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

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q3 and 9M FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Rishab Barar from CDR India for opening remarks. Thank you, and over to you, Rishab.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Limited Q3 and 9 Months FY '26 Earnings Conference Call. We have with us today Mr. Shobhan Mittal, Managing Director; and Mr. Himanshu Jindal, CFO. Before we begin, I would like to share some statements made in today's discussion and may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation, which was shared with you earlier. I would now like to invite Mr. Shobhan Mittal to begin the proceedings of the call. Over to you, sir. Thank you.

Thank you. Good evening, ladies and gentlemen, and welcome to our quarter 3 FY '26 earnings call. While the retail markets were a little tepid post the Diwali festivities, we continue our renewed focus on channel engagement with more sales and marketing investments to support volume growth during quarter 3. The quarter began with the announcement of a new foreign travel scheme and ended with the launch of the country's strongest, toughiest and heaviest bottling waterproof MDF to supplement our existing product offerings to the customers. This, along with the other ATL and BTL initiatives about which I enumerated in more details in our last earnings call, will go a long way to assist and create a more sustainable volume growth strategy for Greenpanel over the next 3 to 5 years. Our domestic MDF volumes grew by 19% year-on-year and the export volumes were higher by 8.3% year-on-year. Total MDF volume growth thus being 17.1% for quarter 3. While domestic pricing was unchanged from quarter 2 levels initially, discounting pressures from relevant peers came back into play post Diwali, and we too had no option but to offer more discounts between November and December, much more to the OEMs where pricing is key. As a result, the domestic realization was lower by 1.4% sequentially. Some portion of this was also on account of the change in product-wise sailings post addition of the new plant at AP and increase in overall proportion to OEM sales. Plywood business is yet to revive meaningfully and we are already working on possible next steps to scale up this business. Maybe I'll be able to share more on this over the next few quarters. Counting the exports and plywood sales as well, total revenues for the quarter grew by 11.4% year-on-year to INR 398.8 crores. Given our renewed focus on cost optimization, our gross margins and the operating EBITDA margins were higher both on a year-on-year and also on a sequential basis. Given our strong performance in Q3 amidst a more challenging market, the revised guidance that I shared with you on our last call for the full year of FY '26 remains unchanged. We continue to target a high-teen growth in MDF volumes with operating EBITDA, excluding FX and one-offs of high single-digit to early double-digit average for the full year. With this, I request our CFO, Mr. Himanshu Jindal, for the financial and other updates. Thank you.

Thank you, Shobhan-ji. Good evening, all. Since Shobhan-ji has already covered the revenues, I'll try and give you more insights on the cost and margin front. So on the cost side, timber costs, which were gradually receding with improved supply still early November, were a bit more volatile thereafter with the onset of severe winter conditions in north and heavy rainfalls in south. But we have again started witnessing some bit of cost reduction from January onwards. Cost of chemicals has also come up from the peaks in quarter 2 over the last 2, 3 months, which is also supporting margins now. More from a cost of production point of view, we were almost flat sequentially. The savings on raw materials, which led to expansion of our gross margins to almost 50% were partially negated by the higher fuel and power costs, which were caused by a seasonal spike on account of the severe winter conditions in the north. We also invested a bit more on the sales and marketing bit to build salience, both in terms of people and pure sales promotion expenses. As a result, our operating EBITDA, excluding the impact of currency movements on the long-term euro borrowing for the new plant was INR 44.3 crores or 11.2% of our revenues, with MDF at 11.9% and plywood at 1.4%. The above also includes the impact of recognition of the balance approved but not yet accounted power subsidy of INR 8.5 crores for the old line at Andhra, post the partial receipt of INR 19.3 crores from the state government in October 2025. For clarity, because this is something which may come up as a question during the course of the call. So for clarity, out of the total blessed state government subsidy for the old line, which was INR 96 crores, INR 68 crores was capital subsidy and INR 28 crores was pure revenue subsidy. Out of this, in the past, we had already recognized INR 15 crores of capital subsidy, which was adjusted against the carrying cost of the asset. And on the revenue side, the entire impact was taken into P&L, INR 20 crores. The balance portion, which was blessed but not accounted for, which is the capital subsidy of INR 54 crores has now been adjusted against the carrying cost of assets. And also the balance 8.5%, like I mentioned above, has also been brought into P&L via adding it to the other operating income as a one. Again, in quarter 2, we were impacted by the continued volatility on the exchange rate on our outstanding long-term euro-denominated borrowings. This impact is INR 3 crores during the last quarter. And cumulatively, this year, only on the borrowing, the impact is INR 43 crores. Bulk of this is obviously unrealized mark-to-market noncash loss. Apart from this, there is also an impact of INR 10 crores a quarter, which is in form of the incremental interest and depreciation on account of the capitalization of the new plant at AP. Counting these, the PBT was INR 11.4 crores positive and the PAT was plus INR 10.2 crores for quarter 3. On the balance sheet side, we did increase inventories to support sales for second half, improved availability. But despite this, our core cash conversion cycle was still maintained at 32 days. The leverage has also stayed very comfortable for us. Our net debt is INR 163 crores. If we count out the noncash FX change, the actual net reduction has been INR 40 crores during 9 months and almost INR 85 crores from the peak that we saw on 30th of June. On that note, I think we can open the question and answers, please. Thank you.

[Operator Instructions] We take the first question from the line of Balaji Vaidyanath from NAFA Asset Managers Private Limited.

Congrats for the recovery that we have seen. And if you could throw some light on the import scenario and how we are seeing it play out for the rest of the year, please, to begin with?

Sure. So imports are still quite muted, to be honest with you, and a few companies have received the BIS certification. However, with the current pricing situation in the OEM segments where imports were more prominent, the current pricing from the domestic producers itself is quite competitive to allow any additional imports coming in at this point of time. There are certain specific applications because of raw material characteristics where domestic material is not suitable. In those applications, imports are coming in. These are limited to specific applications where thin panels use like laser cutting, et cetera. But otherwise, barring that, there is not any immediate or foreseeable threat from imports at the current price points.

This will also be supplemented by an incremental QCO, which you spoke about last quarter Shobhan-ji. If you could give us any update on that?

So the new QCO standards have been implemented. In fact, we are now ourselves in the process of rebranding and calibrating our own specifications through the new QCO standards. So of course, these end up being more stringent than they were previously in the BI standards. And this should further restrict imports coming in and compliance with BIS.

Question to Himanshu-ji on the raw material side, especially on the urea, if you could give us some more color on -- in terms of how you see this playing out and whether the worst is over?

See, we don't buy urea directly. We buy only resins, right? So these are manufactured by someone else, our vendors, and we buy them on a competitive basis, right? So for us, I think the consequence is how much do we buy at the chemicals end of the day. I think we did see a spike, like I mentioned earlier on the 2 calls during quarter 2. And thereafter, the prices have come in -- are coming down with increased supplies. I think today where we are, I think the pricing environment per se is pretty stable now. It's already come down.

We take the next question from the line of Utkarsh Nopany from Anand Rathi.

Sir, my first question is on the MDF segment. So like if we see our domestic MDF revenue has remained stable on a Q-on-Q basis, but our margin has slightly improved. So can you please specify what is the reason for the margin improvement in December quarter? And what would be our MDF EBITDA margin guidance for FY '27?

Himanshu, do you want to get that?

Yes. Yes, no problem, I can. So you're right, sequentially, the volumes have been flattish on the retail side, on the domestic front, right? But yes, we have sold more of exports, right? So when you sell more, obviously, operating leverage is also play out, and this is why you see operating margins going up, yes, otherwise...

Sir, the export commands pretty significantly lower margin compared to the domestic volume. So it should actually pull down the margin, but it does...

No. So please try and appreciate even in the last quarter, my fixed costs were already absorbed. Now with additional volumes coming into play, see, every cubic meter that I sell, I get more and more contribution. Even exports make money for me, not that they don't at a contribution level basis, right? So it's only recovery of fixed costs that I'm working on via exports. If the domestic markets are a little challenging and there is an opportunity on the export front, I still go ahead and sell. Same with OEMs. If the retail markets are great, I'll try and push in more and more on retail, right? So I think there is definitely some advantage which flows in not only on my operating leverage, but also otherwise on my direct expenses on my power, fuel, on the quality of the product also one way or another way when I run my lines more sustainably. And this is what you are seeing in my margins now flowing in.

Sir, like given rupee has weakened quite a lot, so I just wanted to know from your strategy perspective, whether you would be planning to take any price hike in near future or you would target to quickly ramp up the south plant by keeping the prices relatively stable for the next few quarters?

On the pricing -- when you're saying -- yes, I didn't understand. When you're saying price hike, are you talking about in the export segment or the domestic segment?

The domestic market, sir?

No. So like I mentioned earlier that at the moment, we don't foresee any major threat coming in from exports. My understanding is what you're referring to is that exports will become more expensive -- imports will become more expensive in rupee terms. Is that right? That's what you mean?

Yes, sir.

Yes. But like I mentioned, imports are not really a threat at this point of time because domestic pricing itself is at a price point where we are already very competitive. So today, in the segments where imports were being consumed, the real competition is from the domestic players. It's not from imports, to be honest with you. And because of the domestic competition and pricing pressures, I don't foresee we'll be able to factor in the rupee devaluation into our pricing, into the customers.

Sir, lastly, like on the subsidy part, if you can kindly help me like how much EPCG benefit we have recognized in December quarter? And if you can also specify the subsidy amount, which we have mentioned in the footnote, like INR 8.5 crores you have already mentioned that it has been recognized as part of operating income. INR 19.3 crores which we have received, where it has been recognized and the INR 53.7 crores, which is yet to be received, where we have recognized in the P&L or in the balance sheet, if you can specify this?

Let me try and answer this. So EPCG is on exports. If we export more, we recognize more EPCG. In the last 3 quarters, I'll give you all the figures so that you get all the figures for the current fiscal. So in quarter 1, we had INR 5 crores EPCG. In quarter 2, we had INR 6 crores and this quarter, we have INR 8 crores, that's EPCG, which is there as part of your other operating income. So every quarter, we are getting more or less between INR 5 crores to INR 8 crores, yes. Now your second question is on subsidies. As I mentioned in my opening remarks, anticipating this question will obviously come in. So for you to know, there was INR 96 crores that I had to receive from the government of Andhra Pradesh for the old line. A large part of this was capital subsidy, which was INR 68 crores. The balance was basically power subsidy, which is revenue in nature, INR 28 crores. Now in the past, the company had recognized already INR 15 crores of capital subsidy and INR 20 crores of revenue subsidy in books, which means INR 35 crores was already accounted for money not received. This was the status till 30th September. Since I received money in October, which was INR 19 crores against these receivables, I brought down my receivables from INR 35 crores, minus INR 19 crores, that's the receivable that I was carrying in a way. But then because money is flowing in already, there is 20% of the money which has come in. Based on our assessments and based on the discussions with the auditors and otherwise, we said we will recognize the balanced unaccounted but approved subsidies in our books. Now what have we done in this quarter? Out of the balance unaccounted capital subsidy, which is INR 54 crores, that has been adjusted against the carrying cost of the assets, the fixed assets. So this is why my fixed asset block has come down to that extent, INR 54 crores. On which obviously, going forward, the depreciation expense is going to be lower based on the remaining life of the asset. The revenue subsidy, which was approved but not accounted for was only INR 8.5 crores, which has now been brought into books via the P&L, getting it added to the operating income. Does this simplify or answer what you wanted to know?

Yes, it is pretty clear. Lastly, like, how much EPCG benefit balance is left, which we can accrue in the coming quarter?

So INR 51 crores was the opening. You remember the opening figure actually or before we started recognizing EPCG was INR 86 crores. Last year, last fiscal in quarter 4, we had accounted for INR 35 crores, which meant opening figure this fiscal was INR 51 crores. I explained to you, INR 5 crores, INR 6 crores, INR 8 crores. So INR 19 crores almost has been accounted for in this fiscal. Balance is still to be recognized. So there's INR 32 crores EPCG, which is shown as liabilities in my book, which the moment I export more and more, I'll keep recognizing. To your question, how much would be recognized in this fiscal, the run rates are already there with you. If I get an opportunity to export more, I'll recognize more this year. The balance will obviously flow through in the next year. So maybe in the next 4 to 6 quarters, this entire amount will come into books.

We take the next question from the line of Keshav Bijayratan Lahoti from HDFC Securities.

Sir, as you highlighted, INR 8.5 crores power subsidy, which you recognized this quarter. So this MDF margin, which is coming around 12% includes that subsidy also, which is more like one-off in nature. Is that a fair assessment?

Yes, it does.

One last question from my side. How are the timber prices moved in this quarter? And what is the outlook for the same -- resin side also?

So I tried covering it as part of my speech and also as part of the answer that I gave just now. So what I said, Keshav, was the timber prices month-on-month sequentially were dropping and this continued to be the trend till November, mid-November. But then you saw winter setting in, in north and you saw heavy rainfall in Tamil Nadu or Andhra. And therefore, there was a bit of a spike which came into play. Now for the last -- since January beginning, we are seeing again prices coming down. I think we should also remember there was a play of the timber recipes or the way we mix timber at our end now to produce MDF. I think all of that is playing together. Sequentially, every single quarter, we are getting savings. I think between quarter 2, quarter 3, largely counting in everything in, we were more or less at par, right? Now to your questions on resins or chemicals, generally, like I mentioned, there were some supply challenges in quarter 2 because of which the prices had hardened. From there, every single month, we are seeing prices come off. So I think the peak was sometime in October, November, early November and thereafter, the prices have continued to come down. Today, we are pretty stable.

We take the next question from the line of Yash Sonthaliya from Edelweiss Public Alternatives.

Congratulations on good set of numbers. So like you already alluded, you took the price hit of, I think, 1.4%. So I wanted to understand specifically for the south plant, what was our price change? Like what was the decline specifically for the south plant?

So we don't look at it like south and north anymore, to be honest, because we end of the day, see the same plants are being used to service all locations. There are certain -- see, lines are today fungible. Markets are, again, can be fed from both the plants. So wherever we can produce something at the best economics, we go ahead and produce that product and supply to the market, right? So it's very difficult to specify what is the price for a particular plant today in the current context. But yes, prices are the same wherever they come from, whichever plant at the end of the day, the customer should get it at the same price.

Second, like 1.4% was due to price realization decline and other was due to product mix change. So was it because of the test production we did in our new plant or it is structurally consciously, we are taking the call to cater to more OEM because of the market scenario?

So if you look at my domestic realization, it was down 1.4%. If you look at my export realization, it was also down incidentally by the same proportion sequentially, right? But when you see my exports going up, automatically, the blended realization appears to be 2%, 2.5% lower, right? So I think that should answer it. More importantly, again, between retail and OEM on the domestic front, as Shobhan-ji mentioned, OEM is what has -- there has been a volume upsurge for sure, right? So that's in a way -- so retail markets, the discounts may not be in line with whatever we are giving to OEMs. OEMs command a higher discount.

But this is purely a function of demand to answer your question. Today, we are not in a position to pick and choose what we sell and who we sell to. At the moment, the focus because of surplus capacity, both at the company level and in the market is to capture any demand that is available is element of the product mix that it's offering.

One last follow-up, like if you can help me the channel mix Q3 FY '25 and what is right now in Q3 FY '26 between OEM and other channels?

So OEM is roughly 25% of the MDF domestic that we sell, balance 75% is retail. If you compare it vis-a-vis sequentially, it was more or less similar. Last year, I think 2%, 3% here or there. So retail, I think last year was 77% odd. And this year, like I said, it's already 75%.

We take the next question from the line of Sneha Talreja from Nuvama.

Just a couple of questions. One, you said that in November and December, you observed incremental discounts coming up, and that's why you had to increase discounting. Any signs that we are seeing for price increase happening in MDF? If not now, when would we potentially see it?