Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q3 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Saurabh Mittal, Managing Director and Chief Executive Officer, Greenlam Industries Limited. Thank you, and over to you, sir.

Thank you. Good afternoon friends and a very warm welcome to all of you. I hope you all been safe and healthy through the third wave. I'm joined on the call with -- by Ashok, our CFO. Samarth from the finance team and SGA, our Investor Relations Adviser. The results and presentations are available on stock exchanges, and I hope you had a chance to review the results. So as far as the business is concerned, I'll just focus on what happened in the last quarter. The business grew in terms of revenues by about 34% year-on-year and they were nearly flattish sequentially versus Q2 of this financial year. We had a disruption at the Behror factory [indiscernible] plant, where we were temporarily closed 100% for about 6 to 7 days. And then we have restricted working days as per the guideline of the CAQM. This resulted in sale -- production and sales loss of approximately INR 40 crores to INR 50 crores in Q3, which in turn obviously kept raw materials at an elevated level because we could convert them to sales and also impacted profitability. Most of our costs were by and large fixed in this period, while the factory was not operating at the necessary capacity. The restriction continued in the month of January. So in January, we had about 8 fewer working days as far as the Behror factory is concerned. And with effect from 4th of February, the restrictions have been removed and we've been allowed to run the plant 7 days a week. On the price hikes, because this has been an important discussion in the past also. As we talk now, we've been able to pass on all the raw material cost increase to the customers in both the domestic and export markets and in the wooden veneer business. The increase has been impacted through Q3. So most of the domestic increase became effective 1st November and export increases have happened through the quarter. But as we talk right on all raw material part of cost increase have been passed off. Currently, raw material costs by and large remain in a certain range with few costs coming down and few still increasing. But by and large, it's moving within a range. So that's on the raw material cost front. International logistics both inwards and outwards continues to remain difficult. Availability of containers, selling time, shipments of vessels availability, costs on the sea freight still remains challenging and not much has improved on that front. Impact of Omicron, the third wave have been marginal to the business. In last quarter, we also announced our expansion CapEx plans and entry into adjacent spaces of plywood and particle boards. And I hope you have had a chance to see the presentation on the [indiscernible] topic. The plants on the -- the new plants are moving more or less as per schedule. And work has commenced at the Andhra plant. Necessary approvals have by and large come in and we're moving in a certain speed as far as Andhra Pradesh and Tamil Nadu plants are concerned. So this is, by and large, from my side and I'll be happy to answer your questions post Ashok completes his presentation. Ashok, over to you.

Thank you, sir. Good evening, friends. I'll take you through the financial performance. For the Q3 FY '22 on a consolidated basis, net revenue for the quarter grew by 34% on a year-on-year basis. However, it degrew by 1% on a sequential basis and stood at INR 450 crore in this quarter as compared to INR 335 crores in Q3 last year. Sequential degrowth in revenue is due to disruption at our Behror plant, just now explained by boss. Gross margin was down by 780 basis points to 44.3% in Q3 FY '22 from 52.1% in Q3 FY '21, primarily due to rising raw material costs. On a sequential basis, gross margin was up by 80 basis points. Gross margin in absolute terms grew by 14% to INR 199 crores as compared to INR 174 crores in Q3 last year. EBITDA margin was down by 540 basis points and stood at 11.9% in Q3 this year as compared to 17.3% in Q3 last year. On a sequential basis, EBITDA margin was up by 180 basis points. EBITDA in absolute terms degrew by around 8% to INR 53.4 crores in Q3 this year as compared to INR 57.9 crores in Q3 last year. Net profit for the quarter stood at INR 26.9 crores in Q3 this year as compared to INR 32 crores in Q3 last year. Moving on to 9 months performance. Consolidated net revenue for the 9-month period ending 31st December grew by 58% and stood at INR 1,240 crores as compared to INR 784 crores in the 9 months previous year. Gross margin was down by 590 basis points to 44.5% this year from 50.4% last year primarily due to rising raw material costs. Gross margin in absolute terms grew by 39% to INR 551 crores in this year as compared to INR 395 crores in 9 months last year. EBITDA margin was down by 240 basis points to 11.1% in this year from 13.5% last year. EBITDA in absolute terms grew by 29% to INR 137.5 crores in 9 months this year as compared to INR 106 crores in 9 months last year. Net profit grew by 51.7% to INR 64.9 crores in 9 months this year as against INR 42.8 crores 9 month last year. Moving on to segmental performance. Laminate business grew by 38% on a year-on-year basis and degrew by 1.6% sequentially to INR 408 crores from INR 295 crores in Q3 last year. Volume growth stood at 1.7% on a year-on-year basis. Domestic laminate revenue grew by 52.5% on year-on-year basis and grew by 1.3% sequentially in value term. Volume growth stood at 19.2% on a year-on-year basis. Moving on to International laminate revenue, which grew by 26% on a year-on-year basis and degrew by 4% on a sequentially basis in value terms. Our volume degrew by 13% on a year-on-year basis. EBITDA margin stood at 13.3%, a degrowth of 650 basis points on year-on-year and a degrowth of 180 basis points on a Q-on-Q basis. The production -- sorry, this is a growth of 180 basis points. The production volume were at 3.88 million sheets and a utilization level of 99%. Sales volume for the quarter stood at 3.98 million sheets. Our average realization for the quarter was at INR 984 per sheet. For the 9 months, laminate revenue grew by 61.8% on year-on-year basis to INR 1,132 crores in -- from INR 700 crores in 9 months previous year. Volume growth stood at 41% on a year-on-year basis. Domestic laminate revenue grew by 74.7% in value terms on year-on-year basis. Volume growth stood at 56.4% on a year-on-year basis. International laminate revenue grew by 52.4% in value terms. On a year-on-year basis, volume growth stood at 30.4% on a year-on-year basis. EBITDA margin stood at 12.6%, a degrowth of 350 basis points. Products and volume were at 12.63 million sheets and utilization levels were at 108%. Sales volume for the 9 months stood at 12.59 million sheets, an average realization for 9-month period was INR 862 per sheet. Moving on to Decorative Veneer & Allied segment, which consists of decorative wood veneer in engineered floors and engineered doors. In the Decorative Veneer segment, revenue degrew by 5.3% on a year-on-year basis and degrew by 3.1% on a sequential basis to INR 24.4 crores from INR 25.7 crores in Q3 last year. Volume degrew by 17.2% on a year-on-year basis. Revenue of Decorative Veneer business grew by 32% to INR 61.7 crores in 9 months from INR 46.7 crores in 9 months last year. Volume growth stood at 27.3% on a year-on-year basis. Volume degrew by 17% in Q3 on Y-o-Y basis and volume grew by 27% in 9 months. Sales volume for the quarter 3 stood at 0.3 million square meters. However, sales volume for the 9 months were at 0.83 million square meters. Capacity utilization for the quarter were at 29% and for the 9 months it is 26%. Average realization for this quarter was INR 808 per square meter. For 9 months, it stood at INR 736 per square meter. Moving on to Engineered Wood flooring. Revenue grew by around 28% on a year-on-year basis and grew by 34% on a sequential basis to INR 10.8 crore in this quarter as against INR 8.4 crores in Q3 FY '21. Revenue for the engineered wood flooring business grew by 25% and it stood at INR 26 crores in 9 months as against INR 21 crores in 9 months last year. However, capacity utilization were at 11% in this quarter and 10% for the 9 months. Moving on to engineered doors. Revenue for the Engineered Doors business grew by 33% for this quarter on a year-on-year basis and grew by 2.4% on a sequential basis and stood at INR 6.5 crores as against INR 4.9 crores in Q3 last year. Revenue for the Engineered Door business grew by 17% in this 9 months and stood at INR 19.8 crores as against INR 17 crores in 9 months last year. Capacity utilization for Q3 were at 19% and for the 9 months stood at 20%. Moving on to net debt for the quarter ended 31st December stood at INR 178.5 crores as against INR 179.5 crores last year. Net working capital days for Q3 stood at INR 76 crores as against 83 days in Q3 last year. That's all from my side. I would now like to open the floor for question and answer. Thank you.

[Operator Instructions] The first question is from the line of Udit from Yes Securities.

So the first question is that can you comment on the demand. How is it panning out post January because we assume that the prices of laminate have been surging in almost like record high, does it hamper the demand? And what is the outlook going forward?

So I'll take your question. So demand side, by and large it is looking good actually. And in the month of Jan also we had more of a supply side restriction. So demand side is fine. And the record high [indiscernible] is a function of price hikes and our continued focus on premiumizing the products and doing more value-added sales. So it's a combination of both right, which we think as we move ahead, will still improve a bit. So that's on the demand side. And what was your second question, please?

Yes. And sir, secondly, can you explain that in the international markets are you able to pass on, like you mentioned that we are able to pass on the rise in raw material costs, but what was the trade for [indiscernible] passing it on completely or we are absorbing some?

Your voice is echoing. Just can you go again, please? Can you go again, please?

Yes. Is it good now?

Yes, better now .

Sir, the question pertains to the international prices. So there also, are we able to pass on the complete incremental cost related to freight as well?

Yes. So by and large internationally too. So freight, we've passed on actually from January '21, all the [indiscernible] freight, right? So internationally also with the increases we've done, all Q3 various markets have happened in different months. By and large, we have passed on all the RM cost increase and the incremental freight to the customers in the market.

[Operator Instructions] The next question is from the line of Achal Lohade from JM Financial. .

My question -- first question was with respect to realization. If I hear correctly, the realization -- the revenue for international laminates were grew by 26%, while volumes declined 13% Y-o-Y. That means the realization have gone up fairly significantly. Is it possible to break this in terms of the freight and ex of freight? What is the change?

So I think -- so I'll take part of the question and I'll have Ashok take the other part. So exports volume reduction is also a function of loss of production at the Behror factory, right? Because we had disruption and plant operated at literally, I think below 50% in the month of December.

Sorry to interrupt, sir. Sir, your voice is sounding a little muffled.

So sorry, I don't know what to do now. Is that better? Is it better?

Little better, sir. Please proceed.

Yes. So the volume reduction is a function of lower production at the factory. And also we have shipments in transit, which because of the shipment delays, vessel delays, arrival delays of the seaport, the volume reduction is visible. As far as the price is concerned, it's a function of volume mix and price increases. And Ashok, are you there? You can take the second part of the question on the freight cost please.

Yes. Achal, the freight part is not considered in this. So whatever -- as we have -- any incremental freight that has been collected from the customer on their behalf so that is not considered in that.

So you're saying that the price realization does not include -- so this is like FOB sales.

No, no. This -- what we have done, as mentioned by sir, from January -- January 2020, whatever incremental freight January '21. January '21, whatever incremental freight that was recovered by -- from the customer. So this keeps on varying depending upon what the freight for that shipment to that has been recovered and that has been adjusted with the additional trade paid by the company. So that's not considered in this. The normal trade which was applicable prior to the freight hikes or problem in the freight goes up that is only considered. So it's on a CIF in most of the cases. But additional freight is recovered from the customer and not considered in the field.

Yes. Sorry, please go ahead.

So the price realization you're seeing is not inclusive of the additional freight, right? So the prices basis, price closure, freight closure on December '20, right? So the incremental freight is not forming part of the improved realization. I think that's what you're asking. And that's what the answer is.

Yes, yes, yes. So is there a freight account or something where it gets adjusted to the collection and the incremental trade -- would that have an impact on the margin because the recovery and the payment would be with a lag, right?

So that's already accounted in the P&L. So expense which you're seeing is already sort of that's already accounted in the books.

Okay. let me take it offline. It's a little confusing, so I take it offline. The second question I had, Saurabh, if you could talk a little bit about from the export perspective or international markets perspective, what are the top 3, 4 countries for us? And where are we in those respective countries among top 3, 4 or top layer. And how do we plan to scale up there? If you could talk a little bit more on that, that would be of great help.

So the export business looks to be in decent shape. And like I said earlier, currently it's more of a supply side challenge and the disruption of the factory, Behror factory impacted export revenues as well as some part of domestic revenues. And I've said this earlier too, in most of the exports, we are not #1, #2 in those local markets. We might be #1 from India. But otherwise depending on which region, which market we talk about. So we believe there is a good headroom available for us to improve volume, improve value mix, improve price realization in most of the export markets we're present in. So top 3 Thailand, Egypt, UAE, U.K., U.S., [indiscernible]. I think this will be the top market for us right now.

Understood. And just last question, if I may with respect to the margins. If you could give some sense, assuming a normalized scenario in terms of RM cost of freight, what kind of margins we are looking at from next 2, 3 years perspective, given the product mix what we would have and the volume growth in a normal scenario. I know you can talk about a normal scenario what usually is the volume growth in the domestic and the export market.

So tough to give you a sense of next 2, 3 years because next 2, 3 years, the new plants will also come into production, Achal. What I can say is that if you see Q3, our volumes or revenues and our margins could all have been better, the disruption was not there and price increases was implemented through the quarter. So we didn't have a full quarter with the price increase, which hopefully we will have in Q4, hopefully, we'll have in Q4. So as far as volumes are concerned, until the new capacities come in, which probably is like Q4 or FY '23, we're at more laminates right now. Plants are really running at full capacity besides just other than the disruption we've had in December, partially in January.

Right. I mean I was more asking from a 2, 3-year perspective, what kind of growth 1 would be okay to look at? Would that be high single digit, double digit in terms of volume growth and the margins?

No, that's what I'm trying to say. So when you take a 2, 3-year view, FY '23, we will have a new capacity of laminate if things go well in the Q4 of FY '23, right? In FY '24, we'll have the new capacity for the full year. So I think this will depend on how the capacities come up. And we believe the new capacity comes up, I think it's targeted in about 3 odd years, which should come to near full capacity. And I have to run the math that as we see things now, we think the ability to grow the business to sell is quite decent for us and we've seen it in many markets both domestically and internationally. So this is what I can say that now, Achal.

[Operator Instructions] The next is from the line of Vijay Karpe from Bryanston Investments.

Am I audible?

Yes, you are.

So my first question is I just wanted to understand what is the management view of the demand supply dynamics in the medium term because there has been a lot of announcements on the expansion side across the board in plywood, MDF, particle board, laminate. So there are a lot of capacities which are coming up by the end of financial year '24. So what is your view on this?

So our response would be we are adding capacities in laminates. And currently, Q3 was an aberration because of the disruption of the plant. We are already operating 115% utilization, so we clearly need more capacity and the capacities we are bringing are in 3 different sizes. So we don't see much challenges there. We need more capacities. The next part we're bringing is particle boards are not MDF. If you look at particle boards, there are 2 meaningful capacities coming up. One is ours, and 1 is another competitor of ours who is coming up in the state of Gujarat, right? So really, from a market size opportunity in terms of quantity of the market, imports not coming in. Most of the other local players being subscale, or quality of boards. There's a significant supply/demand gap in particle boards. And we think with our understanding of the business and its close correlation between laminates and compact laminate, which should be good with that. And if you look at the company side, we'll have the next orbit presentation all of this is detailed out that you can also get in touch with our team offline. On the plywood, we said that the market size is somewhere in the brand of INR [ 30,000 ] crores and the capacity we're bringing in is again not so high. And we've explained our rationale why chose in South India as the location, South India is the largest branded market for plywood and there is no meaningful branded capacity in South India. So really from that point, we don't see much challenges on that capacity. The significant capacity in addition which is happening is actually in the MDF business and not the businesses we are in right now or we are intending to get into.

So [indiscernible] not particle board also indirectly complete with the MDF?

Yes. So well, particle board some products -- some usages are replaceable. So let's put it this way. We believe that because there are no quality particle boards available right now, customers have to buy MDF, right? And the quantity of particle board market or potential market. At the moment, we see is larger than the MDF and there is no quality producer of particle board in the market. While in MDF, you have 4, 5 companies or 3, 4 companies, who are of a certain size and scale, yes? And particle board business is largely sold as prelaminated boards and not as bare boards. And it is very much aligned to the decorative laminate business we are in as most OEM customers, most commercial market customers via laminates and particle boards both, right pre-laminated particle group. So yes, to answer your question, they are applicable for certain applications and for certain [indiscernible].

Got it. And can you say the plywood capacity, which is 18.9 million square meters in terms of [indiscernible]?

I don't know the math would be right now. Ashok would you have the maths?.

Yes, you need to divide it by 250. So this is a simple mathematics. This is based on 4 mm basis.

Okay. So divided by 250?

Yes.

Okay. And my next question is will not our plywood capacity complete with the organized players because ours is a premium plywood capacity that we'll be putting. And additionally, will our partition board plant also received the lower tax benefit because in the budget, that now has been pushed up to end of March '24.

Yes to respond. On that also, it will be available. So the tax benefit will be available on the [indiscernible] project and plywood will compete, yes, will be more mid- to premium. Will it compete with the branded players or not? We believe that there is a space for a branded player, another branded player in the plywood segment because of the formalization happening in that category and all the plywood we produce will be calibrated plywood, the most superior plywood, which today the branded players have an option of calibrated plywood. Our entire production will be calibrated. And we believe the quality will be best-in-class and we will be able to hopefully set up our network and our demand side pretty well.

The next question is from the line of Aadesh Mehta from Motilal Oswal AMC.

Sir, I wanted to understand that now that we are getting into plyboard and we have there also similar named companies in the same segment. How would we be differentiating in terms of our branding and marketing. Any thoughts on that would be very useful.

So well, our idea of a brand, so we will be creating potentially a new brand for plywood, which will come from Greenlam Industries. We will not use the word green in the plywood brand. And we're just kind of working on the final marketing strategy and the sales strategy. And the number of dealers in the plywood market, the counters, the spread is so high with just 2 national brands. So really, I don't think we'll end up competing with the 2 national brands or with the company with a similar corporate branding. So we don't believe that will be an issue. Every time, every city has multiple counters and dealers and with just 2 national brands and a few regional brands servicing them. So we believe that competition will be able to find a space. We already shipped through directly and through sub distribution from our distributors to most of the district level towns, taluka, [ tahsil ], towns, our laminate products. So our reach of our products directly or through distributors is already there in the market. And so really, I think from that point, we don't see a significant challenge on that front. Some cannibalization or challenges might come, but we think on the overall scheme of things, it will not be a big problem.

Right, sir. And if I may ask, how many of our domestic distributors in terms of laminates, we can also cross-sell plyboard.

So laminate model is a company distributor dealer model because the number of [indiscernible] are very high. The need to carry inventory across the entire catalog is high. So laminate follows more of a distribution-based model. There's a large distributor, a number of smaller sub-dealers or medium-size dealers. The plywood model is more of a company to a direct dealer format. So most of -- not most, actually, all of the sub dealers of our [indiscernible] products, which are buying from distributors are potentially plywood dealers also or carry plywood already.

We'll move on to the next question. That is from the line of Rishab Bothra from Anandrathi. We'll move on to the next. That is from the line of Akshay Chheda from Canara Robeco.

Two questions from my side. So just wanted to understand what is the maximum capacity utilization that we can go from our existing capacity in laminates of around 15.62 million sheets? I mean the reason I'm asking is that in spite of the challenges that we had in our Rajasthan factory still we were operating at around 99%. So what max we can go there? That was my first question. And secondly, sir, you did talk about that the new laminate factory that you're talking, so that you expect to ramp it up to full capacity in 3 years. So if you can talk on the similar lines for the plywood also like since that will be starting with production in FY '24. So by what time you look to ramp it up to being full capacity? Yes, these are the 2 questions.

Ashok, you want to take it?

Yes, yes. So for the laminate existing capacity, previously also, we have taken this up to 115%, 118% depending upon the product mix and all this. We believe that very briefly it can go up to that level also. And in terms of new third laminate plant, it is in the third year we are expecting the 100% capacity utilization. And in terms of your next question on plywood. So the expected commercial production for that is Q4 of FY '23, not FY '24. Q4 of FY '24 is for the particle board plant. For the plywood also we are expecting 100% utilization in the third year of operation.

The next question is from the line of Rishab Bothra from Anandrathi.

Sir, what I was trying to ask is, what sort of plan do we have to enhance the utilization level in doors and flooring as well as the Veneer segment? Or are we having excess capacity ahead of time? And if you could throw some light? .

Yes, I will take that. So if you go 1 by 1 in the veneer factory, obviously 100% of that kind of [indiscernible] don't work. And we have no excess but that's a bare minimum of kind of a capacity you have to put in. So we are not expecting anything beyond like 45%, 50% kind of utilizing in that business model. . Flooring and doors, again the ramp-up happening and because of fluctuation of demand with disturbance, I think it's not happening the way we would have loved it to happen. But from a utilization level clearly flooring and door can go up and the plan there will be to consistently keep increasing the utilization, which can happen in that business model of flooring and door. So yes, that's my answer to it.

So continuing with the same question, please forgive me for my ignorance. Does this industry also work on outsourcing model? Can we outsource the capacity to someone else as to enhance the profitability?

Flooring, are we talking veneers or.

I mean anywhere there is an outsourcing model, which is under play. And if we can outsource the capacity idle capacity to someone else -- and now in the sense, the third party will outsource from us.

So I think that model in our country or even elsewhere in this business model it is very difficult to create because 100% raw material in the wood veneer section, which is decorative veneer, flooring and doors that's imported, right? And there's a product range which you have to create in terms of the sizes, dimensions, stains, kind of finishes and all that. So if you end up -- number one, there is no such requirement of potential customer or potential company which can't take that kind of capacity or even go and market it because and then to create a brand, set up a distribution is quite a challenge. So I don't see that that we can let out our capacity with somebody else because of the complexity of range, raw material investment, marketing, product differentiation. So that's my answer.

And in terms of market, is it more of domestic or overseas?

Largely decorative veneer is 100% domestic, by and large. Flooring also eventually is nearly like a 75%, 80% domestic market. Those we do some export but again 70%, 75% domestic. So the wood veneer business will largely be a domestic play because all the raw metal is imported. And when you ship the freights significantly high. And we until now haven't been able to create a brand in that category. So by and large, the attention in terms of sales and marketing effort will be in the domestic market for these categories.

And lastly, I'll come back in the queue. Is there a proposal to merge the subsidiary and leverage expansion program is going on? Or what was the need to do expansion in that particular subsidiary? I mean who are the other owners of the entity?

Yes. So there are 2 subsidiaries, the HG industries, if you're talking in terms of the company owns nearly 75% of the equity and rest is owned by the general public. And this has been acquired since the land is there in that company. So that's why it has been acquired. In terms of merging with Greenlam or the [indiscernible] company as of now there is no such discussion or decision has been taken. Another subsidiary in terms of GSL that has been taken because the new expansion is done in that and to take advantage of tax benefit, which was announced by government of India for a new company.

And I think, sir, cost-wise margin would be a better rational, so both the companies operate under 1 umbrella? And what could the synergy could be availed.

Yes. Taken your feedback .

We'll move on to the next question. That is from the line of Alisha Mahawla from Envision Capital.

So just wanted to understand is if you can share with us what is your market share currently in the domestic market in the laminate space?

Ashok, you will take the math?

This is around 12%, 13% as of now.

Okay. And because of the capacity limitation that we have over the next few quarters and some competitors probably with, I'm sure, have surplus capacity. Is that fair that we may start losing market share going forward to new capacity comes on stream?

No. I believe the new capacity is already announced and it has got delayed because of pandemic -- because of pandemic situation. And we are hopeful that this capacity will be available by Q4 of FY '23. And until such time, we are as of now at near around 100% capacity [indiscernible] capacity still can be used from the existing plant.

Okay. Sure. And just 1 last question. The CapEx of about INR 900 crores, INR 950-odd crores that we announced when you did the CapEx call, you said that it is still under discussion. I just want to clarify, the debt and equity ratio, if you can share?

It will be -- debt-to-equity ratio will be -- 65% will be from debt and remaining from the internal accrual and equity. You are talking about for this project or for the entire company as a whole?

For the project for the INR 950 crores CapEx.

Yes, it is -- yes, 65% debt and 35% from the internal accrual and equity.

Sure. And just 1 last question. Our run rate in our non laminates business has been sort of flat. Any steps that you're taking to improve the utilization of the run rate in this business?

So sure, steps in terms of focusing more on adding more channel partners, working with architects, it's more like a routine operation which we anyway do. What you need to appreciate is that these 3 categories are these 3 products are largely [indiscernible] market-driven. And with the [indiscernible] market turning around and we believe that demand for veneer flooring doors in the home market will improve. And as we go ahead, you'll see that better revenues. And I must say this again, I might be repetitive but in Q3 because of the Behror factory disruption, the veneer business had an impact in terms of revenue, not the flooring though because we have surplus capacity there. So as we move ahead, I think we'll see improvements in terms of run rate of this category also.

Sure. And just 1 last question, if I may. While we understand that currently, margins in the laminates business are impacted because of increase in home device, et cetera. But when can we revert back to the 15-odd percent of margins that we used to speak of in this segment?

So in Q3, I think we were at 13.3%, right. Assuming we lost INR 35 crores, INR 40 crores of sales of laminates in Q3. And if you run the math, we'll probably be very close to that number, I think.

So hopefully from next quarter, the EBITDA margins could be closer to that range on that number?

Well, yes, if you run the math of Q3, if you add [indiscernible] top line and it hardly incremental cost. We'll be very similar to that number, yes. It could be.

The next question is from the line of Dhiral from Philip Capital.

Sir, since we are expanding into newer verticals like plywood and particle. But sir, regarding our interesting verticals regarding veneer, floors and doors. So how is this -- where do you see this vertical in 3 years down the line in terms of performance.

3 years down the line, like you're talking the plywood business or the flooring and door business?

No. No, no. The existing vertical, which is veneer and floors and doors.

Yes. So right now, we have 2 verticals, the laminates and the Decorative Veneer & Allied. In Decorative Veneer & Allied, we have 3 businesses, the veneer panel, the engineered wood flooring and the engineered door business. So 3 years down the line, this business will keep going on, right? So it doesn't -- the plywood business is not impacting the Decorative Veneer & Allied category or business in terms of resources or marketing or sales efforts. So this business, this vertical doesn't need any more capital in terms of CapEx or working capital. And we hope that we keep improving this business as you move ahead.

Sir, any revenue run rate in our mind to achieve in the next maybe 2 to 3 years in these 3 segments?

Difficult to give you a number. But clearly, what we are doing now, we have adequate capacity across the 3 businesses and these are largely essential-oriented markets, with essential market doing well. We think we should be able to improve the numbers in all the 3 products and under the umbrella of Decorative Veneer & Allied category.

Okay. And sir, in our business, has any lever for margin improvement after entering into this new vertical?

Well, when you say lever, as I think those businesses have their own margin profile and margin potential. And it will depend on how we sell market and run the business properly and correctly. I think -- and as we, as a company, gain size and scale, we believe fixed cost, fixed rates will as a percentage will reduce and hopefully, that should improve margin profile as we move ahead.

So what kind of margins are we looking in, plywood and particle doors particularly?

Ashok Ji, can you give the numbers, please?

So in the particle board in the plywood, we are expecting a margin of in the range of around 12%, 13%. And in terms of particle board, it's in the range of around 25%.

Okay, okay. And sir, what kind of ROE ROCE you are looking in this new CapEx?

I think it will all depend upon how soon we're able to -- soon be able to you ramp up the utilization level.

But typically, plywood business, like if you look at the laminate business right now, we probably have an ROCE in the band of pretax, 25%, 30%. So plywood typically in the band of [ 25% ]. And particle board is also probably in a similar 18%, 20%. But obviously, it depends on -- like sightly mentioned ability to ramp up value mix officially well-run plants well run sales, marketing mix.

Okay. And sir, lastly, is there any further room of improvement in our net working capital day? .

Pardon?

Room for improvement in our net working capital increase, which is around.[indiscernible].

Yes. For the current business, there is room because like I said earlier, we lost sales and we couldn't convert raw material to sales, which have led to elevated inventory levels and also due to the international supply chain logistics challenges, both inward and outward -- that's also a little bit increasing our inventory levels both inwards and outward. So I think if that normalizes, there is potential to further improve net working capital days.

Ballpark figure that we are targeting maybe let's say, next 1 to 2 years?

No, I can't give you a figure on that please.

The next question is from the line of Nikhil Agarwal from VT Capital.

Sir, you said that like in the new capacities that are coming off, they will achieve full capacity utilization in the third year. So that also particle boards and laminates. Is this -- is that the change of -- that was for laminate and plywood. Is that the same for particle board as well?

Yes. In the particle board, we are expecting this 100% utilization in the fourth year of operations.

Okay. And sir, like your major raw material is phenol and melamine. So what was you just give some update on the prices? What was at the end of Q2 and what was at the end of Q3? And what is the current trend now?

So I believe you are talking in terms of for the raw material for laminate. So in the laminate, we have paper and chemical booth. In the chemical, what you said is the phenol and melamine and melamine is the prime material in terms of that. And as we said that the prices of this were on a higher side in the Q3, but towards the end of -- towards end of Q3, that was started softening. So if I say only about the Q3 the price of melamine was around 30%, 35% higher in comparison to Q2. And for phenol it was higher by around 5% to 10%.

In Q3, the prices were higher with [indiscernible] the target softening by the end. Is my understanding correct?

Your voice is not clear. Can you tell again?

Hello?

Yes.

Yes, am I audible now?

Yes. Yes, please.

Sir, you said that in Q3, our prices were higher by 35% compared to Q2, but at the end, it started softening. Is my understanding...

Yes.

Okay, sir. And sir, I think I missed this. I was at the beginning. Could you just tell me what the export realization and revenue was for the quarter?

So export realization, export realization for this quarter was INR 1,028. And overall, revenue for export for company as a whole was INR 207 crores.

Okay. But you just export your laminates, the decorative veneer segment that is for the domestic market?

Yes. But floors and doors also some amount of exports are happening from that. But primarily the exports, primarily the laminates are exported.

So basically, 50% of your laminates revenue comes from exports I'm assuming?

Absolutely.

Okay. Okay. And sir, just 1 last question, if you may allow.

Sorry to interrupt, Mr. Agarwal. May we request you return to the question queue, there are participants waiting for their turn. We'll move on to the next question. That is from the line of [indiscernible].

Congratulations on great set of numbers. So my first question was regarding your raw material cost. You had mentioned that they are softening from Q3 end. So do you think this will be passed on to the customers and that would bring down our realization going forward?

So my answer was the specific to the 2 raw material, which he has mentioned, in the previous question was mentioned. It was in terms of phenol and melamine. So what has happened, some of the raw material constituent cost has come down, whereas some has increased. So let's say, in case of paper, the design paper and to some extent [indiscernible] prices also has gone. So we believe that there will not be much of a difference which need to be passed on into the market. And situation is again,volatile. So we need to see the clear trend to emerge before taking any call in terms of passing on to the market.

Okay. Okay. Understood. And sir, 1 more question. In the last year, Q3 FY '21, in laminate, you had done an EBITDA margin of around 19.8%. So are these margins achievable again in the future?

Difficult to say, but that was a very sweet spot that time, wherein the raw material prices were crashed before just that and we had very favorable raw material prices in that quarter. But difficult to comment whether that 19.8% is achievable in the current scenario, even though it looks difficult in terms of achieving 20% margin.

Understood. And sir, just 1 last question. You had mentioned that 1 of the competitors is entering into particle board with the plant in Gujarat. So any idea on the capacity and amount of CapEx of the competitor?

I think it would be very similar to what we are doing in terms of capacity and CapEx, I guess.

The next question is from the line of Ronald Siyoni from Sharekhan.

I had only 1 question with respect to demand outlook. Now most of the players in [indiscernible] going up in expansion mode. So your assessment of that demand with -- I mean to say, what brings so much confidence to see almost about 6 to 7 years of downright growth going ahead for the wood panel industry. Is it the slew of launches over the trailing 1 year in the residential segment? Is it demand driven from the aftermarket or secondary markets are there some kind of leading indicators in terms of our cement capacity expansion. So which parameters or indicators you are looking at aggressively go ahead with expansion plan?

Yes, I'll take it. So I think your question is more general and not particularly about a product we are in right now. So if you look at our business model, I would like to answer this one by one. If you look at the core business, which is laminates, we already had a certain capacity utilization. We have 2 market segments, the international market and the domestic market. And like we said earlier, in the international market right now, we're facing supply side constraints. But we have opened several markets. We seeded several markets over the last 15-odd years. And in most of the markets we're operating in, we are still not #1 and #2 and internationally capacities are not coming up. We've been able to create a good distribution set up in most markets with our own brand with our own people with good demand creation. Obviously, this is WIP. It never ends. So we think we have decent space to expand our international business as far as lamination is concerned. And with the capacity we are bringing on board, it is not so much. It is actually 3 production lines that we have right now about 11 lines. And then on the domestic side, 1 is the demand generally going up in the residential side and commercial side. Then there is the situation of unorganized segment move into organized segment. The unorganized segment is only surviving as we all know, due to inferior product quality, inferior commercial practices -- and with regulatory tightening up, most of these factories, companies are becoming subscale and they're gradually getting marginalized. So we think one is the demand situation in the domestic side other is the movement from unorganized to organized. Even internationally, it has happened, 50, 40 laminate factories have become 2 or 3 over a certain period of time. So I think that opportunity is there. We've also added several new products which are category expanders. So I think that's also gaining traction. So that's on the laminate side, right? The wood veneer business we put in a certain capacity, we are not adding more capacity. The business doesn't need more capital as we know. So there again I think now if I go one by one, door is a new concept, production and factory installation side this really takes off a lot of carpentry load time savings, et cetera, et cetera. Flooring again, potentially a large market but growing at a slow pace because the [indiscernible] market did not grow well over the last few years. So we think there is space there. Veneer can only do so much. We don't expect to win a business cost set up too much beyond a point, we will keep giving us the margins. On the particle board, we said that in the orbit call in the -- when we announced the expansion -- there is no -- right now, there's no relevant producer or player. The market is about INR 5,000 crores in India, all smaller factories, poor production, poor product quality. The board quality is not good. Unavailability of particle board is leading to expansion of MDF market share. Companies like IKEA and so many other furniture producers still have 70%, 80% of their raw material as particle boards. So there, I think unorganized to organized this whole work from home, carpentry happening off-site, assembly happening on-site I think we'll clearly the online players, the e-com player, the most we will use prelaminated particle boards as a product. So I think there, we have a good space to and expand our market. Plywood also we've told INR [ 30,000 ] crore market approximately, just 2 national players and a few regional players. Most regional players are either not focused or are very weak. And also I think there's a space to create a for a third national player eventually to come in, although we're starting a factory in South India. And unorganized to organized story is also panning out there. People -- even the kitchen producers need good quality plywood and good quality plywood is not available because even the larger players resort to a lot of outsourcing which mostly [indiscernible] from offering good quality product, good kitchen producers have to import plywood because calibrated plywood is not available in our [indiscernible]. So I think across our segments, demand situation, unorganized to organized newer categories, replacement of imports in laminates international market possibility. So really, I think with all these factors available, we think we should be able to kind of continuously grow the business.

One last question -- sir, 1 last question was with respect to international. As you said, there is space and room. So how do we [indiscernible] are placed in terms of cost? Are cost effective compared to other South Asian countries and Chinese. How are you replacing that?

So our export model is not based on cost leadership, although we are cost effective. The model has been built or is being built on marketing, distribution, specification, brand recall, developing products for OEMs, value-added products. So our model of business is being built and has been built in that direction. So obviously, while we were building this the model was slow, painful, high initial expenditures. So that's the model we have built and we are building on the international front. But to answer your question on the cost reduction, we are cost effective with other manufacturers or south Asian players. But again, there's a difference. So if you play in the commodity space, sometimes the raw material specifications are not the same. So the kind of product will produce in a local factory in India will produce or some other players might produce in China or somewhere. The specifications could be different. So then comparison of costs may not be relevant. But with the same specification, we clearly are cost-efficient also.

The next question is from the line of Rishab Bothra from Anandrathi.

Just wanted to understand what's the demand side outlook from -- coming from OEMs like real estate players? Or how is it shaping up with dealers respect to dealers? And how is it shaping up with respect to the new edge, you can say urban Ladder, Pepperfry or IKEA stores? So where is the mix exactly huge demand growth coming from? Or is it from all sectors?

So very difficult to exactly tell you where the mix is coming from. But we think demand is coming and will come from all the segments you mentioned about. The trade [indiscernible] OEMs and the new edge interior design or home fit-out companies.

And do we have a ballpark figure for each of the verticals, let's say, 1 million square feet of real estate is being developed, be it residential or commercial, what kind of product requirement would be for the laminates or veneers or plywood, MDF anything that from ballpark.

No, I don't have that right now.

Okay. And lastly, sir, though it's something to do with the premerger processes. I guess [indiscernible] was a single company, which houses all the products segment. And in 2015, Greenlam was created and 2019 green panel was created with different business -- key business verticals. Plyboard was left with Greenply and laminate came into Greenlam and MDF into Greenpanel. But at this stage, 2022, I think more to -- everyone is moving in all businesses rather to say and we'll be competing with each other other. So how things work at your end because I think cross holding at promoter level is still there in all the companies. If you could throw some light or can there be a merger going forward in 2, 3 years down the line to have larger synergies at place?

So firstly, there is no cross-holding of promoters as far as Greenlam is concerned. I'm not too clear about Greenply and Greenpanel.

But cross-holding, I guess Saurabh is holding in Greenpanel as well as.

I'm not -- I'm Saurabh only, so I'm not right? So Greenlam Holding is clear. There's no cross-holding with the family members of Green plant Green Panel. The Chairman holds, I think about 2% in Greenlam, Otherwise, there's no cross holding. It's all clean and clear. So Greenlam moved in the decorative market, which is the laminates space and the Decorative Veneer & Allied space, right? And now obviously, after 7, 8 years, we think that with the surfacing materials, we also need to get into the subset products because dealers, customers, distributors, [indiscernible] want more products. . So if you look at our space, I can [indiscernible] with Greenlam right now. Our expansion from a competition or competitive product is only plywood at the moment, right? Particle boards Greenply or green panel boards [indiscernible]. So really the discussion is more of plywood, which is obviously a smaller investment. We have quite linear business, which is aligned with the plywood dealers and those customers who buy, the veneers also need supply of plywood [indiscernible] and that's the reason, in a way, also we understand that business and customers' channel is quite common. We're already into the decorative veneer business, we're getting into the plywood business also. And clearly, from a competition point, we said that earlier, the market is so large, you just have 2 organized players in plywood and few regional players were all like 4, 5 regional players with the band of INR 200 crores, INR 250 crores. So there clearly is an opportunity for 1 or 2 more players to enter the space and gradually build the business. I don't think that we'll end up taking share from anybody else from the organized players, we'll end up creating our own market -- own market share and [indiscernible] we take share from the unorganized players or take the growth of the market.

Good to hear that.

We'll move on to the next question. That is from the line of Nikhil Agarwal from VT Capital.

Am I audible?

Yes, go ahead.

Yes. Just 1 question from me. Sir, like what was the quantum price hike you have taken in Q3 and in Q4 if any?

Ashok, you go ahead on that?

Yes. We have taken around 5% to 7% in the domestic market and around 5% to 6% in the export market, the international market. In terms of Q4, there is no price hike as of now is planned since as we mentioned at the beginning of the call that with this, we could be able to recover our raw material price hike cost or the raw material price hike was recovered. So as of now, there is no hike is planned for the Q4.

We'll move on to the next question. That is from the line of Karan Bhatelia from Asian Market Securities.

Sir, on the plywood side, so are we looking at only going ahead with the premium end of plywood or will also be manufacturing [indiscernible] was the strategy there?

Sorry, can you come again, please.

On the plywood side, are we only looking to manufacture the premium end of the plywood and go for outsourcing for the other 2 models? Or are we looking to manufacture all 3 under our factory?

At the moment because we're just setting up 1 plant, and we're looking at not going out for outsourcing and we're looking at self-manufactured plywood, which would be in the mid- to premium mall, let's say, mid-premium to high premium in that space. So we're not looking at outsourcing model currently, Karan.

Okay. Okay. That was helpful. And on the particle board business, peak revenues of INR 600 crores, what kind of working capital requirement can we see because this business is more to do with the B2B side. If my understanding is correct on this sector.

Ashok, will you take it?

Yes. Karan, not much of a working capital in this will be expected because, first, the number of SKUs we will not be that much high. Another will be the import component will not be of that much high as which is required in the existing set of businesses. So we believe that it will be significantly lower than we are existing working capital require.

Just add that. We don't need to -- in the parter business, it's a factory to customer model, like in laminates, we have to have this 8, 9, 10 warehouses in India and abroad where we have to do redistribution. So the inventory which we are carrying in the company's distribution centers because of the high number of SKUs. So in particle board model from factory [indiscernible] to the customers, there is no transit inventory or a storage space in between what's needed to for distribution.

So as per that much lower working capital use compared to the existing business.

I think we believe both the new businesses, plywood and particle boards should have lower working capital performance versus existing business. Having said that, the existing business also we believe, will improve working capital days as volumes and numbers go up.

The next question is from the line of Kushal Kasliwal from [indiscernible] Capital. .

Saurabh, this is a question to you. I just wanted to understand what is our vision for the plywood segment and we are doing this in a separate listed company hedge industries. Where do you think like 3 to 5 years down the line, how do we want to do this because it's pretty known that what happened with Greenply and green panel. So are we thinking to kind of do this entirely all the plywood action in this lease?.

The first question. So is your question that will [indiscernible] the plywood business in [indiscernible] or not? Is that the question, Kushal?

The main -- the question is basically around the plywood segment, which we are doing with HG, we have a CapEx of around INR 125 crores. What do we think -- I mean, after we are done with this CapEx, do we want to do entire plywood in HG? Or how does it work going forward?

So that's still open. And in fact, today in the call, somebody has also recommended that we should merge that with Greenlam Industries at some point. So that's something which we will think through more clearly, right? And so I don't have a very definitive response view on that. But clearly, we're starting with South India and we want to go 1 step at a time and then we see how the business pans out and then take necessary decisions.

Just a follow-up on this. I mean do we expect this kind of [indiscernible] in the South Indian market? I understand it's a big market, but what is our expect total market in the South Indian market, do we think we can capture this meaningfully and maybe a brownfield going forward in the Tamil Nadu plant?

You have just come again on this. The voice is lacking a little bit please. So you talked about the brownfield expansion in Tamil Nadu plant. Is that what you said?

Yes.

And what was your first question, please, Kushal?

The first thing was just we'll be able to capture full [indiscernible] in the plywood industry in South India through the plant?

So as you probably do understand, as I can see, the plywood model is, by and large, a regional model and logistics costs are important in the plywood business. So derisking and diversifying your raw material base, right? So 1 plant in 1 part of the country eventually cannot service through the country. You will need reasonable size plants at few locations in India eventually, right? So the current plan is to start with South India as you see. And the rationale for that is South India is the largest market for branded plywood in the country and minimum capacity of branded plywoods at least for the moment is in South India, right? So we think -- so if you look at what the capacity we are planning and kind of revenues and the market opportunity. So I think South does represent and thus offer that opportunity from a South India plant, whether we'll end up selling the entire production in South or some more markets. That is something which I cannot say much at the moment. And beyond this, second part was can you do a brownfield in this plant? We can't do a brownfield in this plant, we think we've planned the capacities in a manner that beyond this 1 capacity we're putting in, we will not be able to add much more capacity in this location and rather we don't want to also.

Okay. Understood. Okay, sir. Just 1 last question on [indiscernible]

Vishal, your voice of breaking out.

Is it better?

Sir, it's still the same.

Slightly better to me, please?.

Yes. I was just asking about the kind of debt we will take for this INR 125 crores CapEx in HG since we have mentioned 65-35 for debt equity around how will this debt be served? I mean, will this directly go from Greenlam, Will this be going through HG or are we taking a moratorium because HG will take around 1, 1.5 cash flows to repay the debt, right?

Yes. in terms of this debt will be taken directly in the HG. And we will have the moratorium for the initial period of from the bank in terms of that. So we believe that HG will be able to service the debt. However, should the need arises at that moment of time, then Greenlam will support.

Okay. So by Greenlam support, do you mean you will be infusing more equity in the company? Or would you be -- should this be kind of an unsecured loan hub? How does it work?

That depend upon that time this scenario, whether it's needed for the short-term period or whether it is needed for the longer term, so then probably that time the call can be taken in terms of this - but infusing will not be -- -- infusing equity will not be a possibility since it's a listed company and we are already holding 75% of the equity.

Okay. Just wanted to understand the rationale because we own only [indiscernible] of the company. Couldn't we have done this entire in Greenlam? Or were there any legal or...

Because land is there in this company. It's because of the land this company was acquired and the project is being put at that location.

Okay. So I presume land could also -- would that been acquired in the [indiscernible] kind of scenario, but I presume to a time line constant, we would have done this. Am I right? .

Yes.

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

Thank you everyone. Thank you for your time and your questions. And if some of your queries have not been responded or have not been responded completely or you couldn't get a chance to ask us, you can please switch out to us offline and we'll try and address them to the best of our ability. Thank you so much. Have a great evening ahead. Thank you.

Thank you, everyone.

Thank you..

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