Ladies and gentlemen, good day and welcome to Huhtamaki India Limited Q2CY24 Results Conference Call, hosted by ICICI Securities. 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, then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Ashvik Jain. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone. Thank you for joining on Huhtamaki Q2CY24 Results Conference Call. We have Huhtamaki India Limited Management on call, represented by Mr. Dhananjay Salunkhe, Managing Director, Mr. Jagdish Agarwal, Executive Director, and Chief Financial Officer. I would like to invite Mr. Dhananjay, sir, to initiate with opening remarks, post which we have a Q&A session. Over to you, sir.
Thank you. Good afternoon, everyone. Let me start with our Safe Harbor Statement that whatever discussions we are going to do today do not give any indication of our future performance, and it is subject to a lot of uncertainty related to the businesses. Quarter 2CY24 performance, if I look at it, there are two aspects to it. One, the volumes are on an improving trend, as well as net sales. At the same time, the margins have been impacted on two accounts. One, the customer mix and sales mix have been adverse, coupled with a challenging supply chain situation emanating from a Red Sea crisis and a geopolitical issue. At the same time, we continue to focus on our strategy to address our competitiveness and focus on creating a long-term profitable growth, which will be in terms of what we are doing in our innovative product offerings.
For quarter-ended June, we had reported the improvement in the net sales, which is better than quarter-on-quarter and year-on-year. However, sequentially, on a PBT, there is some reduction. We are confident that with the efficiency measures which we have in the pipeline, we continue to drive our plans to improve our profitability and continue to invest in the innovation and operation improvements, where the main focus is to introduce the sustainable products for the future. With this, I will hand over to our CFO and Executive Director, Mr. Jagdish Agarwal, to take us through the financials of the quarter.
Thank you, Dhananjay. Good afternoon, everyone. As always, I am pleased to host the Q2 2024 Investor Call along with our Managing Director and to take you through the financial performance of the company for the quarter and six months ended June 2024. As regards to quarter or half-year performance, like our MD said, that volume for the quarter has improved both on YOY basis and as well as on QOQ basis. However, the volume for six months ended June 2024 is almost flat or slightly improved versus if you look at the corresponding period of March 2023. Revenue for the quarter stands at INR 6.2 billion against INR 6.1 billion in Q2 2023. It represents an increase of 2.5% and INR 5.9 billion in the trailing quarter, that indicates a 4.6% increase.
For the six-month period ended June 2024, the top line stands at INR 12.1 billion versus INR 12.5 billion during H1 2023, representing a decrease of 3% revenue on a half-year basis. EBITDA for the quarter stands at INR 383 million compared to INR 421 million of Q2 2023. For the trailing quarter, which is March 2024, the EBITDA was INR 494 million. EBIT for the quarter at INR 263 million is down by 14% YOY basis. Q2 2023 was INR 305 million Indian rupees, and for the trailing quarter, this number was INR 399 million. EBITDA for H1 2024 stands at INR 870 million compared to INR 996 million in H1 2023. It also reflects a decrease of 12%. Even when we look at EBIT, EBIT for H1 is INR 662 million, down by 9% compared to H1 2023.
So just to add that, in spite of increased volume, the EBITDA or EBIT for Q1 of 2024 or H1 of 2024 is trailing behind the comparative period because of adverse sales mix, category mix, and changing market conditions. And on top of that, there were global supply chain constraints. We had a Red Sea crisis. We had challenges, especially on getting containers, getting a vessel handle , so that had an impact on our exports. And in fact, that had an impact on importing certain key raw materials. Coming to our finance cost, so finance cost has decreased on YOY basis as in that debt, the external commercial borrowing has been retired in last year itself. The surplus cash has been invested either in a bank deposit or a mutual fund, generating a decent return on the entire investment portfolio.
Profit before tax for the quarter before exceptional items stands at INR 230 million, representing an increase of 3.6% versus the corresponding period of last year. Profit before tax for H1, again before exceptional items at INR 564 million, is almost flat versus H1 2023. Consolidated profit after exceptional items for the quarter at INR 385 million versus INR 145 million we have in Q2 2023, and for trailing quarter, we had a INR 260 million. Exceptional item includes an amount of around INR 28 crores, which is a recognition of sale in respect of remaining land transactions of Thane property and a small portion of some sale of some movable assets or unutilized assets. Moving on back to equity or liquidity positions, so debt equity ratio continued to be at a 0.2, which is a pretty healthy ratio, and it consistent from December 2023 onwards.
Debt-to-EBITDA end of Q2 stands at 5.5 compared to 3.3 at December 2023, and the ratio is high because there is a slight decrease in the EBITDA, and that's again that debt-to-EBITDA ratio is at 5.5. However, liquidity remains strong as we do have line of credit which are not utilized, and we do have a surplus cash, so liquidity position is pretty strong for the company. Working capital has improved when looking at a year-over-year basis. However, there is a slight lag when we look at it on trailing quarter basis because of our higher inventory and higher receivables. But overall, working capital is more or less in a comfortable situation when we look at a percentage of sales basis.
While I've summed up the financial performance for the quarter and half-year, I would also like to enforce that Huhtamaki India Limited remains focused on driving operational efficiencies and committed to strong corporate governance and risk management. The company has always remained committed to its stakeholders, focused on technology-enabled innovations and operational performance and realization of value for its products by engaging constantly with our customers. We are investing for future and sustainable solutions to become a first choice in sustainable packaging solutions. We believe this will help the company remain competitive in the long run to drive responsible and profitable growth. With that, I'll hand over the call to Dhananjay, and thank you for the continued support and continued investment in our company.
Yeah, so Jagdish has covered most of the points. So coming to other points which are on sustainability, we are continuing to engage with the regulatory authorities, the stakeholders, and the customers in terms of driving our sustainability journey, whether it is in the form of product sustainability or sustainable products, or how we do our operations more sustainably in terms of reducing climate impacts, in terms of CO2 reduction, solvent consumption, water consumption, and improving the biodiversity. So various actions are in place, and we have very healthy trends in terms of sustainability journey. So with this, I can say that we are concluding our presentation, and then we can be open for the Q&A questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abhishek Anand from FinTrust Capital. Please go ahead, sir.
Hello. Am I audible?
Yes.
Yes. Hi. Hello, sir. So this is my first time attending the phone call for your company. So just pardon my questions. The first question I would be asking is regarding the OPM margins that the company is having right now. So I just wanted to know why these margins are low as compared to the peers in this industry.
Peers in which industry?
Peers in the carton industry and the packaging industry.
So it's very important to understand which are the companies which you are considering as peers because in the printing industry, there are various product portfolios like cartons, rigid boxes, flexibles, within the pressure-sensitive labels, and so on. So it's important to and also the diverse businesses and then the level of integration. So these are the three, four factors that are important to be considered. So in case, I mean, I need to check with you that what are the peers which you are considering while you are comparing?
So peers like AGI Greenpac.
Sorry?
Or AGI Greenpac or TCPL Packaging.
Yeah. Okay. So good that you are maybe able to name a few. So if you see the names which you have taken, at least as far as our information, like TCPL, they have been heavily into the cartons. And maybe a small portion of their business is in flexibles. So typically, the carton industry is having different margin profiles than the flexible packaging. So that may be the reason for the difference. And then also, typically, I'm answering this to you because you specifically named a few, but otherwise, we do not really discuss any performance or things on our direct competition as well as peers. The only reason why I responded to you is because there was a specific mention from your side.
Okay. And so one more question. So this is regarding the land sales which you have done. So I just wanted to know what is the total amount which you have received from the sales of the land?
How much is there?
How much is there on the books as such?
Yeah. So we did a disclosures and announcement for that transactions in the last year in 2023, December. That has been accounted. It was a very small portion of the entire transactions which was concluded now. So the total value of what we have disclosed last year was INR 429 crore. Out of that small portion was pending that has got concluded in this week. So with this, the Thane land transactions is fully closed.
Okay. The Thane land is fully closed?
Yes.
Okay. And how you have decided to utilize the cash which you have received from the sales?
I think we have already received last year the entire cash. Again, I'm saying this year the collections is very small. It's like INR 20 crore-INR 25 crore only. The majority of that has come last year.
Majority of it was used last year?
Yeah.
Okay. Where was the tools? Could you please let me know that?
Sorry?
Where was this cash used last year? Just wanted to know that.
We did retirement of the external borrowings, and then some portions which is left has been kept into the investments of certain financial instruments.
Oh. And also, if you refer our annual report, maybe a slightly higher dividend was paid than the normal average. Okay. All right. All right. Thank you so much.
Thank you.
Thank you.
Thank you, Abhishek. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Kotesh Varam from Trustline Holdings. Please go ahead.
Yes. Thank you for the opportunity. So my first question is, how do we see the plastic waste management implementation by the government, and what are the challenges?
Okay. Plastic waste. If I have to look at your question, I will rephrase it. You want to ask how do you see the plastic waste management efforts by government, and what are the challenges, right?
Yes. Yes.
Yeah. So look, this scenario around the regulation on plastic waste management, we will call PWR, is evolving rapidly, and there is a consistent effort by the regulators to regulate the sourcing, use, disposal, collection, and the recycling of the plastic, and creating that transparency and, in fact, the accountability throughout the supply chain. There is also an increase in the expectations to use recycled plastics in the packaging and overall industry. Huhtamaki is clearly partnering with various stakeholders to look at what are the solutions we can work on and come up with. If you see, that is one of the key innovations we have in our arm, which is called Blueloop, which is where we are offering very unique product combinations to the customers in a recyclable plastic structure.
So the innovations that we had are basically focusing on removing the multi-layered plastics to the monolayer or structures where the recyclability quotients are going higher. So we are working with our customers to drive that. At the same time, the answer also lies in your question where, what are the challenges? The challenges are basically emanating from overall development of the ecosystem. So while the products are getting ready, the overall ecosystem will get kind of ready to do that as well, the collection mechanism, and more collections happen, more segregation happens in a better way, and the recycling gets better. And that's where we are also tying up with certain organizations where we can get periodic updates on regulatory changes, and we keep abreast on the changes which we are expecting in terms of these regulations which are coming in.
So challenges are definitely one, the overall development of the ecosystem. The second, these are the innovative products which, as you know, they are innovative. They consume a lot of resources, investments, and so on. So they are perceived to be expensive, but it's not about that. It's about the value creation where customers are able to provide the solutions which are more sustainable to their end consumers, and that is where the value is lying. So that is how, at this moment, we are working with the overall ecosystem to drive the adaptation of sustainable solutions.
Okay. Thank you. My second question is, what kind of utilization we can oversee for the next three years for Blueloop? And when can we expect the full utilization?
Yeah. So typically, we do not discuss numbers per se on utilization, but at the same time, let me give a perspective, a little broader perspective. So we do not look at only India as a market, but we are a global company, and we have invested in various geographies. At five locations, we have invested. So at this moment, we are in a very advanced stage of trialing with the customers, and adaptation is getting fast-tracked. So as you can imagine, initially, the utilization will be definitely lower, but at the same time, those equipments also can be used to produce our regular existing films and existing products. So per se, the utilization is not a challenge. The challenge would be how do we really push the Blueloop, the products which are intended to be produced from those equipments. And what are we seeing?
I mean, I can give a number where more than the utilization in the next 5 to 6 years, that means by 2030, we are looking at that 90% and more products that we are going to make are going to be sustainable. So that's something which we can really inform. And at the same time, in order to go there, if there is a requirement of further additional investments, we are preparing for that. So that's the overall plan.
Okay. My final question. Do we see the downtrend of BOPP prices due to expected higher supply? Because for the June ending quarter, we have seen raw material contribution increasing to 69% versus 66% previous year. Will raw material contribution fall going forward? What's your comment on that?
Yeah. So look, today's world, if you see, there is so much of uncertainty and ambiguity that what you plan doesn't happen, and in fact, it goes in a different direction. And today, if you see geopolitical situations, Red Sea crisis, and the various challenges, there is no certainty really can be given on the raw material prices. For example, there is a data point available in the market right now which we can see. Between May and June, there is a significant surge in particular film categories. Now, if you put your market intelligence and analysis in place, per se, from a demand and supply point of view, I mean, there is nothing which we can be expecting that BOPP and BOPET prices will go up because demand-supply situations are right now adverse. But still, we are seeing that that's happening.
So predicting what's going to happen in the future is really difficult. At the same time, what we can predict is we have some projects which are basically we call boost savings, and the projects which we are working on, on a cost-out or cost reduction, that we can predict what outcome we are expecting from that, and that is something which we are monitoring very closely.
Okay. Thank you, sir.
Thank you, sir. The next question is from the line of Dua Nisha from Quest Investment Advisors. Please go ahead. Hello, Dua Nisha.
Yeah. Can you hear me?
Yeah.
Can you?
Yeah.
Yeah. Thank you for the opportunity. So I wanted to ask that the guidance which is given by Huhtamaki Oyj, do we expect to achieve that in the long run?
Which guidance? This is for the global. So the guidance which is given for the global, if I can imagine your question in terms of top line as well as the.
Margin.
Yeah. So see, we are a part of Huhtamaki Oyj. And so if you see, Huhtamaki Oyj operates in three segments, and we are part of a flexible segment. We are a significant chunk of a flexible segment. So definitely, the guidance given by global, that is typically for a global company, but we are part of the global company, and we are definitely striving to achieve that.
Do you mean the EBIT margin of 10%-12% which is guided by Huhtamaki Limited will be achieved by us in the long run?
So that's what I said. Look, we are a part of a global business, and within the global business, there are different segments. Different segments have different segment priority. All put together is the guidance. So we do not discuss the specific business and specific country-specific guidance. And what guidance is given is basically our long-term strategy of 2030. Today, we are in 2024, so it's basically for over a period of five to six years, and that is for the global company. And as we are a global company, so of course, we also need to participate in that. But at the same time, as I said, we do not discuss segment-specific and country-specific guidances.
Okay. One more question. In the call, it was highlighted that the Indian sales constitute 50% from exports, and there was a reduction in exports this time because of the Red Sea crisis. According to our financial year reports, we only see 30% from exports. What is exactly our export sales and domestic sales?
I think there is some misunderstanding. Our exports constitute around 30%.
Okay. Thank you.
Thank you, ma'am. The next question is from the line of Saurabh Patwa, Quest Investment Advisors. Please go ahead.
Thanks for giving this opportunity, sir. This is a continuation to the previous question. So the challenges which we faced during this quarter were related to the realization aspect in the domestic business, and we also faced the issue of Red Sea crisis. How much, if you can quantify some on a directional side, how was the impact, and how do we plan to recover the same?
So if you have heard my first few minutes of my speech, the presentation, as I said, we had a good recovery of volumes in the domestic market. But at the same time, domestic market, because of the competitive challenges, there is a margin erosion. That's one. So we grow in a market where anyway the margin profiles are low, and that becomes slightly lower. At the same time, in exports, we had challenges because of Red Sea vessel availability and container availability, wherein our ratio kind of got slightly reduced from an export point of view. So that essentially actually, I would say, exacerbated the challenges which we are facing on the margin profile. And the third one is also within the businesses where if we look at the categories, so we also monitor certain category growth.
Because of the seasonality nature, and also if you see the summers, certain categories sell higher, and those categories are basically very categories where the structures are very commoditized, and that's where the product category was also certain challenges. But essentially, in a larger scale, it's basically a product mix, adverse product mix, adverse business mix impacting that. Going forward, we expect that we have now good monsoons coming in. Most of our customers are expecting the rural recovery, and then with the festivities, a lot of sales push happens, and with that, we will be expecting that certain categories in the food area would be basically in a higher percentage, and that's where the opportunity would be.
Just can I add one more question on the competitive way? When we say, sir, that our volume growth was around 3%-4%, but I think this is what the general volume growth also has been. So have we lost some because of competitive environment, have we lost some market share?
If you see volume growth for a quarter two, it's around 5.
Hello?
Hello?
Yes, sir. We can hear you, sir.
Hello. Yes, you can.
Yeah. So sorry, maybe some disturbance. No, no. So essentially, if you see the general quarter two overall market growth of 3%-3.5% versus our volume growth, I can say that we are gaining market share in certain categories. But if you compare H1, yes, I mean, we are probably at an equal and flat level.
Okay. How do you see the things changing based on your order book or your conversation with your customers?
As I said.
Qualitatively?
Qualitatively, I think that's what I said. Look, as an overall H2 economy, everyone and our customers and overall sentiments look to be better because of anticipation of recovery in a rural economy and then upcoming festivities coming in. So sentiments are better, and we are also geared up to catch on that.
Sir, on the export side, have things improved, sir? Have you been able to catch up some of the lost revenue which you would have been of Q2?
In export side, if you see the target markets where we sell, we are also seeing some positive developments. In certain countries, there were excessive devaluation, which is now getting normalized. In certain countries, yes, there are certain stability coming in. We are expecting that that would help us to regain certain volumes. At the same time, uncertainty will remain around Red Sea crisis and the availability of vessels and the containers and the escalating prices of freight, basically for the containers and vessels, which are basically significantly increased. There is optimism on the product development as well as market development, but at the same time, how the geopolitics works out and the Red Sea crisis pans out will be very important for the third quarter as well as fourth.
Directionally, H2 should be better than H1. Is that a fair assumption, at least for now?
I would say so.
Okay. Thanks a lot, sir. Thanks a lot. In case of other questions, I'll get back in touch with you, sir.
Thank you, sir. The next question is from the line of Rohit from iThought PMS. Please go ahead.
Good afternoon, sir. Am I audible?
Yes.
So sir, I just wanted to understand from a gross margin point of view, I mean, this is probably one of the lowest that you've seen in the last few quarters. So just wanted to understand how do you see this? How do you see the gross margin for the entire year in terms of given, I mean, the challenges around freight costs, etc., are still there? So how do you see the gross margins sort of for the entire year? Because we saw that we were recovering over the last 3, 4 quarters, but again, we are back to that low 20s, sorry, low 30s, high 20s kind of number. So if you can just maybe share your perspective.
Sure. But maybe I'll have to reiterate our Safe Harbor Statement again because I think the questions are becoming more specific, and I think, as I said, we can discuss this today, but it doesn't qualify any future forward-looking statement. So I will still try and answer. So margin profiles will be definitely challenging in India because of various factors, and as you must be monitoring the industries as well as our end customers and all. And if you see, most of our end customers are FMCG. And if you read the newspaper reports and the statements, you will read one common line, and that is, there is no price in the market for our end customers. I think this was essentially spoken by various large FMCG players. There is no price in the market. So everyone is trying to grow by growing volumes.
To grow the volumes, they are definitely working on the grammages as well as the price. And we are the chain of that supply, right? So essentially, what happens with our customers comes back to us. So I would say the margin profiles are definitely going to challenge. The important for us is basically, as a company, is to do what best we can do within that challenging and competitive market conditions. How do we improve the product mix? How do we improve the business mix? How do we improve the salience of our innovative products where we can generate some higher value creation for our customers and expect some premium? So that's the focus area. At the same time, keeping a watch on the cost side. And cost side is definitely, as here also, if you see, we are going through a very significant inflationary cycle.
Food inflation is high. There is electricity. I mean, all these inflationary sides are in the higher range. So I would say, all in all, there will be pressure on the margins. At the same time, a company like ours has some plans in pipeline which can mitigate those challenges going forward.
Sure. And in terms of your initiative around Blueloop, so a couple of questions, sir. So the EPR regulations for the packaging side are beginning this financial year, if my understanding is correct. So how have your discussions been with your customer? You had mentioned in the past that you've come with a few products, and there are more products in the pipeline. So if you can share maybe by the end of this calendar year for you, or maybe by the end of next calendar year, what kind of revenue contribution does Blueloop do you see Blueloop? And given that it's an industry norm and industry regulation that is coming, are you seeing any competition in that, I mean, in the recycled packaging or the minimal material that you have in Blueloop?
Are you seeing more players getting in and your advantage sort of getting normalized there?
So this is a good question. And look, all innovation and every innovation will have a follower, right? So eventually, something will catch up. But today, we are offering the four-pronged innovations. One, in all the four categories, right? So in a PE base, that is recyclable, we are offering in a PP base, then we are offering on the papers, and then we are also offering in an intermediate as well. So our ability to offer the vast range of or wide range of product offering to the customers, depending upon their product specification or barrier properties, is kind of exceptional. And then this is, as I would have said it also before, we are looking at the global. So all across the countries, we are monitoring the plastic waste management happening elsewhere as well, and then we are trying to adopt as a global company.
So offering the product offerings of our options as well as at a global scale, that is where we are confident that no one else would be able to do. And second, we are first to the market, and our success rate or hit rate in the product trialing as well as customer acceptance is very high as compared to any other offerings. So that is something which we can be really proud of.
Sure. And any thoughts on how much you think Huhtamaki Blueloop will start contributing, let's say, by end of this year or next year?
I don't have exact number in front of me, but currently, our Blueloop structure is around 25%-27%. And next year, we definitely want to go closer to 50, more than 40%-50%. So that's something which we are really aspiring for. And then, as I said in the previous question, in the next 5 to 6 years, that is by 2030, that ratio will be going to more than 90%.
Right. And sir, you also have mentioned in the past that for Blueloop products, maybe not at this moment, but as you keep introducing new products, the raw material will be backward integrated, and the BOPP films that you buy may not be needed there, and you will manufacture that on your own. So do you see that doing? Do you see that happening from this calendar year for you or from the next year? Or is that still two, three years out, that backward integration for Blueloop?
So look, the Blueloop offerings are essentially the films which we will be manufacturing ourselves. Okay? So whenever we offer Blueloop product, it will be from our factory, from our machines. So there are two types of product which we say. One is called a barrier film, and second is the metalization. So all these, I mean, technically, they're not important. So whatever Blueloop product that we will be making will be in-house, and that from the day one. Okay? So that's something which will be important to know. I mean, the moment you start selling Blueloop, it's basically backward integrated product.
Understood. So sir, actually, the question then is that as you manufacture more of Blue loop, your gross margin should improve. Is that understanding correct, or is that not the case? Because I'm assuming that because you're backward integrated, that value addition that you would have otherwise given to another film manufacturer that you would retain. Is that understanding correct?
So ideally, yes. But then we'll have to keep on exploring all these stuff, right? I mean, because we are right now invested, right? So if you see, it isn't like pure mathematics, right? I mean, you are more smarter than others. So if you see, today, we have invested. So investments are high. So depreciation is high. Then you trial, so you learn. So your learning costs are high. But customers don't pay for that, right? So you absorb that. So essentially, you learn, and then you scale it up. It's like typically, it will follow the inverted bathtub model if you are aware of. And that's how I would say it depends upon our ability to scale up, adoptability by the customers, the learning what we are implementing. Because as I said, we are working on a global scale.
We are implementing the learning from other countries to us. So there is a lot of good learning happening, and that's where we are optimistic that ideally, it should give us. But then it's essentially, ultimately, our ability to deliver will clearly need to be seen in the future.
Right. Actually, one final question, again, not this quarter or this year.
You may rejoin the queue for the follow-up question.
Sure. Sure. Sure.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead.
Hi sir. Thanks for the opportunity. Hello.
Yeah. Yeah. Hello.
Sir, for this backward integration, we just recently commissioned in Q1 a new plant, and for which we were saying that that is the film that will manufacture for using Blueloop technology. And we were expecting to send the, I mean, samples from manufacture from the plant, I mean, to really develop the product. So can you give some color what stage we are in that whole process and sampling as well as approval stage and when we will really see that product to take it off?
Yeah. So thank you for your question, and I'm very happy to see the excitement around the Blueloop from various stakeholders, including investors. And I can say that today, if you say from an initial, and we follow this five-stage process where idea to samples, then the trials, then the scale-up, and the impact. And we are having a product pipeline at various stages. So I would say that certain already some projects are already implemented. Some are in the work of getting implemented. Some projects will get implemented in quarter four. Some are in planned in quarter one of 2025. And then there are so many projects are in idea stage, in trialing stage. So I would say our product pipeline is healthy.
Okay. So maybe, I mean, we see starting, I mean, conversion into the sales number maybe from Q1 of calendar year 2025 or maybe a little later.
So I think you are right. So quarter four, we are expecting better hit or better impact. And then if we can really go by that run rate, I think we should have a better landing in quarter one of 2025.
That will help to improve our, I mean, profitability to some extent, correct?
I think you connected the previous question by the previous investor.
I just want your fair assessment.
Yeah. Yeah. So this is where the innovative products are meant for, and we are also expecting the same.
Sir, one or two more questions. One is, sir, is that a fair understanding because of these rates and our exports have been impacted? So export is more profitable than the domestic. Is that a fair understanding?
I would say it's more riskier than domestic because export markets are more you buy material a few months in advance, and your material is on the ships for 2-3 months, and then it reaches the customer, the payment cycles. And so essentially, it's a more riskier business to do.
Okay. And last question on our balance sheet side. See, if we look at our inventory as well as the receivables, both increase and hence the cash flow in the first half, operating cash flow is a little poor. So can you give some more color what exactly is happening on that side, or it's a temporary phenomenon?
Yeah. It's more of a temporary phenomenon because if you look at, we had a high inventory end of June, and at the same time, we have a higher account receivable. So it happens, I mean, sometimes go up and down. So I don't see any challenge on that front. We are a comfortable situation for overall working capital.
Okay. Thank you and all the best.
Thank you.
Thank you, sir. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touch-tone phone. The next question is from the line of Tushar Vasuja from Yogya Capital. Please go ahead.
Hello. Am I audible?
Yes. Yes.
Okay. So thank you for the opportunity. And I am a bit new to your company, so please forgive me if questions are a bit too basic. So my first question is that pre-COVID, your margins used to be 10%-11%. But during COVID, they fell to 4%-5%, and they haven't been able to grow back to where they used to be. So what will be the new standards for your margins going forward? Will they go back to the pre-COVID levels, or this is the new standard?
Yeah. So I mean, a lot has changed when you look at the last 4 or 5 years, even if you look at overall packaging industries, the kind of capacity, demand, supplies, customer preferences. It's very difficult to compare a margin what you had a 5-year, 7-year, 4-year back. But the realities keep changing. And also today's reality is that, again, we are driving a lot of programs which revolve around operational efficiencies. We are talking about launching new, which we have launched sustainable packaging solutions. And also when you look at our ambitions and aspirations, so we have a long-term strategy in place. 2030, definitely, we are targeting double-digit margin kind of that. We are working towards that. It's very difficult to put a number that what will the number in this third quarter, fourth quarter, or next year.
But yes, long-term aspirations and strategies are very clear, and we are working towards that for long-term sustainability, profitable growth.
Okay, sir. And sir, another question. Do we sell any paper flexible packaging as of now, or is it only plastic-based?
I mean, yeah, it's a mix. Yeah. Some structures are having a paper as well in that.
Okay. And, sir, another question. What's your capacity utilization right now?
I mean, instead of it's very difficult because there are different stages, different production, and there are different processes. So it's very difficult to comment about specific capacity utilization.
Any ballpark figure if you could be able to give? That would be really helpful.
No. I mean, that would be difficult. But yes, definitely, we have appetite to grow in the same assets.
Fair enough. So fair enough. And sir, my last question is, how much have you spent for Blueloop up until now, and how much more do you plan to spend?
So the first phase what we have intended to go for, it. So we are more or less done with that. If anything comes or any plan comes, definitely, we'll come back to you all, and definitely, we'll make disclosure for that. But as of now, I think we don't have any specific plan for next 6-12 months.
Okay, sir. Thank you.
Thank you.
Thank you, sir. The next question is from the line of Kotesh Varam from Trustline Holdings. Please go ahead.
Sir, with Blueloop, are we targeting to enter aluminum foil market because opportunity size that is around INR 4 billion? Do we have any plans on that?
This is a very good question and awesome. I would thank you for this question really because one of the important aspects of our Blueloop product offering, and we have offerings where there is a clear product available to replace aluminum foil. And that makes our proposition very exciting to the customers. So yes, there are products available which can replace the aluminum foil used in the flexible laminate. Okay. We cannot replace the bare aluminum foil because that's something because the use of aluminum foil can be various. But then wherever aluminum foil is used for flexible laminate for a barrier property, this is a stringent requirement.
We have a product from our Blueloop portfolio which actually replaces aluminum foil.
Okay. Thank you, sir.
Thank you, sir. The next question is from the line of Rohit from iThought PMS. Please go ahead.
Yeah, sir. I think just again, sort of asking the same question. I mean, if I look at your history of last 7, 8 years, or even more, margins have been closer to the double digit, 8, 9, 10%. And that has been difficult for the last 3, 4 years. Now, I don't want the margins in this quarter or the next quarter or this year, but I just wanted to understand structurally has things changed in your business for the margins to not come to those levels? And if not, what are the levers in your hand for the margins to improve over the next probably 2, 3 years as you?
Yeah. So again, this is a good question, and probably the answer also lies in your question, perhaps answer. Yes, if you see over a period of last 4-5 years, there is a reset of reset happened in flexible packaging. So there is definitely a lot of things changed, which has been changing the margin profiles of the overall industry as such. So the rate of commoditization has accelerated a lot. A lot of capacity got added into the market. Certain levers which we used to have and enjoy over a period of previous years are basically now got commoditized. And then another one important aspect of earlier, there was a movement. We call it resets to flexibles. Now there is a saturation happened. So essentially, the market is becoming like a red ocean. So clearly, there is a shift happened, and that happened for everyone.
So there is a margin shift happened. Did we need any structural interventions? Yes. That's what we did last year, if you see. We looked at our portfolio, one product portfolio. We also looked at our footprint, and we also looked at what are the future expectations from the customers. So earlier, before GST era, probably having multiple plants, number of locations in every state was the name of the game. But post-GST, that is no more any advantage. And then the infrastructure is improving in India. So supply chains are becoming better and better. So that's the reason why, if you see, last year, we did a clear structural adjustments in our footprint. So we closed one of our large flexibles plant and then the three small pressure-sensitive labels plant. And that has started helping us to focus on the foil side in a better way.
We also looked at our product portfolios and then have started taking calls on that. So that has been the structural changes happened in last year, which gave an important change in our margin profile. However, as we discussed H1, the changes happened more from a market side, and that's where we'll have to readjust the new realities like geopolitical situation, which worsened from December 2023 onwards, which really impacted us. Then there is a subdued demand in the market. So H1 remained kind of muted as against the India story. Even if you say India GDP growth is happening, but then actual consumption is still far lagging behind than the GDP. So all these stuff has to be considered, and that's where we are now at this moment. Look, we did some structural correction. We did what was required to be done.
Now we need to continue believing that story and the plan what we had. Even though just like, I would say the H1 can be seen as a little bit of a, I would not say setback because sometimes it's a business. And then we can go ahead with the same strategy of looking at where is the opportunity in front of us. And then that's where we are looking at now. Blueloop is an opportunity. The specific segments are opportunities where we have a clear strength in the market.
Thank you, sir. Ladies and gentlemen, that was the last question. I now like to hand over the conference over to Mr. Dhananjay Salunkhe, Managing Director, sir, for closing comments.
Yeah. So thank you, everyone, for all the questions. I personally feel that when I am answering those questions, certain questions are definitely reflecting what we are doing. I'm appreciative of the fact that the investor community is taking a keen interest in our development. Also, by asking these questions, in fact, in those questions, I also could see some answers for us. So really appreciative of the fact that these questions are there, and we are also learning from those and would definitely strive to adopt certain learnings when we go forward. Also, my sincere thanks to ICICI team to organize this. I think this is happening very regularly and without any technical glitches. So thank you, ICICI team. Then my team here supporting us with the arrangement, CFO Jagdish, our Company Secretary Abhijaat, and finance team colleagues Anil and Sumit.
Thank you very much. Looking forward to be in touch with all of you. Thank you.