Ladies and gentlemen, good day and welcome to EPL Limited Q4 FY 2023 earnings conference call hosted by Systematix Institutional Equities. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix. Thank you, and over to you, sir.
Good morning, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants on this earnings conference call of EPL to discuss fourth quarter and full-year numbers. Today we have with us from the management team Mr. Anand Kripalu, MD and Global CEO, Mr. M.R. Ramasamy, COO, Mr. Amit Jain, CFO, and Mr. Srihari Rao, President, AMESA Region. I would like to now invite Mr. Anand Kripalu to give his opening remarks. Thank you, and over to you, sir.
Thank you, Pratik, and hello everybody, a very warm welcome to this earnings call. Before discussing the results, you will be pleased to know that EPL has now completed 40 years since its inception in December 1982. We have come a long way from a single plant in Vasind to 21 plants today across five continents. During these years, EPL has continued to lead the pack in every aspect, be it innovation, cost leadership or sustainability. In the year gone by, the external environment continued to be challenging and volatile. However, the silver lining is that things started to settle and become more predictable with each passing quarter. Consequently, I am pleased to share robust results for Q4. We achieved double-digit revenue growth of 10.1%, which was broad-based across all regions.
MEASA grew by 7.6%, and these numbers were significantly impacted by the devaluation of the Egyptian pound. At constant currency, MEASA grew at 15.5%. Americas grew by 17.1% and Europe by 19.9%. With the lifting of COVID restrictions, EAP bounced back to deliver growth of 8.6%. Excluding the impact of setup costs in Brazil, we delivered strong EBITDA margin at 17.2%, which is an improvement of 186 basis points versus Q4 last year. Absolute EBITDA was the highest ever and grew by 23.4%. Including setup costs in Brazil, EBITDA margin stood at 16.9%. Net profit grew by 80.7%, partly enabled by tax credit pertaining to earlier years.
Strong cash flow generation led to lower net debt to EBITDA, which stood at 0.60%. Importantly, as the year progressed, our business recovered. Our margins started at 15.1% in Q1, then moved to 16.3%, then 16.6%, and ended at 17.2%. Absolute EBITDA moved from declines in Q1 and Q2 to strong double-digit growth in Q3 and Q4. Over the full-year, the category mix also progressed in the right direction, with personal care and beyond growing at 11.6% faster than oral at 9.5%. Personal care and beyond now contributes to 47% of our total business. Overall, we believe we delivered a solid quarter with clear signs of improvement through the year.
With respect to our Brazil greenfield project, I'm very happy to share that production has commenced in the plant and will be ramped up in the first quarter of FY 2024. This is a testament to our project management skills and our rising global footprint. As far as innovations and business wins are concerned, our focus on innovations across laminates, tubes, caps and printing ensures that we continue to offer our customers the best solutions in the industry. Recently, two of our tubes won the National Award for Excellence in Packaging at the prestigious INDIASTAR and PACMACHINE 2022 Awards for food and pharma category. Our deck carries examples of some of the other business wins we had this quarter. We also continue to make NEOSeam a success in Europe and Americas, a technology that will eliminate the seam and provide 360- degree printing.
Moving on to sustainability, we steadfastly continue to pursue our ambition to be the most sustainable packaging company in the world. Consequently, we are delighted to share a major milestone in this pursuit. EPL has received a gold medal in the EcoVadis 2023 Sustainability Assessment, placing us in the top 5% of 90,000 companies worldwide. We are now in the top 3% of businesses involved in the manufacture of plastic products. Importantly, in FY 2023, we increased volumes of sustainable tubes by nearly 2.5x . These now account for almost 10% of the total. We aim to double this again next year. We have recently been awarded with five ISO certifications for sustainable global practices. We also released the third edition of our sustainability report.
Finally, our efforts to create a positive employee experience has been recognized with the Best Employer Brand Award in the National Best Employer Brands 2022. Looking ahead, while many of the known challenges of FY 2023 have eased, everything isn't completely normal. Inflation and recessionary fears, especially in the Western economies, makes demand less predictable. Interest rates remain high, and forex remains unstable. Increase in minimum wage across the globe has resulted in cost increases. In this context, our priorities for FY 2024 include to continue to deliver double-digit revenue growth, drive recovery in East Asia Pacific based on expected revival of the China economy post-COVID, ramp up volumes in Brazil and expand the customer base. Fourth, continue focus on selective price increases wherever we are suffering cost increases, margin improvement through mix and cost management, manufacturing location optimization, and efficient capital allocation.
Net-net, we believe we have delivered a robust quarter in Q4, and we remain cautiously optimistic about the future to deliver on our ambition of double-digit growth with margin improvement. Thank you very much. With that, we will now open this up for questions, and I'll be joined by my colleagues in responding to your 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 touch-tone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Sanjesh Jain from ICICI Securities . Please go ahead.
Yeah, good morning. Thanks.
Good morning.
Taking my question.
Good morning.
I have few. First, on the revenue mix. From this quarter at least, it looks like personal care has significantly slowed. I can understand why the oral care has grown faster, thanks to the Brazil. Can you help us explain why the personal care has seen a sudden deceleration in the growth? We have now fallen less than double digit in the personal care for this quarter.
Do you have other questions as well that you want to just read out and then, you know, we can just share the questions between me and my team?
Got it. Got it. My second question is on the Brazil side. Now that we have commenced, any thought how much can it contribute in FY 2024? Have we succeeded in signing more contracts beyond the one long-term contract which we, which we have started this plant? That's the second one. The third one is on the gross profit margin, which has sequentially declined by 80 basis points. While the assumption was that last quarter we were carrying the high-cost inventory and that should ease out and should help us in positively benefiting on the gross profit margin, well, it's completely otherwise. Can you help us explain the or reconcile the decline in the gross profit margin? Last question on the other expenses.
Freight costs and the power costs at least have significantly normalized. While, if we looked at our numbers, they aren't showing it. There's a little bit of it, but not to the magnitude probably one would have anticipated. Yeah, these are all my questions. Thank you.
Okay, perfect. I'll just kick off with the first couple and then hand it over to Amit and Ram. First of all, as far as the revenue mix are concerned, you know, I would really request you to look at category mix, right? At least on a full-year basis rather than a quarter-to-quarter mix. Right. I have to say that there is absolutely no issue and no concern, right? And on a full-year basis, I read it out in my opening comment, right? Personal care and beyond, which includes beauty and cosmetics and pharmaceuticals and little of other stuff as well that we do, has grown faster than oral care. Okay?
You should absolutely expect that personal care and beyond will grow faster, right, on a sustained basis, and its contribution to our business, which is now at 47%, will continue to grow. quarter-to-quarter, you may have some pluses and minuses, but it is absolutely not reflective of the underlying trend in the business. I want to just reassure you that there's absolutely no issue in our ability to grow personal care and beyond faster than grow oral. I think the silver lining is that, you know, a lot of people feel that oral itself right, how much can it grow by? On a full-year basis, we've grown oral by 9.5%. The fact is, oral continues to grow, and I can reassure you that personal care and beyond will continue to grow faster.
You know, you might have pluses and minuses in a quarter. As you know, we can't run this business and we don't run it on a quarter-to-quarter basis. Okay? Customers, you know, also are more long term in this industry rather than short term. That's the first point about personal care. The second point about Brazil. Brazil, the full commercial production just started and the ramping up is happening as we speak. Right? I said that the ramp up will commence in FY in Q1 FY 24, which is this quarter, right? That is happening as we speak. I think on the positive side, we believe that in one of the most complex countries in the world in terms of operating environment and a new country like this, right, I think.
I mean, we have set up this plant and this operation in record time. Okay? Now, as far as other customers are concerned, I can tell you that there is significant interest being evinced by both multinational and local customers in Brazil. As we have said earlier, we have gone into Brazil on the back of an anchor customer and our first priority is to ramp up and deliver the commitments that we have made to the anchor customer. In parallel with that, we are absolutely exploring possibilities for customer base expansion. Now, this will take time for the full ramp up to happen of the project, as in any project of this kind, you would imagine. All I can tell you is that it is going to be growth and margin accretive to EPL. Right? That you can be sure of, right?
The set up quarter, et cetera, et cetera. You know, you don't have the scale yet of the operation, but you can be assured that it will be growth. Obviously growth, because it's a greenfield project in a virgin market, but also margin accretive, which I'm sure is of interest to everybody over here. Let me just hand over to Amit on the GP margin issue and the other expenses area. Amit, will you take that, please?
Sanjay, as far as gross profit margin is concerned, it is actually mix of your business category, geography, everything. Correct? As far as softening of raw material is concerned, yes, we have seen from Q2 to Q3 and Q3 to Q4, and now we are seeing it is more or less stable. That has happened. Because of the mix of the business, the percentage can be here or there. Second is there is a component of translation impact also in the GP. That is on the gross profit. As far as other expenses are concerned, overall, if you see this quarter, the other expenses, excluding the employee cost, remained flat compared to last year. Freight cost, you are right that there is a softening and we are seeing the softening in the freight cost.
As far as power cost is concerned, you are aware that last quarter also we talked about the Europe power cost, which has increased year-on-year, if you see. It has started from April last year. Power cost, there is an impact of Europe increase and other geographies also if you see India, there are other power tariff increases in some of the factories as well as the excess charges on the power. That has increased. You know that we are constantly negotiating with the customers on the inflationary price increases. That's on the cost.
Thank you. Thanks for answering all those questions. Two follow up.
Thank you.
One, this year, can we achieve that 18% kind of a margin which we have historically delivered on the EBITDA front? That's number one. Number two, I wanted to congratulate on the gold medal for EcoVadis. Are there any other company in India which has gold medal or we are the only one in India to get this?
Your first question was whether we are going to deliver what number? Margin.
18% EBITDA margin.
18% EBITDA margin. All right. As far as EcoVadis is concerned, I don't know if there's any other country, company in India. I think it's also one of the few companies in the world that has got gold as a global company, right? See, it's different for one plant to get a certification, but for the global operations to get it means it's a massive company-wide effort to get to it. I don't think there is, but we will check this out again whether anybody has got EcoVadis gold in India.
You will imagine that in today's ESG journey that companies are embarking on, this will be a huge fillip as a source of competitive advantage for the company. These things will deliver hopefully with interest, right? In the future. Having said that, our journey has started, not finished. We have a long way to go and lot more to do as far as sustainability is concerned. As far as margins are concerned, I mean, you'll appreciate that I cannot give you a number. Okay? You have to absolutely believe the fact that what we have been saying consistently, we are committed to continuous margin improvement, right? I don't mean quarter- to- quarter, but certainly on a full-year basis because quarters have seasonality and so on and so forth. We are absolutely committed.
Even in a tough year like last year, you know, our internal comprehensive cost effectiveness program has really helped us, right? You would also imagine that pricing has been very aggressive, right? We have been pushing very hard on pricing as well. Right? Now, obviously, with commodities beginning to wane, right? The effort on price increases has come down, but it's still prevalent in some geographies, particularly like Europe, right? For the reasons that Amit also mentioned. I think you have to absolutely believe that we are committed to continuous margin improvement, right? What that number is, I would, you know, I would hesitate to say because I don't think it's helpful to give that kind of sharp guidance, right?
You have seen how we have moved margins in the last four quarters of last year, and I said that in my opening comments as well, and you obviously tracked that, right? You have to believe that this company and this management team is absolutely committed to doing this. That's something we have been saying. Hopefully we've built some credibility with you that, you know, this journey will continue.
Fair enough. That answers all my questions.
Okay.
Thank you and best of luck for the upcoming quarter.
Thank you so much.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir, thanks for taking the question. First of all, congrats on a good set of numbers this quarter. A few questions from my side. If I look at America, the EBITDA margin, even the absolute EBITDA has been more or less flat-ish for the past four quarters. My understanding was that this is a oil and gas heavy geography. We have contractual pass-throughs and should have got price hikes relatively easier in this geography. Brazil component is there, but on an EBITDA line, I don't think it would have affected that much in this quarter. Just wanted to understand broadly what is going on in Americas.
I'll chip in and then I'll hand it over to Ram as well. As far as Americas is concerned, you're right, a large part are contracted customers, and therefore the pricing does come, right? However, there has also been inflation-related costs beyond the contract, which has required us to negotiate separately with those customers, which we have done and we have achieved as well. Okay? Everything is not covered in contract, right? There are a few things outside, but we have got specific inflation-related price increases from those key customers for that also. I think the Americas margin for last year, right, has been impacted by some one-off items related to inventory buildup during COVID, right, which has hit the P&L this quarter. Okay? Please recognize that there are some one-off hits that have hit the Americas numbers and they are one-off. Okay?
They will not recur. That's really the point about the Americas margin. It is less to do with pricing or pricing ability or contract customers or anything else, but more to do with that one-off. As far as Brazil is concerned, I mean, the numbers, we have shown the numbers excluding Brazil actually. I've spoken about that excluding Brazil largely and even in the investor deck it is excluding Brazil. Please recognize that the impact of Brazil is not there in those numbers as far as this quarter is concerned, right, and the Q4 is concerned, right? Brazil will now start coming on stream as the volumes start ramping up. Is there anything else that Ram you wanted to add on Americas specifically on the margin?
No, no. You have covered well. Is there anything else, Sameer, that you'd like to know?
Yeah. On the Brazil note, just, any revenue targets you have this, for this geography in FY 2024, 2025? This is just for modeling purposes I'm asking.
I mean, I don't think we're in a position to give you because recognize that it's one lead anchor customer and there is some level of confidentiality in the contract about what we can share publicly and what we can't. What I said earlier to the previous question, it will be growth and margin accretive to this business and it will ramp up through the course of this year and you will start seeing the materiality of those in subsequent quarters. I think honestly, that's the best we can give you. The reassurance I want to give you is that whatever we planned, whatever we have been talking about for the last three, four quarters on Brazil is now a reality and will happen and there are no surprises, no misses, no change in our position on Brazil.
The confidence on what Brazil will achieve remains.
That, that's very helpful, sir. Just one follow-up here. INR 130 crore of investment is I believe has gone here. What is the revenue that you envisage on a full capacity level? Now, I understand that you can't give the timeline, but at least that you would have in mind, right? As in how much at peak capacity this plant can deliver. Obviously, there can be more plants if there is growth in that geography. Just this aspect.
Amit, you wanna take that there? I'm not sure we're in a position to give you what revenue we have built into the model right now, but you can give an update on the investment in the project. Amit?
Sameer, as we informed earlier that the total investment in this project will be approx $20 million. That is what is the investment in the project. As far as the specific numbers are concerned, as Anand told you that because currently it is only a single customer contract, we are not able to give that volume and revenue number. As we go along quarter-on-quarter, based on actual performance, we'll keep you informed about the various development. One thing is there that it will definitely be a revenue accretive and margin accretive.
Second is that one thing I want to tell you that in this short time, which is if we say when we started the project, which is almost in the month of June, July, in nine months building this kind of big project is a phenomenal job which we have done. That's how. That's that much I can share with you on the project as of now.
Margin accretive from the first year itself?
Margin accretive will be from the first year itself. Don't see it on a quarter-on-quarter basis, because normally in this business, ramp up needs some time. Normally the customer, they stop the other supplier, bring the volumes to us. On a yearly basis, yes, it will be margin accretive this year. Quarter-on-quarter, there will be some pluses or minuses.
That's great. That's great. Last question from my side. CapEx guidance and tax rate guidance for FY 2024 if you can give.
CapEx, I think the guidance remains the same. More or less, depreciation or maybe little lower than that, because our depreciation is also increasing now. Second is that if you see this year, we have focused on the capital allocation, on the CapEx also and the NWC also. If you see Q4, it's a strong operating cash flow which we have generated. That is on the CapEx. On the tax rate, again, the guidance remains same, that it will be between, say, 26%-28%.
Just a follow-up on the CapEx number. You envisage a double-digit growth. In a growing business, I would assume CapEx to be slightly higher than depreciation, right?
CapEx, I think guidance more or less within the depreciation amount we are able to deliver the double-digit growth, because these are all modular, additions to the plants. We need not to have the full, and everything. Strategic CapEx are out of that thing, like Belgium is out of that guidance.
Got it. Got it, sir. That's all from me. Thanks. I come back in the case I have any follow-ups.
Thanks.
Thank you very much.
Thank you. Participants, you may press star one to ask a question. Next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi, sir. Congratulations and thanks for the opportunity. Sir, on coming back to the sustainability, is that fair understanding, this 10% which is that is a recyclable, correct?
Yes.
Sir, what I understand that all FMCG global large player have put a play that they want to achieve 100% recyclable in the packaging size. Are we not too much lagging behind? Because next year even if it becomes 10%-20% by doubling. If you can give little more color on that.
First of all, you're right. When we say, sustainable tubes, we mean, fully recyclable tubes.
Correct.
I can tell you that globally across regions we are leading amongst tube suppliers.
Fair.
In sustainable tube supply.
Okay.
Okay? We are leading the pack on sustainability. You will see significant ramp up starting with some customers, right? FY 2024 there'll be significant ramp up with some customers. Some customers it will be FY 2025. Over the next few years you will see this 10% number go up significantly, right? All I can tell you is that we are re-equipping all our plants to be fully capable to produce sustainable tubes, right? There are some small modifications we need to make, right? We are doing it as we are seeing customer demand picking up.
Okay.
There's a bit of a journey, but I just want to tell you we are not lagging, we are leading any other company in the world, right? As far as supply of recyclable tubes is concerned. You will see an acceleration in momentum. I can tell you in FY 2023 also, the momentum in H2 was much more than H1.
Okay.
As FY 2025, 2026 approaches and people's deadlines approach of many of the commitments people have made, you will see an acceleration in adoption of recyclable tubes. Okay. You have to be absolutely reassured that we are not lagging, we are leading as far as this is concerned, and we will continue to lead. That's our commitment, and that's why EcoVadis Gold and, you know, all this stuff we are doing on sustainability, not just tubes, but in terms of making EPL the company sustainable in terms of sustainable practices. Okay. To make sure that people see us as the most sustainable supplier in tubes. That is important. We are absolutely on that journey, huh.
Yes, sir. Thank you. Second question on that line. How that will in a global market we'll be able to make a differentiation where other tube player may not be and will that help us in gaining a market share?
It will absolutely help us in gaining market share. Right?
And.
How will we differentiate? Okay? I'll try and explain to you in simple terms. Right? Other companies are also making sustainable tubes, right? Everybody has to make sustainable tubes.
Correct.
What is the differentiation? I could make a sustainable tube using less plastic.
Okay.
I could make a sustainable tube that has better barrier properties for less plastic and less thickness compared to some other supplier. The customer's product may be unstable in somebody else's tube, but the product will be stable in our tube.
Okay.
Our constant effort is to reduce thickness and therefore the amount of plastic going into the tube, and it keeps increasing the barrier properties so that the customer's product is stable. That is where research is going now. That is where, again, and on multiple customer tests, you know, competitors' products have failed, whereas our products have succeeded the stability test. No customer will put their product inside the tube if it is not stable, right? If the product is not stable. Right? Now, I'm just explaining to you in simple terms, that is how we are aiming to lead the pack and stay one step ahead on the sustainability agenda.
Okay. The last question on that also. That will help us, I mean, whether gaining market share or sustainability, but some kind of price better than the cost, I mean.
I mean, market share definitely. Now price is a choice.
Okay.
That's a management choice. I can charge a premium and make it difficult for people to convert.
Okay.
I can say almost parity pricing. You give me more volume, more market share. Let me grow my business disproportionately during this period. That is a choice on strategy.
Okay. Thank you very much and all the best, sir.
That's how we are thinking about it. All right?
Yeah.
Hello?
Yes, sir.
Hello?
The participant.
Yeah.
We move on to the next participant.
Please.
Next question is from the line of Mitul Shah from Reliance Securities. Please go ahead.
Yeah. Good morning, sir, thank you for opportunity, and congratulations for a very strong performance. My first question is based on your initial remark about these challenges in the global market currently, including currency related issues. Out of all these markets, which market do you see more challenged or slightly more longer time to come back? Which geography you think are rebounding strongly or is expected to rebound strongly?
I'll give you a broad view on this. I expect AMESA in India particularly to remain strong. Right? However, AMESA has Egypt. Egypt's performance is strong, but there's a currency challenge and inflation challenge, therefore, that is there in Egypt, right? I've already talked about the fact that those have impacted the AMESA growth numbers because of the translation impact of Egyptian pound devaluation. I expect China to come back, partly because it has a low base and partly because after the opening up of the COVID policy, the Chinese government also is putting in a lot of effort to get the economy to bounce back. Right? The Chinese government also needs to do that. I expect China to bounce back. I expect the Western world to be a little more uncertain. Europe, right? The environment in Europe.
The Western world has inflation, while it has softened a little bit, but still has inflation much higher than what it has had over the last few decades. The Western world is not used to having 7%, 8%, 9% inflation. They are used to 1%, 2% inflation. The challenges in Europe are partly inflation, partly the Ukraine War and going on, affecting it. Therefore there is every possibility that some demand impact could be there in Europe. Okay. There's every possibility. When price increases are high, when inflation is so high, then there could be some demand related impact. Okay. Therefore Americas as well, but less than Europe, right. I don't think there's a currency issue except that the dollar is actually quite strong, but there's no currency issue really in the U.S., right. Inflation has remained quite high, right.
You all know that interest rates and so on have been increased. Inflation has remained high. I'm just saying that it's a bit of a mixed bag around the world, and that's why in my opening comment I said, everything isn't completely normal. Inflation and recessionary fears, especially in the Western economy, makes demand less predictable. Okay? This is, I mean, everybody is talking about some kind of a recession in the Western world, right? People in Asia are not talking about recession that much. I'm just trying to make sure that we understand the context in which we are doing our business. In that context, I've already told you what we aim to deliver, you know, next year and beyond.
Okay, sir. Thanks for elaborate answer. Sir, within these, all these geographies, due to local currency depreciation, in any of this geography, do we require to rationalize pricing or reduce prices in order to compensate for currency devaluation?
Compensate for pricing, reduce pricing. Well, it should be the reverse. See, if the currency devalues, fundamentally it means there's high inflation, fundamentally it means you have to take more pricing. If I take the case of Egypt, where there the currency has halved in 9 months. The value of the currency has gone from EGP 15 to the $1 to EGP 30 to the $1, Egyptian pound to the dollar. We've had to take huge increase, that is what has ensured that we have protected our margin in the Egyptian P&L in Egyptian currency. What you are seeing in our global consolidated results is the translation loss of the Egyptian pound into our global results. I think quite to the contrary, when the inflation is high, the pricing, I mean, you have to be very, very hard-nosed about pricing.
Like we have been in Europe, by the way. In Europe, cost increases have been high, inflation has been high. We have taken unprecedented pricing in Europe, right? That's how we have somehow delivered, I would say, a reasonable P&L for Europe on the back of very aggressive pricing decisions.
Pricing is not on a USD basis where we decide USD pricing and then even if the currency of their current country depreciates, we realize them.
No, we have to take input costs as experienced in a country. Right. Now, recognize we do a lot of our polymer making and laminate making in India and China, right. Ship it out there. We take whatever input costs we suffer, plus they're all local labor costs, energy costs, all that stuff is local. Then you look at that and decide what pricing do you need to go and take to the customer.
Okay, sir. The second question on sustainability. In case of this, sustainable, we are saying 10% of the products now based on this recycle. It's all PP, polypropylene?
Ram, you want to take that question?
It's a combination of many polymers, but recyclable. What we eliminate is we eliminate, you know, non-polymer product used to be in the tube format, which we have now eliminated. Similar family of materials. Not one mono material. It's a still combination of material in a similar family.
Okay.
Okay?
Yeah. On this again, what I understand is it is primarily with the polymer only or a material in terms of recycling rather than equipments like molds or dies or even machines like blow molding or injection molding. Once the material, you are finalizing or you are getting success with that, it should be relatively very easy to implement across. Why it should take more time from going from 10%- 20%, 30% because it's entirely probably 90% would be related to material, 10%, 15% just related to equipment, right?
See, there are three different ways that you should see this. Each customer normally has a goal to get into full recyclability by certain number of years. Some of them are at 2030, some of them are 2025, some of them are little later. Now, this driver is their ability to transport product, display it, sell it, all that is their consideration to decide their timeline. Now, as a supplier, we need to be ready when as and when every segment like oral care, beauty and cosmetics, medicines, when everything gets converted into recyclable format, as a company are we ready to offer products? That we are ready now for 80%, 85% of the products today can convert into recyclability.
As a supplier, we have strong innovation capabilities because I just wanted to repeat. In the global scenario, EPL is one company which starts from polymer to tube making. Many tube making companies buy intermediate tube products. We will always be first to innovate, and we will always have the edge, leading edge conversion. Right? We are in that sphere. In the second question is we are ready for it. The third question is bringing equipments. Yes. All equipments in the current status is not fully capable of doing recyclable at effective level. Every machine can do a recyclable product, but not at a full efficiency. That needs small modifications, which we keep doing year on year. Today, 85% of our equipment can do recyclable product. 50% of our machines can do with full efficiency.
The remaining as it converts, then we will start updating year on year. This is 3 types. It's customer driven. From our side, we should have the full capability to offer recyclable products in every segment. We are ready. We should have the capability to produce when customer asks. That we are ready up to 50%, and we will be ready over a period of time up to 85% full effectiveness. But the current rate of conversion is only 10%. We are well ahead in terms of meeting the market demand, offering product for wide range of products.
Yes, sir. Good to hear this. Sir, are we using any reprocessed plastic in our combination? It's all virgin natural at present.
Every country has a regulations. We have products which have post-industrial recycling inclusive up to certain percentage. It depends upon the customer. One thing that what we have done is we do not have, at this point of time, two major plants where we make films and polymers. We don't have any industrial waste going out of the factory. Everything gets recycled into one or other form. That, that's how the ecological score of EcoVadis comes from our ability to ensure we don't discharge wastages into the stream.
Okay, sir. Lastly, on the Brazil, sir, whatever we got initial commitment order from our anchor customer, we are saying we are ramping up. Are we in a position to meet that requirement in Q3 or Q4? Will it take slightly more time to get the initial commitment order getting delivered?
In terms of capacity, capability planning, that is how the project has gone by. We are ready fully. Customer will now start converting one by one because he has to shift the volumes from an existing supplier to us. He will see our performance, his commitment to that customer. Slowly it will start building up. The short answer is yes. We are fully ready to deliver as agreed with the customer.
Okay, sir. Thanks and all the best.
Thank you.
Thank you. Next question is from the line of Nikhil Upadhyay. Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Hello. Good afternoon. I hope I'm audible.
Yeah.
Yeah. One question on the oral care, sir. If you look at like since 2013, 2014, and today, the oral care business for us has grown at 9%-10% CAGR, probably more than that as well. If you look at the overall oral care market across the world has been growing in single-digit in volume terms or even in value terms. From where? Now we've also entered Brazil, which we were not present earlier. So from a, say, a 35%-36% global market share, post Brazil, where do you think our market share would reach? Where do you see that post this much market share growing oral care will become?
There are two parts. One is that you mentioned about oral care as a category growing broadly. Probably that whatever number you said is the correct number. Our growth is not purely organic growth. We also gained market share. Like, for example, we have gone into Brazil. That will be a valid share addition to whatever we are having currently in oral care. That's our growth of 9% that, as we mentioned, comes from valid share gaining in addition to the organic growth in the existing markets. We are confident that we will continue to grow in that between the 8%-10% of the oral care. That's an effort. We continue to scout around customers for whom we are not supplying. We continue to look for products which could be made into premium so that our revenue goes higher.
Every customer is also trying, and we are also helping them to put product in the premium packaging item, so the revenue actually grows. Those efforts are on. We continue to believe in volume terms, probably we will be in the same range because we are authentically 35%. In value that we should grow slightly faster than that.
Okay. Volume term we will be growing at the similar range as the overall market is growing. It's only a mix change or better pricing which is helping us to grow at this rate, which can sustain.
Organic plus wallet share gaining will be the volume gain. Value gain will be as we start making more premium segment supplies.
Okay. On the inorganic side, you said gaining more wallet share or gaining more customers. Would you say that like at 40%-45% market share once we reach, there won't be much more opportunities because we would become. So most of the players would be highly dependent upon us. Or would you say. B ecause at the end it's a supplier kind of a business, so would they be so much, like to be so much dependent on one company?
No. There are many things are happening in the marketplace. Most regional players are coming up. You know, in India, maybe about 10 or 15 years back, you had stronger MNCs, but now there are stronger regional players, right? In every market, those things continue to happen. As we earlier explained, the sustainability initiatives gives us leading advantage to us to be able to offer more products to more number of customers. I'm not sure about the percentage that you are talking about, 40% growth. Certainly that our growth at this rate of 8%-9% in overall care is what we target to achieve year on year.
Okay. Last question on Brazil. Now till the time the scale-up comes to the required volumes and all, would there be a underutilization or underachievement of cost? Would it still be contributing negatively to the EBITDA or would it be breakeven as of now?
No. Project plan is done using this staggered ramp-up. That's how the project plan is put in. We are all put in. We hope there are lot of interest. We went with a lead customer. There are many customers are interested after we went through. We don't want to overcommit and jeopardize quality establishment in new country, unknown environment. We would use this period to ensure other customers qualify our product and we are ready to supply at some point of time to them. That's a plan. That is as per the original project plan.
Okay. Last question. The kind of opportunity, say, we got in Brazil and we put up a new greenfield plant, I think after almost four or five years. Do you sense there are more greenfield opportunities which may come up our way? Or would it be like with this plant set up across all the four or five major continents, would you say that more of the CapEx would remain on a brownfield kind of a level?
Anand?
Yeah, I'll take that.
Yeah.
Let me put it this way that, listen, we are open to investing for growth. Okay?
Yeah.
Now, if opportunities are in M&A, we are actively looking at M&A opportunities, right? If anything works out, which is in the right strategic area in terms of location, in terms of technology, and obviously at the right price, then we are open to that. We are brownfield, obviously we will continue to do, right? I don't think you need greenfield plants every couple of years. Whenever it is needed, if there is a virgin geography, right, or an anchor customer tells us to come and do something in another geography, then we are happy to do it. You are right. Broadly speaking, I think we are in a position to supply most markets and geographies in the world with the manufacturing footprint we have already.
Okay.
Okay? I don't think we really need to add more greenfield unless it is a demand or a request from a specific anchor customer. Your deduction that it will be more tilted towards brownfield rather than greenfield is right. Please add the M&A part, right? You know we've done only one in recent times, which is Creative, right? We are open to others, right? We are hungry and looking all the time for opportunities. We have examined some, but they've just not been either right or at the right price. Yeah.
Thank you. Nikhil, I request to join with you again for a follow-up question. The next question is from the line of Jignesh from Antique Stock Broking. Please go ahead.
Good morning, sir, and congratulations on great set of numbers. I have two questions. Firstly, if you can share, what is Egypt's contribution to AMESA revenue for the quarter and full-year? Secondly, there was a higher.
Once again, I'm sorry. Whose contribution?
Egypt region's contribution to AMESA revenue, for the quarter and full-year.
Okay. What's the other question?
The second question is that there was a higher share of government grants and other income for the quarter. If you can just highlight the nature of the grant and what can be a sustainable number, if any. That would be all. Yes.
Yeah. I'll hand this over to Amit. On Egypt specifically or any country within a region, I don't think we are sharing specific data on any country. Yeah. Amit, is that correct?
Yeah.
Okay. All I can tell you is that, you know, Egypt is an important country. We have some great customers there, and the business is doing really well in terms of top line and bottom line. All right?
Sure.
That's what I can tell you. Egypt is a good performing business, obviously impacted in consolidation because of the Egyptian pound, right? The currency challenge that we have there. Amit, you want to take the question on tax incentives?
Can you again, Jignesh, tell me what was the question?
In other income, there was a huge proportion of government government grants, around INR 239 million for the quarter. For what purpose we have received the grants and is there any sustainable number to that?
Yeah. This grant is basically a duty benefit in terms of import of machines, and this will continue to reoccur based on our capital expenditures.
Sure. No problem. Just one last question. When we had entered Brazil market, we had said that this is one of the first stages of entry to the market. Are we planning any second phase of expansion in Brazil region in the next two years?
I mean, expansion in the sense, I think our first thing is we put a project in place and our first priority is to build that plant. Honestly, we have not thought of further expansion, but we are covered on capacity certainly for the next couple of years in terms of the basic project plan itself.
Sure. That helps all those for the future, and thank you for answering all my questions.
Thank you. If we can take one last question now, please.
Yes. The next question is from the line of Umang Parekh from Ashika India. Please go ahead.
Hi, sir. My question was, mainly on the input prices. While it has stabilized, I just wanted to understand the current pricing of the same and how do you see this going forward?
I'm not sure. The input prices have definitely softened, and more than softened, the volatility has gone away, so it's more range bound, which is helpful, right? Otherwise, it's very, very when it's volatile, it becomes unpredictable, and then it's very difficult to manage pricing with customers. It's range bound, so it's softened to an extent and it's range bound, which is good news. There are a couple of input costs and commodities that are still high and are inflating. All right. But that's a smaller part of our total input cost base. Okay. Your question is about how is it impacting pricing?
Yes.
Well, I'm saying pricing is a dynamic thing. As you know, half our business is contracted and that follows the formula or based on input cost movement. The other half is negotiated specifically, and that happens. The contracted part happens with a lag, and the other part happens based on negotiation. I mean, we are trying to make sure that we don't give any discounts on pricing, right, which is lower than what the starting position was in terms of customer profitability. All right? This is a dynamic situation. It keeps moving and these are constant conversations. All I'll say is that we are still looking for price increase in some places. There is some pricing pressure for softening in some parts of the world with softening input costs and, you know, contracted customers that gets reflected automatically.
Our objective is to make sure that our overall P&L and margin profile, right, remains better than what it used to be, right? That's our objective when we get into these pricing discussions.
Understood. Lastly on, the debt numbers. While our net debt has come down because of the significant cash flows generation, where do we see our gross debt number heading to?
I think the debt number normally we see based on our different ratios, kind of the servicing debt and debt service coverage ratio. If you see net debt to EBITDA is also 0.6. In all those parameters we are good on the borrowing level. I would say that we can leverage further for the growth of the business.
Okay. Got it. That was it from my side.
Thank you very much. Now I'll hand the conference over to Pratik Tholiya for closing comments.
Yeah, thanks, Neeraj. On behalf of Systematix Institutional Equities, I'd like to thank all the participants for allowing me to this call. I'd like to thank the management for giving us the opportunity to host this conference call. Anand, sir, would you like to make any closing comments, please?
I just want to thank everybody for their patience and their confidence in this business. We've obviously had choppy times in previous couple of years for all the reasons that we know, right? I just hope that you are seeing the confidence that we are seeing with more predictability in the operating environment. You are seeing a rebound of our business as well, right? I hope that we have managed to leave that confidence with you during this call.
Sure, sir.
Thank you very much.
Thank you.
On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you very much. Bye.