TCPL Packaging Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from TCPL Packaging Ltd (TCPLPACK) Q3 FY22 Earnings Concall

Management Update:

• TCPLPACK said it continue to witness rise in input prices that impacted gross margins during 3Q22. However, the company was able to limit the effect of the overall profitability by taking measures, particularly to cut expenses and implement price hikes.

Q&A Highlights:

• Vipul Shah from RippleWave Equity asked about the current gross margin of 40% and if it’s sustainable going ahead. Saket Kanoria MD said that it could get impacted in a quarter or two and then again get corrected because of price lags. So overall, the company is not overtly concerned about it right now.

• Faisal Hawa from HG Hawa and Company asked about the revenue expectation in 2-3 years from the acquired mobile phone boxes manufacturing company in Noida. Saket Kanoria replied that the company expects the mobile phone business to definitely grow. And in a couple of years, expects it to enter 3 digit mark from the current INR30 crore annual range.

• Faisal Hawa from HG Hawa and Company also asked about acquisition plans going forward. Saket Kanoria answered that on acquisition into other packaging companies based on what others are doing, TCPLPACK will do things if it is sustainable from a pricing point of view and also if it’s a good strategic fit.

• Akshit Singhal of Neas Investments asked about the competitive dynamics; key competitors and market share. Saket Kanoria MD said it’s difficult to give an exact number on market share. However, TCPLPACK’s revenue is outstripping the volume growth of its customers. So there is a bit of value and volume. But overall, there is an increase in market share consistently over a period of time.

• Akshit Singhal of Neas Investments also asked about how the contracts with the FMCG companies are based. Saket Kanoria MD answered that it’s not 100% pass-through always. There is a negotiation and it is based on market forces. But broadly, for key accounts, there are certain period of time for which there is a costing methodology. And if there is a raw material increase within that period, then it is pass-through.

• Pavan Kumar from Ratna Traya Capital asked if there is any further price hikes due in Q4 and if raw material inflation has been fully absorbed. Saket Kanoria MD replied that there is now again raw material price pressure. With all the massive increases in paperboard prices last year, the company thought it has seen the end of it. But again, there is now a new trend of increases. So this is most difficult and TCPLPACK has to start the whole process once more.

• Pavan Kumar from Ratna Traya Capital enquired about the rampup timeline of film line and recyclable film facility. Saket Kanoria MD said that the film line should become ramped up soon and the flexible line also over the course of the next one year. For the recyclable film, there is a lot of trials ad tests at customers to validate, so that takes some time.

• Pavan Kumar from Ratna Traya Capital asked that with the new capex that is coming online, if any positive operating leverage is expected to play out in the next year. Saket Kanoria MD answered that operating leverage will materialize because the expenses are over a wider sales footprint. But margins, TCPLPACK doesn’t think it will increase further on this account in the very first year of operation.

• Pulkit Singhal from Dalmus Capital asked about the utilization of Flexible segment in 3Q22 and how much it’s now contributing to revenue. Saket Kanoria MD said that the Flexible segment in 3Q was quite well utilized at the high 85% sort of range. On an annual basis, its contribution is about 15% of the overall sales.

• Pulkit Singhal from Dalmus Capital also asked about export growth and trends for the next 2-3 years. Saket Kanoria MD answered that export has been one very bright spot in the company’s performance and it’s growing higher than domestic. TCPLPACK expects this trend to continue going forward. So the company is seeing a healthy double-digit growth in export already on a pretty high pace.

• Pulkit Singhal from Dalmus Capital asked about capex for FY22 and FY23. Saket Kanoria MD replied that capex for current year has been on the higher side. Including subsidiary, it is about over INR100 crores. But next year, the company doesn’t see such a number; it will be lower. Again, in ’23, 24, it will be bumped up.

• Pavan Kumar from Ratna Traya Capital asked about the company’s target in terms of return on capital. Saket Kanoria MD answered that TCPLPACK’s target is always 20% plus. And whenever the company is setting up any new capex, that is its internal benchmark.