EPLNSEFebruary 07, 2023

EPL Limited

8,132words
82turns
8analyst exchanges
6executives
Management on call
Anand Kripalu
MANAGING DIRECTOR AND
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
Pratik Tholiya
SYSTEMATIX INSTITUTIONAL EQUITIES
Key numbers — 36 extracted
12.1%
ific, which continue to be impacted by COVID challenges, we posted double-digit revenue growth of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%.
12.7%
inue to be impacted by COVID challenges, we posted double-digit revenue growth of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP rev
9.2%
posted double-digit revenue growth of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-li
19%
git revenue growth of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-line growth was 7%
10.3%
of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-line growth was 7% on a reported basi
8%
ency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-line growth was 7% on a reported basis and 7.8% at constant currency. Import
7%
19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-line growth was 7% on a reported basis and 7.8% at constant currency. Importantly, on a YTD basis, the personal care
7.8%
wever, EAP revenue declined by 8%. Hence, overall, top-line growth was 7% on a reported basis and 7.8% at constant currency. Importantly, on a YTD basis, the personal care and beyond category has cont
47%
the personal care and beyond category has continued to grow faster than oral and now accounts for 47% of our business. But above all this, after 6 quarters of decline, we have delivered double-digit
16.6%
TDA growth and double-digit PAT growth. Excluding the impact of setup costs in Brazil, EBITDA was 16.6%, a rise of 91 basis points versus the same quarter of last year and 33 basis points sequentially.
91 basis point
uble-digit PAT growth. Excluding the impact of setup costs in Brazil, EBITDA was 16.6%, a rise of 91 basis points versus the same quarter of last year and 33 basis points sequentially. Importantly, absolute EBI
33 basis point
s in Brazil, EBITDA was 16.6%, a rise of 91 basis points versus the same quarter of last year and 33 basis points sequentially. Importantly, absolute EBITDA was 13.2% higher than previous year. PAT at INR 639 m
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Guidance — 20 items
Anand Kripalu
opening
“I'm therefore delighted that EPL has received a rating of A-, which is in the leadership band by CDP, formerly the Carbon Disclosure Project, for performance on climate change.”
Anand Kripalu
opening
“On EcoVadis, on the back of our company-wide Go for Gold effort, we are confident that we will achieve a gold rating this year.”
Anand Kripalu
opening
“This will be our route to building sustainable competitive advantage and long-term profitable growth.”
Anand Kripalu
opening
“COVID in China is expected to continue to have an impact over the next few months and will be compounded by the annual Chinese New Year holidays this quarter.”
Anand Kripalu
opening
“With supply chain easing, we aim to optimize capital allocation by sharply reducing inventory and further spreading our assets.”
Sanjesh Jain
qa
“With this, do we expect EAP coming back to a stronger growth starting Q4?”
Anand Kripalu
qa
“EAP, do we expect a bounce back, absolutely, we expect a bounce back.”
Anand Kripalu
qa
“My specific comment was, over the next few months, we expect a strong bounce back in China.”
Anand Kripalu
qa
“And therefore, I said, we expect a bounce back in Europe in Q4.”
Sanjesh Jain
qa
“On the Brazil side, now that we have started doing the customer trial, a commercial billing can be expected starting next quarter?”
Risks & concerns — 15 flagged
But above all this, after 6 quarters of decline, we have delivered double-digit EBITDA growth and double-digit PAT growth.
— Anand Kripalu
Excluding the impact of setup costs in Brazil, EBITDA was 16.6%, a rise of 91 basis points versus the same quarter of last year and 33 basis points sequentially.
— Anand Kripalu
So in this quarter, we have the impact of both Chinese New Year, which happens every year in Q4, so that's nothing new.
— Anand Kripalu
But the impact of COVID, which is not behind us.
— Anand Kripalu
Now what is leading to a decline in the personal care revenue sequentially?
— Sanjesh Jain
What's hurting the sequential decline in the personal care?
— Sanjesh Jain
I mean, I just want to say that this year, given the challenge in China, and China actually has a very significant personal care and beyond category, particularly in the area of beauty and cosmetics.
— Anand Kripalu
But overall, I think what I would like you to think about is the fact that we've delivered 16.6% margin in a quarter where we have had significant challenge in EAP for all the reasons we've discussed and specifically in Europe this quarter for reasons that we've discussed.
— Anand Kripalu
So actually, in a very difficult country like Brazil, with all kinds of uncertainties -- if you think Indian tax is complicated, you had seen nothing if you haven't seen Brazil, and our teams have done actually a great job in managing this project, and the photographs are there in the deck, and to get ready for production.
— Anand Kripalu
So I would say that pricing is an ongoing challenge, an ongoing journey, but apart from new costs that are coming, we've got a good part of the pricing.
— Anand Kripalu
But do you see delivering a double-digit growth in the medium term sort of a challenge in the current demand environment given that there will be anniversarization of price hikes taken?
— Sameer Gupta
lapping and lapping the previous year, but also as we start coming out of COVID challenge in China and some of the shorter term challenges that we have faced in Europe.
— Anand Kripalu
I understand that oral care as a category has been under a sort of challenge, but is there anything else in this part of the business that you are facing?
— Sameer Gupta
And I understand that oral care players this quarter in FMCG they have alluded to a very weak volumes, actually Dabur has said 4.5% decline this quarter in oral care.
— Sameer Gupta
So -- and you're aware of the currency challenge.
— Anand Kripalu
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Q&A — 8 exchanges
Q
A couple of them from my side. First on the EAP side, now that China has opened up, the things have eased up a lot. With this, do we expect EAP coming back to a stronger growth starting Q4? And have we started seeing early signs of it now that they're already more than a month into that? That's number one. We talked about order postponement. I missed that comment. Can you elaborate what was that? So this is my first question.
Anand Kripalu
Okay. Let me take that. EAP, do we expect a bounce back, absolutely, we expect a bounce back. Q4 is hard for me to comment. And I want to be careful that I don't give anything more than is appropriate on this call. What I said in my opening comments is that the situation of COVID in China continues as of now. And post the Chinese New Year holidays, the infections have probably extended to rural areas as well. So it will take a couple of months for this to subside. Having said that, factories are now operational again. So in this quarter, we have the impact of both Chinese New Year, which happe
Q
Two from my side. So first of all, these price increase efforts with non-contracted customers, where are we in this journey? So assuming that the current level of RM prices sustain, how much more price hikes do we envisaged? And any quantification, any numerical to this point will be helpful, sir.
Anand Kripalu
I don't think we are in a position to actually quantify, but what I will tell you is this. We have got a good part of the price increases that was new to us from non-contracted customers. However, in some parts of the world, like I said earlier, there is continued inflation with continuing cost increases, and therefore, continued effort to get pricing. And in some cases, there have been delays, but now we've started getting a lot of that pricing through. And if you look at just the growth, you will realize that there is a good part of pricing as well coming through. So I would say that pricing
Q
My question is regarding Europe. So we have seen operating losses. So can you talk about how the -- how is the scenario -- demand scenario in Europe and margin scenario going forward?
Anand Kripalu
So I've already commented on Europe in my opening comments. And I have specifically called out the fact that there has been a volume-related challenge in Europe this previous quarter. And that lots of leverage, that lots of scale has impacted the overall P&L performance of Europe, and we've said that upfront. All I can tell you is that, it is not as if, that yes, there is any kind of formal drop to that business and we are beginning to see the volume. And I can share with you that that bounce back is starting in Q4, sitting where I'm sitting and as we speak. So it has basically largely to do w
Q
Could you just talk us through what is going on with the tax in this period? I'm not sure if there's some seasonality around that and there seems to be a few moving parts in the financial results. If you could just help us understand how that ended up being quite similar would be really helpful?
Anand Kripalu
I'm going to pass it on to Amit Jain, our CFO, to tell you about the taxing and throw a bit more light on those numbers. So the tax is the combination of various assessments, which happens. And if you see, normally, we should see tax as a YTD or a full year basis because there are quarters there will be pluses and minuses on the tax. So if you ask me the full year basis, the effective tax rate will be in the range of, say, 26% to 27%.
Q
Sir, I wanted to get some perspective on our growth vis-à-vis industry or some of the other leading competitors we have across the globe. If you can give some idea how we would have grown versus the industry last 9 months?
Anand Kripalu
So unfortunately I don't have specific numbers of how we've grown versus the industry. Our understanding is that our growth have more than kept pace with the industry. So we have at worth held share, but more likely, we have gained share. When you look at our growth versus competitors who have announced results in India and so on, you will see that our growths are ahead, both in India specifically, if you compare India-to-India results, our growths are ahead, --® --•epl llAOING IIIEPACk , , (}(Ii • {fc,r, er , 511. but also globally when you compare, our growths are ahead. So therefore, in ove
Q
Sir, on raw material front, so our COGS is up 7.5% and revenue growth is up 7%. So in light of polymer prices in INR terms coming down by at least 10%, why are we seeing this 7.5% increase in RM cost? Sir, basically, it's on gross margin.
Anand Kripalu
I'll just hand it over to my colleague to answer that question. See, I think you are comparing Y-o-Y as far as raw material is concerned. If you see raw material has gone up to the Q2 of this year and then it started softening. So if you see the sequential number, you will see that it is down by almost around 80 to 90 basis points. So you are saying that to reflect on Y-o-Y terms, it will take -- it will come in lag? So sequentially, if you see, there is a softening on the price which is visible in the numbers as far as RM is concerned. But Y-o-Y basis also it is down by about 10%. No. Y-o-Y b
Q
Two, three questions. One is, again, coming on the RM side. In this quarter, there would still be some cost of the high cost inventory we would be holding. So the sequential price drop would have -- I believe wouldn't have completely reflected in the gross margin expansion. Would that be right?
Anand Kripalu
Ramasamy will answer that. You're right, we hold certain amount of stock. So Ind AS thing has not happened in Q3. It doesn't happen going forward. A little bit of cost reduction will happen going forward. So in light of the price increases which we are talking of and along with the price reduction, if we look at historically, it's not on a quarter, but over last 10 years, if you look at our gross margin operating profile, we had been around that 56%, 57%. So do you believe that the combined effect of these two, we should come back to what we've always been doing or would it still take some tim
Q
Thanks, Tanvi. On behalf of Systematix Institutional Equities, I would like to thank all the participants who had logged into this conference call. Thanks to the management for allowing to host the call and giving all the detailed answers to all the questions. I would like to hand it over to Mr. Anand Kripalu for any closing comments.
Anand Kripalu
No, nothing else really. I just want to thank everyone who is on this call. First of all, who took time for this call. And more importantly, for having supported us through what has been a choppy period in this business certainly over the last couple of years because of all the reasons we know. And I just hope that step-by-step you are seeing us making progress towards not just recovery of this business, but actually taking this business forward. So thank you very much everybody for your faith and your time.
Speaking time
Anand Kripalu
31
Moderator
10
Shalabh Agarwal
9
Sameer Gupta
5
Amit Jain
5
Bhakti Thacker
5
Nikhil Upadhyay
5
Sanjesh Jain
4
Sumant Kumar
4
Pratik Tholiya
2
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Opening remarks
Pratik Tholiya
Thanks you, Tanvi. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who have logged into this conference call of EPL Limited for Q3 and 9 months FY '23. On the call, we have with us Mr. Anand Kripalu, MD and Global CEO; Mr. M.R. Ramasamy, COO; Mr. Amit Jain, CFO; Mr. Suresh Savaliya, SVP Legal and Company Secretary; Mr. Deepak Ganjoo, President AMESA region. I would like to request Mr. Anand Kripalu to start the proceeding with his opening remarks.
Anand Kripalu
Thank you very much, Pratik, and hello everybody, and a warm welcome to the Q3 FY '23 earnings call. In the quarter under review, the operating environment remained challenging in some areas, while easing in other areas. However, in overall terms, the challenges of the past are clearly reducing and things are surely and steadily moving in the right direction. Importantly, all our cost saving efforts have also started bearing fruit. With this context, I am very pleased to report solid results in terms of revenue growth and profit. Excluding EAP or East Asia Pacific, which continue to be impacted by COVID challenges, we posted double-digit revenue growth of 12.1%, which is 12.7% at constant currency, AMESA grew by 9.2%, Americas at 19% and Europe at 10.3%. However, EAP revenue declined by 8%. Hence, overall, top-line growth was 7% on a reported basis and 7.8% at constant currency. Importantly, on a YTD basis, the personal care and beyond category has continued to grow faster than oral an
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