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TCPL Packaging Ltd
Earnings Call Analysis
Summary
Q2-2024
TCPL Packaging announced its highest-ever quarterly revenue, exceeding INR 400 crores due to strong performance in folding cartons and flexible segments. With a year-over-year second-quarter revenue increase of 12% to INR 406 crores, the EBITDA also saw a 13% rise reaching INR 65 crores, maintaining healthy margins of around 16%. Pre-tax profits (PBT) grew, with Profit After Tax (PAT) and cash profits at INR 29 crores and INR 55 crores. Adjusting for an exceptional one-off income from the previous year, profits aligned with revenue growth. The company remains optimistic amidst a challenging environment, fortified by board enhancements and operational expansions, and continues diversifying their customer base and sectors.
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Ladies and gentlemen, good day, and welcome to TCPL Packaging Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anoop Poojari CDR India. Thank you, and over to you, Mr. Poojari.
Thank you. Good afternoon, everyone, and thank you for joining us on TCPL Packaging's Q2 and H1 FY '24 Earnings Conference Call.
We have with us today Mr. Saket Kanoria, Managing Director; Mr. Akshay and Vidur Kanoria, Executive Directors; and Mr. Vivek Dave, GM Finance of the company. We would like to begin the call with opening remarks from the management, following which we have the forum open for an interactive question-and-answer session.
Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now like to invite Mr. Kanoria to make his opening remarks.
Good afternoon, everyone, and thank you all for joining us on our earnings call for the period ended September 30, 2023. I trust all of you have had the opportunity to go through our results documents, which have been shared with you earlier.
I will initiate the call by taking you through our business highlights for the period under review, after which we can open the forum to have a Q&A session. In this quarter, we are pleased to announce that we have achieved the highest ever quarterly revenue, which has surpassed INR 400 crores for the first time.
This remarkable performance can be attributed to the encouraging performance of both our folding cartons and flexible business segments. Despite operating in a challenging environment, our revenues in Q2 grew 12% year-on-year to INR 406 crores. Further, the EBITDA has grown 13%, reaching INR 65 crores in this quarter, driven by steady margins at around 16%.
Consequently, our PBT has also grown of INR 237 crores, while PAT and cash profits have come in at INR 29 crores and INR 55 crores, respectively. Here, I would like to highlight that the Q2 profit figures of last year include an exceptional one-off income of INR 17 crores received as an insurance claim.
Adjusted for this our profits have grown in line with our overall revenues. In a continued effort to fortify our Board of Directors, we are very proud to announce the addition of 2 new esteemed independent directors Mr. Sanjeev Anand and Mr. Jain. Mr. Sanjiv Anand is the Chairman of SEDAR Consulting of Forbes Frank global consulting firm and is a recognized strategy expert with over 35 years of experience in guiding boards, CEOs and leadership teams and in shaping strategies and transforming business practices, including those in the packaging sector.
Mr. Tarun Jain, who is the Chairman and Managing Director of Engineering Limited and who brings a strategic vision that has propelled into a global Tier 1 automotive component group showcasing his 35 years of leadership marked by integrity and a strong commitment to corporate social responsibility, including active engagement and environmental initiatives.
These appointments follow a significant addition of Dr. as a non-executive independent Director earlier this year. We believe that the combined expertise and insights of Mr. Anand and Mr. Jain will enhance the strategic oversight and governance at TCPL aligned with our dedication to upholding the highest centers on our board.
Coming to key operational update, we are delighted to share that TCPL has successfully inaugurated a new advanced breaking line complemented by state-of-the-art ancillary equipment at our Haridwar facility. This expansion is part of our ongoing growth strategy with the Haridwar unit already operating at optimal levels.
Following our operational enhancements, I'm pleased to share that TCPL's commitment to quality and innovation has been recognized with several prestigious awards. We have been named Print Week printing -- magazine printing Company of the Year and also received the accolade for the Innovative Printer of the Year 2023 from Print Week magazine. Our subsidiary creative offset printers has earned the best vendor for EHS activities titles from Samsung, India achieving a perfect score.
Additionally, at the India Folding and Carton Association Awards in 2023, TCPL secured 6 awards across various categories, recognizing outstanding work in both Fed folding carton and flexible packaging materials. These accolades underscore our team's hard work and commitment to maintaining a high standard of excellence and innovation in the packaging industry.
In conclusion, while TCPL continues to diversify through customer and sector expansion, we are mindful of the short-term subdued domestic environment in some of our key underlying industries. However, we remain optimistic about our outlook, keeping in mind the buoyant long-term trend in the industry.
We are confident that the industry is poised for growth as India advances towards self-reliance in manufacturing across various sectors with our investments in expanding our capabilities over the years, we believe that TCPL is well prepared to capitalize on this opportunity. On that note, I would request now the moderator to open the forum for any questions or suggestions that you may have. Thank you.
[Operator Instructions] The first question is from the line of Harshal Sethia from AUM Fund Advisors.
So what has been the CapEx for H1? And what is our full year CapEx plan?
Full year CapEx plan is about INR 110 crores, bulk of it has been done in H1. .
Yes. So how much so...
It doesn't matter. I said bulk of it has been done. Please move on to the next point.
Sir, secondly, what I wanted to know, so what has happened in the working capital cycle does increase to 100 days? Anything specific you want to call out?
No, there's no specific comment on that.
Okay. and sir, could you give us a break up in terms of what would be the percentage of exports in H1 compared to last year?
The break up, we will declare annually on an annualized basis in the balance sheet. We don't declare this figure now in the half year.
Next question is from the line of Nilesh Shah from [indiscernible].
Yes, like I'm actually a bit new to your company and the specific industry you operate in. So perhaps I was hoping if you can share a bit of context around the competitive dynamics of the industry in which you operate, right, vis-a-vis some segments with your clients, right? .
Who are your major competitors, right? I mean -- and I've also seen that in recent times, your growth and margins have held up very firmly, if you can also will illustrate has something changed in the vis-a-vis your industry from a competitive point of view.
So the packaging industry, overall, I would say, is quite a competitive industry, and there has been a lot of investment in this area over the last decade or so. And we operate essentially in 2 basic segments. One is the paperboard-based folding carton segment and flexible packaging segment, which is more film and tin paper.
So in the flexible packaging segment, we are a smaller player, and there are a lot of big competitors such as and amongst the listed few. And in the folding carton space, we have competition from various players across India. And essentially, they are generally unlisted companies, such as ITC, et cetera. So there's...
What's the revenue split between these 2 segments?
No. So your question was on the margins, which is holding up. So I wasn't sure. But...
No, no, no. So sorry, I mean before we get to that, just if you can share some split between these 2, I was going through your presentation, and I was not able to locate it.
Yes, the revenue split is roughly 15% flexibles and the rest is folding carton.
Got it. Got it. Got it. And yes, I see from your deck, you are really spending a lot of time I think on the fold on the more consumer facing folding packaging side, is that an area that you are actively trying to shift your residue mix towards.
The folding carton side, we are anyway -- the majority of our revenue is from there.
No. So what I'm trying to talk about is if I see slide numbers 2, 3, 4 so more consumer-oriented boxes like Colgate, right? Is that what you call folding?
Yes, that's what we call folding.
So -- and just to clarify, what is your share from this segment?
Excuse me, Mr. Shah, if there is a very specific questions on particular points, I would suggest you can get in touch with CDR and they can clarify later because then we only have limited time on this call.
Okay. Sure, sure. I will get in touch with your firm that...
CDR India. They are -- Anoop is on this call, so you can get in touch with them.
[Operator Instructions] Next question is from the line of Resham Jain from DSP Asset Managers.
I have a couple of questions. So first 1 is with respect to creative I think you have further increased your stake here. And you mentioned about this in the previous calls that there are -- the segment overall has been growing quite rapidly given the size of the company currently, it's relatively smaller given the size of the opportunity. So how are you looking at this business, let's say, over the next few years?
Yes, in creative, we have increased our stake, and I would say that very soon, it will be 100%. And secondly, we are very upbeat about this business. It is growing in India quite rapidly. So the mobile and the wearable space are both in a growth phase.
Okay. But my question was, sir, currently, it is whatever INR 50 crores, INR 60 crores business you expect it to become substantial, given your strength in the segment? Or will it grow at like 15%, 20% range only is what I was trying to understand.
Resham, potential is there for further growth, for sure, and it should grow at a faster rate than the company's growth for sure. And over a period of time should come to represent meaningful share of the company's total revenue.
However, obviously, we have to get it right in terms of cracking relevant customers and doing a good job on quality and service and bringing new innovation to the market. So we will keep doing and that's the endeavor Obviously, we started in a very small way because this company was -- is a small company and was a distressed acquisition. So the learning period and turnaround time, I mean, to turn around the business was a bit of a long cycle. But we certainly see the future to be quite compelling.
Okay. Okay. Just 1 more follow-up. As of today, I think the margins are a little lower here. But as you mentioned, with certain kind of reorganization and profitability things, are you now confident of getting to the company level margins in this business as well over the next 1, 2 years?
So here, it's also, again, a problem of scale and overall size. So we see that once we come to a more respectable top line number, then the bottom line will certainly follow right now is kind of getting eaten up in overhead.
Understood. Understood. The second question is on the overall balance sheet. I think you had a CapEx plus this acquisition, I think, remaining stake has led to some increase in debt on 1 side.
Obviously, earnings have also improved. But let's say, over the next 2 years, is the overall CapEx -- or you mentioned INR 120 crores for this year, but let's say '25, what will be your overall CapEx?
I think next 1 or 2 years, the CapEx plans are quite moderate. So we should have more free cash flow going forward.
Okay. So absolute debt should come down from current levels?
Yes, I mean it shouldn't grow for sure.
Next question is from the line of Nikhil Shetty from Nuvama Wealth. .
Congratulations on decent set of numbers. So sir, can you help us to understand how domestic part of our business is shaping because whatever growth we are witnessing, I believe it is purely driven by export.
Thank you, Mr. Shetty. Yes, the domestic segment has been under pressure. We have also had to bear the brunt of this decartonization of the liquor industry, which was a large contributor. So the bulk of -- the brunt of that has been born in this half year compared to the same period last year.
And in general, also, I would say that the domestic industry is not growing beyond 4%, 5%. And apart from that, there has been a price reduction because of raw material prices going down. So coupled with sales overall, domestic has been flat, and the growth has really come from export. You're absolutely right. Apart from that, our flexibles has had a good growth. So overall, it has resulted in the numbers that have been reported.
And sir, are we witnessed since we are in the festive season. So are we witnessing any green shoots in terms of a demand in domestic market?
I think that the effective till August, it was very buoyant. But over the past month or so, I feel that, that usual potency is kind of missing. And while there's obviously no decline or anything, but it's not as buoyant as we have seen in the past years.
Okay. And sir, next question is on Innofilms. So how things are moving there? And can we expect any revenue contribution starting from '25?
So in Innofilms, you probably are aware that we had some technical challenges with the equipment, which we have taken up with our machine and technology provider. They have worked on some partial solutions, which are giving some partial benefit, but we expect that another few months it will take before everything is restored to what it should achieve.
And in the meantime, we are also merging Innofilms with TCPL, the NCLT order for that is expected very soon. So hopefully, we will complete that during the current quarter. And yes, we're already using the plant for internal film requirement. So let's say, 30%, 35%. And then we see that number going up and the rest of the capacity will be for sale of films, which we are quite hopeful. So I would say that give us another few months and in for, we should get -- we should start getting some results for this investment.
Yes, that's great, sir. And lastly, how much capacity we are adding to new line in Haridwar?
In Haridwar, we've added about 25%.
25% of existing capacity.
Existing. So overall, about 20%.
Next question is from the line of Jainis Chheda from Spark.
Sir, 1 question is on the addition of the 2 Board members. So what exactly are you looking from them? And how will they add value to the company overall?
They are very eminent people with lots of years of experience in their own respective field. So as an independent director, they bring a lot of value in terms of overall strategy and strategic thinking and also in terms of governance. So I think they can add a lot of value, and we would hope that we can learn from the experiences and suggestions time to time.
So can you substantiate a bit in terms will they help you get new customers or they'll help you improvise processes to cost reduction, how exactly will it happen?
I mean -- see, they come with their own set of contacts and industry knowledge. So it's I can't give you some specific -- only 1 specific area. Overall advice, which is what we are looking forward to do that. At the end, not executive position. So it's more from a strategic and broad level advice that we could learn from.
Okay. And second question is in terms of our cash flow. I am seeing some INR 35 crores of fixed deposit in banks that have added up 3 to 6 months. So why is that like the very specific reason?
So we have some front line of credit against which this money has been drawn, and it will be spent in future CapEx in the current rest of the year.
So I mean, since our exports have increased a lot and tactical this is helping us?
Sorry? No, because of -- this is a foreign line of credit domestic CapEx.
Next question is from the line of Uttam Purohit from Monarch Networth.
So my question was on -- we had a very good growth this quarter. So can you share the breakup of how we -- how much was value-oriented and how much of it was volume oriented? Mix of value and volume.
It's difficult to tell you the exact number. Overall the second quarter, particularly the volume growth was good. First quarter, we had not such a great volume. It was more price led. And this quarter, there has been a price decline. So overall, I would say we can't give you a specific figure, but the -- it is more volume driven rather than price driven.
Great. And also, can you share the update on the CapEx of the third line [indiscernible] Silvassa pant, when would it commence?
On the flexible packaging -- we expect to complete it during the current quarter. So hopefully, it will go into production in Q4 next year.
[Operator Instructions] Next question is from the line of Riya from Equirus Investments.
My first question is in terms of the capacity utilization. Could you give us the capacity realization for both the segments?
On the flexibles, we are fairly -- around 80%, 85% And carton, I would say, around 75% to 80%. .
Right. This is including the new Haridwar facility?
No, the Haridwar facility was only commissioned in September, so this would not include that.
Okay. And my second question is we've seen good growth in flexible packaging. So going forward, do we see the margin being a little subdued because our margins in carton is higher than flexible packages.
No. Overall, I would say that the inflexible has been outgrowing carton, and we have been able to maintain the margin. So in future also, we don't see that causing any kind of difference as such.
So we will be having similar kind of margins?
Sorry?
We will be having similar kind of margins in both the segments more or less?
No, not necessary. But as a company as a whole, we feel that we can maintain current margin. .
Got you. And the raw material we are hearing commentary from all the paper producers that the packaging paper prices are increasing like some so are you expecting such instance? And how will it impact us, if at all?
So paper, certain grades of paper prices are going up particularly in virgin grades, whether in the recycled grade, they're going down. So I think wherever it's going up and down, we have to pass it on to customers. And overall, doesn't seem to be resulting into any major change in pricing.
And these prices are passed on with the lag of how much time?
Typically 1 quarter.
Next question is from the line of Pulkit Singhal from Dalmus Capital.
Congrats on a great set of numbers and also for inducting such esteemed professionals to the Board. First question is on the export side. You mentioned that since domestic was almost flattish this quarter, it seems that exports has grown almost 40%, 50%. I'm just reverse calculating it from the contribution last year. I mean that's a really statutory growth. Just trying to understand what is driving it? And is it largely driven by flexible exports? Or there are some other trends that are also helping you?
Thank you. Overall, growth has been -- you're right that the growth is due to not just the export, but also flexible has grown -- carton has grown marginally. But what's driving it is that we are across many segments and we are also getting into new countries.
For example, we've now entered the U.S., which will in future be a pretty large market. So there's no 1 reason really. But overall, the effort is higher. And we are trying to see how best to leverage our strengths in product quality, which results in except in the product.
Understood. But when I look at exports growth going ahead over the next couple of years, 2, 3 years? Is it largely going to be led by flexible? I mean, the U.S. opportunity is for cartons or flexible? I'm just trying to get that's it.
The U.S. opportunity is more flexible, but there is some carton there as well. And the growth will happen in both segments.
Understood. And secondly, I mean, you did allude to, I mean, trying to get into the Apple supply chain for India. I mean is there any progress there? Anything you would want to highlight?
There's specific information customer-wise, I'm sorry, we can't share.
The next follow-up question is from Jainis Chheda Sara from Spark.
Sir, 1 small question. In the presentation, you have mentioned that implementing your EBITDA margin was supported by better product mix and proactive cost management. So what steps we have taken in terms of your proactive cost management. Can you just elaborate over there. I'm trying to understand...
General cost management, I can't share this is information with you.
That was continuing but I wanted to understand, is it a sustainable continuous basis improvement or a small onetime improvement?
There's no. I don't think it's a small time improvement. There's nothing exceptional about it.
Okay. So any process change or something it's not possible to elaborate, right? .
No, not. Sorry.
[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.
So thank you, everyone. I hope I've been able to satisfactorily answer all your questions. And if you need any further clarifications or you would like to know more about us, please do feel free to contact CDR India. Thank you for taking the time to join us on this call. We look forward to such interactions again in the near future. Thank you all.
Thank you very much. On behalf of TCPL Packaging Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.