Pakka LtdQ3 FY20Paper, Forest & Jute Products

Pakka Ltd

Q3 FY20 Earnings Call Analysis

Management growth scorecard

Revenue

Category 1

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

Yes

3 of 4 growth signals are positive.

Revenue guidance

Category 1

→Target revenue of Rs.500 Crores by FY2022, up from Rs.261 Crores in FY2020, implying nearly doubling sales.
→Conservative estimates are avoided; the company is focused on aggressive growth plans.
→Capex planned around Rs.150 Crores between Dec 2020 and late 2021 to support growth.
→Expansion in three divisions: paper bags (capacity +25%, better quality), moulded products (capacity +35%), and compostable marketing.
→Aim to optimize capacity utilization in moulded products from ~54% to 60%-70%.
→Longer-term vision targets Rs.1360 Crores sales by 2025.
→Growth driven by new product development (including flexible packaging by 2023), capacity additions, and market expansion domestically and internationally.
→ROC expected to be maintained above 20%.
→Company acknowledges uncertainties (e.g. COVID) but committed to best efforts for achieving targets.

Category 3

→Yash Pakka aims for significant growth with a target revenue of Rs. 500 Crores by FY2022 and Rs. 1360 Crores by 2025, highlighting an aggressive expansion plan.
→Capex of about Rs.150 Crores is planned over 12 months starting December 2020, focused on increasing capacity by 25-35% in paper and moulded products segments.
→The company plans to maintain Return on Capital Employed (ROCE) above 20%.
→Growth strategy involves strengthening pulp & paper, moulded products, and launching flexible packaging.
→Productivity improvements in moulded products have improved profitability and reduced losses.
→Management acknowledges challenges due to COVID-19 but is confident in achieving audacious targets through focused effort.
→EBITDA margins have remained strong around 23-24%, with expectations to regain momentum post-pandemic.
→Emphasis on innovation and expanding market presence to drive earnings growth.

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Yes

→Promoters have pledged shares to secure loans for company expansion; no personal fund withdrawals involved.
→Loans with pledged shares are for scaling the company from Rs.30 Crores to Rs.200 Crores level.
→Efforts are underway to unpledge promoters' shares; target is to release pledged shares in the coming year, depending on bank support and facility renewals.
→Debt is being taken primarily to fund a total capex of around Rs.150 Crores planned over 12 months (Dec 2020 to Oct/Nov 2021).
→This capex supports growth plans targeting Rs.500 Crores revenue in 2022 and further expansion by 2025.
→No explicit mention of current/future equity fundraising in the transcript.
→The company is focusing on careful debt structuring to fund capacity expansions and new projects.

→The transcript does not explicitly state the current or expected order book or pending orders value in precise terms.
→Ved Krishna mentions ongoing efforts to enhance capacity utilization in the moulded products division, indicating plans to optimize and increase sales.
→There is a focus on ramping up capacity in paper and moulded product segments, with capex plans of about Rs.150 Crores aimed at achieving Rs.500 Crores sales target for FY2022.
→The company is working on expanding capacity by about 25% in paper and 35% in moulded products to meet increased demand.
→Challenges due to COVID have affected sales momentum but efforts continue for sales ramp-up.
→The presentation and call emphasize confidence in future growth with ongoing tie-ups and pipelines in progress, but no specific order book value is provided.

Yes

→Ongoing and planned capex tie-ups amount to Rs.150 Crores, targeted to be deployed within 12 months from December 2020 to October/November 2021.
→Capex aims to increase production capacity by approximately 25% on the paper side and about 35% on the moulded products side.
→The investment on the paper side (approx Rs.35-40 Crores) will also focus on improving product quality for better market positioning.
→Capacity addition for moulded products expected to come into force from early 2021.
→Flexible packaging is in the pilot development stage; commercial production targeted around 2023 with investments conceptualized in 2022.
→Future major investments planned around 2023 to reap benefits in 2024-2025 aligning with audacious growth targets.
→Capex seeks to support revenue growth targets of Rs.500 Crores in 2022 and Rs.1360 Crores by 2025.
→Promoters have pledged shares as collateral to secure loans for expansion and capex.

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