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Essel Propack Transcription
Moderator
Ladies and gentlemen, good day and welcome to the Essel Propack Q1 FY12 results conference call hosted by Emkay Global
Financial Services Limited. As a reminder for the duration of this conference all participant lines will be in the listen only mode
and there will be an opportunity for you to you ask questions at the end of today's presentation. Should you need assistance
during this conference call, please signal an operator by pressing * and then 0 on your touchtone telephone. Please note that
this conference is being recorded. At this time I would like to hand the conference over to Senior Research Analyst Mr. Pritesh
Chedda. Thank you and over to you sir.
Pritesh Chedda
Good afternoon everybody, thank you for joining us today. We would like to welcome the management of Essel Propack and
thank them for giving us the opportunity to host this call. From the management side we have Mr. R. Chandrasekhar,
President – Europe, America in PITL business, Mr. R. Ramaswamy, President – AMESA and EAP Region, Mr. Ganesh
Ganapathy, our CFO Global Operations, Mr. Vinay Mokashi, Finance Controller and Mr. Ashish Patel, Senior Manager –
Treasury. We would start the call with a review on the Quarter 1 performance and outlook on the ensuing year by the
management. Thereafter we open the call for Q&A. I would now like to hand over the call to Mr. Chandrasekhar for his
opening remarks. Over to you sir.
R. Chandrasekhar
I thank everybody for finding time to be on this call. When we look at the quarter April to June, there are some things which we
need to bear in mind that typically this quarter is a muted quarter in terms of business for us. The peak period starts with July
and runs possibly up to end November or early December. This is true across most of the regions, so you have to look at the
results for the Q1 April to June in light of this fact.
In terms of what has happened in across the region, we have seen strong growth in revenues almost close to about 19% in
India, 17% in the EAP China region, about 10% in Europe and as far as US is concerned, it's almost a flat growth. When you
look at the margins and how we have performed, I think overall looking at the quarter numbers, our post operating margins at
the EBITDA level have dropped by around 0.9, earlier period year was around 16.9 and now we have dropped about 60,
mainly coming-out of certain raw material pressures, increase in the a raw material pressure and the time lag which we have in
passing it to customers.
What I will now do is, I will hand over the floor to Mr. Ganesh and he will walk you through the result first so that we can then
go through the Q&A.
Ganesh Ganpathy
Thanks Chandra. During this quarter our consolidated global operations posted a revenue of 360 crores and a net profit of 9.4
crores compared to a profit of 8.6 crore last year for this quarter and sequentially again our profits have been higher than the
previous quarter, which was 8.4 crores. On an overall basis, the sales have grown 8.4% year over year and we are also
continuing to grow sequentially and there is a 3% growth overall basis for the business. The net profit has grown almost in line
with the sales for this quarter at 8% and sequentially it has actually been better than the March quarter by growing it 11.8%.
The only issue as Chandra has mentioned, there is a slight dip in operating margins compared to what it used to be in the last
year, about 40 basis point dip to 8.5% of sales. Sequentially, the operating margin continues to be a little flat. What is
heartening to us is that the business of tubing across the regions have shown very good growth both year-over-year, in terms
of AMESA, we have a growth of 19.6% in India alone. In the EAP, we have grown 17.6% revenue. Even in Europe we have
grown 10.6%, in the America the sales are a little bit flat, marginally lower at 1.9%. But really it just speaks that we are still
faced with a growth opportunity in the market and sequentially again EAP has grown 18.9% in this quarter, Europe has
continued to grow in this quarter by 8.6%. AMESA, although has been a little bit flat, which I will explain the reason, why it is
and in Americas it has seen lowered at about 4% sequentially. Now if I analyze the sales growth, essentially in the case of
AMESA, there are two aspects, one is the tubing business of India and Egypt and there is also the specialty laminate business
in India. Now look at the specialty laminate business, sequentially the sales value revenue has come down and that is one of
the reason why the Indian AMESA region has grown by 9.6 despite a strong growth in India of 19.6%. Now this is more a sort
of a technical or a statistical number because there were certain realization sales price reviews which had been given to this
company in the March quarter and these are one-off and thereafter the business is now regular and their volumes have
actually grown sequentially during this period March to June by 8.3%. So on your whole event in AMESA, the underlying trend
is that the volumes are continuing to grow and the revenues are also continuing to grow.
01 August, 2011
Essel Propack
Q1FY12 Conference Call Transcript
Transcript
Emkay Research | 01 August, 2011 2
Essel Propack Transcription
In America there has been some issue in terms of the off-take in Mexico, which we will explain during the discussion. This is
the only reason why there is a slight decline in the sequential growth. So overall, what clearly emerges in this quarter is that
our growth engine continues to tick and what has happened in terms of the operating margins, which has taken a hit of 40
basis points and is largely due to a sharp increase in the input prices. See, year over year our input prices have gone up by
almost 16.5% and as you know that in a period when our prices go up, we go with a revision in the prices and, therefore, there
is sort of time lag effect coming in. And that lag effect on the margins is what has been pushing us down both in the March
quarter and the June quarter but as the prices stabilize, the profit margin will also stabilize and show the required numbers
which we are working on. So that is the context in which I would like you to look at this one, that we have been prompt in
passing on the prices, even sequentially our price growth has been there but importantly that correction has to continue for
another quarter assuming the prices are going to stabilize at the current levels. So that is from my side.
Moderator
Participants, we will now begin the question-and-answer session. The first question is from the line of Ruchita Maheshwari
from Nirmal Bang Securities, please go ahead.
Question and Answer Session
Ruchita Maheshwari
I just wanted to know why your Europe business has given more losses in this quarter compared to the last quarter and even
in the last financial year?
Ganesh Ganpathy
In the Europe business, our profit for this quarter, there has been a loss of 503 lakh versus 411 lakhs for the last year. In
Europe we have four businesses, one in Germany, Russia, UK and Poland. The Poland business is where we have been
cutting losses year-over-year and that trend continues in that business. Actually Poland has improved during this period
compared to last year. Now there are two other businesses, one is Russia and the other is Germany. There has been a slow
down in the German sales operations during this quarter which has resulted in their profit, they continue to be profitable but it
is lower than what it was in the previous year. The third aspect is in Russia, in Russia there has been a reduction in the profits
causing the total loss figure for Europe to appear a little higher than what it was before.
Ruchita Maheshwari
Are we facing any business problem or there are no contracts you are getting or something like that? Why Europe is still in
losses and in fact losses have increased compared to the last quarter?
R. Chandrasekhar
If you take Poland as a business, our losses during this quarter are substantially lower than the losses which we had in the
same period last year. Now does that means that the unit will continue to be in losses? The answer is, no. We are very close
to the breakeven point, so I think it is a matter of time before the business turns around. I think what has happened in the case
of Europe, as Ganesh was explaining is, in Germany our profit has fallen by almost close to 30% in this period compared to
the preceding years same period. This fall in profit has happened for two reasons; one is that, overall the volumes in Germany
have come down this quarter and this is also coinciding with an increase in the capacity, which has happened in the German
plant. We expanded Germany in March and immediately in this quarter we are seeing some slowdown in the sales level. We
have not lost any customer, so we think that this phase is mainly due to a lower business confidence which exists in that
market because Europe being whatever it is and that is translating into lesser new products launches and lower sales, rather
than any loss of customer for us.
Ruchita Maheshwari
Your AMESA has also reported less EBIT margins whereas like America is one of the top contributors in your consolidated
revenue. So what is the reason behind that?
M. R. Ramaswamy
Volume growth is in line with our expectation, if we compare with the last year same quarter, 13% growth on volume. We also
see that the revenue also has grown up. What happens is, there is a time lag in terms of price realization in the market and it
has to be a very temporary for this quarter. We always have time lags and the price continuously increasing but most of the
price increases are concluded. There is a very healthy business volume in July to the September quarter. So going forward
this correction will take place automatically.
Emkay Research | 01 August, 2011 3
Essel Propack Transcription
Ruchita Maheshwari
But as far as I know, you have taken the price increase in Q4 FY11, so if you are talking about a time lag, the impact should
have been in this quarter but we have not been able to see any impact.
M. R. Ramaswamy
That is correct. We have taken a price increase on Q4, we have also taken a price increase on Q1 of this year also. The price
is continuously increasing, the raw material prices have continuously increased, so we have taken another price increase. The
price increase has been impacted between April to June in staggered basis. We have completed all the price increases in
June. The complete impact will flow through into this quarter.
Ruchita Maheshwari
Are we able to pass on the raw material prices to the consumers or how is it?
M. R. Ramaswamy
There is no problem but it takes time to negotiate. Since we took a price increase only in the past three or four months back,
going with another price increase is a challenge but 50% to 60% of our volumes are contracted which has an auto price
correction after the quarter. So there will be a time lag of correction but correction automatically will happen. The remaining
40% is a question of negotiation. so it takes about anywhere between 30 days to 45 days after the price increas e has actually
happened. So that is the time lag you are seeing.
Ruchita Maheshwari
With whom you are negotiating are they easily absorbing the price hike which you are giving to them or are they saying you
won't be able to accept that kind of increase?
M. R. Ramaswamy
Any price increase in any market is a question of negotiation, there are only up and downs but in general we are able to
recover price increases. So that is why you are seeing growth in revenues compared to the volumes.
Ruchita Maheshwari
How you are seeing this raw material price increase or raw material prices going forward, say next three to six months?
M. R. Ramaswamy
There are lot of theories floating around in the market, people say for the next two quarters, since it has reached a peak,
probably that it will remain for the next one quarter. A lot of capacity in Polymer is getting into the market, so probably we will
see in the last quarter of this year a slowdown. But still it is a highly volatile situation, it is not easy to predict. The current
condition says that this will not go any further more.
Ruchita Maheshwari
What kind of volume growth you are seeing in FY12?
M. R. Ramaswamy
FY12, we are seeing about 12% to 13% growth that we look into.
Ruchita Maheshwari
I am talking about the consolidated levels.
Ganesh Ganpathy
Yeah, the consolidated also, it is around the same number 12% to 14%.
Ruchita Maheshwari
What kind of margin you are expecting?
Emkay Research | 01 August, 2011 4
Essel Propack Transcription
Ganesh Ganpathy
When we set out during the beginning of the year, we made a statement in the last call also that we will be looking at a 200
basis point improvement over the last year's margins. We still stand committed to that target and we have currently internal
plans in place to work for it. So that target remains unchanged for us.
Ruchita Maheshwari
What is the CapEx for FY12?
Ganesh Ganpathy
Will be in the region of about 95 to 105 crores, still little less than the depreciation.
Ruchita Maheshwari
What is the total debt?
Ganesh Ganpathy
Total debt is around 830 crores gross debt.
R. Chandrasekhar
What kind of initiatives you are facing to turn around your company, as it was in the CY06 level?
R. Chandrasekhar
2006 levels you are asking?
Ruchita Maheshwari
Yes.
R. Chandrasekhar
I think, to answer your question you have to step back to 2007 and 2008. We had a very volatile 2008 and you saw a sharp
recovery going forward and even for the financial year March 2011, we are close to around 44 crores , which I have mistaken
as the PAT level. You see typically an EPS of around Rs. 3 per share and the plan in the current year is to target an EPS of
around, north of Rs. 5. So that gives you a sense, the way in which we are going around to achieve that number.
Ruchita Maheshwari
How are you seeing the international business?
R. Chandrasekhar
Different markets have different trajectory. The focus is also very different for us in different markets. The focus as far as the
US market is concerned which is a very large part of our business is to improve margins rather than to go for an aggressive
growth. In Europe the focus mainly is on both growth as well as recovering from a loss position to a profitable position. And as
far as China and India are concerned, these are the two main engines for aggressive expansions both at the revenue level and
at the operating margin level. So in different markets we have a different plan.
Moderator
Thank you. The next question is from the line of Jayesh Shah from Reliance Mutual Funds, please go ahead.
Jayesh Shah
What is your plan strategy going forward for India's business? What kind of growth do you foresee in India's standalone
business?
Emkay Research | 01 August, 2011 5
Essel Propack Transcription
M. R. Ramaswamy
Tubing businesses will continue to have a higher trend of the double-digit growth, say about 12% to 14% is what we are
expecting and there are lots of new markets, cosmetics and those conversions are also taking place. We are very active in
pharma. Actually in the pharma market we have to bring around 20% to 25% year-on-year. So those are actually high margins,
low volumes businesses compared to the oral care space, while we continue to have focus on, we are also looking into newer
segments like cosmetics and pharma for growth. So we believe that we will continue to grow at 12% to 14% in India.
Jayesh Shah
So you foresee a 12 to 14% growth every year with the margin improvements?
R. Chandrasekhar
This year that is our forecast and next year it should also be in the same range that we will come out with that maybe in the 3rd
Quarter of this year.
Jayesh Shah
What kind of CapEx do you foresee in India's business, what is the plan for the company from the CapEx point of view, from
an expansion point of view?
R. Chandrasekhar
We have done a substantial expansion of about 40 crores in the last year. This year we do not foresee a huge CapEx outflow
for India, maybe around 15 crores maximum in India.
Jayesh Shah
Regarding Americas business, the earlier there were some problems on the operating cost point of view, operating cost was
very high in America. So what are you doing to deal with a high operating cost in the America segment?
R. Chandrasekhar
It depends upon how you look at operating cost. If you are looking operating cost as a percentage of revenue, it is more or less
in line with the other markets because the selling price of fuel in that market is also much higher than the other markets. But
having said that I think, in the US the problem which we primarily had is more in terms of capacity utilization. So we have on
the ground the infrastructure in terms of people and machines to produce a certain volume and we were doing it fairly
inefficiently. So the focus over the last one year has been to improve the efficiencies in the plants, which is what actually, if you
see the segmental numbers, you will see that the American region has actually turned from a loss into a profit the last quarter.
Jayesh Shah
What is your strategy for America? When do you think America will start contributing to the bottom-line in a substantial way or
you do not see any major growth from the American segment, which will remain at this level?
R. Chandrasekhar
To answer your question, there are two parts to your question, one is; you talked about growth, I presume you are talking
about the top-line growth and margin expansion. As far as this year is concerned ,we are convinced that the focus on America
should be on margin expansion rather than top-line growth because we cannot do both at the same time, it becomes too risky.
Now having said that in that region we have two businesses, one is the laminated tube business and the plastic tube business.
The laminated tube business has done well compared to last year, both in terms of revenue and as well as in terms of the
operating margins but the same area for us has been the plastic tube business in US, it continues to lose money. Going
forward strategy for this was, we have to three things in place, one is that we have relocated the plant and merged both the
plants together so that we can leverage on our operating costs. The second thing which we have done is, we have done some
debottlenecking exercise from the land by shifting a few equipments here and there, so that we are able to produce more
efficiently with less24.20 . The third thing is, we have managed to bag a long-term contract with a customer. This product is a
high-volume product and hopefully the production of which should start from October of this year. So with that we expect the
operations by and large to stabilize by the end of this year and become profitable.
Emkay Research | 01 August, 2011 6
Essel Propack Transcription
Jayesh Shah
What kind of EBIT margins you are targeting from the America segment for this year end?
R. Chandrasekhar
Last year that is for the financial year ended 31st of March 2011, the year’s operation which is the largest operation which we
have was around 13% at the EBITDA level and this year we are targeting about 15.5% -16%.
Jayesh Shah
For the Europe segment, what is the strategy going forward because you have been facing some problems in Europe on and
off for the past few quarters. So what is strategy going forward in Europe?
R. Chandrasekhar
In Europe, as Ganesh mentioned there are four businesses which we have and each one is very different. The first, let us start
with Russia, Russia is fairly a small operation, so we will just continue to maintain where it is, it is no loss no profit. We do not
plan to expand the business this year at least. The second operation is Germany which continues to be a very profitable
operation. So there is a lot of pressure on the revenues to get new businesses and new customers because of the current
economic environment in that region. The third business which we have is the UK part of the business, which is a very small
business and really does not impact other than the currency fluctuation which we see because it's a pounds denominated
business. The fourth we have is in Poland, in Poland we have substantially reduced the losses over the last 24 months and I
think we are at a stage where we should be hopefully able to give the final push and bring it to a cash breakeven situation over
the next three months because actually we are at a cash breakeven situation for the last one and half, two months but we
need to stabilize it at that level before we start pushing the volumes once again. Also what we have done is to de-risk the
business in Poland which is only a plastic tube business, we have also now started making laminated tubes in Poland and we
have been fairly successful in quickly developing a market for those tubes. So that helps us to have a product portfolio in
Poland rather than to give tubes, depending on only one segment of the business. So I think, whatever we have done, the
efforts which we have put over the last 24 months in Poland has paid off and I think if we continue in the same path, in the next
couple of months, we should be seeing the final turnaround of Poland.
Jayesh Shah
Breakeven in Europe will be at the EBIT level or the PAT level you are targeting in next few months?
R. Chandrasekhar
For Poland specifically the target is on cash because that is the biggest loss making business we used to have and Germany
is anyway positive and EP UK is also positive at the EBTDA level, Russia is just marginally profitable because of certain
currency fluctuations, so we will continue to keep that also profitable at the EBITDA level.
Jayesh Shah
My last question would be, what would be the key risk to the turnaround story in America and Europe, what would be key risk
according to you for both the segments?
Ganesh Ganpathy
I think one of the key risk is our own ability to deliver internal efficiencies. It is not an external issue because we do have the
customers, we do have the business. It is our own quality and service level, if we falter we run a big risk of again getting into a
situation where customers are going to be unhappy and we will lose the business. So other than that we do not see any big
external risk.
Jayesh Shah
In America you discussed about having a larger customer base, you still depend on one or two customers or you have a good
customer base cover in America? Have you developed a customer base or you are just depending on one or two customers?
Emkay Research | 01 August, 2011 7
Essel Propack Transcription
Ganesh Ganpathy
No, we have in US two parts of the business, one is, what we call as contracted business which is restricted to two customers
and the other part is what we call as non-contracted business. The split between the business is roughly on a revenue term,
today around 85 to 15. The 85 is the contracted volume or a contracted business and 15 is where we are non-contracted. So
the non-contracted part has been steadily increasing for us. We will continue to reduce as far as possible to expand our
customer base in that market.
Jayesh Shah
In the contracted business there is a risk of these customers not taking up the volumes because of the recession or because
of any other problems?
Ganesh Ganpathy
Definitely, that is the part of the business risk but they are contracted business. In fact one of the reasons why you do not see
a strong growth in Americas during the last quarter is because one of our contracted customers had to fall short, whatever be
the reason in the market place and despite our efforts in expanding the other customers, the overall numbers did not stack up.
Moderator
Thank you. The next question is from the line of Sagraj Paria from Equatorials, please go ahead.
Sagraj Paria
I wanted to know about the specialty business in India that witnessed some downside this quarter what exactly was it, sorry I
missed it?
R. Chandrasekhar
This is a flexible packaging business which is an India centric business we have. Now Ganesh was talking about referring to
the quarter April to June in terms of the volume and the revenue and the fact that the volume and the revenue was lower in
this quarter compared to the preceding quarter and the preceding year both. It is a very seasonal business in that sense and
what is very important to note is that compared to the previous year, this year the revenue was low but the business is highly
profitable. Last year revenue was higher but we were losing money. This year the revenue is lower but the business is highly
profitable.
Sagraj Paria
In terms of Russia and Germany you said, the volumes were down that is why the profitability came down? What is the scene
in Russia, why did that business suffer?
R. Chandrasekhar
The profitability in Russia is down more for translation losses arising out of exchange. The way the Rubel exchange and we
had a lot of debt which is denominated in other foreign currencies as far as Russia is concerned, but post EBITDA level, that
really pulled down our PAT. At the EBITDA level, it is positive.
Sagraj Paria
Overall this quarter, the growth was almost 8%. So how much was it was volume and value price if you can give some idea on
that side? If you can give some roadmap idea on this 200 basis point improvement in EBITDA that we are looking from, where
it is going to come, if you can throw some light on that would be a great help to us?
Ganesh Ganpathy
Basically, we have three businesses. In laminate tube, volume growth and the revenue growth are almost equal, say around
9.3% over last year and in the case of the plastic tube, we grew by 23% over the last year with the volume growing at 11% and
the packaging business as Mr. Chandra just now explained that we had a reduction from the last year by about 5% in the
revenue.
Emkay Research | 01 August, 2011 8
Essel Propack Transcription
Sagraj Paria
In terms of product mix, would this remain same more or less over a YOY or sequentially basis or has there been any change?
Ganesh Ganpathy
Actually the plastic tubes were earlier at around 10%, they have gone to 11% now. As you know they are growing higher by
23% and SLT packaging has also been growing fast so they constitute about 14% because this time they have slightly
declined in terms of revenue. so they used to be around 15% they have dropped to 14%. Rest is the laminated tube which
continues to be at the same position of 75%.
Sagraj Paria
Lastly the question I asked about the margin side, if you can give some idea about how company plans to expand its margin
by 200 basis points?
R. Chandrasekhar
There are three or four components to this strategy of margin expansion. On the first level there are two low hanging fruits
where we see an opportunity and we are working on it. The first is US, we are committed to increase it to about 15.5% to 16%,
which I mentioned to you from 13%. And if the numbers of the 1st Quarter are any indication, we seem to be almost there. That
is basically the first part of the game plan. The second part of the game plan is Poland. The fact that today in Poland, we did
have a couple of months that we had a positive EBITDA and a couple of months ,we were just at a zero stage compared to the
last year. So in that any turnaround which happens in Poland will significantly add to the EBITDA. That is the second focus
area which we have for us. And the third area was that we need to somehow or the other be much faster in passing on raw
material escalations or getting a price adjustment for the raw material escalations which are happening. Because as we
mentioned during the beginning of this call, one of the challenges which we are facing is that the raw materials have been
continually moving in a one-way, so we always seem to have this lag effect. And the more smarter we are in keeping this lag
effect as short as possible, the more quicker we are in getting a price increase, we will be able to naturally expand the margins
given the fact that our volumes are definitely growing by 12% to 14%.
Pritesh
I had a question, just to clarify the laminated tube volume growth for the quarter was 8%
R. Chandrasekhar
9.3% I said.
Pritesh Chheda
And plastic tube was 11%.
R. Chandrasekhar
12.2%.
Pritesh Chheda
So that means we did not have any price led growth in the quarter?
Ganesh Ganpathy
In the case of plastic tubes our revenue growth was 23%, there was a price adjustment there.
Pritesh Chheda
But the overall top-line overall growth in the quarter is 8.4% and our laminated tubes grew 9%, plastic tubes grew by 22% and
the PIPL declined by 5%. So that comes up to 8.4%.
Ganesh Ganpathy
You are right.
Emkay Research | 01 August, 2011 9
Essel Propack Transcription
Pritesh Chheda
Secondly, somewhere in the call America margin was discussed at about 14%.
R. Chandrasekhar
Last year about 13% odd.
Pritesh Chheda
This is US alone. Because in the segmental if you see America, has got an inbuilt profit which is about hardly any number, so
you make loss in Mexico and you make money in US, that is how is it?
R. Chandrasekhar
No, sir. We make money in the US laminated tube, Mexico and Colombia. We lose money in the plastic tube business in
America which is a big drag down for us.
Pritesh Chheda
When you say margin improvement you are looking at margin improvements in the…..
R. Chandrasekhar
Laminated tube part of the business. Plastic Tube, the story is that with the new contract which we have ,which will go in place,
we hope to get to a zero situation because that itself will add to the margin.
Pritesh Chheda
How much money do you lose in the plastic tube business?
R. Chandrasekhar
Overall for the financial year April to the March, we must have lost close to about $3 million.
Pritesh Chheda
In the plastic tubes alone?
R. Chandrasekhar
Yes.
Pritesh Chheda
When do you think you can do a breakeven here?
R. Chandrasekhar
By December of this year.
Pritesh Chheda
So that means that 12 crores odd will flow down to you EBIT?
R. Chandrasekhar
Yes. What will happen is Pritesh, that the first part which will go in stream somewhere from October to December will be
actually reduction in the losses. And by the end of this calendar year, hopefully you will see from January profits stacking. So,
for the financial year 2011-2012 ,the entire $3 million does not get reversed.
Emkay Research | 01 August, 2011 10
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Pritesh Chheda
Lastly just wanted to understand in your initial comments, there were certain one offs you said in the specialty laminated and
PIPL business in the quarter and one-offs was in the form of revenue or volume decline or something else?
R. Chandrasekhar
No, what Ganesh was referring to you was that during the period January to March, we got a price adjustment for the
preceding period. So to that extent, there were one-off price increases which we got to compensate for us for the losses which
he had in the proceeding period, that is before January 2011. Now what has happened is that, the numbers for the period for
April to June and if you were to compare it with the previous quarter, when I am saying previous quarter, it is January to
March, they do not become comparable because of one-off compensation which we received during the proceeding period,
that is what Ganesh was telling.
Pritesh Chheda
That is on sequential basis?
R. Chandrasekhar
That is on sequential basis, he was referring. On a previous year basis, previous year the business was at a loss, this year it is
at a profit.
Pritesh Chheda
So the reference is to one-off in the previous quarter which was not there now and the previous quarter number was higher
and this time it is lower.
R. Chandrasekhar
That’s right. So sequentially Pritesh, the volumes has grown by 8% in this business. So only one-off price adjustments relating
to the past period, that is appearing as a denominator and so the sales appeared to be declining sequentially.
Pritesh Chheda
For the PIPL and henceforth the…
R. Chandrasekhar
So like tubing is also under growth track, there is no issue there.
Pritesh Chheda
So in laminated tubes we have not taken any price increase despite a 40 to 50 basis points reduction in the growth margin?
R. Chandrasekhar
As I said that price increases have been taken in some places. In some places they are still under review and completion. And
also in some cases, there will be advantages in the cost because we are looking at a global number, when the currency has
appreciated for example, it may not be necessary. So, on an overall basis you are looking at this number. The main impact is
coming this time actually from India as we have highlighted in our note to you because that is where the complete revenue is
under process now. So once that is through, we should be able to see the improvement in the price realization and therefore
the market.
Pritesh Chheda
Okay.
Moderator
Currently there are no questions Mr. Chheda. As there are no further questions I would now like to hand the floor over to Mr.
Pritesh Chheda for closing comments.
Emkay Research | 01 August, 2011 11
Essel Propack Transcription
Pritesh Chheda
I thank the participants for attending the call and I thank the management of Essel Propack for giving us the opportunity to host
this call. Over to you Mr. Chandrasekhar if there are any closing remarks.
R. Chandrasekhar
Thank you Pritesh and my thanks to Emkay and all of you for attending this call. As I spelt out in the beginning of our
conversation for today, that we stand committed to whatever we have said in the beginning of the year, that we will be working
for a revenue growth of around 12% to 14% and at the same time focusing on expanding the margins by 200 basis points for
the year. The peak period for us has started with July and hopefully you will see the numbers stacking up as far as the July to
September quarter is concerned. So thank you very much once again.
Moderator
Thank you. On behalf of Emkay Global Financial Services Limited that concludes this conference. Thank you for joining us.
You may now disconnect your lines.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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Essel Propack Transcription
Moderator
Ladies and gentlemen, good day and welcome to the Essel Propack Q1 FY12 results conference call hosted by Emkay Global
Financial Services Limited. As a reminder for the duration of this conference all participant lines will be in the listen only mode
and there will be an opportunity for you to you ask questions at the end of today's presentation. Should you need assistance
during this conference call, please signal an operator by pressing * and then 0 on your touchtone telephone. Please note that
this conference is being recorded. At this time I would like to hand the conference over to Senior Research Analyst Mr. Pritesh
Chedda. Thank you and over to you sir.
Pritesh Chedda
Good afternoon everybody, thank you for joining us today. We would like to welcome the management of Essel Propack and
thank them for giving us the opportunity to host this call. From the management side we have Mr. R. Chandrasekhar,
President – Europe, America in PITL business, Mr. R. Ramaswamy, President – AMESA and EAP Region, Mr. Ganesh
Ganapathy, our CFO Global Operations, Mr. Vinay Mokashi, Finance Controller and Mr. Ashish Patel, Senior Manager –
Treasury. We would start the call with a review on the Quarter 1 performance and outlook on the ensuing year by the
management. Thereafter we open the call for Q&A. I would now like to hand over the call to Mr. Chandrasekhar for his
opening remarks. Over to you sir.
R. Chandrasekhar
I thank everybody for finding time to be on this call. When we look at the quarter April to June, there are some things which we
need to bear in mind that typically this quarter is a muted quarter in terms of business for us. The peak period starts with July
and runs possibly up to end November or early December. This is true across most of the regions, so you have to look at the
results for the Q1 April to June in light of this fact.
In terms of what has happened in across the region, we have seen strong growth in revenues almost close to about 19% in
India, 17% in the EAP China region, about 10% in Europe and as far as US is concerned, it's almost a flat growth. When you
look at the margins and how we have performed, I think overall looking at the quarter numbers, our post operating margins at
the EBITDA level have dropped by around 0.9, earlier period year was around 16.9 and now we have dropped about 60,
mainly coming-out of certain raw material pressures, increase in the a raw material pressure and the time lag which we have in
passing it to customers.
What I will now do is, I will hand over the floor to Mr. Ganesh and he will walk you through the result first so that we can then
go through the Q&A.
Ganesh Ganpathy
Thanks Chandra. During this quarter our consolidated global operations posted a revenue of 360 crores and a net profit of 9.4
crores compared to a profit of 8.6 crore last year for this quarter and sequentially again our profits have been higher than the
previous quarter, which was 8.4 crores. On an overall basis, the sales have grown 8.4% year over year and we are also
continuing to grow sequentially and there is a 3% growth overall basis for the business. The net profit has grown almost in line
with the sales for this quarter at 8% and sequentially it has actually been better than the March quarter by growing it 11.8%.
The only issue as Chandra has mentioned, there is a slight dip in operating margins compared to what it used to be in the last
year, about 40 basis point dip to 8.5% of sales. Sequentially, the operating margin continues to be a little flat. What is
heartening to us is that the business of tubing across the regions have shown very good growth both year-over-year, in terms
of AMESA, we have a growth of 19.6% in India alone. In the EAP, we have grown 17.6% revenue. Even in Europe we have
grown 10.6%, in the America the sales are a little bit flat, marginally lower at 1.9%. But really it just speaks that we are still
faced with a growth opportunity in the market and sequentially again EAP has grown 18.9% in this quarter, Europe has
continued to grow in this quarter by 8.6%. AMESA, although has been a little bit flat, which I will explain the reason, why it is
and in Americas it has seen lowered at about 4% sequentially. Now if I analyze the sales growth, essentially in the case of
AMESA, there are two aspects, one is the tubing business of India and Egypt and there is also the specialty laminate business
in India. Now look at the specialty laminate business, sequentially the sales value revenue has come down and that is one of
the reason why the Indian AMESA region has grown by 9.6 despite a strong growth in India of 19.6%. Now this is more a sort
of a technical or a statistical number because there were certain realization sales price reviews which had been given to this
company in the March quarter and these are one-off and thereafter the business is now regular and their volumes have
actually grown sequentially during this period March to June by 8.3%. So on your whole event in AMESA, the underlying trend
is that the volumes are continuing to grow and the revenues are also continuing to grow.
01 August, 2011
Essel Propack
Q1FY12 Conference Call Transcript
Transcript
Emkay Research | 01 August, 2011 2
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In America there has been some issue in terms of the off-take in Mexico, which we will explain during the discussion. This is
the only reason why there is a slight decline in the sequential growth. So overall, what clearly emerges in this quarter is that
our growth engine continues to tick and what has happened in terms of the operating margins, which has taken a hit of 40
basis points and is largely due to a sharp increase in the input prices. See, year over year our input prices have gone up by
almost 16.5% and as you know that in a period when our prices go up, we go with a revision in the prices and, therefore, there
is sort of time lag effect coming in. And that lag effect on the margins is what has been pushing us down both in the March
quarter and the June quarter but as the prices stabilize, the profit margin will also stabilize and show the required numbers
which we are working on. So that is the context in which I would like you to look at this one, that we have been prompt in
passing on the prices, even sequentially our price growth has been there but importantly that correction has to continue for
another quarter assuming the prices are going to stabilize at the current levels. So that is from my side.
Moderator
Participants, we will now begin the question-and-answer session. The first question is from the line of Ruchita Maheshwari
from Nirmal Bang Securities, please go ahead.
Question and Answer Session
Ruchita Maheshwari
I just wanted to know why your Europe business has given more losses in this quarter compared to the last quarter and even
in the last financial year?
Ganesh Ganpathy
In the Europe business, our profit for this quarter, there has been a loss of 503 lakh versus 411 lakhs for the last year. In
Europe we have four businesses, one in Germany, Russia, UK and Poland. The Poland business is where we have been
cutting losses year-over-year and that trend continues in that business. Actually Poland has improved during this period
compared to last year. Now there are two other businesses, one is Russia and the other is Germany. There has been a slow
down in the German sales operations during this quarter which has resulted in their profit, they continue to be profitable but it
is lower than what it was in the previous year. The third aspect is in Russia, in Russia there has been a reduction in the profits
causing the total loss figure for Europe to appear a little higher than what it was before.
Ruchita Maheshwari
Are we facing any business problem or there are no contracts you are getting or something like that? Why Europe is still in
losses and in fact losses have increased compared to the last quarter?
R. Chandrasekhar
If you take Poland as a business, our losses during this quarter are substantially lower than the losses which we had in the
same period last year. Now does that means that the unit will continue to be in losses? The answer is, no. We are very close
to the breakeven point, so I think it is a matter of time before the business turns around. I think what has happened in the case
of Europe, as Ganesh was explaining is, in Germany our profit has fallen by almost close to 30% in this period compared to
the preceding years same period. This fall in profit has happened for two reasons; one is that, overall the volumes in Germany
have come down this quarter and this is also coinciding with an increase in the capacity, which has happened in the German
plant. We expanded Germany in March and immediately in this quarter we are seeing some slowdown in the sales level. We
have not lost any customer, so we think that this phase is mainly due to a lower business confidence which exists in that
market because Europe being whatever it is and that is translating into lesser new products launches and lower sales, rather
than any loss of customer for us.
Ruchita Maheshwari
Your AMESA has also reported less EBIT margins whereas like America is one of the top contributors in your consolidated
revenue. So what is the reason behind that?
M. R. Ramaswamy
Volume growth is in line with our expectation, if we compare with the last year same quarter, 13% growth on volume. We also
see that the revenue also has grown up. What happens is, there is a time lag in terms of price realization in the market and it
has to be a very temporary for this quarter. We always have time lags and the price continuously increasing but most of the
price increases are concluded. There is a very healthy business volume in July to the September quarter. So going forward
this correction will take place automatically.
Emkay Research | 01 August, 2011 3
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Ruchita Maheshwari
But as far as I know, you have taken the price increase in Q4 FY11, so if you are talking about a time lag, the impact should
have been in this quarter but we have not been able to see any impact.
M. R. Ramaswamy
That is correct. We have taken a price increase on Q4, we have also taken a price increase on Q1 of this year also. The price
is continuously increasing, the raw material prices have continuously increased, so we have taken another price increase. The
price increase has been impacted between April to June in staggered basis. We have completed all the price increases in
June. The complete impact will flow through into this quarter.
Ruchita Maheshwari
Are we able to pass on the raw material prices to the consumers or how is it?
M. R. Ramaswamy
There is no problem but it takes time to negotiate. Since we took a price increase only in the past three or four months back,
going with another price increase is a challenge but 50% to 60% of our volumes are contracted which has an auto price
correction after the quarter. So there will be a time lag of correction but correction automatically will happen. The remaining
40% is a question of negotiation. so it takes about anywhere between 30 days to 45 days after the price increas e has actually
happened. So that is the time lag you are seeing.
Ruchita Maheshwari
With whom you are negotiating are they easily absorbing the price hike which you are giving to them or are they saying you
won't be able to accept that kind of increase?
M. R. Ramaswamy
Any price increase in any market is a question of negotiation, there are only up and downs but in general we are able to
recover price increases. So that is why you are seeing growth in revenues compared to the volumes.
Ruchita Maheshwari
How you are seeing this raw material price increase or raw material prices going forward, say next three to six months?
M. R. Ramaswamy
There are lot of theories floating around in the market, people say for the next two quarters, since it has reached a peak,
probably that it will remain for the next one quarter. A lot of capacity in Polymer is getting into the market, so probably we will
see in the last quarter of this year a slowdown. But still it is a highly volatile situation, it is not easy to predict. The current
condition says that this will not go any further more.
Ruchita Maheshwari
What kind of volume growth you are seeing in FY12?
M. R. Ramaswamy
FY12, we are seeing about 12% to 13% growth that we look into.
Ruchita Maheshwari
I am talking about the consolidated levels.
Ganesh Ganpathy
Yeah, the consolidated also, it is around the same number 12% to 14%.
Ruchita Maheshwari
What kind of margin you are expecting?
Emkay Research | 01 August, 2011 4
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Ganesh Ganpathy
When we set out during the beginning of the year, we made a statement in the last call also that we will be looking at a 200
basis point improvement over the last year's margins. We still stand committed to that target and we have currently internal
plans in place to work for it. So that target remains unchanged for us.
Ruchita Maheshwari
What is the CapEx for FY12?
Ganesh Ganpathy
Will be in the region of about 95 to 105 crores, still little less than the depreciation.
Ruchita Maheshwari
What is the total debt?
Ganesh Ganpathy
Total debt is around 830 crores gross debt.
R. Chandrasekhar
What kind of initiatives you are facing to turn around your company, as it was in the CY06 level?
R. Chandrasekhar
2006 levels you are asking?
Ruchita Maheshwari
Yes.
R. Chandrasekhar
I think, to answer your question you have to step back to 2007 and 2008. We had a very volatile 2008 and you saw a sharp
recovery going forward and even for the financial year March 2011, we are close to around 44 crores , which I have mistaken
as the PAT level. You see typically an EPS of around Rs. 3 per share and the plan in the current year is to target an EPS of
around, north of Rs. 5. So that gives you a sense, the way in which we are going around to achieve that number.
Ruchita Maheshwari
How are you seeing the international business?
R. Chandrasekhar
Different markets have different trajectory. The focus is also very different for us in different markets. The focus as far as the
US market is concerned which is a very large part of our business is to improve margins rather than to go for an aggressive
growth. In Europe the focus mainly is on both growth as well as recovering from a loss position to a profitable position. And as
far as China and India are concerned, these are the two main engines for aggressive expansions both at the revenue level and
at the operating margin level. So in different markets we have a different plan.
Moderator
Thank you. The next question is from the line of Jayesh Shah from Reliance Mutual Funds, please go ahead.
Jayesh Shah
What is your plan strategy going forward for India's business? What kind of growth do you foresee in India's standalone
business?
Emkay Research | 01 August, 2011 5
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M. R. Ramaswamy
Tubing businesses will continue to have a higher trend of the double-digit growth, say about 12% to 14% is what we are
expecting and there are lots of new markets, cosmetics and those conversions are also taking place. We are very active in
pharma. Actually in the pharma market we have to bring around 20% to 25% year-on-year. So those are actually high margins,
low volumes businesses compared to the oral care space, while we continue to have focus on, we are also looking into newer
segments like cosmetics and pharma for growth. So we believe that we will continue to grow at 12% to 14% in India.
Jayesh Shah
So you foresee a 12 to 14% growth every year with the margin improvements?
R. Chandrasekhar
This year that is our forecast and next year it should also be in the same range that we will come out with that maybe in the 3rd
Quarter of this year.
Jayesh Shah
What kind of CapEx do you foresee in India's business, what is the plan for the company from the CapEx point of view, from
an expansion point of view?
R. Chandrasekhar
We have done a substantial expansion of about 40 crores in the last year. This year we do not foresee a huge CapEx outflow
for India, maybe around 15 crores maximum in India.
Jayesh Shah
Regarding Americas business, the earlier there were some problems on the operating cost point of view, operating cost was
very high in America. So what are you doing to deal with a high operating cost in the America segment?
R. Chandrasekhar
It depends upon how you look at operating cost. If you are looking operating cost as a percentage of revenue, it is more or less
in line with the other markets because the selling price of fuel in that market is also much higher than the other markets. But
having said that I think, in the US the problem which we primarily had is more in terms of capacity utilization. So we have on
the ground the infrastructure in terms of people and machines to produce a certain volume and we were doing it fairly
inefficiently. So the focus over the last one year has been to improve the efficiencies in the plants, which is what actually, if you
see the segmental numbers, you will see that the American region has actually turned from a loss into a profit the last quarter.
Jayesh Shah
What is your strategy for America? When do you think America will start contributing to the bottom-line in a substantial way or
you do not see any major growth from the American segment, which will remain at this level?
R. Chandrasekhar
To answer your question, there are two parts to your question, one is; you talked about growth, I presume you are talking
about the top-line growth and margin expansion. As far as this year is concerned ,we are convinced that the focus on America
should be on margin expansion rather than top-line growth because we cannot do both at the same time, it becomes too risky.
Now having said that in that region we have two businesses, one is the laminated tube business and the plastic tube business.
The laminated tube business has done well compared to last year, both in terms of revenue and as well as in terms of the
operating margins but the same area for us has been the plastic tube business in US, it continues to lose money. Going
forward strategy for this was, we have to three things in place, one is that we have relocated the plant and merged both the
plants together so that we can leverage on our operating costs. The second thing which we have done is, we have done some
debottlenecking exercise from the land by shifting a few equipments here and there, so that we are able to produce more
efficiently with less24.20 . The third thing is, we have managed to bag a long-term contract with a customer. This product is a
high-volume product and hopefully the production of which should start from October of this year. So with that we expect the
operations by and large to stabilize by the end of this year and become profitable.
Emkay Research | 01 August, 2011 6
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Jayesh Shah
What kind of EBIT margins you are targeting from the America segment for this year end?
R. Chandrasekhar
Last year that is for the financial year ended 31st of March 2011, the year’s operation which is the largest operation which we
have was around 13% at the EBITDA level and this year we are targeting about 15.5% -16%.
Jayesh Shah
For the Europe segment, what is the strategy going forward because you have been facing some problems in Europe on and
off for the past few quarters. So what is strategy going forward in Europe?
R. Chandrasekhar
In Europe, as Ganesh mentioned there are four businesses which we have and each one is very different. The first, let us start
with Russia, Russia is fairly a small operation, so we will just continue to maintain where it is, it is no loss no profit. We do not
plan to expand the business this year at least. The second operation is Germany which continues to be a very profitable
operation. So there is a lot of pressure on the revenues to get new businesses and new customers because of the current
economic environment in that region. The third business which we have is the UK part of the business, which is a very small
business and really does not impact other than the currency fluctuation which we see because it's a pounds denominated
business. The fourth we have is in Poland, in Poland we have substantially reduced the losses over the last 24 months and I
think we are at a stage where we should be hopefully able to give the final push and bring it to a cash breakeven situation over
the next three months because actually we are at a cash breakeven situation for the last one and half, two months but we
need to stabilize it at that level before we start pushing the volumes once again. Also what we have done is to de-risk the
business in Poland which is only a plastic tube business, we have also now started making laminated tubes in Poland and we
have been fairly successful in quickly developing a market for those tubes. So that helps us to have a product portfolio in
Poland rather than to give tubes, depending on only one segment of the business. So I think, whatever we have done, the
efforts which we have put over the last 24 months in Poland has paid off and I think if we continue in the same path, in the next
couple of months, we should be seeing the final turnaround of Poland.
Jayesh Shah
Breakeven in Europe will be at the EBIT level or the PAT level you are targeting in next few months?
R. Chandrasekhar
For Poland specifically the target is on cash because that is the biggest loss making business we used to have and Germany
is anyway positive and EP UK is also positive at the EBTDA level, Russia is just marginally profitable because of certain
currency fluctuations, so we will continue to keep that also profitable at the EBITDA level.
Jayesh Shah
My last question would be, what would be the key risk to the turnaround story in America and Europe, what would be key risk
according to you for both the segments?
Ganesh Ganpathy
I think one of the key risk is our own ability to deliver internal efficiencies. It is not an external issue because we do have the
customers, we do have the business. It is our own quality and service level, if we falter we run a big risk of again getting into a
situation where customers are going to be unhappy and we will lose the business. So other than that we do not see any big
external risk.
Jayesh Shah
In America you discussed about having a larger customer base, you still depend on one or two customers or you have a good
customer base cover in America? Have you developed a customer base or you are just depending on one or two customers?
Emkay Research | 01 August, 2011 7
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Ganesh Ganpathy
No, we have in US two parts of the business, one is, what we call as contracted business which is restricted to two customers
and the other part is what we call as non-contracted business. The split between the business is roughly on a revenue term,
today around 85 to 15. The 85 is the contracted volume or a contracted business and 15 is where we are non-contracted. So
the non-contracted part has been steadily increasing for us. We will continue to reduce as far as possible to expand our
customer base in that market.
Jayesh Shah
In the contracted business there is a risk of these customers not taking up the volumes because of the recession or because
of any other problems?
Ganesh Ganpathy
Definitely, that is the part of the business risk but they are contracted business. In fact one of the reasons why you do not see
a strong growth in Americas during the last quarter is because one of our contracted customers had to fall short, whatever be
the reason in the market place and despite our efforts in expanding the other customers, the overall numbers did not stack up.
Moderator
Thank you. The next question is from the line of Sagraj Paria from Equatorials, please go ahead.
Sagraj Paria
I wanted to know about the specialty business in India that witnessed some downside this quarter what exactly was it, sorry I
missed it?
R. Chandrasekhar
This is a flexible packaging business which is an India centric business we have. Now Ganesh was talking about referring to
the quarter April to June in terms of the volume and the revenue and the fact that the volume and the revenue was lower in
this quarter compared to the preceding quarter and the preceding year both. It is a very seasonal business in that sense and
what is very important to note is that compared to the previous year, this year the revenue was low but the business is highly
profitable. Last year revenue was higher but we were losing money. This year the revenue is lower but the business is highly
profitable.
Sagraj Paria
In terms of Russia and Germany you said, the volumes were down that is why the profitability came down? What is the scene
in Russia, why did that business suffer?
R. Chandrasekhar
The profitability in Russia is down more for translation losses arising out of exchange. The way the Rubel exchange and we
had a lot of debt which is denominated in other foreign currencies as far as Russia is concerned, but post EBITDA level, that
really pulled down our PAT. At the EBITDA level, it is positive.
Sagraj Paria
Overall this quarter, the growth was almost 8%. So how much was it was volume and value price if you can give some idea on
that side? If you can give some roadmap idea on this 200 basis point improvement in EBITDA that we are looking from, where
it is going to come, if you can throw some light on that would be a great help to us?
Ganesh Ganpathy
Basically, we have three businesses. In laminate tube, volume growth and the revenue growth are almost equal, say around
9.3% over last year and in the case of the plastic tube, we grew by 23% over the last year with the volume growing at 11% and
the packaging business as Mr. Chandra just now explained that we had a reduction from the last year by about 5% in the
revenue.
Emkay Research | 01 August, 2011 8
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Sagraj Paria
In terms of product mix, would this remain same more or less over a YOY or sequentially basis or has there been any change?
Ganesh Ganpathy
Actually the plastic tubes were earlier at around 10%, they have gone to 11% now. As you know they are growing higher by
23% and SLT packaging has also been growing fast so they constitute about 14% because this time they have slightly
declined in terms of revenue. so they used to be around 15% they have dropped to 14%. Rest is the laminated tube which
continues to be at the same position of 75%.
Sagraj Paria
Lastly the question I asked about the margin side, if you can give some idea about how company plans to expand its margin
by 200 basis points?
R. Chandrasekhar
There are three or four components to this strategy of margin expansion. On the first level there are two low hanging fruits
where we see an opportunity and we are working on it. The first is US, we are committed to increase it to about 15.5% to 16%,
which I mentioned to you from 13%. And if the numbers of the 1st Quarter are any indication, we seem to be almost there. That
is basically the first part of the game plan. The second part of the game plan is Poland. The fact that today in Poland, we did
have a couple of months that we had a positive EBITDA and a couple of months ,we were just at a zero stage compared to the
last year. So in that any turnaround which happens in Poland will significantly add to the EBITDA. That is the second focus
area which we have for us. And the third area was that we need to somehow or the other be much faster in passing on raw
material escalations or getting a price adjustment for the raw material escalations which are happening. Because as we
mentioned during the beginning of this call, one of the challenges which we are facing is that the raw materials have been
continually moving in a one-way, so we always seem to have this lag effect. And the more smarter we are in keeping this lag
effect as short as possible, the more quicker we are in getting a price increase, we will be able to naturally expand the margins
given the fact that our volumes are definitely growing by 12% to 14%.
Pritesh
I had a question, just to clarify the laminated tube volume growth for the quarter was 8%
R. Chandrasekhar
9.3% I said.
Pritesh Chheda
And plastic tube was 11%.
R. Chandrasekhar
12.2%.
Pritesh Chheda
So that means we did not have any price led growth in the quarter?
Ganesh Ganpathy
In the case of plastic tubes our revenue growth was 23%, there was a price adjustment there.
Pritesh Chheda
But the overall top-line overall growth in the quarter is 8.4% and our laminated tubes grew 9%, plastic tubes grew by 22% and
the PIPL declined by 5%. So that comes up to 8.4%.
Ganesh Ganpathy
You are right.
Emkay Research | 01 August, 2011 9
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Pritesh Chheda
Secondly, somewhere in the call America margin was discussed at about 14%.
R. Chandrasekhar
Last year about 13% odd.
Pritesh Chheda
This is US alone. Because in the segmental if you see America, has got an inbuilt profit which is about hardly any number, so
you make loss in Mexico and you make money in US, that is how is it?
R. Chandrasekhar
No, sir. We make money in the US laminated tube, Mexico and Colombia. We lose money in the plastic tube business in
America which is a big drag down for us.
Pritesh Chheda
When you say margin improvement you are looking at margin improvements in the…..
R. Chandrasekhar
Laminated tube part of the business. Plastic Tube, the story is that with the new contract which we have ,which will go in place,
we hope to get to a zero situation because that itself will add to the margin.
Pritesh Chheda
How much money do you lose in the plastic tube business?
R. Chandrasekhar
Overall for the financial year April to the March, we must have lost close to about $3 million.
Pritesh Chheda
In the plastic tubes alone?
R. Chandrasekhar
Yes.
Pritesh Chheda
When do you think you can do a breakeven here?
R. Chandrasekhar
By December of this year.
Pritesh Chheda
So that means that 12 crores odd will flow down to you EBIT?
R. Chandrasekhar
Yes. What will happen is Pritesh, that the first part which will go in stream somewhere from October to December will be
actually reduction in the losses. And by the end of this calendar year, hopefully you will see from January profits stacking. So,
for the financial year 2011-2012 ,the entire $3 million does not get reversed.
Emkay Research | 01 August, 2011 10
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Pritesh Chheda
Lastly just wanted to understand in your initial comments, there were certain one offs you said in the specialty laminated and
PIPL business in the quarter and one-offs was in the form of revenue or volume decline or something else?
R. Chandrasekhar
No, what Ganesh was referring to you was that during the period January to March, we got a price adjustment for the
preceding period. So to that extent, there were one-off price increases which we got to compensate for us for the losses which
he had in the proceeding period, that is before January 2011. Now what has happened is that, the numbers for the period for
April to June and if you were to compare it with the previous quarter, when I am saying previous quarter, it is January to
March, they do not become comparable because of one-off compensation which we received during the proceeding period,
that is what Ganesh was telling.
Pritesh Chheda
That is on sequential basis?
R. Chandrasekhar
That is on sequential basis, he was referring. On a previous year basis, previous year the business was at a loss, this year it is
at a profit.
Pritesh Chheda
So the reference is to one-off in the previous quarter which was not there now and the previous quarter number was higher
and this time it is lower.
R. Chandrasekhar
That’s right. So sequentially Pritesh, the volumes has grown by 8% in this business. So only one-off price adjustments relating
to the past period, that is appearing as a denominator and so the sales appeared to be declining sequentially.
Pritesh Chheda
For the PIPL and henceforth the…
R. Chandrasekhar
So like tubing is also under growth track, there is no issue there.
Pritesh Chheda
So in laminated tubes we have not taken any price increase despite a 40 to 50 basis points reduction in the growth margin?
R. Chandrasekhar
As I said that price increases have been taken in some places. In some places they are still under review and completion. And
also in some cases, there will be advantages in the cost because we are looking at a global number, when the currency has
appreciated for example, it may not be necessary. So, on an overall basis you are looking at this number. The main impact is
coming this time actually from India as we have highlighted in our note to you because that is where the complete revenue is
under process now. So once that is through, we should be able to see the improvement in the price realization and therefore
the market.
Pritesh Chheda
Okay.
Moderator
Currently there are no questions Mr. Chheda. As there are no further questions I would now like to hand the floor over to Mr.
Pritesh Chheda for closing comments.
Emkay Research | 01 August, 2011 11
Essel Propack Transcription
Pritesh Chheda
I thank the participants for attending the call and I thank the management of Essel Propack for giving us the opportunity to host
this call. Over to you Mr. Chandrasekhar if there are any closing remarks.
R. Chandrasekhar
Thank you Pritesh and my thanks to Emkay and all of you for attending this call. As I spelt out in the beginning of our
conversation for today, that we stand committed to whatever we have said in the beginning of the year, that we will be working
for a revenue growth of around 12% to 14% and at the same time focusing on expanding the margins by 200 basis points for
the year. The peak period for us has started with July and hopefully you will see the numbers stacking up as far as the July to
September quarter is concerned. So thank you very much once again.
Moderator
Thank you. On behalf of Emkay Global Financial Services Limited that concludes this conference. Thank you for joining us.
You may now disconnect your lines.
Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible words.
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