Pakka Q1 FY27 earnings call

Where management's figures differ from the filing

• EBITDA YoY growth: said +31% YoY; filed +158.1% YoY (excluding other income). Management appears to report EBITDA including other income (₹2.21 cr); filed EBITDA excludes it, inflating the YoY growth rate
• EBITDA margin Q1 FY27: said ~14.5%; filed 13.1%. Stated margin appears to include ₹2.21 cr of other income in the EBITDA definition; filed EBITDA excludes other income

What moved the numbers, as management explained it

• Consolidated revenue +42% YoY driven by Wrap & Carry (+43%) and Food Services (+34%) volume growth across QSR and food-services customers.
• EBITDA grew 31% YoY and 36% QoQ on operating leverage as fixed costs did not rise proportionally with revenue.
• Wrap & Carry PBT fell 16% QoY due to one-off costs paid to bankers in connection with Project Jagriti refinancing. (one-off)
• Food Services PBT loss widened YoY due to structural changes in manufacturing being implemented during the quarter.
• Unamortised prepayment penalties and processing fees of ~₹1.53 cr and ~₹1.8 cr on the repaid bank facilities were written off to P&L in Q1 (do not extrapolate). (one-off)

The numbers management led with

• PM4 total project cost: ~₹753 crore
• PM4 annual capacity addition: Slightly more than 30,000 tonnes per year
• Borrowing cost step-up under Neo facility: From ~11% to ~17%
• Delivery-container price premium over plastic: ~40–50% above comparable plastic containers

Guidance on this call

By business

Balance sheet, capex and funding

• Project Jagriti capex ~₹753 cr; funded via Neo Asset Management at ~17% (up from ~11% under prior bank route); refinancing planned within ~16-18 months.
• Estimated total interest outflow ₹120-122 cr vs ₹150-155 cr under prior bank structure despite higher stated rate.
• Bank facilities prepaid; unamortised prepayment penalties/processing fees of ~₹1.53 cr and ~₹1.8 cr written off to P&L in Q1.
• Promoter shares pledged as security for the Neo facility; Neo also invested ~₹30 cr in equity; Ved Krishna stake raised to ~48-49%.
• Inventory ~15 days at quarter end; new-product inventory expected 15-30 days during stabilisation; working capital seasonal due to bagasse/paddy husk procurement.
• PM4 commissioning target end-October, paper reeling November; recovery/power boiler startup end-August/early September.

The industry, as management sees it

Management expects compostable/flexible paper packaging to substitute for single-use plastics over time but flagged that bio-based barrier chemicals remain the principal cost challenge; Middle East geopolitical disruption continues to delay higher-NSR export container shipments.

Risks management named

• Middle East situation affecting export volumes
• Promoter shares pledged as collateral for higher-cost Neo debt
• PM4 stabilisation timeline risk after November commissioning
• Delivery-container cost premium may limit adoption among price-sensitive customers
• High financing cost on Project Jagriti impacting profitability

Not answered directly

• Exact FY27 revenue number and quarterly trajectory
• Definitive EBITDA margin walk from Q1 ~14.5% to FY27 ~19%
• Climate/sustainability-linked refinancing economics

Asked for a number, answered without one

• FY27 revenue trajectory: Management said it is 'difficult to provide an exact number' and would only commit to 'positive quarter-on-quarter momentum' without a range
• FY27 volume growth: Ved Krishna only said commissioning of PM4 in the last quarter and outsourcing growth are expected to support volumes, without giving a number
• FY27 export incentives / sustainability-linked refinancing benefit: Said climate-fund options could be considered at refinancing but obtaining them takes ~1 year and FX/hedging costs may offset benefit; no quantitative impact given

Every question, with its answer

1. 1. Promoter pledge and delivery containers

   Kaustav Bubna, Not disclosed

   Question. Could you explain the current pledge arrangement, including the shares pledged, the pledgee, the expected process and timeline for reducing the pledge, and the associated risks? Separately, could you describe the market opportunity for the CHUK delivery-container range following the recent customer success?

   Answer, Ved Krishna, Group Lead. Borrowing structure shifted to Neo Asset Management to continue Project Jagriti; as part of the transaction, promoters' shares are being pledged as security against the loan. This is intended to be short-term and higher-cost, with refinancing through banks expected in approximately 1–1.5 years after machine stabilisation. Neo also invested ₹30 cr in equity and the speaker increased his holding to ~48–49%. On delivery containers, the product uses fibre's inherent properties including gluing; initial facility is small to supply customers ready to adopt. Priced ~40–50% above plastic containers but offers advantages in packing, unpacking and food quality per chef trials.

2. 2. FY27 revenue outlook and PM4 cost/capacity

   Darshil, Not disclosed

   Question. Q1 delivered strong growth. Given that Q2 and Q3 are generally stronger quarters, how do you expect FY27 revenue to develop across both business segments? What is the total cost of PM4, capacity added, and will FY28 reflect a full year of operations?

   Answer, Ved Krishna, Group Lead. Exact number not provided; the objective is to grow both revenue and profitability. Previous year affected by delayed shutdowns, now normalised. Positive sequential momentum is the effort. PM4 expected to make a meaningful revenue contribution after commercial production this year, stabilising next year and progressively adding to profitability. Current total project cost ~₹753 cr; adds slightly more than 30,000 tonnes of annual capacity. Value also lies in material quality for flexible packaging.

   Partly answered.

3. 3. flexC base paper pilot trials

   Raghav Agarwal, Not disclosed

   Question. How are the lab and pilot trials for flexC base scheduled for August and September being conducted? Are they via a third-party manufacturer? Is commercial scale-up contingent on PM4 start-up and what is the expected timeline given November commissioning and stabilisation?

   Answer, Ved Krishna, Group Lead. Pilot trials being conducted in Europe on a machine selected after evaluating several facilities globally; closely replicates PM4 which was custom-designed for a differentiated product. Trial will produce a few reels comparable to PM4 output to validate proof of concept for distributors and customers. PM4 trials expected to start November; ~1–2 month stabilisation; commercial production stabilising around January. To mitigate risk, PM4 can also produce established grades (release paper, greaseproof, parchment) if new product needs more development time.

4. 4. FY27 volume growth and EBITDA margin path

   Randhir HUF, Not disclosed

   Question. What volume growth may we expect at the consolidated level in FY27? Chat response indicates FY27 EBITDA margin of 19% versus Q1 margin of ~13% — how will the margin improve to that level?

   Answer, Himanshu Kapoor, Non-Independent, Non-Executive Director. On volumes, commissioning of smaller machine in last quarter and outsourcing growth should support volume visible in both revenue and volume. On margins: Q1 EBITDA margin was ~14.5% (not 13%); with revised increased production coming in, EBITDA margin should improve. Company was consistently at 23–24% in FY23–25. If CHUK turns profitable after 8–9 years of operation, EBITDA margin should be ~18–19% on total sales for FY27. Gross margin contribution to improve via better variable-cost structure; fixed costs not increasing proportionately.

   Partly answered.

5. 5. US project timing and Neo refinancing plan

   Kenil Jasani, Not disclosed

   Question. When does the Company expect to revisit the postponed US/Central America manufacturing project? Separately, what is the plan for refinancing the higher-cost Neo financing?

   Answer, Himanshu Kapoor, Non-Independent, Non-Executive Director. On US/Central America: long-term global expansion continues; last year too many capital-intensive initiatives pursued simultaneously, so international projects placed on hold; relationships in Guatemala and Latin America maintained; substantive discussions to restart after Jagriti stabilises; next ~6 months exploratory. On Neo: structured to address funding shortfall from Jagriti cost overrun; conventional route would have delayed completion by 15–18 months; promoter supported via equity and borrowing; borrowing cost increased from ~11% to ~17%; arrangement to remain ~18–20 months during commission and stabilisation; then refinance. Under earlier bank structure total interest 1 Apr 2026–31 Mar 2028 estimated ₹150–155 cr; under present structure aggregate outflow ~₹120–122 cr despite higher stated rate.

6. 6. PM4 substrate/NSR and Food Services scaling

   Ravi, Not disclosed

   Question. On the new substrate planned for PM4, what is management's view of the trials completed/underway, has the final substrate been identified, and what net sales realisation is expected (previous indicative realisation was ~₹150–200/kg)? Separately, on Food Services growing ~10x by 2028 to ~₹680 cr (current ~3,000 tonnes/year → 30,000 tonnes at scale), will most growth come via outsourced manufacturing and how will pulp requirements be met given PM4 captive pulp allocation?

   Answer, Shubham Tibrewal, Food Services Business Head. PM4 addresses flexible-packaging segment; phased approach beginning with flexC base paper; bagasse is short, low-density fibre giving translucency; ~20–25% softwood blend for strength. PM4 designed for low porosity, translucency, strength and smoothness. Primary focus is contribution per grade not just NSR; target contribution higher than any previous grade; monitoring contribution per machine hour. On Food Services: incremental volume growth primarily from outsourced partners; may evaluate additional capacity at principal plant later; until PM4 at optimum utilisation, captive pulp sufficient; domestic and international pulp procurement options also available.

   Partly answered.

7. 7. Margins, plant utilisation and working capital

   Darshan Garg, Not disclosed

   Question. What margins do existing products generate and what margins are expected from new products? What gives confidence in FY27 EBITDA margin of ~19%? What is current plant utilisation and how will new plant ramp up? What are working-capital and inventory days and what measures are planned?

   Answer, Ved Krishna, Group Lead. On margins: three food markets addressed — Wrap & Carry, Food Services disposables, flexible packaging. Company has previously achieved ~23–25% EBITDA margins; recent expansion/stabilisation affected margins but improving; 19% achievable; intend to work toward >25% over time. Plant utilisation: existing plant operating at >100% of rated capacity. New plant financial projections: ~40–50% in initial months, 60–70% next year, stabilisation ~80–90% by 2028. Working capital: Manoj (Finance Head) addressed — current inventory ~15 days; new products considering stabilisation period may be 15–30 days; bagasse and paddy husk procurement is seasonal, so working capital should be assessed in that context.

   Partly answered.

8. 8. Leadership continuity, succession and IP protection

   Manan Mundra, Not disclosed

   Question. Given senior management changes including the recent CFO resignation, how should investors assess leadership continuity? Is the Company developing internal capabilities and succession pipeline? For outsourced manufacturing, how will product know-how be protected and prevent competitors undercutting delivery containers?

   Answer, Ved Krishna, Group Lead. Accepted responsibility for the question. Capable and committed team; leadership continuity important. Difficult decisions made due to personal/professional/performance reasons. Team aligned, flat structure, strong ownership. Changes in Wrap & Carry leadership and CFO position for different reasons. Objective is to strengthen stability. International expansion reinforced need for internal leadership; last year six leaders selected for development cohort; over next two years prepare at least six individuals for global responsibilities with training/mentoring. Formalised succession planning: each leader expected to identify and develop at least two successors. On IP: delivery containers manufactured internally; proprietary barrier-coating and know-how within facilities. Shubham added: innovative products manufactured in own facilities; delivery-container technology not outsourced; moulded products — additional capacity built externally but own plant continues; product allocation adjustable. Analyst also shared product feedback that a CHUK-branded container at Club Mahindra became soggy and branding was not visible on top.

   Partly answered.

9. 9. Delivery container readiness and paper-segment NSR disclosure

   Jeet Gala, Not disclosed

   Question. On delivery containers: what has changed since last quarter, how has development progressed in last three months, how ready for launch, and what is planned capex for the first facility? On paper segment NSR: presentation has not disclosed paper volumes for several quarters and ~₹6–8 cr of trading activity appears in Q1 — could manufactured-paper volumes and trading sales be separately disclosed so investors can calculate NSR? How has paper-segment NSR evolved and outlook for next two quarters?

   Answer, Ved Krishna, Group Lead. Significant progress last quarter gave confidence to launch. Major development from trials with a large food-service customer whose chefs reported materially better food quality in our container vs plastic; this made customer willing to absorb current 40–50% premium. Initial product uses cold sealing (no specialised equipment needed). Heat-sealed version under development for price-sensitive customers (requires heat-sealing equipment). Initial facility requires investment of less than ₹2 cr; principal investment in automated coating and gluing equipment; existing equipment for moulding. Shubham added: priority is upholding Pakka's commitment to product excellence; product not to be introduced before fully validated. On NSR: traded/outsourced business growing; outsourced capacity to increase from ~300 tonnes/month to 800–900 tonnes/month. NSR has been under pressure due to geopolitical disruption delaying higher-NSR export containers; conditions gradually stabilising; mix shifted to more commoditised grades; will consider reinstating volume disclosures in presentation; focus remains on contribution per machine hour.

   Partly answered.

10. 10. Compostable packaging cost vs conventional

    Adwait Joshi, Not disclosed

    Question. How does the expected cost of the compostable flexible-packaging material under development compare with conventional flexible packaging currently available? As production scales from next year, will margins be affected during the initial phase? Will product portfolio progressively move from base grades toward increasingly specialised categories?

    Answer, Ved Krishna, Group Lead. No single absolute cost; benchmarked on square-metre basis. Petroleum-based substrates ~₹16–18/sqm in targeted applications; current target ~₹24/sqm. Gap is why initially launching flexC base rather than fully barrier-coated substrate while developing coating chemistry. Main cost challenge is high price of bio-based barrier chemicals. Exploring strategic alliances and local manufacturing in India including partners within our facility. Objective is to reduce cost toward ~₹18/sqm at which customer discussion shifts from price to performance and value. On margins: must be protected for both flexC base and coated flexC; coating needs additional coater capex so economics must support investment; will target application portfolio enabling appropriate margins. All targeted products considered specialised; degree of specialisation will increase over time.

11. 11. Revenue guidance, tax rate and climate-linked financing

    Darshil, Not disclosed

    Question. Chat response indicated FY27 revenue guidance of ~₹500 cr — could that be confirmed and the expected effective tax rate clarified? Do Pakka's eco-friendly/non-plastic products qualify for incentives or other support strengthening export position? When refinancing, could lower-cost climate/sustainability-linked financing be available internationally?

    Answer, Himanshu Kapoor, Non-Independent, Non-Executive Director. Revenue ~₹120 cr in Q1; ₹500 cr appears reasonable given growth in CHUK and PM4 coming online. Tax: Company under 22% tax regime; 12% surcharge + 4% H&E cess gives effective ~25.69%; expected effective rate ~26%; may vary 26–28% depending on adjustments. On climate financing: while working on US project there were discussions regarding lower-cost climate-fund debt but obtaining takes ~1 year; lower-cost financing including climate funds can be considered when refinancing present structure; for next ~14–16 months focus must remain on operational performance. International climate financing also has FX/hedging costs; effective rate may be comparable; finance team will evaluate alternatives as part of refinancing.

12. 12. Food Services manufacturing model and flexC trial scale

    Raghav Agarwal, Not disclosed

    Question. On Food Services manufacturing model: what is currently in-house vs outsourced and how will mix change as volumes scale ~10x? Given planned geographical diversification to reduce freight and overhead, outline current monthly volume, internal/outsourced split and long-term scaling plan. How will IP be protected if most manufacturing is outsourced? On flexC pilots, what types of customers, evaluation parameters, and trial volume?

    Answer, Shubham Tibrewal, Food Services Business Head. Product allocation between in-house and outsourced based on mould availability, demand, geography. Principal facility in northern India serves northern/eastern markets. Proprietary technologies manufactured internally. Current total production ~350 tonnes/month; ~180–200 tonnes/month in-house; balance outsourced. Expect to add ~400 tonnes outsourced capacity over next two quarters, distributed across north/west/south/central India to optimise freight. Western/export demand from west; southern from south. As volumes scale ~10x, majority outsourced: ~20% in-house / 80% outsourced long run. IP protection: proprietary technologies (delivery containers) continue in-house; remainder uses customised moulds and designs; outsourced manufacturers under exclusive contractual arrangements; generally contract entire outsourced facility rather than a portion; renewable three-year contracts. Ved added on flexC pilots: focus on segments using comparable base paper; flexC base can be coated with silicone, barrier coatings or polymer structures; low porosity reduces coating material; initial applications release liners, labelling, heat-sealable bags; translucent sugar sachet example; converter decides barrier material including polyethylene use; base structure remains compostable; initially sold through distributors as market grade for coating applications. Pilot scale: ~4 tonnes of pulp shipped; after process losses expect ~2 tonnes of trial material for distribution to multiple converters.

13. 13. One-off bank charges, FY27/FY28 P&L dynamics, export share

    Neelu Singh, Not disclosed

    Question. Were any one-off bank charges recognised during the quarter in connection with repayment of bank facilities? Chat response indicated estimated FY27 interest outflow ~₹55 cr and depreciation ~₹28 cr (aggregate ₹83 cr), with ~₹9 cr in Q1 — does that imply ~₹74 cr for the remaining nine months? In FY28, will interest and depreciation then be recognised in P&L? If FY28 has ~₹70 cr interest + ₹50 cr depreciation (aggregate ₹120 cr), at a 20% EBITDA margin would the Company need ~₹600 cr revenue just to break even? What percentage of Q1 revenue was exports?

    Answer, Himanshu Kapoor, Non-Independent, Non-Executive Director. On one-off charges: under Ind AS, prepayment penalties and processing fees generally amortised over loan tenure; since bank facilities repaid, remaining unamortised amounts written off; related finance charges ~₹1.53 cr and ~₹1.8 cr recognised in P&L per applicable accounting standards. On Q1 vs FY: comparison is not like-for-like; chat referred to interest outflow for the year; PM4 interest generally capitalised until asset commissioned and not immediately charged to P&L. Aggregate P&L charge ~₹30–34 cr in FY27. Yes, in FY28 interest and depreciation will be recognised in P&L. 20% EBITDA margin may appear optimistic but Company achieved around that level in FY21–FY24 including COVID period; believe repeatable. Based on Q1 run rate ~₹120 cr, FY27 revenue ~₹500 cr reasonable. FY28: after PM4 completion, utilisation 60–70% could generate additional ~₹175–200 cr; if existing business reaches ~₹450 cr, consolidated revenue at least ~₹700 cr; at 20% EBITDA margin, business should be above break-even. Exports ~27% of Q1 revenue.

Topic by topic, in the order it was spoken

In their words