't have a complete hedge over that and hence, we are exposed to the euro fluctuations?

More of an accounting issue because the profit that you get from export, you don't see in the cost, but the loss that you have on the notional loss, not even cash loss on the total debt that you take, that you have to mark-to-market in the interest cost. So it's not a cash out-go. That's my point. this year only.

[Operator Instructions] We take the next question from the line of Pavan Kumar from RatnaTraya Capital.

I had broadly three questions. One was regarding the margins. So will we take a more calibrated approach going forward for RM price increase or these will get adjusted in the next 3 months? Secondly, what would be the capacity utilization for the Chennai plant as of now? And lastly, some update on Creative, how is it? How is it going on? How are we proceeding? I mean what's the update on that operation?

On the margins, yes, I mean, look, whatever we can pass through immediately, we are passing through whatever -- as and when these increases keep coming, it one can't have a running discussion with customers. Sometimes you have to calibrate them over a period of time. So that is where one loses in an inflationary environment. But as long as it stops here, I think we'll be fine. But...

[indiscernible]

It depends customer to customer. It's not -- there's no rule of thumb, yes. Yes. And then as far as -- as far as the Chennai is concerned, we have -- we are more than 50% utilized now, and the outlook is quite positive. So we're quite okay. I mean we have a lot of customer approvals that have just come through and expecting a good ramp-up now. And as far as Noida is concerned, that's also done better this year, and we see further improvements in coming quarters. So it's steadily improving slowly and steadily. Obviously, this current price impact on the raw material front is a challenge. And on top of that, the electronics industry is struggling because of the massive increase in the chip prices. So you would have seen in the news that things like electronics volumes are falling. So that is a headwind. But on the other hand, we've diversified into other areas of packaging. So that's helping us. So overall, it's doing fine, I'd say. Yes. So I think I've answered all your questions.

One particular thing I wanted to check, exports, they are under pressure, but have we won any new customers to which we can make up or grow going forward or any new geographies?

Yes, we have, and we are quite bullish on several new geographies, and we have entered into several new customers, and we are also expanding further our export team. So overall, we are quite positive, and we feel that long term, the export should grow. But obviously, there are so many mitigating factors, which one cannot plan for like these wars and all that. We don't know what the timeline is going to be. And every second week, you hear about a possible negotiated peace, which collapses in 2 or 3 days after that. So we have no real way to say what is going to happen. But overall, export is a bright spot for us, and we feel that long term, it will keep growing.

[Operator Instructions] We take the next question from the line of Vipul Shah from RW Equity.

Sorry, I got dropped off the call, so my apologies for that earlier. It's -- one other question I had was this quarter and the year, there has been a huge delta in deferred tax, which again has brought our PAT down because the tax expenses are pretty high. Any color you would like to provide on why is there such a high deferred tax?

It's a timing difference, mostly, I think just annualize it and see don't go quarter-by-quarter, I think Overall, it's fine.

Because this is, again, one of the years where our -- optically, the EPS is far lower than what it was in the previous year, which hasn't happened too many times in TCPL's history.

I know, but nowadays these accounting rules are very onerous and it is what it is. Overall, it is average out.

Is that -- is this primarily relating to the investment in Chennai and the Gravure facility?

Mr. Dave can answer further.

See, the actual outgo of tax is remaining in the line. It is just a timing differences we have to account as per accounting standards. That's why the deferred tax is a little higher. But annual wise it's...

I understand that, Mr. Dave. I'm just -- the question was that, was it related to primarily the timing difference, was it related to our investment in Chennai and the Gravure facility or because otherwise...

Overall CapEx, you can say, we have done during the year.

Fair enough. So it's pertaining to CapEx is only, right? That the tax depreciation and the accounting depreciation.

Yes.

One more question, Akshay. We earlier used to give on an annual basis, the breakup of domestic and exports. Last year also, we skipped that. I had mentioned that on the call as well. This year also is the same thing. Is that something which can be provided? Even if it can be provided offline, that will be fine.

Okay. We'll consider it.

We take the next question from the line of Pavan Kumar from RatnaTraya Capital.

If you can please talk on if there is any pickup on the recyclable film side or are the customers still backing off. And on the creative side, I think we have been struck for 2 to 3 years. So is there any way -- I mean, any attempts that are being made to actually scale this up to a profitable level? I understand we -- guess are at EBITDA breakeven. Correct me if I am wrong.

Yes. So let Vidur answer the recyclable.

Yes. So basically, in the recyclable films, unfortunately, in India and for the domestic market, there's not been too much of a pickup because the government mandated EPR rules only designate the use of recycled content. They don't have any designated use of recyclable packaging. So they focus more on collection and recycled content adoption, which is not the product line that we have invested for. So -- but in any case, our production of recyclable films is up because we use it in export jobs. So there, we even sell film, and we also do the final conversion, including printing and providing the final solution. So the requirement is up because of export, and there's good value addition there as a result as well. But the domestic market, which is obviously the bulk business of ours, they haven't adopted it because there's an upcharge associated and the government doesn't mandate the use of it as of now. So we hope that it will happen in the future. But as of now, until the government does mandate it, it will not pick up significantly. But overall, the investment has done well, and we had some machinery issues earlier, which are resolved. And the line is running well. As far as Creative is concerned, last year, it just about squeaked through on the EBITDA front. But this year, there was a little bit further improvement. And in coming year, we feel that it will further improve. And hopefully, we can come to cash and net profit as well. And then we can start getting some actual return. So it is scaling up, but a lot of headwinds have been there, which one by one, we are addressing, and we are diversifying customer base. So it's improving one further. So we continue to be positive, but it was a long slog.

Okay. The CapEx for this year, FY '27, if you can outline what are our plans as of now?

So for the coming year, we have a CapEx which we are doing in our flexible packaging business to -- because there, we are running quite well utilized. And in the rest of the business on the carton front, our utilization is a little bit lower, maybe more like there is some good double-digit scope for further growth in the current capacity. So we don't have any immediate major plans, but we are enhancing our factory areas in some of our plants like we are expanding the building and all of that. So we are keeping some scope for further expansion as the market further picks up. and our volume...

Yes. Can we quantify it? Maybe how much?

Yes, sorry. That would be about similar to last year, about INR 100-odd crores, I think, is the expectation. But again, like every year, we do have the capability to expand faster and further as and when the market situation requires it. But we are being a little calibrated in our CapEx this year considering all the headwinds and uncertainty.

We take the next question from the line of Heta Vora from Monarch AIF.

I just have two questions. First, I wanted to understand, considering there has been some slight demand slowdown in some of our existing segments that we cater to like electronics. Some inflationary pressures are also rising. So are we considering catering to any new segments within India, any new sectors? Or do we plan to stick to our existing clientele?

Every year, we are onboarding new customers, and we are not sector specific. We are quite diversified in our customer and in the segments we cater. And we are constantly on the job when it comes to adding and developing new customers. And a good thing in India is that there is a large -- many sectors which are coming -- improving their packaging and scaling up their quality. So there is demand. So there's no major problem in terms of adding new customers. We are constantly on that job. We don't give specific detail about customers because obviously, we are in a competitive environment. There's no use in talking about all our customers to our competition. So we are -- I mean, we add like more than 1 or 2 customers almost every month. So that's a constant process.

Okay. All right. Understood. And sir, if you could give just some understanding of what would be the revenue split from folding carton segment?

Yes, we don't provide, but our major segment is the consumer products, which is FMCG and Food and Beverage. That is our major segment, which is more than half of the business in this category.

Sir, I was asking about the folding carton revenue split. Do you have the split between folding carton...

Carton and flexible? Flexible is about 20%.

For FY '26 as well?

FY '26 Yes, it's slightly increased from the previous year, but not like dramatic.

Sir, do we have any aspiration of how the split would shape up, say, in the next 3 years between folding and flexible?

No. No such aspiration. We just want each segment to grow at a good double-digit clip and to do the maximum possible. So ideally, we want the folding carton to grow as fast and the share then will be static, but it doesn't matter. As long as the company is growing and we're doing well, we are happy.

Sure, sir. Understood. And sir, just lastly on the margin front. I understand that FY '27 could see some margin pressures because of certain factors that are beyond our control. But say, for FY '28, considering our Chennai plant will be at higher utilization and also our Gravure Cylinder will should be helping with gross margins. Can we expect a higher end margin for FY '28 if the geopolitical reasons were to not be a factor anymore?

I can't tell you what's going to happen in 3 months. So I'm not going to speculate about 1.5 years down the line where anything can go -- can happen as we've seen. Who can imagine what can happen nowadays. So we don't have any guidance. But overall, our margin scenario, we feel is fairly okay considering all the circumstances and all. Obviously, if circumstances are better and the utilization is better, the margin will improve. But -- and if this war continues for another 6 months, 1 year, then God knows what's going to happen. But ideally, if everything is going well and the company is growing, obviously, the margins will be better. But then we'll also have new CapEx, which we'll be doing or some new projects. So we are not going to sit steady and just -- we don't enjoy having less CapEx to do, is my point. I mean we want more CapEx and more pressure on the growth. So there is no -- it's tough to give an outlook, therefore.

We take the next question from the line of Resham Jain from BVD Asset Managers.

So a couple of questions. So first is, we have seen paper prices consistently going up last 3, 4 months, there has been a consistent increase. Are you seeing any kind of that momentum breaking or that the prices consistently still going up?

No, there's no -- the momentum slowed and then it continued. So it's still going up. And particularly on the virgin board side, there is a big increase. And even on the recycled board price, there is a steady drip of price increases happening. So when there's a sudden increase of a very large magnitude, we find that it's better. But when there's a steady drip-by-drip increase, then it's more difficult because it's harder to pass through because you already negotiate and argue and you get the increase for the first increase and then by that time, then the second comes along. So that's the pain factor. So we are seeing further increase in the angle. But obviously, these things are completely dependent on the global scenario, which can change at any moment. So we don't have an outlook as such. But yes, the pressure is still there.

And the antidumping duty on the board segment does lead to a higher increase in the domestic prices. So that also.

Antidumping duty, there's a minimum import price...

MIP, sorry, MIP.

MIP. So that is there, but that is going to expire in some time. And then I don't know whether there's going to be a renewal. So that does give the paper mills domestically some room for maneuver, but it's not like they are doing very well. I mean, they're also under a lot of cost pressure. So I think some increase is inevitable.

Understood. The second question is with respect to your overall CapEx. I think last 2 years, we have done a very like good CapEx, INR 150 crores plus, 3 years actually now. And this year, you're guiding for just INR 100 crore CapEx. So I remember like in a period when your EBITDA was much lower, you used to do this kind of CapEx. So has there been any change in the CapEx intensity or any thoughts around this would be helpful.

No, we are looking for more avenues, and we would love to do more CapEx. So far, what we have planned or what we are telling you that we have planned is what is quite firm, meaning there's not much downward sort of direction to this. But we have a lot of initiatives which we are planning. And as and when those get realized, then that will lead to further CapEx. So we are certainly having the intention to do more. But right now, given the current demand scenario and all that, this is what is needed. So as there's more need, we will do more CapEx. And it's more like a timing thing, I think.

Okay. And the last one is with respect to the CapEx, which has been done and which you are planning to do this year, given that most of it is brownfield and more ramp-up will happen, do you expect any operating leverage to play out, especially in flexible given that one more line is getting added this year?

So in flexible, it will take several months for this to get done and then get commercialized by the end of the year, we're thinking. So until then, the things are quite okay. Then once that happens, then obviously, there will be a dip in the profitability over there while that CapEx gets absorbed. But considering that it will be the fourth line in that unit, we don't expect that, that CapEx will take too long to get absorbed. So once that comes in, then there will obviously be a good improvement in the -- there will be that operating leverage playing out. And the return on asset for a fourth line is obviously better than for the third and better than for the second. yes. And as far as like our other CapEx, which we had done earlier, like the cylinder and Chennai and all, as I said, still in the ramp-up phase. But -- so by, let's say, another 1, 2 quarters down the line, we should have even higher utilization, then it will further improve...

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

Thank you. I hope we have been able to answer all your questions. Should you need any further clarifications or you'd 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.

Thank you. On behalf of TCPL Packaging Limited, this concludes today's session. Thank you for joining us, and you may now disconnect your lines.