Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenpanel Industries Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Q1 FY '23 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. I would like to warm welcome everyone today and thank you for joining us today to discuss Greenpanel's operating and financial performance for quarter 1 FY '23.

Mr. Mittal, I'm sorry. Your voice is breaking up, so could you hold the phone a little closer to you and speak?

Sure. Yes. Is this audible now?

Sir, could you please switch to handset mode and speak?

I'm on handset mode. Hello, can you hear me?

Yes, sir. Thank you.

Yes. So Plywood volumes were marginally higher quarter-on-quarter, which is a positive beginning for the current year since quarter 1 is normally a weak quarter compared to the indicated preceding quarter . And basically, Plywood volumes were higher by 11% and 44%, respectively, year-on-year. Net sales for the quarter were higher by [ 54% ] year-on-year and flat quarter-on-quarter. MDF and plywood revenues were higher by 56% and 54%, respectively. Total MDF volumes were higher by 11%. Domestic volumes were 26% higher. Export volumes were 23% lower. Domestic sales were higher by 64%. Export revenues were 18% higher and total MDF revenues were higher by 54%. MDF basic realizations were higher by 30%. Export realizations were higher by 52%, Blended realizations were 39% higher. Plywood realizations were higher by 9% year-on-year. Gross margins were up by 539 basis points year-on-year at 61.69%. EBITDA margins were up by 688 basis points at 30% due to operational leverage in both the segments, Continuous focus on reduction of reducing wastage, price improvements and superior product mix. PAT is up by 161% year-on-year to INR 77.6 crores. Net working capital days of 16 has shown a reduction of 18 days compared to the earlier quarter. Net debt was reduced by INR 77 crores during the quarter and is negative to the extent of [ INR 17 crores ] as on 30th June '22.

Ladies and gentlemen, it looks like Sir's line is disconnected. We request you to please remain connected while we connect him back. Please do not disconnect.

Hello.

Yes. Mr. Mittal is back with us, so we can continue.

Sorry to keep you waiting. Ladies and gentlemen, we have the line for Mr. Mittal connected. Over to you, sir.

Sorry. Should I go through -- I'll go through the thing again, because I think I was not very clear. MDF and Plywood volumes are marginally higher Q-on-Q, which is a positive beginning for the current year since quarter 1 is normally a weak quarter as compared to the immediately preceding quarter 4. MDF and Plywood volumes were higher by 11% and 44%, respectively, year-on-year. Net sales for the quarter were higher by 54% year-on-year and flat quarter-on-quarter. MDF and Plywood revenues were higher by 56% and 54%, respectively. Total MDF volumes were higher by 11%, domestic volumes were 26% higher and spot volumes were 23% lower. MDF domestic sales were higher by 64%, export revenues were 18% higher and total MDF revenues were higher by 54%. MDF domestic realizations were higher by 30%, export realizations were higher by 52%, while blended realizations were 39% higher. Plywood realizations were higher by 9% year-on-year. Gross margins were up by 539 basis points year-on-year at 1.6%. EBITDA margins were up 688 basis points to 30% due to operational leverage in both the segments, continuous focus on reducing wastage, price improvements and superior product mix. PAT is up 161% year-on-year to INR 77.6 crores. Net working capital days of 16 days has shown a reduction of 18 days compared to the year-on-year quarter. Net debt has reduced by INR 77 crores during the quarter and is negative to the extent of INR 17 crores as on 30th June 2022. Gross debt stands at INR 208 crores as of 30Transmission Holdco June 2022. I take pleasure in informing you that our Board has approved capital expenditure project for expansion of MDF capacity at Andhra Pradesh. We will be expanding the capacity by [ 231,000 ] cubic meters annually at a cost of approximately [ INR 600 crores ]. I'll ask Mr. Venkatramani to run you through the financials in greater detail.

Good afternoon, everyone. I thank you all for joining us to discuss the Q1 FY '23 financial performance of Greenpanel Industries. . In Q1, our top line increased by 50% at INR 462.75 crores compared to INR 299.53 crores during the corresponding year-on-year quarter. Plywood sales grew by 56% at INR 70.85 crores while MDF sales grew by 54% at INR 391.90 crores. MDF domestic revenues were higher by [ 64% ] at [ INR 328.2 crores ], while export sales were higher by [ 18% ] at [ INR 63.68 crores ]. Plywood sales volumes rose by 43% at 2.51 million square meters and MDF volumes increased by 11% at [ 1,25,029 ] cubic meters. Uttarakhand MDF unit operated at 82%, AP plant at 80% with blended capacity utilization at 81% for both the plants put together. Plywood unit operated at 90% during the quarter. In Q1, gross margin rose by 539 basis points year-on-year at 61.6% as compared to 56.2% in the corresponding quarter. Gross profit grew by [ 59% ] at INR 284.94 crores as compared to [ INR 168.30 ] crores. EBITDA margins are up by 688 basis points at 30% compared to 23.1%. EBITDA in value terms stood at INR 138.79 crores compared to INR 69.23 crores in Q1 FY '22. Profit after tax increased by 161% at INR 77.60 crores as compared to INR 29.74 crores. Our gross debt to equity stands at 0.20 as on 30th June 2022 compared to 0.51 as on 30 June 2021. Net debt reduced by INR 77 crores during the quarter to negative INR 17 crores as on 30th June 2022. That concludes my presentation. I will now request you to open the floor for the Q&A session. Thank you.

[Operator Instructions] First question is from the line of Jignesh Kamani from GMO.

Congratulations for a good set of numbers. Am I audible?

Yes. Go ahead.

Sir, if you take our MDF volume, what you can say in Q-o-Q also, it was reasonably healthy and the realizations also are on the Q-on-Q number. So what explains the 130 basis points in decline in the operating margin from 34.6% to around 33.3%.

It's primarily because we have lost the EPCG benefit because we have completed our export obligations in March. So EPCG benefit which contributed about 2.17% to the margins in Q4 last year, so that's been completely removed from the current quarter. So the impact of that should have been higher, but we have been able to improve the gross margin. So the impact on the EBITDA has been lower than what it would have been otherwise.

So for the full year, the impact could be 2.1 percentage lower for the entire year would be because of the EPCG benefit, right?

Yes. So it will depend on a variety of factors, not just the EPCG benefit. Yes. You could take that...

Then definitely, demand supply would benefit, yes.

If it's just the EPCG benefit, yes, that's what the impact would be. But then we cannot automatically assume that the first quarter performance will be reflected in future quarters. So there could be raw material price hikes. We might not be able to pass on the full extent of those hikes to the consumers. There might be a slowdown in future quarters because of no tightening of the economy and continuous rate increases by the RBI. So I don't think we should imagine that one quarter performance will be replicated in all the future quarters. So while we keep -- while we will be -- while our efforts will be on to ensure that our performance is replicated in future quarters, but I think a note of caution is required because I feel that steps taken by the RBI is likely to have some impact on the economy sooner or later.

And how do you see money environment in MDF, how is the money environment in the first quarter? And how is the money environment currently? Because the market, we [indiscernible] some months, we also -- the demand was good, some months demand has been slightly [ tapered ]. How is the current environment?

Sure. So demand performance has been extremely encouraging in the first quarter because our performance was similar to what we have achieved in Q4. Whereas Q1 is normally a traditionally a weak quarter, and volumes are normally at a discount of 20% to 25% as compared to Q4. So from that aspect, yes, Q1 performance has been encouraging, and the performance during the current month of July is also encouraging till date.

Sure.

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

Congratulations on a good set of numbers. We would like to know more about the new plant. You said that [indiscernible] 231 CBM extension in plant. By when we can see that extended capacity? And what -- I mean, how it will be paid and what could you be looking at the peak debt number?

I think the plant should start commercial production around Q1 FY '25. We should probably start trial production in the last quarter of FY '25 and commercial production to start in --

Actually -- sorry, Vishwanathan, I'm interrupting here. Venkat ji, interrupting here. I think we should -- the commercial production would probably start quarter 2 FY '25.

Okay. Sure.

Because of the longer lead times from the plant suppliers, yes.

Okay. And so I think you would assume that the plant achieves full capacity utilization in the third or the fourth year of operations.

Sure. Any greenfield plant or -- simultaneously planned?

No, nothing at this point of time.

It looked like Ms. Talreja's line has disconnected. Maybe we'll wait for her to reconnect. In the meanwhile, we'll take our next question, that's from the line of Achal Lohade from JM Financial.

Yes. Congratulations for the great performance once again. What I wanted to check, did I hear the CapEx number right? You mentioned 231 CBM for INR 600 crores?

That's correct.

So in that case, I'm just trying to tally the number. If you look at the competitor who is adding a brownfield 132,000 CBM for about INR 250 crores. That translates into about INR 19,000 per CBM CapEx, while we are talking about 26,000 per CBM. Can you help us understand, because if I look at even in our -- when it was a greenfield 1 in South, we had spent about INR 720 crores for 360 CBM, which translates into 20,000 per CBM. That was a greenfield. So just perplex in terms of, if you could clarify on this CapEx per CBM or anything?

I won't be able to clarify on the competitors' numbers because I don't know whether it's a European plant or a Chinese plant, and that could make a lot of difference to the comparison. As far as comparison with our older plant is concerned, yes, you're correct, there's been an inflation of about, I think, 20%, 22% as compared to the cost, which was finalized in 2016. So yes, raw material costs have gone up substantially, especially steel prices. And there has also been a depreciation of the rupee versus the euro. If we consider the earlier plant at the time, rupee was about -- euro was about INR 73 and currently, it's about INR 81. So that's also contributed significantly to the difference in prices across -- over the last 6 years.

Understood. My second...

Also just to highlight, just to highlight here, MDF plant sizes, investment costs don't go up linear in relation to -- in relation to the capacity increase. So it's not necessary that if the plant capacity is going up by 50% that the investment cost would go up by 50%. It will only go up by 15% to 20%. Now since we are installing this plant in Andhra, there are two variations here, this is a specialized line which would specialize in production of thin panels, for which long presses are not suitable, which we currently have in our plant. Secondly, this would also be a very fast production line in terms of the speed of the press to make it specialized for thin panels, which does add to -- added investment cost. Because [ production ] of thin panels is more challenging because it happens at high speed. Hence, it adds to the investment cost to a certain extent as well. Because of the various crises going on in the world, raw material prices have gone up drastically. And hence, that is also impacting the investment number to a certain extent.

Right. If I understand correctly, it's to do with, A, the product, the thin panel, what we are looking for. And hence, the CapEx is also higher apart from the cost and the currency. If I were to ask you at full utilization, what kind of revenue and the ROC it can generate?

To some extent, it would depend on prices prevailing at that point of time. But I think if we consider at current domestic prices and current mix of domestic and exports, so then it should give peak revenues of about INR 770 crores.

Right. But given the kind of capacity additions we are seeing from the competitors and the kind of price hike the industry has taken in last about a year or so, do you see the risk to the current price not being able to sustain that a year down the line? And in that case, how do we look at this ROC effectively? Is that mid-teens? Is that high teens, 20s post tax?

So it will also depend on at what point we are looking at the ROC, whether we are looking at optimum capacity utilization or at the beginning or the middle. So it will be different at different points of time. And regarding realizations, I think we are not really looking at a major capacity addition like something which happened during 2018 when the country's capacity went up by 2.5x. So this time, this will be a more moderate kind of capacity increase, probably adding about 25%, 30% to the domestic capacity, and considering that the industry is growing at 15%. So I don't think it will have a long-term impact on realizations. But yes, definitely, we could expect some short-term impact on realizations because I think 3 capacities will be operational within a period of 12 months, 12 to 15 months. So there's definitely bound to be some short-term impact on realizations. But in the medium and long-term, we are confident that the industry will grow at a fast pace and these capacities will be easily absorbed.

Understood. If I may ask a couple of more questions, sir, with respect to...

Sure. Please go ahead.

The exports. If we -- can you help us understand how is it freight rate, how it has moved on a year-on-year basis, let's say, for the first quarter FY '23? What was the freight increase, and how much is the dollar price realization increase?

Okay. So there's been an increase of about 10% in freight rates in Q1. And I think we have taken about 6% increase in rates, although it's not been uniform across all customers. So depending upon rates, increase in rates to different destinations, we have taken some price hikes. But yes, we have not passed on the full extent of the cost increase to the customers. So post that, the realizations for the current quarter are around [ INR 23,900 ].

Right. If you could give some clarity as to how the global MDF prices have moved compared to, let's say, pre-pandemic? How are they trading currently?

Shobhan, can you take that, please?

Yes. I mean, prices have moved up as -- which is also reflected in our own export business as well. However, with the dollar strengthening, the prices have seemed to stabilize and slightly started to sort of wean off. And there's a very -- has been a very slight 3%, 4% reduction lately in the past month or 2 in the international markets. But they seem to be quite stable because that is being compensated because of the currency gain as well on account of the export business.

Right. Okay, okay. Understood. And how do you look at -- how do you look at this, the imports, how is it trending? And what is -- if you could help us in terms of landed cost, the price difference between the landed cost of imports and the domestic price for thick and thin MDF, please?

Sorry. Go ahead, Venkat ji..

Yes, please go ahead.

No, no, please go ahead.

Okay. Imports have not shown any increase during the first quarter of this period, so I think they continue to be on an average of approximately about 5,000 cubic meters per month, and -- without considering the movement in currency during the past 1 month. Prior to that, thick MDF prices landed were approximately similar to domestic prices. And thin MDF prices were at a discount of 10% to domestic prices. But we'll probably have to check that again at the end of July because of rupee depreciation.

Got it. Got it. And sorry, just one clarification. The -- as you said, you're not looking at significant capacity addition. Is this -- is it fair to say that the kind of current realization, what we are seeing in the domestic market, that should sustain for at least next 2, 3 quarters? Is that a fair assumption?

Yes, I think it's a fair assumption.

Understood. Sir, I'll come back in the queue.

Yes. Thank you.

[Operator Instructions] We take the next question from the line of Ashish Kumar from Infinity Alternatives.

Congrats for a good set of numbers. A couple of questions. One is that given the fact that the prices seem to be holding on, do you think that there is a scope for the guidance that you had given around for the EBITDA margins for the full year to be around the current 33%? Or do you think that will kind of still, you will hold on to your 30% margins?

Yes. I think it will depend on what kind of challenges we face on the raw material front, and whether future demand environment is robust enough to permit -- to take increase in prices. But looking at the current situation, I think probably we would be looking at a slight moderation of the operating margins, maybe somewhere around 26%, 27% for the remaining quarters this year.

And that's a big dip, sir, given the fact that realizations are flat. Is the operating cost gone up by 5%, 6%?

No. We are expecting increase in chemical prices because of significant price movements on crude, so that could happen at any point of time. We are not sure whether that may happen in quarter 2 or quarter 3 because there's no direct connection between crude prices and the chemical prices, although they are all derivatives of crude. But sooner or later, higher crude prices translate into higher chemical prices.

Right. Second question, sir, was around the capital allocation, now that we have become net debt-free. At the current run rate of cash flow generation of roughly around INR 100 crores a quarter, our CapEx over the next 8 quarters is INR 600 crores, so we are going to obviously generate a substantial amount of free cash over this period of time. And I assume that because it's an export, you will -- it may be advantageous to take advantage of a long-term, low-cost ECA facility as well as part of the project funding. So do you think -- how do you see that? Do you see a large -- how do you see cash being distributed out? Or do you want to keep it on the balance sheet? Because the delta between the ROC and ROCE is dependent for the capital structure because keeping cash is -- doesn't generate enough [indiscernible].

Yes, I think we will definitely be looking at an ECA borrowing, which would depend upon the quantum of imported machinery. But considering the significant price differential between international and domestic interest rates, we'll possibly be taking the full extent of the ECA borrowing, which could be approximately around INR 225 crores to INR 230 crores. And I think we would probably do the balance with internal accruals. And regarding application of future cash flows, I think that would depend on how the economy pans out over the next 24 months.

Great, sir. But the factors that we already are net debt free. We're sitting on INR 300 crores of capital, and we're generating INR 100 crores of cash a quarter. So would it -- given the fact that over the next 8 quarters, the cash requirement is only INR 360 crores. So does it make sense to, let's say, go out and do a live dividend or a buyback? Because obviously, in the next quarter, this INR 20 crore net cash would look like INR 100 crore net cash situation, right?

See, we'll also be repaying existing borrowings of around INR 50 crores to INR 60 crores per annum. So I think probably free cash flows will be around INR 70 crores to INR 75 crores per quarter. So I think probably we could do the projects without any borrowings. But I think it's healthy to have cash flows in hand at any point of time because that would probably enable us to take advantage of any good opportunities which are available in the future. So like I mentioned, we will be taking the ECA borrowing. But distribution of surplus cash would depend upon how the business pans out over the next 2 years.

Sure, sir. So my limited point is that I agree with you to take the ECA borrowings, but the fact is cash on the balance sheet beyond net cash situation is returns dilutive. And my request would be for you guys to think about as and when there is excess cash to distribute it back to the shareholders, that.

Yes, we'll definitely be thinking about that. But I also have a feeling that we should not be distributing surplus cash until we have -- you feel that there are no possible avenues for generating good returns. It should probably compensate the shareholders better.

So are we looking at diversification beyond MDF? In terms of...

No, at this point of time, we are not looking at any diversification. We are not looking at any other capital expenditure plans. But like I mentioned, we will be definitely considering distribution of surplus cash to shareholders. But the decision will be taken at an opportune time.

We'll take our next question from the line of Anika Mittal from Invest Research.

My first question is on the anti-dumping duty which is on import of [indiscernible] MDF which has been expired on 28th March of 2022. But as for my knowledge, no notification has been released for the department for extending the fee. So I just say, depending if demand -- retraction in demand, because it's due to mobile or the imports.

I'm sorry, your voice is breaking -- can you speak a bit louder or speak closer to the microphone?

Sir, I am asking on the ADD, anti-dumping duty on import of MDF.

Yes.

Okay. So the ADD on import of MDF has been expired on 30th March 2022. And as for my knowledge, no new notification has been released by the department. So what are you expecting, any retraction in demand due to the duty removal in the future? Or will there be an increase in the import share of MDF?

No, I don't know -- yes, you're right. There's no new added up in notification being issued and there's no current active protection measures for the domestic industry. However, going back to the anti-dumping rules in place, it wasn't a blanket ban across all countries, and many countries were still allowed to sell material to India, which was prevalent to any which ways. So we don't foresee that the removal of this anti-dumping is going to create an additional challenge for the domestic industry, especially given the circumstance that the international market pricing has gone up drastically. And B, the fact that the rupee is considerably weaker as opposed to -- against the pound [indiscernible] of cost in the coastal areas, that model has always been prevailing, and obviously in the coastal areas, there is little threat of competition from the imports. But the moment you start transporting [indiscernible] is important and then that [ sort of ] new law. So in my opinion, we don't foresee that -- in all equations of our [indiscernible] is going to be any major challenge.

Okay. Okay. My next question is, sir, on the innovative products. Sir, are you currently looking for any innovative products in the MDF degree, which will help in maintaining our hedge over the product [ peers ]?

We have under -- we are considering certain products -- product developments within the MDF family but maybe different rates of [indiscernible] on niche segments. Research is in development of the same ongoing trials on. So we are in the process of doing that at this point of time.

Okay. Sir, my last question is regard revenue expectation from this CapEx. So yes, I haven't listen when you were telling that.

Okay. Like I mentioned earlier, considering the current revenue mix of domestic and exports, which is roughly 80% domestic and 20% exports, we are expecting a revenue of about INR 770 crores at optimum capacity utilization and based on current prices.

So you are saying INR 1,070 crores, right? If I'm not...

INR 770 crores. 770.

Okay. INR 770 crores. Okay.

We'll take the next question from the line of Nikhil Agarwal from VT Capital. .

I wanted to know your percentage of volume and value mix of prelam and plain MDF?

Okay. So during the current quarter, and -- so I'll put it like this, plain MDF contributed about -- Plain MDF contributed 1,06,000 cubic meters, and prelam contributed about 17,000 cubic meters. And apart from this, flooring contributed 1,486 cubic meters, and vinyl MDF contributed 51 cubic meters. So overall, MDF volumes were 1,25,029 cubic meters.

Yes, sir. And sir, do you plan to take -- increase the proportion of prelam MDF going forward, because you have higher realization than margins according to my understanding?

Shobhan, you can take that, please?

Yes. I mean, is it -- basically the market ratio of prelaminated versus plain is fairly sort of constant and consistent. I mean, it's always a push for us to increase the percentage of the prelaminated MDF shares, because you rightly said that it's high value addition and more profitable. But there is a limit to how much more of -- as a percentage, that can increase. Because the market trend of consumption remains fairly constant as a percentage. For example, in the particle board segment, the consumption of prelaminated particle board is much higher compared to that the MDF segment because -- only because particle board is only focused on the OEM segment. Whereas when it comes to MDF, there's many other applications which go into the scale of the products that prelaminated may not be suitable. But sure, as a company, there is always a push for increase of prelaminated MDF.

Okay. Okay, sir. And so with the EPCG benefit now being realized completely, will you be reducing our exports all the more going forward?

Well, you see, exports currently is a profitable proposition for us. So domestic is of more process, but export is also profitable. And it's a good sort of balancing factor for us in terms of dividing our risk as well as depending on the domestic demand. So we will continue to have some allocation for exports. We also do know that when the new plant is imported, we will have -- sorry, is commissioned, we will have a substantial imported element in that as well, which may further create additional export obligation. And then it would also support in bringing the new manufacturing facility up to production -- optimum production capacity in a faster time. Hence, we would like to keep the export business running based on that as well.

Okay. Okay. And sir, what would be the volume and value mix for export and domestic currently?

Okay. Like I mentioned, the ratio is about 80-20. So -- and out of the total volumes of 1,25,029 cubic meters, Domestic sales were 98,428 cubic meters and export volumes were 26,601 cubic meters.

Okay, sir. Okay. Great. And sir, just one last question. You plan to take on debt for the new plant that has been commissioned, so that has been approved. So like, when do you plan to take the debt? And what would be the cost of borrowing?

So I think most of the borrowings will happen next -- in the next financial year when the components are imported from Europe. So -- and the bulk of the debt will probably be an ECA borrowing from a German bank. So at the moment, I'll not be able to give you a specific cost of the debt. But yes, an ECA borrowing is far more economical than domestic borrowing even if we consider the currency hedging costs.

Okay. Okay. Great.

[Operator Instructions] We'll take our next question from the line of Pritesh Chheda from Lucky Investment Managers.

So this MDF utilization of 81%, how much can it max out in your 6,60,000 CBM? And this capacity of yours, what max revenue is possible?

I think, at the moment, I will say that we can achieve 100% capacity utilization because I don't know how far beyond 100% we can go unless we actually reach that stage. So I would say we can achieve around 6,50,000 to 6,65,000 cubic meters on that capacity. And revenue, to some extent, will depend upon the mix of domestic and exports that we are doing. So probably, I think if we look at 85%, 15% ratio for FY '24, I think we will be doing approximately INR 2,000 crores revenue from the existing capacity.

Okay. And your new capacity will come in FY '25, right?

That's correct.

So you -- this -- what kind of volume growth do you expect for this year, that is FY '23? So you did about 495,000 tonnes last year. You will fully utilize the capacity this year?

No, definitely not. I think that the steps that central banks across the world and also the rate increases by the RBI, it's going to have some impact on the economy. So although we are not very sure about when that will happen, whether it will happen in the second quarter or the third quarter, but we feel that it's going to have some impact sooner or later on discretionary spending by consumers. So I think we are looking at a 10% to 12% volume growth in the MDF segment during the current financial year.

Okay. And lastly, sir, why did you call out for a margin of 26% versus 30% of last year and 33% of quarter 1 or 31% to 32%. Why did you call out a margin of 26% in MDF? I was unable to comprehend your comment there?

Okay. So crude prices have increased significantly, and we have not seen any increase in chemical prices since January this year. In fact, we had seen some reduction in chemical prices during the beginning of the year. So I think at some point of time, although there's no direct timing difference between the increase in crude prices and increase in our chemical prices, which are basically derivatives of crude. But at some point of time, we think that the difference will catch up and we will see some increase in chemical prices. Now this may, depending upon demand conditions in the domestic markets, we may not be able to pass on the full extent of those cost increases to the market. So yes, considering that we might not be able to pass on the cost increases, I had forecasted a lower EBITDA margin for the remaining period during the current financial year.

So it's your estimate, or it's actually happening, in your opinion?

It's my estimate, yes. Or rather, I would say it's our estimate.

So as of now, you think that chemical prices will rise based on your experience?

Yes. We think that.

That's fine. You won't be able to take the price hike?

No, I'm not saying that we won't be able to take the price hike. But what I'm saying is that our ability to take price hikes will depend upon demand conditions at that point of time.

All the best to you, sir.

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

Just wanted to check in terms of this VAT affluent plant that we -- I mean, we did this brownfield and it was supposed to save a lot of spillage and VAT, et cetera. So have we kind of updated the full benefit of that? Or we can still expect some more benefits stock through due to this brownfield? And to some extent...

Yes, the major part of that benefit is already reflected in the Q1 numbers, but probably a very small part could be realized in the second quarter. But yes, you're correct. I would say almost 90% of that benefit is already reflected in the current numbers.

Okay. And so -- I mean, so this is not going to offset any increase in chemical prices, right?

No, no. Like I had already explained when we were discussing that capital expenditure last year. So [indiscernible] machinery was only going to give me a benefit of about, I think, INR 50 lakh per month. That's what I had said at that point of time.

Okay. So this -- also, sir, on this new facility that you meant, the same premises as that of our existing Andhra facility?

That's correct.

Okay. And in terms of technology, if you could kind of help us understand. I mean, your existing South facility is state of the art with -- plus German machinery. So the new incremental capacity is going to be the same, or it's going to be anything different that we can expect?

Shobhan, can you take this, please.

I'll take that, yes, yes. So basically, I mean, the technology is fairly similar. It's a European continuous press that we will be installing. However, the -- basically, the idea is that this line would specialize in production of thin panels because the existing press in the South plant is very long. So it's good for producing high capacity, but the moment you start producing thin panels, the capacity drops drastically due to limitations of the press speed. Hence, the capacity drops very drastically, and hence, we don't currently service that segment of thin panels, especially from the South plant. So this line is, let's say, designed to be a specialized thin panel production plant, which would give us some opportunity to cater to this thin panel segment, which consists almost 30% to 40% of the MDF market.

Okay. Shobhan ji, I just had one question related to international markets. We are currently seeing a lot of turbulence in markets, especially in Europe, with power costs actually spiraling out of control. So I just wanted to get your perspective on the kind of MDF capacity that is there in Europe? And whether some facilities have become unviable because of this current power situation, and whether some facilities have shut down? And will that kind of keep the overall prices under check?

As of now, you see -- it hasn't directly impacted the MDF industry or its pricing per se. Because if facilities started to shut down or curtail production, prices will start inching up. So as of now, prices seem to remain quite stable, to be honest with you. I think the impact of this is yet to be seen and may take some more time. I mean, it will also become more prevailed when the winter times arriving in Europe, to be honest with you. But as of this point of time, I don't think it's affecting the market internationally, per se. And moreover so, I think it will not impact us as a company to a large extent because the European MDF production or mills in that region are in no sort of competition in similar markets actually also as such. We are primarily keeping to Southeast Asia and Middle East, whereas the European mills are very, very focused on the local markets. So it would not have any adverse or positive effect for us, to be honest with you.

Our next question is from the line of Aman from [ Augmenta ] Research.

Sir, actually, I wanted to ask about the -- like in the last con call, you mentioned that the likes of Vietnam and Indonesia are exporting to the U.S. for [indiscernible] that used to be substantial exposures to India, and now, they're exporting furniture to the USA. And given that like you have revised your -- you're mentioning that the margins could drop down to 26%. So can you also mention impact on the realizations? Like currently, we are talking blended realizations of INR 30,000 per cubic meter. So where can we see the realization by the end of this financial year? And what is the overall supply-demand scenario in the overall market?

See, the supply-demand scenario continues to be comfortable because there's not any major capacity coming up this year. We are only expecting one new capacity of 130,000 cubic meters to be operational in the second half of the year. And it's difficult for me to give you an estimate of what realizations could be at the end of the year because, like I mentioned, any -- in case of increase in raw material costs, our ability to pass on those costs to the consumer will depend upon demand conditions at that point of time. So while we are comfortable with the existing realizations, at this point of time, we are unable to confirm whether we would be able to take further price increases without impacting volumes, in case there is an increase in raw material costs.

We'll take our next question from Priti Jain, an individual investor.

Congratulations on great set of numbers.

Thank you.

My question is for Shobhan ji. Sir, on the unorganized side, currently, we are seeing in the investor presentation that unorganized capacity has increased to almost 30%. So sir, as unorganized competition is threat is to our domestic industry or they're just gaining the market share of imports as imports have currently reduced?

It's a mix of both, to be honest with you. I mean, the unorganized segment is definitely, to a certain extent, posing a threat to the domestic industry as well. There is also some malpractices going on with regards to trading of the product and, to a certain extent, invoicing practices as well. So I mean, it's a mix of both. It is a threat to us as well, as well as certain portion of the market share of imports, which is the price-sensitive segment is being taken away as well. So, yes. I mean, to answer it plainly, it's not just imports. It is a threat to us as well.

So sir, in which region are they expanding?

Okay. To put some further details to your question, so most of the unorganized MDF producers are based out of Northern India. Only one plant is based in South India. And you're right, although they are significant presence in terms of capacity. In terms of market share, they are far lower, just to give you a picture. In terms of capacities, they are probably about 30%, 32% of the total market. Whereas in terms of market share, there would probably be somewhere between 18% to 20%. And like I mentioned, they thrive primarily on invoicing practices. They provide the invoice only for a certain part of the total material value and the balance amount is settled in cash.

And I have another question, sir. The margins guideline, which you give 25%, 26%. That are on a broad basis, or only of MDF?

Yes. So I mentioned 26%, 27%, that's for MDF. I think Plywood margin should be around the current levels of around 11% to 11.5%.

Thank you, sir. That's it on my side.

Our next question is a follow-up from the line of Achal Lohade from JM Financial.

Sir, any color on the timber price, how it has moved to North and South, respectively, over last 1 quarter and also on a Y-o-Y basis?

Okay. There's been hardly any movement in timber prices in Southern India. Whereas in Northern India, I think over the past one quarter, I think we have probably seen a movement of about 4% to 5% in Northern India.

And on Y-o-Y basis?

Y-o-Y, just one second.

And similarly, if you could also talk about the blended chemical cost increase on Q-o-Q and Y-o-Y basis?

Yes. I think Y-on-Y, there's been about a 20% price increase in Northern India.

And in South, it's same?

South, probably about a 4% increase.

Okay. And what about chemicals sir, in same fashion, Q-o-Q and Y-o-Y?

Q-on-Q, there's not been any movement in chemical prices. And year-on-year, of course, there's been a major increase. I would say probably about 30%, 35% increase in chemical prices year-on-year.

And sorry, if I'm hopping on this. What would be the -- out of the total cost, how much would be timber and how much would be chemical for MDF business, sir?

See, pre-Covid, we used to have a ratio of 65% wood and 35% chemicals. But at current prices, timber and chemicals have an almost equal share.

Understood. And just one clarification on the CapEx. If the steel price actually comes down or normalizes, how is our contract structure? Would we get to benefit out of that? Or we still end up paying the same what we are committing right now?

We would end up paying the same amount, and that also goes for if -- there's an increase in steel prices. So our prices are fixed irrespective of movement in raw material prices. We don't lose out in case of inflation, and we won't get the benefit of any price reduction.

Got it. And if you could -- I don't know if you can, what is the margin, EBITDA margin for South and the North plant for first quarter?

For the first quarter, North plant was 31.8%, South plant was 34.3%. Blended was 33.8%.

Right. And for the export for the first quarter?

I can't give you -- no, we don't maintain any records, which would enable us to give you a correct margin [indiscernible]. And that's just my own estimation. So I think it's probably around 15%, but that's a very rough estimate.

Understood, Sir. Really helpful.

Our next question is from the line of [ Shubham Surat ] from Perpetual Investment Advisors.

Sir. Congrats on the very robust numbers for the first quarter. So my question is that, how do you think the input cost inflation environment will pan out in the coming future?

It's very difficult for me to say how demand will -- whether demand will be stable or will improve or will reduce because there are so many variables. But yes, I think due to increase in interest rates and tightening up of the economy across the world and even India, central banks are increasing rates all over the world. I think we will feel that impact of those increasing interest rates. I think that could lead to a slowdown in demand as far as the real estate housing is concerned. And sooner or later, that's also going to impact our business volumes.

The next question is from the line of Anika Mittal from Investor Search.

Sir, my question is that you are saying that revenue -- the new CapEx will start earning revenue from financial year 2023, quarter 2. Then sir, how are you going to see the growth in financial '23 and '24?

Okay. So if you look at the last year, we did volumes of about 4,95,000 cubic meters, including domestic and exports. So -- and at full capacity, we can produce at 6,50,000 cubic meters. So we have almost a 30% scope for increase in volume growth over the next few years.

Sir, so what are your revenue expectations for?

6,50,000.

So sir, what are your revenue expectations for financial year '23 and '24? Revenue growth expectation?

I think we'll probably do around INR 1,900 crores to INR 2,000 crores this year, and probably looking at somewhere around [ INR 2,300 crores ] in FY '24.

Our next question is from the line of Priti Jain, an individual investor.

Sir, my question is -- my question is that, sir, on the CapEx side, sir, you are telling that the new plant, which is coming, can generate maximum INR 770 crores of revenue, which turns to be an investment turnover of [ 1.25% ]. Sir, do you don't think that it's on the lower side of the current plant?

Yes. We are not very sure about we'll be able to have the same mix of value-added products at the new plant because we'll probably be attaining full capacity utilization around FY '27 or so. So at the moment, we are considering lower revenue from the new plant, and there could always be changes in prices that could move both ways the higher or lower over the next 3 to 4 years. So I think at this point of time, it's just a very rough estimate. And I think probably, we could give you better forecast just before the plant is scheduled to commence operations.

Our next question is from the line of Arun Baid from ICICI Securities. Mr. Baid, could you please unmute your line and go ahead with your question? There seems to be no response from this line. With that, that was the last question. I now hand the conference back to the management for closing comments. Over to you, sir.

We thank everyone, for joining this call. We also look forward to speaking to everyone over the next quarter. If anyone has any further questions or clarifications, please do reach out to us. And wish everyone a very good day and a good weekend. Thank you.

Thank you, everyone, for taking time out to attend this conference, and I wish you all a good day and a happy weekend. Thank you.

Thank you, members of the management. Ladies and gentlemen, on behalf of Greenpanel Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.