Uflex Limited (500148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the UFlex Limited Q2 FY '25 Earnings Conference Call, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sachin Bobade from Dolat Capital. Thank you, and over to you, sir.

Thank you, [ Sumaya ], and good evening, everyone. On behalf of Dolat Capital, I welcome you all to the Q2 FY '25 Earnings Conference Call of UFlex Limited. Hope you all and your family members are staying safe and healthy. From the management side, we have with us Mr. Rajesh Bhatia, Group President and Chief Financial Officer; and Mr. Surajit Pal, Vice President, Investor Relations. Now I hand the floor to Mr. Surajit Pal for the opening remarks. Over to you, sir.

Thank you, Sachin. Good afternoon, ladies and gentlemen. Thank you for joining us today for the Q2 FY '25 Earnings Call of UFlex Limited. Let me draw your attention to the facts that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectations about the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual result to differ materially from what is expressed or implied. I would now request Mr. Rajesh Bhatia, Group President and CFO, for his opening remarks, following which we will open the forum for an interactive session and answer -- question-and-answer session. Over to you, sir.

Thank you. Thank you, Surajit, and thanks for the introduction, and welcome all the participants on this call. The underlying for the Q2 is that it has been a continuance of the good momentum what we started the Q1 with and the same momentum continues in the packaging sales business, India and overseas. And that's what is reflected in the results. Even on the packaging side, especially our packaging -- aseptic packaging, this is normally -- Q2 and Q3 are normally a lean season. But still in this season, we've seen a much higher capacity utilization level at about 93% vis-a-vis 83% in the last year. The Packaging Films prices in India are much better. Overseas could be still better, but they will be -- because there are a lot of exports happening from India, so the prices are remaining in a sort of check. But I think the volume has picked up in those markets as well, and that augurs well. So to give you a perspective on the numbers, you would have gone through those, but still I'll reiterate them. So the top line consolidated, we had 13.7% increase on a Y-o-Y basis to about INR 3,853-odd crores. And the backdrop is that the Packaging Films revenue witnessed the growth of 23.4% on a year-on-year basis. So the 13.7% Y-o-Y growth what we see in the Q2 is backed by 23.4% Y-o-Y growth in the Packaging Films business revenue. The sales volume for the Q2 are up 10.9% year-on-year, again, driven by the Packaging Films sales volume growth of about 14.6%. The Q2 stand-alone revenue increased by 9 -- stand-alone now I'm talking about, that increased by 19.3% Y-o-Y to about INR 1,970 crores, again, driven by the Packaging Films revenue grow from 39% Y-o-Y. And Q2 stand-alone sales volumes are up by 4.2% Y-o-Y, driven by the Packaging Films sales volume growth of 10.8% Y-o-Y. As I said earlier, the Aseptic Packing business continues to do extremely well. And this quarter, we've achieved a capacity utilization of 93% even in this lean period. The same period last year, we have achieved a capacity utilization of 83%. So on a Y-o-Y basis, this quarter, we've seen a 17.6% for new growth, which is there. Even in the current -- even in the month gone by, which is October, the sales volume is up by about 24%. So if I talk about October last year versus October this year, so the good momentum in that business is continuing. And post the capacity expansion to 12 billion packs, which we are expecting by the end of December, so the Q1 -- Q4 will be the first period during this fiscal FY '25, in which we have that capacity available. So we are expecting as of now that business, that enhanced capacity overall utilization for Q4 will be about 83%, even post the enhanced capacity to 12 billion packs, which means that on a Y-o-Y basis, we have a 20% volume increase in the sales volume. That's what about the Aseptic business. Now India BOPET industry, in particular, I just thought I'll make a mention to you. Last quarter, when we were -- we had -- we were there on this call, I had indicated that towards the margins had -- the prices and the margins had increased. But more or less, these are reflected in the period post June 15. And so the full impact for the quarter was not there. But this quarter, we've seen the full impact of the increases what happened in 15th of June 2024. And thereafter also, there have been increases. So if I see on Q2 versus Q1, at a gross margin level, the margins have gone up by -- industry-wide margins have gone up by about 200-odd percent. And even in the current quarter, over the Q2 quarter, the margins are up by about 20%, which means that if the prices did continue to remain the way they are, the current quarter Packaging Films business, at least on the PET side, will be -- will also be better in this quarter even over the Q2, which on an industry-wide basis, has already seen about 200 plus -- 200% plus the gross margin increase. The BOPP industry also, the gross margin increased by about 36% in Q2 over Q1. But unfortunately, we've seen some price correction in that market. And in the current quarter that is going on, we are down to almost at a Q1 level. So whatever we achieved in Q2, if we talk at the current level, all those gains have been [indiscernible]. On an industry-wide basis, again, the BOPET exports from India in the quarter reduced by about 10% in Q2 over Q1, largely because the prices were good, investing prices were good in this quarter. And even for BOPP, they were down 5%, Q2 versus Q1, again, largely because of the higher domestic prices, where exports contracted a bit. For UFlex India, in Q2, the volume growth in the PET business has been about 14%-odd, while the overall Packaging Films volume growth, we've seen about 10.8%. But for the PET, where we have a dominant capacity and BOPP capacity -- or BOPP capacity is rather not too high. So we witnessed about 14% volume increase in Q2. Having said that, all the good things, the Flexible Packaging margins in this quarter were impacted. And as usually happens when the Packaging Films prices go up so steeply, there is always a lag effect in the Packaging -- Flexible Packaging margins because their prices are fixed for the last indexes, which are pertaining to the previous month or quarter and then those prices -- when the raw material prices increase. So during that quarter or that month, you don't get increases, but those increases will come your way in the next month or the next quarter as per the terms in the first quarter. So we've seen a contraction in margins, in that given that we had a steep increase in the Packaging Films prices, and that's what sort of kept the margins, brought the margins down a bit both on a consolidated level as well as on a stand-alone level in this quarter. The exceptional items, again, the currency devaluation in Nigeria, Mexico, Egypt continue to affect those M&As out of those translation losses. As I had explained earlier also in Nigeria, we do business in naira, in Mexico in pesos and Egypt in Egyptian pound. And then the business, which is transacted local currency has to be converted into the reporting currency, which is INR, and there are devaluations of that currency, vis-a-vis INR. So you will always have a situation where you will have those translation losses, which are exceptional in nature. We've been seeing Nigeria and Egypt and Mexico, all currencies are devaluing continuously, at least in the last 2 fiscal years. And even in this quarter, we've seen a currency loss of INR 79 crores in Nigeria, which was INR 99 crores in Q1. And in Mexico, we've seen a INR 14 crore loss, which was INR 51 crores in Q1. And in Egypt, the loss is 0, which was INR 31 crores in Q1. So while the losses have come down from a level of INR 180 crores in Q1 to about INR 92 crores, INR 93 crores in Q2, but they still continue to appear on the P&L side. Ignoring these exceptional losses and ignoring some of the M2M currency swaps that we have, the normalized EBITDA for this quarter is INR 438 crores versus INR 408 crores in Q2 of '24. Stand-alone EBITDA is up at INR 215 crores this quarter versus INR 168 crores in Q2 of the same period last year. And again, that is because the Packaging Films business has seen a much higher prices and margins in the current financial year -- in the current quarter. And -- but having said that, there is an impact of the Packaging -- Flexible Packaging margin contraction because of the reasons that I just explained. And the India business stands at an EBITDA of INR 215 crores versus INR 168 crores in Q2. The overseas business EBITDA is INR 223 crores this quarter versus INR 240 crores in the Q1. This has been impacted a little because of the higher energy cost in Hungary business in the Q2, which are now normalized in the current quarter. Our gross debt as of 30th September and net debt is at about INR 5,800-odd crores versus March position was about INR 5,600-odd crores. So we've seen a net debt increase of only INR 200 crores in this current fiscal. And there are few projects, which are under pipeline. And we are seeing completion happening in PET chips plant, which we are expecting will come in H2 expected. The timeline is between January to March. So this will be a game changer for our offshore business, given that almost -- while this will take care of our requirements of the PET chips in our Egypt business, but this will also cater to our European operations, Nigeria operations as well as our operations in UAE. So all of them will become fully self-sufficient in terms of the raw materials requirement. And still, we have certain surpluses over there, which we can -- depending on the dynamics of the sales and all that, which we can export to our Mexico or U.S. center. So that on a long-term basis, will take away the fluctuation in the quality and in the pricing of a key raw material for the PET industry and will augur well for the overall business in the years to come. This part, we announced expansion of new greenfield capacity in Egypt for Aseptic business as we think that Aseptic business in India has now -- has been operating at more than 100% capacity for the last few deals, and we see a tremendous increase in exports in that business as well. And today, if we say that we are looking at about 35% to 40% exports coming in India from -- in India plastic packaging business from exporting the Aseptic Packaging to the other world markets. But having tasted that success in that business, I've been saying over the last few calls that, that business is very exciting, and it's the time to take it to the global market. So we chose Egypt, especially because we know we are already. It's quite a substantial business side for us. The cost parameters in Egypt vis-a-vis manpower and energy costs are quite different to what you have in India. And it has an advantage that of [indiscernible] advantage when you -- especially when you're looking at exporting to the Europe market. I think you have that advantage of [indiscernible] duty when you export from Egypt into Europe. But apart from Egypt and -- so Egypt also consumes today about close to about 5 billion packs a year, which is all imports. So that's the natural market. We are looking at the market in Africa, which we are currently serving, the Middle East also. But at some point in time, we know that we have been exporting to our international customers. And at times, we've seen in season that because of that, sometimes we are not able to meet the local demand. So the local demand has always been a priority. It's only that during the lean period, which starts actually after 15th of August and goes up till end of December in India, especially when the winter season sets in, the requirement goes down. And we've been trying to fill our plant with export orders during this time. But you can't really sit and choose separate timing. So your customers would always need the products throughout the year. So while the seasonality may be there for India, but for the world market, it's a different seasonality. So we thought that Egypt is a good venue, where we could set up these. It has the large market of its own, doesn't have any facility. There's no producer currently. So that market plus the European market will come very handy. And since a lot of customers who we are exporting, we are already prequalified. So the time to for the customer plan [indiscernible] for this time will be much less as compared to what we witnessed when we first set up this facility at Sanand. I think just to give you a number that the PET chips facility in Egypt, when it is fully operating at a full capacity utilization, will also boost our EBITDA by about -- if we're expecting normalized EBITDA of INR 2,004, it should boost our EBITDA by another 5% or so. So -- and the Aseptic Packaging Egypt on a full capacity utilization will also give us a 20% higher EBITDA over our current level of operations. If we talk about H1 also at the same time, H1, if you see the EBITDA has grown up by about 24-odd percent if we compare H1 of last fiscal versus H1 of this fiscal. And again, it's all driven -- largely driven by the packaging sales volume, which is up at about 13.8% on a year-on-year basis and Aseptic Packaging sales volume up by about 10% Y-o-Y. Now [indiscernible] that positions, more or less, I've already said. So the consolidated EBITDA for H1 is INR 903 crores versus it's gone up by about 23.9% this H1 over the last fiscal H1, and again, driven by the Packaging Films of 13.8% and Aseptic of close to about 10%. And the stand-alone EBITDA for H1 stands at INR 429 crores, which is up close to about 21% over the same period of last year. So if you see H1 FY '25 versus H1 FY '24, you will see a much better performance both on Packaging Films size, Aseptic packaging continues to grow from every sequential quarter basis. And now with the new capacity in India coming on stream as well as international capacity coming on stream in FY '26, I think that's one business, which has been contributing higher EBITDA margins, and we look forward to repeat that success of the Aseptic in India and overseas markets as well. That's been basically in the summary for the financial performance for the Q2 as well as H1. We can -- we are now open to any Q&A that you may like to ask us. Some of the details, which are not available instantly, we'll note down and try to get back to you as soon as possible because sometimes some of the details, which are very, sort of -- you guys keep on looking at the numbers day in and day out. So -- but we'll try to answer them as best as possible, which we'll be happy to come back with you certain numbers, what you may look -- what you may be looking forward to. And certain numbers, which we can't share, also, we'll also [indiscernible]. Thank you.

[Operator Instructions] The first question is from the line of Aman Kumar Sonthalia from AK Securities.

Sir, my question is that in the last con call, you have said a lot about the recycling business. So this time, I think, we have not given the utilization level of recycling business because you have set up a few plants overseas and 2 plants in India. And nothing is talked much about the recycling in your -- in this opening remarks. So whether now we are not that much optimistic about the recycling business going forward?

No, no, we are very much optimistic about the recycling business. But some of the EPR guidelines in Europe and in India are coming, like, I'm told Europe, the new EPR guidelines, which mandates the recycling, comes into play from 1st of January and in India from 1st of April or 1st of June. So there is nothing -- there was nothing -- while the facility are there, they are running also as well. But what we've been saying is the real momentum comes only when you look at -- when the laws are enacted and people are forced to spend extra money in terms of complying with those requirement. So that is why we remain upbeat about that business and that we see that over the next few years, that will also become a very formidable business for us. And -- but this quarter, we've given some current numbers in the presentation what we have achieved. If you want, I can talk about those numbers, but I think those presentations are with you and you can look at in detail where we've given PCR, MLP and all that, what we have achieved in terms of production in this quarter. The main -- major theme for next few years, aided, of course, by the legislation changes in the world markets and India where we operate in. Now in India also, frankly, there have been a few times, the government has postponed the compliances and all that, so -- because not everybody is ready for it. And you know ultimately, in this industry when it's relating to the food packaging, you can't take chances with that. So it's the whole industry sometimes is not prepared. If we are prepared -- our preparedness is much ahead of them, still that does not sound and the government is -- may take a view that we need to postpone it by another quarter or 6 months and all that. But having said that, this will all come from the regulation only. We are ready to sort of...

Sir, right now, we are exporting around 40% of our Aseptic Packaging capacity...

35%.

35% to 40%.

[Foreign Language] But otherwise, generally, you can take for the year as a whole about 35-odd percent.

35%, say, 40%, sir. [Foreign Language]

[Foreign Language] We took about 3 years to come up to a decent number in that. [Foreign Language] that was sold out on day 1 itself. This now when we are expanding to about 12 billion packs, we are expecting about 80% to 85% capacity utilization level in the Q1. And obviously, Q2 will be a better capacity utilization number. Now on the next plant, we are going to achieve in FY '26 and beyond. Now you will have to make a big thing here also, but the markets are so huge. Look at -- when we started in India, we already had a Tetra Pak in India, who was already manufacturing. Now Egypt, which is continuing about $5 billion tax a year, has no Tetra Pak over there. So the Egypt is all importing its requirement. So that's the market which comes to you very naturally. And then we look at exporting to Egypt -- to Europe from there, you have an advantage from the thing. While your question is right in terms of -- and we may not have all the answers on the day 1, 2, but we feel that we will be able to replicate our India success in this business in Egypt in very, very successfully and much earlier than what we achieved in our India business. We're very, very upbeat on that capacity. In India, we already suffered for a couple of years because we didn't have the capacity to cater to our domestic as well as our offshore customers. But with this enablement, if we have to swing capacity between India or Egypt plant serving a few offshore territories, I think we can always swing them. We can look to garner a larger market share in India. And if we all believe that next 5 years, then you become a $5 trillion or $7 trillion economy, the multiplier impact of that on the consumption economy is going to be 10x of that GDP multiplier. So you have to set up capacity. You have to look at expanding in a market, which is growing and which is giving you a healthy EBITDA margins as well. We've seen Packaging Films business segment, what kind of EBITDA margin it is, what kind of cyclicality it has gone in the last few years. A few good years were COVID years and all that. And thereafter, except for Q1 and Q2, you've seen single digit EBITDA margins from industry as a whole. So clearly, there are requirements. We clearly contacted by more customers as to can you give us more. And we know our bottleneck now. We can't give more than what we are currently doing. So we had settle [indiscernible].

The liquor industry will be the biggest game changer because still there are a few states [Foreign Language], that is aseptic packaging is not allowed in the liquor industry. So if they allow that, I think it will be a big market for us.

[Foreign Language] If all the states in India were to allow this to take care of spurious liquor issues, I think, from the current capacity, we will need at least 3x of the capacity in India only to cater to those -- that market. But having said that, that market is there only in India because only -- and we will obviously try to look at Africa also, but because India [Foreign Language] Bihar and all these places. You have a lot full of spurious liquor being packed and sold and all that. So I think over the period, you will find that many states will allow liquor to be packed in Aseptic. And the customer also knows that this is one packaging [Foreign Language]. Like I tell you, if I -- when I buy ghee for my own home, I buy only Tetra Pak, Aseptic Packaging ghee because that is the only one which is pure. [Foreign Language] your chances of going wrong are at least 99x in the other packaging.

Okay. Sir, one more question...

Mr. Aman, may I request that you return to the question queue for follow up questions as there are several other participants waiting for their turn. [Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor Company.

[Foreign Language]

I refrained from giving margins. And that is why I said if I see Q1, Q2, May, there has been a 200% rise in the margins, gross margin. And from Q2 versus current quarter also, there is a 20% increase in the margin. But margin is a very blended...

Sir, your voice is cracking, sir.

I'm saying, I refrain from giving an absolute number of the margins, and I gave the margin [indiscernible] percentages. So as I said, Q2, May, there has been more than 200% increase in the BOPET margin and 35% to 40% increase in the BOPP sales margin. Current quarter also, there is BOPET continues to be strong. And over Q2, there is a 20% growth in the margins in that business. But in the BOPP industry the margins are -- today in this quarter are the same as what was there in Q1.

Right, sir. And sir, what are the dynamics for the BOPET film industry currently that are favoring sustainable and increase in margins Q-on-Q also? And how do you [Foreign Language]?

So I'm quite confident that H2 margin in the BOPET industry will remain at reasonable levels. Frankly, I feel that the BOPET margins currently, what are prevailing, there may be a little scope for them to be better. And it's a dynamic situation because the BOPET exports have gone down by 10% in this quarter versus the Q1. So with a more product availability in the domestic market, the market may take a cut in the margins again. Then again, exports will rise, and then this phenomenon will continue. But the current margin, on a more or less -- I think, the BOPP margins should be better than what they are. And hopefully, in H2, those margins will be at a Q2 level, which will be great for the industry. Having said that, the demand-supply equilibrium in the PET versus BOPP, BOPP, it is better. But still the BOPP prices are lower because PET [Foreign Language]. So PET exports have really jumped from India, which means that the capacity available to cater to the local market is lesser, and that's why the prices have [indiscernible].

[Foreign Language]

So opportunity is always there because India is a much cheaper cost jurisdiction as compared to the Europe or the America. [indiscernible] had an overcapacity. So everybody took -- resorted to exporting the product from India and utilizing their capacity with the result that then that extra capacity from India got absorbed in the overseas market, the margins in India improved, which means that the overseas market remained under because of the large exports from India. Otherwise, the Packaging Films margins in the Europe and America would also have been much higher, had India not exported so much of volumes into Europe.

Small question, and then I'd join the queue. [Foreign Language]

[Foreign Language] So which will give you in the markets we operate in, what are the level, capacity utilization levels in those markets. And obviously, we see that there is a -- in the past, we have achieved a much higher peaks in those markets and so which means that today, that is being serviced from India at a cheaper cost as compared to what is being produced in those markets or other players. In overseas markets, there was not an irrational capacity addition, what we witnessed in India. And that's where somewhere the equilibrium, all the producers from India are trying to maintain the demand-supply equilibrium in India by exporting the [indiscernible]. If you see the Slide 9 of our presentation, you will find all the answers as to at what capacity utilization level are all plants are competing. Poland and Hungary facilities, Poland especially, which is the PET, we have a capacity utilization currently of last quarter of about 68%, which was in Q1 at about 78%. But in the past, we have achieved almost 100% capacity utilization in that facility itself. U.S.A. and the -- U.S.A. is more than 100%. So we are doing perfectly well over there. If you see Mexico, Mexico, we're doing about 85%, but that is not because of any other thing, that is because in the plant has some technical issues, which are being looked into. In terms of demand of the product in the Americas market, I had explained on this call last time also that our combined capacity in Mexico and U.S.A. is about 8,000 tonnes a month. While we've been now selling for this fiscal at least at the rate of about 10,000 tonnes per month, which means that we are importing the products in those markets from other jurisdictions, especially Nigeria as well as India.

I'll go through the slide once again and if I can follow-up, I'll definitely. Sir, only concluding part was to Mr. Pal as he also alluded earlier that the management is taking all steps to create that value for shareholding community, wherein the investors are -- it is very difficult for investing community to value the company because of various geographies, the type of businesses and various subsidiaries there and the exchange [Foreign Language].

So I think the best way according to me is to separate your commodity business from value-added business, from your packaging business would command a different multiples as compared to your Packaging Films business, your Aseptic business, your Chemicals business will command a different premium, and that's also a very substantial business for us. So restructuring maybe one way to unlock that value, which is quite common in the corporate that you separate your businesses into separate companies so that each business is much more visible. And the second is that we have now been presenting to you our turnover, our volumes from each of these businesses, the kind of margins we have in each one of these businesses. So I think before -- I will suggest to all the investors, who are on the call, to look at these details with much more insight and see that what is the value. I think the management's idea is that when the businesses have achieved a substantial size and the need to be operated as a separate entity, only then we should look at the restructuring aspects of them. But as -- when they are too much interdependent on each other and all that, then creating -- so today, yes, we have the separate SBUs. But creating those -- transferring those as we used to separate companies will only emerge at a stage, where the interdependence of the businesses are much lesser and typically a Packaging and a Packaging Films -- Flexible Packaging and Packaging Films business, which has packaging films as its raw material. I think those linkages will have to come down pretty sort of drastically. Again, some of the other initiatives, which we had taken earlier and I shared with you that listing our offshore subsidiary in Dubai, in NYSE. And so some of those initiatives, again, we will -- and the markets have not been there for the last couple of years to -- for those initiatives to be implemented, but we surely implement those, and that is low hanging fruit that if you can list your offshore subsidiary and when we were talking to our bankers on that, the valuations offered by them were much more than India valuation. So obviously, the India valuations would have got adjusted looking at the offshore business valuation. So we'll do that. We are cognizant of that fact, including carving out each one of the business. But let's first be -- it be of a substantial size. And as a first step, we can look to list our offshore subsidiary to increase the shareholder's value.

[Operator Instructions] The next question is from the line of Yash Dedhia from Maximal Capital.

Sir, about the U.S. business, I wanted to know after the recent political change in U.S., how do we foresee the market developing over there for us?

You're talking about the U.S. markets or...

U.S. market, sir.

So we are very upbeat about U.S. market. with all the focus of the new government as we hear from the media and all that, that U.S. should get back to its core manufacturing also and stop importing the products from China and other jurisdictions. So I think we currently also, we're doing very well in the American market, as I said that we already have product deficit over there. So we'll surely look at more revenues coming from those markets. And if there's a need to grow in those markets as well, we'll take those decisions at an appropriate time. I had said in the last call also that this 2,000, 2,500 ton deficit in the U.S. market, which in the Americas, of course, not only U.S., in the Americas cannot be left like that over a very long period of time. So on -- at an appropriate stage, we would like to ensure that this deficit is met by way of producing these products in the local markets only. But today, because there is a surplus capacity both Nigeria and [indiscernible] we are optimizing our overall company's plant utilization, feeding the products to those markets. But on an overall basis, that's the second largest market globally after Europe, Americas. And so we are -- whether Trump or somebody else, I think one thing is certain that U.S. given its dominant position in terms of consumption will remain so and that augurs well for every business, including us.

Understood. And sir, overseas, like the prices of BOPET and BOPP in overseas market, how are they shaping up?

As I have said that there is a competition from cheaper imports into U.S. from India. So the prices are sort of being -- are under check. But as the India market will start to ease in terms of its demand-supply situations, the market will be -- the prices will be better. Given the fact that we are already operating at more than 100% capacity in those markets currently despite the margin pressure, prices pressure being there, that itself speaks volumes that we are competitive in the market. And obviously, as a U.S. manufacturer over the products coming from India you definitely get a premium over there. But to the extent of the current premium, no. I think there is a scope for them to improve. And it will improve over the next 6 months to a year's time or so because India market growth being at about 10% to 12%, that itself will mean that your propensity to export will keep on reducing.

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

So I wanted to ask you regarding the CapEx. So in Q2, it's mentioned that you have incurred total CapEx of INR 348.8 crores, and there is a breakup given. So it's mentioned that INR 122.4 crores is spent towards miscellaneous and maintenance activities. So if I remember correctly, I think INR 100 crores to INR 150 crores per year used to be your maintenance CapEx every year. So was there any one-off during the quarter? And for the full year, what is the total CapEx guidance? And if you can provide the split between growth and maintenance?

So I think as of now, what we have on the CapEx side is already disclosed to you that what we spent on each one of those projects. So the 2 projects out of those 4 -- actually 3 out of those 4, which are being completed in the current financial year itself. So there is about $18 million we spent on the -- on our Egypt pet facility project, there is about $1 million, $2 million to be spent on a project for CPP facility in Mexico. And then in Sanand, also, I think maybe another INR 50-odd crores would be remaining to be spent in terms of the existing projects, which we are completing this year. Then there is this $126 million, which we have to spend on aseptic packaging which will happen largely in FY '26. So if you see the growth in the debt from March to September, this has been to the tune of about INR 200 crores, while we have spent in H1 CapEx of -- how much we spent on H1 CapEx?

INR 349 crores.

No, H1. Just 1 minute I will give you. INR 629 crores in total H1 CapEx. So I think, as I had said earlier also, our existing commitment amortization is about INR 1,000 crores a year, which we are doing and new CapEx is being done. New debt is being taken for that. But in the absence of any large ticket CapEx, including this one. So a large part of this $18 million plus, $2 million plus, INR 50 crores in Sanand is coming to an end in this year. So the next year when we get into, I think there will be not more than $80 million of the CapEx, what you need to carry to the next financial year. Is that okay?

Yes, got it. So basically INR 1,000 crores per year for this year and next year based on the ongoing projects, correct?

Yes.

And so out of this, how much would be the maintenance CapEx, like what is the maintenance CapEx?

CapEx could be about INR 200-odd crores.

200-odd cores, okay. So on an annual basis, it will still around INR 200-odd crores. Because I asked you because in Q2, the number seems very high.

[Foreign Language] So some of the CapEx, which is not incremental like adding some of the balancing machines and all that also falls part of the maintenance capacity only.

Okay. So secondly, what I wanted to know from you is regarding the overseas business. So if we look at the spreads in overseas I mean if you look at the EBITDA margins, then there is no improvement in -- on a Q-o-Q basis. Now if you look at the Indian data, then clearly, the industry spreads and prices have gone up significantly on a sequential basis. So you said that in overseas, it is because of the dumping mainly coming from India. Did I get that right?

Yes. So as I said, overseas margins could be better. But because currently, there is -- Indian exporters are exporting a lot to Europe as well as America, so their prices are under a sort of check.

So is that the -- like the Q2 trend is continuing even in the current quarter? Or you have seen some increase in the prices in your overseas operations?

No. Q3 also we will -- we are more or less at the same numbers.

So despite this, do you believe that we'll be able to do that INR 2,000 crores plus EBITDA that you guided for the full year? Or there will be some change in this?

No, I think so we will get that because that number was -- we were predicating that number on the basis of our Mexico CPP line coming into play or PET chips in Egypt coming into play in November earlier, so now it has been delayed a bit. And our incremental Sanand capacity coming into play, for which, as I said that on a Q-on-Q basis, in Q4, we'll be 20% higher sales volume in that. So existing business plus, as I said, Q2 -- Q3 [Foreign Language] BOPET margins are 20% higher over Q1 and Q2. And the lag impact of what we had in Q2 for the packaging business, that will also be gone by. We'll have higher capacity available for the Sanand for Q4. The PET chips capacity will come into play, which will give you the savings, which will may not give you a very large turnover unless you want to sell outside, but it will give you a savings in terms of your raw material cost. So INR 2,000 crores is pretty much in sight. [Foreign Language]

The next question is from the line of Kaushik Poddar from KB Capital Markets Private Limited.

See, is there any other CapEx planned other than the last one that you had announced for the aseptic packaging at Egypt? Will there be anything more because we see that your CapEx come up unexpectedly, I guess. So is there -- at least a temporary pause after that?

Mr. Kaushik sorry to interrupt you, but your voice isn't clear. I request you to please repeat your question.

Yes. See the last CapEx you have announced is for the expansion of aseptic packaging in Egypt. Is there any other because -- is there any other CapEx that is on the table?

No, sir. As of now, there is nothing which is on the table, which is approved by the board and announced by us. Having said that, as I said earlier as well that in the U.S. market, there is a clear gap today between what we sell and what we produce. So as and when the management may take a view that we need to have -- because that gap, which is 2,000 to 2,500 tonnes today, in 2 years' time, we expect that gap may be 3,000, 3,500-odd tons. So you will have to take a call in terms of producing it locally. So one, that is one area where I see that as and when the management and the Board call to take at that, that we need to produce this locally rather than importing it from other jurisdictions. That is one in which I find that is a low hanging fruit. Other than that, I really don't think so. But having said that, we keep on looking at opportunities in terms of where we can and get a good project in the existing lines of business and all that, but I don't think so there is any other than that's possible in the packaging films. So there are three businesses only. The packaging films, the packaging, flexible packaging and aseptic packaging. The packaging films business as of now, except for this gap in America, looks pretty full. There are scope for improving the existing capacity utilizations in Europe, in Nigeria, in Dubai, in Egypt. So the focus is on that because there is a capacity -- existing capacity available which you will always give the first priority to use that. The next one is aseptic where we are already announced, so the total capacity is going to be about 24 billion packs of which currently, we'll be selling out from India in Q4 at a run rate of about 10 billion packs. So FY '26, we'll see as to what extent we can utilize that capacity from there. But clearly, having shown the intent to increase that capacity from 12 billion to 24 billion packs there is work to be done over the next few years in terms of absorbing and utilizing that capacity. Then our third large SBU is flexible packaging in which -- where we don't have any international plans at all, as I've said many more times. And currently, we don't have any other plans to expand in India also.

Okay. And can we expect an EBITDA margin of 13%, 14% in the second half?

EBITDA margins for Q2, I think we are targeting about between 13%, 13.5%.

That is for Q3?

No, I'm talking about H2.

H2. Okay. Yes, yes, yes.

We are targeting 13%, 13.5%, let's see.

[Operator Instructions] The next question is from the line of [ Marshal ] who is an Individual Investor.

I have made some analysis on the finance cost and the exchange losses. So this is a very important question for the financial health of our organization. See, since you're operating in some hyperinflation economy like Mexico and Nigeria, especially Nigeria, where in the economy of the country is also going to be worse because of the oil prices dent from $85 per barrel to now $72. So you can see that in the Q1 of financial '25, the naira is devalued by 17.5% and in Q2 devalued by 9% and again till now devalued by 2%, so total 28% devalued. In Mexico in Q1 devalued by 10.6%, in Q2, 7.3% and now 4%, total 22% devalued. So what I can see that in the last 1.5 years, we have lost about more than INR 1,250 -- sorry, we have lost about almost INR 1,100 crores, we lost only in the exchange losses. So what our management is doing to contain this losses. Otherwise, on the one end, EBITDA looks very fine, but that entire EBITDA is eaten by the finance cost and the exchange losses, this is #1. So like how to mitigate these losses of exchange losses #1? And since these 2 -- like even Egypt is also like passing through some trouble but their exchange rate is little bit stabilized. So more concern is Mexico and Nigeria, and you are further expanding in Mexico. So how the growth will be contained because it can contained only by having high margin from the product, or like or from -- so that is number one. Number two, in the finance cost, again, we are spending how much -- we already spent about INR 900 crores we spent in the last 1.5 years. So our entire profit has gone away, and we are now having a net debt of INR 5,900 crores. Ours is only one big -- sorry, one packaging company which is having such a high net debt. So there is very urgent need to inject the funds and nowadays, for example, every company is launching QIP. So why don't our management seriously consider to have either preference allotment or QIP launch so that some INR 2,000, INR 3,000, INR 4,000 crores is injected in the company and the company should be made relatively half debt should be released so that the finance costs can come down. And otherwise, whatever the premium we have, it is being eaten regularly by the finance cost and on the top this exchange losses. And these exchange losses are not going to be reduced in the near future because of the economic situation, especially of the Mexico and Nigeria, please.

Thank you for the substantive question. Must complement you [Foreign Language] in terms of losses of the currency and all that, but sir, I'll only ask you one thing. When you are in India, [Foreign Language]?

Rupees [Foreign Language].

[Foreign Language]?

[Foreign Language] it is devalued by 3%, 4% per year. Not like Pakistan rupees which is devalued by 40%. I am talking of the situation which is an exceptional situation emerging for company in Mexico [Foreign Language].

[Foreign Language]

Dollar [Foreign Language]. Because like my friend has been in this before so I know that like wherever there is hyperinflation in the economy even the local citizen whenever they tell me they immediately convert to dollar. [Foreign Language]

Sorry to interrupt Mr. [ Marshal ] may I request you to please ask your question off-line. We need to move on to the next participant.

This is very important question. This is the most important question, Ma'am like so far anybody has asked the question. So Bhatia [Foreign Language] my question is that like if the company makes some QIP at least the finance cost can be released, at least to some extent, or to 50%.

Sir, you are very right there [Foreign Language] we were ready to file our prospectus with NYSE but last minute [Foreign Language] we will take it up appropriately. [Foreign Language].

[Foreign Language]

[Foreign Language] India is very -- India is not giving us the right value currently. So [Foreign Language] they were looking at enterprise valuation of 10 to 12x. India [Foreign Language] so India prices will obviously reflect those revised revaluations [Foreign Language].

[Foreign Language] neither Mexico nor this Nigeria because they are in loses. So you cannot go for that at least in the next 2 years until the exchange rate stabilizes [Foreign Language] though solutions are not available for next 2 years so at least India [Foreign Language].

[Foreign Language] they are important markets for us. We are a long term player in this. It's the same situation [Foreign Language].

[Foreign Language]

[Foreign Language] they are notional losses. They are not -- they are only translational losses, sir.

[Foreign Language] so that is the real loss also whenever we dispose of the entity. So the point I am telling is that if we can increase the margin or the gross profit from the quarter 2 of Nigeria, Mexico then at least [Foreign Language]. I am only alerting you with very, very, serious question sir.

[Foreign Language]

[Foreign Language] if the promoter can make some [indiscernible] or some money is injected in the company at least our finance cost which is the real outgo can be reduced.

[Foreign Language]

[Operator Instructions] The next question is from the line of Aman Kumar Sonthalia from AK Securities.

Sir, we have developed some very high-value BOPP films in Hungary. So can you throw some light on this product and how it can scale up and what is the value addition in this product?

Sir, I think we have to connect offline on this to give you more perspective, where I can take my technical people also. [Foreign Language] but we are happy to share details on this offline.

And sir, the flexible business [Foreign Language] they are not doing, there is virtually very little growth in the FMCG company. [Foreign Language]

Sir, flexible packaging [Foreign Language] that is a steady state business for us where we are neither growing nor shrinking. We are only trying to improve our product profile to more of pouching and less of roll form where the margins are higher. So we are not -- you would have seen over the quarter, the volumes in that business are closer to about 20,000 tonnes a quarter. So we are not -- we don't have a surplus capacity, much surplus capacity, and we are not planning any further capacity to take that business forward. Having said that, [Foreign Language] some of our large customers, I will not name them when they work in India market and they work in the world market, their behavior things with respect to on-boarding a vendor based on just the pricing is very much different. So these large customers will never onboard a vendor, who is not a renowned name in the converting industry and all that. But somehow, in India, their behavior is different, it's more price sensitive market. So that is why the competition in some of the products is much more. We are looking to realign our portfolio in that business, both domestic and in the export market, you will not see much volume gain and all that over there. We are only saying [Foreign Language].

[Foreign Language] why should we -- are not focusing more on value addition [Foreign Language].

Absolutely right. We had '22 and '23 as the best -- one of the best years for the packaging films industry -- during those years each and everything was selling. So when everything and each and everything is selling and that too at a good price and all that, your focus is what? Your focus is to increase the throughput so that you can produce and sell as much as possible. It's not only me, it's everybody else in the industry is that '24 was a slightly difficult year after Russia Ukraine crises. And after the raw material prices corrected sharply in FY '24 because of the supply chain stabilizing, and that brought in a lot of stock losses because [Foreign Language] you can see everybody has done better performance in Q2 versus Q1 and in Q1 versus Q4 of FY '24. Now having said that, this is the time when we said we started that exercise in FY '24, where we said that we were looking to value-added -- more value-added products. And in the years to come, surely, we are oriented towards that. And you'll see much higher throughput of the value-added products in FY '26 and beyond.

One last question sir, [Foreign Language] we are sitting on lot of assets [Foreign Language].

[Foreign Language] which we will look to sell it off and neither there is a mindset of that. So the mindset is growth, streamline, go for a better value-added products and improve your margins. Distinguish yourself from the normal industry products and give option to the customers for the higher value-added products. [Foreign Language] it's for all growth oriented and revenue maximization and profit maximization.

The next question is From the line of [ Saket Kapoor from Kapoor Company ].

[Foreign Language]

[Foreign Language] comes and hits your P&L. So as and when those projects, those investments, which have been made, are utilizing a higher capacity utilization level. So obviously, your EBITDA will become higher, which will offset the higher interest cost. The only difference is when you set up a project, to complete the project, the interest cost comes and hits you on the day 1 of 100% of the capacity. And your capacity utilization gradually only. [Foreign Language]

Sir, this is clear that [Foreign Language] on the higher side.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

Other expenses Q1 [Foreign Language].

We'll tell you offline.

[Foreign Language]

[Foreign Language] It is in that range only. Average cost of borrowing should be around 10%.

10%? You mentioned 10%, sir?

Yes, sir.

[Foreign Language]

Our current rating is AA- -- long-term rating is AA-, CRISIL. And the short-term rating is [ B1+ ] which is the highest level of rating.

[Foreign Language]

And outlook of our ratings is stable.

[Foreign Language] We are not -- we are unable to value the company correctly because of these factors only. So we should work it out, sir. [Foreign Language] Do we have them as an IR or consulting?

They do the internal process audit for all our businesses, all our units.

[Foreign Language]

[Foreign Language]

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you, ladies and gentlemen, for the engaging questions. We will soon have the transcript of this call on our website, www.uflexLimited.com. We look forward to speaking to you again in the coming quarters. Thank you, and have a great day.

On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.