EPL Ltd
NSE:EPL
Earnings Call Analysis
Q3-2024 Analysis
EPL Ltd
The company celebrated the successful stabilization of its Brazil plant which began operations in the last quarter, marking an important milestone in its global expansion. This quarter's report included the first consolidated results with Brazil's numbers, reflecting the company's strategic focus on greenfield expansion. Despite facing headwinds such as soft commodity prices and economic challenges in Egypt, the company reported a commendable revenue growth of 3.2% year-on-year, bolstered by strong underlying business in most regions. Region-wise, India exhibited a 4.2% growth, while AMESA faced a slight contraction (negative growth of -0.6%). The company's robust performance was championed by double-digit growth in the East Asia Pacific (EAP) at 11.6%, Europe at 8.6%, and the Americas at 11.9%.
In pursuit of diversified growth, the company's focus on Personal Care and Beyond paid off, with this category now contributing 48% to total sales year-to-date FY '24. Pharma also showed impressive gains, with a record revenue performance in India in December 2023. Despite the revenue growth being hampered by negative pricing pressure, the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) grew a strong 17.1% with margins improving sizably. Year-over-year margins improved by 224 basis points, reaching an EBITDA margin of 18.8%. The company's commitment to margin improvement is evidenced by the consistent six-quarter streak of EBITDA margin progression, aligning with the goal of returning margins to pre-COVID levels. Profit after tax (PAT) surged by 37.2%, with a Return on Capital Employed (ROCE) standing at a solid 14.5%.
Sustainability remained central to the company's strategy, as they anticipate doubling the sales of recyclable tubes from the prior year, aiming for them to constitute 20% of their total volumes. External recognition of their sustainability efforts included awards for best overall sustainability performance and excellence in procurement sustainability. The commitment to sustainability and expectations of the market transitioning to sustainable solutions provided optimism for future benefits. Efforts in innovation were also acknowledged, highlighted by recent awards for pioneering tube designs. These investments in sustainability and innovation set a confident tone for the company's revenue and margin potential, even as they continue to navigate the pressures of soft commodity prices.
To bolster revenue, the company is aggressively targeting the substantial untapped potential in Personal Care & Beyond, implementing strategies such as actively pursuing smaller customers and improving their 'hunting' capabilities. Notable progress has been made in creating flexibility for smaller batch size orders, especially in East Asia Pacific and Europe. Their introduction of 'Neo Seam' technology almost eliminates side seams in laminate tubes, further strengthening their product portfolio. The commitment to increasing the proportion of sustainable solutions grants a competitive advantage, and the company remains optimistic about its Brazilian operations' growth potential. On the margin front, they look to continue the trend of consistent improvement, focusing on pricing, mix improvement, and cost optimization across all regions, with a long-term ambition of reaching a 20% margin.
While acknowledging the presence of market volatility and seasonality affecting margins, particularly in the China business and Q4's typically softer margins, the company maintains a goal of steadily improving margins year-over-year towards the 20% target. Despite potential headwinds, such as the uncertain situations in the Red Sea and the exchange rate challenges in Egypt, management remains confident in their overall steadier footing. As pricing pressures are expected to ease within the next couple of quarters, given commodities remain stable, the executive team indicates a strategic shift towards fostering growth, implying that a surplus in margins could potentially compromise growth if not balanced correctly. Therefore, the management's focus appears to be on finding equilibrium between growth and margins, facilitating both value creation and continuous EBITDA improvement.
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Ladies and gentlemen, good day, and welcome to EPL Limited Q3 FY'24 Investor Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix Institutional Equities. Thank you, and over to you, sir.
Yes. Thanks, Adarsh. Good evening, everyone. On behalf of Systematix Institutional Equities, I would like to welcome all the participants who logged into this conference call on EPL to discuss the third quarter and 9 months ending FY'24 earnings conference call. At the outset, I would like to thank the management for giving us the opportunity to host this call.
From the management team, we have Mr. Anand Kripalu, MD and Global CEO; Mr. M. Ram Ramasamy, COO; Mr. Deepak Goyal, CFO; Mr. Shrihari Rao, President, AMESA Region; Mr. Onkar Ghangurde, Head, Legal, CS and Compliance Officer.
I would like to welcome Mr. Anand Kripalu to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Pratik, and hello, everybody, and thank you for joining the Q3 FY'24 earnings call. At the outset, I'm pleased to share that our Brazil plant, which became operational last quarter, has successfully stabilized. Our focus is now directed towards harnessing further growth in this promising market.
Hence, from this quarter, we are taking the step to present a consolidated view, including Brazil in all our results. In any case, greenfield expansion is very much part of our growth strategy. In Q3, we reported a revenue growth of 3.2% versus the previous year. This was underpinned by strong underlying business performance in most regions impacted by negative pricing due to soft commodities as well as the adverse impact of the Egypt economic challenges.
Hence, while the India standalone business grew by 4.2%, AMESA, as a region, witnessed a negative growth of minus 0.6%. EAP has continued its consistent strong performance of double-digit growth at 11.6%. Europe grew by 8.6% and Americas by 11.9%. Our focus on Personal Care and Beyond continues with the category now contributing 48% to total sales in the year-to-date FY '24. Along with Personal Care, we have seen significant gains in the pharma category as well with India doing the highest ever revenue in pharma in December '23. In line with our recent communication, while our revenue growth was impacted by negative pricing pressure, our EBITDA growth and margin continues to progress strongly. In Q3 FY'24, we delivered a robust EBITDA margin of 18.8%, which is an increase of 74 basis points quarter-on-quarter.
Our year-on-year margins improved by 224 basis points and absolute EBITDA grew by a solid 17.1%. Importantly, while our business is not a sequential business and quarter-on-quarter comparison is not the right way to measure performance, our consistent 6-quarter EBITDA margin improvement journey reflects our commitment to bring margins back to pre-COVID levels. Our margin improvement plan, including active price management, mix improvement and cost optimization gives us confidence that we are well on our way on our margin improvement journey.
PAT during the quarter grew by 37.2% and ROCE stood at 14.5%.
Moving on to sustainability, innovations, recognitions and wins at the core of our strategy and daily operations is a commitment to sustainability. The global sense of responsibility towards our planet is growing and the growing acceptance of our products mirrors this shift. We are on track to double our recyclable tube sales versus prior year, accounting for 20% of our total volumes.
Additionally, as the date of customer commitment for conversion to sustainable solutions [ draws ] closer, we are confident of benefiting from that transition. Our sustainability endeavors have not only resonated within our organization, but have also received external recognition. We were recognized for the best overall sustainability performance as the World's Sustainability Congress Organized in Mauritius. We were awarded as a winner in the excellence in procurement, sustainability category by ISM India.
We also achieved a green rating, which signals positive progress on Ellen MacArthur foundation for the second successive quarter. We remain committed to innovation garnering recognition of recent IFCA Awards for our pioneering tubes. Looking ahead, we continue to remain optimistic about our revenue and margin potential. Those soft commodity prices will continue to put pressure on revenue growth in the short-term.
Let me walk you through the key initiatives for revenue as well as margin. First, on revenue, and I must add here that accelerating revenue is our top priority. We are aggressively targeting the vast potential in the Personal Care & Beyond segment, actively pursuing smaller customers and scaling up our hunting capabilities.
We have made significant progress in creating flexibility in our system for smaller back size orders that is critical for the Personal Care and Beyond category. In East Asia Pacific, specifically China has already put in place this kind of flexibility, and we are making rapid progress in both AMESA and Europe.
Complementing this is the increasing range of innovative and high-quality products. Importantly, we have commenced commercialization of Neo Seam, which nearly eliminates the Side Seam in laminate tubes across India, the U.S. and Europe. Our robust portfolio of sustainable solutions continues to provide a significant competitive advantage.
The increasing emphasis on sustainability, coupled with our key customers' commitment to swift adoption of recyclable packaging will continue to play in our favor. We are optimistic about our Brazil operations as it opens up significant avenues for growth. So overall, we are confident that these initiatives will accelerate future growth, which, when coupled with mix and moderate pricing, will help us to get to our longer-term ambition of double-digit growth.
And secondly on margin, we have delivered consistent margin improvement in the last few quarters. We are continuing our efforts behind active pricing, mix improvement and cost as well as structural interventions in Europe. We have a solid pipeline of these initiatives, which will continue playing over the medium term to help us to get to our stated objective of delivering 20% margin.
With that, we will now open the back for questions.
[Operator Instructions] The first question is from the line of Sameer Gupta from India Infoline.
So sir, you mentioned that there is negative pricing sitting in the sales growth. And when I see the segmental performance, it's actually only AMESA where there is a lower growth, rest of all geographies have done double digit. And there also, you called out Egyptian currency impact. So excluding which India has grown at 4%. So suffice to say that the negative pricing is right now only affecting India and not other geographies? Or this is more like a performance, excluding pricing that you are seeing in India as well because last few quarters also, we are tracking around 4%, 5% in AMESA region?
Yes. So I specifically called out India stand-alone because Egypt is an exceptional situation in terms of economic challenge and devaluation and inflation, okay? So that you all could understand what's happening in India. The reality is there is some negative pricing in all regions, okay? The scale changes based on how much of our business in each region is contracted, yes, because contractual flow-through happens automatically with a lag of 3 or 4 months, okay? But negative pricing, based on softening of commodities, is affecting our overall results.
Got it, sir. Sir, just a request. I mean if there is a way -- because these pricing pass-throughs will always be there inflationary deflationary times, is there any metric that we can track to see the underlying performance of the business maybe gross profit as an indicator? Does it bode well, like it's grown up around 10%. Is that a fair understanding of how the business is growing going forward? I'm just trying to get a metric to understand, not to pinpoint or anything?
No, I understand. I think you see, when you look at our overall P&L despite a revenue growth of 3.2%, which I said has been negatively impacted by pricing. Our EBITDA growth -- absolute EBITDA growth -- because ultimately, the profit pool of the company, the absolute EBITDA we are delivering reflects how we've done. And I think what is worth just decoding is the fact that, that negative pricing is in no way impacting our margins, either gross margins or EBITDA margins. That journey is intact, okay? So it is just what's happening on input costs that is getting translated into pricing, and that's impacting the optics of our revenue numbers. But the profit of the company, both as a percentage and in absolute is robust and is growing robustly back towards the journey from where we started.
So I think that is the ultimate way in which -- you guys are far better as the game than I am. But for me, the absolute profit pool of the company is growing, the company is growing. The rest is pluses and minuses, sometimes inflationary, sometimes deflationary, those things happen. But whatever environment you're in, the question is, is your profit growing or not? And that's one way of looking at it.
Got it, sir. Just a follow-up there. So this negative pricing element, is it something like a carry forward of the previous quarters? Because I see most of the commodities which are there affecting our basket, they are largely stable. So what exactly is this negative pricing coming from? And is it likely to come from in the future quarters as well?
See the negative pricing, first of all, plays out typically a quarter or so after the actual negative pricing of commodities happens. And just remember, you are comparing the same quarter of the previous year, okay? So what is happening is that while there has been the talking of commodities, right, happens quarter-on-quarter. The pricing impact happens quarter later, but you're comparing with the denominator where the pricing was probably higher based on much higher commodity. So the optics of that negative when you compare y-o-y right, is [indiscernible], that's what is affecting the numbers.
The next question is from the line of Jenish Karia from Antique Stock Broking.
My question is with regards to the Europe region. So we see that the revenue growth rate has been healthy around high single digit kind of a number in Europe. However, the margins -- EBIT margins on a sequential basis has been on a declining trend. So as the polymer prices are declining it indicates a strong volume growth, but despite that, we are not able to ramp up our margins. So any commentary on that?
So I agree with you, first of all, that in Europe, interventions are needed to either accelerate growth further or to prune the costs. I can tell you we are putting one foot on the accelerator of growth in Europe and the other foot on the breakup costs in Europe. And in this quarter, particularly, but those -- the benefits are not playing through yet. But in this quarter under review, we have started making some structural interventions in Europe to optimize and prune the costs, right? And you will see the benefits of that beginning to flow through in Q4 and beyond, all right? So we are absolutely focused on looking at the cost base in Europe to improve the margins while continuing the journey to accelerate our growth performance.
I would just add one quick point here. If you look at Europe performance versus prior year, the EBITDA has already started improving, right? So last year, 5.7%, this year, 9.2%. Sequentially, when you see Western geographies typically have a softer Q3 because of Christmas. Because the last second half of December is usually shut down, and hence, it results into lower growth. And that is why when we are looking at this business, we should not look at it sequentially, we should look at it versus previous year. That's a better comparison.
That's helpful. Secondly, sir, we have highlighted that we are going to focus on smaller quantities to be delivered in Europe region. So how -- like I just want a broad understanding, how much incremental profit do we make on delivering smaller quantities compared to bulk? Any sense on that broad indication [ worthwhile ].
So let me put it this way. Our focus to go after smaller customers is because, as we said earlier, our share, wallet share globally in Personal Care and Beyond are about just sub of 10%. So there is a huge headroom for growth in this segment. And...
Sorry to interrupt. The line for the management seems to have been disconnected. Please stay on the line while we connect the management line back.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding. We have the management line connected back.
So what I was basically saying is our effort of going after P&C is because there's huge headroom for growth. And why we are already reasonably large with some of the big customers in the world, right? We have a big opportunity to go after the relatively smaller customers who are not global, but are regional and who have requirements for smaller pack sizes, okay, with higher paces of innovation, which could be innovation success or innovation failure, right? And we are, therefore, putting in place our hunting capabilities in terms of sales guys to go and bring that business and the back-end capabilities to have that flexibility to be able to supply.
Now in reality, the cost of manufacturing of smaller lot of sizes is higher than what we do in terms of the mass run that we have in categories like Oral Care. However, we make sure we charge more so the ASPs are typically higher. Our intent is to make sure that the margins are better, okay? The costs are also higher, but overall, the objective is that Personal Care & Beyond should be margin accretive to our business, both in terms of positive revenue mix as well as overall margin mix, okay? So that is our approach. Now it's very hard for me to give you a number because it's a strategic priority, right, but you will see this playing through as this strategy gets into action and a reality.
Understood, sir. Sir, how has been our experience with smaller customers? I guess we are doing that in India also and China also. So how has been the experience with small customers in regards to repeat orders from them?
So some amount of small customers, we do everywhere, right? But as a big [ trust ], right? We are doubling up our efforts. China has had very significant success, right? And in China, we use a term call local [indiscernible]. Because in skin care, the Chinese brand is different and the Korean brand is different from the Japanese brand. And our China teams have done really well in terms of capturing those small pack size volumes, sometimes high-end innovation, sometimes very high pricing per cube, right, and being able to supply them with shorter lead times. So we have had success.
So within EPL, we know how to do it. But then the cost of the sales kind of resource, there's a cost of that back-end capacity, and that's what we are doing. Even in India, incidentally, we service a very large number of small customers. But there are also lots of small customers who the other local players supplied to, right? We believe with EPLs [indiscernible] quality, and far more agile serviceability, we can get a part of that volume, right? And that's what we are targeting.
Understood. That's helpful. Just one last question. What would have been the impact of increased paid cost. Like do we bear? Or the customer bears it? And secondly, is there any loss of deferment also because of the rescue issue during the quarter?
So I didn't get the question. What was the first one? Increased sales force?
No, no, ocean freight. So ocean freights have gone up. So how much of our margins would have been impacted? There is an estimation at year end because of the increased ocean freight.
See, the freight we will be incurring in this quarter. But normally, it's a pass-through in most of the contractual businesses. It will get pass-through, yes.
And on trade budget, it's largely gets passed on. So the impact on EPL margin is likely to be immaterial -- in terms of the lead times, the lead times due to Red Sea issues have gone up, especially when we send laminates to our Europe and U.S. businesses. For that, our inventory, we have started increasing our inventories or the safety stock because of this higher GIT, which we will unwind as soon as the issue [indiscernible] resolved.
Okay. But there is no loss of yield during the quarter.
No, we are ensuring that our customer service levels don't get impacted because of the high lead times. And then we are increasing our safety stocks in GIT as required to manage that.
Which we will unwind the moment the conflict resolves.
The next question is from the line of Vikram Kotak from Ace Lansdowne Investments.
Actually, my one question is answered, but I have 2 questions. One is Anand, you talked about the margin part with a cautiously optimistic statement. We moved to almost 18.5% now from 15% or bottom 6 quarters bad. Of course, we've seen a glorious path in 2020 and '21 of 20% plus, okay. Do you see this journey with different drivers, whether Brazil or the recycled area or the optimization. Do you see the journey coming back soon. What's your view maybe -- what's your take on this 20% kind of path you think so this is possible?
It is absolutely possible. And I want to be very, very categoric on that. And as a management team, we are very focused. We are actually very clear on a few things that we need to do to get to a 20-plus number, okay? Now all I cannot tell you is if it's a 1 quarter or 2 quarter journey, right? Or a bit more medium term. But I think you should absolutely count on the fact that management is, I would say, obsessed with getting to -- in front of our margin numbers, right? And we're going to leave no stone unturned to get there.
Sure, sure. My second question is on the recycled volume, and I think you've done a brilliant job in moving from 10% to 19% recycle and you're targeting 60% which is a big task. Any risk to that? Any risk that you see? Or you are on track to go to 60% because that's a very -- in 3 years, you want -- maybe 2 years from now, you want to go to 60% of the volume in the recycle.
I don't think that -- the risk is only when I've seen -- when conversions like this happen, I think the only risk is that the conversion will happen faster than we are ready for it, okay? I think that is the only risk. This is the absolute journey that is moving in that direction, right? And actually, our back-end capabilities are, we'd like to believe more ready than anyone else's. As customers own deadlines drawn near, we believe we are more ready to get a higher share of their wallet than otherwise, okay? And that has been our quest, both on technology as well as readiness of capacity. So that's what we are absolutely focused on. So I don't think -- I think the only risk is that customers will suddenly come and say I want it tomorrow. And it is happening in a few cases, by the way, because suddenly, they get a pressure from the top to say, hey, why you're going slow, let's go faster. And suddenly, that pressure on the suppliers as well. Thank you very much. Now I'm just going to step out for 5 minutes. The team is here, the call will continue folks. I just have to get into the car, and I will log in from there. So just 5 minutes, but Ram, Deepak and the team are fully here to continue the conversation, and I will join back.
The next question is from the line of Pramod Dangi from Unifi Investment Management LLP.
Congratulations to the entire team for the continuous improvement. Two questions. One is, I think I missed the point. Where we are on the Brazil today in terms of the capacity utilization? And I think you said that by '25, we should be looking at the higher numbers. So like what kind of a road path we are looking by financial year '25 end?
Brazil, we are on track.
Brazil capacity utilization.
We are on track to deliver that what we intend to deliver in the first year because it's a contractual business with a great customer. We are almost there to deliver what we have. But we have created a little larger capacity in terms of serving other customers, which we are now getting a lot of interest to serve that. That will start happening sooner than what we expect because of the interest shown by other customers. Utilization will go higher when everything starts happening because it's a new country, we created a little larger capacity than our contractual capacity.
Okay, okay. And then secondly, you said that we are looking to pre-COVID margins very soon, and we continue to improve on that. But during this process over the last 2 years and we have seen a huge cycle in the commodity prices, have you made any changes to our contract with the customers? Or have you made any structural change in the contract where this volatility will be kept going forward. And we will not see that the 20%, again, going to a 15%, 14%, if the commodity prices again shoot up for whatever reason?
Thanks for asking this question. And it's also something which we, as a management, have discussed extensively amongst ourselves. See, the -- I think the reason of delayed pricing or partial pricing that we got in a subsequent margin erosion was not the contract as much as the speed of negotiations with the customers. There are 2 kinds of customers that we have. One are contractual, where the price flow-through is -- happens every quarter. And then there are non-contractual customers where we go and negotiate the price. In the last cycle, when unprecedented competition -- got combined with supply chain disruptions, very high freight rates, wage inflation, et cetera, we, as a business, were not prepared to go and have those discussions with the customers and taking significant pricing. And this is happening well in the last 40 years, we have never taken more than 1% to 2% annual pricing, right? Now in the last few quarters, what we have developed as a muscle is the ability to monitor the margins on a real-time basis and have discussions with the customers in case the need arises much, much faster than what we did last time. So today, we review our customer level gross margins regularly almost on a monthly basis, right? And then our readiness to go and have those discussions much faster. So in case this happens, we will not kind of go back to what happened in the past, right? Our readiness is much, much better now.
Okay. Okay. No, that's great. That's great to hear because that is our volatility and the late period will be much lower than what it was in the previous cycle.
See, there is a saying called never waste a good crisis. I think what we have used this crisis is to learn and develop a few very important muscles. One of them is active price management; and second is the middle of the P&L productivity. And that is how I think we have come very, very close to, let's say, the peak margin. We are now close to 19% already, and then we'll keep improving. But these 2 learnings are there to stay with us for a long time.
Great. And then lastly, I will just go back to the first question, which another participant had asked. If you can give some light on the last 1 year, 2 years, 3 years in the current quarter number also. On our revenue, if you can break into the volume and the price growth or the degrowth, I think that will help everybody understand where we are because ultimately price is the pass-through. The raw material prices are pass-through. So what the real growth is what we are concerned actually. If you can break that into volume and the price, that will be a great help for everybody.
Yes. I understand. The -- also, however, another complexity that we need to keep in mind is the complexity of our business. We play in a large number of geographies and in large number of categories. Now in the volume, we kind of tend to equalize a volume that we are selling in Europe, a 50 dia large Beauty & Cosmetics tube in Europe versus 16 dia small dental care tube in India. Now the price between the 2 could be like 20x, 25x, right? And that once you start equalizing, the numbers don't remain comparable. And then we will get into the moment we start talking volume, then we are talking mix more than the real impact of pricing, et cetera. And that is the reason in this business, revenue, despite its flaws, is still a better metric and we should continue monitoring gross contribution and EBITDA, how is the underlying business doing? And that is why Anand in his response also said that our absolute EBITDA growth of 17% reflects that the underlying business performance is solid.
The next question is from the line of Mihir Shah from Nomura.
And congrats on a very strong performance on margin improvement despite a low operating leverage from a relatively lower sales growth performance. So firstly, just sticking on to margins. I did hear Mr. Kripalu highlighting improvement will continue on margins, but I wanted to understand the headroom that is there for improvement. And apart from understanding the headroom, so will this gradual improvement continue? And are there any headwinds that one should keep in mind where this margin improvement probably get stalled for some time or the other? So that's my first question. .
Yes. So let me just say this. So first of all, I think it's really important to understand that there is seasonality in this business. [indiscernible] always has a depressed margin for China business and [indiscernible] margins Q4 is softer margin quarter. So I think the first guidance says that don't look at it linearly. However -- sequentially. However, on a year-on-year basis, the attempt is to continue this margin improvement journey, right? And step by step, as I said earlier, to take it to 20%. Now what is the headroom is very hard to answer, right? Do we use a circuit breaker at 20%? We continue to improve margins thereafter. I think it's really hard to answer. But I'll tell you there's a strategic choice in business. If you try and make too much margin then at some time, you will outprice yourself and you will compromise growth. . So the management judgment really is about what margin will give us the right balance in terms of absolute EBITDA improvement and value creation, okay? Therefore, what will give us the right combination of growth and margin, and that's really the judgment. Now our focus for the last 6 quarters has been to try and get our margins back to where they used to be. I think honestly, now we need to focus much more on growth. And if you grow faster, the margins will continue to improve. But I don't want to fix a circuit breaker or define a headroom other than to say, our first goal is to get to as soon as we can. And once we have a [indiscernible] in front of our numbers, to apply management judgment on the right combination between growth and margin.
Got it, sir. And any headwinds that we should keep in mind that can derail this margin improvement? Or relatively, as of now, there is no visibility on any headwinds that can derail this path?
I mean, honestly, after so much of choppiness over the last couple of years, I think we are definitely sailing in [indiscernible] water. Now we don't know what we don't know, yes. This Red Sea thing as long as it doesn't become worse, right? I think, is manageable through higher inventories, but who knows where it's going. Egypt has been a damp spot even though the country itself is an attractive country, our business in local currency is doing well and it be profitable. But there's a big issue with the exchange rate and the ability to get dollars out to the country and those kinds of constitution, right? So these are the things we know. I think Europe is now a lone situation. It's not getting any worse. The situation in Europe is what it is. And we are very clear that we need to do a few interventions and management in Europe as well.
So honestly, all things considered, yes, if we talk of softness in China, for instance, now. How much is it as of now? We're looking okay in China, okay? Suddenly, it turns for the worst than we don't know, all right? And we have an important business in China. But I would say the world is never perfect. And right now, I think these things are [ calmer than choppy ] in overall terms.
Perfect. That's heartening to know, sir. Secondly, I wanted to check on the negative pricing. When do you think this can get [indiscernible], I mean, are there incremental new price cuts of prices that you have to pass on to the -- your customers or these are the carryforward ones that are continuing? I believe negative price cuts started like 2 quarters back. So can one assume maybe this can continue for the next 2 quarters and then everything will be in the base?
Yes. I think roughly taking speaking probably a couple of quarters more, right, of some level of negative pricing, okay? But it's what is it this fresh negative pricing. But contracts that are there, stuff that is there, some customers who are not contractual. We've been negotiating and holding out pricing for as long as possible. Those are all the tactics that obviously you do. But yes, very roughly speaking. And Ram and Deepak please chip in, if you have a slightly different view, but I would say probably a couple of quarters and really no more in terms of any material pricing action thereafter, assuming commodities stay where they are to be, right, which currently seems quite stable, I have to say. Commodities have been quite stable now for the last couple of quarters.
Got it. Sir, I have a few more questions. Is it okay if I continue? Or should I join back in the queue?
I don't know how many people are queued up, honestly, and I want to use this time to everybody. So if you don't mind, can you come back in the queue. And in case we are not able to answer some of your stuff, then please reach out to our team and we will deal with the top line.
The next question is from the line of Ganesh from Bharat [ Bet ] Research.
So my question is primarily regarding the sales force recruitment for the smaller beauty and personal care space. So 3 questions there. So firstly, in terms of our kind of intent or venturing to the space, are we kind of seeing increased competitive intensity with the larger players? And is there -- is that a motivation to kind of move here? Or is it primarily a growth intent? Secondly, you had -- I think you had stated that this change will be kind of margin neutral going forward in, say, at least the first few years. But say, 2, 3 years down the line, do you think this will turn out to be a margin positive segment for us compared to our larger clientele as such. And the third is, would we need to make any material changes on the tech back-end side? And would there be any investments for -- that could be required? Or can we do it with our existing stack that's there?
I'll take the first couple and on the tech side, I request Ram to chip in. So as far as why are we doing this? We're doing it because there is a growth opportunity here. We are not doing it because somebody else is doing it. We believe there's a growth opportunity. There is an opportunity to steal share from some of the bigger players. And there's only one other major global player, okay? And we believe there's an obvious steal share from some of them from the large companies. But there's an opportunity to steal share from some of the smaller regional tube makers around the world, right? And we can bring EPL's expertise and combine that with something in back-end service capability to do better than what anyone else can do in this space, okay? So that's the reason why they're doing it as a source of growth. And quite simply, Oral Care is never going to give us double-digit growth we aspire for as a company, okay? So you start looking at where are your headroom for growth. And clearly, personal care and beyond, which is beauty and cosmetics and to some extent, pharma are places where the headroom is high. And therefore, we are absolutely going to be pursuing it as a growth opportunity, all right. Now as far as margins are concerned, absolutely, you see as you trade up, so to speak, then the percentage of packaging cost as a percentage of total COGS or the end consumer price as you go into beauty and cosmetics and so on, tends to be lower than what it is in Oral Care. So honestly, I think there's an opportunity for margin improvement once we build a big enough base of business there. And by the way, just to be clear, we already have a large enough base. We want to grow faster with that, right. And it needs to be margin accretive in the fullness of time and we believe it's absolutely possible.
As far as technical capability is concerned, I'm just going to hand over to Ram to comment on whether any differences is there in terms of the technical capability we need at the back end for [indiscernible].
See each segment of the business needs different kind of integration capabilities, dispensing capabilities, the appearance of the cap, size of the cap, it all changes. So the Beauty & Cosmetics has much more variability for a period of time that we have developed those kind of skill sets, including producibility. That is there in that business. If we compare between 2 segments, Beauty & Cosmetics has too much of variability. But thereby, higher pricing, higher margin, all that will come along with that. Am I answering your question correctly?
Yes, so I think all 3 of that is very helpful. Just 1 last question here. If you could just broadly quantify the mix between, say, the volumes that the large players control and the volume that the medium and small players control just to see the incremental increase in the market that we're targeting. So if you could have the broad mix available.
Mix will be difficult. So see what happens is you say contractual business versus a noncontractual business, which includes all these small players. It will be in the range of [ 50%, 52%, 48% ] something like that. This keeps happening over a period of time because both segments as a customer grows we also get larger contracts every time that we look for those contracts. We are also working on the small businesses. So it will be percentage wise you may not able to differentiate absolute volume, we are growing in both sides. Like as in the last contract, right? Suddenly, we got that business similar -- so the percentage of that [ equalized ]. So it happens on both sides. The efforts are to do businesses to grow in every segment we are there, right?
The next question is from the line of Udit Gupta, who is an Individual Investor.
My question is, sir, how are we going to get growth in our company? So like earlier, we were talking about some acquisitions in Europe or somewhere else. Is that something you're looking at? And is it in an advanced stage or something like that?
So M&A, greenfield, brownfield are all elements of our growth strategy, okay? Now as you can see, we've done one M&A a couple of years ago, we've done a greenfield expansion in Brazil, and we are continuing to do brownfield expansion as needed in terms of new CapEx every year, right? Now we believe that all these elements, right, are going to contribute to our growth strategy. But I would really request you to not see of just the current revenue growth number of modest 3%, 4%, 5% number as a norm. If you looked at this company historically, it has grown 7%, 8%, 9% traditionally in terms of total revenue growth, okay and for long periods of time. This period is a specific period where we are impacted because of negative pricing. And if you looked at the historical growth rate, between 7% and 9%, all you needed is a few more percent in terms of harnessing growth opportunities to get us squarely into the double-digit of [indiscernible], all right. And therefore, that's something that is eminently doable. And these things that I spoke about will all be contributors towards us getting to that book.
Sir, but nothing as such on the acquisition front.
No. As far as M&A right now is concerned. We absolutely looked at stuff in Europe, okay? Honestly, the environment in Europe is probably not right for us to make a major investment at this point in time, okay? So we looked at some targets very, very closely. Now if it is available through [ away price ] you could have considered it. But given the overall issues that are there in Europe, it just doesn't seem conducive to making a major investment, right? Now we set up a main thing in Brazil. That's a big one. And we are absolutely hungry for M&A, by the way. It's not because of financial constraints or anything else at all. We're absolutely hungry. But M&A has to make sense in terms of being growth accretive, margin accretive, strategic synergies and has to come at the right price, right. So an M&A if you do an acquisition for the long-term. So it has to make business. And so that's where we are today. And therefore, the good news is that we've done this big deal in Brazil, which is a big fillip. And I believe through this. I mean, we have just started in terms of the opportunity in Latin America that we can access through the site on the ground there, right? So we're going to continue to look at those other things while continuing to drive organic growth, like greenfield and brownfield.
So when will the Brazil business scale up? Do we have any timeline for that?
No, it has scaled up in the sense that the industry investment, right? We are very close to 70%, 80% whatever was the originally contracted volumes there, right? And the Brazil business therefore is now stable in terms of scaling up and in terms of its overall contribution to the Americas and the global P&L, all right? Now beyond our anchor customer, we have now started conversations with many other customers who are trying [indiscernible] and we will continue to expand because the civil sites that we have created here has space, the civil site and utilities has space for further lines being added within the site, which can be done at shorter notice. And we will manage that as new demand and new orders come in, this will manage the further scale-up of that site.
So the initial investment, we have pretty much reached where we wanted to reach. We still have capacity there for further volume. And as this continues as volume from, we will make that investment because the rest of the stuff on the ground is ready to receive it. So we believe that Brazil can be a big driver of growth, and it will continue.
The next question is from the line of Douglas Turnbull from Invesco.
Two questions from me. First, and sorry if I missed it, the [ small print ]. Could you explain what was behind such a large other income number this quarter? And then secondly, perhaps if you could just recap for us where there is likely to be seasonality in a positive or negative sense in the fourth quarter and how you'd expect that to play out or net out?
So Deepak, do you want to take that other income as well as seasonality positive and negative?
Anand, sir, we have lost the management line.
Okay. All right. No, no, I continue other income, I'll get to [indiscernible] to come back, we can give you a bit more insight into the other income line. See on seasonality basically, what happens is typically the Jan to March quarter is the biggest quarter for the Western geographies, right? And October to December quarter tends to be softer for the Western geographies because in December, right, half of December, generally, plants are closed, everyone has gone up for holiday, right? Also in the Jan-March quarter, while the Western geographies have stronger quarters because they also pick up what they lost in December, China -- because China is pretty much shut as a country for a week -- 8 days actually for Chinese New Year. And therefore, our China business has its softest quarter. And because China has 20-plus margin, right, it shows a softer quarter in terms of revenue as well as March, and that impacts our global numbers. So those are the elements that play out in the aggregation. So I'm just saying, looking at the business sequentially is not always right. It's probably right when we had gone sharply down in every quarter you will keep improving. But really, this is a year-on-year business and not a quarter-on-quarter business.
We are back. However, we missed the question on other income. We could only hear that this thing about other income...
Please go ahead and explain the other income details about the question, Deepak? I've answered the other part.
Okay. So in other income, we get our export incentives, which are against our import of equipment, et cetera. So there are export liabilities that when we fulfill, we get the benefits. And there are a few other subsidies, et cetera, that we get in our other businesses. So those are the large components.
And does that get booked just in 1 quarter. I think that was maybe in the fourth quarter last year. Has that come earlier this year?
So you are saying that why was it not there last quarter? Last year same -- last quarter -- same quarter last year?
Yes, exactly.
Yes. So this is -- this is a change in accounting. Earlier, the export liabilities were part of the contingent liability below the P&L. However, the accounting was changed from Q4 of last financial year. Now it is included in our other income, then it's also part of the amortizations. At a profit level, net profit level, there is no impact.
The next question is from the line of Sumant Kumar from Motilal Oswal.
Sir, can you talk about the volume growth? Can we assume a lower double-digit volume growth this quarter?
We've explained the [indiscernible] of discussing volumes, right? Deepak explained that. And it's not that we don't want to share. The problem is we don't want to mislead you guys on what is happening, right? And we will get into conversations that will be impossible to explain suddenly if somebody in India orders free sample tube millions of tubes, right? And that will shoot the volume numbers going up, but it doesn't mean [indiscernible] okay? Because the volumes are -- the ASP is so different across that across geographies across categories between Oral Care and Beauty & Cosmetics. So all I can tell you is this, whatever revenue growth you are seeing right now, right? Our volume growth, there is negligent pricing, okay? So our volume growth is better, right? Because there's negative pricing by deduction, right? That is really the best that I can share.
And for AMESA, we have seen a subdued margin like subdued EBITDA growth, can you explain the key reason for that?
Can you take that in room there between Ram or Deepak, AMESA subdued margin question. Is it subdued margin?
One minute sir.
But see, AMESA as a region, it's fairly strong. We have delivered an EBITDA margin of 21.4%. And if I look at same quarter last year, we were at 20.8%. So versus previous year, we have improved our EBITDA margin in AMESA. There is, obviously, an impact of Egypt because of which our revenue growth in AMESA is lower and that is impacting our margins as well. However, despite that, the margin profile is improving. As I've said again, at a region level, we should not look at this business sequentially because sequential comparison may not be the right comparison, there are pulls and pushes that happen in each quarter. But fundamentally, the business in AMESA remains resilient and very strong.
So I'm talking about Y-o-Y only. Y-o-Y, we have a subdued growth in AMESA?
Subdued revenue growth, Anand explained, India stand-alone is growing at 4.2%. However, Egypt is going through significant economic challenges. And because of that, coupled with the currency issues and the currency devaluation, the revenue growth in Egypt is impacting the numbers. And hence, AMESA overall is at negative 0.6%. But India stand-alone is 4.2% positive. Did I answer your question or I missed something?
So it's 7 now. So it's really time up. So maybe we should move that or if there's a queue, then maybe 1 last question before we close the call.
So the last follow-up question is from the line of Mihir Shah from Nomura.
Sir, firstly on nano [indiscernible] the Neo Seam tubes. Can you share what is the progress there been, if there is any more customers that we have been able to get asking for the Neo Seam tubes? And just like the recyclable tubes, can you also share the continuous progress for them? Because I believe that, that is where the delta can come through with new customer acquisitions.
So that is absolutely right, and that is our effort. Now earlier, we were speaking of Neo Seam as idea as a technology and the capability. But in my opening comments today, I said that we have started commercializing Neo Seam, right? And we have started commercializing across India and Europe and the U.S., right? So we have made a start now towards commercial supply. And now the attempt is going to be get more customers and get more business and go back that technology in that capability, right? But we have a made a start now. It's an Idea now, it is in the market.
Understood, sir. Got it. Sir, secondly, on the competitive intensity from recyclable tubes. I know we are completely geared up 90-plus percent of our capacities are geared up to deliver recyclable tubes. And it is significantly ahead of any competition. But anything that you can share on how competition is shaping up or catching up to deliver these recyclable tubes.
So everybody is going to offer recyclable tubes at some type. Otherwise, they will go out of business, okay. Now the question is, do you have technology to offer in various properties with lower plastic [indiscernible]. Do you have the ability to supply and service it in terms of [indiscernible]. So it's a total system offering that is there. So everyone is going to keep offering. The question is as a total system, we believe we are at least one step ahead, if not two steps ahead. And therefore, as the as the momentum builds towards conversion now aggressively as we hit 2025 and beyond, when customers have said they will go to almost 100% recyclable tubes. We believe we are one step ahead and probably more ready than anyone else. And that's when we will start taking hopefully more of share than what was our erstwhile share okay? That is how we're approaching.
Got it, sir. Sir, last one, bookkeeping question on Brazil. I believe ideally, Brazil was -- the drag on margins for Brazil were supposed to conclude in the third quarter and become margin accretive from fourth quarter. Is that a correct understanding? And are we on track for that?
Do you want to take that question? Deepak.
Yes. So Mihir, absolutely. First of all, Brazil operations have stabilized, and that is why this quarter onwards, we are not discussing excluding Brazil, et cetera, we have confidence in the project that we can now consolidate the numbers and discuss the overall numbers together. Second, the margins, as stated in Brazil are very, very encouraging and their accretive both to our Americas business as well as global business.
So could we conclude the call then?
As there are no further questions from the participants, I now hand the conference over to Mr. Pratik Tholiya for closing comments.
Yes. Thanks, Adarsh. On behalf of Systematix Institutional Equities, I'd like to once again thank all the participants for logging into the call. I'd also like to thank the management for giving us the opportunity to host this call. Anand sir, would you like to make any closing comments, please?
No, I just want to thank you for organizing this for us and thanks to all the participants of the call. And I would like to thank you for your interest and your support for EPL. Thank you very much.
Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.