Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenpanel Industries Limited Q3 and 9 Months FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar of CDR India. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Q3 and 9 Months FY 2022 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. Good evening, everyone. I wish all of you a happy, healthy and safe new year, and thank you for joining us to discuss Greenpanel's operating and financial performance for quarter 3 FY '22. Business environment improved in quarter 3 with the retail segment picking up. However, the Uttarakhand MDF plant remained inoperative for nearly half the quarter, initially for the debottling -- debottlenecking and then due to the breakdown of a refiner component which impacted MDF volumes. Net sales were up 34% year-on-year at INR 417.44 crores. Gross margins were up 220 basis points year-on-year at 57% as we took price hikes to compensate for increase in raw material costs. EBITDA margins were up by 510 basis points up 27.2% due to price increases, continuous focus on superior product mix and cost optimization. PAT is up 107% year-on-year to INR 63.07 crores. Net working capital days at [ 13 ] days has shown a reduction of 20 days compared to the year-on-year quarter. Net debt has reduced by 85 crores during the quarter and stands at INR 144 crores as on 31st December 2021. We have prepaid 4 installments of the German bank loan amounting to EUR 8.91 million, which equates to INR 78 crores during October 2021 and are targeting to be net debt free for the existing business by September 2022. I will now request Mr. Venkatramani to run you through the financials in greater detail.

Good afternoon, everyone. I wish you and your families a very happy and healthy new year, and thank you for joining us to discuss the Q3 FY '22 financial performance of Greenpanel Industries. In Q3, our top line increased by 34% at INR 417.44 crores. MDF sales grew by 40.2% at INR 360.40 crores and contributed 84% of the top line. MDF sales volumes grew by 2.4% at 1,20,724 cubic meters since the Uttarakhand plant remained inoperative for almost half the quarter. MDF domestic revenues were INR 307.35 crores, while exports contributed INR 43.05 crores. MDF domestic volumes were 1,00,275 cubic meters, while export volumes were 20,449 cubic meters. Domestic realizations were up by 42.6% at INR 30,651 per cubic meter. And export realizations were up by 49% at INR 21,051 per cubic meter. Blended MDF realizations were up by 44.1% at INR 29,025 per cubic meter. Uttarakhand MDF unit operated at 56% and AP plant operated at 101% with blended capacity utilization of 86% for both the plants. Plywood sales grew by 8.1% at INR 67.04 crores. Plywood sales volumes were down by 2% at 2.47 million square meters, and the unit operated at 89% capacity utilization during the quarter. Plywood sales realizations were up by 11.5% at INR 272 per square meter. In Q3, gross margin increased by 220 basis points year-on-year at 57%. Gross profit increased 39% at INR 238.05 crores as compared to INR 171.01 crores in the year-on-year quarter. EBITDA margins were up by 510 basis points at 27.2% compared to 22.1% during the corresponding quarter. EBITDA in value terms grew by [ 54.8% ] at INR 113.37 crores compared to INR 68.81 crores during the corresponding quarter. Profit after tax increased by 107% at INR 63.07 crores. I'll now update you on the performance details for 9 months FY '22. During the 9-months period, net sales grew by 82.5% at INR 1,125.47 crores compared to INR 616.4 crores in 9 months FY '21. MDF sales increased by 94.9% at INR 939.99 crores, while plywood sales grew by 38% to INR 185.48 crores. Gross margins up by 277 bps at 66.6% compared to 53.9% in 9 months FY '21. Gross margin in value terms was up by 91.9% at INR 637.24 crores compared to INR 332.06 crores in the year-on-year period. EBITDA margins are up by 899 basis points at 26.5% compared to 17.5% in the corresponding period. EBITDA in value terms increased by 176% at INR 297.90 crores against INR 107.81 crores in the corresponding period. Post-tax profits were up by [ 1194% ] at INR 159.88 crores. MDF sales volumes were up by 53.8% at 3,70,503 cubic meters with blended capacity utilization of the 2 plants at 90% compared to 57% in 9 months FY '21. Dispatches for plywood increased by 25.8% at 6.83 million square meters with capacity utilization at 80% compared to [ 52% ] in the corresponding period. Gross debt-to-equity ratio now stands at 0.28 as on 31st December 2021 compared to 0.70 as on 31st December 2020. Net debt has reduced by INR 232 crores during the period and stands at 144 crores as on 31st December 2021. That concludes my presentation. Please open the floor for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Chirag Lodaya from ValueQuest.

Congratulations on great set of numbers. Sir, if you can just provide us plant-wise volume, value and margins, and also export as well as domestic margins, that would be helpful.

Okay, just a moment. For quarter 3, domestic volumes were 1,00,275 cubic meters of which Rudrapur plant contributed 29,677 cubic meters at an average realization of INR 31,854 per cubic meter. AP plant contributed 70,598 cubic meters at INR 30,145 per cubic meter. Export realization on volumes of 20,449 cubic meters were INR 21,051 per cubic meter. Coming to the margins, Uttarakhand MDF plant had an EBITDA margin of 19.72%, and Andhra Pradesh plant had an EBITDA margin of 34.53%.

Sir, can you just split south plant margins into domestic as well as export or overall export margins, if you can help us?

I have to discuss to give you an exact, but I would say it's probably in the range of about 15% to 18%.

Sir, again, 2 follow-up questions. So one, how is the overall demand environment currently? And how sustainable are these margins? Last 2 quarters, our margins have been much better led by improved realization. So how we should look it going ahead?

So the third wave of COVID had an impact on volumes during the first 12, 13 days of January. But thereafter, the volumes have started to pick up. So I think probably we should be somewhere around Q2 numbers in terms of MDF volumes, which were disturbed in Q3 due to the closure of the Uttarakhand plant for about 43 days. And I think, yes, we are on track to maintain the margins for Q4 as well as the next financial year.

Sir, what is driving margins in north plant? Because if I just exclude export margins from north/south plant, then domestic south margins would look much higher. So what exactly is driving this margin, sir?

Yes. So the north plant margin was impacted. Like I mentioned, the plant was closed for approximately 43 days during the quarter. So the margin is much lower compared to the south plant at 19.72%.

But sir, South domestic margins look like 35%, 36% plus. So what is driving this such a high margins?

I think if you look at Q3, I think what has contributed to a substantial increase in the margin is the change in the mix of domestic and export. If you look at the first 2 quarters, the split between domestic and exports was around 67%, 68% domestic and about 32%, 33% exports. Whereas in the current quarter, the split has been about 84% domestic and 16% exports. So that has contributed, also the price increases that we have taken. So that has not only helped us to maintain the gross margins, we have even been able to slightly improve on the gross margins. So with the volumes increase and I think this is probably the first quarter when the south plant operated at full capacity. So all these factors have contributed to the improvement in the south plant margins.

Sorry, one thing to note here is that the south plant actually catered to the North market domestically because of the closure of the north plant. So it wasn't additional volume domestically generated from its own market. Because of the closure of the north plant, the South market actually -- the south plant actually catered for the north plant, hence the domestic volumes were higher for the south plant.

Sir, just lastly, is there any further price hike you are looking to take or how is overall RM situation currently?

We are not looking at any further price increases immediately. So we are monitoring the RM situation, and we'll take a call, because it's still too early. We have just had about 20-odd days of operation in the current month. So we'll maintain the work on the raw material situation and then take a call on price increases.

[Operator Instructions] The next question is from the line of Karan Bhatelia from Asian Markets Securities.

Yes. Sir, once we are done with the debottlenecking at the south location, what are we planning next in terms of capacity addition?

So we are still working on that. We are in technical discussions with the vendors. And we'll probably take a decision by the end of this current financial year.

And what kind of revenue mix we've seen in terms of retail versus institution? And are we on track with respect to our earlier targets?

Yes, we have seen a significant improvement in the mix between retail and institutions. And I think in future, that will become irrelevant because we have removed the price difference between retail and OEMs. So now they are being billed on the same price. This has been made effective from the [ 10th ] of December. Just for information, the mix in this quarter was about 95% retail and 5% OEM.

And last question from my end is, what kind of dealer distribution addition we've seen for the 9 months? And what are we targeting for next 3 years?

Okay, basically, we had a target of adding about 2,200 dealers -- oh, sorry, 800 dealers during this 2-year period of FY '22 and FY '23. So in the current financial year, we have added about 315 dealers in MDF, although the number was significantly low in the December quarter. But over the 9 months period, we have added 315 dealers in MDF against a target of 400. So possibly we should be on track to achieve the dealer increase in the current financial year.

The next question is from the line of Sanskar Singla from Edelweiss Securities.

Congratulations on good set of numbers. So my first question is why there is a drop in the plywood volumes and margins? Like what do you see in this segment? And when the margins will be returned back to the normal.

Okay. So regarding the drop in the volumes, normally, the festive months of October and November do see a drop in plywood volumes every year. And I think the fact that we also took a 4% increase in this quarter, that also had an impact on the plywood volumes. So we have taken a 4% increase in this quarter, and we'll be taking another 3% increase in the current quarter. So hopefully, that should help to improve the plywood margins in Q4.

And what about volume, sir?

Volumes, again, like I mentioned, the first 12, 13 days have been impacted in January. So I think probably we'll do slightly better than Q3 in terms of plywood volume.

My second question is the -- like your margins in the MDF segment is 30% despite the business have been impacted due to shut down. So what could be the peak margin here and how long it could sustain?

I think we are close to the peak margin. So now our efforts will be to keep the margins stabilized at these levels rather than go for any further price increases and thereby increase the margins, but this could also impact our volumes. I think we are happy with the current levels of pricing and margins.

Sir, last question, any finalization on the CapEx part, where do you want to invest like in the MDF or in the other segments you are looking forward?

I think probably our first investment will be in MDF. But we are likely to finalize the plans in the March quarter.

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

So firstly, with regard to the overall MDF performance you highlighted that this quarter was impacted because of the Uttarakhand being down. But in general, the industry volumes, how would they be tracking because [indiscernible] number obviously looks very good because of COVID impact and all of that. But in general, how does the industry volumes tracking right now?

I think the industry has been doing better because they did not have the loss that we suffered due to the closure of the plant. So definitely, industry volumes could have been significantly better than ours in this quarter.

Any number to put, sir? I mean would it have been growing at the past rates on last year, which have been growing at -- because that kind of gives us confidence that the volumes have actually not been impacted despite the price increases?

Yes, yes, we definitely think so.

Okay. Okay. Any number in terms of what would the industry would have grown?

No, not in this particular quarter.

Okay. Okay. Sure. Second question is, while you did highlight that, obviously, you would be pretty much at key peak margins right now and the effort is to keep the margins stable, I just want to understand, typically, when the raw material, if it starts reversing, if and when, how much of this pricing we would be actually able to retain? Or is it because it's a competitive market, you'll have to kind of give back again all of that to the market? How does that typically work in, let's say, in a falling market scenario? I'm sure we've tested this in the past as well, but what's your thoughts on that?

Whenever there's significant downtrend in raw material costs, I think we'll be passing on the benefits to the market. As with the time gap, just because whenever we face raw material cost pressures, price increase to the market happens after a time lag of about 15 days to a month. So on the downward journey also, I think price reductions will happen with the time gap. Although we would probably pass on most of the benefits to the consumers.

Okay. Most is passed on. There's no way we can retain any part of it, like...

I said most. I didn't say all.

Correct. Understood. Understood. Just a clarification on this part, sir. Like I was asking, is the raw material situation right now pretty much under control as in -- because you said that you don't want to take any more further price increases. So have we kind of covered for most of our raw material inflation or with all this pricing right?

Yes, we have covered everything up to December. And in fact, our utilization should further improve in this quarter. Because in December, we took 3 price increases at different points of time aggregating to 17%. So not everything is reflected in this quarter's realization. So probably you'll see a further improvement in Q4 realization, which should probably help us to sustain some of the raw material cost pressures, which might go up again in this quarter. I think if there's any significant increase in raw material prices, then we might be forced to look at an increase in selling prices, but otherwise, we are happy to maintain the selling prices at this level.

But barring the fact that there was this Uttarakhand plant impact, otherwise, because of price increases there was no volume impact as such. So had it been a normalized quarter, we were looking at a good volume number, is it? That's what I am trying to understand.

Yes. I think because like I mentioned, competitions, generally, the report has been that they have had a very good quarter. So I think if we had been up and running, we would have also improved on the volume front. Although possibly we would have slightly increased allocation to exports also. Not all of the increase would have gone into the domestic segment.

My last question, sir, is on the investment side. So like you said that you'll probably make a decision on -- in the month of March about it. But you also are highlighting about that you might do some debottlenecking in the AP plant as well. How much would that be leading to capacity expansion for us? And again, in terms of CapEx, are we kind of now looking at probably greenfield because the balance sheet is much more stronger? Or is the thought still on kind of maybe is there again, some more space to expand in your brownfield as well?

Okay. First, on the AP plant, the debottlenecking is currently in process. So I think we'll probably resume production at the AP plant on Monday or Tuesday next week. And with regards to the expansion, I think we'll probably look at a brownfield expansion in Andhra Pradesh initially because we have a lot of plant availability. So I think our first effort would be to do a brownfield expansion in Andhra Pradesh.

Understood. But this quarter also you will have an impact of the debottlenecking because of AP, right?

Yes, probably for about -- yes, it won't be as significant as the Uttarakhand plant where we had a shutdown for almost 43 days. Here, it will probably be for a period of about 7 to 8 days.

The next question is from the line of [ Hitesh Sen ] from Birla Mutual fund.

So basically, I want to ask you, what is the situation on the MDF imports side. Since the domestic prices have now gone up, do you think that the imports can start again into the country? Or you think they will remain [indiscernible].

Yes, I'll take that. I'll take that. I think the situation worldwide is that -- there is acute shortage of MDF across the world. And a lot of the markets are booming currently. So I don't foresee imports to have a kickstart so soon. Also, there has been a breakage of the regular sort of channels of imports coming into the market because for the past 2 years, a lot of the importers have actually moved their business model to working with domestic producers. And prices continue to remain high. Freight continues to be a challenge and expensive at the same time. So also, the domestic market has moved on to MDF acceptance in the form of various value-added products. In fact, almost [ 60% ] of our sales in today's date is of value-added products, which is not being imported at all. So I don't foresee imports becoming an immediate threat in the near future, to be honest with you.

To add to that, Vietnam which is one of the major exporters of MDF to India is now seeing a lot more significant increase in domestic consumption because they are replacing China as one of the major furniture exporters to U.S. and Europe. So I think a lot of exports to India have also dropped because of this fact.

And my second question is on the MDF pricing, differential pricing. If I heard you correctly during the call before, you mentioned that there is no significant difference between the retail and the OEM price, right? Did you mention the same thing?

Yes, I said there is no difference.

Okay. So my question is since I don't have any background of this pricing scenario for both the customer buckets, would you believe that in the last 6 months, since there is no major difference now, the price increase in the OEM segment is much higher than the retail segment?

Yes, that has to be definitely true, because OEM segment used to get discounts of around 6% compared to retail. So now that difference has been removed. So the price increase is much higher for the OEM segment.

[Operator Instructions] The next question is from the line of Balaji Vaidyanath from NAFA Asset Managers.

Sir, just wanted to understand a few aspects. This 43-odd days of sales that we lost from the Uttarakhand plant, some of it were compensated because of the south plant. But what about the lost market share because those distributors would have taken competitor products, given the high demand scenario. So how does it work? It reverts to normalcy now, or I mean, we have to once again kind of look to capture the lost market share?

No, we wouldn't have lost market share because generally, dealers rotate between all the 3, 4 major manufacturers. You know they like to keep their options open. So they do purchase -- most of the dealers purchased from all the major manufacturers. So I think now that we will be able to supply. And in fact, we are already seeing, like I mentioned, the first 10, 12 days were impacted due to the third wave of COVID. But now the volumes have come back to normal at the Uttarakhand plant. I don't think we have lost any permanent market there.

And what is the kind of insurance claim that one can expect due to this component breakdown that you had mentioned?

Yes. We are still in the process of submitting the claim. So at a very rough guess, I think it would probably be in the range of about 8 to 10 crores, but we'll account for it once the claim is accepted by the insurance company.

Okay. And one slight macro question is, there has been a lot of importance given to manufacturing of toys in India. Many toy clusters are being set up all over the country, including West Bengal, UP, Karnataka and all these places. So a lot of wooden toys are also getting manufactured. So is there some scope for MDF to also look at this particular segment of toys? And in the future, would it be a tracking parameter to see the MDF volumes were in your split would be in the furniture and the non-furniture part.

I mean, that segment is definitely important. I mean even today, toys and handicrafts continue to be a very important element of our business. And with the growth of these toy manufacturing clusters, I'm sure we will see some benefit coming to us as well. As far as the segregation of sales in the furniture and non-furniture segment is concerned, unfortunately, because majority of our sales is being routed through our retail partners, we unfortunately don't receive such data directly. And we don't have the IT infrastructure installed at our partners' facilities in order to be able to obtain that data. So I think that data is best estimated -- it will be very, very rough, but very hard to get very accurate numbers.

Okay. Lastly, where could we be on the working capital of around 13 days? So this is arguably the best that will be possible in terms of number of days, right?

Yes, I think so. So you can never rule out small improvements. But looking at the immediate future, I think, yes, we'll probably go in for some increase in wood inventory in the [ next ] quarter. So probably we could see a small increase in working capital days in Q4.

The next question is from the line of Jignesh Kamani from GMO & Company.

This quarter, we lost close to around 58 crore revenue, as you mentioned, on MDF, it is around [ 16.5% ] of our quarterly MDF revenue. Despite that, we are able to do [ 30.5% ] kind of MDF margin. So if you include the lost revenue, we could have done easily 35% less MDF margin. Is the math correct?

I don't think we can really estimate what could have happened. But considering that we were able to achieve about 30% margin in this quarter...

Yes, for this particular quarter, if the Uttarakhand plant had operated normally, now we would still have lost a few days because of the debottlenecking exercise. But yes, I think, yes, in this particular quarter, margins would definitely have improved by about 300 basis points.

So just want to understand, so considering from February onward we were at 20% more volume, our overhead has remained more or less similar compared to earlier. We have already taken [ 3 price hikes ] of which the full impact will be there in the first quarter. Earlier, in January we are seeing 35% kind of normal margin ex of the [indiscernible]. So why still we are conservative on guiding of the margin? Current environment and our facility infrastructure can easily do 35% to 37%, 38% kind of EBITDA margin.

You can't really estimate whether even in future you will be able to pass on the raw material cost increases. You know, the fact that we have been successful so far does not guarantee that we'll be able to do it future also. Since we have almost seen a, I think, just on account of price increases realizations have improved by more than 30% over the past 12 months. So I think as we get into more raw material cost increases, it will be difficult to pass on the full impact of those increases.

But from the competitive point of view, nobody is, you can say, now aggressive in terms of pricing and the undercutting in the margins, right? Everybody is playing very smartly, and everybody -- there's no additional volume coming also coming from this, right?

That was not the case, we would not have been able to implement so many price increases.

Sure. So -- and for the next 6, 9 months, there is no additional volume coming from the industry, right?

I think, but I'm not very sure about when Century's brownfield expansion in Punjab will start operations.

The next question is from the line of Ayush Agarwal from Mittal Analytics. Please go ahead.

Congratulations on a great set of numbers. My first question is that in the last quarter and if realizations in [ out ] or around 25,500, and this quarter, they have jumped to more than 30,000 if I heard it correctly. But we don't see any subsequent increase in margins. So one, what led to the realization? Was it all because of raw material? And two, is there any product mix change as well? This is my first question.

Yes. It's a mix of both -- of 2, 3 factors. One, like you mentioned, we took an aggregate of -- 3 price increases aggregating to 17%. From 1st December, we have also eliminated the price difference between retail and OEM. And the third factor was, we have also seen an improvement in the product mix. So all these have together contributed to an improvement in realizations. On the margin front, there's been no significant improvement primarily because the Uttarakhand plant was shut for about 43 days. So we lost about almost 18,000 cubic meters in volume, which should have been led to a significant improvement in the margins.

I was talking about margins in the South particularly. [indiscernible]

If you look at the south plant, in Q2 our margins are about 33.49%. So there's been a marginal improvement of about 100 basis points. But what we also have to look at is, we had -- we were also supplying to areas which are traditionally serviced to work by the north plant. So we also saw a steep increase in domestic trade cost because almost the entire supplies for the northern region were happening from the south plant. So I think that's probably contributed to about 1% impact on EBITDA margins.

Okay. That makes sense. And sir, right now, what would be our premium in realization over competition in the South or AP particularly?

I think -- so in South, our major competitor is Rushil, so I think we would be [indiscernible] at a premium of about -- yes, about 3% to 3.5% compared to Rushil.

Right. And the 17% [ tieback ] you took was mostly in December, as you mentioned. So can we see the realization...

No, it was not mostly in December, it was mix of October and November. I think that we'll probably see some impact of that in the current quarter realizations, yes.

All right. And sir, my last question is that given that MDF prices have gone up a lot in the last 1, 1.5 years, at what price point will MDF be non-remunerative for the homeowners to install or probably look at other alternatives? So I mean, MDF, one of the selling points also was that it was cheaper and it was better and could replace cheap plywood. So at what price point will retailers start looking at alternatives?

Well, I mean, I don't think there is a justified price point to that extent because as acceptance grows of MDF and it starts becoming the preferred material of choice, for example, historically, plywood has every year gone up in price, but there haven't been a very close substitute at that point of time with the way we manufactured furniture. I think the same would apply to MDF. Obviously, the only threat that will continue to linger on would be an alternative source, which would be imports. But as long as that is addressed, I don't foresee that there would be an easy replacement of MDF as a material itself.

And the plywood industry has also been taking price increases. So I think it was probably about 2 or 3 days back that the Yamunanagar Plywood Association announced a price increase of 8% with immediate effect. So probably that would not lead to a substantial difference between MDF and plywood -- key plywood prices.

The next question is from the line of Akshay Chheda from Canara Robeco.

Just one question, like you did mention that you'll be taking the final call in the last quarter for the brownfield expansion. Any rough cut estimates like what could be the intensity of the CapEx and the timeline for the same?

It's too premature to answer that. We are exploring multiple options with the vendors, also looking at the -- at our current sort of operations and what kind of investment would balance it out for us to offer the most optimal product portfolio. So I think it's too premature to give you an answer in terms of capacity or the CapEx side. We will need another 3, 4 months before we have some clarity on that.

The next question is from the line of Venkat Samala from Tata AMC. [Operator Instructions]

My question is just a follow-up on the previous participant's question. I understand that you are still kind of thinking about what the right CapEx should be and the product mix should be. But assuming you do take a call of brownfield expansion by Q4 exit. So when will it get commissioned?

I think we can take a period of about 18 to 24 months.

And just as a follow-up. I mean, we have seen some of the other good panel companies thinking about how should the company look like 3 or 5 years hence from here and therefore, collimate 3- to 5-year plan. So are you also thinking on the same line? Obviously, the demand environment looks very good, right? So are you also thinking about that? I mean putting more investment into use and expanding across different categories, including MDF, of course.

Well, I mean I think some -- our immediate focus is optimizing our existing operations and obviously, I think with the new expansions that we are planning, I think we will have our sort of projections cut out for us for the next 3, 3.5 years because there is an investment period, then there is gestation period and then there is the optimization phase of the plant. So I think that [ already would ] put us on track for the next 3, 4 years sort of targets for us to produce. So before the [indiscernible] we have those sort of planned, but obviously, these will become more conscious when we've decided all the exact expansion numbers that we've planned.

If the [ downfield ] expansion, say, would take 18 to 24 months -- So then, I mean, seeing the demand that we are -- so then we would largely be running out of capacity, right? There could be several instances of lost demand, right? I mean, even after the capacity expansion that we are undertaking.

No, I think that may not be the case. If we are assuming about a 15% sort of market growth for MDF, and given the fact that the existing plants being European supply can optimally run at 110%, 115% capacity, plus the 20-odd percent that we get from the debottlenecking. I think we are -- we should be quite comfortable in terms of additional capacity available to us over the next few odd years before the new plants come online. We don't foresee a very big sort of gap between when the new plants come online. We'll won't be constrained by capacity.

So sir, as you said, I mean, you could operate at 115 to 120. So could you also put out a figure? I mean, what could be the -- I mean, when you operate the plants post capacity expansion at the limit, when you push all the limits, what could be the max volumes that can be delivered out of the current facilities?

So you need to say from our existing locations?

Yes, yes, existing locations after increasing -- after this [ new portion making ] exercise.

In MDF plant a lot of it boils down to the product mix. If I'm producing a certain thickness and maybe you're getting a certain output. But if the market demands a different thickness, there is a rated output based on every thickness, every density. So it will pretty much boil down to the product mix that we finally get in terms of demand from the market. So but I would say comfortably that it's easy to get output maybe between [indiscernible] cubic meters from our existing 2 plants, after debottlenecking.

Okay, okay, okay. So INR 700,000 would be kind of possible?

Yes. But of course, the disclaimer here is the product mix. Because now, like I said, we are moving into a lot of value-added products, which are higher density [indiscernible] like for example, [indiscernible] product. Although operating margins on that are much higher than our final product, but obviously, the production goes down to a certain extent. So we are still [ lured ] by producing those value-added products because although they are poor in volumes, but margins are far higher than the [indiscernible] product.

And my last question would be, this time, obviously, we've seen the export mix kind of come down to one of the lowest in the history. So how much sustainable would this be in the near term, Q4 and Q1?

Well, the export volumes have come down. You're talking about the export volume, right?

Yes, yes, yes, correct.

So actually, the reason for the export volumes coming down was because of the Uttarakhand plant shutting down, and we did not want to sort of give so much of a gap in the domestic supply. Hence, we diverted the export allocations to the domestic plant -- to the Andhra plant, as we mentioned before. But the Uttarakhand plant is up and running, I think we will go back to our normalcy on the export side as well.

So we try to keep the export mix at between 15% to 20% of the total volume.

So then it is permanently coming down, right? I mean we used to do 30%, 35% so...

I wouldn't say permanently because it will always depend upon demand conditions in the domestic market. So if there is any drop in demand in the domestic market we'll [ increase ] allocation to it first. And if the domestic markets are doing good, we will increase the allocation to the domestic market. Again, when we come up with an expansion, initially, the domestic markets will not be able to absorb all the increased production. So at that time, again, we'll increase allocation to the export markets because it will take time to build the retail network to take on the additional volumes in the domestic market. So there's always, depending upon certain factors, we'll always see differences between allocation to domestic and exports. But our target is to keep the mix at around 80% to 85% domestic and 15% to 20% export.

And near term, is the domestic strong enough to keep the domestic mix at 80%, 85%?

Yes. So in January, again, the retail segment was disturbed due to the third wave of COVID. So we saw a fall in volumes during the first 10 to 12 days. But it started to return to almost normal from around the 13th and 14th. So if that continues, I think we'll continue to keep the export mix between 15% to 20%.

The next question is from the line of Udit Gajiwala from Yes Securities. [Operator Instructions].

Congratulations on great set of numbers. Sir, just one follow-up. When you were talking about the brownfield expansion, I believe that in previous calls, you had mentioned that the MDF machineries across the globe are not available or some -- there are some constraints over there. So how will you be able to source for our brownfield expansion going ahead?

Okay. Sorry, go ahead. Yes, please continue.

There is no -- I mean there's no challenge in sourcing the material. It's only the lead times that are challenges. So it's not that machinery is not available. It's just a matter of agreeing on an acceptable lead time. The lead times have been prolonged now because of the sort of the start of investments across the world. So once we've chosen the supplier, once we've chosen the configuration of the line, that is when we will have a more clearer picture on the lead times for the deliveries of the plant. But as Venkat mentioned, 18 to 24 months commissioning time, I think that is very much still possible.

The Next question is from the line of Nikhil Agarwal from VT Capital.

Sir, could you please explain why hasn't plywood realizations have gone down? You've said you've taken some price hike, but in the presentation, it was 279 in the last quarter, and it's 272 in this quarter. So any reason for that?

Yes. So basically, normally, October to December is possibly not a very good quarter for plywood because most people prefer to complete their interior work before Diwali. So Q3 is one of the weak months -- weak quarters in a year. And secondly, there was also a fall in the mix of decorative veneers as compared to the earlier quarter. So that's the reason there's a fall in realization due to the product mix and not due to any price reduction.

But you did -- you've taken price hikes in the -- in one segment, in the plywood segment as well.

Yes, we have taken a price increase of 4% from 1st November, but that was implemented only from 1st December. So we got the benefit of that only for 1 month in this quarter. So in the current quarter, we'll be getting the full benefit of that 4% hike. And we have taken a further price increase of 3% from 1st January, which will be implemented from 1st [ February ]. So we'll also get the benefit of that for about 2 months. So I think that should help to improve both realizations and margins in Q4.

Like what was the total price hike on the raw material front? I mean this chemical prices and of wood prices in Q3.

See, there were different price increases, and it will be very difficult to -- because normally, the impact of that comes after sometime because we are carrying about 30 to 45 days of wood inventory. I'll not be able to give you the impact of the price increase in this particular quarter. But overall, if we look at the 9 months period, I think we have seen a hike of about 10% in wood prices in the North, about 5% in south. And chemicals, there have been different range of price increases in different chemicals. So about 25% in some, about 40% in some, about 100% in some chemicals. So I think probably about, on an average, about 35% increase in chemical prices over the past 1 year.

Okay, sir. And sir, just one last question. I know you said that you'll be announcing your CapEx plans in quarter 4. But like is there -- can you give any idea of which segment that you are really targeting? Is it plywood, is it laminate? Or will it be particle board, given that particle board gives you higher-margin per product? So anything on that.

I couldn't get you. Could you please repeat that?

So you said -- I know you said that you will be announcing your capacity expansion plans in Q4. But I just wanted to get an idea of which segments would you be getting into? Will it be MDF or will it be any other segment on the plywood sector, like plywood or laminates or particle board?

The first expansion will definitely be in MDF. At the moment, we are not considering any expansions in plywood or entry into the particle board segment.

The next question is from the line of Nikhil Gada from Abakkus AMC.

I just missed one data point which I specifically wanted to know. What is the share of our value-added products right now? And if you can help me, what would be the blended realization that we make in value-added products?

Okay. So value-added products contribute about 48% in volume terms. I'm saying this only for the domestic market. So about 48% in volume terms and about 59% in value terms. And basically, the value-added products are Club Grade MDF, Exterior Grade MDF, laminated MDF and wood floors. So these are the value-added products. And they comprise about 48% in volume terms and about 59% in value terms.

This is specifically for this quarter, you're saying, right?

That's correct.

And sir, just in terms of an understanding from this value-added products, is it possible how much more can we scale this value-added product to? It can become 100% of our overall business, MDF business?

No, I don't think so because many of the consumers would not be going for the value-added products. So I don't think -- In fact, I think although we would see an increase in volume of value-added products, I don't think the percentages would go beyond this level.

Understood, sir. And sir, I understand you alluded to the imports question. But specifically, this is more broad based in terms of not just currently how the situation is panning out but over the next 1 or 2 years, do you think this situation that is panning out in Vietnam specifically because of replacement demand from China, do you think it is anyway structural in nature and we might not see the same level of imports we used to see in the past?

Yes. I think that's definitely the case for Vietnam and Indonesia. Thailand, we have to wait and watch, how it pans out in future. But as long as international prices remain at this level, I don't think we'll see any significant threats for the domestic manufacturers.

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

Great set of numbers, sir. Sir, just a little clarification that I wanted from your end. So you said that the volumes in the industry were much better and that if the Rudrapur plant would have been up and running, we would have done better in terms of volume. Is that right?

That's correct.

So this is the top manufacturers of MDF who have done better -- really well in terms of volume, correct?

Yes. In terms of capacity utilization.

3 And the other thing is, also looking at our current realization of 29,000, the blended realization that we have in MDF, so now do you see that staying at this range for the near future? Or do we -- will we take a call on it based on the raw material pricing, depending on the increase or decrease in the price?

Yes, that's correct. We'll take a call depending upon raw material prices. Which could be both upwards and downwards.

So what is the trend that you are seeing now when it comes to the raw material as to sustainability of this current realization?

I think the current realizations are sustainable unless there's a steep drop in raw material prices, which does not appear possible at this point of time, because most of the chemicals are derivatives of [ crude ]. And [ crude ] prices are going up. So I don't see any major fall in chemical prices.

Correct. And also Shobhan ji also mentioned that there was a -- there's a shortage going on in the MDF side on a worldwide basis.

The next question is from the line of [ Anika Mittal from Invest Research ].

Sir actually, I wanted to know what is the impact on revenue due to the closure of MDF. Can you tell how many volumes we have lost due to the closure of MDF facility?

We have lost approximately 18,000 cubic meters in this quarter. And that -- the current realizations for the north plant, that would have been approximately INR 58 crores.

The next question is from the line of Utkarsh Tamaya as an individual investor.

So I just have one question on the market. Given that a lot of capacities are coming on in FY '24, I just wanted your view on how do you think the supply/demand dynamics will play out? If that will affect price realizations? And please, if you can give some numbers, the estimated demand and supply, which is coming on stream against that, it would be very helpful.

Yes, sure. So at the end of FY '21, we had domestic capacities of approximately 1.9 million cubic meters. And by the current -- end of the current year, considering Rushil's expansion in South India, we should have about 2.3 million cubic meters of domestic MDF capacities. I think we'll probably be at capacity utilization of around 75% for the industry as a whole by the end of this year. And over the next 2 to 3 years, domestic capacities could increase from 2.3 to 3 million cubic meters based on expansions which have already been announced by listed or unlisted players. Of course, any capacity expansion by Greenpanel would be in addition to that. And we estimate based on a 14% to 15% annual growth. Demand should be around 2.5 million cubic meters. So I think we won't see any significant reduction in capacity utilization and that should give stability to the prices.

Sir, today's demand stands at? Today, the industry demand?

I won't be able to give you the figures for today. So I can give you the figures for FY '21. So for FY '21, against domestic capacities of 1.9 million cubic meters, demand was about 1.5 million cubic meters, which is about a 77% capacity utilization. And for the current year, we estimate that on a capacity of 2.3 million cubic meters, demand should be somewhere between 1.7 to 1.8 million cubic meters. So roughly around the same level of capacity utilization as last year.

Is it fair to say that when demand is at approximately 75% of the industry supply, the market stays at equilibrium and in a good condition and at a good price?

Yes, you can say that because the organized players, the 3, 4 organized players in the industry operate on a much higher level of capacity utilization. Like last year, the industry's capacity utilization was 77%. But if you look at the organized players, it was probably 90% plus.

Okay. Understood, sir. That was very helpful. And just one more question, sir. As of today, how much of a debottleneck capacity is commissioned, like from 540, how much have we reached to, as of today?

So there has been a marginal increase at Uttarakhand plant where capacity has increased from 180,000 to 216,000. But like Shobhan mentioned earlier during the call, this will also depend upon the density of the -- density and thicknesses of the products manufactured and also the mix of value-added products. So it's not a number which we say that this is the absolute capacity of the plant. Depending upon product thicknesses, product density, and the mix of value-added products, this number could increase or reduce.

Okay. And will this debottleneck capacity will be entirely utilized in Q4?

Yes. For the Uttarakhand plant, we should be close to optimum capacity utilization. For the Andhra plant, since this is happening in the current month, so there will also be a testing phase in February. So I think probably we'll have the benefits of that for about 45 days in this quarter.

Sir, given these 2 points you made of the utilization of both new capacities, debottlenecking capacity, our volumes should ideally be higher than Q2 volumes, right?

Yes. In a normal market, I would agree with you, but like a reply to another question I had said that there was an impact on MDF volumes in January because of the third wave of COVID. So I think we lost volumes during the first 12, 13 days of this quarter, and then the market has started to improve. So I think, yes, we should be above our Q2 level, but maybe not a very big difference above Q2.

Next question is from the line of Chirag Lodaya from ValueQuest.

Just 2 questions. One, what should be the tax rate going ahead? And second, how much is the EPCG commitment left to export -- export related?

I don't remember the exact number, but our export commitments should be completed in the current quarter. And as far as the tax rate, I think for FY '22 and FY '23, we can consider a tax rate of 30%. And then probably once our old tax benefits are exhausted, we'll probably move into the new tax rate from FY '24. It should mean a 25% tax rate.

And just, sir, on interest, how to look at now interest run rate? You have repaid a lot of foreign debt also. So in this quarter also, I'm sure there will be some ForEx gains, which would have led to reduced interest. So on an absolute basis or on run rate basis, how we should look at?

At present, we have net debt of about INR 144 crores. So I think we should see something between INR 90 to INR 100 crores at the end of this year. So no, interest will not be a major factor in the next financial year.

The next question is a follow-up from the line of Karan Bhatelia from Asian Market Securities.

Sir, how do you see particle board as a market? Can we see the similar success story we've seen in MDF in the last 3 years?

The particle board has been in the country for a much longer period than MDF. But we don't see it has gained a huge market probably because it has lesser number of applications as compared to plywood and MDF primarily because it has a lower density, so it's more suitable for vertical applications rather than horizontal applications where a higher load bearing density would be required. But we have not really evaluated particle board. So I won't be able to give you a very detailed reply to that.

Right -- And one more thing. Sir, we keep hearing of 2 plants coming once we see a better capacity utilization at the industry level. So hearing of any new players coming into the market somewhere in north?

No, there could be some very small expansions by unorganized players, but I've not heard of any new player entering the MDF industry in Northern India.

We'll take the last question from the line of Balaji Vaidyanath from NAFA Asset Managers.

Sir, now that our retail mix is in excess of 95% and both plants at significantly high capacity utilization, would you be thinking in the lines of marketing and brand building starting from this year? Or that is still some more time away?

No. I think we'll definitely start brand building activities in a much more significant manner from FY '23 onwards. So I think you'll probably see that activity starting from the beginning of the next financial year.

And the ballpark, what kind of -- as a percentage of sales, what kind of number would you be thinking of?

So I think just in terms of the MDF revenues, we should be doing 2% to 2.5% spend comprising of both [ APL and BPL ].

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

We thank everyone for joining this call, and we look forward to speaking to you again post the next quarter and for the end of the financial year results. Thank you, everyone. And if anyone has any further questions, please feel free to get in touch with us. Thank you.

Thank you, everyone, and wish you all a very happy and healthy new year.

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