Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q1 FY '25 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 Q1 FY '25 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 discussion may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the result presentation that was sent to you earlier. I would now like to invite Mr. Shobhan Mittal to begin the proceedings of the call. Over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us to discuss Greenpanel's financial performance for quarter 1 for financial year 2025. MDF domestic volumes were increased by 10.2% year-on-year for the quarter, export volumes contracted by 21% due to logistics issues. MDF EBITDA margins at 12.1% were impacted by steep increase in wood prices, 5.8% sequentially and 30.9% year-on-year. Lower domestic volumes on a sequential basis. Plywood volumes were lower both sequentially and year-on-year, and operating margins at negative 2.2% were impacted due to the same. Post-tax profits for the quarter were lower by 58% at INR 15.7 crores as compared to INR 37.26 crores in quarter 1 FY '24. Net working capital at 36 days has shown a sequential increase of 8 days due to increase in wood inventory in preparation for the monsoon season. Net debt stood at INR 103 crores as on 30th June 2024. However, it stands at negative INR 111 crores, excluding debt for expansion project. Mr. Venkatramani will now run you through the financials in greater detail. Post which, we will have a Q&A session. Thank you.

Good afternoon, everyone. I thank you for joining us to discuss the Q1 financial performance of Greenpanel. Net sales during quarter 1 were INR 354.15 crores compared to INR 385.16 crores during the year-on-year period. MDF sales fell by 2% at INR 331.78 crores and contributed 91% of the revenue. MDF domestic volumes stood at 97,400 cubic meters. Export volumes were 21,671 cubic meters and overall volumes for the quarter were 119,071 cubic meters. MDF domestic revenues were INR [ 288.33 ] crores, while exports contributed INR [ 43.45 ] crores. Domestic realizations were lower by 10.01% (sic) [ 10.1%] at INR 29,603 per cubic meter, while export realizations were higher by 11.7% at INR 20,051 per cubic meter. Blended MDF realizations were lower by 5.1% at INR 27,864 per cubic meter. Uttarakhand MDF plant operated at 76% and AP plant operated at 74% with blended capacity utilization at 75% for the quarter. Plywood sales had a degrowth of 28% at INR 32.37 crores. Plywood sales volumes were lower by 22.8% at 1.22 million square meters and a unit operated at 52% during the quarter. Plywood sales realizations were lower by 6.7% at INR 266 per square meter since we have stopped sales of decorative veneer. In quarter 1, gross margins at 51% fell by 710 basis points year-on-year due to reduction in selling prices and increase in wood prices. EBITDA margins were down by 780 basis points or 10.9%. PAT was lower by 58% at INR 15.71 crores. Gross debt-to-equity ratio now stands at 0.21 as on 30th June 2024 compared to 0.13 as of on June '23. Net debt as of 30th June stood at INR 103 crores, including debt of INR 214 crores for the expansion project. That concludes our presentation. Please open the floor for the Q&A session. Thank you.

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

So again, we have seen MDF margin is now pretty low at 12%. So what is the sense, when should we expect any types of pricing increase by the industry and timber prices, which continue to short up? Earlier call, you have said it might possibly cool off from June or July onwards. So what is the sense on the cost side? And lastly, on the import, as we are seeing freight rates have sort of already doubled in the last few months. So is it leading to lower import in the country? And how is the import and domestic pricing gap now?

Yes. So on the timber cost front, I think we have maintained previously that it is still some time -- it goes next year when we will see that the price is starting to cool off when the new plantation material will start coming in circulation. So -- however, we do see that there is some stability on the timber prices as a company. What we have also done is we have ventured into different species of timber trying to source other cheaper species of timber for which we are now trying to keep the timber prices in check. However, it's very hard to estimate that are we seeing a real reduction in timber prices. As of now, it's hard to say that. But with various different mixing of different species, et cetera, we're able to control our internal timber prices. On the pricing side, we foresee that we don't see any major further reduction in the market pricing coming in because majority of the new capacities have already come in and some of the smaller new capacities have already established themselves with a fair amount of volume in the market and decent market share. So we don't foresee any major challenge coming on that side as well. Imports, yes, freight prices continue to remain quite inflated. And we are not seeing a major increase in imports coming. In fact, there has been a reduction only. So we don't see imports view a major threat in the near future because of the freights remaining inflated at this point of time. So that is the current situation on the cost and pricing side.

Got it. In case of no price increase or 12% margin can possibly at best you can close this year looks like a 15% margin. So what is the take on that because margin is pretty low from a like a capital-intensive business like MDF.

So if you remember, we had guided in the last conference call after the fourth quarter results that we are expecting MDF margins to be around what we achieved in Q4 last year. It was, I think, around 16.4%. So that would be our target for the current year.

Understood. Got it. One last question from my side, how -- you'll maintain your 15% MDF volume growth guidance for FY '25?

Correct.

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

Just a couple of quick questions from my end. Of course, you've given all the reasoning right from domestic competition to timber prices going up. When you see -- like on timber pricing, I think on the last question, you did mention a lot. When you see the domestic competition easing, I think the last was done by Greenply and then came CenturyPly. Do you see now the price pressure at least on the competition side has gone away? The question why I'm asking is even if, let's say, timber prices start to reduce, if the competition remains fierce, can there be passing on which can happen? Or you think that will not happen?

So -- I think for Century, a new plant has recently started and of course, I'm quite sure that they are looking to gain some market share, especially in the South zone where they were not present operating out of the North plant, not present in a very substantial way. So I wouldn't say that the domestic competition has gone away. However, there is some relief on account of imports not coming in. I'm also quite hopeful and so that the domestic industry has now realized where they stand in terms of margins. And there is -- I think we're almost hitting a bottom limit as to how much price cutting can happen. With the given current timber prices being on the increasing trend, even at current levels, margins have already become quite strain. A lot of the new companies have taken on substantial debt to fund their expansion projects. So I don't foresee any major reduction in market pricing per se. I think now the only challenge that remains is are we increasing timber pricing? And I think collectively, as an industry, there are chances that we may be able to pass it on in the coming few months, primarily, if all the organized players see it that way and the imports remain muted, then there would be a possibility of passing on this cost on to the market as well.

So is it safe to assume in Q2, we will see some price increase happening, any...

I don't think we can make that assumption now. It's still a very competitive market, and there is a big gap between demand and supply. So I would wait for some time before we see whether we can implement a price increase in quarter 2.

Understood. And lastly, when you mentioned about [ one ] supply, could you give us some number of supply additions happening in the industry, the major ones?

See if we look at it, current capacity would be around 3.5 million cubic meters and including our own capacity of [ 230,000 ] cubic meters, we expect another 600,000 cubic meters to be added during the current year. So if you take, overall capacity is about 4 million cubic meters whereas current demand is approximately 2.5 million to 2.6 million cubic meters.

Understood. And what would be the quantum of imports, last?

If you look at quarter 1, I think it has come down. If you look at the average for last year, it was around 35,000 cubic meters. So if you look at quarter 1, it has come down by approximately 50%.

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

Can you give the North and the South timber pricing?

For the first quarter?

Yes, sir.

Okay. It was INR 6.75 for the North plant and INR 5.50 for the south plant and blended was approximately INR 6.

Okay. And so if I look at your -- the margin profile of 12% and also, sequentially, if I look at your realization and especially in the domestic market, the realization has actually Q-on-Q has gone up. So the 16.5% of margin to 12% is majorly because of a timber pricing?

Well. That's correct. It's to a large extent, the timber price. It's also sequentially, if you look at it, domestic volumes have come down from approximately 116,000 cubic meters in quarter 4 to 97,000 cubic meters in quarter 1. So the fall in volumes has definitely contributed to the lower operating margin. And also if you look at it, the domestic export mix has changed compared to what it was in Q4. Before, I think it was about 92% domestic and 8% exports. That's about -- I think [ 32% ] domestic and 18% export in the current quarter.

Next question, sir, is related to the OEM. How much is the volume and value contribution for the quarter?

The OEM contribution was 25% of the domestic volumes.

And in value terms?

I don't have the figure right now. You can give me a call later.

The next question is from the line of Udit Gajiwala from Yes Securities.

Sir, when you mentioned that you will be ending FY '25, you are targeting around 16%, 16.5% margin for '25. So sir, what would be those reasons? I mean, from 13% going back to 16% where you are not seeing timber prices coming down?

Okay. It comes primarily from the volume growth that we are projecting for this year. We are projecting a volume growth of 15% in the MDF segment. That operational efficiency should be worth the higher margins.

Understood. But sir, to achieve 15% your ask rate for coming 9 months, it's close to 19% to 20% growth. And I believe imports could be lower in Q1 also because there was some confusion around BIS, so the orders were delayed and the container issues were there. But if import starts to come back, then 9 months -- 19%, 20% growth looks a bit challenging given the current scenario, but any light over there?

I think imports will continue to face challenges just as we are facing challenges on the export side. There's not only a steep increase in ocean freight rates, there's also nonavailability of containers and ships, and shift schedules are also getting deferred to a significant extent. So I don't think the imports will go up significantly at least for the next few quarters.

Understood, sir. And sir, lastly, the CapEx that the new plant is expected to come into Q3. So that is as per schedule. And would it start to contribute from Q4 onwards? Or if there's some deal over there?

That's correct. It will start production in Q3.

The next question is from the line of Vinamra Hirawat from JM Financial.

So my question was on wood prices. I just want to know what is the expected quantum of reduction in wood prices in FY '26 when the new crop start coming in and the estimated impact it will have on your cost of goods sold?

It's impossible to gauge that at this point of time. Being a natural product and being so fragmented in the hands of so many farmers, we will not be able to gauge what kind of supply would be coming in and what would be the expected demand at that point of time, which will result in the reduction. So it's quite impossible to gauge that at this point in time.

Okay. And just wanted to know if this quarter had any election impact on your sales volumes?

Yes. I think to some extent, we also had the election impact just as -- April is also a slow starter because [indiscernible] increased volumes in March to arrange the highest [ lag ] of incentive So all those factors that will be contributed to lower volumes in quarter 1. And we are confident that we'll start seeing the pickup from the current quarter.

The next question is from the line of Nikhil Agrawal from Kotak AMC.

Sir, my question was related to the discounts and schemes. I believe it was in place till the end of June, but still our volumes fell down in -- during the quarter. And so have you rolled back the schemes? Or are they still in place?

No, the schemes are very much in place because you see -- I think our role -- our schemes were a reaction to undercutting by other companies. So it was an answer to the other schemes that were launched by other companies. So at this point of time, the schemes continue to be in place.

Okay, okay. Do we see quarter 2 volumes going down further because -- I mean, it's normally a kind of weak quarter? So like what is your -- what has been the performance for July if can you just help on that?

See, I think we'll definitely see a volume improvement in quarter 2 because [ monsoons ] significantly impact demand since this is an internal product, primarily used for manufacturing furniture. The monsoon does not create any significant disturbances, so I think volumes will be significantly better in quarter 2 as compared to quarter 1.

All right. And -- like what about the margin front? Is this the bottom -- like 12% is this kind of bottom? Have the margins bottomed out? Or do we expect any further erosion?

I think the margins have bottomed up. Definitely -- since we are seeing volume improvement in quarter 2, I think margins will definitely be better in quarter 2 as compared to quarter 1.

All right. And what about the plywood segment? Like when do we see performance improvement of that?

So we are seeing volume improvement already in the plywood segment. We've taken some quite strong decisions in the private segment. We've combined in March the plywood sales team. So what we've done is we've opened up the number of people selling plywood within the company to a much larger number base. And we've also started accessing our entire MDF network to try to put our plywood products into that segment. So we're already seeing improvement in terms of volumes. There has been cost optimization as well. We're also hopeful that in the next month, 1.5 months, we will see some price improvement in plywood as well. We've already sent out a notice to the market for the same and we're hopeful that within a month's time, that we get implemented. So with these different measures and the more sort of increased intensity of selling plywood within the company, I see volumes to improve and also some relief on the margin front, but the improved pricing as well.

The next question comes from the line of Aditya Mehta from Antique Stock Broking.

Sir, I just wanted to ask why has the annual capacity for plywood declined from 10.5 million square meters in Q1 FY '24 to 9 million square meters in Q1 FY '25.

That's correct. As we had mentioned earlier, we have shut down the decorative veneers segment. So that's why you see a reduction in capacity.

Sorry, sir, which segment?

The decorative veneers, It was part of the plywood business, which I mentioned in the earlier call also. We are closed down the decorative veneers business. So that's why you see a reduction in the overall plywood capacity.

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

So first is a clarification, you indicated that after 600,000 of capacity addition at industry level, the total capacity, we are looking at 4 million CBM, is that number right?

That's correct.

Right. And sir, the corresponding demand would be around 2.6% to 2.8%, did you mention that? Did I hear it right?

Yes. I said current, if you look at the last financial year, I estimate it's between 2.5% to 2.6%.

Okay. Perfect. And sir, imports, you indicated average was 35,000. And for the quarter, I could not pick up the number, sir?

Quarter, I said it was approximately 50% of the last year's average of 35,000. So somewhere between 17,000 to 18,000 cubic meters per month.

Okay. Sir, this is helpful. Sir, my second question is on import parity pricing. Historically, you used to give us a number on what the FOB prices, what the freight prices. And effectively, we could calculate the landed price. You did indicate around container freight charges. Is it possible if you could please quantify that?

As of now, what we are seeing, there's not too much imports coming in, so it's not very clear. But as of now, what we know is that from Southeast Asian countries, they're trying to maintain an FOB price of $1.90 to $1.95. And on the freight side, I think today, we are talking at least a number of $30 to $35 per cubic meter to bring it into India. So that would result in a price of $225, $230 CNS.

Right. And sir, would that be import duty of around 10%? Is it something which is applicable right now?

No. It's under the free trade. It's -- most of the Southeast Asian companies fall under the free trade agreement. So there is no import duty on that.

Perfect. So sir, if we look at this number factoring $35 of trade $190 what you indicated on FOB pieces, the landed price will be somewhere around INR 18,000, INR 19,000. How should we look at this versus our reported realization? I understand we do a lot of value-added products. But is it possible to get some comfort that the local pricing would not reduce only looking at import parity on that?

It would not because you see -- I think what we need to compare firstly is the industrial-grade product against the import product, which is the segment that the imports compete in, number one. And number two, what also needs to be factored in is that this price is landed at the port. Even on the -- at the port location, there are various clearing charges and local transportation charges and the overheads of the importer involved, I think, which adds around INR 2,500 per cubic meter to the cost to bring it to the importers. So the moment we further transport this to the users and the consumers, then the cost gets added up. So we don't foresee that in industrial grade because of imports, we will see any -- at these price levels, any pricing challenge. That is why you also see at this point of time, that majority of the OEMs that we are catering to, who are completely dependent on imports in the earlier -- a few months have now moved to the domestic producers purely because imports is not really viable. And they're also happy to pay a small premium to the domestic producers because there is a lot of -- they have low working capital requirements, dealing with domestic producers [indiscernible] limits are not required, foreign exchange volatility goes out of the picture. So we don't see that to be a challenge with the current price levels.

Right. Sir, just a follow-up. The implied realization based on our math, it comes to around INR 29,600 per CBM. If one had to bifurcate this into 2 parts, one is the basic grade and the value-added, would that be possible a broad number would also help, just again trying to try to drop comfort on pricing?

Sure. So our domestic branded realization is INR 29,603. So if you look at the basic products, which is the industrial and the commercial grade products. So the average realization comes to INR 22,695 and those for the value-added segment comes to INR 37,482.

Okay. Sir, this is quite useful. And sir, just last question. You indicated there is another 600,000 of capacity which is expected. So if I look at the current margin profile, it would be difficult to cover up for the cost of capital for most of the players. So when you speak to the industry participants, what is the thought process? Is it like to look at market share push volumes? Or is there some hope that there would be sanity in the marketplace and there will be some resilience on pricing that one can expect?

It's hard to -- I mean, I think everyone is hopeful that there will be some relief on the timber cost front. Everyone is quite upbeat about the fact that imports have been curtailed. But at the same time, competition continues in the market. I'm just hopeful that people realize that it can't get any worse than that and start working towards margin improvement, whether it's on the pricing side, or also, for example, additional efforts on the raw material side, whether it's reducing pricing or increasing plantation activities.

Right. Sir, this is very helpful. Sir, can I just squeeze in one question if you permit?

Sure.

Right. Sir, basically, if you look at timber prices locally last 15 years, 20 years in India, have there been any tenures when the timber prices have actually reduced? And if yes, what were the reasons leading to that?

No. So in timber, there is -- it's always -- we always go through these cycles because demand goes up, plantations -- prices start going up and plantations start happening. And then when plantations do become available and demand is sort of similar, then the prices will go down. We've seen this, there is always a 5- to 6-year cycle when this always happens. So it's quite common and we expected. Of course, this time, it's been a bit more inflated because demand from the paper mills and the expansion in the MDF industry has been quite substantial. And for this grade of timber, the demand has drastically gone up and plantation is taking time to catch up. But these cycles have been in the industry for -- it always happens. It's quite common for this to happen.

[Operator Instructions] The next question is from the line of Rishab Bothra from Anand Rathi Institutional Equities.

Two questions. Firstly, just wanted to understand what things can we do in order to reach back to our profit levels? I mean market scenario, we all know, understand how things have been, and I'm sure you would be doing the right steps or taking the right steps to move in a more profitable manner. But what according to you are key factors, which is restricting the increase in profitability?

So I mean, you see, as I mentioned earlier, certain things are beyond our control, for example, timber pricing. The best we can do at this point of time is to try to mix different grades of species and -- different species and different grades of materials to reduce our average timber consumption cost. We've taken a strong drive internally within the company to cut unnecessary costs during this difficult period. Like I said, we merged the plywood and MDF teams, which has resulted in a fair amount of savings -- a fair amount of savings on the sales operations side. We've also, for example, decided to centralize certain sales and commercial functions, which were earlier divided in the respective branches to make it more efficient and reduce costs as well. So on the cost-cutting side, there has been a strong drive within the company to try to improve margins. Also one thing that the company is focusing on is the increase in the value-added product mix because that is somewhere where we see that there is good opportunity for profitability to go up. There is no threat from the unorganized segment or the imports in that particular segment. So there is a strong focus on increasing the value-added segment for the company. So there are cost-cutting measures in place, there is -- of course, there is a drive to improve the product mix and hopefully, in the next coming few months, we can also see some opportunities to pass on cost increases to the market with price increases. So that would also result in an improvement in the margins of the company and the profitability.

So why I was asking this question is, if we collect 2021, '22, I mean, the run rate of revenue was around INR 470 crores, INR 450 crores, which has come down to around INR 397 crores. And so if realization would have improved, volumes would have improved, vice versa. And there could be a time one would be up and one would be down. But our margin contribution has come off sharply, 28%, 29% margin have come off to 13%. And this has been quite for a while. So since everything looks good on the demand front, input cost is a challenge, which has been there for a while. And still, we don't know where we will be landing up in Q2 or Q3. So does diversification helped to an extent from moving from MDF to other business segments because I guess non-compete loss is over, so do you intent to...

Yes. We don't have -- the non-compete only applies for us to the plywood segment at this point of time. But like I said, even that is no longer in place. But I mean I think we are still very, very upbeat about the MDF segment. It is -- on the demand side, I would say the challenge is of oversupply, not of the market demand or market growth. The reason why this problem has been created over the last year or -- is because surplus supply has come, which I'm quite sure given the current conditions, people are not going to very willingly invest into MDF plants or large MDF plants going forward because everyone knows the current situation. So we see that this situation is definitely going to improve. As a company, we are very, very cautious about the debt in our books. We've already undertaken an expansion project. Our current capacities are underutilized at this point of time. So the focus of the company at this point of time is to optimize existing capacity, bringing the new project online and bring it up to capacity and streamline the plywood business to bring it to full capacity as well. So with these things on our hand at this point of time, diversification into another product line is definitely not on our minds. There is already a lot on our hands to do and I think for the next 2 financial years, we are quite sure that this will keep us occupied.

Got it. And in terms -- you mentioned oversupply. So is this import? Are we pressurizing the government or are we lobbying with the government to have certain antidumping duties so that domestic industry is protected because...

So at this point of time, you see, as I mentioned, imports are not really a major threat at this point of time because of the freight being -- freight costs being very high. At the same time, we had plans for BIS being implemented, which unfortunately got deferred by a year. So this will get implemented next February, which would already create a barrier for our imports coming into the country. And if the industry sees the need or the necessity for reinitiating the antidumping investigation, then they might do so. But at this point of time, with the increased freight and I think with BIS coming in, it doesn't seem like that may be immediately necessary to engage into another investigation for the time being.

So your statement that there is ample supply coming into. So where -- is it domestic supply, which is hurting the...

Domestic, yes, yes.

So one is domestic supply and...

The nature of the MDF plant being a continuous process is that the entire capacity comes into play the very first day you start the line. So the day I set up my new plant, I had that 18,000, 20,000 cubic meters per month immediately available to me. So that is what I'm saying is that in the past year, 1.5 years, we have seen a few big lines come online, which is added to the supply side quite drastically. But with the market growing at 15% to 20%, there is a lag of demand catching up with the available capacities.

But what I recall is when I go around 2, 2.5 years back, most of the industry players, including you and other ones, mentioned that this situation will not arise because we have burned our fingers in the history. There are -- because we had the same question. I mean the sell-side analysts had the same question that a lot of supplies are coming up. How will you mitigate the risk? And there was a response from everyone that we had burned our fingers in the past, and this sort of situation or equation will not come up. And we are in the same case now as of now. So on one hand, wood cost is burning us; on the other hand, supply is burning us and this situation will move. To what time frame you think things will turn around?

Okay. So it's not as bad as what -- so if you recall, when a similar situation occurred in 2019, realizations were down by 20% whereas if you'll see, at this point of time, it's possibly down by about 7% to 8%.

Because of cost income?

So definitely depends from what it was in the earlier example when we saw prices moving from INR 26,000 to about INR 20,000.

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

I just have a couple of questions. The first one is just a subjective thought. What do you think are the opportunities for consolidation in the industry in your opinion?

I don't see that any concrete opportunities there at this point of time.

But is it predominantly because the increased supply that you were alluding to in the previous answer has come from organized players? Or is it the case that there is a lot of supply coming from the unorganized players because I would presume that if...

So you see the unorganized players, of course, there is an increase in supply on that side as well. No doubt about that. And it won't be correct to say that we are completely insulated from the unorganized segment. But at the same time, large quantities have -- large capacities have been added by the organized players as well. And unfortunately, being a commoditized product segment and product differentiation being very, very difficult in this particular segment, within the organized segment market, I think the capacity increase has been much more drastic. Greenply came in less than a year ago and Century has just started. So this, of course, has definitely affected the market conditions, especially in the organized segment.

So your view is that this competition in the last 1, 1.5 years, right, there's sort of I mean high amounts of competition and the consequent difficulties in the pricing environment has predominantly been caused by the organized players rather than the unorganized players. Is that the right understanding?

The organized segment competition is definitely of a bigger concern than the unorganized segment. And I could probably name the companies where we face challenges from. That would be Century, there would be Action, that would be Greenply and to a certain extent, [indiscernible] Decor. These are the 5 major organized players in the country where undercutting is happening. I don't have customers or I don't have retail partners who are quoting me an unorganized player because they know that we don't compete with that segment. But if there is a consumer who's telling me that I'm being offered Greenply at this price or Century at this price, which generally happens to be the case, then that's where the concern arises for me. I've explained this is quite similar to the plywood market, for example, where the established players like Greenply and Century Ply are there, they don't talk about competition with the unorganized segment, to be honest with you.

Okay, okay. Now one more question along these lines is that the proportion of the market being with unorganized players, have you seen any reduction in that in the last one or 2 years, both on the MDF side as well as on the plywood side?

So you're saying in terms of supply for the unorganized plyers?

Yes, yes.

So I know for a fact that they are facing even bigger challenges than the organized segment is. At one time, they were refusing through the association to talk to the organized players. They were like, we will do what we want to do and you guys do what you want to do. But now the organized players are being approached that we should look at price increases so -- which is a clear sort of indication that they have challenges while we are able to withstand this situation. And this situation was bound to happen because when timber costs have gone up and they don't have the pricing levels like the organized players do. And -- then it's a bigger challenge for them. I also know for the fact that certain plants are currently not even operating because they're unable to sustain the current timber prices.

Okay, okay. But any number that you have in mind in terms of at what proportion the current market is [indiscernible].

No. Unfortunately, I don't.

The next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

Can you help me understand on...

Sorry, Hrishikesh, can you please speak a little louder, we can't heard you very clearly.

I'm audible?

Yes.

So can you help explain what explains this improvement in realization on sequential basis on domestic side, small improvement, but somewhere from INR 29,000 to INR 29,600 or what expenses on sequential basis coming back to Q4?

So this would definitely be on account of the product mix, better value-added products and...

Okay. And second is on road map to improvement of margin to 16%. What's your -- how much will it be from operating leverage? And how much do you think pricing will drive if there's anything you can guide on that front?

At the moment, we are not looking at any price increases. We are rather looking at price stability for the current quarter. So basically, it will come from operational leverage and lower operating expenses.

And the last 2 questions are time line for new capacity remains same? Or is there any change on the time line?

There's no change.

Okay. And finally, on this -- I know we spoke about timber cost, but in South, I believe we have imports option also. Do you feel that imported timber is still expensive and largely, it's a freight issue? Or do you -- or is that global timber prices are also on upside?

No. So I don't think global timber prices are on the upside. Freight is, of course, a big challenge. Timber is high. So there are 2 things. Firstly, majority of the countries do not allow log exports unless you're bringing in logs from South America, which may be suitable for the plywood business, but it's definitely not suitable for the MDF business purely because of the cost. At the same time, if you start importing chips, then the volume that you can transport as chips go down drastically. So if you take solid timber, the -- let's say, the per cubic meter density of timber is around 600 to 700 kilos, whereas when you start transporting chips, that falls around to 150 to 160 kilos per cubic meter. So there is a loss of efficiency of the cost of transportation increases because in the same volume, we are bringing in lesser weight. However, at this point of time, timber prices -- imported timber prices are still workable for the paper industry. But for the MDF industry, it's not workable at this point of time. We are exploring options from various countries. It's something that's constantly on our radar as a company. But as of now, we have not ventured into imported chips yet because the domestic prices still remain competitive after factoring in the freight for the order chips.

The next question is from the line of Kushagra from Old Bridge Asset Management.

Just 2 questions. One, on your volume growth expectation of 15%, I mean, there are a couple of variables there, okay? Your new capacity will commercialize somewhere in 3Q. Peers are ramping up the capacity and then you said 0.4 million CBM is coming in FY '25 as well. So the question really is to push that incremental 15% volumes, would you need to go for more sort of pricing cuts, which you're saying not, but who will absorb those volumes or you will see that inventory buildup, but won't go lower on pricing? There seems to be some mismatch, if you can sort of clarify that.

So we [indiscernible] domestic. On the domestic front, we are already seeing year-on-year improvements in volumes. And we've also reinitiated the export model at this point of time, which we had consciously stopped towards in the last few quarters because of pricing pressure, we passed on some price cost increases on that side. What has come to benefit us is that freight costs from Southeast Asian countries to the Middle East increase has been much higher than what it has been from India. So we're able to pass on -- let's say, get that benefit on our FOB pricing. So we foresee that there will be some improvement on the export volumes as well. So at this point of time, we are looking at the market scenario, looking at how the domestic volumes are panning out. We should be able to achieve that volume growth that we have initially projected.

Right. So I mean if the market overall is seeing capacities, how do you see who will be the guys who would absorb those incremental volumes? The incremental volumes are not only from your side but your peers as well. So the thoughts were more around who will absorb those -- incremental volumes to sort of support without pricing going down? That was the question really.

Yes. So you see one thing to keep in mind is that the new line that we have is going to be specialized in the production, it's a segment that we are not currently very actively present in the 1.9, 2.1, 2.5 millimeter market, which is a huge market, and we don't actively participate in that market because it's not viable to produce it on larger lines. So that is something that will be an immediate added sort of benefit for us that we'll be able to liquidate a large quantity of that from our existing network where -- at the moment, they go to other smaller players to source. At the same time, the growth that we are projecting is also in line with the current market growth that is happening, which is around 15% to 20%. The market is also growing at that pace. So I'm quite -- everyone is expecting that, okay, from -- if the market is growing at that and based on the last year's level, that one's growth should be available for everyone.

All right. All right. So the second question is, it's more like a data question, if you can call out the profitability either in margins or EBITDA per CBM for your basic which you said industrial and commercial and the international segment as well.

Okay. It's not possible to give the margins per cubic meters for industrial and value-added products because there is no way we can [indiscernible] the overheads on those different product categories. So overall, if we look at our MDF business, EBITDA per cubic meter has been INR 3,379 per cubic meter for the current quarter.

And international, if you can call out?

It's very, very marginal. I would say, possibly, we are doing somewhere between 1% to 2% EBITDA on the international business.

The next question is from the line of Balaji Vaidyanath from NAFA Asset Managers.

Shobhanji, if you could throw some light on how the international markets, especially the developed markets are faring because a couple of conference calls before, you had mentioned that [indiscernible]

Can you just speak a little slow, the line is not very clear.

I was just mentioning that if you could throw some light on the international markets, especially the developed economies because a couple of quarters back, you had mentioned that capacities at last will go to Europe and U.S., got [ reverted ] to India because of the slowdown in those markets. So are we seeing some amount of improvement in those markets is something that I wanted to know from your side.

No. So actually -- on the demand side, I think there has definitely been improvements. The biggest challenge today is on account of the [ freight pay ]. And that's why the challenge lies that people are not freely selling to the more lucrative markets because the reason why people would import from Southeast Asia would be of a cheaper landed product. But because of the freight disturbance, we are not seeing a drastic increase of material being shifted to the developed markets because of the current freight scenario. But if you talk specifically on the demand in those developed markets, demand continues to remain quite robust. We are also getting inquiries from countries that we've not even reached at this point of time. But the unfortunate situation is that we're not able to cater to them because of the freight scenario.

So this includes U.S. as well?

Yes. We've, in fact, surprisingly [indiscernible] in the U.S. as well. But if we choose to transport the material from India to the U.S., I think the take cost would be higher than the product cost. So -- but it's an indication that the demand is good, and they're looking for material beyond their traditional sort of suppliers.

Okay. So my second question is on the value-added products that we are talking about. So just wanted to understand that [indiscernible] if I am not mistaken, I think more than 50% of the product portfolio is value-added products or some such very high number if my memory serves me right. But it hasn't kind of helped us from the point of view of margins. So is there really [indiscernible] towards these value-added products that we are talking about?

Okay. So if you look at the current quarter, the proportion of value-added products was 47% of the domestic volumes and the value-added products have 2 advantages. One, the realization is higher, and the operating margins are also higher. So if you look at the plain category, whether it's the industrial or commercial, we are possibly making a 12% margin -- a slightly lower margin on a realization of approximately INR 22,700. Whereas if you look at the value-added category, there is an incremental EBITDA of 3% on a value which is higher by 50%. So the freight category is getting me a realization of around INR 22,700. My value-added category is getting me a realization of INR 37,500, so there's definitely significant advantage in increasing the proportion of value-added products. And it also insulates me from competition from imports. So those are the 2 significant advantages in trying to increase the proportion of value-added products.

The next question is from the line of Kaustav Bubna from [ BM SPL Capital ].

So I had a few questions on value addition. I think this is an important point because what I wanted to understand is what are you exactly doing in value addition? And to the previous participant's question, I think a few questions ago, they're like, how are you going to diversify away from MDF? So my question to you is how do you -- in your value addition space, how do you plan to grow low-pressure laminate into this MDF division that you have? Because you already are making the MDF board. And does that come under value addition? Because that could probably provide less volatility and the margins.

I think the primary products that fall into, let's say, our value-added basket would be the HDWR grade, which we call as Club grade, the exterior grade to a certain extent, then we have flooring, the wooden flooring. And then, of course, is the low-pressure laminate or pre-laminated MDF as the industry calls it, in which we are very much already prevailing. We do close to about 100,000 to 120,000 sheets per month of that particular product. And of course, the idea is to bring these levels to a much higher number. I think we -- our capacity is almost double of what we are currently selling on the low-pressure laminate segment. So when the thin material does become available, then there would be an added opportunity because in India with pre-laminated -- pre-lamination is also a very big market. So that would also be something of an added input to the value-added segment for us.

Excellent. And one -- this 47% mix of value add, where do you see it going in your domestic realizations? Where do you see it going in 3 years?

So this segment for us is growing better than, I would say, the general market. So we think that this could go up to 60% to 65% over the next 1, 1.5 years, 2 years. Yes.

And you said the realizations for value-add was INR 37,000 or INR 47,000. INR 37,000, right?

INR 37,000.

3-7, INR 37,000?

Yes.

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

This 15% volume growth expectation for FY '25 that you mentioned earlier, does this also include exports?

Yes. It includes it. It's a mix of both domestic and exports and OEMs.

But if there are exports also and you did talk about that you have reinitiated the export model because logistics costs where we are more competitive. But since EBITDA margins in exports are already at breakeven levels, how would the 16% FY '25 EBITDA margin come, the targeted margin?

See, the majority of the volume growth will have to come from the domestic segment. Now we are targeting volume growth of around 3% to 5% in the export segment, and most of the volume growth from the domestic segment.

So exports still in the overall mix would be, what, 50%, 20% for the [ year ]? You probably want to restrict it to that level, is it?

Yes. I think it should be lower than 20%.

Okay. And second question on the MDF imports. You did talk about the freight cost is about $30 to $35 per cubic meter. Can you just talk -- can you tell us what was this level, say, 2 to 3 months ago because other industries do tell us that freight costs have come up, but at least from your commentary, it looks like it is not the case or maybe it's not the case of Southeast Asia. So we are where what the prices were earlier?

I mean I think they used to be around $10 to $12 per cubic meter.

That was at the lowest, right? But then in between, because freight costs jumped up because of the container issue, did it rise higher and then come down to $30? Or did it rise to $30 and it has stayed there since in your [indiscernible]?

I don't think there has been much correction on the freight in our product segment at least.

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

One question from my side. So assuming the current realization as well as the timber prices, so at what level of capacity utilization do we believe that for the newer plant, we could be EBITDA positive?

For the new plant, I think around 55% capacity utilization to be EBITDA positive.

The next question is from the line of Keshav Lahoti from HDFC Securities.

Just want to get a clarity on ply volume growth. Earlier, you have guided 8%. So this quarter has also been muted. If you want to change it, how is it looking? And will this segment hit EBITDA positive in upcoming quarters?

At this point of time, I think we'd like to maintain the 8% growth that we have initially projected, I think. So we should be EBITDA positive by the end of the year, for sure.

The next question is from the line of Parth Bhavsar from Investec.

I just had a few bookkeeping questions. So the first one is when you mentioned -- what is the share of value-added products in terms of value? I guess in terms of volume, it is 47%, what is in terms of value?

In terms of value, it could be 59%.

Okay. And sir, the other thing you mentioned that your export margins would be in the range of 1% to 2%. Is that correct?

Correct.

Ladies and gentlemen, we will take that as a last question for today. 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 everyone in the next quarter. If anyone has any further queries or clarifications, please feel free to reach out to us. And we wish everyone a very good evening. Thank you.

Thank you for your participation.

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