TCPL Packaging Limited (TCPLPACK.NS) 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 evening, everyone, and thank you for joining us on TCPL Packaging's Q2 and H1 FY '26 earnings conference call. We have with us today Mr. 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 evening, 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. The operating environment during the period remained challenging with softer domestic demand and ongoing volatility impacting export markets. Against this backdrop, our performance remains stable, supported by our diversified business model and consistent operational focus. For Q2 FY '26, consolidated revenue stood at INR 461 crores, while half 1 revenue was INR 885 crore. EBITDA for the quarter was INR 69 crore and INR 142 crore for the half year, translating to margins of about 15% and 16%, respectively. PAT came in at INR 29 crore for Q2 and INR 51 crore for half 1, while cash profit stood at INR 59 crore and INR 107 crore, respectively. The revision in GST slabs during the quarter resulted in short-term recalibration across parts of the trade channel, which contributed to softer demand in September. This transition has largely normalized, and we expect the rationalized structure to support improvement in underlying demand in the coming period. Our Chennai Greenfield plant continues to ramp up well, supported by encouraging traction from regional customers. Overall, customer engagement has been strong and approvals from several large accounts are currently progressing, which will further aid the scale up as they come through. The facility significantly enhances our presence in Southern India, strengthens our capabilities in sustainable paperboard packaging, and we expect it to reach good utilization levels over the next few quarters. As we look ahead, we remain focused on strengthening the levers that will drive the company's next phase of growth. We are optimistic about the prospects for demand improving as the GST cuts take hold and are encouraged by recent news of positive progress in the freight talks in the U.S.A. and the EU, besides many other countries that can provide a positive fillip to the export business and will also add to the momentum in the Indian economy in general. Besides, we are also continuously evaluating a set of strategic initiatives to reinforce our long-term growth aspirations. Backed by our strong balance sheet and deep customer relationships, these efforts will enable us to build scale, address emerging opportunities and position the company for sustained healthy growth over the medium to long-term. 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 Rohan Kalle from InCred.

As per our estimates for the quarter, we would have done a high single-digit growth in the domestic business. How is it like panned out, let's say, from October onwards, considering September would have been weak? Are you seeing, let's say, higher orders from existing customers due to the GST-induced pack size changes?

So still in October, there was a lot of disruption because there was still a lot of inventory correction going on, but it's normalized now. And like post the Diwali season getting over, things are improved. But the loss of the Diwali season is like a permanent sort of loss because there's a lot of Diwali sales and gifting and those kind of things which go on, which if you lose that season, then you lost it permanently. No one is buying that on a regular basis. So that is unfortunate. But generally speaking, the demand is stabilized, and now we are able to understand some trends. But the last couple of months, it was very much dependent on individual customers and the product line which they had, whether they were affected by GST or not, and how quickly the customers adapted also with the new pack sizes or the new prices. So a lot of people took time to make up their mind, whether they want to cut the grammage, increase the price, et cetera. So that was like a 2-month kind of disruption, which we have faced.

Right. And on the export side, the first half has broadly been subdued for us. Are you expecting it to recover in the second half? And from your read of the situation, is it temporary? And sort of are we confident of crossing the FY '25 levels for the full year this year?

Yes. So I think we don't really have a handle on what's going to happen in coming quarters or months. So overall, in terms of our share of business or general customer relationships and all, there's no major change. It's just like a little bit of disruption this year in -- with those markets. And we've had a couple of very strong years of export performance. So this was a bit of a correction sort of thing. So hopefully, next quarter or 2, we can bounce back. And slowly, slowly, it is sort of -- the drop is sort of lessening. We had a good traction building up in the U.S., but then obviously, with the tariff situation there, that got knocked. But hopefully, now things can get cleared up in the next 1 or 2 months. The news that we're hearing is quite encouraging. So we are just looking forward to that.

Sure. And the last one in terms of, let's say, our medium-term growth outlook, what would that be? And which segments do you think would drive it? Would it come more from cartons? Would it come more from flexible packaging and your outlooks on margins as well?

Yes. So of course, we don't give a number, but our aspiration is high -- I mean, mid-double-digit sort of growth rate in top line with better improvement in bottom line. And our carton and flexible should both grow at a similar -- at this kind of rate, although flexibles have been growing faster last few years from a lower base, and that continues to be the case. But we see, hopefully, now with the domestic demand environment improving, the carton business should be able to contribute better. That's the hope. And the margin, of course, will follow.

Right. Just the last one from my end. Are we expected maybe to get into any other segments in the near term, any adjacencies?

So nothing I can point to right now, but we have a lot -- we are working on at any point of time, but then it has to really make good sense for us. So there is -- we are always looking at and working on various opportunities, but to pan out properly.

Next question is from the line of Bhavya Nahar from Tamohara Investments Managers.

You mentioned that the revision in GST slabs led to some short-term recalibration. Could you quantify the impact of this transition in terms of volumes or value if possible?

Very difficult because it's like an opportunity loss, so how to quantify. And it's dependent on the customer, meaning -- different customers had different reactions to the GST cut in their supply chain. So like we have 1 or 2 customers who still today haven't figured out what they're going to do, whether they're going to cut the grammage or reduce the price or what combination of the 2. So it's really hard to give you an answer. And then there's this Diwali, like if you lose the Diwali season, how do you quantify that? So it's not possible for me to answer that question.

Next question is from the line of Pavan Kumar from RatnaTraya Capital.

Can you outline the capacity utilization within the cartons and also the packaging films separately? And secondly, I also wanted to understand the reason behind the higher financial expenses. Is there something different that has happened this quarter? And what is the sustainable kind of run rate on the financial expenses side going forward?

So can you repeat that second part again?

What is the sustainable interest rate expense or the financial rate expense going forward? And this quarter, the interest rate expense was very high. I wanted to understand...

Generally, our bank borrowing rate is between 8% and 9%. So that continues. And obviously, if the top line growth doesn't translate then the interest portion as a percent will be a little higher side. But that is okay. I mean that's -- it's manageable. And overall debt and all is also not growing in terms of the ratio. So that's under control. It's just a matter of a little bit top line growth should feed in and then that will get sorted. And as far as the utilization is concerned, in the carton business, we're more at like -- I'd say, overall, we're at about 70%-odd utilization. So there is a good room for further expansion in the top line without much CapEx. But of course, it's not always everywhere that you are at the uniform level of utilization. So some units, we are more utilized, some we are less. So obviously, it depends.

Okay. And can you just outline what is the kind of utilization on the flexible line as well is?

Yes. That -- I think that data we don't give. But in the flexibles, we have a good capacity free yet. So we don't have any CapEx planned in the immediate future, except for some balancing equipment and some specialized equipment and all required, and we are a little bit expanding the building to make room for future growth. So overall, there also, we have some capacity free.

Okay. Okay. And one last thing on the export side, I wanted to understand is there any specific reason like the rate has slowed? And what is the kind of -- maybe the growth rates that can be expected on this particular side going forward on medium to longer term? What are the kind of rates we are looking at internally?

So with the export, we don't have any guidance as such that we give for growth because it's a very -- not in our control sort of thing. With the domestic market, you are much more sure because the factors are more clear to you. Where export, there's various other factors which are totally out of control. So we have a bit of a...

But -- is there anything which has made us lesser competitive than the peers in the export market? Or is it just like a cyclical downturn?

I think it's more like a cyclical downturn. Nothing specific to say in terms of competition. Yes, of course, China dumping is going on all over the world. But in our kind of industry, it's not such a big concern. But apart from that, there's nothing new. I mean, obviously, all the mess up going on globally because of the tariffs and the volatility and there's so much war and disruption everywhere. So overall global markets are a bit gloomy, but yes, it's mostly cyclical downturn, I would say.

[Operator Instructions] Next question is from the line of Bhavesh from DB Investment Advisors.

Am I audible?

Yes.

Yes. So a couple of our peers in the domestic market have been expanding their capacities. So do we see this any threat to our margins going ahead in the next couple of years? Any supply pressure you are seeing?

So in our business, there's always going to be competition. But I think like it sort of bottomed out the kind of aggression in the competition. I feel that there's a bit of a correction in the attitude because people are understanding that one has to retain the fundamentals. So I think it's okay. I mean it's manageable right now.

Okay. And secondly, on the export market, I think in the last previous call, we have mentioned that U.S. was not a greater chunk of our export [indiscernible]. So can you throw some light how was exports in this quarter and what were the other geographies where we are supplying?

So we don't give breakup for obvious reasons. But the U.S., we are not doing much today, but there was a lot of scope for growth. So there was a lot of development in pipeline. That has all stopped. So that's a problem.

Next question is from the line of Rangan, an individual investor.

Good set of numbers. For the first time, I think I'm seeing the turnover becoming less. And no doubt, I appreciate for the cost of raw material has come to about 57%, 58%. But what is eaten away by that, the employee expense and the finance cost. And I would like to know that whether you have got any good orders from the HiPhone or something like that because Sriperumbudur is near to Chennai, and have you made any application for that and any big ticket clients are coming? Please take that. Then I would like to advise you that all along, I've been advising you then at least you should place the market actually placement about 10 lakh shares, about INR 3,000, you will get about INR 300 crores, and you can reduce the interest, I think you can ponder over this. This is my suggestion because promoter's quota, I mean, percentage will not come that drastically. So you have to think on that line because you are paying very high interest these days, I have seen that. Otherwise, what will be the current year, actually, you will be passing at least maintain the INR 1,742 crores of last year what you have made. I would like to know that.

Thank you very much for your suggestion on the raising capital, we'll take that into advisement. And on the customer specific, we don't comment on this conference call. So I wouldn't comment on that. And yes, obviously, if the top line is not growing to the expectation, then the other costs are growing. So they will squeeze down the bottom line. That's natural. But the top line should grow. So that will get sorted out in due course.

Next question is from the line of Pavan Kumar from RatnaTraya Capital.

Firstly, can you throw basically some light on how the subsidiary is performing? I'm talking about the Innofilms, which has been integrated into TCPL now. And also the creative offset, if you could give us some number on what was the utilization of revenues from that in this particular quarter? And how do you expect to see this going forward, maybe 6 months or 1 year down the line?

On the Innofilms, we are quite encouraged by the developments that our team is doing in the R&D, and there is some good traction on some specialized products, which we are developing with that capacity. So that is playing a role in our flexible packaging growth. So that we are quite encouraged and machinery and all have stabilized. So there's no major concern there. And it's picking up steadily. On the creative side, also, there is a growth in the revenue and therefore, a drop in the loss and improvement in the cash flow and all that. But still, it is way below our expectation, that to be frank. So we are working on various new customers and various new product lines, and trying to improve share in several existing customers. So we are hopeful that this improvement will continue, and it will start giving profit in coming time. But yes, definitely, it's not up to the expectation.

Okay. Just to be more specific on Innofilms, so is it like previously, we were utilizing it to produce normal packaging film. So have we gone to the recyclable film and the production and how much of that particular plant's capacity is recyclable film as of now, Innofilms that we are producing?

So the ratio I can't share, and it's now no longer a separate company. It's part of the flexible packaging business altogether. But the line is certainly now being utilized in -- on various innovative films. And we have a lot of product under development in pipeline. So we are seeing some traction. And hopefully, in the coming months, there should be a good volume that we get.

Akshay, can you just indicate maybe have we crossed 50% at least?

Sorry?

Have we -- our crossed 50% in terms of recyclable films, at least if you can indicate that? In terms of our production, how to -- if you're producing 100 in, say, Innofilms...

I understood.

Vidur?

Vidur here. So thanks for your question. So basically, the push of the use of recyclable packaging in India has sort of taken a bit of a backseat because the government hasn't really mandated the use of recyclable packaging. It's more surrounding the use of recycled content. And certain brand owners such as Nestle, Unilever, et cetera, they have global pledges to use recyclable packaging. So they are doing it in a small way. But it's not gone full-fledged because the government doesn't mandate it. So there's no real reason for them to shift to recyclable, but some people are doing it because they do understand the benefit. So that's the reason why it's not taken off in the way in which it maybe should have. But having said that, we are just a small part of the overall market. So our progress is quite decent, I would say, in this regard. But obviously, okay, it's not like a major product for us right now. But we are qualified and the quality and everything is very good. So when the time comes, we will be well placed to capture the demand.