Pakka Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Record revenue, but margin story still loading: Wrap & Carry revenue grew 43% YoY to ₹101.14 crore, yet the quarter carried one-off finance charges and Food Services losses as the company builds out its asset-light model.
• Project Jagriti is back on track: Funding is complete via Neo Asset Management, the Power Boiler and Recovery Boiler steam trials are done, and PM4 commissioning is targeted for October/November, setting up a second-half ramp.
• The flexC thesis now has a timeline: Pilot trials are scheduled for early September, distributor soft launch in October, and commercial production following the start-up of PM4 in November, with a fallback to established grades if the new substrate needs more development time.
• Delivery containers cleared for launch: A large food-service customer reported materially better food quality versus plastic and is willing to absorb a 40–50% price premium, giving management the confidence to proceed with the first facility.
• What to watch next quarter: PM4 start-up execution, the pace of flexC commercial stabilisation through January, and whether Food Services losses narrow on the path to the stated FY27 break-even objective.

Project Jagriti & the flexC Ramp

• PM4 commissioning: The machine is expected to start by end-October and reel out paper in November, with a stabilisation period of one to two months before commercial supply stabilises around January.
• flexC base paper: Pilot trials are scheduled for early September using ~4 tonnes of pulp already supplied; ~2 tonnes of trial material will be distributed to multiple converters for trials in August and September, with a distributor soft launch in October.
• Fallback option: If flexC requires additional development time, PM4 can manufacture established grades such as release paper, greaseproof paper and parchment paper, de-risking the revenue ramp.
• Substrate design: PM4 is intended primarily for the flexible-packaging segment, using a blend of ~20–25% selected softwood fibre with bagasse to achieve low porosity, translucency, strength and smoothness.
• Contribution focus: Management aims to achieve a contribution level higher than any grade produced previously and will monitor contribution per machine hour as the key internal performance indicator, rather than net sales realisation alone.
• Flexible packaging cost target: The objective is to reduce cost from ~₹24/sq metre toward ~₹18/sq metre, at which point the customer conversation shifts from price to performance and value; the company is exploring strategic alliances and local manufacturing of bio-based barrier chemicals in India.
• Initial flexC applications: Release liners, labelling and heat-sealable bags, sold initially through distributors as a market grade for coating applications before progressively evolving toward broader flexible-packaging applications.

Ved Krishna: "The principal value lies not only in capacity but also in the quality of the materials to be produced. Our objective is to move further into flexible packaging and manufacture a high-quality substrate."

Delivery Containers: From Trial to Launch

• Customer validation: Extensive trials with a large food-service customer produced a decisive result: their chefs reported materially better food quality and overall food profile versus the plastic container used previously, and the customer is willing to absorb the current 40–50% price premium.
• Launch readiness: The first facility, including the required coating system, is being ordered and is expected to be in place by the time of the next investor call; initial capex is under ₹2 crore.
• Product roadmap: The initial product uses cold sealing; a heat-sealed version is under development for larger, more price-sensitive customers.
• IP protection: Proprietary technologies including delivery containers will be manufactured internally, while outsourced manufacturing partners operate under exclusive contractual arrangements, typically renewable three-year contracts covering an entire facility.
• Product quality incident: A CHUK-branded container at Club Mahindra became soggy; management committed to investigate, and separately emphasised that the company will not introduce a product before it is fully validated.

Shubham Tibrewal: "Our priority is to uphold Pakka's commitment to product excellence. We do not want to introduce a product before it is fully validated."

Food Services: Scaling the Asset-Light Model

• B2B as the engine: B2B revenue grew 46% YoY (from ₹11.4 crore to ₹16.5 crore) and was the primary growth driver, supported by expansion into 22 new cities and the addition of 34 key customers.
• B2C building out: B2C revenue grew approximately threefold YoY as presence increased from three to 12 retail platforms, though newly onboarded channels require time to reach optimum revenue levels as inventory is deployed across locations.
• Outsourced manufacturing: Approximately five to six partners have commenced production, with current total output around 350 tonnes/month, of which ~180–200 tonnes is internal and the balance outsourced; incremental production from outsourced sites is expected to generate stronger gross margins.
• Capacity target: Outsourced capacity is expected to increase from ~300 tonnes/month to ~800–900 tonnes/month over coming quarters, with ~400 tonnes to be added over the next two quarters across northern, western, southern and central India.
• Long-term split: The majority of the planned tenfold growth is expected from outsourced manufacturing, with a long-term split of ~20% in-house and ~80% outsourced.
• Profitability path: Q1 is typically the weakest season because of the summer period; the FY27 objective is to reduce losses and achieve break-even, with costs not expected to increase proportionately as revenue grows, allowing incremental gross margin to flow through to PBT.
• Structural investment: The higher Q1 loss versus the prior-year quarter reflects structural changes being made in manufacturing, while comparison with the preceding quarter also reflects certain one-off items recorded in that period.

Funding, Debt & the Neo Transaction

• Project Jagriti funding complete: The company moved from bank financing to Neo Asset Management, which invested ₹30 crore in equity; promoters' shares are pledged as security against the loan, and the project is back on track.
• Neo economics: Despite a higher stated interest rate, the estimated aggregate outflow under the Neo structure is approximately ₹120–122 crore versus an estimated ₹150–155 crore under the earlier bank structure for the period between 1 April 2026 and 31 March 2028, because the earlier structure carried prepayment penalties and processing fees that were written off in Q1.
• Refinancing timeline: The Neo arrangement is intended to remain in place for approximately 18–20 months; the company expects to commission and stabilise the project, then refinance, with a reasonable timeframe for retiring the debt of approximately 16 to 18 months.
• Climate financing: Lower-cost climate-fund debt may take approximately one year to obtain; international climate financing involves FX and hedging costs so the effective rate may be comparable, and the finance team will evaluate alternatives at the refinancing stage.
• One-off Q1 charges: The P&L included a write-off of unamortised prepayment penalties and processing fees of approximately ₹1.53 crore plus ₹1.8 crore because bank facilities were repaid, recognised under Ind AS.

Himanshu Kapoor: "Under the earlier bank structure, total interest outflow between 1 April 2026 and 31 March 2028 was estimated at approximately ₹150 crore–₹155 crore. Under the present transaction, despite the higher stated interest rate, the estimated aggregate outflow is approximately ₹120 crore–₹122 crore."

Margins, Mix & the Path to Profitability

• EBITDA margin ambition: Management views 18–19% as achievable for FY27, supported by increased production and if CHUK turns profitable, and intends to work toward margins above 25% over time; the company previously achieved EBITDA margins of ~23–25% before the expansion cycle.
• Gross margin lever: Improvement is expected through a better variable-cost structure, while fixed costs are not expected to increase proportionately.
• NSR pressure: Paper segment net sales realisation remained under pressure because geopolitical disruption delayed higher-NSR export containers, and slower-than-expected development of specialised applications resulted in a higher mix of commoditised grades.
• Volume disclosure: Management acknowledged NSR pressure and committed to include volume data in future presentations so investors can calculate average NSR, while emphasising that contribution and contribution per machine hour remain the primary internal metrics given the broad product range.
• Wrap & Carry PBT: PBT increased 45% YoY; the sequential PBT decline of 16% was primarily due to costs paid to bankers during the quarter, while operationally the business performed better.
• Plant utilisation: The existing plant is operating at more than 100% of rated capacity.
• Tax rate: Effective tax rate is expected at approximately 25.69%, with a possible range of 26–28% depending on adjustments, allowances, disallowances and timing of interest payments.

Ved Krishna: "We need to improve both areas. We will consider reinstating volume disclosures in the presentation so that investors can assess average NSR. Given the broad product range, we continue to focus primarily on contribution and contribution per machine hour, although NSR remains a useful indicator of the direction of the product mix."

Leadership, Organisation & Succession

• CFO resignation: Management acknowledged the recent CFO resignation as part of leadership changes and described it as made for different reasons versus the Wrap & Carry leadership changes.
• Succession formalised: Six leaders were selected for a structured development cohort last year; the objective is to prepare at least six individuals for significant global responsibilities over the next two years, with each leader expected to identify and develop at least two potential successors.
• Stability objective: Management stated the objective is to strengthen leadership stability and organisational continuity, while acknowledging it cannot guarantee no further changes.
• Promoter shareholding: Ved Krishna increased his shareholding in two stages to approximately 48–49%.
• Material Science Centre: The centre is being relocated from Bengaluru to Ayodhya to deepen investment in innovation, with focus areas including base materials, biotechnology, conversion systems, biodegradation and substrate valorisation.

Ved Krishna: "At times, businesses must make difficult decisions in response to personal, professional or performance-related circumstances. ... While it is not possible to guarantee that no further changes will occur, our objective is to strengthen leadership stability and organisational continuity."

Guidance & Commitments

Key Metrics