Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

And thank you for joining us on the Greenpanel Industries Q3 and FY 2021 Conference Call. We have with us today Mr. Shobhan Mittal, Managing Director; and Mr. V. Venkatramani, 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 result presentation that was sent to you earlier. I would now like to invite Mr. Shobhan Mittal to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Rishab. A very warm welcome to everyone present, and thank you very much for joining us today for Greenpanel's operating and financial performance for quarter 3 for the financial year '21. I do hope that all of you and your families are safe and well. Businesses gained momentum in this quarter. Net sales were up 38.3% year-on-year at INR 312 crores. Gross margins were up by 370 basis points year-on-year at 54.9%. EBITDA margins were up by 680 basis points due to operational leverage in both the segments and focus on wastage reduction and cost optimization. PAT is up by 2,526% year-on-year to INR 34.31 crores. Net working capital days at 33 has shown a reduction of 10 days compared to the corresponding quarter last year. Net debt has reduced by INR 47 crores during the quarter and stands at INR 452 crores as on 31st December 2020. We're targeting net debt of INR 400 crores as at 31st March 2021 and INR 250 crores as at 31st March 2022. We're targeting double-digit growth in quarter 4 also and are optimistic of better margins in the future quarters. I will now request Mr. Venkatramani to run you through the financials in greater detail.

Thank you, everyone. I do hope that all of you and your families are safe and well. In Q3 FY '21, our top line was up by 38.3% at INR 311.59 crores compared to INR 225.31 crores in Q4 last year. Plywood sales grew by 6% at INR 62 crores, and MDF sales grew by 49.6% at INR 249.59 crores. Plywood volumes rose by 12% at 2.52 million square meters, and MDF volumes increased by 43.2% at 1,23,723 cubic meters. Uttarakhand MDF unit operated at 108%, and AP plant operated at 85% capacity utilization, with blended capacity utilization of 93% for both the MDF plants put together. Plywood unit operated at 87% during the quarter. In Q3 FY '21, gross margin improved by 370 basis points year-on-year at 54.9% as compared to 51.2% in the corresponding quarter. Gross profit grew by 48.3% at INR 170.98 crores as compared to INR 115.29 crores in Q3 FY '20. EBITDA grew by 98.2% at INR 70.12 crores as compared to INR 35.37 crores in the year-on-year quarter. EBITDA margins were up by 680 basis points at 22.5% compared to 15.7% during the corresponding quarter. Profit after tax increased by 2,526% at INR 34.31 crores versus INR 1.31 crores in the corresponding quarter. I will now discuss the financials for the 9-month period, from April to December 2020. Net sales stood at INR 615.85 crores compared to INR 603.13 crores in the corresponding period. Gross profit during the period was INR 332.01 crores compared to INR 314.51 crores in 9 months FY '20. EBITDA stood at INR 108.42 crores compared to INR 93.88 crores in the corresponding period. PAT for the period stood at INR 18.3 crores compared to INR 9.51 crores in the corresponding period. Dispatches for plywood during the 9 months stood at 5.43 million units, with capacity utilization at 52%. MDF sales volumes were 233,267 cubic meters, with blended capacity utilization of the 2 plants at 57%. Our debt-to-equity ratio stands at 0.66 as on 31st December 2020 compared to 0.77 as on December 31, 2019. Net debt reduced by INR 47 crores during Q3 to INR 452 crores as on 31st December 2020. That concludes my presentation. I would now request you to open the floor for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Nehal Shah from ICICI Securities.

Congratulations, sir, for a very good set of numbers.

Thank you.

Sir, my question is on margins. Now we have been able to show good traction in margins with the higher operating efficiencies coming into play. Now as we know, with the recent price hike taken in the month of December, where do we see margins structurally going forward over the next few quarters? And also, with the demand being as strong as what we have witnessed, with the operating -- or rather with the capacity utilization likely to be higher for both the plants, where do you expect margins, say, for the next year? What would be your guidance with respect to that?

Okay. Nehal, as far as the MDF segment is concerned, we had operating margin of 24.45% during the current quarter. And while we have taken some price increases during December and January, raw material costs have also increased during the current quarter. So going forward, I think that optimum capacity utilization, when we reach capacity utilization of 100% and beyond, we could be targeting an improvement of about 200 basis points in the margin.

So this is for both the plants put together?

That's correct.

And sir, with respect to volumes, how are volumes looking like? And what are the key triggers for such a strong growth in the current quarter and how it's likely going forward?

So the current quarter looks good. We are targeting almost 100% capacity utilization in MDF during the current quarter. And going forward, I think we should be targeting 100% capacity utilization in MDF. And since this is a European plant, we can look at capacity utilization of a maximum of about 110%. So I would say we could possibly look at utilization between 100% to 110% for the next financial year.

And this for both the plants or for...

Both the plants, both the plants.

That's great. And sir, my last question is on Forex. What has been the Forex loss for the quarter?

We had -- Forex loss can be split into 2 parts. So if you look at the first part, where it's gone to interest, so about INR 7 crores of Forex loss has been taken to interest and about INR 1 crore has been taken in other expenditure, which is above EBITDA.

So total is INR 8 crores?

Yes. That's correct.

All right. And sir, if you look at the consol versus the stand-alone numbers, there has been some loss in the subsidiaries. So can you quantify that?

Okay. We had sold off some assets in the subsidiaries. So there, the loss was approximately INR 3.35 crores. And there was also an operational loss of about INR 50 lakhs during the current quarter primarily because we could not export due to nonavailability of containers and ships. So although we currently have export orders of approximately 30,000-plus cubic meters, there are constraints with the availability of containers and ships. So probably that constraint is likely to be there in the current quarter also.

Right. But we are through with the asset sales?

Yes, that's completed. Yes, it's a one-off item.

The next question is from the line of Sneha Talreja from Edelweiss.

And congratulations on a very good set of numbers. My question was relating to your exports market only. Could you give the breakup between domestic and exports? And how much was the impact due to the shipment availability which you were talking about?

Okay. So our total MDF sales for the quarter was about INR 250 crores, in volume terms, about 1,23,000 cubic meters. Of this, 1 lakh cubic meters came from the domestic markets, and the value of the same was INR 217 crores. And 23,000 came from exports, and the corresponding value was INR 32.26 crores.

Okay. Got that. And sir, my second question was pertaining to the exports market, in the sense we were hearing of antidumping duties. Has it been implemented? And what are the current pricing differentials between the imported prices and domestic market?

Shobhan Ji, can you take that?

All right. So the -- basically, the antidumping that has been announced last -- a couple of weeks back, that is basically the sunset review, which is the renewal of the antidumping that was already applicable on routine MDF products. So that has been confirmed now by the government, and the margins have been slightly higher than previously implemented in the previous sort of antidumping measure that the government had announced, which has just lapsed. So that would allow us a slightly more sort of improvement on pricing in the coastal cities, like in the south of India and also in the west. However, there are 2 additional investigations ongoing at the moment, which is of the countervailing duty and also on routine MDF. Those have yet to be finalized by the government, but hopefully, we are expecting an answer, at least on the CVD, very, very soon because the time line is near to a decision now.

So any time line? When is the decision, I mean, date, since you have mentioned it?

It's very hard to say, but we are hoping that we will have some [ decision at the end of ] February on that, whatever the government's decision may be on that.

Sure. That's helpful. And sir, my second -- I mean, my last question was relating to your CapEx. So Venkat, sir, if you could take up, what are you looking at in FY '22?

Okay. We had announced a CapEx plan of INR 55 crores, which can be split into 2 parts. One is increasing the capacity of the 2 plants by adding some additional machinery, which will enable us to take the total capacity of the 2 plants from 540,000 to 650,000. So like if you see the current capacity, Uttarakhand has 15,000 and Andhra has 30,000. But if we have a good flow of orders, they can operate at about 110%, which means Uttarakhand can do 16,500 and Andhra can do 33,000. And now, with this CapEx, you can take the Uttarakhand capacity to 18,000 cubic meters per month and Andhra Pradesh capacity to about 37,000. So basically, the overall capacity will be expanded from 540,000 to 660,000. So that's the first part of the CapEx. The second part is related to reducing cost of operations. One of the key raw materials in MDF production is wax. So with the installation of this new machinery, we expect to reduce the consumption of wax by about 30%.

Sure. So that will help in the margin improvement at a later stage?

That's correct.

So when do you expect this to get operational, the capacity addition, as well as the value-added production? I [ mean ]...

Somewhere by November, December 2021.

[Operator Instructions] We take the next question from the line of Balaji Vaidyanath from NAFA Asset Management.

Many congrats on the good set of numbers. You have mentioned that MDF margins were about 24.5% for this quarter. So if I were to look back at, say, some historical numbers, be it in FY 2016, FY 2017, at which point in time the margins were upwards of 27%, 28% for the MDF division at that point in time, are you seeing that happening this time around as well considering the CapEx that you are putting in and also the general demand environment?

Okay. The benefits of the CapEx which we are doing will probably be available only in quarter 4 this year or maybe a month or 2 in the third quarter. So I wouldn't expect that to have a substantial benefit for the current year. But hopefully, the full benefits of that should be available in FY '23. That's why I mentioned in an earlier question, that probably the margins can move from about 24.5% and we could see an improvement of 200 basis points, which would take that to probably about 26.5%. But keeping the historical margins, what we also have to consider is that prices as compared to historical have come down by about 20%. So a lot of work has gone in wastage reduction and cost optimization, which is helping us to post healthy margins currently.

Okay. Sir, my next question is if you could quantify the actual price hikes that you have taken in December and also in January?

We had taken a price increase of 3% on 7th December, which was applicable pan-India, except the southern states. And we had taken a price increase of 3% for the southern states on 1st January. And in the middle of January, we had taken another price increase of 3.5% across again, in pan-India, except south.

So this is, by and large, to negate the RM prices, right?

That's correct.

Okay. Sir, just trying to understand how the margins have expanded even in this quarter because the price hike has come only in the fag end of this particular quarter, whereas the raw material prices have actually gone up more than the increase in prices?

Yes. If you look at it, I think price hikes were there for probably only about 10 to 12 days in this quarter and that too excluding Southern India, whereas raw material prices had gone up in middle of October itself. But even then, I think the operational leverage, the fact that we operated at about 108% in Uttarakhand and about 85% in Andhra Pradesh, with a blended capacity utilization of 93% to help to improve the margin significantly.

The next question is from the line of Mahesh Koshia from Finvest Advisors. Mr. Mahesh, you may go ahead with the question.

Hello? Can you hear me?

Yes, we can.

Okay. Sure. Somehow looking at the market behavior and the competitors' actions, how do you see the volume growth, et cetera, taking place in the market in these still COVID times and whether we will be able to maintain these kind of margins, which are coming from operating leverage and some of the cost reduction measures, increasing capacity, et cetera? And looking to the market behavior, especially from the competitors, do you think that we will be able to maintain this kind of margins in MDF?

There's not a lot of new capacities which will be available during FY '22 and possibly most of FY '23 apart from Rushil's capacity, which is expected to be online during the next financial year. So yes, at the moment, except for exceptional circumstances like a repeat of COVID or any extended lockdown due to increase in COVID numbers, we have an optimistic view on the market.

Okay. So you think that the market will be able to absorb these prices?

Yes, we have been able to implement the price increases.

Okay. Okay. But sir, which are the markets and town cities, et cetera, from where you are seeing the increasing demand? Are you seeing from the metros or small towns? And geographic-wise, which part of the country, northeast, west, south, if you can just tell us something?

Sure. So we have witnessed a larger growth, exceeding 30%, in the smaller towns and cities and some lower growth in the metros, primarily in the western part, where I think things are yet to settle down as compared to other parts. So I think, yes, probably unless we see a repeat of an extended lockdown due to COVID, I think we will continue to see improvements in the western states also. And that should help us to achieve optimum capacity utilization in Q4 and the next financial year.

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

Congratulations for the great numbers. My first question was the price increase, what do you have reflected in MDF? Will that offset the entire cost increase? Or there is some more to be affected to in order to negate the entire RM cost inflation?

Yes. The price increases we have taken should negate the raw material cost increases.

Okay. Number two is in terms of the industry growth, given our domestic volumes have gone up significantly, is that the case with the industry, or have you gained market share at the cost of somebody else? Can you please throw some light on the imports as well for, let's say, in the third quarter?

I think apart from Action, other players who are operating at close to optimum capacity utilization, except some of the smaller unorganized players, and I think Action's capacity utilization must also have gone up considerably during the third quarter. Although we do not have the numbers since it's an unlisted entity, but based on reports from the sales teams, Action's numbers have also improved considerably.

So I mean, the industry growth, what is the extent of industry growth in your estimation for third quarter? And what kind of growth are you looking at for the industry for the next couple of years if one were to talk about that?

I think the industry as a whole must have grown by more than 25% during the third quarter. And I think we should be looking at a growth of 15% to 20% during the next financial year.

The next question is from the line of Madhav Marda from Fidelity International.

Actually, most of my questions were answered, but if you could just speak a little bit more about the sort of the demand trend that we are seeing in the market, that's more sort of longer-term, what are the key drivers of demand for MDF? And also, if you could just help in highlighting how the mix between trade and nontrade sales are for us and how that could evolve in time to come back, who our key customers are and how much [ has been sold through retail ]...

Okay. So the first part of your question, regarding the key drivers, I think we can identify 3 or 4 drivers. One, we are taking market share away from the cheap plywood segment, which has been significantly impacted by COVID. Many of them have shut down and -- or are operating at reduced capacities. The second part is possibly people are diverting to ready-made furniture primarily because they are reluctant to allow carpenters and contractors into their houses to do their furniture with plywood. The third part is, I would say, the constraints which we are facing in exports, namely nonavailability of containers and ships is also impacting imports. And the fourth part is India is now becoming a hub for furniture exports to U.S. and Europe. So that's helping to generate demand for MDF.

Okay. Okay. And on the [ retail ] sales mix for us, like B2B versus B2C and the...

Like if you look at the sales through the channel, which is dealers, retailers, that would be about 70%, 71% of the volume. And the balance, 30%, would be to the OEM furniture fabricators.

Okay. Okay. Understood. And our capacity will be close to 650,000 after this expansion. Do we have more scope for brownfield or debottlenecking, or do we have to go for greenfield only after this?

We have sufficient space in Andhra Pradesh. So although we have not taken a call on when we will do our next expansion, whether it will be a greenfield or brownfield. We have the space in Andhra to do a brownfield expansion.

And to what extent would that be, or how much [ brownfield ] capacity can we add there at the [ same like ]...

Shobhan Ji, can you take that?

Sorry, can you repeat that last question?

My question was that at the Andhra Pradesh location, how much capacity can we add via brownfield route? How much space will we have then?

Well, that -- I mean, infrastructure, I mean, land-wise, we have space available for any capacity that we would -- we can add because the space available there was already planned for 2 subsequent lines. So there is no sort of -- it will completely boil down to our sort of choice and discussion as to what capacity can be added there. Because it would be -- I mean, apart from the land availability, everything would be installed as a new line. So we are quite flexible in choosing what capacity to add.

The next question is from the line of [ Agastya Dave ] from CAO Capital.

Again, congratulations for excellent execution. Sir, most of my questions, again, have been answered. You have been very nice in the way you've given the commentary. Sir, I had a question which goes back in the past and the last time the prices hit high, and then there was a severe correction. So I mean, how far are we from encountering a similar situation? Or are we in a situation where the demand has probably recovered enough that demand/supply issues and dumping issues won't happen? And the second thing is, sir, you mentioned 2 things. One is that raw material prices are going up. So could you quantify that? And what is your expectation over the next few quarters because there's a lot of distortion in the supply chain. So it's very difficult to estimate anything from at least my end. And second, you mentioned that you're going to undertake a second part of this CapEx, which would help you reduce the consumption of wax by 30%. Can you quantify how much -- what kind of impact that would make?

Okay. So regarding the last part of the question on wax consumption. Our total wax consumption would be approximately 2 lakh tons per month or INR 1.8 crores across both the MDF plants. So this should help us to reduce consumption by approximately 30%, which in value terms would be approximately about INR 50 lakhs to INR 55 lakhs per month. And what was -- could you please repeat the first part of your question?

Sir, if we go back in the past, one gentlemen asked you a question that, last time, the margins -- the peak margins were 27%, 28%, and you mentioned that the prices were 20% higher than they are today. So my question was, there was a steep correction in MDF prices, right? So the challenges we faced and the industry faced that time, are we [ in the same situation ] anytime soon of the demand -- because there are a number of plants coming in. Sooner or later, all the capacities which are not operational today will start operating. So is the demand strong enough in your eyes to prevent such as steep fall? And related to raw materials, you mentioned that the prices are going up, so can you quantify those, [ that is ] have they gone up?

Okay. Yes. Regarding the new capacities which are expected to come up in FY '22 or FY '23. At the moment, we only have Rushil's capacity of approximately 800 cubic meters per day, which is expected to start production sometime in the next financial year. Apart from that, no major expansion has been announced by any of the key players in MDF. So in case someone starts to build a capacity now, I think probably that would be operational around the end of FY '23 or FY '24. So I think we have sufficient time to get the current capacities absorbed in the market before any major expansion hits the market in -- towards the end of FY '23 or '24. And even today, apart from Century, which has mentioned that they would be looking at a new plant in Southern India, no other player has announced capacity expansion plans. So we are reasonably optimistic that prices would be stable for the next couple of years. It's not much of a surplus capacity coming in. Although a few small unorganized players could set up capacities in second-hand Chinese plants. But again, those are not our key competitors. And regarding the raw material price increases, we have had about a 10% increase in both the major raw materials, which is wood and chemical resins. So the quantum of price increases which we have taken is sufficient to absorb those cost increases. And probably, we would look at further price increases in case there is further raw material price increases and market demand permits us to do so.

The next question is from the line of Gaurav Sood from Kanav Capital.

Congratulations, sir, for a very good set of numbers. So could you tell us -- talk to us a little bit more about the value-added products contribution this quarter? How are the sales there picking up?

There's not been any significant improvement in the value mix, although the quantum of pre-laminated MDF has gone up during this quarter by almost about 60%. But if you look at the -- from a position of plain MDF and the value-added products, that was about -- plain MDF was about 91% in the corresponding quarter last year and value-added products contributed about 9%. Whereas in this quarter, plain MDF contributed about 87% and value-added products contributed about 13%.

Okay. Sir, I think for 2 quarters back, you did mention that you were trying to expand our distribution network to reach out to more to Tier 2, Tier 3 cities. So could you please give us some update on our distribution strength right now, our reach in terms of number of new distributors that we have been able to find?

Yes. We have approximately about 1,315 distributors for MDF pan-India. And we had about 1,085 at the beginning of the financial year. So we have had increases of about 230 dealers between July and December. There was no activity during April to June. So between July and December, we have added approximately 230 dealers in MDF and about 50 dealers in plywood. So the plywood dealer count has gone up from about 370 to 420, and the MDF dealer count has gone up from 1,085 to 1,315.

Okay. Great, sir. And sir, for the plywood division, assuming that there is no -- we do not have a lot of space at our U.K. plant to expand the capacity, are there any plans to move to further do CapEx in that division once our noncompete with our [ Australian ] company comes to a conclusion?

We are not looking at any capacity expansion in plywood.

Okay. So we'll just continue with what we have at the moment.

That's correct.

The next question is from the line of Nehal Shah from ICICI Securities.

Sir, can you throw some light on the current quarter or rather the [ change in the ] ROCEs?

Okay. Just give me a moment. The pretax ROCE for this quarter was 17.8%, and post-tax was 15.6%. And the return on equity was 19.2%.

Right. And sir, with the kind of volumes and margins we are likely to see next year, what is your target with respect to ROCEs for next year?

I think we should be targeting pretax ROCE of about 22% and post-tax ROCE of about 18% to 18.5%.

The next question is from the line of Vijay Karpe from Bryanston Investments.

And congratulations on the good set of numbers and the strong capacity utilization. Are we facing any [ similar constraints, business ] issues? And now also, are we facing any capacity constraints in the wood flooring division?

No, we are not facing any constraints either in the availability of raw material or on the flooring division, although we did face some constraints in wood availability at the Andhra Pradesh plant post-cyclone in December, but now it's getting back to normal.

Great. And what is the industry growth rate that we are expecting separately for plywood and MDF for the next 5 years?

And that's a very difficult question, Vijay. So I think I will restrict my answer to the next couple of years. So we should be looking at an industry growth of about 15% to 20% in MDF. And plywood, I think, we are not really very much aware because our capacity is very small. But then I think plywood in normal times grows by about 3% to 4% and in good times, grows by about 6% to 8%, considering the industry as a whole.

Okay. Where I was trying to get to was is plywood going to see the light of the day 10 to 20 years down the line? And why are we not doing any expansions in plywood?

2 reasons. We feel that margins and profitability are higher in MDF. And probably, MDF will do better in the medium to long term, with people's liking for ready-made furniture increasing and also the mobility of people shifting from one place to another. So that's the reason why we would prefer to concentrate our energy and resources on the MDF segment. Or possibly, we could also look at particle boards in the future.

[Operator Instructions] The next question is from Pranav Gala from I-Wealth Management.

Great set of numbers, sir, very good utilization.

Thank you, Pranav.

I just had 3 questions, sir. First on, what will be our capacity in Uttarakhand and Andhra Pradesh post the expansion?

Yes. So the capacity in Uttarakhand will be 18,000 per month or 2,15,000 per year. And the capacity in Andhra Pradesh will be 37,000 per month or 4,44,000 per annum. So put both plants combined, we should have capacity of about 6,50,000 cubic meters per annum.

Okay. So sir, around 2,15,000 in Uttarakhand, and Andhra Pradesh will be for the quarter, 4,44,000, right?

Not for the quarter, for the year -- for a full year. So like Uttarakhand will have a monthly capacity of 18,000 cubic meters per annum -- or per month or 2,15,000 cubic meters per annum. And Andhra will have a capacity of 37,000 cubic meters per month or 4,44,000 cubic meters per annum.

Venkat Ji, I just would like to issue a clarification here. The system that we are installing for the expansion of the capacity only provides additional capacity on thicker MDF. So it does not provide additional capacity of thin MDF because of the limitation of the press speed. So a lot of this expansion of capacity also depends on what's the final product mix that we will get in terms of the market demand. So it's very hard to pinpoint that number if the additional demand comes in the form of thin MDF. So just, yes, this needs to be noted.

The next question is from the line of [ Udit ] from YES Securities.

Just on the exports front that you mentioned, that we have 30,000 CBM order already in hand, so when do we expect it to get materialized?

[ Udit ], it's very difficult to answer because we are still facing constraints on the availability of containers and ships. So possibly this quarter also, we will see exports reducing from earlier quarters. So I think probably we will be somewhere between 6,000 cubic meters to about 8,000 cubic meters per month, unless we see a significant improvement in availability of containers. But yes, if the situation improves, we would be possibly looking to speed that up, take exports to about 12,000 cubic meters per month.

Right. And sir, in the opening remarks, you mentioned about your net debt target to come down. Can you please repeat that? I missed it.

Okay. Our net debt was INR 452 crores at the end of the current quarter. And we expect to bring that to INR 400 crores by 31st March 2021 and INR 250 crores by the end of FY '22.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Just a couple of questions. What would be the proportion of imports in India in FY '20? And what [ would it be now ]?

So exports were somewhere in the range of 25% to 30% in FY '20. And although I don't have any exact numbers, they should have reduced significantly during the current quarter as well as the 9-month period. But I don't have any data for that.

Okay. And sir, what would be the difference between landed prices of imports vis-a-vis the Indian production? Any sense around that?

Yes. There are 2 broad segments in MDF. One is thick MDF, which is 6-millimeter and above. There, the price difference is in the range of 6% to 8%. And the other category, which is below 6-millimeter, the thin MDF, there, the price difference is 25%-plus.

Okay. And sir, just one last question from my side. Are you also seeing some amount of unorganized or semi-organized players in Yamunanagar trying to put MDF capacity. Is that some -- is that a trend that you are seeing? I know you alluded to a point that, that may not be direct competition for you, but are you kind of seeing that happening? And if you can just help us understand.

Yes. There are currently about 4 or 5 unorganized manufacturers with small capacities in MDF. And we could possibly see another 2 or 3 putting up capacities in the future, although I don't have any details. But based on market feedback from the sales team, yes, some of them are targeting to put up new capacities, which could be online either in FY '22 or FY '23.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, we've seen a realization dip for the plywood portfolio from INR 259 to as low as INR 244. So is there any change in product mix? Or how do we see about this?

Yes. There's been a change in product mix. The quantum of decorative veneers, which is priced at a significantly higher premium compared to the normal plywood, that has seen a dip because people are probably preferring a lower-cost option in laminates. So that's the reason for the dip in the plywood realization.

So can I have like premium and nonpremium mix compared to the earlier quarter?

Not exactly premium and nonpremium. So plywood is like the base material for furniture, whereas decorative veneers is a surfacing material.

Correct. And what could be this as a part of the overall revenue pie?

Say, decorative veneers would be lower than 10%, approximately about 7.5% to 8%. But if the normal plywood is priced at about INR 230 to INR 240 per square meter, then decorative veneers is about INR 550 per square meter.

The next question is from the line of V. Samala from Tata Asset Management.

So just with respect to the margins on the MDF and plywood segments, so if you could just highlight what would -- what kind of margins would you be looking at these segments for the next fiscal year? I know that you alluded that the addition of the value-added machinery would help you in generating cost savings of 200 bps in the MDF segment. But before that value addition happens, what kind of margins could we expect in MDF and plywood?

Okay. Like I had mentioned, we had margins of 24.5% in MDF and about 14.6% in plywood for the current quarter. I think since the expansion will probably be effective only for 1 quarter next year, so margins in MDF should probably be improving by about 50 to 100 basis points in the next financial year. And plywood margins should be in the range of about 15% next year.

Okay. Okay, okay. So 25% for MDF and 15% for ply is what we can expect for FY '22?

Sure.

Right. Right, right. And another point that you spoke about, while you were alluding to the demand triggers for the MDF about the exports that you are seeing in the furniture, ready-made furniture category, so I know it's still a nascent space, but could you highlight some of the trends or numbers, anything that you would have come across?

No, you are correct. It's still at a very nascent stage. So I don't really have any numbers for that, so basically, based on the inputs that I have been receiving from the sales team.

The next question is from the line of [ Asim Wade ] from DAM Capital.

So I just needed one clarification on your brownfield capacity, possibility in your AP plant. So when you say you can add 2 more lines there, is that for 3,50,000 CBM each?

No, it could -- yes, I mean, we had the space available to do it. But it's not necessarily that [ we must choose to go over the ] -- with the capacity expansion of that size.

Okay. Okay. And any rough estimate for, on a per CBM basis, how much would the brownfield CapEx cost at this AP plant, if you look for something as big as this scale theoretically?

At the moment, that would be very hard to estimate because, I mean, if you look at our previous investment of about close to INR 700 crores, INR 750 crores, I mean, this was close to 3 years ago when we had signed the contract [ with the current devaluation of the rupee against the euro ]. Actually, it won't be accurate for me to give a number to that at the moment because we haven't really explored any possibilities of an expansion at the moment. So it would be very hard for me to put a number to that.

The next question is from the line of [ Keval Asher ], who is an individual investor.

Congratulations for the great set of numbers. So I have 2 questions. So first is what are the plans that the company has after the MDF capacity reaches 100% and we have another small expansion that year? So are you going to increase the marketing expense and then go for branding or something like that?

Shobhan Ji, can you take that, please?

Sorry, no, I didn't hear it properly. Can you please repeat that?

Yes. Sure. Yes. Yes, yes. Sure. Sure, sure. So what are the plans that we have after the MDF capacity reaches 100%, and then we have a smaller expansion that we have. So are we going to increase the marketing expense and then go for branding? So do we have that plan?

No, I don't think there would be any substantial increase in marketing because our -- all our sort of manpower or sales infrastructure are in place. And we will probably choose to reallocate some of our marketing expenses in different areas, but not necessarily we increase in the marketing expense in terms of percentage as such. So I won't say that even with the additional capacity coming in, there would be any significant increase in the marketing expenses.

Great. Got it. And the second question is so can you give us updates on antidumping duty on thin MDF, if we can get...

Sorry, any updates on what?

Antidumping on thin MDF...

Did you say antidumping? Sorry, your line is not very clear.

Yes. It's antidumping duty on thin MDF.

So antidumping, our duty on thin MDF, well, we are -- it could be in 2 forms. Like I mentioned earlier, the CVD, the CVD investigation, which is the countervailing duty investigation that is ongoing, is applicable to the entire product portfolio, including -- which includes thick and thin MDF both. And then there is a separate investigation ongoing for thin MDF specifically. So any sort of dumping application -- sorry, dumping duty -- duty of application on thin MDF would be subject to the outcome that investigation which will happen over the course of the next few months.

The next question is from the line of [ Widkach Somaya ], who is an individual investor.

I have 2 questions. One question is again on the capacity. I just wanted to know the management's thought process about how capacity will expand after the CapEx is going to happen this year, given that the demand is so good and there's not much supply coming in the market. So just a few thoughts. I don't need numbers, but just...

No -- yes. So of course, I think the capacity, at the moment, I think we still have a long way to go where -- in terms of fully utilizing our existing capacity. We have the small capacity increase coming in by way of the small CapEx that we're doing. And more importantly, we would like to optimally utilize our production capacity in the most profitable manner. So at the moment, we are still servicing certain sort of less profitable segments of the market, which we would like to convert to the more profitable segments, both in terms of the customer segments as well as in terms of the product mix as well. So at the moment, the focus would continue to remain on that. So I don't think that you would see any decision on a substantial capital -- sorry, capacity expansion over the next year, 1.5 years at least. We are also keen to bring down our debt load before we embark onto any additional substantial capital expenditure.

Okay. What is the level of debt that you are comfortable having on then?

So we are targeting a net debt of about INR 250 crores by the end of FY '22. So I think, at that debt level, we would possibly be comfortable at doing new capital expenditure. But again, we would not like to invest in a new plant until we have the optimum capacity utilizations, product value mix and margins. So even if debt reaches a comfortable figure, we would possibly look at fresh capital expenditure only when we have the optimum mix of volumes and products.

The next question is from the line of [ Senthil Nathan ], who is an individual investor.

And congratulations on a great set of numbers. Sir, I just want to understand, is this the -- I mean, the supply chain is the main reason behind this kind of utilization in the domestic side. And tomorrow, if the supply chain becomes normal, will we be able to maintain the margin after our intervention on the cost side?

See, the margins would be dependent on the capacity utilizations, the mix of domestic and exports as well as the product mix and also raw material prices. But just looking at the current demand scenario, we are fairly optimistic of business volumes and margins during the current year and the next financial year.

Okay. And if the -- if at all, if you are expecting anything on the CVD, how much it would be, sir? And how much the price difference on the thin MDF will come down from the current [ 23% ]?

That's a very difficult question to answer.

Yes. It's too premature to answer. I mean we don't like to sort of guess on these things when it comes to the matters of the government. So it will be very, very hard to put a number to that at the moment.

[Operator Instructions] The next question is from the line of Mahesh Koshia from Finvest Advisors.

Yes. Sir, I just wanted to know, in answer to an earlier question, you had given that in thick, the price difference varies between 6% to 8%. In thin, by how much?

More than 25%, possibly in the range of 25% to 30%.

Okay. Okay. And you think that this kind of price difference will continue?

It would depend on the extent of CVD, if and when it's implemented. So if CVD is implemented, and depending upon the percentage, the price difference could come down possibly by about 40% to 50%.

The next question is from Achal Lohade from JM Financial.

I just wanted to check what is the mix in terms of thick and thin MDF for us at the moment? And what is the potential we can go theoretically?

The current mix is 70-30. And I think it will continue in that manner.

The next question is from Balaji Vaidyanath from NAFA Asset Management.

Sir, compared to plywood industry, which is a little more fragmented, do you think the MDF industry would be much more consolidated in general because of the higher capital intensity involved in this particular industry?

Yes. First off, at least in terms of larger plants, I would assume that it would continue to remain a consolidated industry.

The next question is from Nehal Shah from ICICI Securities.

Sir, my question is on margins. So currently, our north margins are higher than those of south plant margins. What will take a south plant margin equivalent to a north margin, if at all, that's possible?

Yes. I think when the south plant operates at optimum capacity utilization and it has the same mix of domestic and exports as the northern plant, theoretically, yes, southern margins should be slightly better than the northern plants.

Also, Nehal, if the dumping duties do come in, the primary beneficiary of that would be the south plant because it is catering to the south and the west markets. So that would substantially improve the margins if the duties come into place.

The next question is from the line of Vijay Karpe from Bryanston Investments.

Venkat, we manufacture both plywood as well as MDF. So what is the price difference between an MR-grade plywood and HDHMR of the similar dimensions and thickness?

Shobhan Ji, can you take that question, please?

Sorry, you said MR-grade plywood and...

I will repeat my question. So what is the first -- what is the pricing difference between MR-grade plywood and HDHMR MDF?

HDHMR MDF compared to MR-grade plywood would still be, I would say, about 25% to 30% cheaper. The MDF would be 25% to 30% cheaper. And now when I'm talking about MR-grade, and when I'm talking about that percentage, I'm referring to the organized segment plywood, not the unorganized segment plywood.

The next question is from Pranav Gala from I-Wealth Management.

Sir, I just wanted to know what will be our utilization levels that we're expecting after the new plant comes in from quarter 4?

No new plant is coming in...

No. The brownfield, the brownfield expansions, that I mean.

It's not really an expansion. We are just adding some machinery to remove the bottlenecks from production. So -- and that is likely to be implemented during November, December next year. So we'll probably have the full capacity available for quarter 4 next year.

The next question is from Madhav Marda from Fidelity International.

Sir, I just want to understand, you mentioned that you wanted to improve your value mix in terms of the customer mix, I think, is what you were referring to. Could you just help us understand what that means exactly? And who are these customers who are sort of better-paying versus others?

Sure. So when we say the customer mix, we're referring to like large-format OEMs who we are -- currently [ consumer-fed ] chunk of our capacity, especially in the south plant. Now these guys are primarily consumers who traditionally have been dependent on imports. And we had started [ giving ] to them where pricing, of course, is in line with what the imported prices are. So in the long term, obviously, if we don't get any benefit out of the antidumping and prices improve in that customer segment, then we would obviously like to convert that business into a general sort of retail segment, where realizations are higher. So I'm talking about large-format OEMs where pricing is a challenge.

The next question is from Karan Bhatelia from Asian Markets Securities.

Sir, for FY '22 and '23, what domestic volume and export volume mix are we targeting from the south plant?

It's very difficult to answer currently primarily because the nonavailability of containers and ships has impacted our exports. So export volumes were only about 23,000 during the current quarter. But like I mentioned, we have orders of more than 30,000 cubic meters currently. So depending upon the improvement in availability of containers and ships, I think export volumes could be anywhere between 80,000 per annum, to about 1,20,000 per annum.

The next question is from V. Samala from Tata Asset Management.

So I just wanted to understand, I know that now, at this point in time, there is a supply constraint with respect to the containers, which is constraining your export. But in a more general sense, do you think the export opportunity for the Indian MDF exposure has improved post the pandemic, like we've noticed, in some of the segments, like textiles or tiles or API, et cetera?

There has been a substantial improvement. Our product has been very widely accepted and also to the extent that our product is actually considered superior to a lot of our sort of the Southeast Asian counterparts. We are actually in a position where we are having to refuse to accept additional orders from new clients, so we're just trying to service our existing clients. So acceptance has been well, and we are seeing the -- I mean, if we chose to do so, we can definitely increase our export business, but again, it's a choice of allocating capacity to the most profitable segment, and export clearly is a very, very competitive segment. So it's not the most lucrative segment that we want to allocate our limited capacity to, I mean, given the current situation.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Okay. We wish to thank everyone for joining this call. And we also look forward to speaking to you again on our next quarter calls. If anyone has any further questions or clarifications, feel free to get us -- get in touch with us, please. Thank you.

Thank you very much.

Thank you very much.