Greenpanel Industries Limited (GREENPANEL.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Limited Q2 and H1 FY '26 Earnings Conference Call. With us today, Mr. Shobhan Mittal, Managing Director; Mr. V. Venkatramani, President, Finance; and Mr. Himanshu Jindal, CFO. Before we begin, I would like to state that some statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation that was sent to you earlier. I would now like to invite Mr. Shobhan Mittal to begin the proceedings of the call. Over to you, sir.

Thank you. Good evening, ladies and gentlemen, and welcome to our quarter 2 FY '26 earnings call. While quarter 1 was a tough quarter, happy to share with you that the change of strategy to drive volume growth and simultaneously improve cost base played well for us, leading to the turnaround of both operational and financial parameters in quarter 2. The year began with reenergizing our sales team and the channel by rewarding the top performers with a gathering in Bali, Indonesia. This was followed up actively by increasing our outreach through both digital and conventional means, ground activation and branding amplified across the 7,000-plus dealers and sub-dealer outlets and broadening our trade engagements, cumulatively more than 13,000 participants have engaged with us so far during H1. The revamped loyalty program app has now been in play for the last 5 months and provides a more seamless experience for our partners and the associated carpenter fraternity. New product offerings launched during H1 include HDWR doors, Thin MDF and Fire Retardant MDF, and was supported with product-specific campaigns across the country. As a result, our domestic MDF volumes grew by 30.5% year-on-year and 26.8% sequentially, while export volumes were almost flat during quarter 2. We did realign the pricing premium in MDF with our relevant peers. This was more of a product cum customer level interjection to maximize throughputs instead of a pan-India approach. Overall, realization was lower by 4% year-on-year. Just to qualify this further, almost half of this was attributable to the change in product-wise sales post addition of the new plant at AP and also increase in OEM sales, implying a net reduction of only 2% on account of price realignment. On the Plywood side, while the volumes were still lower by 5% year-on-year, we did have 18% growth sequentially. Consolidated revenues for the quarter thus grew to INR 389.4 crores, a growth of 17.1% year-on-year and 20.7% on a sequential basis versus quarter 1. Consolidated operating EBITDA, excluding the impact of currency movement on the euro borrowing for the new plant and other one-offs impacting the quarter was stronger sequentially and almost at par with last year at INR 39.7 crores or 10.2% of revenues. MDF at 10.7% and Plywood at 4.6%. On the industry front, the operating environment continues to evolve. Realizations are stable at the moment and we don't expect any material change at least immediately. With improved supplies, timber costs continue to soften sequentially with every passing quarter, albeit cost of chemicals remain elevated for now. This is expected to moderate from end quarter 3. The expected green shoots remain intact to support domestic demand growth in MDF. No further meaningful capacity additions in the sector, stricter implementation of BIS norms is continuing with QC on furniture -- with QC on furniture too expected early next year. MDF imports slowed down. Run rate for quarter 2 was less than 1,000 cubic meters versus 20,000 cubic meters per month average during second half of the last fiscal year. On the revised guidance for the year, counting the development so far in quarter 1, we now expect domestic MDF volumes to grow in the high teens this year and operating EBITDA, excluding FX and one-offs, of high single-digit to early double-digit average for the full year FY '26. With this, I request our CFO, Mr. Himanshu Jindal, for the financial and other updates. Over to you, Himanshu. Thank you.

Thank you, Shobhanji. Good evening all. Quarter 2 was way stronger than the preceding quarter, and this was primarily due to the double-digit volume growth that we've seen in our domestic MDF business. Additionally, there were very clearly concerted efforts on the operational front, which helped improve profitability and cash generation for this quarter. So we revisited our organizational structures, we strengthened our processes and reworked on our procurement and operational strategies. As a result of this, sequentially, we were able to significantly reduce our operating cost of production. The impact of which is 5.5% on our margins in this quarter versus the last Q1. Half of these savings came in from raw material optimization, while the balance was a result of improved consumption efficiencies, largely power and fuel across our 3 plants. Certain exceptions continue to weigh in on our financial results, though. The biggest being the adverse exchange rate movement on our outstanding euro-denominated borrowings, the impact of which is INR 12.5 crores during the quarter. On a cumulative basis, for the first half, this is roughly INR 40 crores. Most of this is unrealized MTM noncash loss. Apart from this, there is also an impact of INR 20 crores in form of the incremental interest and depreciation in the first half results on account of capitalization of the new plant. Counting these in, the reported EBITDA was INR 27.8 crores or 7.1%. The PBT was negative INR 8.9 crores and the PAT was negative INR 6.1 crores. Apart from the positive cash flow generation from operations, there has been a significant cash release from our working capital as well in this quarter. So our cash conversion cycle has reduced by 17 days versus 30th June, which is largely on account of lower inventories, both finished goods and raw materials. As a result, the net debt has reduced by INR 60 crores versus where we were on 30th June to INR 173 crores. If we count out the noncash FX change, which is largely mark-to-market at this point in time, the actual net reduction was INR 71 crores during quarter 2. With a comfortable cash and net debt position, 0 utilization of our funded working capital lines, our balance sheet remains healthy to be able to support scale up going forward. On that positive note, I think we can open the Q&A.

[Operator Instructions] First question is from Praveen Sahay from PL Capital.

My first question is related to your guidance related to the MDF volume guidance, which is -- which was early around 550 KCBM for '26. So you are maintaining that? And even on the margin front?

So as mentioned in my comments, we've revised the guidance to say that our domestic business growth will be in the high teens compared to last year's volumes. Export business, of course, has been quite opportunistic for us, primarily on account of it being a commoditized business in nature and margins, of course, being much slimmer than the domestic business. So as of now, the export business is -- we've not satisfied the requirements purely due to pricing pressure and due to the geopolitical disturbances in the Middle East, which was -- which is our primary market. So for the -- and we are still not seeing a complete recovery of that segment. So that is why we are saying that on the domestic side, we'll have a high teens growth. And also mentioned in my comments was on the margin front, we'll have a high single-digit to a low double-digit margin for the rest of the year for average -- on an average basis.

Okay. Secondly, on the new capacity, how is the new capacity in the South is ramping up? How is utilization right now, if you can indicate?

Himanshu, you have the exact utilization percentage, right?

Yes. It's around 40%, yes. So it's around 40%. It's picking up. And I think, Praveen, what we need to understand, today, all the 3 lines are capable to produce everything that I need for the markets. So we try and optimize wherever we can based on economics. This is the way we should look at. I think 40% is the number where we were in this quarter, and let's see how things shape up now.

So just -- I think for everyone's clarification because this question might come up going forward as well, the thin line is capable of producing Thin MDF, but also capable of producing Thick MDF. So what we are now trying to do is to divide our entire production in the most optimum manner both geographically and technically among the 3 lines. So it's possible that certain products from line -- the older lines may shift to the new lines as well in that sense to run all 3 lines efficiently. So it's like now fungible the capacities across the 3 lines.

Okay, okay. The next thing is related to the EPCG benefit. For a quarter, if you can indicate how much is that?

So that's INR 6 crores in this quarter. And prior to that, in quarter 1, it was INR 5.1 crores.

Yes. Also on the ForEx loss, apart from the INR 40 crores of the ForEx loss, do we expect later in the quarter also such kind of numbers to come in?

See, I think what we saw was kind of unprecedented. See, I think we have been hit more on euro, yes, euro, dollar exposure. Dollar-rupee actually works in our favor. So dollar going up is actually helping me do more exports, insulates me from my imports, yes, as a country, right? I think the euro, dollar -- euro appreciating by 15%, 16% in 6, 7 months due to whatever was happening in the U.S. is primarily contributing to all of this. I think at this point in time, for us to take a position on how euro is going to move is going to be very speculative, right? To the best of my understanding, whatever little I have seen over the last 25-odd years, currencies have to follow a basic rule, which is if there is an interest rate differential, so there -- one, there is an interest, yes, which we know is what it is in euro terms, which is 2%, 2.5%, which is something that we absorb in our financials. The other is this FX piece, right? And traditionally, given the way things are, given the way the basic fundamentals work, interest rate differentials, inflation differentials should guide FX movements. Today, this is something which is very unprecedented. At best, both of these factors put together should not be more than 5%, 6%, which is better than borrowing onshore, right? So I think any which way there is a reversal happening right now -- if you see, euro has come off from those levels.

All right, sir. One clarification, sir. As in the opening statement, you had made that whatever the realization correction, there is a 2 part to that. One of them is a price impact and that is half of that. So do we believe that whatever the realization in the -- across the market of the prices you were doing, that's over? We will not see the way forward if there is a correction sequentially of around -- from INR 29,500 to INR 28,500 we had seen in domestic, such kind of a movement will not -- at least from the price correction, we will not see way forward.

Yes, the current market condition -- we are not foreseeing any major corrections. And as we mentioned that the company's focus now is on volume growth, we -- and these corrections are end of the day targeted on a customer-to-customer basis. It's not a pan-India or a product fanned across the entire product range. So where we see opportunity for some correction but a much higher contribution overall contributing to better margins, we may take such calls. But as such, there is no plans per se to have any price correction per se in the immediate term.

Can I add to what Shobhanji said? I think what we also need to realize, I think the basic fundamentals and price movements are obviously linked to supply-demand, your underlying cost and the competition behavior. So we will continue to monitor all of this and then take our necessary calls, right, something that Shobhanji has already explained.

[Operator Instructions] We take the next question from Balaji Vaidyanath from NAFA Asset Managers.

It's nice to see growth return after a few tough quarters. Congratulations to the team. I was just wondering -- Shobhan, you mentioned about 20,000 cubic meters imports on an average same time last year. I was just wondering how spread out were these imports. Or is it like a Pareto rule, where 3, 4 guys were contributing to 80% of imports? Because -- just trying to assess how effective this BIS could be, because if the 3, 4 guys are able to obtain the license -- and if you could throw some light on whether they have been able to obtain, that will be useful. And if that is the case, then...

Yes. Sure. So when you're saying how spread out, are you referring to the importers or the manufacturers?

Yes, yes, I'm referring to the -- I mean, importers I would say.

Importers, yes. No. So it was definitely spread out across geographies and classification of importers. There were OEMs who are importing, who were consuming the products directly, and then there was also various traders especially or importers who were trading the material. And when it comes to the current price points with the current foreign currency rates, the dollar rates, the current domestic price points and BIS implementation, we are not foreseeing this to come back in a very sort of strong manner on an immediate basis because the QC has been in place for quite a few months now. A handful of the manufacturers have been able to obtain the BIS certification. And then now the standards are going to become even more stringent when the new BIS standards comes in. So it's not, let's say, an easy barrier to cross. So we foresee the imports to continue to remain muted in the coming quarters. I don't know if that answers your question.

Yes, it does, Shobhanji. When do you expect the new standards to come in?

So the draft is already being prepared by BIS, and, I mean, we're just waiting for the official notification of the same. It could be a month, it could be a couple of months. But BIS is already in place. It's just a correction of the quality standards that BIS has to issue to us.

So in the current quarter, the kind of reduction that we have seen in imports, have we already seen the full benefit of that in Q2? Or do you expect the benefit to kind of flow in...

Yes. Because imports are already –- almost, I mean, as good as negligible. And we don't get any further feedback from importers that there is any competition that we are facing. Our team doesn't give any feedback about competition being faced due to imports. We're already catering to various OEMs who used to import and are now buying domestically produced products. So let's say that imports for the time being is not really a threat and not in the competition scenario.

And the total imports for the quarter were only 3,000 cubic meters, which translates to 1,000 cubic meters. So if you look at last year's average of around 20,000 cubic meters per month, it's only about 5% of what it was last year.

Okay. Great. My one last question is on the raw material side. You mentioned you are expecting benign timber prices, but elevated chemical prices. So do you expect these 2 to kind of offset each other? Or how do you see the situation playing out?

I think the chemical prices, again, is sort of a temporary sort of phenomena. It should correct itself. So this won't -- I mean, we don't see this to be a long-term challenge per se. And in timber prices what we are seeing is that they seem to remain -- they will seem to remain stable going forward. There won't be any major price hikes.

The next question is from Keshav Lahoti from HDFC.

Sir, one small clarification. This margin of MDF which we have guided, this is including EPCG benefit or excluding?

Sorry, what's your question? The EPCG benefit is...

So the EBITDA margin guidance for MDF, which is low single-digit to –- low double-digit to high single-digit, does it include EPCG benefit also?

It does. It does.

Okay. Got it. And secondly, so what I understand possibly, there is some capacity addition by unorganized also happening and possibly -- so it could be difficult to take MDF price hike at least for next couple of quarters. Is this understanding fair?

Well, it's hard to say. But on an immediate-term basis, we don't foresee any price hikes coming in. I think value addition will contribute to better margins, hopefully. And the unorganized segment is -- end of the day, our focus is increasing the percentage of the value-added products which the unorganized segment is not catering to. So -- but it should not result in any additional price correction. But it will also -- if you ask me, do we foresee any price increase happening on an immediate basis? I would say no.

Next question is from Shivkumar Prajapati from Ambit Investment Managers.

Sir, my first question is, please -- I mean, if I've missed it. So if we adjust the provision and the ForEx, so does the EBITDA margin goes beyond the 10% for the quarter?

No, we've already given that bridge out in our investor presentation, where we have adjusted the -- we have shown you with a [ sense ], let's say, FX and any other one-offs how is my operational EBITDA. That's INR 40 crores, yes, which is 10.2%. Yes.

Sure, sir. I'll have a look at it. And sir, what would be the commercial grade volume in Q2 FY '25, I mean, just to eliminate the base effect if there any?

0.

0.

FY '25 he's asking.

Yes, yes, last year [ report card ].

Last quarter was 26,000.

26,000. Okay. Understood, sir.

Yes.

And sir, if you can share the current timber prices, I mean, for the quarter and how is the price so far in this 40 days of the Q3 as well?

Do you have those numbers, Himanshu? Perhaps the average purchase price? Because there's multiple scenarios here.

It's pretty much similar to where we were. But I think what we need to appreciate, I think, Shivkumar, I think today, we are the market leaders in a rapidly growing but small -- and there's a lot of new players coming into our sector, right? And we have added new capacity, they have added capacities as well. So a lot more granular details that we were sharing in the past, sometimes they become conducive for all -- they are kind of prejudicial to our own business interest. I think figuratively, giving a lot of figures out is becoming a little challenging at this point in time. But yes, I think directionally, Shobhanji has already mentioned, timber prices are stable to correcting sequentially, and chemicals have gone up, which is only a temporary blip, right? It's not changing so much. There are seasonal variations on account of things like rain, the rain setting in between. And now the winter setting in is a different thing altogether.

Got it. Sir, got it. And sir, what sort of a discount are we offering right now?

Sorry, what do you mean what sort of a discount? I didn't understand.

Discount, sir, like ramp-up of new plant or maybe if we are not taking the price hike in order to boost our volumes, are we offering...

I think that was mentioned in our calls that realizations are down by 4%, which is a mix of price corrections as well as value mix of the product. So we don't have a -- we have not offered any pan-India standard discount or additional discounts for that matter. They're all opportunistic in nature depending on the business in front of us and how much we're willing to offer to obtain that business. But this is how that averages out.

The next question is from Kaustav Bubna from BMSPL Capital.

Just wanted some industry data. In 2025 -- full year calendar year 2025, what's the expected domestic MDF demand in cubic meters? And what's the expected domestic MDF supply in cubic meters?

Venkatji, I think you have those numbers, right, in front of you?

No. Anyhow, I wouldn't have them on a calendar year basis.

Okay. Whatever you do have...

But for the financial year, so I think it would be -- demand would be somewhere between 2.75 to 2.8 million cubic meters and capacity would be around 4.2 million cubic meters.

And what is this capacity expected to go to with all the capacities coming up next financial year? Because demand...

See, we have not heard of any major capacities coming in FY '26 or '27.

So this 4.2 million cubic meters which was in FY '25 should be around in the 4 to 5 million range only you are saying for FY '26, FY '27?

Yes, should be.

Probably, yes. There could be some capacity additions by unorganized manufacturers. But since those are not in the public domain, it's -- we are not updated as of now. But nothing from the major organized players.

And if domestic supply is around 4.2 to 4.5 million cubic meters, how much would imports be in addition to that in FY '25?

Okay. So the monthly average is around 1,000 cubic meters for the...

Kaustav, it's negligible.

For the 6 months –- for the first 6 months.

Okay. Okay. No, understood, understood. And just one last question, Shobhan. I just wanted to understand, till today -- we've also discussed earlier because the industry has been so nascent in terms of supply base. Whenever a lot of supplies come in, it's led to a relatively drastic reduction in realizations because supply base has been higher than demand. We've seen demand growing at double digits, 15%, 20%, let's say, but supply growing much faster. When -- by when can this whole supply-demand dynamic change to a more stable basis -- to a more stable one where realizations don't get affected so much?

Kaustav, I think we've already seen probably the worst sort of downturn in the industry. I think it's come to a point where many manufacturers are finding it hard to survive already. So I don't foresee, like I mentioned earlier also, any additional or major price corrections happening going forward because the current cost structures will not permit that for any manufacturer anymore, especially the unorganized guys. And there has been correction in terms of the difference between the organized players' pricing and the unorganized players' pricing as well. So I don't see any further pricing pressure coming in or in terms of it being sustainable for any manufacturer going forward.

Next question is from Sneha Talreja from Nuvama.

Just wanted to understand when could the industry actually see any amount of price improvement? While I understand the raw material prices will be softening, eventually, that could lead to margin improvement. But any understanding on the price hike also which can actually happen?

Sneha, it's very difficult to estimate that. And on an immediate basis, honestly, I don't foresee any price increases coming in, in the near term, to be honest with you. I think the focus at the moment is to gain market share, improve volumes, which should contribute to better margins. Because the moment we talk about increased pricing, will allow other manufacturers to take further space in the market. So it's -- I mean, I don't foresee a price increase coming in anytime very soon.

Understood. Understood. So the entire idea would be to have that operating efficiency coming up with operating leverage and then lower the cost.

Absolutely. Absolutely. Absolutely.

Which will continue till the time we reach what level of margin when we can see normalization of the cost coming up?

Yes, I –- timber, I think safely -- with the current price points and with improvement in volumes, I think high teens margins are possible.

Next question is from Pankaj Parab from Molecule.

My first question is on the working capital. We have seen tremendous improvement in our working capital, especially in the inventory days. So just wanted our strategy. Is it for the just quarter only or we are planning to maintain the same 40 days kind of inventory level going ahead?

I think it should be broadly similar. So wherever we have opportunities to be able to optimize working capital going forward, we will continue to do so. This time, I think, bulk of the reduction is inventory, right? So we wanted -- you know the costs have come down. So we wanted to get rid of inventory which was produced or procured at a higher rate. This is exactly what we have done, right? So we will continue to see this going forward.

Also, please keep in mind –- sorry. To add to that, please keep in mind that working capital for us is affected by -- due to seasons as well. During rainy season, when timber availability is low, we tend to increase our inventories because the harvesting of the trees reduces. So we tend to increase our inventory. So there is a seasonal effect to our working capital as well.

Okay. Understood. And sir, a clarification on the -- just quantify, if you could, the raw material reduction in this quarter? And what is your expectation for the next 2 quarters for the raw material, timber price mostly?

See, I think it's, again, hard to speculate that. And we are foreseeing the timber prices to sort of remain stable or have slight correction. But it's very hard to put a number to that at the moment.

But for this quarter, sir, if you can provide, for the quarter 2 only quarter-on-quarter comparison just?

For quarter 2?

Yes.

I would say they would probably remain stable or at par.

Next question is from Arun Baid from ICICI.

Shobhanji, just one clarification. You mentioned that our growth for the full year will be in the teens, right, in the MDF domestic business. Am I correct?

High teens, yes.

So Shobhanji -- because when I look at numbers, last year's Q3 and Q4 were very tough for us. We de-grew by -- in the fourth quarter by about 25-odd percent. So if we do a backward calculation, roughly if I take 13%, 14% growth, you will do lesser than what you've done in the first half, or more like similar to first half numbers you'll do. Is that the right way to look at things because demand was much better, right?

No, we're seeing -- Arun, we're seeing on an annualized basis.

Yes, yes. So on an annualized basis, sir, if I assume it's 13% growth, you have to do around 2,14,000 CBM roughly for the second half.

Yes.

That's pretty low because we did the same number in FY '24 second half, exactly the same number. And obviously, FY '25 second half, we had de-growth, 25% in Q4. So if I look at your Q2 numbers, it's 1,12,000 CBM or like 1,30,000 CBM. If I double it, it's like 2,26,000 itself. Am I missing something or...

No. So we should be at about -- I would say about 420, 430 level domestically.

Okay. So you did 2,02,000. So basically, around 2,18,000 you are saying? Exactly, sir. That's what's the point, Shobhanji, because the numbers don't add up. It's lower than Q2 numbers. Even if I extrapolate Q2 numbers, double it for the next 2 quarters, it's 2,25,000 without any incremental pace up. Because our strategy is to get more volumes, right?

Right.

Based on that –- because it's -- anyways, I'll take it offline.

Arun?

Yes, Himanshu.

You're here? Okay.

Yes, I'm here.

See, we did 116 in Q3 and we did 102, right, in Q4 last year, same time. I don't have the numbers handy for FY '24 or...

Sir, I meant the domestic –- I mean, domestic numbers.

No, I'm saying the overall. I think overall -- I think he -- I think what Shobhanji was trying to say, I think, holistically high teens is possible right now. And this is what we...

So that's for combined business or domestic? It's combined or domestic?

No, no, no, combined, combined, combined. So going from where we are -- see, export is something that we'll keep modulating based on how the markets are, right? If we get more volumes at good margins, we'll take that, right? Because this also ensures that we are running lines more effectively. We are getting the EPCG benefits, et cetera, et cetera. But overall, I think high teens is what he's guided and which seems to be possible.

Just to clarify, Himanshu, it's high teens on the total volume. So last year, we did combined volumes of 4,38,000 CBM. On that, we are talking of high teens. Is that the right way?