Uflex

Uflex reported Q1 FY26 revenues of ₹3,922 crores, a 6.5% increase year-on-year. This growth was primarily volume-driven, with overall sales volumes up 7.9%. The packaging segment saw an 11.7% volume increase, and packaging films grew by 6.8%. Despite this, the EBITDA margin for the quarter was 12%, slightly down from 12.7% in the previous year, attributed to tariff uncertainties and prior material stocking by companies. Notably, there were no exceptional foreign exchange losses this quarter, compared to ₹180 crores last year.

The company is undertaking significant CAPEX, with ₹1,100 crores already spent out of an approved ₹2,000 crores, and the balance ₹900 crores to be spent by Q1 FY27. Key projects include the Aseptic Packaging greenfield expansion in Egypt (12 billion packs), WPP bags for the Pet Food industry, and a recycling facility in Noida. These new investments are projected to add ₹3,000 crores in additional revenues and ₹600 crores in EBITDA at an 85% capacity utilization, generating higher margins than conventional packaging films.

The packaging film industry experienced a shift in dynamics following an accident at a large player in May, leading to reduced exports from India to Europe and lower local availability of BOPET and BOPP films. This has resulted in better margins, with full reflection expected in subsequent quarters. However, US tariffs on Indian products, particularly a 25% secondary tariff, pose a challenge, though management anticipates a resolution or extension. Exports from Mexico to the US benefit from nil duty under USMCA, providing a competitive edge.

The Aseptic Packaging capacity expansion, initially expected to commence in January 2025, has been delayed, with benefits now anticipated from the 2026 calendar year onwards. The FY26 volume guidance for Asepto has been revised downwards from 10 billion packs to 8.5-9 billion packs, despite Q1 achieving 2.3 billion packs. Liquid Packaging volumes still grew robustly by 18% year-on-year in Q1 FY26.

The ongoing CAPEX has led to an increase in debt, with the net debt-to-EBITDA ratio expected to peak at around 4.1. However, management is confident that with the commissioning of new projects and the resulting revenue and profitability kick-in, the net debt-to-EBITDA ratio will come down to under 3 by FY27. The company aims for a 10% revenue growth and an EBITDA of approximately ₹2,100 crores for FY26, up from ₹1,900 crores last year.

Uflex's upcoming recycling facility in Noida is strategically positioned to meet government guidelines requiring 30% recycled content in rigid packaging and 10% in flexible packaging. The company plans to offer a 'single pellet solution' to customers, providing a pre-mixed product with 70% virgin material and 30% recycled content, ensuring quality and ease of use. Management emphasized the long-term sustainability and formidable nature of this business segment, though patience is required for regulations to stabilize.