Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 Earnings Conference Call of Greenpanel Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Q4 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 maybe forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the result presentation that is sent to you. I would now like to invite Mr. Shobhan Mittal to begin 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 to discuss Greenpanel's operating and financial performance for quarter 4 FY 2021. I do hope all of you and your families are safe and well. Business has gained momentum in this quarter. Net sales were up by 69.2% year-on-year to INR 384 crores. Gross margins were down 442 basis points year-on-year at 53.8%. EBITDA margins were up by 662 basis points due to operational leverage in both the segments, continuous focus on reducing wastage, superior product mix and cost optimization. PAT is up by 765% year-on-year to INR 57.87 crores. Net working capital at 35 days has shown a reduction of 10 days compared to the corresponding quarter last year. Net debt has reduced by INR 76 crores and INR 157 crores during the quarter in FY 2021, respectively, and stands at INR 376 crores as on 31st March 2021. We are targeting reduction of net debt by INR 150 crores during FY 2022. We are not providing any guidance for financial year '22 at this point in time due to the widespread impact of COVID-19. I will now request Mr. Venkatramani to run you through the financials in greater detail.

Good afternoon, everyone. I thank you all for joining us to discuss the Q4 FY '21 financial performance of Greenpanel Industries. I hope that all of you and your families are safe and healthy. In Q4 FY '21, our top line increased by 69.2% at INR 384.36 crores compared to INR 227.19 crores in the corresponding quarter last year. Plywood sales grew by 65.4% at INR 82.74 crores, whereas MDF sales grew by 70.3% at INR 301.62 crores. Plywood volumes rose by 58% at 3.05 million square meters, and MDF volumes increased by 54.4% at 139,490 cubic meters. Uttarakhand MDF operated at 96% and AP unit operated at 105% capacity utilization with blended capacity utilization of 102% for both the plants. Plywood unit operated at 98% during the quarter. In Q4, gross margin fell by 442 basis points year-on-year at 53.8% as compared to 58.2% in the corresponding quarter. This happened due to raw material cost increases and increased sales to the OEM segment. Gross profit grew by 56.3% at INR 206.68 crores as compared to INR 132.2 crores in Q4 FY '20. EBITDA margins were up by 662 basis points at 25.8% compared to 19.1% during the corresponding quarter. EBITDA in value terms grew by 127.8% at INR 98.98 crores as compared to INR 43.45 crores in Q4 FY '20. Profit after tax increased by 765% at INR 57.87 crores versus INR 6.69 crores in the corresponding quarter last year. I'll now update you on the performance details for financial year 2021. During FY 2021, net sales grew by 20.5% at INR 1,000.21 crores compared to INR 830.33 crores in FY '20. Plywood sales were almost flat at INR 217.10 crores compared to INR 215.46 crores. MDF sales rose by 27.4% at INR 783.11 crores compared to INR 614.87 crores during FY '20. Gross margins were almost flat at 53.9% compared to 54% in FY '20. Gross margin in value terms went up by 20.1% at INR 538.68 crores against INR 448.48 crores in the previous year. EBITDA margins were up by 420 basis points at 20.7% compared to 16.5% in FY '20. EBITDA in value terms increased by 51% at INR 207.40 crores against INR 137.33 crores in FY '20. Post tax profits were up by 470% at INR 76.17 crores as compared to INR 16.20 crores in FY '20. Dispatches for plywood stood at 8.48 million units as compared to 8.51 million units with capacity utilization at 71% compared to 78% in FY '20. MDF sales volumes were up by 20.4% at 380,431 cubic meters with blended capacity utilization of the 2 plants at 69% compared to 60% in FY '20. Our debt-to-equity ratio stands at 0.57 as on March 31, 2021 compared to 0.78 as on March 31, 2020. Net debt reduced by INR 157 crores during the year to INR 376 crores as on 31st March 2021. 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 Kedar Kailaje from Fortress Group.

Congratulations on very good quarter. Sir, my first question is on the capacity. So you were going to increase the capacity to about 660,000 CBM. So given the capacity utilization has been pretty strong this quarter. So are you going to increase your -- I mean, will we increase the capacity from beyond 660,000 CBM?

No. At the moment, we are not considering any capacity expansions beyond 660,000 cubic meters. This is not exactly capacity expansion per se. We are adding some new machinery, which will help us to remove some of the bottlenecks from production and expand the existing capacity by about 20%. So at the moment, we are not considering any capacity expansion beyond 660,000 cubic meters.

Okay. And we can go up -- the capacity utilization can go up to 110%, if I'm not wrong?

No. So that is built in into this figure of 660,000 cubic meters.

Okay. Okay. And sir, second question is that since the raw material prices are increasing rapidly, so have you taken any price increase during the quarter?

Yes. We had taken 2 price increases during the quarter, which aggregated to about 6.5% pan India except the southern zone. And for the south zone, we had taken a price increase of 3.5%. So that helped us to cover most of the cost increases.

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

Congratulations, sir, for the good set of numbers. My first question would be on south plant margins. Considering this delay in your peer plant in south and considering the anti-dumping duty and countervailing duty recommendation for imports from the different countries and especially south is a major central business for imports. So do you see your further price hikes in South India and your margin increasing and going through the roof in south plant especially? So can you highlight some margins up there?

Yes. As of now, we're not planning on any -- sorry, you could go ahead.

No, no. [Foreign Language].

As of now, there is no plan of any price increases in the south of India because we've taken 2 subsequent price increases in the past quarter. And just to clarify, as of now, both the antidumping and the CVD are simply findings from the Commerce Ministry side, but they have not been implemented or approved by the Finance Ministry. So they are not in place at this point of time. So given the pace at which things are moving, I do not foresee that we'll be able to see any price increases in the current quarter. And I think there might be a slight trickling of imports coming into the country in the immediate sort of term before these anti-dumping or CVD, if positive, are implemented. So keeping those in mind, we don't foresee any price increase possibility in the immediate term.

Okay. So -- but if those anti-dumping duty and countervailing duty is levied and if things improve, then you'll be thinking of increasing the price and improving the margin? Or operating leverage will be you know...

See, that is all market dependent and what is the level of anti -- countervailing duty implemented. In today's market scenario, import prices are already at a high level. And if countervailing is implemented and prices go up beyond our existing levels, then yes, we may consider an increase in price. But at the same time, even with countervailing, there maybe a possibility that imports might continue to be cheaper. So we will have to see the market scenario before we can take a decision. It's too premature to say whether we'll be able to take a price increase or not.

Perfect. Okay. Okay. And my next question would be post-COVID, there's been a huge opportunity for MDF manufacturers in terms of modular furniture segment and a lot of consumers preferring ready-made furniture. So now post-COVID once things settle down, so what would be your outlook on the same, whether this demand will continue going forward?

Well, I think this is -- a lot of it is a general sort of conversion towards the ready-made furniture culture. I don't think -- I mean, COVID might have fueled it to a certain extent. But this conversion has already been happening and has been in the making for some time now. So I don't see that this would -- I mean, let's say, post-COVID when the pandemic actually settles that there would be a sudden dip in this conversion or preference of ready-made furniture. I think this is here to stay.

And lastly, you mentioned that there will be a reduction of debt of around INR 150 crore in FY '22. So what will be your net debt by end of FY '22 and any further reduction in FY '23?

Okay. So based on our targeted debt reduction plan of INR 150 crores in FY '22, we should have approximately about INR 230 crores of net debt at the end of FY '23. And we will have budgeted repayments of approximately INR 75 crores in FY '23. And of course, depending upon cash flows, we will look at reducing net debt further.

The next question is from the line of Ashish Poddar from Anand Rathi.

Many congratulations for excellent set of numbers. Sir, my question is on the quarterly run rate now. So in Q4, we clocked about INR 380 crores, INR 385 crores of top line. Do you think that in the coming quarters, this number is maintainable for all the 4 quarters? And as and when the new capacity comes, it will increase only? So any sense on your quarterly run rate now? And also on the demand side, considering the lockdown, has it impacted demand for you in the interim from the OEM or from the retail point of view? Sir, your comments are -- will be helpful, sir.

Yes. Sure. So we had a reasonably good performance in the month of April, although it was not as good as March. But that's reasonably expected that after March, things do slow down a bit in April. So we had a reasonably good performance in April. But because of the lockdown in vast areas of the country, we are expecting that Q1 numbers will be substantially impacted. And like Shobhan did mention, that we are not giving any guidance for FY '22 at this point of time because we don't really know what will be the impact of COVID, whether it will extend beyond Q1 and whether it will have a significant impact on Q2 numbers. Yes. In normal circumstances, yes, we can expect to achieve that number we did in Q4. And with the capacity expansion expected in quarter 3, we could possibly surpass those numbers in quarter 4 FY '22. But everything will depend on what kind of impact COVID has on the economy and how much of an extended slowdown it has on the economy.

The next question is from the line of Achal Lohade from JM Financial.

Congratulations for the great performance. What we wanted to understand is in terms of the raw material cost inflation. So can you give us some sense in terms of the key raw material and what has been the price, the cost inflation actually in the fourth quarter on a Y-o-Y basis? And you did mention that the cost -- the price increase what we have taken is kind of offsetting the entire cost inflation. But just wanted to understand, fourth quarter would have been the -- each of the raw material cost inflation also how it has trended in the month of April and May?

Okay. We had -- although I'm not able to give you an accurate figure for the raw material increases in quarter 4 specifically, I would imagine they would have gone up by about 5% in that quarter. And prior to that, we had almost a 5% increase in prices of key raw materials, both timber and resin during quarter 2 and quarter 3 as well. So overall, raw material costs had gone up by about 10% last year. And with the price increases that we took, we were almost able to cover the raw material cost impact, although not to the full extent. I estimate that we had a gap of about 100 basis points. And in the current quarter also, there have been some raw material price increases, specifically on the chemical side. So we have gone for another cost increase -- price increase of 4% in April, although the actual impact will be from the beginning of May. And going forward, also depending on market conditions, we hope that we'll be able to take further price increases for any further increase in raw material prices.

And these comments are pertaining to MDF or the company as a whole, sir?

Primarily on the MDF side. On the plywood side, we have not had any major impact in raw materials. There was probably a 2% raw material cost increase during the year. And we had taken a price increase of 2.5% in July. So that helped us to counter that.

And has there been further price increase after July, sir, in plywood pricing?

Not on the plywood side.

And is there any plan to take any price increase in the current quarter?

Yes. We are planning a price increase. But whether it will be implemented from May or June, that's something we'll be taking a look depending upon market conditions.

And would you be okay to disclose that what kind of price increase we are probably looking at?

Somewhere in the range of 3% to 4%.

Right. My second question, in terms of the plywood business. What kind of -- are we going to look at any outsourcing or are we going to stick to just whatever capacity we have and stick to that much revenue as such for the plywood?

Yes. On the plywood side, at optimum capacity utilization, we can possibly target revenues of INR 350 crores. So at the moment, we are not considering any expansion in plywood.

Is there any scope for expansion in the same facility?

I don't think so. I don't think we have sufficient space at the Uttarakhand plant for any further plywood expansion.

Understood. And could you please talk about how the export, what has been the mix, what is the export realization, how it has changed and how do you see it playing out over the next couple of years? You can see that the export mix will substantially come down, will be more of a domestic selling?

Yes. I think yes, that's the plan in future. So if we look at FY '21, our total exports were approximately 83,000 cubic meters. Although, we could have done a further quantum of another 30,000 cubic meters because we had orders in hand, but could not execute those orders due to nonavailability of containers and ship. So at the moment, we are targeting approximately 120,000 cubic meters of exports in FY '22. And possibly, I think we should be somewhere close to that number in FY '23 also.

And what is the margins typically for the export side compared to domestic, sir?

At the moment, if you look at last year, we would have had a margin of approximately 10% on exports. But prices are increasing in the international markets. So looking at future prices, I think, yes, we can have a margin of about 14% on the export front.

And how about domestic, sir, for FY '21?

For FY '21?

Yes. Margins -- EBITDA margins for the domestic segment?

For the full year, we had a margin of 23% blended for domestic and exports. Although margin was pretty low in the first couple of quarters due to the impact of COVID. And we had a margin of approximately 28% in Q4 for the MDF business, domestic and exports put together. So I would possibly look at domestic margin of 30%. If we are able to operate at optimum capacity utilization.

Understood. And just one more question with respect to OEM. What is the mix for us in terms of A, OEM whole -- and the retail; and B, in terms of thick and thin?

Okay. So if we look at the mix between retail and OEMs, the retail would be approximately 65% and OEM would be about 35%. And the mix between thick and thin is 70-30.

Right. Understood. And just one more question, if I may, sir. With respect to the geographical mix in terms of the MDF volumes, sir, in India, domestic sales...

Okay. I don't have the exact numbers. Achal, I will get back to you during the course of this evening.

[Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss Securities.

Congratulations on great set of numbers, sir. Sir, my first set of questions will be related to the southern market. Have you started seeing any suppliers from Rushil coming in on any kind of price or drop because of that? If at all, you can highlight that parameter?

No. At the moment, no such thing has happened.

Also no new supply is coming in?

No.

Also, sir, my second question will be related to OEM. So we were trying to increase the share of prelaminated portion. Could you quantify where are we right now, where do we plan to take this forward? Because I think we are targeting somewhere about 100% to 150% margin expansion because this is value addition. So if at all you can you give some color on that?

Yes. Okay, go ahead.

Yes. Please go ahead.

No, no, go ahead please.

Okay. Prelaminated MDF was approximately 12% in quarter 4. So if we look at previous quarters, there has been a significant increase in prelam volumes. We were -- had done an average of about 10,000 cubic meters in the first 3 quarters. And we did about 14,000 cubic meters in quarter 4. But then the quantity of plain MDF has also been increasing because of higher capacity utilization. So on a percentage basis, there's not been any significant increase in prelam volumes. But going ahead, we are also in the process of installing a treater machine at the Andhra plant which will enable us to do a faster turnaround of prelaminated production at Andhra. So I think we could look at a substantial expansion in prelam volumes this year as compared to last year.

Right. The reason I'm asking this question is, if I'm not wrong, there are many odd smaller players in India who are actually importing MDF and prelaminating and selling it in India. Could you actually quantify such market size and what is an opportunity for us here?

Shobhan, can you take that?

Yes. So I don't -- actually that you're correct where you say that there is a lot of people importing MDF. But I don't think we are competing with those guys because the quality of product that they are supplying, especially the paper is not a segment that we are competing in a large manner. We have a cheaper range of products that we try to cater to that segment. However, that's a very small percentage for us. So I would say that the segment that the organized players play in the prelam sort of market and the OEMs that we cater to with that is not really competing with that particular segment of the unorganized segment where the people are bringing imports and putting local Indian paper on it.

Sure. Got that, sir. Sir, one last question, if I may just phrase in. This was mainly related to the current demand scenario. So as you rightly said that, I mean, you were actually more into the OEM segment also with 35% demand coming in. What is the direct impact that you're seeing both on the retail end. We understand that the impact would be more on the retail because of the lockdown situation. But what is happening with the demand at OEM end ? If at all you can can give some quantifiable picture on that versus Q4? How are we doing right now?

Okay. As far as the OEM segment is concerned, so during the month of April, it was slightly lower than the month of March. Like I mentioned in March, OEM segment was about 35%. So it was 33% in April. And if you look at May, I would say it's probably around similar number. So -- but then we have seen a substantial dip in volumes in the month of May. So it's not really -- and we have had only 13 days of operation. So I think I'll probably able to give you a better idea by the end of the month.

Sure. It is nothing like that the OEMs are performing better than retail market?

No, no. I would say it's more or less the same, both on retail and OEM side. So we are seeing a dip in volumes on both the sides and almost of a similar proportion..

The next question is from the line of Dushyant Mehta (sic) [ Dushyant Mishra ] from SageOne Investments.

I just want to know what -- how would you attribute this growth? There has been a significant growth because of exports coming into India going down? Or do you think this is more...

Sorry, Dushyant, repeat that? You're slightly inaudible. Can you please repeat the question?

Of course. Can you hear me better now?

Yes.

Okay. I was just asking what percentage of this growth you think came from just ex import substitution, the imports coming into India? And how much do you think is sustainable over the long term? As like how many clients have acquired this quarter that were first time clients or people who wouldn't normally buy from you?

I think in the past couple of quarters, I think there has been a substantial import substitution and a lot of it is also on account of the pandemic where supplies from foreign countries have been subdued, and freight, of course, has been a challenge. But at the same time, if you look at the international market now, demand for MDF has substantially gone up and prices being available in foreign countries is, I mean, I would say, almost at par with the domestic realization that we have here. So when circumstances like this happen, then India by default becomes the least sort of preferred market because realizations for exporters are much lower in India compared to the other lucrative markets. So this has always been the case historically with the import model that when capacities are lower, demand is high, supply is lower then India does tend to get neglected in this manner. So yes, there has been a substantial increase. But at the same time, we are also expecting and hopeful that if the government is favorable towards the implementation of the restrictions, then we will see the situation for the long term where imports will become more expensive to come to India.

Understood. All right. And just a question on your realizations. Could you split that up in the north versus the southern market?

I think like -- yes, please go ahead.

Okay. So the domestic realizations for the Uttarakhand plant, I'll give you the Q4 numbers, were INR 25,480 per cubic meter. And for the Andhra plant, were 21,124 cubic meters. But 2 reasons for that. One, we have 2 products in Uttarakhand which are high-value items. One is Veneered MDF and the second is flooring MDF. Now veneered MDF sells at a premium of about 40% as compared to the plain MDF. And flooring MDF sells at almost 300% as compared to the plain MDF. So if we exclude these 2 products, even then I think there would be about a 5% premium at the northern plant as compared to the southern plant.

Also to add to that, for everyone, as a percentage -- because the Andhra plant is much larger in capacity as a percentage, the prelam component -- prelaminated MDF component in north as a percentage is much higher compared to the one in the south. So that would also contribute to a higher per cubic meter realization in the north compared to the south.

The next question is from the line of Sameer Shah from Valuequest.

Congrats for a good set of numbers. Two questions. One is with such demand supply scenario that we have and operating at 100% plus utilization, why are we kind of not thinking of expansion or -- if you could comment and give some...

Actually, sorry, Venkat ji, I'll just give a small brief on that maybe. We foresee -- I think the company has at the moment 2 very sort of distinct, sort of, objectives in mind. A, we want to reduce the debt on our books in this current financial year. B, we also foresee that at the moment, if you see we are allocating about 10,000 to 12,000 cubic meters of production from the south plant to the export market, we are also allocating a fair amount of material to the OEM segment, which is obviously lesser in realization. So we foresee that over the next 1, 1.5 years, there is still a lot of scope to maximize margins and profitability from our existing production by improving the product mix, by selling to the higher -- more profitable customers. At the same time, allowing us to reduce the debt load. So I think there is still a lot more scope from the existing capacity before we start thinking about additional capacities and more capital expenditure.

And sir, in fact, whenever we decide to look for further expansion, what is the status of the, say, the land, et cetera? I mean what would be the lead time? That's what I wanted to understand, from the time you decide to put up a capacity.

In -- I mean as a thumb rule, I think from the point of conception to executing the first board under normal circumstances, I would say it's a period of 24 months. Having -- I mean, of course, if we consider in the future going forward to expand in Andhra Pradesh itself, then obviously, land is abundantly available because we have a very large plot -- piece of land, which was already planned for future expansion. However, the decision to expand -- if and when we decide to expand may not necessarily be in the south. It could be another location. That would be dependent on the market conditions, it could be dependent on raw material availability. So it would be a bit premature to, say, answer your question on land. But I mean, about the time frame, I think 2 years is a fair sort of thumb rule to consider from the point of conception to executing the first board out of the plant.

Understood. And sir, second, what you just mentioned in terms of a lot of scope for improvement, in terms of realization depending on the mix -- or the improvement in the mix that is possible. Is it safe to say that even without this antidumping duty benefit, et cetera, margins can go up to 30%?

I think we would not like to comment on that as of now because market conditions, international prices are not in our control at this point of time. So I think it would not be a fair comment to say that it can or cannot go up. Antidumping has been in place for the past 7 to 10 years. However, certain countries or certain companies have been out of the purview of antidumping. So it is not that imports have not been coming in. They have been very much coming in. In fact, they have been increasing over the past 5, 7 years. So it's very sort of hard to say how -- what the government -- the new policies decided on antidumping and countervailing duty and how the market conditions would react. There are a lot of factors in play here.

So adding to Shobhan ji's comments, I would like to state that if we are operating at optimum volumes and selling the entire production in the domestic market, we could possibly target EBITDA margin of 30%.

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity Investments.

I just had one question, was on the -- there's a capacity expansion of 20%, which you all have, sort of, put in the presentation. Just wanted to understand what will be the CapEx cost for expanding the MDF capacity? And obviously, this will be a brownfield one.

Yes. So we will be incurring cost of approximately INR 25 crores for that brownfield expansion. It's not really an expansion strictly in that term. So we are basically adding some machinery, which will remove some of the bottlenecks from the existing process and enable us to expand the capacity. And we expect this additional capacity to be available to us from quarter 3 of the current year.

And with that, capacity would go close to 650,000 CBM, right?

Yes, approximately 650,000, 660,000 cubic meters.

Venkat ji I think it's important to highlight that the 20% number of capacity expansion is also product mix dependent. So it's not -- I mean that is also dependent on the thicknesses that we'll get from the market. And so it's not a blanket 20% across the entire product range. So it would be dependent on the product mix of orders that we receive.

That's true.

Understood. And second question was our plants are running at close to peak utilization right now. If I think about the broader industry in quarter 4, the MDF industry in India, the domestic plant, would you have a sense in terms of what utilization these plants would be at the industry level?

I think quarter 4 has been quite sort of a good quarter for pretty much all the companies. I mean, one of the larger players, Action, unfortunately, the data is not available publicly since it's a private company. However, as far as our understanding goes, all the larger players like Century, Action, Rushil, have all had very good sort of high percentage utilizations in the past quarter.

The next question is from the line of Siddarth Mehta -- an investor.

Yes, a question for Mr. Shobhan Mittal. I understand that you're going to pay down some of the debt. But given the rapid rise that we are having in the company and given the rapid increase that we fore -- seem to be there for the demand for MDF, is it better to perhaps do an expansion instead of paying down debt? And secondly, I wanted to know something about the value-added products that the company is selling. In which ways you're adding value and what percentage of your sales tend to be value added?

Sure, sir -- Siddarth. So we basically are of the sort of -- the idea that we have at the moment is that given the current cash flows and the reason that we are not expanding on an immediate basis, because there is still possibility of better optimization of our existing capacities and improving margins and profitability over the next 1, 1.5 years. So we are of the opinion that we should pay down the debt because the cash flows are comfortable and it allows us to do so, number one. B, it would bring down sort of debt-to-equity ratio to a very lucrative level. And at the same time, put us in a comfortable position going forward too. Whenever we choose to sort of engage into a capacity expansion, we would have a very healthy financial situation that we would -- that would allow us to sort of expand. So we've always maintained that we engaged into a substantial capacity expansion with the Andhra plant. And the management's objective was always that for the first 2 to 3 years, we will reduce the debt load on the company. On your question about the value-added products, the company currently offers laminated flooring, which is produced in Rudrapur. Apart from that, of course, within the plain MDF gambit, we have the high-grade, Club Grade MDF that we produce and then we also produce CARB grade MDF and we also produce Exterior Grade MDF. So these are generally higher grade, higher density MDF with more waterproof sort of properties built into them, which are sold at a higher price point. And then also prelaminated MDF, which is a plain MDF coated with a decorative paper is what we sell as a value-added product as well. And like Venkat mentioned, prelaminated MDF is, at the moment, about 12% to 13% of our entire capacity is what we are prelaminating. And if I talk about the other categories where we talk about Club and Exterior Grade, et cetera, I think that would be close to 25% to 30%.

Yes. So the entire basket of value-added products, including prelaminated, veneered MDF, flooring MDA and within the plain category, Club and Exterior grade MDF, all this accounts for approximately 35% in volume terms and about 46% in value terms.

Okay. So from what I understand from the first part -- answer to the first part of my question was that you are looking for slight expansion through debottlenecking and other processes. But you're not seeing such a vast increase in demand that there should be need to set up another bigger expansion. This is my understanding correct?

Yes. Like I mentioned, our focus is to have the optimum utilization from the existing capacities and also reduce the debt substantially to derisk the company before we go for another substantial expansion.

Cost optimization efforts and your cost reduction efforts. I mean those have really shown up. So...

Yes. Basically, the -- achieving the optimum volume, the optimum product mix, the optimum customer mix. So all of this -- because once you get into expansion mode, part of the focus gets diverted from these requirements. So we would prefer to have the optimum mix from the existing capacities before we go in for another expansion.

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

Sir, in Q2 and Q3, we had seen a lot of unavailability of containers and also the cost of containers was pretty high. So what is the current scenario? Can you throw some light on that?

I'm assuming you're referring to our export business?

Export, import, both.

Yes. I mean, we are not so dependent on imports, sir. So I think where containers come into the picture is more primarily for our export business. So yes, availability previously has been a concern. Prices have been quite inflated. But things have improved on the cost front. Availability of certain sizes continues to be a challenge for certain ports. But overall, the situation is much more improved than the quarter 3 and the quarter 4 of last year.

Right, right. And last question from my end, is 35 days on working capital sustainable going ahead because we'll be having double-digit growth? So is this number sustainable going ahead as well?

Yes. It's sustainable, and it's something which is part of the ethos of the company. So we always want to convert our profits into cash, and that can be done only if we keep a close watch on the working capital situation. So we want value-added sales, and we want those sales to get converted into cash at the earliest opportunity.

[Operator Instructions] The next question is from the line of Hasmukh Gala from Finvest Advisors.

Congratulations to the management for a good set of numbers, and you nicely explained the challenges that you are undergoing. A couple of questions from my side. First question is because of this lockdown conditions, et cetera, are we able to operate our plants at full capacity utilization now matching it whatever is the demand?

We are not facing any issues at the plant. So we can continue to operate the plants at full capacity. But definitely, we are facing some challenges in procurement of orders. So if the order situation improves, no, we are definitely capable of operating the plants at full capacity.

Okay. Another question is in the full year, out of INR 1,000 crore turnover, how much was domestic and how much was export?

So -- our business can be split into 2 parts. So on the plywood side, the entire business was domestic, which comprised of approximately INR 217 crores. And of the MDF business of INR 783 crores, INR 663 crores came from the domestic and INR 120 crores from export.

The next question is from the line of [ Abishek from RK Securities ].

Congratulations for a good set of numbers. Question on the sales side. What is our value proposition to a retail end customer, right, versus our competitors? Is it price? Is it supply chain? Is it quality? Is it distribution? What is our value proposition? What is our competitive edge?

I think so being currently, I mean, the player with the largest installed capacity in the country with its entire production being produced out of a European manufacturing line, I think we are in a very unique position where serviceability from our plants is the fastest to our customers, which allows them to reduce their inventory, sort of carrying requirement, et cetera. And I think it's very safe to say that we are, if not -- I mean, at par or even superior to our competitors. We like to think in terms of quality, of course, we offer a very good quality product. I mean, MDF, end of the day is a commodity product. So what we can sort of try to get an competitive edge on is serviceability, is the quality of the product and more importantly, after sales service, which we are able to provide through our sort of expansive network of sales team and our dealer base.

So in turn, you count on your dealers to sell more, and you -- it's basically your -- the push that you get from the dealers, right? So it's not the end customer, not the individual end customer that you target for more sales rather it's the serviceability towards your dealers, right?

Well, no. We do target our end consumers towards customer -- towards demand generation. We are providing that service to our dealers and also -- because demand generation end of the day ends up being the company's responsibility. Of course, the supply chain -- the dealers are a very important part of the whole sort of machine. But at the same time, the company's people are very much engaged with the end consumers to generate inquiries and service their needs.

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

Congratulations on a good set of numbers. So first thing, I just wanted to understand is what has been your experience with respect to the thick MDF when the antidumping duty was imposed by the government on the think MDF? If you could just answer in terms of the realization improvement that you would have seen in the market, specifically for think MDF. And also if there was any impact or improvement for the domestic players with respect to volumes?

Okay.

Okay, go ahead, Venkat.

Yes. Anti-dumping duty has not yet been implemented. It has been recommended by the Commerce Ministry. And currently, it's under the consideration of the Finance Ministry. So we'll have to look at operation...

I think he's talking about historically. I think he's talking about historically.

But then antidumping duty was imposed approximately 5 years back. And while there has been some positive impact, I won't say it was a very substantial element primarily because in the first place, countries like Indonesia and Vietnam were not covered under the ambit of antidumping duty. And even after they were covered in the second phase, there were quite a few manufacturers from certain countries who were not covered by ADD. So while it has had some positive benefits, it has not really conferred the kind of benefits that the domestic industry was looking forward to.

Right. Right, right, right. Sure. So I mean, your expectation with respect to the current antidumping duty and CVD, would that be similar? I mean not expecting too much as a base case if it goes through?

Okay. It would depend upon the percentage of those duties. So while CVD would definitely be more favorable than antidumping duty primarily because it will be across all products, both plain and prelaminated MDF, both thin MDF and thick MDF and across all countries from Southeast Asia who are currently exporting to India, so definitely CVD would be more positive than ADD. But then it will depend upon the quantum of CVD and ADD which is implemented by the government. So considering the proposals with the Commerce Ministry has recommended to the Finance Ministry, so those are quite favorable from what the situation was previously. But now it will depend entirely on how the Finance Ministry goes about it.

Understood. Understood. So as I understand, this looks to be a little more favorable as compared to the one that was previously imposed on the thick MDF? I mean that's...

So the coverage of this is more sort of expansive. It will refrain a lot more products than companies to bring into India compared to the antidumping policy that has was in place.

Understood. Understood. Sure. Sure, sir. And my last question is the traction that we are seeing, especially in the foreign market. Are you able to see an increase in the export volume sequentially? I mean Q-o-Q over Q4?

So yes, I mean, the export volume -- export demand has gone up substantially. Pricing on the export side has also gone up substantially. But as a company, the domestic market continues to be a priority because we are a lot more competitive domestically as we are in the export market. And at the same time, our profitability in the domestic market tends to be generally higher for us because of the transportation involved in the export market and the competition in the export market. So as a company, consciously, we choose to allocate only a certain percentage of our production capacity to the export market, even though the demand is much higher than we are willing to supply and unless the domestic situation changes drastically, we will continue to be in sort of a similar supply situation with the export market as a company. But the international market drastically has gone up, prices have gone up. Everything is on the uptrend.

Right, right, right. And one last question, sir. So the margins that you saw in the current quarter for MDF about 28% versus 24% to 25%. So you did allude to some initiatives being taken in and some CapEx also for improving the cost. So is the improvement -- is -- have some of those initiatives that you've spoken about already in place which has led to improvement of margins? Or do you think that most of them are still to happen and that could incrementally further add up to margins whenever they take place?

Okay. The capital expenditure that we are -- started in Q4 that's currently in process and is expected to be completed by September, October this year. So part of the CapEx relates to additional machinery for expanding the capacity. So that will not have any positive impact on the margins apart from some minor benefits on absorption of fixed overhead. And the second part of the CapEx is installation of some additional machinery, which will help us to reduce the wax consumption. So that would reduce the wax consumption by approximately 30% to 35%. So that benefit will possibly be available from Q4 this year.

[Operator Instructions] We take the next question from the line of Saurabh Agarwal (sic) [ Gaurav Agrawal ] from Bowhead Capital.

Sir, my name is Gaurav. Congratulations on the very good set of numbers. Sir, on your capacity expansion, I just wanted to get a few clarity. So this enhancement of capacity which we are talking about, this will be majorly in AP or this will be at both the plants, in Uttarakhand as well as Andhra?

It's at both the plants. We are installing a very similar set up in both the plants. Both the preheating system as well as the wax consumption reduction system, they're being installed at both the plants.

Okay. And sir, this is specific to your plants which are European machinery or this can be done to other players which may have...

No, other -- I mean, even other players have access to -- I mean, they can also install such systems. Well, I mean, this is -- just to clarify, this would be applicable to the continuous lines, at least the capacity expansion system would be applicable to the continuous lines, not to the multi opening ones.

The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

Sir, a great set of numbers. I'll have 2 questions, if you don't mind. First one is if you can speak a little bit about your raw material, what you're doing there to get a better hold of? And you had mentioned about your own plantation. So if you can just elaborate on that? And my second question is you had availed moratorium. Did it change the cost of debt for you because of that? Just these 2 questions.

Venkat ji, do you want to get that?

I missed the first part of the question. Can you repeat that, please?

On the raw material...

On the raw material, if you can tell us what steps can be taken to better raw material availability compared to [indiscernible] industry considering that you are the largest MDF player?

We have constraints as far as taking steps on improving the availability of raw material primarily wood is concerned. So in India, land cost is prohibitive in most places and that acts as a constraint in purchasing large plots of land and having our own plantations. So we don't have the financial muscle for that. And what we are doing is we are planting the saplings in our plant and providing them to farmers within a radius of 100 to 150 kilometers. So we are providing these saplings to farmers at our cost, basically, which means that they are able to procure it from us at 50% of the sapling cost in the market. So that's the step we are taking to improve the availability of raw material primary wood. And now wood constitute almost 65% of the raw material cost in MDF, approximately 80% in wood. Definitely a key raw material, but we are able to take only small steps to improve the availability of wood. And regarding the moratorium, no, we did not have to incur any substantial cost. So basically, we paid approximately EUR 2,000 to the German bank for the amendment agreement.

The next question is from the line of Chirag Lodaya from Valuequest.

Sir, I have only one question. If you can just help us with plant-wise utilization and margins for Q4 and FY '21 for south and north. And in south, if you can just further break it up into export and domestic.

Okay. We had a capacity utilization of 96% at the Uttarakhand plant and 105% for the Andhra plant, which leads to 102% blended capacity in MDF. And as far as the domestic realizations are concerned, we had -- our -- 25,000 -- the domestic realization for MDF in north plant was INR 25,480 per cubic meter; for the south plant it was INR 21,124 per cubic meter. And during the fourth quarter, exports were approximately 17,900 cubic meters at an average realization of INR 14,747.

The next question is from the line of Balaji Vaidyanath from NAFA Asset Management.

Congratulations for great results. Just wanted to check on the -- in terms of the lockdown situation. Last year, when we had the lockdown, there was migration of labor, et cetera. So this time, of course, there's no national lockdown. Almost the entire country is at some sort of lockdown. So are we also facing labor issues because almost 75% of your south plant consists of locals. There is still 20%, 30% nonlocals, so who may have gone back to their villages, et cetera. Is that an issue that you are facing?

It's not an issue primarily because on the MDF side, we don't have much requirement of labor. The entire process is automated right from the time the logs enter the chipper machine to the final product rolling out from the hot press. So on the plywood side, yes, the labor requirement is significant. But most of the labor stay in the labor colony, which is adjacent to the plant. And we have not seen any migration of the labor force happening during the current year. So at the moment, we are not facing any labor issues.

The next question is from the line of [ Tarun Arora from Safe Enterprises ].

Congratulations on a very good set of numbers. I have 2 questions. I don't know if these questions have been answered. I got cut off in between. First question is regarding the industry capacity expansion. If you can give some idea as to at what rate do you expect the capacity of the industry to grow on the India side over next couple of years? Has anything changed after a bumper Q4 for all the players and keeping in mind the pandemic situation? So that would be my first question. My second question is regarding the value-added products that you spoke about, volumes contributing 35% share. So in that -- and you also mentioned that MDF as a category it's quite commoditized. So in that context, I wanted to understand, do we have any differentiated products wherein we get better pricing, where the competition does not have those products?

Okay. I'll take the first part of the question. Then Shobhan, you can take the question regarding value-added products. So as far as the expansion in the MDF industry is concerned, I think the only capacity which we'll see operational during the current year is Rushil's capacity in southern India. That was expected to be operational in March, but that has got delayed since the German engineers have returned to their home country. So at the moment, it's difficult to predict when the engineers will come back and Rushil plant will be fully operational. And then I think the next capacity, which could be on line sometime next year could be Century's brownfield expansion in Punjab. I think apart from those, we should not see any major capacity expansions happening in FY '22 and '23.

Okay. And with relation to the value-added product, I think the -- I mean, the only product that is unique to us, although it's a very small quantity would be veneered MDF primarily because we are in a sort of unique situation where we produce MDF in the same plant where we produce our factory where veneers are easily available and the machinery is available. But apart from that, all the other value-added products, I mean, flooring is offered by us as well as Action. And the other grades of MDF and prelaminated MDF is -- they're probably available with all the manufacturers. So there is not too many sort of differentiating products available in the MDF segment, sir.

The next question is from the line of Shashank Jain from Kotak Securities.

Congratulations on the great numbers, sir. My question was actually related to one of the alternatives for raw materials. We understand that in certain countries such as U.S., they have started using raw materials such as rice straw for MDF. So I wanted to know your opinion and if our company is exploring such opportunities in the near future instead of going -- instead of looking at eucalyptus?

No, rice straw is not used for MDF, but it is more used for production of particle boards. I mean, as far as my understanding and knowledge goes, the only place where an alternative form of raw material is being used to produce MDF is in Egypt, where there is a plant which on a very small scale produces MDF made out of bagasse. And that model, unfortunately, has been very unsuccessful in India. There was a company called Bajaj Hindustan who had entered into production of MDF using bagasse, but it was unfortunately unsuccessful to be a profitable venture and it shut down. So -- MDF because of the nature of the product and because of the fiber that is required, there are not many alternate sort of raw material options.

The next question is from the line of Nirali Ketan Gopani from Unique Asset Management.

Congratulations for a great set of numbers. Sir, I just wanted to understand and sorry to push again on this capacity expansion thing. But so as per what you have mentioned, if we don't plan our capacity expansion, say, in the next 1, 1.5 years, our sales might reach a stagnancy for the next 2 years. So just wanted to understand your view on the same.

Okay. I'll take that question. You know we had sales of approximately INR 780 crores during the current financial year. And with the expanded capacity, which is expected to be operational by Q3 this year, we could potentially reach sales of INR 1,550 crores of MDF from the existing capacity post expansion. So that gives us a lot of room for improving the sales -- for achieving sales growth over the next 2 to 3 years. So I think the requirement for a very large expansion is not really a requirement at this point of time.

The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers.

Sir, my question is from the potential for MDF. Sir, largely, if the customers' preferences lean towards ready-made furniture or buying it from companies like IKEA, et cetera, Then how -- is it an unfortunate threat for MDF overall over the next 3 years or maybe even a longer period? Could you give me some understanding on that?

No. Absolutely, the reason why we have seen a lot of conversion happening from the plywood side is also because of the acceptance of ready-made furniture, which indirectly increases except in south India. So this is definitely a very big opportunity. And IKEA, where a lot of the model is followed -- the model is basically of knockdown furniture, sometimes it's a build-it-yourself or sometimes an installer comes, where people are more exposed to the materials being used. And when they see and they start using and then they realize that MDF is very much an acceptable product, and it's a long lasting and not inferior to plywood, which is a misapprehension at the moment, then definitely, the acceptance of MDF in general would increase. And even applications where plywood might be used or they may consider using plywood, it would be easier to convince or -- because cost of MDF is obviously far lower than compared to a good quality plywood. So definitely, machine-made furniture manufacturing is a huge opportunity for India.

Ladies and gentlemen, we take the last question from the line of Karthik Bhat, an individual investor.

Congrats on a good set of numbers. I think in one of the earlier calls, last quarter call, you had mentioned that one of the drivers in India was India becoming a hub for furniture exports to markets like Europe, U.S. and all. And that has also generated demand for MDF. So how sustainable is that? I mean, number one. And what elements are driving this? Is it cost, quality, or what is it, if you can throw some color on it? And I believe in terms of realization domestic versus exports, is there any difference that we see?

So I think with the sanctions on China, primarily from the U.S., of course, a lot of the manufacturing which was originally happening in China has moved to other countries. India has definitely benefited from that. The government is strongly pushing an increase of furniture production locally. This is primarily due to 2 reasons. A, a lot of the furniture -- ready-made furniture coming into India is currently imported. And the government realizes the importance of furniture being made locally because it will help preserve foreign exchange reserves and expand growth to the domestic sort of industry. So yes, I mean -- and by default, when furniture manufacturing is done locally, it opens up export possibilities as well. Today, unfortunate situation in India is that furniture is being made locally, but it is not being sold locally. It is being -- a lot of it is being exported. So -- and these purchases based on the U.S. or in Europe who were currently -- who are buying from China are now focusing on India as a possible sort of country to source from. And when you talk about the margins, you're talking about the MDF prices, is it, for locally as opposed to internationally.

Yes.

So -- yes, like I said earlier, domestic prices are definitely more lucrative and more higher profits for us. Hence, our focus continues to be on the domestic market. Because internationally, it's a commoditized product, and a lot of players are involved. Here, we have the benefit of being producing locally a market size that's available for our entire capacity as well as lower transportation costs. Whereas if we start selling to the Middle East, which is a very large sort of primary export market for us, then you have other competitors like Malaysia, Indonesia and Thailand. So competition is higher, hence pricing is sort of more competitive and strained.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

So thank you, everyone, for joining this call, and we look forward to speaking to you again post our next quarter results. If anyone has any further questions or queries, do feel free to let us know, and we'll be happy to answer them. Thank you so much, and please be safe, everyone.

Thank you very much, sir.

Thank you.

Ladies and gentlemen, on behalf of Greenpanel Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.