Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenpanel Industries Limited Q1 FY '24 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.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Limited's Q1 FY '24 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 results presentation that was sent to you earlier. I would now like to invite Mr. Shobhan Mittal to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Rishab. Good afternoon, everyone, and thank you for joining us to discuss Greenpanel's operating and financial performance for quarter 1 FY '24. MDF gross margins improved by 368 basis points over the sequential quarter. Sales volumes were lower during the quarter due to maintenance shutdown of Rudrapur plant for 19 days during April. We have taken corrective measures to increase volumes in future quarters. MDF EBITDA margins at 20.4% were impacted by maintenance shutdown of Rudrapur plant for 19 days. Higher brand stands at INR 14.9 crores, which equates to 3.9% of sales, increase in wood and core veneer prices. We suffered a volume loss of approximately 6,000 cubic meters due to the maintenance shutdown at Rudrapur MDF plant in April. Due to this, there was a volume degrowth as compared to the year-on-year and sequential quarters. The reasons for fall in profits at PBT level as compared to the year-on-year quarter maybe attributed to increase in brand spend to about INR 8.8 crores, loss of production and sales volume due to maintenance shutdown at Rudrapur plant, which led to volume loss of 6,000 cubic meter and profit impact of INR 6 crores. One-time repair cost at Rudrapur plant INR 7 crores and steep fall in export realizations and increase in raw material costs. Plywood volumes were lower both sequentially and year-on-year, and operating margins at 5.9% were impacted by lower volumes and increase in wood cost. Post-tax profits for the quarter were lower by 52% at INR 37.26 crores as compared to INR 77.6 crores in quarter 1 FY '23. Net working capital at 27 days has shown an increase of 11 days due to increase in wood inventories in preparation for the monsoon season. Net debt stood at negative INR 165 crores as of 30th June 2023. We paid INR 16 crores towards the MDF expansion process during quarter 1 aggregating to INR 66 crores as on date. Mr. Venkatramani will now run you through the financials in greater detail, post which we will have the Q&A session. Thank you.

Good afternoon, everyone. I thank you for joining us to discuss the Q1 FY '24 financial performance of Greenpanel Industries. Net sales during quarter 1 was INR 385.16 crores compared to INR 452.75 crores during the year-on-year period. MDF sales stands at 13% at INR 340.17 crores and contributed 88% of the topline. MDF export volumes stood at 27,430 cubic meters. Domestic volumes were 88,368 cubic meters. And overall MDF volumes was 115,798 cubic meter. MDF domestic revenues were INR 290.95 crores, while exporting contributed INR 49.22 crores. Domestic realizations were lower by 1.26% at INR [ 17,925 ] per cubic meter, while export realizations were lower by 25.05% at INR 17,945 per cubic meter. Blended MDF realizations were lower by 6.28% at INR 29,376 per cubic meter. Uttrakhand MDF operated at 69% and Andhra plant operated at 76%, with blended capacity utilization at 74% on capacity of 6,60,000 cubic meter. Plywood sales at degrowth of 37% at INR 44.99 crores. Plywood sales volumes were lower by 37.1% at 1.58 million square meters, and the unit operated at 58% during the quarter. Plywood sales realization were up by 1.1% at INR 285 per square meter. In Q1, gross margins of 58.1% increased by [ 368 bps ] sequentially and sell by 343 bps year-on-year. EBITDA margins were down by 1,126 basis points at 18.7% due to the [ buildings ] mentioned by Mr. Mittal earlier in the call. EBITDA stood at INR 72.16 crores. PAT was lower by 52% at INR 37.26 crores. [ Gross debt ] to equity ratio stands at 0.13% as of 30th June 2023 compared to 0.20% as of 30th June 2022. Net cash as on 30th June 2023 stood at negative INR 155 crores. That concludes my presentation. Please open the floor for the Q&A session.

[Operator Instructions] We have our first question from the line of Harsh Shah from Dalal & Broacha Stock Broking.

A couple of questions from my side. Firstly, any color on the gross margin expansion or I guess, sequentially? And related to that, how do you look at the gross margin in the coming quarters considering the fact that the timber prices are on a rise?

Okay. So I think gross margins should be at this level, probably in the mix of domestic and exports realization. And we can see at all if there is increase in the export volumes.

Hello?

Yes, sir. You are not audible?

Harsh, can you hear me?

Yes, yes, I can hear you, yes.

So 2 reasons. One, I said gross margins are more or less likely to remain at this level of 58.1% on the company as a whole and 59.6% for the MDF segment, more than there's no major change in the domestic-export ratio.

Okay. And any sort of EBITDA margin guidance you would like to give for the MDF segment for the whole year?

Yes. We have already given a guidance of 23% to 25% for the MDF division. And at this moment, we are fairly confident of achieving that guidance.

Okay. And just last one question. How is the demand shaping up for MDF in the domestic market?

Shobhan, can you take that?

Yes, of course, there is some pressure on the demand side. Well, I would say that the market is -- the demand is on pressure the market is growing as per the historical industry norms. Of course, there is added pressures of additional supplies that have come in, and import prices have fallen, which has resulted in additional imports coming in. But we don't foresee this to be very long lasting, and we are quite confident of achieving, at this point of time, the growth numbers that we have initially projected and the margins that we had initially projected.

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

So I have a few questions. So first, related to your maintenance shutdown. Is it just in a one-off or regular yearly maintenance shutdown happened in the company?

No. This is a one-off because basically, this was a long-term wear part of the press that has to be changed which was -- which was planned for the longest time. This has been changed for the first time since the plant has been operational for almost 14 years. So this was a one-off, and it's not a regular occurrence.

Okay. And secondly, on the inventory days as in the press release PPT. You had mentioned because to maintain the timber -- it was a monsoon. So is it because of the timber prices or the availability of timber is one of the challenge this is the reason why you had increased your inventory?

It's a mix of both. Timber availability has been a little weaker over the past couple of months. And keeping in mind the approaching monsoons, which generally tends to be a low harvest season for the timber, is the reason why the company has chosen to build up inventories. But this happens on a yearly basis. We preplan the lack of availability during monsoons and increase our inventories accordingly, the raw material inventories.

So is there any increase in the prices, timber prices in the last quarter or the currently -- current quarter?

Yes. As Mr. Venkat and the colleagues have mentioned that there has been price increase in the timber price across the sector, across all segments.

Any number if you can give like how much it has increased?

Compared to the quarter 4, Q1 prices were higher by about 2% at Uttarakhand and 3% at Andhra Pradesh.

Okay. And that prices, we're maintaining right now or is on the higher side?

So Uttarakhand prices -- maybe lot prices are stable, but again, in the first quarter, Andhra prices are risen by, I think, excess of about 10%.

Okay. Okay. Okay. And one the clarification on the promotion expenses, there also you had mentioned there is a good improvement happened. So in the past, I had seen there's a quarterly run rate of INR 5-odd crores, INR 6-odd crores, but since now it's around INR 15-odd crores. Is it a one-off something there you had or you wanted to carry on like this run rate?

See I will not say it's a one-off because we will be doing branding activities regularly. But definitely, yes, compared to our yearly target of brand expenditure, between 2% to 2.5% of revenue. In this quarter, the spend was about 4% of revenue.

And that is primarily on account of the IPL sponsorship and the TV campaign that we engaged in. However, this cost will, of course, aggregate over 4 quarters, whereas the TV campaign was -- will generally be twice a year. So the cost just divided over the 4 quarters eventually.

Okay. And the last question, sir, related to the realizations on the domestic side. There are a lot of capacities that are planned for this year. So how you are looking at this realization -- domestic realization to shape up in the year?

I would say, we are confident of maintaining our margins. The company NIMs targeting certain segments where realizations would be lower but would then, in turn, get compensated by the additional volumes that we would generate. So I mean there will be certain segments where realization would come under pressure. However, the majority of the sales in the retail segment where the company is currently engaging over there, we are not seeing a major challenge of realization at this point of time.

[Operator Instructions] We'll take our next question from the line of Keshav Lahoti from HDFC Securities.

Sir, as we have seen in Q1, the demand has been muted, and new capacities are also coming up. So would you like to revise your target of volume growth downwards, what you were expecting earlier?

At this point of time, as we mentioned -- I mean, Mr. Venkata said, that we are confident of achieving the initial guidance that we have mentioned, both on account of volume growth as well as the margins. So we'd like to maintain that for the time being.

Okay. Understood. As we heard that the export prices usually they increase from Q2, so should we expect the mix to change more towards exporting quarter 2 onwards?

Possibly [indiscernible] targeting a greater volume from the domestic segment.

Okay. Okay. And what sort of timber inventory you have right now?

Timber inventory across both the plants put together, I think, approximately about 90,000 tonnes. That would be roughly [indiscernible] production for how many parts...

No, that will be roughly for about 15 to 20 days of production.

I would say higher for Uttarakhand plant. So Uttarakhand plant would probably be around 1 month. And Andhra would be about 3 weeks.

Okay. One last question from my side. As with -- we are seeing capacity coming up and the import is also picking up, should we expect the realization to correct at this point of time?

I think the pressure of pricing on account of imports is on the OEMs and the large consumer segments, who are direct importers. On the regional side, at this point of time, we are not seeing any substantial pressure on account of realizations. So they have been maintained. Yes, on the OEM side, there has been pressure on realizations. And also the same is applicable to the export market as well because overall international pricing has come down, which is reflected in the realizations.

Anything you would like to comment.

Mr. LahotI, I request you to join back the queue, sir. We have a next question from the line of [ Richa ] from Equitymaster.

Sir, my question is on the realizations, again. In the domestic mix, I think the share of value-added products has gone up recently, and yet our domestic realizations have kind of come down. So 2 questions. I mean despite the value-added products share going up do you -- what kind of expansion do you see in margins, if at all? And second, what kind of margin difference exist between value-added products versus nonvalue added, if you could give us some kind of range?

Venkatji, will you take that?

[indiscernible]

Mr. Venkatramani's line was disconnected. Richa, can you repeat your question?

Sir, my question is, again, on realizations. In the domestic segment, the share of value-added products has gone up. And yet, there is some kind of compression on the realization. So I just wanted to understand that what kind of improvement do you expect in realizations with the target of 65% kind of value-added product mix. And second is, what kind of margin difference if you could give us some kind of range between value-added and nonvalue added products?

Like we mentioned, we will be getting better volumes from the domestic markets and also targeting segments, which traditionally have contributed lower realization. So there could be changes in the realization in the succeeding quarters. But what we are targeting is in spite of also having volumes in lower realizations, we would be able to achieve the margin guidance with the higher operational leverage. Regarding the mix of value-added products, it has gone up in this quarter. So if you look at both Q1 and Q4 of last year, Q1, I think, in volume terms, mix of value-added products was 49%, and in Q4, it was 51% whereas the mix of value-added products is 54% in this quarter. So we will be targeting growth in the mix of value-added products over the current year and the next financial year, so that we can achieve the target of 65% for value-added products over the medium term.

Okay. And sir, there was a note on some kind of tax rate shifting. So could you give us a sense of what kind of effective tax rate do you expect in the coming years?

We expect an effective tax rate of 25% for the current year.

25%. Okay. And sir, what is the funding mix for this INR 6 billion CapEx? And how much of it has already been incurred?

So we have spent approximately INR 67 crores till date. And we have not taken any volumes at risk. So all the payment has been made from internal accruals. Overall, for this INR 600 crores CapEx, we are targeting borrowing of around INR [ 260 ] crores and the balance from internal accruals.

We have a next question from the line of Nikhil Agarwal from VT Capital.

Just wanted a clarification regarding the timber prices in the Andhra plant. I did not get the number of how -- during the current quarter, how -- what has the increase been?

Okay. So for Q1 as compared to Q4 last year, prices at the north plant have gone up by 2% and the south plant by 3%. And in the current month, Rudrapur has seen a slight reduction, whereas the Andhra the price exchange has been over 10%. .

10%.

That's correct.

10% increase, right?

Yes.

Okay. And sir, any price hikes are you planning to take because of this increase in the timber cost?

No. We are not seeing at any price hikes currently. So we are targeting to make up this cost increase with additional volumes in the domestic markets.

Got it. And sir, any guidance on the plywood segment, like your margins have improved quarter-on-quarter. So anything on that for the year?

I think we should be looking at the guidance that we have given during the Q4 con call: double-digit volume growth and 8% to 10% operating margins.

Okay. Got it. And sir, just one last question. You're maintaining our margin guidance in the MDF segment for about 23% to 25%. And again, this quarter, we saw a margin reduction quarter-on-quarter and a bit because of the increased brand spend as well as due to the plant shutdown. So do you -- can you say that the margins have bottomed out in the MDF segment?

Yes, I'd definitely say that.

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

Just wondering how is the price movement for the chemical segment or chemical for us, you should issue more charging [indiscernible] chemicals, so together how is your raw material cost movement in post quarter and on first quarter?

Okay. We have seen a marginal reduction in Q1 as compared to Q4 of last year. But I think during the current month, we are seeing greater fall. Probably as compared to Q1, I think we'll have resin prices lower by 10% in the quarter.

So it's fair to assume that whatever the increase in the timber price is more than offset by the chemical price and net-net and the raw material cost market level, we got a new [ chemical ]?

Yes. I think probably yes because timber increase has happened primarily at Andhra not in the north plant. So and this resin [indiscernible] fall has happened across both the locations, yes. So net-net, we should be able to manage the cost.

We have a next question from the line of Falguni Dutta from Jet Age Securities.

I just have one question. What is the share of OEM volumes in domestic volumes for us?

Particularly for this quarter, I'll come back to you on that. But during the last financial year, so far Q4 I think the OEM mix was between 10% to 12%. I'll check for the current quarter and come back to you.

Okay. 10% to 12% of the domestic volumes, right?

That's correct.

Or 10% to 12% of total volumes?

No, domestic volumes.

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

What I wanted to just a clarification on the previous participant's question. You said 10% to 12% of the domestic volume is OEM. Is that only the direct OEM you're talking about or the sales through the distributor to the OEMs?

No. The direct OEM sales on the company. As far as the dealers sales are concerned, we don't have the data for that.

But is it fair to say that the retail buying would be relatively small, even now? Of course, it would have gone up over the last 3, 4 years, but otherwise, it would be still a product picked up by the fabricators or the furniture makers?

Yes. As far as consumption is concerned, it would primarily be furniture fabricators as compared to a pure residential play.

Got it. And just one more clarification with respect to the -- I think, Shobhan, you talked about direct importers where there is a price reduction. So can you elaborate a bit in terms of how you segregate this into various buckets in terms of imports, in terms of the parties, who are importing or the thick or thin MDF boards or clean or value-added or Prelam boards.

So it's very -- there is very clear information available as to who the primary importers are. Our target, of course, is -- there are 2 segments of importers, one, who are importing and retailing in the local markets that they are based in; and two, which are the -- basically the OEMs who are in -- large enough to import themselves and consume. So there are 2 segments of imports. Majority of this is in the thick MDF segment. Of course, we do not target as of from a point of competition, we do not target selling to people, who are retailing or who are trading the material. But people who are importing and consuming are now being targeted as possible customers because that segment will not disturb our existing retail segment, where the prices would be high because they are not -- they are going to be processing the material and selling the products and not directly trading into the retail market.

Right. And I presume this is what you are saying when you are saying about domestic volume growth you're targeting to improve and which will be coming at a lower price. Have I understood right?

Yes.

Could you elaborate what would be the price difference and the margin difference here?

Depending on the location of the market, whether it's North India or West India, it could be anywhere between 5% to 10%.

Right. But commensurate there will be some cost savings as well, right, with respect to distribution-related costs. Is that fair?

Yes. So we have -- actually, we have launched different category of product, which is priced at about 7% to 8% lower than our standard industrial-grade product. But on that particular product, we are also managing to have savings to that team by way of density reduction because timber cost is higher, [indiscernible] costs have collected. So we are able to maintain the properties of the product by reducing the timber quantity and increasing the resin content and, hence, net debt we are saving, which we are passing it on to this segment, which is helping us compete at still decent margins, with the imports.

Got it. Got it. And just to clarify, you're saying 23% to 25% margin for MDF segment for the full year. Have I understood right?

Yes. That's correct.

And in terms of the volume growth, 12% to 15%.

That's right.

We have a next question from the line of Rajesh Ravi from HDFC Securities.

My first question pertains to on the volume growth, 12% to 15%. Could you suggest this could be more back-ended or even September quarter, you are looking at a positive number in terms of volume growth?

So I think this would be gradual over the 3 quarters. We are not going to see a very substantial growth in the next quarter. But it could average out over the next 3 quarters and the end result because we've just taken traction in this OEM segment, which is, in form, dominated and because most of these consumers because imports have a longer lead time, hence, we already have inventories and planned orders for the next 1 to 2 months, hence taking [ sanction ] in this segment will take that much time. So I would say that we'll start seeing the effect of this towards the end of quarter 2 and towards -- on the subsequent quarters. So this would get evened out over the next 3 quarters in a gradually increasing manner.

Okay. And then 2 follow-up questions on the same. So the second half number would primarily mean that you would be growing more than 20% sort of on a year-on-year basis. And second, what is your desirable OEM mix and volume you're looking at, say, FY '25?

Sorry, can you repeat that?

Second question is on the OEM and retail sales. So what is the breakup you are looking at for FY '25 once these OEM [indiscernible] stabilizes?

For FY '25.

So whenever, FY '24 or FY '25. I believe you were saying that you are just started to accelerate on the OEM side. So you have been more retail-focused so far?

Yes. So we are confident that this segment could contribute up to 8,000 to 10,000 cubic meters of sales on a monthly basis.