EPLNSEQ2 FY2023November 07, 2022

EPL Limited

6,060words

86turns

7analyst exchanges

6executives

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Management on call

Pratik Tholiya

SYSTEMATIX INSTITUTIONAL EQUITIES

Anand Kripalu

MANAGING DIRECTOR & CHIEF

M.R. Ramasamy

CHIEF OPERATING OFFICER - EPL LIMITED

Amit Jain

CHIEF FINANCIAL OFFICER - EPL LIMITED

Suresh Savaliya

SENIOR VICE PRESIDENT

Deepak Ganjoo

PRESIDENT AMESA REGION - EPL LIMITED

Key numbers — 26 extracted

y with significant sequential EBITDA margin improvement. At prevailing currency rates EPL grew by 9% with strong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a gr

16.9%

argin improvement. At prevailing currency rates EPL grew by 9% with strong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a growth 1.5% despite the COVID-related chall

19.7%

At prevailing currency rates EPL grew by 9% with strong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a growth 1.5% despite the COVID-related challenges. During th

8.9%

ncy rates EPL grew by 9% with strong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a growth 1.5% despite the COVID-related challenges. During the quarter the categ

1.5%

trong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a growth 1.5% despite the COVID-related challenges. During the quarter the category that we are now christening

17.7%

christening as personal care and beyond which includes B&C and pharma, etc., saw strong growth of 17.7%. Oral care grew by 6.7% predominantly affected by EAP. Over H1 EPL’s share of revenue for persona

6.7%

e and beyond which includes B&C and pharma, etc., saw strong growth of 17.7%. Oral care grew by 6.7% predominantly affected by EAP. Over H1 EPL’s share of revenue for personal care and beyond improv

47.8%

minantly affected by EAP. Over H1 EPL’s share of revenue for personal care and beyond improved to 47.8% which is 220 basis points better than last year. Excluding the impact of setup cost in Brazil EBI

220 basis point

ed by EAP. Over H1 EPL’s share of revenue for personal care and beyond improved to 47.8% which is 220 basis points better than last year. Excluding the impact of setup cost in Brazil EBITDA margin for the quarte

16.3%

an last year. Excluding the impact of setup cost in Brazil EBITDA margin for the quarter stood at 16.3% an improvement of 119 basis points and a growth of 22.9% sequentially. Critically our efforts o

119 basis point

the impact of setup cost in Brazil EBITDA margin for the quarter stood at 16.3% an improvement of 119 basis points and a growth of 22.9% sequentially. Critically our efforts on pricing and cost savings programme

22.9%

l EBITDA margin for the quarter stood at 16.3% an improvement of 119 basis points and a growth of 22.9% sequentially. Critically our efforts on pricing and cost savings programme has started to bear fr

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Guidance — 13 items

Anand Kripalu

opening

“Speaking with the subject to Brazil I am pleased to share that the project is very much on track.”

Anand Kripalu

opening

“Our target is to double Platina volume in FY2023 and I am pleased to report that we are very much on track.”

Anand Kripalu

opening

“We believe this will be our sustainable source of competitive advantage laying the foundation for long- term profitable growth and finally looking ahead in recent quarters we have seen exceptional and unprecedented headwinds and every time when we felt that the worst is behind new challenges has emerged.”

Anand Kripalu

opening

“Some of the intervention for the next quarter includes continuing the hunt for new business persisting with price increases specifically linked to inflation due to energy and minimum wage, sustaining the momentum on our margin improvement plan, continuing the effort on driving sustainability and managing raw material cost that has been adversely impacted by spiraling devaluation.”

Anand Kripalu

“Now the question is longer term EAP remains a very, very big domestic market probably the largest domestic market in the world right and that is what we are all aiming to serve.”

Jenish Karia

“The first question is with regards to Brazil opportunity, last quarter if I am not wrong we had announced the amount of investments, so what will be the full year investment amount in that, what is the market size and opportunity and some color on what revenue potential that we seek on this region?”

Anand Kripalu

“I am conscious that you guys want to know something and we will do it at the right time, but I do not want to hazard giving you something now as this project is evolving now, obviously we have business case internally and the business case is to deliver a good quality of payback in line with the nature of business that we are in, but beyond that I do not think we would like to share at this stage more about the revenue or margin potential that the Brazil opportunity offers.”

Amit Jain

“No, I think you have covered and Jenish just to give you the comfort is that we are entering into the Brazil on the back of contractual customers, so that is in a starting point because normally the new geography entering into with an anchor customer is always good and once we are on the ground we will look for other customers and we already started that exercise and that is why Anand was saying that there are multiple customers which are showing interest on this project.”

Jenish Karia

“Great, for now what I understand is that our capex are 1.3 billion for FY2023 what has committed and as and when there will be developments you will be going up after?”

Jenish Karia

“So there will be some amount of inventory loss?”

Risks & concerns — 6 flagged

While the impact of COVID in China is reducing the zero tolerance policy is still hurting day-to-day business.

— Anand Kripalu

Excluding the impact of setup cost in Brazil EBITDA margin for the quarter stood at 16.3% an improvement of 119 basis points and a growth of 22.9% sequentially.

— Anand Kripalu

As far as innovations and business wins is concerned, EPL continues to lead the industry in innovation and designed disruption with offerings like the Neo Seam Tube which minimizes the visual impact of the side seam.

— Anand Kripalu

These include COVID, volatile and inflating raw material prices, high energy cost exacerbated by the Ukraine conflict, wages and freight, general unprecedented inflation in the western world are devaluing currency across the board and these present new emerging challenges.

— Anand Kripalu

No that is the whole point because Europe has depreciated India has depreciated it is just transactional entry there should not be any major impact beyond the polymer conversion and polymer again I thought because the bite in the dollar my perception was that a lot of it is a dollar billing otherwise this problem creates a significant risk within the system where the buying currency and the selling currency is significantly different.

— Sanjesh Jain

Next question was on the gross margin perspective so gross margin has declined sequentially a bit so correct me if I am wrong the polymer prices have declined and the benefit of that decline has been offset by increase in the dollar rate so is it because of that how do you look at the gross margins?

— Jenish Karia

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Q&A — 7 exchanges

Good evening Sir. Thanks for taking my question. Couple of them first on this currency movement can you help us understand how exactly it hurts us and what are the geographies which are negatively as well as positively impacted from the currency particularly in the backdrop that a lot of raw materials is manufactured in India and China and again it is sold in Europe and other geographies except America where I think the currency depreciation should not have impacted it is only US geography but I would like to hear the complete currency movement and how it impacts us in each of the business? Th

Anand Kripalu

Okay I am going to pass that on to Amit Jain to respond to that and if there is anything else then I will add to it. Amit you want to take the point on currency. So Sanjesh the currency movement actually when the currency devalues against dollar so you are aware that we are buying the polymers from various global suppliers so that impacts at the first level in India and China where we are manufacturing the laminate structure which is raw material and then it is a impact which goes in all countries because as a base cost which is landed cost has increased because of this currency movement so be

Thanks for taking my question. Just following up on the previous question, so what I notice is that most of the RM prices aluminium, HDPE, etc., we have been continuously declining in the past six months and there has been continuous effort towards price hikes from our end and crude price has also been range bound, so apart from currency just trying to understand the reasons for sequential decline in margin, AMESA, America, Europe, all three regions are sequentially declining, now Europe I understand there have been multiple issues in terms of energy, etc., but what exactly are the reasons in

Anand Kripalu

I will give a few lines there and then the team in the board room can elaborate on it. I just wanted to recognize that our consumption cost of inputs, which is the entire cocktail of polymers, aluminum all that put together, our consumption cost actually peaked in Q2 and that is based on the inventory that we carry, so I just want to clarify that point that consumption cost will come down, part of that it is going to be eaten up by the FX movements that we have discussed as a response to the previous question, but in this quarter consumption cost actually peaked because this is what we consume

Thank you for the opportunity. The first question is with regards to Brazil opportunity, last quarter if I am not wrong we had announced the amount of investments, so what will be the full year investment amount in that, what is the market size and opportunity and some color on what revenue potential that we seek on this region?

Anand Kripalu

I just tell you that our interest in the Brazil opportunity actually have gone up in terms of excitement. Ever since we made the announcement and started the investment and our plant is kind of at least the shell of the plant is almost ready now and equipment is on the high, the amount of queries and interest that we have seen from multiple other local and global players is very, very encouraging, so we remain very excited if anything our excitement levels have improved ever since we made our announcement. Now we are not in a position because I do not think it is appropriate at this point in t

I just wanted to know the capex commitment that you have made for the Brazil project?

Anand Kripalu

I think that we have shared in the last meeting it is Rs.138 Crores for the Brazil project. Thank you.

Thank you for giving this opportunity Sir. Sir just on Brazil without really going into the numbers qualitatively wanted to check do we get preference to supply tubes to our customers to whom we may be supplying tubes in another geography but some of the oral care customers would be the bigger customers across geographies I would believe?

Anand Kripalu

Yes you may or may not get preference. On this particular case you will obviously get preference from a customer who is our anchor customer based on whose commitment we have made the investment okay. Now on the back of that I said earlier that there are other players local and global who are evincing interest right and we are excited about that so there could be other players in oral care but also beyond oral care who may join the bandwagon. I think the preference could be because we have a good relationship and the anchor customer is obviously because we have a good relationship with them on

So my question is regarding USA business so kindly talk about considering high inflation and how is the demand side in USA and we have seen higher margin contraction comparatively and slower single digit margin in USA business so how is the cost scenario in USA?

Anand Kripalu

Broadly speaking the demand scenario in the US is I would say still solid right still strong. There are significant pressures on the cost side in the US right and therefore the need for inflation related price increases and some of which are still due to come in Q3 right which have now been approved by the customers. The cost side right the inflation-related costs which are largely to do with wages right has been very significant because you will speak to anybody in any industry in the US they are not able to find people to come to work right and you have got to pay more and yes you have absen

Thanks Lizaan. On behalf of Systematix Institutional Equities I would like to thank all the participants who logged into this conference all. Thanks to the management for answering all the questions. I would request Anand if he has any closing comments to make.

Anand Kripalu

No I just want to thank everybody for their engagement as I am inspired by the questions that they have asked and also for their continuing support and I think importantly patience as we have reeling through some of the most challenging phases in the history of this company right. I just hope people are beginning to see some of the silver lining that are now evident as the problems become more behind us rather than ahead of us right and start believing that this business is all set to start moving forward.

Speaking time

Anand Kripalu

Sanjesh Jain

Amit Jain

Moderator

Jenish Karia

Shalabh Agarwal

Sameer Gupta

Pratik Tholiya

Deepak Ganjoo

Samridh Rela

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Opening remarks

Pratik Tholiya

Thanks you Lizaan. On behalf of Systematix Institutional Equities I would like to welcome all the participants who have logged into this conference call of EPL to discuss the second quarter and H1 FY2023. From the management team we have Mr. Anand Kripalu, MD & CEO, Mr. M.R. Ramasamy, COO, Mr Amit Jain, CFO, Mr. Suresh Savaliya, SVP Legal and Company Secretary and Mr. Deepak Ganjoo, President AMESA region. At the outset I would like to thank the management for giving us the opportunity to host this conference call. I would now like to request Anand Sir to kindly begin the proceedings by giving his opening remarks. Thank you and over to you Sir!

Anand Kripalu

Thank you very much Pratik and hello everybody and welcome to this earnings call. When you look at the previous quarter under review we had a persistent inflationary environment impacting energy and wages particularly in the western world coupled with higher commodity consumption cost and these have affected many businesses globally. In addition to this the quarter saw unprecedented currency devaluation versus the US dollar. While the impact of COVID in China is reducing the zero tolerance policy is still hurting day-to-day business. Despite all of these environmental challenges, I am pleased that we delivered double digit revenue growth at constant currency with significant sequential EBITDA margin improvement. At prevailing currency rates EPL grew by 9% with strong growth across AMESA at 16.9%, America at 19.7% and Europe at 8.9%. EAP delivered a growth 1.5% despite the COVID-related challenges. During the quarter the category that we are now christening as personal care and beyond w

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