UFLEX Limited (UFLEX) Q4 FY22 Earnings Concall Transcript

UFLEX Limited  (NSE:UFLEX) Q4 FY22 earnings conall dated May. 31, 2022

Corporate Participants:

Rajesh Bhatia — Group Chief Financial Officer

Analysts:

Nitin Agarwal — Analyst

Yash Dantewadia — Dante Equity — Analyst

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

Shivam Saxena — ICICI Bank Ltd. — Analyst

Mann Ashar — — Analyst

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Saurabh Sharma — — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. I’m Hanila, moderator for UFlex Limited Q4 FY ’22 Post Results Conference Call Hosted by DAM Capital Advisors Limited. [Operator Instructions]

I now would like to hand over the floor to Mr. Nitin Agarwal from DAM Capital. Thank you, and over to you, sir.

Nitin Agarwal — Analyst

Thanks. Hi, good afternoon, everyone, and a very warm welcome to UFlex Limited’s Q4 FY ’22 Post earnings call hosted by DAM Capital Advisors Limited.

On the call today, we have representing UFlex Limited management Mr. Rajesh Bhatia, Group CFO and President, Finance & Accounts; and Mr. Vinu Saini, our Vice President, Corporate Finance, M&A and Investor Relations.

To start the call, I’ll hand over the call to Mr. Rajesh Bhatia for making the opening comments and then we’ll open the floor for Q&A. Please go ahead, sir.

Rajesh Bhatia — Group Chief Financial Officer

Thank you. Thanks, everybody on the call for taking their time out for this earnings call. We had a stupendous quarter and a very good FY ’22 as you would have seen in the numbers. We almost clocked the INR4,000 crores top line this quarter. And for the year as a whole, it was INR13,225 crores of top line, which is up by about 49% over last year. And this 49% growth is backed by close to about 30% volume growth in both packaging as well as the packaging films business.

Our EBITDA for the year is INR2,280 crores, which is the highest ever we’ve achieved. The quarterly EBITDA at INR734 crores again is a quarterly highest number. And for the year as a whole, the EBITDA grew by about — close to about 25%. The EBITDA margin was 17.24% this year versus 20.5% last year. But I think if we take out the impact of the raw material price increases and the consequent price increase in our finished products, I think we are very close to about 20% EBITDA margin. So if anything, we bring it down to the same last year prices. [Technical Issues]

Operator

Ladies and gentlemen, please stay connected while I connect the management team back on the call. Welcome back, sir. Please go ahead. Please go ahead.

Rajesh Bhatia — Group Chief Financial Officer

Okay. Sorry, gentlemen, the call got disconnected. So I’ll repeat again. I think we were — I was telling you about the EBITDA margin this year is 17.24% versus 20.5% last year. But if we neutralize the impact of the rising raw material costs and consequent increase in the finished goods prices, I think we’re pretty much around 20% EBITDA margin, what we had achieved last year. And the PAT at close to INR1,098 crores is up 30% this year. The leverage ratio is pretty good at net debt to EBITDA is 1.74 times.

During the year, we commissioned our Hungary facility, which got commissioned at the beginning of the year. And then subsequently, during the year, we commissioned our Nigeria facility. We have also recently commissioned our aseptic packaging expansion as well. And that sets the pace for the FY ’23 as we continue to do pretty well in terms of volumes from the aseptic packaging business. We’ve told you earlier also that all our plants, except Nigeria, were running at close to 100% or, in certain cases, even above the installed capacity number. And Nigeria was compounded by various problems of the supply chain issues for the raw materials because all the raw material there has to be imported and all the finished goods have to be — part of the finished goods have to be exported. So there are some supply chain bottlenecks in that infrastructure, which are being sorted. And hopefully, in the next one to two quarters, we’ll see much better numbers from that particular business because all other businesses are at almost full capacity levels.

We’re also back with this extremely strong growth this year. We’ve also had our share of rating upgrade. So the recent — the last one, the latest in the list is CRISIL has upgraded our short-term as well as the long-term credit rating. The short-term credit rating is the highest category now, A1 plus, and the long term is AA minus, which speaks about the credit strength and the strong financial performance, and a very, very conservative leverage profile of the company.

In terms of our liquid packaging business, I’ll just give you an insight that in this year we achieved almost 86% capacity utilization, while last year was about 50%, 55%, and with the expanded facility also, which has come into play recently, is also ramping up pretty well. So we are — good to see good numbers in that business in the current financial year. So I think there is a presentation which has already been shared with you. It’s there on the website also. You can have a detailed insight into the performance, various parameters.

Just sharing a number. So the net debt is now little under INR4,000 crores, which includes both short term as well as the long term. The long-term debt stands at about INR3,500-odd crores, and the rest of about INR1,000 crores is the short term. And we have about INR600 crores cash on the balance sheet. And the net debt on that basis is about INR3,974 crores. It’s up by close to about INR600 crores as compared to March ’21, which is largely invested into our Dharwad and Dubai facilities, which we had announced, I think, a couple of years earlier, which are now getting commissioned in FY ’23, and they will give us additional revenues as well as profitability.

So whether it is quarter or it is the year, I think this has been UFlex’s best-ever performance on all parameters, whether the production number or sales number, revenue, profitability, EBITDA as well as the PAT. We are — at a PAT level, we are hit this year by devaluation of its currency by about 16% by Egypt, which happened on 21st of March, which has impacted our bottom line by about INR38 crores and has been shown as an exceptional item because this one was an official devaluation of the Egyptian pound by the Egyptian authorities. So that has been reported as an exceptional item. Rest I think all the numbers are with you. There is no other abnormality in the financials.

Dividend is slightly up this year to about 30%. We’ve also announced this along with the financials, our backward integration into making the polyester chips for our facilities in Noida as well as our upcoming facility at Dharwad. So this is to ensure — protect our margins, as you would have seen that the raw material prices have gone up quite substantially in FY ’22. So that — number one, that helps us to insulate in certain way from our raw material — for our raw material pricing. But a bigger advantage is that, given the disruption what we’ve seen after the pandemic, I think that insulates us from our — from a perspective of our raw material security also as the — with the Dharwad. We are close to — Dharwad implementation would mean almost 80% of our existing capacity in India is added. And that’s one which was putting us on a substantial risk from a raw material perspective. So this investment is to protect our margins as well as to ensure our raw material security for the PET films business.

That’s, in nutshell, about the financials for Q4 as well as for FY ’22. We are open to any questions that you may have. And if we have ready answers, it’s always my pleasure to share that with you. But just in case there are certain numbers or figures which we don’t readily have, we’ll surely get back to you as we — thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Yash Dantewadia from Dante Equity. Please go ahead with your question.

Yash Dantewadia — Dante Equity — Analyst

Hi, Mr. Vinu Saini. I just have a couple of questions. And I just want to bring something to your notice. Since you said the dividend payout has actually gone up, actually what I would like to bring to your notice is UFlex’s dividend payout percentage has actually declined every year since 2013, ’14, ’15, ’16, ’17, ’18, ’19, ’20 and ’22. Your dividend payout, for example, was — payout percentage I’m talking about here, was 9% in ’14, and in ’17 it was 7%, and in 2020 it was 4%, and now in March 2022, it’s come down to 2%. So my question is why has the dividend payout decreased substantially? And why is that decreasing continuously for the last decade? That’s my first question.

Rajesh Bhatia — Group Chief Financial Officer

See, broadly, if you see, we had a major capex program in the last few years, the results of which are evident from a financial performance for FY ’21 going strongly into FY ’22. And all these expansions were also funded largely by the debt numbers also. So in terms of making the resources — equity resources available from our side to invest in these as well as certain restrictions that come from the banks as to how much you should be distributing, I think so it’s been a balance of the two.

Yes, I may agree that if you look at that as payout ratio, it’s lesser. But in terms of the fact that money [Phonetic] was required in terms of flowing it back into the business for the expansions that we’ve done in the previous year, the current ongoing Dharwad and Dubai expansion, and now the expansion of doubling-up capacity of the aseptic packaging from 3.5 billion to 7 billion packs, and now the backward integration into making the polyester chips. So I think this is helping us to make our business stronger by being a substantial capacity player across the globe. And aseptic packaging, where the markets have responded very well to our products, and as I shared already with you that even the new capacity that we’ve added, we’re seeing a very good traction on the numbers there.

So it’s basically what we have done is a large capex program in the last, say, 4 to 5 years, driven largely by the debt fundings that we’ve arranged. And yes, that has helped us to boost the revenues, boost the profitability, and overall numbers look great. But still, in terms of the absolute amounts of the payout, they’ve gone up in the last two years. But on a payout ratio, I agree, and the reason which I just shared with you.

Yash Dantewadia — Dante Equity — Analyst

Hello? Am I audible?

Rajesh Bhatia — Group Chief Financial Officer

Yeah.

Yash Dantewadia — Dante Equity — Analyst

So the reason I brought this to your notice is that it is my humble opinion that a packaging giant like UFlex can definitely afford a dividend payout of, let’s assume, 5% to 10% by sustaining of capex. And that is why I brought it to your notice. And coming to my next question, sir. My next question is regarding the demand. Crude oil is at $120 per barrel as of today. What do you see the demand outlook from here since there are rumors of us heading towards a global recession possibly? And let’s assume, crude oil goes up by another 10 points to $130 or $140 per barrel, how will that impact our raw material? And how will it impact the demand that we are seeing?

Rajesh Bhatia — Group Chief Financial Officer

See, I think our demand issues, you are right that the world is talking about the U.S. and the Europe going into the recession. That’s a harsh reality which is facing us. And actually, if you see prior to pandemic also there was a talk about U.S. going into the recession, but the pandemic changed that totally. And now that we’re seeing the U.S. inflation at record high, we’re talking about interest rate incremental scenario, which will impact the demand side. That’s mostly true for a lot of commodities, commodities as well as the other consumer purchases habits. But when I look at what I do or UFlex does, so 95% of my business is packaging foods, which is the basic necessity for the life. So given that the food — and we don’t do any fancy food stuffs and all that. We just — the primary packing of the food is our core business. So there, frankly, we don’t see any impacts of recession coming and affecting us.

On the crude oil prices, we’ve seen in the past that frequent changes in the crude prices or frequent changes in prices because of the supply chain disruptions affected our margins in Q2 and we were quickly to realize that and we changed our policy from a longer order book to just a seven days order book. So that’s what we have been doing currently as well, so the raw material price increase are passed on as soon as possible to the customers in the packaging films business.

In the packaging, though, still there is a lag there for a month or going maximum up to three months’ basis. So that lag is going to affect your margins as the raw material prices go up. There also, we’re trying to — if the adjustments are too large, we discuss with our buyers and rediscover the prices with them, and they also understand the dynamics. But yes, there’s definitely a lag there, and I have no qualms about not admitting that. But in a larger business now, which is the packaging films business, which is about, I would say, about 60% to 65% of our top line, there we are pretty safe, pretty agile in terms of the raw material price changes and the consequent selling price changes.

Yash Dantewadia — Dante Equity — Analyst

So from your answer, can I conclude that even with crude at $130 or $140, we won’t see a very huge impact on the demand?

Rajesh Bhatia — Group Chief Financial Officer

I don’t — that’s what I said that given that there’s the basic necessity of life that we do, I don’t see a demand side issue in our business.

Yash Dantewadia — Dante Equity — Analyst

Also, are we — you made a recent disclosure about FZE listing in global market. Can you put some light on it?

Rajesh Bhatia — Group Chief Financial Officer

I think what we are trying to do is we’re trying to list our holding company at the Dubai level either in U.S. or European or other relevant stock exchanges, raise capital there. That serves two purpose; one is you get — your leverage improves substantially, which improves your rating. That gives you the capital for the further growth that you want to do in the business. And on top of this, because the numbers that — the guidance that we’ve been having from our bankers, our investment bankers, in U.S., the valuations are pretty much different there. So that would also — listing Dubai will also help you to revalue at UFlex India level as well. So that’s the whole objective.

Yash Dantewadia — Dante Equity — Analyst

Also my last question — I’m going to be finishing off here. Sorry for taking so much time. Do you have any plans of listing aseptic packaging, the part — the subsidiary that handles the packaging, that is Asepto, separately on the exchange?

Rajesh Bhatia — Group Chief Financial Officer

So aseptic packaging is a division of UFlex and not a subsidiary of UFlex, so it’s already listed as part of the UFlex.

Yash Dantewadia — Dante Equity — Analyst

No, I meant a demerger. I meant a demerger of the aseptic packaging because, obviously, it will demand a much, much, much higher valuation than what UFlex is because it separates UFlex from being a commodity business…

Rajesh Bhatia — Group Chief Financial Officer

You’re right. It’s a great idea. I think we can — we’ll definitely discuss internally. And if there is a merit in this and there’s a value to be taken, why not? You can do it now or you can — I think if our current capacity, we can — next couple of years, we can operate at the higher — increased capacity level consistently. Obviously, there’ll be a time to further grow there because that one segment is growing at close to about 18% to 20% annual growth rate. So that really sets up the pace for you to grow that business. Maybe as a separate subsidiary? I think that’s a good suggestion to take it back to the management. And if there is a merit in this, raise capital separately for that and grow that business separately. I agree that the valuations have…

Yash Dantewadia — Dante Equity — Analyst

Yes, sir. Precisely, because the business has grown 100% year-on-year at a very fast pace. And since that business is very hard to enter into and it has a lot of barriers to enter into, it will definitely have a very high valuation compared to what UFlex has today. Thank you so much for your time and thank you for taking my questions and thank you for everything, sir. And congratulations on the good performance. Thank you so much.

Rajesh Bhatia — Group Chief Financial Officer

Thanks.

Operator

Thank you, sir. The next question comes from Kaushik Poddar from KB Capital Markets. Please go ahead. Mr. Kaushik Poddar, please go ahead with your question.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

Yeah. See, I just want to draw your attention to the comment made by your Chairman. Two things, he is talking about the Plastic Waste Management Amendment Rules Act, number one; and number two is the U-shaped paper straw. So if you can comment on both these things.

Rajesh Bhatia — Group Chief Financial Officer

So India has now implemented a new set of EPR rules from 1st of April 2022. Now as compared to the earlier thing, there are two new things in this EPR policy. One is there is a step-up for obligation on the brands, like PepsiCo, Unilever and all that to step up the recycling of the plastics that they buy every year. Assuming that Unilever buys 200,000 tonnes of plastics, so each year, they will ultimately in the next four to five years, they’ll reach 100%, but it’s a step-up requirement for them to ensure that whatever plastics they buy that is recycled. So that’s one. And if they don’t want to recycle that or they want to do — the other option that they have is make the packaging biodegradable.

Now UFlex definitely has a unique advantage in both these because not only we have the recycling facilities at our major plants in Jammu as well as in India and the recycling capacities are also in a small showcase they are being set up in Mexico and in Egypt. But we also have a biodegradable product range also. So I think that’s what the Chairman said that as these rules become effective and as they are implemented strictly by the government, so there is a play for recycling as well as for the biodegradable packaging films.

Second question about paper straws. From 1st of July, the government has banned the plastic straws in the country. And so you have no choice but to go in for paper straws. So we are creating the necessary infrastructure at our Sanand plant. Because in the aseptic packaging, you would have normally seen that there is a diagonal-shaped straw attached to the pack, so those straws now have to be the paper straws. So that necessary infrastructure we have to do. We are also hearing that the government may — given that there are situations where, given these tougher deadlines, some of the companies may not be in a position to convert immediately to the paper straws, so there the deadline may be extended a bit, but let’s see, there’s still some time.

But what we are saying is we’ve prepared ourselves well in advance to ensure that we are market ready, whether it is 1st of July or it is 1st September or 1st October or 1st December, whatever the government decides, we should be ready to give our customers the product because, otherwise, the other possibility during this period is for everybody to import these straws where the costing is going to be very, very different as compared to producing this in-house. And all manufacturers do manufacture this in-house normally.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

And this paper straw, the thing you have already done it? 1st July is not too far off. So you have already done this paper straw along with this Tetra Pak?

Rajesh Bhatia — Group Chief Financial Officer

So we are in the process of doing this. So partially we’ll be able to achieve before 1st of July. And then in the next six months, again, the more machines are being added to comply with that.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

So these paper straws, you are manufacturing yourself or you are getting it from some of the paper manufacturer or whatever?

Rajesh Bhatia — Group Chief Financial Officer

No, no. We are doing it ourselves. So even the plastics straws earlier, we were manufacturing ourselves at our Sanand facility…

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

No, plastic was up your street, but paper was not exactly was not here, so that’s why I’m asking it.

Rajesh Bhatia — Group Chief Financial Officer

No but aseptic packaging business is more of a paper business rather than a pure plastic business. So that’s where you’re already buying a lot of paper for that. And so this comes as an additional small setup to convert from plastic to paper straws.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

And this EPR thing is yet to translate into good amount of revenue or profit, say, up to last year. Do you see this EPR Act — this new act, which is Plastic Waste Management Act coming into force, your profitability and turnover looking up some way with all the likes of Pepsi or ITC or whatever taking your help?

Rajesh Bhatia — Group Chief Financial Officer

So I think as of now, the management mindset is not to invest into recycling from a business perspective. The…

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

Management of your — management of Pepsi and all these people or management of paper players?

Rajesh Bhatia — Group Chief Financial Officer

UFlex.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

UFlex setup. Okay, okay, okay.

Rajesh Bhatia — Group Chief Financial Officer

So UFlex has set up some of the recycling facilities. But more as those things have helped us to showcase to the government that the trend is sensible and there needs to be a strong regulation to recycle that, and recycling is possible as could be seen at our multiple facilities in India or abroad, okay? So that’s a method which has gone well with them and that’s what is imbibed in the EPR.

But as a business focus, I don’t think so that we’re going to invest in setting up the recycling facilities for our brands. What we can help the brands with is that if they need any technology to make this happen or some handholding to make this because, ultimately, what they will — it’s a responsibility which is casted upon them. Now whether they do it themselves or they do it through a third-party recycler, which come up at the various — because recycling cannot be that you transport that waste to one large center. So there has to be small, small recycling plants at multiple places, which will do the — which will take the local garbage and sort it out and recycle that.

So from getting into that business and handling that waste and all that, it’s not UFlex’s key business. But biodegradable plastics where certain enzymes are added, then the plastics fillers or the packaging films are made and that becomes biodegradable, clearly, we see as a huge potential for the business. Because if the brands do not want to go in [Technical Issues]. Hello, can you hear me?

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

I can hear you. I can hear you, yes.

Rajesh Bhatia — Group Chief Financial Officer

So if the brands think that rather than going through this cumbersome route of recycling, it is — it makes much better sense for them to just produce the biodegradable film, and this will be — they’ll do their cost/benefit analysis, their efforts and all that. So that’s where UFlex will definitely look at increasing its revenues from these enzymes and the flexible and the biodegradable packaging films.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

Have you found any user for your biodegradable products?

Rajesh Bhatia — Group Chief Financial Officer

Yeah, we have — see, the users are always there. But what it means is that there is an increased cost to this. And unless the regulation is there, I think nobody is — everybody would make forward-looking statements. But end of the day, to shell out that extra money, people look at each other and say that you do it first and you do, but when there’s a regulation in place, then everybody has to fall in line. So as of now, the government has given them two choices of recycling or biodegradable.

And this is a step-up thing, maybe 25% to begin with, then going in the fourth or fifth year to about 100% of what they buy. And I think this will evolve in the next two years or so as to which way the brands want to focus. Maybe they can do a hybrid model as well because they also do not have — may have full clarity to begin with. So they may also go in for a hybrid structure that some recycling facilities they set up or somebody else sets up for them and does the job work for them and a mix of the biodegradable films.

Kaushik Poddar — KB Capital Markets Pvt. Ltd. — Analyst

And before I end, I just want to highlight whatever two other participants have highlighted: A, demerger of your aseptic packaging division; and B, if you can be more shareholder-friendly in the form of dividend. If you can do these things, I think that will do your stock a lot of wonders. Thank you.

Rajesh Bhatia — Group Chief Financial Officer

Thank you.

Operator

[Operator Instructions] The next question comes from Shivam Saxena from ICICI Bank. Please go ahead.

Shivam Saxena — ICICI Bank Ltd. — Analyst

Yeah, hi. Congratulations for good results and thanks for taking my question. My question is, one, what is the path of debt reduction? When do you see the company as becoming net debt zero? And then I think more cash would come to equity holders. So what is your path on — and the interest rates are going up. So what is your path to that?

Rajesh Bhatia — Group Chief Financial Officer

I think if I — we don’t want to become that net debt zero company. I think that’s the most inefficient way to grow your business. The debt, particularly the kind of debt — as I said that our 60%, 65% of the business is — now are international business. A very small portion, one-third of the business is now India business where the rupee that may be higher. But to borrow in euros or dollars between 1% to 2% spreads is — and with your ROCE being 16% or so, I think it makes sense to leverage that. But yes, the leverage has to be very, very prudent. You just can’t — and at 1.74 times of net debt to EBITDA with no major capex in sight, I think we will gradually reduce our debt as the amortizations fall due. By the way, next year amortization is about — close to about INR500-odd crores.

Shivam Saxena — ICICI Bank Ltd. — Analyst

Okay. And one more question on the rating upgrade, you’ve got a rating upgrade from CRISIL. So what is that? Have you negotiated for lower interest rates from bankers on that after the rating upgrade?

Rajesh Bhatia — Group Chief Financial Officer

Yes. We’ve done that. Some of the banks have already reduced our interest rates. And some of them are in the process of doing it. But surely, we’ll get that mileage out there.

Shivam Saxena — ICICI Bank Ltd. — Analyst

Okay. And only on the last question on the industry size, do you think the industry shape is changing? It is going more structural in nature with e-commerce coming in, flexi packaging you said it is a necessity. So do you think it’s more — earlier it was a most cyclical industry. Now it is more of a structural change in the industry, per se.

Rajesh Bhatia — Group Chief Financial Officer

I think it’s a good point. What you are saying, we are also believing so. But I think it needs to stand the scrutiny of time before we can actually say that this is moving that way.

Shivam Saxena — ICICI Bank Ltd. — Analyst

Okay. Thank you. Thank you and all the best.

Operator

Thank you, sir. The next question comes from Mann Ashar [Phonetic], an individual investor. Please go ahead.

Mann Ashar — — Analyst

Hello, sir. And congratulation on your performance. Sir, my first question is on clientele addition side. From last three years, the clientele addition has gone down of the main business and for aseptic business it has gone up. And sir, the reason behind it, can you please explain it?

Rajesh Bhatia — Group Chief Financial Officer

I think one of the reason behind this was that the capacities were fully sold out, so there was not much opportunity to add on more customers. Because normally you would do that when your plants are idling and you would even take the smaller customers and all that. Aseptic packaging, as you said, yes, we’ve added many customers. And with our enhanced capacity now also coming into operations, we’ll add more. In fact, the order book there is overwhelming currently. And on a month-to-month basis, we are not able to keep pace with the requirements, at least in this busy summer season, which is the peak season from a beverage perspective. But I think it’s a good position to be in when your existing capacities are fully sold out and you don’t have to add-on customers by sacrificing your margins or giving them inaugural incentives to come and be part of your business.

But I think over the — so with our reach now, almost everybody and everybody in the world who is into the flexible packaging business knows UFlex. And the advantage they also consider is that with the supply chain disruptions at least be sure that they’ll get material from the other parts of the world to continue and maintain their commitments. We’ve done that successfully this year with even our European and our Nigerian facilities supplying to the deficient markets like U.S. So we keep on doing that. But to your point that the customer additions have been a little less in the last couple of years, it’s only because you’re fully sold out.

Mann Ashar — — Analyst

Okay. And sir, the next question would be on the side of debt. In last two or three con calls, you said that the debt would be slightly above INR3,500 crores. And from there, it would be gradually coming down. So where do you see this debt going now?

Rajesh Bhatia — Group Chief Financial Officer

So, as I said that we are at about INR4,000 crores this year, net debt basis. And next year amortization is at about INR500-odd crores. So I think we are more or less around that number. And the new capex that we’ve announced is about INR580 crores. Assuming we raise about INR400 crores of debt for that over the next couple of years because that project takes about two years. And by that time another INR1,000 crores existing amortization would have brought your debt numbers to about INR3000-odd crores number.

Mann Ashar — — Analyst

Okay. And sir, my last question would be on the side of the total net worth. The reserves — or I would say the revenue reserves are more than even the market capitalization of the company. So are you willing to capitalize those reserves up and to be committed to it? Because it would be great from the market sentiment perspective.

Rajesh Bhatia — Group Chief Financial Officer

We’ve not considered this. But we’ll take this back to the management to have — to ponder it over.

Mann Ashar — — Analyst

Okay, sir. Thank you. And sir, the last suggestion would also be from my side that in case the dividend payout is very low, so in the next coming years, after the capex is slightly lower, then it would be great if the UFlex gives dividend at high yield around 10% to 20% of the EPS. That’s all from my side, sir. Thank you.

Rajesh Bhatia — Group Chief Financial Officer

Understood. Well taken.

Operator

Thank you, sir. Next question comes from Chirag Singhal, First Water Fund. Please go ahead. Mr. Chirag, please go ahead with your question.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Yeah, yeah. Thanks for the opportunity, Mr. Bhatia, Mr. Vinu, and the entire team congratulations for another stellar quarter. Sir, just two, three questions. First, you mentioned — so we have mentioned about the listing of Flex Middle East. So considering all the compliance and the timelines for other procedures, what is the internal estimate, by when are we expecting to list the overseas subsidiary?

Rajesh Bhatia — Group Chief Financial Officer

I think where we are currently, it should take — we should be in the absolute readiness in the current quarter itself for filing and all that. And then it really depends on the regulators to approve. And then the market timing in terms of when to do this and all that, I think our bankers would advise — we’ll get the advice from our bankers. But from our side, readiness perspective, I think it should happen within this quarter.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Okay. All right. Now the next question is on the Asepto. You mentioned recently on an interview that we have reached 90% capacity utilization on the overall capacity, which is 7 billion packs. So the traction that we’re getting in terms of the faster ramp-up, is this more domestic-driven or more export-driven?

Rajesh Bhatia — Group Chief Financial Officer

Both. So it’s both.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

So can you help us with…?

Rajesh Bhatia — Group Chief Financial Officer

So about 70% domestic and 30% exports.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

And what was it likely in FY ’22 when we were running just one line, what was the exports percentage?

Rajesh Bhatia — Group Chief Financial Officer

I think we were running at that number only. We were running at those numbers only. I won’t have those right now, but we can share that with you later. But I think that will be around that ratio.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Okay. So 30% only, full capacity, which is 7 billion packs, roughly, you are saying?

Rajesh Bhatia — Group Chief Financial Officer

Yes.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Okay. And sir, coming to the EBITDA, so what incremental EBITDA can we expect? As you already reached close to 100% for Asepto, what kind of incremental EBITDA can we expect for FY ’23?

Rajesh Bhatia — Group Chief Financial Officer

Chirag, we’re not sharing the business-wise EBITDA numbers for this. But generally, we’ve given guidance earlier that in this particular segment, the margins are between 18% to 22%, EBITDA margins.

Chirag Singhal — First Water Capital Advisors LLP — Analyst

Okay. No, I understand that. Okay. I’ll get back in the queue if there are any further questions. Thanks a lot.

Operator

Thank you, sir. The next question comes from Subham Agarwal, Aequitas. Please go ahead.

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Yeah. Thank you for giving me the opportunity. Sir, most of my questions are already answered. Just I had one question. So we have one line in Russia and two more lines in Eastern Europe. So given the current geopolitical situation, how are business there doing? And do we see any headwinds there?

Rajesh Bhatia — Group Chief Financial Officer

So Russia business is — so the business in Eastern Europe is Europe-centric mainly, so there’s no effect there. Russia business was again for the domestic Russian market and the other CIS markets and very small percentage it was Ukraine. But with Russia getting sanctions now, a lot of things, which were — a lot of raw materials which was available in Russia, which was being exported to Europe, now that is available locally. So earlier, we were not 100% dependent on Russian raw material availability, and we had to source the raw material from — either from China or from other places. But now we are getting almost our 100% raw material stability within Russia only, so that’s the positive.

The second positive is that a lot of imports happening into Russia for the flexible, like earlier we were — before we set up this plant, we were exporting into Russia from our Middle East facility. So a lot of exports which were happening into Russia, they’ve stopped now. So the local demand is pretty robust. So there has been only a positive impact on the Russia business, per se. That’s what I can share currently. And Hungary and Poland operations are absolutely unaffected because of any of the U.S. [Technical Issues].

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Okay.

Rajesh Bhatia — Group Chief Financial Officer

Yes, there was some raw materials which we were getting in Hungary from Russia, which we now have to reorient from some of the other destinations, which has already been done.

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

So will this impact margin in Eastern Europe because of that, or will we be able to pass it on completely?

Rajesh Bhatia — Group Chief Financial Officer

No, I think we are — the markets are very robust, and all the raw material margins are being passed on to the customers ASAP.

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Okay. Sir, just one question. Because our presence in Russia, do you think this will have any implication in listing in Dubai or anything like that?

Rajesh Bhatia — Group Chief Financial Officer

I think we are quite close to that situation. So if there is a requirement to reorient the business to disintegrate Russia from the overall mainstream, we can even think of doing that. But I think that will happen more closer to when you are more closer to the event rather than today and as to how the things pan out in terms of the war. And so we’re quite agile to that situation. And if there is a requirement, we can disintegrate Russia from the Middle Eastern business.

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Okay. Got it. Sir, and secondly, just more on the demand and supply situation. So as per industry sources, we believe that a lot of BOPET lines are expected to come up over the next 18 months. So what’s your sense, how many lines are coming up, and how do you see the lines getting absorbed in the market?

Rajesh Bhatia — Group Chief Financial Officer

So I think the number of lines coming up in Europe, in the major markets in U.S. or Europe are quite manageable. So they will not affect our demand-supply equilibrium at all. In the markets we are, we don’t see that there is any irrational capacity which is coming our way to disturb the equilibrium as of now. So we’re pretty confident of not having any major issues in any of the markets where we are present.

Subham Agarwal — Aequitas Investment Consultancy Private Limited — Analyst

Got it, sir. That’s nice to hear and thank you again for giving me the opportunity.

Operator

Thank you, sir. The next question comes from Saurabh Sharma [Phonetic], an individual investor. Please go ahead.

Saurabh Sharma — — Analyst

Hello, Bhatiaji, and congratulations to the entire UFlex team for finally getting to the INR1,000 crores PAT number, which was slightly in doubt, at least in my mind, at the middle of this year. So a job well done on that. My first question is about the rise in interest costs and depreciation quarter-on-quarter, which is March ’22 over December ’21, despite no significant capex being commissioned. So could you please comment on that?

Rajesh Bhatia — Group Chief Financial Officer

Just one second. Can we get back to you offline on this?

Saurabh Sharma — — Analyst

No problem, sir. So should I email someone?

Rajesh Bhatia — Group Chief Financial Officer

Yeah.

Saurabh Sharma — — Analyst

I’m sorry, sir. Okay. I don’t have the email address, sir. What email address should I write to, sir?

Rajesh Bhatia — Group Chief Financial Officer

Investor Relations [Foreign Speech].

Saurabh Sharma — — Analyst

Okay. All right. [Foreign Speech] I’ll do that. Second question is so the expansion of Asepto and this additional Dharwad expansion — Dharwad and UAE expansion that is happening, in percentage terms of the existing capacity is going to be relatively insignificant, right, because Asepto as per [Indecipherable] we need to be around INR600 crores top line. [Foreign Speech] it will probably be a little higher. And again, the Dharwad expansion is some 60,000-odd, so that is 10% of revenue — 10% of current capacity.

So what I wanted to understand is where is the next growth going to come from in terms of significant meaningful growth is going to come from? Because comparing ourselves, comparing UFlex to chief global competitors, let’s say, Huhtamaki, they’re into food service quite big time. And in India, I do not know of any organized player in the foodservice market, especially because it is a sustainable, paper-based packaging also. It is recyclable and it is paper based. So I wanted to understand this, whether the company has any plans to get into this foodservice packaging because that’s clearly up and coming, and Huhtamaki already has set an example in this field, globally at least? So where is the meaningful growth going to come from?

Rajesh Bhatia — Group Chief Financial Officer

No, we don’t have any plans currently to get into any of these. I think we will remain core to our business, which is aseptic packaging, flexible packaging, and the packaging film. Aseptic packaging today provides the positive scenario insofar as the margins and the growth of the business is concerned. So it’s not only the India market, but we are supplying globally for this. The packaging films market already we know. The third market, which is the flexible packaging market, you’ve seen that we’ve not done any capex there in the last few years, given that market is still in a consolidation phase. But India and globally, that market is absolutely different.

And while the foreign — the U.S. and the European markets and other matured markets during the pandemic period had a great show in terms of their performance in the flexible packaging, unfortunately, India remains a different story at this point in time in this market. So that is where you see that there are no new investments we’ve made and neither there are on any plan. So I think currently what we have on the table is aseptic packaging what we have doubled, then the two CPP plants and one PET facility, and then your margins will improve with this raw material availability. But apart from that, we don’t have any other visibility currently.

Saurabh Sharma — — Analyst

But Bhatiaji, this PET chips plant that the company has decided to put up, I’m sure you would have seen over the past year or so, these integrated companies have actually been making almost 0% margins on the PET chips, because the PET chips prices they haven’t increased as much as the PTA and MEG prices. So what is the thinking here in getting into PET chips at this juncture when the PET chips are earning zero? And this margin reasoning of yours, I understand…

Rajesh Bhatia — Group Chief Financial Officer

I think those times are gone. Today, if I look at conservatively also, this project gives you close to about 19% IRR [Phonetic] project.

Saurabh Sharma — — Analyst

19%…

Rajesh Bhatia — Group Chief Financial Officer

It’s not only IRR [Phonetic] projects. And this not only gives you your margin protection, but it also gives you your security also for the raw materials.

Saurabh Sharma — — Analyst

I understand. So security is, of course, understood. My only contention was the margin accretion — margin-accretive component. And even the latest quarter results, you would have seen that it’s been earning zero. PET chips have been earning zero, and you are, of course, much more aware of the prices of PET chips in the markets versus PTA and MEG. The prices of PTA and MEG have actually gone up much more than PET chips.

Rajesh Bhatia — Group Chief Financial Officer

I think that those markets have reversed. And there are much higher margins for the converters from PTA to the PET chips now. You can look at some of the top suppliers in the world, their results for that. That situation is quite different today.

Saurabh Sharma — — Analyst

All right. Okay. My second question, Bhatiaji, is about…

Operator

Sorry to interrupt, Mr. Sharma, can you please join the question for more questions, please?

Saurabh Sharma — — Analyst

Ma’am, my first question wasn’t answered. I will have to get back on email, so this is my second question. I waited quite a long time myself being in queue. So if I can ask one more question, please?

Operator

Okay, sir.

Rajesh Bhatia — Group Chief Financial Officer

Ask please.

Saurabh Sharma — — Analyst

Alright, thank you. Yes, thank you, Bhatiaji. So my second question is about the preference share interest that has been recognized all at once in the March quarter. This would be the UTech Developers-Montage Enterprises transaction, correct?

Rajesh Bhatia — Group Chief Financial Officer

Yes, yes, yes.

Saurabh Sharma — — Analyst

Yes, sir. So what is the reason for all at once — for recognizing this interest all at once instead of quarterly?

Rajesh Bhatia — Group Chief Financial Officer

So we thought that let the physical payment be there and then we will [Technical Issues].

Saurabh Sharma — — Analyst

Okay. Understood, sir. So Montage has also sold off its stake in UTech in the September quarter, Bhatiaji, as is clear in the shareholding agreement — shareholding pattern. So what is the real nature of relationship between Montage and UFlex? Are they related parties? Of course, not legally because it’s less than…

Rajesh Bhatia — Group Chief Financial Officer

I have no knowledge of that because once we’ve sold off our business, whatever the buyer does it’s their business. Montage is just a trade relationship between the two organizations.

Saurabh Sharma — — Analyst

Right, sir. Right. And sir, one last request, if the AGM can be held physically and if Mr. Chaturvedi, the CMD sir, if he can be present, it’s just a request to the board because it’s already been two years that no physical AGM has been held, and it would be great to hear the board’s point of views as well as CMD sir’s point of views…

Rajesh Bhatia — Group Chief Financial Officer

I’ll take it back without any commitments to you.

Saurabh Sharma — — Analyst

It hasn’t been decided yet whether it will be a physical or an online conference, the AGM?

Rajesh Bhatia — Group Chief Financial Officer

Depends on COVID, we’ll make the call.

Saurabh Sharma — — Analyst

Right. Great, sir. All right, sir. That’s my request. I’ll come back in queue. Thank you.

Operator

Thank you, sir. That will be the last question for today. I’d now like to hand over the floor to the management for the closing comments. Over to you, sir.

Rajesh Bhatia — Group Chief Financial Officer

Thank you, gentlemen, for allowing us an opportunity to present ourselves. To the best of our abilities, we’ve tried to answer all your questions. I think just one question which needs to be answered, which we will revert to Mr. Sharma. Thanks for giving us guidance on certain issues as well, which I’ll be happy to take it back to the management. And if there is, obviously, certain things make sense, certain things the management perspective may be different, but I’m always happy to take those ideas back to the management and discuss them and see that as to where we can have opportunities for increasing the shareholders’ wealth.

We’ve already planned a listing of our offshore subsidiary for which the work is on. And I’m sure that that will create a big differentiation in the valuation metrics of UFlex as and when that happens. But you all know that all these things are depending on the market, depending on the other things and all that, they are all best effort basis. And the efforts are that if you can raise capital and you can create a different valuation metric than what we see today, I think this is in the interest of all shareholders. And I think the other idea which was also looking at separate listing for the aseptic packaging business when this becomes [Indecipherable] business can also be put across to the management.

Thank you, gentlemen. Thanks for being part of this conversation and discussion. Thank you.

Operator

[Operator Closing Remarks]