UFlex, India’s largest multinational flexible packaging and solutions company, reported Q3 FY24 unaudited consolidated net revenue of Rs. 33,454 million, down 1.3% QoQ and 4.3% YoY. Adjusted EBITDA for the quarter stood at Rs. 4,258 million, down 0.4% QoQ and up by 4.3% YoY. EBITDA margin is 12.7%, up by 70 BPS QoQ and 50 BPS YoY.
The Board of Directors in the meeting held on February 10, 2024, has approved and taken on record the unaudited consolidated financial results of UFlex and its subsidiaries for the quarter ended 31 December 2023.
Q3 FY24 maintained steady growth in volume and profitability: The company posted a healthy performance with improvement in the sales volume and operating profitability in the third quarter of the current fiscal 2024. The overall sales volume grew by 5.8% YoY, including volume growth of 6.5% and 3.6% YoY in the films and packaging business respectively. Liquid packaging drove the growth of the packaging business. Consolidated adjusted EBITDA margin improved by 50bps YoY and 70bps QoQ to 12.7%. The overall demand in the industry was impacted by oversupply and pricing pressure in the packaging film business, which is expected to persist in the near to medium term.
UFlex witnessed the impact of global geopolitical uncertainties, including the Red Sea conflict, Israel-Palestine and Russia-Ukraine war, and continued devaluation in emerging market currencies including Egypt and Nigeria, which are the relevant markets of UFlex for its packaging films business. Higher interest yield and tighter monetary policies of the central banks across the world resulted in tepid consumer sentiments. The ongoing Red Sea conflict has disrupted the global supply chains. The voyage time has increased considerably and the impact could be seen in higher costs including higher freight and insurance provisions.
India and USA: Leading the volume growth with better traction in the economies: On the back of robust GDP growth, UFlex’s business in India and the Americas region continued to deliver solid performance. Europe’s underperformance continued in the third quarter due to weak economic conditions, tighter monetary measures, higher borrowings, and high energy costs. In India, the economy remained strong although the prevailing overcapacity in the packaging film industry impacted the margins.
Value-added products (VAP): Packaging business (including flexible packaging, liquid packaging, and holography) volume grew by 4% YoY and down by 5% QoQ due to seasonal volatility in the consumer business. Revenue in the liquid packaging business maintained growth with higher sales volumes and steady realizations. The company expects growth in the liquid packaging business upon completion of debottlenecking capacity at the Sanand plant in FY25.
Africa: Currency markets play the spoilsport: Egypt and Nigeria continue to be currency-sensitive regions. Nigeria’s challenging economic environment and currency devaluation impacted UFlex in FY24. The Central Bank of Nigeria (CBN) reintroduced the ‘Willing Buyer and Willing Seller’ model at the investors and exporters window in its foreign exchange market in June 2023. This has led to a total currency loss of Rs 1,250 million in Nigeria during the current quarter in addition to the currency loss of Rs. 3,366 million in the first six months of FY24. Further, with effect from September 1, 2023, Nigeria has imposed an additional customs duty of 20% on BOPET films, thus making a total customs duty of 30% on BOPET films.
Debt portfolio to maintain diminishing growth as ongoing projects to be commercialized soon: With certain projects getting commercialized in Q4 FY24, management expects additional profitability from these projects. Gross and net debt were Rs 65.8 billion and Rs 52.3 billion as of December 31, 2023.
Ashok Chaturvedi, chairman and managing director, UFlex Group, said, “Q3 witnessed an improvement in the sales volumes on a year-on-year basis both for the packaging Films and packaging businesses. The consolidated adjusted EBITDA (excluding loss on account of currency devaluation and derivatives) stood at Rs. 4,258 million. We have commenced trial runs of our PET chips resin manufacturing facility for BOPET films at Panipat and expect the entire facility to be commissioned in the current quarter. We are confident about our long-term value creation strategy and are strongly positioned in our markets. The supply chain disruptions coupled with the escalating shipping costs caused by the Red Sea crisis has once again brought to the forefront the advantages of onshore manufacturing and reliability for our customers.”
Rajesh Bhatia, group CFO, UFlex, said, “I am delighted to share that we have seen a sustained rise in sales volumes over the last two quarters and a moderate expansion in margins. We have seen encouraging signs of strong demand in our end markets in the Americas, India, and Nigeria. India continues to deliver strong performance with volume traction in packaging films and value-added products (VAP). We expect improvement in our performance with the integration of a post-consumer recycled (PCR) PET chips plant in Egypt and the commissioning of a PET chips plant at Panipat in Q4, FY24. The currency markets in Nigeria and Egypt are expected to remain a matter of concern.”
