Expect 50% growth in non-oral care next year: Essel Propack

Watch the interview of Ashok Goel, VC & MD at Essel Propack with Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he spoke on the outlook of the company.Below is the transcript of Ashok Goel’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: In the quarter gone by your demand was very subdued, your growth in income was just about 5 percent odd. Has there been any improvement in demand at all? A: For Essel Propack, demand doesn’t have a direct correlation with how the FMCG sector itself is tracking and I will tell you why. It is because of our non-oral care strategy that means that we started to cater to beauty and cosmetics, pharmaceuticals, food and homecare products which essentially means that we are changing from existing packaging format to laminated tube format. Therefore we are gaining a lot of attraction across the globe in almost all geographies that we operate in; that is number one. Two, you have to also factor in that we have a price pass through of the raw materials to the customers and therefore you would see my revenue numbers will be little subdued as compared to last year because the raw material prices are falling. Latha: What is the percentage of revenues that come from cosmetics, pharmaceuticals, basically non-oral? A: For non-oral care, when we started our initiative couple of years ago, we were just 10 percent of our non-oral care revenues that were coming from non-oral care. Today we are at 43.3 percent and our target is by end of next year we should get to 50 percent. Latha: How much of this is pharmaceuticals? I will tell you why because ultimately while FMCG is dependent on consumption demand and the growth of the economy to some extent food and cosmetics also will be. So, Sonia’s question is still very relevant, maybe pharmaceuticals is defensive and demand will come regardless of the business cycle but for the rest of the products, the business cycle will hit. So, basically are you seeing a growth in demand? A: For us the demand is not directly linked to how the FMCG sector is doing. It is primarily because we are changing the existing packaging format. For example, for pharmaceuticals it is from aluminium tubes to laminated tubes. For beauty and cosmetics we are changing a lot of plastic tubes and bottles into laminated tubes. In case of foods we are changing from bottles to tubes. So, therefore it is not necessarily the sector growth that is helping me to grow, it is the change of format of packaging that is also helping me to grow. Latha: How should I gauge your volume growth, if you say revenues will be lower because of raw material, how is volume growing? A: Volume is growing in all geographies. Latha: Does it grow by 10 percent, 20 percent?A: Different geographies are growing at different rate. Latha: Overall? A: Overall we are growing at about 12 percent. Sonia: The geography which is called the Africa , Middle East and South Asia ( AMESA ) region – that has seen a revenue slowdown in the last quarter. Are you facing some pressure over there? A: First of all the new product categories within FMCG which are getting introduced like the BB cream, CC cream all that we are capturing. So, there is a growth that is coming from new categories. Overall FMCG sector may not be growing as much as we would want it to grow. So, that is bringing in growth. In AMESA particularly mentioning is primarily because of the raw material price pass through that is showing you a depression of the revenue growth. However, underlying growth in India particularly because India is part of AMESA, the volume growth is about 10-12 percent.  Sonia: It is interesting you pointed out this BB cream and these new categories in cosmetics, out of the 50 percent of the non-oral care that you plan to make as your contribution how much of it will come from cosmetics?A: We expect 50 percent by end of next year.Sonia: Are the margins higher in the cosmetics business?A: The sales price per tube is much higher therefore it helps me to improve my return on capital employed. It is less capital intensive because I am able to produce high value product from the same equipments and therefore it gives me better returns.Latha: What kind of an EBITDA growth are you looking at over FY16 and FY17?A: First of all we divested our flexible packaging business which was pulling my EBITDA as a percentage by 1.5 percent. So, since we have sold that and the underlying business of the tubes, that straightaway gives me 1.5 percent growth. Plus because of our better efficiencies and all the other initiatives that we have taken we expect that our EBITDA margin growth all together should be growing at about 2.6-3 percentage points.Sonia: From the 18 percent level that it is currently at, how much can we expect say by the end of the FY17?A: Our target is to cross 20 percent.Sonia: By the end of?A: Next year.Latha: What were you saying about the EBITDA?A: EBITDA margins to exceed 20 percent.Latha: How much will EBITDA as a CAGR grow? Do you expect that to do much better? You said revenue is about 12 percent so EBITDA grows 15 percent?A: EBITDA grows between 15 percent and 20 percent.Sonia: You do have a debt of almost Rs 650 crore on your books, any plans to bring down that debt anytime soon and if yes how?A: We are not overly concerned about the debt because the respective debts are in respective balance sheets. What does that mean is that we have so many subsidiaries overseas, those debts are sitting in respective balance sheets. They are being serviced. In India we have the least amount of debt at this moment. Part of it was helped by the proceeds we got from sale of flexible packaging business. Therefore all our ratios in terms of debt to EBITDA or debt to interest servicing ratio, all have improved. Our rating has also improved 1 notch point. So, we are not overly concerned about debt.Latha: Do you see it improving even further if you are bringing down your debt? You went from A to AA- on CARE Ratings, do we see that improving further, and will there be more pare down of debt?A: Yes absolutely. Every year we do have a free cash flow about Rs 80 crore to Rs 100 crore coming in after paying the dividends, so, that should help us to reduce debt further.