Rajesh Bhatia Speaks On Uflex's Global Expansion Plan | Will The New Projects Boost Profit? | NDTV Profit
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00:00Hello and welcome you're watching small and the mid-cap show. I'm Samina Nalwala know the next 30 minutes
00:05We'll talk to some very exciting managements and get a sense about their business outlook and growth prospects
00:11Rajesh Bhatia group president and CF of uFlex limited joins in to talk to us about the company and what of course their Egypt
00:18Facility means for the company. Mr. Bhatia. Good morning. Thank you very much for taking the time out to talk to us
00:24These are tough times for the markets and the stocks
00:26But we'll try and move away from that and talk about how good or bad business is looking for you
00:31Let's start with the Egypt unit flex espeto, which is about to set up a packaging unit and that's a huge investment
00:38126 million dollars
00:40Revenue increases what you're eyeing walk us through the investments made. What is the outlook?
00:45What is the sort of projections that you're setting out for yourself?
00:49So we've started this a septic packaging in India
00:53Back in
00:542019 where we set up our first plant in Sana, which had a capacity of three and a half billion packs a year
01:02which we later expended in 22 double the capacity to 7 billion packs and
01:09You know currently we are operating at a utilization of about 120 or person
01:14Which means that you know, the entire capacity has been fully more than fully being
01:21You know utilized so in light of this particular
01:27Product now we want to take it to the global as we've done in the packaging films business before
01:33you know way back in earlier in early 2000s when we started our first plant in
01:39Dubai for setting up the for manufacturing packaging frames
01:43So this is this is the first time we are taking a septal global
01:48Through our new project in Egypt, which has in now a capacity of 12 billion packs a year and
01:55we'll be up and running in about a
01:59Water fee of FY 26 and
02:04You know, we are in Middle Eastern Egypt and
02:08European markets for this and Egypt in particular has a good
02:13you know
02:15Great position with
02:18Europe basically because Egypt can export duty-free to
02:24Into Europe while some of the other jurisdictions are not in a position to get that advantage
02:29So we chose Egypt because you know, it is our existing
02:33manufacturing location and top of that if you are in European market, so you can look at the Egypt being the
02:40manageable cost location
02:43The
02:44Zero duties into Europe to tap by European
02:48Market, so that's our end of it today also from our existing plant
02:52We we export from our existing a septic plant in Sanam. We export about 30 to 40 percent
03:00Product from here largely to Southeast Asia
03:03Nigeria and some part of the Middle East this product
03:07So obviously when the product is accepted
03:10Globally, I think and we are utilizing our current capacity at more than hundred person
03:16It makes sense to expand the capacity and take this product global. So that's the whole end of it
03:22126 million is what we are
03:24You know spending in terms of a world-class
03:28Facility with no compromises being made on any of the equipment. So so we are going in for all
03:36European equipment with the markets in mind and it is going to be a top-of-the-line facility
03:42You know Simon was our first plan. So
03:46Obviously we have learnings from that
03:48And helping us into this particular investment in Europe. So we very upbeat about this and
03:56FY 27 onwards largely we have
04:00You know
04:02Mr. Bhatia, you indicated that you are operating at over capacity
04:07Currently and this was far for the cause given that the market for a septic packaging is fairly large
04:13Has picked up in the recent past you mentioned that you're looking at this in Egypt because of the zero duty structure
04:21You want to elaborate on that? Is there any other reason why you've chosen to export from Egypt?
04:26Are you getting any benefits from the Egyptian government to do so?
04:30No, we are not getting any benefit any fiscal incentives from Egyptian government to set up this facility
04:37advantages Egypt has
04:40You know, you get manpower which is much cheaper as compared as compared to what you get in Europe
04:47You have energy which is again much cheaper is what you get in
04:52In Europe
04:53So with the ultimate market being Europe and you know
04:57Where you look to sell your large volumes and the local market being in Egypt also very substantial
05:04With no existing plant. So it made and you know our
05:08Existing setup in Egypt, you know, we are
05:12Other than India Egypt is our next largest investment location
05:17So it was very natural for us to you know, sort of we
05:22look for
05:24You know our new capabilities in that region
05:28It's a hundred and twenty six million dollars. That's a big ticket expansion
05:32Can you elaborate on how you are funded this exact this expansion plan? And what is the timeline of funding this?
05:38So I'm assuming the 126 million is not up fronted
05:42No, it's not up fronted. It's never up fronted in a project
05:46So we we are going to tie up debt for this
05:50so we expecting about
05:52You know
05:53if we can do about 30% debt and 70% equity or maybe a little more on that side and
05:59Little less on the equity. I think
06:02You know next few weeks will establish that as to how much we are able to achieve
06:07but largely you can say 30 70 30 equity and 70% debt and
06:14We've spoken to ECS
06:16We've spoken to the local banks and all that who where we have already relationships in Egypt for the last so many years
06:23So they're very upbeat and supportive of this investment coming into Egypt
06:27So Bhatia, how much will this impact your interest cost by because if we are gonna do 30% equity and 70% debt
06:35you want to elaborate and tell me how much of your interest cost is going to go up and what is it at and
06:41Where do you see it at once the funds have been raised?
06:44So I think we will look for for this project assuming that
06:49126 million or whether it is equity or that it's the cost of capital
06:53So if it is equity, I'm not investing into this then I'm lowering my existing borrowings
06:58so I take entire hundred and twenty five million dollar as debt itself and if I see
07:07You know the current
07:10Rates as well as so about seven percent is what we are looking at in the current market
07:15Which is likely to come down as the year as a dollar rates are destined to come down in the years to come
07:22So on an average even if you look at about seven percent, so we have
07:28about eight and a half million dollar of the
07:31Additional interest when the full project is is on so at a turnover of about hundred and fifty million
07:39I think we are well within
07:42You know the margins in in this particular industry are much higher than what we have in packaging films. So we look forward to
07:51You know a healthy a better margin and a healthy post interest margins as well
07:56So about is to between now and third quarter of f5 26 till the facility comes
08:01Online and you of course start, you know making revenue out of that
08:05There could be an interim period where a bit of margins and profitability could be impacted because of the increase in cost
08:11Is that a fair assumption and I know this will be short term in nature, but it'd be good to understand
08:16No between now and then the project is implemented. Whatever are the expenses on the project so they get part of
08:25They get associated with the project cost itself and they are capitalized
08:29So between now and till the time the project is capitalized there it is not going to impact the existing profitability
08:37From the interest portion that you're going to incur on the new debt that you're going to pay
08:43Progressively for this project the whole interest of that also is not charged to the profit and loss account
08:50But is capitalized along with the project
08:52So when we say
08:54126 million this takes into account the hard costs which are the cost of the equipment cost of building
09:00Civils utilities everything and then there are soft cost the manpower you hire during this period of construction
09:08The utilities that you consume during this construction period and then the interest costs
09:14So everything is going to be part of the project cost
09:18So there are hard costs and there are soft costs the soft costs are roughly and every project are about
09:2416 to 20 percent depending on the jurisdiction. So
09:29You know, that's what will be there for this project. Can you share with me? How large is the aseptic packaging?
09:37market and also
09:39starting with third quarter f526
09:41Say two to three years out. Where do you see your top line grow to so how much of this facility?
09:48Will contribute to top-line expansion over the next three years
09:53See the first couple of years are always very difficult because you know, you your product undergoes an approval from the various
10:01You know consumers
10:03You know because this is largely used for the liquids packaging into food categories and all that
10:09so all the large companies have very stringent norms when it comes to you know, approving a new product for their
10:17For their consumption, but you know, we have that head start because of our
10:22India operations we are supplying to a lot many international companies already
10:27So I think this time around, you know, that project approval process will be much faster
10:33so in about a year in about
10:35First year we I think we should be conservative and look at about 50% capacity
10:41utilization level going up to about
10:44you know
10:4670 65 to 70 percent in the third year
10:49So Bhatia your debt on the books is already fairly significant, right?
10:53I mean, it's closer to 7,000 crores from what I understand and you said that you may consider some part of funding this through
11:00through maybe equity any QIP plans
11:03is that something you've talked about internally with the board because
11:06That could also be par for the cause given that a lot of people in the listed space
11:10Are doing QIPs to raise equity to fund plans or reduce debt for that matter?
11:15So if I if I look at the current year earnings estimate
11:20Versus our current net debt position. I think we are in a very very extremely comfortable zone
11:27we'll be at about
11:292.5 X of EBITDA on an overall consolidated basis because
11:35Minded that you know, if we are raising if we are adding about a thousand crore of debt
11:40So we are also each year repaying about a thousand crore of debt as well
11:44So what you are doing is you are adding new capacity by borrowing more money, but with the existing
11:51Profits you are reducing that debt also
11:53so at the end of the day when the project is completed your net debt position will not change very
12:00Significantly and you've added new capacity, which is going to and you're going to derive your profits from there
12:07So I think overall said we are very comfortable
12:11Currently on our debt situation the new debt and considering the repayments
12:17Amortization payments what we normally have in every year
12:23What a cut in margin
12:25Yes, please continue about the QIP question. I think as of now there are no
12:31plans
12:33We had plans earlier, you know a couple of years back when
12:38You know, we were trying to list our Dubai subsidiary, but you know those plans we had to postpone because
12:45We you know, the US markets went into a tailspin the equity markets
12:50We had all kind of a global issues rising from Ukraine Russia crisis to everything that happens in middle estate
12:58But the markets are coming back both the bond markets and as well as the equity market
13:03So hopefully, you know as and when there is an opportunity next time we'll try to
13:08You know list ourselves our global our Dubai entity, which is a hold for all our global businesses
13:16Okay, that could be an important trigger for the company going ahead also one quick question your margins have remained steady in the twelve and
13:22a half thirteen percent range
13:24With a new facility captive facility coming on board and the fact that you're already at over capacity
13:30Is it fair assumption for us to make that margins will improve now onwards
13:35So the margins if I see you one versus the current prices, you know, just to give you a flavor of that
13:43We had
13:45Q1 the perfect margins were about the gross margins
13:50India market I'm saying or about 19% and the BOPP margins were about 31%
13:5631%
13:57You know as I had said earlier also that these prices
14:02You know, we had an increase in prices in the market
14:07Towards the second half of June and that momentum if we extrapolate to Q2 and beyond
14:14I think the margins I
14:16I'm seeing that the margins will at least on the pet side will will easily be
14:22Slightly more than double of what we had in Q1
14:26so that's
14:29Right, so how much more will they be would you be able to quantify that for us give us a range?
14:34I mean 14 15 percent is likely because the business is also beginning to show signs of picking up, right?
14:39I mean we had given
14:42You know guidance earlier and I still stand by that
14:46Not out. So I'll have to maintain with that guidance. We were looking at about 15%
14:52incremental revenues this year and
14:55We initially had thought that you know
14:57We haven't a bit of about two thousand dollars which can surprise us on the upside to about the maximum of about
15:052200 crore this year. So up from sixteen hundred crores of FY
15:1124 to about say twenty
15:152,200 two thousand to two thousand two hundred crores is is a substantial increase that we witnessed this year and
15:23You know our
15:25capacity for the pet chips raising in Egypt, which is
15:29Raw material security that is going to add up margins. Then there's a septic facility
15:34Obviously this comes two years later
15:37But all these will add substantially to the top line as well as to the profitability
15:43That's the belief and that's what and that's a belief which make us to you know
15:48Invest in a product where we are already successful
15:52In the last so in the last six or seven years in India and today we can boast that you know
15:58We are we are the biggest a septic packaging manufacturer in India and that success
16:04We want to replicate globally as well given that we already have a global footprint in terms of supplies from India
16:12So good luck
16:13Congratulations. This is a big one for you flex and hopefully the outlook is going to be as promising as indicated
16:21Thank you and have a good day