Uflex Limited (500148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Q1 FY 2021 Earnings Conference Call of UFlex Limited. [Operator Instructions] Please note that conference is being recorded. I now hand the conference over to Ms. Shalini Gupta from Quantum Securities. Thank you, and over to you, ma'am.

Thank you, Lisan. On behalf of Quantum Securities, we welcome you all to the quarter 1 FY '21 results conference call of UFlex Limited. We thank the management for giving us the opportunity to host this call. The management is represented by Mr. Rajesh Bhatia, Group CFO; and Mr. Yusuf Nasrulla, Investor Relations. I now hand over the call to Mr. Yusuf Nasrulla. Over to you, Yusuf.

Thank you, Ms. Shalini. Good evening, everyone, and welcome to the First Quarter FY '21 Earnings Call of UFlex Limited. On the call today, as Ms. Shalini 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 on 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 the 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 regards to the company's operations and results for the quarter under review, after which we will open the call to questions from analysts. Over to you, sir.

So thank you for all, who are all there on the call. I think I'll just keep it short and crisp. I don't have to say much. The performance speaks by itself. We have had a good quarter, largely because of demand and -- created by the pandemic, especially for the food and pharma and then the new categories emerging, which is personal hygiene. So overall, all these factors led to an increased requirements for all these products. And consequently, there's -- a requirement to tack them also proportionately goes up. We're constrained by the capacities that we had at this point in time and there was very little that we could have done more in terms of utilization of the existing capacities. Fortunately, during this period, we had our Russia and the Poland lines coming, the construction getting completed and trial runs commenced, so we could use that output out of the trial runs also to meet the higher customer demand, which, overall, we have a production volume up of 7% on a year-on-year basis and 13.4% on a quarter-to-quarter basis. The packaging sales is up 10% year-on-year and 9% Q-on-Q. The liquid packaging Y-o-Y sales are up 80%. That's the only business segment, which could have done better, but because that -- COVID impacted that particular sector the most as the -- because of the lockdown, the demand for the ready-to-go or on-the-go kind of juices or other products which are packed in this got a bit affected. So otherwise, in that business segment also, we would have done much better than what we actually achieved in the current quarter. I think lastly, on the packaging film side, there has been a situation where the demand was so robust during the quarter, and all our facilities across the globe have been working at their full capacity levels to ensure that how do we keep pace with the customer demand. And frankly, if we would have had more capacity, things would have been still better from a -- that you could have sold more also. But largely, while the margins have been -- you've seen that EBITDA margins for this quarter are up about 52% on a year-on-year basis and about same number on a quarter-to-quarter basis. And the EBITDA margin, per se, is highest at 21%. It was about 15% in the previous 2 periods. The PAT number is up about 116% year-on-year and 95% Q-on-Q, so almost doubling the PAT number also. And our overseas business, there was only one business where we had some capacity, which we had to catch up, which was Mexico. That business has -- during this quarter, they have reported 28% higher production during -- for this particular quarter, yes, because we had some underutilization of capacity in that territory in the -- till date. And that came handy as the new capacities, which got installed but not commissioned, also gave us the additional volumes. Another notable aspect is that the value addition in the packaging business because the demand is for the personal hygiene products, which are packed into spout pouches, which gives you far more better margins as compared to your roll-form packaging. So that has also helped improve the margins, though the volumes, as I said, have only improved by about 10%-odd-or-so in the packaging. But -- and 7% overall production volume on a year-on-year basis. But EBITDA margin -- EBITDA percent -- EBITDA increase is about more than 50%, which is primarily as the demand is there, the value-added products are being pushed and the raw material prices also helped us because we also saw that the PTA and MEG prices crashing during this period. The PTA and MEG prices from March onwards have been -- have fallen drastically. But on the other hand, since there's a lot of demand for the packaging, which continues also in the current quarter as well. So that price reduction in the raw material has also helped our overall margins. That is sum and substance of the story. So as I said in the current quarter, we will have our Poland and Russia commissioned. We will also have, in the next quarter, probably, the other 2 facilities in Hungary and Nigeria also getting commissioned, which will set the ball rolling for higher volumes. In the rest of the period and subsequent year, we can look forward to at least 50% growth over the volumes in the films business what we achieved in FY '20. So that's basically in sweet and short, the story of this quarter. I think the highlights, for the story, for this quarter was, as we said that, this is the toughest period when the leadership is put to all kind of tests and each flexion, as every level has been present, has been contributing. They've been coming to offices. We've been organizing our workforce to come, watch them in the safety -- increase the safety standards for them, so that they are not affected by this COVID. So we've done all that we could to ensure only one thing, that our responsibility was to maintain the lifeline of food and packaging -- food packaging. And without that, we all know as to -- we -- it's not possible for us to really get the food for the consumption at our home, particularly, during this period. And this crisis has been a kind of a showcase for the steely resolve and the organization has in terms of ensuring that what normally people cannot even think of doing. In the normal times, we achieved those things in such difficult times by ensuring that either we are commissioning these plants through completing construction of these plants, people staying in the plants day in and day night, people flying to commission these plants with special permissions to -- and so all sorts of things. We had a, sort of, a mayhem actually where nobody knew as to what the things were changing. Every moment, there were new geos, there were new guidelines being issued, state by state, country by country, and to continue movement of our material, movement of our people and ensure that we are able to keep on operating our plants with all necessary resources as well as maintaining the supply chain intact. I think it was really, in the hindsight when I see, humongous, humongous effort. And that's what separates a strong management from the rest of the clan. And that's what we are proud of at UFlex, led by our Chairman, who has been in office on each single day, each single day in the last -- from 21st of March. And leading by himself, going to each of the -- he couldn't physically move out because there were constraints, but going to the plant, so that the -- going to the shop floor, meeting people. There was so much of so fear amongst the people that -- for this pandemic that they didn't want to come to work. So he led by personal example and showcased to the people that if the Chairman can, sort of, come and work with you, that really changed the whole mood, the way the organization was working. And otherwise, our -- the whole media and other things have created so much of an havoc around this that things could not have been moved. But we're happy to say that despite everything, we have achieved higher volumes, we have achieved better efficiencies. There have been some costs also, which may have come down because the travel was not there, the participation in exhibitions and all that. So some of those administrative costs got saved, which are generally not much, but still the show went on and it's been really a stellar performance. So that's it from me -- my side, open to any questions and you -- all of you are now -- have been on these calls for quite long, and you would know that -- a lot of information about this, but still happy to answer.

[Operator Instructions] The first question is from the line of Jiten Parmar from Aurum Capital.

Bhatiaji and whole UFlex team, congratulations on an excellent set of numbers, especially during this tough time, and it was really inspiring to see the -- see that the top level of the company working hard and making all this happen. So congratulations to you. My first question is basically, if you can -- if it is possible to share the contribution of food and pharma to the total sales?

So most of our packaging business, you can say it's above 95% for the food and a little bit above for pharma. So we're not very big on the pharma. So predominantly, it's a food for us.

Okay. Great. My second question is on Asepto. I saw the interview today. So you have given a guidance of 3 billion packs for the current year...

Not in the current year. Not -- I think -- I also saw that, that they somehow got it wrong. I said if the situation is normal, then we -- against a capacity of about 3.5 billion packs, we can easily do about 3 billion packs from our existing plants. And that's what we were sort of looking to do in this year before this got stuck.

Okay. Okay. So as of now, any guidance as to how much realistically we can do this year?

I think as of now, it is difficult to give guidance, but a normal trend, which I did share on that interview also is that Q1 Y-o-Y liquid packaging sales are -- volumes are up 80%, on a Q-on-Q basis, so that is the only guidance sort of I can give. The 3 segments into which it goes, the liquor segment was -- and the juice segment was quite deeply affected because the liquor, there was a total ban during this -- all this lockdown. And also appreciate that this is a product, which is only to India. This is what we sell largely in India only. And India, as a country, we had the most rigorous lockdown. If you see overseas business, it's not affected at all by this pandemic. There was not even any single day or hour, kind of, an effect due to any pandemic-induced lockdowns. So -- but this was a local business, so that is why it got affected. But we're not too worried about this now because we have our back covered. Unless the market supports us -- if the market supports us, the conditions support us, we are -- we fully sold out on this as well.

Great. So any thought on like expansion on this? By when will we have a picture clear that we will do from 3.5 billion...

I think in the next financial year, FY '22, there'll be surely an expansion on this. Because expansion also takes time, no? Expansion is not immediate. It takes about a year. Though we have to order only 1 line, which costs about INR 50 crores to INR 60 crores, printing line, and rest of the infrastructure is already there. So the additional CapEx to double the capacity is only about INR 50 crores to INR 60 crores, but we will surely be, sort of, looking at that. And that will, for sure, happen in the next year -- next fiscal year.

Okay. Great. Next question is on the debt. I saw you mentioning that the peak debt will be INR 3,000 crores by the end of this year, probably. So what is the plans on deleveraging? I mean any plans for FY '22 as to how much you will be able to bring it down? Or any fresh CapEx is planned? Or what would be a comfortable figure?

So I think what is important is the EBITDA -- debt-to-EBITDA ratio. So I don't think so that we are -- today the cash flows are committed towards completing the existing expansion projects. In our overseas business, there was a situation till we -- as on March 31, 2019, I can tell you where we had a total outstanding debt of $30 million in our overseas business. And we had EBITDA of about $85 million -- annual EBITDA generation of about $85 million in our overseas business. Now which is 4 months of that, and we had not sort of expanded. We were actually a bit late in terms of announcing our expansion plans because if your debt is only 4 months of your EBITDA earnings, that is being very, very conservative number. But overall, as we go forward, our target is that while the -- everything gets commissioned in FY '21. FY '22, we will get our long-term debt-to-EBITDA down to 1.5x or so, which is a very reasonable number to be in. And we will -- so the long-term debt at about INR 3,000 crore is peaking out in FY '21. FY '22, whatever is the normal repayment schedule and all that, I think -- I'm told, it's about INR 400 crores on an overall basis. On a consolidated basis, not much. So that will be repaid, and we'll be down. The working capital part is always be there -- going to be there in the business and depends on what is the level of your activity and operations and all that. So that's not something which is much of a bother.

Okay. May I be allowed just one more question? The tax percentage, what is the current tax percentage? And are we in the old system or in the new system?

So in India, we are in the old system because our Jammu units still have some tax incentives there. Our expansion projects in Poland, we have the tax holiday; for Hungary, we have a tax holiday; Nigeria, there is no special incentive, but the additional few years depreciation coming will get handy. So I think -- but overall, our tax average rate in FY '21 will -- is expected to be lower than in FY '20 because we'll be able to take advantage of the capitalization of these projects.

Okay. Okay. Great. And final question is the spread. I understand the spread on BOPET was INR 70 for Q1. I think Q2 also looks good. I don't know. I will not be able to comment too much on it, but since it is ongoing. But do you think the INR 70 spread is sustainable? Or we see moderation in that over the year?

[Foreign Language] moderation. We expect that the moderation will happen and should happen because these levels, in the normal times, are clearly not, sort of, sustainable. We are not in any kind of an industry, which is -- where if there is such a high margin that new capacities will not come. They will come and then the margins will get cumulated. But what we feel is in the next 18 months or so, still the margins can be pretty good. May not be INR 70, maybe a little less than that, but overall situations, things will be -- are going to remain only on a better side only. Because any capacities which somebody, anybody will plan today also, will take about a couple of years' time. And this is typical to every commodity business in India. There are higher margins, people flock to invest in those businesses, and then the capacities bunch up and then that's the time the things start to look bad, the margins go down. And then again, there is a consolidation. So any commodity business is the cycle we saw in the films business in 2010/'11 when the prices were so high, and then there's a lot of capacity came. And only after 2016, the film industry started coming out of it. And this pandemic helped a bit in terms of an extra demand, but otherwise things were -- yes.

Hello, hello, hello?

Mr. Rajesh Bhatia, are you able to hear us?

Yes.

[Operator Instructions] The next question is from the line of Chirag Singhal from First Water.

First of all, congratulations on a great set of numbers. Sir, my first question is on the expansions. So you have been regularly guiding us on the tentative time line for Nigeria, Hungary, and the other 2. So firstly, in the Nigeria and Hungary, what can we expect as a start-up month for commercial production?

I think somewhere -- we're targeting in October, somewhere, but I think that is when the plants get completed, the construction gets over and the trial run commence. We can expect quarters -- 1 quarter throughput in the current financial year from the...

Sorry, sir, I didn't get you? Quarter? Which quarter?

One -- the fourth quarter. So the commission -- the construction completion everything will happen by October or so. Okay? That is in Q3.

Okay. Okay. So commercial, you are saying in the -- sorry, January quarter -- in the March quarter, next year?

Yes, being an extra conservative, we can plan that the commercial production commences in the Q4.

Okay. Okay. And have we started with the commercial production at Russia and Poland?

No. Not yet.

Okay. So is it possible to share the volume figures that what was the volume contribution from these 2 plants in Q1?

Q1, these 2 additional lines contributed about 9,000 tonnes only.

9,000 tonnes?

Yes. Volume.

Okay. Hello?

Yes. About 9,000 tonnes.

Okay. All right. So when can you expect the commercial operation to start at those 2 facilities, Poland and Russia?

I think it will happen in this quarter for sure.

Okay. Okay. So last con-call, I think you guided for 3,000 per tonne -- 3,000 tonnes per month for the Poland facility?

Now, it is not making a difference. The plant, the only difference is like people can't travel to Russia. So the plant needs certain adjustment, probably certain more technical assistance and all that. So people are not able to still travel despite everything we've tried. So whatever we could do, we could take them on video conferences and our own team commissioned that somehow, completed that plant and started manufacturing. But there are some technical aspects, which still need to be completed. And those can happen only once the technicians from the OEMs can go and complete it. In the Poland plant, there has been no problem for the movement of the people and all that. So that is happening, but Russia is -- because it is -- still travel is not allowed, so that's the constraint we are facing. And that's why with the branch whatever is producing, is operating at a slightly lower level than what we normally expected it to be.

Okay. Okay. So is it possible to share what kind of increment volumes we can expect from Poland and Russia in the next 9 months?

So I can guide you to the total volumes in FY '22. FY '22, we should see over the FY '20 numbers. We should see about a 50% increase in the volumes.

Okay. All right. So that is for FY '22?

Yes. FY '21, because it is partial, it is not making much of an impact.

Okay. Okay. Understood, sir, yes. On -- my second question is on the flexible packaging. So are you seeing any kind of pricing improvement because of increasing demand due to COVID?

See the only improvement is because of our change in product, like if we produce more of pouches, yes, the value addition is higher. So the export market, the domestic markets because there's personal hygiene, sanitizers and hand washes are the new emerged categories which emerged, so there's a lot of demand coming from these sectors, which are -- which gives you a higher margin over other conventional roll-form products. Yes, initially, there was some bit of a pent-up demand, which could have given you higher numbers. But generally, packaging, in this business, you have a very few spot customers. The customers are more or less linked to the price of the films and agreed value-added percentage on. So the only way to improve that is to do more of a value-added product and also increase the throughput, and that's where you save your, sort of, costs.

Right. Okay. So what would be the current capacity utilization of flexible packaging division?

What is the?

Current capacity utilization of flexible packaging division?

It's about 80%, I think.

80% of the nameplate, which is 137,000 tonnes or the effective?

Or effective means?

No. As in, I think we can achieve maximum 115,000 or 120,000 tonnes, right, in the flexible packaging?

See, I think that is also there with too many conditions as to what are you making. If you're making more of the pouches, so obviously, your production will go down. So that depends on a mix of what actually you are producing. So at its current level -- but you can't keep on adjusting that. So we say that if we -- today about 80% capacity utilization even on an overall basis. Now actually, that maybe -- might be more because if you are producing more pouches, it takes more time to first make a roll and then make a pouch out of a roll, and that's what you sell. So overall tonnage may still be a bit low, but your value addition is higher.

Okay. Okay. All right. My third question, sir, is in the hologram division. So we -- last year, we expanded some capacity in hologram. So if you can share what is the potential revenue we can generate from that expanded facility? Second, what is the total revenue we generated from the hologram, as a whole, in FY '20 and capacity utilization in the expanded and the overall hologram business?

I think, we're not sharing the separate holography numbers. They come as part of our packaging only. But I can only give you a bit of a guidance because holography, there is a lot of -- liquor industry also uses a lot of holographic. So to that extent, there has been a bit of -- that has also been a bit of a dampener because of the liquor ban during the lockdowns and all that. And even subsequently also, that is one product where the sales -- the liquor sales haven't picked up those much because your entire hospitality industry is closed. And generally, people don't consume so much at home, and they consume all these things at restaurant, bars, hotels and pubs, nightclubs. So I think that sales will continue to be affected till the things are -- so one, those could be a bit down, but that is made up by the higher volumes on the other side. So overall, you are 10% up, that's what that matters in the packaging business.

Okay. Okay. So sir, if you see your stand-alone revenues, then the revenues are flat on a sequential basis, it's like INR 20 crores, INR 30 crores increase, but largely flat. And Y-o-Y basis, it has reduced. So when we are saying that the business volumes have increased, the sales volume have increased in hologram as well as the flexible packaging other than hologram. We are seeing an increase in volume on a sequential and Y-o-Y basis. So why has the top line not increased?

See, the top line not only comprised of only these 2 things, the top line also comprised of -- there's a film that we sell also. And then even all these products also from a last year level to this quarter 1 level is about 14% BOPET prices are down. So the BOPET prices Q1 of last year and this year, they are down by about 14% when you compare the actual prices per se. They are -- because of a various lot -- while the margins have improved, but the raw material prices have led the decline -- have led to decline in the overall prices. So when the prices have declined, so your turnover will also be lower. While there is a volume growth, but the 14% drop in the prices also affects your revenue, no?

Right, right. Okay. So are we planning for any expansion in the flexible packaging...

I'm sorry to interrupt, Mr. Singhal.

Yes, I'll get back in the queue. Sure. I'll get back in the queue.

We're not, we're not, we're not.

The next question is from the line of Vaibhav Badjatya from H&I investments.

Congratulations for good set of numbers.

Sorry to interrupt Mr. Badjatya. Sir, can you speak a bit louder, we are not able to hear you.

Okay. Can you hear me now?

Much better.

Yes.

Yes. Yes. So on the expansion basically in Poland and Russia, and Hungary, Nigeria, is it all BOPET capacity, or BOPP, can you provide the highlights of the same?

So all other places is BOPET, except Hungary, which is a specialized BOPP segment.

Okay. Got it. And we have seen significant improvement in value addition and BOPET, as said, -- as one of the earlier caller said, is improved to INR 70. So can you provide a similar number for BOPP as well as to what was it last quarter and what was it this quarter and similar number for the last year same quarter?

So much information is there. See, actually, we're not a very large BOPP player. So that is there. It is not so relevant for us to -- while we are the third largest player globally in the BOPET industry, but need not so in the...

So would you say the improvement -- I mean both BOPET and BOPP has a similar kind of improvement or it is more in...

Yes. It is simpler kind of an improvement. But BOPET raw material prices -- BOPP raw material prices are not reduced by that much. And the selling price in the BOPP in Q1 versus Q1 of last year is a bit higher by about 2.5% to 3%.

The next question is from the line of Sagar Shah from SK Analytics.

First of all, congratulations for an excellent set of numbers in this quarter. My first question actually was regarding our -- actually, volume actually. If you see our volume has increased by 9%, but our top line hasn't increased actually. And as we said, this is because of, maybe, we have passed through our lower cost to maybe to our customers, to our clients, actually. So my question is that going ahead, obviously, our -- these lower BOPET prices would be a function of maybe a lower crude prices. So going ahead, do you think maybe around the year, our spread actually would decrease considerably because if we see a demand uptick in crude, especially going ahead?

No. See crude prices have recovered, and they are about $43, $44. So there is no -- not so much of crude factors as such, which is now playing down on the raw material pricing. It's more of a demand and supply of PTA and MEG, which comes from PX family. So PTA and MEG have many applications. The packaging industry is a very small fraction of PTA and MEG consumption, not -- maybe about 4% or 5% or so. A very large portion of the PTA and MEG actually goes out to make polyester yarn and other polyester things and all that. So there, the consumption is severely affected. So whatever is linked to the polymer prices -- the crude prices, it's okay. But just because a particular segment, demand-supply is affected, so that is where there the PTA and MEG prices are very low, which is the basic raw material for the BOPET films. So there, the price reductions have been, depending on the country to country, about 25% to 30% in the quarter versus last quarter. So I think as the demand for the polyester yarn and everything else, the PET bottles comes back and all. So there'll be increase in the -- see, these are extraordinary circumstances. They will not remain forever. So there'll be -- once the situation is more under control, there'll be more requirement of PTA going into polyester yarn and all that and things will get normalized. So then we will talk of normalized margins, but with the higher capacity levels available to us, which will ensure that our profitability is always maintained.

Okay. But my point was actually that our realizations for our core product, I think they haven't increased, right, even though the demand is good. But I think demand-supply situation would be favorable for our thin PET film or any others, I think. So this is -- the increase in margins is predominantly due to lower raw material prices, actually?

No, no, no. See if the raw -- if the demand for the product is not there and the raw material prices fall, your finished good prices will always fall -- will also fall, okay?

Okay.

Okay. And that's been the trend in the past also. But this time, the demand for the packaging films and packaging was very high. The raw material prices fell, but the finished good prices didn't fall as much.

Okay. Got it, sir. Sir, my second question was, what is our contribution of our thin PET volume to our total volume, sir? Thin PET film, how much is that contribution to our total production numbers?

Thin PET means?

The thin PET commodity film, actually.

We make only thin films. We don't make thick films. We only make thick films -- thin films.

Okay. Then what is our contribution to the total production -- total sales volumes?

Of what?

Of our thin PET films -- thick PET films?

We will not share those numbers.

Okay. Okay. Sure, sir. And going ahead, any plans for our debt reduction in the next 1 year?

I had already explained that. I had already explained that beforehand.

The next question is from the line of Vikram Damani, a private investor.

My question is with regards to your dividend policy. Given that the outlook is good, and you've done -- had a really good quarter, can we expect any change or increase in the dividend paid by the company?

I think we thought about this at a management level and all that. So we said that more appropriate will be -- this has been a really short-term phenomenon, so let's look to the things for more period and then decide as to how the dividend payout will be for the fiscal FY '21, per se. That's been the decision.

The next question is from the line of Raj Mathur, an individual investor.

Yes. My question was, so growth, et cetera, has been good, but your return metrics, ROE, ROCE, are still in low-single digits to maybe in some of the years, closely in the range of 9% to 11%. So what can the company do to really increase this beyond a particular threshold? Because -- and if I just see the last few years, I'm sure you're not concerned with the stock price, but the stock has been fairly range bound other than some one-off events. And one of the reasons primarily could be that the return metrics are quite low compared to what your company of your size and stature can really earn. So any thoughts on how will these metrics go above, say, 15%, 16% on a sustainable basis?

See, I'll tell you. I think the packaging industry for the last couple of years, in India, has subjected to a lot of competition, okay? So what happened that given that it's a low-entry barrier, people thought that this is a quick fixed way of making money. So there was a lot many people who set up their own, sort of, packaging plants. Now over the years, what has happened is a lot of capacity has got created, but eventually, when they realize that the -- it's not only about selling a product, it's also about selling a culture and the confidence to a customer because most of our customer category that we deal in, they -- yes, they are interested in lower prices, but they also look at your quality, your management, your system, processes, everything. So they come and check everything, all other aspects also. Now this actually means that if you are a new investor and you set up a plant and you go to Nestle that I want to supply you, and I'll give you a 10% lower price, Nestle will not buy from you. Nestle will have approval things going on for a couple of years. And while capacity got created, so people started [ adjudicating ] whatever price you sell, you just sell. But we've seen that there is a consolidation happening in the industry. We've seen that all the large multinational packaging companies are now there in India, except Mondi. And there is a consolidation happening. So once that consolidation is through and then all these players are also able to wipe out the other smaller players. I think once the consolidation happens -- I see Huhtamäki margin in the packaging business. You see their results, their EBITDA margins are between 8% to 10%. While across the world, the large companies who are working at about not less than 15%, 16% of an EBITDA margin. And then their interest costs are still lesser in those territories, which means that effectively, the EBITDA margins are much more because they are based on a lower interest cost. So I think that once that consolidation happens, the packaging margins will improve, again, in line with the international standards. And then the ROC and the other return ratios, you will find those in a perfect health. But yes, it might take still more couple of years before this sort of things come up. Packaging business, the film business is a pretty straightforward business. So there the returns and plant investments, everything else is more or less known to everybody. So there is not much of a sort of improvement there, given that it's more of a commoditized business. Another thing which we are planning and which we think that will set us apart from others. As of now, because of the pandemic, there is no focus on sustainability, biodegradable and the recycling of films, but we have made substantial showcases in those categories. And I think once this pandemic shout is over, the focus will shift back to more of the recycling and biodegradability of the films. And once those things are triggered on, then you're definitely -- your power -- because not many people in the world have that capability of sort of recycling as well as re-setup. So today, in our Noida facility, at a small pilot plant, we are buying old PET bottles used by all of you for any product categories that you do. We bring them, we wash them, we sort of clean them and then what -- we make a resin again out of it. So instead of buying a virgin resin made out of a freshly made PTA and MEG, today we are using those PET bottles to make a BOPET film. So these things are being replicated at some of the other plants also. We don't talk about these because -- these CapEx because they are not very high CapEx. They are relatively very, very small CapEx. But this recycling -- even we are recycling in our Noida facility as I showcased. If your -- Lays chips or you buy any oil, Dhara oil, or you buy anything, all those plastics that you use, we collect them, wash them and then we recycle that to small granules, which are used to make any products, which can be made for the chairs, which can be used for the flower pots, which can be used in the road dividers, 50,000 other products. So once the focus comes back from pandemic to all these things, there are a very few companies in the world who have the line of sight in terms of what they need to do to differentiate between the men and the boys. And I think that will clearly stand to lay out in the next couple of years that who has the capacity to showcase recycling and offer biodegradable and recyclable films. I think that's going to change the storyline around the packaging and the films business in an absolutely different way. We all know that there are certain product categories, which some of the companies like Toray and others have. And those specialized lines where they have their patents and all that, they come out at a much more premium as compared to a normal BOPP and BOPET films, which all of us make, whether -- any player, whether be it, Jindal, SRF or Mitsubishi, anybody makes. But these are the specialized kind of products and environment friendly, which is going to be changing the game for the UFlex in the next couple of years as we come back to a normal level. So those will change -- these 2 things, once in India, a bit of more consolidation happening in the packaging industry and then the focus coming back on biodegradability and recyclability will change the whole complexion of the way the packaging returns are currently there.

The next question is from the line of Harish Kumar Gupta, an individual investor.

Hello?

Yes.

Yes. Sir, can you please tell me like is there any difference in realization prices right now and quarter 1 realization prices?

Huh?

Is like product prices have been increased in -- right now from quarter 1 realization prices or it is around the same?

So vis-à-vis quarter 1, the current margins are as good or slightly better than the Q1 margins, blended Q1 average margins.

So basically, you are saying that prices are almost same what you have realized in quarter 1?

I'm not saying that. I'm saying we are concentrating on the margins only. But I'm saying that the margins for the quarter 1, whatever they are, the current margins in the Q2 till date are better than those.

Yes. So better means, I just want to understand like how much it is better, 10%, 20%, like if...

I'm not -- no -- I'll not be share that -- not able to share that.

You don't want to disclose that?

No. I don't want to disclose that.

Okay, fine. So -- and another question is like, for example, this demand spurt has been because of this pandemic. So do you think that some demand will be there for around a year or 2 or like this demand will be finished after this -- after a quarter or 2?

See, I think the new demand category, which are like the hand wash and sanitization will become the new norm. Yes, after the pandemic is finished, the requirements may not be as large as they were earlier. But still, I think all these will become the way of life. Now during this period, there were certain other product categories where I said that holographic is used and the aseptic, which couldn't reach its full potential because of the pandemic. So they will come back to their normal levels, elevated levels. There may be some effect on the packaging business, per se, that the volumes may come down a bit. But on -- still on overall basis, we don't think so that there will be a degrowth in the overall volumes at all. Rather, we think that given that the market in India is growing for the package thing, it will only grow. And people are now more keen to buy packaged products, even the vegetables and others, the people want to buy in -- so now today, nobody talks about the polybag [Foreign Language] You won't buy things without that. So I think consumption levels are going to go up. There may be -- as it happened during the pandemic, there was -- there has been a realignment of the product. Some products are in higher demand currently, others going down. But still, on an overall basis, we achieved the 10% volume growth. So similar things will happen in the future also as well. So certain things might go up, certain things might go down. But we're confident that FY '21, we will still achieve the 10% volume growth overall.

Okay. And so right now, what is the scenario? Like as per your research, is there any new capacities are coming in another 1 year?

I think 2 years kind of a thing. See, right now, if in the next 1 year, there is -- so unless there is a bunching of capacity, that happens. Till that time, there is no impact on the margins or the demand/supply equilibrium position. Now if you have 4 lines coming at a stretch, let's say, after 2 years, then yes, there'll be an effect, because as a country, we are today, whatever we are doing, we can consume, one, the kind of growth in volume that we have currently in our country, one line can be consumed each year. And earlier lines were having a capacity of about 30,000 tonnes. Now a new line, which is set up, has normally a capacity of, you can say, about 4,000 tonnes a month, which is about 44,000 a year. So the line capacities are also bigger. So today, based on the average growth, what we've seen in the last few years, one new line for BOPET can be easily sustained because of the demand growth. 2 comes, yes, there is a bit of overhang of demand and supply. But yes, if 5 comes, there'll been an overhang for some period of time. This is what happened in 2010.

The next question is from the line of Ayush Jalan, an individual investor.

And congratulations once again on the great results. I had two questions. The first question was on the margin front. In the last con call, you had mentioned that you would be happy with the blended margin for FY '21 of around 16%. Seeing Q1 being at around 21%, would you feel that these margins would sustain for Q1? Or would you see it coming back to the 16% level margin that you were thinking about in the last quarter?

So I think the margins will improve. '21 may be a bit out of a wack for us as well as for everybody. And if not Q1, it may get sustained in Q2. But beyond Q3, Q4, whether it get sustained, I really don't think so that commodity business can sustain these kind of a margin. So whatever we are projecting in the future also, we are saying that the margins will not be 14%, 15%. Margins will be around -- between 17% to 18%, but not 21%, 22%. So till the time this good period continues, continues. But you can't say that I will build business on 21% margins. Yes, you will build business on 17% to 18% margins that you will -- because with expansions completed, you have a new lease of -- new legs of the latest plant and machinery, higher technology, better product, which will fetch you a higher margin, coupled with a low overhead distributed over a much larger, sort of, production volumes. So the margins will definitely improve on that account.

Okay. And my second question was regarding you all had launched a new PPE suit with -- conjunction with IIT, I just wanted to know how the sales are for that? And how do you see that going ahead?

So I think I'm told that we still have some approval process pending on that. And as of now, when the government has also allowed the export of that we are doing -- we are evaluating exports. But things do not happen in a day that -- yes, you can do that. But we were not there in that category. And we -- because of this pandemic, we just decided to get into this. I think there -- that business will take a bit of a time to sort of come up. And by the time -- so we just had some small equipment ordered on that. So we've not got any major display on that. But we thought that with IIT, the technological advantage in terms of giving a more breathable outfit to these COVID warriors, it helps them definitely. But for that, we are not shortsighted on that small pent-up demand, which came during -- because we knew that we could not produce during this period. We were creating capabilities to do something on the product side, which, on a long-term sustainable basis, we could sort of hold. So that's the take on that.

The next question is from the line of Akhil Patani, an individual investor.

Congratulations on the good set of numbers. My first question is, sir, can you give me a bifurcation for the capacity utilization in India and overseas?

All 100%.

Sorry, I didn't get that.

All plants, above 100%.

Okay. So second question is, I think yesterday or 2 days back, European Council has announced a tax for those companies producing BOPET films whose plastic waste cannot be recycled. So what step is our company taking for -- if such thing happens in India by our government? So basically, they have introduced a tax of EUR 0.8 per kg as tax for those whose wastes cannot be recycled, those who are producing those BOPET films. So if something gets introduced here, then what is our plan?

So one is I'm saying that we are capable of making these recyclable and biodegradable films. And if such a thing comes to India, that can immensely help us. Because that's where when we will be able to -- and that is what we ultimately want the government to do. Government should kind of put sort of enabling environment where it should say that all the plastics that you generate should be recyclable and biodegradable. We want the government to do those things, and only then our initiatives, our investments, our R&D done on these aspects comes to the forefront and we start monetizing those.

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

Sir, congratulations on good set of numbers. I have joined a little late, so maybe it's a repetition. Sir, I just wanted to understand your CapEx plans for 2 years? And are we even thinking of generating free cash flow in, say, after 2 years or something like that? Or we may continue -- still continue to do CapEx as and when...

As of now we don't have any other plans other than what we have concluded. But the situations do remain dynamic at all times. And very difficult for me to say that, oh, this is the end of it, now we'll not plan anything else. If there are opportunities still to grow our business, still to do better, I think we keep on evaluating those opportunities. And that's what as a progressive organization we need to do. And -- but at the moment, we see whatever current we have told you, this is what it is as of now.

And sir, last question is, what is the rate of interest that we are charged on our debt currently, average?

So our blended cost of the debt for FY '21 is going to be about 6.7%.

The next question is the line of Rajendra Shah from Rajendra Shah & Associates.

Congratulations for good set of numbers. I would like to know what about the promoter increasing the stake, which was announced previously, whether they are planning for the increasing stake or not?

No, no.

But that was the announce and...

Yes. That didn't happen. So -- that didn't happen. So that was shelved and there is no fresh plan as of now.

If you do it, then there will be -- some boost-up will come into the confidence of a investor?

I think let the market take its own course. And if the market sees that earnings are good, the size of the business in #1 in India and #3 globally, will become #2 globally as the corporate player and the good handle over the business, I think these -- all these things really are short-term jabs, which...

Now we are increasing the debt, in line that we should increase our equity stake also, sir?

Not necessarily. Not necessarily.

See how much time you will keep the leveraging like this, sir?

No. So the leveraging, we are not increasing unnecessarily, no. Leveraging, we are saying we have a target beyond which we will not go. We will not go more than...

If you want the valuation, sir, your debt should come down, and you will get a ROC or whatever it is there, it will take place. So it is highly a time to increase the stake by promoter to give the confidence with the [ undergoing ] if you would like to make a QIP or something like that.

Okay. Understood.

The next question is from the line of Chirag Singhal from First Water.

Sir, what was the effective rate overall for FY '20? You mentioned FY '21 will be lower than that, so if you can guide me on that number as well.

It was about 8%. 8%.

Effective tax rate?

Tax rate?

Yes.

Tax rate last year FY '20 was around 23%.

Okay. And this year, you are guiding for?

Huh?

This year, for FY '21, you're guiding for?

About 18%.

Okay. All right. And on the debt repayment, what was the debt repaid in the last quarter, that is, Q1 and in FY '20?

Q1, we didn't pay any debt.

Okay. And last year FY '20?

I don't have that number, Chirag. I think last year, our gross debt repayment was about -- overall basis, would have been about, I think, close to about INR 300 crores, which we did, for FY '20, I'm saying.

Right. Okay. Sir, my last question is on the capacity utilization at those 3 plants, wherein in the earlier con calls you have stated that we have not been running at full capacity, Mexico, Egypt, and Dubai. So Mexico, you mentioned production to be higher by 28% in Q1. So just wanted to know the capacity utilization at those 3 plants in FY '20? And what is it looking right now? Have we achieved full capacity at all those 3 plants?

So Q1, yes, we achieved. Mexico, I think it would have been 95%. I don't have exact number with me. Egypt was 100%. And all others were already at 100%.

The next question is from the line of Yash Joshi, an individual investor.

My question is pertaining to the aseptic business. If you can update on that and share the status of the order of second line?

Your voice is not clear.

Hello? Is it fine now?

Yes.

Sir, my question is pertaining to the aseptic business. Can you share an update and status on the order of second line?

Order for the second line, I said, next fiscal, we will do. It's only towards the Q4 of this fiscal or next fiscal also. Most probably, let's take it at Q4 of this fiscal.

Okay. And from it all, I'm summarizing like there are no any CapEx plans lined up apart from the commissioning of the Nigeria and Hungary plant? Is my understanding right on that?

I have repeated that many times. See, as of now, these are the only CapEx plans.

So is there any -- what would be the quantum of amount in which we will get capitalized share for these 2 plants?

See, each plant roughly costs about 90 -- $80 million to $90 million, depending on the country and the kind of stuff you're doing, so maybe about $400 million.

Okay. And can you share the contribution of the exports in the overall sales value?

Our exports, I think they are about 10% of our overall sales. Let me just see if I have that number, otherwise -- I think you can take about -- we do about $80 million worth of exports every year from India -- $75 million, $80 million.

The next question is from the line of Mohit Agarwal for IndiAB Capital.

Just -- you were discussing a very important point earlier with the participants regarding the sustainability initiatives being taken by UFlex. You're talking about this will eventually will separate the men from the boys and that's where the severe potential of a big player like UFlex will start reflecting in your return ratios and all that. My only suggestion is that I think this very important initiative, which, as you said, UFlex is taking very seriously, is not well communicated enough with the investment fraternity. I think with the ESG style of investing, [indiscernible], you should do maybe a separate call probably with your sustainability department, people who are heading it and explain to them what initiatives you're taking. And I think that will induce a lot of new investors, especially from the ESG style of investing [ in order ] to take interest.

Understood. Understood. I think that's very well put. We surely look forward to doing that. We can touch base separately for that also.

The next question is from the line of Gaurav Gupta from [ MoneyQuest ].

And heartiest congratulations on a fantastic set of results. I think you answered on the taxation front. Last year, your tax rate was about 33%, and this year, you are representing it to be almost half at 18%. What would cause that kind of a dip in your tax rates? And second was, if you can also highlight a little bit on the deferred tax part. I think this time, there was some component of the deferred tax in Q1. For the rest of the year, if you can provide some guidance on that, that will be helpful?

I think I'm only trying to say is that the tax rate is lesser because the additional depreciation coming into place, some of the other countries have reduced their tax rates. America has reduced tax rates. The new capacities coming online and there the tax rates are -- so we have some tax holidays on those lines. So as a combination of all this, we are expecting about a 5% fall in our average tax rate for FY '21.

Okay. And anything on the deferred tax rate, sir?

I wouldn't be able to answer that on the call. I think we have to take it offline.

Okay. Okay. And then final question on if at all, you have any kind of revenues coming from speciality films?

No. We do speciality films also. And that's maybe not as much as we should be, sort of, doing. But definitely, we do and the endeavor is that only, and that is why this Hungary line, especially with the BOPP line, with in-line coating and low OTR, the metallizer will -- is a very high-value fill, which was till date being done by only a select 1 or 2 guys in the world, and there's a huge demand for this. So I think we are getting into that speciality. But speciality should give you that contribution also. And in the times when the overall business is bad, I think speciality does help you. And we will also build our capability -- more capabilities towards the speciality, yes.

So by end of next year, how much percentage of revenues would come from speciality?

I'll not be able to answer that.

Any ballpark figure, sir, any, like will be known to you?

I'll not be able to give you an answer. I don't have an answer right now to give you.

Ladies and gentlemen, that is our last question. I now hand the conference over to Mr. Yusuf Nasrulla for his closing comments.

Thank you, everyone, for joining us today, and we look forward to staying in touch in future quarters. Have a nice day.

Thank you.

Thank you. Thank you. Bye.

Ladies and gentlemen, on behalf of UFlex Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.