The document is a transcript of UFLEX Limited’s Q3 FY25 earnings conference call, conducted on February 17, 2025, at 4:00 P.M. IST, hosted by Dolat Capital. UFLEX, a company engaged in flexible packaging, aseptic packaging, and related businesses, discussed its financial performance, operational updates, and future growth strategies. Key management participants included Mr. Rajesh Bhatia (Group President and CFO) and Mr. Surajit Pal (VP, Head of Investor Relations). The call included a detailed Q&A session with analysts from various firms.
Management Commentary on Financial Performance
Rajesh Bhatia, the Group President and CFO, opened the call with a detailed overview of UFLEX’s performance in Q3 FY25 (October-December 2024):
- Revenue Growth: Revenue increased by 12.8% year-on-year (Y-o-Y) to INR 3,774 crores, backed by a volume growth of 6.3%. The difference between revenue and volume growth reflects margin improvement.
- EBITDA Margin: The EBITDA margin improved to 13.8% in Q3 FY25 from 11.4% in Q2 FY25. For the 9-month period, the EBITDA margin stood at 12.6%, up 1.1% Y-o-Y.
- Profit After Tax (PAT): UFLEX reported a positive PAT of INR 111 crores in Q3 FY25, a significant turnaround after four quarters, aided by a positive currency devaluation impact in Nigeria (INR 26 crores) and no negative forex impacts.
- Capacity Utilization:
- Aseptic Packaging in India achieved 104% utilization in Q3 (lean period), up from 84% in Q3 FY24.
- Nigeria plant utilization rose to 90% (highest ever), up from 64% in Q2 FY25.
- Mexico plant utilization reached 98%, up from 85% in Q2 FY25.
- Poland plant remained below 70%, indicating room for improvement.
Management Commentary on Growth and Outlook
The management outlined UFLEX’s strategic initiatives and growth outlook, emphasizing investments in new facilities, capacity expansions, and regulatory compliance:
- Regulatory Push for Recycled Materials:
- Starting April 1, 2025, the Government of India has mandated 30% recycled material in rigid plastics and 10% in flexible packaging. UFLEX sees this as an opportunity due to its prior experience in recycling since the mid-1990s.
- A new PET bottle, polyethylene, and multi-layered plastic recycling facility is planned in Noida with an investment of INR 317 crores. This will cater to the demand for blended materials (virgin + recycled).
- WPP Bags Investment in Mexico:
- UFLEX is investing $50 million in a Woven Polypropylene (WPP) bags facility in Mexico to serve the North and South American pet food markets. The facility targets brands like Purina (Nestlé) and Mars’ Pedigree and Royal Canin, with expected EBITDA margins of 22-25%. Ramp-up is projected to take a couple of years due to customer validation processes.
- Aseptic Packaging Expansion:
- In India, the Aseptic facility (Sanand) expanded from 7 billion to 12 billion packs annually, achieving mechanical completion and moving toward commercial operations.
- In Egypt, a 12-billion-pack Aseptic facility is under construction (announced last quarter), with $19 million spent in Q3 FY25 and completion targeted for FY26, operational by FY27.
- PET Chips Facility in Egypt:
- A 216,000 MTPA PET chips facility in Egypt has reached mechanical completion and is nearing operational status, enhancing raw material supply for packaging.
- Financial Outlook:
- FY26 revenue potential from the Sanand Aseptic facility, Egypt PET chips plant, and Mexico CPP plant is estimated at INR 2,200-2,500 crores at full utilization, with partial realization in FY26 and full potential by FY27.
- New facilities (recycling, WPP bags, and expanded Aseptic capacity) will further boost revenue and profitability from FY27 onward.
- Net debt-to-EBITDA ratio stood at 3.24x, considered reasonable, with expectations of margin expansion in FY26 due to higher utilization and stable currencies (e.g., Nigeria’s 8% appreciation in Q3).
- Market Trends:
- Strong demand in India and export growth (52% increase in BOPET exports over two years) are key drivers. BOPP remains balanced, though new capacities in FY26 may temporarily pressure prices.
Key Highlights from the Q&A Session
The Q&A session provided deeper insights into UFLEX’s operations, challenges, and future plans. Below are the key questions and responses:
- Chirag Singhal (First Water Capital):
- Overseas Plant Performance: Asked about dips in Egypt and Poland utilization. Bhatia clarified Egypt’s dip was due to technical issues (one-off), targeting 90%+ in FY26, while Poland’s 61% utilization (down from 68% in Q2) reflects weak European demand, aiming for 80% in FY26.
- Asepto Ramp-Up: Inquired about the 12-billion-pack expansion timeline. Bhatia projected 10.5-11 billion packs in FY26.
- WPP Bags: Sought details on capacity and margins. Bhatia noted a $50 million top line with 22-25% EBITDA margins, with a two-year ramp-up due to validation.
- US Tariffs Impact: Asked about Mexico exports to the US amid potential 25% tariffs. Bhatia suggested multiple scenarios (no tariffs, leveled duties, or job work), with decisions pending clarity.
- Prashant Rishi (Cascade Capital):
- Industry Overcapacity: Queried BOPET and BOPP supply dynamics. Bhatia noted BOPET overcapacity is easing (India utilization up to 77% from 73%), while BOPP is balanced but faces 12,000-13,000 tons/month excess capacity in FY26 from four new plants. One additional BOPET plant (4,000 tons/month) is expected in FY26/27.
- Darshan Jhaveri (Crown Capital):
- Q4 and FY26 Outlook: Asked about performance continuity. Bhatia predicted a stronger Q4 due to Aseptic peak season and Egypt PET contributions, with FY26 adding INR 2,200-2,400 crores in revenue at 15% EBITDA margins. BOPP overcapacity may have a limited impact given UFLEX’s small BOPP presence in India.
- Kaushik Poddar (KB Capital Markets):
- Debt Levels: Sought specifics on debt increases. Bhatia noted INR 1,100 crores spent in 9M FY25 with a net debt rise of INR 550 crores, projecting INR 1,700 crores more over two years offset by INR 2,000 crores amortization.
- Recycling Margins: Asked about margin gains from the recycling mandate. Bhatia confirmed a potential increase to 14% in FY26, with recycling offering higher initial margins.
- Mehul Savla (RW Equity):
- Flexible Packaging: Asked about growth drivers. Bhatia highlighted a shift to value-added products (e.g., retort pouches) rather than capacity expansion, given low margins (e.g., Huhtamaki’s 5% EBITDA).
- Mono-Polymer Shift: Queried regulatory impacts. Bhatia explained mass balance adjustments (e.g., higher recycled content in PET/PE) pose no technological challenge.
- Aman Sonthalia (AK Securities):
- Asepto Market: Asked about liquor packaging mandates in UP/Uttarakhand. Bhatia highlighted a massive potential (4-5x capacity increase if adopted nationwide), though supply constraints may arise.
- Debt Concerns: Raised stock price dampening due to leverage. Bhatia emphasized stable debt-to-EBITDA despite investments, with no immediate deleveraging plans.
- Value-Added Films: Suggested focusing on high-margin films. Bhatia agreed but noted base films remain essential, with value-added focus resuming post-COVID normalization.
- Saket Kapoor (Kapoor Stock Brokings):
- Debt Breakdown: Requested net debt figures. Bhatia provided INR 2,650 crores (India) and INR 6,150 crores (consolidated), with long-term debt at INR 2,300 crores (India) and INR 5,450 crores (consolidated).
- PAT Margins: Asked about sustaining 2-3% PAT. Bhatia attributed low PAT to high interest and depreciation, with no shift from debt-financed growth unless equity is raised.
- Renewable Energy: Inquired about power sourcing. Bhatia noted 70-80% renewable usage in Dharwad, targeting similar levels across plants in two years.
- Aman Sonthalia (Follow-Up):
- Europe Pricing: Asked about trends. Bhatia confirmed prices normalized to double pre-COVID levels, now manageable.
- Trump’s Policies: Queried plastic consumption boosts. Bhatia saw potential in relaxed regulations but noted pricing pressures from small Indian converters limit flexible packaging margins.
Conclusion
UFLEX Limited showcased a robust Q3 FY25 with revenue and margin growth, driven by higher utilization and favorable forex impacts. The management is optimistic about FY26 and FY27, leveraging expansions in Aseptic packaging, recycling, and WPP bags to add significant revenue (INR 2,200-2,500 crores) and improve margins (targeting 14% EBITDA). The Q&A session revealed a strategic focus on regulatory compliance, value-added products, and operational efficiency, though debt levels and BOPP overcapacity remain concerns. The company aims to balance growth with financial stability, with no immediate plans to shift from debt financing unless market conditions evolve.