Greenlam Industries Limited (GREENLAM.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenlam Industries Limited Q2 and H1 FY '26 Results. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Saurabh Mittal, Managing Director and CEO of Greenlam Industries Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, friends, and a very, very warm welcome to the quarterly call of Greenlam Industries Limited. And I'm pleased to have Ashok, our CFO, Samarth from the Finance Team and SGA on this call. And I will discuss -- I'll take you through the performance and updates for the quarter. As you probably have seen, we've done about -- we've crossed INR 800 crores of revenue in Q2 FY '26, and the business has grown by about 18.7% on a year-on-year basis. And even at the gross margin levels, we've done about 54.6%, so one of the highest we've done in terms of gross margins. EBITDA also we crossed INR 100 crores. And obviously, EBITDA was impacted due to ForEx losses and small losses in the chipboard and the plywood business. And PAT was impacted also due to the ForEx and higher depreciation interest considering the fact that we have plants capitalized in FY '25 and FY '24 and FY '23. If you go segment-wise, in the laminates business, revenue, gross margins, EBITDA, I think across all the categories, we did very well in Q2. And both domestic and international markets have done well. I think international has done slightly better than domestic for us in Q2. And -- so on the laminates business, we've also announced a brownfield expansion of 2 million sheets and boards. This is 2 lines of laminates we are expanding at our facility at Andhra Pradesh, Naidupeta. And these 2 lines of 2 million sheets and boards will generate about, in the range of INR 375 crores to INR 400 crores of revenue. We're expecting commercial production in Q4 of FY '27. So that's on the laminates business. In the chipboard business, like we said previously, the products are being very well received in the market. So from a product quality, performance, decor range, I think there's very good feedback from the market. The plant side is quite well settled, and we continue to build this chipboard business. So we are focusing on completing the channel appointment wherever there are gaps, focusing on secondary sales specifications, streamlining or expanding business with the furniture makers and the OEMs. And we are hopeful that the business will keep improving in the time to come. On the plywood business, too, I think we said this earlier, the product feedback is very well, and we've added a few new markets in FY '26 in Eastern India and Western India. And gradually, we are seeing traction. The growth in ply business in Q2 has been pretty decent also, I think about 45%, 50%. The business of -- in the flooring business also, we've become EBITDA positive. The door business also has grown in Q2. The veneer business also has become EBITDA positive. So by and large, if you see in Q2, I think across the 3 large categories and even the smaller categories, I think there's improvement in revenues, volumes realization, gross margins, product side, things have also gone well with the various launches we've done in Q2 and in H1. The working capital days have also -- we've done reasonably well there. We had about 47 days in Q2 despite the fact that in plywood and chipboard, we still have slightly disproportionate working capital days because sales are yet to settle in. We've managed to reduce about INR 50-odd crores of debt. Cash flow from operations have also been healthy. So by and large, I think across the business, I think we've moved ahead. Like we said earlier, this year is a year of execution for us because we are free from all the expansion which we did over the last 3 years and there's complete focus on execution. And I think things are going in a decent direction. On the market side, too, I think while there will always be challenges, there still are challenges on both exports and domestic. I think the teams are continuing to stride well, and we hope to keep winning market share and keep growing the business in a profitable manner. So that's it from my side. I will hand over the call to Ashok. Ashok will take you through all the financial details and numbers, post which, we'll have an open house question. Ashok, over to you.

Thank you, sir. Good afternoon, everyone. Let me take you through the financial performance for the quarter and for the half year. First, to the quarterly performance, on a consolidated basis, net revenue grew by 18.7% on a year-on-year basis and grew by 20% on a sequential basis to INR 808 crores in this quarter as compared to INR 681 crores in Q2 last year. Gross margin grew by 300 basis points to 54.6% in this quarter from 51.6% in Q2 last year and grew by 150 basis points on a sequential basis. Gross profit in absolute terms grew by 25.5% on a year-on-year basis to INR 441 crores as compared to INR 351 crores in Q2 last year. EBITDA margin before ForEx fluctuation was up by 130 basis points and stood at 13.2% in this quarter as compared to 12% in Q2 last year. On a sequential basis, EBITDA margin grew by 510 basis points. EBITDA before ForEx fluctuation in absolute terms grew by 32% to INR 107 crores in this quarter as compared to INR 81 crores in the Q2 last year. Net profit for the quarter stood at INR 31.8 crores as against INR 34.4 crores in Q2 last year. Moving on to half yearly performance. On a consolidated basis, net revenue grew by 15.3% on a year-on-year basis to INR 1,482 crores as compared to INR 1,285 crores last year. Gross margin was up by 210 basis points to 53.9% in this H1 from 51.8% in last year. Gross profit in absolute terms grew by 20% to INR 799 crores as compared to INR 666 crores in H1 last year. EBITDA margin before ForEx fluctuation was down by 40 basis points at 10.9% in this H1 from 11.3% in last year. EBITDA before ForEx fluctuation in absolute terms grew by 11% to INR 161 crores as compared to INR 145 crores in last year. Net profit was down to INR 16 crores in this half year as against INR 54 crores in the last year due to higher interest and depreciation and foreign currency losses on new project, which was commissioned in the Q4 of the last year. Moving on to segmental performance. First, Laminate & Allied, which continues to be our biggest segment, for the quarter, the revenue grew by 10.2% on a year-on-year basis and grew by 18.6% sequentially to INR 658 crores from INR 597 crores in Q2 last year. Volumes saw growth of 7.4% on a year-on-year basis and 17.2% on a sequential basis. EBITDA margin before ForEx fluctuation -- after ForEx fluctuation stood at 18.7%, a growth of 400 basis points on a year-on-year basis and a growth of 450 basis points on quarter-on-quarter basis. Production volume were the highest in this quarter and stood at 5.9 million sheets and board with a utilization level of 96%. Sales volume for the quarter stood at 5.79 million sheets and board and with an average realization of INR 1,104 in this quarter. For the half yearly -- the half year laminate revenue grew by 7.2% on year-on-year basis to INR 1,213 crores from INR 1,131 crores in last year. Volume grew by 6.7%. EBITDA margin stood at 16.6%, a growth of 240 basis points on a year-on-year basis. Production volume were at 11.06 million sheets with a utilization level of 90%. Sales volume in this half year stood at 10.73 million sheets with an average realization of INR 1,098 per sheets and boards. Moving on to another segment, Plywood & Allied. This segment consists of plywood decorative engineered doors and engineered floors. Revenue of this vertical grew by 22.2% on a year-on-year basis and grew by 16.4% on a sequential basis to INR 102 crores from INR 83.9 crores in Q2 last year. EBITDA loss for this quarter before ForEx reduced to INR 3.9 crores in comparison to INR 6.2 crores loss in Q2 last year. Revenue for the half year grew by 23.5% to INR 190 crores from INR 154 crores last year. EBITDA loss for the quarter reduced to INR 12.5 crores as compared to INR 14.9 crores in H1 last year. Moving on to another segment, Panel & Allied, which is having chipboard as of now. For the quarter, revenue grew by 54.2% on quarter-on-quarter basis to INR 47.8 crores in this quarter from INR 31 crores in quarter 1 FY '26. Volume saw growth of around 80%. Average realization stood at INR 18,187 per cubic meter. The production volume were at 26,571 cubic meters and utilization level of 36%. Sales volume for the quarter stood at 26,287 cubic meters. In this quarter, working capital improved by 12 days and stood at 47 days as compared to 59 days in quarter 2 last year. Net debt as on 30th September stood at INR 995 crores as against INR 1,040 crores in the June quarter with a reduction of INR 45 crores in this quarter. That's all from my side. Thank you. We will now open the floor for the questions.

[Operator Instructions] The first question is from the line of Keshav Lahoti from HDFC Securities.

Firstly, congratulations for a strong set of numbers. Just want to get a sense on laminates margin, which is 18%, 19% for this quarter. So how we see this in upcoming quarter? And what is the guidance we...

So laminate margin in this quarter is around 18% before the ForEx fluctuation. We have given a guidance of around 16% on a longer tenure basis. This quarter, we -- apart from the volume, if you saw there is an increase. And this quarter, we had a launch of our flagship brand of Greenlam also. So as of now, we will continue with around 16% growth -- it can go up also depending upon the volume, but let's say, we continue with this 16% guidance on a yearly basis kind of a thing. So for the H1, the margin remains at 15 -- as of now, margin is 15.7% before ForEx fluctuation.

Got it. And in laminates, the laminates prices and raw material prices are stable. That is a fair understanding?

Yes. For the domestic, yes, the laminate prices WERE both -- but in the export side, because of the currency movement, there is like realization -- some bit of realization there is -- and raw materials remains stable.

Got it. And particle board plans remain intact to possibly breakeven next year on EBITDA front and plywood possibly would break even by the end of this year?

So Chip, clearly, I think the way things are moving, we think we should be able to breakeven EBITDA in FY '27. And ply also, again, we are very close. You see a little bit of more push on the numbers and it should happen. So yes, so may be around there.

So ply when you talk about breakeven, you talk for the FY '26 as a whole or possibly you talk by Q4 FY '26 just for a quarter? And on chipboard, any sense on [indiscernible] you're talking H1 or H2? And last question, what has been the ply loss for this quarter?

Obviously, we can't say anything with certainty, but I think the revenues are going up each quarter more or less for plywood. And we are quite close to a breakeven point at EBITDA level in plywood. In chipboard also the endeavor will be to do it quicker. So we just have to see how the business progresses. And versus Q1, EBITDA loss has reduced in Q2 in chipboard too. So I think at about 45% to 50% utilization, we do EBITDA breakeven. We're now at about 36% utilization. You can run the numbers.

Yes. Got it. And what was the ply loss for this quarter?

It is INR 5.8 crores.

INR 5.8 crores. And sir, what is the reason not to report ply loss in presentation, which earlier you used to report?

This is -- actually, there's too many things are coming in terms of that. There is nothing such not to put kind of a thing.

But having said that, even for competition, they also report decorative veneers in the Plywood segment itself. So yes, our addition is flooring and doors. And most of the competition also discloses the cluster business or laminate cluster business in the Plywood segment. So it's not very -- anything different we are doing. Maybe just a flooring get added on. But otherwise, plywood reporting segment is all kinds of plywood, decorative plywood, [indiscernible] we are more or less in the same.

Instead of product level, we are giving at the segment level because the number of products are increasing. So we are putting on a segment level, which is like 3 segment mainly. So we are doing at a segment level kind of.

The next question is from the line of Rudraksh Raheja from ithought Financial Consulting.

Am I audible?

Yes, please.

So my question pertains to the Laminate segment. Last quarter also, we have seen some revenue growth coming back and this quarter also, some 10%, 11% growth in revenues. So could you give us an outlook on both domestic and international markets? Like what is generating this kind of a growth, which segment?

Laminates, we have not anything very special. Actually, if you look at H1, the growth in laminates is 7.2% only. And I think like -- yes, revenue growth is about 7.2%, yes and volume is up 6.7%. So I think it's more like a routine growth in laminates.

And sir, how do you see this going forward for the rest of the year or maybe next 4 quarters?

So I think we should be able to -- our endeavor is to keep growing the business the way it's done. So I can't say much certainty. But at an overall level, we said we should be able to grow 18%, 20% at an organization consolidated level basis. I think we maintained that. So I think laminates growth should also continue at the same or slightly maybe better pace versus what we did in H1.

Got it, sir. And sir, one thing on the U.S. tariff front, the cost benefit that laminates had before tariffs and if I compare that to the current situation when U.S. has imposed the tariffs, could you help us understand like India still has that cost advantage that it used to have or like...

So the way to look at it is that -- so of the increase as far as we are concerned, our business in U.S. is about, I think, 4%, 5% of our export business, maybe 6%. So that's just the number you should know. In terms of the increase of tariff, if you take the entire tariff increase, clearly, the cost benefit will not be there unless it's a specified item by an architect ID. So what we have done of the increase which is impacted to us because we ship to our subsidiary, which then does custom clearance and ships to the customers. Of the increase, about 40% is something we are passing on to the market, and we're absorbing about 60% of the cost. And we are obviously all hopeful that something gets resolved with the tariff issue. So if you take the entire 50%, then the cost competitiveness is not there.

Understood. So have we seen some capacities coming back in the U.S.? Like have they started doing more production in-house or maybe outsourcing to some other countries?

So I don't know with certainty. But like if I talk about ourselves, in Q2, our sales in U.S. has been maintained. But I do hear in the market that local production has increased. And there are other countries who have been imposed with lower tariffs like Turkey and maybe Italy and some other markets. So I don't know with much certainty, but clearly, other countries where tariff percentage are lower do get an opportunity to kind of win some more customers or get some market share.

[Operator Instructions] The next question is from the line of [indiscernible] from Nuvama Wealth.

Congrats on great set of numbers. Continuing with the question about export volumes. I was just looking at the laminates export volumes, they have increased sharply both Y-on-Y and a sequential basis. And continuing with what you said, do you think we should see a little bit of cooling off coming across?