Huhtamaki India Reports Strong Q1 EBITDA Growth, Depreciation Error Impacts Earnings

Q1 Performance and Operational Updates

Huhtamaki India's management, including MD Kamal Taneja and CFO Amit Gupta, detailed a selective growth strategy during their Q1 CY26 earnings call. The company is focusing on innovation leaders and high-value business segments, moving away from a pure volume-chasing approach. This strategy contributed to a 24.8% year-on-year increase in EBITDA, supported by a favorable sales mix and improved operational efficiencies. In terms of operations, the company is divesting a property in Daman where activities have been curtailed. Additionally, a solar project in Khopoli is nearing completion and is anticipated to provide benefits in the latter half of the year. A significant factor impacting reported earnings was an INR 88 million depreciation charge in Q1 CY26. This charge resulted from a correction of a prior accounting error concerning the depreciation method used in FY24 and FY25.

Strategic Moves and Financial Impact

The strategic pivot towards value-added products aims to enhance profitability and ensure the sustainability of revenue streams. Initiatives such as operational efficiencies and the Khopoli solar project are designed to strengthen margins and reduce costs, offering potential long-term advantages. While the depreciation correction is a one-time event, it underscores the importance of precise accounting practices to ensure that underlying operational performance is clearly represented.

Company Strategy and Context

The focus on a "selective growth strategy" represents a deliberate shift from broad market share pursuits to concentrating on more profitable niches, a refinement considered important for sustainable growth. The curtailment of operations at the Daman facility suggests prior restructuring or a strategic re-evaluation of specific business units. The extension of a parent loan indicates the company's ongoing adaptation to evolving regulatory frameworks, including those related to external commercial borrowings.

Outlook and Investor Focus

Shareholders may anticipate a heightened emphasis on margin expansion and sales of value-added products. Cost reduction and energy efficiency efforts, such as the Khopoli solar project, are ongoing. The Daman property sale could free up capital and streamline operations. For investors, it remains important to carefully review earnings for the impact of one-off charges, including the recent depreciation adjustment. The company plans for organic growth, with management stating that existing capacity is adequate.

Key Risks and Challenges

Volatility in raw material costs presents a notable risk, with management reporting "low to medium double-digit" increases. A delay in passing these rising costs on to customers could impact profit margins. Geopolitical uncertainties were identified as a factor contributing to this raw material price volatility. Ensuring accuracy in future depreciation calculations is also essential to prevent further accounting adjustments.

Industry Positioning

Huhtamaki India is navigating industry growth of approximately 10-12% by targeting niche segments. This approach differs from peers such as EPL Ltd and TCPL Packaging Ltd, which may focus more on broader volume strategies. While Huhtamaki India emphasizes premiumization, competitors might engage in more intense price competition for standard packaging solutions.

Key Financials and Metrics

For Q1 CY26, EBITDA saw a year-on-year increase of 24.8%. Other expenses during the quarter totaled INR 106 crores, which included the INR 88 million depreciation charge. An external commercial borrowing (ECB) loan of INR 100 crore from the parent company has had its repayment extended to June 2027. Raw material costs began experiencing low to medium double-digit impacts towards the end of March.

Future Developments to Watch

Investors will be monitoring the full financial impact of the Khopoli solar project as it becomes operational in H2 CY26. Management's effectiveness in continuing to pass on raw material cost increases to customers will be key. Updates on the Daman property sale and the application of its proceeds are also anticipated. The company's ability to sustain its chosen growth strategy within the expanding industry will be important. Performance in the second half of the year, when solar project benefits are expected, will provide further insight. Future financial reports will indicate how the depreciation correction has been integrated into the company's reporting.