Ladies and gentlemen, good day, and welcome to the UFlex Limited Q2 FY23 results 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, sir. Thanks, Lizanne. Good evening, everyone, and on behalf of ICICI Securities Limited, I would like to thank you all for taking the time to join us on UFlex Q2 FY23 results conference call. From the company's leadership team, we have with us Mr. Rajesh Bhatia, Group CFO, UFlex Limited, and Mr. Apoorvshree Chaturvedi, Director, EU Operations and Sustainability. We would open the call with opening remarks by management, followed by a Q&A session. I would now like to hand over the call to Mr. Rajesh Bhatia, Group CFO, UFlex Limited, to make the opening remarks. Over to you, sir. Thank you. Thank you, gentlemen, for taking your time out for this earnings call for Q2 FY23. At the outset, I would say that this has been a decent enough quarter. Yes, there are a few pluses and a few, you know, sort of things which didn't go the way, you know, they were going in the earlier quarters. While we did incremental revenue of close to about 27% this quarter on a year-on-year basis, and on a year-on-year basis, we have EBITDA at about INR 493 crore, which is again up by 16% on a year-on-year basis, and PAT is up almost 12% to INR 190 crores on a year-on-year basis. The liquid packaging business continues its robust performance. Even on a year-on-year basis this quarter, we have 146% net revenue growth coming from the aseptic packaging business. Even the flexible packaging business, the revenue growth in this quarter has been close to about 28%. For an H1 basis, the revenue is up 36% to close to about INR 7,900 crores. EBITDA is up 31% to INR 1,218 crores. PAT is up 30% to INR 565 crores. Liquid packaging even last quarter it had done pretty well. For H1, the liquid packaging sales revenues are up 145%. Flexible packaging also for a full H1 basis, you know, the flexible packaging category business has about 24% growth in the revenues in the H1, which obviously. This quarter we saw some softening of the raw material prices for the polyester as well as the BOPP films. Obviously when the raw material pricing it fell more towards the far end of the quarter. Obviously then, you know, the prices fall, so you have to adjust your stocks based on the current prices levels and all that. Those things have contributed to lower volume as well as the lower margins in the packaging film industry. We've seen across the industry peers that in the packaging films industry, you know, the margins this quarter for all the players, whether it is SRF, Polyplex, Jindal Poly Films, Ester Industries. Everybody has reported, you know, lower margins as compared to, you know, Q1. But yes, on a year-on-year basis, still, the numbers are much better. That's what is reflected in all these numbers. As I said, the silver lining is, the other businesses are, you know, both the liquid packaging as well as the flexible packaging are, you know, sort of put up a decent performance in the H1 of the current financial year, which has compensated for the loss of revenues and the profitability on the packaging film side. Also for us, you know, post the start of the Russia-Ukraine conflict, I think the energy crisis in Europe has also affected our margins. On a H1 basis, it's versus the same period last year, if I were to see, we have, Hungary, the energy costs are up 120%. Poland, the costs are up about 35%. That has also been an additional factor for the European manufacturers, where the energy costs are impacting the margins. Fortunately, we don't have a crisis in terms of the availability of the energy so far. You know, the plant has been constantly operating for the entire period. We had no, you know, issues with respect to the availability of the energy, both power as well as the gas, so far. Largely, you know, these are the, you know, the financial metrics for the current quarter as well as for H1. The debt level for the company as a whole, the working capital again continues to be a bit of where we are. We spent about, you know, during the period, H1, our working capital, net working capital deployment in our businesses have gone up by about 40%. But our debt level on an overall basis is up only by about INR 200 crore as compared to the last quarter, which is primarily because of, you know, our investments being made in our Dharwad facility, and the Dubai CPP facility. The Dharwad CPP facility has got commissioned in the last week of September. The trial runs for the CPP Dubai as well as for the Dharwad BOPET are currently on. Hopefully in the current quarter or beginning of the next quarter, we will look to, you know, commission those capacities as well. The Panipat expansion for backward integration into the PET chips is also moving at its desired pace. By FY25 is the target when we are likely to complete this, which will, you know, sort of give us more security for our PET raw material as well as will add on to the margins for our packaging, overall packaging films business. So that's it from me in nutshell as to how's been the quarter and the H1. We are open to any questions at this point in time. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue is handled. The first question is from Shubham Agarwal from Aequitas. Please go ahead. Yeah, thank you for the opportunity. My first question was related to the BOPET spreads. I wanted to know what are the key reasons why the spread has, you know, declined so much in the last one or two months. Given that our Dharwad plant is also coming in India, which is a very big capacity, how do you see the spread moving in the near term? I think the spreads are likely to go up again, probably, you know. This current quarter is normally a lean quarter, but, you know, starting next quarter we are expecting that, you know, the spreads will be back. You know, we've seen that Europe in particular, the demand is affected because of the consumption issues and you know, people have to really choose between, you know, they're paying much higher for their energy, so demand is a bit subdued there. Overall, I think after a gap of, I would say, close to about three years, where there has been only one way up on a quarter-to-quarter basis in terms of the growth charting for the whole packaging films industry. This quarter, we've seen a bit of a correction, which is on account of demand slowing down and also some capacity came on stream in India. We don't think that that is going to last very long. Maybe from the next quarter onwards, we'll have the margins again getting picking up. Okay. Got it. In Europe, if I compare to, let's say, March quarter, what has been our volume decline? Because if I see overall volumes from March quarter, it has declined by 9% at a time when aseptic packaging has also come in full force. I wanted to know exact decline in those areas. I think we don't share the numbers, the plant-wise and all that. You know, whatever decline you see on a quarter-to-quarter basis, that's basically because of the. Because if you see on a quarter-to-quarter basis, the numbers for the packaging film or for the liquid packaging as well as for the flexible packaging have had been, you know, like I said, the net revenue in the flexible packaging has gone up by about 24% in the quarter and by liquid packaging about 145%. The Q2 numbers are also reflecting the same kind of a growth. The resultant decline in numbers vis-a-vis the Q1 is only on account of the lower volumes in the packaging film business. Got it. Lastly, sir, my question was on the working capital. Now that we have seen a decline in raw material, when do we think the working capital requirement will, you know, squeeze and we'll have enough cash to repay debt? The debt amortization, whatever is happening, is happening. There, I guided that, you know, normally in a year about out of, you know, long-term debt, which is about INR 3,700 odd crores for us, and the rest is the working capital, and then we have some cash and cash equivalents. That number will go down by about INR 600 crores each year. That's the INR 500-INR 600 crore each year. You know, those repayments are happening. The working capital release is, you know, when the prices come down. The working capital increase for us has been on two accounts. One is the volumes going up, which obviously means that, you know, you require more working capital. Aseptic packaging, as I said that, you know, the last quarter also I said that what we are planning to do is, rather than we planning to do much better than the rated capacity, what we have, about 7 billion packs, from starting from January. Obviously, you know, because most of the items there we import, so, you know, which has a longer lead time. The working capital requirements have gone up in line with the incremental volumes which have already come our way, as well as the incremental volumes, what we are planning from liquid packaging, from Dharwad BOPET, completion. Yes, in the current quarter, we see some respite on the working capital as the prices for the raw materials and the finished goods both come down. Largely, what I'm trying to say is the working capital, the overall debt increase over the last quarter is only about INR 200 crore, which money has gone to fund the projects. The working capital base, largely we funded from the internal resources. Okay. Now, if I see our short-term debt compared to March, it is almost INR 600 crore up. It was 1,491 crore versus 2,068 crore. Do we see a decline in this going forward? I really don't think so that, you know, there'll be much decline in those numbers. Got it. Fair enough. Thank you for answering my question, and best of luck. Thank you. The next question is from the line of Yash Dantewadia from Dante Equity. Please go ahead. Hi, sir. Good evening. This is a very recent set of numbers in the current macro environment. My first question is regarding your previous margin guidance that you gave for this financial year, which was 17%-19% for the whole year. In the first half we've seen a margin of at an average of 14.5%. What is your guidance for the second half, sir? I think we're still looking at about overall for the year as a whole 16% margins. You know, this is predicated now on the volumes coming our way from the liquid packaging starting from January. Even currently in the lean quarters today, we are doing above 90% capacity utilization in that business. Overall guidance with the expected you know margins coming back in the flexible packaging films business, I think you know we can still look at about 16% for the year as a whole. If it's 16% for the whole year, then actually you are expecting the margin to come at around 17%-18%. Sorry to interrupt. Sir, your audio is not clear. Audio is not clear. Hello. Am I clear now? No, sir. Can you use the handset mode while speaking? Because we are not able to hear you clearly. Yeah. One second. Thank you. Okay. Hello. Yes. Yeah. I said, sir, for the second half you are expecting net net approximately 17% to clear the whole financial year with 16%, right? About 16%. Yes, you are right. Yeah, my second question was with the aseptic packaging capacity utilization. Could you please make me understand how you kept the capacity utilization at 90%? Was it mainly because of exports? Yes. The lean months now we are doing about 50% exports from the plant, and the export market continues to be very, very exciting. Wow. That's this is really astonishing because I really expected the capacity utilization to come at a lower point, especially in the non-seasonal time. that's really good to know. Also, with related to your Bharuch capacity, when do you see the capacity utilization levels to move, let's say up to 80%-90%? how much time do you think it will take you to scale it up to that level? That's my first question. Maybe about. With the current demand scenario, of course. 12-18 months' time. What would be your peak revenue as per the current spread when this reaches at 80-90% capacity utilization? I think at about 4,000 tons a month, it should give you about INR 700 crores top line. Okay. Sir, could you talk more about the raw material prices and, you know, the availability and how do you see the raw material pricing going forward? The raw materials have corrected and in line with the demand-supply equilibrium. The availability is now also much better. I think we're not seeing any issues on the availability as we were seeing earlier and the freight prices have also come down. Overall I think this adjustment which is now happening will probably end by the end of this quarter. Then we have a relative stability on the raw material prices as well as the freight prices and all that. That will be you know a right time to you know predict you know the prices for the next one year or so. Right now it's you know the We've seen that, you know, the prices have moved down, raw material in the last quarter and they are marginally gone down in this quarter as well. So that- Are we passing it on completely? The raw material prices coming down, are we passing it on to our customers immediately? For the spot customers, yes, you have to do. For the customers where they are linked to the indices or benchmarks and all that, there is a bit of, you know, lag. Falling packaging film prices means, you know, that flexible packaging which was under pressure because every quarter we were seeing the prices going up and all that. They stand to benefit because, you know, they are the ones who have, you know, the past month index-based contracts normally. Has there been any update with your Dubai listing? No. That is, I think we have to wait because of the market conditions and all that. We are constantly in touch with our investment bankers, and they are now looking at somewhere in the Q2 and Q3 of the next financial year. When they say Q2, Q3, that's based on a calendar year basis. Okay. My last question. Sorry for taking so many questions. Regarding your Panipat CapEx, could you please tell me what kind of ROE are you expecting on that CapEx? About 18%. Okay. Thank you so much. Thank you so much for your time. Have a great day. Thank you. Thank you. We'll move on to the next question. That is from the line of Jiten Parmar from Aurum Capital. Please go ahead. Yeah. Good afternoon. This was a difficult scenario I am kind of tracking this polyfilm company and I think company has given a reasonable performance. My worry is, you know, on another call I heard that there is 40% capacity additions in three years in BOPET. If that is true, will it not lead to a supply glut? That is my question, and if you can throw some color on this. I think I don't think so that is 40%. You know, whenever there's a bunching of a capacity, you know, that's where it affects the business in a quarter or in two quarters and all that. Given that Indian demand is growing at about 10%-11% for the packaging films, I think this capacity adjustment will be much faster. The only thing is that, you know, when the events, all of the events happen at a particular at a one point in time, like, you know, Europe going down in terms of the in terms of the consumption and that affecting, you know, the volumes over there. In India, some of the capacity is coming into play. I think, so that is where I say that, you know, if we take the current quarter out, so next quarter things should be back in line. Okay. Asepto, long back we had, you know, when we started and we were expecting 20% kind of margins. Is that happening? I mean, what is the status there on Asepto? Asepto margins, I would take it as anywhere between 15%-17% on a normalized basis. This, you know, when we started our new plant and there was so much demand requirements and, you know, we could not adjust the plant fully, so we had a situation where, you know, we had more wastage which led to fall in the margin. When I look at the current profitability, that is built on about 10%-11% margins from that business. But normally our guidance on a medium to long-term basis, our guidance on that business is 15%-17% or 18% kind of a margin, depending, you know. That variation will be more, you know, because of the paper or the foil prices. Otherwise, you know, we've till date achieved those numbers in that business over the years, over the last couple of years. Because of this new plant commissioning and all that, the wastage was slightly higher, which have been addressed now. Okay. Yeah, I mean, I've been following Asepto division for a long time, and finally it seems that, you know, things are getting in place, though it did take longer than what I think all of us expected. It is good to see that, you know, it is going in the way. Now, you did mention in earlier question that capacity utilization there is 90%. Is there any plan of any expansion there in the future? And if yes, then what will be the CapEx for it? No, the first plan is, instead of 7 billion packs, can we from the same plant deliver 9 billion packs. That's the first endeavor. Once we complete that and we will be able to book that capacity, I think that's when we will, you know, sort of start ideating about, do we need to expand capacity there, and if that expansion has to be in India or abroad, given that, you know, the export markets have really, you know, we've really done well in terms of exporting. In fact, you know, this quarter for us has been our highest ever exports ever in the history of UFlex. Which is led by our Asepto packaging division as well as our chemicals business. Both are, you know, the exports have increased tremendously. Perfect. One feedback I would like to give is, you know, if you can have a investor presentation every quarter explaining, you know, the mechanics of the different business, how they work and, you know, some more granular details, if they are given, it will help. Just a suggestion from my side. Question-wise, that's all I have. Thank you. Sir, we've said that, you know, we're happy on the call to explain to you some more insights. Because of certain, you know, competition dynamics, other dynamics, I think, we are refraining from, you know, on the call telling you as to what numbers for each business and all that. You know, we'd like to keep it this way for some more time and then see. Sure. If I may ask a question on this. Asepto, you know, what is the kind of revenue which we can do this year and what are our expectations for next year, as a separate- I think- -division. I think if we start doing about, say, 700 million packs or 800 million packs from January, we should look at about 1,500-odd crore. Okay, great. Okay. Thank you so much. That's all. Best of luck. Thank you. The next question is on the line of Kaushik Poddar from KB Capital Markets Private Limited. Please go ahead. Yeah. See, there is a good amount of other income in the announced result. Is it operating income or That's all operating income. It's all operating income. Why is it categorized as other income? Because of the accounting norms. Something which is not sale and purchase, you know, that is not recorded as a revenue. That is recorded as an other income. Okay. It's all operational income. Nothing to do with an exceptional item or anything. There's none of that sort. Okay. You just guided for a 17% operating profit margin for the second half. Does it mean it will start, that 17% you'll hit this quarter itself or it's a combined, third and fourth? No, I think it is the H2 one that I'm saying, so not necessarily in this quarter. Okay. This INR 600 crore repayment, will that happen this year also or you're talking from next year? I'm saying even this year we had about INR 500 odd crore of the repayments. Okay. Which are being done gradually as they mature. Normally in the next couple of years, we have a number of about INR 600 crore every year which is being paid. Today, we have not seen a fall because we are adding on to the debt for our Dharwad, Dubai, and now for our Panipat facility. Lastly on the circularity front, I mean, if you can say something, what is the scenario you're looking at for the next two to three years? I think what we- I think Chaturvedi is also there probably. He also can highlight these things. I think we are probably working quite extensively on some of these aspects, and we've realized that, you know, whatever we've done in the past, to begin with in our plants in India, that has been acknowledged. There are new EPR guidelines which are now promoting recycling, which are now promoting biodegradable packaging. In line with our success there, we are also setting up PCR facility in Mexico. We are also doing a multi-layer packaging recycling facility at Poland. We are also doing in Egypt, again, a PCR facility, which is like converting the PET bottles into the PET chips and using them for making the PET films. The idea is while the raw material it enhances your raw material security, this also works out to be a bit cheaper as compared to, you know, your virgin raw material. It's the ultimate product that is made out of the recycled PET chips, which is the PET film. You know, that gives you a better pricing in the market. You know, going forward, I think that is the way to be, and it's better to be a pioneer and take a, you know, a first mover advantage in that field rather than, you know, just waiting, watching a situation and then following others. You know, we have taken, you know, quite aggressive positioning in terms of showcasing as well as in terms of ensuring that, you know, while we do all these investments, but because they also increase the circularity, they also mean a higher profitability and higher margins for us. We're quite aggressive across most of our facilities to promote the recycling and the use of the recycled raw material. That's been the end result. In India you know that the new EPR came into effect from July of this year. Again, though that has been deferred by a year, but you know one thing is very clear on that the government is focusing on biodegradable as well as the recycling. You know, we have capability in both of them. Obviously, next couple of years as the brand owners have to have higher obligations each passing year to you know reaching up to 100% levels. I think these investments are going to be quite good in the times to come. Mr. Apoorvshree Chaturvedi also is here that if he can also contribute, I will request him to kindly give his views on some of the. Hello? Hello. Yes. Hello. Hello. If that answers your question, then. Yeah, that answers my question. I mean, if you can add something then that'll be great. That's it. Hello? I think let's move on. Thank you. The next question is from the line of Avni Shah from Arka FinCap. Please go ahead. Hi. I just wanted to ask, what will be the peak debt that is expected? I think we'll be not going to add much of the debt. I think except Dharwad now all other things have been completed. You know, while we add fresh debt, maybe INR 100 million, but we'll pay that much also during the next 12 months or so. Okay, fine. Any CapEx guidance other than this Panipat plant? No. As of now, nothing. You know, there could be a few. In a large facility like this, you know, there are always some of the balancing equipment and all that, but there is no capacity increased CapEx that is there as of now. Okay, got it. Thank you so much. Thank you. The next question is on the line of Adarsh Isha from Sushil Finance. Please go ahead. Hello, am I audible? Yes. Yeah. Thank you for taking my question. I have two questions. Number one being, is there any competition or something to the Asepto business? If you could throw some light on the entry barriers. Asepto, you know, there is already a competition because you have Tetra Pak, which is the biggest daddy. They are in India for many years, and they basically, you know, have a sizable chunk of the market, maybe over 70% market share that they have. That competition is always there. The market is growing, as I guided earlier also, at 18%-20% annually. Obviously, you know, in a high market, maybe in the next couple of years, maybe we can have one more entrant also in the market. When the market is growing so fast, the existing players also. We're not saying that, you know, we've come and the Tetra Pak has shrunk. While they may have shrunk in terms of, you know, their market share, but if we look at the overall volumes and numbers coming from them also, they'll be equally happy. Okay. Sir, one more thing. The backward integration plant, which is there, I think in Panipat, right? How much would that translate into the margins, if you could quantify it, a ballpark number? Yeah. I'd said that, you know, that project has an ROE of, ROI of about 18%. You know, it cost us about... That project cost, we've already communicated to the markets about INR 587 crore with a 18% kind of a return that we are expecting from that. I think, but you know how much it means for the finished business and all that, you know, I frankly don't have the calculations with me. Okay, sir. Just, you know, we spent in the H1 on purchasing of new PPE because, as I see, there is a little bit of jump in the cash outflow. Purchase of, you know, is there any- Purchase of? Property, plant and equipment. Okay. Is there a significant CapEx or we've just finished our CapEx, whichever, whatever we had taken up or something like that? There's no other CapEx other than what we have; we've already disclosed. Anything which is not capacity accretive and all that will still be there, some coating machine here and there and things like that. You know, the larger ones are only contributing to the increase in the PPE. Do we have a definite number per year which we allocate to the replacement and maintenance CapEx or just normal allocation? No, no. There's no number on that. Okay, sir. Thank you for taking my question. This is last. Thank you. The next question is on the line of Rushabh Shah from Anubhuti Advisors LLP. Please go ahead. Thank you for the opportunity. Sir, just one question on these post-consumer recyclate and multi-layer plastic recycling facilities which we are planning in Mexico, Poland and even Egypt going forward. What are the CapEx that we are emphasizing on these and what are our internal numbers, revenue or maybe margin guidance or ROEs which you can help us? How soon can we expect these to be commissioned? I think these will be all commissioned within this financial year itself. I think the ROIs currently are a bit unbelievable. These investments are really small, depending on the size. The sizing of the plants range from you know $3-$4 million each plant to about $10 million at best. Okay. These will be largely funded from internal accruals itself. There may be, if there are some, you know, facilities available where you get a benefit in terms of, because, you know, these are recycling and all that, so we always like to avail that. Any cheaper financing options available for any of these? Post that also we are planning to repay almost INR 600 crores of debt this financial year, correct, no? Yeah. I think this year was probably INR 500 odd crores. Next year it is. FY24 is about INR 600 odd crores. Understood. Any sort of this recycling plant or recycled plant you're planning in India? I think the last quarter- India we already have at our Noida facility and all that. There's no plan there. We just for the aseptic recycling we're doing a small investment. I think that's INR 4-5 crores. That is what we are doing. Perfect, sir. That's all from my side. Thank you. Thank you. The next question is on the line of Rohit Sinha from Sunidhi Securities. Please go ahead. Yeah, hello. Am I audible? Yes. Yeah. Thank you. Thank you for taking my question. Just wanted to understand when we are already knowing that there is overcapacity. I mean everyone is talking about overcapacity in global space. Normally, I mean, what time frame it takes to absorb these kind of capacity addition and when we are expecting a normalization in demand-supply scenario? I think just to get your question split into two parts. Internationally there is no overcapacity situation. We've seen some because of the European consumption decline, we've seen some impact over there. But you know there that is not an oversupply situation which is impacting over there. In India you know there is a couple of plants which are coming into play in H2 now, including our Dharwad facility and all that. I had said that you know next quarter onwards, I think that adjustment would have already happened and you know the margins will be back to their normal. Okay. Just maybe someone has already asked, sorry to repeat, but looking at the current debt profile and looking at our strong cash generation, the business also. Just wanted to understand, since there's no major CapEx lined up post all these what already I mentioned. How is our debt would be looking in next two to three years, maybe 2024, 2025? Any further CapEx plan lineup? I think I've already answered that by giving you an amortization schedule of our debt. Other than what we've already disclosed in terms of our expansion plans, there's nothing we are likely planning underway. I think after we complete Dharwad, we see our numbers on the aseptic packaging beginning from January, coming January. I think that's the time when you would look at, you know, evaluate and then see whether you need to invest more at or consolidate for some more time and make plans accordingly. As of now, whatever is there, we've already shared with you. Okay. In our overall portfolio, how much would be the contribution from the value-added products and are we looking to expand the portfolio going forward for this value-added product? I think we are doing that. As I said that, you know, we, this requires investment in some coating machines and all that, which is being done in Egypt as well as in Mexico. We're looking to do, you know, sort of more value-added, from there. I think that's the way to go. You know, the recycling, the PCR, the MLP and some of the facilities, which are, you know, give you the value-added sales. in terms of adding more value-added products for going forward. I'll not be able to give you more guidance on this as of now. I think let's wait for one more quarter or two more quarters to, you know. Okay. W'ell tell you as to how we guide you for the value-added part. Value-added part would also be PCR, would also be some of the coating, investment that we are doing. Certainly that would lead to margin expansion to the- That's what we expected. Okay. That's it from my side. Thank you. Thank you. Ladies and gentlemen, that's the last question. We thank the management for this call on behalf of ICICI Securities. That concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.