Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q3 and 9 Months 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, sir.

Good day, everyone, and thank you for joining us on the Greenpanel Industries Limited Q3 and 9 months FY '24 Conference Call. We have with us today Mr. Shobhan Mittal, the Managing Director; 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 the proceedings of the call. 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 2 -- quarter 3 FY '24. MDF domestic sales volumes grew by 4%, while export volumes fell by 15%. Overall MDF volumes were flat at 118,301 cubic meters compared to 118,218 in the corresponding quarter. MDF domestic realizations were lower by 6.7% at INR 31,593 per cubic meter, while realizations in export were higher by 2.2% at INR 19,053 per cubic meter. The fall in MDF domestic realizations were due to introduction of new products for the OEM segment. This contributed 28,025 cubic meters in volume terms and INR 62.65 crores in value terms at an average realization of INR 22,355 per cubic meter. MDF EBITDA margins at 19.6% were impacted by increase in brand spend at 2.2% of sales compared to 1% in the year-on-year quarter, higher wood prices and increased domestic competition. Plywood volumes were lower by 22.6%, and operating margins at negative 4.1% were impacted by lower volumes and increase in raw material costs. Plywood realizations of INR 249 per square meter were lower by 13.8% year-on-year. This was due to lower volumes in the decorative veneers business. We have restructured our plywood sales team to recover market share and to reach optimum capacity, which we foresee in the next few quarters. Post-tax profits for the quarter was lower 7.8% at INR 34.6 crores as compared to INR 37.5 crores in quarter 3 FY '23 for reasons mentioned earlier and currency losses of INR 8.44 crores. Net working capital at 25 days has shown an increase of 2 days year-on-year. We have chosen to be disciplined with our credit terms, which obviously have some impact on our sales since competition is offering attractive credit terms. Net debt stands at negative INR 176 crores as of 31st December 2023. We have prepaid borrowings of EUR 3.59 million, which equates to INR 32.7 crores during the quarter. We paid INR 24 crores from internal accruals towards MDF expansion project during quarter 3, and regaining to INR 115 crores till date. Apart from this, the spends from borrowings aggregate to INR 146 crores till date. Work is progressing on the expansion project, and we estimate commercial production in quarter 3 FY '25. Mr. Venkatramani will run you through the financials in greater detail, post which we will have the Q&A session. Thank you.

Good afternoon, everyone, and thank you for joining us to discuss the Q3 FY '24 financial performance of Greenpanel Industries. Net sales during the quarter were INR 384.99 crores compared to INR 419.09 crores during the year-on-year period. MDF sales fell by 4.1% at INR 346.62 crores and contributed 90% of the top line. MDF domestic volumes grew by 4%, while export volumes fell by 15%. Overall volumes were 118,301 cubic meters compared to 118,218 cubic meters in the year-on-year quarter. MDF domestic revenues were INR 305.41 crores, while exports contributed INR 41.21 crores. Domestic realizations were lower by 6.7% year-on-year to INR 31,593 per cubic meter, while export realizations are higher by 2.2% at INR 19,053 per cubic meter. Blended MDF realizations were lower by 4.2% at INR 29,300 per cubic meter. Uttarakhand MDF operated at 82% and AP plant operated at 70%, with blended capacity utilization at 74%. Plywood sales saw degrowth of 33.3% at INR 38.37 crores. Plywood sales volumes were lower by 22.6% at 1.54 million square meters, and the unit operated at 58% during the quarter. Plywood sales realizations were lower by 13.8% at INR 249 per square meter due to mix change, as mentioned earlier by Mr. Mittal. Plywood sales realization, excluding decorative veneers, were up by 0.7% year-on-year at INR 248 per square meter. In Q3, gross margin fell by 212 basis points year-on-year at 56.1%. EBITDA margins were lower by 577 basis points at 17.3%. EBITDA in value terms stood at [ INR 66.42 crores ] and PAT at INR 34.6 crores due to reasons mentioned earlier. I'll now update you on the performance details for 9 months FY '24. Net sales degrew by 12.7% at INR 1,167.84 crores. MDF sales were lower by 9.3% at INR 1,041.30 crores, while plywood sales were lower by 33.2% at INR 126.54 crores. Gross margins were down by 295 basis points at [ 56.6% ]. Gross margin in value terms was down by 17% at INR 660.51 crores. EBITDA margin was lower by 817 basis points at 18.1%. EBITDA in value terms fell by 39.9% at INR 211.35 crores. Post-tax profits were lower by 39.8% at INR 112.88 crores. Overall, MDF sales volumes were down by 3% at 357,714 cubic meters, with blended capacity utilization of the 2 plants at 75% compared to 77% in the year-on-year period. Dispatches for plywood were lower by 27% at 4.76 million square meters, with capacity utilization at 57% compared to 75% in the corresponding period. Gross debt, including borrowings of INR 146 crores for expansion projects to equity, now stands at 0.18 as at 31st December compared to 0.17 as on 31st December 2022. Net debt as on 31st December stood at negative INR 176 crores compared to negative INR 145 crores as on 31st December 2022. That concludes my presentation. Please start the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Keshav Lahoti from HDFC Securities.

Sir, firstly, I want to understand, last time in the call, you have highlighted October domestic volume growth was 9% year-on-year, but as a quarter, the growth is 4%. So it means that sales have been slightly lower side on November and December. And lastly, how is the trend now like Jan is also over?

Yes. So November was possibly impacted by the festival season, although it was similar to last year. And as far as the future is concerned, I think we will see volumes improving from this quarter onwards quarter-by-quarter. And we expect to finish flat as far as domestic volumes are concerned on a yearly basis and possibly some degrowth on the export side. We have reduced exports to large buyers primarily because of the increase in costs on the raw material side. But we are continuing shipments to the smaller buyers that we are getting higher realizations and some positive contribution to the fixed costs.

Understood. Earlier, once we are anticipating 10% to 12% growth on export NSR. So have that played out or yet to play out, how should we see that?

I didn't get your question.

So I remember, maybe a quarter or 2 back, you said that export NSR will improve by 10% to 12% because whatever the shipment you have bought, but hardly we have seen that getting played out in number. So should we expect a better NSR for export in Q4?

Yes. Probably we could see a marginal increase in export realizations. I don't think there's any possibility of reduction there. But yes like I mentioned, we have stopped exports to the large format buyers, primarily because of a significant increase in raw material costs. So while realizations might improve a bit, I think volumes will be constrained.

Okay. Got it. Got it. I just want to understand one thing now BIS have -- is getting implemented. And secondly, due to Red Sea issue, the ocean freight rates have also increased. So what sort of impact you are seeing in MDF import?

We have seen a minor reduction in import volumes. There could be 2 reasons for that. One, the volumes were very high in quarter 2, where we saw a total of around 144,000 cubic meters being imported. Compared to that, Q3 was around 93,000 cubic meters. So there's definitely been a significant fall, but that could possibly have happened because people wanted to shore up inventories before the BIS came into implementation. So that could also explain the lower imports, which happened in quarter 3. But yes, we are hopeful that once BIS implemented, we will see a significant reduction in imports during the current quarter and the next financial year.

Got it. So one last question from my side. How has been the timber prices sequentially and year-on-year for North and South?

Okay. So we have seen an increase of 2% for the North plant and 4% for the South plant sequentially. And as far as year-on-year is concerned, just give me a minute.

And if you also got any number, please do share that also.

Yes, I'll do that. So year-on-year, the increase has been 6% for the Northern plant and 40% for the South plant. And as far as the numbers are concerned, in Q3 last year, it was INR 5.38 per kg for the North plant, INR 3.15 for the South plant. And in the current quarter, it has been INR 5.71 for the North plant and INR 4.44 for the South plant.

[Operator Instructions] We have the next question from the line of Sneha Talreja from Nuvama.

Just wanted to understand the domestic demand scenario. We understand you have purposely reduced the share of exports. But how is the domestic demand scenario? Because we're not seeing a great momentum in volumes either in domestic market.

Yes. Domestic volumes -- the domestic market has been growing during the current year. And we are quite satisfied as far as the demand conditions are satisfied. So the fact is that imports took away a larger share of the growth from domestic producers. So we are hopeful that once BIS is implemented, we will see a reduction every month happening on the import side and the benefits getting passed on to the domestic manufacturers.

Understood. Understood. Secondly, the margin [ standpoint ] you have revised your guidance last quarter downward over 22% to 23-odd percent. This quarter, margins have come slightly below that number. Is there any one-off? Or do you still expect margins to hover around 19% level?

As far as the margins are concerned, so there were a couple of factors attributable to that. One was the higher brand spend in the quarter. Second was the increase in wood prices. And the third was a significant increase in the volumes for the new products, which we had introduced for the OEM segment. So that's had a significantly lower margin as compared to our regular product. So that had an impact on the margins. But going forward, I think once we see the volumes moving towards the optimum level, we'll also see a corresponding improvement in the margins.

And is the timber prices already started declining, sir?

No, I don't think we are expecting any significant reduction in wood prices during quarter 4 or even the next financial year. I think they would possibly start reducing from FY '26 only.

Understood. And last one, if I may, is related to BIS norm. So how confident are we in terms of implementation happening from Feb? Do you expect any delays at all? And can import come back to the COVID level, I would say, after implementation? What's your assessment on that?

Shobhanji, can you take that?

Yes. Yes. So -- no, so implementation is, for certain, to happen because it's already been passed. So -- but what I would say is that there would be 2 elements of benefit for the domestic producer with the BIS implementation. There would be, I would say, short-term relief in terms of import volumes being reduced. And then, of course, on account of compliance with BIS, it's a fairly tedious process for the foreign producers to get the registrations done and to comply and then also going forward to continue producing material which comply with the BIS norms, which would result in certain additional costs on account of their manufacturing even after they have gotten the registrations and compliance has gone with the BIS norm. So it would -- I won't say that it would come to pre-COVID levels where it was to that low levels. But it would definitely help us in curtailing the imports coming into the country.

The next question is from the line of Utkarsh Nopany from BOB Caps.

Sir, my first question is that given that we have a pretty strong balance sheet, are we planning to enter into any new product category, say, over the next 1 year period?

No. At the moment, we are not planning entry into any other products.

Okay. And sir, my second question is that, like if you can give us some sense that post Red Sea conflict, whether there has been any increase in the ocean freight rate from Southeast Asian market to India.

Yes, there has been a marginal increase in ocean freight rate, but I think that's more due to a reduction in availability of containers rather than directly related to the Red Sea conflict because that's probably having more impact on imports coming in from Europe or U.S., which is not the case as far as MDF is concerned.

Okay. Sir, just wanted to understand on this point only, so whether the landed cost of imported MDF remains the same or it has gone up post Red Sea conflict?

It remains the same. There has been no increase.

The next question is from the line of Yash Sonthaliya from Buoyant Capital.

Am I audible?

Yes. Please go ahead.

So my first question is, like our realizations in import is a way too lesser than domestic. So what is the different product we are selling, how we are able to make positive EBITDA margins?

Okay. So if you take the imports, more than 90% of the imports would be of the plain MDF category, primarily the -- what we call the industrial or the interior category. And possibly about 5% to 10% would be prelaminated MDF. Whereas if we look at our mix, so there are 4 categories, so plain MDF contributes about 82%, our prelaminated MDF contributes about 17% and the balance 1% comes from chlorine. So plain MDF is again broken up into 4 parts: industrial, commercial, exterior and club. Here, again, the mix is about 30% for industrial, about 32% for commercial, 17% for exterior and 21% of club. So if we compare and -- take the plain industrial MDF and what we call the value-added products, which are basically prelaminated flooring, exterior and club, the realizations of these value-added products are approximately 50% higher as compared to the plain MDF, but the costs are also higher for the value-added products. But even then the margins are significantly higher as compared to the industrial or the commercial category. And since imports are majorly of the industrial or the commercial category, so their value add and margins are significantly lower.

Understood. And sir, a follow-up on this, like the products which we are exporting to other countries, are we able to make positive EBITDA on those products?

Okay. So no, at the moment, we are not making a positive EBITDA. So as long as our realizations are higher than the variable expenses, we are doing those exports because they are making a positive contribution to the fixed costs.

But sir, what -- where I'm confused is on the domestic side, we are making around INR 7,000, INR 8,000 EBITDA per tonne -- EBITDA per CBM, and we are exporting the products at INR 20,000 realization. So how it is making sense for us and how much negative margin we are making?

See, if we could sell the entire capacity in the domestic market, we wouldn't be doing any exports at all. Exports would be 0. But today, even after including exports, we are operating at around 75% capacity utilization. So when you are not at the optimum capacity utilization, it makes sense to do exports also. And today, the export markets are also disturbed because countries which are exporting to India like Vietnam and Thailand are also doing large-scale exports to the Middle East, which is our major export market. And so realizations and margins are depressed currently, but as soon as imports start reducing, we will be able to improve our realization. So it makes sense to continue in those markets for the time being, although we have reduced sales to larger buyers where the realizations are not making a positive contribution to the fixed costs. But we are still continuing with the smaller buyers.

Understood. And sir, a last follow-up, like if we are exporting to the countries where other players are also exporting, then why aren't we able to compete with them [indiscernible] the export in India and in UAE?

Okay. The simple reason is that we are able to compete because we are matching prices there, okay? So our export realizations are similar to what the imported products cost in India. So -- but if we would try to compete with the imports on similar pricing in India, then our existing margins would also fall significantly.

Understood. Understood. And one last question, like there are too many plants and capacity coming up in South specifically. So any assumptions or any goals like what we are assuming our utilization of South plant going forward?

Yes. So our target is to achieve optimum capacity utilization in the next financial year for the South plant. And if you look at it -- if you look at the expansions which have happened over the last 12 to 18 months, most of the expansions have happened in Northern India. And apart from Century's plant, which is coming up in South India, no major expansions are happening in Southern India.

[Operator Instructions] We have the next question from the line of Kushagra from Old Bridge Asset Management.

Just 2 questions. One, if I look at your production numbers and sales numbers, your production numbers are higher for a second consecutive year. And that sort of implies that there is some inventory buildup. So wanted your thoughts on how are you thinking about inventory buildup for you, for other players and in the distribution channel in a declining price environment.

See, there's not been any significant inventory buildup. So if you look at the first 9 months of the current year, our production has been 352,000 cubic meters, and our sales have been 357,000 cubic meters. So there's hardly been an increase of 5,000 cubic meters during the 9-month period.

All right. So the broad math which I saw was on a 13% decline on revenue, your inventory levels have actually -- from INR 150 crores at the end of FY '23, it has gone up close at almost INR 200-odd crores.

So you cannot really compare value with the volumes because on the value side, there has been a drop in realizations because we have introduced a new product for the OEM segment. So that has led to lower realizations. But on a volume basis, like I mentioned, we have had just a 5,000 cubic meter increase in MDF volume.

So in short, basically, there is not much inventory buildup for you as well as in the system. That is what you're trying to say?

That's correct.

All right. The second question is more related to the way you look at utilization or the way you plan your utilization level. So given you have continuous manufacturing plants, just wanted to get a sense on that apart from some maintenance, is there a question of switching on and switching off of the plant or you just run it for all 365 days, except for those maintenance days? And in that sort of -- if that's the case, how do you sort of manage the fluctuations in the utilization levels? That's what I'm trying to understand. And a follow-up to this is, what utilization levels you are planning in FY '25 in this environment when a lot of capacity ramp-ups are also happening?

Okay. So as far as planning the capacity utilization is concerned, so our efforts are to have the plant running continuously except for the maintenance days. But yes, sometimes, inventory buildup does happen. So what we do is we prepone the maintenance or we take shorter runs or possibly some of the components of the machinery shutdown. So those are the things we normally do to ensure there's not any significant buildup of inventory. And during the current year, capacity utilization has been 73% for the first 9 months. So I think we would be targeting somewhere between 85% to 90% for the next financial year.

The next question is from the line of Ritesh Shah from Investec Capital.

Sir, a couple of questions. First was on the Red Sea thing. You did indicate the container freight probably from Southeast Asia to India hasn't changed. But if we had to look at if there was cargo from Vietnam which you used to chase, say, the European and U.S. markets, I think it will become economically unviable for them till the Red Sea issue continues. So is it the threat that, that material could be dumped into India till the situation stabilizes?

It's a difficult question to answer because we have to look at what impact BIS implementation has. So it's expected to be implemented after another 10 days. So we'll have to see what impact BIS implementation has on imports. But I think, yes, it would be extraordinarily difficult for them to divert shipments from -- which are planned for Europe to India at this point of time. Also keep in mind that shipment [indiscernible] so what I'm saying is that domestic consumers would also be wary of placing order for imports at this point of time because they don't know whether those shipments could get stuck up because they are not complying with BIS norm.

Okay. And sir, Shobhan sir, you did indicate about the tedious process to get the registration done. Are these renewals or licenses, do they need to be reviewed or renewed every year basically when it comes to imports? Or is it a onetime offer, which gives them a...

No, it needs to be renewed on an annual basis. However, the first time, the process is a lot more cumbersome as opposed to the renewal process. So keep in mind when it comes to BIS, every product, every sheet needs to be stamped with the BIS compliance code and the BIS stamp. A lot of these companies do not even have the facilities to do individual board printing like we do in India. So even on that aspect, they will have to do the compliance, install new printers, and machinery, infrastructure needs to be created for that. And at the same time, the current quality parameters that they follow at this point of time, not BIS compliant. So of course, as a domestic producer, we will push for the BIS to make sure that the products coming into the country now are BIS compliant, which will then have an adverse effect on the costs as well.

This is useful. And sir, is there -- how much is the cost for the renewal for the license? Just I'm trying to understand, so if the renewal is required every year, it has become a bit cumbersome...

No, in the scheme of things, that's -- I don't think the cost of BIS [ views]. I'm not aware how it works as a foreign producer to get BIS compliance in the renewals. But in the scheme of things, I don't think that is prohibitive.

Okay. Perfect. And sir, just last question on manpower. I think in the initial remarks, you did indicate that we will restructure teams in the ply division, if you could elaborate on that. And secondly, we have seen a bit of attrition when it comes to the sales force, even at the senior level over the last 12, 18 months. So how are we ensuring that we retain our top employees? And people leaving at the top, has it had any impact over the last 2 or 3 quarters? How are we trying to recoup that?

Actually, it's hard to say that -- what you see as attrition is actually part of the restructuring process. I would say that at the top level whatever attrition has happened is a planned restructuring and a planned attrition to be honest with you, where the company has chosen to replace or reassign people at that level. And on the ply division, yes, the process is still ongoing. Barring the manpower itself, there is also a lot of restructuring happening within the distribution network as well. And in earlier -- what we noticed was that there was a wide network of dealers and distributors, but the business coming from them was not consistent and regular. So now we are in the process of weeding out people who are only dealing with us once every 4 months or once every 5 months and focusing on more concentrated distribution model where people are holding stocks and, on a monthly basis, doing business with us and then, in turn, distributing it to the retail network. So both on account of the manpower as well as on account of the distribution network for the ply business, that is an ongoing process for the time being. But we will definitely see the benefit of that in the next couple of quarters coming in. However, because of this major change that is undergoing, it is reflecting on the reduction of volumes because it's a big disturbance in the ongoing business model. But it's for the long-term benefit of the business.

This was very helpful. And sir, just last question, you indicated that we expect timber prices to reduce from FY '26 only. Any specific reason for the time lines and the underlying variables over here, please?

Yes. So maybe...

No, go ahead. Please go ahead.

Yes. The major plantation started in FY '22, and it's a 3-year cycle. So I think yield from those plantations will happen towards the beginning of FY '26 or could be, say, a couple of months earlier.

The next question is from the line of Praveen Sahay from PL India.

So the first one, the -- can you repeat the OEM volume numbers, sir?

Yes. So it's 28,025 cubic meters.

Okay. So related to that, sir, how much of the -- because if I look at this and look at the contribution, it's nearly around 29% of your domestic volume. So where this number to go here -- from here as a contribution of the domestic? Will it be at 30%? Or it will be -- go beyond that?

I speak, so it will only go down from here. [ It won't ] increase from here.

So any -- the contribution you are aiming for the domestic volume to be directly to the OEMs?

See, it's a difficult question to answer because at different levels of capacity utilization, different levels of volumes sold, the mix will be different. But yes, to repeat my answer to your question, I think we are at peak as far as the percentage of sales to OEM is concerned. So I don't think we will see any significant increase from here on, or rather, we could see a reduction in this.

And also in the realization of the domestic, we have seen that's a 3.5% reduction sequentially. And I can understand it's because of OEM contribution has increased as well as some -- you had mentioned the increase in the domestic competition. So can you quantify how much is the sequential reduction in the realization is because of 2 things?

There's no reduction as such because of competition because our prices have remained at the same level. So the reduction in domestic realizations is entirely due to the change in product mix.

Okay. And on the export number, sir, your export contribution has reduced to 18% of overall volume. And earlier definitely, you had went ahead to around 27%. Where also in the export you want to be like at what percentage of a contribution of your volume?

See, our preference would be to have a 90-10 mix of domestic and exports. But depending upon demand conditions and prices in India and exports, so there could be a change in the mix, but our preferred mix would be 90-10.

Okay. And last question on the domestic volume side because in the domestic volume, your growth is some single digit versus your peers also reported your number in the domestic, they had given double digit of a growth. And we can understand that there is another peer coming in the South with their plant. So where you will see this domestic volume growth to -- way forward? And also if you can give some color like why you are a single digit versus peers growing at a double digit?

See, one could be because our capacities and volumes are much higher as compared to competition. So you will also understand that growing 10% on INR 100, it's far easier than going 10% on INR 2,000. So since it's -- we are already at a very large volume that -- compared to competition, possibly our growth rate is lower. But I think starting from the current quarter, we'll see -- start seeing a significant improvement in domestic volumes.

[Operator Instructions] The next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

So the question is you explained about BIS impact on MDF. How do you see it play out in plywood? I know probably imports are fairly small, but say for smaller domestic companies, I think compliance is fairly understood part. But say if on production or raw material sourcing for smaller companies, how will that play out?

See, plywood -- yes, please, go ahead.

No, there is no change on the BIS compliance aspect on plywood. This is very specific to MDF only.

No, there's BIS on plywood also. But I think that implementation will possibly happen with a time lag. I think...

Yes, I'm -- see, I'm okay with probably it could happen with a time lag. I just want to understand, say, in terms of improving the product quality or to meet the norms, what kind of changes probably smaller companies or probably unbranded companies would have to undergo?

I think BIS will be very positive for MDF, not only in terms of reducing import volumes. But over a period of time, a large part of the unorganized plywood segment will also be subsumed by MDF, primarily due to compliance issues.

Okay. Sorry, sir, I'm probably -- I got this market share shift. My question is more from the manufacturing angle. Say, today, if anyone is not confirming to BIS norms on plywood side, how will that change on the plywood on the domestic side?

See, any domestic manufacturer has to comply with BIS norm. It's a mandatory requirement.

Okay. Okay. So there won't be any material change in cost cover anything for the smaller companies?

There would be. And let me give you an example. When we talk about BIS norms, every aspect of the quality is, for example, specified, right, whether it is the screw holding, whether it is the [ individual strand ], whether it is [indiscernible]. Now if certain, let's say, certain parameter is not being achieved, that would -- might mean, let's say, in the case of plywood, then a higher percentage of glue has to be used in order to achieve that strength level, which BIS specified. So which, in turn, would mean that, okay, that they will have to start using that higher quantity of glue to produce the plywood, which would result in a cost increase. At the same time, let's say, there is also a parameter of waterproofness of the product, right? Now a lot of people produce plywood, let's say, using only urea-melamine formaldehyde, whereas in order to get the waterproofing, you may need to have a higher quantity of melamine or higher quantity of phenol in the resin, which would again result in a higher cost of production. Same thing would apply even to the imports of MDF as well where I said, whether it is the density or whether it is these quality parameters, which may result in additional manufacturing costs to comply with the quality norms. And that has applied to us as well. Fortunately, we, as a company and as a domestic producer from the beginning, have already been compliant into that. So there's not much material change in terms of cost of our production.

Okay. And any change on the timber side for the unorganized or smaller companies because of the BIS norms, at least on the plywood side, more on the plywood side?

When you say timber side, are we -- you mean to say...

This is the quality of timber. Quality of timber. Quality of timber. Say, do you feel that probably that could also change for smaller companies in terms of -- or do you think they are probably in line with what branded or larger companies like you or other peers procure on the timber quality?

No, I think where it might change is the quantity of timber consumed to produce the same unit. Like I said, if the density has to be increased, then they'll have to start using higher quantity of timber. But would the quality of timber change? Unfortunately, in India, the quality of timber is constant in the sense -- always sort of a downward trend. So that will not, per se, change materially for them as opposed to the organized players.

Okay. Okay. More from meeting the density requirement under the norms. Got it.

The next question is from the line of Senthilkumar from Joindre Capital Services.

My question is, why is Greenpanel, being a leading domestic brand in MDF business, unable to perform in tune with the buoyancy in the housing market and other industrial growth?

Venkatji, did you follow the question? I couldn't hear it. It's a lot of echo in that question.

I had the same problem. Yes. Could you please repeat it?

Yes. I just want to know, Greenpanel, being a domestic leading brand in MDF business, unable to perform in tune with development and tremendous growth in housing market. What is the reason for that?

It's not -- I think the -- we are primarily an MDF producer at the moment. And given the market conditions of MDF -- of the MDF industry, which is at this point of time, highly impacted by imports, by increasing raw material costs. So we have to look at our industry sort of a little bit independent of the real estate market. I mean we are connected, but at the same time, market conditions of the MDF industry currently are not as rosy as it may be in the real estate market. So we will have to look at that a little bit independent of that. Imports are a big threat. As Mr. Venkat has mentioned, raw material costs have gone up drastically, which are all impacting -- and the domestic competition is also increasing -- intensifying quite strongly. So which is all resulting -- and us at the moment being the largest player, we are a very clear target for any newcomers in the segment.

Okay, sir, understood. And my second question is, what is the difference between the import price and the domestic price in Q3 FY '24, MDF price?

It's about -- it ranges between 18% to 20%.

Okay. Even last quarter, it was 18%, right?

Yes. More or less, prices have remained constant.

Okay. And lastly, what is the CapEx for FY '24 and FY '25?

For FY '24, I think probably INR 400 crores or close to that range. And the balance of the INR 600 crore CapEx will be happening in the next financial year.

Okay, sir. Okay. And lastly, in last quarter con call, you said like there is some delay in the shipments from Germany. What is the status on that, sir?

Yes, we are expecting -- yes, I think, I mean, at this point of time, barring the delay in the shipment from Germany, what is also uncertain is this Red Sea thing -- issue, which is affecting our shipment as well, but we are quite confident that within the coming financial year, we will be starting commercial production. Maybe towards the later part of quarter 3 or in quarter 4, we will be starting commercial production. It should not go beyond that.

The next question is from the line of Mithun Aswath from Kivah Advisors.

Yes. I just wanted to get a sense of what is the annual import figure for MDF. Say, for in FY '24, what is the estimated annual import?

A difficult question. Give me a call tomorrow. No, I don't have a reply to that immediately.

Year-to-date number, you would not be tracking sir?

No, because we used to get data from our PHA agents. But that was banned in the budget of FY '22 that they could not share those data. So now we are dependent on the Commerce Ministry website, which comes with a time lag. So if you can give me a call tomorrow, I'll be able to provide that data.

Sure. The next question was...

One information I can share on that is that in the past -- let's say, in the past 6 months, I think it's -- we can confidently say that it's around 30,000 to 35,000 cubic meters average.

No, would probably be higher because as far as my knowledge goes, it was approximately 48,000 cubic meter per month in quarter 2. And quarter 3 would probably be an average of around 30,000 to 32,000. Average of 30,000 to 32,000 in quarter 3.

Got it. Got it. That's helpful. Just wanted to understand in the domestic market, you reiterated that the competition is intensifying. Are they kind of pricing or -- the product lower, and hence, your realizations are also under threat? Because you being the leader, you would have better pricing power. Or I'm just trying to understand, are they forsaking margins to gain market share? So just wanted a sense there.

Shobhanji, can you take that?

No, there is -- yes, there is definitely pricing pressure. At this point of time, we have certain benefits with regards to being located in 2 geographies, north and south of India. But at the same time, we have not reduced prices, but we have -- let's say, in the last quarter for the current running quarter, we have launched some end-of-the-year schemes in order to keep or grow our market share. So it's hard to say how this pans out because certain capacities are yet to come online and how they will price themselves and how the market will react. So at this point of time, it's hard to put a pin to it, but no, there will definitely be certain pricing pressures going forward.

Got it. And just one last one more. You mentioned that the imports are 20% cheaper. I'm just trying to understand what are the benefits that the Vietnamese and these other producers get that they are able to produce and sell at 20% discount, including the shipping costs. What is that reason? And how can we also get competitive to those levels? Is it that the raw materials are cheaper? What is the -- what is that X factor?

It's a mix of both. Possibly, their plants are much older than ours, so they're fully depreciated. And I think they also -- for India, they follow a very similar model to what we follow for the -- for our export business, where capacity utilization, anything above the variable cost is the key sort of objective. So even though they may be making very low margins or even at breakeven costs, they're happy to run the plant and basically dump the material. So that is the reason why the export model in India exists. The rest of the international market also plays a pivotal role in this because if there are more lucrative markets, the demand increases there then supply towards India reduces at the same time. We've seen that happen kind of almost a year ago. A year ago, export prices were almost 40% higher. So it's a function of capacities in those markets, the local demand, how that currency plays out against the dollar, multiple reasons.

The next question is from the line of Aasim from DAM Capital.

So first question is basically a clarification. So you mentioned that you expect your South India plant to reach optimal utilization in the next financial year. So I presume this was for your existing capacity. So just keeping the expanded capacity aside, which I think would be delayed into the latter part of H2, but just North and South put together on existing capacity, would a 15% volume growth in FY '25 be a fair goal to target over FY '24?

Yes. I think that's what we were saying earlier. So we would be targeting a 15% domestic volume growth in MDF next year and possibly also for the overall MDF business.

So the new capacity would be like probably contribute very minimal to the FY '25 volume, is it?

Yes. I think it will be a very small contribution because currently, there is some uncertainty on when the Red Sea issue will be resolved and shipments will proceed to India. But like Shobhanji clarified that the plant is expected to begin operation either in Q3 or the beginning of Q4 at the latest. So assuming it happens in Q4, so I think possibly, it won't -- it will contribute somewhere between 20,000 to 30,000 cubic meters this year.

Got it. Okay. And second question is relatively more technical. So just wanted to understand, are these BIS norms, are they more stringent in India versus comparable standards demanded by other countries in the Middle East from these Southeastern producers?

Yes, they are definitely more stringent. In fact, certain norms that we were following for MDF -- BIS was following for MDF were almost a replication of the norms that were there for plywood. And the domestic industry had to approach the Bureau of Indian Standards and get them corrected. But Indian norms generally tend to be more stringent compared to the EN standards or the JAS standards. So yes, and that is why we are saying that in order to honestly comply with the norms, there will definitely be cost increases on the part of the foreign producers.

Also is -- does the fact that their plants are older, so they produce older quality, is that also a factor?

No. No, I don't think that is a factor. It's the production process that you follow. But I don't think from a mechanical or a production capability aspect, they would have limitations. It's a matter of willing to comply. It's not that they will not be able to comply if they wanted to.

The next question is from the line of Arul Selvan from Independent Advisors Private Limited.

Can you hear me?

Yes, you are audible now, sir.

I just have a couple of larger questions over here. I was looking at the margins on the plywood segment. I was just wondering, do we have any plans of exiting the plywood segment? Does it really contribute to our larger objective? Or do you think this helps in some other format in terms of distribution strength or branding? Or is there any other benefits of being present in the plywood segment?

Shobhanji, please take this.

Yes, we are very much optimistic that we should be present in this particular business because plywood in India is here. I mean it's going to remain for the next many, many years to come. It still is the primary panel of choice. And as a company, we see that going forward, as having a distribution network and leveraging that across the 2 products and -- is going to be beneficial for us. We have already made investment. Any new investment that we choose to make gives us a very high revenue-to-investment ratio. So it's a good model of business to be present alongside this MDF business, which is a completely different -- which is very capital intensive. So we don't have any plans to exit this business. We are very much focused on this business. And at the cost of poor performance in the current year, which is primarily on account of the complete restructuring and the refurbishment of the business model that we are doing, we see that in the coming financial year, we will look at this in a very positive manner, which would allow us to reach optimal capacity utilization and then look at possibility of future expansion in the business as well.

Okay. Okay. Great. And my final question here is with regard to the OEM segment. Could you just help me with understanding which kind of products the OEM segment consumers generally have and a sense of what the margins are in that segment for MDF?

Venkatji, do you want to take that?

Yes, please take the question.

No. So the OEM segment is primarily focused on the imported products at this point of time because it is a highly cost-conscious product. And at this point of time, there are 2 grades of products that the OEM segment is consuming. One is your standard imported industrial grade, which is the bread-and-butter, lowest-grade product of the MDF market. But at the same time, there are certain, let's say, more, more moisture-resistant applications like kitchens, which consume a higher grade of product, which is with the green pigment, which is what we call the Exterior Grade or the HDHMR grade. So this is the segment for which we have launched the commercial grade product, which is one quality lower to our industrial grade product, which competes with the imported segment, which allows us to save on certain costs because of the lower density, which is comparable to the import material. And when it comes -- when we're talking about margins, the margins are slightly lower than our industrial grade product. But at the same time, when we see benefit of this particular segment is when we produce a lower-density product, our volumes in terms of production increases. So the day we are reaching optimal capacity utilization, that's where we will really start seeing the benefit because the savings come in the form of fixed overheads, because we produce a much higher amount of cubic meters in the same amount of time as opposed to the higher-density and the higher-grade products. So we may not see the margin benefit of that as on date because we are still underutilized. But in the long run, we will do so because fixed cost gets divided over a quantity of production.

The next question is from the line of Nikhil Agrawal from Vt Capital.

Sir, what -- just wanted to understand what kind of volume growth are we targeting in the plywood segment in FY '25?

I think primarily we will be targeting to achieve the volumes that we did for the plywood product in FY '23, which was about 78 lakh square meters. So if you look at the volumes that we did in FY '23, it can be broken up into 2 parts: 78 lakh square meters for plywood and 18 lakh square meters for decorative veneers. We have now exited the decorative veneers product, so we would want to go back to that 78 lakh square meters volume in FY '25.

Okay. Got it. And like we saw our quarter-on-quarter margins fell down for both MDF as well as plywood, and even the volumes were down in the case of -- in both the cases. So are we expecting the margins and the volumes have bottomed out over here and -- at these levels?

Yes, I would pretty much think so that volumes and margins have bottomed out here.

Okay. And sir, lastly, just wanted to know like for the BIS norms, what are the license fees that importers need to pay, the onetime cost and the annual license fees, if there is any?

See, the license fees is not significant. So that would not put any pressure on imports or even domestic manufacturers. So it's primarily if you have to comply with BIS norms, you have to make your products match to the BIS specification. So that, for imports, would mean greater consumption of raw material to match the BIS specification, and that will push up their costs and make them less competitive in the domestic markets.

Okay. So is there a chance that since most of these imports are made, the plant that is used is mostly the Chinese plant? So is it possible that, that as a whole is banned or not allowed?

No, if they are able to achieve BIS specifications, there's no question of a ban. But if they are not able to match BIS specifications, they will not be able to sell in the country.

The next question is from the line of Harsh Shah from Dalal & Broacha Stock Broking Private Limited.

Just one question. I wanted a data point. So do we have the number of dealers as of date?

So we normally compile and release these figures at the end of the year, and I don't have them immediately in hand. But I had some discussions with the sales team in -- during my last visit to Gurgaon. So they mentioned they had added about 186 new dealers in this quarter. But I don't have the numbers for the first 2 quarters right now.

Okay. And just one last question. Do we use the same distribution network for both our products?

No. It's almost completely different. I would say only about 15% to 20% would be common, and the balance would be separate.

Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, everyone, for joining this call. We look forward to speaking to you after the next quarter and the closing of the financial year. If anyone has any further questions, please feel free to reach out to us. And we wish everyone a good day. Thank you so much.

Thank you, and have a good day.

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