Will maintain 15% annual growth over 5 years: Essel Propack

A: As we have been maintaining that we will achieve 15 percent as our topline growth year on year for the next five years and 20 percent growth in the bottomline and we can say that for next five years it will happen. Therefore, so will be the case for the current financial year.

Anuj: What will lead to this 20 percent growth in bottomline from this 15 percent topline growth - margin improvement?

A: We are talking of couple of things. What will bring the growth is the first part of your question. Since we are geographically spread over all the continents in 12 countries, the growth is coming in a varied proportion, all the regions are growing at double digits, some are growing at lower than 15 percent and some will grow more than 15 percent, so it will average out at 15 percent. India will have 11-12 percent growth followed by America, which will be similar but East Asia Pacific (EAP) will bring in about 22 percent and Europe will bring more than 30 percent. Therefore, if we average out, it will be 15 percent.

The next part of your question is what will bring the margins up. Our margins expectations are that in next year-and-a-half or so, our EBITDA margin should reach to 20 percent. What will trigger that? The triggers are multiple – (1) the existing geographies where we have the capacities which are now going to be utilised and therefore that will push up the margins and (2) we are bringing in other efficiencies in terms of capital efficiency and all other productivities and that will bring up the margins. Therefore we firmly believe that in next one-and-a-half year or two years our EBITDA margins will reach 20 percent.

Ekta: Your capacity utilisation as of Q3 stood at 65-70 percent odd. Does it stand at the same level or has it increased?

A: Yes, different geographies, again the characteristics of business, if you do more of non-oral care then the capacity utilisation tend to go down because the minimum order quantity (MOQ) is smaller in those kind of business, so the geographies which are doing more non-oral care, their capacity utilisation tend to be little lower and those who do more of oral care, their capacity utilisation tend to be higher.

Ekta: Your consolidated margins stood at 16 percent. I was reading a report that you do invest a lot in your research and development (R&D) and innovation. How much of your total expenditure goes into innovation and R&D and how much could it possibly increase as a percentage to sales if you have those figures with you?

A: In our case R&D happens in at least two counts – (1) on new materials development and therefore creating different kinds of barriers inside out and outside in – that is the simplest way I can describe to create the barriers then we spend lot of money on developing newer equipments and (2) we partner with our machinery suppliers and most of these R&D expenses particularly on equipment gets capitalised because it gets amortised over number of machines but on materials we tend to invest about 3 percent of our sales.

Anuj: Your capacity utilisation is still not at optimum level – a lot of people would say. What is the outlook there?

A: In this kind of business 65-70 percent average capacity utilisation should not be considered bad but having said that there is always room to improve some percentage points here and there every time.

Ekta: What about your subsidiaries in Europe and America. You spoke about the anticipated topline growth but where do they stand in terms of turning profitable?

A: Europe was the biggest pinpoint until couple of years ago. Europe has turned positive and it has now reached economy of scale and therefore their margins will tend to get better.

In US it is doing alright. Mexico and Columbia are two geographies where we expect growth to happen and Mexico as it is breaking even and we hope Mexico will turn profitable. The only geography which will not turn profitable but is a very small operation is Russia because of geopolitical situation and the economy there. We do not expect much improvement to happen.

Ekta: For how long. What happened in Russia?

A: The geopolitical issue and resultant economic sanctions on Russia, their currency having tumbled. So all these reasons has caused uncertainty in that economy but we are able to raise the prices for the tubes that we sell, so the loss is not going to increase but we do not expect to turn it profitable.