Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Welcome to everyone present, and thank you for joining us to discuss Greenpanel's operating and financial performance for quarter 4 and FY 2020. I do hope that all of you and your loved ones are safe and well. We all pray for an early end to this pandemic. Let me give you a quick brief on the financial numbers. Net sales are up by 35% at INR 227.19 crores. Gross margins are up by 850 basis points over the year-on-year quarter due to change in MDF and ply mix, reduction in wastage and improvement in quality at the Andhra plant. EBITDA margins were down by 70 basis points. The margins for the quarter were impacted by currency losses to the extent of 1.31%, while the year-on-year quarter were boosted by currency gains to the extent of 7.39%. On an apple-to-apple basis, EBITDA margins for the quarter adjusted for foreign currency gains and losses, stood at 20.4% as against 12.4% in the corresponding quarter. Our post-tax profits for the quarter were impacted to a significant extent by foreign exchange mark-to-market losses, INR 13.83 crores on long-term borrowings of a Andhra MDF plant and exceptional item relating to a 40% share, INR 10.84 crores of Greenply's provisional liability for repayment of excise refund received in the past years. The results for the quarter were, to some extent, also impacted by the COVID-19 pandemic. We have had a strong quarter on the back of good volume growth in MDF. Sales volume growth stood at 38% over the corresponding quarter. MDF EBITDA margins adjusted for Forex losses and gains improved by 1217 basis points to 24.08% from 11.92% in the corresponding quarter. Although our plants were shut towards the end of March due to the lockdown, we still managed a healthy capacity utilization of 69% for our plywood plant and 73% for our MDF plants. We have since resumed operations albeit at lower utilization levels. Operational enhancements have also enabled continued working capital improvements. Our working capital days have reduced 20 days over the corresponding quarter. There is a lot of uncertainty at this point with the changing nature of the pandemic, hence we will not provide any guidance for FY 2021 at this point of time. I will now request Mr. Venkatramani to run you through the financial numbers in greater detail. Thank you.

Good afternoon, everyone. I thank you for joining us to discuss the Q4 and FY '20 financial performance of Greenpanel Industries. In Q4, our top line was up by 35% compared to the year-on-year quarter. Net sales stood at 227.9 -- INR 227.19 crores, compared to INR 167.83 crores in Q4 FY '19. MDF sales volumes grew by 38.3%, while plywood business had volume growth of 18.4%. MDF sales grew by 38.9% in value terms at INR 177.66 crores, whereas plywood business had a value growth of 24.1%. In Q4, gross profit grew by 58% at INR 132.2 crores versus INR 83.44 crores in the year-on-year quarter. EBITDA grew by 30.8% in value terms at INR 43.45 crores compared to INR 33.23 crores in the corresponding quarter. Gross margins were up by 850 basis points, while EBITDA margins were down by 70 basis points for reasons mentioned earlier. PAT for the quarter stood at INR 6.69 crores compared to INR 12.14 crores in the corresponding quarter due to the reasons mentioned by Mr. Shobhan Mittal earlier in the call. I look at the annual numbers now. In 12 months, FY '20, net sales was up by 45% at INR 830.33 crores compared to INR 570.82 crores in the corresponding year. MDF sales volumes grew by 60%, while plywood volumes grew by 50%. MDF sales value had a growth of 43%, while plywood sales value grew by 53%. In FY '20, gross profit grew by 40% at INR 448.48 crores versus INR 320.06 crores year-on-year. EBITDA grew by 43% in value terms at INR 137.33 crores compared to INR 96.17 crores in the corresponding year. Gross margins were down by 206 basis points due to a significant increase in MDF export sales. MDF export volumes grew by 144% to 104,903 cubic meters from 42,981 cubic meters in FY 2019. MDF export volumes constituted 33% of total volumes in FY '20 versus 22% in FY '19. EBITDA margins were down by 30 basis points due to currency losses and gains. EBITDA margins adjusted for currency losses/gains actually improved by 200 basis points. Plywood sales in Q4 FY '20 stood at 1.93 million square meters versus 1.63 million square meters in the corresponding quarter with capacity utilization of 69%. MDF sales volumes were 90,355 cubic meters versus 65,341 cubic meters in the corresponding quarter with blended capacity utilization of both the MDF plants put together at 73%. Capacity utilization in Uttarakhand and AP plants were 76% and 72%, respectively. Our debt-to-equity ratio was 0.78 as on March 31, 2020, compared to 0.85 as on March 31, 2019. We have taken moratorium of March installment of HDFC Bank and Axis Bank aggregating to INR 5.50 crores. We have also taken moratorium of LBBW Bank installment falling due on April 15, 2020 for EUR 2.10 million, approximately INR 17 crores. That concludes my presentation. I now request you to open the floor for the Q&A session. Thank you.

[Operator Instructions] We'll take the first question from the line of Praveen Sahay from Edelweiss.

My question related to the exceptional item, which you had given some liability related to the excise refund. So can you elaborate more like why that actually has come up?

Okay. This was related to the prior -- period prior to demerger of the company from Greenply. So as part of the demerger scheme, we are agreed to share the joint liabilities, if any liability arose either in connection with the units now with Greenply or the units which have now been transferred to Greenpanel. So in a recent Supreme court judgment, companies have been told that they may have to refund part of the excise duty refund, which they had received for past years. And Greenply's Nagaland unit was one of the units which had received the excise refund relating to that period. So the total liability on that account is approximately INR 27.4 crores, and our share as per the scheme of demerger is 40% of the total. Although there are -- there is a process of appeals and reviews, we have, as a matter of abundant precaution, provided for this liability, which we may have to pay to Greenply, in case the final judgment in this matter is settled/adjudicated on or before March 31, 2022.

Okay. And that's only related to the Nagaland unit?

Yes. That's only related to Greenply's Nagaland unit.

Okay. And there is no -- any other unit of yours or even Greenply's?

That's correct.

We take the next question from the line of from Kaustav Bubna from Rare Enterprises.

I just wanted to get a sense from you on what -- taking into consideration the disruption, which has been caused due to COVID, and what is -- I mean, the supply demand dynamic you see going ahead and how do you think that would affect realization for thin and thick, the different qualities of MDF? And is there any like understanding improvement between the organized players? Could you just speak a little bit about that?

Yes. So this is -- it's actually -- currently, it's very hard to estimate how the pandemic situation would play out. And in the export side, we are quite confident that by June or July, we should be back to our pre-pandemic levels already. However, for the domestic market for us to be back to pre-February levels, to attain those levels, I don't foresee that we may be, October-November before we start seeing such numbers. On the realization side, at the moment, obviously, we don't have any plans of any price corrections, et cetera, because, I mean, I think all the organized players do understand that correcting prices would just result in everyone connecting prices. So -- and that would not result in an additional demand or anything of that sort. So I think we are very -- although we don't have any sort of formal understanding, but I think the picture is quite clear that no one would, at this point of time, consider any price corrections in the market. And on the demand side, like I said, we're looking at least October-November before things go back normalcy in the domestic market.

Okay. Great. And I was seeing, like you've done around -- correct me if I'm wrong, I don't know if I have this figure right, but around INR 100 crores of cash flow in the year, operating cash flow? So...

Yes. Our operating cash flow was about INR 137 crores in FY '20.

So a part of this money will be used to repay the debt, right?

If you look at it, the cash flows were used last year, we retired debts of around INR 89 crores in the first 12 months of the year. Although the closing balance sheet figures do not reflect that because of currency losses. Our debts have gone up by INR 26 crores due to the ForEx adjustment, but on a real basis, we had repaid about INR 89 crores in the first 9 months of the year.

But this coming year with the first 2 quarters probably being a little muted, you have liquidity comfort on that?

Yes, we have liquidity comfort, and we have also taken moratorium on some borrowings. Like on the domestic front, we have taken moratoriums for the installments which were falling due on March 31. And on the ForEx loan, we had taken a moratorium for EUR 2.1 million loan from the German bank. So overall, we have taken moratorium of approximately INR 21.5 crores, which should help us to tide over the current year.

We take the next question from the line of Nehal Shah from ICICI Securities.

Sir, on the demand side, where do you see MDF demand in the post-COVID environment in particular, probably 6 months down the line?

Well, Nehal, we foresee that we should like start reaching our pre sort of February levels by October or November like I said. So at the moment, it's very hard to estimate because certain markets are operating, certain are still limping. A lot of the consumer sort of crowd, which is the carpenters and contractors are still stuck in villages, and they're not back to operations and work. So it's -- at the moment, the situation is extremely unclear.

No, sure. So that's what I said. Basically, I'm looking post a couple of quarters once the normalcy comes in, do you think MDF demand structurally is likely to be much better compared to pre-COVID levels because of likely incremental demand coming in for modular furniture?

Well, MDF, in general, we are serving the market. I think, the growth rate for pre-COVID, we should -- I mean, if you're asking me that, would it incrementally go higher than the pre-COVID growth rate of the market, I won't say that, that may be the current situation. Because, I mean, what we are foreseeing is that there is definitely, with various restrictions on China, especially for export of items to the U.S., there is a lot of demand shifting towards India. And furniture happens to be a very large part of that. So that would definitely result in an increased demand for MDF consumption within India as well. So we have already been contacted by various furniture makers of the people who are 100% export oriented, who claim that we have so much interest coming in from the U.S. now because the sourcing from China has stopped and we are in talks with these guys. But how much of that materializes post-COVID is to be seen.

Right. And lastly, Venkat Ji, on the margin side, can you just help us understand as to what portion of these margins could be sustainable considering that we'll have significant operating deleverage at least for next 2, 3 quarters in the current fiscal?

It's very difficult to give an estimate of margins for the current year because, to a large extent, depend on what volumes we are able to generate from the domestic and the export markets. So I would not like to give any sort of guidance at this point of time. Probably, we might be in a position to do that when we discuss the Q2 results.

Sure. And sir, on the cost side, how much of the costs are we likely to rationalize in the current fiscal?

I think we would see a substantial reduction in manpower costs. We have taken certain steps like rationalization of manpower and also taken some pay cuts. So I think we'll probably see a substantial reduction on the manpower cost side, which may see a reduction of about 14% to 15%. But I think nothing substantial on the administrative cost side, where some costs like insurance is likely to go up because premiums have been revised by insurance companies. And we are likely to see a substantial reduction in traveling and associated costs.

Right. So that should net off against each other largely?

I think, net-net, there would still be a saving considering the increase in the premiums, et cetera. But I think net-net, there would still be a reduction in the operating cost.

Our next question is from the line of from Shrenik Bachhawat from JM Financial.

So I would want to know that regarding the debt repayments in FY '21, and we might have to pay INR 11 crores to Greenply. So do we need any fundraise for meeting these obligations?

So our debt financial will probably be around INR 55 crores in FY '21. And reimbursement to Greenply is unlikely to happen in FY '21 because of the various legal steps, which will be taken by Greenply. So I don't see any reimbursement happening to Greenply in FY '21. And post the moratoriums that we have taken in March and April, I think cash flows are sufficient to support the debt repayments.

And sir, gross margins have gone up significantly, sequentially. So what was the reason for the gross margins going up because realizations haven't improved?

Yes, so utilization levels have increased substantially. And when utilization levels increased, there's also associated improvement in power costs and reduction in wastage, improvement in quality. So those have helped to improve our gross margin.

Perfect. Sir. And regarding the China tussle going on recently, so what will be the impact on our companies because of this?

Could you please repeat that?

The India-China issues that are going on currently. So if we stop importing the raw materials from China, is there any significant impact on cost structure for us?

We don't import any major raw material from China. For MDF, most of the raw materials are procured from domestic companies. And even on the import side, not much MDF comes from China. Most of the imports happen from Indonesia and Vietnam. So we are unlikely to see any major impact because of the India-China crisis.

We take the next question from the line of Ashish Poddar from Anand Rathi.

Sir, my question is on the plywood. While MDF, it is understandable that we have a large debt and there were some ForEx-related things and other stuff. But in plywood, we saw significant margin contraction in Q4. So what is the reason there, sir?

It was primarily due to the dip in the volumes and sales of decorative veneers, which have a higher margin, that also fell to a substantial extent. And there was a considerable sales disruption from around the 15th of March. So I think that had a significant impact on the plywood margins and to some extent, on the MDF margins also. Because if we had a full quarter, I think probably we would have had a top line increase of INR 25 crores to INR 30 crores, which could have helped to grow the margins.

But sir, if I look at the total sales, it is up by 24% Y-o-Y. So -- but there is a significant contraction in margin from 15%...

Yes. If we look at it year-on-year, there were certain raw material price increases, which happened during July 2019, so that had an impact on MDF margins both in Q3 and -- plywood margins both in Q3 and Q4, but the main reason was the operational leverage. So I think if operational leverages improve on the plywood side, we could see that going back to about 10.5% to 11%.

Okay. And how is the situation on the raw material side in terms of sourcing or you have enough inventory and you are not looking for any purchases as of now?

We are comfortable on the raw material side. There's no pressure as far as sourcing raw materials is concerned.

Okay. And on the deferred tax side, I mean, if you can give some clarity how long it will go and in what manner?

So it primarily comes from unabsorbed depreciation. So there's no time limit as far as utilization of the deferred tax asset is concerned. But probably, we would be able to utilize that credit within the next 4 to 5 years.

So you are saying that every quarter, we will see these kind of numbers coming in?

Not really. See, it's very difficult to do a detailed tax working every quarter because some of the things get clarified only at the year-end. So probably, we should see a substantial difference in deferred tax. So what all adjustments happen will probably happen at the year-end.

So in Q4, we will see that lumpy number coming in?

Yes, that's right.

Okay. And how is the situation on the MDF side? I mean, we saw good volume number in Q4 despite some loss of sales and definitely, Q1, Q2 will be tough. But in terms of overall understanding of the industry, how do you see this industry going forward? I'm also relating with the news that a company like Pidilite also going, tying up with Pepperfry for their supplies. And that is on the expectation of ready-made furniture demand picking up sharply. So do we have -- are we also thinking in a similar line? And are we talking to somebody in the similar manner?

Venkat Ji, I'll take that. So we are very, very optimistic about of future of MDF in India, for sure. I mean that's why we are geared up with such a large capacity and with the market trend shifting towards more ready-made furniture and manufactured furniture as opposed to local carpentry jobs, this would directly give growth to our MDF consumption in the country. No doubt about that. We are also very much in touch with these large-format retail -- consumers. In fact, vendors of Pepperfry and Urban Ladder, et cetera, already do consume our MDF as well. And we are in the process of doing nationwide tie-ups with them where our products get approved and specified by, so that the vendors can start consuming them. But in the long run, I mean, the future definitely is quite -- is very bright for MDF in general because we've seen the growth to be much higher than comparative products in the past years. And I think this would continue in the long run.

So do you see any possibility of any exclusive tie up with these kind of players? Or is this the case anywhere in the world where these online or ready-made furniture companies have exclusive tie up with MDF player or in that sort of manner?

You see what will also happen, you see that as the demand is growing, there is more and more local manufacturing also, which is going to start happening. At the moment, a lot of the imported furniture in the country is being -- a lot of the ready-made furniture in the country is being imported. But as the demand grows, local manufacturing would start as well. People will start catering to the demand of the ready-made furniture by manufacturing locally. And in that case also consumption of MDF for domestic producers would go up. So like I said, we are in tie-ups with some of these guys already, in talks with some of these guys. It's an ongoing process, but I wouldn't say that we have any exclusive tie-ups where they will only consume our MDF.

[Operator Instructions] We take the next question from the line of Sneha Talreja from Edelweiss.

It's pertaining to the antidumping duty on MDF. Can you give some color on that? Has the duty been imposed? And what is the import scenario currently in this outside?

Yes. So see antidumping -- well, there are 2 different matters going on at the moment. One is where the antidumping, which is already in place has to be renewed or rather extended. And at the same time, the government has initiated investigations into what is called a countervailing duty. So that is on a new case altogether, where a different format of duty called the countervailing duty would be -- I mean, the government is investigating. And if merit is found in investigation then they would implement countervailing duty on imports as well. So there are 2 different kinds of duties, which are in play at the moment. And obviously, both, if implemented, would be very, very beneficial for the domestic industry. And I would still say that close to 30% to 35% of the current demand is being met by imports, especially parts of South India or Mumbai, et cetera, where ports are closed, they are heavily dependent on imported materials.

Sir, also, have we seen some kind of a reduction in the imports after this COVID impact or as such the demand is so down that we are not able to analyze any kind of a difference as of now?

At the moment, I won't say that we have seen a reduction. I mean the reduction is of the general demand. I won't say that people have moved over. But with the current foreign exchange scenario and the impact, we see some benefit where people in the market -- the gap -- the cost gap between domestic and imports have shrunk because of the dollar going up. The international prices in general have been on an upward trend. So there are issues where importers are now looking at taking a more pragmatic view of the cost difference between the domestic producers and imports and actually shifting demand towards the domestic producers.

Sir, what would be the current pricing differential in that case between the international prices and the domestic prices in South market?

Well, if we talk about really at the port level, like, let's say, the city of Bombay or Chennai, for that matter, I would say anywhere between 12% to 15%.

So we would be still higher by around 12% to 15%?

Correct.

Yes, that can again be split into 2 parts. As far as the thick MDF is concerned, which is 5.5 millimeters and above; there, the price difference is about 6% to 8%. But on the thin MDF side, which is below 5.5 millimeter; there, the difference is pretty steep at between 25% to 30%.

Okay. And the current countervailing duty is on thin MDF, if I'm not wrong, right?

There's no CVD at present. The government is contemplating imposition of CVD, which would be at a fixed percentage on the price.

Current duty is on thick MDF, not on thin MDF. The current anti...

Right. And the one which is proposed is on thin MDF?

No. It will be on all forms of MDF; thin, thick, plan, prelam, everything.

Okay. Got it. Sir, just one last question, if I may squeeze in. Sir, has the ratios actually come up in South? Have we started the production or any other new capacity, which we were hearing in Yamunanagar and all. There are 3 to 4 marginal producers, which are expected to start, have those producers also started at this point of time or they've delayed the plans as of now?

There have been 1 or 2 small players that have started production, but no further concrete investments are going on even in the small format plants at the moment. Looking at the current market scenario, I mean, plans would get deferred.

Right. I guess 1 or 2 have come, maybe the others would slightly delayed?

Yes.

We'll take the next question from the line of [ Pratik Shah from Investec Capital. ]

My first question is, I wanted to understand the spread of revenues on MDF and ply, what I over [indiscernible] here is B2B, B2C. And secondly, regional mix, if you can give some regional flavor or say probably Tier 1, 2 versus the rest? Anything of that or will be quite helpful.

Sorry, can you please repeat that one?

Sir, I wanted to understand the spread of revenue that is B2B versus B2C. That is one. And secondly, from a regional -- from a geographic point of view, say, concentration to Tier 1, 2 versus the rest or East, West, North, South, Central, some data points over here basically, just to understand the company better?

So we try to route majority of our sales through our supply partners, through the dealer and distribution network. So if you talk about direct consumers who we are dealing with ourselves, I would say, as a percentage that's about 10% to 15%, and that's primarily also because these consumers generally tend to expect a longer credit periods and after 60 days, 90 days, which we are not very comfortable with. So keeping that in mind and keeping payment security in mind, we are generally routing most of our sales through the dealer and distribution network. So the direct consumers, large-format OEMs, I would say, business tantamounts to maybe about 15% to 20%. And if you talk about the division of sales between the zones, North continues -- now what we have done is that we have divided the markets based on the 2 geographical locations of the manufacturing facilities that we have. So the North is being catered by -- North and East is being catered by the Rudrapur plant, which is in the Uttaranchal. And the South and the West are being catered by the Andhra Pradesh along with the export market. So I think at the moment, as a percentage of sales, I would say about 30% to 35% would be the north of India, about 25% to 30% would be the south of India. And then the balance, about 20% would be the west and the balance would be the east.

Okay. Sir, just a follow-up to your prior answer. If the sales had to move to, say, e-commerce website, what would our strategy be or what would it mean to us when it comes to pricing and basically profitability? Because it's a platform wherein the pricing becomes visible to the competition as well. And to what we are seeing, a couple of peers have already onboarded on the e-commerce platform. Sir, what's the thought process and what could be the consequences of that?

See the pricing of ours as well as our competitors is very, very transparent already. So it is not that we foresee a big challenge of the competitors knowing our pricing because we are all dealing with the same dealers, distributor network. Many dealers and distributors carry multiple brands. So the pricing is fairly clear of each other's to the other -- all competitors for that matter. And I don't foresee -- I think the e-commerce would maybe give an additional impetus to sales, but I don't foresee our model because our product is not something that the direct consumer buys. It's not a design product. It has to be fabricated. It has to be -- a carpenter has to process it and the product knowledge for an end consumer of our product is also not to the level that, they are highly influenced by dealers, by carpenters and architects, et cetera. So I don't foresee that e-commerce becoming like the mainstream supply channel for us.

That's helpful. And sir, just 2 questions. If you could provide some color on raw material sustainability, you have given a couple of pointers in the presentation. But if you could provide some more color on that, that was one question. And the other was what is the sustainable working capital days that we should look at? You have done a phenomenal job on inventory days, but what is the sustainable level that one should look at going forward?

I'll let Venkat handle the working capital answer. But with regards to the raw material sustainability issue, majority of our raw material is actually eucalyptus, which we are sourcing from farmers. So this is a very fast growth crop, if I may call it. And trees, especially for the MDF business -- MDF production, are ready to be harvested in a span of 1.5 to 2 years from planting. And for the plywood business, it is maybe 3 years or 4 years. So being such a short cycle and a fast-growing crop and the fact that this is coming from the farming community, we don't foresee raw material sustainability to be a challenge to us at all. Obviously, there are cycles where if the demand goes down, planting shops, then the prices start going up and the planting starts again. But in -- we don't foresee availability or sustainability to be a challenge in the future.

Regarding the working capital situation, our net working capital was 45 days as at March 31. So I think we'll be around a similar level in future also. Possibly, we could see some reduction in inventories and corresponding reduction in creditors also. But on a net level, I think we would be around this level only.

We'll take the next question from the line of Karan Bhatelia from Asian Market Securities.

Sir, just one clarification. Out of the total INR 13.8 crores M-to-M currency losses, how much of it is in the EBITDA? And how much is it below the EBITDA level?

Okay. So if we look at this quarter, INR 2.97 crores is above EBITDA and the balance is below EBITDA.

Okay. So the below EBITDA is adjusted in the interest cost or it is adjusted as interest...

About INR 10.86 crores is adjusted in the interest cost.

Correct. And also, sir, in terms of raw material prices is concerned, so how is the eucalyptus wood price for plywood and MDF in Q4 or if you can comment on a yearly basis, that would be great.

We had seen some price increases in eucalyptus wood on the plywood side. But other than that, raw material prices have been fairly steady during last year, and we expect that to remain steady during the current year also.

Why was there an increase in price, is it because of the competition or what?

It was not exactly because of competition. I think there was some seasonal reduction in availability of eucalyptus because poplar prices had gone up substantially. So some of the unorganized units, which used to consume poplar shifted to eucalyptus thus creating a pressure on eucalyptus prices. That happened around July last year, but post that, prices have remained stable during the balance period of last year and in the current year also.

Okay. That was helpful. And sir, one last thing, out of the total debt as on balance sheet of INR 540 crores, can we like break up into the euro loan and domestic loan? And how is the interest expense as a percentage of total loan?

Okay. So our total borrowings was about INR 540 crores, of which the euro loan, which is unhedged is about EUR 37.8 million. So approximately about INR 310 crores. We have a USD 9 million -- USD 9.9 million loan, which is fully hedged. So that's approximately INR 75 crores. Our domestic borrowing of INR 60 crores from HDFC Bank, INR 20 crores from Axis Bank. So the total term loans are around INR 470 crores, and we have working capital rupee loans of INR 70 crores.

And in terms of rate of interest on the euro loan, it is how much?

The euro loan is at 0.5%. The Euribor is plus 0.5%. But since Euribor is negative, we are paying 0.5%.

Correct. And for the euro -- sorry, for the USD loan, which is fully hedged, 8%, 9% is the correct estimate?

So including the hedging cost, the total cost is 9.25%.

And on the domestic side, we will have a similar number?

That's again, around 9% to 9.5%.

We take the next question from the line of Praveen Sahay from Edelweiss.

Sir, is it possible to give the utilization for the MDF for both the units?

For Q4, the Uttarakhand plant operated at 76% and Andhra plant at 72% with a blended capacity utilization of 73%. And for the full year, Uttarakhand plant operated at 68% and the Andhra plant at 57%, with a blended capacity utilization of 60%.

Okay. And in the opening remarks, you have mentioned regarding the export contribution is some 33%?

Yes. On a volume basis, it's about 33%. And on a value basis, it is about 22%.

Okay. And can you give some color where -- exactly which location the MDF export happening?

Primarily the Middle East, then we have exports to Southeast Asia and Korea.

Okay. Majority is in Middle East, is it?

That's right.

And also, if I look at your annual number, there is a good reduction as a percent of sales for ad and promotion and logistics costs, so is there a further room for that also in the coming year to improve?

We will not be doing any substantial increase in promotional costs this year, so probably it will be maintained at a similar percentage.

Okay. So if I just remove that '21, that's challenging the way forward as well because logistic cost is somewhere around 5 -- more than 5% of sales, so is there a further improvement you are expecting as in that segment?

Not really. We are not seeing any substantial reduction in logistics costs.

We take the next question from the line of Achal Lohade from JM Financial.

My question was basically with respect to the imports of furniture as you were kind of telling in one of the answers, could there be a possibility of a substantial change to that where these imports come from? And given the government is talking about raising the duties on the same, could that also mean that can potentially benefit the MDF market?

Yes. Currently, a majority of the furniture imports, I would say, are from the Southeast Asian countries as well as China. And import duties are in -- they're talking about implementing further duties on furniture imports. So definitely, that would, in turn, result in higher demand for locally manufactured furniture, which would in turn result in a higher demand for MDF. So yes, it's definitely a positive thing.

And let's say, theoretically, I mean, how large is this import market? Could it like mean the entire domestic capacity can be fully utilized in that situation?

Well, yes, I mean, it's hard to estimate the size of the furniture market itself. But I mean if the import -- a very, I would say, if you talk about readymade furniture, 70% to 75% or even higher would be imported today. Because if readymade furniture in an organized way is converted to domestic manufacturing, then yes, we need many more MDF plants for sure.

And just last question, if I may. With respect to MDF, how much would be -- I mean, I know you sell it to the -- it's more B2B for you. But would you have any estimate in terms of the end consumer? How much would that be commercial? How much would that be residential? Because if we understand at this point in time, the commercial could take a little bit longer time to revise, we'll see a bigger [ knock ] compared to residential, so just wanted to check your perspective on the same?

Well, I would say, currently, our higher percentage of consumption is definitely on the commercial side because residential is still dependent on individual carpenters who are more sort of comfortable with plywood as opposed to MDF. But at the same time, we have a fairly substantial amount of consumption, which is going to locally made furniture, which is going into the residential side as well. So but yes, majority of the sales would -- a higher percentage will definitely be commercial consumption at the moment.

Got it. And just a last clarification, if I may. Of the -- if I look at the e-com side in terms of the furniture, how much of their MDF demand is kind of met by the domestic? Could that be 40%, 50% or it's less than 10%, 20%?

Well, actually, of the furniture, which is locally produced, 100% of that demand -- I won't say 100% of the demand, I would say 60% to 70% of the demand of that consumption is met by local producers. But at the same time, there are vendors who are completely dependent on importing MDF and selling as well. That model continues to remain open till we are able to plug the imports coming into the country by way of dumping or by way of antidumping or by way of CVD. But so vendors who are more inland and where imports are not as feasible or rather -- and also small-format vendors who do not have the infrastructure to import directly, their demand is being met by the domestic producers completely.

We take the next question from the line of Karan Bhatelia from Asian Market Securities.

Sir, how has been the South market-shaping up post the Rushil Decor’s new plant that has commissioned for 200,000 cubic meters per year. So has it like changed the dynamic in terms of realizations or product mix?

No. At the moment, that has not changed anything. In fact, my estimation would be that prices would actually correct a little bit -- sorry, improve a little bit in the south of India when Rushil's plant starts up. Because the old plant, of course, it's a heavily OEM-dependent market and also heavily impacted by imports as well. But I foresee that post the new plant starting up, there would be a slight improvement because the investment is high. It's a European line now. And with interest cost involved, et cetera, they will not be able to sustain at the same price point where they're currently operating at.

Correct. On the CapEx front, though it's too early to like have a grace, but like INR 10 crores, INR 15 crores of maintenance CapEx, we foresee for the near future?

I think our maintenance CapEx would probably be around INR 5 crores for the current year.

Okay. And if you can break up the INR 25 crores CapEx that we've had in FY '20, so mostly it is maintenance CapEx or some other heads?

It was a mix of maintenance CapEx and also some equipments which we had procured for improving efficiencies at Andhra plant.

[Operator Instructions] We take the next question from the line of Abhishek Joshi from CGS-CIMB.

Yes. Sorry sir, if I had missed this before. But what would be our capacity utilization levels?

Sir, sorry to interrupt, but your audio is not very clear, sir.

Am I audible now?

Mr. Joshi, may I please request you to use the handset mobile for speaking? Mr. Abhishek Joshi, I am so sorry to interrupt. There's a lot of disturbance on your audio, sir. We are unable to hear you.

Can you hear me now? Hello?

Yes, I can. Please go ahead.

Yes. I just want -- sorry, if I had missed this, but I just wanted to ask what is our current capacity utilization levels for Q4?

For Q4, plywood capacity utilization was 69% and MDF capacity utilization was 73%. And for the full year, plywood capacity utilization was 78% and MDF capacity utilization was 60%.

Sir, I am asking for...

Your voice is breaking. Can you repeat that?

Yes. I'm asking for the month of May post lockdown. What has been the capacity utilization level monthly, if you can give a bit...

It would be very, very marginal because currently, we are selling mostly from our existing inventories. So capacity utilization would be negligible.

Okay. And what kind of CapEx we are looking to incur during this year?

There would probably be routine maintenance CapEx of approximately INR 5 crores.

And sir, what is the situation with our dealers right now? I mean, how many of them are operational, if you can give an idea? Hello?

Hello?

Sir, how much percentage of our dealers are operational right now or how much percentage of market has opened up? Can you give an idea about that?

Okay. It would be difficult to give an estimate because it varies from area to area. So I won't be able to give you an estimate at this point of time. But probably the impact is substantial in the Metro cities, where the affected cases have been increasing on a regular basis. And not so much in the smaller towns and the urban -- and the rural areas. But it's difficult to give an estimate at this point of time.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you. Thank you, everyone, for joining on this call. And we really hope that this pandemic situation is over soon and business can go back to normal. If anyone has any further questions, feel free to contact us. And we'll be very happy to answer them. Thank you so much.

Thank you, everyone, and take care and maintain all safety precautions. Thank you.

Thank you.