Uflex Limited (500148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '20 earnings conference call of UFlex Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Runjhun Jain from Nirmal Bang Securities. Thank you, and over to you, ma'am.

Thank you, Vikram. Welcome, everyone, to the Q4 FY '20 earnings call of the UFlex Limited. We thank the management for giving us the opportunity to host the call. Today, we have with us senior management of the company represented by Mr. Rajesh Bhatia, Group CFO; and Mr. Yusuf Nasrulla from Investor Relations. I will now hand over the call to the company management. Over to you, sir.

Thank you, Runjhun. Good evening, everyone, and welcome to the fourth quarter FY '20 earnings call of UFlex Limited. On the call today, as Runjhun said, we have our group CFO, Mr. Rajesh Bhatia. Our discussions may include predictions, estimates or other information that might be considered forward looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflects our opinion only as to -- of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise the publicly released result of any revision to these forward-looking statements in light of new information of future events. I would also like to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. I would now like to invite Mr. Bhatia to share some perspective with you with regard to the company's operations and results for the quarter under review. After that, we will open to call -- to questions from analysts. Over to you, sir.

Thank you, and a very good afternoon to all the participants on the call. Let me first give perspective by saying that UFlex is perhaps the -- one of the companies, which is unscathed by the coronavirus and -- neither in terms of its production facilities nor in terms of its market. So the business has been as usual and rather because of the COVID and given that there's a lot of focus on the food and pharma, so there is actually buoyancy in the packaging films as well as the packaging markets. So Q4, you would have all seen that the stand-alone EBITDA for the quarter is up about 20% to about INR 150 crores and the consolidated EBITDA for the Q4 is also up by about 6%, little over 6% to about INR 276 crores. For FY '20 whole year, the EBITDA is -- though reported is INR 616 crore, but that includes one nonrecurring income of INR 77 crores, which was which was reflected in the Q3 results. So if we exclude that, so the normalized EBITDA for the stand-alone EBITDA is up 12% for the whole year and while the Q4 EBITDA is up 20% on a stand-alone basis. The consolidated EBITDA is up 10% for the year and that's largely due to the better operating margins in BOPP films, BOPET films. And we have seen this year in FY '20 that the value added, which is largely sales minus major raw material is up by about 35% in India and value-add in the BOPET is up about 12%, similarly across other BOPET facilities in the -- at our various plants. So we've seen that the margins -- value addition margins have been higher from about 7% to about 20% range for the BOPET and for the BOPP overseas, it's about 12%. So this all translates into though a lower net revenue for FY '20, which is down about -- close to about 7%, but this is largely because of the crude price impact and not otherwise -- 2 factors actually. The crude price impact as well as the impact of the shifting of our Dubai plant, where we -- approximately, we lost about INR 300 crore, INR 350 crore of the top line because of that. And the average crude prices in FY '20 fell by about almost 13%, which is -- which means that, given that about 60% of the key raw material cost is selling price -- of the selling price. So that number -- that explains actually how the crude prices have affected sort of the net revenue. Having said that because the margins -- EBITDA margins are better over lower revenue also. So we've seen EBITDA margins for the year as a whole improved on a consolidated basis from about 12.6% in FY '19 to 14.9% in FY '20. Even the stand-alone EBITDA margins are -- reflects a much better number. So overall, for the year, if we see FY '20, the consolidated PAT is up by 18% to INR 370 crores, and the stand-alone PAT for FY '20 is up 175% to INR 143 crores. Of course, this includes recurring onetime also, which -- for which still you will pay tax. And Q4 consolidated PAT is up almost 44% on a year-on-year basis. And Q4 stand-alone PAT is up about 93%, which is a normalized sort of PAT. So it does not have any onetime recurrence and all that. So overall, a reasonably good performance given the backdrop of the COVID and -- which particularly the way we did in India, we actually closed everything and then -- but fortunately for us because we were part of essentials, so we were given timely permissions to keep on operating our facilities. And overseas, of course, because there was no -- the lockdown wasn't as comprehensive as it was in India, so all the facilities continued to operate albeit with some restrictions. But nevertheless, the situation was very much manageable. Yes, that meant that we had some additional administrative and logistics challenges, which we handled more so in India, where everything was stopped, and then you are told that you are essential, so you have the last mile problems because how do you -- how does the truck driver will reach the truck? If he will drive, we will be called -- he'll be held up at various barriers and then he might be hold up. So there was a bit of a confusion to begin with, but all of this settled down well. On a production and sales number for FY '20, while I say that the overall production growth is reflected as minus 3.7%. So films and the packaging, packaging for FY '20, overall, there's a more than 5% growth in the production level. And -- but if we negate the impact of that plant shift to Dubai, actually, the volume growth is not even negative in the films. Overall, it will be still plus by about 2.5%. Similarly, for Q4 also, while the overall production growth on a year-on-year basis is minus 2.6%, but negating the impact of the plant shift is -- the overall growth will be about 5% or so. Packaging production growth of 10-point -- near about 11% in Q4 is highly encouraging. And while the overall packaging volume growth for FY '20 is about 5.5%. The packaging sales growth in Q4 is 6.4%. And that's mainly because though the production growth is 10.8%, but the packaging sales growth is 6.4% because towards the end of March when everything stopped, so the supply chain became a bit of an issue; otherwise, the packaging sales growth also for the year would have been a higher number than this. On the aseptic packaging, yes, we had a Q4 volume growth of about 150% on a year-on-year basis. And if we talk about FY '21 summer season, definitely, we would have had the optimum capacity utilization from the plant given our order book, but unfortunately, that was the only area which was impacted by COVID as the juices and the liquor sales got impacted because of the lockdown. But otherwise, we were on course to achieve almost full capacity utilization sort of from this plant. That is on the financials as well as on the production and sales. I can only say that during the current quarter also, the demand continues to be robust, both for the packaging films as well as for the packaging. And this quarter, definitely, we will see much better volumes, both on the packaging film as well as the packaging -- in the packaging side. As the -- and a better improved margins also because what has happened is when India closed down, there was -- the other rest of the countries were still operating. So there was actually no supply -- no exports were being made from India. So while all the overseas territories were operating, so there was an additional requirement, what was otherwise being met from India. So that additional volumes came our way. Those -- that also helped us to improve our prices to pass on the costs of the additional logistics and the transportation cost to the customers. But yes, there was a margin expansion also, which has been observed in the current quarter itself. So the effect of the BOPET on the demand for the packaging films and the packaging continues to be witnessed in the current fiscal in the Q1, and we're expecting a very good performance by UFlex for the Q1, both for India as well as our overseas business. On the debt side, this year, there has been a substantial reduction as well as additions. So during this year, we paid about -- repaid about -- almost about INR 400 crores of debt, both for India and overseas. A large part of that repayment was done in India, where we repaid more than about INR 260 crores of our debt. And given that there is no new projects in India, so there was hardly any addition of any debts. Overall, because we are expanding in some of the foreign jurisdictions, so additional debts have been taken to fund those acquisitions. Happy to inform that our plant shift from Dubai to Russia is -- will get commissioned in the current quarter. Yes, we have some trial runs going on in the previous quarter in the -- up to June quarter, but still we are stabilizing that facility. And -- but definitely, we will see the volumes coming from that plant in the current fiscal. A part of that will also come in the June quarter and then we expect that in next 1 month or so, we should be -- finally be able to commission that plant fully and then our whatever revenues and quantitative numbers we lost out last year, I think we'll make up for that. All other facilities are also at a very advanced stage. So we advanced a few projects like in Poland and all. And I think there'll be some delays in, finally, the commissioning of these projects, a couple of months. But overall, within the current financial year, we will have all the facilities sort of up and running, which will -- and given that the markets are robust now and also because of this COVID, the customers are now looking at more of a localized solutions rather than depending on imports. So I think all these situations will help us to achieve better realization and better volumes in the local markets where we are, whether in Egypt, Poland, Russia, Dubai, and there'll be less and less people. All the businesses would like to lower their risk of importing, let's say, U.S. importing from India or Europe importing from India. So that way, our markets where we are, we will be sure that we will see definite better volumes as well as the profitability in those markets in the coming years. Aseptic packaging. Yes, I said that the current financial year, summer of 2021, we would have seen the optimum capacity utilization from the plant. So I think we will -- we're trying to see as to what best we can do. But let's all be clear that there are 2 very good seasons: one is the summer where people drink a lot of drinks on the go while they are traveling or because of the heat and all that. And then you have the liquor in the -- which generally goes throughout the year, but in the winter's time, it is consumed more. So obviously, the summer has now gone and we can't recoup those volumes. But what the idea of telling you all this is that in the aseptic business, as there were always questions about as to what are we doing about that? How will we ramp up the numbers over there? So just wanted to give news that yes, in the aseptic packaging also we have achieved full capacity utilization for this summer, which unfortunately could not be achieved. So hopefully, in the winters, we'll be much better. And in the summer of 2021, I think we will sort of go ahead and even order our next line to develop our capacity over there. So that basically sums up our performance for this quarter. Extremely, extremely satisfying performance on every front, whether it is the volumes, whether it is the cost reductions or whether it is completion of some of our projects, which we will see happening in again the current financial year. So with that, I sum up my narration to you in terms of how's been the Q4 and how we have performed in the financial year 2020. And I'm open to any questions that the participants may have.

[Operator Instructions] We have the first question from the line of Chirag Singhal from First Water Fund.

First of all, congrats on a good set of numbers, sir. Just a couple of questions. First, can you give separately the tentative start-up months for Hungary, Nigeria and Poland?

I think we will see -- so I think we will see Russia and Poland now happening in this quarter and others in the Q3.

Okay. Okay. And is there any residue CapEx left for these 3 projects?

So I think most of the residue projects -- yes, there will be something left, only then we are talking about that they're getting completed in the Q3...

So how much will that be?

I think should be close to about $50 million.

Okay. Okay. All right. Okay. And then next question is on the flexible packaging. We saw good growth, especially in the Q4 in this segment. So what kind of volume growth you are expecting in the FY '21? And we also saw, which you also highlighted in the opening commentary that the margins expansion, which happened in the Indian business was quite good. So what kind of margins you're expecting for FY '21 as well?

So I think overall, if we see what we have achieved in FY -- Q4, a margin of about -- EBITDA margin of about 15.5% in -- on a stand-alone and about 15.6% in the -- at a consolidated level. I think Q1 for -- of the current financial year for sure will have a margin expansion. How sustainable is that because of the COVID is that what we have to see. But let's not forget that both the BOPET and as I said, that if we see the BOPET margins increase actually by about 12% even in the FY '20 and BOPP margins by about 35% in the current financial year. So I think it's important that as to what we achieved in FY '20, we sort of somehow maintained those. Q1 definitely is going to be better than that. But Q2 onwards, I think we will have to see. Overall, blended for the year, if we can still achieve 16% margins, I think we'll be good.

Okay. And on the volume front, sir, for the flexible packaging?

We should expect about 7% to 8% growth in the current financial year on the flexible packaging.

Okay. Okay. And sir, on the aseptics, you mentioned quite a growth in the Q4. Is it possible to give the capacity utilization and revenues in quarter 4 and for FY...

See, I think we will have issues in sort of giving that because of the competitions. All that I can say is that we are very close to achieving the full capacity utilization of that plant. So that should give you enough this thing that we were actually on course to do almost at more than 95% capacity utilization during the summer period.

In Q4, by the end of Q4?

Yes. In the -- so starting from March to -- March, April, May, June, July. So these are the -- largely the summer months in which the consumption is quite high.

Okay. So you mentioned that as we would have lost majority of our summer sales due to the lockdown. And also liquor, what -- how much does that constitute to our overall aseptic order book or overall aseptic sales?

So liquor, as of now we -- contributes a significant amount and then #2 is juice. I would say, liquor would be about 60% and juice would be about 40%. And liquor definitely got affected because all the factories were closed. And even after that, there was kind of a situation where for a large period of time when the liquor shops didn't open and all that. And normally, the liquor goes more with when you are outside home, though those things will also change. But yes, liquor sales does get affected because of the COVID.

Okay. So as you said that we were almost near to our optimum capital utilization, we would have made plans to start the second line as well?

So we were planning to order second line somewhere in the month of -- in the Q3. So by the time we would have reached Q3, we would have pretty much known as to while you are doing a peaking out in the summer months as to how does the rains as well as the period after the rains, how do you perform in that. And then depending on that, we should have really looked at ordering another line printing in Q3. And so let's see as to -- there'll be some delay there and we've not still yet decided as to how do we do that, when do we do that. But surely, that is on the cards to happen.

Okay. One last question from my side, sir. The equipment supplier's credit, is that included in the borrowings which are -- so this borrowing or is it separately shown? If yes, then how much will it be?

There's no equipment supplier credit. It's all that -- whatever are the loans we have drawn and whatever -- is all included in the borrowing. There's nothing else which is part of -- outside of this.

Okay. Okay. Okay. So you said the incremental CapEx will be around $50 million for the upcoming expansion. So we'll see a further surge in borrowings? Or...

Yes. Yes. There'll be some additional borrowings during the current fiscal. I think we still remain to draw about 50 million, 60 million of existing facilities, which we got approved for our projects in the coming financial year -- in the current fiscal.

We have next question from the line of [ Om Agarwal ] from [ Balaji Investments ].

Sir, just as we are looking through the financial results, why is the borrowing cost, the interest cost, financial cost not getting reduced in spite of good cash flows?

No. It is getting reduced as the loans are getting...

Last year's finance cost is INR 218 crores roughly, and this year, it is around INR 225 crores.

Okay. So you have to...

And the turnover is also reduced. Turnover is also -- revenue is also reduced.

No. No. So the last year, while the loans were drawn because the projects were underway, some of the interest cost would have got capitalized also. So -- but now everything comes to hit the P&L only. So that effect will always be there, no?

Yes. [Foreign Language] last year, some [indiscernible] capitalized.

So actually last year -- last year would have got capitalized. So you would not see that in P&L, but the total interest outgo last year versus total interest -- would be more than the current year.

Since the rate of interest is also going down and the cash flow -- the finance cost must get reduced.

[Audio Gap] projects, so there are certain project costs, which it does not hit up the profit and loss account.

So is it -- I mean, the expansion new projects which are getting commissioned like that?

So last year, we had some projects which were getting still commissioned. And that is why cost of those borrowings would have got capitalized while they come to in the profit and loss account in the current year.

Cash flow, this interest rate must -- interest cost could go substantially?

[Foreign Language] while you are seeing that the G-Sec is going down and all that, but please appreciate that we are borrowing from the banks. And while RBI has been reducing the interest rates, but those being passed on by the banks to the clients is not that seamless, and the banks have been passing on very pretty...

But the company has a good cash flow as well, no? But the company has a good -- around INR 700 crores to INR 800 crores cash flow is there. So with that cash -- this cash flow, the dividend is also not high -- dividend payout is also not much high. So with this cash flow -- retained cash flow, the interest -- finance cost must go substantially down, I mean.

So as I said that last year, approximately about INR 400 crores is what we have paid -- repaid. So we had an EBITDA of INR 1,100 crores, then we had taxes, INR 400 crores of this, plus some additional normal CapEx, which we keep on during the year. So the entire cash flow is definitely there, but you understand the concept of MCLR...

[indiscernible] fresh investments will be there.

No. So 1 year MCLR, when your bank has fixed that, let's say, in the month of November, so till the next November month, that will continue. So any change in the MCLR will come to hit you only after the end of the 1 year. But while we see in the news that it is happening instantly. Yes.

It's not coming into effect?

Yes.

We have next question from the line of Vaibhav Badjatya from HNI Investments.

[Technical Difficulty]

Sir, I'm sorry to interrupt this -- there's a lot of disturbance coming from your line. Could you please use the handset?

Yes. Sir, I mean, you have indicated that there will be a bit of margin [indiscernible] that is there in the current quarter, the June ending quarter. So is it more coming from BOPP or BOPET? From which segment you're seeing there's a higher...

We are a very large BOPET player, but we are very small in the BOPP segment category. While there will be expansion in both the things, but the impactful -- more impactful for us is BOPET. And as I said that the Russia trial runs have started, the -- and we've seen that in the current quarter, we will have Russia as well as Poland getting commissioned. So from that perspective, the volumes will be much higher, both in the current quarter as well as in the Q2 of the current financial year. So -- but as our volumes on the BOPET side are higher, so obviously, that makes more impact to us.

Yes. But if you leave the mix aside, are you seeing that BOPET -- improvement in BOPET margin is much more than BOPP margin or it is vice versa?

No. It's not like that. See BOPET, as I said that FY '19 was a time when BOPET hit almost very low. And that is where, when I said in FY '20 in the BOPET margins, we've seen a 35% kind of a growth, while in the BOPET, we've seen a 12% growth in FY '20. So I think now more or less, the BOPET, which was lagging behind because of some of the excess capacities which got installed is now finding it seep back to be at a normal curve.

Got it. Sir, that's for the upcoming quarter, but from a relatively longer-term perspective, I'm sure it is very hard to project demand in this environment. But on the supply side, are you seeing any significant disruption due to COVID, either in Indian plants or global plants due to COVID, which can significantly derail the supply side of either BOPP or BOPET?