Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Greenpanel Industries Limited Q4 FY 2022 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now had 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 Q4 and 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. [Audio Gap]

To discuss Greenpanel operating and financial performance for quarter 4 financial year 2022. We had an excellent quarter, although volumes were impacted due to recurrence of COVID, elections in a few states and price inflation. We have completed the debottlenecking exercise across both the MDF plants, and our current capacity stands at 660,000 cubic meters, subject to the value mix remaining constant. We have also completed the installation of wax emulsion system at both the plants, which will lead to a reduction of approximately 30% in wax consumption. Net sales were up by 19.75% year-on-year at INR 460.27 crores. Gross margins were up by 670 basis points year-on-year at 60.3% due to price hikes taken in quarter 3 and improvement in the value mix. EBITDA margins were up by 499 basis points, at 30.7% due to price increases, continuous focus on superior product mix and cost optimization. PAT is up by 42.7% year-on-year to INR 80.59 crores. Net working capital days of 16 days has shown a reduction of 19 days compared to the year-on-year quarter. Net debt has reduced by INR 84 crores during the quarter and stands at INR 60 crores as of 31st March 2022. We are targeting to be net debt-free for the existing business by June 2022. Mr. Venkatramani will now run you through the financials in greater detail, post which we'll have the Q&A session.

Good afternoon, everyone. I thank you for joining us to discuss the Q4 and FY '22 financial performance of Greenpanel Industries. In Q4, our top line increased by 19.75% at INR 460.27 crores. MDF sales grew by 29.2% at INR 389.81 crores and contributed 85% of the top line. MDF sales volumes de-grew by 10.7% at 1,24,538 cubic meters due to reasons mentioned by Mr. Mittal. MDF domestic revenues were INR 349.31 crores, while exports contributed INR 50.50 crores. MDF domestic volumes were 1,01,834 cubic meters, while export volumes were 22,705 cubic meters. Domestic realizations were up by 46% at INR 33,320 per cubic meter, and export realizations were up by 51% at INR 22,240 per cubic meter. Blended MDF realizations were up by 44% at INR 31,300 per cubic meter. Uttarakhand MDF unit operated at 85% and AP plant operated at 74%, with the blended capacity utilization of [ 70% ] for both the plants on enhanced capacity. Plywood sales de-grew by 14.8% at INR 70.46 crores. Plywood sales volumes were down by 19.3% at 2.46 million square meters, and the unit operated at 81% during the quarter. Plywood sales realizations were up by 4.8% at INR 286 per square meter. In Q4, gross margin increased by 670 basis points year-on-year at [ 50.3% ]. Gross profit increased by 34.7% at INR 277.59 crores. EBITDA margins were up by 499 basis points at 30.7%. EBITDA in value terms grew by 42.9% at INR 141.49 crores. Post-tax profits increased by 42.7% at INR 80.59 crores versus INR 56.46 crores in the corresponding quarter of last year. I'll now update you on the performance details for 12 months FY '22. Net sales grew by 58.4% at INR 1,585.73 crores. MDF sales increased by 69.6% at INR 1,329.79 crores, while plywood sales grew by 17.9% at INR 255.94 crores. Gross margins were up by 393 basis points at 57.7%. Gross margin in value terms was up by 70% at INR 914.83 crores. EBITDA margins were up by 800 basis points at 27.7% compared to 20.7% in FY '21. EBITDA in value terms increased by 112.5% at INR 439.39 crores. Post-tax profits were up by 249% at INR 240.47 crores. MDF sales volumes were up by 30.1% at 4,95,041 cubic meters with blended capacity utilizations of the 2 plants at 87% of finance capacity compared to 69% in FY '21. Dispatches for plywood increased by 9.7% at 9.3 million square meters with capacity utilization at 81% compared to 71% in the previous year. Gross debt-to-equity ratio stands at 0.30 as on 31st March 2022 compared to 0.6 as on 31st March 2021. Net debt reduced by INR 314 crores during the year to INR 60 crores as on 31st March 2022. 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.

Yes. Congratulations on great set of numbers. Sir, my first question was on gross margin. So we have seen an improvement in gross margins on Q-o-Q basis as well, but if you can help us understand how sustainable are these gross margins going ahead? Is it fair to extrapolate current quarter gross margins going ahead?

It's a difficult question to answer at the present moment with central banks across the globe to increasing interest rates and timing the fund flows. So we expect that will have some impact on commodity inflation. So if our raw material prices go down, we'll also be reducing selling prices and passing on the benefits to the customers. So at this point of time, I think I would say that the gross margins that we have achieved on an annual basis of around 15%. So those should definitely be maintained in the current year.

Right. And given for operating margins, is it fair to assume annual margins to sustain or for exit run rate we can maintain?

Yes. I think the annual margins, especially if you look at MDF, we had an EBITDA margin of about [ 31% ]. So that should be sustained going forward.

Right. Sir, if you can help me with some quantitative details about the North and South plant volume value and margins for Q4 and FY '22, that would be helpful.

Okay. So for Q4, the North plant contributed 41,720 cubic meters versus 45,990 cubic meters in Q4 last year. And the South plant sold 82,818 cubic meters versus 93,500 last year. And overall, MDF volumes were 1,24,539 cubic meters versus 1,39,490 cubic meters in Q4 last year. For the full year, North plant volumes were 1,48,642 versus 1,37,215. South plant volumes were 3,46,399 versus 2,43,215 and the total MDF volumes were 4,95,041 versus 3,80,431.

All right. And this corresponding value-add margins as well, sir? For Q4 and FY 2022.

Okay. Yes. For Q4, the domestic realizations were 33,320 per cubic meter versus 22,757 per cubic meter and export realizations were 22,240 per cubic meter versus 14,747 last year. And for the full year, domestic realizations were 29,451 versus 22,304 last year, and export realizations were 18,941 versus 14,431 last year.

Got it. Got it. And sir, just lastly, how is the overall demand environment shaping up? And what kind of capacity utilization are we targeting? And even -- have we finished our CapEx plans for next year?

No. We are still in discussions with vendors on CapEx plans I think we'll probably final that in May or June. And as far as FY '23 is concerned, I think we would be targeting a volume growth of about 15% to 18% in the MDF segment and about 6% to 8% in the plywood segment.

[Operator Instructions] The next question is from the line of Saumil Mehta from Kotak Life.

Sir, first of all, when was the last price hike we have taken in the domestic market in MDF?

We have taken it in Q3, that is Q3 FY '22. So total price hikes during the quarter aggregated to 17%.

Okay. Okay. And with respect to interaction with our OEMs and some of the other players, are we seeing some sort of demand destruction at these prices or probably order book is quite good to that extent?

Yes. We have seen some of the OEMs moving to other manufacturers or probably supplying at lower prices. But anyway, we wanted to reduce our exposure to the OEM segment in the long term. So compared to the first half of the year where our volumes in the OEM segment were about 30%, 32% of the domestic volumes, currently, our OEM volumes would be about 15% to 16% of the total domestic volumes.

Okay, okay. And sir, when we're targeting to a 15%, 18% volume growth in MDF for this financial year FY '22, that implies doing the basically Q4 run rate. Given that we have capacity utilization levels, which is not very optimal, I mean what kind of -- basically, a realistic number can we expect for FY '23? I mean given where the demand is and not much of capacity, can we operate close to 100% utilization as there is demand?

Yes. We don't see any restrictions on the production side. But yes, we are not considering that we will be able to operate at full capacity in FY '23. So when I said that we are targeting a volume growth of 15% to 18% in MDF. So probably our capacity utilization will be somewhere between 85% to 90%.

85% to 90%. Okay. Sir, my second question is with respect to the balance sheet now. We have a number of a few companies where the working capital number of days have been coming down. In fact, for the year, we also had a working capital release. So at 16 days, what would be the normalized level or these lower levels of working capital can actually even go through in FY '23 and '24? Or we can expect some sort of increase on current revenue?

See, we could see small increase or reduction in working capital going forward. But yes, I would expect it to be somewhere between 15 to 20 days, not surpass that number.

Perfect. And last question in terms of plywood business was obviously soft in this quarter, there would be a lockdown impact. But from a competitive intensity point of view, are we seeing some sort of pressure points in plywood, either in terms of raw material availability or pricing over there on margin concerns? Any comments over there.

Yes, we have faced margin concerns. So if you look at FY '22, our plywood margins have definitely come down from what it was last year. So we are contemplating taking price hikes in the current quarter, which would help us to maintain the operating margins at around 10% to 11%.

Okay. Got it. So basically, FY '22 for the year, we had about 11% margin in plywood, this kind of margins can be maintained in '23, '24 or there is a possibility of that going up?

No, I think at this point of time, considering the inflation in raw materials, I think we are targeting 11% EBITDA margin in the plywood segment.

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

Congratulations for the robust quarter. My question was in terms of the domestic volume growth, it was kind of weak in this quarter. Now one of the reasons you have attributed is to due to the COVID, what I wanted to check is, how do you see the demand scenario? Are you seeing a moderation in the demand? Has -- the pent-up demand is already there in the base and kind of shift what we had seen from ply to MDF or from imports to domestic? Has that already been played out? Or is there more steam left?

I think like I mentioned, we are targeting a volume growth of 15% to 18% in MDF. So we are fairly comfortable with the demand scenario, although you're right when you mentioned that we have seen a volume de-growth in Q4. But it could be a one-off considering all the factors, which you had mentioned, COVID, state elections, and also the inflationary impact of the 17% price hike we took in quarter 3. But even considering all those factors, I think we are comfortable with the 15% to 18% volume growth in FY '23.

Got it. Just to go into a bit of detail there, sir. We have been exporting -- export has been making money for us given we have announced our capacity, why are we talking about 85%, why not 95% whatever incremental volumes we have beyond what is required for the [ next 2 sales' ] exports. So I just wanted to understand your perspective there.

See, our internal targets are higher. We would actually like to cross 90%, maybe reach 95% during the current year. But considering the impact of price inflation, which happened during the last year, we are moderating our lower growth targets, all of the efforts would be to surpass those targets that I had mentioned. But considering that we are in the beginning of the year, so I think we are comfortable with projecting that kind of growth. And hopefully, we'll actually have a higher capacity utilization in FY '23.

Got it. Got it. And just one more question. Sir, in terms of the -- given the kind of price hike that we have seen in the past 1 year, can you help us understand what is the landed cost of thick and thin MDF of imports? And what is the current selling price? If you could help us with the number or a figure.

Okay. So at the moment, the landed cost of thick MDF is more or less similar to what our pricing is in the domestic market. And on the thin MDF side, we are at a premium of 10% compared to imports.

We are at premium 10%. And this you would talk about from the South realization side? Or the blended realization?

Yes, the South plant realization because the North plant does not face any challenges from imports. So imports is primarily with respect to the South plant.

Got it. That's very helpful, sir. I'll come back in the queue for more questions.

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

Congratulations on great set of numbers, sir. Just had 2 questions from my end. Firstly, you said that you have not yet finalized the plan for your MDF capacity. If I assume you would be already operating at about 90% next year or in fact higher, which is your internal target. Will you see a new capacity commissioning, which will be -- which is still under planning stage? And do we see volumes getting impacted because of that in FY '24? That's the first question.

Okay. So like I mentioned, we are targeting a 15% to 18% volume growth in FY '23. So if we are around that number in FY '23, we will still have enough capacity to grow at a similar number in FY '24. So I don't think we'll face a challenge as far as available capacity is concerned in FY '24. But yes, if our capacity utilization is much higher, maybe if it peaks at around 95% to 98%, then yes, we could face some shortage of capacity in FY '24.

Otherwise, you mean the peak utilization can again be 115, 120, which is where we can do a kind of 15% to 18% sort of volume growth in the...

Not really, so when I say, our capacity is 6,60,000 cubic meters. So that includes those higher optimal rates, which we can achieve. So I think 6,60,000 or maybe a few thousand cubic meters higher would be the peak capacity utilization. So given that we have achieved about 4,95,000 cubic meters in FY '22, that still leaves around the 30%, 32% capacity available for FY '23 and '24.

Understood, sir. And sir, what we understand from what you said was a large price hike was in Q3. But after that, maybe the timber prices have gone up further. Now is that a point that we have reached such a threshold that now it will be getting difficult to pass on the raw material cost and maybe margins have peaked up from here? And can we see some amount of this lapse?

Yes, we have seen inflation in wood prices, but that has been compensated by reduction in chemical prices. So at the moment, we are fairly comfortable as far as the gross margins are concerned. So we are not contemplating at any price hikes at this point of time. But we in future, if raw material prices go up further, and that leads to a reduction in gross margins. We'll have to see whether the demand situation is comfortable enough for us to contemplate for the price hike.

Sure. That's helpful. Sir, one last one, if I may just squeeze in. You, of course, answered about the import pricing being at almost par level in thick and slightly higher on the thin side for you. But have we started seeing any imports coming back in the market?

Nothing significant. Imports have been happening. But considering the fact that imports you still have about a 35% market share prior to COVID and now it's probably around 8% to 10%. So they have fallen substantially over the period.

And then largely the same compared to the previous quarters.

That's right.

[Operator Instructions] The next question is from [ Abhilasha Satale ] from Monarch Networth.

Sir, my again, question is on imports. Basically, we have seen imports reducing substantially over the last 2 years. So given the current outlook, how do we see this -- what are the factors which are impacting or which will sustain the current import level? And if anything has to go wrong in that trend, then how do you see overall import panning out over a period of time? So do you think that this is a new normal for the Indian MDF industry or you see as supply chain challenges go down or the pricing challenges more or less stabilized and then we will again see the increased level of imports in the Indian market?

Okay. So if you examine the factors which have led to a substantial fall in imports, so we can divide them into 3 factors. One is due to price inflation on the raw material side, international MDF prices have gone up substantially, as seen by the fact that we have seen over a 50% increase in export realization. So that has reduced the pressures on the domestic market. Two, trade ports, international ocean trade ports have gone up considerably. And keeping in mind that crude prices are at a fairly high level. We don't see that ocean trade rates will come down substantially in the new future. And third, Vietnam and Indonesia, which are substantial major exporters to India in the past. So now a lot of their MDF is being consumed in the domestic space for furniture exports to U.S. and Europe. They have taken away substantial market share from China. So that has also led to a substantial fall in imports. So now at this point of time, it's very in order to conclude whether we will see a substantial change in those factors which could lead to an increase in imports. So at the moment, our view is that we will not see any major change in these factors, which could lead to a substantial rise in import.

Okay. Sure. And my second question is again on the CapEx. So once you announce the CapEx plan in the month of May, June, then what is likely to be the gestation period? And how this CapEx which we plan, will it be greener brownfield. And by what time we are expecting the new plan to commence?

So Shobhan can you please take that?

Yes. So we are in the middle of discussions with the plant suppliers. Obviously, there has been a few challenges with regards to supplies especially because of this Russia Ukraine war that has been ongoing. So part supply and steel supply for these plant suppliers has also become a challenge. So more clear picture is only inspected upon the finalization of the supplier and -- basically the primary components of the plant. So I think we'll be able to give a much more accurate picture towards the second quarter of the year. But I am hoping that I think in the next 18 to -- deliveries can start from the point of finalization within a year and then it's about 12 to 16 months of installation and commissioning time from that. So let's say yes.

Yes, sir, please continue.

No. So yes, I think that's it. So we can talk about, let's say, about a 18- to 24-month time frame.

[Operator Instructions] We'll move to the next question from the line of Chetan Thacker from ASK Investment Managers.

Just 2 questions this was related to CapEx. So I just wanted to get a sense on do we have land available in AP itself for expansion? And is there a different thought process in terms of geography for the new CapEx that we are planning? That was the first question. And...

Yes, the land availability in Andhra Pradesh is not a problem. In fact, we had always foreseen an expansion of another line or 2 lines in Andhra Pradesh. So that is not a problem. And at this point of time, the -- it's a very high likelihood that we will like to expand within Andhra Pradesh. So at this point of time, there's a high likelihood that the expansion will happen in Andhra Pradesh.

So there is synergistic benefit of expanding lines there, and we will have more operating leverage out of the utilities that are installed. That would be a fair understanding.

Absolutely. Yes.

The second question, again, related to this is what is currently the economic size for this one additional line, which you will think is optimal? And how has the CapEx cost changed over the last 3 years since we installed the initial lines in AP?

Well, I mean, the capacity of the line, if that's what you're asking is still to be -- I mean, decided we are still in discussions on finding the right optimal solution. But I would say, given the current market situation and especially again because of this war, steel prices have gone up substantially. So we are closely watching and monitoring that our decision is, to a certain extent, linked to the volatility of the steel prices in Europe, especially as well. But I would say that there would be a jump of about maybe 20% on the investment I mean, on an apples-to-apples basis compared to 3 years ago.

And 3 years ago, the lines are typically costing around INR 2,000 per cubic meter -- INR 20,000 per cubic meter?

Sorry, I didn't understand. What would cost INR 2,000.

CapEx per cubic meter, 3 to 4 years back was around INR 20,000. That is a fair number because I recall that number. I just wanted to crosscheck on that. In terms of CapEx per unit like that? I just wanted to check on that...

We had invested about INR 790-odd crores for this line that we had set up for 360,000 cubic meters. So it's ballpark at 21,000, 22,000 kind of number.

And that you think has gone up by 20%?

Yes. 22,000 per cubic meter.

And that has gone up by 20% currently?

Yes, sure. I mean, do keep in mind that, that was an entirely greenfield project as well. The...

Understand. I understand that. Yes. This is helpful.

The next question is from the line of Keshav Lahoti from HDFC Securities.

Sir, I just want to understand one thing. As we have already operated at 87% in this quarter and from commentary just like the new capacity in MDF is more 2 years down the line. Do you feel you would face capacity constraint? Or is it like you are waiting and watching because other players are also quite aggressively funding the capacity in MDF and new players are also making their way in MDF? So it would be great if you throw your thought on this.

Okay. So when we say we achieved a capacity utilization of 78% in quarter 4, the full capacity was not considered because the capacity utilization happened at different points of time during the quarter. So like for the Uttarakhand plant capacity expansion happened in December. But for the Andhra plant, it happened in the month towards the end of January. So if you look at it, like I mentioned earlier, our quarterly capacity is around 1,55,000 cubic meters currently. And considering that we operated at about -- we reached about 4,90,000 cubic meters last year, we still have about 30% growth in volumes available to us for the next couple of years. So that's why I said we can possibly achieve a volume growth of around 15% to 18% in FY '23 as well as FY '24. So at this point of time, unless the demand in the domestic market catches us by surprise, we don't see -- we would be taking any capacity constraints in FY '24.

Okay. As we can see, the kind of margin in the MDF segment has quite increased maybe 9% increase volume in this year. So maybe normally we are seeing in the business once the margin picks up, suddenly something like 8%, 9% in a year, that normally normalizes and falls down but you sound fairly confident to maintain your 30%, 31% margin in the business. So I just want to understand, do you think the realization won't spread from here and the margin would be maintained because the supply is also increasing at an aggressive pace in the MDF segment?

So if you look at FY '23, possibly only 1 new capacity coming in the existence, which would probably be around 1,30,000 cubic meters, so we are not facing any substantial capacity addition in FY '23. And if you come -- look at our MDF margins, they were about 34.6% in quarter 4. And for the full year, it was around 31%. So I think, yes, maintaining that 34%, 35% margin for the full year would be a challenge because we might not have the same value mix throughout the year, which we achieved in quarter 4. So at this point of time, I'm comfortable projecting a 30%, 31% EBITDA margin for the MDF segment in FY '23.

Okay. One last question from my side. So this 30%, 31% is more you're looking for FY '23 or would you say this is more of a sustainable margin in the business?

No. I wouldn't say this is a sustainable margin because we would see new capacities coming up in FY '24. So when new capacities come into existence at almost a similar point of time, those new capacities will not be fully utilized during that period. So it will probably take us about 18 to 24 months to have a full capacity utilization of the new plant. So I think probably for a period of 18 to 24 months, we could see some dip in the MDF margins during FY '24 and '25. Still the domestic demand is strong enough to absorb all those new capacities.

[Operator Instructions] The next question is from the line of [ Kartik Mehrotra ] from [ Niveshe ].

Sir how are you tackling those power issues in Andhra Pradesh? and is there any production loss?

We are agreeable to pay the increase for the utilization of -- for consumption of additional units because the increased cost will be much less than what the losses that we would sustain if there's a substantial loss of production. So we will be going ahead trying to operate at optimum capacity and pay the increased cost per unit rather than have any substantial production loss.

Okay. So you don't have any production loss in Q1 '23?

No. At the moment, the plant is operating normally.

Okay. Sir, my next question is, we have been hearing that many unlisted private they are now setting of MDF plant in North in the range of 100 to 250 CBM is per day. So I just wanted to know how viable this small capacity plan was.

See, there are already, I think, about 8 to 9 plants in existence. Most of them are in the north of India, possibly, there's only 1 in Southern India. So yes, there are more irritation for the organized players in the sense that their emerging practices are not desirable, but I don't have any information about such -- more such capacities coming into existence in the current year.

No, so sir, yes, I mean, in FY '24 and onwards?

Yes, yes.

And sir, last question, what are the main raw materials for MDF? And what is the price in there?

Okay. So the major raw materials are wood and chemicals at the moment because we have seen substantial increase in chemical prices during the last financial year. Earlier, the ratio of wood and chemicals used to be between not 65% for than about 35% chemicals. But do see substantial price inflation on the chemical side at the moment, they have almost a 50-50 share of the total raw material price.

And all these are sourced locally or imported?

Yes. All our raw materials are sourced locally, although some of the raw materials for which our raw materials are manufactured could be imported, like we use formerly hired, which again is produced from methanol and methanol is produced from India does the import substantial volumes of crude.

Okay. So okay, fair enough.

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

Congratulations on the good set of numbers, sir. Only 1 question from my side. Are we doing any innovations on the MDF product for diluent into the quarter which can replace MDF?

Your voice is not clear. Could you please...

Hello, am I audible now?

Yes, just speak slowly.

Okay. Okay. Sure. Are we doing any innovation in the MDF product or planning to enter into new products, which can replace the MDF, sir?

Well, we're developing a certain -- I mean there's always some research going on. We've developed our [ fire garden ] product, which are going to test out in the market. And within the MDF space, there's only limited sort of horizon for doing new products and new launches because it's end of the day is a fairly sort of commoditized product. But yes, ratings have been worked upon. And more importantly, I think innovation and the production side where optimization of costs, et cetera, that is obviously always an ongoing process at our plants.

So just to add to that we have a mix of both industrial and value-added products in the MDF segment. So at present, the value-added products contribute about 48% of the total domestic volume.

The next question is from the line of Saumil Mehta from Kotak Life. We'll move to the next question from the line of Nikhil Agarwal from VT Capital.

So sir basically, I wanted to recognize, yes, your Eastern market is not that mature as far as MDF at the moment... [Technical Difficulties]

Mr. Nikhil, if you're wearing any earphones and speaking, please remove them and speak from...

Hello.

Yes, please go ahead.

So like I want to know like in the Eastern market is not time developed for MDF at the moment. And there are no such does like Eastern and Northeastern markets, there are no factories as such on here. So this being your focus going forward like will you -- are you thinking of getting to -- getting the source over advantage of here?

Okay. Our focus is in all the markets, whether it's North, South, West or East. So we are focusing on all the 4 geographical regions. And even in the eastern parts, our sales has gone up substantially. So if you look at the situation around FY '21, the Eastern markets contributed about 3% to 4% of our total sales whereas now the East and Northeast contribute about 8% of our total domestic volumes. So we continue to focus on all the 4 geographical regions, not any special focus on any particular region.

Okay, okay. Okay, sir. And sir, like, you said that Vietnam and Indonesia, they have been the importing their MDF to markets where China export so that is on over there. So like in the near future, I know the situation been Indian channels now, but do you see Chinese imports -- Chinese MDF coming to India going forward?

No. China is not really an exporter of MDF. Even in the past, volumes from China were very, very low. So the majority of the imports used to come from Vietnam, Indonesia and Thailand. So I don't see any possibility of Chinese exports increasing significantly in the Indian market.

Okay. And sir, just one last question. How is the demand shaping up in Q1?

Excuse me?

How is the demand shaping up right now? Like Q4, like the -- we had lost sales because of this because of Omicron and because of the price hikes that you have taken. So how is the demand shaping out currently?

Yes. The demand situation is reasonably good considering that China comes after mark where we have the highest turnover in the year because dealers like to be in the higher slab of the annual incentives. So liftings in March are much higher than any other month during the year. But even considering that demand has been reasonably good in the month of April.

The next question is from the line of Karan Bhatelia from Amsec.

Yes. While you mentioned about 15% to 18% volume growth in the domestic MDF market, how are we looking at exports from next 2 years point of view?

So we would like to maintain exports at around the level which we achieved in FY '22. So most probably we would be targeting volumes of around 1,20,000 to 1,25,000 in the export market. But if there is any substantial deterioration in demand in the domestic market, we could possibly increase allocation to exports.

Right, right. Also in percentage terms, we've seen export realization is higher. So could you provide us with the EBITDA margin, what we -- the electoral ballpark number compared to 2 years back in the exports market?

Yes. I would say export EBITDA margins have almost doubled. So earlier they used to be around 8% to 10% and currently, it's around 16%.

The next question is from the line of [ Asha Katri ] from Omkara Capital.

So I had a question relating to the power issue that we are facing. So I think one of the participants asked the question. And you said that we are paying the increased cost of the additional units. So I believe as cost was about INR 6.5 per unit. So how much additional are we paying for the incremental units that we will be taking?

Yes, the cost will go INR 1 per unit.

Okay. And how will it affect our power cost as a percentage of sales? I believe that's on an average about 10%. So going ahead will it be a significant impact or I mean, the additional units that we'll be taking would not really create a lot of impact?

It could depend on how long the AP government puts the restrictions into place. So at the moment, the restrictions were up to 30th April and till date they have not announced whether they'll be extending those restrictions into the month of May or any future period. So I'll wait for the...

Sorry. No, basically, I think they have already extended it till the 15th of this month. And basically, post that, they will be taking a review of that and letting us know. But just to give you sort of some more light on to this, you see the companies are allowed to draw up to 15% of the sanctioned power. So under normal operations itself, we were only utilizing about 75% to 80% of our sanctioned loan. So at the moment, with the 50% drawing permission that we have, we can fulfill about 70% to 75% of our requirement at the normal prices, but only because we had a higher sanction load from the beginning. So it's only on that 20%, 25% additional requirement where we will be having to pay this premium. So it's not on the 50% entirely as the rule says because we had an initial higher sanction loan.

Okay. I think that's great. Also, sir, on the capacity. So currently, we have about 5,63,000 cubic meters -- and you mentioned that we can reach about 6,60,000 kind of utilization at the peak. So is this on the existing capacity? Or there's some more room for debottlenecking at any of our plants?

No, right on the -- this is post. It's based on the debottlenecking that has already come online, the same injection system that we have done. So it is a...

Yes, we have considered that capacity at 5,63,000 for FY '22 because the capacity increase happened at different points of time during the year. So for the Uttarakhand plant, it happened towards the end of December. So we have considered the additional capacity of 3 months. And for Andhra, it happened towards the end of January. So we have considered only 2 months of additional capacity. But the capacity available to us at this point of time is 6,60,000 cubic meters.

We'll have to move to the next question from the line of KR Senthilnathan from NAFA AMC.

Could you give us a sense of how the domestic MDF consumption has grown both in Q4 and FY '22. Is it in line with the 15%, 20% volume CAGR that we've been expecting in the past?

Yes. As far as my knowledge goes, although numbers for other MDF companies have not come out there. But based on the feedback we have received from the sales team, we feel that other branded players would also have grown at the same percentage.

So for the full year, the volumes would have grown, but the whole industry would have de-grown in Q4. Is that what you can take from this?

See, I would not like to comment on whether the whole industry has de-grown during Q4 because the numbers for other companies are not out as of yet. So we'll probably be able to answer that question in the Q1 call.

Okay. Sir, secondly, you mentioned earlier, our price is in a 0% to 10% premium to landed prices. Has this premium changed materially? And what was it pre COVID?

Okay. So I mentioned that we are at a premium of 10% only on the thin MDF segment, okay? On the thick side, there's price parity between domestic and import. And if you look at the past on the thick MDF segment, we used to have a premium of about 8% to 10%. And on the thin MDF segment, the premium used to be in the range of 25% to 30%.

We'll move to the next question from the line of Jignesh Kamani from GMO & Company.

Congratulations on a good set of numbers. Given the MDF margin, so in fourth quarter, we required a 34.6% despite the rating environment with demand was impacted in January because of the COVID, while the plant was [ out of action ] for a few days because of momentum? Both issues are behind now, and as you say, cycle up right? And the gross margin, as you say, is intake, you can say. So if you take out at least FY '23, where you have a 20% higher capacity with limited increase in overhead, gross margin intake. So why you are still conservative on the margin, at least in first half, we that 35% EBITDA margin is possible?

Yes. Jignesh, I am conservative because we have still not come out of inflation. So there's no guarantee that raw material prices will not increase in future. And if there is inflation on the raw material side, you might not be able to pass on the entire raw material increases to the market? So at this point of time, I would like to be slightly conservative and not say that we could achieve those Q4 margins during the whole of FY '23. I think probably we'll get a better view after the first 6 months of the current year.

So let me put as of now from 4Q, there was not any negative concern which can impact margin as of now? It's more that in future, there might be input cost pressure or demand, which might impact the margin in the future?

Yes.

The next question is from the line of Dhiral Shah from PhillipCapital.

Sir, my question is, we have seen very long price hike in MDF segment. So do you foresee any initial MDF to plywood?

Sorry to interrupt, sir. There is a lot of background noise.

Could you please repeat the question?

Sir, we have seen very strong price rise in the MDF segment. So do you foresee any interplay between MDF to plywood?

Not really because the unorganized plywood segment against which we primarily compete with our MDF products is also facing challenges because there's been a lot of inflation on the wood side. And most of the unorganized plywood segment use poplar as the base raw material for plywood, whereas we use the good pelts, where price inflation has not been so strong. So at this moment, I think, yes, we would be able to expand the market for MDF further by penetrating the key plywood segment.

Any particular reason for all in the plywood volume almost 19, 20...

See, if we look at Q4, I think apart from normal factors, like I mentioned, the outbreak -- the reemergence of COVID during the month of January state elections and inflation did have some impact on both the product segments. So I think it was a 1-quarter impact, normally demand is good. So we are not facing any significant challenges on the plywood side. But yes, as the plywood industry is very large compared to MDF and the [ organized ] only has about 20%, 25% of the total share. So the entire plywood industry normally goes at between 2% to 4% per annum. So we are projecting a growth of about 6% to 8% in volume terms for FY '23.

We'll move to the next question from the line of [ Resha Putra ] from Anand Rathi.

What kind of revenue condition do we have in MDF from...

Sorry to interrupt Mr. [ Resha Putra ], we're not able to hear you.

Hello.

Yes, please go ahead.

What kind of revenue generation do we have from institutional category and the dealer categories in MDF business?

See, if we look at FY '22, I think during the first half of the year, the contribution from the institutional segment was around 30% to 32%. But with the effect from first December, we reduced the discounted price for the OEM segment. So at present, there is no additional discount for the OEM segment. They are purchasing at the same rate as the retail segment. So our OEM institutional business segment has reduced during the fourth quarter. And as compared to earlier quarters, the share of the OEM segment is currently around 15% to 16% in comparison to about 30% to 32% in the first half of the year.

What my understanding suggest is a large part of the funding in India is plywood and people prefer making it at home. But in case of MDF, people move for ready to move in furniture, which are -- construed a large portion and new age companies like Urban Ladder and IKEA, all these are large bars for MDF. So where are the plans in terms of getting to these organized players?

See at the moment, most of the players are importing the bulk of the furniture from outside India. If you look at IKEA, they are not doing any manufacturing operations in India currently. So they are procuring it from their own units in other countries or a small amount of furniture is being procured from local vendors. So while it's possible that some of the vendors would be procuring from our dealers because if they're not procuring large numbers, they will not be procuring date from the company. So it's possible that they could be procuring from our dealer network. But we don't have any data available to us from the dealer network, which would enable us to create out how much of our volumes are going to the ready-made furniture providers in India.

Sir, lastly, this market is highly unorganized. So we have not seen or come across any M&A, merger and acquisition in this space. What is the likelihood of M&A activities possible in this area? And since most of the players are moving into offering all products, I mean, the organized players. I think the competition intensity is about to increase going forward. So how are we going to place ourselves in a unique position so that the customer comes to us rather than other players?

Yes. We will be increasing the branding spends that we had allocated to this segment earlier on. So from FY '23, we will be spending more on branding. But it's unlikely to have any impact in the short term because building up our product brand will take time. So it's a medium- to long-term activity. So we'll be starting the activity in the current year, but it's likely to give us benefits probably after a period of 3 years.

And in terms of the M&A activity?

Not much because there are 4 organized players and about 8 to 9 unorganized players, and most of the unorganized players are based on secondhand Chinese plants for which there will not be much interest from the organized players. So we don't see much of M&A activity happening in this segment.

The next question is from the line of [ Manoj S ] from Kivah Advisors. [Operator Instructions]

I had 2 questions. One was the commercial segment. If I'm not wrong, I heard you say once it's around 60% of the MDF consumption. So then if you have no commercial opening up right now after the lockdowns, et cetera, so will -- so can we assume we can have higher MDF demand in the next couple of years? That was one question. And the second was since last couple of years, even last year, we've been seeing a value-add mix of focus is to increase our value-add mix. So when you said value-add mix may not be as strong as Q4, if you can share some thoughts why you're seeing that? And that -- yes. So.

Yes. I think, yes, the commercial segment continued to grow. And if you look at domestic MDF volumes, we have seen a fairly strong growth over the years. We entered this industry in 2010. And at that time, the entire market was about 150,000 cubic meters. And today, in terms of capacities, it's around 2.3 million cubic meters in terms of market possibly around 1.8 million cubic meters. So yes, growth has been fairly strong in the past years, and we continue to expect that it will continue to grow at a CAGR of around 15% for the next 3 to 5 years. So yes, the growth of the commercial segment as the real estate comes out of a slump over the past 3 to 4 years, yes, could they accelerate acceptance of MDF. And the second part of your question on value-added products. It's very difficult to estimate because some years back when our value-added was around 35% of the domestic volumes, I thought we were possibly close to the peak. But now that has gone to around 48% of the domestic volume. So it's very difficult to estimate what will be the peak that we can achieve in terms of growing the value-added segment. But yes, we'll continue to focus on that, keep our minds open and continue to focus on that and try to get as much share of the value-added segment as may be possible.

We'll move to the next question from the line of Rajesh Ravi from HDFC Securities.

I have 2 questions. Okay. My first question pertains to the MDF, the capacity presentation, which you have mentioned with the industry capacity being greater than -- more than 100% in the next 5 years. You are currently 25% to 30% of the total installed capacity. How are you positioned to maintain your market share or even grow from here on? First. And second, related to the same one, is it a given that what we understand is the peak period for an MDF today tends to be close to zero or even less? So what sort of competitive -- competition intensity or you're factoring in over next 3 to 5 years? And second is on the -- I'll come back on the second on the operating numbers, please.

See, I'm not very clear about the second part of your question. As far as the first part is concerned, could you please repeat that?

So I'm saying you mentioned in the presentation that MDF installed capacity in India to grow by more than 100...

Okay. I'll reply to that. So at this point of time, since we have not finalized our capacity standing plans, no, it will not be right for me to give a number of our market share will grow or remain constant over the next 3 to 5 years. So I'll wait for our capacity expansion plans to get finalized before I comment on that. And could you please repeat the second part?

Second, if we look at the EBITDA margin, fourth quarter of for FY '22 itself, on a per CBM basis, Q4, you achieved almost INR 11,000 per CBM for a CapEx cost of INR 25,000 per CBM and the working capital is relatively same. So payback period is very attractive. So is this -- or will this lead to more players from plywood or even from other business segments entering aggressively into this market? What is your understanding?

Okay. So yes, normally, any industry, I would say, yes, that would lead to expansion of margins normally leads to higher competition until margins get stabilized to a normalized level. But this is a wood panel industry where licensing plays a very important role. So for any greenfield or brownfield expansion, you require a license. And obtaining a license is a time-consuming exercise. So I won't say that we would see those numbers multiplying still which could have a substantial impact on the margins.

Okay. So what would this mean is that most of the expansion that you are forecasting would be from the existing top 4 as well as the next 3, 4 players. Is that understanding correct?

Not really. What I'm saying is that it will be difficult for a lot of new players to procure fresh licenses as for players who are already in the industry have a historical background and performance behind them. It will be easier to procure fresh prices.

Okay. And last question is on the performance Q4, you mentioned that your institutional sales came down to 15% in the revenue mix of MDF versus 33-odd percent in the first half. So would that also be driving your high margins in Q4, whereby even volume should be impacted as if you did not sell more of your -- you lost out some of the less attractive institutional volumes? Is that more or rather...

Yes. It's one of the factors which contributed to the higher margins. And the fact that we did not see any significant raw material price inflation happening in Q4, although some of the benefits of the price increase that we took in quarter 3 was reflected in this quarter contributed to the higher EBITDA margins.

We will be taking 1 last question from the line of Chirag Lodaya from ValueQuest.

Sir, what would be the tax rate for next year? And secondly, if you can help us understand this net working capital improvement, which we have seen this year, is it a sustainable number and will again go back to 30, 35 days?

No, I don't think we would be going back to 30, 35 days at any time in the future. So we have always been focused on working capital, especially in the MDF segment right from 2010 when we entered the industry. And some of the increase in working capital days happened after the under plant tailing existence when we had to increase inventories because we had to manufacture all the sizes and thickness irrespective of whether they were in fast-moving or slow-moving to test whether the entire plant was operating satisfactory. So that contributed to higher inventories. So now those inventory levels have come down to normal. So I think the 15 to 20 days would be the normal working capital days for the future.

Right. And the tax rate?

Tax rate, I think, would be approximately around 32% for FY '23. And beyond that, when our existing tax incentives are fully consumed, we would be moving into the 25% tax rate from FY '24.

32% you said, right?

Yes, approximately 32%.

I now hand the conference over to management for closing comments.

Thank you, everyone, for joining this call. And we look forward to speaking to all of you again post our first quarter. If anyone has any further questions, please do feel free to get in touch with us. Thank you, and please be safe.

Thank you, everyone, for your participation. And in case you have any additional questions, you can get in touch with me either on phone or e-mail.

On behalf of Greenpanel Industries Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.