UFLEX Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from UFLEX Limited (UFLEX) Q3 FY23 Earnings Concall

Management Update:

• [00:02:04] UFLEX said it saw strong growth momentum in the India business, particularly in the packaging segment, and saw the softening of the offshore business.

• [00:05:19] UFLEX said the offshore business has experienced de-growth due to the Russia-Ukraine war and aggressive fiscal policies, among other factors. Additionally, the company has suffered from unprecedented foreign-exchange losses due to the devaluation of the Egyptian currency, which has impacted the consolidated numbers.

• [00:09:20] The speaker is confident about the company’s future performance and sees a strong momentum in the Indian packaging business, particularly in the Aseptic Packaging and Flexible Packaging segments.

Q&A Highlights:

• [00:18:15] Saurabh Sharma asked what the company is planning to do about the debt situation in future. Rajesh Bhatia CFO said that the company currently has no issues with respect to any covenants, but if unexpected situations arise that cause a covenant breach, the debt lenders understand and are willing to give them more time to comply.

• [00:21:07] Rushabh Shah from Anubhuti Advisors enquired about the volume numbers for 3Q23. Rajesh Bhatia CFO answered that in 3Q23 the company sales volume of close to about 140,000 tons, down 6-7% sequentially.

• [00:21:54] Rushabh Shah from Anubhuti Advisors asked when the company can expect Dharwad project to come online. Rajesh Bhatia CFO replied that UFLEX is doing trial runs on self-generated power, but the power issue should be resolved by the beginning of April so UFLEX can start operating commercially.

• [00:26:01] Rushabh Shah from Anubhuti Advisors enquired about any guidance on long term margin. Rajesh Bhatia CFO replied that it’s difficult to give a guidance for FY24 at this stage. The top management’s focus is to strengthen the market-share and recover lost volume. January has been much better than the last quarter in terms of numbers, but it is still too early to provide any specific guidance.

• [00:28:41] Kaushik Poddar from KB Capital asked if increased capacity in BOPP and BOPET lead to margin reduction next year. Rajesh Bhatia CFO said that margins have hit their lowest levels in 3Q23 and it is not expected to reduce further. Any positive development in the market will be seen in 1Q24.

• [00:32:19] Kaushik Poddar from KB Capital enquired when is the expansion of Aseptic packaging to 12 billion units going to take place. Rajesh Bhatia CFO clarified that in the next season, UFLEX will have an update that will include new features.

• [00:33:17] Chirag Singhal from First Water Capital asked if UFLEX is planning to expand Asepto division further, given the growth post-commissioning of the second-line and the increase in capacity from 9 billion to 12 billion packs in the next season. Rajesh Bhatia CFO said that currently, the team is focusing on low-hanging fruit that can be achieved without substantial investment. No plans have been made for any greenfield or brownfield expansion.

• [00:37:11] Chirag Singhal from First Water Capital enquired what will be the cost of debt for Indian and Overseas businesses in the coming fiscal year. Rajesh Bhatia CFO replied that the debt to equity ratio on a consolidated basis is 130%. This has been impacted by the increase in debt rates in India, but not substantially due to the small amount of debt in India of INR45 crore in 3Q23 and the CPP at Dharwad coming into commercial production and increasing the interest costs.

• [00:43:33] Abhimanyu Rathore from KC Advisors asked that on the Aseptic Packaging business, if there are any discussions about delisting the business as a separate entity or subsidiary and future plans. Rajesh Bhatia CFO said there is currently no plan to separate this business. However, if the business grows substantially in the next couple of years, then there may be an opportunity for separation.