EPL Limited (EPL) Q2 FY23 Earnings Concall Transcript

EPL Limited (NSE:EPL) Q2 FY23 Earnings Concall dated Nov. 07, 2022

Corporate Participants:

Pratik Tholiya — Vice President

Anand Kripalu — Managing Director & Chief Executive Officer

Amit Jain — Head of Treasury

Deepak Ganjoo — President of AMESA

M. Ram Ramasamy — Chief Operating Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Sameer Gupta — India Infoline — Analyst

Jenish Karia — Antique Stock Broking — Analyst

Samridh Rela — Value Research — Analyst

Shalabh Agarwal — Snowball Capital Investment — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY23 Results Conference Call of EPL Limited, hosted by Systematix Institutional Equities. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Pratik Tholiya from Systematix Institutional Equities. Thank you, and over to you, sir.

Pratik Tholiya — Vice President

Thank you, Lisan. 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 FY23 earnings.

From the management team, we have Mr. Anand Kripalu, MD and 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 — Managing Director & Chief Executive Officer

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 costs, and these have affected many businesses globally.

In addition to this, the quarter saw unprecedented currency devaluations 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%, Americas at 19.7% and Europe at 8.9%. EAP delivered a growth of 1.5%, despite the COVID-related challenges.

During the quarter, the category that we’re now christening as personal care and beyond, which include B&C and pharma, etc., saw strong growth of 17.7%. Oral care grew by 6.7%, predominantly affected by EAP. Over H1, EPL 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 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 saving program has started to bear fruit. And despite continued rising costs and currency devaluation, we delivered sequentially improved margin. In fact, we are pleased to report broad-based sequential improvement in absolute EBITDA across all regions. Our net profit saw a sequential growth of 39.7% at INR482 million. Considering the widespread external challenges, we are pleased with this set of numbers. EBITDA, including setup costs in Brazil, which are really for long-term growth stood at 16.1% and PAT stood at INR462 million.

Sticking with the subject of Brazil, I am pleased to share that the project is very much on track. Construction activity is in full swing and recruitment activity is very much in progress. As committed earlier, we will commence commercial production by the end of this fiscal. What’s exciting is that several local and global players are evincing interest in our Brazil supply base.

During the quarter, we have also made good progress on winning new business and driving sustainability. As far as innovations and business wins is concerned, EPL continues to lead the industry in innovation and design disruption with offerings like the Neo Seam, which minimizes the visual impact of the site seen. We are pleased to have received the first commercial order for this technology.

We have also developed Zydus 16 [Phonetic] spin breaking tube, which is a special tamper evidence design. Our focus remains on growing the laminated tube market by converting aluminum tubes and rigids. There are some more of these wins this quarter. We have recently been awarded for our anti-counterfeit tube and Platina eco-friendly tube.

Moving on to sustainability, sustainability remains our key focus area, be it product, process, or people sustainability. We are pleased to announce that two variants of Platina and Platina Pro Me and Platina Pro Vision have been recognized by APR, which is the Association of Plastic Recyclers, in the USA. Platina Pro Me provide a metallic look to an eco-friendly tube, while Platina Pro Vision is a transparent tube. Both these innovations provide aesthetically appealing tubes, which are fully recyclable.

In addition to five oral brands globally, two additional brands in personal care and beyond have embraced the Platina solution. Our target is to double Platina volumes in FY23 and I am pleased to report that we are very much on track. We have persisted with our CSR program to deliver benches made with recycled plastic to school, to accelerate the skill development program, and to invest in enhancing the quality of life of the communities who live around our plants.

Finally, but importantly, we have launched a company-wide effort to Go for Gold on EcoVadis. Overall, EPL will continue to drive sustainability in line with our long-term ambitions of becoming the most sustainable packaging company in the world. 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 have emerged. These include COVID, volatile and then inflating raw material prices, high energy costs, exacerbated by the Ukraine conflict, wages and freight. General unprecedented inflation in the western world are devaluing currency across the board and this presents new emerging challenges. Clearly, volatility and unpredictability is the new norm, and we need to stay even more vigilant and agile in this new world.

The good news is that we know how to manage these situations as demonstrated in the last quarter. We will continue to keep one foot on the accelerator growth by hunting down new business, while keeping the other foot firmly on the brake of costs.

Some of the interventions for the next quarter include 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 efforts on driving sustainability and managing raw material costs that had been adversely impacted by spiraling devaluation. Considering all these factors, we remain cautiously optimistic about the future and are committed to our stated objectives of delivering sustained profitable double-digit growth with margin recovery.

Thank you. And, with that, we will now open this up for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] First question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Yeah. Good evening, sir. Thanks. Thanks for taking my question. Couple of them. First on this currency movement, can you help us understand how exactly it hurts, sir? 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’s only US geography, but I would like to hear the complete currency movement and how it impacts us in each of the business segments? Thanks.

Anand Kripalu — Managing Director & Chief Executive Officer

Okay. I’m going to pass that on to Amit Jain to respond to that and if there is anything else, then I’ll add to it. Amit, do you want to take the point on currency?

Amit Jain — Head of Treasury

Yeah. 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 the India and China, where we are manufacturing the laminate structure, which is raw material, and then it’s an impact which goes into all countries, because as a base cost which is — landed cost has increased because of this currency movement. So because of this devaluation, the landed cost of material goes up. So that’s how it impacts in each of the countries wherever we are buying the raw material from India, China and the polymers in India and China.

Sanjesh Jain — ICICI Securities — Analyst

Basically, you’re telling there is no benefit, because I think we also sell to US, which should have positively — we buy — at least if not positive, it should be neutral, but I’m still not very clear, Amit, on the currency impact, because, historically, it has — we have not seen currency hurting us, if I take a long-term view of this business, say, if I look at last five, six, seven years, where currencies against the dollar have been continuously devaluating, but that has never shown up in the margin, why this time that is different?

Amit Jain — Head of Treasury

So, Sanjesh, there are two things. One is the currency movement this year and particularly if you see last six months, it is enormous, it’s not a normal devaluation, which we see on a longer term. But if you see for last six months, all the currencies against dollars have moved substantially — depreciation. So that is one, which is impacting. And then there are two things, one is on the cost side and then it — there are pass-throughs also for the non-contacted customers where landed prices is also a function of landed cost, the revenue part. So the major reasons this year is basically the substantial movement in the currency. And when you compare it with historically, those movements are not that substantial.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Let me…

Anand Kripalu — Managing Director & Chief Executive Officer

Let me just add what Amit is saying, see, a large part of our polymers are bought in dollars, just so that you’re clear. Those polymers come into India and China and are converted to laminate, so the input costs that go into India and China are — a large part of it are dollar-denominated.

Sanjesh Jain — ICICI Securities — Analyst

No, no, that’s what I was coming to ask [Speech Overlap].

Anand Kripalu — Managing Director & Chief Executive Officer

Now only small part of that goes to America, right, the rest of it goes to Europe, where the euro and the Polish zloty have devalued, comes into India for the rupee and goes into China itself, where there is a small devaluation of the Chinese currency.

Sanjesh Jain — ICICI Securities — Analyst

No, no, that’s 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 we buy it 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.

Amit Jain — Head of Treasury

See, Sanjesh, if you see from India and China perspective, India, because we are buying the polymers in dollars, we are net importer in India and these polymer purchases definitely impacts the landed cost of the polymer.

Sanjesh Jain — ICICI Securities — Analyst

Agreed.

Amit Jain — Head of Treasury

Yeah.

Anand Kripalu — Managing Director & Chief Executive Officer

No, no, but just so that we are clear. All our contracts [Speech Overlap].

Sanjesh Jain — ICICI Securities — Analyst

Aren’t they linked? I thought, I thought — this is linked, so basically you’re telling that you’ve always remain that if currency depreciates, the hit is on the EPL or it gets passed on to the customer, the perception was that it is well known and that conversion generally get passed on it. Just a timing issue or you think this is a structural issue where we will have to face the impact on the margin, because of the currency?

Amit Jain — Head of Treasury

It’s a timing issue only. For the contracted customer when we take the material prices, it is a landed price, which includes the foreign exchange also. So it’s only a timing difference.

Sanjesh Jain — ICICI Securities — Analyst

It’s just a transactional issue, right? Next or a quarter beyond that, that currency should not hit us incrementally, correct? We should normalize for the earlier level, is that assumption right?

Amit Jain — Head of Treasury

Yeah. That’s right, Sanjesh. But then when it gets into the timing difference, there is always be a lag, correct, on the pass-throughs and other things. So that impacts.

Sanjesh Jain — ICICI Securities — Analyst

No, but the thing is that we have one side polymer prices falling in the absolute dollar term and then there is a currency. I thought in the rupee terms, it has not — because I tracked a lot of polymers and I have seen, in rupee terms, they have actually fallen despite currency being weaker, so that makes me even more that — the polymer prices drop is much higher than the currency, why this should happen, right? We have taken a price hike for the higher polymer prices, now I understand there is a currency mismatch, but I am telling we got a much bigger offset in terms of polymer prices itself falling. It is just we were sitting on an high-cost inventory and hence this is happening, no? I’m not able to reconcile, because the results of other polymer companies and the reasoning is very different.

Amit Jain — Head of Treasury

Yeah. But this currency movement, which has happened this quarter — for the current, which is going on, the depreciation of INR and dollar is huge and [Speech Overlap] we’re offsetting the softening of the prices.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Let me take it offline. I will send you the prices, probably we can have a more discussion. But my second question is more on the freight side. I think, I can understand power costs in Europe is elevated, but falling freight costs now should be an incremental margin driver in the quarters coming by. Will that be a fair assumption?

Amit Jain — Head of Treasury

Yes, Sanjesh. Freight costs are coming down. This will help. Compared to the last three quarters, prices are coming down. Yeah. Freight is coming down.

Sanjesh Jain — ICICI Securities — Analyst

Right. Anand sir, if you can give us more color in terms of how the market is shaping up? Sequentially, we had a phenomenal growth of 12% [Phonetic], but we are still below the peaks in what we have done in EAP, how should one see the EAP shaping up from here with COVID restrictions slightly coming down, at least it is moving on the easing side?

Anand Kripalu — Managing Director & Chief Executive Officer

So, absolutely, I think the worst is behind us. But all the restrictions have not gone, okay. So what has happened is, right, in Q1, we were kind of minus 6% revenue in EAP. Right now, we are at plus 1%, 1.5%, okay, but we are not back to where we need to be and I think that’s where some other restrictions that are in the short-term at least hurting business, those restrictions are still there, right. We were expecting some big announcements post the Communist Party Elections, they have not happened and, yet — so therefore the zero tolerance policy continues.

I think, the silver lining for us in EAP is and clearly the best is to come, right, and the worst is behind us. I think, the silver lining is that despite a significant impact on topline, right, the overall P&L is very, very robust. And the confident that certainly I take away is that as things start loosening up in terms of the restriction, right, I think, we will get huge positive leverage as far as the EAP is concerned.

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’s what we are all aiming to serve.

Some of the geopolitical issues, right, and not just for us but even companies like Apple and Tesla and everybody else, some of those geopolitical issues could impact EAP, particularly China, as a global sourcing hub for multinationals, right. Everyone is trying to build a Plan B against the sole China as a supply base, right. So some business is going to shift out of China. But our business, I think, is well set up to serve the local market. We have huge headroom to gain share and grow our business. So I remain, I would say, positive about how we managed the crisis in China. The fact that things will only improve, right, as each subsequent month come and that will help the business. So that’s how I see it.

Sanjesh Jain — ICICI Securities — Analyst

No, that’s fair. That’s fair. My last question is on the pharmaceutical side. That business looks like still not growing, while we remain quite optimistic on aluminum tubes shifting to laminate. But in terms of performance, if I look at pharmaceutical, it has really not delivered the anticipated results, but the growth in beauty and cosmetics are fantastic, but that’s not replicating in the pharmaceuticals. You had any one-off or any challenges that we’re facing in the pharmaceutical side of the things?

Anand Kripalu — Managing Director & Chief Executive Officer

So I will say this that the pharma is doing really well in America, right. But we have a lot of work to do, to crack bigger unlock, right, in the other regions as far as pharmaceutical is concerned, where our business is relatively small.

Sanjesh Jain — ICICI Securities — Analyst

No, no, I am telling that even within — unless we are not growing that industry, the revenue is flattish Y-o-Y.

Anand Kripalu — Managing Director & Chief Executive Officer

I don’t know if we — have we shared the numbers there, Deepak? You are there on the line.

Deepak Ganjoo — President of AMESA

We do share that on the presentation.

Anand Kripalu — Managing Director & Chief Executive Officer

We shared pharma growth numbers for AMESA?

Sanjesh Jain — ICICI Securities — Analyst

No, you shared the mix number, I derived the growth number.

Deepak Ganjoo — President of AMESA

Sanjesh, there are lot of conversions in India within pharma is taking place. We are actually doing really well in pharma.

Anand Kripalu — Managing Director & Chief Executive Officer

Yeah. And Sanjesh, if you see, half yearly, pharma category has grown for us.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Yeah. Fine, sir. Fine. That’s it from my side. Thank you for answering all the questions, and best of luck for the future.

Anand Kripalu — Managing Director & Chief Executive Officer

Yeah. And do pick up this issue of FX offline, because actually it’s a very simple and clear issue and maybe we have not given you enough clarity here, right, and the only point I want to leave is that FX challenges that are there are all built into contractual customers. So it will never be out of pocket apart from the phase lag that Amit spoke about. So it is not as if it’s going to be out of pocket if there are significant currency movements.

Sanjesh Jain — ICICI Securities — Analyst

Point noted, sir, and I will take this offline [Speech Overlap].

Anand Kripalu — Managing Director & Chief Executive Officer

All right.

Sanjesh Jain — ICICI Securities — Analyst

[Speech Overlap] discuss it. Thank you.

Anand Kripalu — Managing Director & Chief Executive Officer

Okay. Thank you.

Operator

Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.

Sameer Gupta — India Infoline — Analyst

Hi, sir, and thanks for taking my question. Just following up on the previous question. So what I noticed is that most of the RM prices, aluminum, HDPE, etc., they have been continuously declining in the past six months and there has been a 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 margins? AMESA, America, Europe, all three regions have seen a sequential decline. Now Europe, I understand there have been multiple issues in terms of energy, etc., but what exactly are the reasons in the other two geographies? Is it mix, is it something apart from currency that we are missing, because — over to you on this, sir.

Anand Kripalu — Managing Director & Chief Executive Officer

So, I think — and I’ll give a few lines there and then the team in the boardroom can elaborate on it. I just want you to recognize that our consumption cost of inputs, right, which is the entire cocktail of polymers, aluminum, all that put together, our consumption costs actually peaked in Q2, right, and that’s based on the inventory that we carry, right. So I just want to clarify that point that consumption costs will come down, right. Part of it is going to be eaten up by the FX movements that we’ve discussed as a response to the previous question. But in this quarter, right, consumption costs actually peaked because this is what we consumed here between July and September in what was bought three months prior, right, three, four, five months prior and that was when we actually hit the peak of input costs, okay, but over to Ram, Amit, to comment anymore on that.

Amit Jain — Head of Treasury

No. You’re right, Anand, that this quarter was a peak quarter for the consumption. And, Sameer, for your question on the sequential, I think, from the sequential angle, all the regions have grown in the EBITDA absolute and EBIT absolute. So I’m not sure that on the sequential number why you are seeing that.

Sameer Gupta — India Infoline — Analyst

Yeah, Amit, I was mentioning about the margin, not the absolute amount. Second question, sir, from my side…

Amit Jain — Head of Treasury

[Speech Overlap] even for margins, I think, Sameer, for all the regions and — AMESA is at a small dip, but on the other regions, even margins have improved compared to June sequentially.

Sanjesh Jain — ICICI Securities — Analyst

Yeah. I mean, fair, fair. On the other side, sir, so what we have seen is, historically, we have delivered 18% to 20% of EBITDA margin even in times which were challenging. Now I know the reasons and we have seen a dip in margin to around 15%, 16%. What is our thought process here. So if you are, let’s say, getting a double-digit growth, are we okay with this kind of a margin or the strategy is clear that we have to claw back, plow back, back to our hygiene margin of around 18%, 20% even delivering with this double-digit growth?

Anand Kripalu — Managing Director & Chief Executive Officer

So I want to make this very clear, okay. Now — and I’m not going to get to 18% or 20%, right, but our absolute aim is to restore the profitability of this business. The profitability, right, say for any translation losses that have happened because of pricing, right, because of the mathematics of the numerator going up and the denominator going up as well by the same amount, okay. So that is our aim, right. And I’m not going to give quarterly guidance and so on and so forth, but our strategy and all the efforts that we’re putting in, right, is absolutely aiming for us to get there. The concern is — and that’s as much of a concern for us is that every time you put a complete plan in place and you feel you are — that that goal is around the corner, another bit funny happens like this quarter was FX, okay. It was just a bit funny that happened, right, and it hit up. And, yes, it is — there is a phase lag thing, but in this quarter we did eat up, right, a sizable amount of margin, okay.

So, I think, fundamentally, the way you guys should look at this is to say that — and I’m not going back to the denominator number, but sequentially, right, this business has moved forward, right. The last quarter Q1 was the worst margin we had, right, in many, many years at 15.1% when, I think, we were in the midst of that perfect storm, okay. Now certain levers have started improving, while certain levers have continued to pull us back, but the good news is that more things have taken us forward than have pulled us back, right. And, therefore, you got to believe that some of the interventions have started bearing fruit.

Now I called out the kinds of the scenarios that we’re in and the kinds of things that we’re doing, okay. And at some point in time, uncertainties and unknowns are going to disappear, right. I mean, there are only so many variables in the P&L finally and the environment. And then our absolute aim, right, and I don’t think this management team is going to rest till we get back to the levels of profitability that we enjoyed as a business, right, say for any percentage losses due to transformation. So I just want to be very, very clear about that.

Sameer Gupta — India Infoline — Analyst

Sir, just a clarification, when you say profitability, do you look at the margin or do you look at the EBITDA per tube kind of a metric?

Anand Kripalu — Managing Director & Chief Executive Officer

No, no, I’m going to look at EBITDA per tube kind of metrics for a moment, right, because like I said percentage has a translation loss associated with it.

Sameer Gupta — India Infoline — Analyst

Great, sir. I’ll get back in the queue for any follow-ups. Thank you. Thanks a lot, and all the best for future.

Anand Kripalu — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.

Jenish Karia — Antique Stock Broking — Analyst

Yeah. Thank you for the opportunity. The first question is with regards to Brazil opportunity. So what kind of — sir, last quarter, if I’m not wrong, we had announced some amount of investment funds and so what will be the full year investment amount in that? What is the market size, the opportunity that we aim, and some color on what revenue potential that we see from this region?

Anand Kripalu — Managing Director & Chief Executive Officer

So, I’ll just tell you that our interest in the Brazil opportunity actually have gone up in terms of excitement, because ever since we made the announcement and started the investment, right, and our plant is kind of — at least the shell of the plant is almost ready now and equipment is on the high fee, right, the amount of queries and interests that we have felt from multiple other local and global players, right, is very, very helpful, okay. 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, right, because I don’t think it is appropriate at this point in time to give you a sense of what the potential is for the revenue contribution that Brazil is going to be, right. I’m conscious that you guys want to know something and we will do it at the right time, right. But I don’t want to hazard giving you something now as this project is evolving now. Obviously, we have a business case internally, right, and the business case aims to deliver a good quality of payback in line with the nature of business that we’re in, okay. But beyond that, I don’t think we would like to share at this stage more about the revenue or margin potential that the Brazil opportunity offers. Now, Amit, what have we said earlier? Is there any more flavor that we are in a position to add on the investments that we’re going to make in Brazil?

Amit Jain — Head of Treasury

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

Jenish Karia — Antique Stock Broking — Analyst

Okay. Encouraging. Great. So, for now, what I understand is that a capex of INR1.3 billion for FY23 what is committed and as and when there will be developments we will be knowing about it, correct?

Amit Jain — Head of Treasury

Yeah. Yeah. Yeah.

Jenish Karia — Antique Stock Broking — Analyst

Okay. And the second question is on part of other expenses, so that have gone sequentially, so is it only primarily because of the foreign — ForEx loss or some base fundamental terms?

Amit Jain — Head of Treasury

See, again, in the other expenses, Jenish, there are part of like peaking [Phonetic] material cost and the power and fuel also, which is going higher sequentially, and you know that Europe market and even in AMESA region, there are some disruptions on the power supplies. So that is impacting the other expenses.

Jenish Karia — Antique Stock Broking — Analyst

Okay. Okay. And, sir, one question is on the gross margin perspective, so correct me if I’m wrong, so we are seeing a polymer price is declining and that the…

Operator

Sorry to interrupt, Mr. Karia, we are not able to hear you clearly.

Jenish Karia — Antique Stock Broking — Analyst

Yeah. Is it better now?

Operator

Sir, can you use the handset mode while speaking and not the speaker phone?

Jenish Karia — Antique Stock Broking — Analyst

Yeah. Is it better now?

Operator

Much better. Thank you.

Jenish Karia — Antique Stock Broking — Analyst

Yeah. So next question is on the gross margin perspective. So gross margin has declined on a sequential basis. So correct me if I’m, your polymer prices have declined and the benefit of that decline has been offset by increase in the dollar rates, so is it because of that or, I mean, how do we look at the gross margin contracting lines [Speech Overlap].

Amit Jain — Head of Treasury

Jenish, if you want to seek quarter two specifically, the quarter two was the peak for material consumption, because whatever we bought a previous — earlier, that has come as a consumption in this quarter. So Q2 was the peak prices for materials.

Jenish Karia — Antique Stock Broking — Analyst

Okay. So there will be some amount of inventory loss in the quarter?

Amit Jain — Head of Treasury

Definitely. Any business will keep some inventory for — so if you see Q2 is the peak on the prices and the softening impact we will see in future, but what we are saying is that, because of the currency depreciation and devaluation against dollar, those softening of the prices are getting largely affected by the exchange rate on the landed price.

Jenish Karia — Antique Stock Broking — Analyst

Okay. If you can quantify the amount of inventory loss, a broad flavor on that also is fine?

Amit Jain — Head of Treasury

Mr. Jenish, maybe we can take those offline, because I can’t be those granular on the call.

Jenish Karia — Antique Stock Broking — Analyst

Okay. Helpful.

Amit Jain — Head of Treasury

Yeah.

Jenish Karia — Antique Stock Broking — Analyst

Thank you so much. That’s all for me.

Operator

Thank you. [Operator Instructions] The next question is from the line of Samridh Rela from Value Research. Please go ahead.

Samridh Rela — Value Research — Analyst

Hi, sir. Just wanted to know the capex commitment that you have made for the Brazil project?

Amit Jain — Head of Treasury

I think that we have shared in the last meeting, it is INR138 crores for the Brazil project.

Samridh Rela — Value Research — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Shalabh Agarwal from Snowball Capital. Please go ahead.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Hello?

Anand Kripalu — Managing Director & Chief Executive Officer

Yeah.

Shalabh Agarwal — Snowball Capital Investment — Analyst

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

Anand Kripalu — Managing Director & Chief Executive Officer

Yeah. I mean, 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.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Sure.

Anand Kripalu — Managing Director & Chief Executive Officer

Now, on the back of that, I said earlier that there are other players, local and global, who are evincing interest, right, and we’re excited about that. So there could be other players in oral care, but also beyond oral care that who may join the bandwagon. I think the preference will — could be because we have a good relationship and the anchor customer is obviously because we have a good relationship with them on certain categories in other geographies in the world, okay, because many of these companies are truly global in the way they operate.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Right.

Anand Kripalu — Managing Director & Chief Executive Officer

But then for some of the other customers, it could be because we are the most credible local supply base that’s available in a country like Brazil compared to other players who may not have the credibility that EPL has, right, so they’ll come to us. So I think it’s a mix of both really.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Sure. Sure. Sure. And, sir, secondly, I also wanted to check, how is the customer concentration for us? Like, how big would be the top — the biggest customer or the top five customers for us? And what would be our wallet share with them? Some qualitative color if you can provide?

Anand Kripalu — Managing Director & Chief Executive Officer

Ram, do you want to share a little bit about concentration of customers?

M. Ram Ramasamy — Chief Operating Officer

Sure. I think we should see from the category perspective. And you know that the oral care is basically four major customers, which is having the market share globally.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Right. Right.

M. Ram Ramasamy — Chief Operating Officer

And there you might see some concentration, because these four players are taking most of the shares of the market. But if you see the personal care and beyond, which is other category, there are lot of customers, because that’s a fragmented market, and different geographies will have different brands and other things. So from that angle, there is no concentration on those categories.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Okay. And, sir, what would be our wallet share broadly with some of these biggies in the oral care segment?

M. Ram Ramasamy — Chief Operating Officer

So that we can’t share, but it’s different for different customers. We can’t share the wallet share.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Okay. But would we be the biggest for all the four biggest players, would that be a correct statement to make?

Anand Kripalu — Managing Director & Chief Executive Officer

In some regions, we are bigger; in some regions, we may be a secondary. Most of them have two supplier policy, right. So in some region we may be bigger, in some regions someone else will be bigger. But, overall, in most of the markets, we are market leaders.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Okay. Okay. And, sir, just lastly, just wanted to check, on Albea, how — what would — how big would Albea be in terms of the tubes they manufacture? Just trying to have a sense of where we are faced with respect to Albea? And would their share in B&C would be higher than us?

Anand Kripalu — Managing Director & Chief Executive Officer

So there are various types of business model. There is a big difference between Albea. See, we are predominantly Asia player right. Our mark-to-market is very big in India, very big in China, where large population lives, right. But their market play is, they are larger in western part of the world, because there they are much easier than us. So that’s the difference. But then there are — within the market there are segments. In some segments that we have started gaining even in western part of the world, that our share on the oral care is very large. But their share of beauty and cosmetics that we are working on to catch up. So that’s all we need to see. In, overall, globally, we are the largest.

Shalabh Agarwal — Snowball Capital Investment — Analyst

Sure. Sure. Thank you, sir, for taking my questions, and all the very best to the entire team.

Anand Kripalu — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

Yeah. Hi, sir. So my question is regarding USA business. So can you talk about the — considering higher inflation, how is the demand side in USA? And we have seen higher margin contraction comparatively and lower single-digit margin in USA business, so how is the cost scenario in USA?

Anand Kripalu — Managing Director & Chief Executive Officer

So, I mean, 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, right, and some of which are still due to come in Q3, right, which have now been approved by the customers and then it’ll come.

The cost side, right, the inflation related costs, which are largely should do with wages, right, has been very significant, because you will speak to anybody in any industry in the US, they aren’t able to find people to come to work, right, and you’ve got to pay more. And, yes, you have absenteeism and things like that and then you have to end up being over time and so on. So earlier it was COVID-related and so on and now it seems that people don’t want to come to work and you got to pay higher wages and pay overtime and they don’t come, to get others to work, so that we can produce.

So there are cost-related challenges that are significant, right, in the US, but we are now pushing very hard to get price increases to compensate for general inflation-related costs, right, and some of which are going to come, have been approved to come in the next quarter. So that’s the situation in the US. So the US is not a demand problem really.

Sumant Kumar — Motilal Oswal — Analyst

Okay. Thank you so much.

Anand Kripalu — Managing Director & Chief Executive Officer

Not at all.

Operator

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Pratik Tholiya for his closing comments.

Pratik Tholiya — Vice President

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

Anand Kripalu — Managing Director & Chief Executive Officer

No. I just want to thank everybody for their engagement as evinced 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.

Pratik Tholiya — Vice President

Right. Thank you so much, sir.