Uflex Limited (500148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the UFlex Limited Q1 FY '27 Results Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashvath Rajan from Arihant Capital. Thank you, and over to you, sir.

Thank you. Good evening, everyone. On behalf of Arihant Capital Markets, I would like to thank all of you for taking time and join us on UFlex Q1 FY '27 Results Conference Call. From the company's leadership team, we have with us Mr. Arun Kumar Sharma, President, Finance and Accounts and CFO and Mr. Surajit Pal, Vice President, Head of Investor Relations. We will open the call with opening remarks by the management, followed by a Q&A session. I would now like to hand over the call to Mr. Surajit Pal to make the opening remarks. Over to you, sir.

Thanks, Ashvath. Good evening, everyone. Thank you for joining us today for the Q1 FY '27 Earnings Conference Call of UFlex Limited. Before we begin, I would like to briefly introduce Mr. Arun Kumar Sharma, our President, Finance and Accounts and Chief Financial Officer. We are pleased to have him with us and look forward to his perspectives on the company's financial performance and outlook. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections and 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 results to differ materially from what is expressed or implied. Thank you. Over to you, sir.

Thank you, Surajit. A very good evening to everyone joining us today. On behalf of entire UFlex team, I extend a warm welcome to all our shareholders, analysts and other stakeholders on this call. I'm pleased to report that we have started fiscal 2027 on a strong note, delivering a clear acceleration in our overall growth trajectory. Building on the momentum established in Q4 FY '26, this performance reflects the resilience of our integrated global business model and operational execution. Now we'll discuss on UFlex's Q1 '27 performance, top line and earnings momentum. Consolidated revenue for Q1 FY '27 grew 38% Y-o-Y to INR 53,972 million. EBITDA rose 92% Y-o-Y to INR 9,198 million with EBITDA margin expanding 480 basis points Y-o-Y to 17%, marking our highest EBITDA performance in the last 21 quarters. With 80% revenue contributed by overseas operations and 20% by India, our incremental revenue was INR 14,753 million in Q1. Packaging Films, including chips contributed INR 12,093 million of the incremental revenue, while INR 1,988 million was contributed by the Packaging business. Normalized EBITDA post adjustment of INR 825 million on ForEx derivative transactions reached INR 8,373 million, which is 78% growth year-on-year, expanded to 15.5%. Our overseas operations contributed around 91% of the INR 4,410 million incremental EBITDA, reflecting a significant improvement in overseas profitability and driving the consolidated EBITDA growth. Consolidated net profit after tax and noncontrolling interest PAT was INR 4,233 million with a net margin of 7.8% compared to INR 580 million and a net margin of 1.5% in Q1 FY '26. Now we'll discuss on the drivers of growth. Overseas operations drive Q1 FY '27 growth and profitability. Margin expansion was driven by operational leverage, stronger realizations, pass-through of higher raw material costs, currency tailwinds and localized sourcing premiums. Overseas operations, particularly in Egypt, Mexico and Nigeria, alongside our India PET chips business served as a key growth driver of our profitability. Total sales volume for the quarter reached 173,471 metric tons, which is 1.7% year-on-year growth. The expansion of volume by 136,186 metric tons, which is 4.9% year-on-year growth, supported by preference of sourcing by the converters from local regional producers of film across international markets. Overall Packaging volumes slipped 8.4% year-on-year to 37,285 metric tons, primarily due to strategic shift towards high-margin products in India, flexible Packaging business and softness in Aseptic Packaging due to duty-free import at aggressive prices in Indian market, while overseas volumes were impacted by larger pack sizes mix and delayed -- some disruptions in consignment deliveries due to West Asia crisis. Next, I will provide some inputs on geography-wise volume split. In India, Packaging Films sales volume increased 9.1% quarter-on-quarter to 29,323 metric tons. On the domestic front, Packaging Films demand improved sequentially as converters and brand owners gradually resumed purchases since price normalization in May and June. Our demand softened year-on-year as Q1 FY '26 at a higher base due to temporary supply shortage in the industry. Americas sales volume increased 18% Y-o-Y to 31,724 metric tons. This was supported by the U.S. government push for domestic production and onshoring amid evolving trade policies. Constrained imports from West Asia and India are expected to sustain the positive volume growth outlook ahead. In Europe, sales volume was flat Y-o-Y and stood at 35,653 metric tons amid continued pressure from low-priced imports with demand expected to moderate next quarter due to seasonal holidays. CIS BOPET Film sales benefited from steady demand, while CPP volumes were impacted by increased low-priced imports. Middle East and Africa region volumes increased 16.5% sequentially and 14.9% year-on-year to 39,486 metric tons, primarily driven by strong local and regional sourcing as customers derisk their supply chains and West Asia crisis. Egypt led the growth, while Nigeria benefited from robust export opportunities and improving domestic demand. On our strategic expansion and CapEx front, we have incurred INR 4,782 million in CapEx in Q1, primarily allocated across 4 key projects. Egypt Aseptic facility, INR 1,236 million; Mexico WPP bags, INR 205 million; Noida Sector 155 recycling unit in India, INR 320 million; and Dharwad BOPP Line India, INR 215 million. We are making steady progress on key projects. 39,000 metric ton per annum recycling plant at Noida Sector 155 was successfully commissioned on April 30, 2026. 80 million unit WPP bags plant in Mexico was commissioned on July 31, 2026. Work on our Greenfield Aseptic project in Egypt, 12 billion packs remain on schedule for commissioning in FY '27. We enter FY '27 with multiple growth levers getting traction, including headroom for incremental production in India, Nigeria, CIS and Mexico. Additionally, we recently commissioned 39,600 metric ton per annum recycling facility in Noida Sector 155 and 80 million unit WPP bags facility in Mexico will progressively contribute to revenue and EBITDA as they ramp up. Higher utilization led by localized sourcing to derisk the unscheduled supply chain disruption and a shift towards value-added Packaging Films will remain our key growth themes, supporting sustained profitable growth. While Q2 is expected to see some normalization from the exceptionally strong realization in Q1, our underlying growth trajectory remains set, positioning us for FY '27 growth and continued improvement in earnings quality. Now we open the line for Q&A session.

[Operator Instructions]The first question is from the line of [ Kashmira ] from SM Advisory.

So my first question is, how are the price realizations shaping up in India and the export market?

Price, I'll give you a very specific, it will be difficult, but I can tell you that price realization is up 30% as compared to when the war started in West Asia. So our BOPET prices as well as BOPP prices have gone up. Almost -- BOPP prices have gone up by 25% and BOPET prices have gone up by almost 30%, 35% from -- to be specific from February '26 level to now, it is 25% higher on BOPP and BOPET rate is around 35% higher.

Okay. Got it. And my second question is, how are the raw material price trends expected to move in the future? And how correlated is that with the Film spreads going forward?

See raw material prices are also moving up, but not to that extent what the finished good prices are moving up because it is being normalized now and prices are, I think, getting normalized as of now.

Okay. And are we planning for any new geographies, product lines or M&A opportunities beyond the current CapEx pipeline?

See, right now, we do only greenfield projects and our project in Egypt Aseptic plant is up for commissioning, which will be done in H1, like we have said. And we are hopeful that we'll be able to announce it very soon that project is coming on stream. And that will give us a big flip on our revenue as well as on our bottom line.

Got it. And my -- the last question from my side would be, given the relatively higher margin profile of liquid packaging with the peer reporting improvement from like 5% to 6%, do we see an opportunity to further scale its presence in the segment to support our overall margin expansion?

Yes. Aseptic has been a little slower in expansion in this quarter. But going forward, that will be a key driver going forward. Because once our line comes up in Egypt, that will be a big revenue generator for us. Thus, we are also touching decent capacity in our existing Indian plant. So the Aseptic plant will be -- I think we'll have a good revenue and good EBITDA margin going forward from that.

The next question is from the line of[ Randhir Kumar Singh ] from [ Randhir HUS ].

[Foreign Language]

[Foreign Language] Because efforts of 1 quarter or 2 quarters, efforts of last 2, 3 years CapEx what you've done because [Foreign Language] it takes a lot of time in CapEx ramping up because any CapEx you put up, it takes 3 years to get to 100% potential. So whatever CapEx we are putting up now, you can see how those will unfold going forward. So whatever numbers we have achieved in Q1, they are very much sustainable. Going forward, I think we'll be -- the momentum is very strong and will continue to show better results because our CapExes are coming on stream now and more and more capacity utilization is getting in business now.

Sir, FY'27 as a top line or EBITDA margin [Foreign Language]

Generally, we should not give guidance because guidance in this today market scenario is very difficult. Things change very fast because of this geopolitical situation. But you were asking a specific question to just respect as an investor. I think we're expecting 35% growth in our top line in this financial year. And similarly, EBITDA also, we'll see the same growth coming up in this financial year as compared to last financial year.

The next question is from the line of Saket Kapoor from Kapoor & Co.

Yes, sir. Sir, in continuation to the earlier participant question. So [Foreign Language] quarter 2 will see normalization. So if you could just dwell better, that means what are we anticipate -- what should we work on in terms of normalization going ahead for Q2?

See, it's very difficult to benchmark anything quarter-on-quarter because a lot of things change in a quarter. But if you benchmark against year-on-year, so like I just said that whatever revenue we achieved in FY '26, we are going to achieve at least 35% more revenue in FY '27. And similarly, EBITDA also will be higher by the same margin in FY '27. So you should look more year-on-year basis because quarter-on-quarter fluctuations can be unpredictable also sometimes. Year-on-year gives a better perspective how the company is growing. So both top line and bottom line, you can expect a decent growth, 30% plus in coming year. And same growth will continue in FY '28 also because these CapExes, what are coming on a stream, this year where 2 have come on stream, 1 is coming up in the first half. They'll have a decent capacity utilization going forward. So they'll give a very high margin and revenue in FY '28 as well as in FY '29. So you should look at a long-term perspective till FY '29, we are seeing a visible and a very decent growth coming up because all the ingredients of growth are in place now. CapEx is in place. Capacity utilization is increasing. Our operational efficiency has come up. So all these factors will deliver a very decent growth to the company in next 2 years' time. So FY '27 will be a good year for the company, '28, '29, we see decent growth margins coming up all these 3 years.

Sir, as you mentioned that I'm not taking a myopic view, but just to understand and dwell further, when we look at our FY '26 revenue, it was INR 15,600 crores, I think INR 15,660 crores or something in that vicinity. And our profit before tax was to the tune of INR 420 crores, correct, sir? And now for this quarter itself, we have done PBT of INR 490 crores. So just to take that question forward, that 35% growth and the EBITDA part, we are already done with the year's profitability in the first quarter itself. So that was the reason why I would like to understand when you spell out that there will be normalization going ahead, what is the band that you are referring to that we must keep in mind in terms of factoring the word normalization?

See, what we mean by this is that you're right, a very valid question you were answering. This year, in first quarter itself, we are reporting a PAT of INR 423 crores, which is almost 6x higher than, I think, Q1 '26 year-on-year. But whatever growth we are getting in FY '27, we're getting growth from all the geographies which are in a very optimal tax bracket margins. So our tax expense is also going down quite significantly because we are generating big margins from Egypt, a big margin from European and U.S. territory plus Mexico, other places. So our tax expense will be much, much optimized because of these regions where we are present. That will give a big boost to our PAT margin going forward in FY '27. So normalization doesn't mean that we are talking anything something going down. Normalization means is that this quarter has seen a tremendous growth, but we are -- what guidance we're giving is that we'll grow by 35%, which is a very good growth in today's market condition.

When investors will look and compare Q2 results from the previous Q2, we are eyeing a minimum 35% growth in both top and bottom line. That should be the understanding.

See, in the beginning of my remarks, I told you very clearly, we don't benchmark any company quarter-on-quarter, you should benchmark year-on-year...

I just kept it year-on-year.

If you are benchmarking quarter-on-quarter, I can say that we'll not let you down. I think you are fully confident. We are also equally confident. But as a prudent and a long-term investor, you should always look year-on-year. Because quarter-on-quarter, some shipments can get missed because of West Asia crisis, something can happen on a shipment, some shipments get delayed here and there. One shipment can be huge difference in a top line. Say, 30th June, we are not able to ship something we shipped on 1st July, it will count in next quarter. So better you take year-on-year concept, that will be much better for you to analyze the company performance, which is going to be very healthy for next 3 years going forward.

Okay. Sir, now on the capital work in progress and my voice is echoing.

No, no, we can hear you clearly. Please go ahead.

Okay. Fine. Sir, on the capital work in progress closing balance, can you give some more color how is this number going to shape up with the Egypt Aseptic unit getting capitalized? By September, what would be the closing balance? And going ahead, what are our projects where we'll be putting further money?

Yes, yes. Good valid question. So I'll tell you for this year, we have 3 CapEx -- we have 4 CapEx, which we have done in FY '27 or planned in FY '27. First is Egypt one, which is coming up with a capacity of 12 billion packs, where we have already done a CapEx of over $100 million. And now only CapEx, what is remaining is $15 million. So not much CapEx is planned for Egypt now going forward. Similarly, Dharwad India, which is a Brownfield BOPP Line, where we have done a CapEx of $10 million. There we plan a good CapEx of around $50-odd million, which we are planning for FY '27 and '28 put together. Something will go in Mexico also. We have -- I think WPP bag is already announced, but we have done a CapEx of $54 million. And we're not expecting much CapEx to be done there now. So all CapEx is done. Noida Sector 155, we have done a CapEx of $32 million. So we are all done with that CapEx. So from this, you can see our CapEx cycle for this financial year is almost 75% done. And whatever CapExes are remaining, which are new CapExes of around -- if you put total all this will be around $100 million less $80 million CapEx we'll be doing going forward. So you can see from that, that whatever CapEx we are putting up, we are putting with a very judicious understanding that they should start yielding results in the next 2 years' time because whenever the CapEx is put up, first year, it is just 20% capacity, second year, it will be 50%, and third will be 100% capacity. So to keep the company growing consistently over years, we have to put CapEx. But you can see wherever we have put CapEx in Egypt, Dharwad, India, Mexico, they are all yielding very good results. And because of these CapExes, you can see our numbers are showing where they are right now. So these numbers are not just because we have done some magic in last 1 year. The efforts are going on for the last 3 years. That's why these numbers are coming up. And when I'm talking FY '29, whatever efforts we are putting this year, they will show a good result in FY '29. So it's a continuous process of putting CapEx, making those CapEx and earning the revenue because had this company been only present in India, then you would have seen we would be in a very tough spot. But because we are geographically so diversified, in this challenging situation also in challenging times also, we are delivering a very good margins to our shareholders, a very good top line growth to our shareholders, which will continue till FY '29.

Just to add to the Egypt part of the story, and I'll join the queue, that is 12 billion packs. So for this year, we will be ramping up the capacity and the contribution will be, sir, in what vicinity? And secondly, for the Noida recycling, it is INR 30 million or $30 million, sir? I missed your number, the investment.

Noida, we have done $30 million till now and which is the CapEx to be done, not more CapEx has to be done there now. And if you are seeing Egypt, which we'll announce commissioning very soon. I think the trials are going on there. And the first year, if everything goes fine because plant -- a lot of technical, practical things to happen there. we can see around 30% capacity being utilized there. So out of 12 billion packs, what we annual capacity, we can do 30% in first year. Second year, certainly, we'll reach around 60% to 70%. And third year, we'll reach around 100% capacity there. So you can see how the buildup will happen, but Egypt being our second largest manufacturing site from UFlex global perspective, we are very well, I think, there to launch it very soon now, and you see the results coming up in Q3 and Q4 also.

Okay. And sir, about the BOPP...

I'm sorry to interrupt, sir, can you rejoin the queue?

Yes ma'am. I will rejoin.

The next question is from the line of [ Ritesh Parekh ] from NV Alpha Asset.

Congratulations on a good set of numbers. Sir, I just want to understand this recent price in BOPP and PET price, are they stable at this higher level? Or how is it, like, how one should be looking at it?

See, prices are quite stable as of now, but we don't see any major correction in the prices, but these are global situations evolving every day. Till this route remains high and this crisis keeps on happening in West Asia, we see the prices being in the vicinity what they are currently. But if everything normalizes, you may see some correction in the prices, but our raw material sourcing and our finished selling prices will have the same margin what we have now. So we are not much concerned on the pricing front. We are concerned that whatever margins we make, we should continue to hold those margins. And we are confident that we hold those margins throughout the year.

Sure. That's helpful. Secondly, what should be the EBITDA band we should be looking at on an adjusted basis ex of currency, what we reflect around 15.5% current this quarter?

The currency is only INR 70 crores. It's not a big amount. And INR 70 crores on INR 5,000 plus turnover is very minimal amount. Currency is not impacting much our margin. And it is INR 70-odd crores, which can go here and there in every quarter end, you never know. So don't read too much in that currency because it can be negative also next quarter. So I think you should read the margin as what I've given the guidance in the beginning that we'll have 35% growth as compared to last year in the margins in FY '27. And similarly, on the top line also, we'll have that growth.

Okay. And in terms of debt, should we consider this is the peak that we have reached as of now from the immediate CapEx point of view?

See, first of all, let me just tell you, don't link CapEx and debt. CapEx we're doing for growth. And if we don't do CapEx, how we grow. So whatever growth you are seeing in the company today has been the result of CapEx we've done 3 years back. Today, what CapExes we'll do, that will give us a good growth in FY '28, '29. So CapEx, we have to do because we can't be restricting ourselves in one geography. Otherwise, the company will not be able to sustain all these geopolitical pressures, competition and other things. So we want to be near to the customers. Whenever we have a big market, like you see in Middle East, we cater through Dubai facility. In U.S. and other places, we cater to a Mexico facility. In Europe, we cater through our Poland and Hungary facility. And in Nigeria, we cater to African customers. All customers are catered. Mostly, we are trying to be near to the customer so that this geopolitical what is happening when shipment becomes so difficult from one place to other places, it won't affect us. So we are derisking our top line model in such a way that we are present at least 75% of our turnover should come from near to our customer policy, that is what we are adopting. So that is on the CapEx front. On the debt front, I think we are very, very conscious of this that our debt was higher in FY '26. Our debt-EBITDA margin was around 4.5x, which you would see in this quarter itself, it has come down to 3.5. And going forward also, we'll ensure that we retain the same kind of leverage what we have as of now. And this leverage will come down by end of FY '28 much lower once all these capacities, what are utilized, not to the 100% become 100% capacity utilization, then you see our leverage going even below 3x by FY '28. So we are very much conscious, aware of this fact that leverage has to be under control, which is under control because we are paying all loans on time, all interest on time. So that is least of a worry. Our worry is that we have to grow with the complex environment what we are operating in. And we should give good growth to our shareholders, which is around 30% each year on bottom and top line. That is our first target. I hope I've answered your question.

Yes, sure. And sir, the last question. You have mentioned that Aseptic Packaging, we are seeing some dumping and aggressive pricing in the imports. So is it normalizing now? Or how is it like?

So what has happened in Aseptic, we are getting a lot of duty-free imports from Indonesia, where India has signed a treaty where duty-free imports keep on coming. But Indian market is -- consumer market is growing at least 5% to 8% each year now. So the demand is also increasing. So we are hopeful that even despite this dumping by Indonesia, the volumes requirement in India and other markets will be much higher. And this quarter, of course, our volumes have not grown so much. But value-wise, we have grown because whatever value addition price we're getting because now we are moving from normal Films to value-added products, which can give us a better realization. So those are being done very aggressively now. So from Q3 onwards, you see Aseptic coming back on track, which was a little, I think, volume-wise, not the price-wise. It was a little slow in this quarter. Next quarter it will pick up. And then because all this packaging industry is more linked to the consumer growth or FMCG growth in India, which we are seeing very good growth coming forward now because middle class income is expanding from INR 20 crores to INR 30 crores now. They'll be buying all these materials. And Packaging is something which is very integral to our growth in India. And everything in India is getting, I think, dispatched now. It's not people don't go and buy from the market, they order. So Packaging becomes a very critical thing now. So you see Aseptic Packaging is going to be a big driver of growth for the company going forward because it improves the quality of the product, it improves the life of the product. It improves the aesthetic appeal of the product. So all these are going to help, and we have a capacity -- installed capacity of almost 24 billion there. And I think we'll be using much of the capacity by the year-end now.

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

Congrats on great set of numbers. First question on the Egypt Asepto. So by when do you see this plant getting commissioned? And have we received all the necessary approvals and accreditations from customers already?

Yes, yes, those things are in progress, and we are very advanced on those things as of now. And that is why we are confident that in H1, this should be commercialized because I think we have got almost all the approvals now. And -- but seeing the geopolitical scenario, we are saying H1, it can be a little bit here and there, 1 or 2 weeks here and there, but we are targeting H1 as of now.

Okay. And you mentioned 30% utilization for the current year. So 30% for 6 months or it was 30% annualized?

It will be annualized because we don't talk of a broken period. We should always take annualized numbers into account. And I think maybe once we again get assembled in Q3, you'll see the impact of the numbers.

So you are expecting close to 2 billion packs in terms of volumes from the Egypt facility in the current year?

Yes, it should be around that. 2 billion.

Chirag, Surajit here. So basically, what Arun is mentioning is that 12 months in 1 year post commercialization, that will be the number we are targeting.