Uflex Limited (UFLEX.NS) Earnings Call Transcript & Summary

[Operator Instructions] The next question is from the line of Kaushik Poddar from KB Capital Markets.

Yes. You talked to the challenges last quarter. But if we look at the results of 2 comparable companies, one from the film side and one from the packaging side, Huhtamaki from the packaging and Cosmo First in the film side, both have shown much better result than what you have shown -- what you have done. So can you explain the difference? Why is it so?

Okay. Let's first compare with Cosmo. Cosmo has one line of BOPET and rest their entire capacity is the BOPP films, okay? So they were the largest beneficiary of this unfortunate incident at...

On the BOPP side, yes.

On the BOPP, so they were the largest beneficiary. So as I said that BOPP currently, the margins are around 30%, while the PET margins are about 20%. So obviously, they -- because of the short supply, which is being met by way of an import, so they continue to get the maximum benefit because they have a much higher capacity. And there -- one of the new facilities came on stream around that period when there was a fire. So they actually had an existing capacity and their new capacity also came on stream. So they've been the clear beneficiaries of this shortfall position today. We have more of a BOPET capacity than the BOPP capacity. Our BOPP capacity in India is 33,000 tonnes -- sorry, 31,200 tonnes in India versus our PET capacity of 110,000 tonnes in India.

Okay. Mix is adverse for you.

Sorry?

The mix is adverse for you compared to Cosmo.

But this adversity can at times -- depends on the situation also. [Foreign Language] we would have been the major beneficiary of this. And vis-a-vis Huhtamaki, I think, with the new management in the last 1 year, they restructured their whole business. So they have sort of stopped their -- all -- some of the loss-making units. So they had a very wide spread out. So they've closed some of those facilities and all. So I think there is a one-off impact, which is -- which was due to come in this. But if you ask us that is there -- have they gained on volumes or have they gained on a price parameters better than us? No. They've only done restructuring in terms of closing the unviable unit and bringing the -- compressing their production facilities into a few core manufacturing units only.

Okay. Okay. Fine. And the next question is, this year, you are projecting a 5% growth for the whole year, 5% revenue growth. Can we expect around 10% growth in the next year at least?

So next year, I think, we can expect 10% growth, depends on the projects which come on stream and the timing of that is quite key. I think, we still have time to get to that. So more closer we are to commissioning of those facilities, I think we'll be able to give you more precise guidance.

Okay. And have we -- can we expect that the margin low we had seen last quarter, from that level it will be better this quarter onwards?

This quarter, so that is where we've said that the total EBITDA for the whole year, we're now looking at INR 1,800 crores to INR 1,850 crores range only.

Which was the case last year also?

Last year was INR 1,700-odd crores. So this year may be slightly better. And we had earlier said that we are expecting in the range of INR 2,000 crores to INR 2,100-odd crores, the EBITDA, driven by a 10% volume increase. But looking at the things the way they are now, I think we have no option, but to revise our guidance to a top line of 5% growth and a bottom line of -- and an EBITDA of INR 1,800 crores to INR 1,850 crores range.

Okay. And as of now, you are holding back any projection for the next year?

Yes, yes. We'll get to that in either at the end of the next quarter's earnings call. I think that will be more appropriate. We'll be -- we'll have more insight as to how the projects are taking shape.

Okay. But -- and as of now, all your 4 projects will be operational by first quarter of next year?

Yes. I think, Q1 should see definitely the -- all the projects getting commissioned. So out of 4, 1 is already commissioned, the India aseptic facility. So now we have 3 remaining. For recycling, I think surely, it will get commissioned by March. The other 2 WPP and aseptic in Egypt may go to Q1 FY '27.

Okay. Okay. And on this thing -- on the recycling front, you expect good capacity utilization from next year onwards because your plant is coming anyway in March next year?

Yes, definitely.

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

Sir, first, if you could just give some color on how the utilization levels have been for the first half across all the plants across the geographies.

[Foreign Language] I think you can have a look. [Foreign Language] Dubai is better. Egypt is -- just one second. Just give me a moment. Okay. So we have -- on a year-on-year basis, we have seen India is better. Dubai is better. Egypt, as I said earlier, is down on a Y-o-Y basis. Nigeria on a Q-on-Q basis is up, but a little bit down on Y-o-Y basis. And then we have Poland down, Hungary down, and Mexico is up. So on an overall basis, on a Y-o-Y basis, we are minus 6% in production volume in the packaging film business.

Sir, when we look at the employee cost also and the other cost efficiency measures, which will directly flow to the bottom line, have we structured out any such project of cost efficiencies because we are a very large organization across several geographies. So there are several costs, which may be rationalized in these times when the going is tough. So any project on which we are working wherein we are looking to lower the cost or improve efficiency?

So we keep on doing that as an ongoing exercise. [Foreign Language] We keep on doing that. So there is no specific one-off task that we take to sort of do that. We're pretty well aware of what are the manpower costs. So at times, there are manpower even if the project is delayed in commissioning and you've hired the people based on a particular target of commissioning, but now you have to hold on to them. You can't say if my project is delayed by 3 to 6 months, I'll ask the people to go and again hire them. That's not going to happen. So we're pretty much aware of where we can save costs, and we keep on -- and that's an ongoing exercise that we undertake. Having said that, there is always more focus on as to how to increase the top line, how to improve the margins, which are always, in any business, are largest mover -- needle movers as compared to cutting some of the costs here and there and demotivating the whole organization. I've seen in many organizations, people try to cut costs in the travel, in this and all that. And I think if we focus on the right energies in a growing business, you will ultimately feel better off. Yes, there were headwinds, which we all know during this first half of the year. And I think with all of them are now behind us, we'll see better -- if we all believe that in India, with the recent -- what the government has done, there will be a consumption boost. So we, as a packaging industry, will have a major share in that growth as well.

Right. Sir, and secondly, on the duty protection part, since we are seeing a lot of dumping from various geographies into the country. You mentioned about BOPP as well for BOPET also significant quantity in percentage terms. So are we looking for any duty protection of ADD or think we are moving through the association on the same? Or what is the current steps we are taking?

None of the businesses are impacted in such a way that they are bleeding. So I think the government looks at such kind of a request only when the industry is down in dumps. It's not. So I think there is -- hopefully, that time should not come. But currently, I don't think so there's anything that can happen. Otherwise, recently, you would have seen last few days, the government has taken a lot of polymer items from a QCO. So there is no more BIS required for import of those items into the company. So that's more a relief to China being given and that impacts large refiners and all that where POY, PSF, all of those businesses, which were protected because of BIS norms compliance may see a higher level of imports because that QCO order has been withdrawn across a very large gamut of items.

Okay. So does that affect anyway in the packaging industry or the film industry also?

[Foreign Language].

[Foreign Language]. Okay, sir. I'm not aware of that. So what is this pertaining to, sir? This is pertaining to the raw material, if you can explain for the benefit.

So there are a lot of polymers like POY, PSF, then even your PTA, MEG, which were had -- you had to have BIS compliance certification. They have all been taken off the list, which means that from here on, there is no BIS certification required when you import those items. And this has not been done only for China. This is done for all the countries. So there will be increased competition at least in the polymer industry from the imports.

Okay. And last 2 points, sir, about this new plant, the BOPP plant, I think you were mentioning about that we had some obligation to set up this plant. So what are the exact metrics for the same? I think it's a INR 750 crore project that we are undergoing. And what would be the time line for the same. And...

[Foreign Language]. So there are some benefits being given under the state policy for the -- when you meet a certain investment criterion. So we'll get those benefits for this facility.

And again, the demand metrics works for us to add an existing line? We do not have a larger proportion of BOPP. That is also a correct understanding?

[Foreign Language] capacity because of that fire has got impacted. [Foreign Language] and all that, with all those question marks around, I think the other industry players may based on their sort of business prudence may take investment decisions.

Only point for us for investors is that debt number, which, Sonthalia sir, was also mentioning. Taking that also into account any progressive way by which do we have anything in the consideration where we can lower the debt faster or we will follow that, I think some 2.5x debt to EBITDA, some number you have given earlier. That is what we will follow the path going ahead?

I definitely don't feel that 2.5x is an achievable number, which that will have to be predicated upon. As I said, by FY '27, if there are no further investment proposals, the debt gets down by INR 500 crores from a current level of the debt, which is INR 7,750 crores, the net debt. So -- but if you take that in the context of the additional EBITDA that we can make from this, so if we have an EBITDA of INR 2,500 crores, INR 2,600 crores, and the debt is INR 7,300-odd crores divided by INR 2,600 crores, then we are looking at 2.8x. Now as you do the business and as the opportunities come, there may be more investments decisions in the future as well. So based on the current metrics, I think, we can look at, at around close to 3 numbers when the EBITDA from these new investment also kicks in.

Sir, just to take the industry prospect, this is the nature of doing film business that we need to carry this amount of debt along and growth is only be possible from the debt-oriented way, that is how globally also the film manufacturers do business? Because in other players, we see that the debt numbers are not exactly that high. Just to understand sir [Foreign Language].

[Foreign Language] There may be other plans around that if that money also gets raised. [Foreign Language] we are regular in touch with our bankers in U.S. For the public markets, they are saying -- they are not giving us the confidence. And also because of the fact that when you were working on those numbers, your EBITDA in those years in your international business was at the highest level. Now thereafter, the business performance has suffered because of multiple reasons in the global part of the balance sheet [Foreign Language] Nigeria devaluation. The fact of the matter is at a PAT level, those businesses are still -- because those businesses are only packaging films business, what we were taking to the market. And that time, their profitability, their multiples, everything was different. Today, they are different. So -- but we'll do at an opportune time. [Foreign Language] there will be opportunities in the next couple of years. So then that will be a good opportunity to have cash on the balance sheet and use that cash to do further investments rather than taking further debt on to the balance sheet.

And for the stand-alone level, sir, taking into account, although we have not seen any fresh offering from the film segment, though there are a lot of fundraising exercise happening across the country, the IPO market, the follow-on public market, all are at lifetime high. So does it warrant any merit for us to go for equity raising or at the company level here, projecting of what we are projecting in terms of the profitability graph 2 years down the line? And does film industry does command...

At company level, I don't think so that's going to happen given the current shareholding level of the promoter family. But at a subsidiary level, this may be a possibility. But I can only say up to this. Beyond that, there is...

Yes, sir. Even that is a distant possibility, not that is [Foreign Language] that you have already alluded to. Correct. Hope for better time, sir, next time when we speak.

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

Sir, actually, there are a lot of new capacities are coming in BOPP film. So again, we are setting up our BOPP film by 2028. And as per my understanding that lots and lots of capacity is coming. So by the time our capacity comes, there are fair chances that there will be very high overcapacity in the market. So whether it is viable to set up a plant?

[Foreign Language] Obviously, people will try to fill up that capacity. [Foreign Language] Yes, I can only say that it's not only us, it is the other people also who are seeing this opportunity and will put up the capacities, but [Foreign Language]. I know what you are saying is, but can you always time the -- if there is some business where you have to stay relevant, you don't have to make your market share drop, so you have to look at. You can't time the market. [Foreign Language] when the returns are high, we've seen it in COVID times. BOPET [Foreign Language] and look, where are we now. If FY '24, where we were [Foreign Language] BOPET, after the lows in '15, '16, [Foreign Language] capacity utilization across industry levels [Foreign Language] when the capacity utilization levels across the industry had even improved to 80% above. [Foreign Language] Because the utilization levels were already high, people made extraordinary profit in those couple of years. [Foreign Language] with the money already earned, everybody came to install new capacities, so [Foreign Language]. If you want to remain relevant and remain -- retain your market share [Foreign Language] rather I always feel [Foreign Language] you will have the gains. Now we had the gains [Foreign Language] because of your supply chain getting disruption [Foreign Language]. We had a head start to this. [Foreign Language] continuously in line of business where you are, you have to remain relevant and you have to protect your market share.

[Foreign Language].

[Foreign Language] Another 2 years, I think.

It will take another 2 years [Foreign Language]

But I'm happy to be guided by you on this because you have more insight.

[Foreign Language]. And sir, whether we can restructure our loan to reduce our rate of interest?

[Foreign Language].

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.

Thank you for joining us today. We appreciate your time, questions and continued support. The transcript of this call will be made available shortly on our website at www.uflexlimited.com. We value this platform as it enables us to engage meaningfully with our investors and stakeholders and look forward to keeping you updated on our progress in the coming quarters. Wishing you all a pleasant day. Thank you.

Thank you.

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