Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 and FY '22 Earnings Conference Call of Greenpanel. [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, sir.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Q1 FY '22 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. 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 1 FY '22. I do hope that all of you and your families are safe and well. Volumes were lower quarter-on-quarter due to the second wave of COVID-19. The impact was higher in the domestic markets, especially in the South Zone and the Plywood segment in particular. Plywood revenues were down by 45% Q-on-Q. MDF domestic revenues were impacted to the extent of 28% quarter-on-quarter while export revenues doubled. Net sales were up 247% year-on-year at INR 299.24 crores. Gross margins were up by 1,194 basis points year-on-year at 56.2%. EBITDA margins were up by 2,969 basis points due to operational leverage in both the segments, continuous focus on reducing wastage, price improvements and superior product mix. PAT is up by 184% year-on-year to INR 28.57 crores. Net working capital days at 33 has shown a reduction of 56 days compared to the corresponding quarter last year. Net debt has reduced by INR 18 crores during the quarter and stands at INR 358 crores as on 30th June 2021. We are targeting a reduction of net debt by INR 150 crores during financial year '22. Capacity utilization in MDF are improving month on month, and hopefully a strong platform has been laid for a robust 2022 financial year. I will now request Mr. Venkatramani to run you through the financials in greater detail. Thank you.

Good afternoon, everyone. I thank you for joining us to discuss Greenpanel's Q1 FY '22 financial performance. I hope that all of you and your families are safe and healthy. In Q1, our net sales increased by 247% at INR 299.24 crores compared to INR 86.25 crores during the corresponding quarter. Plywood revenues grew by 132% at INR 45.27 crores, while MDF sales grew by 280% at INR 253.97 crores. MDF's domestic revenue contributed INR 200.15 crores, while exports contributed INR 53.81 crores. Plywood sales volume rose by 124% at 1.75 million square meters and MDF volumes increased by 221% at 112,735 cubic meters. Uttarakhand and Andhra Pradesh MDF units operated at 82% and 95%, respectively, with blended capacity utilization of 91% for both the plants. Plywood unit operated at 61% during the quarter. In Q1, gross margin rose by 1,194 basis points year-on-year at 56.2% compared to 44.3% in the corresponding quarter. Gross profit grew by 340% at INR 168.29 crores as compared to INR 48.20 crores in the corresponding quarter. EBITDA margins were up by 2,969 basis points at 22.3% compared to negative 7.4% during the corresponding quarter. EBITDA in value terms stood at INR 66.59 crores compared to negative EBITDA of INR 6.41 crores in the corresponding quarter. Profit after tax increased by 184% at INR 28.57 crores versus loss of INR 34.07 crores in the corresponding quarter. Our debt-to-equity ratio stands at 0.51 as on 30th June 2021 compared to 0.80 as on 30th June 2020. Net debt reduced by INR 18 crores during the quarter to INR 358 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 Chirag Lodaya from Valuequest.

Sir, I wanted some quantitative details. So if you can just help us understand what was the North and South volume, value and margins for this quarter?

Okay. For the North plant, volumes were 34,818 cubic meters at an average realization of INR 27,942. For the South plant, volumes were 77,917 cubic meters at an average realization of INR 20,108. Of the total volumes, domestic volumes were 78,277 cubic meters at an average realization of INR 25,571 and export volumes were 34,458 cubic meters at an average realization of INR 15,617. Regarding the operating margin, it was 27.99% for the Uttarakhand MDF plant, and 21.95% for the Andhra plant with blended EBITDA margin of 24.26% for the MDF segment.

Got it. And sir, secondly, where the -- is there any one-off element in other expense in this quarter?

No, not in other expenses. There's a one-off item in the interest cost, which includes currency losses. So we had total currency loss of INR 7.6 crores. Of it INR 0.7 crores is above EBITDA and INR 6.93 crores is an addition to interest cost.

Next question is from the line of Amit Vora from PCS Securities.

My question relates to the export realization. You did mention the number for Q1 FY '22 was around INR 15,000, if I heard it right. What would be the current numbers because we are in Q2, if you can give that realization number?

Yes. Q1, although there was a marginal improvement compared to the preceding quarter where export realizations were around INR 14,747. Realization for this quarter were INR 15,617 because we had a mix of old orders with a lower realization. But international prices have gone up substantially in the interim period. So I'm estimating that for Q2, export realization could be up by close to 20% as compared to Q1.

20% compared to Q1. Okay, sir. What would be our margins -- EBITDA margins on this same corresponding Q1 FY '22 to currently, what could be the margin jump in this segment?

Couldn't get you. Can you please repeat that?

Yes. I'm saying that what would be our EBITDA margins for this realization, 20% extra realization. What would be our EBITDA margin, sir?

I won't be able to give you that data because raw material costs have gone up and portion rates have also increased. But prior to the pandemic, our export margins were close to 10%. So I'm assuming that they should move up to -- by about 500 basis points.

Okay, sir. What was our export margin in Q1 FY '22 if that is possible to give, sir?

No, I don't have the data immediately.

Not a problem, sir. Second question is that, sir, we have 3 divisions, sir, export of MDF, direct OEM and trade. If you could just give us a brief outlook on how they are looking right now? And what were the margins for these? And is there anything that you can give forward guidance on this?

It's difficult to give a forward guidance right now because the impact of the pandemic is still there across the country. and even in the international market. So I will refrain from giving you any guidance at this point of time. But regarding the other part of the question. So if you look at volumes, of the total MDF volumes about 69% came from the domestic market, about 31% from exports. And within that 69% domestic markets, the retail contributed about 68% and the OEM segment contributed 32%.

Okay. Sir, the margin for these 2 would be different rights for retail and OEM?

We don't calculate margins at dealer level and OEM levels. But yes, on an average, the OEM realizations would be about 5% to 6% lower compared to retail.

And sir, last thing on the margins. So the margins for your export and the domestic, how are they shaping? How were they and how are they right now, sir? I mean, I'm just trying to understand, are the margins getting closer for both the segments? Or are they still far different things?

Yes, there would definitely be significantly different even at this point of time because if you look at Q1, our blended MDF margins are around 24%. So I would estimate that possibly domestic margins would be in the range of about 28% and export margins would probably be around 15%.

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

Congratulations for the great performance. Sir, my question is, if I look at first quarter compared with fourth quarter, I see that gross margins have improved while the EBITDA margins actually dropped. And I see most of that is coming from the other expenses. So I wanted to check: A, is there a gross margin difference between exports and domestic? And number 2, are these exports on CIF and that's why the logistic cost of these export orders are actually part of other expenses?

Yes, that's correct. There is definitely an increase in the other expenses because the logistics cost of exports are included in that. And exports have gone up significantly. If I remember, export volumes were about 13% in Q4, whereas they were about 31% of the total MDF volumes in Q1. So definitely, there has been a significant increase in logistics costs. At the gross margin level, yes, I would still say, yes, probably export realization from Q2 onwards will be closer to the OEM segment of the domestic market. But yes, there would still be at significant discount to the retail realization.

Right. Just a clarification, sir. How much of the total exports are on CIF basis?

Almost all.

Majority. Majority...

Majority of them, yes.

So is it fair to say that the realization increase is also to do with the ocean freight increase, and that's why the gross margin on the face of it will appear higher, but at EBITDA level, it could be actually lower, right, compared to domestic?

No, no, no.

There must be improvement at the EBITDA level also for exports. Although it's not reflecting in this quarter, I think it will reflect in the second quarter onwards, like I mentioned earlier that we expect realizations to grow by about 20% as compared to Q1. So that's why I think we'll see a significant improvement in export margin from Q2.

Right. And just a clarification. This -- you've mentioned logistics costs in your presentation. So...

That's only for the domestic segment. That does not include exports.

Okay. Okay. That's very helpful, sir. And Secondly, in terms of this volume, you mentioned that the domestic was impacted because of the situation in South. As we speak, how is it playing out in the month of June, July? Are we seeing an improvement or Y-o-Y growth in volumes in the domestic segment from a June '19 perspective?

Yes. We are definitely seeing improvement in volumes in the domestic segment. May was definitely down significantly. But we have seen improvement both in June and July. So hopefully, the situation started to improve from the middle of June. So -- and we are seeing further improvements in July. But just if you ask me whether it's -- whether we are close to what we were in the fourth quarter, no. I think we still have quite some distance to travel. So possibly part of that would be made up in Q2 and the balance in Q3 provided there are no further significant disturbances.

Next question is from the line of [ Ravi Sundaram from Family Investment ].

Sir, I just have one question. My question is now on South, you mentioned the demand is improving a bit. You have a new player in the market now and they have started commercial production, I think, a couple of months back. Are we seeing some oversupply or some demand impact due to a new player coming in?

Shobhan, can you take that?

Yes. No, I mean, as of now, definitely, there would be some increased competition on account of -- but I think what is also a silver lining at this point of time is that export -- sorry, imports into the country are obviously under pressure because of the international prices and due to the restrictions. So that is sort of insulating the additional supply coming in from the competitors. So we've not totally faced a major challenge in terms of additional supply from a competitor or a reduction in demand for that matter as of now. The situation is quite comfortable.

Okay. Sir, just that you touched about the imports that would come into this country. So a couple of days back, we noted an article which said the Finance Ministry has not approved the ADD proposal. So what are your thoughts on that? -- as we see if it is not -- first of all, is that news correct? And if it is correct, what is the impact?

No. So the ADD actually, in all honesty, we were not very hopeful of the ADD coming in any which way because generally, as per WTO standards, if antidumping have already been implemented for a period of 10 years, renewal is almost next to impossible to get that. But what is really in the pipeline on which we are hoping for the positive response is the ongoing investigation for the countervailing duty. And I think we are expecting notification of that within a week or 10 days or so. And that is what the industry is hoping for a new preventive measure for imports to be restricted into the country.

And regarding the second part of your question, in case that CVD also does not come through. Because of the steep increase in international pressure, I think that would divert a lot of supplies away from India. So even if there are supplies coming into India, there would be possibly very close to domestic prices. So we don't see any major disruption as far as the domestic markets are concerned.

Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

I'm sorry, I missed out the earlier comments what you just said, so apologies if I kind of ask you again. I just want to add, sir, in terms of -- you have spoken about that you'd be probably debottlenecking some of our capacity. Just wanted to check that how much would that add up to our capacity incrementally? And given that we are again now back to that, obviously, last quarter within 100% plus we're again back to the trend at about 90% kind of a number. When do you think -- would we need to think of a capacity expansion going forward? That's my first question.

Venkatji, would you get that or should I answer?

Yes, you can take.

Okay. So the enhancement of the capacity, which is in the pipeline, I would say because the increase in capacity is dependent on the product mix that we continue to receive. But I would estimate an average of 15% pricing -- sorry, a 15% capacity increase from the modifications that we are doing, which will come online towards the end of the year. Going forward, of course, like we've always maintained that there is still -- although we are at high capacity utilization, but there is still a lot of room for improvement in terms of the right product mix as well as the right customer mix. Today, we are servicing a lot of like lower profit OEM segments and exports also to that matter are lower realization. So we would like to optimize our current capacity with the right sort of sales mix and to the right channels. So we don't foresee any -- like a new sort of capacity expansion projects we've undertaken before next financial year because the objective is to reduce the debt load to a comfortable level by the end of this financial year as well. So any new capacity expansion on the part of greenfield or a brownfield basis will only be taken up starting next year. I mean -- what I'm saying taken up means like the discussions and the conceptualization will only be taken up next year, not this financial year.

And to add a clarification. So our current MDF capacity is 540,000 cubic meters. And if we have a good flow of orders, we can possibly get closer to about 595,000 cubic meters, which would mean and capacity utilization of 110%. And along with this new machinery addition, we expect capacity utilization to reach close to about 660,000 cubic meters.

660,000 cubic meters. Okay. Understood. Understood. Sir, second question is more so just now in terms of you highlighting that you probably are servicing more of lower retail clients or let's say just low institution clients. So what's the current retail to institution mix at this point of time? And also, when we talking about our INR 25,000 kind of realization that we've kind of made up for the domestic business? This -- I mean, what is the potential for that to kind of go up as the share of retail keeps increasing. That's something which I just want to have to check on.

Sure. So our total -- of our total MDF volumes, 69% came from the domestic segment and 31% from exports. And of the domestic volumes, 68% came from retail and 32% from institutional clients.

And this would have been what, let's say, a year back or 6 months back or if that number would have been, the retail versus...

I would say if you look at the corresponding quarter last year is not really a comparison because the volumes were significantly lower. Last year, in the first quarter, we did total volumes of about 20,600, whereas in this quarter, we have done about 76,500. So on a percentage basis, the mix was 76% for retail and 24% for OEM.

Okay. No, I was talking about a normalized quarter. I mean giving a normalized quarter, let's say, Q3, Q4 was a more normal quarter. What -- my question is rather that are we seeing the share of retail which is increasing? And where do you think that -- can that share settle down? Like you said, right now it's about 65%, 35%. Do you think that can probably settle at something like a 75% kind of a number, which means without doing anything with the realization, there is actually a scope for realization increase without any price increase you're having. That's what I'm trying to understand.

That's correct. So like I mentioned, mix was 68% and 32% for the current quarter. And over the next 9 months of the current year and FY '23, our target is to have a mix of about 80% retail and 20% institutional.

Next question is from the line of Sneha Talreja from Edelweiss Securities.

First question is related to pricing. You mentioned that there can be somewhere about 20% Q-o-Q increase in prices in export market. Any substantial price increase that we have taken in the domestic market as well?

There has been improvement in the domestic pricing. We have taken a price increase of 4% in the current quarter, which was effective from around the middle of May. But if we compare Q-on-Q, our domestic realizations have gone up by 12% because we had taken a couple of price increases in the last quarter, in the March quarter, which are not fully reflected in that quarter realization. So overall, quarter-on-quarter, domestic realizations have improved by about 12%.

Got it. That's it. And sir, the other question was you mentioned that you duty can come because -- I mean, with respect to anti-dumping duty because there was a period of 10 years where the duty was already there. It was very difficult for it to come back. Is there any cool off periods and -- because the current imports which are done more related to the container availability and the highest freight rate, which may normalize maybe 6 months or maybe 1 year down the line when the situation normalizes. Is there any provision then we can again fight for ADD and you know by when can that be expected? Or is there a cool off period of...

I think at the moment, the focus is on the CVD investigation at this point of time. Also, with the current international pricing which will eventually percolate to the Indian supplies as well. Pricing will not be that big of a challenge with regards to imports. However, of course, going forward, if CVD, for some reason, it's unsuccessful and the dumping prices happen to appear again, then definitely, the industry has an option to seek the assistance from the government for further investigations. But this is obviously not being considered at this point of time because the situation doesn't prevail.

Right, right. Got that. One last question from my end. We've been hearing a lot of new capacity functions coming in the green -- I mean, in this space. Any color that you can give with respect to what is the existing capacity that stands at? And what must be the current utilization, what is the kind of capacity expansion that you are seeing, both from the larger as well as the smaller players as per your service?

I think...

Venkat Ji, can you share the data of margin?

Yes, I'll do that. So I think by the end of FY '22, domestic capacities will be close to about 2 million cubic meters. And we should have capacity utilization of about 72%. Now although some of the capacities will strongly be operational for a part of the year. So on an annual basis, capacity utilization would be around 72%. And regarding the capacities which are expected to be operational over the next few years, I think India will probably have domestic capacities of about 2.7 million cubic meters. And capacity utilization should be close to about 90% at that point of time.

Sure. Got that, sir. Sir, I'll just get back to you separately on the capacity expansion, sir.

Does that answer all your questions, ma'am?

Thanks, yes.

Next question is from the line of Jignesh Kamani from GMO. The line from Mr. Jignesh Kamani has dropped. So we'll move on to our next question, which is from the line of KR Senthil from NAFA AMC.

Sir, how are the receivable days with respect to OEM and with respect to domestic market and with respect to export market?

Okay. Our terms are 28 days for retail and for the OEM segment, they vary between 30 to 45 days. But we have discount -- I mean, cash discount policies in place to encourage both the segments to pay faster. So the retail segment is much more active in utilizing those incentives. So I would estimate on an operational basis, the retail segment would be paying us on an average of about 18 to 20 days and the OEM segment in around 35 days.

And export, sir?

Exports normally come within 15 to 22 days.

Perfect. And sir, when you look at international lumber prices, is there anything which we have to correlate with respect to MDF or it is totally independent?

No, it's totally influenced by the domestic supply and demand because all the supplies come from domestic plantation timber. So it does not appear to have a correlation with the international lumber prices.

Next question is from the line of Mohammed Patel, an individual investor.

So my question is in FY '21 and the related party transaction, so there's a commission of INR 11 crores paid to Greenpanel in Singapore PTE Limited and the sales have reduced from INR 52 crores to 0. So can you just explain this?

Yes, sure. So prior to FY '21, we used to have a revenue model with our -- with Greenpanel Singapore, which is a wholly owned subsidiary of the company. So we used to invoice on them, and they in turn used to invoice on the final customers. So we used to incur a lot of bank charges and courier charges for sending the documents across to India. So post that, we shifted to a commission model where the export sales are entirely accounted for in the domestic book. And Greenpanel gets commission on those export sales.

Okay. So we pay a commission to the Singapore subsidiary, right?

Yes, that's correct.

My second question is that in earlier calls, you mentioned that you don't sell to OEMs directly, rather you routed your OEMs through your dealer network because of high credit. But from last quarter, you started giving the breakup of OEM and retail. So what has changed between then and now?

No, it's not that we said that we do not actively encourage sales to the OEM segment. But obviously, you cannot ignore them because they are a large segment of the market. So we keep our sales team focused on expanding the distribution network but is to have a significant level of capacity utilization, we do supply to the OEM segment. And like I mentioned earlier, we do not encourage high credit to the OEM segment. So normally, days vary between 30 to 45 days.

Okay. Okay. Can you just help us with the cost of goods per metric tonne for the last quarter, the raw material?

It could be different across both the plants. For the Andhra plant, it was about INR 2.85 a kg. And for the Uttarakhand plant, it was about INR 3.45 a kg.

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

My first question is, first of all, I understand the logic of improving the product mix, the retail mix and also the domestic mix. But Don't you think that our current...

Sorry, there's a lot of background noise. I can''t -- we can't hear you clearly. There's a lot of background noise.

Mr. Karpe, may we request you to please come in an area where there's a less of background noise, please?

Okay. So my question is, I understand the logic of improving the product mix, the customer mix and also the domestic mix. But why are we delaying the new capacity expansion, a new plant because it might reduce our capacity market share in the country and our peers might get ahead?

Not really. If you look at the brownfield expansion, which we are doing currently, so that will give us almost another 20% capacity addition from 540,000, we would move to 660,000. So that should take care of our additional capacity requirements for FY '22 and FY '23. At the same time, we want to have the optimum realizations, the optimum customer mix, the optimum product mix and these things do take some time to achieve, especially expanding the retail network takes a good bit of time. So we want to keep the focus of the sales team on those areas and not pile up additional volume pressure on them, which would have a negative impact as far as operational issues are concerned. And at the same time, we were carrying a substantial amount of debt on the books. So we decided to have significantly lower debt on the books before we went into any significant expansion.

Next question is from the line of Bismith Naik from RW Advisors.

If I understand it correctly, the export prices have gone up by 20% Q-o-Q. Is that correct?

That's correct.

So is it attributable only to container charges or please advise the...

That's not attributable only to container charges. I would say there's a mix of factors. So ocean freight rates have gone up steeply over the past 8 to 9 months. And obviously, there are logistics issues, availability of containers and ships. And raw material prices have gone up in India as well as across the globe. I think it's a confluence of all these factors, which have had a bearing on international prices.

So as import -- I mean, as the send out stabilize and other factors normalize? Should it go back to $200 kind of...

I don't think that will happen because like we mentioned, we have seen a 10% increase in raw material prices last year, and almost another 5% increase in the first quarter. So I don't think international prices will go back to around $190 or $200.

Okay. And ADD on thick MDF has also been -- I mean, only Vietnam has -- only from Vietnam, we are having it, right, March 2022. And Indonesia, I suppose that all the Southeast Asian nations can actually -- we can import from them as well, right, players in India?

Yes. But things have changed. So I think even that ADD on Vietnam will not make any difference because Vietnam has come out significantly into exports of value-added furniture because a lot of furniture exports have shifted from China to other countries. So countries like Vietnam and Indonesia are now significantly into furniture exports. So I don't think they would have significant spare capacities for exports of MDF to India.

Okay. And our distribution expansion plans and everything going on as commentary?

No, I wouldn't say it's because the first quarter was substantially disrupted due to the second wave of COVID. So we hope to cover some of the lost ground in the remaining 3 quarters.

So one last question from my side. Sorry to sound like -- sorry to sound naive, but...

Mr. Naik, sorry to interrupt, but may we please request you to return to the...

Just one. Can I squeeze just one? What is the difference between -- if ADD is applied or CVD is applied, what is the difference if you can help me understand.

It will just be 2 different levels of ADD. The CVD is imposed as a percentage of the value, whereas ADD is imposed as a fixed value per cubic meter. So there would be a difference in the composition of their duty structure.

And the logic of implementation is different.

Yes, that's right.

Maybe you can explain it?

The logic of implementation of ADD and CVD are very different. ADD basically means if someone is dumping selling material below their cost of general production. CVD is implemented even though they may not be selling below their cost. However, if their cost is lower due to benefits given by their respective governments whether it is income tax subsidiaries, whether it is land subsidies, [indiscernible] subsidies, hence, which in turn makes the costs lower, that is why CVD is implemented.

Okay. And that is prevalent...

And the norm of investigation is very different.

[Operator Instructions] Our next question is from the line of Jignesh Kamani from GMO & Company.

So if you compare with March quarter, how is the run rate in the July month, both for domestic and export? And just to understand the pent-up demand, if you take out South -- in non-South market, which opened up much earlier than South how is their, you can say, the pent-up demand in the recovery rate?

We are still, I would say, substantially below what we were in the March quarter. So I think in the March quarter, domestic volumes are about 87% of the total volume. Whereas if you look at the month of June or the month of July, domestic volumes are about 62% of the total. So yes, there's definitely so far significant improvement in domestic volumes. And we are hoping that as more and more states come out of the lockdown. So it's not only the dealer community, which was impacted by a lockdown. Lots of carpenters also went back to their native villages because in the anticipation of a nationwide lockdown. So that has also disturbed construction activity. So going forward, I think we will continue to see improvement on both the factors, and that should lead to better domestic volumes.

But say isn't non-South is recovering much faster and close to the March level because it opened up 15, 20 days earlier than the South?

Yes. I would say, yes, if we look at -- in our domestic volumes in North and South, I would say there's not much difference between the domestic volumes of both the places. Although South volume should be significantly higher than not because of the difference in capacity. So yes, we are hoping that domestic volumes in Southern and Western regions will continue to improve going forward.

And with the additional inventory in hand, you will be better gear for the pent-up demand, right, this time compared to last year?

Yes. That was the reason why we built up some additional inventory in the month of June because we did lose some sales last year in Q2 because of pent-up demand for which we were not adequately prepared. So we decided to take a temporary increase in inventories in the month of June, which we are hopeful will be liquidated in July and August.

Next question is from the line of Rusmik Oza from Kotak Securities Limited.

Two questions from my side. One, on the plywood section, sir, we have operated at 61% utilization in Q1. Last year, it was 71%, and last year, last year it was 78%. So can we go back to the 78% utilization in fiscal year '21? And EBITDA margins were slightly lower in Q1. So can that go back to 12.5%, which is the run rate of FY '21?

Yes. I think as volumes improve, we'll definitely see improvement in the operating margins because we did see an improvement at the gross margin level. But since capacity utilizations are at very low levels, EBITDA margins did drop from the March quarter. But as such volumes improve in the plywood segment, we'll definitely see an improvement on the EBITDA margin. And yes -- I would say, yes, definitely the plywood segment has been more impacted than MDF because of the reliance on carpenters. So hopefully, that situation will sort out over the next couple of quarters.

And my second question was related to MDF. As you said, you want to increase the share of domestic from 68% to 80% sometime next year. What could be the strategy taking the 68% to 80%, one? And two, will that lead to EBITDA -- blended EBITDA margins going from 24% to around 20%, sir?

So the strategy for that is to increase the retail distribution network. So as of March, we had about 1,400 dealers in the MDF segment and the target is to add another 800 dealers during FY '22 and FY '23. So in case we are able to achieve those targets, I think we should be on track to achieve that percentage for the retail segment.

Next question is from the line of Pranav Gala from I-Wealth Management.

Venkat Ji, sir, I had 2 clarifications. Sir, you were saying that the logistics cost, which you have shown in the presentation, is only for the domestic. So could you give the percentage for the entire logistics cost for Q1 and Q4?

I don't have that immediately. So if you can drop me a mail, I'll share the data.

Okay. Okay. And sir, just the second question was I just wanted to understand, sir, what was the reason even after we were having a good utilization of 90-plus percentage for this quarter as well. What was the major reason that we saw a fall in our EBITDA margin for MDF as well as on the consolidated basis?

Yes. That was primarily due to the steep increase in exports volumes like I mentioned earlier, the ratio of domestic to exports was 87% and 13% in the March quarter, whereas in this quarter, the mix was 61% for domestic and 39% for export. And since the export realizations are significantly lower than domestic so that has an impact on the EBITDA margins.

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

Sir, congratulations for a good set of numbers. Sir, in FY '21, we had to forego a lot of export orders because of the logistical challenges, and we did somewhere 80,000 CBM. And already for the first quarter, we are at 34,000-plus. So how do we see that for the entire year FY '22?

We'll continue to keep exports as a balancing factor for achieving maximum capacity utilization at the Andhra Pradesh plant because it's not feasible to export from Uttarakhand because of the long distance to the port. So exports will continue as a balancing factor. And as the domestic markets improve, we'll be reducing the export volumes accordingly. So in Q2, we will continue to see a significant volume of exports. But probably once the domestic situation improves, we'll start reducing exports from the third quarter onwards.

Right. And in continuous there you mentioned that 20% higher realization in the export market. So just wanted to see how is the price delta now compared to imports versus our price?

Okay. Our domestic realizations in this quarter were about 25,500 and export realizations were around 15,600. So from Q2, I think we will see a realization of close to about 18,500 for exports. And probably domestic realizations could improve from about 25,500 in Q1 to about 27,000 in Q2.

Next question is from the line of Arun Baid from BOB Capital Markets.

Venkat ji. Just one clarification. So you mentioned that we are now back to Q4 levels. Sir, but if I look at Q1, your volumes is -- about domestic is about 78,000. So if I assume a 2-month of operations, we are broadly at about 39,000. And if I look at Q4, our average was about 40,000 monthly I'm talking of. So sir, you were pretty much on track. So are we seeing any changes in the month of July, sir, significantly volume, what I'm saying, forget the mix because the mix might be different because of high exports. So what I need to understand is, are we at 35,000, 40,000 CBM in the month of July for the month in domestic market?

No, I don't think we will reach those levels. So I think for the domestic market, we'll probably be somewhere about 27,000 cubic meters in July.

Okay. And that you expect to go towards that 35, 40 in the ensuing months, assuming there is no lockdown in the near term because right now, India is...

Yes, I would expect that to improve as we come out of the lockdown.

So sir, if that happens and with export numbers going up by about 20% realization, our margin should go up significantly from here?

Yes, that's definitely an expectation. So at some point of time, we reach those levels of or even get close to those volume levels in Q4, I think we'll definitely see an improvement in the operating margin.

Next question is from the line of Abhishek Ghosh from DSP.

So just wanted to think in terms of the domestic application of MDF, do you see a lot of change since your focus has also gone into more of retail. The application of MDF in the MDF domestic market, will it be a major change? Please help us understand that as well.

Shobhanji, can you please take that?

Sorry, can you please repeat that? Sorry.

So where I was coming from, sir. Earlier, we were only -- hello am I audible? Hello?

Yes. Yes.

Yes. Shobhanji, where I was coming from is earlier we used to understand, OEMs used to be a large user of this -- of MDF in India. But slowly, we are also seeing even for a lot of the smaller work, acceptability of MDF has gone up and which is where you are seeing a lot of traction as far as the retail segment is concerned. So if you can just help us understand the application of MDF in the overall wood panel industry, how is that kind of changing? If you can just throw some light there, it will be helpful, sir.

I think what is happening is, firstly, availability of plywood especially in this unorganized segment is becoming more and more of a challenge, especially because people are looking for alternatives in this cheap segment of plywood because plywood production cost is going up due to raw material availability, labor availability, et cetera. And people at this segment of plywood are not able to sort of progress to the premium segment of plywood because surely because of the cost difference. Hence alternate materials are being used, such as MDF, which fall in the same price category. And this in turn is also resulting in the acceptance of carpenters who are sort of -- who don't have a choice but to use MDF as an option. I think the other thing also is that because of the sort of widespread acceptance of ready-made furniture coming into the market and their price point, fabricators of furniture also have to sort of compete. And in those segments, then obviously, MDF becomes a much more lucrative product because of -- surely because of the price point and the convenience and the time cost conversion that it offers. There are multiple factors that are contributing to the wider acceptance of MDF. At the same time, of course, because of a larger number of MDF producers are present in India today. We're all jointly putting an effort to increase acceptance of MDF. Even in rural areas, all the traditional uses of MDF continue to present but people are starting to use MDF in new sort of applications. People have realized that painting cost on MDF is much lower than it would be on as opposed to trying to put a laminate or a veneer on plywood. Hence newer modern applications are coming up. Solid colors are -- painted panels with solid paint are a new trends that are being accepted widely. People are no longer choosing to go for veeners or laminates for that matter. So that is also increasing acceptance of MDF. So I think it's a mix of multiple things, of new applications plus compulsion due to nonavailability of Plywood plus at the same time, increase in acceptance of the product.

Next question is from the line of Jigar Shah from ICICI Securities.

Sir, have we recovered 100% in July as against March monthly quarter of -- in terms of MDF volume for both the domestic and exports?

No. Like I mentioned, we are significantly below MDF volumes in March for the domestic segment. So as I recall, MDF volumes were about 41,000 in the March quarter, and we expect to touch about 27,000 in the July quarter. So definitely, we are significantly below March level.

Next question is from the line of Aadesh Mehta, an individual investor.

This is Aadesh from Moti AMC. Sir, my questions have been already answered. I wish you all the best.

Next question is from the line of Utkarsh Somaiya, an individual.

I just had 1 question. What are the other expenses and employee expenses increased as a percentage of sales in Q1? And what is the normalized finance cost excluding our foreign exchange profits or losses?

Yes. Other expenses have increased because of a significant increase in the volume of exports and the ocean freight costs, the container handling expenses, agent handling expenses, all these are accounted for in other expenses. So since we have seen a significant increase in export volume from levels of about 18,000 in the March quarter to about 34,000 in the June quarter. So other expenses have increased. Increase in employee expenses is partly due to lower turnover in this quarter. Our sales were, I think, about 22% lower in this quarter compared to the March quarter and also the impact of the annual salary increment.

Next question is a follow-up from the line of Chirag Lodaya from Valuequest.

Sir, 2 questions from my side. So first, you said that Q2 realization -- domestic realization would be around 27,000. Is it May pricing being reflected for the full quarter? Or there is further price increase which you have initiated in the month of July? .

No, it's part of the May price increase getting implemented in quarter 2 and also some improvement in the product mix. So I think we'll probably see higher volumes from Club and exterior grade product, which have a significantly higher realization.

The next question is a follow-up from the line of Mr. Prashant Kutty from Sundaram Mutual Fund.

Just 1 clarification I had. So while we continue to see our debt reduction quarter after quarter, I think you've always maintained that we probably would want to become. So just wanted to know, is there any change in the time line of that becoming debt-free sooner? Can you probably expect something like this happening in this year itself? Just wanted to...

We don't have a target to be debt-free because growth will always have some amount of debt. And I think for at least the next capacity expansion, we will be taking some amount of debt because internal accruals will not be able to finance the entire capital expenditure. But yes, our target is to bring the debt levels to about slightly below INR 200 crores before we get into the next phase of expansion. So currently, our debts are about INR 405 crores at the gross level and about INR 358 crores at the net level. So we want to bring the net debt to below INR 200 crores before we get into the next phase of expansion.

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

Thank you, everyone, for taking interest to participate in this call to discuss Greenpanel's operational performance for Q1 FY '22. And I hope that you will join us in future calls for the next quarter and subsequent quarters. And in case any questions have been left unanswered, please drop me a mail, so that I can revert. Thank you very much.

Thank you very much, members of management.

Thank you, everyone, and be safe. Thank you.

Ladies and gentlemen, on behalf of Greenpanel Limited, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.