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EPL Ltd
Earnings Call Analysis
Q2-2024 Analysis
EPL Ltd
The company has observed a significant increase in interest costs, attributed to the high interest rate environment in the western world and external borrowings for a greenfield project in Brazil. This has led to a spike of around INR 31 crores this quarter. Although this trend is expected to continue for the next 2-3 quarters, there is an anticipation of softening interest costs in the foreseeable future, which will positively impact the profit and loss statement.
Americas have shown moderate growth at 6%, excluding Brazil, with an expected acceleration ahead. The region is undergoing a P&L improvement, reflected by mid-teens EBITDA margins with prospects of further increase. Europe's growth remains modest, but steady at around 5%, which is not concerning given the continent's economic status. The company aims to replicate the Americas' success in Europe by committing to mid-teens margin growth, acknowledging the need to either boost growth rapidly or adjust the cost base in Europe to achieve this goal.
The CEO clarified that losses incurred thus far are related to the start-up phase and not indicative of steady-state operations. The company projects that by FY24's end, they'll not only reach breakeven but also yield positive EBITDA margins, contributing positively to the overall business from FY25 onwards.
The company has reported interest from multiple potential clients, including big multinational players, in their business offerings. This surge of interest could lead to expanded facilities and additional production lines to service upcoming large customer orders, leveraging already established civil work and utilities for easy scaling.
The company has seen a negative impact on revenue numbers due to a negative price mix, which is expected to persist for another quarter as the company unwinds from higher input costs. Despite this, the CEO expressed confidence in continued solid absolute EBITDA growth, supported by strategic price management initiatives, manufacturing realignment, insourcing, and targeted automation efforts. Such initiatives are part of a broader plan aimed at not just improving margins but driving the margin agenda forward.
In aiming for mid- to high teen margins, the company has begun rectifying factors that eroded margins in the Americas, particularly those related to input costs and operational challenges brought on by COVID-19. The company is confident that these issues are being unwound and margins are on an upward trend. Additionally, the inclusion of Brazil, which is expected to contribute margin accretive results, will help further improve the Americas' overall margins, with the potential of surpassing historical levels.
EPL's strategic shift from being primarily an oral care company to focusing on Personal Care and beyond represents a significant change in the company's trajectory. With new competitive technologies like Neo Seam and a revamped back-end for agility, along with a fortified sales team, the company is set to intensify its ambition for the Beauty & Cosmetics segment. These changes promise to accelerate growth in a marketplace where cost-effectiveness and reduced plastic usage are increasingly valued by customers.
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Ladies and gentlemen, good day, and welcome to EPL Limited Q2 FY '24 Earnings Conference Call hosted by Systematix Institutional Equities.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix. Thank you, and over to you, sir.
Thank you very much. Good evening, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged in this conference call of EPL to discuss Q2 FY '24 results. From the management, we have with us Mr. Anand Kripalu, MD and Global CEO; Mr. M.R. Ramasamy, COO; Mr. Deepak Goyal, CFO; Mr. Shrihari Rao, President, AMESA region; and Mr. Onkar Ghangurde, Head of Legal, Company Secretary and Compliance Officer.
At the outset, I would like to thank the management for giving us this opportunity to host the call. I would like to now welcome Mr. Anand Kripalu to start the proceedings by giving his opening remarks. Thank you, and over to you, sir.
Hello, everyone, and very good evening, and welcome to the Q2 FY '24 Earnings Call. I just hope my voice is clear and audible. The operating environment continued to move in the right direction with relatively benign commodity costs. During the quarter, significantly, EPL crossed INR 1,000 crore revenue for the first time and also delivered the highest ever quarterly absolute EBITDA of INR 181 crores. Specifically in Q2, EPL posted a revenue growth of 5.6%, impacted by softening commodities, which necessitated some pricing pass-through.
Excluding Brazil, the underlying business growth was 4%, broad-based across all regions. MSR grew at 5.5% impacted by the devaluation of the Egyptian pound. India stand-alone, however, grew by 6.9%. ESP continued its strong performance with double-digit growth of 13.2%. Europe grew by 5.5% and Americas by 6%. Interregion elimination led to the overall growth being 4%. Our continued focus on Personal Care and beyond has seen success with the category now contributing 48% to our total sales in H1. Importantly, our journey on EBITDA margin recovery continued very strong.
We delivered a solid EBITDA margin of 19%, which was an improvement of 267 basis points year-on-year and 103 basis points sequentially versus the previous quarter with an absolute EBITDA growth of 21% year-on-year. This is the result of, of course, some softening costs, coupled with active price management, mix improvement and significant P&L productivity.
This is the fifth straight quarter of EBITDA margin increase, reposing confidence in the ability of this business to sustainably deliver industry-leading margin. Net profit for the company grew by 50.4% and ROC also improved to 16.5%. Including Brazil, EBITDA margin stood at 18.1% and absolute EBITDA and PAT growth was 18.3% and 9.5%, respectively. Specifically, on Brazil, our plant is scaling up really well. As you know, it's a state-of-the-art manufacturing facility integrated with SAP HANA.
In the first full quarter of operations itself, Brazil reached over 80% of the lead customers committed volume. It is poised to fulfill the lead customer demand in the next few months and can open up to take other customers' orders. In fact, we have already produced a few sample batches for validation and are confident of expanding the customer base in the near future.
Moving on to sustainability, innovation and so on. We continue to make progress towards our ambition to be the most sustainable packaging company in the world. External recognitions and awards further validate that we continue to move in the right direction. As you are aware, we were assessed as gold by EcoVadis, which puts us in the top 5% of all manufacturing companies worldwide. As shared earlier, we have launched a company-wide effort towards EcoVadis Platinum, which will put us in the top 1% of all companies worldwide on sustainability. It is important to note that our key global customers like Colgate, Unilever, P&G and so on have announced bold targets to move to recyclable packaging in the very near future.
Our strong portfolio of recycle tube, back-end capability through substantial investment over the past few years, coupled with sustainable processes, puts us in a very advantageous position to capitalize on this opportunity. All this while contributing towards making the world a better player. So looking ahead, what do we see? And there are 2 legs to our agenda for looking ahead.
The first is driving revenue growth. And the second is margin expansion. Clearly, one of our key priorities is to accelerate our revenue growth towards our stated ambition of double-digit growth. To achieve this, we are taking 2 key initiatives building on everything else that we are doing already in the business.
The first is an even more aggressive play in Personal Care and beyond of which Beauty & Cosmetics is the largest segment. Now this is a very large category of 25 billion tubes while EPL has about a 10% share. Now as you know, we have been growing at a fast pace in this category, and it contributes 48% of our revenue already.
However, the opportunity and headroom for accelerated growth remains very large, and this is a big, big focus for us. To capture this opportunity, we have strengthened our portfolio through multiple innovation such as near seam elimination called Neo Seam, high-end printing and decoration capabilities. This has improved our right to succeed significantly.
Further, we have invested in the back end to deliver requirements of smaller customers in the Personal Care category like short and smaller bag sizes with frequent changeovers and so on. Finally, we are strengthening our front-end team through additional head count and reskilling for us to aggressively hunt down additional volume. So this is all what we are doing to accelerate our growth within Personal Care and beyond.
The second leg of our growth agenda is to fully capitalize on the Brazil opportunity. And as I mentioned before, we feel very excited about this. We have only just started and believe there is significant opportunity to expand and grow. The second leg or looking ahead, apart from revenue growth is margin expansion. We have consistently improved our margins over the last few quarters. In this process, we have developed some important muscles like active price management and strong middle of the P&L productivity. We continue to have a very strong pipeline of initiatives that will help us continue the journey on margin improvement and take us to 20% plus margin.
To summarize, our priorities going ahead are to continue the growth momentum in India and China and deal with some demand softening in Western geographies, accelerate Beauty & Cosmetics through innovation and back-end capability, ramp up Brazil volumes and expand the customer base there, leverage our sustainable portfolio to drive customer conversion and wallet share gain as our customers themselves strive to achieve the commitments that they have made.
And finally, continued focus on margin improvement through mix and cost efficiency, efficient capital allocation and manufacturing local location optimization. So in continuation of past quarters, we remain focused on driving growth with margin expansion and remain confident about our ability to deliver double-digit growth with margin improvement.
With that, I'll open up the line for questions.
[Operator Instructions]
The first question is from [ Nilesh ] from Royal Bank Junior.
Yes, Yes. I think the firm's name was mispronounced. I'm calling from Julius Baer Bank, right? So thanks a lot for your very comprehensive opening remarks. I saw in your presentation, there is a section where you are talking about recycled tubes, and this is about 10% and you wanted to go to 20% and there's a glide path going forward. Can you talk a bit about 2 aspects, first, do you also -- what is your role in the supply chain to enable the recycling to happen?
And second, is there the advantage that you have from a margin point of view, as you substitute your sort of normal tubes to recycle tubes?
Sure. And your name is correct, right, Nilesh?
Yes, yes, yes.
Okay. Perfect. Only the firm's name is wrong. All right, good. So yes, so as far as -- so the question, the thing is this that we have technology that allows us to apply recyclable tubes to our customers. Last year, 10% of the tubes that we applied were recyclable. And this year, we expect it to be over 20%, and we expect it to accelerate very dramatically, right, over the next couple of years as the customer commitments also need to get achieved. And therefore, they are putting pressure on us, right? Now there are 2 aspects to this, right?
We believe that we have amongst the best recyclable tube in terms of just the thickness, the use of the plastic and barrier properties, but importantly, also have the best back-end capability and capacity to be able to supply these recyclable tubes around the world, okay?
Now as far as the second part of your question is concerned about margins, I mean this is a question I've addressed in the past. In the area of sustainability, charging a higher margin versus chasing market share is a strategic choice. You can choose to try and make a higher margin and put a backdrop dispersion and make it more difficult for convert. What you could say is I will supply to you at pretty much the same price, give or take a bit, right? Cover your margins fully, [indiscernible] amount of money maybe a bit more, be sure that you will be able to supply them, so that the conversion happens. And while just to help customers, you do this in the quest to also get a higher share of wallet. It's the right thing to do for a company where sustainability is an important driver of our business.
Right. Right. No, that makes a lot of sense. I think the only sort of insight that I was looking for, is that -- is there an IP or an edge in terms of how -- in terms of recyclable tubes versus normal tubes and does that allow you to sort of build a deeper relationship with your customers?
So the thing is this that everybody will ultimately have to have recyclable tubes, otherwise, they will go out of business. Okay? Question about this game is, are you one step ahead always compared to other people? So are you able to provide solutions ahead of others? Are you able to do it with less use of plastic? Are you able to create better or deliver better barrier properties? Are you able to deliver better declarations and look and feel like see-through tubes or metallic finished tubes that are fully recyclable?
So this game is about staying one step ahead. Now we believe that we are currently at least one, if not several steps ahead of other players when you look at this into your talent, okay? But the work on R&D and staying one step ahead, right, is something that you have to keep doing.
Now a couple this with the fact that you require CapEx and enhancement in the back end to delivery, right? Exactly the same machines cannot deliver the tubes at the same capacity. So you need to do unlocks. And that's something we have been doing for the last 2 to 3 years to make sure that we are recyclable ready in terms of our capacity. And today, 85% of our capacity is recyclable-ready. So if you look at this in totality, right, that gives you a source of competitive advantage, at least that's what we see.
Next question is from Sameer Gupta from India Infoline.
So firstly, I see your...
The mic is to close the amount.
Is it better now?
Yes.
o sorry for that. So one thing I noticed during the quarter is that interest costs have seen a spike around INR 31 crores this quarter. And I see there is no material change in the net debt or lease liabilities in the balance sheet. So any particular reason where there is an interest cost perspective, how should we model this going forward?
Yes. I'm just passing on to Deepak, our CFO.
So the interest cost increased the combination of the hard interest rate scenario, which continues across the world, but more specifically in the western side of the world, both U.S. and Europe. We have taken our debt for our Brazil CapEx, which is a greenfield CapEx and we kind of funded through external borrowings. The interest rate in resi and for that matter in South America kind of is high and that reflects in the interest cost.
Got it. And this is going to continue for the foreseeable future, I believe.
I think that probably for next 2 to 3 quarters, probably the interest rates will continue to kind of stay hard as kind of everyone is predicting. But hopefully, after that, we should start seeing some softening in the interest costs, which will then flow into the P&L as well.
Got it. Second question on Europe and Americas. I see the growth here continue to be subpar. Americas, if you adjust for the additional sales of Brazil, it is still a mid-single-digit kind of a growth. Europe also around 5%, 5.5%. So what is basically going on here? And what is the outlook in this part of the business?
So I think I'll address Americas and Europe separately. I think as far as Americas is concerned, and we are talking excluding Brazil for now. Having said that, Brazil is organic growth for this business. Ultimately, we must look at it including Brazil. But since I have read out Americas growth at 6%, excluding Brazil, let me comment on that. I think you should expect to see some acceleration of the Americas growth as we look ahead. But you will also see that there has been a significant P&L improvement in terms of EBITDA margin in the Americas, okay?
So I think we are focused on making sure that we fix the P&L for the Americas, right? And you can see now we're at mid-teens margins, right? And we are hoping for that to even go up further right? And a lot of the other initiatives that I talked about, particularly on BMC, where we actually have the smaller shares in the U.S., for instance, right?
That acceleration is going to help us to accelerate revenues in the future. But the good news is that we would have kind of fixed the P&L. So the accelerated revenue will actually yield dividends back to the business. I think as far as Europe is concerned, I think we have -- I mean, yes, the growth is modest, if at all, but 5%, 6% growth is not a disaster in Europe. If you think of what's happening in the continent, our bigger challenge in Europe is to fix the P&L like we've done for the Americas, right?
And I just want to say that we are seized of this issue. This issue has been going on for many quarters now, right? And currently, we had fixed the -- sorry, just give us a second. Yes. So the EBITDA margin is something that we need to fix. We have currently structured our cost base in Europe for higher levels of growth, and I think what we are very clear about today is that either we quickly accelerate growth in Europe or else, we start ruling the cost base, okay? And we are sealed with this, and we are committed to delivering mid-teens margins in Europe.
Having said all of this, I just want you and others on this call to recognize that Europe accounts for about 5% of our total EBIT, okay? So that's the materiality of Europe, right? So while we are seized for fixing it, it's not something that is significantly moving the needle adversely for EPL as a whole.
Got it, sir. Just a follow-up on Americas. We had an expectation of margin improvement because there were some one-off insurance-related costs. So how much of this margin improvement that you're seeing, 15.7%, is because of that?
The insurance cost, the higher insurance cost is actually a structural issue in U.S. because the insurance laws have become fairly stringent. And because of that, our insurance costs have gone up. We are working on a couple of projects which involve capital investments as well as efforts to bring it down the structural. Those projects will stratify by Q4 of FY '24. So even in 15.7% margin, we continue to incur the higher investment costs. Post Q4 of FY '24, we will start seeing the benefit of lower insurance coming in.
So directionally, I think you should take away that we are absolutely committed to delivering mid- to high teens margins for the Americas, okay? And this is a step in that direction. I think that's what you need to probably take away from this.
Next question is from the line of Sanjesh Jain from ICICI Securities.
First, again, on the recyclable tubes, you did allude to tell us that the tube pricing was not really very different for our traditional laminate tubes versus the recyclable tubes. Can you give the entire economics? Are we even same at the EBITDA level? Or are we incurring higher costs there? And an increase in the renewable tubes, we are looking at going to 60%, is it dilute or will it be a margin accretive of a larger mix [indiscernible] scale?
Yes. No, no, it will absolutely not dilute. I think the question earlier was about taking a premium, right, for these tubes that make a higher margin. In the worst case scenario, right, we will make as much money as we are making today, right? We will not dilute, the margin per million tube or the percentage margin that we make, right? So I think we are very, very clear about that. The question is whether we will make more margin or not, right? And we have said, strategically, we do not want to be opportunistic. As far as this is concerned, we want to invest with our customers for the long-term growth of sustainable tubes, right, as a larger industry and that is the decision. That's why we are playing it the way we are playing it.
Got it. Just one related question. I think Colgate is largely backward integrated, if I understand it right, for their own tubes bought in India. And does it give us an opportunity to penetrate deeper into Colgate as a global account?
Well, we would love to. And it is something that we are absolutely seized of. Now it represents a big structural model change for Colgate and whether they will open up their doors to outsourcing the tubes or not is the larger question. But we are looking at it step-by-step when we start supplying laminate, printed laminate, can we do whatever we can to make inroads, but I think that's an absolute opportunity, right? And we are exploring everything that we can as far as that is concerned.
But any initial thoughts, anything you can share? Do they have that much of a technology bandwidth because this is not something which is a [ code ] for them, right? Any initial thoughts, you have discussion because they are our customer as well, right?
Of course, they are. And all I can tell you is we are very pleased of this opportunity, right? I mean they're the biggest oral care player in the world. We are very pleased with this opportunity. We will do everything we can. We will leave no stone unturned. But beyond that, to share here what conversations we are having with the customer and so on, I think is not appropriate, honestly, right? But just recognize that we are pleased with this, and we will do everything we can.
Fair enough, sir, fair enough. Just again, extending the same recyclable tube. We are looking to grow big in Beauty & Cosmetics kind -- extruded tubes are very popular in that segment. And they are naturally recyclable single plastic. They qualify for most of those qualification. Given the scenario, do you think the conversion from an extruded tube to the laminate tubes in Beauty & Cosmetics can actually be slower in a scenario of growing recyclable tubes?
So we actually think that we absolutely can convert. And I think what's the right to win our laminated tube. First of all, the barrier to conversion to laminated tube historically was the cosmetic appeal of the tube because of the side seam. And I called out in my opening comments that now with near 0 seam, which we're calling Neo Seam technology, right, we are able to almost eliminate the negative cosmetic appeal of the same, right? So that's the first thing.
The second thing is that as far as extruded tubes are concerned, it's very hard to have extruded tube with plastic less than 350 to 400 microns. In laminated tubes, you can go to 200 microns. So while one of the things is recyclability, its cosmetic appeals, the other thing that is really important is the total plastic consumed. And because the total plastic consumed in a laminated tube would be significantly less than in an extruded tube, right, there's also a significant price advantage, right, that we can offer to the laminated tube.
So net-net, less plastic, actually better barrier properties because of the layers that you can have in a laminated tubes, better barrier properties, depending on the product inside, as good cosmetic appeal because of elimination of side seam as well as all the bells and whistles of printing and other design embellishments, right, and cost advantage, right? so there are significant benefits of a laminated tube. The only barrier for conversion was the seam for which now we have an alternative technology that can eliminate that or near eliminate that. So that's the story.
Fair enough. Fair enough. One related question to Brazil. This quarter, we have done a revenue of close to INR 16-odd crores, INR 169 million and EBITDA loss of INR 58 million and a PAT loss of INR 220 million. Even if I take a 100% reaching to this customer, we will be at INR 119 million of revenue. That means even at 100% conversion to this customer, we will not completely recover the EBITDA level, let alone at PAT. To what level do you think you will break even at EBITDA and PAT level? And will FY '25 entire year be a journey of incurring losses or you think next year, you can turn at least EBITDA level profitable for Brazil?
So first of all, the journey of incurring losses is start-up related and not steady state business related. And so in the startup phase, which includes the data that you read out, which is absolutely correct, right, is to do with all the high start-up costs, set-up costs and higher cost inventory and so on and so forth that we are carrying.
Actually, as we look ahead, not in FY '25, but even in FY '24 towards the end of FY '24, right, we will absolutely not just breakeven, we will be making positive EBITDA and positive EBITDA margin, okay? So FY '25 will be for steady state, and we believe will be EBITDA margin accretive to the total business. okay? So I just don't want...
There will be more than 20% EBITDA margin in Brazil in FY '25...
That's indicative to EPL globally. You can assume whatever that is. But that's what I'm saying. So I would request you not to extrapolate the current quarter's numbers the way they look and think that, that is how Brazil will play out, okay? So that's the message on Brazil. And Brazil, very quickly, I would say, in the next month and certainly quarter, right, will start delivering positive EBITDA.
We did mention -- and this is my last question. I know I've extended it, but this will be the last one. And on Brazil, how many customers are we talking today beyond the anchor customer?
Well, we have a list of, I would say, 10 interesting prospects. A couple of whom we have already given samples to which they are putting the storage and testing because you know the process that you follow in this business, right? And we have, like I said, apart from these couple, 7 or 8 more who have shown interest and some include big multinational players who have shown a lot of interest in actually substantive body, all right?
Now if some of those orders come through, we might be to actually expand our facility and add another line. And the good news is the civil work and utilities and so on has been done. So it's quite easy for us to put another line to service any big customer orders that come our way. So I would say 8 to 10 is the list of prospects we have.
I would say a couple of those are hot, the others are warm, right? And there may be many more cold prospects as well. But as I had mentioned earlier, we are currently focused on delivering our commitments to the anchor customer fully, right? And then expanding our customer base. But on the side, we have started talking to other customers as well, right? But currently, we're only supplying to our anchor customer, right, because that's our commitment to them.
Next question is from the line of Douglas from Invesco.
You mentioned in the slide deck that the underlying business performance was partially offset by soft commodity impact in pricing. Could you just unpack the statement a bit, how much is this headwind to the top line? And to what degree is it kind of the flip side of the improving margins?
So we're not specifically breaking up volume and price mix and so on and so forth in terms of granular details, right? And we mentioned in the past reasons why we don't think that would be a good reflection or measure of our strategy. All I can say is that price mix has been negative, right? And that has, therefore, affected our revenue numbers in the quarter, right?
Now what I can also say is that, that is likely to continue for another quarter or so because last year, we are lapping higher input costs and therefore, some higher pricing levels related to those input costs. So this thing has to unwind a bit further because commodities remain benign or, I would say, relatively flattish. So they're not going down any further incidents. They've remained flattish now for the last several months, but the pricing has to unwind back, right? And we are obviously playing this as best as we can. Contractual customers, it plays out almost directly based on the contract and noncontractual customers, we are trying to see how best we can retain as much of that as possible.
But that will play out over the next quarter or so until the commodities and pricing catches up with each other. Having said all of this, I think it's important to say that we are confident of continuing to deliver solid absolute EBITDA growth, right, in this business.
Yes. Okay. I just -- I wonder how much of the margin expansion you've seen was a function of price catching up the soft commodity prices, which have obviously been high. You've been passing that through and so regaining margin as those soft commodities are now a bit lower to flat and we unwind that. Is there margin expansion still to come from this? Is it the case that if the top line still remains with this as a headwind, are we still going to get some margin expansion benefit?
You will get margin expansion benefit. And you're right. Part of the percentage margin expansion is translation, part of it is real, but if you look at just the absolute EBITDA growth, that's a real reflection of the profit pool and the profit of the company that we are generating, right? And that's growing solidly. And there's no optical benefit as far as absolute EBITDA is concerned, right? So the margin is what it is, but the absolute EBITDA, and I just said that it will continue to grow solidly. Now we can decode what solidly means. But it will continue to be solid in terms of absolute EBITDA growth.
Next question is from line of Viraj from SIMBL.
Congratulations on good numbers in such a challenging environment. Most of my queries have been answered, just 2 specific queries. So I think you shared a presentation towards the end of the quarter, last quarter, and it was quite a very detailed elaborate strategy presentation. I just had one query on that. If you look at our own expectation over, say, next 3, 4 years in terms of margins, we are expecting eventually, the business to move towards, say, 21%, 22% EBITDA margins now. So just kind of want to get the thought process in terms of what gives us the confidence to achieve those kind of a margin structure? Especially if I look at last 10, 15 years history, we never had that kind of a margin base. So if you can just dwell more into the drivers of those margins and -- what are the factors internally, which we have in our control and maybe irrespective of the growth strategy, which we're expecting, which you can help us achieve that kind of a margin? So some more deeper color on that.
No, no, absolutely. So first of all, the 21% and 22% numbers are yours, they're not mine, by the way.
It's just on the implicit derivation on the EBITDA and the sales, which we are expecting the high end, the low end. So just on the derivation of that.
I have said 20% plus and let us get to 20% plus. We're not going to hold back margins [Technical Difficulty]
Yes, it's 20% plus, okay? Now what's going to give us confident that we can continue to improve margins, there are 4, 5 things there. First, is this aggressive accelerated growth that we are going after in B&C, Beauty & Cosmetics, which is mix accretive and margin accretive, okay? So that's the first thing.
So as we accelerate B&C even faster than the historical growth rates, which were call it, by the way, then we are going to get an improvement in margin. Apart from this, right, we believe that the muscles we've built on strategic price management is a muscle that is going to help us, right, as we look ahead. And there are many things that we are doing incidentally for opportunities for margin improvement through cost takeout.
We have opportunities for continued in-sourcing to bring in-house. Some of the things that we outsource like the amount of caps that we buy from outside, right? And there's an opportunity to bring those in and steal those margins and keep it in-house. Some manufacturing realignment. And as we speak, there are some shifts we're doing between plants to move capacity and volume from higher cost locations to lower locations. We're exploring possibilities of cross-sourcing between plants and even between regions, right, as opportunities and selective automation, particularly in high-cost regions, okay?
So there are many things that we are going to continue to do while keeping our belts absolutely tight on our operating expenses, okay? And we believe there is still juice as far as some of these things are concerned. So when you look at these, right, which will include some structural cost takeouts and some continuous improvement projects, we feel there is enough in the pot, right, to continue to drive the margin agenda. If I'm honest with all of you on the call today, I think, in the last 2 years, we, as a management team, were upset with margins and cost because of the crazy input cost environment that we were all part of. And therefore, if you like, we had taken a bit of our eye off growth and put a lot, probably both eyes behind cost in March. And many of you will recall that every call was about margin and when will we get our margins back.
All I'm telling you now is that we are doubling our management focus and intensity behind accelerating growth, right? And that, I think, is what will create a very robust P&L while still keeping one foot on the brake of costs through all the initiatives that I spoke about. But I just want to be sure that people recognize that we are significantly stepping up efforts behind growth, right?
Cost is actually more deterministic, right? It's more within internal control on margin and cost management. Growth is a bit more probabilistic because it's more external [ pacing ], right? And that requires a lot more focus from management. But that's how we are approaching the business as we look ahead, and this is not something that will play out in 1 quarter or 2 quarters. But to your question, over the next couple of years.
Just a follow-up on this. So elements like product mix is more external-driven. But if I have to look at these, say, 3, 4 factors that you talked about, what will be the major driver of the margin improvement?
And second question is also elements like in-sourcing or moving from high cost to low-cost destination, where would we be in that whole journey? Is it still early days or a good amount of work is already done? Any more perspective you can share on these earnings.
I mean, we are not at the start of the journey, right? But there's still a lot of leads available in that journey, right, whether it's in sourcing or cross sourcing and so on and so forth, okay? We also have opportunities for some structural cost takeouts, right, which we are looking at, honestly, with the fine tooth comb. Now none of these are things that we have never done before. But cost takeout is something that every time you look at the same problem through a different lens, you find opportunities, right? And we have opportunities on the table today that we know we can exploit, right, apart from which the muscles we have, let's say, on productivity improvement, right?
Just regular day-to-day efficiency improvements are actually quite substantive, right, and have been delivering every year, right? Otherwise, our margin erosion may have been even higher, right? So these are all things that we are doing. Some of them have different lead times because they may involve some CapEx, some transferring of equipment from one place to the other and so on and so forth, right? But we are absolutely pleased of these. And when I've given a guidance of saying, we will -- we are absolutely focused on taking our margin to 20% plus. This is not a guidance for a quarter. We run the business on a year-to-year basis. But we have confident that we'll get to this, right, sooner rather than late.
Sorry, Viraj, I'll ask you to come back in the question queue for a follow-up question.
The next question is from the line of Sumant Kumar from Motilal Oswal.
So can you talk about the Americas business -- Yes. So can you talk about America margin normalize in a couple of years? So what are the assets we have taken? And can we assume in next couple of years, America margin can be the level of what it was 2 to 3 years ago?
So we are committed to getting Americas margins to mid- to high teen, okay, in that range. So it's very close to where we used to be certainly earlier. Now what has happened is that as far as Americas is concerned, a lot of the margin erosion was because of -- the time it took us to get pricing, particularly from some of our contracted customers in a highly inflationary environment.
And the second thing is that, I mean, just the cost impact, particularly in the U.S. of COVID, of wages, of health care, of absenteeism, of overtime was just unprecedented. So a lot of these were kind of input costs driven, right, which actually today has basically started unwinding, okay? And we also had other challenges internally of some obsolete inventory, some manufacturing challenges and so on. And many of these are now behind. So -- and these have started unwinding, we have started seeing an improvement in the margins, which are reflected in our Q2 numbers. And we remain confident, right? You can always have a little bit plus and minus here or there in a dynamic environment, but we are confident that the trajectory for improvement is well on its way.
Okay. So Brazil is also a key reason for a lower margin of America. So with the stabilization of Brazil and Brazil, we are assuming a better margin business segment. So can we assume that America margin will have a better than what it was 2 to 3 years ago?
So the Americas margin that you are seeing in the investor deck is excluding Brazil, okay? The 15.7% EBITDA margin that's there in the investor deck is excluding Brazil. Our plan is that Brazil in steady state will be margin accretive to Americas, right? And I've actually said that we'll be margin accretive to EPL globally as well, right? So that's how you should read it as well.
[Operator Instructions]
Next question is from the line of Nikhil from SIMPL.
Just 2 questions. Just one is a continuation. Sir, you mentioned that one of the key levers for the margins and overall for the company, the focus area has shifted from margins and cost to growth and growth in the B2C -- in the Beauty & Cosmetics segment. Now if I look at this journey, EPL has been going through this over the last many years. So consistently, we've been improving on the mix between Oral and Beauty & Cosmetics. What has changed at the marketplace level where you believe that probably it's a good time to accelerate on this segment? Or what differently you are doing as to what we have been doing all this year? That is one.
And secondly, if you look at EPL's history, in the last 15 years, we've seen all kinds of external challenges, including at promoter level and all which have impacted the business, but the business has remained steady. Now as a CEO, if I have to ask you about what would be the key risk which you see in this business? And I wouldn't go into the risk on the oil volatility and all because that has been happening over the last 15 years and the company has recovered margins and again moved on to business as usual. But other than this, what would be the biggest challenges or risks which you foresee?
Okay. So as far as B&C acceleration is concerned, you are absolutely right. I mean, this business was an oral care company a decade ago. It's come a long way since then where half the business today is in Personal Care and beyond. So non-oral care so to speak, right? Now we believe that Oral Care will continue to grow at the rate at which it was growing with some step changes in growth coming through Brazil and so on and so forth and some opportunities for share gain and wallet share gain.
However, if you want to accelerate the total business to solid double-digit growth, then it has to come through a further acceleration of Beauty & Cosmetics beyond what we have grown in the last decade. Now what has changed, I think, is, first and foremost, our ability to compete with extruded hubs, which is the mainstay of Beauty & Cosmetics in the marketplace today. And that's through the creation of the Neo Seam technology, which I said earlier, has eliminated the seam, opportunities of innovation through printing and design and applicators and nozzles and so on, right? I think we have -- either we are equal to or better than what can be offered by extruded tube as far as all these things are concerned with the added advantages of cost, right, and less plastic usage.
So I think sometimes, you know what happens in life is suddenly you feel the stars are aligned, that [indiscernible] in a row and the penny dropped, right? And I think the Neo Seam, cracking Neo Seam capability has brought the whole thing together, and we said, now we can take a real out slot on to extruded tubes. And we have clear right to win versus extruded tubes, may not be in brands where the cost of the tube is not important to them or where the amount of plastic they use is not important to them. But for a massive market segment where the cost is important and the amount of plastic they're using is important. So I think this is a big thing that has changed in our ability to service them.
The second thing is this, by and large, if you want to increase your customer base in Beauty & Cosmetics, you have to have faster turnarounds. You have to do smaller bag sizes, right? In short, you need back-end flexibility and agility, which is of a different order from what you need in Oral Care. We have now either built or well on the way to building that kind of back end. And finally, as the management team, we are saying we are going to significantly step up our hunting organization, which is both the number of people and the skill level to get in new business.
So when you put all this together, we feel we have an opportunity to significantly accelerate the B&C growth, practical ambition. We have a plan beneath it. We have already segmented the market to identify which customers we need to go after, and we have started that journey, all right? So that's exactly how we are doing it, and that's what's different. As far as you are saying as the CEO, what is the risk? So I'll tell you the last 2 years, what I have seen is just the ability in a B2B business to get pricing in a highly inflationary cost environment.
So what keeps me awake is, right? If you're in a benign cost environment, then it's kind of smooth water, the shift of tailoring, can is shining, it's relatively more predictable to do business, right? So one of the risks to this business and may not be to do with oils, but it could be do with anything else that happened last time, right, where suddenly the input costs go out of whack and it takes you time to catch up on pricing.
The only confidence I have is that this time, we catch up much faster than we did last time, okay? Second is our ability to grow aggressively, right, in the Western geographies. So I would say, as I said in my summary, continue the growth momentum in India and China and deal with some demand softening in the western geographies, okay?
Now given that we are a global business, right, we have the benefits of a global business and sometimes also a victim of some of the regions where there could be local issues that could impact the global business.
So the other thing is really -- how are we going to make sure we deliver robust P&L in the Western world. And what we are doing, which is within management control is to make sure we get the cost base right and therefore, we deliver the right margins that we aspire for in the Western world without the margins being a drag as they have been, right? Actually in the last couple of years, there has been a drag on our total business, right? AMESA and EAP has been delivering, by and large, stable margins, right? But we have taken a hit on margins of Western worlds.
How do we make that more predictable by getting a better grip on the cost base, right, and how we'll deal with that, while figuring out how to grow faster, okay? And I mean the ambition of growth is not a certainty. You have an ambition, you have a plan, you go after customers, right? But it is probabilistic, right? It has to translate into numbers. And all I can tell you is that normally, when management puts mind and might behind something, they have a high probability of succeeding, right? And that's what we're aiming to do. So I would say that's really the answer to your question.
We'll take one more question before we close. We are out of time, but we started 2 minutes late, so we can take one more question if there is one in the queue.
We'll take the next follow-up question from the line of [ Nilesh ] from Julius Baer.
And for a follow-up, I just wanted to ask you one thing. I see you're talking [indiscernible] several responses, you have spoken about how you can -- [indiscernible] from extruded tubes to your tubes, right? I just want to understand how the charge -- have you had any success already of this kind? And if so, right -- can you talk a bit about the accounts management best practices, right? I mean EPL historically has had a set very loyal captive customers and has not really been an unseen focused organization, right? How would you really start this journey? So I would [ pause here ] and wait for your response.
First of all, we have absolutely had successive conversion already to Neo Seam, right? And we have made some commercial supplies already. So the journey has started. It's not an absolute time the [indiscernible] kind of message that I am giving you, right? Now I think you're partly right. We have had expertise of key account management, but it's not true that we've had no hunting capability as far as our B&C business would not have grown several times faster than our Oral business over the last few years because by definition, B&C is a bit more fragmented.
I think what we are doing now is we are bolstering it in a very strategic thought-through way and putting resources behind that, right? So apart from key account management and managing large customers, we're putting a whole program and organization and capability behind hunting down and managing smaller customers with the right back-end capability to service them. So I would say it's not as if here again, the journey is starting from scratch, but this is an opportunity to accelerate what we have done, right? And that's what we're ready for.
Do you have any follow-up questions?
No, no, no. I'm done.
I now hand the conference over to the management for closing comments.
So I'd like to thank everyone who dialed into this call and who's engaged with the company and asking absolutely sharp questions on what we're doing. I also want to thank you for having supported the company through this challenging period that we have been through. And all I can say is that I think we can clearly see light at the end of the tunnel, right, about accelerating our performance and building on the kinds of numbers that you've seen this quarter. So thank you very much, everybody, for your interest in the company.
Thank you very much. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.