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ESSEL PACKAGING LIMITED

ESSEL PACKAGING LIMITED
AGM held on JUNE 14, 2000

PRESENTATION BY MR. CYRUS BAGWADIA, MANAGING DIRECTOR | PROCEEDINGS OF QUESTION - ANSWERS SESSION | DISCUSSION WITH COMPANY OFFICIALS


PRESENTATION BY MR. CYRUS BAGWADIA, MANAGING DIRECTOR

FINANCIAL PERFORMANCE

(Rs. in crore)

Particulars

1995/96

1999/2000

CAGR (%)

Tube Sales Volume (in mio. Tubes)

556

1,133

33.7%

Tube Sales Value

99.8

228.1

26.8%

Total Sales & Other Income

117.5

252.4

21.0%

P.B.I.D.T.

37.6

81.0

21.2%

P.B.T.

21.1

50.7

24.5%

P.A.T.

20.4

36.6

15.7%

Cash Profit

33.4

65.9

18.5%

Exports

4.0

19.5

48.2%

OPM% (as a % of Sales & O/I)

32%

32%

-

RONW

14%

17%

-

ROCE

14%

23%

-

EPS (Rs.)

13.0

24.0

14.6%

Book Value (Rs.)

99.3

143.5

9.6%

  • In absence of Mr. Subhash Chandra, Chairman, Mr. Cyrus Bagwadia, Managing Director, chaired meeting.

OPENING REMARKS BY MR. CYRUS BAGWADIA (AS A CHAIRMAN)

  • Excellent performance achieved during 1999/2000 was due to :-
    1. Economy has done very well.
    2. Company has achieved significant growth in exports. Out of total exports, 30% were deemed exports, while 70% were exports to hard currency areas. Deemed exports were flat, not much growth. Major growth has been achieved in direct exports, which is a significant achievement. This was led by exports to 5 new countries during 99/2000.
  • Do expect further growth in 2000/01, may be 15-20%. Toothpaste market (major user) is growing @ 8-10%, while exports are expected to grow @ 15-20%. Company has made major inroads in Pharmaceutical market. Do see great growth from this segment.
  • Company has been able to sustain its market share at 70-75%. It has very strong position in domestic market, where competition is almost absent. Want to be successful in markets where competitors are strong.
  • Chinese Venture has started making cash profit during 99/2000. Company has received major order for 300 million tubes over 3 years. Hence, going in for capacity expansion. Has just started (in May 2000) Nepal Venture.
  • Special Dividend of 150% was paid during 99/2000 with the twin objective of reducing total capital employed as well as increasing returns and thereby enhancing shareholders’ value.
  • Will get into new avenues only if it generates better results than existing operations. Has identified 2 such projects, i.e.
    1. Electronic label. Negotiating with Technological partner. There is huge demand for high quality labels with market growing @ 20-25% p.a.
    2. Closures / Caps to be used for carbonated soft drinks. There are just 3 companies in the world in this segment.

Also exploring further investment opportunities. Hence, expansion of object clause.

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PROCEEDINGS OF QUESTION - ANSWERS SESSION

  • Seriously considering transferring of registered office from Vasind to Bombay.
  • Shareholding Pattern :

Promoters

45%

Financial Institutions

18%

Mutual Funds

17%

Public

20%

  • As a policy, 35% of PAT is distributed by way of dividend. Company generates significant amount of cash flows and when there is not an avenue for making capital investment in existing business or new business, company will return excess money by way of higher dividend.
  • Project cost for 2 new ventures is Rs. 25 crore. Will be financed through Internal Accruals. (cannot specify the time frame).
  • Market size (on a whole) is 1.5 billion tubes.
  • Has issued 375,000 warrants. Conversion (@ Rs. 241.5/- being exercise price) into 375,000 equity will take place over 3 years; 1/3rd each in June 2000, 2001 and 2002.
  • Exports will grow @ 25% during 2000/01.
  • Royalty paid of Rs. 22 lakhs during 99/00 for exports of tube line machines made in India to a company called TMK.
  • Manufacturing expenses gone up from Rs. 15.6 crore in 98/99 to Rs. 25.2 crore in 99/00, hike of 61.6%, while sales turnover soared up by 33.7%. This was because, company is sourcing some jobs, which was from outside incl. in manufacturing expenses.
  • CAPEX during 2000/01 will be Rs. 15-20 crore.
  • Plastic closures are costlier than presently available closures for soft drinks. However, there are certain advantages in terms of easiness to open, etc.
  • Cost per Balance Sheet is Rs. 84/-.
  • Total no. of employees as on March 31, 2000 were 602.
-

1998/99

1999/2000

Production per employee (in ‘000)

1,452

1,882

Sales Value per employee (in Rs. lakh)

25

38

  • Has just representative office for promotion of products in Singapore.
  • OPM% (excl. Other Income) dropped in Q4 99/00 to 37% from 41% in corresponding period last year because of change in product mix. Target is to increase it beyond 40%.
  • Company is not operating in monopoly market. Hence, cannot set the price. Get price rise only when it justifies cost increases.
  • Will be investing (did not specify the amount) in China to enhance capacities.
  • There is over capacity in the Domestic Industry. There are total no of 6 players (incl. Essel Packaging). Company has lowest cost of production per million tubes.
  • Not capitalising interest. Still interest cost is lower. This is the beauty.

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DISCUSSION WITH COMPANY OFFICIALS

  • Now focusing increasingly on Pharmaceutical segment. This segment contributed 8% of turnover in 99/00, which is expected to go up to 11-12% of turnover in 2000/01. This will result in margin improvement, as margins are better by 5-6% as compared to those in toothpaste segment.
  • Earlier also trying in food segment for items such as spread, ketchup, etc. however, ketchup was a total failure as tomato changes its colour when packed in tubes. Moreover, has to fill in at high temperature of 72 degree, which only glass can absorb and not these tubes.
  • Deferred Sales Tax Liability of approximately Rs. 6 crore will accrue p.a. till 2005. From 2009, repayment will start. Negotiating with Government for repayment at one stroke however at 24% discount. Favourable response from government as will get cash at one go. As ROCE is 23%, company will be recovering its capital cost.
  • Margins dropped in Q4 99/00 to 37.2%. This was due to significant rise in prices of Polyethylene. Moreover, crude oil prices were also fluctuating. Hence, did not want to get stuck up at wrong time. Do stock for requirement of 45-60 days. Not more than that.

If compared with Q1 of 99/00 (34.5%), margins are still higher.

Will be able to improve operating margins beyond 40%.

  • CAPEX during 2000/01 will be Rs. 15 crore (excl. new projects). Will spend on enhancing capacities. When asked, why want to enhance capacities when there is already over capacity in the Industry, replied that will be enhancing printing capacity, etc. Will invest in new project only if it gives return on capital employed in excess of 25%.
  • Will get price rise in current month.
  • Benefit of reduction in excise duty will be passed on to customers.
  • In Pharmaceutical segment, main customers are Paras (Moov, Crack), Smithkline Beecham (Iodex), etc. Company is getting lot of inquiries. Said can not specify how much better margin company earn in Pharma segment. Company did not invested additional amount for foraying into Pharmaceutical segment.
  • Toothpaste market is growing at 8-10% rate. But cannot say that this is matured market, as the size of the market is very big. And 8-10% growth translates into big volume growth when one converts tonnes into million tubes.
  • Performance in Q1 2000/01 is as per plan. Cannot reveal the figures even in terms of %.
  • When asked about the profitability of Foreign Joint Ventures, did not reply. Just said that those are separate companies cannot compare profitability parameters with those of Essel Packaging.

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