Pakka Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Sharp QoQ recovery, export-led: Revenue grew 16% QoQ and 8% YoY, driven by a jump in export volumes to 35% of total from 28% in Q1, as domestic markets stayed soft.
• Molded products turned profitable: The segment swung to positive PBT after negative quarters, helped by plant efficiency gains and lower manufacturing costs, even as revenue dipped 5% on a planned shutdown.
• Jagriti project cleared a key gate: The public hearing was completed and approved by both communities, with papers now moved to the MOEF for final clearance; backend water treatment is already installed.
• Kawok equity raise pushed to March: Investor diligence demands for detailed engineering, offtake contracts and final costs have delayed the lead investor; management now targets a March close, with debt to follow quickly from committed Guatemalan and Colombian banks.
• What to watch next quarter: Whether the 100% leakproof delivery container range launches on time in late January/early February, the pace of distributor signings in North America, and any firming of the FY25 revenue target that management called "a bit difficult."

Demand & Volume Recovery

• Export shift drove the quarter: Export volumes rose to 35% of total sales in Q2 from 28% in Q1, as the domestic market had been "pretty low over two quarters." Total production climbed 9% QoQ to 13,600 tons, achieved entirely through efficiencies rather than new capacity.
• Wrap and carry led growth: The segment was 20% higher than Q1 and 28% higher on PBT, flagged as a key focus area.
• Molded products found a floor: Revenue was lower by 5% due to a planned shutdown, but PBT turned positive at 1.5x the Q1 figure of ₹7.5 lakhs. Two drivers: increased plant efficiency from the maintenance shutdown, and lower cost of manufacturing.
• Domestic molded demand remains sluggish: Sales have been stagnant at ₹13-15 crore for 2-3 years despite market growth. The number of players has risen from ~20 to 69, many in the unorganized sector producing lower-quality products, which has slowed movement.
• Chuck product sales under pressure: The market is not supporting high sales compared to last year, prompting a push into the Middle East and Australia.

Ved Krishna: "It's taken a little longer than what we had anticipated, but this is going to be something that hopefully will be a game changer again for the planet, because there's a lot of plastic being used in the delivery space and the takeaway space."

Molded Products: Strategy Pivot & Delivery Bet

• Going global to escape domestic stagnation: Exports to the Middle East have seen a "quantum jump," and Australia is being explored as a second region. The company is also expanding from tier-1 metros into tier-2 cities through appointed resellers.
• Outsourcing over own capacity: Capacity utilization sits at 55% of the 20 TPD plant, and management has no plan to expand beyond that. Instead, it is scaling an outsourcing model, though roughly 10 past partnerships have failed on quality.
• Delivery container: the big swing: The first attempt achieved ~90% performance; the last 10% toward a 100% leakproof solution has been difficult. A complete range is now targeted for launch in late January to early February, with a patented solution promised.
• Zomato failure informs the reboot: Deep discussions 2-3 years ago collapsed because products did not perform; Zomato had even considered making Pakka a sustainability partner and awarding green points to users. Management spent the last 1-1.5 years rebuilding its thinking around the delivery space and now feels closer to the goal.
• New products launched: Beverage cups, 4-inch Dona, and 3CP natural trays were introduced in molded during Q2.

Flexible Packaging & Jagriti

• Tea bag trials succeeded at speed: Trials ran at 3,600 bags per minute on the first attempt versus 4,000 for petroleum polymers, indicating the product can run parallel to petroleum-based alternatives. Orders are being received and trials are underway.
• Metallized product is an interim step: The first commercial product with 2nm metallization creates waste challenges from the polyethylene transfer sheet and raises bauxite mining concerns. The company is working on non-metallized alternatives and expects good results over the next few months.
• Jagriti cleared its public hearing: Both communities and the administration approved the project; papers have moved to the MOEF for the final letter. All equipment orders have been placed post technical and commercial negotiations.
• Jagriti commissioning timeline: End of Q4 FY25 or start of Q1 FY26, with the plant focused 100% on flexible packaging, starting with greaseproof paper as the base product. Post-commissioning, growth is expected to be "multifold" once 90% efficiency is reached.
• UP government incentive being pursued: The company is applying for a letter of comfort that would yield approximately ₹100 crore in capital incentives over 12 years, and is exploring whether additional benefits beyond the standard policy are available.

Ved Krishna: "Any product that Pakka creates has to follow four broad principles. The first is that it has to be home compostable… The second one is it has to be able to be recycled in the paper stream… The third is marine safe, and the fourth is terrestrial safe… We don't compromise on it when we launch any product."

Project Kawok (Guatemala) & North America

• Equity raise delayed, risk mitigation underway: Investors wanted more detailed engineering, clear offtake contracts, and final costs from RFQs. Management feels the next three to four months should complete that work, targeting a March close for the lead investor. Debt is already committed by Guatemalan and Colombian banks and will follow quickly.
• Land purchase imminent: The ~$1.7 million land cost is expected to be paid in full next week to transfer the land to Pakka's name. Basic engineering studies are nearly done, and MOUs have been signed with three sugar mills for bagasse supply.
• Tax-free regime secured: The Kawok facility will operate free of income tax and VAT in Guatemala. Rolando Yon, the new Group CFO based in Guatemala, is also working to bring in DFCs instead of banks to lower the cost of capital.
• IP transfer under discussion: Investors want IPs currently resting in the Indian holding company to rest in the US company where they invest; management is exploring this.
• North America sales infrastructure building: About five distributors have been signed, with a target of 10 this quarter. A US roadmap has been created for molded fiber across two categories: launching current substrates as Chuck, and building a US-centric takeaway delivery container range for launch in the January quarter.
• OEM manufacturing initiated: Partial OEM manufacturing has begun at the Guatemala plant to fully utilize capacity and build products for others.

Ved Krishna: "We feel that in the next three months, three to four months, we should be able to complete that. So as told by Rolando, I think by March we should be in a good place for investment for Kawok."

R&D, People & Organization

• R&D leadership changed: Ramji and the company parted ways due to "lack… constantly in the commercialization side." Satish ChamyVelumani, who was part of the development journey alongside Ramji, has stepped in as interim and has also moved to the US to lead the molded fiber business and R&D.
• Eight directions, no fixed plan yet: Eight key areas have been identified for product and process development, but location and talent decisions are still being debated. Management acknowledged: "We are still not in a place where we can say this is exactly where it's going to be."
• Global organizational build-out: Rolando Yon joined as Group CFO in Guatemala, Nyla McBain as global marketing lead, and a digitization lead has been hired. Country-specific teams are being put in place and incentive structures are being aligned.
• Great Place to Work certified: Fourth consecutive year, placing within the top 20 in mid-segment manufacturing. The company also received certification as a most preferred workplace for women and is increasing hiring of women and disabled persons.

Ved Krishna: "Ramji and us have decided to part ways, and partly it was mainly because of some lack that we were finding constantly in the commercialization side. The science was still okay, but the commercialization was weak."

Guidance & Commitments

Key Metrics