Hello everyone, and very good evening. Welcome to Q2 FY 2024 earnings call. I just hope my voice is clear and audible.
Yes, sir.
Okay, good. The operating environment continued to move in the right direction with relatively benign commodity costs. During the quarter, significantly, EPL crossed INR 1,000 crore revenue for the first time and also delivered the highest ever quarterly absolute EBITDA of INR 181 crore. Specifically, in Q2, EPL posted a revenue growth of 5.6%, impacted by softening commodities, which necessitated some pricing pass-through. Excluding Brazil, the underlying business growth was 4%, broad-based across all regions. AMESA grew at 5.5%, impacted by the devaluation of the Egyptian pound. India standalone, however, grew by 6.9%. EAP continued its strong performance with double-digit growth of 13.2%. Europe grew by 5.5% and Americas by 6%. Inter-region elimination led to the overall growth being 4%.
Our continued focus on personal care and beyond has seen success, with the category now contributing 48% to our total sales in H1. Importantly, our journey on EBITDA margin recovery continued very strongly. We delivered a solid EBITDA margin of 19%, which was an improvement of 267 basis points year-on-year and 103 basis points sequentially versus the previous quarter, with an absolute EBITDA growth of 21% year-on-year. This is a result of, of course, some softening costs, coupled with active price management, mix improvement, and significant P&L productivity. This is the 5th straight quarter of EBITDA margin increase, proposing confidence in the ability of this business to sustainably deliver industry-leading margin. Net profit for the company grew by 50.4%, and ROC also improved to 16.5%.
Including Brazil, EBITDA margins today 18.1% and absolute EBITDA and PAT growth was 18.3% and 9.5% respectively. Especially on Brazil, our plant is scaling up really well. As you know, it's a state-of-the-art manufacturing facility integrated with SAP HANA. In the first full quarter of operations itself, Brazil reached over 80% of the lead customer's committed volume. It is poised to fulfill the lead customer's demand in the next few months and can open up to take other customers' orders. In fact, we have already produced a few sample batches for validation and are confident of expanding the customer base in the near future. Moving on to sustainability, innovations, and so on, we continue to make progress towards our ambition to be the most sustainable packaging company in the world.
External recognitions and awards further validate that we continue to move in the right direction. As you are aware, we were assessed with gold by EcoVadis, which puts us in the top 5% of all manufacturing companies worldwide. I shared earlier, we have launched a company-wide effort towards EcoVadis Platinum, which will put us in the top 1% of all companies worldwide on sustainability. It is important to note that our key global customers like Colgate, Unilever, P&G, and so on, have announced bold targets to move to recyclable packaging in the very near future. Our strong portfolio of recyclable tubes, backend capability through substantial investment over the past few years, coupled with sustainable processes, puts us in a very advantageous position to capitalize on this opportunity. All this will be contributing towards making the world a better place. So looking ahead, what do we see?
There are two legs to our agenda for looking ahead. First is driving revenue growth and the second is margin expansion. Clearly, one of our key priorities is to accelerate our revenue growth towards our stated ambition of double-digit growth. To achieve this, we are taking two key initiatives, building on everything else that we're doing already in the business. The first is an even more aggressive play in personal care and beyond, of which beauty and cosmetics is the largest segment. Now, this is a very large category of 35 billion tubes, and EPL has about a 10% share. Now, as you know, we have been growing, growing at a fast pace in the category, and it contributes 38% of our revenue already. However, the opportunity and headroom for accelerated growth is very large, and this is a big, big focus for us.
To capture this opportunity, we have strengthened our portfolio through multiple innovations, such as near-seam elimination, called NeoSeam, high-end printing and decoration capabilities. This has improved our right to succeed significantly. Further, we have invested in the back end to deliver requirements of smaller customers in the personal care category, like short and smaller batch sizes with frequent changeovers and so on. Finally, we are strengthening our front-end team through additional headcount and reskilling so as to aggressively hunt down additional volume. So this is all what we are doing to accelerate our growth in personal care and beyond. The second leg of our growth agenda is to fully capitalize on the Brazil opportunity. And as I mentioned before, we feel very excited about this. We've only just started and believe there is significant opportunity to expand and grow.
The second leg of looking ahead, apart from revenue growth, is margin expansion. We have consistently improved our margins over the last few quarters. In this process, we have developed some important muscles like active price management and strong middle of the PNL productivity. We continue to have a very strong pipeline of initiatives that will help us continue the journey on margin improvement and take us to 20%+ margin.
To summarize, our priorities going ahead are: to continue the growth momentum in India and China and deal with some demand softening in Western geographies. Accelerate beauty and cosmetics through innovation and back-end capability. Ramp up Brazil volumes and expand the customer base there. Leverage our sustainable portfolio to drive customer conversion and wallet share gains as our customers themselves strive to achieve the commitments that they have made. And finally, continued focus on margin improvement through mix and cost efficiency, efficient capital allocation, and manufacturing local location optimization. So in continuation of past quarter, we remain focused on driving growth with margin expansion and remain confident about our ability to deliver double-digit growth with margin improvement. With that, I'll open up the line for questions.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Nilesh Saha from Julius Baer. Please go ahead.
Hi. Are you able to hear me?
Yes, we can.
Yeah. Hi. Yeah, I think the firm's name was mispronounced. I am calling from Julius Baer Bank. Right. So, yeah, you know, thanks a lot for your very comprehensive opening remarks. I saw in your presentation, there is a section where you are talking about recycled tubes, and this is about 10%, and you want it to go to 20% as a supply part going forward. Can you talk a bit about, you know, you know, about two aspects? First, you know, do you also, you know, you know, What is your role in the, you know, in the supply chain to enable this recycling to happen? And second, is there a advantage that you have from a margin point of view as you substitute, you know, your sort of normal tubes to recycled tubes?
Sure. And, your name is correct, right, Nilesh?
Yeah, yeah, yeah, yeah.
Okay, perfect. Only the firm's name is wrong. All right, good. So, yeah, so as far as... So the question, the thing is this, that we have technology that allows us to supply recyclable tubes to our customers.
Right.
Last year, 10% of the tubes that we provided were recyclable. This year, we expect it to be about 20%, and we expect it to accelerate very dramatically, right, over the next couple of years as the customer commitments also need to get achieved, and therefore they're putting pressure on us, right?
Right.
... two aspects to this, right? We believe that we have among the best recyclable tube in terms of with the thickness, the use of the plastic and barrier properties. But importantly-
Right.
-we also have the best second capability and capacity to be able to supply these recyclable tubes around the world. Okay? Now, as far as the second part of your question is concerned about margins.
Right.
I think I've addressed in the past. You know, in the area of sustainability, charging a higher margin versus chasing market share is a strategic choice. You can choose to try and make a higher margin and put a back door conversion and make it more difficult for companies to convert.
Right.
Or what you could say is, "I will supply you at pretty much the same price you are getting, all right?
Right.
However, your margins will be-
Uh-
the same amount of money, maybe a bit more.
Right.
Be sure that you will be able to supply them so that the conversion happens. While this will help customers, you do this in the quest to also get a higher share of wallet.
Right. Right, right.
It's the right thing to do for a company where sustainability is an important driver of our business.
Right. Right. Right. No, that, that makes a lot of sense. The only, only sort of insight that I was looking for is that, is there, is there an, you know, an IP or an edge in terms of how... You know, in terms of recyclable tubes versus normal tubes? And, and does that allow you to sort of build a deeper relationship with the customer?
The thing is this, everybody will ultimately have to have recyclable tubes, otherwise they will go out of business. Okay?
Okay. Question about this game is, are you one step ahead always compared to other people? So are you able to provide solutions ahead of others? Are you able to do it with less use of plastic? Are you able to create better or deliver better barrier properties? Are you able to deliver better decorations and look and feel like, you know, see-through tubes or metallic finish tubes that are fully recyclable? So this game is about staying one step ahead. Now, we believe that we are currently at least one, if not several steps ahead of other players when you look at this in totality. Okay? But the work on R&D and staying one step ahead, right, is something that you have to keep doing. Now, couple this with the fact that you require CapEx and enhancement in the package to deliver the...
Right.
Exactly the same machine cannot deliver the tube at the same capacity, so you need to do unlocks. That's something we have been doing for the last 2-3 years, to make sure that we are recyclable ready in terms of our capacity and today 85% of our capacity is recyclable ready. So if you look at this in totality, right, that gives you a source of competitive advantage. At least that's what we see. Thoughts, right? And I'll get back with you. Thank you.
Thank you. Thank you very much.
Thank you. Next question is from Sameer Gupta from India Infol ine. Please go ahead.
Hi, sir, my questions. So firstly, I see
The mic is too close to your mouth.
Is it better now?
Yes.
Thank you. So sorry for that. One thing I noticed during the quarter is that interest costs have seen a spike, INR 31 crore this quarter, and I see there is no material change in the net debt or lease liability in the balance sheet. Any particular reason why there is an interest cost? How should we model this going forward?
Yeah, I'll just pass it on to Deepak, our CFO.
Yeah. So the interest cost increase is the combination of the hard interest rate scenario, which continues across the world, but more specifically in the western side of the world, both U.S. and Europe. We have taken a debt for our Brazil projects. So it is a greenfield project, and we kind of funded through external borrowings. The interest rate in Brazil, and for that matter, in South America, kind of high, is high, and that reflects in the interest cost.
Got it. This is going to continue for the foreseeable future, I believe.
I think that probably for next two to three quarters, probably the interest rates will continue to sort of stay hard as kind of everyone is predicting. But hopefully after that, we should start seeing some softening in the interest cost, which will then flow into our P&L as well.
Got it. Second question on Europe and Americas. I see the growth here continue to be, you know, subpar. Americas, if you adjust for the additional sales of Brazil, it is still a, you know, mid-single digit kind of a growth. Europe, also around 5-5.5%. So what is basically going on here, and what is the outlook in this part of the business?
... So I think, I'll address, Americas and, Europe separately. I think as far as Americas is concerned, and we are talking of excluding Brazil for now, having said that, Brazil is organic growth for the business. So ultimately we must look at it including Brazil. Since I have given out, America's growth of 6% excluding Brazil, let me comment on that. I think you should expect to see some acceleration of the America's growth as we look ahead, but you will also see that there has been a significant PNL improvement in terms of EBITDA margin in the Americas. Okay? So I think we are focused on making sure that we fix the PNL for the Americas, right? I think now we are at 15% margin, right? And we are hoping for that to even go up further, right?
A lot of the other initiatives that I talked about, especially on B&C, where we actually have the smallest shares in, in the US, for instance, right? That acceleration is going to help us to accelerate revenues in the future. The good news is that we would have kind of fixed the PNL, so the accelerated revenue will actually yield dividend back to the business. I think as far as Europe is concerned, I think we have... I mean, yes, growth is modest at all, but, you know, 50% growth is not a disaster in Europe if you think of what's happening in the continent. Our bigger challenge in Europe is to fix the PNL like we've done for the Americas. All right? I just want to say that we are seized of this issue.
This issue has been going on for many quarters now, right? Currently, the EBITDA margin is something that we need to fix. We are currently posturing our cost base in Europe for higher levels of growth. And I think what we are very clear about today is that either we quickly accelerate growth in Europe or else we start reducing the cost base. Okay? And we are seized of this, and we are committed to delivering mid-teens margins in Europe. Having said all of this, I just want you and others on this call to recognize that Europe accounts for about 5% of our total EBITDA. Okay? So that's the materiality of Europe. Right?
While we are seized of fixing it, it's not something that is significantly moving the needle adversely for EPL as a whole.
Got it, sir. Just a follow-up on Americas. We had an expectation of margin improvement, because there were some one-off insurance-related costs. So how much of this margin improvement that you're seeing, 15.7%, is because of that?
So the insurance cost, the higher insurance cost, is actually a structural issue in U.S. because the insurance laws have become fairly stringent. Because of that, our insurance costs have gone up. We are working on couple of projects which involve capital investments as well as as well as efforts to bring it down structurally. Those projects will fructify by Q4 of FY 2024. So even in 15.7% margin, we continue to invest in higher investment costs. Post Q4 of FY 2024, we will start seeing the benefit of lower insurance coming in.
Directionally, I think you should take away that we are absolutely committed to delivering mid- to high-teens margins for the Americas. Okay? And this is a second maturation. I think that's what you need to probably take away from this.
Great, sir. That's all from my end. I'll come back to you if you have any follow-ups. Thanks.
Thank you very much.
Thank you. Next question is from the line of Sanjay Jain from ICICI Securities. Please go ahead.
Yeah, good afternoon, sir. Good evening, sorry. Thanks for taking my question. First, again, on the recyclable tubes, you did allude to tell us that the tube pricing are not really very different for our traditional laminate tubes versus the recyclable tubes. Can you view the entire economics? Are we even same at the EBITDA level, or are we incurring higher costs with... And can increase in the renewable tubes, we are looking at going to 60%, will it dilute, or will it be a margin effective of the larger mix?
Yeah. No, no, it will absolutely not dilute. I think the question earlier was about taking a premium, right, for these tubes to make higher margin. In the worst-case scenario, right, we will make as much money as we are making today, right? We will not dilute, the margin per billion tube or the percentage margin that we make, right? So I think we are very, very clear about that. The question is whether we will make more margin or not, right? So we have said, you know, strategically, we do not want to be opportunistic as far as this is concerned, we want to invest in our customers for the long-term growth of sustainable tubes, right? As a larger industry, and that is the decision. That's why we are playing it the way we're playing it.
Got it. Just one related question. I think Colgate is largely backward integrated, if I understand it right, so they don't use bar in India. And does it give us an opportunity to potentially dip her into Colgate as a global account?
Well, we would love to. It is something that we're absolutely seized of. You know, it represents a big structural model change for Colgate, and whether they will open up their doors to outsourcing the tubes or not is a larger question. But we're looking at it step by step. Can we start supplying laminate, printed laminate? You know, can we do whatever we can to make inroads? But I think that's an absolute opportunity, right? And, you know, we are exploring everything that we can as far as that is concerned.
But any initial thoughts, anything you can share? Do they have the touch of a technology bandwidth? Because this is not something which is a code for them, right? Any initial thoughts you had in that session? Because they are our customer as well.
Of course they are. And all I can tell you is we are very seized of this opportunity, right? I mean, they're the biggest oral care player in the world. We are very seized of this opportunity. We will do everything we can. We'll leave no stone unturned. But beyond that, to share here, you know, what conversations we are having with a customer and so on, I think is not appropriate, honestly, right? But just recognize that we are seized of this, and we will do everything we can.
Fair enough, sir. Fair enough. Just again, extending the same way I clear about tube, we are looking to grow big in, beauty and cosmetics, and extruder tubes are very popular in that segment, and they are naturally recyclable single plastic. They qualify for most of those qualifications. Given the scenario, do you think the conversion from an extruder tube to the laminated tubes in beauty and cosmetics can actually be slower in a scenario of growing recyclable tubes?
We actually think that absolutely can convert. I think what's right to say about laminated tube, first of all, the barrier to conversion to laminated tube historically, was the cosmetic appeal of the tube because of the size seam. I called out my opening comment, that now with near-zero seam, which we're calling NeoSeam technology, right, we are able to almost eliminate the negative cosmetic appeal of the seam, right? That's the first thing. The second thing is that as far as extruded tube is concerned, it's very hard to have extruded tube with plastic less than 350-400 microns. In laminated tubes, you can go to 200 microns. So while one of the things is recyclability, the cosmetic appeal, the other thing that is really important is the total plastic consumed.
And because the total plastic consumed in a laminated tube will be significantly less than in an extruded tube, right, there's also a significant price advantage, right, that you can offer a laminated tube. So net, net, less plastic, actually better barrier properties because of the layers that you would have in a laminated tube. Better barrier properties depending on the product inside, and good cosmetic appeal because of elimination of pipe seam as well as all the bells and whistles of printing and design, embellishments, right? And a cost advantage, right? So there are significant benefits of a laminated tube. The only barrier for conversion was the seam, for which now we have an alternative technology that can eliminate or near eliminate that. So that's the story.
Fair enough. Fair enough. One related question, this quarter we have done a revenue of close to INR 160 or 169 million, and it is a loss of INR 58 million and a PAT loss of INR 220 million. Even if I take a hundred percent reaching to this customer, we will be at INR 190 million of revenue. That means even at a hundred percent conversion to this customer, we will not completely recover at the EBITDA level, let alone at PAT. At what level do you think you will break even at EBITDA and PAT level, and will FY 2025 entire year be a journey of incurring losses, or you think next year it can turn at least at the EBITDA level for this?
First of all, the journey of incurring losses is startup related and not steady state business related.
Okay.
So in the startup case, which includes the cases that you read out, which is absolutely correct, right? Used to do with all the high setup costs, setup costs, and higher cost industry and so on and so forth that we carry. Actually, as we look ahead in FY 2025, but even in FY 2024, towards the end of FY 2024, right, we will absolutely not just break even, we will be making positive EBITDA and positive EBITDA margin. Okay, so FY 2025 will be full steady state, and we believe will be EBITDA margin accretive to the business, okay? So I just don't want to-
More than 24% margin in Brazil in FY 2025.
Globally. Now, you can assume whatever you want with that. But that's what I'm saying. So I would request you not to extrapolate the current quarter's numbers the way they look, and think that, that is how Brazil will play out. Okay?
Uh.
That's my message on Brazil. Brazil, very quickly, I would say, in the next month and second quarter, right, will start delivering positive EBITDA.
We did mention, and this is my last question. I know I've extended it, but this is going to be the last one. In Brazil, how many customer are we talking today beyond the anchor customer?
So we have a list of, I would say, 10 interesting prospects, a couple of whom we have already given samples to, which they have put in storage and testing, because you know the process that you follow in this business, right? And we have, like I said, a pipeline to seven or eight more who have shown interest, and some include big multinationals there, who've shown a lot of interest in actually substantial volume. All right? Now, if some of those orders go through, we might need to actually expand our facility and add another line. But the good news is, the civil work and utilities and so on has been done, so it's quite easy for us to put another line to service any big customer orders that come our way.
So I would say 8-10 is the list of prospects we have. I would say a couple of those are... hot, the others are warm, right? And there may be many more cold prospects as well. But as I had mentioned earlier, we are currently focused on delivering our commitments to the anchor customer fully, right, and then expanding our customer base. But on the side, we have started talking to other customers as well, right? But currently we are only supplying to our anchor customer, right? Because that's our commitment to them.
Got it. That's, that's very helpful. Thank you, Anand, for answering all the question, and this will be the coming quarters.
Thank you.
Thank you. The next question is from line of Douglas from Investec. Please go ahead.
Thanks very much. You mentioned in the slide deck that the underlying business performance was partially offset by soft commodity impact in pricing. Can you just unpack this statement? How much is this headwind to the top line, and to what degree is it kind of the flip side of the improving margins?
So we're not, you know, definitely breaking up, you know, volume and price mix and so on and so forth, you know, in terms of granular details, right? And we've mentioned in the past reasons why we don't think that would be a good reflection or measure of our strategy. All I can say is that price mix have been negative, right? And that has therefore affected our revenue numbers in the quarter, right? Now, what I can also say is that that is likely to continue for another quarter or so, because last year we are seeing higher input costs, therefore, some higher pricing levels related to those input costs. So this thing has to unwind a bit further because commodities remain benign, or I would say relatively flattish. So they're not going down any further, in trend.
It remains flattish now for the last several months, but the pricing has to unwind back, right? And we are obviously playing this as best as we can. Contractual, contractual customers plays out almost directly based on the contract. And non-contractual customers, we're trying to see how best we can retain as much of that as possible. But that will play out, yeah, over the next quarter or so, till the commodities and pricing catches up with each other. Having said all of this, I think it's important to say that we are confident we're continuing to deliver solid, absolute EBITDA growth, right, in this business.
Yeah. Okay. Thank you. I just wonder how much of the margin expansion you've seen was a function of price catching up to soft commodity prices, which have been sitting high. You've been passing that through, and so regaining margin. Those soft commodities are now a bit lower, sort of flat, and we unwind that. Is the margin expansion still to come from this? Is it the case that if the top line still remains, this is a headwind, but we're still going to get some margin expansion benefit?
You will get margin expansion benefit, and, you know, you're right. Part of the percentage margin expansion is translation, part of it is real. But if you look at just the absolute EBITDA growth, that's a real reflection of the profit pool and the profit of the business that we're generating, right? And that's growing solidly, and there's no optical benefit as far as absolute EBITDA is concerned, right? So the margin is what it is, but the absolute EBITDA, and I just said that it will continue to grow solidly. Now, we can decode what solidly means, but it will continue to be solid in terms of absolute EBITDA growth.
... Thank you very much.
Very well. Thank you.
Thank you. Next question is from line of Viraj from SIMPL. Please go ahead.
Yeah, hi, thanks for the opportunity and congratulations on the numbers in such a challenging environment. Most of my queries have been answered, just one specific query. So, you know, I think you shared a presentation towards the end of the quarter, last quarter, and, it was quite a very detailed, elaborate, strategy presentation. So thank you for that. Just had one query on that. You know, as you look at our own expectation over, say, next 3-4 years, in terms of margins, you know, we are expecting eventually the business to move towards 21%-22% EBITDA margins. Now, so just kind of want to get the thought process in terms of what gives us the confidence, to achieve those kind of a margin structure.
Especially if I look at last 10, 15 years of history, we've never had that kind of a margin base. So, you know, if you can just build more in terms of the drivers of those margins and, you know, what are the factors internally, you know, which we have in our control and, maybe irrespective of the growth or strategy which we're expecting, which you can help us achieve, that kind of a margin. So some more detail on that.
No, no, absolutely. So first of all, the 21 and 22 numbers are yours, they're not mine, by the way.
It's just on the implicit derivation on the EBITDA and the sales, which we expect in the high end and low end. It's just on the derivation on that. Yeah.
I have said 20%+. There is 20%+. Yeah, you know, we're not gonna hold back margin.
Oh, sorry to interrupt you. Viraj, may I just mute you and unmute me?
Sure.
Yeah. It's 20%+. Okay? Now, what's going to give us confidence that we can continue to improve margins, right? There are four, five things there. First, is this aggressive, accelerated growth that we are going after in B&C, you see in cosmetics, which is mixed, accretive and margin accretive. Okay? So that's the first thing. As we accelerate B&C even faster than the historical growth rates, which were solid, by the way, then we are going to get, an improvement in margins. Apart from this, right, we believe that the muscles we've built on strategic price management, is a muscle that is going to help us, right, as we look ahead. So there are many things that we are doing incidentally for opportunities for margin improvement through cost takeout.
We have opportunities for continued insourcing to bring in-house some of the things that we outsource, like the amount of caps we buy from outside, right? And there's an opportunity to bring those in and seal those margins and keep it in-house. Some manufacturing realignment, and as we speak, there are some shifts we are doing between plants to move capacity and volume from higher cost locations to lower cost locations. We're exploring possibilities of cross-sourcing between plants and even between regions, right, as opportunities and selective automation, particularly in high-cost regions. Okay? So there are many things that we are going to continue to do while keeping our belts absolutely tight on our operating expenses. Okay? And we believe there is still juice as far as some of these things are concerned.
So, you know, when you look at these, right, which will include some structural cost takeouts and some continuous improvement projects, we feel there is enough in the pot, right, to continue to drive the margin agenda. If I'm honest with all of you on the call today, I think, you know, in the last two years, we as a management team were obsessed with margin and cost because of the crazy input cost environment that we were all part of. Therefore, if you like, we had taken a bit of our eye off growth and put a lot to be both eyes behind cost and margin. Many of you will recall that every call was about margin and when should we get our margin back. All I'm telling you now is that we are doubling up management focus and intensity behind accelerating growth, right?
That, I think, is what will create a very robust P&L while still keeping one foot on the brake of cost through all the initiatives that I spoke about. But I just want to be sure that, you know, people recognize that we are significantly stepping up effort behind growth. Right? Cost is actually more deterministic, right? It's more of an internal control on margin and cost management. Growth is a bit more probabilistic because it's more external facing, and that requires a lot more focus from management. So that's how we are approaching the business as we look ahead. Not, and this is not something that will, you know, play out in one quarter or two quarters, but to your question, over the next couple of years.
Just a follow-up on this. You know, so, elements like product mix, you know, is more external driven, but if I was looking at these say three, four factors which you talked about, what will be the major driver of the margin improvement? And, the second question is, you know, so elements like insourcing or moving from high cost to low-cost destination, where would we be in that whole journey? Is it still early days or, you know, a good amount of work you've already done? Any more perspective you can share on these journeys?
I mean, we are not at the start of the journey, right? But there's still a lot of meat available in that journey, right? Whether it's insourcing or cross-sourcing and so on and so forth, okay? We also have opportunities for some structural cost takeouts, right, which we are looking at honestly with a fine-tooth comb. Now, none of these are things that, you know, we have never done before. You know, cost takeout is something that every time you look at the same problem through a different lens, you find opportunity, right? And we have opportunities in the business today, which we know we can exploit, right? Apart from which, the muscles we have, let's say, on productivity improvement, right, just regular day-to-day, efficiency improvements are actually quite substantive, right? And they've been delivering every year, right? Otherwise, our margin erosion may have been even higher, right?
So, so, you know, these are all things that we're doing. Some of them have different lead times because they may involve some CapEx, some transferring of equipment from one place to the other and so on and so forth, right? But we are absolutely pleased with these. And, you know, when I give you a guidance of saying we will—we are absolutely focused on taking our margin to 20%+ , and this is not a guidance for a quarter. We run the business on a year-to-year basis, but we have confidence that we'll get to this sooner rather than later.
Thank you. Sorry, Viraj, I'll ask you to come back in the question queue for a follow-up question. The next question is from Sumant Kumar from Motilal Oswal. Please go ahead.
Can you talk about the Americas business?
Sorry, your sound is a little distant. Can you please speak to the hand?
Yeah. Yeah. So can you talk about Americas margin normalization in a couple of years? So what are the steps we have taken, and can we assume in next couple of years, Americas margin can be the level of which it was 2-3 years ago?
So we are committed to getting Americas margins to get to high teens, okay? In that range, so it's come very close to where we used to be, certainly, earlier, you know. Now, what has happened is that as far as Americas is concerned, a lot of the margin erosion was because of, the time it took us to get pricing, particularly from some of our contracted customers in a highly inflationary environment. And the second thing is that, I mean, just the cost impact, particularly in the U.S., of COVID, of wages, of healthcare, of absenteeism, of overtime, was just unprecedented. So a lot of these were kind of input cost driven, right? Which actually today have basically started unwinding. Okay?
We also had other challenges, which certainly of some opportunities in the country, some manufacturing challenges and so on, and many of these are now behind. So as these have started unwinding, we have started seeing an improvement in the margins, which are reflected in our Q2 numbers, and we remain confident, right? You can always have a little plus and minus here or there in the economic environment, but we are confident that the trajectory to improvement is well on its way.
Okay. So, Brazil is also a key reason for a lower margin of Americas. So with the stabilization of Brazil and Brazil, we are assuming a better margin business segment. So can we assume that Americas margin will have a better than what it was 2-3 years ago?
So the Americas margin that you are seeing is actually that, excluding Brazil, okay? The 15.7 EBITDA margin that's there in investor deck is excluding Brazil. Our plan is that Brazil in steady state will be margin accretive to Americas, right? And I've actually said that it will be margin accretive to EPL globally as well. Right? That's how you should read it as well.
Okay. Thank you.
Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. Next question is from Nikhil Upadhyay from SIMPL. Please go ahead.
Yeah. Hello, good evening. Am I audible?
Yes, yes.
Yeah, just two questions. Just one is a continuation. Sir, you mentioned that one of the key levers for the margins and overall for the company, the focus area is to shift from margins and cost to growth, and growth in the B2C in the beauty and cosmetics segment. Now, if I look at this journey, EPL has been going through this over last many years. So consistently, we've been improving on the mix between overall and beauty and cosmetics. What has changed at the market rate level, where you believe that probably it's a good time to accelerate on this segment or what differently you are doing as to what we have been doing all these years. That is one.
And secondly, if you look at history, in last 15 years, we've seen all kinds of external challenges, including at promoter level and all, which have impacted the business, but the business has remained steady. Now, as a CEO, if I have to ask you about what would be the key risks that you see in this business, and I wouldn't go into the risk of the oil volatility and all, because that has been happening over last 15 years and company has recovered margins and again moved on to business as usual. But other than this, what could be the biggest challenges or risks which you foresee?
Okay. So as far as B&C acceleration concerns, you're absolutely right. I mean, this business was an oral care company a decade ago, and it's come a long way since then, where half the business today is in personal care and beyond. So non-oral care solutions, right? Now, we believe that oral care will continue to grow at the rate at which it is growing, with some step changes in growth coming through Brazil and so on and so forth, and some opportunities for share gain and wallet share gain. However, if you want to accelerate the total business to solid double-digit growth, then it has to come through a further acceleration of beauty and cosmetics beyond what we have grown in the last decade. So what has changed?
What has changed, I think, is first and foremost, our ability to compete with extruded tubes, which is the mainstay of beauty and cosmetics in the marketplace today. And that's through the creation of the NeoSeam technology, which I said earlier, has eliminated the seam. Opportunities of innovation through printing and design, applicators and nozzles and so on. Right? I think we have, either we are equal to or better than what can be offered by extruded tube as far as all these things are concerned, with the added advantage of cost, right, and less plastic usage. I think sometimes, you know, what happens, in life is, you know, suddenly you think the stars are aligned and that's when the rope and the penny drops, right? And I think the NeoSeam, cracking NeoSeam ability, capability has brought the whole thing together.
We said, now we can take a real onslaught onto extruded tube, and we have clear right to win versus extruded tube. May not be in brands where the cost of the tube is not important to them or where the amount of plastic they use is not important to them. But for a massive market segment where the cost is important and the amount of plastic they're using is important. So I think this is a big thing that has changed in our ability to service them. The second thing is this: you know, by and large, if you want to increase your customer base in beauty and cosmetics, you have to have [faster] turnarounds, you have to do smaller pack sizes, right? In short, you need back-end flexibility and agility, which is of a different order from what you need in oral care.
We have now either built or well on the way to building that kind of package. And finally, you know, as a management team, we are saying we are going to significantly step up our grouping organization, which is both the number of people and the skill level to pitch into the business. So when you put all this together, we feel we have an opportunity to significantly accelerate the B&C growth. It's an ambition. We have a plan beneath it. We have already segmented the market to identify which customers we must go after, and we have started that journey. All right? So that's exactly how we are doing it. And that's what's different. As far as you're saying, as the CEO, what is the risk?
I tell you, the last two years, what I have seen is just the ability in a B2B business to get pricing in a highly inflationary cost environment. So what keeps me awake is, in a benign cost environment, it's kind of smooth waters, the ship is sailing, sun is shining. It's relatively more predictable to do business, right? So one of the risks to this business, and may not be to do with oil, but it could be to do with anything else that happened last time, right? Where suddenly the input costs go out of whack, and it takes you time to catch up on pricing. The only confidence I have is that this will be much, much faster than we did last time. Okay? Second is our ability to grow, right, aggressively in the Western geography.
So I would say, you know, as I said in my summary, continue the growth momentum in India and China, and deal with some demand softening in the Western geography. Okay? Now, given that we are a global business, right, we have the benefits of a global business and sometimes also a victim of some of the regions where there could be local issues that impact the business. So the other thing is really, you know, how are we going to make sure we deliver robust P&L in the Western world? And what we are doing, which is within management control, is to make sure we are the cost base right, and therefore we deliver the right margins we aspire for in the Western world, without the margins being a drag as they have been, right?
Actually, in the last couple of years, they've been a drag on our total business, right? And that's why AP have been delivering by and large stable margins, right? But we are taking a hit on margins in the Western world. How do we make that more predictable? By getting a better grip on the cost base, right, and how we deal with that. By figuring out how to grow faster, okay? And, you know, I mean, the ambition of growth is not a certainty. You have an ambition, you have a plan, you go after customers, right? But it is probabilistic, right? It has to translate into numbers. And all I can tell you is that normally when management puts mind and might behind something, you have a high probability of succeeding, right? And that's what we're aiming to do.
I would say that's really the answer to your question.
Sure. Thank you.
All right. We'll take one more question before we close. We are out of time. We started two minutes late, so we can take one more question if there is one in the queue.
Thank you. The next follow-up question from the line of Nidhi Shah from UBS. Please go ahead.
Hi, hi. Yes, thanks for the follow-up. I, I just wanted to ask you one thing. I see you are talking, yeah, in several responses, you've spoken about how you can—you know, how there is an opportunity to isolate your, your extruded tubes to, you know, to your tubes, right? I just want to understand, yeah, you know, how does that? Have, have you had any success already of this kind? And if so, right, yeah, can you talk a bit about the account management practices, right? I mean, EPL historically has, you know, has had a set of very loyal, captive customers. It has not been a hunting-focused organization, right? How would you really start this journey? So I, I try to put them, and-
Yeah.
Thank you.
First of all, we have absolutely had success with conversion already to NeoSeam, right? And we have made commercial supplies already. So the journey has started. It's not an absolute pie in the sky kind of gifted brand. Thank you. Right. Now, I think you're partly right. We have had expertise at key account management, but it's not true that we've had no hunting capability. Otherwise, our B&C business would not have grown several times faster than our oral business over the last few years, because by definition, B&C is a bit more fragmented. I think what we are doing now is, we are bolstering it in a very strategic, thought-through way and putting resources behind that, right?
Apart from key account management and managing large customers, we're putting a whole program and organization and capability behind hunting down and managing smaller customers with the right backend capability to service them. I would say it's not as if here again, the journey is starting from scratch, but this is an opportunity to accelerate what we have done, and that's what we're doing.
Do you have any follow-up question?
No, no, no. I'm done. Yes.
Thank you very much. I now hand the conference over to management for closing comments.
No, I'd like to thank everyone who dialed into this call and, you know, who's engaged with the company and asking absolutely sharp questions on what we're doing. I also want to thank you for, you know, having supported the company through this challenging period that we have been through. And all I can say is that I think we can clearly see light at the end of the tunnel, right? About accelerating our performance and building on the kinds of numbers that you've seen this quarter. Thank you very much, everybody, for your interest in the company.
Thank you very much. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.