EPL Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Strong Q1, broad-based growth: Revenue grew double digits, driven by robust demand across all major markets and successful execution of strategic initiatives.
• Oral care is the standout engine: Oral care revenue surged 15% versus 6% in personal care, fueled by organic momentum and sustainability-led wallet share gains with key customers transitioning to sustainable tubes.
• Margin story is a regional transformation: Americas margins swung from single-digits to high-teens, and Europe added 230 bps to reach mid-teens, while India margins dipped on global capability investments.
• Price headwinds have largely bottomed out: Some customer-specific price corrections occurred based on past commodity softening, but management sees no major pending corrections.
• What to watch next quarter: Whether the oral care wallet share gains sustain into Q2, the pace of India margin recovery, and the final TSA amortization drop-off.

Oral Care: The Sustainability-Led Surge

• Wallet share, not just demand: The 15% growth in oral care was driven by strong organic demand plus wallet share gains as a few key customers transitioned to sustainable tubes, a shift management calls long-term and sustainable.
• Europe unlocks new customers: EPL gained wallet with two more customers in Europe that it never served before, expanding its oral care footprint in the region.
• Concentrated market, cautious outlook: Oral care is a very concentrated marketplace with only four players, making specific market share gains "a little trickier" to disclose. Management wants to watch the next three or four quarters to confirm the growth is sustained.

Ramasamy: "But when we have seen a 16% growth in this, it's one quarter, we need to see in the next three or four quarters of what we will be able to sustain and grow. But all indications are that we will be able to sustain and grow further."

Regional Margin Transformation

• Americas: a radical P&L shift: Americas margins rose from single-digits to high-teens, a transformation management calls a radical shift in the region's P&L shape versus the same quarter last year.
• Europe: 230 bps added, more to come: Europe margins reached mid-teens, up 230 bps over the past year, and management says this level is absolutely sustainable while they are still working to improve further.
• India: investment-led dip: India standalone margins declined due to investments in B&C efforts, corporate capability building that benefits the globe but sits in India's P&L, and an enhanced performance-driven incentive for FY25 that is accounted prudently but paid only if higher performance is delivered.
• India margin floor: Management is explicit that the effort is to push India margins up from where they are today, stating "we will not allow it to go down easily."

Kripalu: "Could India margins go down? If anything, we are doing what it takes to see how we can push India margins up from where they are right now, so we will not allow it to go down easily, okay?"

Pricing & Commodity Dynamics

• Price corrections bottoming out: Some price corrections occurred in a few places with a few customers based on past commodity softening, but management believes these have largely bottomed out with no major corrections pending.
• No material negative pricing globally: While some regions have a more negative price mix, overall pricing has more or less anniversarized with no material global headwind.
• Commodity mix varies by region: EAP margin at 22% EBITDA is in the target zone, with management citing a combination of product mix, pricing discussions, and commodity mix as factors, and seeing no challenge to that margin level.

Kripalu: "Have there been some price corrections in a few places with a few customers based on past or based on commodity softening of the past that is now occurring? Yes, there has been. Having said that, I would think that price corrections have largely bottled down as we speak now and there are major price corrections that are pending anymore."

Brazil & Americas Expansion

• Customer base diversifying fast: Within one year of plant commercialization, EPL started supplying new customers in Q1, including two multinational clients and a local partner, alongside the anchor customer.
• Growth momentum to continue: Management expects Brazil's growth momentum to continue, though the contribution may temper a little from the current 18-19% Americas growth rate.
• Capacity headroom is modular: The plant has significant headroom with existing capacity and a modular, plug-and-play design; as new orders come in, EPL will augment with a fresh line.
• Sequential QoQ comparison misleading: Management cautions that sequential Americas comparisons are erroneous due to significant seasonality and cyclicality; the absolute EBITDA versus the same quarter last year shows the real transformation.

Strategic Initiatives & Sustainability

• Sustainable tube mix climbing: Sustainable tube mix reached 29% in Q1 FY25 versus 21% in FY24, with management anticipating further growth as customer commitments align with sustainable solutions.
• SBTi milestone: EPL secured approval for emission targets from the Science Based Targets initiative, becoming the first Indian MNC in the packaging sector to achieve this.
• CDP leadership maintained: The company maintained its A rating from CDP for three consecutive years and is well on its way to achieving EcoVadis Platinum next year.
• Neo-seam tubes gaining traction: Commercial orders were secured across three regions for Neo-seam tubes, with strong growth in personal care in EAP and Americas and capability building underway in AMESA and Europe.
• India supply chain resolved: A planned augmentation of a specialized printing facility was delayed due to supply chain reasons but is now fully installed with no further barriers.

Financial Discipline & Capital Allocation

• Growth over deleveraging: Management's debt strategy explicitly prioritizes growth over paying off debt, believing the current market offers a great opportunity to gain market share and drive growth for many quarters.
• Employee cost provision is prudent: A provision has been taken for employee cost tied to enhanced performance targets; if higher performance is delivered, it will be paid out, and if not, it flows back into the P&L. Management declined to quantify the provision amount.
• TSA amortization ending: The TSA amortization cost ends in August 2024, with Q2 FY25 being the last quarter carrying this cost and only for two months.
• Steady-state tax rate: The steady-state tax rate is likely to be 21% to 23%.
• Egypt back on track: Egypt has largely sorted itself out, with performance coming back on track and not expected to be a drag on AMESA numbers going forward.

Goyal: "We do not pay off debt to compromise or we do not compromise our growth for paying off debt. And that is our strategy. We believe that in this market, we have a great opportunity to gain market share and drive growth for many quarters to come."

Guidance & Commitments

Key Metrics