TCPL Packaging Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from TCPL Packaging Ltd (TCPLPACK) Q4 FY23 Earnings Concall

Q&A Highlights:

• [00:07:54] Pavan Kumar of Shree RatnaTraya asked about the losses for Creative in FY23 and when and at what scale is it expected to breakeven in FY24. Saket Kanoria MD said that Creative’s performance has been impacted by a slump in demand for mobile phones. However, progress has been made to upgrade the plant and efficiency, and the company is confident that it will make money in the current year with a 31% growth in revenue last year.

• [00:10:32] Pavan Kumar of Shree RatnaTraya enquired about the money lost in the Innofilms side. Saket Kanoria MD answered that Innofilms faced challenges with its technology and machine parts, resulting in a loss of INR1.5 crore on an EBITDA level. The Board of Directors have recommended merging the company into TCPL and it is expected to stabilize once new parts arrive.

• [00:12:42] Gunjan Kabra at Niveshaay asked if one can expect an improvement in gross margins and EBITDA margin due to a decrease in paper prices. Saket Kanoria MD replied that paper prices have started correcting since January and the company has to pass that through to customers. The margin is already healthy and it is unlikely to expand due to competition and soft demand.

• [00:14:30] Jeetu Panjabi with EM Capital Advisors enquired about the current demand situation and if a growth or a slowdown is expected. Saket Kanoria MD answered that the demand side has not been very strong in the last couple of months with low-single-digit volume growth. However, as inflationary pressures ease off, volume growth is expected to come back but the world as a whole is currently under stress due to inflation.

• [00:16:15] Jeetu Panjabi at EM Capital Advisors asked if there is any new initiatives or product categories that will provide growth over the next two years. Saket Kanoria MD replied that the company is studying potential synergies in the packaging space but it is too early to talk about it.

• [00:18:20] Pavan Kumar from RatnaTraya Capital asked if one expects domestic demand to come back or at least maintain the current rate in FY24. Saket Kanoria MD answered that demand is currently weak but with inflation easing off, there is no reason why it should not get stronger.

• [00:20:04] Pavan Kumar from RatnaTraya Capital asked about the peak revenues from the current capacity. Saket Kanoria MD replied that the company could up up another 10%, 12% from what it achieved in 4Q.

• [00:20:46] Jayesh Shroff of Cask Capital queried about the status of the Innofilms line in terms of utilization and customer acceptance. Saket Kanoria MD said that the Innofilms line has technical issues that are expected to be sorted out in the next 3-4 months. In the meantime, it is only operating for internal use and should be at a proper operational level in the second half of the year.

• [00:22:40] Amit Kumar enquired about the capex plan for FY24. Saket Kanoria MD said that the capex plan for FY24 is just above INR100 crore and includes the addition of three production lines in Silvassa and Haridwar, post-printing equipment, and the removal of old machines. This represents a large increase in new capacity and modernization.

• [00:25:23] Amit Kumar enquired what prompted the addition of another offset line given the current market conditions and existing capacity. Saket Kanoria MD said that the addition of another offset line was prompted by the need for flexibility and agility to service customers with reducing average run lengths. Having additional capacity improves service levels and prepares the company for growth while also replacing old machines.

• [00:27:01] Nirav Savai from Abakkus AMC asked about the outlook for the export business in FY24 and its contribution in FY23. Saket Kanoria MD answered that exports have been a silver lining for the company, accounting for 25% of revenue. The outlook for the current year is positive with growth expected to continue due to increased outsourcing from India and a favorable currency situation.

• [00:29:03] Nirav Savai from Abakkus AMC asked about the company’s aspirational size for the next 3-4 years at a Group level for both the Flexible Packaging and Folding Carton businesses. Saket Kanoria MD said that TCPLPACK’s past performance indicates a 17%, 18% average growth annualized. About 2,000-odd-crores of top line within next 5 years.

• [00:30:09] Pulkit Singhal from Dalmus Capital enquired about the growth prospects for the flexible packaging line and if TCPLPACK expects market share gains to continue at a similar rate. Saket Kanoria MD replied that the company is expanding its marketing team and budget to reach out to more customers across India and abroad. The flexible packaging line was expanded last year. A third line is being added in 2H24, effectively tripling the capacity and the company is confident it will be able to fill it up quickly.

• [00:32:15] Pulkit Singhal from Dalmus Capital asked if the company offset a lackluster domestic industry with growth vectors such as exports, flexible packaging, market share gains, and rigid packaging to achieve healthy double-digit growth. Saket Kanoria MD said if domestic demand stays at a low growth, it will not be possible to maintain high growth. However, the company is investing in lines and expanding its footprint to be ready for growth. With inflation under check, volume growth is expected to come back and double-digit volume growth is possible to continue.

• [00:34:32] Pulkit Singhal from Dalmus Capital asked how much will the domestic carton and flexible packaging capacity increase in terms of tonnage after the INR100 crore capex. Saket Kanoria MD replied that one line typically has a capacity of 9,000 tons per year, so two lines would be 18,000 tons. However, due to reducing volumes per brand, the effective capacity could be around 14,000-15,000 tons.