Ladies and gentlemen, good day, and welcome to EPL Limited Q3 FY 2024 investor conference call, hosted by Systematix Institutional Equities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tolia from Systematix Institutional Equities. Thank you, and over to you, sir.
Yeah, thanks, Sagar. Good evening, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged into this conference call on EPL to discuss the Q3 and 9-month ending FY 2024 earnings conference call. At the outset, I would like to thank the management for giving us the opportunity to host this call. From the management team, we have Mr. Anand Kripalu, MD and Global CEO, Mr. M.R. Ramasamy, COO, Mr. Deepak Goyal, CFO, Mr. Srihari Rao, President, AMESA Region, Mr. Onkar Ghangurde , Head, Legal, CS, and Compliance Officer. I would like to welcome Mr. Anand Kripalu to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Pratik, and, hello, everybody, and thank you for joining the Q3 FY 2024 earnings call. At the outset, I'm pleased to share that our Brazil plant, which became operational last quarter, has successfully stabilized. Our focus is now directed towards harnessing further growth in this promising market. Hence, from this quarter, we are taking the step to present a consolidated view, including Brazil, in all our results. In any case, greenfield expansion is very much part of our growth strategy. In Q3, we reported a revenue growth of 3.2% versus the previous year. This was underpinned by strong underlying business performance in most regions, impacted by negative pricing due to soft commodities, as well as the adverse impact of the Egypt economic challenges.
Hence, while the India standalone business grew by 4.2%, EMEA as a region witnessed a negative growth of -0.6%. EAP has continued its consistent strong performance of double-digit growth at 11.6%, Europe grew by 8.6%, and Americas by 11.9%. Our focus on personal care and beyond continues, with the category now contributing 48% to total sales in the year-to-date FY 2024. Along with personal care, we have seen significant gains in the pharma category as well, with India doing the highest-ever revenue in pharma in December 2023. In line with our recent communication, while our revenue growth was impacted by negative pricing pressure, our EBITDA growth and margins continues to progress strongly.
In Q3 FY 2024, we delivered a robust EBITDA margin of 18.8%, which is an increase of 74 basis points quarter-on-quarter. Our year-on-year margins improved by 224 basis points, and absolute EBITDA grew by a solid 17.1%. Importantly, while our business is not a sequential business and quarter-on-quarter comparisons is not the right way to measure performance, our consistent 6-quarter EBITDA margin improvement journey reflects our commitment to bring margins back to pre-COVID levels. Our margin improvement plan, including active price management, mix improvement, and cost optimization, gives us confidence that we are well on our way on our margin improvement journey. PAT during the quarter grew by 37.2%, and ROC stood at 14.5%. Moving on to sustainability, innovations, recognitions, and wins.
At the core of our strategy and daily operations is a commitment to sustainability. The global sense of responsibility towards our planet is growing, and the growing acceptance of our products mirrors this shift. We are on track to double our recyclable tube sales versus prior year, accounting for 20% of our total volumes. Additionally, as the date of customer commitments for conversion to sustainable solutions draws closer, we are confident of benefiting from that transition. Our sustainability endeavors have not only resonated within our organization, but have also received external recognition. We were recognized for the best overall sustainability performance at the World Sustainability Congress organized in Mauritius. We were awarded as the winner in the Excellence in Procurement Sustainability category by ISM India. We also achieved a green rating, which signals positive progress on Ellen MacArthur Foundation for the second successive quarter.... For our pioneering tubes.
Looking ahead, we continue to remain optimistic about our revenue and margin potential, though soft commodity prices will continue to put pressure on revenue growth in the short term. Let me walk you through the key initiatives for revenue as well as margin. First, on revenue, and I must add here that accelerating revenue is our top priority. We are aggressively targeting the vast potential in the personal care and beyond segment, actively pursuing smaller customers and scaling up our hunting capabilities. We have made significant progress in building flexibility in our system for smaller batch size orders that is critical for the personal care and beyond category. In East Asia Pacific, specifically, China, has already put in place this kind of flexibility, and we are making rapid progress in both AMESA and Europe. Complementing this is the increasing range of innovative and high-quality products.
Importantly, we have commenced commercialization of NeoSeam, which nearly eliminates the side seam in laminated tubes across India, the US, and Europe. Our robust portfolio of sustainable solutions continues to provide us significant competitive advantage. The increasing emphasis on sustainability, coupled with our key customers' commitment to swift adoption of recyclable packaging, will continue to play in our favor. We are optimistic about our Brazil operations as it opens up significant avenues for growth. So overall, we are confident that these initiatives will accelerate future growth, which, when coupled with mix and moderate pricing, will help us to get to our longer-term ambition of double-digit growth. And secondly, on margin, we have delivered consistent margin improvement in the last few quarters. We are continuing our efforts behind active pricing, mix improvement in costs, as well as structural interventions in Europe.
We have a solid pipeline of these initiatives, which will continue playing over the medium term to help us to get to our stated objective of delivering 20% margin. With that, we will now open this up for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants may press star and one to join the question queue. The first question is from the line of Samir Gupta from India Infoline. Please go ahead.
Hi, sir, good evening, and thanks for taking my question. So, sir, you mentioned that there is negative pricing sitting in the sales growth, and when I see the segmental performance, it's actually only AMESA where there is a lower growth. Rest all geographies have done double-digit, and there also, you called out Egyptian currency impact, so excluding which, India has grown at 4%. So suffice to say that the negative pricing is right now only affecting India and not other geographies, or this is more like a performance excluding pricing that you're seeing in India as well? Because last few quarters also, we are tracking around 4%-5% in AMESA region.
Yeah. So I specifically called out India standalone because Egypt is an exceptional situation in terms of economic challenge and devaluation and inflation, okay? So that, you know, you all of course understand what's happening in India. The reality is there is some negative pricing in all regions, okay? The scale changes based on how much of our business in each region is contracted. Yeah, because contractual flow-through happens automatically with a lag of three or four months, okay? But negative pricing based on softening of commodities is affecting our overall results.
Got it, sir. So just a request, I mean, if there is a way, you know, because these pricing pass-throughs will always be there in inflationary or deflationary times, is there any metric that we can track, you know, to see the underlying performance of the business? Maybe gross profit is an indicator. Does it bode well, like it's grown up around 10%? Is that a fair understanding of, you know, how the business is growing going forward? I'm just trying to, you know, get a metric to understand, not to pinpoint or anything.
No, I understand. I think, you see, when you look at our overall P&L, despite a revenue growth of 3.2%, which I said has been negatively impacted by pricing, our EBITDA growth, absolute EBITDA growth, because ultimately the profit pool of the company, the absolute EBITDA we are delivering, reflects how we've done. Is the fact that that negative pricing is in no way impacting our margins, either gross margins or EBITDA margins. That journey is intact, okay? So it is just what's happening on input costs that is getting translated into pricing, and that's impacting the optics of our revenue numbers. But the profit of the company, both as a percentage and in absolute, is robust and is growing robustly back, you know, towards the journey from where we started.
So I think that is the ultimate way in which I look, and you guys are far better at this game than I am. But for me, if the absolute profit pool of a company is growing, the company is growing. Yeah? The rest is pluses and minuses, sometimes inflationary, sometimes deflationary. Those things happen, but whatever environment you're in, the question is: Is your profit growing or not? And that's one way of looking at it.
Got it, sir. Just a follow-up there. So this negative pricing element, is it something like a carry-forward of the previous quarters? Because I see most of the commodities, which are there affecting our basket, they are largely stable. So, what exactly is this negative pricing coming from? And, is it likely to come from in the future quarters as well?
See, the negative pricing, first of all, plays out typically a quarter or so after the actual negative pricing of commodities happens. And just remember, you are comparing the same quarter of the previous year, okay? So what is happening is that while there has been the softening of commodities, right, happens quarter on quarter, the pricing impact happens a quarter later, but you're comparing with a denominator where the pricing was probably higher based on much higher commodity. So the optics of that negative when you compare YOY, right, is tough, and that's what is affecting the numbers.
Got it, sir. I'll come back and if I have any follow-ups. Thanks.
Thank you.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, thank you for the opportunity. My question is with regards to the Europe region. So we see that the revenue growth rate has been healthy, around high single digit kind of a number in Europe. However, the margins, EBIT margins on a sequential basis has been on a declining trend. So as the polymer prices are declining, it indicates a strong volume growth, but despite that, we are not able to ramp up our margins. So any commentary on that?
So, I agree with you, first of all, that in Europe, interventions are needed to either accelerate growth further or to prune the costs. I can tell you, we are putting one foot on the accelerator of growth in Europe and the other foot on the brake of costs in Europe. And, in this quarter, particularly, but those... The benefits are not playing through yet. But in this quarter under review, we have started making some structural interventions in Europe to optimize and prune the costs, right? And you will see the benefits of that beginning to flow through, in Q4 and beyond. All right? So we are absolutely focused on looking at the cost base in Europe to improve the margins, while continuing the journey to accelerate our growth performance.
Okay, uh-
I would just add-
Sorry.
One quick point here.
Please.
I would just add one quick point here. If you look at Europe performance versus prior year, the EBITDA has already started improving, right? So last year, 5.7, this year, 9.2. Sequentially, when you see, western geographies typically have a softer Q3 because of Christmas. Because the last second half of December is usually shut down, and hence it results into lower growth. And that is why when we are looking at this business, we should not look at it sequentially, we should look at it versus previous year. That's a better comparison.
Okay, that's helpful. Secondly, sir, we have highlighted that, we are going to focus on smaller, quantities to be delivered in, Europe region. So how... Like, I just want a broad understanding, how much incremental, profit do we make on delivering smaller quantities compared to bulk? Any, sense on that, broad indication will also help.
So, let me put it this way: Our focus to go after smaller customers is because, as we said earlier, our share, volume share globally in Personal Care and Beyond are about just south of 10%. So there is a huge headroom for growth in this segment. And-
Sorry to interrupt. The line for the management seems to have been disconnected. Please stay on the line while we connect the management line back. Ladies and gentlemen, thank you for patiently holding. We have the management line connected back.
... after B&C is because there's huge headroom for growth. And while we are already reasonably large with some of the big customers in the world, right? We have a big opportunity to go after the relatively smaller customers who are not global, but are regional, and who have requirements for smaller batch sizes, okay? With higher paces of innovation, which could be innovation success or innovation failure, right? And we are therefore putting in place our hunting capabilities in terms of sales guys, to go and bring that business and the back-end capabilities to have that flexibility to be able to supply. Now, in reality, the cost of manufacture of smaller lot sizes is higher than what we do in terms of the mass runs that we have in categories like oral care. However, we make sure we charge more. So the ASPs are typically higher.
Our intent is to make sure that the margins are better, okay? The costs are also higher, but overall, the objective is that personal care and beyond should be margin accretive to our business, both in terms of positive revenue mix as well as overall margin mix. Okay, so that is our approach. Now, it's very hard for me to give you a number because it's a strategic priority, right? But you will see this playing through, you know, as this strategy gets into action and a reality.
Understand, sir. So how has been our experience with smaller customers in, I guess we are doing that in India also and China also. So how has been the experience with the smaller customers, and regards to repeat orders from them?
So, you know, some amount of small customers we do everywhere, right? But as a big thrust, right, we're doubling up our efforts. China has had very significant success, right? And you know, in China, we use a term called local kings, because, you know, in skincare, the Chinese brand is different from the Korean brand, is different from the Japanese brand. And our China teams have done really well in terms of capturing those small batch size volumes, sometimes high-end innovation, sometimes very high pricing per tube, right? And being able to supply them with shorter lead times. So we've had success. So within EPL, we know how to do it, but there's a cost of the sales kind of resource, there's a cost of that back-end capacity, and that's what we are doing.
Even in India, incidentally, we service a very large number of small customers, but there are also lots of small customers who the other local players supply to, right? We believe, with EPL's image and quality and, far more agile serviceability, we can get a part of that volume, right? That's what we are targeting. Yeah.
Understood. That's helpful. Just one last question. What would have been the impact of increased freight cost? Like, do we bear it or the customers bear it? And secondly, is there any loss of sale or deferment of sale because of the Red Sea issue during the quarter?
I don't get the question. What was the first one? Increased sales force?
No, no, ocean freight. So ocean freights have gone up. So, how much of our margins would have been impacted, if there is an estimation at your end because of the increased ocean freight?
Now, see, the price may well be incurred in this quarter, but normally it's a pass-through in most of the contractual businesses. It will get passed through.
Okay, and any deferment?
On freight, but it largely gets passed on, so the impact on EPL margin is likely to be immaterial. In terms of the lead times, the lead time due to Red Sea issues have gone up, especially when we send laminates to our Europe and US businesses. For that, our inventory, we have started increasing our inventories of the safety stocks because of this higher GIT, which we will unwind as soon as the issue is kind of resolved.
Okay, but there is no loss of sale during the quarter?
No, we are ensuring that, our customer service levels don't get impacted because of the higher lead times, and we are increasing our safety stocks and GITs as required to manage that.
Which we will unwind the moment the conflict resolves.
Okay. Thank you, and thank you for answering everything, and all the best.
Thank you very much.
Thank you. The next question is from the line of Vikram Kotak from Ace Lansdowne Investments . Please go ahead.
Thank you so much. Actually, my one question is answered, but I have two questions. One is the, you know, Anand, you talk about the, you know, margin part with a cautiously optimistic statement. We moved to almost 18.5 now from 15% or bottom, six quarters back. Of course, we've seen a glorious path in 2020 and 2021 of 20%+. Okay. Do you see this journey, with the, you know, different drivers, whether it's Brazil or the recycled area or the optimization, do you see this journey coming back soon? What's your view? Maybe, what's your take on this 20% kind of path? You think so this is possible?
It is absolutely possible. I want to be very, very categorical on that. You know, as a management team, we are very focused. We are actually very clear on a few things that we need to do to get to a 20+ number. Okay? Now, all I cannot tell you is if it's a 1-quarter or 2-quarter journey, right, or a bit more medium-term. But I think you should absolutely, count on the fact that management is-
... Right, and we will leave no stone unturned to get there.
Sure, sure. My second question is on the recycle volume, and I think you've done brilliant job in, you know, moving from 10% to 19% recycle, and you're targeting 60%, which is a big task. Any, any risk to that? Any risk to that you see, or you are, you are on track to go to 60% of the volume in the recycle, so-
I don't think the risk is only, you know, when I have seen when conversions like this happen, I think the only risk is that the conversion may happen faster than we are ready for. Okay? I think that is the only risk. This is an absolute journey that is moving in that direction, right? And actually, our back-end capabilities are, we'd like to believe, more ready than anyone else's.
Okay.
As customers' own deadlines draw near, we believe we are more ready to get a higher share of their wallet, than otherwise, okay? That has been our quest, both on technology as well as readiness of capacity. That's what we are absolutely focused on. I don't think... I think the only risk is that if the customers will suddenly come and say, "I want it tomorrow," and it is happening in a few cases, by the way, because suddenly they get pressure from the top to say, "Hey, why you want to go, let's go faster." And suddenly that pressure comes on suppliers as well.
Right. Right. Great, great. Thank you so much. All the best, and it's a great performance. Thank you so much.
No, thank you very much. Now, I'm just going to step out for five minutes. The team is here. The call will continue, folks. I just have to get into the car, and I will log in from there. So just five minutes, but, you know, Ram, Deepak, and the team are fully here to continue the conversation. I will join back.
Thank you.
Yeah.
The next question is from the line of Pramod Dangi from Unifi Investment Management LLP. Please go ahead.
Yeah. Hi, thanks, and, congratulations to the entire team for the, you know, continuous improvement. There are two questions. One is, I think, I missed the point, where we are on the Brazil today, in terms of the capacity utilization? And, I think you said that by 2025, we should be, you know, looking at the higher numbers. So, like, what kind of a road path we are looking by financial year 2025 end?
We are on track for...
Hmm? Brazil capacity utilization.
Yeah.
Yes.
We are on track to deliver that what we intend to deliver in the first year, because it's a contractual business with a lead customer. We are almost there to deliver what we have. But we have created a little larger capacity in terms of serving other customers, which we are now, getting a lot of interest to serve that. That will start happening sooner than what we expect because of the interest shown by other customers. Utilization will go higher once everything starts happening, because it's a new country, we created a little larger capacity than our contractual capacity.
Okay. Okay. And then secondly, you know, as you said, that we are looking, you know, to recover margins very soon, and we continue to improve on that. But during this process of the last two years, you know, and we have seen a huge cycle in the commodity prices, have you made any changes to our contract with the customers, or have you made any, you know, structural change in the contract where this volatility will be kept going forward, and it- we will not see that, you know, the 20% again going to a 15, 14%, if the commodity prices again shoot up for whatever reason?
Yeah. Thanks for asking this question, and it's also something which we as a management have discussed extensively amongst ourselves. See, I think the reason of delayed pricing or partial pricing that we got and subsequent margin erosion was not the contract as much as the speed of negotiations with the customers. There are two kind of customers that we have. One are contractual, where the price flow-through is happens every quarter, and then there are non-contractual customers where we go and negotiate the price.
Mm-hmm.
In the last cycle, when unprecedented commodity pricing got combined with supply chain disruptions, very high freight rates, wage inflation, et cetera, we as a business were not prepared to go and have those discussions with the customers in taking significant pricing. And this is happening when in the last 40 years we have never taken more than 1%-2% annual pricing, right? Now, in the last few quarters, what we have developed as a muscle is our ability to monitor the margins on a real-time basis and have discussions with the customers in case the need arises much, much faster than what we did last time. So today, we review our customer-level gross margins regularly, almost on a monthly basis, right? And then our readiness to go and have those discussions is much faster.
In case this happens, we will not kind of go back to what happened in the past, right? Our readiness is much, much better now.
Okay, okay. No, that's great, that's great to hear, because that, that means our volatility, and, you know, the lag period will be much lower than what it was in the previous cycle. Great.
So, see, there is a, there's a saying for never waste a good crisis. I think what we have used this crisis is to learn and developed a few very important muscles. One of them is active price management, and second is the middle of the P&L productivity. And that is how I think we have come very, very close to, let's say, the peak margins. We are now close to 19% already, and then we'll keep improving. But these two learnings are there to stay with us for a long time.
Right. Great. Great. And then lastly, you know, I will just go back to the, you know, first question, which another participant has asked. If we can give some light on the, you know, last one year, two years, three years, and the current quarter number also, on our revenue, if we can break into the volume and the price growth or the degrowth, you know, I think that will help the, you know, everybody understand where we are. Because ultimately, prices are passed through, the raw material prices are passed through. So what the real growth is what we are concerned, actually.
I understand.
If you can break that in the volume and the price, you know, that will be a great help for everybody.
Yeah, I understand. Also, however, another complexity that we need to keep in mind is the complexity of our business. We play in large number of geographies and in large number of categories. Now, in the volume, we kind of tend to equalize a volume that we are selling in Europe, a 50 dia large beauty 'n cosmetic tube in Europe, versus a 16 dia small dental care tube in India. Now, the price between the two could be like 20-25 times, right? And that, once we start equalizing, the numbers don't remain comparable. And then we will get into the moment we start talking volume, then we are talking mix more than the real impact of pricing, et cetera.
That is the reason, in this business, revenue, despite its flaws, is still a better metric, and we should continue monitoring gross contribution and EBITDA, how's the underlying business doing? That is why Anand, in his response, also said that our absolute EBITDA growth of 17% reflects that the underlying business performance is solid.
Got it. Got it. Thanks. Thanks a lot, and all the best.
Thank you much. This is Anand. I'm back online now.
Thank you. The next question is from the line of Mihir Shah from Nomura. Please go ahead.
Hi, sir, thank you for taking my question, and congrats on a very strong performance on margin improvement despite a low operating leverage from a relatively lower sales growth performance. So firstly, just sticking on to margins, I did hear Mr. Kripalu highlighting improvement will continue on margins, but wanted to understand the headroom that is there for improvement. And apart from understanding the headroom, so will this gradual improvement continue? And are there any headwinds that one should keep in mind where this margin improvement, you know, probably get stalled for some time or the other? So that's my first question.
Yeah. So let me just say this. So first of all, I think it's really important to understand that there is seasonality in this business. So Q4 always has a depressed margin for China business, and therefore, right? Q4 margins. Q4 is the softer margin quarter. So I think the first guidance is that don't look at it linearly. However, sequentially. However, on a year-on-year basis, right, the attempt is to continue this margin improvement journey, right? And step by step, as I said earlier, to take it to 20%. Now, what is the headroom is very hard to answer, right? Do we hit a circuit breaker at 20? Will we continue to improve margins thereafter? I think it's really hard to answer, but I tell you there's a strategic choice in business.
If you try and make too much margin, then at some time, you know, you will outprice yourself and you will compromise growth. So the management judgment really is about what margin will give us the right balance in terms of absolute EBITDA improvement and value creation. Okay? Therefore, what, what will give us the right combination of growth and margin, and that's really the judgment. Now, our focus for the last six quarters has been to try and get our margins back to where they used to be. I think honestly, now we need to focus much more on growth, and if we grow faster, the margins will continue to improve.
I don't want to fix a circuit breaker, or define a headroom other than to say our first goal is to get to 20 as soon as we can, and once we have a 2 in front of our numbers, to apply management judgment on the right combination between growth and margin.
Got it, sir. Any headwinds that we should keep in mind that can derail this margin improvement, or relatively as of now, there is no visibility on any headwinds that can derail this path?
I mean, honestly, after so much of choppiness over the last couple of years, I think we are definitely sailing in calmer waters. Now, we don't know what we don't know.
Yes.
This Red Sea thing, as long as it doesn't become worse, right, I think it's manageable through higher inventories, but who knows where it's going? Egypt has been a damp spot. Even though the country itself is an attractive country, our business in local currency is doing well and is very profitable, but there's a big issue with their exchange rate and the ability to get dollars out of the country and those kinds of problems.
... So these are the things we know. I think Europe is now a known situation. It's not getting any worse. The situation in Europe is what it is, and we are very clear that we need to do a few interventions and management in Europe as well. So honestly, all things considered, yes, people talk of softness in China, for instance, now. How much is it? As of now, we're looking okay in China. Okay? If suddenly it turns for the worse, then, you know, we don't know. All right? And we have an important business in China. But I would say, the world is never perfect, and right now, I think things are calmer than tough in overall terms.
Perfect. That's heartening to know, sir. Secondly, I wanted to check on the negative pricing. When do you think this can get annualized? I mean, are there incremental new price cuts or, you know, prices that you have to pass on to your customers, or these are the carry forward ones that are continuing? I believe negative price cuts started, you know, like two quarters back. So can one assume maybe this can continue for the next two quarters and then everything will be in the base?
Yeah, I think roughly speaking, probably a couple of quarters more.
Right.
Right? Of some level of negative pricing. Okay? But the—it's not as if there's fresh negative pricing thing, but, you know, contracts that are there, stock that is there, some customers who are, not contractual, you know, we've been negotiating and holding on pricing for as long as possible. Those are all the tactics that obviously you do. But yes, very roughly speaking, and, Ram and Deepak please, chip in if you have a slightly different view, but I would say probably a couple of quarters and really no more in terms of any material price reduction thereafter, assuming commodities stay where they are today, right?
Yeah.
Which currently seems quite stable, I have to say. Commodities have been quite stable now for the last couple of quarters.
Got it. Sir, I have a few more questions. Is it okay if I continue, or should I join back in the queue?
I don't know how many people are queued up, honestly, and I want to give the time to everybody. So if you don't mind,
No problem. I'll join back, sir. I'll join back.
Then you could come back in the queue. In case we are not able to answer some of your stuff, then please reach out to our team, and we will deal with it offline as well.
Perfect, sir. I'll join back. Thank you.
All right. Thank you.
Thank you. The next question is from the line of Ganesh from Bharat Bet Research. Please go ahead.
Hello, sir. My question is primarily regarding the sales force recruitment for the smaller beauty and personal care space. Three questions there. Firstly, in terms of our kind of intent over venturing into this space, are we kind of seeing, say, increased competitive intensity with the larger players, and is that a motivation to kind of move here, or is it primarily a growth intent? Secondly, you had—I think you had stated that this change will be kind of margin neutral going forward in, say, at least the first few years. But say two, three years down the line, do you think this will turn out to be a margin positive segment for us compared to our larger clientele as such?
The third is, would we need to make any material changes on the tech backend side, and would there be any investments for that that would be required, or can we do it with our existing stack that's there?
I'll take the first couple, and on the tech side, I'd request Ram to chip in. So as far as why are we doing this, we're doing it because there is a growth opportunity here. We're not doing it because somebody else is doing it. We believe there's a growth opportunity. There is an opportunity to steal share from some of the bigger players, and there's only one other major global player, okay? And we believe there's an opportunity to steal share from some of them, from the large companies, but there's an opportunity to steal share from some of the smaller regional tube makers around the world, right? And we believe we can bring EPL's expertise and combine that with hunting and backend service capability to do better than what anyone else can do in this space, okay?
So that's the reason why we're doing it, as a source of growth. Quite simply, oral care is never going to give us the double-digit growth we aspire for in the company, okay?
Okay.
So you start looking at where are your headroom for growth, and clearly, personal care and beyond, which is beauty and cosmetics and to some extent, pharma, are places where the headroom is high, and therefore-
Okay.
We are absolutely going to be pursuing it as a growth opportunity. All right?
Understood.
Now, as far as margins are concerned, absolutely... You see, as you trade up, so to speak, then the percentage of packaging cost as a percentage of total costs or the end consumer price, as you go into beauty and cosmetics and so on, tends to be lower than what it is in oral care. So honestly, I think there's an opportunity for margin improvement once we build a big enough base of business there.
By the way, just to be clear, we already have a large enough base. We want to grow faster with it, right?
Got it.
It needs to be margin accretive in the fullness of time, and we believe it's absolutely possible. As far as technical capability is concerned, I'm just going to hand over to Ram to comment on whether any differences is there in terms of the technical capability we need at the back end for BNC.
Got it.
Each segment of the business needs different kind of, decoration capabilities, dispensing capabilities, the appearance of the cap, size of the cap. It all changes, right?
... So the beauty and cosmetics has much more variability. For a period of time that we have developed those kind of skill sets, including producibility, that is there in that business. If we compare between two segments, beauty and cosmetics has too much of variability, but thereby higher pricing, higher margin, all that will come along with that.
Got it.
Am I answering your question correctly?
Yeah, yeah, yeah. So yeah, so I think, all three of that, is very helpful. Just one last question here. If you could just broadly quantify the mix between, say, the volumes that the large players control and the volume that the medium and small players control, just to see the incremental, increase in the market that we're targeting. So if you could have the broad mix available.
It will be difficult, but see, what happens is, you know, you say contractual business versus a non-contractual business, which includes all these small players, will be in the range of, you know, 50, 50, 52, 54, something like that. This keeps happening over a period of time because both segment as the customer grows, we also get largest contracts every time that we look for those contracts. We are also working on the small businesses. So it will be percentage-wise, but you may not be able to differentiate. Absolute volume, we are growing in both sides. Like there is a large contract business, right? Suddenly we got that business. Similar, so the percentage would have equalized, so it happens on both sides. You know, the effort of all businesses to grow in every segment we are there, right?
Understood. Got it, sir. So that's, that's helpful. Thank you.
Thank you. The next question is from the line of Udit Gupta, who's an individual investor. Please go ahead.
Good evening, sir. So my question is, sir, how are we going to get growth in our company, sir? Like, earlier, we were talking about some acquisitions in Europe or somewhere else. Is that something we are looking at, and is it in an advanced stage or something like that?
You know, M&A, greenfield, brownfield are all elements of our growth strategy. Okay?
Yes, sir.
Now, as you can see, we have done one M&A a couple of years ago. We've done a greenfield expansion into Brazil, and we are continuing to do brownfield expansion as needed in terms of new CapEx every year. All right? Now, we believe that all these elements, right, are going to contribute to our growth strategy. But, you know, I would, you know, really request you to not think of just the current revenue growth numbers of modest 3%, 4%, 5% kind of numbers as the norm. If you look at this company historically, it has grown 7%, 8%, 9% traditionally in terms of total revenue growth, okay? And for long periods of time. This period is a specific period where we have been impacted because of negative pricing.
If you looked at our historical growth rate of between 7% and 9%, all you needed is a few more percent in terms of, you know, harnessing growth opportunities to get us squarely into the double-digit scale. All right? And therefore, that's something that is eminently, eminently doable. And these things that I spoke about will all be contributors towards us getting to that goal.
Yes, sir. So but, nothing as such on the acquisition front?
No. As far as M&A right now is concerned, we absolutely looked at stuff in Europe, okay? Honestly, the environment in Europe is probably not right for us to make a major investment at this point in time, okay? So we looked at some targets very, very closely. Now, if it was available at a throwaway price, we could have considered it. But, you know, given the overall, issues that are there in Europe, it just doesn't seem conducive to making a major investment, right? Now, we set up a greenfield in Brazil, that's a big one. And we are absolutely hungry for M&A, by the way. It's not because of financial constraints or anything else at all. We're absolutely hungry.
But, you know, an M&A has to make sense in terms of being growth accretive, margin accretive, strategic synergies, and has to come at the right price, right? So an M&A, if you do an acquisition, it's for the long term, so it has to make business sense. And, so that's where we are today, and therefore, you know, the good news is that we've done the greenfield as well, which is a big fillip. And I believe through this, I mean, we have just started in terms of the opportunity in Latin America that we can access through the site on the ground there, right? So we're going to continue to look at those other things while continuing to drive, organic growth like greenfield and brownfield.
So when will the Brazil business scale up? So do we have any timeline for that?
No, it has scaled up in the sense that the initial investments, right, we are very close to 70%-80% of whatever was the originally contracted volumes there, right? And the Brazil business therefore is now stable in terms of scaling up and in terms of its overall contribution to the Americas and the global P&L. All right? Now, beyond our anchor customer, we have now started conversations with many other customers who are showing very keen interest. And we will continue to expand because the civil site that we have created there has space. The civil site and utility have space for further lines being added within the site, which can be done at shorter notice. And we will manage that as new demand and new orders come in, we will manage the further scale up on that side.
So, you know, so the initial investment, we have pretty much reached where we wanted to reach. We still have capacity there for further volume, and as discontinuous volume come, we will make that investment because the rest of the stuff on the ground is ready to receive it. So, you know, we believe that Brazil can be a, a big, driver of growth and, you know, it will continue.
Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Douglas Turnbull from Invesco. Please go ahead.
Thanks. Two questions from me. First, and sorry if I've missed it in the small print, could you explain what was behind such a large other income number this quarter? And then secondly, perhaps if you could just recap for us, where there is likely to be seasonality in a positive or negative sense in the Q4, and how you'd expect that to play out or net out?
Yeah. So, Deepak, do you want to take that, other income as well as seasonality, positive and negative?
Anand, sir, we have lost the management line. I'm connecting-
Okay. All right. No, no, I'll continue. Other income, I'll get our people to come back, they can give you a bit more insight into the other income line. See, on seasonality, basically, what happens is, typically, the Jan to March quarter is the biggest quarter for the Western geographies, right? And the October to December quarter tends to be softer for the Western geographies because in December, right, half of December, you know, generally plants are closed and everyone's gone off on holiday, right? Also, in the Jan-March quarter, while the Western geographies have stronger quarters, because they also pick up what they lost in December, China, because China is pretty much shut as a country for a week, eight days actually, for Chinese New Year.
Therefore, our China business has its softest quarter, and because China, you know, has 20+ margins, right, it has, it shows a softer quarter in terms of revenue as well as margin, and that affects our global numbers. So those are the elements that play out in the aggregation. So I'm just saying, looking at the business sequentially is not always right. It's probably right when, you know, we had gone sharply down and every quarter you would keep improving, but really, this is a year-on-year business and not a quarter-on-quarter business.
Thanks. That's helpful.
Hi, we are back. However, we missed the question on other income. We could only hear that there is something about other income.
Go ahead and explain the other income details about the question, Deepak. I've answered the other part.
Okay. So in other income, we get our export incentives, which are against our import of equipment, etc. So there are export liabilities that when we fulfill, we get the benefits, and there are a few other subsidies, etc., that we get in our other businesses. So those are the large components.
Does that get booked just in one quarter? I think that was maybe in the Q4 last year. Has that come earlier this year?
You're saying that why was it not there last quarter? Last year, same, this last quarter, same quarter last year?
Yeah, exactly.
Yeah. So, this is a change in accounting. Earlier, the export liabilities were part of the contingent liability below the P&L. However, the accounting was changed from Q4 of last financial year. Now, it is included in our other income, then it's also part of the amortizations. At a profit level, net profit level, there is no impact.
Okay. Understood. Thank you.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah. Sir, can you talk about the volume growth? Can we assume a lower double-digit volume growth this quarter?
We've explained the tyranny of discussing volumes, right? Deepak explained that. You know, it's not that we don't want to share. The problem is we don't want to mislead you guys on what is happening, right? We will get into conversations that will be impossible to explain. Suddenly somebody in India orders three sample tubes, you know, millions of tubes, right? That will show the volume numbers going up, but it doesn't mean anything, okay? Because the volumes are, the ASP is so different across brands, across geographies, across categories between oral care and beauty and cosmetics. So, you know, all I can tell you is this: whatever revenue growth you're seeing right now, right, our volume growth, there is negative pricing, okay? So our volume growth is better, right? Because there's negative pricing by deduction, right?
That is really the best that, you know, I can share.
For AMESA, we have seen a subdued margin, a subdued EBITDA growth. Can you explain the key reason for that?
... Can you take that in the room there between Ram or Deepak? AMESA subdued margin question. Is it subdued margin?
One minute, they were busy. One minute.
Yeah. But see, AMESA as a region-
Yes.
is fairly strong. We have delivered an EBITDA margin of 21.4%, and if I look at same quarter last year, we were at 20.8%. So versus previous year, we have improved our EBITDA margin in AMESA. There is obviously an impact of Egypt, because of which our revenue growth in AMESA is lower, and that is impacting our margins as well. However, despite that, the margin profile is improving. As I've said again, at a region level, we should not look at this business sequentially, because sequential comparison may not be the right comparison. There are pulls and pushes that happen in each quarter. But fundamentally, the business in AMESA remains resilient and very strong.
I'm talking about the FY only. FY, we have subdued growth in AMESA.
Yeah. Subdued revenue growth, Anand explained. India standalone is growing at 4.2%. However, Egypt is going through significant economic challenges, and because of that, coupled with the currency issues and the currency devaluation, the revenue growth in Egypt is impacting the numbers, and hence, AMESA overall is at -0.6%. But India standalone is 4.2% positive.
Okay, thank you.
Does that answer your question, or I missed something?
Yes, yes. Yes, done. Thank you.
Thank you.
So it's seven o'clock now, so it's really time up. So maybe we should close that, or if there's a queue, then maybe one last question before we close the call.
Sure. So the last follow-up question is from the line of Mihir Shah from Nomura. Please go ahead.
Hi, sir. Thank you for taking back my question. So firstly on, NeoTube , NeoTubes, basically the NeoSeam tubes. Can you share what is the progress, there been, you know, if there is any more customers that we have been able to get, asking for the NeoSeam tubes? And just like the recyclable tubes, can you also share the continuous progress for them? Because I believe that that is where the delta can come through, with new customer acquisitions.
So that is absolutely right, and that is our effort. Now, earlier we were speaking of NeoSeam as a idea, as a technology, and as a capability. But in my opening comments today, I said that we have started commercializing NeoSeam, right? And we have started commercializing across India and Europe and the U.S., right? So we have made a start now towards commercial supply, and now the attempt is going to be to keep get more customers and get more business and grow that that technology and that capability for us, right? But we have made a start now.
Got it.
It's no longer just an idea now, it is, you know, in the market.
Understood, sir. Got it. So secondly, on the competitive intensity from recyclable tubes, I know we are completely geared up. 90%+ of our capacities are geared up to deliver recyclable tubes, and it is significantly ahead of any competition. But, anything that you can share on how competition is shaping up or catching up to deliver these recyclable tubes?
So, you know, everybody is going to offer recyclable tubes of some kind. Okay? Otherwise, they will go out of business. Okay. Now, the question is, do you have technology to offer the same value properties with lower plastic, plastic content? Do you have the ability to, supply and service it in terms of packaging capabilities? So there's a total system offering that is there. So everyone is going to keep offering. The question is, as a total system, we believe we are at least one step ahead, if not a few steps ahead. And therefore, as the, as the momentum builds towards conversion now, aggressively, as we hit 2025 and beyond, when customers have said they will go to almost 100% recycling tube, we believe, we believe we are one step ahead and probably more ready than anyone else.
That's when we will start taking, hopefully, more of a share than what was our early trial share. Okay? That is how we are approaching.
Got it, sir. So last one, bookkeeping question on Brazil. I believe ideally Brazil was, you know, the drag on margins from Brazil were supposed to conclude in the Q3 and become margin accretive from Q4. Is that a correct understanding, and are we on track for that?
You want to take that question, Deepak?
Yeah. Yeah. So, Mihir, absolutely. First of all, Brazil operations have stabilized, and that is why this quarter onwards, we are not discussing excluding Brazil, et cetera. We have confidence in the project that we can now consolidate the numbers and discuss, the overall numbers together. Second, the margins, as stated in Brazil, are very, very encouraging, and they are accretive both to our Americas business as well as global business.
Perfect. That's all from my side. Thank you, guys, and wishing you all the very best.
Thank you very much.
Thank you.
Could we conclude the call then?
Sure. As there are no further questions from the participants, I now hand the conference over to Mr. Pratik Tolia for closing comments.
Yeah. Thanks, Sagar. On behalf of Systematix Institutional Equities, I'd like to once again thank all the participants for logging into the call, and I'd also like to thank the management for giving us the opportunity to host this call. Anand, sir, would you like to make any closing comments, please?
No, I just want to thank you for organizing this for us, and thanks to all the participants of the call. And, I would like to thank you for your interest and your support for EPL. Thank you very much.
Thank you so much, sir.
Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.