Ladies and gentlemen, good day and welcome to Mold-Tek Packaging Q2 FY 2024 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. 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 your touch-tone phone. Please note that this conference is being recorded. I now hand over the conference over to Mr. Abhishek Navalgund from Nirmal Bang Institutional Equities. Thank you, and over to you, Abhishek.
Yeah. Thanks, Malcolm. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you all to Mold-Tek Packaging Limited Q2 FY 2024 earnings conference call. We have with us Mr. Laxmana Rao, the Chairman and Managing Director of the company, along with the finance team. Without further ado, I would request Laxmana, sir, to start with his opening comments, post which we can open the floor for question and answers. Thank you, and over to you, sir.
Hello, do we have the management online?
Hello.
Hello. Yes, go ahead.
Yeah. Can you hear me?
Yeah.
Good afternoon, everybody. Thank you very much for your interest in our company's operations and results. I wish to state that we have a flattish quarter, in Q2. The growth was marginal at about 5% in terms of volume in the Q2. Overall, H1 on H1, we had 3.4% growth in volume terms. It's basically we have a growth coming up in our square packs and lubricants and also Food & FMCG. Paints continue to be on the decline. As I have stated in the past, we are not chasing the small-term paint companies and letting go some of those paint companies. Also there's a flattish performance of all the major paint companies, if you have noticed in the market. That has resulted in our paint sales dipping by about 8%.
Being the largest contributor at around 50% of our total sales, this has impacted our growth to a reasonable extent. However, the positive thing is the lubricants have grown at 9%, Food & FMCG at 15%, and Q-Pack, which is our square packs, has gone up by a huge 80% growth in volumes, because of the new segments have been opened up, and other details, which I will talk over your Q&A session. I now rather go back to the operator to let us take the Q&A so that we can cover more details.
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 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. The first question is from the line of Avadhoot Joshi from Bryanston Investments . Please go ahead.
Hi. Good afternoon. Am I audible?
Yes. You are, Mr. Joshi. You are good.
Yeah. Thank you for the opportunity. Sir, three questions. First, on the lubricants, we have seen an increase in the volume side percent. I would just like to know what has contributed to it. There are two or three major companies also getting into the lubricant businesses, like Amara Raja is getting into lubricant business, plus Goodyear. Are we able to add new clients into this segment? That is first for the lubricant. Do we expect this growth for the lubricants to keep on going further also?
Amara Raja and Goodyear, we are still in touch with them. They have to go into commercial production in a big way. The growth we are seeing is mainly because of continued movement of-
Things
companies into IML, and also some of them into QR- coded IML containers. Shell is moving one by one of its grades into QR- code. Apart from that, I would say IML movement from ordinary decoration to IML decoration is what causing the growth in the lubricant sector. Adding new clients will be still on the platter for next few quarters. We expect the lubricants to do well. In spite of the lubricant sector volumes may not go up considerably, we may still have about 7%-10% annual growth for the next one, two years.
Okay. On the Food & FMCG, the Q-Pack segment has been doing well for last two quarters. It could be majorly due to the reduction in palm oil prices. How do we see growth into the core FMCG sector? You have mentioned in the beginning that core FMCG has grown 15%. Do we expect it more going further? We were expecting 20%+ growth into this segment. How do you look at it?
Yes. Even in the half year, the growth of 14% is much lower than our expectation. Basically, because the ice cream sector in the first quarter especially was really affected due to the rains in the summer season, which impacted their sales considerably. You might have noticed and read the news items also on that, which is a major contributor to our top line growth. Having said that, this quarter, 15% growth is also because of the slack in ice cream demand. Otherwise, we have added several clients, and it would have been more than 20% as we initially said. Coming to the Q-Pack, the demand rise is not just because of edible oil at all. It is mainly because of our other sectors like cashews and fertilizer, nutrients, and other applications which our marketing could open up, is the contributor towards increase in the Q-Pack sale.
One news which we also gave in our press note is that a few months ago, we received patent for the square packs, which we have been fighting for the last four, five years, and that has been awarded to us a few months ago. Then we completed some legal formalities and through various courts, I don't want to name the courts. We have got the injunction orders against a couple of duplicators who have copied our container as it is and manufacturing them in a very unscrupulous, unhygienic atmosphere and offering lower prices, impacting our margins indirectly and also our market size. Those effects just started a month, two months ago. From September, we started taking action on people who have copied our patented designs.
The courts are also supporting this time because the Delhi High Court itself has given us an injunction order to seize one of the competitors. Similar orders are now being given by other high courts, and we hope to stop at least three or four very low-end competitors who have copied our design in toto. That may also gradually improve our margins and volumes in that segment in the next few quarters.
Thank you. That's pleasing to hear. Lastly, on the guidance. You have guided that in the last quarter, the volume growth would be around 10% for this year. Do you still maintain that guidance?
Yes. The third quarter is moving good. We are looking at around 14%, 15% volume growth in this quarter. So far, the volume growth in these two quarters is only 3.4%. Even if we can do at least 15% growth in the next two quarters, we can still be there. We may slip a little bit to the extent of 8%- 9%, but not severely down because our pharma packaging will start production from December in one of the segments, and the second segment will start from January. In the fourth quarter, there could be some numbers added in both pharma and also ABG plants. Two plants of ABG, one at Panipat, one at Cheyyar. They will go into production by the end of December, beginning of January.
There will be some numbers, not huge numbers, but some numbers will be added in the fourth quarter. I'm still positive that we may able to reach a double-digit growth in the overall volumes in the full year.
Okay. Thank you so much, sir. I will join back in.
Thank you. The next question is from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.
Sure. Thanks for taking my question. Good afternoon, Mr. Rao. Sir, firstly, on the pharma packaging front, can you update us where are you in terms of your plant production, customer orders, and client sign-ups?
We are really bullish about our entry into pharma packaging. Thanks to the good guidance and some of the market research done by our marketing team. We are instead of coming out with just the tablet packs, which we initiated a year and a half ago, we are now coming out in the four segments. That is OTC, of course, it was there in the beginning also. That is the over-the-counter products. Then the regular tablet packs, which we have initiated in the beginning itself. But we have added effervescent tubes and canisters, which are also very critical inputs for the pharma industry. There are very few suppliers, and some of these products are still imported, at least canisters, and distributed by some companies here in India. So these products will give us an edge in terms of quicker entry with the pharma companies, we hope.
And that will open up the avenues to get into other areas of pharma packaging, like nasal drops, eye drops, inhalers gradually. But going forward, one thing we feel in our management is that pharma is going to be the torchbearers for our growth in the next at least 5- 10 years. Like what IML did 10 years ago, we hope pharma will be able to do for our company in terms of improving the EBITDA especially, and taking us forward in revenue growth later. We have done the starting, and we have created the team in place. The final stages of clean room work is going on now. We hope to start commercial production in the beginning of December for one of the lines. And probably by January, we will have all the four segments up and running.
We have created the team of our technical people, quality control, and we are in the search for a couple of marketing people also joined, but we are still in the search for a top-run person. Meanwhile, our initial talks with some of the pharma giants have indicated that they will be welcome to join the club because there are very few operators, Shreeji and Gopaldas Visram Packaging and Daksh Packaging, like that.
There are only three, four known operators of decent size. And there is tremendous work coming up. Even Indian, like FSSAI, there is a council for medicine, medical production and packaging. They are also becoming more stringent in terms of packaging production, packaging quality of the ambience and manufacturing practices of packaging companies also, apart from just pharma. If that happens, even in a country like China, it happened now. They have strong standards like FDA.
If the standards in India start tightening, the domestic market is a very huge opportunity. We will be placing ourselves in time to grab those opportunities. Apart from the huge Pharma City coming up at Hyderabad. Of course, the work is still going on, and probably in a year or two, we see pharma companies ramping up their production capacities in Hyderabad, in that Pharma City. It will also take us a year or two to build up our capabilities, numbers, and relations with these pharma companies. And we will be well set for a long innings in pharma packaging in our growth strategy.
Sure, sir. That is helpful. Moving on to your lubes and Food & FMCG business. While on a year-over-year basis, you have grown 10%-15%, but that is also because of a low base in the base quarter. Because if I see quarter-on-quarter, the decline is roughly 15%-20% in your lubes and Food & FMCG business. Can you just explain the reason behind that and what is your outlook for the rest of the year in lubes and Food & FMCG?
In Food & FMCG you mean?
Yes, in your lube pack as well as in your Food & FMCG setup.
Compared to Q1, you are saying?
Yes.
Yeah. Compared to Q1 is always our best in terms of F&F, mainly because dairies and ice creams and all other products continue to be the best year. So when it comes to the Q2, we have a lot of rains and the consumption of mainly the ice creams and dairy products will come down sharply. That is the reason. Otherwise, Q1 is historically highest all the time. But if you compare our current performance with the last year performance of Q2, we have grown by 15%.
Yes, sir, I see that. Lastly, sir, in terms of your guidance for Food & FMCG business, I understand this year you're seeing challenges, but in terms of your expectation about this business over the next two to three years, do you still maintain your 30%+ volume growth guidance in Food & FMCG?
Yeah. Going forward, we always aim at 20%- 25% at least, if not 30%. 25% is possible because now we are going to set up our first plant in Food & FMCG at Panipat with a basic machinery of about four to six machines, by February, March 2024. By then the summer also will set in and hopefully we'll catch up with the summer season in Panipat area, and that is northern area. We hope to maintain that 25% guidance in Food & FMCG going forward for next couple of years. Q-Pack will continue to grow in something like 30%- 40% at least, if not 80%.
That is because we are not only getting new segments coming into this pack, but you might have noticed Gemini Edibles & Fats, which is one of the largest oil manufacturers in the country, has adopted our 10 L in a big way, and they're advertising the pack and pushing the quantities in a very big way. There is a lot of inquiries coming in our way for the edible oil packs also now, because one of the leaders has adopted it. So far, mid-size companies only adopted. This is the first time, I mean, a company like Gemini Edibles & Fats have adopted this pack in their portfolio and giving it a very good test. We hope that this will create further demand for the Q-Packs in the coming quarters.
Sure. That's very helpful, sir. Wish you all the best. Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, sir. Thank you so much for the opportunity. The first question is with regards to data maintenance. If you can just help us with the volume and value share and Food & FMCG lubricants and paint segment. Volume and value both.
Sorry, volume and value of paints and lube segment.
Yes. Paints, lubes, and Food & FMCG.
Okay. See, paints, the value is INR 78.32 crore. Tonnage is 4,460. Lubes INR 37.7 crore. Tonnage is 2,160. Food & FMCG INR 32.86. Tonnage is 1,117. Q-Pack is INR 19 crore. Tonnage is 8,779.
Okay. Also the similar numbers for IML and non-IML.
Sorry. Q-Pack is 1,117 and food is 1,040. Q-Pack is 1,117. Food & FMCG 1,040. 1,040 tons.
Okay. Similar numbers for IML, non-IML segment?
Yeah. IML, non-IML, we have 62% IML, 38% non-IML. In terms of value terms, 66.7% and 33.3%.
Okay. Sir, second is on the CapEx. We are guiding for around INR 120 crore CapEx for FY 2024. In first half, we have spent approximately INR 25 crore.
We have spent around INR 54 crore.
Okay, I was referring to the cash flow statement.
Cash flow statement, did you show 25? He says in the cash flow statement, we have showed only INR 25 crore for CapEx.
Okay, intangibles is a separate line item. Sorry.
Working process is not so clear.
Okay. That was mine. Okay. How do we plan to fund the second half CapEx?
We have applied for INR 20 crore of term loan from Citibank. The rest will be coming through our internal generations. Overall total INR 120 crore- INR 125 crore investment is planned, which is on card as per the estimate.
Okay.
Already machinery and molds are ordered to the worth of around INR 40 crore as of today. They will be arriving in the next three months. There will be construction activity still going on at Panipat, Mahad, Cheyyar. Mahad has to start from probably end of December because we just got the land clearance. Now we need to complete the registration formalities with the government of Maharashtra. Then probably in December, we will be able to start construction at Mahad. That plant is supposed to go into production by June next year. All these expenditures will be crossing the projected INR 120 crore.
Okay. That is helpful. Sir, any guidance on the EBITDA on per kg basis for this year and in the long term?
This year, we noticed that there is increased pressure on EBITDA, mainly because we have to take people and train them for various plants across India. Already people have been taken for Panipat and key personnel, not everybody. Key personnel have been taken and they are under various levels of training. Some of our internal people are being transferred to those areas. These new people will be absorbed in the plant either ways. The team, both in pharma, both in paints, there is increased manpower that is reflected in the increase in manpower cost by more than 14% this quarter. That is one of the reasons for the reduced EBITDA.
Also we have the challenge of adding RCP material for the paint and lube industries especially because they are under a government statutory obligation to use recycled plastic. In turn, they ask us to mix those material. Of course, pricing wise they take the advantage. More than the pricing, this involves a lot of trials to establish the products and changes in the molds. Last several months, at least say seven, eight months, we have been doing these changes and bringing those molds compatible with the RCP. That work is now just getting completed. This is another reason where we are finding more rejections and more trial work going on as a percentage. I am not saying it is very high. Let's say previously it is 2%, now it is in the range of 4%-5%.
That is indirectly causing little extra cost. This is why the EBITDA is a little declined towards INR 37, INR 38 levels. I hope this year we will continue to be in the similar range. Probably in the fourth quarter it may look up a bit because of pharma adding. For the next full year, that is 2024, 2025, we certainly want to see it in the range of INR 41, INR 42 with the addition of pharma business that will add at a very high EBITDA and also improving Food & FMCG through our north plant.
Okay. Just one last thing. In your earlier question, you replied that October has started on a good note, and you should close the quarter at 13%, 14% growth. Is it across segment or is it driven majorly by Food & FMCG or coffee?
Yes, it is mainly in the Food & FMCG and Q-Pack. Lubes and paint will be probably stagnant or little bit growth in lubes. Paint also might grow by a few points, but not much because Diwali is the season when in October they pick up the max. In November onwards, from Diwali is over, generally paint industries volumes dip a bit. Third quarter is generally the worst quarter for us if you see the past record. This time it is not bad. We hope there will be a decent double digit growth in the Q3.
That's helpful. I come back in the queue for more questions if any. Thank you.
Okay, thanks.
Thank you very much. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Harsh from Marcellus. Please go ahead.
Hello. Yeah. Hi, sir. Am I audible?
Yeah, Harsh, go ahead.
Yeah. Sir, just want to check what is happening in the paint segment. I mean, volumes are down by almost 8%, and we also track Asian Paints and Berger Paints, and their volumes are sort of flattish. Even one of the competitors reported numbers yesterday, and even from the numbers, it seems that their volumes are also sort of flattish. So what explains this disconnect?
Yeah, as I told you, as I told in the beginning, we have consciously dropping some of the low-end paint companies from our customers list. We are not trying to chase them because of the pricing pressure. One of the main reasons is that. We wish to use that capacity for better products and use that for our mainly maybe our Q-Packs, which are equivalent in terms of EBITDA are better than some of the small players. So that is one of the reasons we are moving away from small paint companies, which has impacted to some extent the volumes, not only just this quarter, for the last two, three quarters. Now the Satara plant of Asian Paints is back in operations, but the numbers are still catching up. So that is another setback continue to be there. They are much better than in previous quarter.
But with the flattishness, I would say, rather there is a little decline also in the case of paint companies other than Asian Paints by 2%-3% volume terms. So that has also caused the reduction in our paint sales.
Where would the utilization level be for the Satara plant?
Sorry, Satara plant utilization is now around close to 60%.
Okay. Sir, regarding the past, why weren't we able to pass on the pricing to the paint companies? Since we have a better product quality and we have been the sort of the market leaders in the paint segment, are we seeing an increased competitive intensity in the paint segment or is there some other reason, sir?
Hello, I missed your first part of the question.
Basically, sir, my question is that if we are seeing pricing pressure, then we ideally pass on the pricing to the end customer. Why haven't we been able to do so?
No, we are able to pass on the prices of raw material increase or decrease very easily. That is a common understanding. In the smaller paint segment, there are small companies who are manufacturing paints at a lower price with their lower overheads, and they are competing with us. In those segments, we do not want to further compete and reduce our margins. Rather, we use those capacities for our Q-Pack, which has a much better value addition than those paints. That is where we are shifting our capacities towards Q-Pack. That is our 5 L, 10 L-
Yes, sure.
15 L, 20 L square packs.
My question is, sir, basically, are we seeing increased competitive intensity in the lower-end paint market?
Yes. This is not only now, it has been there for last several years. It is getting more and more aggressive because the smaller players don't mind adding second RCP material arbitrarily, and they will be cutting the prices to save their cost. But not so with the major clients. They always go for better materials and consistent quality. So we still stick with the top four, five companies in the paint industry.
What would be our current volumes from these small customers in the paint segment? Are we still envisaging that-
It's come down to, I would say, 5% of our overall paint sales. Not even 5%. It's coming down. It used to be 7%, 8% last year. It's almost come down to nil now.
Okay, got it. And sir, regarding the explanation for lower EBITDA per kgs. I understand that because you are using this RCP material, we have to go through a lot of rejection rates. But I thought that this would be sort of temporary, but from your commentary, it seems that for the entire year, EBITDA per kgs will be at a lower end. Is there a-
The reason also I explained to you, we have already taken the staff for Pharma, staff for Panipat, and Cheyyar who are working in their current plants to pick up their knowledge and adopt our way of working. So their costs are also one of the reasons, but that won't be too much. Maybe couple of rupees drop. It may be around INR 0.50- INR 0.70 due to that factor.
Sure.
The rest is all due to the increased trials and rejections and some of the I would rather attribute this drop to the drop in our growth in Food & FMCG, which we anticipated to be at least 30%, is only around 15% in the first half, 14 point something. So that has mainly contributed because the Food & FMCG is our breadwinner in terms of highest EBITDA as of today. But that didn't grow the way we anticipated. So-
Sir, where I was coming from is the gross profit per kg. The gross profit per kg number has gone down from around INR 89- INR 83. So employee cost and everything won't be a part of this. This decrease is, I guess, is mainly because of the rejection rates increasing, right? Just trying to-
Rejection rate is one of the reasons. Another reason is also this also causes, I do not know whether you added maintenance costs in it. Use of more RCP increases the maintenance costs also.
Okay.
Because there will be more wear and tear of the machine, and there will be extra pressures to be used, power consumption may go up. Indirectly, this causes a higher cost of production. Actually, we are taking up this point with all the top paint companies. Even our competitors are seeking that if you need to add RCP material, you also need to change the conversion prices. That discussion has just started. Probably in next few quarters, we may try to convince them for increasing the conversion costs.
Okay. Got it. And sir, lastly, in the Food & FMCG segment, are we seeing some increased competitive intensity in this segment? Because the volumes in this quarter are 15% growth compared to same quarter last year. However, the same quarter last year also, the numbers are depressed because we were facing some issues on the labeling side. To that extent, actually, the volumes growth is more like 10%-12%, sir. Are we seeing any increased competitor intensity in this segment?
There definitely competition has started picking up in Food & FMCG also. There are small players here and there who are with one, two robots and five, six containers there competing. But none of the big players would go for that because they know they need in season capacities and volumes and also uninterrupted supplies. Like what happens in the paint industry might happen over the next five to seven years in the food industry, where you will have more pockets of competition coming up. That is why we are also setting a plant in north. We are also planning a plant in Daman. Like that, we will also try to be there locally present so that we will be competing because our cost advantage comes from in-house manufacturing of labels, in-house manufacturing of molds and robots, which will always give us an edge over even a local supplier.
That will continue to be there in our favor. But as you said, the competition is definitely increasing. Where there used to be only one or two competitors five years ago, there are at least seven or eight competitors now who are having a small product range. It is not that they make variety as big as ours, but they have seven or eight or nine products for ice cream or for some dairy, like that. That competition is also slowly growing, but I will not add it as a reason for our dip in growth. The main dip in growth is because of the complete washout of ice cream business during the summer months. Up to June, July, we used to have excellent demand from this industry that has dipped by almost 40%, 50%.
That is the reason in the first half you see this number, but I am confident that in the second half, the number will be more than 20%, 25%.
Okay. Got it, sir. Thank you.
Thank you. The next question is from the line of Richa, who is from Equitymaster. Please go ahead.
Thank you for the opportunity, sir. My question is, ice cream center washout has been one of the key reasons for decline in Food & FMCG growth. What is the share of ice cream related products within the Food & FMCG for you? Within Food & FMCG, what is the share of Q-Packs value-wise?
No, I am not counting Q-Packs in Food & FMCG. They are treated as a separate entity, though they are used in some food products because their EBITDA margins are at par with the paints. It is not as high as the Food & FMCG. That is the second part I am answering. The first question of ice cream as a percentage in Food & FMCG. In the first four months or six months of the year, they contribute almost 50% of our sales. That has fallen by about 30%. So 15% of our growth in the first half or 10%-12% of the growth in the first half has been evaporated due to that fact.
Okay. But sir, typically your Food & FMCG segment margins in terms of EBITDA per kg is around INR 80 if I am not wrong. With all this impact, what kind of margins are you making within that segment?
No, we are still at around INR 80. Not much of price pressure on that. Coming to the volume growth, we are now entering various other sectors, mainly restaurants and sweets. Sweet boxes growth is considerable in this quarter. That is starting from August, September till October there will be a good growth even November beginning. Thereafter they will taper off because of Diwali season is over and that might pick up again in the new year time. The seasonality of the products is always there. That is why you need to have a wider range of products to compete and, say, fit in the Food & FMCG segment, which we are doing. We are every year adding couple of new segments so that we stay ahead and widen our product range.
Okay. And sir, if you could also talk about the installed capacities at the end of FY 2024, and where do you expect your capacities to be by the end of FY 2024 and 2025?
I will tell you by the end of April 2024, that is March 31, 2024, that is the end of this year, we will be reaching almost 55,000 to 57,000 tons from 45,000 tons at the beginning of the year. So almost a 23%-24% jump because of the investments that we are making both last year and this year.
Okay.
So we will be touching somewhere around 55,000, 57,000 all put together.
Oh, thank you. I will join that with you.
Yeah.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and 1 to ask a question. The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher Private Limited. Please go ahead.
Yeah. Hi, Laxmana, sir, I have a couple of questions. Firstly, I missed out on the numbers which you have given for volumes for paint, lubes, and Food & FMCG in 2Q. Can you please repeat the same?
Sorry, your voice dropped.
Yeah. I am talking about that I missed out on the volume numbers, which you have given for paints, lubes, and Food & FMCG in second quarter this year.
Okay. Mm-hmm.
In volume terms and value terms.
You want the terms, is it? Volumes, quantities you want?
Yeah.
Okay. In paint it is 4,460 tons. Lubes it is 2,162.
Okay.
Food & FMCG 1,040, and Q-Packs 1,117.
1,117. Okay. Sir, in value terms?
Value terms, INR 78.3 crore, INR 37.7 crore, INR 32.86 crore and INR 19.1 crore.
Okay. Sir, my second question is that we are making lot of investments further, you can say in, I think one site in north and another site for one of the large new paint entrants. What is the progress on that, and by when it will start contributing to our top line?
Yeah. We will be starting commercial trials in December this year at Panipat, and commercial production may start from January 2024. Similarly, trials in January will happen at Cheyyar and probably end of January, beginning of February, Cheyyar plant also will be up and ready for supplies. The third plant, Mahad, we just acquired the land. Clearance has come from Government of Maharashtra, and then we need to get the registration done and probably start the construction from December. By June, July, we should be ready there for the first phase. So these three plants will be going on in the commercial production from January, two plants, and the third one in June, July.
Okay. And sir, how much capacity will these three plants add for us?
Starting with, the buildings and land have been acquired for huge capacities, but for the present plant, we have 1,500 tons each at Cheyyar and Panipat. The third one also may be starting from around 1,000, 1,200 tons because smaller requirement there. So it will start with about 4,000 tons, let's say, for ABG.
Okay. And how much will this capacity be as a proportion of the total capacity for paints, which we are having today in our system?
See, today, paint and lubes together, we have about 30,000, 33,000 maybe, and that is going up to 40,000. So the 4,000 contributes to around 10%-12%.
Of paints and lubes put together?
Of the paint and lubes put together.
And for paints-
Because they can be fungible. Paint containers and lube containers are more or less fungible.
Okay. And sir, finally, on how much has been the EBITDA per kg in 2Q, and what is the outlook for 3Q and 4Q?
We have achieved only INR 37.2 in Q2 and INR 38 for the H1 overall. I think it will be similar for the next half year also. Probably a little bit of improvement can be seen in the Q4, where we hope that the pharma and ABG products, which will be starting commercial production sometime in January, might start adding some numbers and better EBITDA for the Q4. Going forward next year, we are positive that it should be in the region of 41 plus or minus one, mainly 41 is possible with the pharma sales picking up numbers. Also our northern Food & FMCG products going on stream. Fortunately, we have decent price agreement with ABG, at least for the first five years, so that will certainly also help us in improving our EBITDA.
Okay, sir. Thanks a lot.
Thank you. A reminder to all the participants, you may press star and 1 to ask a question. We have the next question from the line of Richa from Equitymaster. Please go ahead. Hello, Richa, are you there?
Yeah. Am I audible?
Yes, you are. Go ahead.
Yeah. Thanks again for the opportunity. My question is on the pharma capacity that will start producing from last fourth quarter. So for FY 2025, do you have any kind of visibility or can you give any guidance of the range of revenue that we can expect from this segment? Also with the three, four products, do you expect the margins to be in the range of, I think you have suggested INR 150 per kg, so would the existing basket or the products that we have planned will be able to get those kind of margins from this segment?
Yes. Coming to the margin side, I am confident it will be in the region of at least INR 150 per kg for any of these products or at least the average of all these products put together. I cannot give an exact detail of the sales for the next year because it is a new line we are entering. The overall capacity wise, we can achieve INR 60 crore- INR 70 crore turnover with the product mix, what we are starting. How much capacity realization would happen, I would only be able to comment probably after one quarter at least, that is end of March 2024. So by then probably we will have a picture how the demand is emerging and how many big clients are really giving us orders. More clarity will come probably in the next four to five months.
Okay. And sir, for the new paint client, we have around 4,000 to 5,000 kind of capacities planned. By the end of FY 2025, what kind of utilization do you expect in these incremental capacities?
See, as you know, these 4,000 tons are meant for a new player who is coming into the paint industry. These numbers are very optimistic, but I would only know as again how the market responds to their product and how well they will be able to penetrate into the paint industry. That is a little bit uncertain as of now. Given the fact that Panipat and Cheyyar are their first two plants out of the six locations they are planning, there will be certainly demand from these two plants to start with and seed market in the rest of the country. By the time they go ahead with the rest of the plants by middle of June 2024 or March and June, I think they have plans. There will be good reasonable demand for these products from the first plants, that is Panipat and Cheyyar.
But all depends upon how aggressively and how well their products are received in the market and how they market themselves, that depends upon the utilization.
Okay. Sir, given all these developments that are happening in terms of capacity addition and whatever is happening with the paint segment, is any kind of revision warranted in 18%-20% kind of growth guidance that you had hinted in the earlier call?
No, I still believe that we will be able to be in that growth region from 2024, 2025 onwards because of all these several plants and a new segment of pharma is opening up. We are still aiming at that range of growth for next year.
Okay. Thank you, and all the best.
Thanks.
Thank you. The next question is from the line of Avadhoot Joshi from Bryanston Investments. Please go ahead.
Thank you. Thank you for the follow-up. Two questions. You have in the press briefly mentioned about the export potential also. I think the focus would be on the Food & FMCG packaging. So what's the value proposition when we are approaching the clients overseas, and how do we want to go ahead with which areas we are focusing, and how do we plan to export it? What's the price differential we have with people like other overseas players? If you can elaborate on that.
Yes. This is a very nascent stage, but I'm glad that we are reaching at least 5, 6 crore of turnover in exports, which is about less than 1% of our overall sales. But we noticed that there's quite a good demand for not only the Food & FMCG products, but also the proposed products of our pharma division. So we are now participating mainly in the food segment as of now, because that is the area where we have a range of products to offer for different industries abroad, like restaurants or ice creams or food products and dairy products. While our focus, and even now for the next few months, will continue to be on exporting of Food & FMCG containers.
But once our products, canisters and effervescent tube packs come out, they will be also having a good export potential, not only in Middle East and African countries, but also in Europe and developed countries. Because we are manufacturing them under DMF certified plant, our products will be acceptable in even U.S.A. So, we would like to take the focus and bring the exports also a growth area hereafter, and have a team working on it in the near future so that they will be able to start contributing to the growth.
Going further, say three to five years down, how do you see the potential from this business?
Yeah. It certainly can grow to at least 3%-5% of our sales, with better margins and better utilization.
Okay. Lastly, in the annual report, you had mentioned about the medical equipment manufacturing also for the pharma segment. Is there any such plans going further you have?
Not medical equipment, medical devices that-
Medical devices, sorry. Yeah.
Yeah. Devices means these inhalers and
Okay
products like that which fall under injection molding or IML, or maybe a combination.
Understood. So it is in line to our current portfolio. Okay.
Yeah. That will be a long shot, not in this next year, because next year we have to augment our capacities, expand in the product range, what we are already entering in the four segments. And definitely because it's a huge market. In my opinion, it's overall, including the export market itself, is around INR 5,000 crore. That is API exports and through our exports of our pharma products into U.S. and Europe uses about INR 4,000 crore- INR 5,000 crore of packaging material, like bottles and caps. So apart from that segment, we are entering into canisters, effervescent tubes, and the OTC, of course, that's local product. This will be able to generate growth that can be really needing higher investments and faster improvement of the capacities, if things go well. So that's what we will review this sometime in March, April.
By then, we would have at least 3 months of experience in the pharma market.
Okay. Understood. Thank you so much.
Thanks.
All the best.
Thank you. The next question is from the line of Kanishka Sorcar, who is a private investor. Please go ahead.
Hi. I just want to bring you back to that particular point, almost a year and a half back. You had mentioned that the second line of leadership, the young guys, I think it was your son and the person, they were working on certain projects, which is primarily they were working in terms of exploring markets, and that is international markets. This talk about building business, the export business, has been kind of in talks for some time now. I want to really know what's actually happened, because quite some time now, and by now we should have done some meaningful work on that, right? That's one. Second thing, sir, is about the pharmaceutical business. I just want to understand, you had mentioned that some kind of prototypes were made and you would have got some kind of feedback.
I want to understand how do we as a company start? How was it received, and what is the kind of traction that you're either preliminary interaction that you are getting from these pharma companies? Are these like big pharma companies or these are like typical biotech companies? What are these companies? Third point is the packaging which you mentioned about, in terms of medical devices, and also in terms of those caps for FDA. Where are we on that, and are these some sort of differentiator products that we are creating which is not available in the market right now?
Yeah. I'll answer the first question of exports. If you notice, three, four years ago, our exports was stuck to only Middle East, and that too, only one or two companies like Shell and Gulf, Total, that Gulf. Now we have exports going to U.S.A. in the last one year. The numbers have shot up, not very big numbers, from INR 1 crore, INR 2 crore per annum to INR 5 crore, INR 6 crore now, which is a reasonable increase, but that gives us now credentials and references to showcase and try to get more and more export opportunities. I will never say that the exports will be our major contributor. It will also add to the growth numbers even in the future. In pharma, we have better export opportunities because most of the developing countries, and even some of the developed countries have restrictions.
I mean, restricted capacities have high costs associated with pharma products. That is where we can pitch in and try to grab a part of the export business. Going forward, exports can grow up to, let's say, as I said, 3% to 4% of our sales in the next few years. It will never be a top contributor like 20% of our sales and all that, unless our product range changes drastically in the next few years. Coming to your second question about pharma, our interactions are with big companies only. We also have small companies, one or two of them showing interest in our products. We also met with one, I can say, very large company, I can't name it now, and they are active auditors in December. Probably they'll come for audit December, January. Once we have completely set our product lines and plans.
So the traction looks good, because one of our products is an import substitute. Other two are, of course, already there in the market, but with limited capacities in one of them. We hope that the export traction in pharma will start picking up in the next couple of quarters, and we will be in a better picture to see the performance maybe in April when we have the Q4 results.
By then, we will be having some names to tell you. Then coming to the last question of caps and devices, that is a long shot, I just said. It is not for the next year. We will be looking at devices when the time comes up. Because the moment we start our associations with big pharma companies with typical products, what I mentioned, all these four products, there will be demand and opportunity to develop devices for their particular medicines.
They could be different from the current designs available in the market or could be somewhat similar. But that is where we can step in because we have a design studio with about seven, eight engineers working on product development for several years. We are also planning to add one or two with a pharma background. So that will be a little longer shot. But certainly, Mold-Tek with its ability to design new concepts and work with MNCs in various product development, has the necessary background and necessary skill set. That main skill set is mold development. After all, end of the day, in injection molding or IBM, the mold development defines your ability to develop new products. Of course, the designing of a product itself is an art which we need to acquire.
So that is why I am saying it is a little longer shot, a year down the line. Coming to our second division, their main focus as of today is in the pharma and taking the new Food & FMCG products, widening the product range. These are the area where they have been assigned to work on, and till now the contributions look good. As I said, after maybe another four to five months, we can have a review on how pharma is shaping up.
Thank you so much.
Thank you.
Thanks.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for the closing comments. Go ahead, sir.
I take this opportunity to thank Nirmal Bang and thank all the participants who have taken their time to hear our story and our future plans. Thank you also to the operator, Malcolm, for being there and assisting us. Thank you very much.
Thank you very much, sir.
I take this opportunity to wish you all a very happy Diwali and a great year ahead. Good luck.
Good luck. Wish you happy Diwali as well, sir.
Thank you.
Thank you. On behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.