EPL Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Steady quarter, margin expansion on track: Revenue grew ~9.5% in H1, and EBITDA margin improved, driven by operating leverage and cost actions, keeping the company on course for its 20%+ sustained margin target.
• Europe turnaround is the standout: Revenue surged 21% and margins hit a sustainable mid-teens level after manufacturing realignment and management changes, with more cost interventions still to play out.
• Beauty & cosmetics is the next growth engine: Strong demand in this higher-margin category is pulling expansion in Brazil and the Americas, and management sees it as the key to unlocking a future guidance upgrade.
• India headline growth masks healthy volumes: Reported 5% growth was depressed by a negative price mix from passing through lower raw material costs; this drag anniversarizes from Q3, so reported growth should better reflect underlying volume momentum.
• What to watch next quarter: Whether the negative pricing impact in India fully anniversarizes as expected, the pace of new customer conversion in Europe, and any decision on a Brazil capacity expansion.

Europe: The Turnaround Story

• Growth driven by existing wallets: The 21% revenue jump came from solid orders and improved wallet share with current customers, not new wins, which are yet to flow into revenue.
• Operational capability stepped up: Management noted the team can now reliably supply quality at scale, a feat that historically would have been a struggle during such a windfall.
• Manufacturing realignment delivered: Shifting production from Germany to Poland unlocked lower labor costs, a 7-day versus 5-day operating week, and 40% more capacity from the same machine.
• More margin runway ahead: A second manufacturing realignment project is underway and will play out in the next 4-5 months, while organizational restructuring has also contributed. Even if volumes temper, these cost interventions will support the margin.

Kripalu: "mid-teens margin for Europe is absolutely sustainable."

Beauty & Cosmetics: The Margin-Accretive Growth Vector

• Demand is pulling expansion: Beauty and cosmetics demand is strong not just in oral care but across categories, and it carries higher ASPs and margins than the core business.
• Brazil is the beachhead: The Brazil operation is already margin-accretive to the Americas and global business, and has now won three MNC customers beyond its anchor client. A capacity expansion is under active evaluation to support this demand.
• Massive headroom remains: EPL holds only about 10% market share in both pharmaceuticals and beauty and cosmetics globally, leaving a long runway for growth without needing to enter new packaging formats.
• Guidance upgrade gated here: Management will only revisit its double-digit growth and 20%+ margin guidance once it is consistently delivering higher growth levels, particularly from beauty and cosmetics.

Kripalu: "I do not want to raise our guidance. Our guidance is what we have given. Once we consistently start delivering... a lot of the initiatives we've taken on growth, we'll start bearing fruit because in this business, customer acquisition, once you get it, it's sticky, but it also takes time to get new business."

India: Volume Strength Masked by Price

• Negative price mix is the culprit: India's 5% reported revenue growth reflects price corrections passed through to customers as commodity prices fell from their peak. Underlying volume growth is ahead of the reported number.
• The drag is about to clear: The negative pricing impact will begin to anniversarize from Q3 onwards, with an almost complete anniversarization across markets expected soon after.
• Margins have room to improve: India standalone margins sit at the lower end of the targeted range, but management expects specific interventions to push them toward the middle or higher level.

Sustainability as Competitive Moat

• Conversion accelerating exponentially: The mix of recyclable tubes jumped from 21% last fiscal to 33% this quarter, with the full-year average expected in the mid-to-late 30s, possibly touching 40%.
• Competitive advantage is structural: Management argues its edge comes from proprietary laminate structures that use less polymer while delivering the right barrier properties, plus back-end readiness that competitors lack.
• Long-term target in sight: The company sees a path to 60% or higher sustainable tube mix within the next 2-3 years.

Kripalu: "We are not the only people in the world who are doing sustainable tubes. Having said that, I think we have sources of competitive advantage which are to do with our laminate structure and therefore the amount of polymers that goes into a laminate that delivers the right barrier properties and our back-end readiness... we are ahead of others in the game."

Capital Allocation & Balance Sheet

• CAPEX stays disciplined: Total CAPEX will continue at depreciation levels, with capacity expansions for organic growth already built into the double-digit revenue and cash flow model. No extraordinarily large CAPEX is foreseen.
• Finance costs reflect structural mix: Higher interest costs stem partly from debt in Latin American countries with higher rates; in India, EPL benefits from among the lowest borrowing costs due to its AA+ rating. Restructuring high-cost country debt is constrained by forward cover costs and currency risk, though options are consistently evaluated.
• PAT growth well-supported: Depreciation and interest costs were steady year-on-year, so strong EBITDA growth flowed through to robust PAT growth. Management flagged this low-increase structure as a positive for consistent future PAT delivery.
• Shareholder returns: An enhanced interim dividend of Rs. 2.50 per share was announced.

Guidance & Commitments

Key Metrics