Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q3 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Mittal, Managing Director and Chief Executive Officer, Greenlam Industries Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and a very warm welcome to all of you. On the call, I'm joined by Ashok, our CFO; Samarth from the Finance team; and SGA, our Investor Relations advisor. The results and presentations are available in stock exchanges and our company website, and I hope everyone has had a chance to look at it. I'm going to ask Ashok to take you through the business environment and Samarth to run you through the financial performance of the business. And post which, we'll be happy to answer your queries, questions, feedback, if any. Ashok?

Good afternoon, friends. I'll take you through the business environment, which was there in the last quarter. The 2019 year is an eventful year for the building material industry. While on the commercial real estate side, we are seeing some signs of revival. On the other side, residential real estate market continued to be under pressure, and we're still having challenges. However, with the latest move of bailing out of inefficient and profiteering private builders, with the stress fund of INR 25,000 crore by the government, we expect better and positive sentiments to unfold for the entire industry. The [ thrust ] from the government on the infrastructure development continue to be strong growth driver for the industry. At Greenlam, we have satisfactory performance on the bank -- on the back of consistent focus on increasing the proportion of value-added products, effective cost management, along with disciplined balance sheet and focus on cash flow. This has resulted us to emerge an industry leader with demonstrated competitiveness across market cycles. On the laminate side of business, the recent commissioning of the additional capacity of 1.6 million sheets and board is well on track to service the international markets. Decorative veneers business is seeing competitive challenges along with demand pressure due to which our business de-grew during the quarter. However, we are able to respond to the market development with the speed and execution and expect normalcy to return in this business in quarters to come. Our engineered floors and doors business continue to grow at a strong pace as we continue our efforts to build a strong market, both domestic and internationally. We continue to focus on increasing the efficiency of large pan-India and international distribution network with more than 14,000 touch points in India and overseas, which ensure timely availability of our products in almost every part of the world. I'm happy to announce that our wholly owned subsidiary, Greenlam South Limited, has approved to set up a manufacturing facility at Naidupeta, Nellore in Andhra Pradesh for manufacturing of laminate and allied products. Greenlam South has been provisionally allotted land by APIIC, Andhra Pradesh Industrial Infrastructure Corporation, land of around 65 acres in Naidupeta. In the current expansion program, this will enhance our capacity -- laminate capacity by 1.5 million sheets or boards per annum. The total cost of project is estimated to be INR 175 crore, which includes the initial cost of land and other infrastructure. The proposed capacity can be operationalized within 24 months. The expansion shall be funded through a mix of debt and capital infusion from Greenlam Industries. With this, our existing capacity of 15.6 million sheets under Greenlam will go to 17.12 million sheets in FY '22. To sum up, we believe we are prepared with the adequate capacities and capability along with a diverse range of product portfolio with cross-sell opportunity and expect to enhance the proportion of value-added products in our portfolio as we step forward in the next phase of growth. Now I will hand over the mic to Samarth to run through the operational and financial highlights of the company.

Thank you, sir. Hello, everyone, and good afternoon to you. I'll take you through the financial performance of our company for the quarter as well as the 9 months as on December 31, 2019. First, we start with the consolidated performance for the quarter, which is quarter 3. The overall revenues grew by 14% and stood at INR 358 crores as compared to INR 314 crores in the previous quarter -- in the previous financial year. Gross margin improved by 200 basis points to 50.3% in the current quarter as compared to 48.3% in Q3 FY '19. This is largely due to better product mix and stable RM costs. Gross margins in absolute terms increased by 18.6% to INR 180 crores in the current quarter as compared to INR 151.8 crores in quarter 3 of FY '19. EBITDA margin grew by 220 basis points to 15.3% in current quarter from 13.1% in the similar quarter of previous year. EBITDA grew by 33.1% to INR 54.6 crores in Q3 FY '20 in comparison to INR 41.1 crores in Q3 FY '19. PAT for the current quarter grew by 46.7% and stood at INR 29.1 crores as against INR 19.8 crores in the corresponding quarter of the last year. Coming to the 9-month performance, overall 9-month performance on a consolidated basis, our consolidated net revenue grew by 8.3% to INR 997 crores as against INR 921 crores in 9 months of FY '19. Gross margins improved by 160 basis points to 48.9% in 9 months FY '20 from 47.3% in 9 months of FY '19. Gross margins in absolute terms increased by 11.9% to INR 487.6 crores in 9 months FY '20 as compared to INR 436 crores in 9 months of FY '19. EBITDA margin grew by 90 basis points to 13.3% as compared to 12.4% in the 9 months period of the previous year. EBITDA grew by 16.6% to INR 133 crores in 9 months of FY '20 as compared to INR 114 crores in 9 months of FY '19. PAT for the 9 months grew by 21.8% and stood at INR 65 crores as against INR 53.4 crores in the corresponding period of last year. As of December 31, 2019, the total debt stood at INR 245 crores, including a short-term debt of INR 150 crores. Our debt-to-equity stood at 0.5. On an annualized basis, our ROCE stood at 17.2% whereas our ROE was -- stood at 17.8%. The working capital cycle has remained stable at 92 days in the 9-month period. Coming to the segmental performance, we have 2 segments: Laminates & Allied and Decorative Veneer & Allied. First, we start with Laminates & Allied, which is 83% of our quarter 3 revenue and almost 84% of our 9 months revenue. For quarter 3, laminate segment recorded a sales of INR 297 crores with a growth of INR 13.2 crores (sic) [ 13.2% ] on Y-on-Y basis. Laminate export sales grew by 25.7% on Y-o-Y basis for Q3 FY '20. Our production stood at 3.74 million sheets with a growth of 4.8% and utilization levels of 96%. Sales volume for the quarter stood at 3.54 million sheets with a growth of 7.8%. EBITDA margin for the segment expanded by 490 basis points and stood at 18.4%. Our average realizations for the quarter stood at INR 799 per sheet as against INR 761 per sheet, which is up by 4.9% on Y-on-Y basis. For the 9-month tenure, the laminate sales grew by 7.2% to INR 839 crores. The laminate export sales grew by 10.7% on Y-on-Y basis. EBITDA margin expanded by 220 basis points to 15.6%. Production increased marginally by 2.1% to 10.5 million sheets with a capacity utilization of 96%, and sales volume remained flat at 9.79 million sheets. The average realization for the 9 months stood at INR 806 per sheet as against INR 762 per sheet, which is a growth of 5.7% on Y-on-Y basis. Coming to the Decorative Veneer & Allied segment, which forms about 17% of our quarterly sales and about 16% of our 9-month sales, this segment includes decorative veneer, engineered wood floor and engineered doors. For the overall segment, the total revenue stood at INR 61 crores as against INR 51.5 crores in Q3, which is a growth of almost 18%. And for the 9 months period, the sales for the entire segment grew by 14% and stood at INR 158 crores as against INR 138 crores in the previous -- 9 months of the previous financial year. Coming to the individual segments within the Decorative Veneer & Allied. For the decorative veneer segment, for quarter 3, the revenues grew by -- sorry, the revenues de-grew by 5.5% at INR 33.5 crores as against INR 35.2 crores (sic) [ INR 35.4 crores ]. For the 9 months tenure, the revenue de-grew by 6.8% (sic) [ 5.8% ] to INR 88.9 crores as against INR 94.4 crores. The capacity utilization for the quarter stood at 43% and for the 9 months stood at 39%. Sales volumes were at 0.46 million square meters for the quarter and 1.2 million square meters for the 9-month tenure. Average realizations were at INR 719 per square meter for the quarter and INR 724 per square meter for the 9 months period. Coming to the engineered wood flooring segment. For quarter 3, the revenues grew by 71% at INR 15.5 crores. And for 9 months, the revenue grew by almost 40% and stood at INR 42 crores. The capacity utilization stood at 23% for the quarter and 23% for the 9 months tenure. For the engineered door business, the revenue stood at INR 12 crores with a growth of almost INR 71 crores (sic) [ 71% ] for the quarter. And for the 9-month period, the revenue stood at INR 27 crores, with a growth of almost 93%. The capacity utilization for quarter 3 was at 36%, and for 9 months, it was 29%. That's all from our side. I'll hand over the line to the management.

Sure. So we're...

We are open for the questions now.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment Managers.

What explains the reduction in profitability in the allied and veneer segment, where especially the growth in the allied products is so strong as one would have expected capacity utilization-related operating leverage to flow in. So if you could explain that? For the quarter and for 9 months, there is erosion in both the places.

So yes, rightly said. The volumes in quarter have been quite decent in floors and doors. And margins have actually slipped primarily due to -- we've done more competitive priced orders for domestic and for export business. So I think that's the prime factor why margins are low on both the segment, in doors and floors.

And another thing, Pritesh, which we have said in our commentary also, the decorative veneer business which normally has better margins, in this quarter and in this 9 months, due to the competitive pressures, that -- there also, we have some pressure on the margin, which -- due to which the overall segment margin has come down.

Okay. My second question on the laminates margin. So they're fairly high at about 18% in the quarter and 15.5% in the 9 months. Now this 15.5% is also a number which is higher than what you would have ever reported in the last so many years. So is this 15%, 15.5% sustainable?

So well, the margin expansion in laminates is a function of improved volume in quarter 3, so let's talk specifically of quarter 3, improved value mix for the domestic and for the export market and sustainable raw material costs in quarter 3 versus quarter 2. So I'm not sure whether this is sustainable or not. Our endeavor internally is to still -- we still think there's more scope to drive volumes up out of the additional capacities we have. Many of our markets are still underperforming. Domestic market, in volume, there's hardly been any growth. So the numbers are not in a very optimistic or very happy situation on the ground. Ground situations remain challenging. So I think if we continue our efforts, which we are continuing our efforts, our endeavor is to maintain the margins, but I can't comment for sure. It will be what it is there.

Okay. And lastly, one clarification. You mentioned that the CapEx is INR 175 crore. In that, land cost is INR 100 crore? That's how you mentioned?

No. Land cost is INR 50 crore in this.

Okay. So 1.5 million sheet will incur a CapEx of INR 125 crores?

This is sheets and boards. So this is not the normal, at present what we are -- this sheet, and you must be knowing that we manufacture sheets which is in various dimension as well as the boards which are mentioned in the thickness. So this -- in this, there are 2 press which we'll be putting. One press, which is of a different size than what we are, there the boards will be produced rather than the sheets, which normally has the lesser number.

The 10 mm boards.

That can vary from 4 mm up to like 18 mm.

So what will be the asset turn for this CapEx of, let's say, INR 125 crore, if I exclude the land and this INR 125 crores?

At 100% capacity utilization, it can generate a revenue of around INR 300 crores. And since this is the -- at the initial level, a lot of other infrastructure you need to build. That's why the cost normally at the initial stage is always on a higher side, CapEx cost. But over a period of time, in the future expansion, you don't put that much CapEx. So where the asset turn will keep on increasing with the further -- as and when we do the expansion, which we have the space to do the expansion, and we will do for the future growth.

[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.

Yes. Congrats, sir. A good set of numbers, sir. Sir, 2 questions. Export business was high in this quarter. And I think, in value terms, it was much higher than volumes. So is that -- there was an increase in prices? Or this was just a function of rupee depreciation, which has led to higher value exports?

So exports volume went up by about 20% and revenues were about 25%. So primarily, a function of value mix improvement. And as you also probably know that in September, we added new capacity at the Himachal plant, Nalagarh plant. It was of the larger size of laminates, which were primarily for the -- addressing the European market requirements. So I think increase of sales in that segment also increases our per sheet value. So more of the product mix improvement. So while volumes went up, product mix also improved and probably some contribution of the currency.

Bhavin, there is not much of a change in the foreign currency in this quarter in comparison to previous. So most of this is what sir has mentioned on the cost front.

Yes. Sure. So due to this new line, so this export momentum will continue going into the coming quarters, right?

That is our endeavor, Bhavin.

Sure. And CapEx of, I think, INR 175 crores on the new line. How that would be spread over 2021? And what's the commissioning date of that new line?

Bhavin, in this, the land cost will be coming in this FY '20. Since we have allotted the land, we need to pay that land, so that approximately you can say that around INR 50 crore will be in this year, and rest will be in FY '21 and '22. Approximately 24 months is that which it can take because since we have only took the land, land development and all the infrastructure need to be built. So approximately around 24 months it can -- it will take for...

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just wanted to understand this strong volume growth that we have seen in the exports part of it, is it that we have tapped into new geographies or any particular market, because of competition you're seeing better market share gains? How should one look at this? Or was it purely led by the capacity addition that you had done?

So I think nothing specific has happened. I think we added a capacity. And as we said at that point that, that particular size of the product, we have a bottleneck in our capacity. So by adding that, the capacity is kind of -- we were able to serve the market more efficiently. And there was a backlog of the things which we had. And we had those customers who wanted to buy from us so I think we just had there.

It's only a market segment, which -- where you were not largely present, you've kind of added that product portfolio.

Yes. We were present, and -- but that segment of the market wanted more products from us, and we had gradually constrained at that point. So we got freed up by adding the capacity, which we did in September '19. So as a result -- primarily the result of that decision.

Sure. And sir, if you can just help me understand, both in the domestic and the export market, we have seen realization increase of 5-odd percent overall. But what we understand is overall demand or market continues to be weak. So in that light, is the -- and currency also has been largely flat on a Y-o-Y basis. So the realization improvement is largely a function of value? Is it because of the product mix? Or have you also taken like-to-like price increases in certain products?

No. So there's been no price increase. It's a function of improved value mix in the domestic market. And introduction of some new products within the category itself. And exports, like I said to you, the size of 4.25 x 10 we had capacity constraints, which got freed up with the last addition. So it's serving that market, which also improves on realization. So there's been no price increase. It's all been value mix improvement.

Sure. And lastly, if you can just help me with the competitive intensity in both domestic and the export market?

So what do you need with the competition?

I'm just trying to understand, is there a change in the competitive intensity? Has it further -- because usually, when you are seeing, when the demand is weak, the competitive intensity across the product categories is increasing. So is there a visible change that you've seen in the last 6 months? Or you're seeing competitive intensity to be stable?

I think competitive intensity is high in the business, both in terms of throwing out more discounts and giving us more credits. And so it remains the way it is. I can't talk of any specific player, but -- and as you know, that we've been quite disciplined in our cash flows and in our pricing. And so I think -- so we don't end up actually in a way competing with many of these guys, but yes, there is competitive intensity, the market is high.

We'll move on to the next question that is from the line of Nagraj Chandrasekar from Laburnum Capital.

Saurabh, this is Pavan. Congrats on a great show. Two questions. One is, could you give us a little more color on the export market in terms of how you see the ROIC is evolving there in comparison to the domestic business? Is it basically about continuing to do what we've done in the last few years and build a brand with the decision makers, whether it's architects, contractors, et cetera? And what is our strategy there going forward, given that we're up against some pretty big, well-established global names? Is it that we do a very good job of influencing and also price more competitively than those guys? Is there a particular offering that we're providing them that possibly the incumbents are not as fast to offer? And second question is around Royal Touch. So Greenlam and Merino have been the 2 sort of dominant players here for several years. And I notice in your annual report, you talk about Royal Touch. Is this a company that's come up in the last few years? And do you expect to see any further entrants of significant size on the laminate side domestically?

Pavan, so on the export front, as you know, we are present across several geographies. And fortunately or unfortunately, good and bad part is, we are not market leaders. We are not #1, #2 or even #3 in most of the markets we are present in. So there is a significant upside across markets in both volume terms and price point improvements. And over the years, we've been able to create a -- establish a very good network with channel partners, with some large OEMs. And so the effort has been and will be to continue to work in that direction, to work with architects, to work with distributors, to work with large kitchen producers and door producers, wardrobe producers. And so the export momentum, I think, will continue, and we're quite optimistic of this part of our business. In between, we had some stress and some challenges, but now with the product offerings, with the teams across, with the network in place, so we think this part of the business will do well. In fact, in the expansion which we've announced, we're going to put up 1 size of the press, which will serve certain other segments of market where currently we're not present. So we are in those countries, we are with those OEM customers, but we're not able to service that particular segment. So this particular new press line will also expand our addressable market. So that's on the export front. And while I say this, I must also say that a couple of international players are going through their own churn. Formica has got sold, is with a new team. Wilsonart has sold their Asia business to a new owner. One of our large Italian competitors are having their own challenges. So we also have some slippage by a few of the larger international players, and we think that'll help us get some more market share and expand our business in markets where these competitors are present in a meaningful way. Second question on the Royal Touch matter. So I think the reference is more to the domestic 1 millimeter business. So Royal Touch is a very old company. I think they've been over -- they've been in the business for over 50 years. So they're not really new. So I think from a market leader position, I think, our comparable businesses, comparable sizes of revenues, production capabilities, I think, is still Greenlam and Merino. So I don't think that has changed much or changed -- while people have added some capacity but really, I think, from an overall product offering, product performance capability, domestic reach as well as the global reach, I think it's still the 2 of us in that space. Is that fair?

Thanks very much, Saurabh. I really appreciate it.

The next question is from the line of [ Ajay Sharma from the Bank Asset Management ].

Yes. I just wanted to again touch back on the new plant. I think you're talking about turnover of INR 300 crore on -- at an investment of INR 175 crore, which is like -- has a turn of less than 2x.

Correct.

Currently, you're running more like 4x. So I mean how you're evaluating the returns on this investment basically?

So I'll explain you. So the land we're buying is about 65 acres, and we don't need 65 acres to run 2 production lines or 2 press lines. So the idea is to start with 2 press lines. And typically, we add capacity every 18 to 24 months. Even if we grow at a 5% volume growth, every 18, 24 months, we need 1 production line. So post these 2 production lines, the incremental capital expenditure would be very small while revenues in it will be more like a 1:4, 1:5 kind of a math. So eventually, as we've kept space for more production and more products and more lines, so this will even out at some point. And also, we don't need 65 acres to just produce laminates. We're also looking at -- we're also evaluating certain other opportunities in our [ varied ] category, which we're not sure of currently. So potentially, in the future, we could add one more product line in that line. So really, this is just an initial investment. So off the INR 175 crores, INR 50 crores goes into land and development, INR 125 crores approximately -- because it's a brand new plant, so all infrastructure needs to be built, considering the fact that we'll be expanding every 18, 24 months in this plant. And so on the returns perspective, currently, the laminates business on a 9-month basis is about a 30% ROC pre-tax business. So really, we're putting the money in this part of the business. So we should be good. Does that make sense?

Sorry, what the max capacity you can reach in this new plant?

So with 2 lines -- right now, we're investing in 2 lines, but as I said that -- if you see our track record, every 18 to 24 months, on an average, we need to add one production line even if we grow at a 5%, 6% volume growth annually. So when we put the third, fourth or whatever we put there, incremental capital expenditure will be small, while the revenue will be higher. So it'll be more like a 1:5 math in that plant as we add capacities in that particular plant. So there's adequate space. So today, we run 6 lines at the Himachal plant in a near 20-acre land. So there is enough space to add more production lines there. And we're also looking at doing some more products at some point there. So it's more like an investment for the future rather than just an investment on these 2 product lines.

Okay. And second question on your raw material basket for -- specifically for laminate. So basically, how is that in terms of either increase or decrease in third quarter compared to either second quarter or previous year third quarter, basically? I guess, because a lot of it is chemical-related, and I think some of those prices are softening as the crude crashes. So I'm just wondering how do you see that playing out?

Yes. Ajay, in terms of raw material for laminate, nearly 2/3 is paper and 1/3 is chemical. And as you rightly said, chemical price keep on fluctuating, even though in the Q3, we didn't have much fluctuation in comparison to Q2. Yet in comparison to a year-on-year basis, in comparison to Q3 FY '19, prices has -- raw material prices has come down for chemical, which has resulted into the growth in the return. That's what...

And the paper prices are stable, is it, going forward as well?

Paper prices are more or less stable.

We'll move on to the next question that is from the line of Ashish Poddar from Anand Rathi Research.

Yes. So just continuing with the last question. So also we have seen strong expansion in laminate margins. So again, just wondering, was it because of -- also because of the RM softening? Or only because of the better, richer mix? And also, I think in the previous calls, you've highlighted that exports and domestic businesses margins are more or less similar. So despite strong growth in exports, I mean, I'm just wondering whether it was because of the higher contribution from exports also. If you can clarify. And my second question is on the engineering doors and floor business. While we are seeing strong traction in the top line, but still the losses continue in the segment. So I think we are -- we have reached to a fair bit of capacity utilization, somewhere around 30% in both the businesses. Still the losses continue. So your comments there will be helpful.

Yes. In terms of, firstly, about the laminate margin, laminate margin has gone up in this quarter. If you compare with the previous year, yes, there is -- some part of this is due to a reduction in the raw material prices, as I said in the previous one. And -- but if you compare with the Q2, raw material largely was flattish. So in comparison to Q2, the increase in margin is largely on account of higher volume as well as the better product mix in comparison...

So better product mix overall or because of the export business?

Overall. Overall, so that you can say that the price -- the realization has gone up both in domestically as well as the export, in both segments. So it's overall in terms of that. And next -- moving on to your next question in terms of doors and floors, in the floors, our capacity utilization as of now is around 23%. In the doors, yes, it has reached above 30%, yes. We would be able to still generate the volume, but not at the right product mix. We are yet to reach to the right product mix which generate the right margin. So that -- and another point, which I mentioned in the previous question, that our margin in the traditional veneer segment also -- the decorative veneer segment also has come down in comparison to previous year due to increased competitive intensity. So that has also overall -- we saw the overall margin reduction for the overall segment as a whole.

So when do you see again profitability coming into these businesses?

We think every time it's going to happen next quarter, it doesn't happen. So you see the volumes are coming in despite the bad market. We are getting business -- some business have been obtained at an aggressive price point. We have not compromised anywhere on our cash flows and collections. So really, sometimes it's just like a touch and go. You feel it's going to happen, it just doesn't happen. So I think -- so we are on track. So we're on track to develop the business. Good work is happening on ground. Yes, it's not visible on the numbers completely well taken.

Sir, any new additions on the real estate builder side? Or any -- if you can give some color there, sir?

Yes. So there have been additions of a couple of customers. A couple of customers have delayed shipments, from where orders have come, they don't want the shipment. So it's a bit mixed stuff right now on the floor and door, considering the market conditions. You win some, you lose some. Are we adding -- so the challenge is to keep adding more customers and more business.

And are you still concentrating on the Bengaluru side market? Or in terms of Bombay market?

Strategy is not changing in doors. We still focus on those 5 domestic markets and some export markets. And flooring, we're doing projects and retail. So from a strategic perspective, not much has changed, and we think that's the way. So we're just keeping the focus and attention and working towards having more satisfied customers, having better installations. So it's WIP, nothing dramatically has changed in terms of direction. And so we're just focusing on what we've agreed for, and we -- the team is clear the direction we're moving. So it just has to happen now, I think.

The next question is from the line of Achal Lohade from JM Financial.

This is Shrenik from JM Financial. Sir, can you give a sense of the value-added mix in 3Q '19 and 3Q '20? Any sense of value-added mix percentage?

So I don't think we can do it right away. So I'll have Ashok respond to you offline with that, if that's fine with you, please?

So if the value-added mix continues to be the same as this quarter, are the current margins sustainable?

So if the value add -- value mix continues, yes, the margins will be sustainable, if it continues. And so whether it continues or not is something -- obviously, we want it to continue and our efforts are in that direction. The products, the sales, the marketing, the reach with customers is in that direction. So it really depends on how this goes.

And sir, relating to the AP plant, I wanted to know the debt equity mix? And second, I wanted to know will any political instability affect the CapEx plan?

So I think debt equity, Ashok will let you know. On the political side, since it's the industrial land in the industrial area which we're buying the land, and so I'm not sure whether we have anything to do with politics there. So not that we can think of because we're not -- it's not a private land, it's a industrial body land in an industrial area. So really, I don't think political instability should impact the business.

And the land is bought at the current market price, whatever is there without any discount or, let's say, any rebate from the government. So we don't feel that, is there anything which is, we have followed all the norms and processes, and bought at a fair price. So we don't feel that there can be -- in our industry purchase is not in which you need more involvement from the government, either in terms of approval or something, except the initial level approval, which you need for any industry. We don't think that, that can have any impact on us. And in terms of debt and equity, see, the portion is INR 175 crore, as of now, it's INR 175 crore only. We see how it goes, depending upon our overall cash flow, depending upon that only, we'll take your call.

Sir, INR 50 crore, you said, for the land will be in FY '20. So the balance, INR 125 crore will be equally split in FY '21 and '22?

It will depend upon the -- how soon we are able to complete that. Difficult to give, but I think in the ratio of 60-40.

The next question is from the line of Sneha Talreja from Edelweiss.

Congratulations on very good set of numbers. Sir, most of the questions are answered. Just few questions. So the new plant that you're putting up, will that have any kind of tax advantage, or means will it fall under the new tax regime of the new plants?

No, there are no tax advantage. Of course, the government -- AP government does have some industry -- some benefit under the industrial policy, but there is no -- it depends upon the expense we made -- we made on that, but there is no tax advantage.

But it will fall in the new -- but it will fall in the new tax -- lower tax regime of the government, 15%, yes.

Yes, it is.

So it will fall under the 15% tax bracket?

Yes.

It is a new business and new unit, which is formed after the announcement. And so it will qualify for the lower tax there.

Sure, sir. Sir, just one more question was, as you rightly said that this quarter, everything was driven by exports market and -- but you also mentioned that there was some pent-up demand, which was there for the new products, which just got -- which just got commissioned during September. So is that base effect over? And could you quantify how much it could be because of the orders which were pending? Or we can consider some amount to be in the sustainable kind of growth?

I can't put a number to it. Our utilization in quarter 3 has been 96%, and we can go up to 110% utilization. So from a capacity perspective, not much stress. So I can't put a number to it, though, yes.

Yes but some of the sales might be that the previous -- because of the capacity constraints, we were having some backlog, which was -- got serviced in this, but it's difficult to give a number to that.

Yes but orders will be regularized. It's not like, it's not -- the model of business is not that you ship once and it's over. It's continuity here.

Right. And sir, which -- you said, I think, Europe is the geography which is driving this kind of a growth. So any kind of visibility that you're looking at about 10% to 12% kind of growth in exports market? Or is it some other markets also driving growth? I mean some sense, if at all, you could give some outlook on the same?

No, we can't give too much outlook on that, ma'am, please.

The next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

Sir, there was this plea by phenyl manufacturer on the import, some additional duty on import. So any color you can put on what's the status on that, where they want to restrict import or put some additional duty of import on phenyl. So any color on that?

That is still pending with the government. And this is routine. Previously also, phenyl from some of the countries was having antidumping public safeguard duty, which got over in the last year. And now with the new -- the new phenyl manufacturer in India, they're trying. So that will depend upon the facts every time. So still, it is pending with the government.

And in our trade like melamine, phenyl, methanol, we keep getting these issues, and it's not something new, and it's been happening for quite a few years, actually.

Okay, okay. And secondly, sir, you said that new unit will have tax of 15%. But there is a clarity on that, right? It won't have any legal issues, right? Because it will be largely under the new -- existing entity only?

No, it's so -- in fact, we are doing whatever is required by the law, this is a new facility, this is formed under a new -- no, it's not under the Greenlam. It's under a 100% owned subsidiary, newly formed company. And this is -- this will be a newer business also. It's not that we are moving from the business from the existing unit to this new unit. So we will take care of whatever is the requirement of the law, that we will take care. And we have, obviously, the -- we have a consultant and doing all the things, which is needed by law.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, what will be your tax rate? Because in the first half also, the number looks less than 20%. So what will be the tax rate for this year and next year?

Yes. Pritesh, this first half, it was less because of the tax reduction, which has happened. So in the deferred taxation, all the previous year, whatever the balance that got reversed that is reduced for the lower rate. Going -- if you see in this quarter, the range is between 22%, 23%. So we, at India level, it is 25%, but the overseas in some of the jurisdictions, the rates are lower than 25%. So we believe that we will be in the range of around 22%, 23%.

Okay. And lastly, sir, we've seen the debt largely static for some years. Now we have this INR 175 crore CapEx. So do we internally have any plan to look at the debt in terms of when do we think we should repay? Or any thoughts there?

There is -- there is - if you see in this 9 month, debt is reduced by around INR 25 crore, INR 30 crore. And some amount of investment, which has gone in terms of the initial money of this INR 50 crore, let's say, INR 5 crore has been paid as an advance money. So around INR 35 crore is the debt which has been reduced in comparison to previous year. And we believe that we will be able to take care of this additional requirement through the internal accrual.

What will be operating cash flow for 9-month?

Between INR 85 crores, INR 90 crores.

INR 65 crores, plus INR 38 crores.

INR 80 crores to INR 90 crores.

I will think and come back to you, Pritesh.

I think around INR 80 crores, INR 85 crores.

Somewhere around INR 75 crores, INR 80 crores, but I'll check and come back.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just one thing in terms of the doors and the floors segment. We've come very close to breaking even, and again, the kind of -- because of the product mix and the losses again mount. So when you're looking at in terms of breakeven on an annual basis or on a sustainable basis, is it utilization packed? Or how should we look at it?

I think we just answered that question before, and I will have to do it once again. So really, the effort is to break even at the earliest. But at times, the volume is coming in, the value mix doesn't settle in, order is excessive, pricing for the projects at times because we're not compromising with the payments or credit terms. So obviously, this year, the way things go, it doesn't seem like we'll kind of break even in 9 months. So it probably gets pushed by another year, I guess.

Is there a lot of competition that you are seeing in terms of a lot of these players who are coming with door and floor. Is it because of that? Or is it generally demand being weak?

Competition, nothing has changed. It was always there. So I think more of a demand situation which is a problem. Although, we have orders, we are not interested because projects are getting delayed. It's more of a demand and a market situation, I think, rather than really competition.

Okay. And sir, just one more thing. Employee costs, we've seen about almost an 18% kind of an increase on a Y-o-Y basis. So is this very regular? Or how should one read into this?

So employee cost has also probably gone up because we had one acquisition in Europe. We also had an expansion of our capacity, so which also had more manpower. As a percent of revenue, I think it's about flattish. So as a percent, revenue is up by 0.8%. So I think more important of the new expansion, doors, floors also, as we're producing more, there's more workmen that are needed. One international acquisition also had some employees coming in and then the routine appraisals of the team members. So I think it's filling that, so.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Sir, my question was on the new unit, I think, you answered whether the tax incentive, you mentioned that there are -- except for that 15% tax, there are no other tax incentive about this new unit, right?

No, there is no tax incentive, per se. But of course, the state government does have some benefits, which is linked to the investment.

Some benefits linked to investments, okay.

Yes.

The next Question is from the line of Dhiral Shah from Phillip Capital.

Sir, what would be our channel mix, like B2B or B2C?

Channel mix, as in -- the laminates business domestically is all run through distributors, and we have some direct accounts with large OEMs. The veneer business is also largely through distributors and some large project contractors could be some sub direct business. The door business is mostly directly to customers, builders or developers. Flooring, the mix between retail and B2B projects. So overall -- so that each category has its own -- the export business is all through distributors or direct, large OEMs like kitchen producers and door and wardrobe producers. So does that answer your question?

So is there any ballpark figure? Let's say, overall retail, how much and institutional, how much, sir?

Can't, because even through distributors, we have sales going into institutions and going retail also. So we can't put a figure to it.

Okay. And any number between -- like the residential real estate focus, and how much would be the commercial real estate side? Is there any number?

No, there's no number.

Okay, okay. And lastly, sir, in terms of net working capital, so do you see this kind of a working capital cycle this would sustain? Or do you feel further improvements?

I think I...

Yes, the endeavor is to increase -- is to reduce the working capital cycle. But as you see that 2 of the business, it still reached up to a certain threshold and met and wherein we have invested entirely into them, but still they need to give the full result. But we see that over a period of time, we can -- this can improve a bit.

[Operator Instructions] The next question is from the line of Forum Makim from Equentis Wealth Advisory Services Private Limited.

Sir, I'm sorry, I missed the export number in the laminate segment. Can you please share it again?

Yes. The export number in terms of -- we shared only the growth percentage. And in terms of the exact number, we will come back to you on one-on-one basis.

[Operator Instructions] The next question is from the line of [ Vijay Gadge ], an individual investor.

Just one question. Are there any chances of capacity concerns before the new plant comes in?

So capacity constraints are already existing in laminates for one particular product category. So besides that, I think we'll just be in time. I think by the time we max out the capacity of the existing facilities, the new capacity should be ready.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for your closing comments.

Thank you, everybody, for your time, patience and your valuable queries and questions. And Ashok will respond to you all if there are any further questions, and he'll get back to the people who had some questions which were to be responded offline. Thank you so much.

Thank you.

Ladies and gentlemen, on behalf of Greenlam Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.