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Transcript of the earnings conference call conducted on 16th August, 2022
Dear Sir(s),
Pursuant to the Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, the earnings conference call conducted on is" August, 2015, please find enclosed the transcript 2022. at also https:/ lV-l'vVW. uflexltd.com/pdf/EamingsConferenceCall/2022-23IUFlex
the Q 1FY23 Transcript.pdf
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Request you to take on record.
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“UFlex Limited Q1 FY2023 Earnings Conference Call”
August 16, 2022
ANALYST:
MR. SANJESH JAIN – ICICI SECURITIES
MANAGEMENT: MR. RAJESH BHATIA - GROUP CHIEF FINANCIAL
OFFICER - UFLEX LIMITED
MR. ANANTSHREE CHATURVEDI - VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FLEX FILM INTERNATIONAL
MR. APOORVSHREE CHATURVEDI - DIRECTOR EU OPERATIONS AND SUSTAINABILITY
MR. VINU SAINI - VICE PRESIDENT - CORPORATE FINANCE, M&A, INVESTOR RELATIONS - UFLEX LIMITED
Page 1 of 24
UFlex Limited August 16, 2022
Moderator:
Ladies and gentlemen, good day, and welcome to the UFlex Limited Q1
FY2023 Earnings 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 ‘*’ then ‘0’ on your touchtone phone. Please note that
the conference is being recorded. I now hand over the conference over to
Mr. Sanjesh Jain. Thank you and over to you, Sir.
Sanjesh Jain:
Thank you Seema. Good afternoon everyone and on behalf of ICICI
Securities Limited, I would like to thank you all for taking the time to join us
on UFlex Limited Q1 Results Conference Call. From the company leadership
team, we have with us Mr. Rajesh Bhatia - Group CFO UFlex Limited; Mr.
Anantshree Chaturvedi - Vice Chairman and CEO Flex Film International; Mr.
Apoorvshree Chaturvedi - Director EU Operations & Sustainability and Mr.
Vinu Saini - Vice President Corporate Finance, M&A Investor Relationship.
We will have the opening remarks done by the management post which we
will have a Q&A session. I would like to hand over the proceedings of Mr.
Rajesh Bhatia for his opening remarks. Thank you and over to you Sir.
Rajesh Bhatia:
A warm good afternoon to all on the call. Ladies and gentlemen my name is
Rajesh Bhatia and I am going to present the results for the Q1 ending June
30, 2022. For the quarter we have reasonably good quarter. Our topline view
on a year-on-year basis 46.5% to a little over 4000 Crores and which was
backed by 15.7% volume grow on a year-on-year basis and EBITDA was up by
about 44.3% to 725 Crores on year-on-year basis and on Q-on-Q basis it is up
by 4.1% and PAT is again up by close to about 42% to 375 Crores with the
highest ever PAT by UFlex in any quarter so far and on a Q-on-Q basis also
this is up by 6.9%, other notable contributions achievements in quarter was
the first is aseptic packaging business where we achieved 91% capacity
utilization and expanded capacity of 7 billion packs and we had almost 123%
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UFlex Limited August 16, 2022
volume growth in aseptic packaging business on year-on-year basis and
even on quarter-to-quarter basis we had 61% volume growth in this quarter
over the March quarter so that business has some phenomenally well and
enhanced capacity utilization which was commissioned in April came very
handy for this season and to the best of our ability we could achieve a very
high level of the capacity utilization and we could have done a bit better, but
initial teething troubles are there always and set up new things are always
there but we have been able to overcome those subsequently and the
endeavor is to bottleneck the plant and the purpose is that with the same
facility instead of capacity of 7 million packs can we do 9 million pack our
endeavor is do that so let us see next season as to how do we perform. The
other notable achievement during this period we have achieved 71% plus
capacity utilization as Nigeria facility and while we commissioned that Q2
FY2022 so the first two quarters we had logistics and other issues there but
happy to say that now we are ramping up production and the sale from that
particular business and the idea is to again take it to much higher capacity
utilization as some of the other business so overall the quarter has been
decent and we are now looking at the commissioning of our CPP facilities in
Dubai and India & BOPET facility in India, later which will give us additional
revenues as well as profitability. Generally a good quarter from overall
perspective. Thank you.
Moderator:
Ladies and gentlemen we will now begin with the question and answer
session. The first question from the line of Mr. Subham Agarwal from
Aequitas. Please go ahead Sir.
Subham Agarwal:
Thank you for the opportunity and first of all congratulations to the entire
team. Sir my first question is related to the aseptic packaging division. Sir I
wanted to know with the commissioning of new line what would be our
current market capacity and going forward what is the reasonable growth
trajectory that we are looking for this division given that you have mentioned
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UFlex Limited August 16, 2022
that we will expand our capacity to probably 9 billion packs over the next
one year?
Rajesh Bhatia:
So that the current rated capacity is 7 billion packs a year now we are seeing
expansion, we not looking at any fresh investment per se but we are looking
to debottleneck the facility to see if we can still optimize the production
from the same plant to 9 billion packs.
Subham Agarwal:
Sir what would be our current market share in this division with this
commission?
Rajesh Bhatia:
I think we will have close to anywhere between 22% to 25%.
Subham Agarwal:
And what is the reasonable sustainable growth that we can achieve in this
division Sir?
Rajesh Bhatia:
Business as I understand the growth is about 18% to 20% at an industry level
so there is no reason that why we should not be able to achieve that growth.
Subham Agarwal:
Got it and Sir with the new capacity at 7 billion packs what is the total
turnover that we can do and what is the sustainable margin that currently we
are doing in this business?
Rajesh Bhatia:
I think we can do on topline of anywhere between 1200 to 1400 Crores at 7
billion packs output from the pack size and all that so that is why I am giving
the range and the margins could be about 20% and about.
Subham Agarwal:
20% EBITDA level. Sir my second question is related to our BOPET division
so last quarter we have seen in India especially BOPET margin have started
declining so I wanted to know what is the global trend because we have
capacities around the world so Q-on-Q from Q2 onwards how do you see the
spread moving?
Page 4 of 24
Apoorvshree Chaturvedi: In terms of the pricing of the Indian market needed to be BOPET product,
UFlex Limited August 16, 2022
the global market, global market prices obviously very different directions
compared to Indian prices especially on a gross margin posture and so far
right now summer season has been offered normal nature of demand with
expecting the demand recovery in the European market and demand
recovery in the Middle Eastern and North African and African Markets for the
last quarter of year for the balance months so I think gross margins side
what you have been tracking and correlating in terms of India margin that is
not going to have an extremely strong scenario on the global markets.
Subham Agarwal:
Sir but globally also we are expecting a lot of lines to come up. Sir, do you
feel that the demand would be adequate to meet the additional supply?
Apoorvshree Chaturvedi: If you look from the supply side the net capacity additions for BOPET
factory portfolio is coming in India and China, the rest of the world net
capacity addition is very, very limited and almost negligible if you look at the
size of the markets so I think companies in position like ours where we have
a complete understanding and representing Indian markets along with the
global market leaders I think we will be able to manage the trade winds that
developed out of the net capacity addition and we believe the picture that is
come out of the pandemic of companies needing reliable suppliers that story
is continuing to carry weight in the markets mind and customers will be
sensitive to the value addition of that approach.
Subham Agarwal:
Okay fair enough Sir. Sir I will come back in the queue. Thank you for
answering my question.
Moderator:
Thank you very much. We take the next question from the line of Chirag
Singhal from First Water Capital. Please go ahead Sir.
Chirag Singhal:
Thanks for the opportunity. Just to continue to the previous participant’s
question on the aseptic business so if you look at the next two to three years
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UFlex Limited August 16, 2022
or let us say even further four to five years down the line, what kind of target
we have in our mind from the current 7 billion packs just to get a broad
picture on where we are headed in the aseptic business?
Rajesh Bhatia:
I already answered that if you say, from a turnover point of view I think the
current capacity can lead us to 1200 to 1400 Crore annualized revenue and
the EBITDA margin guidance also I gave that anything else you want to
know.
Chirag Singhal:
No so that I understood so we are anyway running at 91% capacity utilization
for the entire 7 billion packs and I also understood that with debottlenecking
will have 1 to 2 billion packs by next year or so but beyond that by adding
new lines so do you have any sort of a target that we can work with that this
is a target for the next three to five years in the sector business from let us
say to 9 billion packs that we can achieve from the existing setup.
Apoorvshree Chaturvedi: So I think consumer position to give you a more clear picture on the
capacity additions for your subject by the end of the next quarter I think right
now considering that Mr. Bhatia said that with debottlenecking getting about
20% more on the capacity that you have today and I think even if you assume
the growth level in the market or at least 15% to 20% I think there is enough
room to balance our existing onshore in their capacity with that growth both
trajectory and then make a better decision down the line.
Chirag Singhal:
Sure okay Sir my next question is on was there anyone off expenses in the
P&L because of currency depreciation in Russia for Q1?
Rajesh Bhatia:
Because of currency appreciation in Russia we had our loan book swelled by
about 163 Crores. No profitability impact is also there in Russia this quarter
because the currency fluctuated is went from 75 to 125, 125 it came down to
55 so there were impacts on the P&L in the normal course of the business as
in the way we conduct our business day we collect our receivables, our
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UFlex Limited August 16, 2022
benchmark to certain exchange rate and our benchmark to certain exchange
rate, yes we had some underperformance there because of this fluctuation.
Chirag Singhal:
Okay Sir could you please quantify the impact on the P&L during the quarter
as what was one off component during the quarter in P&L?
Rajesh Bhatia:
We will not be able to share that.
Chirag Singhal:
Okay alright Sir the recycling part so we have been talking about lot of
expansion that we have been doing in various different streams in the overall
recycling just wanted to understand from a broad picture that what kind of
total capex that we have already spent in the recycling what is the current
capacity the payback period and also just wanted to understand when we
look at let us say a business like aluminum wherein the recycle aluminum is
generally purchased at a discount to the aluminum and giving a benefit
could be aluminum producers, is there some similar advantage that we also
get when we use Rpet instead of virgin pet and the cost of production goes
down and eventually a sustainable profit per kg can be achieved over a
period of time?
Anantshree Chaturvedi: Sure but Mr. Bhatia I think you can give the capex numbers and the
payback numbers I would be happy to address the pricing and the payback
cycle.
Rajesh Bhatia:
Anantshree Ji if you can just give the business section I will add those
input..
Anantshree Chaturvedi: Sure absolutely from our perspective of an input output ratio when we add
in any kind of recycle from resin from our facilities it is not exactly the same
as what you are deciding that the aluminum manufacturers do because for
us cost of sourcing, cost of cleaning can vary from geography to geography
however today they wanted that we all have as an industry is that we site for
our pet materials sold at a premium as compared to virgin material so it is
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UFlex Limited August 16, 2022
really today if we look at the market today it is that premium that output is
sold at that makes up for basically these additional ancillary transition costs
to our pet but once you hit a certain quantity and that is sort of quantity
really being defined by the industry because that industry standard has not
really been defined as of now then you will start seeing some of these
benefits that you are seeing that the aluminum makers sort of get at scale
but until that point it is really the premium that you get in the market which
also varies by geography by geography but it is a consistent premium in any
geography that you are selling in then allows a better payback period for this
material.
Chirag Singhal:
Right so when we talk about premium so could you also help me with the
sales volume that we do for 90% or 100% of R-PET films as a percentage to
the total sales volume just to understand it what kind of scale we have
achieved and what prospects do we have over the next five to six years?
Anantshree Chaturvedi: We can get you back those numbers I would not have those numbers on
the top of my head for every geography.
Chirag Singhal:
Sure Sir no problem thanks. One more question….
Apoorvshree Chaturvedi: Just to give you a supplementary insight but you could carry back into
your industry is that right now the adoption of the R-PET film product is
heterogeneous globally so certain markets are leading in terms of customer
demand whether it is shaped by the customers all directly by their end
customer and in other markets either because of the lack of regulation or
because of a lack of marketing on behalf of the end customers the demand
for 100% hearted in list of film has still not crystallized point where start let
us say capacity to that product so I think it will happen in time and that is
one of the reason why these sort of formulization of the aluminum model is
not applied one to one.
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UFlex Limited August 16, 2022
Chirag Singhal:
Okay understood Sir and Mr. Bhatia could you help me with the numbers on
the capex and capex period?
Rajesh Bhatia:
Depending on the location and the cost of civil work at that location will cost
between $10 to $12 million in the PCR and the payback should ideally be
between say about four to five years.
Chirag Singhal:
Okay alright so one last question and then maybe I can join back into queue,
this is on the specialty sales volumes if you look at the peer set most of the
companies are giving the breakup of how they are, what is the total
component of the specialty sales volume as a percentage of the total sales
volume at the moment and what are their ambitions over the next two to
three years now the reason why they are giving and maybe putting it in front
of the investors is what they are trying to imply is there is a sustainable
EBITDA per kg or let us say sustainable profit margins in a specialty sales
vis-à-vis will be commodity sales volumes so just wanted to understand
where do we stand currently in terms of our specialty sales volume as a
percentage to be total sales volume and is it fair to assume that there is a
sustainable profit per kg because we are in a cyclical industry and the
spreads clearly totally volatile in terms of the demand and supply so if we
are able to ramp up our specialty sales volume portfolio maybe we can have
some sort of a sustainable profit per kg going forward so this is the
assumption that I am working with but just wanted to know where
perspective where do we stand in terms of the specialty sales volume at the
moment and whether it is fair to assume that the profits are sustainable in
specialty sales.
Anantshree Chaturvedi: Can I ask you a question when you talk about sustainability terms from
your definition and your benchmark how are you qualifying those from the
sustainable as specialty films, are those specialty films based on whatever
the company you are talking to is telling you is specialty or is it is that you
have a benchmark that defines those films?
Page 9 of 24
Chirag Singhal:
No Sir so I do not have a benchmark personally but whatever I have heard I
UFlex Limited August 16, 2022
can put it in front of you so basically what the companies are stating is that
specialties are no longer considered to be just metalized & coated films. It
depends on the application the films are used into and which are much more
specialized than a simple metalized or coated film so what we have known
from the presentation with the capacity that we have for the metalized and
quoting but obviously with whatever we have heard from different
companies is that specialty is much more than that it is not just restricted to
the metalized and coated films so personally I do not have any benchmark
but this is what fair understanding?
Anantshree Chaturvedi: I am sorry to spin this on you but that is exactly the problem right, the
problem is our internal benchmarks so what we define specialty is very, very
different from what the industry defines the specialty and that is the reason
why we do not sort of reduce these numbers because a lot of times what is
being called a specialty is not necessarily specialty so I will tell you our
internal benchmark for specialty is based purely on volume and margin,
those are the two things that we look at when we see internal specialty
films. Mr. Bhatia can give you more details at a later time but that is the
reason why it is kind of futile to discuss specialty films because there is no
benchmark right what you are calling and what the industry might be calling
especially film might not be a specialty film as defined by the interest as by
actually in actual reality but it is being touted especially film because it
sounds nice on a presentation or it sounds nice on sort of news headline and
that is where sort of different concerns so UFlex is definition of specialty is
far higher standard than I would say the general industry definition and that
is why we do not go into same details because we are looking for these
products to find a home not necessarily for these products to boost other
things.
Page 10 of 24
UFlex Limited August 16, 2022
Chirag Singhal:
Sure Sir so when you say that you have some internal threshold, could you
put some numbers to it that a constant Rs.15 – Rs.20 higher than the
commodity spreads or Rs.30 to Rs.40 again what is the internal threshold
that you have to distinguish specialty sales from our community?
Anantshree Chaturvedi: We can elaborate on the later but it is an internal threshold something I
will let Mr. Bhatia will elaborate on that later.
Apoorvshree Chaturvedi: To give you a rough guidance as the benchmark there should be at least
a 15% expansion in gross margin on specialty sales or on gross margins so
it is obviously that keeps that there is different companies producing
products differently you will respect the fact that many companies have
different kinds of lines, different kinds of downstream equipment all of
which are important because to producer specialty thing you still need
access to the base quality product because we still need the base chemistry
and the base reality of polymer product on which you can add value whether
it sell it to the end customer so at a minimum you can say there should be at
least a 15% expansion and gross margin on account especially since that
will be at least a minimum threshold first put it to the economically
attractive to us.
Chirag Singhal:
Okay right Sir that was quite a elaborative and thanks a lot for all the
answers and I hope that the promoters participate in the concall going ahead
as well I will join back in the queue in case of any further questions. Thanks
a lot.
Moderator:
Thank you. We take the next question from the line of Mr. Zain Banihali from
Odyssey Capital Management. Please go ahead Sir.
Zain Banihali:
Congratulations on good set of numbers so most of my questions almost all
of them answered so I just want to ask, could you give some raw material
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UFlex Limited August 16, 2022
prices are they going down? I am saying other raw material prices going
down?
Rajesh Bhatia:
July 15, 2022 to August 15, 2022 there is some softening of the raw material
price.
Zain Banihali:
Okay and my second question is there were some issues with the Jammu
government that you discussed in last or last concall, so could you throw
some light on that has that been solved some problems?
Rajesh Bhatia:
So that matter now we will have to litigate there to get our view right,
benefits not been accounted. It is going to take along
Zain Banihali:
Okay thank you so much Sir and all the best for the next quarter and coming
years.
Moderator:
Thank you Sir. We take the next question from the line of Mr. Yash from
Dante Equity. Please go ahead Sir.
Yash:
My first question is regarding Nigeria is that gross 70% capacity utilization
but have become EBITDA positive in this quarter? Nigeria plant turn EBITDA
positive this quarter?
Anantshree Chaturvedi: Yes EBITDA quarter is better positive this quarter.
Yash:
Okay on the capacity on your Dharwad expansion what kind of topline would
that expansion add on full capacity utilization?
Rajesh Bhatia:
Expansion give you about if you produce 4000 tonnes, it will give you about
50 Crores per month.
Yash:
50 Crores per month on full capacity utilization?
Rajesh Bhatia:
Not full may be about 400 to 500 tonnes.
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UFlex Limited August 16, 2022
Yash:
Could you assume the topline figure?
Rajesh Bhatia:
I said 50 Crores per month.
Yash:
That is PAT right?
Rajesh Bhatia:
That is the topline.
Yash:
Right also raw material pricing, could you elaborate more on that or how
much the prices come down by, would you be able to quantify?
Rajesh Bhatia:
I think it is too premature. I think this trend has only been for a few days so
let us not have had a guess on that when we have the next quarter I think we
will give you that as to what happened to the prices.
Yash:
Basically crude oil prices….
Rajesh Bhatia:
But as of now there has been the fall in the raw material prices have been
really marginal only. So I think anything to elaborate beyond that may not be
possible for us today because the time period involved has been very short.
Yash:
Sir crude oil has fallen from 115 to I think $90 approximately so the raw
material pricing is not cooling at the same speed that at which it went up
right so there is actually a very good demand base?
Rajesh Bhatia:
We have already seen that vis-à-vis last quarter versus this quarter how the
crude has also behaved so if it is in line with them there is nothing
exceptional to those fall and all.
Yash:
Also you are operating an Overall Operating Margin (OPM) expansion is
there any visibility in the coming quarters?
Rajesh Bhatia:
For Dharwad?
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UFlex Limited August 16, 2022
Yash:
No overall operating margin, are you comfortable with 18%?
Rajesh Bhatia:
I think 18% as I have been saying earlier range of 17% to 19% is quite a
comfort zone for us but again it is the raw material prices fall in the margins
are sustained so EBITDA margins would always look much higher introspect.
Yash:
Also, Would you be able to elaborate about their demand right now in Europe
and US?
Rajesh Bhatia:
Demand right now in Europe is struggling its own energy issues and all that
so the demand is bit soft but typically that has been phenomenon in this
period generally over the years we have seen so I think nothing much to get
bothered about. On an annual basis we will be able to outperform last year
also.
Yash:
Also again on the operating margins when you said that you are comfortable
with 18% but would be able to give the guidance on coming quarters if any or
would be able to maintain 18% margins?
Rajesh Bhatia:
No we are not giving any guidance for the next quarter as of now. So year as
a whole I think we earlier also said that 17% to 19% in that range.
Yash:
Okay and Sir what is the update on the Dubai listing?
Rajesh Bhatia:
I think the markets right now are not conducive and as and when they are
back we will be back in business on that front.
Yash:
Also my last question on the debt front by which quarter are we expecting
debt start coming out?
Rajesh Bhatia:
So the debt as we said that debt has not gone up in this quarter also it is the
same what was there in the last quarter despite the fact that we have now
CPP and the BOPET facilities under commissioning for western new that is
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UFlex Limited August 16, 2022
being drawn so the current amortization structure versus the new debt
added for those projects is almost keeping the debt at a static level so I
think the debt will seek by March 31st, 2023 and thereafter it will start
coming up.
Yash:
Could you talk about the new capacity that you announced new plant right?
Could you tell about that?
Rajesh Bhatia:
The backward integration facility at Panipat where we going to make
manufacturer that resins for the pet films so that is the project which we are
undertaking and that project will come up in FY2026 so we will whatever is
the debt added for that, the current amortization over the next two years will
neutralize that new debt which is taken for that project.
Yash:
Could you make me understand about how that project is going to help, is it
going to help expand our OPM?
Rajesh Bhatia:
So two things important in that, one is, that will help us protect margins and
we have seen in the last couple of years that both availability as well as the
pricing on our even raw material side was getting a bit erratic just because
we have overall global presence so we been able to sort of meet our raw
material requirements from wherever we can for India as well as our
overseas facilities but yes availability issues supply chain issues are have
been the order of the day at least for the last year or so and that is why we
have taken season to backward for this backward integration so that even
today for some of our facilities in global markets we source from India, we
source from Southeast Asia and we source from Middle East and that is
where we have been supplying raw material to our offshore businesses. This
will help us you know both quality wise, the consistent quality not moving
from one quality, one supplier to another and that result in fluctuation in
quality all those things are going to be plus on this plus the margins are
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UFlex Limited August 16, 2022
definitely then there is today both in India as well as in the international
markets, the markups on the Ind-As have shot up quite a bit in this space.
Yash:
Last concall if you remember I had asked you if you had any plans of
listening Aseptic packaging as a separate entity and you said it is a good
idea and the management will think about
it, has there been any
consideration in that front?
Rajesh Bhatia:
No, we have not given any sort of consideration as of now.
Yash:
Also under existing Aseptic packaging plant are we able to expand in the
brownfield expansion?
Rajesh Bhatia:
At this plant we can duplicate the same capacity given the resources in
terms of land and others what we have presently at this time but currently
the endeavor is not to set up anything new, we are only trying to
debottleneck and see whether at the same plant can we take the more
output out.
Yash:
Yes at this same plant if we choose to double the capacity you can?
Rajesh Bhatia:
Right.
Moderator:
Thank you. We take the next question from the line of Mr. Shivam Saxena
from ICICI. Please go ahead.
Shivam Saxena:
Thank you for taking my question. Congratulations for a good set of
numbers and only one question is that what will be the impact of plastic ban
from this quarter onwards Q2, what that would be reflected in this quarter,
how much is the impact?
Rajesh Bhatia:
There is no impact on UFlex for any of the plastic ban because none of the
items in the plastic that affect UFlex as part of the septic packaging for
Page 16 of 24
UFlex Limited August 16, 2022
certain segments we have been using the plastic straws so they will be
replaced with the paper straws as we have already ordered those machines.
Shivam Saxena:
So we can say it would be a positive impact on the company if there is a
plastic ban can we say that?
Rajesh Bhatia:
I think there is no impact I think let us remain on that as well how the
substitutes for the items which have been banned and how do they impact
of, what are the alternatives which emerge from there and how does it help
flexible packaging films companies and all that I think let us wait and watch
and see that has been impact of that.
Shivam Saxena:
What about have you taken any price hikes recently after the June quarter
any price hike was taken and will continue this quarter also?
Rajesh Bhatia:
Price hikes earlier have also been taken based on the raw material price
increases and even in this quarter if you see the topline grew by close to
about 47% while the volume growth is close to about 16% so there is a
substantive on a year-on-year basis, there is a substantive increase in the
price. If you see the last quarter we had a 65% topline growth backed by 38%
volume growth so this quarter again the impact of the price rise has been
there but as we said that last one month or so three weeks to be precise the
raw materials as the food has come down the raw materials have come
down so to the extent the raw materials come down you can depending on
the demand supply situation, you can either pass on the prices or you can
keep some of the margins to yourself depending on that I think that is that
the call business takes on a regular basis but last couple of years we have
seen that whatever is the price increase that is being constantly passed on
to the customer only in the flexible packaging business there may be certain
lag in passing on that prices but generally in the larger business area for us
we passing on the prices.
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Shivam Saxena:
Sir basically in commodity price, you reduce the pricing or you can reduce
the customers come up to reduce the prices also the topline can reduce by
UFlex Limited August 16, 2022
that time right?
Rajesh Bhatia:
Right.
Shivam Saxena:
Got it thanks.
Moderator:
Thank you. We take the next question from the line of Mr. Rushabh Shah
from Anubhuti Advisors LLP. Please go ahead Sir.
Rushabh Shah:
Thank you for the opportunity. Sir first question when do we expect the new
facility that commission?
Rajesh Bhatia:
Targeting Q3 later or Q4 beginning that is what.
Rushabh Shah:
Okay Sir and on the aseptic debottlenecking will that also be concluded in
this financial year itself?
Rajesh Bhatia:
No having this year the season is now off so January next only now the
season will start so hopefully by that time we should have shortened the
things out.
Rushabh Shah:
Understood I think we just wanted to confirm debt levels on a net basis have
remained flat because our finance cost has actually gone up 7% sequentially
so wanted to understand that?
Rajesh Bhatia:
So the debt level on a constant currency basis has remained the same,
overall if you see the net debt has gone up by 150 Crores and if everything
else I want to keep aside that I want to see only in Russia so because of the
currency appreciation there in rupee terms their debt has gone up by 156
Crores.
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UFlex Limited August 16, 2022
Rushabh Shah:
Okay and I think while you were answering a previous participant you said
that we have taken a new debt for commissioning of this new plan so has
that debt been taken at a higher rate or is it still in line with the previous debt
levels?
Rajesh Bhatia:
It is only then when you will take the rupee loan it will always be sort of
costlier than foreign currency loan in our global businesses so what right
now we are adding to the debt level because the offshore projects were
already commissioned last year itself and but yes on a quarter-on-quarter
basis if you see because last year we did not have the Nigeria project it was
commissioned in Q2 and towards Q2 and so this year in Q1 versus last year
of Q1 we have the debt of the Nigeria project which is in P&L so that is
where you see despite the debt almost remaining the same you see higher
interest out.
Rushabh Shah:
Okay understood that was all from my side. Thank you.
Moderator:
Thank you. We take the next follow-up question from the line of Mr. Subham
Agarwal from Equitas. Please go ahead Sir.
Subham Agarwal:
Thank you for the opportunity again and Sir my question given the promoters
is there on this call.
Moderator:
I guess we lost the line from Mr. Subham I am promoting the next question
from the line of Mr. Yash. Please go ahead Sir.
Yash:
My question is regarding the dividend payout ratio from the last five to ten
years has only come down, has that been any thought put to that when are
you looking to increase the dividend payout ratio since you said by the end
of this year, we will hit our peak debt level so is there any plans to increase
the dividend payout ratio by then?
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Rajesh Bhatia:
See I think the dividend absolute payouts are being increased that is what I
UFlex Limited August 16, 2022
can say but yes in terms of the payout ratio you are right that may have gone
down and the only reason for that is as we have spent a lot of capital in
terms of our growth and that is where basically if you see in the last we had
an EBITDA close to about 700 Crores in the last quarter we had 725 Crores
now so today we are looking at an annual EBITDA of anywhere between 2800
Crores up from about 900 Crores what we had about four years ago so all
this additional EBITDA generation has come against the backdrop of fresh
investments being made into the businesses whether it was a aseptic or it
was the new facilities or Brownfield or Greenfield being set up in the
offshore locations and now the backward integration into so there has been
a lot of capex and as part of the capex when you go to your lenders for the
fresh warmings, I think there are kind of sort of guidance from them also as
to how much you need to plow back from through equity into your
businesses so all that has been done keeping in mind that there are enough
equity resources from the business to fund those projects and that has been
the primarily deciding section.
Yash:
My question was based more about the future understand why you have
spent money and why you have not paid out a lot of dividends in the last 10
years but as an investor when I look at other stocks in the same industry
doing business after if you are expecting the peak level of debt to come
down in this time by the end of this financial year then would not you look at
rewarding the shareholders too?
Rajesh Bhatia:
No I think the intention is to create the shareholders value and that has been
done over the years it may not necessarily have been through dividends but
it is also reflected in the stock prices which are again backed by the
performance of the company so overall basis the value creation in the last
three years has been good. I agree with you that your expectations on
dividend payouts may have been not met to the extent some of the other
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UFlex Limited August 16, 2022
players are doing but yes our endeavor is to keep the growth momentum on
and because understand that some of the competitors you are talking about
while we have three or four separate businesses or maybe more as some of
the intermediaries like chemicals cylinders engineering they themselves are
separate businesses and then on top of that the three mainstream
businesses the aseptic packaging the flexible films and the flexible
packaging so they have their capital requirements from time to time, very
difficult for me to say that how will the future pan out in terms of the further
growth plans today whatever we have we keep on announcing to the market
but yes on the whole we are a progressive company and wherever we see
that we can generate a much better returns rather than sort of giving it in the
form of dividend if there are opportunities reasonable opportunities for
growth I think we have been pursuing that and once we stop pursuing that
then yes of course you do not keep the ideal cash with yourself so there will
be distributions for sure.
Yash:
Yes Sir I completely get that and the only reason I asked this question was
because definitely in the near future we are looking at the point where the
debt levels hit their peak and once the peak is over I was just wondering
what the company plans on doing with the cash that is coming in if you have
further growth plans that is well and good but if you do not have further
growth plans you will also be looking at reducing your debt and deleveraging
your balance sheet right?
Rajesh Bhatia:
I think the balance sheet is not leveraged if I see my net debt to EBITDA
bases if I analyze my net debt, net debt and the earning numbers we are
talking about less than 1.5x of a net debt to EBITDA so I think we are in a
comfortable zone over there but taken your point that I think once we come
back to that situation where there are no further opportunities to grow I think
the management will consider probably higher dividend payout ratio at that
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UFlex Limited August 16, 2022
point in time but very difficult to commit anything on this call at this point in
time.
Yash:
Okay Sir and also I just have one more thing on the investor front, would you
what all the steps of management is taking to make in more investor
attractive opportunity I am not talking in terms of growth during in terms of
growth I think you guys are firing on all cylinders but you recently hired a new
PR agency too right if I am not mistaken so in that front can I understand
what steps the PR agency is taking or what step the company is taking in
that front to expand or invest or analyst?
Rajesh Bhatia:
I think that is an agenda which is currently under discussion with that and as
part of that agenda only this is the first time you see the promoter core
group on the call this time I think we are in constant discussion with our
consultant and the next couple of quarters we will give you more guidance
on or you will see for yourself as to what we have done to improve our
investors.
Yash:
Yes sir and also from next quarter onwards would be very helpful if you
could give some sort of guidance in terms of at least the coming quarter that
would be really helpful as an investor for me to understand why the business
is heading so thank you so much for the opportunity. Have a nice day thank
you.
Moderator:
Thank you Sir. We take the next follow-up question from the line of Mr.
Subham Agarwal from Aequitas. Please go ahead Sir.
Subham Agarwal:
Thank you for the opportunity. Given that the promoters are there on the call.
I would like to take this opportunity to understand from them what is the
vision that they have in place for the company over the next three to five
years, what are the areas that they are focusing on any new specific areas
that they would like to talk about and given that Mr. Bhatia said there are
Page 22 of 24
UFlex Limited August 16, 2022
multiple growth levels that we would be investing in so broadly just if you
could help us understand what you are thinking that would be very helpful
Sir?
Apoorvshree Chaturvedi: Sure. So, obviously we want to grow more on the retail business, the film
business will continue to grow and along with that is as Mr. Bhatia explained
earlier in the call there will be certain capital exposed also to improving the
availability and security of raw material because obviously it will be
geographically diverse so we will continue to commit to that strategy of
geographical diversification on the expansion of the net flow capacity a
certain amount of capital will also go for the polyester raw material and
along with that the aseptic business is something that as we have earlier
said in the call that after debottlenecking you can take a longer term
perspective on the aseptic business to also make it grow along with that
then obviously as the capacity goes up there will be room to further
penetrate the available value additions available in films sector so that is
also review under management along with that obviously because since
diverse we are seeing what is happening in energy and we are seeing what
market has transitioned to a different energy base and if there is any room to
grow in those sectors we can look at that as well but as of now there will be
more growth in the film business with certain amount of capital exposed for
the defensibility of the raw material and along with growth in the aseptic
business.
Subham Agarwal:
Got it Sir and secondly, see we understand over the last few years we have
gone through a significant capex cycle and we have delivered when it comes
to number but on the same time it is not reflective on the share price so I
think it is a good opportunity for the promoter itself to buy shares from
market obviously you bought some share last quarter but what are your
thoughts on that?
Page 23 of 24
Rajesh Bhatia:
That is the very small percentage that was bought by the promoters that was
UFlex Limited August 16, 2022
only 0.4% now since the capital requirements are today elsewhere so there is
no such plan to sort of look at any large-scale sort of buy-back kind of
structure I think but still give more value to the shareholders, wealth creation
for the shareholders we thought of other routes as to how we can do it and
listing in Dubai was one such route which we are pursuing just because the
markets will come back once the interest rate cycle is sort of settles so that
would be one huge lift to the way the company is valued because whatever
discussions we having the road map that our investment bankers are
showing us for that listing I think this will include the company UFlex parent
valuation also in a completely different perspective.
Subham Agarwal:
Sir how much are we looking to dilute in the Dubai business?
Rajesh Bhatia:
I would not divulge any details of that.
Subham Agarwal:
No problem I understand Sir. Thank you again for the opportunity.
Moderator:
Thank you very much. Ladies and Gentlemen that was the last question for
the day. Thank you everybody on behalf of ICICI Securities that concludes
this conference call. Thank you for joining us and you may now disconnect
your lines.
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