Uflex Limited (500148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Uflex Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note this 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, Vikram. On behalf of Quantum Securities, we welcome you all to the Quarter 3 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, for hosting the call. Good afternoon, everyone, and a very warm welcome to all of you who have joined us today for our Quarter 3 Earnings Call of FY 2021 Uflex Limited. On the call today, we have our group CFO, Mr. Rajesh Bhatia, who will be sharing his assessment of the performance we posted yesterday. Please note that today's discussions may include predictions, estimates or other information that might be considered forward-looking. While these 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 on the date of this presentation. I would also like to emphasize that the call should not be broadcasted or reproduced in any form or manner. We will open the floor to Q&A towards the end. Let me now briefly take you through the key highlights of Q3 FY '21. The numbers posted yesterday marked another strong quarter for us, as our PAT and EBITDA grew by 89% and 50.8% year-on-year. We have announced domestic expansion with greenfield packaging films plant set up in Karnataka, a brownfield CPP line to be set up in UAE and our BOPET line in Poland has been commissioned. I would now like to invite Mr. Bhatia to address the participants. Over to you, sir.

Okay. Thank you. Thanks to all the participants. And happy new year to you, because this is the first time we are interacting in this year, so I must wish you all a happy 2021. And we hope that this -- you all are safe, you all are doing -- keeping yourselves -- taking enough precautions against this pandemic and keeping the safe distances, keeping the masks, washing your hands. So I'll strongly urge that we should have a strict discipline on this because leniency could be quite -- sort of have huge ramifications. I've personally suffered on this account. So that is why my recommendation and my request to all is to sort of maintain the protocols as to what the government has been telling us. So as Yusuf said -- coming to the business. As Yusuf said that there's been, again, a quarter where on a Y-o-Y basis, we had all parameters in green, whether it was the production volumes or the sales volume or the sales value, EBITDA, PAT. Everything was -- was in the green. Yes, as this quarter was sort of -- as compared to the sequential quarter, was a bit down mainly on account of -- because we had started sort of the trial runs from our Poland plant given that there was a huge requirement of the packaging films during the -- in the Q1 and Q2. And we were actually sort of running the plant, albeit we had to do some work there to complete the plant. So we've done those works in Q3, and that's where in Q4, currently, we've announced the commissioning of the Poland BOPET facility. But yes, we did delay it by a couple of months because of the huge customer demand due to which it was more prudent to keep on operating, though everything was not according to what -- the way we wanted. But all of that has been set right, and as we speak the day before, we -- it's the first time we crossed thousand tonnes for the group as a whole daily production of the BOPET films. And with all the plants now more or less coming on screen, we will surely see a larger volumes in the quarters and the years to come. And when -- now when our overseas expansion is complete, we've announced commissioning of Poland, Hungary, and Russia was already commissioned earlier. Nigeria and Hungary are completed, trial runs are going on. So any day, we can look at announcing, depending on the machines, the plants operating at guaranteed performances, we will surely -- we are on course to sort of commission them. But yes, both the plants in Nigeria as well as Hungary now, the trial runs are happening. The production is happening. There are a few hiccups, as what happens in everything that we set up new, but those challenges, those are surmountable challenges, and we soon will announce the commissioning of these facilities as well. So having done a commendable job by our team in terms of taking 4 simultaneous projects at the same time, and that too in different territories, with all of them now getting completed and with our aseptic business also now almost operating at full capacity levels. And in India where we've not set up any packaging films facility for the last 16 years, more than even this period is even more than the period during which Lord Rama was in exile. So we've now decided to set up a greenfield in southern part of India, in the state of Karnataka, where we're setting up a BOPET facility, similar to what we had set up in Nigeria, and a CPP facility. Because currently, we're buying a lot of CPP films from the market and our existing plants are fully, fully utilized. So we've decided to embark upon this expansion, which cost us about INR 850-odd crores. We've also taken up now a smaller expansion of CPP facility in our Dubai plant where -- which was -- we had the entire infrastructure available there because we moved one line to Russia earlier this year. And then the whole utilities and other infrastructure was lying unutilized. So we -- we're spending about another $15 million to set up a CPP line there itself, which will help us to utilize that the whole infrastructure and also add to the volumes and profitability. The margins in the packaging film business during this quarter were a bit lower as compared to the sequential quarter, mainly because the raw material prices, which had fallen quite steeply in the Q1 and Q2, they were -- they came back. And with the economies opening up and the demand coming back, I think there was -- there had to be readjustment of prices. And accordingly, we see that during this period, Q3, the margins on the packaging films line was a bit -- was less as compared to Q2. As compared to Q1, it was almost at par. But yes, going forward, as I said, these times were a bit extraordinary. So now with the normalcy returning, we are looking at more of a value-added as well as increasing our throughput from the new -- newly commissioned capacities. We've done wonderfully well in America, in North America, where we are constantly utilizing our capacities now fully. We had earlier achieved the higher capacity utilization, but we couldn't maintain them. But now, in this current fiscal, we are doing quite well in North America. And both Mexico and American facilities are almost being at 100% utilization levels. We will have now additional output as we -- in the coming quarter, coming from our Poland facility, coming from our Hungary, Nigeria. Russia is also ramping up, but they will also do better than what they do in terms of their output in the coming quarters. And we are looking at, at least 25% volume and value growth in the -- over the next couple of years at least, which is because of this capacity that we have now set up. We also told you last time that the extension at our aseptic packaging facility is also likely to happen. So we've -- we're going ahead with the same -- that expansion also. It doesn't cost much, as I've been saying, it's only adding one printing line. But given that we are now fully sold out this season, so by -- before the next season commences, we'll ensure that we have the added capacity in place so that we can serve more number of customers and exist higher volumes to the existing customers. So this pretty much sums up our performance in this quarter. India business has done well, overseas has done well, and that's why the leveraging ratios are now extremely comfortable. In India plant, in India business today, if I see long-term debt to EBITDA, it's almost at 1:1 level, which is very healthy for the business. And as we are expanding -- spending another INR 850 crores in setting up the new facility, I think we are absolutely comfortable in terms of liquidity or leveraging for setting up this capacity and be sure that we'll be able to ramp up to the movement. After we commission this in the next 18 months period, we'll be able to ramp up to a higher level of capacity utilizations within the first year itself, so much so is the market. And we've deliberately chosen South India as a market because we're not present there. And so for this, we are clear, the message is we are looking at not a capital consumption from this plant much. Even if it is there, it will be much less, but a larger production will be available to be sold in -- to the third-party customers for this. So overall, a very satisfying quarter. Yes, we've done about 20% volume growth in both production and the sales volume, a 17% top line growth, EBITDA and the profitability, PAT is much higher at about 51% and 90% over the -- over the last same period last year. But what we are guiding is that this trend of every quarter-to-quarter, higher throughput, both volumes, production as well as sale volumes, we -- that's what our endeavor is, to keep on delivering those with the new capacities getting commissioned now. Thank you. That is what was my take on these results, what I had to communicate to you. And we can have any questions now as to -- on the performance and India, overseas, whatever you want to ask.

[Operator Instructions] We have our first question from the line of [ Saurabh Sharma ], an investor.

Yes, am I audible?

Yes, you are.

If you can, be a bit louder.

All right, sir. How about this, sir, is it better?

Yes, better.

All right, sir. So I wanted to know, in comparison to your competitors, Polyplex, as far as all of the other competitors, Ester, Garware, you look at everyone, your margins have reduced quite substantially in this quarter versus the last quarter. You did mention it partially, but it's now been 2 quarters in a row. Last quarter, I had asked the same question, and you told me that there was a charge of bad debt and you had done excessive provisioning of -- and the amount of that was around INR 100 crores in the cash flow. And so I wanted to ask, it's now 2 quarters in a row that you've been lagging the competitors. So when do you expect this to reverse? That is my first question, sir.

So I don't think so that we lag at any competitive levels, because if you compare us with Polyplex or SRF, they are doing a pure packaging films business, where because of the higher demand and everything else, the commodity market, so the prices were higher during the pandemic, at least in the first 2 quarters. And that's where you see higher margins for us as well as for them. But we don't have only that business. We have aseptic packaging, we have packaging, we have engineering, we have chemicals. So our business is much more complex than they are complex. So when we compare ourselves only with a competitive business with them, I think our margins are pretty much almost the same. They are not less as compared to any of the competitors that...

Even looking at just the bottom line numbers, our margins are sub 20% now for 2 quarters in a row, while the competitors growing around 25%.

Yes, that's what I said, that you are comparing apple with oranges then. In the films business, the margins are higher today. The packaging drags the margins a bit down. That is why our blended margins are lesser than the competitors' margins because some verticals -- yes...

If I were to turn this question around and ask it another way, if not just the operating margins, can you just talk about what are the return metrics that you evaluated before? Putting up a new plant, what are the long-term return metrics, ROE, ROCE that you're looking at when you're looking at the business? What...

I think we are looking at equity IRR of about 20% when we look at investments that we -- what we need to do. But short-term blips, again, some sort of a situation where everybody tries to set up more capacity and all that. There could be situations where the margins get squeezed for a limited period of time. But then -- and we saw that in our -- in the BOPET, after 2011 boom, then for a few years, there was a lull totally. And then 2017 onwards, the capacity utilization, there were no -- hardly any capacity additions and the markets got consolidated, the capacity utilization increased. And today, in 2020, '21, we found that the margins were so robust that everybody thought of expanding, including us, someone who had not thought of any capacity expansion on the packaging film side in the last 16 years, and we've been expanding that business only overseas, but not in India, but we can't be remaining too far behind. If packaging is today a bit subdued, which it will bounce back, it has bounced back in the last 2 years, it will take a couple of years more for it to get to the normalized returns. I see that, globally, all the peers are doing about 16% to 18% kind of an EBITDA margin. But in India, if I see my competitors, if I see ourselves, everybody is looking at 10%, 11% kind of margins in this industry, which can -- which will not sustain for long. But yes, today, they are a big drag on higher margins in the packaging films business.

So sir, you talked about 2011, the period after 2011, where a lot of capacity got added. And right now, I mean, correct me if I'm wrong, but the way I see it or look at it as an outsider, it is exactly the same situation as it was in 2011, right? And...

2011 was a different time where the plant capacity that you put up, the paybacks were about 1 year. So we're not in the same situation at present. Today, when we still look at any expansion, we're looking at about 4 to 5 years kind of a payback period. So the situation is not the same.

But sir, our ROE currently is sub-15% -- 12% to 13% currently ROE, INR 800 crores of PAT at around INR 8,000 crores capital, INR 8,000 crores net worth, right? So that is barely touching you on double digits. So that is something that I wanted to point out. I mean you're free to not answer this any further.

No, no, we're free to answer this, because when you take that -- all these recent capacity expansions, aseptic packaging and all that, so we -- let's talk of a situation when all these get ramped up and operate at a reasonable capacity utilization levels vis-à-vis, and then when you look at that, these will look more meaningful at that point in time. But today, having done substantial CapEx in the last 2 years and the commensurate revenues and the profitability only coming in the future years, I think that would be wrong to look at from the perspective of the today's returns. Equity is already spent in those projects also. Equity in both are taken for those projects also. And for us, for our size of the organization, let me tell you, this was quite a substantial expansion that we undertook, 4 plants at a similar -- at the same time, with an outlay of close to about $400 million was very substantial in relation to our size. So today, when you talk about those returns, the equity earned has been reinvested into those businesses. And we will wait for the revenues and the profitability to shore up as we increase the throughput from these plants.

Right, sir. So capital allocation primarily is one of the major concerns, I believe, in the market with respect to Uflex. And that clearly reflects in the price to earnings and the price-to-book and everything, all of the other market ratios of the company, that maybe reflects in the market ratios. And that is all I wanted to bring attention to once again. It has been brought into focus on every single call that I'm sure that you have attended by now. And the return ratios and the capital allocation is something that is -- that is something that the market is clearly discounting very highly with Uflex. The second question, again, it's an extension of the first, sir, is about the dividend policy. And we've seen Polyplex has done INR 100 just a while ago. You've seen Cosmo doing INR 25 dividend on a INR 500 share price or less than INR 500 in share price. So what is the company policy? Because this new CapEx was never under discussion up till now. Up till just yesterday when the results were announced, the capital -- this new CapEx was never in discussion at all even in the prior conference calls. So what really is the company's capital allocation policy in terms of distributing some earnings to the shareholders versus taking care of just the management? That is my second question, sir.

So I think as of now, the endeavor is that you should look at flowing back that capital into growing the business. And yes, there are clear opportunities in the markets to grow that business. And so we today focused on that rather than a huge distribution to the shareholders. Having said that, it's not that we will not be shareholders friendly from that perspective. I think it's just a matter of time somebody is doing it today, a larger distribution. We may be doing a few years down the line as and when this capacity expansion gets completed, depending on as to what are the opportunities to grow in our line of business at that point in time. Yes, there are...

[Foreign Language]

So I think we remain very, very focused on increasing the shareholder returns. And that's where -- yes, if there is some past, which has because of which we've seen today, the ROCE and some of the other return ratios, are a bit subdued, I think the idea is to correct them with the new incremental investments. And aseptic packaging foray is one of that where we are looking at a much higher EBITDA margin, double of what we today have in the flexible packaging business. And we're growing that business. We're looking at a huge export potential in that business as such. So obviously, in one segment today, there is -- the margins are a bit subdued. The packaging sales margins are reasonable right now. Another 2 years down the line, there may be some effect on these margins as more capacities come up. But aseptic packaging business, where you don't find the smaller players, will remain a growth focused area. And after this expansion, where we're spending close to about, I think, INR 60 crores to INR 80 crores kind of a CapEx, not much, I think the revenues will clearly double. We're looking at about INR 500 crores top line from this business in FY '22. And the capacity that we are setting up will give us another INR 500 crores top line. It will not happen immediately. It will take a couple of years before we are able to ramp up the additional capacity as well. But yes, the top line and the margins in that business are definitely better as compared to the packaging business. The packaging business also, today, if you ask me, we are running at a very high capacity utilization level. But there's no point in investing in that business at this point in time given that when you are allocating your capital, I think in terms of the returns from that capital, the packaging films and the aseptic packaging are in the top tier. And the flexible packaging business commands a lesser -- a lower margin, and that's why that investment is not today planned. You said that it was not on horizon and all that, this investment. I think any progressive company like us, we can -- we're not giving some advanced 1-year notice to shareholders or to other stakeholders that we're looking to expand. We will continue to look to expand as and when there are opportunities. And we clearly focus on growth at this point in time.

We have next question from the line of Shalini Gupta from Quantum Securities.

Very nice results. I just wanted to ask you, basically, volumes have increased by around 21%. Sales have increased by around 17%. So there is some pressure on realization. Sir, if you could just explain why is that?

I mean, on the product mix, actually as to your volumes are more in the packaging film side, so where the value-add is not there. But if you sell more of the package products, then the package doesn't -- the volume and the value increases are commensurate. So I think it's very difficult to give one answer to that but because we have a bouquet of different products which we sell, so that's where the volume growth and the value growth may be different at some point in time.

And sir, I mean, also, an associated question. Basically, we've seen an increase in gross margin by [ 500 bps ]. So on the one hand, the realizations have gone up, like it is really very difficult to really connect it to a lot of things. But on the other end, your gross margins have gone up, indicating that your raw material prices have gone down. So you could just talk about this?

So definitely, on a Y-o-Y basis, the prices have -- the packaging films margins are much higher in Q3 of FY '21 as compared to FY '20. And that's where you see that the margin has expanded from the same period last year. And primarily, when you asked me the question about volumes, the volumes for us have grown in the side of the packaging films business. If the packaging film sells for INR 100 a kg, the package material sells for INR 250 a kg. Now -- so there is a value addition there. So that is why when you say the volumes have increased by this percent but the value has increased by only this percent, that's because of the composition mix is now changing.

Okay. And sir, you've been speaking about the BOPP, BOPET price spread. Now where do we stand vis-à-vis that?

So we had a bit of a dip in the month of November in the margins for the BOPET because, usually, I've been saying that, we find that our post-Diwali period is a lull period. And that is why November was -- the margins were a bit less. But December and January, I think they are back to, again, the numbers which we had in October. Obviously, the July and August numbers were a bit of different because given the huge demand created by pandemic. But yes, the numbers today, when we look at, I think they're quite satisfactory and they indicate stable margins.

Sir, what was it that caused the spread to increase? If you can just talk about that.

So 2 things led to that huge spread. One is the demand for the packaging, packaging films. And during the pandemic times, everybody was -- like all of us as individuals, we're trying to hold more and more of the food items at home. Similarly, all the packaging companies had a huge demand. The shelves were empty. So obviously, there was a huge demand for the brands, also for the food. And they wanted, in turn, more packaging, with the result, the demand going up and the prices going up all of a sudden. Secondly, there was a raw material price correction given that during this period, the petrochemical demand fell very, very steeply. And the oil came down to much lower level. Today, it's about $58 to $60. But we had, in March, the oil coming down to even $20 levels also. So the raw material prices came down drastically. And the finished goods prices, because of increased demand, went up. So that led to a much higher margin, which are sort of a one-off kind of effect. But thereafter, except for the month of November where the margins were a bit lower, all other months are quite reasonable now. So December and January and February, they're all at reasonable levels, what we had either in the month of pre-COVID or post August.

And sir, my last question. I mean, you've expanded in a lot of countries overseas, particularly Eastern Europe. So if you could just explain the rationale for choosing Eastern Europe.

See, Eastern Europe, in terms of the cost of manufacturing operations is -- probably gives you an advantage rather than setting up a plant in Germany or Italy and then supplying to the local market there. So when we look at -- so the EU, so it does not actually make a difference whether where are you making. But if the cost of transporting that to the consumption centers is lower than the cost of operations on a constant basis, then some of these Eastern Europe countries give you that advantage. They give you also the advantage in terms of having the flexibility of the labor and the manpower from -- coming from India. And on top of that, they give you a lot of fiscal incentives to set up the capacities over there. So the infrastructure developed by them is, again, the world standard. You're still catering to Germany, Italy and other consumption centers, which are the markets. And your cost of operations is much lower. And on top of that, they are giving you kind of fiscal incentives in terms of the tax benefits or even in terms of subsidizing a part of your investment, which actually helps you lower your capital cost.

[Operator Instructions] We have next question from the line of Sunny Gosar from MK Ventures.

I have a couple of questions. The first one is that in the last 2 quarters, you have done about 1.1 lakh tonnes of volume. So once all these capacities in Nigeria, Hungary, Poland and Russia are operational, what kind of peak volumes on a quarterly basis can we look at?

So I think -- just give me a second. So overseas business now, we're going to have capacity -- overseas itself, we have added about, say, 125,000 tonnes in terms of the capacity. So even if we -- so that 125,000 tonnes translates into about 30,000 tonnes a quarter. So those are the additional volumes we should be looking at a peak capacity utilization level, which will happen over a 2-year period.

Right. Right. That's helpful. And the other question that I want to understand is considering INR 850 crores of CapEx for the India plant plus about INR 130 to INR 150 crores for Dubai and the aseptic plant expansion plus some maintenance CapEx, so what kind of CapEx numbers on an annual basis are we looking at for FY '22 and FY '23?

So FY '22 and '23, apart from this CapEx that we've announced, there's normally about INR 100 crores to INR 150 crores of the normal CapEx that we do normally. After the...

Yes. So effectively, INR 1,000 crores between India plus Dubai plus 100 -- plus 100 -- INR 200 crores on maintenance CapEx for 2 years and plus aseptic. So on an annual basis, we are looking at about INR 600 crores to INR 700 crores of CapEx for the next 2 years?

You can say so.

Right. And so one adjacent question to that. So assuming we have about INR 800 crores of PAT and about INR 450 crores of depreciation, so that is about INR 1,250 crores of cash profit. So is it safe to assume that going forward, our debt will not go up from the current levels?

So I think -- so this question is very difficult to answer because the -- so the ideal situation is that if you're not growing, if you're not expanding, you have no option but to return the debt first and then return some -- give some extraordinary dividend to the shareholders. So depending on the situation at that point in time, yes, we will look to lower the debt. But today also, as I say, the debt today, when I look at like India debt currency is about INR 750 crores. And India annual EBITDA is also about INR 750 crores to INR 800 crores now. So we have 1:1 kind of a level, which is extremely, extremely conservative kind of a situation. Overseas, yes, we've recently done some of the capacity expansion. So it will take us a couple of years to digest that and then -- but overall, I think even if we take that into account, what we are expecting is the next year that we should have at least an EBITDA of about INR 2,000 crores. With the debt, even including the new debt which we are taking for the expansion, I don't think so we will have more than a leveraging of 2 to EBITDA, which is, again, extremely comfortable situation to be in. And thereafter, if there are no further plans to sort of grow, then obviously the CapEx will go -- the debt will go down over a period of time. The good part for us is that the debt is -- overseas debt is at a very cheap pricing. Even the debt we're going to tie up now for this India facility, it's going to be ECA facility, which is at Euribor plus 0.65%. So it's so competitive that the additional burden on account of this CapEx in the form of interest and servicing also is spread over, say, 10 to 12 years. So you will never have a situation where there is a huge bundling of your repayments or your cost of money is humongous, which, when in a down cycle, it starts sort of pinching you.

Right. So sir, I appreciate that -- your point about making -- doing about INR 2,000 crores of EBITDA makes this question even more pertinent because then you will have a lot of free cash flow even after that INR 700 crores CapEx. So either that gets allocated towards a higher shareholder payout or some debt repayment. Because this year, even if you do INR 800 crores of PAT, that will be at about INR 1,600 or INR 1,700 crores of EBITDA. So your cash flows will be even higher for the next year.

You are right. But now we have the new debt, which is -- so see, when we started the CapEx for overseas business, they were virtually debt-free. The total debt on overseas business on an EBITDA of about $85 million to $90 million was only about $30 million at that point in time, which has been also paid off. So whatever we have in the overseas business is now only the current debt, which has been taken for this expansion. So what I'm trying to say is that at debt-to-EBITDA of 2 today, when you've just installed the projects, to say, another year down the line, you'll be still left under 1.5 debt to EBITDA, which is -- but there is no incentive for us to prepay that debt because that debt has such a cheap cost that it does not make sense to prepay that particular debt. So if there are surpluses, we will evaluate at that point in time what is the best course for the company. If there is a growth available, we will go for that. If there is no growth available, then obviously the -- makes sense to retire some of the high-cost debt. And then eventually, if still there is -- there are no growth opportunities and there are no debt paring opportunities, then return that money to the shareholders.

Right, sir. So sir, we look forward to a bigger payout to the shareholders from what you are explaining. And sir, one last bookkeeping question. Sir, the tax rate in this quarter was slightly higher at about 34% versus earlier quarter at 25%. So was there some one-off? And going forward, what is the tax rate that we should look at?

I think I'll have to answer that offline, but all that I can say is, in this quarter, we had also profitability from our Mexican as well as our U.S. operations, where we're paying the full rate of tax. And probably because of that, our overall tax liability is a bit higher. Even for our new facility now in the South, we are doing it in Uflex. We're not taking advantage of setting up another company to lower the tax burden because the depreciation benefits that we will get versus the new rate of lower tax, I think that they are -- that itself will take care of sort of -- and the interest costs that we save because of doing this project in Uflex will also make up for a lower rate of a tax if you would have set up a separate company to do the South project.

Sir, but I remember that you had said that your expansions in Poland and Hungary have some tax holidays. So what should be the sustainable tax rate that should be -- we should look at...

Sunny, we'll have to address that offline.

We have the next question from the line of [ Rahul Soni from Smiths Limited ].

Sir, a couple of questions from my side. I want to understand what the portion of your flexible packaging revenues are coming from direct supplies to the end customers, like FMCG players like HUL or Nestlé or Britannia.

No, we sell directly to the brands only, to Procter & Gamble or Nestlé or Cadbury. We sell directly to them only. We don't sell to any distributors.

You are not selling to any other player who is a converter?

No, no, no. The packaging material goes to the -- to the end customer only. The packaging film goes to the converter.

Okay. So what percentage of -- if I ask for the breakup for the flexible films or the packaging films?

I will not have that for you. But largely, what we say is that the business in India should be taken as a flexible packaging business and not a packaging film business because we have -- this plant, the packaging films is only catering substantially to the internal customer, which is the packaging business. And yes, they sell to the outside parties also, but largely, this is -- this should be construed as a capital business only. And the little bit of extra capacity that we have, that we sell to the third parties. As we expand our capacity on the packaging business. I think that will also get taken up in the capital consumption only. So the India business, largely, we say it's a packaging business, which is an integrated packaging business, leave aside the engineering business, which we report separately, but the other piece is just the packaging business.

Okay. And second question is on your CapEx. Sir, as you said, you are doing the India CapEx after a gap of 16 years. So just want to understand why there was a gap of so -- over long period because, obviously, there was a growth in demand for the flexible packaging.

So I think what we decided, because the capital was limited, so what we decided that we -- we concentrated more on the packaging business rather than the flexible -- rather than the packaging films business. If you've heard me now, what I'm -- what I've tried to convey is that the flexible packaging business today is low on the margins, low on returns. And as such, if we have to consider any growth plan, so that stands last in the queue vis-à-vis the investment in the packaging films, investment in aseptic. So we have only 3 lines to grow. Aseptic, packaging films and packaging. So if I look at today in this order, yes, the aseptic packaging business was the lowest-hanging fruit that with an investment of within INR 100 crores we can double up the capacity, which can throw an additional top line of about between INR 400 crores to INR 500 crores in the 2 years. So that's the lowest hanging fruit. So have that first. And then when you have the resources to expand, given that your leveraging is extremely, extremely comfortable. And so in that pecking order, then you have the packaging films business, which today, yes, talks of 24%, 25% kind of an EBITDA margins. But even if you plan that, even if you plan that business based on 18% to 20% kind of an EBITDA margins, so that business is -- will give you good returns. The flexible packaging business will make -- count when there is a further consolidation in the industry the margins in India -- India margins for the flexible packaging players move up in line with what are the margins there in the overseas, in the rest of the world. And that's where, if you need to grow in that business, then those investments will kick in.

Okay. So sir, as you said, you are directly supplying to the end customers, so if in that context I compare your business model for one of the peer like Huhtamaki, so your business model is more or less same, if you exclude your other business.

So Huhtamaki, between us and Huhtamaki, the only difference is while we are an integrated player, Huhtamaki is not a fully-integrated player. Like they buy packaging films from the market, they buy inks, adhesives from the market. So all these facilities we have in-house. And that is where our margins are better than them. So that's it, otherwise, we are -- we are in the same line of business. But if you look at Emcor, if you look at Constantia, Huhtamaki in the overseas balance sheet, you will find that their margins in those territories are much higher than the India margins.

Okay. Sir, one last question if you allow. Have you also looked for any acquisition? Because if you are doing such a large CapEx and packaging films weakness is highly -- there are also unorganized players also there and like Huhtamaki, they have a history of those acquisitions only. So have you also looked from that angle?..

[Foreign Language] acquisitions, what happens in the packaging -- packaging business, they happen at an EBITDA multiples of 12x to 14x, okay? Now I think that is like paying top dollar for that acquisition. But yes, then there are companies who do not have a different use of capital, so they find it most efficient to acquire and -- so clearly, there are less of organic growth opportunities in the developed world, and that is why a lot of companies are wanting to acquire and become bigger. But if we see today in India, all these companies did acquire smaller setups and all that. But the market itself is so small. There may be hundreds of small, small players which are there. But if you talk of any substantive players today, I don't think so you will have that in the India market. So again, a very fragmented market. Yes, we are the market leaders. And though there are no confirmed numbers on what is the organized and unorganized market for the packaging films -- for the packaging industry, we can only take numbers from the consumption of the packaging films -- packaging films in the country. So we'll be almost close to between 22%, 25% kind of stuff. So we're not clearly looking at any acquisition in India, because if there are opportunities to grow in the packaging space, we will do a brownfield expansion at any of our facilities to get those markets. But today, given the return metrics there, they do not qualify -- the packaging business does not qualify for any additional investments today.

We have next question from the line of Chirag Singhal from First Water Capital.

Sir, couple of questions on CapEx and some financials. So my first question is on your greenfield expansion in South India. Now if I look on the similar lines, another Indian films manufacturer announced a greenfield expansion of 48,000 tonnes for INR 500 crores. So why is there a variance between your CapEx and the other player? And what is the split of CapEx between CPP and BOPET for the India plants?

I think, Chirag, first of all, I don't think so that, that's a right question to be asking on this forum because the dynamics are totally different. So I think wherever we have been quite competitive in terms of our capital costs, I think there may be very few players who match us on a capital efficiency. So -- and because you may not have gone into much details as of now, I think the differences, that when you compare only for a packaging for BOPET versus the BOPET, then it's different. Somebody else may be setting up an 8.7 meter line, we are setting up the state-of-the-art, the latest 10.6 meter line. We are also setting up a CPP plant. We also have plans for the power also in-house and somebody else may be depending on the outside source of power. But I think we don't need to justify any CapEx because we know that we are the most efficient in the CapEx plan.

Okay. Because I was looking on the sale line, that's why I just wanted to clarify on that part. But okay, I understand your point, sir. Sir, my next question is, the Vice Chairman has stated in a couple of interviews about the brownfield expansion in Poland and Egypt. Now the Egypt is supported by the CapEx from the Egypt subsidiary. What is the product we are going to manufacture over there? And what is the expected date of commissioning?

Egypt [Foreign Language]?

No. I think if I look at your Egypt subsidiaries, Rajesh...

Egypt [Foreign Language], whatever has been done is done. We've set up. We've done some CapEx there in the last couple of years. So there is nothing to be more to be now added over there except that we may end up buying some more land over there for any futuristic listing. But as of now, whatever is -- there is not any incremental planning that we have for Egypt at this stage.

Okay. No, but if we look at your Egypt subsidiary financials for FY '20, then there is a capital commitment shown of $59.7 million and amount spent is shown at $46.8 million. So what would that be?

So that would have been some of the old CapEx which got completed already. There's nothing more to be done on Egypt.

Okay, okay. All right. Sir, my third question is on the volume. So now if I look at your sales and production volumes, the sales volume was flat sequentially and the production volume declined despite commissioning of the Poland operations. So I just wanted to understand like what are the incremental volumes we achieved from the Poland facility, as well as Russia facility separately, in the Q3?