Huhtamaki ppl ltd

Surprised to see that globally the parent trades as 22 PE whilst the Indian counterpart (where we would expect more growth especially serving a fast growing qsr/delivery space) still trades at 14 PE in an all time high market! Any substantial reason for the same?

The PE is also low vs essel propack (I am not sure UFlex is a comparison as maybe the market does not rate the management).

They’ve also appoined a new MD, Mr. Sudip Mall, starting Jan 2021 for a period of 5 years.

An important aspect to monitor though would be raw material prices.

Discl : Invested

Essel Propack is a global company. Essel Propack = Huhtamaki Oyj + Hutamaki PPL.

Yes stock is cheap…

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Thanks, that makes sense though the PE difference still is quite large at 14 vs 40+, and even Huhtamaki has an export business though small.

Any particular reason why an Indian company should trade significantly below parent PE though?

Additionally, would this classify as a cyclical business? Is dont see any reason as demand/margins/capacity would be as per growth, but just wondering if that could be a reason considering past performance

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Someone mentioned there is a good article on PPL in Capital Mind this month magazine, if anyone has access please share. Also there is a coverage by ICICI securities if anyone has access please share here.

http://content.icicidirect.com/mailimages/IDirectInstinct_HuhtamakiInd_Jan21.pdf

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14 PE looks optically high due to tax adjustment in Dec’19 qtr. Excluding that, this trades close to 19-20x PE

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any reason why the company has generally under-performed the sector despite the good governance and innovation focus? they trade at a discount to even uflex.

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It is one of those boring stocks, no regular updates from the management, follows Jan to Dec FY.

Disappointing 4th Quarter results and a massive drag on full year results. However Rs.3 dividend is still maintained so thats good news. Margins appear to be coming down so thats definitely a worry…

Disc: invested but reducing position slightly till results improve…

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Mr. Sudip Mall (MD) and Mr Ranjeev Lodha (CFO) resigned from the company. Is there is something going on does anyone has any information about that? Also, the company’s topline is stagnant this quarter does anyone has any information about that, since last quarter there was no lockdown and there was an uptick in consumption my assumption was at least the topline might grow in double-digit but it is not the case. Anyone tracking this company has any info.

Disclaimer : Tracking

This companies management is worst in terms of shareholder communication… there are no press release or any communication citing reasons for quarterly performance.

There is some governance issue in the India organization, I believe. An Indian analyst/shareholder had asked a question to the Huhtamaki Oyj management during their earnings call. I had taken a tracking position, but reduced now. Waiting for some more clarity.

A recent report (24th October 2021) on Huhtamaki by SMIFS Ltd - https://www.smifs.com/files/reports/637707106967974388_Huhtamaki%20India%20Ltd%20-%20Q3CY21-Result%20Update%20-%20SMIFS.pdf.

At the current price, there seems to be decent margin of safety. However, the complete lack of information about the company’s intentions is putting me off. They haven’t even disclosed yet who will be the new CEO, nor have they shared anything about the whistleblower allegations.

Hi All,

Looks like there’s some revival and turn-around in the company.
New CFO and MD has been appointed -

CFO: Jagdish Agarwal
[Jagdish Agarwal]

Dhananjay Salunkhe : MD
From company websire

They have started a Concall now

Though good initiative, still many things needs clarity:
Land sale and use of procced
Plan for improving the profit margins
Proper plan for future growth

Future looks good for the company because of Consumer story, global history of the parent company and their research and innovative products, importence to sustainable packaging

Improvement in the numbers:
Financials:

Disclosure: Not Invested, started watching recently

Huhtamaki India --Q1FY24–Earning Call Highlights–21st July23 :

–Have we lost mkt share or have we vacated the mkt at lower end of the mkt ? --3 things are happening 1) There are changes in the segment optics i.e we service primarily to food / beverages / personal care biz so there are challenges in the personal care & Beverages due to the mkt conditions 2) we are in the process of reviewing our portfolio & taking a view on the lower segment of our biz hence the quality of biz has improved over time as we are definately optimising our portfolio which will help us to concentrate on specific tgted mkts and push for the competitive offering and get the share

–Contribution from Blueloop today --Month on month it varies but we are at 22/25% products are serviced currently and by 2030 we are tgting 60/65% from Blueloop

–What is the margin differential between current packaging products and Blueloop ? --we cant put a no. but its a innovative offering and it would be competitive in the mkt place and at the same time its invested verywell & there are 4 features of it 1) Simpler 2) giving the same effectiveness & same time weight reduction --so overall from cust. point of view it will be a competitive offering , while it would be a premier offering.

–Any timing discussed for the land sale ? We work in a landscape that our teams are working and DD is in progress & considering everything we have to put into practice , cant share the timelines.

–8/9 yrs back we did few acquistions and there was huge turnover from 1000 Cr to 2700Cr
but it couldnt reflect this expansion into bottomline so in the last 2.5yrs it had lag effect of RM increase of BOPP and EBITDA which used to be at 1000Cr sales is still the same with lot of difficulty ,so what is the plan & as a share-holder we dont see any progress & our EBITDA ? – flexible packaging in 10 yrs we have seen lot of changes --15/20 yrs back lot of packaging was rigid and then it got converted to flexi packaging. In the last 4/5yrs there is competitive landscape has increased and Huhtamaki is ambitious on India as we have Bn Consumers here so globally & India is the country which will grow. Temp. we had challenges in the past 2.5yrs and now we are working to see how we make it a long term success.
–After GST India is becoming one mkt and there were plants which were dispersed in the pre-GST mkt so keeping that in mind we are thinking , mkt landscape has changed, customer landscape has changed & India’s infra has started improving so transit times have reduced and hence we are consolidating our factories and ops & this will increaase competitiveness and relevance of customers & we have belief that we will get improvment & it will give us benefit.
In our new product Blue-loop there is a change where we will make our own film so this BOPP etc which we used to source from outside and we used to have lag effect , that will reduce to a large extent.
–Receivables are more as the domestic mkt is competitive and our 30% is exports and we take 40/45 days of transit then keeping this in mind the receivables are more.
In the last 3 Qtrs you will see we have started improving except for the volume & this will continue.
–Our EBITDA margin has started moving up & its trending around 8% and in the past we used to have good margins but that was way back & if you look at 2021 we had a dip and 22 was better and performance of 23 was better than 22 so we have an improving trajectory with all the initiatives.

–we are happy with the new initiatives and with the new CEO/CFO & we request that we need to focus on the bottomline on a sustainable basis & then an MNC being available in Indian stock mkt will move from lower end to the higher end so request to focus on bottomline ? --Yes, we will see progress in the future.

–what are the head-winds and challenges which are preventing us to convert good topline to a good bottomline & blueloop will improve our margins and profitability & other operating revenue includes what all things & In cash flow we see an inventory of closer to 12Cr , what is the reason and nature of it ?
In other operating revenue we have the scrap sale which is a byproduct during production & it includes exports benefits also.
Increase in inventory provisions , its 2/3% of our inventory and we do sort of policies where we do an aging based provision so that we follow as a good practice.
Hurdles & outlook —we are in the process of innovating the product which is first in the mkt i.e this Mono-material which is recyclable products which are basically with barrier properties which we have introduced in our laminates. Cust. are taking times to evaluate these products as their packaging is very sensitive eg. food product where the packaging goes through long shelf life testing and so on similarly for personal care. Its a requirement from cust. that they would like to test these products and thats why we see that
2ndly --regulatory environment is changing in India so that is also changing at a pace so end cust. is using the provisions given by regulation which will help us to push this blue-loop recyclable solutions so more and more regulatory push to consumers to this direction
lastly --ambition is to achieve 65/70% of sales through this innovation but we are already selling 22/25% of product through this technology and it will improve over some future Qtrs YnY.

–Its a hyper competitive mkt where lot of smaller players are there so how are we positioning ourself on this new technology so that we stay competitive ? --On a pricing part ,this product is going to be simpler with mono-material and most of the time it will come up with weight reduction so it will be competitive and at the same time we need to justify our investments so thats the point. On ESG we mfr and service the packaging products so more & more our cust.s use these materials & then it will be beneficial on the sustainability index

–Is blueloop which got launched couple of yrs back and we have scaled up to 22/25% of topline , whereas in the remaining 6/7 yrss we are looking at 65/70% of contribution , is this pace not slow ? --The launch happened in FY23 and products were produced through existing processes which are part of the blue-loop project so the significant investments are being done in this year that is why there is acceleration in the progress . This 22/25% the product construction was diff. which was easy to convert to simpler structure which didnt require high barier properties & we were able to convert them to this blue-loop structure whereas now we are looking at to introduce the structure which require high barrier i.e removal of the foil layers and so on so thats where we are investing heavily and that is our proprietary technology formulations and innovations & it will have a slow rate of adoption in the mkt so right now we are at 22/23% so in the next 5 to 6 yrs it will go to 65% because of the complexity of the product which we are going to convert is going to increase & hence the timelines

–What is the capex we are envisoning for this 65/70% of sales & Silvasa plant when will get commissioned ? --We are making significant investments & there will be more products from our global parent. The plant will be commissioned by Q3 or Q4 and it will be in 2 stages and it will evolve

–Are we launching Pharma products which is there in Parent , are we planning to launch them here as well ? --exicting innovation happened in the parent co. and these have started being adopted by couple of pharma co.s in India & this is being imported from parent from Germany.

–There is improvement in Gross margins but the fall in volumes and margins is so sharp that this increase is not getting reflected in EBITDA so as we move ahead & in Q4 your Depreciation will start kicking in so how do we plan to take the growth in GM to bottomline ? —In the last few Qtrs we took a strong view in terms of our plan & now we are in the process of identifying clear categories where we want to play and clearly dive deep and create a category and product focus and then certain key a/c focus so all these 3 things put together will help us to improve and as you mentioned we voluntarirly cut down unprofitable bizess which has helped with with free capacity which we will use for our strategic products so we dont want to boil the ocean but we have taken smaller / bigger & larger a/cS thats where we will drive and confidant of its success

–Can we tgt or achieve 7/7.5% EBIT margin in 2 yrs time which used to be a normal thing prior to COVID for you ? – We are tgting by 2030 a 10% EBIT margin and that is a journey we are on.

–The relocation is not having any material impact on our ops.

–Why Interest cost is increasing ? --Its more or less flat , in the past Qtr we had some litigation liabilities etc & if you remove that its more or less flat.

–Precovid we had 10%+ EBITDA Margin as a norm and now we are investing sizable money in new tech so Q is why Margins cant improve from here on ? --In 21 we were at 4% ,in 22 we improved to 5% and now in 23 we have reached 8% and if you look at this , last few yrs we have seen improvement & we will be 7.8/7.9% EBITDA margin this year and it will improve from hereon.

–Cumulative capex we have done on Blue-loop project —we are doing a significant capex --REFUSED TO SHARE —

–Net debt --its 321 Cr June’23 end and Interest is close to 8%

–On Half yearly basis we have seen a 15% dip in topline so this is largly led by realisation decline or Volumes also have dipped on Half yearly basis ( Jan23 onwards ) ? --Its both , we took a review of portfolio and in the process of optimising our portfolio so large contribution came from that and now we have strategy so now we will invest in that i.e innovation / key a/c mgmt / value selling and so on.

–Total capacity is 1.54 LAKH tonnes ? --We dont monitor on tonnage as there is constant effort to reduce the plastic intensity 2) the tonnage varies largly due to product mix so we dont track in tonnage.

–Utilization ? --we are at 60/62% utilization in last couple of Qtrs. In 2021 the capacity utilization was higher & in 22 it was 75/80% in H1 and thats where we rationalised and there is reduction in volumes so capacity utilization has come down in that ratio

– Last 2/3 yrs our EBITDA margin is 4/5/6% and since our biz is MNC cust. where the RM prices are pass-through so we shouldnt have seen such a sharp reduction in EBITDA margin so it feels like have we lost mkt share or the product mix is itself changing from MNCs to regional customers ? —In 21/22 there was a lag in getting pricing from the customers & that impacted 21 & in 22 there was a change in approach so in now in 23 H1 our EBITDA is ranging at 8% so there is a clearly a imprvement from 6/6.5% in 22 to 8% which is a good improvement and this where we will move towards.

–We are shifting 3 plants to single location & this will give us good saving , how much are we looking to save due to this ? --The plants which we are moving is smaller plants moving to nearby larger plant in the nearby vicinity so thts we are doing so from 6 plants we are now moving to 3 plants which will give us the ability to scale up in a competitive manner whereas on cost ,whatever we spend in consolid. will be paid back in less than a year and it will add to profitablity and fixed cost will come down from running 6 plants to 3 plants

Disclosure --NOT invested , started tracking after conference calls started , some Qs couldnt note down due to speed of conversation & audio not clear.

—NOTE-DOWN LAST Q from transcript----

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