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 call is being recorded. I now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you.

Thank you. Good afternoon, everyone, and thank you for joining us on TCPL Packaging's Q2 and H1 FY '27 Earnings Conference Call. We have with us today Mr. Saket Kanoria, Chairman and Managing Director; Mr. Akshay and Vidur 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 Akshay to make his opening remarks. Over to you, Akshay.

Good afternoon, everyone, and welcome to TCPL's Q2 and H1 '27 Earnings Call. Thank you for joining us today. I hope you had an opportunity to go through our results and presentation. I will begin by discussing our financial performance for the quarter and first half, followed by the key business developments and strategic priorities. We are very pleased to report a strong performance in Q2 FY '27, marking significant milestones for the company as we crossed INR 500 crores in quarterly total income and INR 100 crores in quarterly EBITDA for the first time. Our performance reflects sustained business momentum, healthy customer demand across our packaging segment and a continued focus on operational efficiencies, customer relationships and profitable growth. On a consolidated basis, total income for Q2 FY '27 stood at INR 564.6 crores, registering a growth of 20.2% year-on-year. EBITDA, including other income, increased by 27.5% to INR 100 crores, with margins improving by approximately 100 basis points to 17.7%. PAT increased by 57.7% to INR 45.3 crores, while cash profit grew 44% to INR 84.9 crores. For the first half of FY '27, consolidated total income grew by 18.2% to INR 1,059.5 crores. EBITDA increased by 22.5% to INR 188 crores, with margins improving by 63 basis points to 17.7%. Profit after tax grew by 67.2% to INR 85.3 crores, while cash profit increased by 49.5% to INR 160 crores. The improvement in profitability is particularly encouraging given the operating environment, which continues to be impacted by elevated raw material and logistics costs. Our ability to improve margins while delivering strong revenue growth reflects the benefits of pricing actions, favorable product mix and positive operating leverage, supported by our continued focus on execution. Moving to our business performance. We continue to see healthy momentum across paperboard and flexible packaging. Our domestic business has sustained double-digit growth, supported by healthy customer demand and deeper relationships with existing customers. Export performance has also been satisfactory, especially keeping in mind the challenging geopolitical environment. We remain focused on expanding our product offerings, strengthening our position across established markets and exploring opportunities to serve a wider range of customer requirements. Turning to strategic initiatives. During the quarter, we incorporated TCPL Energy Materials Limited, a wholly owned subsidiary on 24th September 2026, to undertake our lithium-ion battery separator films business. This initiative represents an important step in our efforts to diversify our business portfolio and establish an additional long-term growth platform with opportunities across electric mobility, grid scale energy storage and other applications. We are making progress in the initial stages of the project with a focus on establishing the necessary manufacturing infrastructure and building the basic capabilities required for this business. While this is a long-term strategic initiative, our immediate priority is to establish a strong foundation for the business and progress with the project in a phased manner. Lastly, we are encouraged to share that our company continues to receive industry recognition for its excellence in packaging, innovation and design. During the year, we were honored with Packaging Converter (F&B) of the Year at PrintWeek Awards 2026. We also secured 4 Awards at India Star Awards 2026 and six honours at IFCA Awards 2026 across Folding Cartons and Flexible Packaging categories. These accolades reflect our continued commitment to innovation, creativity and delivering high-quality packaging solutions for our customers while further reinforcing our position as a trusted packaging partner to lead consumer brands. Looking ahead, we remain positive about the growth opportunities across our paperboard and flexible packaging businesses. We will continue to build on this growth through improved operational efficiencies and a focus on profitability. Overall, our endeavor is to sustain our historical revenue growth trajectory while enhancing cash generation and creating long-term value for our stakeholders. With that, rather before handing over the call to the moderator to open the forum, I'd also like to share that we are joined today by our esteemed Director, Dr. Andreas Blaschke and also my brother, Rishav Kanoria. So, we have almost full house today. Thank you.

[Operator Instructions] First question from the line of Rohan Kalle from InCred.

Congrats to the team on a strong set of numbers. I have a few questions. First one being, can you give some color on maybe how much of this growth was price-led or maybe how much was an improvement in the export business? And do you see this as a sustainable trend going into the second half?

Yes. So there was a good mix of price and volume growth. Volume growth was quite strong and especially in the domestic segment and also in our flexible packaging business where we had a very, very strong performance. So it's quite broad-based overall. And our export performance, as I said, has been quite satisfactory. We've had a growth there as well. So the performance has been domestic led.

Understood. And on margins, we've done very well in the first half. Do you see this trend that is being maybe sustainable in the second half?

So the margin improvement has been obviously driven substantially, thanks to the overall level of working and scale improvement. And as long as that continues, we can see the margins following. Of course, nobody knows what's going to happen. So things are quite unpredictable.

Sure. And on the battery separator films business, what kind of revenue potential do you see from Phase 1? And when do you think this would be achievable? And just a follow-up there, over, let's say, the next five, six years, where do you see the films business in terms of contribution to the overall business?

So we are taking like a baby step in the first phase, where we are building -- we enough land and all that to scale up over the next five, six years to a very substantial revenue. And I think we had shared some numbers when we had announced our foray that we are looking at up to INR 200 crores on the current investment, but then it can go to INR 1,000 crores, INR 2,000 crores in the full scale in a couple of years. So that's where we want to take it as soon as we can. And it really depends on a couple of things. One is that how the Indian domestic battery ecosystem flourishes over the next few years. Then the second thing, of course, is our own performance and of course, the global market environment at that time. So far, it seems things are moving quite positive.

Next question is from the line of Bhavesh Jain from TD Investment Advisors.

Yes. So I just had a question on working capital cycle seems to have...

I'm sorry, you're sounding muffled. Can you use your handset mode, please?

Yes. So my question is that seems to have...

I'm sorry, but it is still coming up.

We can't hear him, but we can answer. I think the question is on working capital. It's not really changed much materially, it's not really changed. And if you look at our current liabilities also, I mean, in terms of the -- what do you call it, working capital debt has also not really changed at all. So overall position is okay. It could be better, of course, we aim for constant improvement. And as I said before also, we are not necessarily happy at this level of working capital, but it's not deteriorated as such in percentage. [Technical Difficulty]

Next question is from the line of Saikiran Mungala from Family Office.

So I just wanted to understand the battery separator film. So are we targeting only one type of technology for batteries like LFP, NMC or is it fungible for every battery?

Vidur will answer your question.

Vidur here. So our investment will ensure that we are agnostic to a particular battery chemistry. We will be able to cater to all kinds of lithium-ion cells, be it cylindrical or prismatic or the pouch type and also within them, the different chemistries like LFP or NMC chemistry. So the customers or rather the potential customers in India who are setting up their giga factories now are either in NMC or LFP, and we see that the specifications are quite similar in nature. So it won't be any particular chemistry that we will cater to.

Got it. And can you give us a breakup of the bill of material for 1 gigawatt of gigawatt hours of battery? How much separator would be used over there as a percentage of cost?

So roughly, it's about 10 million square meter. It depends on the specification, but you can say 8 million to 12 million square meter for every gigawatt hour of cell capacity.

Got it. And in terms of cost to the customer, how much is that percentage?

So it ranges depending on the battery particularly, but you could say it's about 6% to 10% of the battery -- of the cell cost, not of the pack.

Got it. And do we have any number regarding the working capital requirement for this business?

No, it's too early right now to give you any number but it's nothing significant. And when we eventually go backward, then it will be much less also.

Got it. And just if I can squeeze in one more question. So I would just wanted to understand the process technology we are planning to make these separators using.

Yes. So like we explained in our initial presentation, we'll be starting with the coating process. So these are water-based coating machines. And then we'll backward integrate into extrusion, which is a much bigger investment and much bigger line. So there, we'll actually be making the film as well from polyethylene resin.

So basically, we are planning to make using the wet process, which our competitor, Sembcorp uses, right?

Yes.

Got it. Got it. And also just a last question. On the moat front, I'm not able to understand like in the last call, I remember you said that compared to cathode and anode, the qualification time for the separator is very fast. So if the qualification time is very fast, so is there any moat we have? Is it a difficult to manufacture product? Or is it customer requirement, customer approval cycle? What type of moat there is in this business?

I mean, so it's a very new industry in India today. So the technology is not like it's like existing yet, right? It's not known in India today. So we have to create that know-how, which is definitely a moat in itself. and also the fact that there's no other people doing this right now in India.

So I've just come in the cycle may be shorter than anode and cathode, but that cycle is super long. This is also long. It's not that this is some quick development either with customers. And then once you're developed and in with the customer for particular cell chemistry, it's not that the customer finds it easy to switch. And the process know-how is an extremely critical moat. It is world over, there are not that many companies who have scaled successfully in separator, especially outside of China, and they have incurred massive costs along the way in terms of technology development and stuff. So it's not like it's an easy process at all. It is very complex and technical.

Next question is from the line of Pavan Kumar from Ratna Raya Capital.

Can you just throw some light on how our subsidiaries are doing? I'm not talking about -- I'm talking about the hard packaging subsidiary. What do we have any kind of expectations going forward on that because the performance looks more flat.

Yes, you're right. Though I would not pass the numbers into too much detail because we also have subsidiary for the Middle East business. So it can confuse the numbers a bit. But basically, our Noida subsidiary this year, the growth has been disappointing and below expectation because largely due to two factors. Number one is there's been a huge run-up in memory chip prices, which has contributed to smartphone prices going up a lot, and that has depressed the volumes you may have seen that India is producing a decade low in the quantity of mobile phones. And then the second thing is there were some good projections or indications for business which was ultimately export-oriented, which did not pan out the way we expected considering the war and geopolitical disruption. So as these things normalize over the coming months, I think that will bounce back. But overall, the business from a working point of view, quality and all of that, I think we are broadly satisfied, just I think temporary disruption.

And any new geographies which we are looking into in terms for our exports? And if you can give us some comments on how the new Chennai facility is doing?

Yes. So for export, we are very positive. And there a good ramp of inquiries and interest, but it's one thing after another globally. So as these things settle down, I think the export performance can ramp up much more. But it's overall not as bad as expected. And as far as Chennai is concerned, that is also steadily improving utilization. And hopefully, sometime next year, we can add another line.

And Saket here, just adding that this year has been a very difficult year with respect to freight and logistic costs. So most customers are not really keen to add new suppliers or it's quite challenging given the lead time and the cost. But we are on the right track for the future.

Yes, we are not bad considering to the scenario.

Yes. And just curious, last year, it seems like at least from the numbers, we are doing better on exports than last year. So what changed? Is it the base effect? Or how does that -- how should we look into it.

Yes, I think you can look at it like that.

Next question is from the line of Debashish Dey from Ash Holdings.

Well, there might be some questions that you might have previously answered, I have missed. I'm sorry for that. But my question is like regarding competition, I would like to know that when the plant is going to get commissioned and any kind of players that would -- in that between if they get entered. So will there be any kind of price competition or something? And what would be the EBITDA margin, as I know that it's a special product, right? But I would like to understand the revenue per metric ton realization or how it's going to play out, I mean, the EBITDA margin especially.

We have already answered previously in our presentations and disclosures, we would point you to that. You can see it on our website, yes.

Okay. And apart from that, I would like to understand that when the full capacity utilization is going to be, I mean, expected and what kind of margins -- by what time we can expect a good kind of EBITDA margin changes in your business, though the business is performing well, but still I would like to understand that it's going to be reflected.

When will the separator business reflect positively in the TPPL overall business? Is that what you're trying to ask?

Correct, correct.

I think that's a long-term thing. We can't give you a timeline. It's going to take a few years. to really translate into anything.

So by that time, if there any possibility or any kind of risk that competition is that you might face? Or is it sort of you are expecting that if there is a kind of player that might come up and competition might be established. So what is your take on that? Is there any possibility?

There is always possibility that competition will come and it should come. I don't think that the competition will move quicker than we will.

Even if they do is fine.

And my last question would be as like, most of the separators are getting imported. So how we are going to be price competitive with like China, like most of the funds are coming from China and there is kind of imports that India is doing. So what is your opinion on it? How we are going to be price competitive with them? So I would like to know about that.

So basically, China is -- now the prices also of separators are up globally. So that is one thing. And secondly, we don't foresee any major issue because customers do need to localize. And our government is also planning schemes which will help us to be more competitive. But by and large, we don't see an issue and customers are very interested to localize over the next few years as they scale up.

But obviously, there are risks to all of these things, and that is why we are doing a phased ramp-up in this business, and we are not jumping in straight with a gigantic investment, which can break the bank. So we are doing things in a phased and calibrated manner.

Okay. And my last question would be what would be, in future, what would be the revenue mix of this particular product? I mean, in your top line revenue mix, what would be the share of this particular separator business? And so I would like to know about it.

Yes. We've already given a guidance to the revenue just on this call itself. And right now, it's too early to give you any particular figure.

Next question is from the line of Anita Vohra Mora from [Indiscernible].

So it's great to see that you've been able to hold margins even in such uncertain times. So congratulations on that. And I just had a few questions. On the export side, is there any particular geography that has been doing well for us in the past three to six months?

I think our export has been pretty much in line with what we have done in the past. So there's no real big change in geographical mix.

Okay. No, I'm just trying to understand, I believe we were hoping for good positives from the U.S. geography. Are we seeing any positives? Or is it still growing slow?