HUHTAMAKI - HUHTAMAKI INDIA LIMITED Share Price

The management of Huhtamaki India highlighted the following outlook and key points:

Outlook:

• Focus on Sustainable Solutions: Accelerating adoption of Blueloop (eco-friendly packaging) to drive long-term growth, targeting increased contributions from high-margin, recyclable products. Regulatory shifts and customer sustainability commitments (aligned with global 2030 goals) are expected to boost demand.
• Margin Recovery: Near-term margin pressures (raw material inflation, unfavorable product mix, Red Sea crisis costs) are seen as temporary. Margins are expected to improve as premium Blueloop products gain traction and operational efficiency initiatives take effect.
• Export Opportunities: Anticipate growth in exports due to geopolitical shifts (e.g., tariffs favoring Indian manufacturers) and forex benefits. Exports currently form ~30% of sales, with potential for increased contribution.
• Capex & Debt Management: Minimal major capex planned for 2025, focusing on optimizing existing capacity. Debt is under control (debt-equity ratio: 0.1) with strong liquidity.

Major Points:

1. Financial Performance:

   • FY2024 revenue dipped 1.2% YoY to INR 24.5B, EBITDA fell 28% to INR 1.5B due to inflation and mix challenges.
   • Q4 volumes improved YoY but declined QoQ. Export stability maintained despite freight disruptions.

2. Blueloop Progress:

   • Sustainable products now contribute 27.5% of sales (up from 25% in 2023), but adoption of high-margin variants remains slow.
   • Backward integration and innovation aimed at premiumization, with long-term margin benefits expected post-2025.

3. Market Challenges:

   • Soft demand in FMCG (rural recovery vs. urban lag) and competition from smaller players impacting sales mix.
   • Transition from multi-layer to mono-layer structures faces cost and adoption hurdles.

4. Strategic Priorities:

   • Operational efficiency, customer-centricity, and leveraging global parent Huhtamaki's expertise in premium packaging.
   • Commitment to corporate governance and sustainability despite near-term margin headwinds.

Management remains optimistic about medium-term recovery, driven by Blueloop adoption, export growth, and cost optimization, while navigating inflationary and competitive pressures.

Question 1: What is the contribution from blueloop products? What are the key challenges in gross margin improvement despite decent share from high-margin blueloop? When will margins reflect this?
Answer: Blueloop contributed 27.5% of sales in 2024 (vs. 25% in 2023), but margins remain subdued as adoption focuses on lower-tier sustainable products. High-end premium blueloop solutions, critical for margin improvement, face slow uptake due to nascent market readiness. Full margin benefits are expected closer to 2030 as regulatory shifts and customer sustainability pledges accelerate adoption.

Question 2: What is the status of backward integration plans, and will they improve margins?
Answer: Backward integration assets are operational but currently used for alternative products, not high-end blueloop structures. Margin accretion depends on scaling premium blueloop adoption, which remains gradual. Current usage offsets costs but does not yet drive margin gains.

Question 3: How do parent company service charges impact margins, given rising costs?
Answer: Charges for IT/centralized services rose due to expanded support and are benchmarked to arm's length standards. While costs increased, management emphasized adherence to governance and justified value from services. Concerns about EBITDA allocation were acknowledged, with commitments to review cost levers.

Question 4: What differentiates blueloop from traditional products, and how will it boost margins?
Answer: Blueloop offers recyclable mono-material or paper-based packaging vs. multi-layer plastics. It targets premium pricing via reduced plastic usage and enhanced functionality. Margins will improve as adoption shifts to high-barrier, complex blueloop products, replacing commodity structures.

Question 5: What is the capacity utilization rate, and are expansions planned for 2025"“2026?
Answer: Capacity utilization is ~80"“85%, with potential for 15"“20% growth without major capex. No significant expansions are planned for 2025; focus remains on operational efficiency and incremental upgrades.

Question 6: Why are margins under pressure despite global parent's strong performance?
Answer: Indian market challenges include price-sensitive demand, unfavorable product mix (rural-driven low-margin products), and delayed blueloop premium adoption. Margins will recover as demand rebalances toward premium segments and blueloop gains traction.

Question 7: Are PLA-based biodegradable materials a threat to blueloop?
Answer: PLA serves niche biodegradability needs but lacks barrier properties of blueloop's recyclable solutions. Both cater to distinct segments; blueloop's focus on recyclability and performance positions it as a scalable, regulatory-compliant alternative.

Question 8: How will INR 300 crore cash reserves be utilized?
Answer: No immediate plans for capex or acquisitions. Liquidity will be preserved for strategic needs, with surplus invested in low-risk instruments.

Question 9: What is the demand outlook for FMCG/food packaging?
Answer: Rural demand shows improvement, while urban recovery lags. Inflationary pressures persist, but gradual consumption revival is expected. Export opportunities may rise amid global trade shifts.

Question 10: What barriers delay adoption of high-end blueloop products?
Answer: Customers cite extended testing cycles, cost premiums, and regulatory uncertainty. Global clients prioritize compliance in regulated markets first. Huhtamaki is engaging stakeholders to accelerate adoption via trials and ecosystem partnerships.