Ladies and gentlemen, good day, and welcome to the Q1 FY 2024 Earnings Conference Call of EPL Limited, 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 assistance during the conference call, please signal an operator by pressing star zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prateek Dholia from Systematix Institutional Equities. Thank you, over to you, Mr. Dholia.
Yeah. Thanks, thanks, Michelle. Good evening, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged into the first quarter FY 2024 earnings conference call of EPL. From the management team, we have Mr. Anand Kripalu, MD and Global CEO, Mr. M.R. Ramaswamy, COO, Mr. Amit Jain, CFO, Mr. Srihari Rao, President, MENASA region. At the outset, I would like to thank the management for giving us the opportunity to host this conference call. I would like to now invite Mr. Anand Kripalu to begin the proceedings by taking us through the quarter's that has gone by. Thank you. Over to you, sir.
Thank you very much, Pratik, and hello, everyone. Very good evening to you, and welcome to the Q1 FY 2024 earnings call. Before we get into the discussion on Q1 results, I am pleased to introduce EPL's new CFO, Deepak Goyal, who is here with us today on the call. We are very excited to have Deepak on board, and I have no doubt that he will be a great addition to the team. He brings a wealth of rich experience of over 22 years across diverse industries like FMCG, financial services, and hospitality tech. He has a proven track record in Indian and global roles in established companies like PepsiCo, GE, and OYO. Most recently, Deepak was the CFO for OYO Vacation Homes, one of the largest vacation rental businesses in Europe. He was based in Switzerland, so he has now relocated with his family to Mumbai.
I would also like to take this opportunity to thank our outgoing CFO, Amit Jain, for his 11 years at EPL, particularly through the COVID crisis and the promoter stake sale. Amit, of course, is also with us here today and will be helping me to respond to some of your questions. Moving on to our performance for Q1 FY 2024, the operating environment continued to steadily move in the right direction in the last quarter, with input costs stabilizing. EPL's Brazil operations have been steadily ramping up, for better comparison, all financial numbers are excluding Brazil, unless otherwise mentioned. In Q1, EPL posted a solid revenue growth of 9.2%, broad-based across all regions. MENASA grew at 5%, partly impacted by the devaluation of the Egyptian pound. APE continues to bounce back with double-digit growth of 11.5%.
Europe grew by 7.8%, and Americas grew by 9.5%. Our continued focus on personal care and beyond has seen success, with the category now contributing 49% to total sales in Q1. Importantly, the journey on EBITDA margin recovery has persisted. We delivered a solid EBITDA margin of 17.9%, an improvement of 282 basis points, with an absolute EBITDA growth of 29.6% year-on-year. This is a result of softening costs, coupled with active price management, mix improvement, and productivity. Significantly, this is the fourth straight quarter of EBITDA margin increase, signaling the recovery in the business. Net profit for the company grew by 82.3%. ROC also improved to 16.2%.
Including Brazil, the EBITDA margin stood at 17.5%, and absolute EBITDA and PAT growth rates were 26.6% and 57.4%, respectively. By way of an update on Brazil, our Brazil plant is now fully operational. It is a state-of-the-art manufacturing facility integrated with SAP. Commercial production and delivery is underway. Several potential customers have revealed keen interest, and we are confident of winning new business and expanding our market share in the near future. As far as sustainability, innovation, recognition, and wins are concerned, we steadfastly continue to pursue our ambition to be the most sustainable packaging company in the world. Getting assessed as gold by EcoVadis was a major step towards that objective.
Our efforts are now being recognized across forums, with EPL winning two prestigious awards at the fourth edition of the India ESG Summit and Awards 2023 by Transformance. EPL was presented with the ESG Best Performer of the Year, while EPL's global lead on sustainability was recognized as a top 20 ESG champion. We continue to remain signatories to the Ellen MacArthur Foundation, the United Nations Global Compact, and the India Plastics Pact, while continuously working towards improvement on external validations and recognitions. With this backdrop, we have launched a company-wide effort towards EcoVadis Platinum. EPL continued efforts on innovations, with the company receiving three awards at the recent ResPak, which is Responsible Packaging Awards, for its innovative and sustainable packaging. Some of our business wins include entry into new categories and Lamitube and Platina conversions.
Examples of these have been shown in the investor pack that has been circulated. Looking ahead, clearly the environment is looking more stable and more predictable, but some challenges remain. Our priorities as we look ahead include continued growth momentum in India and China, though recognize that there is some demand softening in Western geographies. Accelerate beauty and cosmetics by winning small consumers, small customers. Ramp up volumes and expand our customer base in Brazil. Continue focus on margin improvement through mix and cost efficiency, efficient capital allocation, and manufacturing location optimization. Finally, drive customer conversion to sustainable solutions. In continuation of past quarters, we remain focused on driving growth with continuing margin recovery. Net-net, we are cautiously optimistic about the future to deliver double-digit growth with margin improvement. Thank you. We will now open the call up for questions.
Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask questions 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, I request you 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 the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir, thanks, and good evening. Thanks for taking my question. Firstly, just trying to get more color on the overall top line growth performance. What I noticed is that there has been a slowdown in the revenue growth trajectory across all geographies except China. China also, the base was very low, so 11.5% growth, good, looks good, but I would believe on a low base, it's still on the lower side. Just wanted to understand this performance geography-wise. Is it just a phasing issue? Any major issues that you would want to highlight?
I would say that as far as the demand outlook is concerned, our assessment is that India remains solid. China, you're right, we are lacking a relatively low base. What has happened in China is that there has been some shift away from China for exports by large multinationals, but that's already in the base. Okay? Exports out of China that we do, right, beyond that, to places like Thailand and so on, remain robust. I would say that given the overall environment in China, I think we are just being watchful of how China plays out. Okay? We have seen some demand softness in U.S. but particularly in Europe, okay? We are continuing to see a bit of that softness play out as far as these two geographies are concerned.
I think we remain more, what should I say? Realistic about what's going to happen in the U.S. but probably a little more pessimistic given the overall environment in Europe. That's really a roundup. The numbers are the numbers which you've seen, but that's really the flavor of how we are seeing it, right? As far as we are concerned, I can tell you that over the last year and a half or so, a lot of the management intensity went behind margin improvement and cost reduction. We are keeping a tight leash on costs and keeping the belt tight, but we are renewing effort to push growth harder, particularly behind BNC, beauty and cosmetics, where you know we have lower global share, right? We have a big headroom for improvement, so we are doubling our efforts to push a growth in BNC. That's broadly, I would say, a sum up of the top line.
Sir, got it. Second question is on the margins. Europe and Americas, I mean, they, they continue to be subpar, so are we still getting facing issues, getting price hikes here? Are we done with the price hikes, and this is the new normal? Is it just a function of negative leverage? Any, any color here would be helpful.
I'm not sure if that's your judgment on them being subpar, but let me put it this way, that both have delivered double-digit margin. Okay? I think there's opportunity for margin improvement. Particularly in the Americas, there have been some one-off through health insurance and so on, which will not happen again, because of which the margins are a little subdued. Okay? Overall, I think that, you know, as we drive growth momentum and as growth comes back to Europe, we have significant opportunities to improve margin. What I can tell you is that the belts have been tight on costs, and by and large, we've met whatever OpEx forecast we had. It's really a bit of growth leverage, right, that we need to continue to drive.
Just a follow-up, sir, here. The price hikes that were due here in Americas and Europe, are we, are we still in that process, or that is done now and, going forward, it is about getting more customers here and growth?
Yeah, I would say that price hikes in general, not just for Europe and Americas, in general now are few and far between. Okay? By and large, whatever had to come has come. However, I have to say that there are some, particularly with our contracted customers, there's a pass-through of cost, input cost reductions that has started flowing into pricing as well. I think one has to recognize that there will be a tempering of pricing, right? Not so much in terms of positive pricing, but there will be some negative pricing as well that is flowing through, and some of it has started flowing through, particularly for contracted customers already.
Got it, sir. I'll come back in the queue for any follow-ups. Thanks.
Okay, thank you.
Thank you. The next question is from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi, hi, sir. You know, actually, you know, would you be able to share data on EBITDA for, you know, per ton or for actually like KG, by product and by, by, by, you know, by, you know, geography? Can you give us an indication on the trajectory of, of the business?
I'm sorry, I didn't quite follow the question. Would you mind repeating?
Sure. If you could just share with us the EBITDA per ton, by product and by geography, it would be helpful to help us evaluate the trajectory of this business.
By product, we don't share. By geography, it is there in the deck. Right? By geography, we give geography by regions, 4 regions. That data is in the deck already, that should be available to you if you access the investor deck.
Okay, okay, okay. Maybe I missed it in this one. I haven't asked, but let me just get back in.
All right, thank you.
Thank you. Participants who wishes to ask questions, may press star and one. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, thanks for taking my question. I'm sticking on this revenue growth again. You said that AMESA, you are satisfied, but if you look at the number of 5% growth YOY, it really doesn't picture the kind of robustness we are seeing. If you look at for last four quarters, progressively, the revenue has only decelerated. When last year it was a double-digit growth, now we are at a single mid, mid-single digit growth. Is it to do more with the price pass-through? If that is the question, then why margins have again fallen sequentially with price pass-through our EBITDA per KG or our gross profit per kg is protected, which should have implied that our margins ideally should have gone up.
AMESA, if you see sequentially, margins have also dipped by 200 basis points, and revenue growth has also fallen to 5% Y-o-Y growth. How should we reconcile this on the AMESA side?
I'll request Amit to chip in on the, the margin part. See, on the growth part, I'm going to say this, that there is some tempering of the revenue growth numbers because we've had a specific short-term challenge in Egypt, right? There is a translation loss of the Egyptian pound, which I mentioned earlier, right? The reality is that now fresh pricing is few and far between. Okay? When you combine all of that, right, the optics of revenue growth are going to be a little softer, right, in the immediate term, right? That's what is there. Now, this does not mean, by the way, that we are not doing lots of things to push growth harder. Right? I said that in response to your earlier question. We are absolutely doing stuff to push growth harder.
That is a reflection also of the softening input costs, right? Therefore, what is happening to the optical revenue numbers. As far as the margin is concerned.
The margin, Sanjay, margin for, you can't see it on sequential basis because there are seasonality also in this business. If you see, for the last quarter, the revenue was also higher, if you see the June numbers, correct? That will depend on the product.
It was only INR 2 crore more, Amit. It was only INR 2 crore more in the MSR. You were at INR 338 crore, we are at INR 336 crore. I don't see too much of a difference in revenue there.
That's right. There are, there are seasonality and there are product mix also, correct? From the seasonal, your product mix also changes between beauty, pharma, and oral.
Okay. Okay. Continuing on this revenue growth again, Amit, I thought we were dollar billing, so how should the currency depreciation or devaluation really hits us on the revenue? You're telling that the brand itself has collapsed there, and that's the reason. How much is Egypt hitting, if you, if you can also number, assuming Egypt was normalized, what would have been a revenue growth?
See, in each country, there are some of the export sales also, which is dollar billing also, but the local sales are in the local currencies. Correct? That is one. If you see, India is standalone, and the numbers are there in the public. India's standalone growth is almost around 7%, 6.9%.
Okay. Again, 6.9% is really not that encouraging. We were talking of a double-digit growth, right, to sustain. In that context, is that a slowdown? Are we losing market share? What is really, how should one see this?
I just want to say that our medium to long-term ambition absolutely is double-digit, right? Now, we are going through cycles of commodity, of acceleration and inflation and softening of commodities, right? Obviously, that affects pricing and revenue. Okay? I just want to say categorically, that as far as India is concerned, we have actually built market share, right? There is absolutely no question of market share loss. Now, the revenue number is a combination obviously of margin, of mix, and of pricing, right? It's a combination of that. I think we're just going through these cycles when, you know, you had hyperinflation of input, now you are having softening to an extent, and part of that is playing out in the revenue numbers, right? Are we alarmed about performance in India? No. Right?
There is absolutely nothing that is to do with market share loss or any challenge, other than the fact that the numbers are a combination of these three factors, right? I think these things will normalize themselves as we look ahead.
Fair enough. My next question is on Americas. In America, if you go back to FY 2020, we had a quarterly revenue of close to INR 150 crore-INR 170 crore, and we used to do an EBITDA margin of 20%+. The revenue has scaled up to about INR 200 crore, kind of a run rate, while margins have fallen to 11%, kind of a thing. How should we see the margins in America again, going back to 20%? Is it really possible or you think the new normal level of margins in America will be significantly lower than the historical trend?
You know, America is a combination of a mix of the countries as well, right? Which is Mexico and Colombia. I mean, if I were to just... There has been some margin erosion, particularly in the U.S. during this period. Okay? During this period of hyper input cost inflation, there has been some loss of margin. We have a very clear plan for margin recovery. I'm not going to say whether it's 20% or some other number, right? We have a very, very clear plan for margin recovery, which includes growing the business as well as some structural cost changes, right? We are absolutely working on that. That's the best visibility I think I can give you as far as the US is concerned, right?
There has been no big margin erosion, right, and I'm not looking at one quarter alone, no big margin erosion in the other smaller countries, right? There has been something in the U.S. and there's a clear plan to recover that.
Got it. Last question from my side on Brazil. Can you give more color on the financial, in terms of what is the revenue run rate annualized for, say, exit month? What kind of utilization level have we reached? And, are you achieving the profitability, what we anticipated at the time of starting the project? That will be helpful.
It's too early to give you any steady state kind of indication as far as Brazil is concerned. I will say that there was a slight delay in the, the volume ramping up, okay? That is absolutely normal in the projects of this kind, when customers are also destocking volumes, et cetera, et cetera, r ight? I think we have started reaching the kind of ramp-up that we would like in July. Okay?
Okay.
That, we have seen the prep-up happen. Q1 was relatively soft on volume, but a lot of trial was happening, some commercial sales started happening, but July, I think the ramp-up has started. We are nowhere near the ramp-up numbers that we want, and it will still ramp up from July onwards, but July, we've had a sizable volume as far as Brazil is concerned. I think we'll have to wait at least another quarter for us to give you a better guidance on where the stable volumes are, what will contribute, and how the profitability will look for the project, right? By and large, apart from a month here or there, for most factors, I would say we are broadly on track.
Just one follow-up. Are we still in active discussion with the potential client, and how is that pipeline looking in Brazil?
We are in active conversation with several customers, and I think we are very close to having got order from one new customer, right, as we speak. The journey of expanding the customer base has started, albeit with one customer right now, but the teams on the ground are at it. We have ourselves connected with many global MNCs who are present on the ground in Brazil. All I can say is that there's huge interest, and I think you will see momentum building in terms of widening the customer base.
Got it. Thank you, thank you, Anand. Thank you, Amit, for providing elaborate answers, and thanks, and best effort for the coming quarters.
Thank you very much.
Thank you. Participants who wishes to ask questions may press star and one on the touchtone phone. We'll take the next question from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
You were talking about, health insurance cost in Americas? Ex of health insurance, what is the EBITDA, EBIT margin for Americas?
I can't share the number specifically, Sumant, but this is kind of a timing difference only, which will over a period of time during the course of year will nullify.
Let's say if, if, if, we'll incorporate health insurance cost, so there is no margin decline?
No, I'm not saying that. I'm saying that there is a one-off this quarter because of the health insurance, and I'm saying that it is just a timing difference. Over a period of time in this year, this cost will nullify over a period of time.
Okay. Tax side, we have a lower tax this quarter, so what is the effective tax rate for FY 2024?
FY 2024, you can take effective tax rate as a normal, around, say, 26%-27%.
Okay. So, so the, you are talking about the Q 3 quarter, the tax rate will be higher?
Tax rate on. It will also depend on certain dividends which comes from the subsidiary, which we have seen last 2, 3 quarters. There will be some benefit also. Maybe just wait for one more quarter, and then we will have visibility on those things also.
Okay. We can maintain the previous guidance, what you have given in the Q4 of the tax rate?
Yeah.
Okay. Okay. Okay, okay.
Thank you. A reminder to all the participants, if you wish to ask a question, you may press star and one. We'll take the next question from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi. you know, I just had a re-look through the presentation. I'm not able to locate the EBITDA per unit ton anywhere, actually. If you could point me out on where it is.
Riddhesh, normally, we do not share EBITDA per ton or per thousand or product-wise. Our normal reporting is the segment results, and you will see region-wise EBITDA on slide number twenty-.
No, I see that. I see that.
Yeah.
How about see, sir, in actually a business where our revenue increases when the raw material prices increase, which leads to then a lower EBITDA margin. In an environment where obviously the raw material reduces, our revenue may go down and our EBITDA percentage may go up. All through our introductory exit comment, we are talking about EBITDA percentage increasing, but that in actuality is irrelevant from an investor angle, right, sir? Unless we know what is the volume growth which is happening, what is the historical EBITDA per ton, where are we now? How are we able to make a decision on how to look at the business? The actual percentage is totally irrelevant, right?
Forget the percentage. I, in my opening comments, I talked of absolute EBITDA growth.
I said that, but I think that would also be a factor of actually increase, like, actually, actually, the capacity utilization can also lead to higher absolute EBITDA, right? How do we get a breakup to know how much of our absolute EBITDA growth is driven by actual increase in the volume versus by increase in pricing, so we can get a sense on where the trends are heading in this business?
See, we are not giving granularity on pricing separately, right? Our revenue growth is a combination of volume, price, and mix. I've explained many times before that strategically, this business is driving growth through BNC overall, right? Therefore, doing mix improvements, and of course, there has been some pricing as well, but there's also volume as well. We are not giving that granularity, because strategically we are trying to drive revenue growth through all these.
Sir, I understand that, sir, but I'm saying for us to evaluate, are we pricing the revenue growth at cost to deliver margins or are we not? I mean, I'm sure, I mean, you've got Blackstone as an investor. You can ask them also this. We have key data point anyone would look at to invest in any business which is actually a convertible business, right?
Sir, Riddhesh, I think, we normally do not share this kind of granular data, and maybe on the numbers.
I'll just leave this as a request. I'll just leave this as a request with you. If you could consider in the future to actually bring in high quality news to public investors. This is a very important data point in, in my view, for us to get a real view on what is the quality of the business going ahead and how good it is obviously.
Yeah, Riddhesh, we can take it offline.
Thanks. Thanks.
Thank you.
Okay.
Participants, if you wish to ask questions, please press star 1. We'll take the next question from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir. Thanks again for taking my question. Earlier, when we were going through the inflationary period, and there were subsequent price increases lined up, we had said that typical margin equivalent of the previous years will be 18.5%, because of the optical impact on price increases and cost going up. In line with the deflationary time when we are passing on the decrease in commodity cost, at least where we are contracted, would it be fair to assume that this 18.5% will probably settle at a higher rate? Maybe we'll take some from the revenue growth, but margins should settle at a higher number. Would that be a fair assumption?
See, we are not going to give you, a number of our margin ambition, but what I have said in the opening comments is that we are committed to continuous margin improvement, right? We get the margin to what we believe will keep us competitive in the marketplace as well, right? We cannot keep increasing the margins indefinitely. Please also look at absolute EBITDA growth, okay? Because that's a reflection of real profit that the business is making. One more comment that I would like to make is, on, from a revenue standpoint, here, this is business with some seasonality, right? Sequential comparisons, right, we don't really believe reflect the performance of the company. It is Y-o-Y. You have to look at the same quarter of the previous year to get a proper assessment of how we are performing. Okay?
I just want to leave that as well, not just for you, but for everyone else in the call.
Fair enough, sir. That's all from me. Just will take this moment to thank Amit for, for all his time and inputs, and welcome, Deepak. Thanks. Thanks, all.
Thank you for doing that. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask questions, you may press star and 1 on your touchtone phone. We'll take the next question from the line of Udit Gupta, an individual investor. Please go ahead.
Sir, my question is regarding the debt levels and do we see it moving lower?
I'm sorry to interrupt. Mr. Gupta, voice, your voice is breaking.
One moment. Question is... Is my voice clear right now?
Yeah.
Yeah. My question is regarding the debt levels, sir. By the end of the financial year, do we see it moving higher or lower? What is the projection?
Sure, the debts are normally, we take our debts based on different ratios. It's not question of absolute values, where the debts are. Based on the growth, we definitely leverage our balance sheet, but our leverage ratios are very strong, be it DSCR, ISCR and debt equity. If there are growth opportunities, yes, the balance sheet can take more leverage, but that's how we monitor our debt.
Thank you, sir. Sir, the participant has left the queue. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Pratik Tholiya for closing comments. Over to you, Mr. Tholia.
Yeah. Thanks, Michelle. On behalf of Systematix Institutional Equities, I'd like to thank all the participants. I would like to also take this opportunity to thank Mr. Amit Jain, our outgoing CFO, for his support over the last many years, to all of us, and as well as investors. I'd like to also welcome our incoming CFO, Mr. Deepak Goyal. Once again, thanks to the management for giving us the opportunity to hold this conference call. Mr. Kripalu, would you like to make any closing comments?
No. I just want to thank everyone who attended this call, for the interest that you've shown, and, yes, that's it. Thank you.
Thank, thank you so much, sir. Thank you.
Thank you very much, sir.
Okay.
Thank you, sir.
Bye-bye. Thank you.
Ladies and gentlemen, on behalf of Systematix Institutional Equities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.