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EPL Ltd
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Ladies and gentlemen, good day, and welcome to EPL Limited Q4 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 Institutional Equities. Thank you, and over to you, sir.
Yes. Thanks, Nirav. Good evening, everyone. On behalf of Systematix Institutional Equities. I would like to welcome all the participants who logged in for this conference call of EPL Limited to understand and discuss the fourth quarter and financial year FY '24 results. From the management side, we have Mr. Anand Kripalu, MD and Global CEO; Mr. M. R. Ramasamy, COO; Mr. Deepak Goyal, CFO; Mr. Shrihari K. Rao, President, AMESA Region; and Mr. Onkar Ghangurde, Head, Legal, CS and Compliance Officer. At the outset, I would like to thank the management for giving us the opportunity to host this conference call. I would like to now invite Mr. Anand Kripalu to give his opening remarks. Thank you, and over to you, sir.
Thank you very much, Pratik, and hello, everyone, and welcome to the Q4 and FY '24 earnings call. We had a strong quarter amidst the challenging global landscape, marked by economic uncertainties, supply chain disruptions and geopolitical tensions. Our revenue for the quarter grew by 6.2%, EBITDA grew by a solid 16.5% and adjusted PAT grew by 22%. I'm happy to report that we are firmly on track to achieve our target of double-digit revenue growth with 20% margin. Going deeper into the results, our underlying business registered robust growth, which was partially offset by negative pricing. Specifically, AMESA saw a revenue growth of 4.6%, EAP increased by 4.1%, the Americas surged by 15.9%, while Europe was at 2.4%.
Our EBITDA margin stood strong at 18.5%, an improvement of 164 basis points versus Q4 last year. Our absolute EBITDA grew by 16.5%, marking the sixth consecutive quarter of robust double-digit EBITDA growth. Despite the impact of seasonality, our efforts ensured that our sequential margins were more or less in line. Adjusted PAT, excluding exceptional items and one-off tax refunds grew by 22%. However, reported PAT declined by 73.5% due to onetime exceptional items of INR 605 million in Q4 FY '24 and prior period tax refund of INR 165 million in the previous year Q4.
The details of the 2 exceptional items included in the quarter are: one, Egypt currency devaluation. Now Egypt faced significant challenges in the past year, in fact, the past couple of years, leading to ForEx shortages. The Egyptian government managed to attract U.S. dollar inflows through investments and aid, leading them to make the Egyptian pound a free float currency. This resulted in the Egyptian pound depreciating by approximately 60% against the U.S. dollar causing INR 465 million in one-off losses in our books on all U.S. dollar payables. The underlying business in Egypt, however, remained strong with good profitability, and this onetime hit will not impact our long-term prospects in the country.
And the second exceptional item is Europe restructuring. We're actively addressing the lower margins in Europe, primarily stemming from high fixed costs. Our approach involves optimizing headcount at senior and operator levels and initiatives such as manufacturing capacity realignment. This is leading to a onetime impact of INR 140 million. These efforts are geared towards achieving mid-teens margins in the near future, with benefit expected to start accruing from this year itself. Our ROCE stood at 14.7%, a year-on-year increase of 148 basis points. Over the full year, our revenue grew by 6%, EBITDA grew by a solid 19.2%, and EBITDA margin expanded by a strong 202 basis points. And adjusted PAT grew by 28%. We saw a positive shift in the category mix.
‘Personal Care & beyond grew by 8.1% compared to 5% growth in Oral Care. Personal Care & beyond now contributes to 47% of our total business. Overall, based on our performance, in FY '24, we are pleased to propose an increased final dividend of INR 2.30 per share. As you know, sustainability of EPL is a fundamentally principle guiding every aspect of our business. In the past year, we have more than doubled our sustainable sales contribution to 21%. During the quarter, we received multiple awards including Innovation award by SIES SOP Star, Best Employer Award for 2023 by Kincentric, and the Best CSR Practices award by the World HRD Congress.
Looking ahead, let me walk you through the key initiatives that we are focused on as a management team for both revenue growth and margin enhancement. First on revenue. Our continued emphasis on the Beauty & Cosmetics category remains strong with active pursuit of smaller customers supported by increased head count dedicated to the staff. Our neo-seam tube has entered the market and is steadily gaining traction across regions. Second, we will continue to leverage our competitive advantage in sustainable products to gain wallet share. And third, our Brazil greenfield project is on track. We have now fulfilled 100% demand of our anchor customer and have received orders from both other MNC as well as local customers. We remain very excited about the opportunities in this market. With all of these drivers moving in the right direction, the path to achieving double-digit growth is on track.
Moving on to margins. Our margins are now in a solid position demonstrated by a consistent progress over the past several quarters. We are firmly on track to deliver 20% margin through initiatives like Europe restructuring, mix improvement, active price management and cost optimization. In summary, we are encouraged by the progress we've made and energized by the opportunities ahead. We are marching strongly towards our ambition of double-digit revenue growth with 20% margin. With that, we will open this up for questions.
[Operator Instructions] The first question is from the line of [ Ashvik Jain ] from ICICI Securities.
This is Sanjesh here from ICICI Securities. I got a few of the questions. First on the EAP, sequentially, there was 11% dip in the revenue and 25% dip in the EBITDA for this quarter in the EAP. Can you help us understand why there is such a sharp dip in the performance of EAP.
I will, would you like to just complete your question so that I can respond to all of them together.
Okay. Second is on the AMESA, particularly India, even if I look at the stand-alone entity, the gross profit which represented probably more closer to the volume growth, negating the pricing decline in the raw material is still growing at best at mid-single digit. What's the challenge we are facing in India. India market should be growing faster than the mid-single digit probably. Are we losing market share? Is there a shift in the packaging from soft packaging to hard packaging, what's the story in the India market? These are my first 2 questions.
Sure. So the first one, as far as EAP is concerned, Q4 in EAP is always subdued relative to previous quarters because of Chinese New Year. And as you may know, the country actually shuts, not just our factories, but the customers and the country at large, okay? So typically, Q4 is a subdued quarter, okay? And therefore, comparing it sequentially is probably not the right comparator. Now having said that, the Q4 in FY '23 was actually boosted because the market had just started opening up post COVID and therefore, there was a surge of volume that happened. But I'd like to tell you that the underlying performance in EAP and particularly China, is actually very solid.
We are very confident about robust growth. The market is shifting aggressively towards Beauty & Cosmetics, which is margin accretive. We are being able to exploit export opportunities from China to other countries in East Asia Pacific. And therefore, actually, we remain very confident. And I would hasten to say almost bullish about our opportunities in China and East Asia Pacific.
All right. So that's the first point. Now as far as India is concerned, and India stand-alone because Egypt has some challenges of currency and so on and so forth. Actually, our business in India is solid. And I can tell you, let alone losing market share. We have received orders from some customers, right? From whom we had actually very limited business and who are actually quite stubborn in terms of giving us business and growth opportunities. And we have received orders from some large customers which will actually boost growth.
So volume growth, right, remained solid, right? Even though we don't declare volume and don't really measure volume, but it remains solid. And actually, the outlook with some of the new opportunities coming our way, is actually much stronger. So I absolutely have no concern that we are losing share, right? I actually believe that growth as we look ahead, is going to be very, very solid as far as India is concerned.
No, that's fair, Anand, but what happened in Q4. That's what you're talking is more outlook. I am more looking at what happened in Q4. That remains soft, right?
Well, see, like I told you, there has been negative pricing. And therefore, when you look at the revenue numbers...
No, no, I'm looking at more gross profit, Anand, which negates that negative pricing impact.
Just a moment. Sorry, you're commenting on India stand-alone or AMESA.
No, no, I'm commenting on India stand-alone gross profit growth.
All right. Let me get back you on this answer, and we'll answer it in the call itself, okay, and just try and explain that a bit better for you.
That's fine. I got a few more, if you allow.
I think you'll have to ask the operator on how they're managing the queue because I'm not managing the queue from here. But maybe you go for 1 more now and then the others, we will try a bit later.
Got it. On the Brazil, you are very confident now that we have met 100% demand of clients and customers. How many new customers have we added? You did mention that we have won a few MNC and local customers. How much volume can they do vis-a-vis the existing anchor customer? Can we double that revenue, say, next year? And how fast can we turn around the Brazil so that regards to the EBITDA margin.
So first of all, I'm not sure we need to turn around Brazil because Brazil, as I mentioned earlier, is both growth and margin accretive to the mother business. okay? And it is already showing very strong positive EBITDA, okay? Even though we're not reporting the Brazil results separately. But I need to do...
What we are telling on them, sir?
Beg your pardon.
In Q4, was it a margin accretive is what you are telling now?
In Q4, Brazil is margin -- EBITDA margin accretive to the total business, right? It is margin accretive to the total business. So EBITDA is strong. So there's no turnaround to be done as far as EBITDA is concerned.
Now in terms of volume opportunities. So I can't give you the number of customers, but I can tell you that the -- that we have started receiving orders from both multinational and local, large multinational, so we deal with other geographies, right, as well as some exciting local customers as well. And I can tell you, it has just started, right? The first orders have started coming in. I think the potential is significant. Now whether you can double the volume in business, I'm not going to comment on, right, because I don't think it will go that far. But it will be significantly accretive to the base plan [indiscernible].
Ladies and gentlemen, please stay connected. Participants, please stay connected, the line for the management dropped. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may continue.
Apologies, I'm not sure where I dropped off. But basically, I said Brazil, as far as EBITDA is concerned is margin accretive, right? So it's already margin accretive, right. Actually delivering very solid margins. So that's not our concern at all. I think the opportunity is the volume growth and customers beyond the anchor customer. The first orders have started coming in, both from multinational as well as local customers. I think the potential is huge.
Now I'm not going to comment on whether it will double the base business and so on and so forth, but it will be significantly accretive to our growth. Now a lot of this is built into our own internal plan, right, and we are monitoring the impact. But all I'll tell you is that with every passing month, the opportunities seem more and more exciting rather than the other way around, okay? So therefore, we remain very excited about our investment in Brazil and what did it deliver for us as a business.
Next question is from the line of Sameer Gupta from India Infoline.
Sir, firstly, my question is taking over from the previous participants. So maybe you can add this to the answer when you're answering his question as well that AMESA, the EBITDA, there has been in decline for 2 consecutive quarters now. So in an environment where there is a commodity benefit, even if top line is depressed, EBITDA decline shouldn't happen. So just trying to get clarifications on what is going on in the last 2 quarters here. Maybe you can just answer this as well when you're answering the previous participant's question.
No, no, we will absolutely do that. So let me answer properly, and then we will absolutely address that, maybe. Do you have any other question right now?
Yes, yes. Yes. I do. I do. I just thought I -- so I have 2 actually. So Americas, the margins actually here this quarter has seen very steady expansion. And right now at 18% EBITDA margin, I haven't seen this kind of a high level in many quarters. So just trying to understand if there are any one-offs here or exceptional unsustainable factors? Or these are pretty much what it is, the margins right now?
So just 2 points I want to make that the Americas really constitutes -- is constituted by 4 countries, right? So first is Brazil, which I've already answered which is margin accretive to us globally, which is significantly margin accretive to the Americas numbers as well. So that's the first point. The second is, in terms of specific interventions, we have a program to significantly improve our U.S. margins, right? And it's a very detailed program, right? And we expect to see significant improvement in U.S. margins during the course of this year itself. So what you're seeing is not a flash in the pan, okay? It's part of our plan, right? And if anything, you should see it holding, if not further improving from this point.
Great. Sir, that is very, very clear. Secondly, on the CapEx part, first of all, is there any guidance for the next few years, it will be great. And in FY '24 itself, we have spent around INR 380 crores on CapEx. I understand that the Brazil plant was mostly done in the previous year. So this kind of seems a little on the higher side. So more than 10% of sales this year. So I just wanted your comments on the CapEx part.
I'll take that question.
Yes, I'll hand over to Deepak, yes.
We have always maintained that our CapEx will be in line with our overall amortization at about INR 374 crores this year. The CapEx are slightly higher because of the Brazil expense. We spent about, I think, about INR 70 crores, INR 75 crores additionally this year on Brazil because the plant was commercialized this year and then multiple deliveries and payment happened this year.
If I take that out, the base CapEx spend this year were slightly lower than the amortization that we have. And that is what we will continue doing in the next few years as well. Without M&A or a greenfield, our CapEx will be in line with our amortization and that are sufficient to fund our, both growth as well as maintenance CapEx. So the double-digit growth target that we talk about, our internal accruals will be sufficient to fund for those CapEx.
Great. Again, very, very clear. Just a follow-up here. Any greenfield you are expecting in the next 2 years?
See, we are looking at the CapEx as generally in a block of, let's say, 2 years. And hence, I think, over a period of 2 years, the overall CapEx will be in line with the overall amortization. Now because of phasing within the quarters and within the years, there could be a little bit of up and down. But otherwise, over a block of periods, it will be in line with the amortization, excluding M&A and greenfield, right.
Fair enough. I'll come back in the queue and yes, look forward to the answer to the AMESA question.
[Operator Instructions] Next question is from the line of Prateek from Subh Labh Research.
Anand, congratulations on good set of numbers. I just have 1 question. So I have been closely tracking this recyclable tube volume and I just wanted your thoughts on what it is actually bringing to us. I mean it has -- probably it has gone from 10% to 20%, 21% this year, which is commendable. Margins, you have already iterated that strategically, it [indiscernible] margins. So I mean, if you can help us understand how is it helping us if you can throw some numbers around it?
So I don't have specific numbers other than the fact that, that's the number of sustainable tubes that we have supplied, but I'll tell you, and you will see this play out basically in terms of a trigger for growth through wallet share gain, right? Now I'm not in a position to share specific customers, but there are already customers, right? With whom we have gained traction, gained share because we are more ready than other people to supply recyclable tubes and sustainable tubes. So I think as this plays out fully, there has to be sustainable wallet share gain and therefore, sustainable volumes that will come to us, right? So that is the fundamental premise on which is set. Once that happens, we will get benefits of scale, better utilization and therefore, better overall margins in the business.
That is the way it's going. And so far, I think whatever we have said is, broadly, I would say, on track in terms of whatever we have said in terms of what we will achieve on sustainable tubes, right? And the philosophy of conversion without a premium price associated with it. I can tell you that by and large around the world, we are leading the conversion in terms of number of sustainable tubes being supplied, right? And some of those gains that are coming will be permanent.
So I'm not sure, I answered your question completely, but that's the philosophy, and we are seeing the gains beginning to come. And the one thing that I must say is that I said in my opening comments, that negative pricing is subduing our revenue numbers that you all are seeing right now, okay? Negative pricing has begun to unwind, and therefore, you've begun to see a slight positive blip in terms of our revenue numbers. And this will now slowly start finishing off the negative price, right?
And as that turns into a neutral or positive price, you will start seeing the positive trend in terms of our revenue growth numbers as well.
Understood, Anand. Very helpful. So this anticipation or rather a target of double-digit top line growth, that is a lot dependent upon this transition also. Because from 10% to 20% we have gone, top line growth this year is 6%. But you're saying in future with this wallet share gain, this top line growth will be added via this transition, and that's how the incremental growth will come. Is that understanding fair, Anand?
Yes, this will be one of the drivers. The other driver, of course, is our focus on Beauty & Cosmetics, right? Another driver is what Brazil is going to contribute. When you look at all this with some -- and add to it some positive price mix, right? That happens in the normal course, right, both on price and on mix, right? Right now, that's a negative. When you add these drivers of fundamental business with some positive price mix, all our modeling shows that it will take us clearly into the double-digit zone, right? And I believe we are closer to that than we were earlier, and we should be making progress with each passing quarter.
Very helpful. Anand, just one, if I may, one more, if I may. So in last con calls, we had discussion around some volume number to be shown to the analyst and investor community, where there was some comment from the management side that it's practically not possible. I was just wondering, if we can share some amount of raw material melted in a particular quarter, be it PET or the most used raw material, which is melted and converted into tubes, can there be something [ revolving ] around that Anand, if?
Sorry, I'm just trying to understand -- you want to understand our consumption cost of some key raw materials.
No, not at all. So volume growth or rather volume number has never been discussed or disclosed in EPL presentations or calls and then the reason given for that is that there are multiple size of tubes and the segment of tubes, category of tubes. So we are always devoid of volume understanding of the business, how that is panning, so is it possible to help the investors and analysts with the amount of major -- I mean, the volume of major raw material which is used in a particular quarter -- consumed in a particular quarter?
So I'll take that away and we'll think about it internally, whether we can share the volume of key commodities that we are buying and using. We are -- honestly, I'm not sure -- if I don't provide more information that is relevant, I think, we will just create more confusion about what's happening. I think, I still believe there is a very good reason why we are not sharing the volume numbers because it's not reflectable strategy, right? However, the only thing I can tell you is that if I were to look at our simple volume numbers where I'm adding apples and oranges, so I'm adding small tubes with big tubes and Beauty & Cosmetics tubes with oral tubes and pharma tubes that it is materially ahead of our revenue numbers, right.
If I were to do an unsophisticated addition of different kinds of tubes, right, and call that volume for a moment, it will be ahead of our revenue numbers. And that's why I'm saying there is negative price mix and the word mix is [ operative ]. So one is price, other is mix as well, right? Because the whole thing combined is negative, and therefore, reducing our so-called volume numbers, right, by the negative price mix, resulting in the revenue that we are reporting. So that's what I can tell you.
Should we take the AMESA question now?
Yes, if you can, take it, because I think some of the people have asked for that and the clarification. So Deepak, over to you.
Yes. So AMESA, first of all, all the things that Anand said in the previous question that the volume or underlying business performance is robust, that is true for AMESA as well. So the underlying business performance for AMESA is robust. In the revenue, there is a negative pricing impact as well as mix. In the gross contribution, there's a negative mix impact, which is coming in. AMESA is also a producer of laminates and our laminate when we sell it to the intercompany units, it is sold at a lower gross contribution compared to our tubes. Now when we look at the stand-alone financials, this laminate sale gets factored in. When we look at our consolidated numbers, this gets eliminated.
However, for the purpose of the stand-alone financials, the gross contribution get -- kind of has an impact of increased laminate sales. The EBITDA, which is negative this quarter, there were multiple one-off items, which are, let's say, operating in nature, and hence, we are not calling them out at a consolidated level. But within AMESA, there were multiple one-off benefits, which were factored in this quarter, it's a more operating performance, which is resulting in a negative EBITDA performance. So if I were to, let's say, simplify into one sentence, robust business performance, revenue [ GC ] impacted by negative pricing and mix, EBITDA impacted by last year one-off items. The -- performance-wise, I think both Anand and I feel very confident about our performance in AMESA as well as in India.
Yes. And just adding to that, we really do believe that some of the new businesses that have started coming to us will actually be a [ slip ] in our numbers looking ahead.
Okay. We can take the next question in the queue.
[Operator Instructions] Our next question is from the line of [ Akshant ] from Flute Aura Enterprises.
So I have these 2 questions. So if we look at the...
Sir, sorry to interrupt you. Can you speak through the handset, please? Your voice is coming muffled?
So if we look at the consolidated debt for FY '24 compared to FY '23, it has just increased by INR 35 crores. But if you look at the interest, so it has increased by INR 30 crores, so any color on this why the interest cost has increased so much compared to debt? And are we planning any debt reduction going further because we don't have any greenfield CapEx plan. So any color on this, sir?
Yes, Deepak.
Yes. So first of all, the reason for higher interest is because of Brazil, primarily because of Brazil. Last year same quarter, while we had debt for our Brazil greenfield, the interest was getting capitalized. The plant was commercialized in Q1 of FY '24. This quarter, the entire interest is kind of coming in, and that's why the disparity between the debt and the interest cost number. On the debt reduction, again, we are generating healthy cash flow. However, we are also a healthy dividend paying company. If you will look at this quarter, we are -- we have increased our dividend from past, let's say, many quarters of INR 2.15 to INR 2.30 already. We believe that rewarding our shareholders with healthy dividend is a critical part of our strategy. We will continue evaluating whether -- how to deploy cash. But fundamentally, the business will continue generating a good amount of cash.
Got it, sir. So just a follow-up. So going further for FY '25, what can we expect as the interest cost in percentage terms?
In percentage terms, I would say that our overall debt, unless we are kind of going for an M&A or for a greenfield, our interest cost would largely remain at a similar level. And then obviously, there can be a little bit of up and down, but our interest cost will not be materially different.
Got it, sir. And just one last question. So in the presentation, we have mentioned that the Red Sea issue has increased our freight cost, so can you just give some color on this, like how does it affect us materially or it's just a small impact.
Yes. So Red Sea has 2 impacts on our business. One is, let's say, in terms of inventory, the lead time, and we produce our laminates in India and China and then ship it across the world. The lead times have gone up, which means that our [ GIT ] on laminates have gone up. That is marginal impact on our inventory. Second is on the cost. While our freight costs have gone up, accordingly, our pricing also kind of factors in this kind of freight and those pricing have also gone up. So from a P&L point of view, there is negligible impact on the inventory. There is some impact, which is there.
[Operator Instructions] Next question is from the line of [ A.C. Alagappan ], individual investor.
In fact, I want to ask regarding the [ net ] debt sir, as you answered the previous question. Thank you very much, for that. Then 1 more question is, what is the capacity utilization of Indian plants under -- compared to the other plants, sir?
What is the capacity utilization of the Indian plants compared to other plants?
Yes. Can we produce more here in exports, instead of going for a greenfield plant. [indiscernible] for a greenfield plant because if you have got the capacity, I mean can you do it in India itself. Do you [indiscernible].
So I'll just hand it to Mr. Ramasamy, he'll answer your question.
Capacity utilization in India will always be higher because there are large [indiscernible], a large number of clients we have. So it's really comparatively higher compared to our other plants, that's one question. Exporting out of India, we do, we exports out of India. But 2 in general, for a long distance is actually, your shipping [indiscernible] . That's one constraint. The second constraint most of the supply chain lead time -- because everything is printed to order, right? So lead times are also are another -- most customers prefer a lead time, very short lead time of 15 days, 20 days. So it will also be another bottleneck. Having said that, there are customers who also wait for a longer lead time of 45, 50 days because the export business will take about anywhere between 30 to 45 days, wherever possible, we do export. It's not that we are not exporting. We do export, but that will be a very small percentage of the volume that we do in India.
Can you give an absolute number, sir.
Sorry. Sorry, sir. Please go ahead.
Can you give an absolute number?
Which absolute number?
Yes.
The export volume?
Not export volume, capacity utilization. The fact is capacity utilization in [indiscernible] plant or any plant in India. What is the capacity utilization.
See, capacity utilization, as Ramasamy said, is high, right? So you got to believe it would be in the, I would say, early 80s or something like that. If I were to give you a number, okay? And this is an aggregate number across everybody. So there is still headroom for more production. Having said that, the business model, and I think, it's important to just understand the business model in this business is laminates are freight friendly. Therefore, they are produced centrally in India and in China and shipped all over the world. Tubes are freight unfriendly. And as Mr. Ramasamy said, you need agility by being close to the customer to be able to supply with shorter lead time.
So tubing and printing is actually done in the last mile closest to the customer. So we ship globally where it is freight friendly, and we produce locally where it needs -- where it is not freight friendly and needs to be close to the customer. So that's how this business model actually has been built, right? So the capacity utilization in India of tubing is less relevant. We, of course, import from India to Middle East, I think, we even export to Middle East. We even export to places far way like Australia and New Zealand, right? In some cases, customers want to buy that and we do that. But it is not core to the strategy to do significant export, let's say from India, right? Externally because we have a large domestic market that we are servicing. But we have opportunities to export from other countries as well, right? As the case arises from Brazil tomorrow we may export tubes to adjacent countries like Argentina and so on and so forth. But that's how the business model works.
Next question is from the line of Sumant Kumar from Motilal Oswal Financial Services.
My question is related to Europe. So there is a huge difference between EBIT and EBITDA of Europe as per the PPT. So what is that? The higher depreciation charges, if it is there, what is the reason for that?
Yes. So there were 2 large capitalizations that happened in our Poland plant in the beginning of -- beginning of this financial year for which the depreciation has come in, which was not there last year same quarter. And hence, there seems to be a difference between EBIT and EBITDA.
And how is this new capitalization going to favor Europe growth?
So Europe, I think, as we said, Europe, right now, the focus is on fixing the margins. We have taken a significant restructure. So we have created a solid restructuring plan to improve Europe margins to mid-teens. We have also then taken a restructuring cost because the plan involves head count optimization as well as manufacturing realignment. We are working on that. The new capitalization that we have done, those were, let's say, specific to the orders that we have received, et cetera, and hence, the utilization of those machines is on track, but the primary focus on Europe is on margin improvement, and we should see that happening over the next few quarters.
Next question is from the line of Pooja from Ace Lansdowne Investments.
My question is with regards to non-Oral Care segment. And since we increased our focus in BPC, particularly, I wanted to understand, Pharma has lagged and sales from pharma have been hovering around INR 330 crores, INR 340 crores around the annual range. So is there any specific reason this category is not scaling up. And since we are also increasing our headcount in BPC segment, any guidance on the growth in BPC segment, sir.
So I'm just trying to understand your question fully. One question is to say, why is pharma not growing? And the second question you could repeat?
Yes. And second question with respect to BPC growth as we increased the resources and headcount, any particular number you could provide on that front, sir?
Sure. So both these remains priority sectors for us. And with even more focused on personal care, right, beauty and cosmetics. As far as pharma is concerned, I can tell you there have been some significant unlocks. Pharma has a much longer process of conversion because of FDA and all kinds of other regulations, right, and products tend to be more invasive and therefore require a lot more protocols before they convert. As far as beauty and cosmetics is concerned, we have just started a couple of quarters ago to put extra resources in. And I can tell you that you will begin to see the blip because of the head count and therefore, hunting down new customers as well as our neo-seam technology, which I mentioned in my opening comments, right?
Because as part of our strategy, we have fully funded whatever is needed to be done to accelerate our Beauty & Cosmetics growth. And the mix improvement that will come as a result of that as well as the volume growth opportunity will start playing out in the next few quarters. So -- because that's our strategy.
Understood, sir. And as I understand, our customer bases are pretty sticky. So in case of Pharma, what would be the conversion time for any particular client, sir? [indiscernible].
Conversion time?
How much time it takes to convert...
To convert a customer who is currently -- because most pharma customers, by the way are -- the real source of business are customers who are in aluminum tubes, okay? Now we have a large share of people who are converting, but the conversion requires testing and at the customer end significant change of packing and sealing machinery, right. So significant CapEx at that point. So I would say -- I mean, I don't have a thumb rule, but the conversion once we start the conversation with the pharma customer, at least a year, right, if not longer.
Next question is from the line of Jenish Karia from Antique Stock Broking.
Can you just please elaborate again on the Europe restructuring that we have done with regards to manufacturing realignment and head count allocation. So if you could just throw some more light on it? And how do you plan to achieve and by when the mid-teen margin that we are guiding for the Europe region.
Please stay connected, the line for the management dropped.
Ladies and gentlemen, thank you for your patience, we've the line for the management reconnected. Jenish, may I request you to go ahead with your question once again from the beginning, please?
My question was with regards to Europe restructuring. So can you just throw some more light on what exactly the restructuring have we done and what measures have we taken to boost the growth? And how soon do we plan to achieve the guided margin of mid-teens in the region?
Yes. So as we have said, our objective is to get Europe to mid-teens margin. And as we've said, you will start seeing the benefits of our restructuring start improving this year itself, okay? Now we have, as you've seen, built in certain exceptional items into our cost base. These exceptional items will go to support 3 key initiatives that will help us to transform our margins in Europe.
The first is people optimization, both at the management level and the operational level. And many of these have already been done or are well underway. The second is manufacturing realignment by moving some lines from higher-cost German site to a more optimal Poland site. Some of this has already happened and some of this is underway.
And the third is to create a center of excellence with respect to 2 areas, printing, so moving all printing of laminates from Germany and Poland and creating a center of excellence in Poland for printing and creating shared services wherever possible. So whether it's through finance or planning and other activities, creating a shared service center in Poland, which will give us economies of scale and it will be housed in a lower-cost country like Poland rather than a higher cost country like Germany. So all these things put together, right, are well underway, and they will start -- you will start seeing the benefit flowing this year itself. But as I said, our objective is to clearly deliver mid-teens margins in Europe, right? And that will happen in the foreseeable future.
Yes, that's very helpful, sir. Second is on the Americas region. I did see Brazil has now been operational for 4 to 5 quarters and the anchor customer commitment is also nearly fully completed. So what would be the rough utilization level at the Brazil level. And secondly, do we see growth moderation happening in Americas region going forward as the base impact of Brazil is already factored in?
The utilization level that there are 2 aspects to this. One is that we have a contractual customer, the lead customer. We install capacity as per their demand. That is now being fully utilized. What we also have done is we have also put in certain seed capacity for seeking other customers. That is now getting filled at. But see the entire business is about the moment you see a growth that you see a certain level of utilization, you put the next capacity, you are automatically added. Capacity will never be a constraint. Demand decides the capacity, we will keep increasing, but we have now enough capacity to service the certain set of customers in Brazil.
So can we expect America as a region on a consolidated basis, growing at high double-digit or mid-teens kind of number in FY '25.
Double digit is a growth target, and we are very certain that Americas will also grow double digit.
Yes. So Americas as a region definitely, right. And as I've said earlier, we are also -- we have a program to improve our margins specifically in the Americas, specifically within the United States. So as Brazil ramps up and some of the interventions in the U.S. pick up, America should deliver solid growth as well as solid margin improvement.
Sure. That's helpful. Sir, just last one question. You mentioned the interest costs would maintain at a similar level. So you meant that INR 32 crores of interest cost that we have in fourth quarter that will continue on a quarterly basis?
Yes. So the current -- the cost, which has been -- which is -- in this quarter is the steady state cost and that's the cost that is -- that is likely to continue. There would be some up and down depending upon the phasing of cash and hence, that's the loan debt levels. But the cost is representative of the steady state business cost that we have right now.
Next question is from the line of Shubham Sehgal from Securities Investment Management.
I just want to ask one basic question for my understanding. So we are seeing that companies are moving towards the sustainable packaging and even our volumes are at 20% right now as we targeted. So I just want to understand the margins for our sustainable packaging like, for example, EcoVadis compared to normal tube, are those like similar -- in the similar range? Or how is it working?
So the margins are greater than or equal to what they are for the regular packaging. So sustainable tubes margin will be greater than or equal to what it is for the nonsustainable tubes. Now this is a strategic choice, right, because the reality is if you try and charge a premium, chances are that you will slow down the process of conversion or you will lose wallet share in the conversion because somebody else will give it at a lower price. However, if you give it where you do not present an obstacle to conversion, then the chances are you'll convert faster and gain wallet share during that conversion, and that has been our strategy.
Okay. So just a clarification again. So do we actually actively try to price our sustainable higher wherever it is possible for us or we do not do that?
Sorry, the question is, do we try and price it higher wherever possible?
Yes. Like do we do that or we don't do that?
No. We absolutely try and convert aggressively, right. Now the thing is that many companies have their own program of conversion, okay? So our job is to be ready. But there are very small companies where we are able to go and offer our solutions, right and motivate them to start converting. So I suppose it's a combination of both.
Okay. Okay. Got it. So -- but -- so like as you already mentioned that we have the capacity to offer it. So going forward, do you think that we could build on this, like we could have a pricing power where we could offer our tubes at a better margins like we could get better margins out of our sustainable tubes like going forward? Do you think that kind of thing is possible or it won't happen?
It could happen. But I would say it's more by default rather than by design. Strategically, right, we want to accelerate the process of conversion and gain volume share, wallet share during that conversion. In some cases, in many cases, you might be able to get better pricing as well since you have first mover advantage in terms of your ability to supply, right? But that, like I said, is by default rather than by design.
And if you could take the last question?
Sure, sir. We'll take the last question from the line of Megh Shah from Prospero Tree Financial Services.
I just have 1 simple question. Sorry if I'm being repetitive, it's regarding Americas, so the margins have currently spiked up from around 2.5 percentage to 9 percentage. So are there any one-offs in that? And is it sustainable, the margin?
You're talking about the EBIT margin, right? 9%.
Yes, Yes.
No. So Americas has an organic -- has had an organic quarter. So the margins are representative of the steady state business. We have improved our performance in Americas. The deal, as we mentioned, also is accretive to Americas region and that also gets consolidated now, so the benefit flows in. We should -- and as we discussed, we are also putting in more efforts to kind of improve U.S. margins in particular. And hence, this margin, we should maintain and improve as we go forward.
Thank you very much. I now hand the conference over to Mr. Pratik Tholiya for closing comments.
Yes. Thanks, Nirav. On behalf of Systematix Institution Equities, I'd like to once again thank all the participants for logging into this conference call. And once again, thanks to the management for giving us the opportunity. So would you like to make any closing comments, please?
No, that's it. I just want to thank everybody for logging in and continuing their support to EPL.
Thank you so much, sir.
Thank you very much. On behalf of our Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.