Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q4 FY '20 Earnings Conference Call. 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 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, MD and CEO, Greenlam Industries Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen, and a very warm welcome to all of you. I hope you are all keeping safe and healthy. On the call, I'm joined by Ashok, our CFO; Samarth from the Finance Team; and SGA, our Investor Relations adviser. The results and presentations are available on the stock exchanges and our company website, and I hope everyone has had a chance to look at it. So without taking too much time, I will get on to the impact of COVID, what has we done all this while -- while the lockdown was going on, post lockdown, what have we done and what are we seeing on the ground. So the COVID-19 started impacting our business towards the middle of March. So in the month of March, we lost about 12 to 15 days of domestic sales and we lost about a few days of export sales. And while the lockdown was going -- was on, we were really busy reviewing our customers, reviewing our strategy, looking at our cost structures, getting our plants ready to open up once the lockdown would have got kind of unlocked. So that period was really utilized to relook at strategy, relook at the structure, relook at cost, customers, products, way forward, et cetera. We started our plants -- both the factories started towards the end of April. And subsequently, most of the branch offices in India, warehouses also commenced operation within a week -- 2-week period besides 1 or 2 markets where the lockdown was still imposed and markets were not allowed to operate. International markets were mostly open through the lockdown. Some markets were shut, but at any moment of point it wasn't as if all the markets were shut. So while the lockdown was on in India and even post lockdown, several international markets were working, and several of our team members internationally were still able to connect with customers and continue running the business. While we reopened post lockdown, we didn't have any significant inward supply chain disruption, we didn't have much issues of workers not being available. So we were able to commence our operations in a reasonably -- in a satisfactory manner. In both the factories, we have accommodation for workers staff. So most of them were living in-house. And large parts of our raw materials are imported and we do maintain inventory for most of them. So all that was also largely under control. Once we opened up dispatches to domestic market and international markets also happened in a reasonably smooth manner. Yes, there were some delays of -- or there are still some delays of vessels and some teething problems here and there. But by and large, nothing very significant in terms of inward logistics, outward logistics in terms of manpower availability. Post lockdown, we reviewed all our debtors, and there is no significant risk of any debtor really going bad. Yes, there are some delays. So by and large, through the lockdown and even post lockdown, because of the way we ran the business pre-COVID, we were quite tight with our debtors, we were quite focused on quality of the business and we were really focused on quality growth. So we didn't anticipate -- we didn't actually face too many of these challenges of debtors, delinquency of manpower or supply chain disruptions, et cetera. So April month was nearly very, very small thing of exports; May, we did slightly better; and June is looking even better. So export business has come to, you can assume, nearly 70%, 80% of normalcy. The domestic business, depending on the market, depending on the state of the capital states, all the Tier 2 markets, some markets are doing reasonably well, some are still struggling. But on an overall basis, you can assume that the domestic market is like anything between 40% to 50% of pre-COVID times. So this is on the domestic space. And while the COVID has brought about too many challenges and many difficulties in terms of market and possibility of growing the business, et cetera, we think it's a huge opportunity for a company like us where we end up competing with many smaller, midsize and weaker competition, both in the domestic market and international market. And we think it's a good time for us to really go out and get more market share and that's what we are doing exactly. In the international markets also, we're trying to win more market share versus the domestic competitors in India and versus the domestic -- versus the regional competitors in those international markets. Even within the country, we've also got into the commodity product which we were not doing earlier in laminates. And -- so that's more like a bottoming of the market. So we've introduced that too. And in India too, we see huge supply chain disruptions by smaller, midsized companies and we think it's opportune to get market share in both domestic and in the export market. Also in our other wood-based categories, there is potential of replacing imports, especially in the door and the flooring category and that's also something we are pursuing quite aggressively. So by and large, the business is in control. There has been some cash flow mismatch in April and May because we had imports coming and we had no -- very little income, which obviously will get streamlined over the next few months. Besides that, things have been largely under control within the circumstances possible. We've all been on top of the business and we've really been driving the business. We've also looked at reducing costs. The balance sheet is fairly under control. We didn't -- we've never compromised on the balance sheet in the past too. So by and large, that's under control. Lines of credit with the banks have all been -- were already in place. So no significant disruption on vendor payments or employee payments and all that stuff. So yes, so this is how we've tried to -- this is how we've managed the COVID, post-COVID situation until now. And I'll hand over the call to Ashok. Ashok can take you through the numbers, post which we'll be happy to answer your queries to the best possible situation. Ashok, over to you.

Thank you, sir. Good afternoon, friends. Let me take you through the financial performance. For Q4 FY '20 on a consolidated basis, our net revenue for the quarter grew by -- degrew by 10% to INR 324 crore. Drop in the revenue for the quarter was on the back of temporary suspension of production and operation at our manufacturing facility towards the end of March due to COVID-19 pandemic. Gross margin improved by 650 basis points to 50.2% in QY (sic) [ Q4 ] FY '20 as against 43.7% in QY (sic) [ Q4 ] FY '19 on account of better product mix and some lower RM cost. Gross margin in absolute terms increased by 3.3% to INR 162.6 crore as compared to INR 157.3 crore Q4 FY '19. EBITDA margin grew by 170 basis points to 14% in Q4 FY '20 from 12.3% in Q4 FY '19. EBITDA grew by 1.8% to INR 45.2 crore in this quarter as compared to INR 44.4 crore in Q4 FY '19. PAT for the quarter grew -- degrew by 8.6% and stood at INR 21.7 crore. Moving on to FY -- moving on to the full year on a consol basis, net revenue grew by 3.1% to INR 1,321 crore as compared to INR 1,281 crore in FY '19. Gross margin improved by 290 basis points to 49.2% from 46.3% previous year. Gross margin in absolute terms increased by 9.7% to INR 650 crore in FY '20 as compared to INR 593 crore in FY '19. EBITDA margin grew by 110 basis points to 13.5% in FY '20 from 12.4% in FY '19. EBITDA grew by 12.4% to INR 178.2 crore this year as compared to INR 158.5 crore in FY '19. PAT in this year grew by 12.4% and stood at INR 86.7 crore as against INR 77.1 crore previous year. As on 31st March 2020, total debt stood at INR 294.2 crore, which includes short-term debt of INR 176 crore. However, the net debt, after minusing the cash balance, stood at INR 263.4 crore. Our net debt-to-equity ratio stood at 0.5x and net debt-to-EBITDA ratio was at 1.4x as on 31st March 2020. On annualized basis, ROCE stood at -- return on capital employed stood at 15.9% whereas return on equity stood at 17.3%. However, if we adjust the capital employed for the new project in Greenlam South, the ROCE for this year will stand at 16.8%. Our working capital cycle has increased by 3 days to 90 days as compared -- 3 days, stands at 93 days as compared to 90 days in FY '19. Moving on to segmental performance, Laminates & Allied contributed 88% in Q4 sales and 85% on FY '20 sales. In Q4, Laminate segment recorded a sales of INR 283.6 crore, a degrowth of 6.2% in comparison to previous year same quarter. Laminate export sales grew by 11.8% on Y-o-Y basis for this quarter. EBITDA margin expanded by 160 basis points to 15.8%. Production volume were at 3.22 million sheets and at a utilization level of 83%. Sales volume for the quarter stood at 3.45 million sheets and our average realization for the quarter was INR 774 per sheet as against INR 770 per seat in the last year same quarter. Moving on to annual performance for this year. Laminate sales grew by 3.5% to INR 1,122 crore with sales volume of 13.23 million sheets, a degrowth of 2.2% over same period last year. Laminate exports sales grew by 11% in this year. EBITDA margin expanded by 210 basis points to 15.7%. Production increased marginally by 0.4% to 13.74 million sheets with a capacity utilization of 92%. Average realization for the year was at INR 797 per sheet as against INR 764 per sheet in FY '19, a growth of 4.4%. Moving on to Decorative Veneer & Allied segment, which forms around 12% of our Q4 sales and 15% of FY '20 sales. This segment includes decorative veneer engineered floors and engineered doors. Total segment as a whole stood at INR 40.4 crore in Q4 FY '20, a growth -- a degrowth of 30.1% on a year-on-year basis. For the FY '20, the segment revenue stood at INR 198.3 crore, registering a small growth of 1.1%. In the Decorative Veneer segment, for the Q4 FY '20 revenue degrew by 34% to INR 23.8 crore. For the year as a whole, Veneer segment revenue degrew by 13.7% to INR 112.7 crore. Capacity utilization for the quarter was 32% and for the year stood at 38%. Sales volume for the quarter was 0.33 million square meters and 1.54 million square meters for the year as a whole. Average realization stood at INR 715 per square meter for this quarter and INR 722 per square meter for the year as a whole. In terms of engineered wooden flooring, quarter 4 revenue degrew by 29.2% and stood at INR 9.2 crore. For the year as a whole, Engineered Wood Flooring revenue grew by 18.9% and stood at INR 51.2 crore. EBITDA loss for the quarter was INR 1.1 crore and for the year as a whole was 7.2%, which is narrowed down in comparison to previous year same quarter and for the year as a whole. Capacity utilization stood at 16% in this quarter and 21% for the year as a whole. Moving on to Engineered Doors. For the quarter, revenue degrew by 13.4% and stood at INR 7.3 crore. For the entire year, doors revenue grew by 53.3% and stood at INR 34.5 crore. EBITDA loss for the quarter and the year narrowed to INR 0.9 crore for the quarter and INR 3.1 crore for the year as a whole. Capacity utilization for the quarter stood at 28% and for year also it was at 28%. This is all from our side. I would now like to open the floor for question and answers.

[Operator Instructions] First question is from the line of Shrenik from JM Financial.

Sir, my first question is, why have the door and floor realization has dropped so sharply in this quarter?

There is no specific reason in terms of this. This is due to product mix, it keeps changing. And the mix of export and domestic book.

Okay. And sir, in stand-alone numbers, why is the other income figure quite high as compared to normal levels?

This is in terms of dividend which we have received from our subsidiary. And in the -- when you are doing the consol, at that time, the dividend gets netted out.

And sir, with regard to the commodity type product that you all are introducing. So are you all coming up with a new brand name? Or it will be under the Greenlam brand name? Hello? [Technical Difficulty]

Sir, trying to reconnect him. Just a moment.

Yes, he's got disconnected. Yes. In terms of your question, we were already there in this segment, but we were not pushing too much in terms of this segment. So we will restart this segment. So this is the sub-brand under Greenlam. [ It is ] another brand also.

And sir, with the AP expansion plan, are we continuing with the same time line or you are differing it?

In terms of -- since we were -- we have made the payment for the land in the quarter 4 and we were awaiting some government approvals, which due to this COVID, it's already got delayed, and we believe it will get further delayed, so we believe that the overall time lines will get stretched. And I think it's -- you can presume that in the current scenario, it looks like that 6 to 9 months it may get delayed.

So assuming FY '23 mid, is it a fair assumption?

In this -- as of now, this -- that only. Obviously, everything will depend upon the future -- how the future unveils.

Sir, we've got Mr. Mittal connected back to the call.

Sorry about that, guys.

The next question is from the line of Nehal Shah from ICICI Securities.

Sir, on the -- while what we have seen is Laminates have reasonably done well considering the environment, what is the fate of our Decorative Veneers or the Allied -- Veneer Allied segment where we have seen disruptions which have started right from the end of March? And what's the likely future -- at least the near-term future for next 1 year for the Decorative Veneer as well as the Allied categories?

So on the Decorative Veneer & Allied categories, Nehal, I think the door business looks to be okay I think. We don't expect any significant disruption because we've also built an export model there. And doors were imported into the country for many projects, although business will reduce because projects will reduce also. But by and large, we don't expect any significant disruption versus what we already are doing right now and we're doing a very small amount of business there. We're doing too -- by and large, we don't expect any further significant disruption in the flooring too. The veneer -- the Decorative Veneer business, which is the veneer panel business, I think that's going to be the segment which is going to be under pressure because that's a completely 100% domestic market model. There is no hedging of exports there. So I think that will be under pressure at least temporally. But in that segment too, as you probably are aware, most of our competitors are the unorganized brands or regional brands. And there too, like laminates, we are seeing disruption of these companies, either they have not started manufacturing or they don't have capital to bring in the raw materials or their sales network is completely distorted. A lot of veneer business in the country was being done non folder where a Bombay trader would keep inventory and ship across the country. So I think all those local business models are coming under tremendous pressure. So even if the market contracts and market could contract temporarily if you take a 1-year horizon in veneer, I think the idea here too will be to take market share from the unorganized players. But yes, that's going to be limited to the domestic market only.

You're right. But even, sir, if you're able to get market share gains, but that could be slightly at the cost of lower realizations?

Yes, you could say that because -- you could say that. But if you see the unorganized market, Nehal, there is one end of the market which is absolutely lower end of the market, which is the engineered veneer and the teak veneer, and the other is a very premium category market, which is more the veneer showroom, gallery showrooms selling out very, very expensive veneers. So I think it's a mix of both. But I guess, you could assume that at least the market share -- if we do gain market share, there will be pressure on the realization and the value mix of that particular business.

All right. So probably in such times, probably recon and teak veneer may do a bit better or you will see lower disruption in recon and teak versus natural veneer?

It's very difficult to say that right now, Nehal. But at least teak, I think, will be less disruptive because it's more commodity, it's more marginal, and the price points are more effective and more efficient versus the natural.

You're right. Right, sir. And sir, my last question is on -- while the sales volumes or the sales is beyond our control, one thing which is within our control is the cost. So what are we doing as far as cost rationalization is concerned in this year of disruption?

So we've reviewed our entire cost structure. So starting -- so I'll start with, okay, raw materials is something where we are seeing, at least on the chemical side, some sort of lower cost, the paper, the veneer wood, we don't -- the slightly lower cost is being offset by the currency depreciation. All the other fixed costs across the business, marketing, manpower, logistics, purchases, everything is being reviewed, and we're trying to control the fixed overheads and the fixed cost as much as possible. But that's what we are doing actually.

Any number, sir, we can get as far as the costs on the fixed side is concerned, as to how much are we likely to curtail?

So maybe we can give that number to you off-line. Ashok can work with you on the fixed cost. But we're not looking at really reducing the infrastructure of the company because I still believe it's a good time to really go out and get more market share in Laminates business also in both the domestic and the international market. And domestic also, one is the lower end of the market, which is the commodity liner market, and the other is a non-folder gallery showroom laminates, which were actually being sold at an equal or higher price compared to a 1 millimeter business. So we think there's a opportunity in both ends to the market. We'll have to see how this goes. Even in exports, we think it's a good time to really go out and get more market share.

But sir, is it fair to assume more market share in the 0.7, 0.8 mm thickness market? Or do you think that's even possible in the 1 mm thickness category?

I think 0.7 will be a more fairer situation to assume because 1 millimeter, I think, overall volumes might come down. So even if you gain market share, it will not be visible in our results. So I think 0.7 mm will be a better way to look at that.

[Operator Instructions] Next question is from the line of Sneha Talreja from Edelweiss.

Sir, it was more pertaining to the laminates volume, we have seen healthy growth in the exports market since last 3 quarters. Could you specify us where is this growth coming from? I mean these are existing set of countries, customers? Or are we adding from where we are receiving some response? If at all you could give some color on that?

I can't give you like a country wise kind of a breakup currently, but I think we added a new production line, as you know, in the Nalagarh factory. And I think we started around September of the larger size, 130 x 3 or 5 centimeters dimension. So most -- so a lot of growth -- quantity growth has come in from the European market overall because of adding of that capacity. And otherwise, even several other markets have done reasonably well.

Sure. And during this lockdown phase also, how about the inquiries? Have they been increasing because of some shifts happening from other countries to India or something?

So on the international front, while the lockdown was on, in that 22nd March or whatever, till 20th April or the first week of May period, so several international markets were still operating. So yes, most markets were closed at some point, but businesses were not completely shut in most of the markets. So there are either a night curfew or there are some other restrictions. So the international team was still able to get some business and run some business there. So nothing very specific that the inquiries increased but yes, business was still happening. We were still getting in orders. The payments were still being made. Our teams are still going out and meeting customers or visiting -- so it wasn't as bad as India was.

Sure, sir. Sir, the second question was relating to the domestic market. So we have seen around 26% drop and you said there was a 10 to 15 days of impact which was there in the domestic market. So I would like to understand, generally, our peak sales happens during the last 15 days or something? Like how was the response in April and -- sorry, I mean, Jan, Feb, if at all, you could give some picture on that?

So typically, March ending is a large month because people complete their schemes, the annual lifting is there. So across various markets in India, I think 2 weeks, literally, there was literally very, very small sales then. We lost, you could assume, approximately INR 40 crores to INR 50 crores of domestic sales in that period. And yes, so March -- Jan and Feb exact numbers, I don't have, maybe Ashok can speak to you off-line on that. But yes, we did lose sales. Certain orders of flooring and doors were postponed by the projects -- they postponed the project. So although goods were ready, they didn't take in the consignments. So all of this put together, we kind of -- and we were not compromising on payments. So we didn't bill people who were not paying up. So we didn't compromise on our payment term. So that's also a reason why inventory looks high in the balance sheet in quarter 4 and debtors are low and sales were lost in that period.

Right, sir. Sir, got that. Sir, 1 last question if I may just squeeze in. Sir, how is response currently that you're seeing in domestic market? I mean a lot of markets, as you said, have opened up. And -- but how is the response that you're getting with a category like laminates? And what is your percentage of sales related to B2B? Or -- and what is it related to the retailers and the distributors? Just rough estimate on that.

Yes. So currently, like I said, most markets have opened up. Now again, Chennai is under some lockdown. In Kerala, some districts were under lockdown. So these kind of smaller lockdowns are there. Certain markets are still restricted. They're not working 6 days a week. They're working on alternate days. In some markets, timing is restricted. So various parts of the country, cities, areas have set up their own norms, so basically the local environment there. So by and large, domestic market, like I said earlier, was -- is operating within like a 40% to 50% kind of run rate vis-à-vis the pre-COVID period.

Got that, sir. And any sense on the B2B or the B2C size in case?

So tough to give you a breakup on that, but the OEM segment of the market, which is kitchen producers, door producers, wardrobe producers, we think that segment has more traction than the typical trade market. So -- and this is a trend something which has been happening, and we've also said about it that people will move to off-site carpentry, OEMs will gain some more market share and carpenters will become installers. So I think that is clearly playing out now. So because customers don't want carpenters to come and do jobs on their sites, they probably get it done in their workshops or on their factories and come and install it on the site. So the so-called B2B OEM segment is probably moving at a better pace than the trade market -- than the retail market, at least as of now.

And that can be also related to import restrictions? Or have you seen any impact of OEMs demanding for more number of inquiries from ready-made furniture manufacturers, given that there could be some amount of import replacement opportunity or, in fact, even exports happening to countries like U.S.?

So we've been hearing that with OEM, but it really hasn't translated to so much of business or inquiries as we talk right now. One has to see this as we move along.

Next question is from the line of Jason Soans from Monarch Networth Capital.

I just wanted an outlook in terms of demand. Well, I understand right now COVID is going on and demand estimation is little bit tough. But just from a post-COVID outlook, say, 2, 3 months down the line, how do you see demand panning in your Laminates segment and your Decorative Veneer segment?

So I think the answer is that we don't know how demand will pan and what's going to happen. We know what we are trying to do and what we can do within our limited means. So like I said earlier also, we think we can gain some market share at this point, both in the domestic and the international market across all the categories. And -- so we are really going out and doing that. We have great products. We have a solid distribution network with warehousing in India and we have teams abroad with stocks on ground everywhere. The laminate products we do are all antibacterial and it's really -- and we've been doing that for over 10 years. It's very, very relevant in the current environment. So I think we have the right products. We have the distribution in place. The teams are in place. They're all based out of various parts of the country and globally. So really, we are still able to reach out to our customers physically and obviously through online means. And so I think what we are trying to do and what we can do, how will demand pan out, very difficult to know. Some days it looks good, some days it looks pathetic. So I think, none of us -- at least, we don't know what's going to happen. It has to -- we'll just sort of play it as it comes along.

[Operator Instructions] Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

So you just spoke about the OEM segment probably seeing more traction than the trade market. As -- for us, let's say, across segments, how would our, let's say, share of OEM be versus, let's say, the trade, if you could just give us some sense on that?

Difficult to give you a number on that. But -- so the OEM segment is not necessarily only serve directly to the OEMs. So OEMs are also being served through the channel, through the trade. We keep inventory and service the OEM. So -- but you could assume that the larger metro markets, a Delhi-NCR, a Bombay-Thane, Pune, Bangalore, Hyderabad, Chennai. So here, you have larger concentration of OEMs, and these markets have good amount of numbers after sales as compared to the trade, but difficult to give you a percent exactly what's OEM and what's directly going to the carpenters or to the trade market.

So when you say that -- if that segment could pick up -- given that the larger towns or the larger cities are the ones which are more impacted, when you say that demand comes back, you're trying to say that it would probably be coming back only in the OEM segment. As far as the trade is concerned, probably just the retail is concerned, that will be pretty much impacted. Is that a fair assumption to make?

Yes. So what I was trying to convey is that in the larger markets, when demand does come back, I think the OEMs will be a larger beneficiary because just with the complete awareness of the crisis and people coming in homes and doing carpentry, I think customers will prefer to get the kitchens outsourced, get it fabricated and probably the carpenter can just come home and install it, so when demand does come back. But that doesn't mean the trader is not valued. The trader goes and sells to the OEMs because they provide a complete package to the -- so from the trader, whether goods move to OEMs or to the end carpenters, from the shops to the contractors, I think the OEMs will start playing a larger role in the industry and the business.

Is there also a fear that because there's been -- lot of migrant labors have gone back or migrant workers have gone back, demand could probably be, let's say, delayed than what we're expecting it to be because the carpenters will be late to come back. Is there any such thoughts also over here?

In some markets, there is. So it's very patchy. It's not as if that's one thing which is prevailing through the country. So I've been personally connecting with most of our dealers across the country, across -- right down to the states, tehsil level. So various places have various feedback. So I'm not able to say that this is the only direction. I think every local area has its own challenge. But yes, in some markets, we've heard people saying [Foreign Language]. There are not enough people to work in the warehouses, there are not even enough carpenters. So yes, that's also something we've heard. But is that the only thing? I'm not sure on that.

Also, when you probably look at, let's say, domestic and export market, it is very interesting to hear that export markets have actually come back to almost about 80%. And I believe, that has obviously been improving on a month-on-month basis. Let's say, for example, a June would have been better than a May, so as to speak. Is it -- would it be a fair assumption to make that you could actually -- I mean if this continues, you could actually end the year with exports being a growth number? And would that be a fair assumption to make? Again, in the export market, are there any specific markets which are driving this demand?

So whether exports will grow in FY '21 versus FY '20, I'm not sure on that and...

So assuming this trajectory remains, so what I'm just saying is that, I'm just assuming this trajectory...

So every assumption -- so if this trajectory does remain, it could be possible, but it depends if there's a second wave of infections and some more market shutdown. So we don't know these things. But yes, the international markets, I think, are in a far better position than the domestic markets. So if you see even Q4, the share of exports international business over to the domestic business, because domestic did not grow. So I think for the first time, we crossed, I think, like a 51% international share versus domestic market. So we have to see actually. So tough to give you complete clarity. But yes, so we have a good setup in the international markets. We have people based across various markets. The spread is pretty good. The products are in place, the distribution is in place, the program is in place. It's not something new which we are going and doing it. We've been pursuing an international market strategy for the last -- over 15 years. So it doesn't look bad. It looks better than what we see in the domestic market, I can say that.

Any specific markets which is driving this demand when you're talking, especially in this period?

No, no specific market. I think we are present across 100 countries. So I think besides a few markets here and there, some markets have been shut by 2 months, some have been shut for 45 days, some have not even shut at all. They've still been working. There has just been a night curfew. So I don't think I can say any particular market is driving the demand.

Okay. On the new market side -- sorry, on the new segment side, again, on the comment of your, let's say, OEM probably doing better, would the newer segment be in a better position because, especially you're talking about engineered doors specifically, are we probably getting a little more aggressive over here because that is what you've been trying to do in the last couple of years, trying to probably break into the, let's say, the projects business or probably trying to break into the OEM side of the business. Does that now become advantageous for us in this situation, both these segments?

Yes, because flooring will end up replacing a lot of imports, imports will become expensive. This whole China story, a little bit here and there. So we do think, but then demand is also going to be a bit low. So I'm not sure whether we'll end up winning more business, but our efforts are on like it was there in the past. So not much is changing from that perspective. We're not reducing resources in sales and marketing across our various segments. I think that just continues the way it is. So not much change or shift as far as our front end is concerned. Again, there too, the products are in place. We've been able to establish the brand at least. Numbers still need to get better. But nothing is changing dramatically as far as the way forward is looking in these segments.

No, the reason for asking this is, obviously, you had a particular target when you had started both these segments. Obviously, they were relatively going slower. In this current environment, does things change to probably become a little bit more on the activator front, especially as the business is concerned [ or not, or are you meaning to move ] from that angle?

Can you repeat the question? Your voice is not clear at all.

I was saying that, obviously, for the last 3, 4 years, we've been actually having a target in terms of getting it breaking even and probably utilization has been a little behind in terms of our utilization levels and all. So I was just wondering to understand that whether post this period, does it really give us an opportunity to probably explore it more aggressively. That is what the...

So we [ pass ] we will be aggressive now also in terms of trying to build the business. And if you see even last quarter, we had come very close to bringing the business to EBITDA breakeven but again, something did slip. So yes, I think the efforts are on. We'll have to see how much will yield into results and what happens in the market.

And last bit from me, in terms of the margin scenario, if you look at the gross margin performance, like sir was highlighting, it's been moving up -- for the last 2 quarters, it's been moving up. I believe, even after that, all the crude-related derivatives or many chemical-related derivatives, they would have come off further. Could you probably be able to quantify that in terms of what could be the gross margin benefit to come forward as well because I believe you'd also be...

I'll have Ashok respond to that, but I think whatever cost reductions have happened in chemicals, when the price is really low, the factories weren't running and we normally have a 3 months booking, but I'll have Ashok respond to that. Ashok, you please go ahead.

Yes, Prashant. As rightly said by sir, we normally covers our -- this chemical-related requirement in 2 to 3 months. And so practically, in the first quarter, we will not get any benefit because most of this was covered. And even in quarter 2 also because we -- because of lockdown, April month was entirely locked down and post that also, the production has not yet reached to the pre-COVID level, wherein the coverage was done based upon the pre-COVID level. So we will get some benefit in the quarter 2. Yes, and you rightly said the 2 of our raw material which has crude-related derivatives, their prices has come down, even though not in the same proportionate to what the crude has come down, and that never happens. Yes, prices have come down and we will get some benefit, but it will be difficult to quantify that in terms of as of now. Lot will depend upon how much we consume, what will be our production level in terms of that, but yes, it will be definitely better than the Q1.

But just to also pitch in, Ashok, the value mix will also kind of change.

Yes. Because of -- as was said at the beginning of the call by boss, that we are moving into an economy range also just to fill up some of the volume to make up good the loss of volume which might happen due to this pandemic. So that may also have a bearing on the overall raw material -- overall gross margin percentage.

Correct, correct.

Or mix of both. So difficult to give a number as of now. But sense is that it should be better than the Q1.

But despite [ the -- how ] you will get a...

Sir, sorry to interrupt you. I request you to come back in the question queue for a follow-up question. [Operator Instructions] Next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

So my question is related to your comment you made regarding the shift of market share, say, that you believe might happen over the next few months. Now just if you can highlight whether this shift which will happen, is it because of some temporary factors like, say, supply chain disruption which might get normalized if there is availability of labor or something in 3, 6 months? Or do you think that your closest -- those competitors who you were talking about from where market share shift will happen, those have broken balance sheet, so to that extent, they will take definitely much longer time to come back into marketplace? And secondly, on this -- whether this shift you are talking about, is it largely from smaller player only? Or do you think that even within the branded names that you generally compete with, there also some market share shift will happen? That's it.

I'm not sure whether all of them will happen or one of them will happen or none of them will happen over the long term. What we are seeing currently is what we can say, is that besides maybe us and maybe one more player, we are seeing supply chain disruption across the other larger players and the midsize and the smaller-size companies, right? Now whether this is going to continue long term or it's going to be on for next 2 months, 3 months, 6 months, is something one has to see, and I'm not sure on that. And -- so at least temporarily, we see the -- how this will pan out over the longer term, will we end up gaining more market share on a permanent basis, will we end up taking market share only from the unorganized smaller companies? The unorganized smaller companies, clearly, there is stress on their system because most of them are largely domestic business, 90% domestic business. And they have challenges on manpower, capital distribution, just -- logistics. So whether this will continue for a longer term? I'm not sure on that. So we'll have to just see how this goes, at least currently we are seeing that.

On branded side, in the sense, larger players also, they are present both in export as well as domestic, so they might -- they also have the similar challenges? In the sense beyond supply chain disruption, is there any working capital stress or anything in the branded side? Do you -- have you heard anything on -- in any peers?

I don't know which all do you mean by branded. But I wouldn't know much about that, whether they have working capital stress or not, you keep hearing stories, but I cannot comment on that.

And in export, this market share shift from smaller players, there also, it's largely supply chain related disruption only in market share shift or is there some other reason also in export market?

Currently, it's supply chain also -- local players who just have setup in India will not be able to travel to customers, will not be able to meet new customers, make contact with them. They will all be limited to online contact. You're not able to travel across to meet customers while our teams are locally based there. So the touch base is stronger, relationship management is stronger. We have inventory. It's just a strategic advantage we think we'll get. And in laminates business, once the supply chain gets disrupted, it's tough to put it back to normalcy because there are a lot of colors, a lot of SKUs, it's a finishing product. It's used at the end of the interior, people always want the material urgently or they wanted to do it yesterday types. So supply chain disruptions can be difficult to manage in a larger SKU decorative business. But what's going to happen, we'll have to just see it.

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

Sir, just one thing. I -- speaking to your realization on the Laminates. And from 1Q level onwards -- 1Q FY '20 level onwards, it's been constantly trending downwards. So is it more to do with domestic versus exports value mix or how should one look at it? Or this is more to do with the product or how do one look at it?

Ashok, do you want response to it?

If you see in this quarter, Abhishek, it is -- more or less, it is same in comparison to what it was there previous year same quarter. Of course, from Q3, yes, there is a bit -- it is down. This can be said that because of this -- the sales were down, so a bit of product mix, mix would have been down because from INR 799 it has come down to INR 774, around 3% down.

That's primarily due to domestic, Ashok, because domestic numbers are low in Q4 FY '20.

Domestic was down by around 5% even though export was nearly the same 0.8%. So it is in comparison to Q3 majorly into the domestic part only.

It's domestic versus export value mix. That's primarily the reason for the realization?

No, domestic itself was down and another thing is correct that because the percentage of domestic was lesser in comparison to Q3. So both has a role to play in this.

Sure. Yes. Okay, that's helpful. And just a second question from my side, if I look to your cash flow statement, there's almost INR 58 crores, INR 60 crores of working capital that got consumed in the current year. There was another INR 70 crores kind of working capital that was consumed -- that just got consumed in the last year. So this year, I could understand that maybe -- and it's largely led by inventory. So is it primarily on account of the 15 days lockdown in the last this thing and has that inventory got liquidated now? Or is there a permanent shift in the inventory pattern that you are seeing as far as the business is concerned? Because INR 100 crores of cash flow getting employed on total capital employed of INR 750-odd crores, it's almost about 15-odd percent. So I just wanted some clarity around that.

Yes, Abhishek, in this -- if you see that, the increase in trade and inventory both put together is INR 75 crore in this year and previous year it was INR 81 crore, not INR 100 crore. And this year, yes, the increase in inventory is that past 15 days the sales was slow in terms of that. So we could not able to convert that into the debtors, and a lot of our payments in debtors happens over on cash basis also. A lot of distributors or customers avails the CD benefit. So that collection also -- what we sell, the collection also comes into that. So some amount of this you can say that on account of that only. And then another thing, since a lot of our raw materials are imported, so with the depreciation in foreign currency, the value for the same material goes up. So in absolute terms, it looks like that the inventory investments are increasing.

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

First question was with respect to the commodity market 0.7 mm or less. Would you be able to give some broad sense with respect to the mix for the industry and for us?

Can you repeat your question? Your voice is not clear to me.

For the 0.7 -- can you have me now? Is it better?

Yes, yes, yes, that's better.

Okay. For the 0.7 mm laminate market, how large would be that -- that market would be for the industry and for us broadly? Could that be 50%? Could that be 10%, something?

For us, it's negligible until last year, and for the industry, I think it should be at least, what, 25% to 30%, probably -- and for us is negligible.

Understood. And when you say that we would try and utilize the capacity for this, would it come at the cost of margin? How would the margin profile -- how different would that be?

We'll make no margin doing it. We'll just meet up the overheads. So if you do -- so the commodity segment, typically in our kind of product quality and cost base, you can't make money. You'll only at most make up your fixed cost or part of fixed cost. Yes. So it's not a profit-making item.

And the reason what -- I mean, you indicated that we would try to gain market share there is just to kind of gain market share or it's also to cover the cost, so to say?

So I said we'll try and gain market share through every segment, but this will be also one of them because we were not present in this segment. So sometimes by having a fighter level product, you also end up selling some 1 millimeter and 0.8 and because the markets will be low because demand potentially will be, market could contract. So we said, we have capacity, we have the raw material, we have the network. So at least we can run the manufacturing plants and get some more market share to at least make up cost.

Got it. Just a clarification with regards to this. Do you see a bigger contraction for the premium laminate market compared to the commodity? Or both the segments will be broadly impacted in similar fashion?

Actually, I don't know. I don't know how this is going to -- because the premium market, premium 1 millimeter is more of a largely urban markets business and ever since the lockdown -- ever since the factories started, Bombay-Thane was still shut, Delhi is still having issues with the cases, Chennai is being shut, Calcutta was shut. So most of -- so the 1 millimeter market, which is the more premium market, is more metros and state capitals. And most of the larger metros besides Bangalore was not operating meaningfully. So I think we'll have to see this in July how this happens. So we're also figuring this out right now.

Got it. And just 1 more question, if I may, sir. With respect to the top 20 cities or urban, rural, would you be able to give some color for us how the mix is like?

No, we can't do that right now. I don't know the data.

Okay, okay. And just one more with respect to commercial versus residential, would you have any...

Sir, the line for the participant dropped. Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to the management for closing comments.

Thank you, everybody. Thank you for your time and for joining us on the call. If you have more questions and queries, please reach out to us or to SGA, and we'll be happy to address them to the best of our abilities. Thank you once again. Have a great evening ahead.

Thank you very much. On behalf of Greenlam Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.