AGI Greenpac Limited (500187) Earnings Call Transcript

There are inventory dilutions because it's not only the production, which has been sold there. So there are inventory dilutions and a lot of other factors.

So we have given our numbers that are realizations are ranging between 35,000 to 37,000 in the container lot. That's the factual number we are passing out.

Okay. And 35,000 to 37,000. Second is question is regarding the energy mix, sir, if you could share how much portion of your energy mix comes from furnace oil, coal or gas.

Slightly difficult, slightly confidential on this matter because our method of working is to optimize and to neutralize any effect of the increase in energy. So we are working. And practically, we are sitting every 10 days -- within 10 days, we are sitting, working out with the optimization tools, what is the best energy and then accordingly we do it. So these are energy tools, optimization tools, which we are using to optimize the energy.

Okay. And just one question regarding HNG. I know you are in the confidential mode, but just wanted to know your bid has been contested in [Indiscernible] by Madhvani Group, they have made some allegations. So does that affect your case in any manner or you're fairly confident about the entire process?

This is a process under national company, not [indiscernible] it is upto the honorable judges or the members of the tribunal who has to take the decision. But we are confident of the process. And that I think we should get some -- we should get positive outcomes of all of this in the next 3, 4 months.

The next question is from the line of [Indiscernible] from [Indiscernible] Investment Advisors.

So basically, as you mentioned that your focus is on moving from liquor to non-liquor section, so what EBITDA per tonne are you seeing improvement?

Normally, liquor, non-liquor and other segments, they are in a small band. So it's not like that there is a huge gap in the band. So there are various reasons when we say we want to move from liquor to non-liquor because we want to spread our risk element of supplying or depending on one segment. So this is more of strategic in nature rather than anything else because we want to [ stretch ] to all the various segments, whatever is available in the industry. So that is one. And there is a small delta difference in the EBITDA margins of liquor and non-liquor, maybe close to 1% and 1.2%, something like that.

Okay. And secondly, sir, you see that our container glass capacity has been 1,600 tonnes per day since, I guess, 2016. So what has been the growth levers, did we see that AGI has reached [Indiscernible]? What are the growth drivers just of that total [indiscernible]

So [indiscernible] are the cost part, that's what we have informed. The debottlenecking has happened, the fuel optimization tools are being used. Efficiencies have been increased, product mix have been optimized, how best we can do. Inventory have been diluted. So all these are the factors which have contributed in the growth of our numbers.

No,sir, I wanted to actually know that, due to this HNG case, we acquired the additional market, sir? How was it? Because we had this capacity since earlier, but we see this growth coming out in the last 1, 2 years. So what has been the key drivers.

In a glass industry, we are limited by the total volume we can produce. And in the earlier times, of course, our capacity utilizations were in late 80s and now it is in late 90s. So of course, the capacity utilization has gone up, means quantities have gone up, which has contributed with that. And then there are other financial dynamic, which was [ how ] to be like then we increase our capacity utilization, obviously, it impacts our cost on a positive manner and plus then there are product mix, which we have worked out and contributed in the bottom.

And one of my questions, sir. Like we have taken price hike during the year. So whether we enter in any sort of contracts with our customers? Or how is it -- how frequently we do the price hikes?

We have an understanding with the customer where we work on a formula-based pricing system, not with all customers, but quite a few customers we are working. And there are levers on which the price is being worked out. So it neutralizes any cost increase or even cost decrease also just to keep the things more flat and more sustainable. And each customer has a different tool of revision or prices. Somebody revised the price in 3 months and somebody in 6 months and some people or some customers even in 1 year also. So it is different for the different customers.

Yes just want to [Indiscernible] like what proportion of that being done here? Because if you see right now the price has been high, but we see the raw material prices, dropping. So whether it will be able to sustain [indiscernible] or will the contract increase, that's what I'm asking?

To us, it looks like that it's a sustainable growth because there is continuous improvement on other factors also besides the price part. So I think -- so, if at all, any small impact comes on the price side, this basically just to accommodate any time lag, but there are other parameters which can work down well and take care of any fluctuation on the price part. So we are quite hopeful that these numbers are sustainable and they may grow in a small manner further also.

The next question is from the line of [ Shiv ] from KSA Securities.

Congratulations on [indiscernible]. Sir, my question will be on how much revenue would be clocked from our Telangana year capacity this quarter?

Your voice is not clear. Can you be more clearly?

Yes. Am I audible now?

We can hear you.

[Indiscernible] my question was how much revenue did we clock from our Telangana capacity this quarter?

So this is the entire revenue coming from Telangana. Our plants are only in Telangana.

Sir, the new capacity addition that we did last quarter, that was commissioned from 1st January.

Yes. This is, as we said, we are not going to give a separate realization for each of the furnaces. What guidance is that we are at 65% capacity utilization there. And for other furnaces, right now in Q4, we operated at 99%. So we are not giving as a part of our disclosures, separate furnace by -- furnace-by-furnace revenue.

I -- as I understand, the question was Telangana facility. All the glass plants -- all the 3 glass plants are in Telangana only.

Right. Right. And then next, I just wanted to confirm about the planned CapEx for FY '24. So the planned CapEx would be around INR 200 crores and the maintenance CapEx would be around INR 20 crores to INR 30 crores, if you can confirm on that?

Yes. [indiscernible] around this.

The next question is from the line of Urvi Shah from Dolat Capital.

[indiscernible]

Your voice is not very clear.

Can you hear me?

It's not very clear. Can you use the handset now, please? It seems that we have lost the line for Urvi. We will move to our next question, that is from the line of Mehul Savanna from [ RW ] Equities.

Congratulations to the entire AGI team for spectacular performance. Just one question. The interest cost in Q4 finance cost appearing as INR 25 crores, which looks very high it's like almost double quarter-on-quarter while debt has come down. So is there any one-off in the finance cost in Q4?

Actually, as already been stated that our new facility of the specialty glass has been operating -- commercialized from -- in this quarter. So the impact cost has come reflected in this. Apart from this, as you know, the interest rate has been rising over the period. And that effect has also come compared to the corresponding period of the last year. So all these 3 hikes has contributed to [indiscernible] increase in the interest cost.

So should we assume this to be the normal run rate for FY '24?

Yes, it has to come down with the repayment has already been commenced. So it will come down and also it is expected going forward, the interest rate [indiscernible] so It will also have a positive impact on that.

Next question is from the line of [ Siddhant Kanodia ] from [ Fast Investments ].

Sir, my question was regarding the repeat orders. So like we know that the alcohol bottles are reused in any time before India are actually scraped off. So what will be the lag between the same trend orders that we received?

Okay. What I understand from your question is, there are reusability of the bottle has gone up. So how do you expect that this demand and demand side -- does it affect any cycle or something like that? Is this the question?

Yes, that is one part. And the second part is like, so what will be the lag? suppose if the same trend has ordered in January. So after how many quarters or how many months is he again ordering the same quantity?

Very, very difficult questions, which cannot be answered. Even by the liquor companies cannot be answered. One is the reusability of the glass bottle by liquor companies or a beer company, it is good for us. Because that way, the sustainability of the glass is reestablished that they can be reused or they can be remelted and again, can be supplied. So this is very good. Secondly, by the reusability, the price or the cost part of the liquor companies will come down, which is also good for us because then they will be able to sustain or compete with the other materials profitability. Number third is, what is the cycle? The cycle, it all depends upon state to state. It all depends upon customer to customer. It also depends upon the area to area also. Because in some areas the turnaround ratio is very high. Let's say, for example, the big cities, the turnaround ratio is very high. In the smaller cities, the turnaround ration is very low. Maybe in some areas where the consumption is more into the pubs and bars, where the turnaround ratio is very, very high. So very difficult to say because liquor companies, they may have the demand because depending upon the brand, depend upon the type of liquor they are using. So specs liquor can be used more on urban side, less on the rural side and vice versa, it's also true for the others.

Okay. Okay. Understood, sir. And sir, my second question was regarding the debottlenecking, the CapEx, which we are doing in April of INR 100 crores -- 100 tonnes per day for INR 200 crores, so what is the existing capacity at that plant? And for how long that will be start like for a quarter?

Yes, it will be shut for a quarter, and it will be operational in July only. That is one. And your second question is that 325 metric tonne of furnace will become 425 metric tonne.

Okay. So we can assume that 325 tonnes in quarter 1 will be off?

Yes, you can calculate for any calculation purpose.

Okay. Okay. And sir, regarding the margins, like, it's -- like the margins have come from the debottlenecking and it's from the other expenses being flat? Like right now, it's around 16%, 17% of the top line. So is it fair to say that these are sustainable margins?

Yes. And we wish also.

The next question is from the line of Deepak Poddar from Sapphire Capital.

I just wanted to understand more on the specialty side. I mean, currently, I think our specialty capacity is around 154 tonnes out of 1800 odd tonnes capacity we have.

Yes.

And so how do we -- how would we like to grow that capacity? I mean, currently, it's close to about maybe only 8%, 10%, right? So any thoughts or vision we had in terms of growing the specialty capacity and the revenue mix accordingly?

Number one, the specialty glass market is smaller as compared to the commercial glass market. So obviously, the capacities are lower. Second part is, technically, the specialty glass plants cannot be of the bigger capacity because of the technical reasons. So we have to be smaller. And third is it's a very specialized type of market where we may like to grow slowly, slowly and in a sustainable manner. And fourth is, since we were not in this business earlier. So obviously, this is a test run which we are doing. And we have a aspiration to grow this business further. First part will be we have to do capacity utilization. And second part will be once the capacity utilization is complete, then certainly the company will think over in expanding this specialty glass to the next level.

Okay. Understood. Understood. That's helpful. And how is the margin differential between specialty versus your normal glass containers?

I think we have yet to taste the full margins of this particular product. Number one, we are new into this business, as I informed. Second is we started this business commercial production in the month of January and capacity utilization has been low. So it is not a very, very, I can say, balance out figures where we can speak on any part. So probably you have to wait for a quarter or 2 more to be answered precisely on this question.

Okay. Understood. And my second question is on the capacity utilization. I think we already are at about 96% and the fourth quarter was around close to 99%. Those you did mention that we are debottlenecking few of the capacities. So that 100 tonnes additional that will be coming by June, July. But somewhere down the line, I think, are we looking for a bigger CapEx because the kind of growth that we are talking about 15%, 20%, I think these capacities will be easily absorbed in the next 1 year, right? So any kind of outlook or any kind of thought process we have over the next 2 to 3 years? How are we going to augment our capacities?

Yes. Basically, if you see like we spent INR 100 crores 1.5 years last year also in terms of expanding one of the furnaces and it was coming out of the relining. There is an inorganic acquisition, which we are doing, which is under [Indiscernible], which is [indiscernible] glass. So that opportunity is there with us in terms of the growth, we can't talk much about it because of the confidentiality. But we have a substantial lever to grow ourselves for the next 5 years at least, and both in terms of revenues and the margins.

So that is also coming through this acquisition, right, the kind of capacities or the facilities you might be getting through this acquisition? And I don't -- I'm not asking for any specific numbers, but subjectively.

Yes. So basically, if you see the way we run our businesses is that we make it a [Indiscernible] growth model, and we have been giving guidance that we should be able to grow this business on ranging 15% to 20% year-on-year and keep expanding the margins. [Indiscernible] for over the last 3, 4 years, we have been giving clear guidance and we have been achieving those numbers.

The next question is from the line of Vineet Nandwani from Alphaniti Fintech.

My question is in continuation to one of the previous participants. So in one of the previous con calls, you said that within the glass packaging segment, the company aims to increasingly cater to HNG and pharma clients as average realizations there are 8% to 10% higher than liquor and beer. And like this can help in a 50 to 75 basis point margin expansion. But however, going by your presentation, I can see that with contribution from HNG has seen a growth, contribution from pharma client has seen degrowth. So I wanted to ask how do you see the growth in pharma and HNG segment panning out? And also, how is the contribution of cosmetic and perfume segment growing?

Okay. First, you're talking about the pharma sector and then you are talking about the cosmetic sector. In the pharma sector because you have a common facilities like a furnace and the machine where you can produce either pharma or liquor or beer or other things. From time to time, depending upon the cost of the raw material and the cost of operation and the price of the product, it all depends -- profitability depends upon all the calculations above. So from time to time, we always go from one to the other product, depending upon the profitability. So that is the price optimization or profit optimization. So now coming back to your part on the cosmetic part, which I already explained in my earlier call, that the cosmetic realization or the profitability, we have to wait for a few quarters or 2 quarters or something like that, just to come down to a level where we can talk in a proper manner. Because today, we are at 60%, 65%, 70% of the capacity utilization. It is under stabilization. Customers are using our product. So obviously, all those things will come down. Maybe it will come down in next 2 quarters or so.

Okay, sir. Understood. And just a follow-up to this is that will Q1 FY '24, again, see increased contribution from [ alcohol ] segment because Q1 had higher volume sales.

Q1, as we inform our furnace is already down, one furnace is already down, and it will be starting in Q2.

Okay, sir. And sir, lastly, any time line that you can provide for an equity infusion you are looking at to fund the HNG acquisition.

So we haven't made any commitment as such as we [Indiscernible] nothing has much approved by the Board as of now.

The next question is from the line of Kunal from Dalal & Broacha Stock Broking Limited.

I think we'll take the next question, please.

We'll move on to the next one that is from the line [ Siddharth Kanodia ] from [ Fast Investments ].

Sir, basically, sir, I just wanted to understand that our B2C segment under [Indiscernible]. So what will be the revenue for the whole year? And are we looking to ramp up that segment, because the margins are high in B2C. So are we looking to ramp up the entire segment?

So if you see, this is a very new initiative, which we are doing and the home consumer segment. There's a lot of shift which is happening from pet bottles to the glass bottles. The opportunity for the next few years will be small here. Giving a turnover, you may laugh at it. But it's an idea, like, let's say, if our average realization here is INR 35,000 to INR 37,000. So when this glass bottle goes and sells in a market, our INR 400 -- our 400 grams bottle, that is highly sold somewhere in the range of -- yes, the average realization we get is upward of INR 120,000, INR 130,000. But there is definitely our packing charge and there is a transportation charge and there is a distribution cost. So once this business is an opportunity. Like if we scale this business in 5 years to a level of INR 200 crores, the potential upside EBITDA margin can be INR 50 crores of this, but don't hold the numbers here. This is a pilot, which we are doing on this in the market. And if we keep the success, it will be expanded in a very fast manner.

The next question is from the line of Neeraj from Arihant Capital.

Just wanted just this one clarification that earlier you mentioned the CapEx for next year is close to INR 200 crores. Is that completely just for debottlenecking or something else is also involved in that?

So it is both for relining of furnace and increasing the capacity of that furnace by 100 tonnes.

Next question is from Kunal from Dalal & Broacha.

So just a had a question in regards to HNG acquisition. So what's your initial estimates in terms of what would be the debt, which would go up for our company. And also just wanted to understand if this acquisition was to go through, what will be the total capacity, which would be available to us. And lastly, because you would have done your initial maths -- lastly, I wanted to understand whether it would be dilutive in terms of margins or the margins would be similar.

So as we stated in earlier part of the call, we are restricted in terms of disclosing anything...

I just wanted to understand your initial thoughts because you are very close to the acquisition. So there would be some kind of an initial thoughts in terms of the investment -- such a big investment which you are taking, sir?

So what we are bound to our confidentiality. So I can't talk on it, please.

[indiscernible] time, we'll be taking our last question for today, that is from the line of Virat Pansuriya from SkyRidge Wealth Management.

Firstly, I wanted to apologize I made that blunder with respect to realizations. We corrected our numbers and the realization [Indiscernible] come to 38,000 only. So sorry about that. Sir, one regarding realization, your costs are falling significantly, whether it's coal, oil, gas and soda ash, silica sand. Are the realization is also expected to fall and commensurate with the cost or the demand is robust enough, maybe we can generate some [indiscernible] margin front.

The cost, as you said, about silica sand, it is not falling, it has gone up. The cost of soda ash, yes, it has fallen very small way, and that too in this last quarter only, it is more of the indicative. Regarding crude oil. Crude oil is not a direct indicator of the furnace oil prices in the country. If you see, the country is buying the crude oil at a very cheap price from the Russia, but those are not being prostrated into the furnace oil prices in the country. So we cannot say that the cost has drastically has fallen down. So it is all just an indicator that it is on a downward side. Now coming back to the second part, whether these costs will be translated into price decrease or not. Again, it all depends upon the demand and supply situation in the country at that moment. So it's very difficult to say. But yes, part of our contracts are on formula. So where we have to decrease the prices as per that. So it is more important to maintain the margins rather than playing on the dynamics of fluctuation.

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.

Thank you very much, everybody, for joining the questions. We understand that you had some other questions relating to our acquisition, but we couldn't take any questions and answers there because of the confidentiality, our apologies in this regard. The company has given good results. I think one of the best results in the past few years and the past few quarters. And we are fairly confident based on the current market conditions that we should be able to sustain our growth as well as the margin expansion based on various initiatives, which we spoke of as a part of this call. Thanks again, and we'll catch up once we have the next result. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Dolat Capital, that concludes our today's call. Thank you all for joining us, and you may now disconnect your lines.