Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9 months FY '23 Earnings Conference Call of Greenpanel Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Q3 and 9 Months 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, Mr. Rishab. Good afternoon, everyone, and thank you for joining us to discuss Greenpanel's operating and financial performance for quarter 3 FY 2023. We had revenue growth of 3.2% in MDF, degrowth of 14% in plywood. Overall revenue growth for flat, MDF export volumes grew 24%, domestic volumes were down by 7%. Overall, MDF volumes were down by 2%. MDF gross margins improved by 123 basis points. Plywood gross margin fell by 277 basis points while overall gross margins increased by 115 basis points to 58.2%. EBITDA margins adjusted for ForEx loss/ gain were down by 319 basis points quarter-on-quarter at 23% due to lower domestic volumes for this year. Reduction in MDF export realizations and volume price cuts. Gross tax profits were lower by 40% due to fall in EBITDA and currency losses of INR 17.29 crores. Net working capital at 23 days has shown a reduction of 1 day quarter on quarter. Net debt has reduced by INR 86 crores during the quarter and stands at negative INR 145 crores as on 31st December 2022. We paid INR 8 crores towards MDF expansion project. During quarter 3, aggregating to INR 39 crores during the year to date. We are pleased to announce that Greenpanel will be sensible sponsor of Delhi Capitals in the IPL cricket tournament for the next 3 years, starting from current calendar year 2023. This will significantly enhance the Greenpanel fan visibility. We will also be principal sponsors for Pretoria Capital for the SA20. Mr. Venkatramani will now lead through the financials in greater detail, post which, we will have a question-and-answer session. Thank you.

Good afternoon, everyone and thank you for joining us to discuss quarter 3 financial performance of Greenpanel Industries. Net sales during quarter 3 was INR 419.10 crores compared to INR 417.43 crores during the year-on-year quarter. MDF sales grew by 3.2% at INR 361.57 crores and contributed 86% of the top line. MDF export volume grew by 24% at 25,410 cubic meters. Domestic volumes were down 7% at 92,890 cubic meters and overall, MDF volumes were down by 2% at 1,18,218 cubic meters. MDF domestic revenue was INR 314.20 crores, while exports contributed INR 47.37 crores. Domestic realization were up by 10.5% at INR 33,854 per cubic meters, while export realization were lower by 11.4% at INR 18,643 cubic meters. Blended MDFs realization were up by 5.4% at 30,585 per cubic meter. Uttarakhand MDF operated at 81% and AP plant operated at 73% with blended capacity utilization of 26% on enhanced capacity of 6,60,000 cubic meters. Plywood sales has decreased to 14.2% at INR 57.53 crores. Plywood sales volumes were lower by 19.4% at 1.99 million square meters and the unit operated at 66% during the quarter. Plywood sales realization were up by 6.3% at INR 289 per square meter. In quarter 3, gross margin increased by 115 basis points year-on-year at 58.2%. Gross profit increased by 2.4% at INR 243.84 crores. EBITDA margins adjusted ForEx loss / gain were down by 283 basis points at 23% due to fall in MDF domestic volumes, reduction in export realization and fall in plywood volumes. MDF export realizations were lower by 30% quarter-on-quarter due to price cuts of 12% and 8% due to sales mix [indiscernible] with new customers. EBITDA adjusted for ForEx stood at INR 96.5 crores due to reason mentioned [indiscernible]. PAT was lower by 40% due to fall in EBITDA and currency loss of INR 17.29 crores. I'll now update you on the performance details for the year-to-date. Net sales grew by 18.9% at [indiscernible]. MDF sales increased by 22.2% at INR 1148.56, while plywood sales grew by 2.1% at INR 189.41 crores. Gross margins were up by 219 basis points at 59.5%. Gross margin in value terms was up by 24.9% at INR 796.21 crores. EBITDA margins adjusted for [indiscernible] was flat at negative 0.3%. EBITDA and value terms adjusted for ForEx loss/gain increased by 19% at INR 351.41 crores. Post-tax profits were up by 17% at INR 187.59 crores. Total MDF sales volumes were 3,69,479 cubic meters with blended capacity utilization of the 2 plants at 77% of enhanced capacity compared to 90% in the year-on-year period. Expenses for plywood were lower by 4.10% at 6.55 million square meters with capacity utilization at 74% compared to 80% in the corresponding period. Gross debt to equity now stands at [indiscernible] of 31st December 2022 compared to 0.31% as of 31st December 2021. Net debt reduced during the 9-month period to negative INR 145 crores as of 31st December 2022. That concludes my presentation. Please open the floor for the Q&A session. Thank you.

[Operator Instructions] We have a first question from the line of Sandesh Barmecha from Haitong Securities.

What is the reason for muted demand scenario for December quarter, sir? And has the scenario improved in January, sir? First question.

We won't say that the demand scenarios look at -- demand continues to be reasonably good [indiscernible] that imports size is increased significantly during the quarter, which has had an impact on our domestic volume. So, yes. As far as the near-term is concerned, I think we will see pressure on domestic volumes. So we are increasing the target for export volumes.

Okay. Sir, what will be the reason for sharp increase in our interest expenses despite the debt going down? And what is the reason for other income also going down sharply on quarter-on-quarter [indiscernible] sir?

Yes. The reason for both are due to currency losses, both dollar and euro appreciated significantly during the quarter versus the rupee. So in the aggregate, we had currency losses of INR 17.22 crores during the quarter, of which INR 8.45 crores or above EBITDA and INR 8.77 crores included in finance costs. Now there was ForEx gains during the first 2 quarters of the current year and since we had significant currency losses in the third quarter, the currency gains of the first 2 quarters are reversed. So that's the reason we see a negative income for the third quarter.

Okay. Sir, last one, sir. So how much CapEx has been done in 9 months FY '23? And what will be our outlook for FY '23 '24, '25, sir?

Okay. The total planned outlook is INR 600 crores, of which we expect to spend about 10% in FY '23, about 80% in FY '24 and the balance 10% in FY '25.

We have our next question from the line of Harsh K Shah from Dalal & Broacha Stock Broking.

Couple of questions from my side. Firstly, on the imports, I believe that the December volume has come down a bit compared to the previous months. So what would you attribute this slowdown in imports to and has the downward trend even continued in January? That's my first question.

Okay. See, it's very difficult to state how imports will behave because that will depend upon the development in the international markets. The reason why the imports have increased during the past 6 months. This primarily because there's been a slowdown in furniture demand in U.S. and in Europe and countries like Vietnam and Indonesia, which were exporting furniture to those countries, have been impacted. So now instead of furniture, they are exporting their MDF boards. So it will, to some extent, depend on how fast demand improved in those countries. And also how crude and [indiscernible] rates behave. So all these factors will influence import. So it's very difficult to say how imports will behave over the next 12 to 18 months. But we are increasing the focus on the export markets, which -- our anticipation is that imports will continue to be off at similar volumes for the next couple of quarters. So while our focus on the domestic market continues to engage so, we are also increasing the focus on the export markets.

Okay. And secondly, any sort of volume at the company level operating margin guidance for FY '24 and '25?

See, as far as FY '24 is concerned, we would be looking at volume growth of 10% to 12% and margins around 23% to 25%. And we would not like to give any guidance for FY '25 at this point in time because that's quite different at this point of time. So now we'll probably look at that maybe after the first half of FY '24 is completed.

We have our next question from the line of Achal Lohade from JM Financial.

Can you clarify about the impairment or the investment write-off. What has driven this? Any particular event? And is there any more write-offs, which are expected?

No, it's a onetime write-off. So there will not be any future write-off. So this was primarily -- we have started export business when Uttarakhand unit was in operation. I think we started exports around 2014 or '15. And at that time, the export volume was very low because domestic trade costs from Uttarakhand plant to Mumbai port very, very significant. It was almost 25% of selling price. So at the time, we were doing very low volumes, primarily to maintain a presence in the export market because we knew we would require those markets when the Andhra unit started operation. But we were maintaining infrastructure of the export [indiscernible] at Singapore. And since the export volumes very low, the losses are heavy in the initial year. And the situation had improved post the commencement of the Andhra plant. I think we have high profits for the Singapore subsidiary over the past few years. But the view is now with export realization coming down, we would not see any significant improvement in profit of the Singapore subsidiary. So we decided to take an impairment on the investment in the Singapore subsidiary, which is related to the past losses.

I'm a bit confused here. So you're saying you're going to increase the focus on the export. At the same time, you're saying you're not seeing it is profitable and hence, write-off. Can you please just help me understand that?

Yes. The reason why we are increasing focus on export in the near term is primarily because of the increase in imports in the domestic market. So that's the reason we are increasing the focus on exports, primarily to have a better capacity utilization of our existing plants. But the reason we have taken the impairment is because we felt that while the volume of exports will increase, it will not be a very profitable operation and we do not see a significant reversal of the past launches of the Singapore subsidiary over the next couple of years. So that's why we decided to take the impairment.

Okay. Okay. So you're saying basically the past losses have got basically written off now in terms of the impairment? If I...

It was already reflected in the accounts as far as the consolidated accounts were concerned. It's only -- the impairment is reflected only the stand-alone accounts.

Is there any tax benefit of this sir, by any chance?

There might be. I would like to no comment on that currently. But I believe, yes, there would be some tax benefit. So I think we get the RBA approval for the write off.

Understood. Now my next question was in terms of the domestic market. We have seen a decline of 7%. How high has been the -- domestic industry growth has been according to you for the quarter? And in terms of import volume, what is the mix? And I presume it will be more in the South market. So how much of the South market is at present is catered by imports?

Okay. This is part of the volume is coming to the Southern markets, I say at least 70% of the volumes are coming in the South market. And I think markets are still growing at a good pace because while imports in this quarter to the tune of about 50,000 cubic meters, we have seen only a bit of 7,000 cubic meters on our domestic volumes. So I think the market continues to grow and it continues to replace the plywood segment. But yes, in the short term, imports have taken some market share away from domestic manufacturers.

Of the South market, how much would be import, sir?

Somewhere between 70% to 80%.

No, how the imports you are seeing?

The balance will be rest in India.

No, I ask in terms of the total size of -- domestic size of Southern market. Of that, how much is imports?

Approximately 45% of India's volume start from Southern India. So if we take that the current -- as of FY '22, I believe, the volume was around 1.8 million cubic meter. So 45% of that would be about 8 lakh cubic meter and looking at the current transits, say about 2 lakh cubic meters is current transit. So roughly 25% of the Southern markets is being catered to by imports.

Okay. Understood. If I may ask a follow-up question, sir? In terms of the -- any number you can talk about in terms of the price difference between our selling price in South versus the imports of the thick and thin MDF in both the segments, please?

Yes. The price currently would be about 25% between our pricing and import pricing.

In both categories, sir?

Yes, in both thick and thin categories. I'd like to add something to this, though. This pricing difference, what [indiscernible] is mentioning, is when an importer is bringing the material directly to his warehouse at the port location. The moment a larger importer in terms of trying to sell it further to smaller retailers or transported for the [indiscernible], then the cost obviously get inflated and the pricing difference gets reduced.

How much would that impact to be? Let's say, if he was to do in option 2.

Depending on, let's say -- I mean, depending on the distance of the transportation, also distance margins, I would say it would add another 5% to 7% to that.

And any development, any thoughts on this antidumping duty? If the industry is represented, if the government is evaluating anything.

It is ongoing. Previously, what had happened was that the Commerce Ministry had recommended the implementation of antidumping but unfortunately the Finance Ministry have not passed the decision, and there is a rule which says that if you don't have a final decision from the Finance Ministry within 90 days then this to be, let's say, rejected. However, multiple industries have approved the high court, us including where we have requested that a decision to be taken. It simply cannot be the fact and I could have suggested that the Finance Ministry has to take a decision and cannot be filing on this. So the matter is at that space, we are still hopeful that a decision would come and hopefully, a positive decision would come in this matter.

[Operator Instructions] We have a next question from the line of Karan Bhatelia from Asian Market Securities.

Sir, so how are the margins in the domestic market versus that of the export market? And how has that shaped in last 1 year?

I would say the margins that you see in the MDF segment are entirely from the domestic market considering the steep fall in export realization. Export margins are probably in low single digits right now.

Right, right. And sir, our channel suggest that contribution has resorted to price decline even in the third quarter, while the industry leaders have not gone for a price decline in the domestic market. So till when can we hold on to the domestic pricing? I think the data you mentioned is about 20%.

See, you would like to maintain the prices as long as possible. I'm not [indiscernible] that we would be maintaining the prices if the volume of import doubles or goes on significantly beyond that. So our efforts would be to maintain the pricing at the current level provided volume of imports remains stable or comes down. But if imports continue to rise significantly this year or any other development happens due the competition intensity. You might be forced to take a relook at prices, but for the current, we continue to hold on to our prices, not because the difference is -- the difference between our prices and import is so significant. It could taking minor price that would not really contribute to any improvement in volumes.

Right, right, sir. That was helping. Will you shifting to the new tax regime, any time soon?

Yes. I think probably we'll be shifting to the new tax regime from FY '24.

We have our next question from the line of Nikhil Gada from Abakkus AMC.

So when you mentioned that we are now focusing more on the export market in terms of driving volumes. And while you mentioned that our margins were like low single digits and exports. We see currently the share of export is close to 21%, 22% of the overall mix. How much higher will this go in the quest for better volumes that you are suggesting?

Very difficult to give a breakup within domestic and exports for the next financial because that would also depend on how imports continue to behave in future. So as always, our primary focus will be on the domestic markets. But for the interest rate, then the volume of imports are high, we will increase focus on the export markets.

And just a follow-up on this. In exports, we are not selling any of our value-added products, right? We are largely selling the plain MDF?

That's correct. I would say almost 98% comes from the plain MDF.

So then in this regard to the margin front, can you help us understand -- if you can break this up that we were at 30% EBITDA margin in 1Q, 2Q, 30% plus, and we have gone down to close to 25%, 26%. So there's a 4% fall while the gross margins still look to be positive. We have seen an improvement. So how much would it be because of lower utilization because the mix of exports still remain same, if I see 1Q, 2Q, 3Q, it was still at 21%, 21-odd percent. So are we trying to say that there was such a sharp fall in exports margin from 2Q to 3Q that has driven this? Or is that something...

Yes, that's correct. Like I mentioned, there's been a 12% price cut in exports in the current quarter. So when -- overall margins were around 30%, domestic margins were around 34%, and export volumes and export margins were around 18%. So that's how we got that mix of 30%. So while domestic margins have continued to be maintained at close to this level, although there's been some impact because of higher power costs, because of increase in rates by state electricity board, so domestic margins continue to be good, but yes, due to the 12% price cut, export margins have taken a big brake.

We have a next question from the line of Praveen Sahay from Prabhudas Lilladher.

My first question is related to the utilization. Can you just North and the South plant utilization?

Yes, yes. So during this quarter, North plant operated at 81% and South plant operated at 73% and landed capacity utilization was 76%.

So just on the export side, realization on the sequential basis, if I look at it's down 18%, 19%. So do you see this realization to go down further from here?

It's difficult to forecast because again, continue with the exports have also been impacted by higher volumes coming from countries like Thailand, Indonesia and Vietnam because of lessened furniture demand. So yes, there has been competition intends to be increasing in the export markets also. So at this point of time, yes, I think we'll continue to say that while our primary focus will be on the export -- on the domestic market, we'll continue -- we will increase focus on the export markets currently.

So basically, we are still above pre-COVID level of the realization. So do you believe we will go back to that level?

It's very difficult question to answer. See, like I mentioned, as far as domestic realizations are concerned, those continue to remain stable and we'll continue to hold on to those realizations because we believe that any price that would not contribute significantly in volume terms.

We have our next question from the line of Udit Gajiwala from YES Securities.

Firstly, like we mentioned multiple times, we are focusing on exports. So -- and given that domestic is impacted largely due to imports coming in. So what do you think that Q4 numbers would look like in volume terms?

At the moment, we are targeting somewhere between more or less 35,000 to more or less 40,000 cubic meters in Q4.

Okay, sir. And sir, on like 10% to 12% is the volume growth that you have said. And 23% to 25% margin is for blended or only for MDF?

Only for MDF.

Okay, sir. And sir, in a previous question, you said that in exports, we are facing competitive intensity. So what would be the price difference in those markets in our product versus...

There will not be any price difference in the export markets. So we would be exporting at similar prices as manufacturers from countries like Thailand, Vietnam, Indonesia, et cetera.

Got it. And sir, any further price cuts we have taken for those markets specifically since Q4 or...

We have not taken any price cut in January.

Got it, sir. And sir, what would be our big debt and a gross level if we see for next, say, '24 and '25?

So at the end of 31st December, gross debt was about INR 195 crores. And I think we will be repaying approximately about INR 45 crores to INR 50 crores per annum.

We have a next question from the line of Keshav Lahoti from HDFC Securities.

I just want to understand one thing. The import will show 10% [indiscernible] quarter and now 25% Q4. So what is relating to that input prices are going down? And with that the competitors pricing -- raw material prices have reduced in the region or they are selling at a lower margin?

No. I don't think this is a function of raw material prices. It's a function of demand and -- I mean, demand and supply only. So basically, when the lucrative markets for these countries, the demand is mellow, then the supplying to the market that they can find in our outlet too. It's a very similar model to -- honestly to what we do as on exports as well, but the domestic market for us is new form or the demand is not keeping up. Then we would like to utilize capacity by supplying to the export market and international pricing.

Okay. Is it a fair understanding the imports coming from Vietnam, Indonesia, some peers are also making out single-digit margin?

I didn't get the last part of your question. Can you repeat that? The imports coming from Vietnam, Indonesia...

So the imports coming from Vietnam and Indonesia. So such peers are also looking single-digit margin. Is that a fair understanding?

Absolutely. Yes.

Okay. And how you know value-added mix and volume terms and value for this quarter?

In volume terms, mix of value-added products was 51%. And in value terms, it was 62%, 51% and 62%.

We have a next question from the line of Jignesh Kamani from GMO.

Just on the imports side [indiscernible] MDF segment? Or do you see the value-added segment in both volume and the margin is also getting impacted on account of import?

The value-added segment also getting impacted, right?

No, there is not much imports coming into the value-added segment.

But people are importing their MDF and then doing value-added separately, an organized player? Or do you think that they continue to remain with a large player in this volume?

What are actually coming from the point of value addition only. So large format OEMs who are -- who have top cycles, et cetera, or large comment on the [indiscernible] makers are the ones who are importing in large volumes. Because -- like I said earlier, that imports coming in -- being imported by an individual and then further telling you it then makes it uncompetitive as well for them. So where the imports are competitive or, let's say, substantially price -- lower inside costing. Are these large format consumers who are able to buy in bulk and who are consuming their own end by adding some consuming for value addition.

Understood. So if you take about our volume decline in domestic market is more on the low end MDF segment? Or have you seen the value-added volume also declined in this quarter?

On the MDF segment. See, our value-added products basis continue to be stable or have seen an improvement both year-on-year and quarter-on-quarter. So whatever we have taken has been on the plane to industrial MDF segment.

Understood. And on the antidumping you mentioned that now hearing is good for again the Financial Ministry and Commerce Ministry, time line has been less. So any clarity by when we will hear anything on the antidumping duty, whether it is past or no or is there any time line or it will continue to hand for a long time?

No, we don't have any time at this point of time.

Understood. And on the antidumping duty, the moment U.S. -- on the demand side, when there U.S., Europe demand improved, do you think the Vietnam and international player will again go back to this market and dumping India will reduce? Or do you think it will remain a structure program going forward?

No, no. It will definitely reduce because we're not making any margins by selling MDF to India. So as soon as the furniture demand starts to pick up in those countries, they will reduce MDF export and concentrate on value added exports.

Understood. And we will see that multiple new capacity will come on stream by the various competitors 6 months to 1 year down the line and we are also seeing that import [indiscernible] coming a bit. So in this case, how will be the -- we can say pricing and the margin will evolve because now it will focus on the utilizing capacity or people will try to focus on the reasonable profitability and won't mind, you can say, compromising volume?

See, I don't think we will see any significant increase in capacity cost happening in the next financial year. So I think probably a majority of those capacities will come in the last quarter of FY '24 or the first half of FY '25. So that's the reason I think the future demand will continue to be stable, and we will not see any significant impact on realizations in FY '24.

We have a next question from the line of Abhishek Getam from Alpha Invesco.

So sir, our current MDF market domestically is roughly around INR 4,500 crores. So out of that, how much would it be B2C and how much will be the OEMs? And for us also, how would that split look like? Just some ballpark color.

See, I won't be able to give you numbers for the industry as a whole because some parts of the industry are unorganized. Some are unlisted entities. So I don't have numbers for the industry as a whole. But if you look at our mix, approximately about 88% of our volumes come from the dealer segment and about 12% from the OEM segment.

Understood. Okay. And also, when there's a lot of capacity sort of come online, so is the bigger picture that a lot of the capacities will move to supply towards OEM players or it will be both markets? I mean through dealers and OEMs, both mixture? Or is it like a panel-based furniture sales improve in India and most of it is absorbed by the OEM?

Yes, I think you are correct. I think new capacities will focus on all 3 segments of the market. But I think the initial focus will be on the OEMs because they can give you large volumes in short periods of time. But building the network will take a couple of years because dealers typically will start with low volumes and then scale up over a period of time. So yes, the immediate focus for new capacity will be the OEM segment and the export markets.

Okay. Okay. Sir, last question, sir. So sir, on the timber supply, timber pricing, [indiscernible] suggests that in North, timber prices may start coming down from Q4 onwards in North. And in South, the plantations are still lagging, so we still might see a spike in timber. So how -- I mean how much -- is that correct? And how would that impact us?

Yes. As far as the South is concerned, I don't think plantation is lagging because we ourselves provided almost about 12 million saplings during the last 10 months to farmers for plantation. So I don't think plantation is lagging in the South. And as far as price behavior in the North is concerned, I think prices are probably close to peak, but no, I'm not able to give you an indicator play or whether we see prices coming down in Q4.

We have a next question from the line of Parth Bhavsar from Investec India.

I just wanted to...

Can you please speak louder?

Yes, sir. You can hear me now? Sir, just I didn't catch exports and domestic volume numbers. So can you help me with that?

For the current quarter?

For the quarter, yes, quarter.

Okay. The total volume for this quarter was 1,18,218. That's the total volume. Domestic contributed 92,809, and exports contributed 25,409.

Okay. Sir, when we guide that we make 25% EBITDA margins, and you also said that you'll be focusing on exports going ahead over the next few months or quarters, so do we factor lower EBITDA margins for domestic -- for exports when we say 25%?

Yes. Obviously, I think the margins would be lower than the blended figure of 23% to 25%. So while we may not see any significant improvement in domestic margins, increase in capacity utilization will probably provide that leverage to maintain or improve the margin.

Okay. Okay. And sir, for how long these -- so currently, you see the imports trend going down because you don't see freight costs going on. So we expect it to continue for some time now. So how...

I mentioned that it's difficult to forecast how imports will behave over the next 12 months because it's also linked to 2 or 3 different factors. So yes, I agree with you that we can't forecast import volumes at this point of time.

We have a next question from the line of Senthilkumar from Joindre Capital Services.

I have a couple of questions. First one is, what is the company's rationale behind responses for South Africa T20 league? Is South Africa a big export market for the company? Because I just want to understand the opportunity sales for that.

No. Actually, this was -- let's say this was a bonus that came along with the package of the sponsorship of the Delhi Capitals deal. We did not seek this out independently, but it was part of the package because Pretoria Capital is owned by the Delhi Capitals team.

Okay. Okay. I understand that. Okay. And my second question is, can you give a breakup of MDF volume in terms of domestic and exports for the 9 months of this year and previous year, sir? Nine-month volume.

Yes. So domestic volumes was 2,90,731 for the current 9 months. And for last year, 9 months, it was 2,70,696.

Export?