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TCPL Packaging Ltd
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Ladies and gentlemen, good day, and welcome to TCPL Packaging Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on TCPL Packaging's Q4 and FY '22 Earnings Conference Call. We have with us today Mr. Saket Kanoria, Managing Director; Mr. Akshay Kanoria, Executive Director; Mr. Vidur Kanoria, Associate Director; and Mr. Vivek Dave, GM Finance of the company. We would like to begin the call with brief 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 invite shared with you earlier. I would now like to invite Mr. Saket Kanoria to make his opening remarks.
Good afternoon, everyone, and thank you all for joining us on this conference call for the quarter and full year ended March 31, '22. I trust all of you and your families are keeping safe and are in good health. I will initiate the call by taking you through the operational and financial performance after which we'll open the forum to have a question-and-answer session. We have concluded the year on a very strong note despite a demanding macro environment. I'm very pleased to report that TCPL for the first time has crossed the milestone revenue of INR 1,000 crores in the financial year and over INR 300 crores in 1 quarter. On a stand-alone basis, in quarter 4 FY '22, total revenue grew by 31% to INR 322 crore as against INR 246 crores in the corresponding period. EBITDA has improved by 38% to INR 48 crores, translating into a margin of 15%. For the full year, total revenues grew by 19% to INR 1,076 crores in FY '22 as against INR 904 crores in FY '21. EBITDA has also grown by 17% to INR 157 crores, translating into a margin of just under 15%. Given the challenging operating conditions, TCPL has showcased remarkable adaptability and achieved yet another quarter of sustained performance. Although we continue to witness raw material inflation, we are able to mitigate the impact on our margins by taking adequate measures, limiting the impact on our total profitability. PAT and cash profit stood at INR 18.5 crores and INR 39.4 crores, respectively, during the quarter. In FY '22, PAT and cash profit stood at INR 49 crores and INR 125 crores, respectively. Here, I'm pleased to inform that in line with our consistent dividend policy, the Board of Directors have recommended a dividend of INR 10 per share. This dividend payout is the 22nd continuous year of dividend payout by the company. It is also the highest dividend payout ever made by the company. On a consolidated basis, for the full year ended FY '22, total revenue and PAT stood at INR 1,088 crores and INR 47 crores, respectively. The consolidated figures are not comparable year-on-year due to the acquisition of Creative and its integration from December '21 onwards. While Creative is currently PAT negative, we believe that we should be able to turn around the company in a few months and benefit of scale, cost optimization measures and other synergies start contributing to the performance. Moreover post the acquisition, we have invested in modernizing the facility and optimizing the process in addition to meeting the company's working capital requirements. Overall, the rigid box is a high segment potential and value-added segment used in several end-use industries, including the fast-growing smartphone market. So we remain very excited about this opportunity. On the operational front, we are delighted to announce the successful commissioning of our second line in the flexible packaging unit at Silvassa. The facility has effectively doubled the segment's capacity and the plant also comprises of a new 10-color gravure printing press and other ancillary equipment. As indicated in previous calls, we expect to optimally utilize the new line over the next 12 months. Furthermore, TCPL Innofilms Private Limited, the company's wholly owned subsidiary, has commenced trial production at its new film line also at Silvassa. With the rise of sustainable packaging awareness among large brands and consumers globally, we expect demand for our products to increase in the coming years. Therefore, while we remain cautious on account of ongoing external situation, we are confident that the company will grow substantially over the next few years by leveraging its expertise and institutional strength. Given our increased capacity, focus on growth through diversification and growing demand for sustainable packaging solutions, we believe we should be able to continue registering healthy growth going forward. I would now request 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 Sourav Dutta from Minerva India.
So I'm just curious if there has been some sort of a tipping point in domestic folding carton demand because demand has clearly accelerated recently. Paperboard manufacturers have, in particular, cited elevated food-grade board demand. So it's a little perplexing at a time when FMCG guys are dealing with their own margin headwinds, all of this is happening. So have you seen any major shift towards paper as far as FMCG food packaging board conversion is concerned?
FMCG food packaging, I don't see any major shift because the basic barrier properties are not met directly by paperboard, but it's a more indirect method of packing. But certainly, paperboard demand is outstripping growth otherwise in this segment because of many other replacement to plastic products. But I don't think that there is any particular type as such. Akshay?
I'm Akshay. Basically, although FMCG volume growth is a bit weak as we all see from the numbers coming out in this quarter and last quarter, there is a shift towards paperboard, not just in India, but more so globally, especially for food products where things like takeaway containers and trays and things like that are moving from plastic to paper. So there is a sort of secular shift towards paper which has seen a sustained increase. And I think that, plus lack of investment in the European and North American mills over many years, has resulted in a big increase in, a big gap between demand and supply as far as paper is concerned. So the Indian paper mills and all are taking advantage of that. As far as our business is concerned, although the customer like-to-like volume growth has been weak over the last 6 months, 1 year, our own demand has grown because we have increased share of business in existing customers and also develop new customers. So I think that answers your question.
[Operator Instructions] The next question is from the line of Pavan Kumar from RatnaTraya Capital.
Sir, can you give me an idea of what might have been the split between volume growth and realization growth for the year and for the quarter?
So our volume growth was just under 5%, whereas the overall revenue growth is almost 18% for the year. And it's been with us for the quarter. It's, in fact, higher in this quarter, March ended.
So volume growth would be still around 4%, 5% or even less?
Yes, 4%, 5% is the volume growth for the year. But as...
Okay. And when are we expecting to start our new flexible packaging line? Has it already started?
Yes. The new flexible line has already started. Yes. Sorry?
Is there any contribution of revenues from there in this particular segment?
Yes. It was capitalized only end of March. So it was only a few days. So there's no really contribution from there.
Okay. Okay. And Creative, when was it integrated, sir?
From 4th of December onwards.
Is it part of the results?
Yes. It is part of the consolidated results.
Okay. So the small dip that we are seeing between the stand-alone and consolidated would be related from last months Creative level?
Yes. That's right.
Okay. And any CapEx plans for FY '23 and FY '24? Anything planned as of now?
Yes. FY '23, there is a CapEx plan. We have to, there's some amount of balance left over from last year. And plus, we are going to add capacity in our offset carton business. So we are adding a new line for which we will be investing. Total outlay could be INR 100 crores.
Okay. And basically, the asset turn that can be expected should be around 1.5 to 2, am I right?
That's the minimum we can expect. It should be, in fact, higher than that.
Okay. Okay. And in terms of the raw material prices, what is the trend that we are seeing in Q1, sir, in the sense of are we facing further inflationary headwinds or how is that working on?
So on the paper side, there's a mixed trend in recycled materials, in fact, pricing has become soft. In fact, it is going down because the Q4 was very, very high. But in the virgin board, the more value-added board, raw material is still in short supply. And there, raw material costs are growing. So there is still inflationary trend, whereas in the flexible packaging segment, in some items, it is still inflationary like solvent, chemicals, et cetera. But in basic film, it is currently soft.
Okay. Okay. That's fine. And if we just look at sustainable, yes, all right, so the margins at least should be sustainable, right, at least at 14%, 15% over the medium-term. I'm not asking about the next quarter or so. But in the medium-term, should that be the margin expectation?
Yes. I think we have achieved that. So we don't see any reason why not.
The next question is from the line of Vipul Shah from RW Equity.
Congratulations, sir, on an excellent set of results. Just wanted to understand previously also on earlier calls, we had this question about whether the company will be able to get back to the 42%, 43% gross margins, which we used to clock earlier. And definitely, at least the gross margins have been stable, but considering the current inflationary environment we are in, do you still believe there is some ground to further increase our gross margins?
So our gross margin is quite close to that figure. If you look at the year-to-date, we almost hit 40%, 39%. So yes, we are close because the inflation is so high because the incremental cost to maintain that kind of incremental margin is very challenging, but we are close to that number.
One more question which I had was, sir, are the gross margins better in the flexible business than the traditional business or it's basically more or less, is it more or less the same?
No, flexible business gross margin is lower in fact.
[Operator Instructions] The next question is from the line of Pavan Kumar from RatnaTraya Capital.
Sir, I just wanted to understand how frequently are our contracts with our customers negotiated and when did negotiation last take place?
Customer contract negotiations is ongoing. Some customers are even on a monthly cycle. Some are on a quarterly cycle. Now this is because of such high volatility in the raw material pricing, it is more frequent. Earlier, it could be annual, could be 6 months or depends on volume and which customer. But in the present circumstance, it is a much shorter time period.
Okay. And would it be fair to expect, say, a growth rate of say, 10% to 15% on your base of carton packaging business, the growth rate?
The rate on what? I didn't get you.
Yes, on our base business, on our carton packaging business, can we expect a growth rate of 10% to 15%. Is it possible?
Yes. It's more than possible. It's very possible. In fact, we have been achieving beyond that in the last couple of years, even though COVID was there.
Okay. Yes. Because I was just looking at our previous, I mean, there were years where it looked very difficult for the base business to grow. That's why my question was there. Of course, you have done a great job.
[Operator Instructions] The next question is from the line of Pratik Kedia from Kedia Securities Private Limited.
Great set of numbers. I just wanted to understand what, if you can give a little your opinion on what's happening with the paper segment. We're hearing about some shutdowns in Europe like in paper mills, paper prices going up. How does this affect us? And how do you see this playing out going forward?
Yes. Akshay will answer this.
So as I said earlier, basically, I think there's been a lack of investment in places like Europe and North America over the last decade. And at the same time, there's a secular shift towards paper and paperboard all over the world because of sustainability and antiplastic, et cetera. This is more so the case in the virgin paper market because that is suitable for food contact. And what happened in post-COVID is that this shift has only sort of accelerated. So there's been a huge increase in demand all over the world for these kind of materials, which are the virgin paper and paperboard. And our Indian mills are taking advantage of that and doing a very robust export business. And as the Indian demand revived, that kicked in as well at the same time. So you see these virgin board and virgin paper supplier really improving their whole prospect. On the recycle side, what we're seeing is basically cost pressure, acute cost pressure on account of input costs going up in terms of the wastepaper or other chemicals, transport costs, all of that. And these led to a big increase in the prices of those materials. But the market is not as robust in terms of export and all of that as the virgin side. So I hope that answers your question.
I really appreciate that. Just one question, not related to this one. Just wanted to know if you can give me a brief about the competitive landscape right now. Are we facing anything new? There's a lot of companies in the start-up space also which are non-manufacturers, but I think direct sellers like Bizongo and some other players which were indirect like Moglix and some others. Do we see them as a competitor or like do we have any competition that you're facing from these companies in any manner or any segment?
So in general, our industry is fairly fragmented. It's a multi-thousand crore market. If you ask me what's the size of your industry particularly, no one can say. It's a very fragmented market, dominated by small-scale local suppliers who have old relationships with the customer. And as those customers mature and develop and grow and they require more stable and value-added suppliers who they can rely on, they come to people like us. As far as these start-ups are concerned, that's not really had any much impact on our business. And in fact, to some extent, it can be a good thing because they can sort of, they're not manufacturing. They're not the manufacturer. They're an intermediary. So they can route these smaller brands and stuff to us and sort of be an intermediary or a middleman. So to that extent, they, in fact, are a good thing. They're not really a competitor. I wouldn't say that.
The next question is from the line of Dhruv Shah from Ambika Fincap Consultants.
Congratulations for a really good set of numbers. Sir, basically I have 3 questions. One on Creative, how much would that be? How much did Creative contribute in the current quarter?
INR 9 crores. The Creative contributed INR 9 crores for 4 months since acquisition.
Right. And what would be our capacity utilization right now?
Capacity utilization there is quite low, about 40%.
Okay. Okay. Sir, I have one industry question, considering the raw material constraints the industry is facing right now, I'm sure that you would have taken the market share because FMCG companies are just reporting 1% to 2% volume growth. You guys have reported something around 4% to 5%. Sir, do you think this market share which we have taken is sustainable? And going forward, do you see FMCG companies being more loyal to larger players like us?
I think FMCG customers are loyal to people who can deliver on time and quality is right and anyone who services them properly at a competitive price. But having said that, yes, we are picking up market share also because we are adding new customers. And within the same company, we are adding and also our supply chain is run more efficiently so we are getting raw material in time. All these things contribute to this.
Sir, my question was primarily because we are a very price-sensitive industry because there's no entry to barrier as such, at least as far as the paperboard is concerned. So in that context, I was asking that because now FMCG companies would have seen such a high raw material increase, going forward, do you see that they will overlook pricing for some time and giving more business to us?
I think no one is overlooking pricing at any time. As you said, it's a competitive business. But at the end of the day, you should get the material also on time. That is a reliability and it's very critical.
Right, right, right. Sir, I have a question on your balance sheet. Have we seen a peak debt? Because debt right now is around INR 400 crores. Do you see it going up? I know that you have INR 100 crores CapEx, but our cash profit is INR 125 crores for the current year. So I'm assuming that this INR 100 crores can be funded through internal accruals. So I'm assuming, so can we expect that we have reached the peak debt and from here the debt should come down?
So the debt will be as a ratio and a percentage. I think that's the way to look at it, not in absolute terms. And if the company grows, the debt as a percentage of sale, percentage of net worth, the debt-to-EBITDA, I think these ratios and percentages is what we should strive to improve rather than the total absolute amount.
Okay. Okay. Sir, and the last question. So in our corporate presentation, we had guided that we would endeavor to reach 20% ROCE. So with our CapEx plans and with Creative now contributing, but do we expect to reach that milestone by FY '24?
Yes. So ROCE, basically, when we make an investment, our whole idea and strategy is that we should manage 20-plus percent ROCE. And if you see in the past, that was the case also and we see that coming back. And certainly, if you go by the last few months, I think we are sort of improving.
Yes. I mean...
You know return on capital employed, we have hit 20%-plus about 8 years ago, 7 years ago, then it dipped to 10%, 12%, 13%. And then over the last 2, 3 years, it is improving. I think in this year, we've gone up to almost 15%. So it is getting better. So that means more better utilization and more efficiency.
The next question is from the line of Pavan Kumar from RatnaTraya Capital.
My question is answered.
[Operator Instructions] The next question is from the line of Vipul Shah from RW Equity.
I have a follow-up. If I heard you correct, sir, Creative basically operated at 40% capacity utilization and contributed close to INR 9 crores in the year gone by. Do you see Creative operating at close to full capacity this year?
So right now because of this international situation with China in periods of lockdown and with Russia war, the supply chain of this mobile phone business is a little affected. It means our customers are not able to get their raw materials, like chips and microprocessor and small parts with the result that they are not able to ramp up full production. And second thing is that even our Indian smartphone market is a lot dependent on export and the export is also affected due to the international position. So we do expect improvement, but we don't expect a very high level of utilization.
The long-term volume shifting to India and the India volume growing, that is very much baked in, and we expect a big improvement. But in the immediate time, that's taking time because of all of these disruptions from COVID, China zero COVID policy and then this war situation and the RM scarcity and all of that. So basically, the customer end production is really hit. But once it comes back, we'll be fully ready to take advantage and we can grow this by many factors or several multitudes.
And also, we will get into other forms of rigid box, which in any case we are trying for all other customers, yes.
So just a follow-up to that, and I hear you when you say that it is basically a secular shift that the mobile phone manufacturing and export will increase. Obviously, these are not the times when we should expect growth, but the second question to you. As a company, are you looking at putting in more resources into Creative and growing capacity to be ready for the growth whenever it comes?
Yes. Absolutely. We've already started doing that since we took over. We are expanding the building. We've already added a very modern equipment. And we will further develop as we go along because it's a small unit and it has to come to a much bigger scale.
The next question is from the line of Gunjan Kabra from Niveshaay.
Congratulations on a good set of numbers. My first question is, sir, what was your export proportion as a percentage of revenues this quarter? And what was it in the previous quarter? And which countries do we export like major revenue comes from which country? And like in near term, how are we seeing exports for our company?
So export, overall export, I can tell you for the year was about 23%. And we are exporting to a lot of countries in Europe, Netherlands, Sweden, U.K. Middle East is a big geography in which we export, parts of Africa. So yes, it's fairly broad-based across these 3 regions. And now we are looking to expand further to the North America, where we also see a lot of opportunity.
Sir, is it possible to do quarter-on-quarter?
No. Quarter-on-quarter figures are not published.
Okay. So this quarter, we were able to maintain our margins, but from like seeing the paper prices, high paper prices, are we seeing a pressure on margins going forward or we'll be able to maintain it?
Okay. So paper prices this quarter, we witnessed the highest volatility and a very big incremental increase in particularly recycled paper. And that has been mitigated reasonably well. Now currently the recycled is on its way down. We don't know how long that is going to last. But as I mentioned earlier in the call, the pricing has become far more dynamic these days. So it's being very regularly monitored by customers. So we hope that we'll be able to maintain margins.
Sir, what is the mix between recycled and virgin paper?
The mix hasn't changed really that much. Right now both are around, I would say, 45%-55%, virgin 55%, something like that.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
So thank you, everyone, for your interest and for your insightful questions. Should you need any further clarifications or if you'd like to know more about us, feel free to contact our Investor Relations team or at CDR. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I again thank you for taking the time to join us on this call. We look forward to our next interaction. Thank you.
Thank you. Ladies and gentlemen, on behalf of TCPL Packaging Limited, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.