Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Sharma, Chief Financial Officer of Greenlam Industries Limited. Thank you, and over to you, sir.

Thank you. Good morning to all, and I welcome to the quarter 1 FY '27 earnings call of Greenlam Industries. I'm joined by Samarth Agarwal, our VP Finance; and SGA team, our Investor Relations adviser. I'm sure you had the opportunity to look at the results and the investor presentation, which are available on the stock exchanges and on the company website. I'll give you a business update of Q1 before I hand over the call to Samarth. We are pleased to report that we have started the year with a revenue growth of 18% on year-on-year basis and taking our consolidated revenue for the quarter to nearly INR 800 crores, with an EBITDA of INR 81 crores before ForEx, while maintaining the gross margin at 53% level. The performance was broad-based with most of the business segment reporting revenue growth during the quarter and with continuing growth momentum both for the domestic and the international market. A few of the major developments during the quarters were worth highlighting. Our chipboard business turned EBITDA positive for the first time with an operating profit of INR 3.4 crores before ForEx and losses in Plywood and Allied segment has continued to narrow. Moving on to West Asia conflicts. The ongoing West Asia conflicts continue to keep input prices, currency rates and freight costs volatile during this quarter. This has also led to delay in container and vessel availability and freight cost -- a significant hike in the freight cost. As a direct consequence relates to this, nearly INR 27 crores of export shipment got postponed out of this quarter. This is purely a timing matter and the revenue is not lost. It is simply moving into the current quarter. Also, the shipment in sea are taking more time to reach destination, leading to overall long lead time. To maintain the fiscal discipline and mitigate the impact of price rise, we have passed on the increase in the raw material prices to the customer. As communicated earlier, we have done the price hike twice at the beginning of April and May. And when the prices have started softening, we have reduced some prices at the beginning of June and again at the beginning of quarter 2. Overall, on a net basis, we have passed on 7% to 8% of the price hikes. This is mainly the price hike in the chemical, which constitutes nearly 1/3 of our raw material prices, while the prices of other raw material remain constant. On the logistics side, I would like to highlight that the Middle East market is around 6%, 7% of our total business. So we don't foresee any material impact on our top line, rather it should grow. The domestic demand remained stable during the quarter. Retail and distribution-led business held up well, while there were some challenges in the project business due to overall cost of increase in the entire building raw material -- building material industry. Moving on to the segment-wise details. In the laminate, our revenue from operations for the quarter stood at INR 596 crores, a growth of 7% on a year-on-year basis. Sales volume for the quarter was at 4.62 million sheets with a capacity utilization of 80%. Softness in the volume and the revenue is due to the export shipment, which got postponed out of the quarter. Adjusted for this, the underlying demand trend in this business remains healthy. International business performed particularly well during the quarter, reinforcing the benefit of strong global footprint, which we have built over the years. On the capacity expansion side, we are adding 2 new press line of the laminate, which are on track and which are expected to start commercial production by Q4 of this year. With the addition of this new capacity, we will be able to increase the capacity of specific category of laminate, which are reaching near to optimum capacity utilization. I'll move on to the other Plywood and Allied segment. Revenue from operations during the quarter grew by 20% on year-on-year to INR 106 crores and EBITDA loss for the ForEx fluctuation narrowed to INR 5 crores from INR 9 crores in the previous quarter -- in the quarter 1 of last year. The plywood business, on the other hand, continued to ramp up with sales volume growing 19% on a year-on-year basis and capacity utilization of 39%. Our distribution network is expanding, and we have taken some price hike at the start of April in phased manner. We continue to -- we expect that plywood segment will break even in this year. Moving on to Panel and Allied segment. This has been the standout performer of the quarter. Revenue stood at INR 95 crores, a growth of nearly 200% on a year-on-year basis. Capacity utilization is improving every quarter and moved to 61% from 30% in the Q1 last year. Average realization has also increased driven by price increase taken and the product mix. Happy to share that this business turned positive during this quarter with a profit of INR 3.4 crores before ForEx fluctuation as against loss of INR 10 crores in Q1 last year. Our newly introduced HMR category, which was introduced in quarter 4 of last year, continue to gain good traction, and we will introduce more premium product in this category going forward. We'll continue to scale this business and improve the share of melamine chipboard in the overall sale of chipboard. We expect this business to maintain a capacity utilization of around 70%. As far as the outlook for the FY '27 will largely be the year in which we will be sweating our existing assets apart from the laminate press line, which is already announced, we do not have any plan for any large capacity addition and our CapEx for the year is budgeted around INR 130 crores, INR 135 crores, which includes INR 70 crores towards the laminate expansion. That's all from my side. I'll be happy to take your questions post our announcement of financial performance. I'll now hand over the call to Samarth.

Thank you, sir. Good morning, everyone, and thank you for joining the call. I'll take you through the financial numbers. Coming first to the quarter 1 numbers on a consol basis, the net revenue grew by 18% and stood at almost INR 800 crores, precisely at INR 797 crores as compared to INR 674 crores of quarter 1 of last year. On a sequential basis, revenues were lower by 7%, in line with the usual trend in which Q1 is usually lower as compared to the fourth quarter. Gross margins were largely flat at 52.9% in the quarter as compared to 53.1% despite sharp increase in the input and the freight costs. On a sequential basis, margins grew by 140 basis points on the back of price increase passed during the quarter. Gross profit in absolute terms grew by 18% on Y-o-Y basis to INR 421 crores in this quarter as compared to INR 358 crores in Q1 of last year. EBITDA margins before ForEx fluctuations grew by 210 basis points at 10.2% as compared to 8.1% of Q1 last year. This was mainly on account of revenue growth, cost controls, operating leverage in decorative veneer, engineered floor and chipboard business. EBITDA ForEx fluctuations -- sorry, EBITDA before ForEx fluctuations in absolute terms grew by 48% to INR 81 crores in this quarter as compared to INR 55 crores in quarter 1 of last year. ForEx losses were a small value of INR 1 crores as against INR 11 crores of Q1 in last year. And finance cost was down by 25% to INR 20 crores as compared to INR 26 crores of Q1 in last year. This is largely because some part of the ForEx was accounted for as a finance cost in Q1 of last year to the extent of INR 3.5 crores. Net profit during the quarter stood at INR 21 crores as against a net loss of INR 15.5 crores in quarter 1 of last year. In this quarter, the higher operating profit, along with lower ForEx and interest costs led to the better flow-through to the bottom line. I'll now take you through the segmental performance. First, on the Laminates & Allied. The laminate business saw a growth of 7% on Y-o-Y basis to INR 596 crores in this quarter as compared to INR 555 crores in Q1 of last year. EBITDA margins before ForEx fluctuations were at 13.9%, growth of 70 basis points on Y-o-Y basis. Production volumes were 4.9 million sheets and a utilization of 80%. Sales volumes were 4.62 million sheets, which were lower by 6% on Y-o-Y basis on account -- and this is largely on account of postponement of shipment on export shipment, which got postponed in the quarter. The average realization for the quarter on the laminate business was INR 1,240 per sheet, growth of 14% on Y-o-Y basis. Coming to the next segment, which is Plywood and Allied. This segment largely includes plywood business, decorative veneers, engineered floors and engineered doors. Revenue for this segment grew by... [Audio Gap]

Sir are you there? Ladies and gentlemen, the line for the management got disconnected. Please stay connected while we reconnect them. Ladies and gentlemen, the management is back on line. We may continue, sir.

Apologies, the line I think somehow got dropped. I'll continue on the financial numbers. From the Plywood and Allied segment, which included plywood, decorative veneers, engineered floor and engineered doors, the revenue for the segment grew by 20% to INR 106 crores as against INR 88 crores in Q1 of last year. EBITDA losses before ForEx narrowed to INR 5 crores as against INR 9 crores in Q1 of last year. The production volumes for plywood business was 1.83 million square meters and a capacity utilization of 39% as against 28% of -- in Q1 of last year. Plywood sales volumes were 1.66 million square meters, a growth of 19% and average realization was up by 4% to INR 276 per square meter. The next segment, which is Panel and Allied, and this is largely the chipboard business that we have. The chipboard revenue for the quarter grew -- it almost quadrupled to INR 95 crores in this quarter. EBITDA before ForEx fluctuations turned positive. So that's a good piece for the segment at INR 3.4 crores as against a net loss of INR 10 crores in Q1 of last year. Production volumes were at 44,838 cubic meters and a utilization level of 61% as against 30% in Q1 of last year. Sales volume for the quarter was 41,418 cubic meters, growth of 167% on Y-o-Y basis and average realizations were INR 22,764 per CBM with a growth of 15% on Y-o-Y basis. On the balance sheet front, the working capital cycle improved by 3 days at 56 days as compared to 59 days in Q1 of last year. And net debt was at INR 934 crores as of June. Thank you, and that's all from my end. We can now open the floor for questions.

[Operator Instructions] The first question is from the line of Vanshi Shah from EVNA Advisors.

Am I audible?

Yes. Go ahead.

Sir, how is a container availability? So we see a weaker performance in Q2 FY '27 due to container availability issues?

Container availability and vessel availability remains a challenge as of now. That is the reason which we have told that around INR 25 crores, INR 30 crores of export moved on to this quarter. Whether this will continue in this quarter for the full quarter or whether it will get resolved, it's very difficult to comment as of now. But if this continue for this entire quarter, then it may have impact on the export sales.

The next question is from the line of Sneha from Nuvama.

Just a couple of questions from my end. Firstly, with respect to -- you stated on the con call that you've already started reducing the prices in this particular trade, do we see that when we are reducing prices substantially or when we are increasing, there is a good amount of restocking or destocking or destocking taking place? Generally, 5% to 10% move here and there doesn't really matter and the trade continues in a specific way. That's the first one.

So in terms of price reduction, this is the reduction in increase, it's entirely depending upon the raw material, as I mentioned that on the April and May, we have increased the price. And since the price got softened towards the beginning of the June. So that's how we have reduced the prices at the beginning of the June and at the beginning of the July. So in terms of whether it will have a destocking or not, I believe it will not have much impact on this, because of the nature of the business, you need the stock on a continuous basis. And at any moment of time, we do not push the stock into the channel, it's entirely based on the requirement. So we do not feel that it will have a negative impact. Rather, I feel when the price is now becoming more affordable, it will have a good impact on the secondary movement.

Understood. So what you mean is even the OEMs, the way they purchase or even in the export, whatever the purchases have been going on pre or post increases, the same way just continues?

We believe so.

Understood. My second question is related to your Chipboard segment. Where are we in terms of the percentage of prelaminated business? We've, of course, seen the segment turning around positive at this point of time. But what are the year-end targets? What kind of prelamination can we do and what kind of utilization can we achieve? And of course, margins, where can we take this forward?

So we are fairly good at this -- the pre-lam in terms of that pre-lam. I will not be able to tell you the percentage on the call, but we are fairly -- and it is going as per our plan in terms of whatever we have planned, it is moving on as per the plan. And we are hopeful that by the year-end also, we will overachieve what we have targeted. And as I mentioned that we have introduced HMR category in the quarter 4 of last year, end of quarter 3, which is also getting good traction in the market in terms of that. And we will launch some more premium category in this segment also. So going forward, also as a percentage of our overall product mix will be much better in comparison to what we are as of now.

Understood. And lastly, on your plywood business, I know we've launched the premium segment. I mean it's been quite a while that we've launched this particular segment. But despite that, we continue to make losses here. Any strategy of turning this around? Are we looking at mid-end segment, which is what the rest of the larger players have already done in this particular segment eventually to have a sizable scale and start making money? Any thoughts here?

So not as of now. So if you -- just to tell you in terms of plywood also, it's growing at the quarter-on-quarter, though the pace of growth could have been better in terms of that. And even the EBITDA losses is also coming down. We are very hopeful that in this year, we will do the EBITDA breakeven in terms of that. In terms of strategy, we want to focus right now on the segment which we have rather than moving on to the another segment. So right now, we are focused on this, and we are very hopeful that we will be able to break even in this year.

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

Overall, good numbers in a difficult environment. Sir, a few questions. First, on the price hikes. When you mentioned that there has been a price reduction in June as well as July. So this is across all segments or particular -- so basically, your 3 main segments like laminates, plywoods and chipboard. So price hike and price decline has happened all across? Or did you mention a general price hike and reduction?

So in terms of this price hike was mainly necessitated on account of increase or fluctuation in the prices of chemical, which is predominantly used in the -- more usage in the laminate as well as in the chipboard segment. So this is what we have talked about. This is the price it was in the laminate and the chipboard segment. The other category which doesn't have more users or more percentage of chemical. So there is no impact in those categories, mainly the plywood and the wood category.

Okay. So plywood category has not seen either price hike nor a decline and then...

We did the price hike at the beginning of April because some of the prices has gone up. But in that the price hike was modest in comparison to laminate and the chipboard category. Since the uses of -- or the chemical content in the laminate and chipboard is much higher in laminate, it is as high as like 35%. And similarly in the chipboard category also, it ranges in that same range. So the impact of cost increase was higher in these 2 categories. So this were increased in the April and May both and slight reduction has been done in June, July.

Sure. Next one is you said that plywood segment lower EBITDA breakeven this year. So when it turns positive, it would be EBITDA positive or breakeven for the entire fiscal or in that particular quarter exit?

Entire year will be difficult. It is for that quarter.

For that quarter. And obviously, next year would be a positive one. Third one, sir, you have also reclassified previous year volume numbers on a quarter basis. So what has changed in across division?

And this you're talking about which?

I think the presentation mentioned laminates, I think laminates volume were also reclassified of the quarter 4 as well as...

Basically the...

Chipboard volume was also reclassified. So has certain classification changed?

No, we will touch base with this offline. So this is more in terms of the laminate sheets and board category. So that we'll touch base offline and explain it to you.

Sure. And last one, engineered wood flooring and doors, what was the revenue number? And what was the loss number there?

The floors and doors?

Yes, engineered wood flooring and engineered wood doors.

So both put together is around INR 29 crores both put together the EBITDA loss of INR 1.2 crores.

The next question is from the line of Pranav Mehta from Equirus.

Sir, I wanted to understand on the debt repayment side. So how is debt going to reduce over the next, let's say, 2 to 3 years?

This year, since we have the CapEx of this expansion CapEx for the laminate and as well as the past CapEx, we expect CapEx to be in the range of around INR 125 crores, INR 130 crores. So obviously, we don't expect debt to come down in a significant manner. However, we expect that it should come down by close to around INR 100-odd crores. And from the next year onwards, since no major CapEx plan has been announced. So the majority of the cash flow will be used to reduce the debt. So we see that debt to come down in next 2, 3 years in a significant manner.

Sure, sir. And sir, on the laminate CapEx front, so the time lines remain the same, right? Are you expecting any delays or preponement of the schedule.

No online only as we have given in the results also, we have already placed the order for the equipment and we expect that since these all equipments are domestic in nature, so we expect the commercial production by quarter 4 of this year.

Sure, sir. And sir, on the plywood side, so you have mentioned that you'll be slowly taking this from South India towards West and Central India. So by when can we expect pan-India launch for the plywood business?

No, it has already started in the last year. So for the -- except North, which we do not intend to start as of now, our products are available into the West and Eastern part of Central India.

Okay. And sir, you will be going more aggressive on these regions because I believe you were more focused on servicing the South Indian market, but the growth would be incremental growth will be driven from these regions, right?

Yes, this region will be new starting from 0. So obviously, the growth here will be higher, will be better.

Okay. And sir, my last question was on Chipboard. So in Chipboard, how are you seeing things panning out? So since 3 capacities have come from organized players in a span of 1.5 years. So have you started seeing some unorganized to organized shift happening? How are things panning out there?

I believe so because if you see the companies are doing good. The products -- the product is good, we are reaching out to newer and newer segment. And previously, the unorganized segment, the product -- the product what we are offering was not there. In the HMR category, we started for the first time only. So product acceptability is quite high among the client wherever we are going as of now. So we believe that the shift will happen because of the premium product category or the good product category. And overall, all the company, all the organized company will take effort in terms of reaching out to customers.

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

My question is regarding the laminate side. So we have seen almost 6% to 7% decline in the sales volume of laminate. So wanted to check still we are guiding 10% to 12% growth on the laminate side for the full year?

Yes. That growth was on the revenue side. So -- and what you are telling is for the volume. So if you see in the -- even in this last quarter also, there was a growth of 7.4%. And we have already mentioned that nearly INR 30 crores worth of export has moved to quarter. If you add that, then probably we are very much near to the figure what we were -- what we have given. But we still maintain that we will be able to grow in that range.

Okay. And sir, just last one question again on the laminate side. How much we have degrown in the domestic market on the laminate side, particularly? As you mentioned that real estate division because of the high raw material, they have not taken the sales dispatches. How much you have degrown?

So the volume degrowth was 7.5%, 7.5%.

This is more on the domestic side, sir?

Yes, this is domestic.

Okay. So do you think it will starting Q2 this quarter onwards, this will also start growing as things have started normalizing at least on the geopolitical front also?

Yes. We believe the quarter 1 was quite a confusing one in terms of not only for us, the entire industry or, let's say, entire building material product category, there was price increase on a continuous basis like we did too. And then there was -- because of the fluctuation in the raw material prices, we did pass on and we reduced the prices. There is a lot of confusion in between. We believe now with more clarity in the market, demand should improve.

The next question is from the line of Roshan from Antique Stock Broking.

So my question is on chipboard business can-- on EBITDA what are we looking at for the next 1, 2 years, and what capacity utilization is required to see normalized margins?