Capitaline

Analyst Meet / AGM 14-Aug-19

Conference Call

Essel Propack

Huge opportunity due to complete usage of sustainable packaging materials

Essel Propack conducted conference call to discuss the financial results and performance of the company for the quarter ended June 2019. Chairman & Managing Director- Mr. Ashok Goel, Chief Operating Officer- Mr. M.R. Ramaswamy and Chief Financial Officer- Mr. Vinay Mokashi addressed the call
Highlights of the Concall

India and China revenue was impacted due to poor macro economic conditions

In Europe customer engagement and strong business pipeline has resulted in robust revenue growth. Europe revenue growth of 17.3% to Rs 151.72 crore was helped by Non Oral Care category.

Americas revenue growth of 2.8% to Rs 136.63 crore is helped by a strong growth in Colombia and Non Oral Care category.

Non oral care contribution has increased by 590 bps to 46.6% in Q1FY20 from 40.7% in Q1FY19 helped by growth across all the regions

EBIT Margin was impacted due to lower India revenue and also due to higher capex in last year which increased depreciation cost by Rs 5.5 crore for the quarter coupled with additional Rs 1.1 crore for full rampup cost in Assam unit. So additional depreciation cost during the quarter was Rs 6.6 crore

Net Debt stands at Rs 512.46 crore as of June 2019 as compared to Rs 499.82 crore as of March 2019.

EAP (East Asia Pacific) revenue declined 11.2% to Rs 138.81 crore in Q1FY20 mainly on account of lower laminate sales by China and also volatile market conditions due to US China trade issues. Underlying tube revenue has declined by only 1.7%. Philippines revenue grew strongly at 26.9% (21.1% at constant currency)

Egypt continued to post strong revenue growth for the quarter at 22.8% (13% on constant currency basis) helped by both Oral Care and Non Oral Care categories

As per the latest global climate summit it has been decided that by 2025 globally all packaging would be of recyclable materials only and for India it has to be recyclable by 2022.

Due to complete usage of sustainable recyclable packaging materials a large amount of capacity around the world would become redundant or would require retro fitting as the aluminium layer in the laminates was the centre of technology in the tube formation. Once the aluminium layer is removed a huge number of capacities become redundant.

Essel propack 80% percent capacity is already compatible for using sustainable recyclable material and the balance 15% capacity needs a small investment to become compatible.

The company expects global oral tube market to be around 14 billion tubes out which 5 billion capacities are of Essel Propack. So the company sees a huge opportunity when the 9 billion capacities see churning due to change in technology.

The company has developed yet another Code 2 (hdpe) fully recyclable laminate, which is under test with various customers in different geographies This is going to open new opportunities in sustainable tube space. The two fully recyclable laminates are ‘Green Maple Leaf' and ‘Latina'.

Overall the business development pipeline is strong across regions The customer engagement and strong business pipeline during all these years in non oral care category has started yielding results Contribution from Non Oral Care category increased significantly during this quarter, which is in line with our business strategy

On 22 April 2019, private equity funds managed by Blackstone Group have entered into a definitive agreement with promoters of the company to purchase a majority stake in the company. They have obtained necessary approvals and issued open offer to public shareholders for acquisition of 8,20,58,934 equity shares of Rs. 2 each fully paid up of the company on 29 July 2019. The said open offer was closed on 09 August 2019. The transaction is expected to be completed in the coming months. Blackstone is not bringing in their management. Current management continues to work and will remain intact going forward as well.

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