RAJSHREE POLYPACK LTD (RPPL) Q1 FY23 Earnings Concall Transcript

RAJSHREE POLYPACK LTD (NSE:RPPL) Q1 FY23 Earnings Concall dated Aug. 25, 2022

Corporate Participants:

Unidentified Speaker 

Analysts:

Shweta Shekhawat — Prabhudas Lilladher Private Limited — Analyst

Ramswaroop Thard — — Analyst

Unidentified Participant — — Analyst

Ankit Agarwal — Yellowstone Equity — Analyst

Vivek Tolat — ACME Family Office — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 FY ’23 Earnings Conference Call of Rajshree Polypack Limited hosted by Prabhudas Lilladher Private Limited. 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. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Ms. Shweta Shekhawat from Prabhudas Lilladher. Thank you. And over to you, ma’am.

Shweta Shekhawat — Prabhudas Lilladher Private Limited — Analyst

Thanks, Michelle. On behalf of Prabhudas Lilladher, I welcome you all to the 1Q FY ’23 earnings call of Rajshree Polypack Limited. We have with us the management represented by Mr. Ramswaroop Thard, the Managing — Chairman and the Managing Director; Mr. Praveen Bhatia, Non-Executive Independent Director; and Mr. Sunil Sharma, the CFO.

I would now like to hand over the call to the management for opening remarks, after which we can open the floor for Q&A. Thank you. And over to you, sir.

Ramswaroop Thard — — Analyst

Thank you, Shweta. Good evening, everyone. I welcome you all to earnings call of Rajshree Polypack Limited for quarter one FY ’23. I hope all of you and your family are in good health. Joining me on the call are Mr. Sunil Sharma, CFO, and Mr. Praveen Bhatia, Director of Rajshree Polypack Limited.

We have already uploaded the investor presentation and I hope that everyone got the opportunity to go through the same. For quarter one ’23, Company has achieved a turnover of INR68.3 crores as against a turnover of INR48.67 crores for the corresponding quarter of previous year, thereby achieving a growth of 40.3%.

The EBITDA of the Company has increased by 49% and stood at INR10.8 crores for quarter one ’23 as against INR7.2 crores for corresponding period earlier year. EBITDA margin for the Company for the quarter stood at 15.8% as against 14.8% for corresponding period of previous year. At the same time, the Company earned profit after tax amounting to INR4.76 crores for quarter one FY ’23 as against INR2.6 crores for quarter one FY ’22, thereby reporting an increase of 83% over previous year. PAT margins for the period stood at 6.9% of sales as against 5.34% of sales for corresponding period earlier year.

Quarter one is always one of the strongest quarter for our business and this year was no exception with expanded production capacity, larger product basket, and expanded customer base. We have significantly increased demand in our products. We did our best to meet the demand by utilizing all our capacities at maximum. As a result, our sales volume grew up by almost 24% to 2,800 metric ton for the quarter as against 2,269 metric ton for quarter of — quarter one of FY ’22. Further, with achieving economies of scale, we have been able to improve our EBITDA margins gradually.

Looking at expanding demand, we are already in process of adding more capacities and in our process of installation of another extrusion machine with installed capacity of 3,500 metric ton per annum, which will take our total sheet extrusion capacity to 18,200 metric ton per annum as against present 14,700 metric ton per annum. Further, two more thermoforming machines with installed capacity of 900 metric ton per annum are on their way and are expected to commence commercial production in the month of September ’22. This will take our total installed capacity to 8,920 metric ton per annum of thermoforming from present 8,020 metric ton per annum.

For printing, we have already added one machine with installed capacity of INR6 crore cups per annum, and we have placed order for more machines with installed capacity of 20 crores per annum. The two new machines are expected to be operational by FY — by February ’23, and will take our total printing capacity to 94 crore pieces per annum. I’m also glad to invite your kind attention to the fact that Company has entered into exclusive toll manufacturing agreement for injection molding products for food packaging with a third-party manufacturer and the production for the same is expected to commence in the first week of September ’22. This will help the Company exploring injection molding technology with an initial installed capacity of 1,000 metric ton per annum. The Company intend to expand capacities into this segment gradually-based on demand scenario.

Talking about product developments, we developed barrier containers for packing of Hummus, which is used in Middle East for the long shelf life. At the same time, we also developed barrier packaging for Indian sweets for one of the largest dairy customer in southern part of India. And barrier packaging for ethnic sweets for one of the largest dairy brand in India. All such developments in barrier segments will further help the Company grow at rapid pace with better profit margins.

In case of Olive Ecopak Private Limited, we have already finalized the construction plans and received requested approval while engaging all respective vendors and contractors. We intend to start the construction in the month of September ’22 as soon as the rain recedes.

With this, I would like to invite your questions.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [Phonetic]Suyog Patil from Patil Investments. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hello, sir. Am I audible?

Ramswaroop Thard — — Analyst

Yeah. Yeah, good afternoon, Suyog.

Unidentified Participant — — Analyst

Sir, what is the thickness limit in India for plastic packaging? And what is the thickness of our finished product at Rajshree?

Ramswaroop Thard — — Analyst

See, basically, Rajshree is into manufacturing of rigid packaging products where our thicknesses are all about 250 microns.

Unidentified Participant — — Analyst

Okay.

Ramswaroop Thard — — Analyst

And the minimum thickness, which is there, that is for — I will say, when it comes to packaging application and functional packaging —

Unidentified Participant — — Analyst

Okay.

Ramswaroop Thard — — Analyst

— the limits are not there. But still we are into rigid, so it’s all about 300 microns. So we don’t fall under that particular issue as such.

Unidentified Participant — — Analyst

Okay, sir. Another question I had was, which are the top three contributing clients for our sales as of now?

Ramswaroop Thard — — Analyst

For us, the top [Indecipherable] Ferrero, NourishCo, which is Tata Global Beverages, Amul, and Hindustan Unilever.

Unidentified Participant — — Analyst

Okay. And there is one last question, if I may ask. Can you simplify for me the difference between barrier packaging and rigid packaging because I saw that in your presentation, what is the exact difference between these two, barrier and rigid?

Ramswaroop Thard — — Analyst

The rigid packaging, we say barrier and non-barrier, both are rigid categories. When we say barrier, it is basically to increase the shelf life of the food. So there — where it is classified as a barrier packaging, which is a functional feature of the packaging.

Unidentified Participant — — Analyst

Okay, sir. That’s it for me. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Gurjot Ahluwalia, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yes, hi, good afternoon. Thanks for the opportunity.

Ramswaroop Thard — — Analyst

Yeah, good afternoon.

Unidentified Participant — — Analyst

So first question is around the competitive landscape of the packaging industry, in which Rajshree Polypack is operating. So I would like to know a few things, like who are the top three to five players in the market? What is the market position and market share of Rajshree in this industry?

Ramswaroop Thard — — Analyst

Yeah, so I will say the space which we are in, it’s a niche sector. Thermoforming with rigid packaging is not a very big segment in India. So I will not be able to give you the exact references. But there are companies like [Phonetic]RN Packaging in South, then there is some Greiner Packaging in North of India, then — these are few names which I know, but I can only say that this is a niche sector and there are certain customers where we are — yes, we are the monopolistic suppliers.

Unidentified Participant — — Analyst

Okay. So in that respect, is the overall size of the market is quite small, because we are already doing like INR200 crores of revenue. So what would be the overall size of the market that you’re operating in?

Ramswaroop Thard — — Analyst

See, we can say the overall size of the market is around INR800 crores to INR1,000 crores, but it is divided into different segments and into different zones. So that’s the size for thermoforming into food packaging for brand — with brand owners who are using them.

Unidentified Participant — — Analyst

So the Company already has like 20% market share you’re saying?

Ramswaroop Thard — — Analyst

Yes, yes. And this is growing because it’s a new segment where with lot of food processing and dairy industry being added, so the demand for the product has been increasing at a good pace.

Unidentified Participant — — Analyst

Okay, got it. And second question just on the revenue. So you said like Q1 is one of the best quarters. So I’m trying to understand if there is seasonality in the revenue and this is a one-off where the revenue is close to INR70 crores, because all the last four, five quarters Company has been doing around INR50 crores of revenue. So what should be the expectation or revert back to INR50 crores kind of revenue in the next few quarters or we can expect the same run rate as Q1?

Ramswaroop Thard — — Analyst

No, it will not go to those levels. It may be little low, maybe by around 5% to 7% on the lower side due to softening demand that’s it, but it will not go down to that level.

Unidentified Participant — — Analyst

Okay. Okay, got it. Thank you very much, and all the best.

Operator

Thank you. The next question is from the line of Ankit Agarwal from Yellowstone Equity. Please go ahead.

Ankit Agarwal — Yellowstone Equity — Analyst

Yeah, hello.

Ramswaroop Thard — — Analyst

Yeah, hi, Ankit.

Ankit Agarwal — Yellowstone Equity — Analyst

Thank you for taking my question, and congrats on the good set of results.

Ramswaroop Thard — — Analyst

Thank you.

Ankit Agarwal — Yellowstone Equity — Analyst

My first question is the injection molding project that we are doing, what’s the rationale, how is it differentiated, why can’t we do this with the existing technology?

Ramswaroop Thard — — Analyst

See, there are certain applications where you need injection molded products. So the idea behind is to enter into this alternate technology, A, since the customers what we are serving to are also using injection molded products into packaging sector. Today, we are starting with food service as a sector and gradually we will look at doing a branding and offering this product to the same set of customers.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay, so the plan is to expand it — is to use the existing customer base and do more products with them?

Ramswaroop Thard — — Analyst

Yeah. So have more product portfolio, so that will help us to grow.

Ankit Agarwal — Yellowstone Equity — Analyst

And in the future, we might even have it in-house, right? Not —

Ramswaroop Thard — — Analyst

Yeah, quite possible.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay. Okay, understood. And regarding the Olive joint venture, what is the timeframe for the manufacturing to get — to go into production?

Ramswaroop Thard — — Analyst

I think so, this will happen by October, November ’23.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay. Okay, understood. All right. And then you some — you announced the ESOP policy. So just want to understand more around it, like will the ESOPs be also given to the promoters or is it just for the employees?

Ramswaroop Thard — — Analyst

It is for employees.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay. Okay, okay. And there is this approval for the related party Orbit Industries. Could you detail like who owns Orbit Industries and what are we sourcing from them?

Ramswaroop Thard — — Analyst

Orbit Industries, the Directors are common. It’s a partnership firm basically. So — and we do certain job work from them as our capacities are a little exhausted, so probably this job work activity may reduce with our expansion of Sarigam unit. So there we’ll have more space and infrastructure. So we do mostly job work activity with them.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay, okay. Sir, but in the approval you asked for some maximum sales amount that has been raised but you are saying that you might not even require that, right, because it will, over time, reduce?

Ramswaroop Thard — — Analyst

Yeah, probably over a period of time, it may reduce once we start manufacturing in-house.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay, okay. And regarding the preferential allotment that we did, so that is just non-promoted individual, Manish Kumar Agarwal who participated. So is this like a strategic investment? Or is it just purely capital-driven investment?

Ramswaroop Thard — — Analyst

It’s a capital-driven, there is nothing as such. It’s a capital-driven investment, so there is no strategic investment.

Ankit Agarwal — Yellowstone Equity — Analyst

Okay. Okay, understood. All right, that’s all I had. Thank you, and best of luck.

Ramswaroop Thard — — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vivek Tolat from ACME Family Office. Please go ahead.

Vivek Tolat — ACME Family Office — Analyst

Hi, sir. Am I audible?

Ramswaroop Thard — — Analyst

Yeah, yeah, very much. Yeah, good afternoon, Vivek.

Vivek Tolat — ACME Family Office — Analyst

Good afternoon. So sir, wanted to understand if you could break down what led to such a big jump in our EBITDA per kg. I mean, we used to be around INR28 to INR30 in all the — most of the previous quarters, and this time it’s jumped to about INR37. So are there any one-offs or special orders? Or is this sort of the broad range that we can expect going forward?

Ramswaroop Thard — — Analyst

See, there are two factors into this. One is, it has helped us little by — with the help in the softening of the raw material prices. Secondly, with the increase in our production capacities and the scale of business, our expenditures have gone down. So if you see the EBITDA percentage for quarter one last year was also 14.8% and this year also we are at 15.8%. So in terms of percentage, we have increased 1%, but due to scale, probably we’re looking a little better.

Vivek Tolat — ACME Family Office — Analyst

Okay, okay. And also, sir, if you could sort of throw some light on what should be the volume expectations for the whole year. I mean, last year I think we did about 8,800 tons of volume. So this year, do we see it crossing 10,000? Or should it be around that number with the capacity expansion coming into play?

Ramswaroop Thard — — Analyst

No, definitely they will cross 10,000, that’s for sure. We’ll cross 10,000, that’s for sure.

Vivek Tolat — ACME Family Office — Analyst

Okay. And sir, one final question from my side. In terms of the impact of softening raw material prices, so generally what’s the sort of reset that we have with our clients? Is it — if it’s a quarterly reset, I understand that from April to June probably, the prices were still high and we should — we could see some improvement for that — for the current quarter. So if you could throw some light on that.

Ramswaroop Thard — — Analyst

Yeah, like, not all the customers are with quarterly arrangements, some are monthly and some are with quarterly arrangements, and a few of them are with spot also. So it’s a mixed bag, I will say.

Vivek Tolat — ACME Family Office — Analyst

Okay. So would this sort of be the peak EBITDA per kg that we can achieve, let’s say, for at least the rest of the year?

Ramswaroop Thard — — Analyst

No, if we keep on increasing the sale of our value-added products, like barrier packaging, the EBITDA can go further. So we are trying our best to see that we get more sales of value-added products. But yeah, we should be in this range bound probably for this year at least.

Vivek Tolat — ACME Family Office — Analyst

Okay, thanks a lot, sir. Understood. That’s all from my side, and all the best.

Ramswaroop Thard — — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] There is a follow-up question from the line of Mr. Suyog Patil from Patil Investments. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Hello, again, sir. So I can see Swiggy as your client in the PPT, so are there talks to other delivery applications or other delivery companies, like Swiggy — like Zomato or other guys regarding our packaging solutions?

Ramswaroop Thard — — Analyst

Like for food deliveries like we are not giving directly to Zomato, but maybe through some alternate routes they may be buying. But Zomato is directly not our customer, but Swiggy definitely is.

Unidentified Speaker —

Okay. Okay, understood. I think that’s it Thank you.

Operator

Thank you. There is a follow-up question from the line of Gurjot Ahluwalia, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Just wanted to clarify one or two more things. So the partnership with Olive packaging, what will be the CapEx involved in the same? And will there be any debt also taken up?

Ramswaroop Thard — — Analyst

The total CapEx in the project is around INR100 crores, and INR40 crores or I think INR50 crores is what is the investment, which will be done by both the parties equally. So actually, we’ll use the money raised through preferential issue internal accruals and bit of debt to fund this investment.

Unidentified Participant — — Analyst

Got it. And the second thing I see in the presentation, you have mentioned you’re doing SAP S/4HANA implementation. So what is the cost involved for this? And what kind of benefits can this drive in terms of efficiencies for the Company ERP?

Ramswaroop Thard — — Analyst

The total cost is roughly [Multiple Speakers] it’s around INR1.75 crores, which we have incurred in implementation of this ERP software. It helped us definitely in getting the real-time data into the information, both at the production level, and it has helped the marketing team also in meeting the customers’ requirement in a better way.

Unidentified Participant — — Analyst

So this is already complete, so you have already implemented it?

Ramswaroop Thard — — Analyst

Yeah, yeah, it’s implemented.

Unidentified Participant — — Analyst

Got it. Okay, thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ankit Agarwal from Yellowstone Equity. Please go ahead.

Ankit Agarwal — Yellowstone Equity — Analyst

Yeah, hello. Sir, I just wanted to ask about the EBITDA, I missed the earlier discussion. So you are seeing that in terms of EBITDA per kg, can you maintain around these levels, like 37,000-type levels?

Ramswaroop Thard — — Analyst

Yeah, it also depends upon if we don’t see much upside into the raw material prices going further. We should be in this range bound, maybe a little plus, minus INR2, INR3 provided there is no further disruption in the raw material prices.

Ankit Agarwal — Yellowstone Equity — Analyst

Understood, understood. Okay, okay. Okay, that makes sense. Thank you so much.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Ramswaroop Thard — — Analyst

Thank you very much for taking this time off and asking very pertinent questions. I really appreciate each of your question and I hope that I have been able to answer all the questions. With this, I wish you a great rest of three quarters ahead for this year and wish you all the best and your family in good health. Thank you very much for joining us today. Thank you. Thank you to everyone. Thanks.

Operator

Thank you. On behalf of Rajshree Polypack Limited, that concludes this conference. Thank you for joining us, and you may not disconnect your lines.