TCPL Packaging Ltd Management Discussions

INDUSTRY OVERVIEW

The global packaging industry continues to grow mainly driven by an increasing demand from the FMCG, Food and Beverage, Retail, Tobacco, E-Commerce, and Healthcare industries.

Over the past few years, India has maintained its position as one of the fastest growing economies in the world, and consequently consumption of packaging products has also grown. Given the environmental impact of packaging materials and the plastic waste crisis, consumers world-wide are demanding the use of eco-friendly / recyclable packaging. Accordingly, all manufacturers are looking towards opportunities to innovate and manufacture more sustainable packaging products, and the organisations who will be capable of such offerings will win.

COMPANY OVERVIEW

Your Company is one of Indias leading producers of sustainable packaging solutions for customers across industries. The Company partners with customers to provide paperboard-based packaging products mainly folding cartons, printed blanks and outers and litho-laminated cartons. The Company also provides flexible packaging products such as laminates, pouches, wrap around labels and sleeves. Headquartered in Mumbai, India, the Company has a pan-India presence with eight state-of-the-art manufacturing facilities and marketing offices in key metro cities of India besides an international presence through an office in the UAE.

The Company has set-up TCPL Innofilms Private Limited, a wholly owned subsidiary to manufacture blown polyethylene (PE) films. The unique technology being employed in this unit enables the Company to offer oriented PE films, so that it can produce a mono-polymer laminate which is fully recyclable. This development will help replace multi-polymer, non-recyclable products that are currently used for the packaging of consumer goods and food products. This unique plant is one of a kind and your Company will be amongst the very few companies in India to be equipped with such capability. Unfortunately, in financial year 2022-23 the Company faced technical challenges due to the machines performance and ongoing efforts to rectify these issues have resulted in a far better situation currently, and the Company is confident of optimum levels of output from this line soon. The subsidiary will also soon be merged with the parent company, TCPL Packaging Limited, in order to save on administrative costs and increase the ease of doing business keeping in mind the large amount of sale internally.

During the year, the Company has added significant capacity to its flexible packaging conversion capacity where the Company manufactures a vast range of laminates, shrink sleeves, and pouches. The capability of TCPL Innofilms Private Limited, further strengthens the opportunity for this business.

During the year, the Company has acquired remaining balance 82400 equity shares from the former promoters of Creative Offset Printers Private Limited ("COPPL"). As a result of the acquisition of all the shares from the former promoters, COPPL has become a wholly owned subsidiary of the Company. COPPL specializes in manufacturing of printed rigid boxes and leaflets for the mobile phone and consumer electronics industry. The Company has further invested in modernising the plant and improving the manufacturing process, in addition to catering to the working capital needs of the business. The rigid box segment is a high potential and value-added segment, with a growing profile in consumer electronics, cosmetics, perfumes and fragrances, liquor, and sweets.

TCPL Middle East FZE which is the wholly owned subsidiary of the Company in UAE has serviced the customers of the Company through its office in Dubai and is helping to grow the business in the Gulf region and other Countries.

Additionally, the Company has also expanded its offset capacity by adding a new printing line each at its Silvassa and Haridwar plants. With these capacity increases, the Company is well poised to manage the higher demand for sustainable packaging solutions. While continuing to enhance the Companys capacities to capture growth, the Company is focused on consolidating and optimising the efficiency of its facilities.

FINANCIAL PERFORMANCE

In the financial year 2023-24, your Company has achieved a nominal revenue growth of Rs. 1512.78 crores on a consolidated basis, an increase of 4.89%; and Rs. 1458.21 crores on a standalone basis, an increase of 4.16% on year-on-year basis. The total revenue including other income for the year has been Rs. 1551.95 crores on a consolidated basis from Rs. 1484.50 crores in the previous year, and Rs. 1497.80 crores on a standalone basis from Rs. 1441.84 crores in the previous year. On a consolidated basis, the EBITDA margin stood at 17.32%, and on a standalone basis it is 17.89% over from 17.03% and 17.55% respectively in the previous year.

SUSTAINABILITY INITIATIVES

Your Company is wholly committed to be Indias leading sustainable packaging Company. Paperboard packaging is very sustainable and fully recyclable. Most of the paper and paperboard used in the products are made from recycled or responsibly forested and sourced pulp products. Paper is also an excellent replacement for non-recyclable forms of plastic packaging. Further, the investment in TCPL Innofilms Private Limited is specifically aimed at addressing the plastic pollution crisis by offering fully recyclable flexible packaging solutions.

In addition to the sustainable nature of its products, your Company is also investing in making the manufacturing process more sustainable and environment friendly. During the fiscal year the Company invested in rooftop solar at its Goa and Haridwar locations. At both these locations, the own production of solar power accounts for around 15 % of the total energy needs. This not only helps the Company wane off fossil fuels but also offers a very compelling return-on-investment. The solar generation from an earlier installation at Guwahati and Silvassa has also been satisfactory. The management has decided to additionally invest in more such solar capacities at its other locations in the current year and the years ahead. Additionally, in its flexible packaging unit, your company is in the process of installation of solid fired boilers which will use briquettes/biomass for energy generation as opposed to furnace oil and diesel, which will help to reduce carbon emissions in a big way while also reducing cost.

OPPORTUNITIES

The macroeconomic conditions in India are expected to continue to improve considering the continuation of a stable government in the country. With a diverse geographical presence across India, your Company fulfils the requirements of its customers for both carton and flexible packaging, giving your Company a competitive advantage. Also, considering optimising some of the unutilised capacity, an improvement in the market scenario will translate into good growth prospects for the coming years.

The Company is now recognised as a leader in its field across segments, and your Companys management is very confident of leveraging its existing relationships with leading customers, besides entering new customer segments, to continue with high rates of growth as witnessed in the past. The ability to produce recyclable flexible packaging also gives the Company an edge over its competition. As can be seen in the market today, your Company has helped brand owners such as Unilever and Nestle launch their first mono polymer (PE) fully recyclable pouches in the past year. This market will be bound to grow in time and will propel growth of our flexible packaging division, where your Company has scope for growth through significant capacity that has been added lately. Considering the anti-China sentiment growing across the western world, there is also a major opportunity to capitalize on this and gain market share in export markets. Significant efforts are being made to tap new clients world over, with your Company also having commenced supplies to USA in the past year, which is a market with tremendous scope for growth.

THREATS

Globally, prices for the main raw materials of the paper and plastics industries continue to be very volatile. Key chemicals, polymer, pulp and metal indexes such as Aluminium LME, have also fluctuated considerably, as well as shipping and transport charges. While the Company tries to pass this on to customers and absorb some of it by improving productivity, there is still a threat of lag in passthrough that may impact margins. The volatility of raw material costs is felt in both the mono-carton and the flexible packaging businesses.

One of the risks for the Company includes growth of the underlying end-user industries such as FMCG, Food & Beverage, Tobacco, and Liquor. In the past year as seen in the latest quarterly results of your Companys clients, Indias major brand owners, the domestic volume growth is not as per what is widely expected. Having a mature standing in the domestic market, we do hope that volume growth increases back to post covid levels of 8-12% from the current 3-5% which will benefit your Company.

SEGMENT–WISE OR PRODUCT-WISE PERFORMANCE

Your Company currently has only one segment of business i.e., Printing and Packaging.

DIVIDEND POLICY AND AMOUNT

The Board of Directors of the Company has adopted the policy of paying out 20% of retained profit, as Dividend each year. Accordingly, it is recommended by the Board of Directors to continue the same percentage for adoption in the ensuing Annual General Meeting. The dividend of Rs. 22.00 per equity share would amount to a pay-out of Rs. 2002 Lakhs, subject to deduction of tax at source as per provisions of prevailing of Tax Rules. The dividend distribution policy is available on the weblink https://www.tcpl.in/wp-content/ uploads/2021/05/Dividend-Distribution-Policy.pdf

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate internal control system and a defined organizational structure besides, internal rules and regulations for conducting the business. The Management reviews actual performance with reference to budgets periodically. The Company has an Audit Committee, Independent Statutory Auditors, Internal Auditors and Risk Management Committee who submit reports periodically which are reviewed and acted upon.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

Industrial relations continue to remain cordial during the year and total 2228 employees are on the Companys payroll as on 31^st March 2024 as compared to 2083 employees on the Companys payroll as on 31^st March 2023.

DISCLOSURE OF ACCOUNTING TREATMENT

In preparation of financial statements, the Company has not followed a treatment different from that prescribed in the Accounting Standards. There are no significant changes in key financial ratios viz Debtors Turnover, Inventory Turnover, Interest Coverage Ratio, Current Ratio, Debt Equity Ratio, Operating Profit Margin, Net Profit Margin.