Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenlam Industries Limited Q2 and H1 FY '21 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 the 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 would now like to hand the conference over to Mr. Saurabh Mittal, Managing Director and Chief Executive Officer, Greenlam Industries Limited. Thank you, and over to you, Mr. Mittal.

Thank you. Good afternoon, friends. Thank you for joining us in the middle of the day. I hope you have had a chance to look at the data and the presentations on the exchanges. I have with me on the call, Ashok, our CFO; Samarth, an SGAR, Investor Relations team. So on the results, my comments or my review is that seeing what we did in the quarter 2, we feel that we've done a pretty good job in an extremely difficult environment in quarter 2. We've delivered nearly 40%, 45% of volume growth, very close to 60% of value growth. On an H1 basis, volume growth has been in the space of -- in the range of 70%. If you would compare H1 volume growth versus FY '20, the volume growth is in the range of 35%, 38%. So clearly, we think we've gained market share in this environment. In the last quarter, the raw material costs were at the peak we have seen and it still continues to rise, although not at the same proportion as it rose in Q2. There were severe supply side disruption in terms of availability of certain raw materials, longer lead time in ports of containers, longer lead time-- value of shipping containers to more than 100 ports worldwide. And as you all know, 80% of our RM is imported, and we move significant amount of boxes inwards and outputs. It was quite a volatile and a difficult environment. But I think as a team, despite the challenges we had on both inward and outward, we were able to manage the situation in a fairly good way. We have passed on price increases in the markets in quarter 2. But clearly, price increases have not been passed from the same speed our RM costs went up. And there has been a lag. We are implementing price increases in Q3, some of which has already been implemented in October, some will be implemented in the month of November. Ashok will give us more details on that in the call. So clearly, as we see things now, RM cost hopefully will not spike up in a manner it did in Q2, although we still think it's going to go up. Price increases, which need to be further implemented have already been announced in the market, which probably will be visible, partially in Q3 numbers, I guess, and partially in Q4 numbers. On the demand side, the demand side in the market, by and large, looks quite decent and the domestic market and the international markets, we see the demand side is good, and there's a disruption from several unorganized smaller size, midsized companies. in their ability to supply to the market. Several of them are running at below their capacity, considering non-ablative materials, considering significant investments, which we're going to do in the business because we've stopped getting credits from suppliers and they have disruption to their own customers. So I think the market situation seems to be favoring companies like us currently in both exports and the domestic market. We continued our brand building exercises through the quarter 2, and as we invested into our markets in terms of certain product launches, catalog launches with the campaign we launched on PBC, digital, et cetera. So I think those long-term initiatives of the company continued as usual in the quarter. So by and large, this is more like an overview of how we think Q2 went for us and the actions, probably what we've planned for Q3. So going ahead, clearly, the focus is on driving more volume in the value mix items. So try and improve value mix sales and increase to productions further, which should be a combination of price increases and sales of higher value-added categories. So that's the direction we are following internally. On the balance sheet side, the debtors have been by and large in for, we've been able to reduce net working capital. Inventories still seem high in value terms also because of RM costs going up. So I think the focus on balance sheet, disciplined balance sheet continues, and I think we've done fairly okay on that front. So I think this is all from my side at this moment. I will hand over the call to Ashok. Ashok will take you through the numbers, and then we can respond to your questions and queries. Ashok, over to you.

Thank you, sir. Good afternoon, friends. I'll take you through the financial performance for the quarter and then on the queries. For this quarter, consolidated net revenue grew by 35% on a sequential basis and grew by 57% on a year-on-year basis and we stood at INR 454 crores as compared to INR 289 crores in last quarter -- last year same quarter. Gross margin de-grew by 540 basis points, stood at 43.5% in this quarter from 48.9% in quarter 2 last year, primarily due to rising raw material costs. On a sequential basis, gross margin de-grew by 240 basis points. Gross margin in absolute terms grew by around 40% to INR 198 crores in this quarter as compared to INR 241 crores same quarter last year. EBITDA margin de-grew by 390 basis points and stood at 10.1% in this quarter as compared to 14% in quarter 2 last year. On a sequential basis, EBITDA margins de-grew by 130 basis points. EBITDA in absolute terms grew by 13% to INR 46 crores as compared to INR 40.5 crores in Q2 last year. Net profit for the quarter stood at INR 20.7 crores as against INR 18.5 crores last year. This is after the-- an exceptional item of INR 2.6 crores, which is in terms of entry tax demand with Rajasthan Commercial Tax department. Company has agreed with the AMNESTY SCHEME to clear out the overall demand of INR 7.4 crores by paying INR 2.6 crores. Moving on to H1 performance, consolidated net revenue for the half year grew by 76% on Y-o-Y basis to INR 790 crores from INR 450 crores last year. Gross margin de-grew by 470 basis points to 44.5% in comparison to 49.2% last year, primarily due to rising raw material costs. Gross margin in absolute terms grew by 59% to INR 352 crores as compared to INR 221 crores last year. EBITDA margin remained flat at 10.6% in this half year as compared to 10.7% last year. EBITDA in absolute terms grew by 74% to INR 84 crores as compared to INR 48 crores last year. Net profit for the half year stood at INR 38 crores as against INR 11 crores in last year. Moving on to segmental performance, Laminates segment performed well and Laminates segment revenue grew -- grew by 32% on a sequential basis and around 60% on a year-on-year basis to INR 415 crores from INR 258 crores last year same quarter. Volume growth in this quarter stood at 47% on year-on-year basis. Domestic laminate revenue grew by around 85% on a sequential basis and 73% on year-on-year basis. Volume growth for existing business was 64% on a year-on-year basis. International laminate revenue grew by 60% on sequencing basis and 40% on year-on-year basis. Volume growth for international business stood at 31%. EBITDA margin for the quarter stood at 11.5%, a de-growth of 470 basis points on a year-on-year basis and a de-growth of 190 basis points on quarter-on-quarter basis. Production volume were at 4.47 million sheets, having a utilization level of 114%. Sales volume for the quarter stood at 4.74 million sheets, and this is the highest in our history. Average realization for laminates in this quarter was at INR 833 per sheet. Moving on to half yearly, Laminate revenue grew by 79% to INR 724 crores as compared to INR 404 crores in last year. Volume growth in this half year was 70%. Domestic laminate revenue grew by 93% in value terms and 85% on volume terms. International laminate grew by 70% in value terms and volume was 60% up. EBITDA margin stood at 12.3%, a de-growth of 110 basis points in comparison to last year. Production volume was 8.74 million sheets, a utilization level of 112%. Sales volume in this half year was 8.56 million sheets, and average realization during this half year was 810%. Moving on to other segment, Decorative, Veneers and Allied segment, which comprises Decorative Veneers, Engineered Floors and Engineered Doors. In the Decorative Veneers, revenue grew by 107% on sequential basis and grew by 70% on year-on-year basis INR25 crores as compared to INR 14.8 crores last year same quarter. Revenue for the Decorative Veneers business grew by 77.5% to INR 37.3 crores in this half year from INR 21 crores in the same period last year. Sales volume growth for this quarter was 71% on Y-o-Y basis and for the half year was 78%. Capacity utilization in this quarter stood at 33%, and for the half year as a whole, was 24%. Sales volume stood at 0.35 million square meters, and for the half year, it was 0.51 million square meters. Average realization for this quarter stood at INR 702 per square meter, and for half year, it was INR 717 per square meter. Moving on to Engineered Flooring, the revenue de-grew by around 12% on year-on-year basis and stood at INR 8 crores as compared to INR 9.1 crores last year same quarter. For the half year, the revenue grew by around 24% to INR 15.4 crores as against INR 12.4 crores last year. Capacity utilization stood at 9% in this quarter and 10% for the half year. Moving on to Engineered Doors, revenue for the Engineered Doors de-grew by around 8.8% on a year-on-year basis and stood at INR 6.4 crore in this quarter as against INR7 crores last year. Revenue for the Engineered Door business grew by 9.9% and stood at INR 13.3 crores in this half year as against INR 12.1 crores last year. Capacity utilization in this quarter and for the half year stood at 20%. Net debt for the quarter stood at INR 165 crores as against INR 213 crores at the end of last quarter resulting a reduction. Net working capital days for this quarter stood at 68 days, an improvement of 33 days from quarter 1 FY '22. That's all from our side. I would now like to open the floor for the question and answer.

Thank you very much. [Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.

Sir, I have one question. On the Slide 10, where we put some assessment on the Laminates business gross margin and the following slide, which is 11. So the assessment is that the price increase that we had, like whether it was absolute or by mix was about 5%, and the gross margin reduction in the Laminates business is about 520 basis points for H1. I just wanted to understand the extent of the RM inflation that we are seeing, which is melamine and paper. And I presume that paper inflation continues even in this quarter. So if you could help us understand what is the index of inflation, how behind are we in terms of the price increase? And what extent of price increase would be needed to recoup these loss gross margin in the Laminates business?

Okay. So firstly, let me respond to you, price RM cost increases happening in paper, which is both craft and decorative paper. In both freights coming in, inwards freight has significantly gone up, too. In chemicals, the costs are going up or have gone up in methanol, phenol and melamine. As we talk right now, paper cost, craft paper cost still continue to rise in Q3, too. Melamine costs still continue to rise in Q3, too? So this is on the RM cost situation. On the price increase in Q3, we are looking at a -- or rather we've announced a domestic price increase of approximately 7%. And now this is across various categories where there's great sicknesses. And in exports, we will be taking an increase of approximately 3% plus any incremental sea freight, which comes in. So this is what we're trying to do. Now will this recoup the gross margins, lost gross margins or what is the base of growth -- if you would compare it with last year, last year, gross margins were shy of 50%. So will this be able to bring us back to that level? Maybe not. So along with price increases, we're also working in a more focused manner towards improving the value mix of the of the production. And with volume growth, we think even if there is a -- even if there will be a dip in percentage terms of gross margin, but the absolute value will make up some part of that. So this is what we trying to do right now.

Okay. Is it possible to give an index at the start of the year, if it was 100 for the pool of materials that we use in laminates, raw materials, what it would be at the end of quarter 2 and what is it today? So index of -- yeah.

In this, there are several other things which impact the price like we will -- we use several other grades of material. The -- in case the composition of sheets that will have a bearing on the prices. So it will be difficult in terms of giving the raw material-wise indices in terms of that -- for the individual items.

Okay. And this price increase that we have taken, let's say, or planning to take in quarter 3, at least on a Q-o-Q basis, does it address the incremental inversion in gross margin or the rise in melamine and paper and other costs is also being higher than the price increase that you have taken and you might see some further erosion in your gross margin?

So typically, with the data we have, we can predict costs up to 3 months. So the price increases, mathematics and announcements were done in the first week of October. But after that, too, there have been further increases in costs. So as we expect now, gross margins should improve versus Q2. But will it take care of the entire cost increase? Maybe not. Because even after that increase, there have been further RM cost increase as we talk now.

The next question is from the line of Ashish Poddar from Systematix Institutional Equities.

Sir, my question is on your realization. So if I look at your laminate average realization, it is up by around 7% Q-o-Q. So it is because of the richer mix or the price hikes you have taken during the quarter, if you can explain on that.

Yes, Ashish, it's a mix of both. As we have mentioned, in this -- in the individual segment, in the domestic, we have taken around 5%, 6% around -- up to quarter 2, and in the export, around 3.5%, we have taken the price increase up to quarter -- in the quarter 1 and quarter 2, both.

That is for the first half, right? That is for the first half or for the quarter?

Practically, in the -- most of this will be in the quarter 2 because the first half in the domestic market, most of the market was shut. So practically, if you -- even though figure is for the H1, but practically most -- all of this will be in the quarter 2.

Okay. And in terms of your mix, do you see any mix -- any change in the consumer or the market? Because I believe last year, for some time, it was the thinner grade, which we're selling more. So do you see that trend has changed and now it is returning to normal?

No. So thinner grade was introduced at a point when COVID was on and the market -- it is like H1 of last year types. So yes, we are doing some thinner grade now also, but clearly, the focus is on driving the value items and which is showing good traction. And we believe that in this quarter, we'll see more improvement in the per sheet realization, which will be a combination of price hikes and value mix improvement.

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

Sir, just one observation. Is it that you're taking lesser price hike in the export segment and higher in the domestic segment? Is that the pattern that you're seeing?

So what's happening in exports from January '21, we have passed on all incremental freight to the customer. So from a customer's perspective, actually increase -- effective increase to the customer in exports, it is equal or higher than domestic. So in certain -- not certain, in many markets across North America, South America, Europe, U.K., the freight increase, the differential freight which we passed on is anything between 10% to 15% to the customer. So effectively, if you see the export price increase, the increase we are getting is one part, but the increase the customer is paying is another story, which we need to also review. So we've taken one increase in exports of about 3%, 3.5%. We're doing another increase of about 3%, 3.5%. And if you were to load all the incremental freight, all the cost increase -- effective cost increase on the customer, it'd probably be equal or higher than the domestic market. So we're actually facing that challenge also in exports with so many destinations, and sea rates are getting completely out of control. It's a big challenge for us to be able to pass on the entire RM cost as well as the entire incremental freight.

Okay. And just a continuation to that, in tiles, we are seeing that Morbi is facing issue in terms of exports, container availability also, there is some amount of cost disadvantage because some of the exports from the western countries is probably becoming more lucrative. Is that something also that you see in your part of the business because of the higher cost inflation? And plus the freight is making business in competitive a disadvantage.

So clearly, freights have gone up, and it is putting pressure on the business. But as you probably are aware, most of our markets, businesses, customers are long-standing customers. These are largely branded business, and these are businesses we want to support for a longer time to come. So clearly, we continue to serve our customers and our markets, considering the newer capacity, which will hopefully come up in next financial year. So when -- yet, there is pressure. So I think that goes without saying. But yes, we continue to be -- this will keep going on, but we can't exit markets we catered for so long. So we are looking at -- and we have been getting increases with the incremental freight being owned by the customer.

And sir, that new capacity comes in, any broad time lines that you'd be like to share in terms of when does this...

So the timeline is there. Unfortunately in terms of the timeline, so we are in the last leg of some approvals coming in, in terms of environmental arrangements, which have been done. So I think we are in the last leg of it, and we have said that in Q3 of FY '23, we should be up and running with the additional capacity. So we're still focusing on that. It might get better by a month or 2, but at the moment, we'll see keeping that target on. So we're just in the last stage of closing all the approvals, and layouts have been finalized, et cetera. So I think once we get it approved, we should be up and -- focused on building the plant.

Okay. And just one last question from my side, I'll come back in the queue is, how is the unorganized, kind of companies, under this pressure of overall increase in working capital, increase in this thing? Are you seeing constant market share gains that are branded -- you did mention about it, but if you can just probably elaborate a little bit on that would be helpful.

So again, I can't back up all of this with the data of the unorganized companies, but what we hear from the market and what we know from our sales teams and our dealers and distributors et cetera, several unorganized factories are running at far lower capacity utilization. They're running short of raw materials, and this working capital pressure on them to fund their supplies, they used to take credit from vendors and now, they don't get any credit. They have to pay advance payments or immediate payments. So clearly, I think there is a significant stress on the unorganized companies in the market.

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

So just wanted to check, I mean, the continuation to Abhishek's point, we can see that in domestic part, you've actually crossed the revenue run rate in the domestic market for Q4 also, and your clearly -- market share being para visible. In exports, we definitely see that in the quarter 4 and quarter 1 were in fact better. So what I basically wanted to understand since it's a touch and feel products and we feel Morbi has been telling us that whenever things open up and trade opens up there will be a huge amount of exports happening, which is the incremental. I just wanted to take a broader opinion for you -- from you also, would that be the case for us? Are there more contributions we would be then able to do once things -- actually trade opens up? And when can we see the share of exports going up further? That's first question.

I couldn't actually follow your question. I think there was a little bit of echo. Can you repeat yourself, please?

I just wanted to basically understand your vision on the export front since there is container availability issues, freight related issues, travel bans at the point of time. So what do you feel that where this division could head once these issues are sorted?

So clearly, we are focused on the export business from a long-term perspective. And there will be some challenges in that journey, and we're committed to our markets and considering, like I was telling Abhishek, considering the new investment, we have planned in Andhra Pradesh for the new capacities we want to build and can add, in a quick manner there on a brownfield basis eventually, so export market is clearly where we think we will keep our presence active and alive. And I think that market will also keep growing once we have more capacity. So currently, I think the challenge is less of market opportunity, it's more about our capacity. So we really want to get our capacity up and running. And I think the freight matters, availabilities at some point, will get normalized because this is not sustainable as we understand. So...

As a continuation to this particular point, sir, you have said that our capacity is pretty much exhausted, which is visible in the numbers. And Morbi is actually or maybe other unorganized players are also running at far lower utilization at this particular point and clearly are under stress. Is there any point we could actually get those assets on maybe we can look at for outsourcing opportunity at this point of time, some scenario is in a lot favor or there will be amount of shift happening from unorganized to organized? We've seen outsourcing opportunities in other segments like tiles and all also. So I just wanted to have that view from you.

So our sense in laminates business is that the outsourcing model is not very successful and very viable because the cost of production at our factory and our plants are lower than the cost of production of the unorganized players, if they use our raw material specification and bill of materials because the cheat with the quality of raw materials and compliances, they are actually cheaper. Otherwise, it's not as if there are more cost efficient than us. And so our focus currently is on really getting our approval sorted out and start building a new plant because once we start, we've seen that in the past also when we built the Himachal plant from the construction date to production in 9 months, and these are up and running. So our focus is on getting our capacity ready and getting to the market rather than diluting ourselves and focusing on an outsourcing model because to put the outsourcing model in place into the costs, raw materials, manpower, et cetera, will also consume time. So we're focused on creating our own capacity right now, Sneha.

Sure. And prior to that, is there any ready facility or something that we could get as an asset for sale. Is there any possibility? Or we'll have to kind of -- focus is only on the new capacity expansion.

No, focus is on only capacity. So obviously, there are a lot of companies, factories who are not able to produce, but their place to produce a laminate, the raw materials. I think all of that also to organize -- today the lead time for a lot of plates, decorative paper is running between 6 to 8 months. So even if one were to put the whole program to place would consume a lot of time with our quality standards.

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

My first question was in exports. Are these exports on FOB or CIF?

So some of our exports are solely, some are CIF. CIF, this breaks, average base price in December '20 that we have absorbed [indiscernible] continuing from January '21 have been passed on to the customers.

And what would that mix be, the CIS customer mix? Would that be like 50%, 60%, 80%? Or would that be just 20-odd percents?

Yes. And so most of it is on a CIF basis. So I can see that it will be around 60%, 70%. Because in the competitive company in U.S. and U.K., Europe, we are actually wearing the containers than billing to the customers. So yes, from India percent is at, consolidated.

Got it. Okay. And secondly, of the total exports, are all of the exports are under own brand? Or is there any white label exports also which happens?

We actually don't do any white label. [indiscernible]. But by and large, all are a part of, but given the brand, you have [indiscernible] et cetera. But by and large it's our own brand.

Understood. And in terms of the RM, I mean, you did talk a little bit on that. But is it possible to get some clarity in terms of the extent of cost inflation in the craft paper and the decor paper? So is it possible to get some sense on a Y-o-Y basis, where the prices are? Like what is the cost inflation in those 3, 4 key raw material items, including those chemicals?

Yeah, so as I explained earlier also that in this craft paper also use various grades of craft paper, and other various price [indiscernible] cost is increasing on a regular basis. We also do value engineering in terms of that, where in the mix of what we are using, let's say, 1 year, 2 years back, might be, so actual cost increase [ was this ] may not reflect price increase which has happened now. But on a ballpark figure, if I see the various grades of craft paper, it will range between 5% to 12%, 13%, kind of thing. And for decor papers, again, the various grades of the decor paper is being used. [indiscernible] are quite high, but we can say that the 10% price increase in the decor paper on an average. In lam -- in the chemical, on a Y-o-Y basis, the price rise, it ranges from 70% to 100% also.

Right. And broadly, what would be the cost mix in terms of the craft, decor and chemicals?

So roughly, the paper constitutes around 65% and chemicals constitutes around 35%. So a couple of percent here and there might happen depending upon a price rise in the individual segment.

Understood. And in terms of the floor and door business, now we understand that the demand situation is fairly good on the real estate front or the building material categories. But I see we are still having pretty much subdued volumes actually in both flooring and road business. So you want to elaborate a bit on -- as to how you look at this now since we are seeing a pickup on the demand aggregate?

So on the flooring, you're actually right. We have seen improved inquiries, improved [indiscernible] sent to customers, several meaningful orders have also been finalized for those. And we believe that this should improve as we move ahead, as more orders are being finalized. So clearly, I think this should be better going ahead.

And Achal, one more thing in this, I would like to add that again with floors and doors, we have mix of domestic and exports, both. So clearly, as Saurabh said that we have seen better inquiring and indices to win that. We -- again, the freight and all this is in the room in terms of that so there is, probably the demand is a bit subdued. But in the domestic segment, we are seeing, as you rightly said that, we are getting good inquiries and hopefully that we convert into that is started happening in this quarter also and going forward also, it will bring more wins.

Got it. And is it -- in terms of the number, can we then look at a profitable bottom line or EBITDA for the floor and door business in -- by fourth quarter? Would that be a fair assumption?

Well, that clearly is what we also want to do in floor and door. But unfortunately, all the all the RM is -- raw material's imported and freight costs, price increases are happening on the wood veneer side also in terms of lumber, timber costs, the fire rated particle ports we buy, the would we buy, backed up with the freight increase. So we are increasing prices there also, rather we have already prices in the wood veneer segments, which is decorative ply, flooring and doors too. So I think the demand side in the domestic market should look good. RM costs have risen, freight has risen, exports of flooring will become challenging going ahead because we never had our own brand. It was all outsourced like a white label thing, and freight as a percent has significantly gone up the market is shipping -- So yes, so there's a little bit of a shift in the dynamics there too. But clearly, I think the focus is now completely on the domestic market, and we have pass-on increases to the markets.

Understood. And just one last clarification, if I may, you said 90% of our raw material is imported. Is it the case for the industry as well? Or it's only for us, which is at a higher end?

So I said 80% of the RM is imported of total imports, if I might say so. So decorative paper is, I think, for us and the nearest competition, I think it'll be a very, very similar situation in the Laminate business. In the Wood category, we don't have a comparable player. In the decorative, in the wood and the light category, decorative veneers, flooring, so you could assume 100% RM is actually imported, Base ply, veneer, lamella, article board, timber, everything is imported, actually.

Right. So when you said imported or pegged to import price, I was more keen to understand in terms of physical imports because that's where the freight will have a disproportionate impact. Would that be a right way of looking at?

No, Achal. It will have the similarity in case of formaldehyde. It is getting converted from methanol to formaldehyde. So whether I buy directly or we buy and convert it for me, that cost will be passed on into the market where my supplier also depends upon the input. So that's what we were telling, the reflect to import. And even we see in case of phenol, if we are buying locally, some of the substances, we are buying locally from here, but phenol is not, why -- those prices are pegged to import. So if the prices in the international market goes up or down, the similar impact will have in this. So that's what we mean to say that either direct import or pegged to import, the price inflation or increase or decrease patterns in the similar manner in terms of imports.

Got it. Sorry, one more question, sir. In terms of the volumes, we said, we have operated at 114% capacity utilization for the second quarter. Is that the best we can achieve till the time we have the capacity in place?

Well, you can assume a few percentage points can be improved. But in terms of volume, we are a near peak, in number of sheets.

Right. But the product mix can improve, as you said.

Absolutely.

The next question is from the line of [ Udit ] from YES Securities.

Just one small clarification. How much price increase are you taking in domestic and export markets in the following quarters?

Yes. In the -- for the laminate around 7%, 7.5%. And for the export, will be in the range of around 3%.

And sir, will it be possible to give the margin distinction for the quarter in exports and the domestic business?

No. It is -- margin is very difficult to calculate because the individual -- the same product, it's -- in raw material product is being from the same plant. So it is difficult to give the margins individually for domestic and international.

The next question is from the line of [ Nikhil Agarwal from BD Capital ].

So sir, I wanted to understand where do you import your raw material from.

So Nikhil, various raw materials comes from the various source. So let's say, if I tell you that the design paper comes primarily from the Europe and -- is from the Europe, chemicals, it can come from any source depending upon, because the commodity, it can come from U.S., Europe, Middle East, it can from any source. Wood again, mostly comes from Europe and some part of the and all. Various commodities will be coming from several countries. But it's across the group from where our raw material comes from.

Okay. And sir, I wanted to understand like, the Board has issued -- has approved upon issuance of non-convertible debentures worth 15 -- up to INR 150 crores. So is that for the expansion that's taking place?

So it will be mostly -- it will be used -- mostly we want to shore up our cash on line and it will be used mostly into the upcoming -- our future plans.

Okay, sir. And sir, can you give me a -- can you give me, like the break-up of your export markets? Like it's a portion to which you export, like Middle East Europe.

Difficult to give the country wise detail, but we export to almost across the globe. We have presence from, let's say, South America to Australia. We have presence in almost all the market. So it's a difficult. I don't have the country-wise details with me, but we have presence all across the globe.

Okay. So just one last question. I wanted to understand your distribution channel in India. Like do you do mostly -- is it retail or is it private builders or is it like -- I wanted to understand the distribution channel.

So we follow the distribution-led model in terms of, we have distributors and this I'm talking about laminate, and primarily laminate we will have distribution across the country. And from those distribution, this material will go to retailers and even to the builders and all this. Some of the category of material, which will be going directly to builders, let's say doors and floors. And apart from this, we will have direct billing to some of the bigger OEMs. Otherwise mostly, we will follow the distribution-led model wherein the company to distributor and from distributor to retailers and builders.

Okay. And sir, the OEMs, the margins in the OEMs are -- will certainly be lesser than the direct distribution channel, right?

Yes.

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

After this price increase of 7% and 2%, what you mentioned in export and domestic, will the gross margin be back to 48%, 49%, which we used to be or you need more price hike?

So Bhavin, that was the plan, but after we announced the increase, other costs have gone up. So I don't think we're back to that 48%, 49%, but I do think we'll improve versus what we did in Q2 -- And also in order to improve the margins besides the pricing is, like we said, we're also trying to drive more value-added item sales, more texture sales. So that's also a very conscious effort we have taken. So let's see what the outcome comes, because the RM cost situation is so surprising. It's quite bad.

Sure. And again, the paper prices are rising after a long time. So it doesn't look to be coming down in a hurry. So -- because chemical prices are too volatile, but I think the paper prices are increasing gradually. So what's your view on the same?

So we had factored in some and we have passed on some increase, as you know. So the focus, really, what we can do is maximize volume, which we are doing, maximize the value mix within that volume because it still is a adequate opportunity we have to improve the value mix within the production output we are doing, and we are increasing prices. But I think all of this combined should clearly improve revenues and also improve percentage of gross margin. And in value terms, obviously, gross margins should do far better.

And I was seeing your decorative veneers and light products, blended, NSR, which saw actually a dip on a quarter-on-quarter and Y-o-Y basis. So any significant mix change there since you had a very sharp volume growth there?

So business -- revenues have gone up in the Wood and Allied segment. There, too, we've had cost pressures as gross margin has come down versus last year, not versus Q1 though. So clearly, I think volumes have gone up, costs have increased. In that business also, in veneers, we've done a 10% increase to be implemented in this quarter. We've done an increase in the flooring business. The exports, committed orders have -- minus completed that, that creates a challenge with sea freights going up. So I think the model there also is still a bit -- going through little bit of stress with 100% imports, with RM cost, sea freight going up and time like between costs going up and prices being passed.

Saurabh, my question was blended realizations have gone down. So when was it -- what was the reason for it?

Yes, it's going down, it's as a product mix.

Because of the product mix, yeah.

Yeah, yeah, product mix, product mix.

Okay. Otherwise, you have taken a hike in this division also?

So this division, we have taken a hike, but cost has gone up beyond that. So we've announced one more hike in flooring and in the veneer business, both. And in flooring, by and large, and we've increased prices for the exports market also, which either will get accepted by the customers or we won't get the export business.

The next question is from the line of [ Rupesh Jain ] from Intelsense Capital.

I just have one question. In one of the older calls, you said that India is getting far more competitive in laminates or some other markets, it is getting difficult around competitive others to set up a new capacity. So can you please give more color how I mean, in terms of this competitiveness? And then another question to that is in part, which you left, Morbi is kind of going crazy in exports. So something like that can happen in Laminates, and will organized players benefit from -- if there is a shift happening?

Yes. So in terms of your last question related to tiles, several manufacturer of tiles is there in the Northeast and whether the same thing can happen in laminates, so we believe there are sizable number of producers, and laminate producers are already there in the Gujarat. And -- but most of them are focused on the domestic segment because unlike tiles, there are -- in the laminate business, so there are the differences than the tile, and then design, specifications, as well as various quality parameter, which we see. What we believe the organized segment players have a clear advantage in the export market in comparison to unorganized segment. And I think they will continue to gain more market share in the in -- that is the reason that you will not find much players in the export segment unorganized, mostly organized players are doing the export.

Okay. And in terms of competitiveness, sir, if you can throw some more color?

So competitiveness, in the current scenario where the raw material prices are only continuous run rate, and in most of the cases, there are cash flow issues also because most of these suppliers because of availability, site and all this, so they have also started demanding and we have also paid with in some of the cases. They have started demanding immediate cash or have reduced the credit terms, which was there previously. So which is putting more pressure on the -- both on the demand side as well as on the capital side on the domestic -- on the unorganized segment. The bigger player because of their sheer number of size and balance sheet, they are able to continue in this scenario, whereas the smaller player are sitting more crunch, both in domestic, both in the demand as well as in the cash flow side.

I was asking more from international competition point of view.

So on international competitiveness, are you asking about us competing with international producers? Or is it international producers or international -- I think on the call, we said which is correct, that international -- internationally, setting up new plants or expanding newer capacities is far more expensive than doing that in India, and that brings more competitive advantages to the domestic Indian producers. Is that what you're talking about?

Yes, yes.

So that is correct. I think -- and that is happening. And we think...

I mean, what has changed. My question is why has...

In 3 months, nothing much has changed. In 3 months, not much has changed, I think, it's just the same. So -- within the quarter, I'm saying it's moving in that direction and cost...

Do you see secular export growth for Indian organized industry over the next 3 to 5 years?

So when you say secular, I'm not sure what you mean by that. Well, if you ask me, I think that's global, if the businesses and companies have the right capacities and right market openings and the right positioning, the right products for these markets with the right programs, I think it's clearly doable because globally, capacities actually are not getting added on. And we are getting more competitive in terms of getting more scale, which means we have more opportunities to serve customers across different sizes, different colors, different textures plates. The production cycle is quicker, the churn is quicker. So I think there is an opportunity. Whether it becomes -- is it 15% year-on-year, it's 10%, 12%, volume is something one has to see. But I think from a possibility, it looks good.

The next question is from the line of Akhil Parekh from Elara Capital.

My question is actually in line with what you just mentioned -- yes. Sir, in past, we have kind of alluded that the sustainable growth in laminate business is around 10% to 12%. But obviously, first half of FY '22, we have seen significant growth, obviously, on a lower base. Do we see any structural shift in terms of our growth target on an annual basis in coming few years? Or the shift which we are seeing right now from an organized to organized is kind of, just intermittent and it might come back a year or 1.5 years down the line once the freight cost, RM prices kind of stabilize?

So I don't know the answer to this honestly. What I do know is that in the Laminates business, once you gain more market share, and once unorganized companies supply chain gets broken, shape cards, catalogs, samples, displays from the dealers, distributor shops get removed, and some of the brand's or company's display catalogs come up in those places, the ability to bring back the market share for anybody, whether unorganized or a company is extremely difficult. So once you gain that market share, whether it will be permanently -- will it permanently be that way, or it will again come back to the old way. I actually don't have an answer to it. I hope that it is permanently that way, but we have to just see how this goes.

Sure. And second, on the CapEx side, right, I mean the next year, third quarter of '23, we are having great capacity. From an industry perspective, are we seeing any major capacity additions in the laminate business, which can possibly lead to a supply price restructure?

Actually not. So laminate industry is, anyway, the supply is more than demand and so clearly, I think capacity being available is one thing and running the capacities is another thing because, to run the capacity you need the right program, the right markets. So I don't think we're looking at that.

Got it. Just from a financial perspective, if you can give the number of CapEx guidance for this year and next year? And second, on the working capital side, we have reached at around 80 days for first half of the year, is this number sustainable?

Yes. For this year, we are expecting around INR 35 crores, INR40 crores of CapEx, which includes some of the normal CapEx and some of the CapEx, which was announced last year, but will get completed in this year. For the next year, the routine CapEx for the existing plant will be in the range of around INR 20 crores, INR 25 crores. And apart from that, we have already announced CapEx for a new plant in South. So we have announced that around 1.5 years before. And we are in the process of seeing due to this delay, whether we need to increase our capacity or not. But as of now, we have announced that -- around INR 175 crores of CapEx for the new plant.

And out of that, INR 175 crore has already been done, actually. And to answer your other question was, is the working capital sustainable? Yes, it is sustainable.

The next question is from the line of Shrenik from JM Financial.

Yes. So could you please explain why the employee cost and other expenses are on the higher side in this quarter?

No. So why are they higher? Or are they on the higher side?

They are on the high side on quarter-on-quarter basis. So could you explain on that?

So yes -- so on the employee cost, there was an appraisal cost, which was done in Q2. So some of that also has the impact of Q1 in Q2 because it was announced in the quarter of this financial year. On other expenses, there have been some launch costs of product categories, et cetera, which should, to some extent, get normalized going ahead.

And we're traveling since now the economy is opening up and now the physical driving has also started. So that cost is also subdued in the entire last year and the quarter 1 of this year.

But as a percent, all these costs are -- within control, are lower than previous years.

Sure, sir. And sir, for the new plant, new South plant, will there be no CapEx in this current year? It will be fully for FY '23.

So land already -- so on that CapEx, approximately until now close to INR 50 crores already has been spent.

On the land.

So again Q4, there will be CapEx advances, as you see things now for contractors like mobilize equipment advances, et cetera.

So how much can that be expected to be?

In the range of around 30% to 40%.

Sir, total CapEx of INR 40 crore plus INR 30 crore, so total INR 70 crores CapEx can be booked in this year, right?

For the existing, I said around INR 35 crores, INR 40 crores. And the new units, it will be in the range of around INR 30 crores to INR 40 crores.

We get the last question from the line of [ Nikhil Agarwal from BD Capital ].

Yes. So I wanted to understand like, is there any growth guidance and margin guidance going forward for this year?

Nikhil, in this scenario, it's difficult to give the guidance, but what we can see that the quarter 2 numbers are, they are achievable numbers and if everything goes the way it is going, so then probably we will be able to achieve the numbers near to this.

In terms of topline.

There are no further questions. I would now like to hand the conference over to the Management for closing comments.

Thank you, everyone. Thank you for your time, thank you your interest and your questions. And Ashok and some of us are available if there are any questions post the call. You can kindly reach out to us. Thanks a lot.

Thank you.

On behalf of in Greenlam Industries Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.