Knack Packaging (NSE:KNACK) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY 'twenty seven Conference Call of Knack Packaging Limited. We are pleased to have with us the senior management team led by our Chairman and Managing Director, mister Alpesh Tulsipay Patel, and our chief financial officer, doctor Ajai Kumar Dube, who will share his perspective on the company's performance for the quarter and the key business developments during the period. Before we begin, I would like to remind everyone that certain statements made during this call may be forward looking in nature.

0:50 These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. I now hand the conference over to management. Thank you, and over to you. Good afternoon, and thank you all for joining Knack Packaging Quarter two and Half Year one Financial Year twenty seven Earnings Call. On the call, I am joined by Doctor. Jay Kumar Dube, our Chief Financial Officer and AdFactor PR, our Investor Relations partner. I'm pleased to share that quarter two FY 'twenty seven was a stable and strong growth for Knack Packaging.

1:35 In quarter two FY 'twenty seven, we delivered our highest ever quarterly revenue. On a consolidated basis, the revenue from operations rose 52.5 percentage, EBITDA rose 29.9 percentage and PAT rose 21.2% all on year on year basis. Talking about the industry, the first half of the year was a challenging period from an input cost perspective. The conflict in West Asia, disrupted supplies and price of polypropylene. Our key raw material rose more than 50% within few weeks, and the prices remained elevated throughout the quarter. At the same time, disruption in the Red Sea increased the freight cost, which matters to us as an exporter to 75 countries.

2:28 This factor exerted pressure on the industry as an increase in input and logistic cost outpaced the pace of corresponding selling price revision. Knack was impacted by this industry wide cost pressure. However, with our three decades of experience, long standing relationship with our vendor and strong procurement ecosystem, we were able to mitigate the price rise. Talking about our EBITDA, it grew on absolute basis. However, the EBITDA margin was impacted in quarter two FY 'twenty seven. About 45 to 50% of our customers are on conversion cost model where the back price moves with the polymer price, but this price revision takes effect and we have already revised prices with our customer and initiated cost pass through, and we expect this to reflect in our realization from quarter three FY 'twenty seven onwards subject to market conditions stabilization.

3:31 Despite this, we see immense growth in the industry. Our growth ahead lies in our competitive strength. We have focused on three key pillars, which are product innovation, integrated manufacturing facility, and our long term customer relationship. We work closely with major companies in food, pet nutrition, fertilizer, and other 25 plus industries, and many of our customers have grown with us. Packaging typically accounts for only about 1% to 2% of our customers' end product price, yet it is often the first physical touch point between a brand and its consumer and can influence the purchase decision, especially in the competitive category.

4:18 Once supply has proven its reliability and consistency, customer rarely risk a change. As a result, our customer stickiness is very high. As on 09/30/2026, we sold more than two zero four zero two thousand forty customers with 13,974 SKUs, up from 2,000 customers and 13,500 SKUs at the end of quarter one financial year twenty seven. Our export market contributed a significant part of our revenue during the half as of September 2026, and we sold to 75 countries across six continents, up from 74 countries at the end of quarter one FY twenty seven and seventy one countries in FY twenty six.

5:08 Our exports included U. S, Europe, Asia and Africa. Coming to H1 FY twenty seven, our top line growth was driven by significantly higher export volume, deeper wallet share with existing global FMCG, pet food and agri customers and addition of new international accounts. We saw sustained demand from our premium bags, both domestically and in our export market. Importantly, we began fulfilling orders from new customers ahead of our next phase of capacity expansion. As a recent update, on 10/02/2026, we announced a new order and three year contract renewal worth about 150 crore per year from an international customer, one of the largest private corporation in the world from the pet food and animal nutrition packaging, including in The United States.

6:05 This renewal underscores our reliability and our product quality at a global scale. Looking ahead to the rest of FY 2027, our focus will be on profitable growth. Our priority is to restore our EBITDA margin as pricing adjustment flow through from quarter three FY 'twenty seven and then to improve it further by increasing the share of value added products, controlling costs, leveraging our integrated setup. We're also scaling up the Cyanec JV in Mexico towards breakeven and building our order book more stronger. Now I will hand over to Doctor. Rajesh Dube, our CFO, who will provide the detailed financial highlights for quarter two and H1 FY 'twenty seven.

6:54 Thank you, sir. Good afternoon, everyone. I will now walk through our consolidated financial performance for quarter two financial year 'twenty seven and H1 financial year 'twenty seven. Quarter two performance revenue for quarter two performance 'twenty seven, our consolidated revenue from operation was INR 294 crores, INR 0.76 crores compared with the INR 193.26 crores in quarter two financial year 'twenty six, a year on year growth increase of 52.5%. This growth was driven by the significantly higher export volume, deeper wallet sales with the existing customers, new international accounts and ramp up of recently added capacity.

7:42 About EBITDA and margin, our EBITDA for quarter two financial year 'twenty seven was INR 49.77 crores compared with INR 38.30 crores in quarter two financial year 'twenty six, up 29.9%. The EBITDA margin was 16.35 against 19.25% a year ago, a decline of the two eighty five basis points. This reflected industry wide cost pressure. Polymer price rose with the crude oil and freight costs increased because of disruption in the Radacea. Pricing adjustment with our customers, followed with a log of one or two quarters, and we expect margin to recover from quarter three, financial year 'twenty seven.

8:32 About the PEG, profit after tax per quarter to financial year 'twenty seven was INR 25.02 crores versus INR 20.64 crores in quarter two financial aid '26, up 21.2%. The PAT margin for quarter was 8.22% compared with 10.34%, a decline of two twelve basis points. The platform's pressure on EBITDA was affected by 2.62 crores share of loss of Mexico JV in quarter two, which I explained in the half year numbers. Basic EPS of the quarter was 2.07. So now H1 performance, I'll just review.

9:17 So revenue of H1 financial year 'twenty, seven consolidated revenue from operation was INR 569.11 crores, up 47.2% from INR 386.73 crores in H1 financial year 'twenty six. EBITDA and margin, EBITDA for H1 financial year twenty seven was INR 108.94 crores compared with INR 76.98 crores in H1 financial year twenty six, up 41.5%. The EBITDA margin for up was 19.14% against 19.91% a year ago. ROE stood at 19.42% with ROC at 28.76%.

10:05 The moderation in ROE and ROCE was expected outcome of the IPO, which expected to capital base. The fund were progressively deployed towards the capital expansions and growth initiatives, both ratios were expected to improve in the coming quarters. About the paid profit after tax for H1 financial year 'twenty, payment was INR 55.55 crores compared with INR 41.30 crores in H1 financial year 'twenty six, up 34.5%. The PAT margin was 9.76% against 10.68 in H1 financial year 'twenty six. Pied for half included a loss of 6.06 crores from the Siam Knight JV in Mexico.

10:53 The JV is a scale up phase, and this loss flow direct into the consolidated Pied with no matching revenue rate. As the JV reach breakeven, this trust will reverse the support of our PAT margin. Key ratios about our balance sheet is strengthened further. Rate equity ratio improved to 0.26 times from 0.68 times a year ago, and our working capital cycle was 75, again seventy six days in quarter to financial year '26. With this, I open for floor for a question and answer. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, please press star and one on the touch tone telephone.

11:43 If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. The first question is from the line of Bhauna Isdani from Ambit Asset Management. Please go ahead. Hello. Am I audible? Yes, madam. You are audible. Yes. Yes. So good morning, sir. So just wanted to know, k, how much volume growth we have done in this quarter, and what is our current plant utilization? So basically, in last quarter, we have closed 10,940 metric tons, and this quarter, we closed 11,252, which is 3% growth from the quarter. Basically, our plant is almost utilized 90, 91% capacity.

12:45 Okay. So current utilization and how we are seeing the capacity buildup coming in because as we are running at 90, 90% utilization. So how the volume growth is going to be in coming quarters? Just... We have added 5,040 metric ton quantity in in month of August only, and the plant is just... Is starting to ramp up. And we we we are expecting for almost 50% of utilization of new capacity plant, which is almost 2,500. So we expect in quarter quarter three financial year that would be better in terms of quantity, production, and sales metrics and compared to quarter two. Okay. And, sir, coming to the raw material price inflation, so how much price hikes we have taken in q two and how much we are planning to take in q three? As we said, there is a deferment in the price pass on and there is a quarter lag in price pass on. So how much we have taken in what we are expecting in q three?

13:49 The the price is continuously improving just due to... With the contract. We are continuing under this percent with our customer, almost 45 to 50% customers. We have... Which we have the contract to pass on whatever the material price increase or decrease. But still, we have already engaged with our customer and some of our customer has already passed on the price. So the raw material price, if I can pay only the quarter two, in initial of the quarter and ending of the quarter, there is almost 26% raw material has been increased. But in our gross margin, there is an impact up to 7%. Rest, we have already passed on to the customer and continue, we have already discussed. So that are on reflecting the quarter three majorly, and we are expecting a market would be stabilized and things would be in line, then third quarter would be much better compared to second quarter.

14:47 And also, I'm adding to that, see, our product scenario is more like a... Today, we can finalize the product and scale for the bank, and that design, cylinder, and process almost take one one and a half month for the delivery. So when... Whatever orders we have in the last quarter, we deliver in this quarter, and this quarter price is going up like a 21, 30% immediately. So impact on that, our pricing, buying pricing is little bit little bit excessive, and conversion ratio is continuously chasing to the customer and trying to get best volume, best pricing from the customer, but it will reflect on our next quarter. So it is a transaction is... Transaction scenario, that's what it is a result. Good question is little bit. Not converted, 100% fee as for the price increment.

15:38 Okay. And, sir, what would be the volumes last quarter? You said ten nine... Ten thousand nine fourteen q one FY twenty seven. Q two FY twenty seven is $11,002.52. What would be the same number last quarter... Last year same quarter q two FY '26? So, basically, we have added one one more with the last last year... Financial year '26 was 9,927, and growth is almost 13% to 14% compared to last year quarter two to this year quarter. Okay. So on the rough calculation, we have... Mhmm. Yeah. So go ahead. Also, is for the as for the packaging. This quarter is always a slowdown quarter due to the rain. But compared to the previous year, we have also 13 to 14% growth into the concrete level as well.

16:33 Got it, sir. So on the numbers basis, our gross profit per kg declined by roughly 10 rupees quarter on quarter, and the EBITDA level... EBITDA per kg is down by roughly 16 rupees per kg. Kg is currently 36 rupees versus last quarter, we were doing at $5,151.52 rupees. Is it correct, sir? Yes. Yeah. Yeah, ma'am. Absolutely right. And that's... I did that. I will tell you. The the second quarter compared to the previous quarter, the price increment, like, a 25 to 30% immediately immediate effect, and customer will give their price fee of quarter... First quarter order is delivered into quarter second because our production timeline is the one one and a half month. So it will be reflect on the next quarter little bit better compared to this quarter.

17:20 Got it. Got it, sir. Okay, sir. This is from my side. Thank you. Thank you, ma'am. Thank you. Thank you. Next question is from the line of from Seven Islands PMS. Please go ahead. Hello. Am I audible? Yes. Please. Please. Go ahead. Good morning, sir. Sir, I wanted to know the utilization of the pinch bottom machinery. Yes. Pinch bottom just recently added two machines on the order part of one end... Part of one start, like, every month we just started the two new pitch line. So we are a 100%. It is a 21% of the overall sales revenue.

18:06 And, also, in that case, we have to convert the customer. It will take, like, a four to five months because the design bags and the... They have to install their machine, filling machine. So that all the process, we have already started from very long back. And also, we we will continuously process on that pinch bottom back conversion ratio. But today, yes, we have 21% revenue come from the pinch bottom. Compared to last year, is a seventeen or eighteen years approximate. So this year, we are also trying a good number of continuous year. Sir, can I know the percentage utilization of the total metric ton per annum that we have for the pink quarter? Oh, like, all... See, altogether, this is 1991% utilization.

18:51 But, yes, we are seeing exactly the pinch bottom number. I think the bottom is basically conversion line. Conversion line? So it is but, yes, it is not 100% utilization of the pinch bottom new machine. It is almost approximately 60 to 65, 70% only after the new machine adding. So in the pinch bottom bag, we have a little bit space to increase that ourselves, convert that from regular bags to pinch bottom bags. And, yes, we are trying to achieve that area as much as possible into the converting the regular bags into the pinch bottom bag. So we have a space on that area. Our overall quantity growth is not that much, but our conversion growth is also available with us with the pinch bottom there. And last last... Because last two quarters, we are increasing that area. But, yes, exactly quantity wise, we will update you on those Any So if I can say the history of pinch, bottom first machine was established in two thousand seventeen, eighteen.

19:48 Second was '21, third was '23, and two machine just was in last quarter, in March '25. So that machine is under the ramp up now. So almost, I'll say, as I just said, 60% to 70% is overall, and now that is increasing continuously. So we are expecting the quarter two, three would be more production, more sale of pinch bottom. And also adding the pinch bottom mainly used into the rice industry. As rice industry market just come up now, this third quarter is always better for our history. So third quarter, we are expecting much more utilization of pinch bottom bags into the rice industry, and we will get the good order already into the pinch bottom bag. Sir, can I know the metric ton per annum capacity of quarter two of pinch bottom?

20:42 The one... What machine, they cover, like, a 20... Like, a 22,000,000 bags per month. So altogether, currently, this can be each quarter, we achieved 11,252 metric, sir. So capacity is major, sir. Basically, there is a process for first, we have tape line, then we have looms tape line, graveyard. So these are the basically still the eliminated fabric. There is a addition of the capacity. Now this is the fourth fourth stage where the final finish outcome is decided. So either we finish pinch bottom bag or we finish PAWCP bag, so that cannot be added to the capacity. But yes, two machine already installed in last quarter of fourth quarter of financial year twenty twenty six. So that machine is under the ramp up. Once our production capacity will be increased because today, we have already 91% capacity utilization.

21:40 So once we have the capacity with the spare part of production of more fabric, then our pinch bottom would be more utilization. So that is the converting nothing only. We cannot say exactly what is the percentage of of total total utilization of pinch bottom only. Sir, I will give you just one simple example. Like, you are producing the textile fabric, and you are making the T shirt or shirt. Whatever you could could benefit, the same way we have fabric production. After now, we have capacity is almost full capacity running this. But we are trying to... Instead of shut, we are making the t shirt because we get a good margin. So think we are into the same space like BMW PP, we are having already full capacity utilization, but that customer, we are converting into the pre... BMW PP plus inch bottom back. So we are trying to get... Upgrade our revenue and get the good margin on the pinch bottom bag. So that case already is going well, and the next quarter is for us for us. It is a better quarter for this pinch bottom bag, which are into the rice industry.

22:43 Okay, sir. And one last question. The new facility will add around 30,000 to 32,000 metric ton per annum. So can you give give me a a percentage of how much output will be from pinch bottom and how much will be from the normal PLWPB band? See, sir, very honestly, that is right now we are a installed capacities of 42,000 metric tons annually. Out of that, we have almost, I think, like, nine, 40,000 as capacity. After this expansion, our capacity reached into the 70,000, 69 to 72,000 in between. So out of that, there is a six five page machine is already installed, and two new inch machine will come up because that inch machine delivery is almost take one, one and a half year. So next year, October, our target for what will come up into the production.

23:33 So almost in between our existing two machine capacity, we can fulfill, And then after at that time, we adding our two two new machines. So then after, it is almost seven machines. So almost 70,000 metric tons, we can assume almost 24, 25,000 altogether or 30,000. Install capacity is at 32,000 out of 72,000. It's a pinch bottom, and we can try first level 25,000 to 30,000 to achieve that pinch bottom rate later on '28. Okay. Okay, sir. Thank you. Yes. Thank you, sir. Thanks. Yeah. Thank you. Participants who wishes to ask a question, please press star and 1.

24:20 The next question is from the line of from Ash Holdings. Please go ahead. Afternoon. Am I audible? Yes, sir. Yes, please. Yes. So my question was that the major impact which came on EBITDA margin was majorly driven by gross margin impact. So I wanted to understand that we have a revenue bifurcation of 50%, which is coming from contract revenue and approximately 50% from noncontract revenues. And in the noncontract revenues, we are able to manage it through the inventory days which we hold.

25:06 And the contracted revenues, we can adjust it based on the price of the bag. So I wanted to understand why did we have such a significant impact even after that in this quarter? Yes, sir. Sir, I fully understand your question, sir. Simple. Sir, our first of all, 50% contract your customers, definitely, yes, but all the customers not even the order in the same time. So it is a... As per the consumption, they are buying, like, as per the season, like, they are into the three grain and first, they can now season will start, and the fertilizer already season is over. So that kind of cycle is over there. So it is the... This 50%, almost 45 to 50% is contractual, but it is not at all order will come same time everyone, first thing. Secondly, the ramp up of the price, like, grown up, like, 25, 30% immediately set.

25:58 So it is a... We convince the customers, and then they are convincing. They are not at all denying because everyone goes that global pricing go up. So everyone has to bear the cost. That is ultimate goes to the customer. But see, whatever the existing order is a quarter one order and delivering to the quarter two. So my invoicing rate and upper rate is only basis of the order time rate, not delivery time rate. So one of quarter one order is running into the quarter two and supply Sir, please go ahead. We are unable to hear you, sir. Hello?

26:53 Hello? Hello? Can you hear hear you now. Yes. Please go ahead. Okay. Okay. Okay. So, sir, second second one, reason is the... Sir, I think... So I repeat the first one because maybe voice is not clear or some disconnection. So first reason is our process time is like one, one point five months. Our 50% customer is on contract business, but they are not continue business. It is a season wide business. So now our first quarter order delivered into the second quarter. So maybe that our sales system is as per the order date, we can finalize the price, not delivery time. So our sales become to the second quarter, we can get the price from the second quarter.

27:40 But at the time of the second quarter, there is a price is like a 25% to 30% increment global political issue and global crude price issue. So that impact on us. And yes, you're right. You are absolutely right. This is an increment of the seven percent of our growth margin because of this majorly this area. Right. So, again, basically, the 50% of the contracted revenues which we have, what is the time line in which we are able to pass on costs to these customers? And, again, to the other noncontracted revenue customers, what is the time line? Because we are holding enough inventory to manage the rise in raw material costs.

28:36 Sir, you're right. Noncontracts, first, will cover with the contractual. Sir, contractually, there is a two system, monthly price revision and quarterly price revision. Like our biggest customer is the revision of the quarterly price. Like first quarter, whatever the rate is that price comes into the second quarter order. And second price, second quarter price, average price come into the third quarter. So they are increasing like quarter to quarter. So our major customer into quarter to quarter and on the smaller customer, it is based on the monthly. Like, this month, they can give you the order, like... So their pricing based on the next... Last month quarter price... Last month's price, third quarter, last month's price. So it is impacted on this month's order price, and it will be delivered after one and one and a half months. So altogether, you can see it is, like, almost three to three and three and a half months for the one month price contractual.

29:30 And the quarterly, it is impact on four and four point five months quarterly price impacted. So this is our business scenario or not even my company, even almost all the companies into the plastic, this kind of is happens into the contractual business. Now non contractual business, it is based on the order to order only. Like whenever they require the inquiry to us, we can get the inquiry, we can quote the pricing and we can approve the pricing. And then at that time, it will be the start of the production and it will be take the one, one and a half month for the production, then it will be going to the delivery. So this is both the scenario in both our pricing and impact on us. Understood. So my second question was that we are now adding significant capacity.

30:17 So what is the demand visibility for us? Where do we expect the demand to come from? And also that we are now focusing more on pinch bottom bags. But based on our BRHD figures and estimates, the market size of pinch bottom bags is limited. So how are we gonna manage the same? Sir, first of all, I will explain about the demand. Sir, demand, we have two types of vision. Like we are exporting more than 72 countries. So we increase the countries plus existing customers. Even like I will say the one example, dog food industry is now in India.

31:04 It is like increasing in double digit. So the food industry, we have a very good presence in all over world as well as India. So that industry growth, that is also our growth compared to our customers. Like we have a dual customers and many like pedigrees also we are supplying to them. So this is a good customer we have. So that growth in two digits in India, so we are also growing. So same way, there is a have a 27 different kind of industries, rice, grain and pulses, fertilizer, cement, seeds. So many like type tubes, we have new application also we are developing. So geographically, we are also increasing our capacity and marketing spend as well as the industry growth in the particular segment. That is also impact on us. And third thing, important, we are developing the new industries into the our product.

31:54 Like those who are using the jute bag, is it migrate to the PP woven bag, WPL? And then after we shifted to them into the PLWPP, like printed laminated woven bag. And the pinch bottom bag is the more the PLWPP bags. We directly target that customer, those who are utilized already POPP bag. They are converting into the PLWPP plus pinch bottom bag. So pinch bottom bag, there is 80%, those who are already into this second category product, they are moving into the third category. And our second category is like our total revenue contribution, like 71%, 72% is our total volume, it is on PLW 50. So we have a very large numbers of customers and they are migrating into that net product to the pinch bottom bank because there is a lot of advantage of this product. So they may convert into and our team is also converting that kind of customer into the pinch bottom back. So the demand, we have a lot of area. We have to hard work definitely, yes, it is not easy to say, yes, we will get that, but we will challenge, accept challenge. And this product, PLWPP, is like on the 2004, our company is the first company who's developed this bag. So at that time, scenario is more difficult than today because at that time, the one bag cost is a 10 and reselling at INR 14 or 15 bag. But now very well accepted this scenario, 40%, 50% bag increment at that time, customer will happy to give them more money. Now this is a much more better than that scenario because they are already using it like a 22,

33:26 INR 24 back, PLWPP, and their tax shifted into the INR 28, INR $30.32. So percentage wise, it's not much more impact on that area as well as... And after the pinch bottom back, the overall costing of that material versus packaging cost, it is less than one or 2%. So that's how we are also getting a good benefit of this product. And one more, I already many time mentioned seven reason customer will join us. They are not moving to the other supplier. That is the biggest chance of the product. So that's how we are thinking, and that's how we are planning to expand our capacity. Okay. Maybe Sorry. Sorry. Sorry. I want to add one more thing. I missed that. Europe Europe and USA already paper have a very much struggle.

34:14 You can check online everywhere. Paper... Right now, paper have a pricing as well as availability is very, very bad level. So the paper block bottom bags or paper paper bags are now already converted into our product, PLWPP bag. It is a paper to PLW PP. When paper have a peach bottom bag like a thirty year bag product. Paper pinch bottom bag is thirty year bag older product. So their paper are directly migrate from the paper pinch to the... Our PLW pinch bottom bag. So this is also one more factor for our demand and pinch bottom bag demand. Please, ma'am. Right. Yes, Thank you very much. Mr., may be requested to please rejoin the queue. We have participants waiting for the tone.

35:01 Thank you. The next question is from the line of Satish from SBI. Please go ahead. Yeah. Hi. Thank you for the opportunity, and good afternoon, sir. Good afternoon. Sir, I have few questions. One, first is that, sorry, I missed your opening remarks. What was the Q2 volume, sir, overall? Sir, q two volumes, just I will let you know that q one volume 10,940. It is increased by 311252%. Y o y, sir, Pardon? How growth have you Okay. Y o y, how much growth have you reported? 52.52. Total growth is 52 In in sales revenue growth, 52.2% Y o Y. EBITDA margin growth is 29.92%.

35:53 Sir sir sir, volume growth only I'm asking volume growth on a Y o Y basis. Y o Y volume growth is 13%. 13%. So the major chunk of price hike which is driving the revenue growth this quarter. Right? Okay. So, this... The gross margin did what we have witnessed. You said, like, you're going to take a price hike and that is going to mitigate the, you know, the gross margin dip in the Q3 onwards. So are we on track that our gross margin, whatever we are reporting in the previous quarters will will will come to that level with this kind of price hike or it will flow to the Q4 also? I mean, you have to take the further price hike and the gross margin will normalize in Q4.

36:43 Sir, Q3, you see always Q3 and Q4 is a better for always in the company in the terms of the quantity as well as the margin as well. But we there is a one chunk is like we have a limitation of our quantity because we are almost 89% to 91% we are utilizing. And it is a depend on that market as well. But, yes, we are very much quite confident about our migration of the PLWPB to pinch bottom back because we have a spare capacity. Yes. Overall, we don't have a capacity. But internally, we can move into the PLWPB to PLW plus pinch bottom bank. So that is we are expecting, and that is the biggest market is a rise and rise business season will start right now. Already started. So this month is also a good month. And next month, onward, it is a good season for the rice industry. And our majority sales into sales domestically into the rice as well. So there is a good pinch bottom back consumption in the rice industry. So we are very good expected like the quarter one like kind of things into the quarter three and quarter four.

37:45 Okay. So the so so the q three will see a significant recovery in the gross margin. Whatever we have lost in q two May may... Will will recover in q three. Right? Definitely. We wish to better than that, but there is a single 1%, it depends on the market because the crude oil and the global scenario is you know. See, what happened originally, the price, like I will give you the polymer example, like INR 92 before the war. Then it will be the reach up to the INR 135, INR 140 after war. After that, it is, again, it is a reach up to the INR 145,143. Like then after it is reducing like a 120,125. And it is a jump like 160 rupees. So what happened, it is a up down, up now, up now. But still, our companies have a very good relation with the customer.

38:35 In in our this thirty years, we never seen like this. In this thirty years, this is the highest price of the polymer price. But still, we are into the good faith, good state. And definitely, in the quarter, we have a very good expectation. But there is a 1% I will tell you, it is a depends on the market. But yes, 99% we cover this everything. Okay. And sir, in your comment, you mentioned, like, in the q... In the October, you have received one good order of about $1.50 crore Yeah. From some international client. So Yes, how much it is scalable, sir? It is a kind of a... Or this is a kind of a one off order? This is our existing customer, the... In this scenario, it is based on the USD, you know, very well. And in that difficult time, that is very time, they continuously buying with us.

39:32 In that time, they extend our contract up to just one year. But then after, they still realize they start every brand globally and they can they can increase our contract into three years next year. So this is a 150 every month order, every year order. It is a one year minimum. It is a minimum 150 crores. And they are already adding their product, their countries and everyone. We are serving only eight to nine countries, and they are working almost more than 100 countries. So we are on getting the good volume, and this contract's covered, like, no. This is the 150. This contract is bottom of the 150 crores, and this is not one year. This is a three year contract. And also, they can add more country and more variables into the variety into our pro... Portfolio... Product portfolio.

40:23 And we are also on that... Because because that company is also ever more than this, they are using the paper bag. And their paperback also already, they're trying to shift it to our portfolio. So we have a very good expectation from them. So, sir, what did you estimate? Mister Hitesh, may be requested to please rejoin the queue? Question. No problem, ma'am. Please. I can fast answer them. Please please, sir. Yeah. Yeah. Sir, the participant already left the queue. Oh, sorry. Sorry. What would you to... In in order to ensure that the management is able to address questions from all participants, we would request you to please limit your question to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Prakash Kapadia from Entrust. Please go ahead.

41:12 Yeah. Thanks for the opportunity. I ordered Yes, Prakash. Yeah. Thank you. Sir, we've seen operating cash flow decrease in H1 from INR 39 crores to INR 22 crores. I see three items, a bit of inventory increase, which is understandable due to price increases. But receivables has increased, and there has been a huge tax impact. So is this seasonal one time due to war? Should this normalize? Or generally, h one, you know, it punches up and by H2 that normalizes, as you said, H2 is generally better for us? So that was my first question. Secondly, you mentioned about the Mexico JV hitting us at a consolidated level. So when do we achieve breakeven?

42:06 Because production has started and asset turns and margins would be similar in Mexico. And next year, what would be our capacity by next October? Those are my questions. Thank you. Thank you, sir. So in operating revenue, basically in cash flow, there is increase of inventory due to continuous increasing of the scale up of the sale. To almost INR26.9 crores we have increased in the operating cash flow. And for data side, there is also continuous sale increasing of export sale is increasing almost significantly compared to previous quarter. So the receivable cycle of this export is larger compared to domestic. So INR 55 crores investment is already an increase in the operating cash flow. So these are majorly two factors, which is compared to the last quarter or compared to the previous year of quarter two, operating cash flow is going to down.

43:12 And there was some tax element also, right? Income tax has also increased. That is also affecting. What was The reason being profitability profitability is increasing. Our tax rate is still 22%, which is new regime and including and everything effective tax rate is 25%. So tax impact is similarly the same. And there is some deferred tax is also included reason being the IPO expense around we have already given the report twenty eight crores. So that has been eliminated from the security premium, and that is also around the deferred tax consideration. So altogether, that is the impact only deferred tax as well as current tax both. So this is the net of impact which is going in in in cash flow.

44:07 Understood. Understood. And on the Mexico JV and capacity? I'll pay price. Sir, Mexico is a greenfield project and this is second quarter. So yes, definitely, we are trying our level best to achieve as much as early possible. But last quarter, it is significant better than the quarter one. So it is a little bit of a good sign from the quarter two. And quarter three, we are expecting like we are almost achieved the breakeven point. See, in our provisional, the quarter four is our targeted to achieve this quarter win win situation, but not as we committed. But yes, quarter three, we are expecting to the good level of this achievement. And yes, for the margin perspective, there is only pinch bottom back and the very late percentage of the PLWPP bag. So pinch bottom back already, we have very good margin on that area as well.

45:01 So hope the best, and we are also expecting to quarter three is a better result from the Mexico. Yes, it is installed capacity is like a 400 ton metric ton. Out of that, every month, we had last two quarter average selling almost like 80 ton nearby. And this quarter, we are expecting 100,120 metric tons. And almost 120 metric tons is the nearby the breakeven of our this quantity. So we are expecting this next quarter will be the win win situation. Understood. Understood. Thank you. I'll I'll come back if I have more questions. Yeah. Yeah. Please please, sir. Please, sir. Please. Thank you. Thank you. Thank you. The next question is from the line of Sandeep Chavra from Roshi Investments. Please go ahead.

45:49 My questions have already been answered. Just just one thing now that I have the opportunity. They... All the the margin that has been lost will be recovered or only from third quarter there will be an improvement? Well, sir, it is very difficult to achieve that all the losses in the one quarter, but the third quarter will be the win win situation and more than that, we are expecting little bit loss also cover. So... But it is a very small quantity. We are producing like a 3,500 metric tons, 3,000 ton in India, and this is already installed capacities on the report that... 400 metric tons per month. So we we are expecting a good margin on it. But yes, first and second quarter from the greenfield project, it is impact on you. The reason behind, there is a long process, long machinery waiting.

46:44 So that is impact on interest cost and all these things. But, yes, third quarter is definitely comes with the loss recovery of the very small portion, not much more as we expected. K. And on capacity, you said 5,040. Sorry. You were saying something? 500 metric... 400 metric ton installed capacity. Out of that, we are currently utilized 18, 90 metric ton, 70, 18, 90 metric ton, and our breakeven almost 120,130 metric tons is our one year breakeven. And the current month also, we are almost at 120 metric tons sales from the Mexico. Okay. No. I'm talking about the India part. Yep. Between now and October 2027 between now and October 2027, any capacity will get added or everything will happen only in October now in 2020? No, sir.

47:39 Sir, two things two things. We just added a one plant before one... Like, two months back, and it is already into the ramp of that plant. We... It is a rented plant, and it is come up with the new capacity in next one or two months. So it will be give a little bit cushion. And also we are very much forcing our expansion level. Already we are in good phase of the expansion level. So we are trying our level best to achieve that expansion and production capacity before October. But currently, we are saying October is our deadline for the expansion capacity. October 7. October 27. But, yes, in between, we are a little bit paid for that competing. Okay. So the...

48:24 As we move forward, see, last year, you had only three pinch bottom machines. The the remaining two came only in, let's say, end of March two thousand twenty six. So, logically, the margin in this year... I mean, the... In fiscal twenty seven should be higher than the margin of '26. This quarter Yes. To the sharp increase in, yeah, be... Because I'm talking about pinch bottom only. Yes. This year, because of the... This quarter, because of the sharp increase in your, you know, the raw material price, there was a problem. But if you can achieve complete pass through, as you are saying that you have achieved complete pass through in fiscal...

49:10 I'm sorry, in third quarter, then third quarter margin should logically be much higher than the previous year third quarter margin. Because previous year, only three machines were there, pinch bottom. This year, in this third quarter, you have five pinch bottom machines. Am I on the right track? Sir, you are perfectly okay, and that is the best example. Like you can compare it to quarter one, quarter two previous year to this year. Quarter one to quarter one, it is almost 45% to 50% increment. This quarter is almost compared to that is like a 2010%, 28%. Already is there. And third quarter is also like we are on the same way. Yes, last year to previous year quarter to this quarter, we are definitely in the good phase because of the pinch bottom and already we get the good advantages, and it is reflected on our quarter one and quarter two compared to previous years.

50:00 Okay. It is already reflected. Yes. Alright. And all the best. Thank you, sir. Thank you. Thank you. The next question is from the line of Abhijit Mitra from INEUS Alpha Investment Management. Please go ahead. Yeah. Thanks for taking my question. So just to understand margins a bit better. So so for example, if the raw material prices moves up by, you know, 10 rupees, 100 to 110, then you can you can try to pass that 10 rupees to your customer. That's the best that you can do. So it's going increase your product prices by $10.10 rupees. Yes. Go ahead. Customer won't give you margins on that 10 rupees. Right? So so, I mean, effectively, percentage margin will look lower as as this kind of inflation takes care.

50:53 One should look at your percentage margins, or should should we look at your, you know, absolute EBITDA? Because that... You're recovering. That should be, you know, easier task than, trying to get margins on the increase in product prices. Yes.. Sure. First of all, like, always, we are getting this support from the customers. There is no doubt about last thirty years. But this year, what happened quarter one and quarter two, it is a jump like a 30%. I've already given you example, like a once price is 92, then 125,143, then again 120, and then it should up to 160. So this second... First quarter to second quarter, 120 to 160.

51:40 It is a jump like a 25%. And definitely customer support, like, 120 to first rate. It is, like, 130. So we closed the order. That 130 to 145. Again, that is one twenty deliveries on... At that time, one hundred forty five. The second order delivery is a $1.20, $1.30 price. It should be on the $1.60 price range of... At that time we deliver. So right now, it is on peak. And the peak time also, we get the good order and everything. But yes, it will be the production time almost one and a half months. So from that, it is not reflected our convert into our profit. But yes, later on, it will be the good thing comes on this area. Yeah. I I I mean, the reason I'm asking is that, you know, I mean, as a as a as a company, and I'm sure your customers are also observing, you know, your pricing, benchmarking it to whatever is the increase in raw mat prices, you pass that on, and then the incremental delta you get to value addition. But to sort of expect percentage margins to come back to where they are means that you have to charge customers on the price increase as well. I mean, which is not logical. Right? I mean No. But on on that, I will very honestly tell you many time I already explained that that the increased time, we can try to the percentage and decrease time, we can try to the per kg. But everyone knows this is a very difficult scenario

53:10 for the crude price and everyone. But still, our customers are very cooperative. They definitely we ask for the percentage amount of incremental, but definitely here for kg, we will get it. Yes, some areas maybe I want to increase like a 5%, but we can get the 3% or 4%. Maybe possibility, like I can increment like a INR 25 per kg, but they may be negotiated like a INR 22, INR 20, maybe possibility. But it is a very less area, and we are also controlled because this is a normal price. Like I will give you the petrol diesel example. So that is a price increment, that means increment. So in this scenario, in this kind of industries, plastic business, everywhere price increment, that means increment. Yes, that percentage, how we can achieve it, it is a depends on the customer and our relationship.

53:56 But yes, we are absolutely right. If it's not 100%, we can get it. But we are trying our level best to average out with a good number. Understood. Understood. Understood. And and for you, I mean, what kind of... I mean, can you go back to your Q1 absolute EBITDA per ton, say, over the next two quarters, if EBITDA per kg, whatever? Like it is a per kg of INR 55 and this quarter is like a INR 46, 47. That approximate I'm telling you. 54 last Fifty four and forty five. Five. Yeah. 54 and 45. 10 rupees 50. 54 can be achieved in the next two quarters, you feel? As in you can get back?

54:41 Almost I explained you pinch bottom quantity increment. And definitely, we have tried a little We want to more than that. But yes, we are trying to near by that, definitely. That is the only 1%, depends on the market. But other than that, we are very much comfortable because now season time is already started, and it is already impact on our business as well. So we are quite confident on that area. Got it. Got it. In the terms of yearly, yearly, whatever we propose yearly is almost we can achieve it. There is a doubt on the yearly achievement. Yes, this quarter is significantly a little bit down. But yearly, our target is we are on the track compared to whatever the process already showing. Thanks. Thanks. Thank you. I wish you all the best. That's all for me. Thank you, sir.

55:31 Thank you. Ladies and gentlemen, due to time constraints that we will take that as the last question for today. And now I hand the conference over to management for closing comments. So to conclude, one FY twenty seven was a half of strong growth of Knack Packaging as a listed company, even as industry wide cost pressure rate on our margin in Q2. During the half, we stayed focused on the right thing, adding value in our products, expanding capacity efficiently and maintaining operational excellence. Our integrated capabilities and customer partnership continued to be a key advantage. Looking ahead to Q3 and Q4, we expect volume growth to continue supported by the ramp up of contracted orders, including the renewed international contract and higher wallet share from existing clients.

56:27 We also expect margin to recover from Q3 FY 'twenty seven onwards as pricing adjustments flow through. We will remain cautious on the cost and capital deployment. The new Gujarat plant remains a key milestone and its timely completion and utilization will be primary focus through 2027. Finally, I extend my gratitude to our shareholders, customers, suppliers, bankers, and employees. Your support is what empowers us to achieve this goal. We look forward to updating you again next quarter. Thank you. Thank you. Ladies and gentlemen, on behalf of Knack Packaging Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you, everyone.