Ladies and gentlemen, good day and welcome to the Q4 FY 2022 results of EPL Limited call hosted by Systematix Institutional Equities. As a reminder, all participant lines will be in 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 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix Institutional Equities. Thank you and over to you, sir.
Yeah, thanks, Aman. Good evening, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged into the EPL conference call to discuss the fourth quarter and full- year results for FY 2022. From the management, we have Mr. Anand Kripalu, MD and CEO, Mr. M. R. Ramasamy, COO, Mr. Amit Jain, CFO, Mr. Suresh Savaliya, SVP, Legal and Company Secretary, and Mr. Deepak Ganjoo, President, MENASA region. Thank you, management for giving us the opportunity to host this conference call. I would like to now hand it over to Mr. Anand Kripalu for sharing his opening remarks. Post that, we'll open the floor for Q&A. Thank you and over to you, sir.
Thank you very much. Hello, everybody, and welcome to the Q4 and FY 2022 earnings call. My opening remarks this time will be a little longer since we're also covering our full-y ear performance. The previous quarter in particular, and the full year in general, has been exceptional in terms of challenges, something that this business has never experienced in its history. The year saw unprecedented volatility and inflation in input costs, be it polymers, aluminum, packaging or freight. Continued COVID-related issues in the Western world led to absenteeism and overtime costs, with COVID having a significant impact in China as we exited the year. Finally, post our last call together, just when we felt that things could not get any worse, we have all seen the unfolding drama of the Russia-Ukraine conflict. Given this context, I am pleased with where the business has ended.
In the quarter gone by, we delivered revenue growth of 8.6%, which is 9.4% adjusted for Russia in the base. This growth was broad-based across regions and categories. Oral care grew by 8% and personal care grew by a faster 9.5%. EBITDA margin for the quarter stood at 15.4%, a little lower than the 15.7% of the previous quarter, impacted by the recent unforeseen events. Given the nature of our industry, we would like to reiterate that we do not run this business from quarter to quarter, but more on a full year basis. In the full year, in line with our commitment, the business achieved a double-digit revenue growth of 11%.
Performance on a like-for-like basis, which excludes Russia, CSPL and hand sanitizers, was similar at 11.2%. During FY 2022, oral care grew by 10.2% and personal care grew by 11.2%. The latter, which is personal care, was significantly impacted by the decline of the category in Europe due to COVID. Within the regions, three of the four delivered double-digit growth. AMESA grew by a strong 23.4%, EAP by 10.3% and Americas by 12.9%. Europe declined by 2.6%. However, if I excluded Russia and hand sanitizers, it grew by 4.7%. Importantly, Europe grew by 4.2% in Q4 with an adjusted growth of 7.3% without Russia and hand sanitizer.
EBITDA margin for the year was 16.8%, a decline of 306 basis points versus FY 2021. Both Europe and Americas have seen challenges on margin during the year. I am pleased that both these regions delivered improved exit margins versus the full year average. Europe recorded a Q4 margin of 11.9% and Americas 15.7%. The biggest challenge to margins has been the ability to recover pricing in not just an inflationary, but also a highly volatile environment. Our model of a quarterly lag-based price recovery, which served us well for decades, has left us with clear gaps in this one-sided volatile environment. This is something we are urgently and aggressively working to address. Overall net profit declined by 16%. Net of one-offs, PAT was down 12.3% versus the previous year.
Despite the challenges of the year, we believe that EPL has achieved an overall performance that is competitive. Moving on to sustainability, ESG, and other business updates for the year. Our purpose and ambition is to be the most sustainable packaging company in the world. Having spoken to customers across the board, we believe that this will be a significant source of sustainable competitive advantage. Consequently, we are stepping up our efforts to innovate and lead the pack with an expanded set of 100% recyclable offerings. This ensured a ramp-up of Platina volumes across several of our large and small customers alike, such as Colgate, P&G, Unilever, GSK, Henkel, and Vicco. We expect this to further ramp up exponentially in FY 2023. Significantly, we won the WorldStar Global Packaging Awards in 2022 for sustainable offerings in the health and personal care category.
In service of leading the pack sustainably, we have made global commitments by joining the New Plastics Economy, an initiative by Ellen MacArthur. We are a founding member of the India Plastics Pact. We are a signatory to the UNGC or the United Nations Global Compact, and our Carbon Disclosure Project ratings have also been improving year on year. We recently published the second edition of our sustainability report. This is available on our website, and I would urge all of you to access our website and take a look at this sustainability report. Finally, we have been honored with the Best Governed Company Award by the Institute of Company Secretaries of India. Looking ahead, as mentioned earlier, our ambition is to be the most sustainable packaging company in the world and deliver sustainable, profitable, double-digit growth.
We have a clear strategy in place, driven by the four Cs of category, customer, country and costs, and enabled by the four enablers of innovation, bold sales and marketing, digital, and the One EPL culture. The short term, specifically due to COVID in China, remains challenging. However, we are cautiously confident of performance in the rest of the world. Our focus and effort of pulling out all stops to contain costs remains. This includes actions across every line of the P&L. For example, in-house manufacturing, the caps of which India has already commenced, reduction of scrap and waste, and scrutiny of our organizational effectiveness and efficiency. However, in this environment, we recognize that getting more and quicker pricing from customers is key. We are significantly enhancing our efforts on this and are confident of getting more.
With our robust business development pipeline, our cost saving efforts, and above all, our pricing actions, we remain committed to our objective to deliver sustainable, profitable, double-digit growth. Thank you very much. With that, we will now open this up for questions.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who has a question may please press star and one at this time. The first question is from the line of Sameer Gupta from IIFL. Please go ahead.
Hi, sir. Good evening, and thanks for taking my question. I have two, so I'll go one by one. First is on this China performance. There's a sharp QoQ decline. Would you attribute this entirely to the COVID lockdown impact, or is there any other variables that are playing out? Any outlook that can be shared here in terms of the COVID lockdowns? How is the situation right now? Is it improving? Your take on, you know, how we should look at it going forward.
Give me the second question as well.
Sure, sir. In, basically this pertains to India, on the growth outlook. Now, most of the FMCG companies that we track, they're alluding to, you know, titration of volumes by consumers who are also facing the brunt of inflation. For us, the volume growth number basically is what translates to gross profit and EBITDA growth. How are we looking at it, growth in India, apart from the driven by price pass-throughs, would that be under a sort of challenge in FY 2023 or at least the first half?
Okay. Let me take one at a time. As far as China is concerned, yes, Q4 was challenging. Typically Q4 is probably the smallest quarter in the year because of CNY and Chinese New Year. I think this time it was probably impacted even a bit more than usual. Second, they have faced huge input cost increases and that impacted their performance. Finally, yes, as I said in my opening comments, towards the end of the quarter, COVID started having a material impact to the quarter. Now, as far as outlook is concerned, honestly, and that's why I called this out, that it remains challenging and remains a bit uncertain because, you know, China has this kind of no-tolerance policy on COVID. Now, we know the number of cases are coming down in Beijing. However, you know, Beijing largely still remains under lockdown.
Okay. Shanghai, sorry. Shanghai remains largely under lockdown. The number of cases in Beijing are very few, but because they are spread all over the city, it's not easy for anyone from outside, Beijing to go into Beijing or somebody from Beijing to come out of Beijing, okay? Because of the kind of restrictions that are there. The COVID crisis is not huge, in Beijing, but the zero-tolerance model, right, is putting a lot of restrictions over there. Now, it's really hard to predict, right, what's going to happen. We have a sense that the worst may be behind us, right, as far as March and April is concerned. You know, in this game, I would hasten to caveat that by saying we don't know for sure.
Right.
We are keeping our finger on the pulse. We're looking for every opportunity to get volume. You know, if one of your customers' plants is shut and they're not producing, there is precious little you can do with that. I think China, you will know as much as we know because you'll hear it from the news as well in terms of what is happening. Okay? China remains challenging, and that's why I said in my opening remarks that, outside of China, we remain cautiously confident of our performance in the rest of the world. Now, as far as India is concerned, yeah, I mean, we know that a lot of FMCG players are taking significant price increases, and there could be some impact of that.
All I will say is that we still remain positive in terms of our internal business plans as far as India is concerned. We are stepping up pricing and the aggressiveness of getting more pricing done, and that's going to help both our top line as well as margins, yeah, and help us to cushion some of the gaps that I spoke about between past pricing and raw material inflation. You know, I mean, there could be some tempering of growth, but as of today, I don't think we are pessimistic about growth and performance in India. We remain, I would say, cautiously optimistic, even as far as India is concerned, both from a growth standpoint and a pricing and therefore revenue standpoint.
Understood, sir. That's all from me. I'll come back in case you have any follow-ups.
Okay. Thank you.
Thank you. The next question is from the line of Ritwik from One Up Financial Consultants. Please go ahead.
Yeah. Hi. Thank you for the opportunity. Sir, I have a couple of questions. Firstly, what would be the volume growth for us in FY 2022 and Q4 FY 2022?
You know, we report revenue growth, right?
Right. Yeah.
Yeah. We don't report volume growth, right?
Okay.
We have stayed consistent to that. It's important that I keep reiterating the reason, right? We do believe that, our strategy is a strategy of mix improvement, right?
Right.
Therefore, you know, tubes, revenue from tubes, you know, are different, are higher as the mix improves. You have all kinds of funnies like small tubes in travel getting impacted during COVID and stuff like that. Therefore, we do not believe that volume is a good representation of our overall top-line performance, and therefore we stick to reporting revenue.
Okay. Sure. My second question is, you mentioned a couple of times, that, you know, we need to increase the prices. Historically, if I look at our gross margins, they tend to be around 57%-59% band. Would it be fair to assume that, we need another three to four percentage points of or two to three percentage points of increase on the pricing to for us to reach that 57%-59% or 58%-60% of gross margin to come back to around 19%-20% of EBITDA margin. Would that be a reasonable assessment?
I think the way you should think about is this. You can see what the specific erosion of gross margin has been, right? That's very, very clear in the results. Because we are broadly operating around the 50% mark, about half of that, I would say, is due to under-recovery of pricing, and the other half is, you know, just the simple mathematics of translation losses.
Now, the half that you see that is because of under-recovery in pricing, recognize that this is a moving number.
Because every day, every month, every quarter, the input is not static. It's a moving number and therefore it's a complicated average of a cumulative set of numbers, right? As we go and push for pricing, it's possible that input cost may go up further. Even if you get the pricing, you may still not see as much of the improvement as you would expect, right, in the gross margin. Suffice to say that we are pushing as hard as we can, right? We are trying our best to make sure that we don't lose volume and lose customers, right? We are not easily taking no for an answer. What we are also figuring out is that the model of having one price conversation and then forgetting about it is a matter of history now, right?
Now, I mean, every month you have to go back again to the customer given this volatility in input costs and say what you gave us last month is great, but next month is a different plan altogether. I don't think you can simply aggregate it, but our intent is to catch up at least some of the loss in price versus cost that we have seen.
Probably we can claw back the increase in our raw material prices and some part of the freight and other expenses we will have to take a hit on our P&L, and some part we can get a pass through, hopefully.
Well, by the way, our intent is to try and recover all input cost increases and not just polymers and other input materials. We would like to recover freight, and in certain regions it could be energy, or it could be labor costs because of general inflation, like in Europe and U.S. General inflation is 8%+ now, right? It is not that we are only recovering input costs and not looking at the rest. Now, how successful we are in recovering 100% of everything, I think that is the question really. We are trying every lever of justifying price increases from customers, every lever of input cost.
Sure. Just one last question from my end. You know, we have been maintaining since we have taken over from the earlier promoters that we will try and grow in double digits with, you know, improving margin. Does the goal of, you know, on a medium-term basis, say three to five-year basis, our goal is to grow in double digits or with this, it doesn't do anything, this quarter, particularly?
I've probably heard 50% of what you're saying because the line is very muffled. You're saying compared to the earlier promoters, what's the difference?
No. Since we have taken over from the.
Hello?
Sir, it seems that we have lost the line for the current participant. We will move to our next question that is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Good evening, sir. Thanks for taking my question. Few from my side. First on the China situation, we also manufacture films in China. Now that there is a restriction and all, is that also one of the reason why there is a higher cost that we need to source it from any other place? Or we are sufficiently covered from the film perspective? That's one. Number two, on the Brazil side, we did disclose that we are getting into Brazil last quarter. Any further plan formed up in terms of CapEx, in terms of film capacity we need to put in India or China? What are the investment plans for Brazil? When should this Brazil operation start and should adding to the revenue? That's the second one.
The third one is on the cost side, in Europe and U.S., wage and energy costs have significantly gone up. What percentage of revenue were these costs last year and what are these costs this year? How much of it practically is recoverable going into FY 2023? These are the three questions from my side. Thank you.
All right. Thank you very much. Yes, we make film in China, we make film in India, and we dynamically manage the allocation centrally here on who should make how much, right? You know, for instance, China could be a better supplier to certain countries and India could be a better supplier to other countries. Also, we constantly look at the input costs in China and in India to see wherever there is an optimal opportunity produce and ship at the lowest cost. We do that dynamically in terms of allocation. As far as Brazil is concerned, we don't believe we need new film capacity as we speak. The Brazil plans, you know, are probably getting, I would say, finalized as we speak. We haven't yet put CapEx inside and so on, but we will be doing it soon, right?
I think we've got to give it a few quarters before we believe that we'll be up and ready with any supplies out of Brazil, right? Very clearly, the project is up and running and on track. Okay? As far as Europe and U.S. is concerned, yes, wage costs have gone up. Energy costs have gone up, as you very rightly said. Our intent is to recover as much of that as possible through way of pricing. I can tell you this, that our teams are absolutely seized of this issue. We have put together ambitious price recovery plans from our customers, and we remain hopeful that we are going to get a significant part of it back by way of pricing, right?
The teams are absolutely all over this one. On pricing, it's not just Europe-U.S., but everywhere we are all over this in terms of trying to get more pricing done.
Fair enough. Just one follow-up on that. Is it safe to assume that Brazil will have a very minimal contribution in FY 2023? Any material contribution will come only from FY 2022. Is that a fair assumption? Now, why I'm asking this question because it's an existing product, new geography, new customer, that means ramping up should not ideally take too much of time. Now that we are telling it will take two quarters to firm up, is it fair to assume that FY 2024 is where we should see the impact of Brazil coming into the revenue?
I think it's fair to say that the impact of the revenue from Brazil will be relatively small in FY 2022 and the FY 2023, and the big impact will happen in the subsequent year. Right. You know, at the end of the day, we are going to drive this project as fast as we can conceivably drive it. For it to be material in terms of volumes coming out and therefore materially impacting EPL's numbers, I think it's fair to assume that FY 2023 will be nominal.
Fair, sir. Thanks for answering all the question and best of luck for the coming quarter.
Thank you.
Thank you. The next question is from the line of Douglas Turnbull from Invesco. Please go ahead.
Thanks very much. On the point of pricing, you say you're not easily taking no for an answer. Can you give a bit of color on what other options your customers have? As in, what are your competitors doing with price? How sticky is their business with you, and how does that translate into pricing power? Perhaps if you could, give us any color as well on how does that vary globally.
You know, the thing with this industry is that you know, there is reasonable stickiness certainly in the short term between customers and suppliers like us. The stickiness comes from longer-term relationships and contracts and a certain belief by customers that we are able to deliver quality service and ultimately sustainability and sustainable solutions, right? In line with what they want. Now, I think we have to believe that while tactically any competitor can offer lower cost, and we can do that to a customer of one of our competitors, right? Tactically, anyone can do that. In a sustainable way, in this commodity environment, nobody can deliver with prices that are significantly better than ours.
We'd like to believe that we are among the lower cost producers in the world because of where our manufacturing is, which is, you know, a large part is certainly in India and China, and therefore we'd like to believe, and of course, in Poland as well, that we are one of the lower cost producers in the world. Nobody can sustainably deliver something at significantly lower cost in this kind of commodity environment. You know, a customer can threaten to move business, and in some extreme cases they could, but we'd be surprised, you know, if anything significant moves away.
You know, we have to believe also that our relationships are long and deep enough, and customers are cognizant enough of the environment we are in and of the input costs that we are experiencing, that what our asks are is no, not unreasonable at all, right? Is absolutely justified. Part of it is about the case we are able to make, right? Riding on the relationship that we already have. I think that's how we are thinking about it. Now, you know, we may lose a fringe bit of volume here or there, but I'd be surprised if we lose anything material.
That is really helpful. Thank you very much.
Thank you.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss. Please go ahead.
Hello.
Navin, your line is unmuted. Yes.
Yeah. Can you? Yes. Thank you. Thank you for the opportunity. Yeah, thanks. My question, I'm looking at your slides and looking at especially the raw material challenges. I would just like to request a directional sense on the margin front, in the sense that if raw material prices have been volatile until Q4, it has, like, you know, only been that much more higher or volatile into the current quarter as well. You said there are efforts on to take price hikes, which is appreciated. I would really like to understand if directionally, at least from a near term, would we still see margins continuing to be under pressure, or there could be some respite. Some directional color will be really helpful here.
I mean, we don't want to give any margin guidance, okay? To be very, very clear. I mean, there are moving pieces. One is you are seeing we've got a slide on commodity input costs, and you are seeing the fact that, listen, it's continuing to go. Even if I do pricing today, by the time I get that approval, the input costs have already gone up further, right? We're trying to make sure we get pricing ahead of costs, but it's not always easy to do that. Let's at least get the cost that we have suffered already. Then there are a few other moving pieces, like I said, which is particularly COVID in China, right?
There could be some impact on volume, and therefore it could impact the margins because, you know, there are certain amount of costs are fixed costs anyway there, particularly in the short term. The margins will be an amalgam of all that. Let me put it this way that, I think if we are able to pursue and realize the price increases that we have embarked on, right? I have confidence that we will get a good part of that, then I think that, you know, we are not going to, you know, be on a significant landslide on margins, right? We will try and contain where we are and start building back from here. Okay? I have to caveat this by saying that the environment just remains unbelievably unpredictable.
Last time, you know, we said that our margins have bottomed out and then the Ukraine war happened, right? There was a concomitant set of impacts because of that. Okay? I have to caveat this by saying that it's really hard for us to predict things beyond the point. I think what you need to be reassured of is that management doing everything it can under the situation to become fitter as an organization and to get pricing from customers, right? Really, what is in our control is what is the only certain thing right now. Everything else is somewhat uncertain because that's the environment we're in. I can't give you any clear guidance that, you know, margin will go up or not go down further or stay the same. I think we will just have to wait and watch, right?
I do believe the actions we are taking are material enough to help see us through this phase.
Right. I appreciate your answer. Just a follow-up there, and pardon my ignorance, please. I recently started tracking this. Sir, since like, you know, how much inventory from a raw material perspective, from a policy perspective, how much inventory do we carry? Is it like more like one month to two months? A broad average would help here. Then second part is, since our customers are largely these large companies, and typically it's a B2B segment, so is there some sort of a possibility, given this volatility, some cost pass-through basis or some mechanism can be worked out wherein margins become that much more sustainable for us? Thank you.
I'm gonna request my colleague, Ram, to tell you inventory and what we are carrying, right? You could also talk, Ram, about the fact that we have a pass-through model of pricing with a very large number of our customers.
Normally, we keep two months of inventory, but it varies between places. You know that we have our own input going to operations like Americas and things like that. We keep slightly larger inventories, two to three months. Anywhere between two to three months of inventory that we carry, then we replenish as we start consuming it. That's, that way it is sustainable. The pricing is a pass-through mechanism of the last quarter. We have quarter on quarter that we go for a price change based on the indexation. Normally, what we buy, since I also have an inventory of three months, that gets recovered automatically.
Right.
With a timeline, yes.
Understood. No, fair. That's helpful. Thank you so much.
Thank you. Thank you.
Thank you. The next question is on the line of Chirag from Keynote Capitals. Please go ahead.
Yeah, thank you for the opportunity. Earlier, we used to give a segmental breakdown of how personal care revenue.
Sir, your audio is not very clear. It's muffled.
Yeah. Is it audible now?
Yes.
Yeah. Thank you for the opportunity. Earlier, we used to give a revenue breakdown of how personal care revenues would come from areas like EMEA, EAP, America. I've been seeing that since last few quarters, like two, three quarters, we are not providing that. Is it possible for you to give annual base numbers that how much have we earned in percentage terms?
I think. Sorry, your question is region-wise category performance, is it?
Personal care region-wise performance.
Personal care region-wise performance. Are we reporting that?
We were reporting earlier, but it's like.
It's a portfolio of the various category in various regions. Sometimes some regions are down. In some category like Europe, we told earlier that beauty and cosmetic is getting hit. Overall, if you see, we have managed and sustained to keep the composition of our personal care category at 46%. That we have sustained in the last three to four quarters, where even Europe is getting down, we are at 46%.
Right. Actually, I just wanted to know majorly from the Americas point of view, because earlier we were said that cross-selling of personal care products is to be hyped up in Americas. Just wanted to know how we are growing over there.
Personal care, which is beauty and cosmetics and pharma combined, has grown double-digit in the Americas in full- year 2022.
Okay.
Okay?
Okay.
It's grown double-digit. By and large, performance has been good everywhere except in Europe, which I called out in the opening comments, because we've had a shrinkage of the category through the entire COVID wave in Europe. We are optimistic that things are gonna start bouncing back.
Okay. Thank you. Thank you so much, sir. That's all.
Yeah.
Thank you. Next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.
Thanks for taking my question. Sir, I just wanted to know that, would it be fair to assume, like, the population growth in the geographies which we are operating, would be the, what we can say, ballpark number for the volume growth which we are having?
I don't know. You have to tell me. See, because at the end of the day, like
Sir, I am coming from that perspective, like, these are very volatile times, so we cannot say anything about the margin front. You know, volume growth is one we can look for.
No, I am not going to give any more leads on volume growth, right? Because, you know, I mean, you know, the segment can grow because of travel tubes or it can grow because of, you know, 50 diet tubes. I mean, you know, it's really hard to add apples and oranges and bananas together, right? Give you a number. To use population growth as a surrogate for volume growth.
I think is at your own risk, honestly. I cannot see the simple correlation of these two.
Okay. Okay.
Yeah.
Understood.
Yeah.
Would there be any impact of the EPR norms on our business?
Of the EPR norms?
Yeah.
This is what? The Extended Producer Responsibility?
Yeah. That one.
No, no. I think. You see, we are going to be a responsible manufacturer of plastics, right? Like I said, sustainability is a core part of the purpose of our business. We will take our responsibilities along with the larger industry seriously and partner with the larger industry to do what we must do as a responsible producer. Okay? Now, will it impact our business? No. Not at least that we can see immediately at all.
Okay. Thanks a lot. That's it from my side.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah. Hi, sir. In recent analyst meet, we were talking about we have taken two price increases and we are going to take one more price increase. Can you talk about how much price increase we have taken recently and when this price increase is effective?
There's no simple explanation because different customers, different regions happen on different dates. I don't think there is any simple thing about saying from this date one round of price increase, from this date another round. Because the commodities have moved the way they've moved, it's been a continuous process, okay, of price increase. Now, each phase of price increase, right, is also not the same as the quantum of the other phase, right? For this time we may be trying for a higher quantum than we have tried in the previous two times. You know, honestly, this is a continuing process of input cost increases and a continuous process of trying to negotiate higher prices. Okay?
If you were to look at a few simple metrics like, our ASP per tube and so on, you'll get an idea of aggregate that has other complications of SKUs and mix and other those things there, right? You'll get some sense there.
Okay. Can we say, overall assuming normal case scenario from here if the commodity price is going to correct or say, stabilize here, this is the bottom of the margins of the company?
Nobody can say that commodities have corrected or will bottom out, huh? Nobody. From whatever I know, nobody has that wisdom, right? Therefore, you know, I cannot say anything more on margins than I've already said earlier, actually.
Okay. Thank you so much.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead. Sorry, Jinesh.
Hello.
Please go ahead. Yeah.
Yeah. Good evening, sir. Am I audible?
Yes. Yes.
Yes, you are audible. Please go ahead.
Yeah, sir, just two questions from my side. Firstly, how much would China be contributing to our top line in terms of revenue?
China is around 25%.
Okay. If I'm to assume that first quarter there is no nominal revenue or no revenue from China, how much will be the MENASA growth rate that FY 2023 could do?
Sorry. Nobody said that there will be no volume in China or that, you know, it's not as if the full business is shut. Just to.
Marginal volumes, sir.
Sorry?
Marginal volumes for the first quarter of FY 2023.
No, I don't think I said there'll be marginal volumes for the first quarter. There will be an impact of COVID. There'll be a significant impact of COVID, right?
Okay.
The overall volumes and revenue will still be material.
Okay.
In China.
Got it. Understood, sir. Secondly, I see there is a jump in inventory days in FY 2022. Is it attributable to the raw material price increases or is there additional volumes of inventory which has been maintained?
No. See, FY 2022 was very volatile. Availability of material was an issue, freight was an issue. So wherever there was an opportunity to stock, we stocked, right?
We placed service over cost, right? That's how you grow. Now over a period of time that we will be back once it's normalized, we will reduce our inventories. One more, that all our China operations as we speak are running. All. We are not closed even for a day. Some of our customers are closed, we are not closed for even a day.
Understood, sir. Understood. Thank you. Thank you so much. That's all from me.
Thank you.
Thank you. Our next question is on the line of AC Alagappan as an individual investor. Please go ahead.
Yeah, good evening. Just, I've got only one question. This company acquired Creative Stylo Packs, sir. What was the impact on that, sir? I don't find any improvement in margin after acquiring. Did it contribute towards the turnover?
Sorry, your specific question is you don't see an impact of Creative in our numbers?
Yes, yes, sir. Because the company acquired Creative Stylo, and I see there should be an impact on that, right? Either the, I mean, the margin should improve or the turnover should improve. What is the impact on that?
I mean, Creative is a small part of the total revenue and P&L of EPL. Okay, first of all. You're not going to see a dramatic movement because it was never meant to be that way. Now, has it strengthened our position with customers? Has it given us access to a whole new capacity on plastic tubes? Has it been margin accretive and so on? The answer to all that is yes. You will not see the materiality in the total numbers because Creative itself is a relatively small part of the total EPL business.
Financially, company I mean spent about INR 175 crore, isn't it?
Sorry, say that again. Sorry, your voice is not very clear.
See, company spent INR 175 crores. Because of that, company's debt increased, isn't it?
No, it increased.
Are you getting me? Hello?
Answer that.
Yes. One moment please.
Will you just answer that? I'll hand over to our CFO, Amit.
What's your question? Yes, company has invested INR 168 crore, our own money, for Creative acquisition. That's out of the internal accruals.
The company's debt will also increase.
Yeah, but that is not because of Creative. That is the normal because geographically you do CapEx in each and every geography. There are 10 countries. Even the debt, if you see from the ratio perspective on the overall balance sheet, the coverage ratios, interest coverage ratios, the debt equity and those are, I think, much stronger if you see the balance sheet.
Thank you. Next question is a follow-up question from the line of Douglas Turnbull from Invesco. Please go ahead.
Thanks. I appreciate you said you don't want to talk too much more about margins, but I wonder if I could understand some of your kind of longer term thinking here. So you said half of the margin compression we've seen is recovery or lack of recovery from cost increases, and half is just the mathematical pass-through of the COGS leading to a lower percentage margin. If we cast our minds forward and think to a more normalized cost environment and are confident in your ability to regather, retain, recover the gap in pricing over costs, how do you think about how important to you are percentage margins? Can those actually recover back some of that mathematical impact? Or do you feel we've maybe rebased margins a bit lower but just on a higher value of top line?
You know, I mean, so let me put it this way. First of all, do we believe that all commodity and input costs will remain at these levels forever hereafter? Okay. Which are enormous levels, and we know that commodity companies are laughing all the way to the bank right now. The way commodities go, from my limited understanding, honestly, is that right now you're seeing the demand and there's less supply, and more supply will come into this market over time. You know, prices will start neutralizing so that people make sensible margins and not crazy margins. Okay? I do not know if I should think about the future at these levels of commodity and input costs, or even higher than this, right?
Looking at more recent trends. Having said that, I think, listen, at the end of the day, as a going concern, the absolute margins we make and the percentage margins we make are important, right? I'm not saying that the percentage margins we make and report are not important. I think we're trying to manage the interim of this highly inflated and volatile phase of the commodity cycle and the input cost cycle, right? During this phase, it's, I would say, important to recover cost increases to the extent you can and worry less about the optical translation loss in terms of your margins, right? Long term, I think there are multiple other forces at play, and I'd like to believe that as commodities temper, right?
Maybe this time will be different, but I think for the past 100 years, if you look at commodity markets, they've gone through cycles and tempered again, right? When that tempering happens, I'd like to believe that our margins will not only be good, but also look good, right, and get back to where they were or even better. That's really what I can tell you, honestly, as far as that is concerned.
Understood. That's very clear and agreed. Of course, I don't think commodities stay at these levels indefinitely. I just wonder, as part of the conversation you're having with customers, they realize that it's a very unusual situation for input costs, and so your ability to rebuild the percentage margin in the long-term kind of implies that you can hang on to some of this pricing even if commodity prices come down. Is that part of the conversation with customers? What's your. What do you think their expectations would be in an environment where commodity prices normalize? Would they expect to see perhaps some price cuts from you?
Well, they might. See, because in any case, you know, a significant half of volumes are contracted. You know, if your input goes up, your pricing goes up. If the input costs go down, your pricing will follow that, okay? It's contracted, right? It is the non-contracted volumes where you have to negotiate for price increases. I dare say that sometimes there could have been more of a lag and therefore there's a higher propensity to retain some of those when the commodity prices soften. Obviously, this is not a conversation to be had at this point in time, and I'm sure you'd appreciate that, too.
Right now, we just have to get what we can get, right, and cover our costs, and we are not really having a conversation right now whether we will retain it if and when commodities soften, right? There's no point preempting that conversation either.
Yeah. Understood. That's great. Thank you very much. Appreciate it.
Not at all.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Pratik Tholiya for closing comments. Thank you, and over to you, sir.
Yeah. Thanks, Aman. Thanks to all the participants for logging on to this call, and thanks to the management for giving us the opportunity. Indeed, it was a very candid and detailed discussion on the outlook. Sir, would you like to make any closing comments?
No, no. I just want to thank everyone for the time, for logging in, and most importantly, for the active interest that everybody on this call continues to show in EPL.
Great. Thank you. Thank you so much, sir.
Thank you. Bye-bye.
Thank you very much. Ladies and gentlemen, on behalf of Systematix Institutional Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.