Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2, FY '24 Earnings Conference Call of Greenpanel Industries. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, Mr. Gavin Desa from CDR India.

Thank you. Good day, everyone, and thank you for joining us on Greenpanel Industries Limited Q2 and H1 FY '24 conference call. We have with us today, Mr. Shobhan Mittal, the Managing Director; and Mr. V. Venkatramani, the CFO. Before we begin, I would like to state that some statements made in today's discussions 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 proceedings of the call. Over to you, Shobhan.

Thank you, Gavin. Good afternoon, everyone, and thank you for joining us to discuss Greenpanel's operating and financial performance for Q2 FY 2024. MDF sales volume fell by 2%, export volumes grew by 24%, while domestic volumes fell by 9%. We have maintained our market share in the retail segment, even with the increase in domestic competition. The degrowth in domestic volumes is primarily due to reduction of sales in OEM segment, which we have consciously chosen not to service due to the drastic fall in import prices. We have resumed servicing the OEM segment with the new product offering. MDF EBITDA margins at 21.2% were impacted by steep increase in raw material costs, higher import volumes and increase in domestic competition. Plywood volumes were lower by 19.6%, and operating margins at 1.65% was impacted by lower volumes and increase in raw material costs. Plywood realizations at INR 263 per square meter were lower by 12% year-on-year. This was due to lower volumes within the decorative veneers business. We have restructured our Plywood sales team to recover market share and to reach optimal capacity, which we foresee in the next few quarters. Post-tax profits for the quarter was lower by 43.4% in INR 41 crores as compared to INR 72.46 crores in quarter 2 FY '23 for reasons mentioned earlier. Net working capital at 2016 has shown an increase of 2 days year-on-year. We have chosen to be disciplined with our credit terms, which obviously has some impact on our sales since competition is offering attractive credit terms. However, we are clear that we will not grow at the cost of our balance sheet. Net debt has reduced by INR 14 crores during the quarter and stands at negative INR 179 crores as on 30th September 2023. We paid INR 27 crores towards MDF expansion project during quarter 2 and regaining to INR 93 crores till date. The entire amount has been spent from internal accruals. Work is progressing on the expansion project, and we estimate commercial production to be in quarter 3, FY '25. 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, and thank you for joining us to discuss the Q2 FY '24 finical performance of Greenpanel Industries. . Net sales during the quarter were INR 397.70 crores compared to INR 456.11 crores during the year-on-year period. MDF sales fell by 10.3% at INR 354.51 crores and contributed 89% of the top line. MDF export volumes grew by 24% at 33,208 cubic meters. Domestic volumes were lower by 9% at 90,407 cubic meters. And overall, MDF volumes were down by 2% at 123,615 cubic meters. MDF domestic revenues were INR 296.27 crores, while exports contributed INR 58.24 crores. Domestic realizations were lower by 2% year-on-year at INR 32,771 cubic meter, while export realizations were lower by 23% at INR 17,538 per cubic meter. Blended MDF realizations were lower by 8% at INR 28,679 per cubic meter. The fall in MDF export realizations was due to price cuts taken in Q3 and Q4 last year and also, a majority of export sales was invoiced on FOB basis. Uttarakhand MDF operated at 78% and [indiscernible] plant operated at 69%, with blended capacity utilization at 72% on a capacity of 660,000 cubic meters. Plywood sales saw a degrowth of 29.2% at INR 43.19 crores. Plywood sales volumes were lower by 19.6% at 1.64 million square meters, and the unit operated at 50% during the quarter. Plywood sales realizations were lower by 12% at INR 263 per square meter due to a significant fall in volumes of decorative veneers. Plywood sales realization were normal. Plywood sales realizations, excluding decorative veneers, were up by 1% year-on-year at INR 259 per square meter. In Q2, FY '24, gross margin fell by 313 bps year-on-year at 55.5%. EBITDA margins were down by 818 basis points at 19.1%. EBITDA stood at INR 75.88 crores, and PAT was lower by 43% at INR 41 crores due to reasons mentioned by Mr. Mittal. I'll now update you on the performance details for H1, FY '24. Net sales degrew by 14.8% at INR 782.84 crores. MDF sales were lower by 11.7% at INR 694.67 crores, while Plywood sales were lower by 33.1% at INR 88.17 crores. Gross margins were down by 331 bps at 56.8%. Gross margin in value terms was down by [ 19.5% ] at INR 444.68 crores. EBITDA margin was lower by 973 basis points at 18.9%. EBITDA in value terms fell by 43.7% at INR 148.04 crores. Post-tax profits were lower by 47.8% at INR 78.26 crores. Overall, MDF sales volumes were down by 5% at 239,413 cubic meters, with blended capacity utilization of the 2 plants at 73% compared to 78% in the year-on-year period. The [ sales volume ] for Plywood were lower by 29% at 3.22 million square meters, with capacity utilization at 54% compared to 79% in the corresponding period. [ Gross adjusted ] equity stands at [ 0.1 ] as on 30th September 2023 compared to 0.18 as on 30 September 2022. Net debt as on 30th September 2023 stood at negative INR 179 crores compared to negative, INR 59 crores as on 30th September 2022. That concludes my presentation. Please start the Q&A session. Thank you.

[Operator Instructions] We'll take the first question from the line of Harsh Shah from Dalal & Broacha Stock Broking Private Limited.

A few questions from my side. Firstly, how has been the consumption of MDF at the industrial-level [ safety ] compare H1 FY '24 to H1 FY '23? If you could quantify it, that would be helpful.

Yes. It's too early to quantify it because the numbers have not come from the other listed companies. But we estimate that there has been a fairly strong growth during the quarter because imports multiplied to about -- on an average of about 48,000 cubic meters per month during this quarter. And we have been able to maintain our volumes, which we did in Q1. So since we have not lost any volumes and imports have gone up strongly, we estimate that growth has been fairly good during the quarter.

So would it be fair to assume that the growth will be somewhere in double digits?

Yes, possibly, it would happen because if you look at quarter 1 imports, were on an average between 25,000 to 30,000 per cubic -- per month, whereas in this quarter, they have been almost close to 50,000 per month.

Okay. Yes. And secondly, now we are kind of almost 1 month into Q3, so how has been the demand situation currently?

Yes, it's fairly decent. So if you look at the month of October, we have sold about 34,000 cubic meters, which is 9% growth year-on-year.

Okay. But -- so do you envisage that there will be sequential growth in the volumes?

So are you asking for the remaining part of the year?

Yes. Yes.

Yes, we are estimating that there will be growth sequentially and -- yes, that's right.

Yes. And in terms of guidance also, I believe you had given, in Q1, guidance of, say, close to 12% to 15% growth in MDF volume. So are we going to kind of hit that or we would be cutting our guidance? Because -- why I ask this question is because if I look at H1, so what growth we want is basically 37% over H1. So is that possible, even if I take 12% volume growth on FY '23 volumes? So is that 37% growth over H1 possible?

I think, it's safe to assume that's not going to be possible. But we foresee that at the end of the year, we should be about 3% to 5% growth over last year.

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

So I want to get a sense on the Ply segment side, the margins are just like just 2% EBITDA margin. What's happening, why the performance is so poor, and when will they pick up?

So I mean the first major impact on the margins, of course, is drastic increase in the raw material cost at the plant level. This is actually beyond the control, and we have foreseen this across all product categories, whether it's MDF or Plywood or raw materials. Timber cost especially has gone up drastically. Of course, at our end, as mentioned earlier also in the previous quarter, we are now -- we have completely restructured our Plywood sales team and our strategy. And we are seeing some traction going forward over the next few quarters, where we will see a much higher utilization, which would result in much better margins. At this point of time, primary reason for the poor performance is underutilization of capacity and the impact of the higher raw material costs.

Okay. Okay. Got it. How has been the raw material cost in Q2 on timber side and resin prices? And how it is looking on Q3?

If you look at it, we are seeing 11% growth increase in wood prices in South India, whereas North has been flattish. And -- we discussed to give an estimate of where wood prices can climb, going forward, because demand and supply factors. So -- but we are not seeing any new capacities coming up, I think, at least for the next 4 to 6 months. So hopefully, there will not be any significant increase in raw material prices.

Okay. Got it. Last two questions from my side. One, the CapEx on H1 appears to be just INR 50 crores. So you maintain your CapEx of INR 500 crores for this year? And lastly, what's the progress on the new OEM strategy, which you have talked in this year?

No. You see, like a part of the CapEx could also shift into the next year because there has been some delay in shipments from Germany. But yes, the overall spend will happen in the current year and the next financial year. But there could be some change the year-on-year figures. Like I mentioned, I think probably around INR 480 crores to INR 500 crores for the current year, so that could possibly be slightly lower, and part of it could move into the next financial year. What was the second part of your question?

What's the progress on the new OEM strategy, which you have planned on lower-cost MDF?

We are seeing improvement on that side. Of course, since we started this, let's say, at the beginning of the previous quarter. But the model of the import, generally, entails long lead time, so most of the OEMs had already 2 to 3 months of preplanned orders in the pipeline and supplies of which are either getting exhausted or at the [ fag ] end. So hopefully, in the coming quarter, we should see traction in that sort of strategy as well.

So we should expect the new MDF plant by Q4, FY '25 as there is a bit delay on the CapEx side?

As of now, we are expecting it to be quarter 3.

We'll take the next question from the line of [ Kushagra ] from Oldbridge Asset Management.

Just two questions. One, on the utilization levels, if you can give some color as to how you think about the utilization levels, what happened in the first half? And how do you see them panning out in second half of the year? Because even at 4% of growth, which you are thinking of doing in FY, '24, you would need a 87% -- 85% to 87% utilization levels in the second half versus 72%, 73% in the first half. So if you can give some color over there?

Your voice is breaking. I can't really get it. Can you do it one by one, the question?

Okay. Is this better now?

Not really. Could you come closer to the speaker?

So the question is on utilization levels. If you can give some color as to how you think about utilization levels with respect to what happened in the first half? And then, how do you see them panning out in second half of FY '24? Because for even a 3% to 4% of growth, which you are thinking of doing in FY '24, it implies that your utilization levels in the second half should be 85% to 87% versus 72% to 73% you achieved in the first half. So how are you thinking about that? That is my first question.

That's correct. That's what we are estimating on the MDF side.

Right. So no, the question really is to understand like what led to a significant drop in utilization levels, and how it will come back very strongly in the second half? Like how much of that decision is in your hand and how much of that decision is probably led by the market forces, which lead you to fluctuate your utilization levels?

Okay. Like Shobhan-Ji mentioned, we had launched a new offering for the OEM customers in August. But since they had already pending import orders in hand, it did not find much traction in this quarter. So hopefully, we will see a significant increase in volumes from the OEM segment during the next 6 months. So that's the primary reason. And we are also focusing on expanding the distribution network. So hopefully, that will also lead to some positive results.

Got it. The second question is on -- in your opening remarks, you made a remark on competition offering higher credit. So can you give some color on the market practices by those players, which is taking the entire market down? And versus Greenpanel, how much of the relaxation they are giving on credit? Broad color there will be useful.

Yes. So overall, our debtor days are normally lower than 10 days. In this particular quarter, there were around 6 days of turnover. And if you look at competition, I think probably most of them would be beyond between 30 to 60 days. . So the fact that we offer much lower credit than competition, obviously, has some impact on our sales. But we are okay on that. We are always focused on converting profits to cash flows. And that will be the strategy respective of market conditions.

The next question is from the line of Sneha Talreja from Nuvama.

Just wanted to understand a couple of things. You have, of course, changed your guidance on the volume growth front about 3% to 4% on the volume terms for MDF division. Similarly, do we even plan to change the estimates for margins, given that we are still lacking behind our initial estimate of 23% sort of a number?

See, I have not been able to fully understand your question. But I think saying what impact the increase in volumes will have on the margin?

No, no, no. What I'm asking is, do we even plan to reduce our estimate on the margins of MDF? Like we were earlier guiding to 23% to 25%, will that also see a downward revision?

Yes, that's right. So we had guided for MDF margins in the range of 23% to 25%. I think possibly now, we are looking at the lower end of the guidance, around 22% to 23%.

Understood. And secondly, what I wanted to understand was both as the brand spend this particular quarter? Last quarter, you had kind of [ spend ] of 4% to [indiscernible] planning at an overall brand spend of 2% to 3%. So just wanted to see where the number is currently?

Yes. I think, at the beginning of the year, we have guided for brand spend in the range of 2% to 2.5%. So I think we will be around that level for the full year.

No, no. What was it this particular quarter, Q2?

Yes, there will be brand spend both in quarter 3 and quarter 4. Brand spend in quarter 2 went fairly low. Just give me a moment. So it was about 0.8%.

Understood. And last question from my end would be on your exports. We have seen tremendous increase in exports. So just wanted to understand, is that because of the MDF exports quota that we have? Or is it because of the weak domestic demand that we know we are catering to higher exports at this point of time?

It's not really due to that. If you remember, I had mentioned in the Q1 call that about 6,000 cubic meters of exports were stuck at the port, so that shipment happened in the current quarter. So that's why we see a significant increase in exports.

The next question is from the line of Bhavin Rupani from Investec.

My first question is on MDF. So how should one understand the margins in exports, should be in mid-single digits or low single digits?

Yes. It's in low single digits, currently between 2% to 3%.

Okay. And the new category of MDF that you have launched for OEMs, how much quantity were we able to sell in this quarter? And what is our target, and what is the margin profile in that product?

[Foreign Language] Yes. The volumes are about 12,000 cubic meters in this quarter. And [Foreign Language], and we are considering that to double over the next 6 months.

So we can say 36,000 CBM for the year?

Yes, No, it was 12,000 cubic meters in quarter 2. Quarter 1 was pretty low, so maybe, it could be around 3,000 to 4,000 cubic meters. And we are looking at approximately 46,000 to 48,000 cubic meters over the next 6 months.

And what about the margin profile here, sir? Margin profile, is it lower than...

The margins would be about 3% to 4% lower as compared to the normal industrial product.

Okay. Sir, that's helpful. My second question is on MDF expansion. Sir, given the inflationary environment that we are seeing, are you expecting an increase in the project cost?

No. At this moment, we are not estimating any increase in the project cost.

Okay. And sir, lastly, if you could specify what is the current MDF capacity in the industry, and how much capacity is coming up in India?

Regarding that inflation in the project cost, there could be some inflation due to currency, but that will able to -- we will be able to calculate only after the project is completed. We are -- currently, we do not see any inflation in project costs.

And sir, what is the current capacity of MDF in India right now? And how much capacity is coming up?

Currently, we are about 2.7 million cubic meters, and we estimate that will move to about 3.5 million cubic meters by the end of next year.

In FY '25, right, sir?

FY '25, correct.

Okay. And the incremental capacities that are coming up in North or South India, any idea for that?

Yes, it's all coming in South India.

Okay. And any trends on the import parity price? What is the difference between the import price and the domestic prices?

It's about 18% to 20%, currently.

18% lower versus domestic prices?

Yes. [ 18% ] discount to domestic prices.

The next question from the line of Balaji Vaidyanath from NAFA [ AMC ].

I have two questions. First is, I just wanted to understand the sensitivity of crude prices to the import volumes. So in the last 6 months, we had the Brent price inching up by 14%, 15%. Whether that's going to have any kind of impact on the imports? Because earlier on, you mentioned that the difference in the parity is about 18%, 20%. So the Brent, compared to May, has risen by almost 13%, 14%. Whether that's going to have any impact? Or there's nothing like that?

We have not been able to establish any clear relationship between increase or reduction in crude prices and its impact on resin prices. because it sometimes happens with a time lag of 2 to 3 months, sometimes 6 months, sometimes it doesn't happen at all. So although most of our chemicals are derivatives of crude, we have not been able to establish any direct correlation between crude prices and the resin prices.

I'm trying to understand the correlation between the crude prices and the import volumes. As crude prices go up, will the import volumes come down and vice versa?

No, I don't think so.

Okay. The second part of the question is there was a media report which spoke about BIS standard for import in wood panel products. So I wanted to understand your thoughts on that?

Media report about what?

BIS standards for imported wood products?

Yes. So basically, from February 2024, BIS on any MDF sold in India would become mandatory. So -- I mean, of course, all domestic producers as well as imported material would have to comply with this. So we foresee this to be a deterrent for imported materials coming into the country because this, of course, is the tedious process of the foreign manufacturers. Firstly having to be registered and comply with BIS standards, they will have to mask the products as BIS certified. And at the same time, we also foresee imported products that are coming into the country, which are, at the moment, not compliant with BIS standards, would have to comply and in turn change by quality. So -- which would result in most probably slightly higher production costs. And we, of course, differentiating their production, especially for the Indian market, which would also result in loss of efficiency on their part because you'll be producing a different kind of product for the Indian market specifically, which would result in some efficiency loss on their part, which, in turn, again, would result in cost increases. So as a domestic producer, we see that this would help us against incorporate raw material -- imported MDF.

My final question is this -- I was just going through the PPT, and you have mentioned about expansion of the distributor network and retailer network. But if I compare your PPT of last year and this year, there seems to be a [ reduction ] in the number of distributors and retailers. So I wanted to understand your thoughts, if you have actually contacted some dealers and distributers? Or what exactly has happened?

Yes. So we have not given any dealer numbers for 30th September. Those numbers, if you look at it, it's mentioned as 31st March '23. Yes. So compared to 31st March 2022,versus 31st March 2023, we had [ waited ] out some inefficient dealers, who were not able to get even close to their targets. So we had removed some inefficient dealers, so that's why we saw a fall in the number of dealers.

So that number has reverted closer to the March '22 number as of September when we say that or...

Those are March '22 and March '23 numbers.

We'll take the next question from the line of Kaustav Bubna from BMSPL Capital.

So Shobhan, I've been trying to understand this for the last few months. But -- so you yourself mentioned the risks that are currently playing out in the MDF industry, namely import competitiveness is back, a lot of supply is coming into the market, right? And let's just see these two things. And I'm having a tough time trying to understand how will you be able to maintain realizations at these levels because we've spoken before, and these two factors were some of the main factors [indiscernible] the previous down cycle, your realizations actually dipped below [ INR 720,000 ] a cubic meter. So I'm trying to understand why this time is different? That's my first question. And my second question is, there will be a point in time where you don't see these volatile increases in supply, let's say, 5 years down the line or whenever because the industry will mature more. So when -- so how do you see the industry 5, 10 years down the line in terms of pricing versus what the pricing is today in terms of realization per cubic meter? So those are my two questions.

So you see, with regards to realizations, there hasn't been any drastic fall in realization on the retail segment. We are quite -- we've been able to maintain our realization. Also, if you see, on the product mix side, there has been an improvement. The market is -- especially the domestic producers are increasing marketing focus of the value-added products, where imports don't come into the picture of the higher-value products. So that is also helping in maintaining and going forward, maybe improving realization as well as the value mix. So of course, the [ MDF ] segment or if we talk about exports, realizations are lower because that is primarily driven by the international market pricing. And we have to comply with the same because that's the competition is [Technical Difficulties] other producers. But on the domestic market side, we don't see a challenge of realizations going down. And we see, going forward, that with the value mix changing, it might just improve, going forward. [ 5 to 10 years ] down the line, it's very hard to estimate, but we can foresee that the market is growing at double-digit growth of 15% to 18%. It is very clear that the market is growing. Yes, at this point of time, it's a very peculiar situation because there have been drastic increases in capacities, so there is like a gap between the supply and the demand at this point of time. But as the demand catches up, this pressure is going to ease off on all producers. And going forward, we foresee that this situation would stabilize, the industry would become more consolidated in the hands of the organized producers because capital investment remains a barrier in this industry. We don't foresee this industry moving towards becoming an unorganized segment, let's say, majority players being unorganized, like it is in the Plywood segment. And I think it would stabilize, going forward. At this point of time, with the past lucrative performances of the MDF producers, it attracted a lot of new interest. New -- existing players made new investments, but now the situation is becoming real. So we don't see that the silence is going to continue. And also, on the raw material side, we've historically seen a lot of these cycles where supply is a constraint, so raw material prices shoot up, plantations are already happening in huge numbers now. So we will easing off of raw material also, going forward, which would result in stabilized and improved margins as well. So this is a cycle in the agroforestry industry, which has been there historically, and it is -- [ we've seen ] just on the cycle in play right now.

Okay. Good. And Shobhan, just one last point. When you talk about value add, a lot of the low-pressure laminate producers are basically making these low-pressure laminates in particle board. So when you talk about low value add for an MDF player, what are you really talking about, when you said that MDF players are increasing their value-add offerings so as to separate themselves from import competition? So are you also getting into -- are you using MDF as a base to make low-pressure laminates? Is it a lot of HDF flooring? What is this value add?

It is pre-laminated MDF, is already the segment that is -- that we have present in. And it's definitely a matter of focus for us. But please keep in mind that particle board is always -- there is a, I would say, a 60-40 ratio or a 65-35 ratio particle board to MDF in any developed market. So that would always remain. But there are certain segments where Plywood is being consumed, is not directly replaceable by particle board. In that case, that is where we are seeing the growth of MDF happening. And when I talk about value add at our end, I am talking about a shift from the standard bread and butter industrial-grade product Exterior Grade to the high-density water-resisting grade, [ HEW ] that we produce. And the market is moving towards that because that is a product that comes very close to Plywood in terms of higher density, water resistance levels are much higher. Yes, it is a lot more economical. So it's a very good, let's say, alternative to Plywood. So that is a segment where we see -- where our realizations are close to 45% to 50% higher than the standard industrial-grade product. We're seeing a drastic improvement in that segment.

We take the next question from the line of Udit Gajiwala from Yes Securities.

Firstly, on the realization front, so we have seen realization coming down. Do you see this further dropping, given in H1, there are multiple domestic capacities coming up in next fiscal and also imports [ frontage ] are -- even if they continue at these levels, you may have to come down because you're coming up with a new grade, which is also a bit on the low-end side?

See, realizations have not really come down sequentially. So if you look at quarter 1, our domestic realizations were 32,925 per cubic meter, which has come down marginally to 32,771. So there has not been any significant drop in domestic realizations. . Exports year-on-year, there has been a big drop in realization for reasons which are already informed during the call that we took price cuts aggregating to 12% last year. And secondly, a large quantity of the -- majority of the shipments in this quarter were on FOB basis, so naturally, pricing was lower since the customer was bearing the freight cost. So domestic realizations have been stable till date. And yes, going forward, we estimate that there will be continue to be stable. Yes, the new products that we have launched will have some impact on our realizations. But like I mentioned, it will probably be around 25% to 30% of our volumes. And on an average, it would probably be around 10% to 12% lower in realization. So yes, that would have an impact of about 3% to 4% on the realizations.

Right. Sir, this is considering this fiscal. I was more asking that when we go into the H1 of next fiscal, I mean, I'm sure your plant is delayed now by 5-odd months, as per your earlier schedule. So at what point in time do you see the price war again? I mean not the price war, might not be the right word, but the domestic prices again contracting because large players are coming up with these capacities.

No, we have seen capacities increasing this year from about 2.2 million, 2.3 million cubic meters to now close to about 3 million cubic meters. But there has not been any significant impact on realizations, even with the volume of imports increasing significantly. So yes, I think going forward, we'll be able to maintain the realization because the price war the -- price-cut strategy does not really work because there are just about 5 organized players in the industry. And as soon as one cuts prices, others follow immediately. So when a price-cut strategy will not give you any volume gains, why would anyone look at a price cut?

Sure. Sure. And sir, lastly, on the volume front, I mean, you mentioned 3% to 5% approx for this fiscal and now that your plant is coming in the Q3 of '25. So for next year, do you see volumes growing somewhere around 15-odd percent at industry rate or something better than that can be expected in '25?

See the new plant will primarily be focused on the thin MDF for which there is already a ready market. And you don't have any companies in India manufacturing the really thin MDF. So yes, we should be able to achieve close to 30% to 40% capacity utilization proportionately during the next financial year.

We'll take the next question from the line of Nikhil Agrawal from Vt Capital.

Sir, my question was on the BIS regulations that are coming in. So like can you quantify the impact of the standard? And like I mean, how much will it help in reducing the price differential?

So at this point of time, it will not be possible to quantify the impact on volumes. So it's only after BIS comes into effect and is operational for a minimum of 3 to 4 months that we'll be able to [ gauge ] the potential impact of its implementation.

Okay. And sir, do we -- okay. And so do we see imports rising before that the regulations come in? I mean, any possibility of that?

Very difficult to estimate whether imports could increase or not because I thought that 30,000 run rate per month was a fairly big number. And during this quarter, we have seen that going up by almost 60%. It's very difficult to estimate whether imports could rise further from this point.

Okay. Got it. And sir, lastly, you said that you had like -- your October volumes were about 34,000 CBM in the domestic market? And what would the export volumes be, round about?

Come again?

You mentioned that your October volumes were 34,000 CBM in the domestic market. So what would be your export volumes be?

Export volumes were flat at around 9,600 cubic meters.

We'll take the next question from the line of [ Santen Madan ] from NAFA [ AMC ] Private Limited.

No, my question has been answered.

We'll take the next question from the line of Ritesh Shah from Investec India.

Couple of questions. Sir, first is, if you look at the export margins, it has steadily come down over last 3 quarters, [ 7 to 4 ] and now 2 to 3. So how should we look at it? I think prior quarters, you made us understand that it's a question of operating leverage. And that's the reason we push volumes into exports. But there would be a minimum threshold on ROC that we look at when we are looking at exports. So how should we understand this?

See, we'll continue with exports as long as we have spare capacity and it's making a positive contribution to the margins.

Sure. So the idea here is to not push volumes into domestic market to ensure that there is pricing sanity and hence, we are using exports as an outlet, is that the right way to read it?

Yes, that's correct. But like I mentioned earlier that even if we use price cut as a strategy to increase volumes in the domestic segment, that may not yield any positive results. So that's why we have not gone for that and no allocated additional volumes to exports.

But sir, if I flip it around saying that had we pushed the same volumes in the domestic market, had we sacrificed a couple of bps of margin, so still on incremental volumes, we would have freshed a better ROC as compared to exports. So is it something from export markets or local markets, market share standpoint? Or is there an understanding sanity between the larger players that we would not spoil the market and hence, we see the sanity on local domestic pricing?

Yes, I don't think there's any understanding as such among the larger players. So I think it's purely a recognition of the fact that the price war in 2019 did not yield any benefits to any of the manufacturers because all of them cut prices by almost 20%. I think it was slightly higher, so more than 20%, and it did not give any tangible benefit in volumes. I think that recognition has possibly contributed to sanity around prices during the current year.

Sure, sir. Sir, you indicated numbers on input volumes. Would you have some color on which are the ports through which the material actually came in? The reason I asked this, I wanted to have a flavor because you did indicate that there is a 20% differential on local prices versus import [ prices ] is quite steep. So is this 20% for South or is it 20% for North or West, how should we look at it?

Repeat that piece. I didn't get your question.

So first question is, you indicated import volumes, it has moved up. So these imports are from which ports? Is it we are looking at Mundra? Or are we looking at something like Chennai, Paradip? That's my first question.

No, imports are across all ports, would be West Coast, would be Bombay or even Gujrat. South would be Cochin in Chennai. So it's across all zones of India.

What I was trying to understand is when you give an import parity differential number of, say, 20%, is that for -- more for Southern India? Or is it more for Northern India?

The effect of the imports would, of course, be higher when it comes to the port market. So West of India and South of India are more effective, I would say. Because they have large OEMs and because of lower, let's say, ground transportation to get access to the materials, imports become more viable. North India, imports are not so prevailing.

We'll take the next question from the line of Madhav Rathi from Counter Cyclical Investments.

I just wanted to understand what percentage of imports [ does ] India have for MDF? And where do these imports come from?

Yes, sir, please proceed. We can hear you.

No, I wanted to ask the first part of the question again. .

Sir, what percentage of imports does -- what percentage of MDF does India import? From which countries do import these?

The majority of the imports are coming from Vietnam and Thailand. These are the 2 primary exporter countries of MDF.

Okay. And sir, what percentage of the import that comes into India would be of lower quality that wouldn't qualify for the BIS norms?

Well, the majority of the imports are actually coming in industrial grade. I would say, about 90% of the imports coming into the country are of industrial grade. But every grade has to comply with the BIS norms. So there are different BIS norms for [ exterior ] grade, different BIS norms for industrial grade. So no matter which grade is coming into the country, would have to, in turn, comply with BIS norms.

Okay. And sir, my final question would be, sir, where do we see our Plywood business going forward for the next 2 to 3 years, in terms of top line as well as bottom line? So like we are [indiscernible] in this segment of our business [indiscernible].

At the moment, our primary focus is to reach optimal utilization of the existing Plywood capacity. So our focus over the next few quarters would be to get this existing capacity reached at the right utilization and the right product mix. After that, of course, we are very keen to grow in this business as well, which could result in further expansion of our capacities, either in the same location or another location. So -- but that -- of course, the precondition of that would be optimally utilizing our existing capacities and becoming profitable in this business.

We'll take the next question from the line of Ashish from Infinity Alternatives.

Sir, on a slightly different note, we've been hearing about this increase in timber prices for the last few quarters. So let's say, compared to a year back, how much would have the timber prices gone up by? And second is, when do you expect them to normalize, given all the plantation activities that you guys are doing? How long do you think it will take?

Okay. So it's been a different situation in the north of India and in the south of India. So if we look at north of India, see, there has been roughly a 10% increase in timber prices over the past 1 year. And if we look at South of India, I would say the price increase has been around 30%.

Right. And sir, with the plantation activities, how long do you think we will be able -- is this 30% increase you think is reversible over the next 1 or 2 years as your plantation activities start yielding fruit? Or do you think this is permanent?

Plantations, which were done in 2023 will be harvested in 2026. So I think we can see some moderation in wood prices during FY '26 and '27.

Because, sir, without that, I think fundamentally, the whole industry kind of becomes noncompetitive, given the fact that imported landed prices are 20% lower than what we are selling. So they will continue kind of gaining market share until we can get our timber prices down.

3.5 million cubic meters, that is visible currently.

We'll take the next question from the line of Keshav Lahoti from HDFC Securities.

Sir, one follow-up question from my side. So what we have seen normally, particle board industry was pretty unorganized. But now the bigger players are bringing the particle board capacity, which will be more of a pre-lam board, which they will be making. My understanding is normally pre-lam particle board is 20% to 25% cheaper versus pre-lam MDF. So whether the pre-lam particle board can be used in place of the MDF? So how can the industry dynamics change because of that?

No. As I mentioned earlier, particle board has its limitations. So in any given form of consumption, whether it's furniture or interiors, there are certain applications, which can be done with particle board, but certainly has to have MDF usage. So if you ask me, can MDF replace particle board in terms of its usage? Yes. But can particle board replace 100% of MDF usage? It can't. So they sort of go hand in hand. So yes, even historically, particle board has always been existing in India. Pre-lam particle board, majority of the producers focus on producing pre-laminates particle board because it's not economical and viable to only sell thin particle board. But at the same time, the pre-laminated MDF market size is growing.

Okay. Got it. Can you give a broader idea about what I understand MDF is here to stay, of course, particle board can't replace all the things what MDF is used for, but what would that number look like where particle board can replace MDF? So -- but historically, there were no quality players producing particle board, which is going to change in next 1, 2 year time.

Actually, I don't think even today, there is a replacement happening of particle board with MDF, primarily on account of the cost involved because thumb rule, MDF would be about 32%, 35% more expensive than particle board. So we don't foresee that with the organized players coming into the particleboard segment, would result in a shift of MDF consumption to particle board. I think what would happen is that the organized players of particle board may be able to gain market share from the unorganized segment of particle board, but it is not going to directly compete with MDF because they both play at different price points and different usages. Someone today at any OEM would be consuming both MDF and particle board in complement because they both go sort of hand-in-hand. Certain applications like the table top, the table top would be made in particle board, but the rest of the carcass would be made in MDF.

The next question is from the line of [ Rahil ] Shah from Crown Capital.

In the last call, you had mentioned -- with regards to the Plywood, you said you expect 10% growth at 8% to 10% margins. So are things still looking the same with that regard? So any changes there?

No. If we look at the performance during the first half of the year, it's clear that we are not going to see any growth in Plywood this year. So I'd say at this point of [ time ], the best thing we can look is [ status quo ] as far as growth is concerned.

Sorry, can you please repeat the last sentence? What can we expect?

That means I said that the best case at this point of time looks like we do the same volumes as we did last year.

Okay. And from an overall consolidated level, so given that you will be now catering to the OEMs from a -- with a low-cost value-add product, so in terms of revenues and margins like, so can you still do similar 10% growth as seen in FY '23, in this year for '24, the similar margins or...

You're speaking on the MDF side, right? .

No, overall, like consolidated overall business level.

No, we won't be able to do a 10% growth. Like Mr. Mittal mentioned, we are looking at a low to mid-single-digit growth in MDF and [ status quo ] on the Plywood side. So with significantly lower realizations in MDF exports, we will not see any growth this year.

The next question is from the line of Arun Baid from ICICI Securities.

Just one clarification. The new plant is going to come in Q2 or Q3 of next year?

Q3 next year since there have been some delay in shipments from Germany. So at this point of time, we are behind by about 2 to 3 months as far as the shipments are concerned. So instead of Q2, we are looking at Q3 next year.

Scenario would be end of Q2 or early Q3.

And Venkatramani, in one question, you answered that on this new capacity, which is a thin MDF you're going to work through, you were saying that proportionately, you'll be using around 30% to 40% of capacity. So ballpark, if I assume 6 months of operations on [ 230 ], your capacity would be [ 150 ] and roughly if I assume 30%, 35%, ballpark 40,000 CBM additional volume [indiscernible] from the new plant for FY '25, is that the right way to look at things?

Yes, that's correct.

So next year, sir, assuming this 40,000 [ CBM ], we will be, on a blended basis, at least doing 15% volume growth for the next year, FY '25, assuming what you have said for the new plant?

Yes, that would, to some extent, depend on where we finish this year. But looking at our guidance for this year, yes, we could reasonably look at that kind of growth for next year.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

We thank everyone for joining this call. We look forward to speaking to you again post the next quarter results. And if anyone has any questions, feel free to contact us. Thank you, and have a good evening.

Thank you, everybody.

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