Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q2 and H1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference 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 Q2 and H1 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, Rishab. Good afternoon, everyone, and thank you for joining us to discuss Greenpanel's operating and financial performance for Quarter 2 FY '25. MDF domestic sales volume fell 4% year-on-year. Export volumes were impacted since we consciously stopped exports to those customers who were not prepared to compensate us. The steep increase in ocean freight rates and good prices. MDF domestic realizations were lower by 7.2% year-on-year at INR 30,404 per cubic meter. However, domestic realization showed a sequential increase of 2.7% due to increase in mix of value-added products to 54% as compared to 47% in quarter 1. Export realizations were higher by 24.4% year-on-year at INR 21,822 per cubic meter. MDF's EBITDA margins at 13.1% were impacted by lower volumes in the domestic segment due to price action by competitors. Private volumes were higher by 21% quarter-on-quarter, although it was lower by 10.4% year-on-year. EBITDA margins were 2.5% were impacted by lower volumes and increase in wood prices. Private realizations at INR 250 per square meter were lower by 6.7% year-on-year. This was due to a decision to exit the decorated veneers business on account of lower operating margins and high working capital intensity. We have restructured our plywood sales team to recover market share and reach optimum capacity over the next few quarters. Post-tax profits for the quarter was lower by 55% at INR 18.5 crores as compared to INR 41 crores in the corresponding quarter for reasons mentioned earlier. Net working capital at [ 40 days ] has shown an increase of 14 days year-on-year due to lower turnover and high inventory levels. We've also reduced the credit period of vendors to ensure that we receive good supplies on a regular basis. Net debt stands at INR 97 crores as on 30th September, 2024, inclusive of the INR 228 crores for the new project. Work is progressing on the new project, and we estimate the commercial production towards the end of quarter 3 FY '25. Mr. Venkatramani will now run you through the financials in greater detail, post this we'll have the Q&A session.

Good morning, everyone, and thank you for joining us to Q2 FY '25 financial [indiscernible] compared to [ indiscernible] crores during the first quarter. [indiscernible] at INR 295.81 and contributed 89% of the top line. MDF domestic volumes fell by 4%, while export volumes were also significantly lower to a constant decision by the management [indiscernible] orders only for committing to place new orders at device apparently to compensate us for increases in [indiscernible], credit rates and good prices. MDF domestic revenues were INR 262.91 crores, while exports attributed INR [ 32.89 ] crores. Domestic [indiscernible] year-on-year at [indiscernible] cubic meter.

I'm sorry to interrupt you, Mr. Ramani, but your line is not [indiscernible]. If you're on a hands-free request you to use the handset.

Blended MDF realization [indiscernible] at INR 130 per cubic meter. [indiscernible] and the AP plant operated at 55% with blended capacity utilization at 62% on the [indiscernible] cubic meters. [indiscernible] 14.7%. Plywood sales volumes were lower by 10.4% at 1.47 million square meters, and the unit operated at [ 50% ] during the quarter. Plywood [indiscernible] realization were low 9% at INR 250 per square meter due to change in mix, as mentioned earlier. Due to FY '25, growth [indiscernible] basis points year-on-year at [ 48.6% ]. We're down by 649 basis points at 11.9%. EBITDA value stood at INR 39.56 crores and PAT is INR 18.5 crores for reasons mentioned earlier. That concludes my presentation, please have the Q&A session. Thank you.

[Operator Instructions] The first question is from Praveen Sahay from PL India.

So the first question is related to the domestic volume of MDF. So if I look at the domestic volume, even sequentially it is like 11% down. And if I look at the competition, some competition also reported their numbers. So there, we not see such kind of a fall in the volume, especially in the domestic. So can you give some indication why is it so? And will that continue for further quarters.

Venkatji, are you getting that?

Shobhanji, I got this connected, so I couldn't hear the question [indiscernible].

Sorry, can we have the question again?

Yes, sure, sure. So it's related to the domestic MDF volume because domestic volumes were down Y-o-Y even essentially 11% down. And if I look at the peers also reported their numbers. Their numbers is not so impacted especially in the volume. So what are the reason for us -- for decrease in the domestic volume on the higher side. So if you can give some indication?

[indiscernible].

Mr. Venkatramani, I'm sorry to interrupt, but your line is not very clear. Maybe you could...

May be step out or something [indiscernible].

Yes, maybe you could try moving to an area with better network.

Could you call me on my other number, it's 98305...

Just give me a moment. Yes, sir, can you tell me the number.

98305...

One moment. Participants, thank you for patiently holding your lines. Sorry for the inconvenience. We have Mr. Venkatramani connected. Over to you, sir.

[indiscernible] which impacted our volumes and impact potential that [indiscernible] in market share will be [indiscernible]. And again we should start seeing the improvement in volumes from the current quarter.

Sorry sir, you were not so audible.

Yes, why don't you please repeat your whole answer again, please.

Okay. I also moved to a different location, this is also not helping.

Is there a landline Venkatji?

Just a moment, I'll check with [indiscernible]. Yes, please connect me on 0124.

One moment, sir.

Sorry, I got disconnected. Come back to your question. I said that domestic capacities have gone up considerably over the last two years, moving from 2.5 million cubic meters to 4 million cubic meters and new companies were just started these capacities where into grab some market share from competition and started operating at lower prices. So this price action by competitors impacted our volumes. And in the latter half of the quarter, we introduced a new 4% scheme for our dealers to soften the impact of price action by competitors. So it was a one-off for the quarter, I think we'll start seeing an improvement in the volumes from the current quarter.

Okay. So basically, you have also taken a corrective action to improve your volume for the second half?

That's correct.

And if you can give the OEM volume for a quarter for MDF, domestic MDF?

It was 16% of the domestic volumes.

Okay. And on the export side, now you're runrate for the MDF reached to around 15,000 CBM. So in the coming quarters also, we will see the similar kind of numbers or any kind of an improvement are you seeing?

See, we are targeting about 12,000 to 15,000 -- sorry, we are targeting about 6,000 to 8,000 cubic meters per month for the second half of the year. But to some extent, it will also depend upon movements in ocean freight rates and wood prices because we do exports only if they are making a positive contribution to the fixed costs. So we don't accept orders which are below marginal cost range.

Okay. And can you help us with the timber pricing for the North and the South.

Yes. Timber prices have moved up by about 5% to 6% in the second quarter. But for us, on a blended basis, it came down by 1.5% because we reduced purchases from different locations, which helped to lower the transportation cost.

So basically, overall, for your costing 1.5% decrease.

Lower prices on a sequential basis.

Okay. And if you're able to give the North and the South price, sir?

Yes. North price was 6.54. South was 5.35. Just a minute. North was 6.63, South was 5.32, and blended was 5.86.

And that is for a Q2 average.

Quarter 2, correct.

And how is the currently prices are moving?

Current, in October, prices are, again -- prices in South India have moved up by about 5% to 6%. North about 4%.

Okay. Are any price actions have you taken in the MDF?

We are in discussions with the sales team. So the working is on. So we'll possibly be considering that in the current quarter.

And last, sir, on the new plant, which you already highlighted commissioned by the Q3, can you give some more detail like your plant, machineries or [ lease ], or how is the situation there?

Yes. So I think we're looking for a first board production towards the end of the quarter, let's say, by -- let's say December, we should have the first board out. And just stepping here, in the North of India, we are seeing some correction in the timber pricing at the moment, which will also be beneficial.

Correction in the month of October, you're saying.

Well, it's starting now. So let's say, we will see some impact in November for the north of India.

[Operator Instructions] We take the next question from Nikhil Agrawal from Kotak AMC.

Sir, my question was on the organized -- unorganized player, sorry. How are the unorganized players preparing for the implementation of the BIS loans, like are they -- have they already started aligning themselves with the BIS loans, or are they yet to start doing that?

So I think the BIS loans, which will become applicable early next year. We are not foreseeing any further the comment on that. So I think everyone is prepared to comply with the sale. The industry has been working quite strongly with the Indian standards department to ensure that because the loans were quite outdated. So we'll be working quite closely to update the norms in order to make sure that they are in line with the current times. And that all the industries complied with the same because certain norms were almost picked up from plywood, which were not applicable to MDF to start with. So we work with the department to correct that. And yes, going forward, everyone will have to comply. So I'm quite sure everyone is already working towards that.

Do we see any like any uptick in the pricing from the unorganized player as a result, or are we -- like do you expect?

So we -- in fact, we've already seen some information being circulated that they are going to take a 6% price increase. There has been the unorganized segment. There is a separate association of theirs, which had met in the month of October. And the information is that in November, they're all going to take a 6% increase. How much of that actually gets passed on? How much of that gets implemented, we'll only let you know starting November.

All right. And sir, you mentioned about some price correction that you had taken, like it was a bit unclear, could you just elaborate on that a bit more?

Yes. We introduced a new 4% scheme for our dealers around the middle of August. So it was applicable for a part of the quarter.

All right. So this was an addition to the schemes that was already there.

Yes, this was in addition to the schemes, because like I mentioned, there was price action by competitors who had started new capacities during the current year. So to counter that we introduced this new scheme. But since it was enforced for a part of the quarter, so the impact of that on realization was around 2%. But sequentially, we saw a positive movement in realization because the blend of value-added products improved from 47% to 54%.

The next question is from Udit Gajiwala, Yes Securities.

Sir, firstly, you mentioned that you might see volumes improving from coming quarter onwards. So given that H1, we have a decline on overall volume 8%. So what kind of -- should we see a 0% growth or it will be negative for '25? And what are you projecting for '26 in total volume terms?

Okay. I'll answer the question in two parts. First, the domestic and then exports. We are targeting domestic volume growth of 15% to 18% year-on-year in the second half of the year. And that should give us growth of around 10% in domestic for the full year. And on the Export segment, we are targeting volumes of about 6,000 to 7,000 cubic meters per month. But to some extent, that will be dependent on ocean freight rates and with prices. Since we do not accept orders, which do not make a positive contribution to the fixed cost. That is the orders must be at least above our marginal costs.

Understood. And, I mean, similarly you also stated that since you have taken price correction and the volumes could go up, could we see some further price correction that could happen? Because I believe unorganized comes with a lag since it's a very small portion of MDF.

Yes. Our sales team is working on the quantum of price increase, and we are also watching competitive action by competitors. So we'll be taking a decision on prices during the current quarter.

Sorry. But, sorry, just to clarify, I think the question was regarding price correction. I don't think there is any further intention of reducing prices any further. If anything, we will start looking at some price increase from maybe quarter 4 or even December for that matter. We're in discussions with the sales team. So we are hoping for some improvement in the coming months.

Got it. And sir, just lastly, if you can give the CapEx number for '25 and '26, that would be...

So the bulk of the CapEx has already been completed. So currently, I think about 80-odd crores of CapEx spend is spending. So we estimate about INR 30 crores would happen in the current year and the balance INR 40 crores to INR 50 crores in the next financial year.

So sir, how much have we done in H1?

I'll give you that figures separately.

Next question is from Shraddha Kapadia from Share India.

Sir, I just wanted to have a basic understanding of demand supply scenario for the next one or two years.

You are not audible. You'll have to speak louder.

Sir, I wanted to understand the demand supply scenario for the next 2 years, especially [indiscernible].

Shobhan, can you hear, it's not audible.

Yes, I can. I think she's asking for the demand supply scenario for the next 2 years. Shraddha, so see, the market is definitely growing at a very healthy rate, anywhere between 13% to 16%. From a supply point, all the major capacities that were supposed to come in have already come in, have almost gone like -- ours is the next one. There are no major big lines in the pipeline anymore. What we are also seeing is a sharp decline in the imports already. And going forward, when BIS is implemented, we foresee that imports will further decline. So going forward, I think it would be for the larger players, I think the situation would be better because everyone will start enjoying a higher, let's say, growth and a market share percentage purely because the market will continue to grow, imports will decline and no major additional supplies are going to come in. Although 2 years are very -- with the current volatility in the market is a very long period to project. But this is what we foresee at this point of time.

Next question is from Ritesh Shah from Investec.

First question. Can you throw some light on each of the working capital variables piece. Sir, on the credit days, on the payable days and the inventory days, the movement and where do we see that stabilizing?

Okay. So for the quarter ended 30th September, inventory days were 56. Receivable days were 8 and creditors days were 24. So we expect to see a moderation in the inventory days during the next 2 quarters. But I think we are stable as far as the receivables and payable days are concerned.

Okay. Sir, in the prepared remarks, you did make a comment that we also reduced a credit period of vendors to ensure that we receive good supplies on a regular basis. Just trying to understand that as well.

Okay. So if you observe during the last quarter, the first quarter of the year, creditor days were 30 days. And currently, they are at 24 days. So we mobilize faster payment to wood suppliers to ensure that there was regularity in supplies.

And sir, you did give one of the numbers that the current capacity is 4.1 million CBM is the number? Did I hear it right?

That's correct.

Correct. And sir, corresponding to this, how much will be the consumption broad ballpark at country level? I'm just trying to understand the demand supply gap.

So estimate currently -- so probably it was around 2.7 million cubic meters at the end of FY '24. I don't have any numbers for the current year.

Okay. That's useful. And sir, lastly, in our prior calls, we have indicated that we are hopeful of the timber prices to actually decline. Are there any milestones or variables that we can actually look to monitor basically to understand it better?

No. There's actually no organized data available on timber supplies. So I think we'll have to wait for the next crop, which is expected in June, July next year. But I think there will not be a substantial reduction in prices next year. I think we'll start seeing improvements in pricing. But I said we're not expecting major reduction because capacities have also moved up considerably over the last 2 years. So I think we can expect significant reductions to happen in FY '27. Some moderation in prices in FY '26 and significant reductions in FY '27.

Sure. This is very helpful. And sir, last question for Shobhan ji. Sir, you had indicated that we are [ rejuvenating ] our management structure and there were designed exits at the top level. Can you please indicate basically where we are segment-wise, and how is the business structured from -- specifically from a marketing and sales standpoint.

Yes. So the major restructuring that is happening is the amalgamation of the plywood and the MDF sales team. So we basically combine them and able to reduce the workforce size as well because of that because I think initially, there were inefficiencies in the plywood sales team. We had a very high number of people dedicated to work with too little volumes. By doing that, we've been able to reduce our overall sales team cost, operational cost, and what we're also noticing is that from quarter 1 to quarter 2, we've seen a fairly decent improvement in the volumes. So majority of the restructuring is in place now. What we've also done is we discontinued some of our physical branches and converted them to virtual branches, which has resulted in, again, a reduction in costs may not keep physical offices in many of the branches anymore because it was primarily required for holding meetings, et cetera, which is majority of the sales team most of the time in the field. So we've been able to do some cost reduction on that front as well. So that was a major restructuring that we did, micro mining between 2 sales teams. And we are seeing cost benefits of that. And we've not seen any -- we've seen a fair bit of improvement on the sales numbers as well because of that.

[Operator Instructions] The next question is from Pankaj Parath from Molecule.

So we are expecting a new capacity to be operational by next quarter. And if the industry dynamics, I'm talking about demand and supply mismatch remains the same. How are we planning to ramp up the new capacity? And when we'll be expecting to achieve maximum capacity utilization of all the new plant.

Okay. We are targeting a 50% capacity utilization in the next financial year and possibly around 75% to 80% in FY '27.

And sir, in the realization front, so we see some improvement in Q2 on the realizations. So are we -- we can say the Q1 realization was kind of bottom for the industry? And how do you see the realization in terms of value-added segment and non-value added segment going forward?

Okay. Yes, it does appear as if we have reached the bottom as far as sales prices are concerned. And regarding the value mix, we are targeting mix of value-added products at 65% of domestic sales for the existing capacity. Obviously, for the new capacity, it will take time to improve the mix of value-added products. For the existing capacity, we are targeting 65% mix of value-added products by FY '27.

And sir, last question, I'm expecting that to ramp up the new capacity. Do we need to push our sales by -- reduce our realization of some kind of debt would ramp about new capacity?

Shobhan, you can please take that.

Yes. So we don't need to -- I don't think we need to do any price correction because the new line is specifically designed for the thin segment. Greenpanel currently is not very, very prevalent in MDF segment because our larger lines, especially in the South, it's not been efficient to reach thin panel. So it's a segment of the market that we're not really present in fully. So we will simply be entering at market pricing to gain market share, but it would not result in a price correction in our existing business, that's not foreseen at all.

Okay, sir. And sir, can you please give us a broad realization on the thin side of MDF and our regular side of MDF?

See, if you look at -- you're asking for difference between thick and thin?

Yes, yes.

Okay. I appreciate that.

No. So thin MDF realizations on a per cubic meter generally tend to be anywhere between 5% to 7% higher.

Next question is from Sneha Talreja from Nuvama.

Just 2 questions from my end. If I'm not wrong, you mentioned that you have introduced a scheme of about 4-odd percent in August. Has that been continuing? Or are you coming to withdraw it? That's one. And what's the basis of your assumption of 15% to 18% volume growth guidance that you've given for H2?

So, Sneha the scheme has been continuing at this point of time. So because the market pricing prevailing is factoring in that scheme also for the competitors. So we have been continuing that scheme at this point of time. What we are seeing, we are on track, especially in October with those kind of growth numbers, and we foresee a situation to continue to improve. So assuming that, I think it's safe to say that for the second half of the year, we should be in that growth percentage number, 15% to 18%.

Understood. Sir, one last question. We understand in the first half, you were selling at a premium and then there was competition, which has cut prices much lower. At this point of time, with your scheme continuing, where does your pricing stand versus actually the other 2 leading players in the industry?

So I would say we are at about -- so when, let's say, for example, the major competitor in the South started the new plant, I think pricing that was launched in the market was about anywhere between 7% to 8% lower. And then we corrected our pricing by about 4%. So as on date, I would say the difference stands at about 3-odd percent.

So you're still at about 3% premium at this point of time, with the scheme on?

Correct. Correct, you're right.

Understood. And the last one, if at all, I can just squeeze in is related to the BIS implementation. Where are we seeing development happening in that particular front? Are we seeing players of other country anywhere close to getting any BIS or that's far away and nowhere being spoken about at this time?

No. So I think at this point of time, because -- even because of the freight element, there is, let's say, reduced interest in selling to India because it's -- domestic pricing is already so squeezed, reduced, and there's a lot of very large gap from imports. Hence, we are not seeing too much of imports coming into India at this point of time. I'm quite sure that certain companies, going forward, no one is going to make the investment immediately because everyone is hoping -- the exporters will be hoping that there could be another deferral or something of that sort. So I think post implementation, I'm quite sure certain larger companies will go ahead and comply with BIS, but it would reduce the number any which ways. Many market dynamics at this -- at that time will be considered before the -- because it is the cost involved to comply with BIS on their part as well.

So their cost automatically goes up around 5% to 6-odd percent? Or would you have some ballpark number there?

No. So there is a onetime cost. And then, of course, what people have to consider as well is that if the BIS compliant material is of different grade, then a certain amount of volume needs to be produced for it to be viable. And if the market demand is for that kind of volumes, then there will be certain costs. There's a one-time cost and then, of course, the cost of production might go up to comply with the BIS as well. So they'll have to factor in both the fixed costs as well as the variable cost.

[Operator Instructions] Next question is from Hrishikesh Chandrakanth from Kotak Asset Management.

Just want your sense in terms of margin for this new plant in terms of -- since we are targeting thin MDF, is it fair to say that at current prices or current margins, it will be lower at current prices of MDF?

Margins will be dependent on a host of factors, like what will be the capacity utilization, the mix of domestic and export...

I understand, but just indication in the -- it will be lower at the, say, stable utilization...

If they're operating at similar capacity utilizations, the mix of domestic and export is similar. The mix of value-added products is similar, then the margins will be similar. Like Shobhan ji mentioned, the sales realizations are higher by about 6% to 7%. But the costs are also slightly higher because of the thin materials, the density will also have to be higher as compared to thick MDF. So margins on a similar operating condition will be similar.

Entire plant will be thin MDF? Or it will be a mix?

Yes. No, so the plant is capable to produce thick MDF as well. But because we have 2 lines, which are already producing for thin MDF, hence, the new line will primarily be focused on producing thin MDF.

Okay. The other question is, you spoke about that potentially not much capacity addition in industry. But say, incrementally, if anyone in the industry or, say, potentially for you, I know you guys have something coming up. But just if new capacity is to be planned by industry participants, what will be the lead time in sense, assuming land is there, so for new capacity to come in [indiscernible] -- for MDF whether from [indiscernible] I'm not talking about Chinese?

Yes. So I think it's safe to assume a 2.5- to 3-year period from a point of conceiving to -- actually to start [indiscernible].

Okay. And Chinese will be shorter?

Chinese not that much shorter. It will be similar. Unless someone finds -- unless someone picks up a secondhand plant and chooses to move it, then it could go down by 6 months, for example.

Okay. Okay. Okay. And those large part of the shipping freight issues are now behind or still they persist in the industry from the export or -- as well as the import of machinery?

No, there is -- no, I think there is still a challenge -- in our business, we still face a challenge on the export side in terms of freight availability as well as costs will remain a challenge.

Next question is from Karan Bhatelia from Asian Markets Securities.

Yes. You did mention about the volume growth for '25. How can we see the margin profile shaping for this year and maybe for next year?

Okay. As compared to quarter 2, the current quarter, we are estimating 150 to 200 basis points improvement in the margin for the second half of the year. And for the next financial year, I think depending on how much of exports we do, like we are targeting a 35% growth in India domestic volumes, including the new capacity. So I think for that, we can see a further improvement of 150 to 200 basis points next year.

Sir, so we are targeting 35% plus volume growth for '26. Is my understanding correct?

That's correct. That is only the domestic volumes -- only for the domestic volumes. We didn't have clarity on exports because like I mentioned earlier, it will be dependent on wood prices and ocean freight rates. But for the next financial year, we are targeting a 35% growth in domestic volumes, including the new line.

Right. And while I believe the timber shortage is still on, are we also looking to import timber for a continued operation?

So we are exploring options for import of chips. Currently because of freight as well as -- but if the domestic prices, especially in the south of India, if they keep going up, then it will become a viable option. So we are keeping options in hand. We are exploring options. And it is definitely a possibility for us in the future.

Next question is from Bhavani from JM Financial.

Yes, sir, my questions have been answered.

Next question is from Keshav Lahoti from HDFC Securities.

Sir, how is the OEM margin right now?

See, OEM prices are currently at a discount of about 5% to 6% as compared to retail. And there would be a saving of around 2% in material costs. So margins should be lower by around 350 to 400 basis points.

You are saying you're making the kind of 7%, 8% margin for OEM? Is that a fair understanding? Because my...

We are hardly making any margins on exports. So the 13% margin is actually including exports. So if you remove exports, the domestic margins will be higher. And OEM margins will be at a discount of about 4% compared to domestic retail.

Because my understanding was OEM business like what I understand earlier you guided something like 3%, 4% or maybe 5% margin in OEM business also margin is very tight. It is not bad...

No, no. And earlier, our exports margin used to be at that level. But -- because of the movement in wood prices and increase in ocean freight, that has come down to around 1% to 2%. OEM margins should be about 400 basis points lower compared to retail.

Understood. Got it. And there is a sharp drop in OEM mix. It's a strategy. Last quarter, it was 25% of mix. Now it is down to 16%.

No, it was, like I mentioned, due to price action by competitors, but we are slowly recovering that.

Next question is from Parikshit Gupta from Fair Value Capital.

This question is a question that I've been asking across the board. It relates to the demand of MDF and the demand supply scenario. So we all understand the structural shift to MDF, but we are based in New Delhi, so we had the opportunity to speak with a couple of multi-brand dealers and distributors of engineering wood products. And once synonymous feedback was the fact of customers being more budget savvy instead of being brand savvy because of which, when they come in, they ask, they tell us that, okay, I'm remodeling my house and this is my budget. So it is at the sole discretion of the dealers, which product to offer. And given that there is existence of the unorganized players, MDF in the market, although the difference in quality, be it in terms of longevity or water resistance is absolutely clear. But since they are more budget savvy and currently, there is a significant price difference between the organized and the unorganized product, can you please comment on the medium- to long-term evolution of this market scenario?

So I think it's not fair to see that because of budget reasons, a client or a customer could shift from branded to an unbranded. I think within the branded segment, it's a safe assumption that within the organized players, price becomes a very important factor. Within the unorganized players, price becomes a very important factor. But I don't see a situation where a customer who's in the market to buy a branded product, whether it is us, whether it's Greenply, whether it's Century or Action, for that matter, will move to an unbranded segment. I think in terms of competition within the unbranded segment, there is also very, very strong competition going on. So it is not also that the leaders are getting a higher margin when they're selling the unbranded segment product because there are a lot of players in that segment and [indiscernible] competition is there. So I think it's not safe to assume that people will move from an organized to unorganized brand because of pricing.

I understand. That was helpful. Best wishes for the season.

The next question is from Utkarsh Nopany from BOB Caps.

Sir, I have 2 questions. First, on the MDF pricing side. So like you have mentioned that we have provided additional incentives of 4% in August month because of the competitive pricing action, despite imports remaining weak. So if import starts catching up, then whether there is a possibility that the price hike in MDF sector looks difficult, at least for the next few quarters from here on?

I think the trend that we are seeing with imports with the freight challenges remaining in place and with BIS approaching, I think most of the, let's say, the segments where imports was largely being consumed, they accepted the fact that it's a better option to buy from the domestic players. There is too much volatility in the import business. Lead times are higher. So that is why you see majority of the OEMs now, there's been a sharp reduction in imports in their segments. And I think most of the domestic players are now following -- we are exporting just to contribute towards our margins, right? Anything about marginal costs, we are exporting. To compete with imports, the prices will always be higher than export. So it's not like we're not there to compete with the imports coming into the country. The moment it starts picking up, we will be in a position to compete with them. Everyone has below optimized utilization in their capacities right now. So we don't foresee a challenge of imports drastically picking up. We're very much ready to counter that.

Okay, sir. Sir, my second question is on the growth CapEx for, like we have a pretty strong balance sheet even at this stressed industry scenario. So I wanted to know when we can expect to hear from you on our next growth CapEx plan. And whether we would be looking forward to enter into any new product category to diversify our business risk profile going forward?

So you see our MDF line at the moment, the new one is just about to start. So I'm quite certain that for the next 2 years, we will not be investing any further in the MDF line. The idea would be to optimize the existing business, the new line needs to settle down, and the volume and the product mix needs to come to optimal levels. So quite certain that for the next 2 years, on the MDF side, there will be no further investment. The plywood business is something, as I mentioned in our earlier calls is something we are picking up quite strongly. We want -- we are 2 smaller players, and we don't want to remain small in this business. We also want to have 2 established businesses to be generating cash flows for us. So, we've always said that once the existing volumes from -- of the plywood business comes to an optimal level, that is an option for us to increase our plywood capacities, in which we may look at investing into the plywood business next year. But that, again, is not a very large investment because plywood fortunately asset to revenue ratios are quite lucrative. So that is the next investment that we may look at. So at this point of time, these are -- this is what our CapEx plans are for at least in the next financial year.

Next question is from Resha Mehta from GreenEdge Wealth.

So the first question is on the export volumes. So is the reason for decline in export volumes in MDF only the higher freight rate? Or are there some other reasons also? And a related question is that, also the decline for imports in MDF into India, again, the reason there is only freight rate, high freight rates, higher lead time? Or are there some other reasons also?

So Resha, firstly, with regards to the decline in our export volumes, as you noticed that our realizations in exports have gone up because we took a price increase in exports. Now primarily, our exports are going to the Middle East countries, and here we are competing with countries like Thailand, Malaysia, Indonesia, we are importing, exporting to these countries as well. So there are 2 reasons why exports had reduced. A, our timber prices have gone up; b, the freight element also has gone up. So what we calculate is on an FOB basis, we should be making a positive contribution towards our fixed costs, as Mr. Venkat has already mentioned, right? From a client's perspective, we have a baseline FOB price, the client in turn sees the freight cost from India and compares it with the landed cost from the other countries. There are certain customers who are still choosing to buy from us. They are willing to accept the price. But again, there is a segment of customers, who are very, very price conscious and do not care where the product is form or what quality it is. So that is why export volumes have gone down because we've taken the price increase. That's number one. Number 2 -- sorry, can you repeat your second question again?

Yes. So it was a related one, basically. And is that also the reason for a decline in imports of MDF into India, the higher freight rate and the higher...

So, I think, again, it's a mix of both. As I mentioned, today, companies have chosen to export. So OEM segment, where majority of the imports are coming in, is still a better business for us than exporting, right? So today cost of imports have gone up because of freight and the domestic producers have reduced the prices to this particular segment. So we're trying to minimize the difference in pricing. So if someone -- if a customer can buy maybe at a 3%, 4%, 5% premium as opposed to importing, then they much rather prefer to buy from the domestic producers. So there's 2 reasons. We reduced our prices to the segment and the cost of exports have gone up. Hence, we see a decline in the imports.

Okay. So just to summarize, basically, we'll become -- we, as in the industry, has become less competitive in the overseas market, while at the same time, in the OEM space, we have become -- tried to become more competitive versus the imports that are coming, right? So...

Yes, you can't say that, yes, correct.

Right. And the second question is again on this -- sorry to harp on this again on the demand-supply scenario, right? But if I were to look at the supply, which is 4 million CBM and 3.7 million -- sorry, 2.6 million CBM or thereabouts is the demand at an industry level. Again, here, if you could just break it down into what is the export demand versus what is the domestic demand? And if you can help me reconcile that all this new capacity that has come in even for us, which plans to come in, right, how is that going to be absorbed both in the domestic market and in the export market without any major disruption to the realizations?

Venkat ji, would you get that?

Yes. It's obviously going to take time because there's still about a 30% gap between capacities available and the demand situation. So probably it will take anywhere between 2 to 3 years for this gap to go off. So yes. But I think domestic players have come to the realization that reducing prices is not the way because you're already down to minimum margins. And in MDF, low margin is very negative because the asset turnover ratio is also very low compared to other building material products. I think now it will be a more structured competition. People will not try to gain market share by cutting prices. And as the -- and the demand situation is still healthy in the sense that we are growing at about 14% to 16% per annum. So over a period of 2 to 3 years, this -- that will narrow down considerably or completely evaporate.

Got it. And how much of the demand would be from exports currently, like of the 2.7 million demand?

So almost negligible because we and Rushil, who are based in South of India, are the only exporters. Players from North India cannot export because the domestic transportation from plants in the north to the Western ports, Mumbai or Gujarat would be about 25% of realization. It's not economical to export from Northern India.

Next question is from Yash Sonthaliya from Buoyant Capital.

So few questions to better understand thin MDF market. So how much of the domestic demand is catered by export and how much by domestic players? And what will be the realization difference between the export coming and the prices which we will be planning to sell from our new plant?

Shobhan ji, can you take that, please?

Sorry. Sorry, please repeat that. Sorry.

So wanted to understand better on the thin MDF market. So how much of the domestic demand is catered by export players and how much by the domestic players? And what will be the price difference between the exported products and what we will be planning to sell our products?

Sorry, you're referring to the imports you mean to say, right, like imports coming into the country?

Yes, that's correct.

Yes. So as Mr. Venkat said, majority, I think, the market size for imports today is not very large. Primarily because domestic prices are already quite at a low point. And as the total market size, I would say about 30% is -- 30% to 35% is focused towards the thin panels. And majority of that is being catered to by the domestic players. There are certain unorganized players who are solely focusing on thin MDF as well. So from a pricing point, we will be at par with the domestic organized segment. We won't be any lower. And as I mentioned, imports are not really a very big factor to consider in that particular sector.

Got it. Sir, when we are saying we will be able to sweat our capacity to 50% next year, so how we are planning to do that by lower realization from the domestic players or...

No, it's not -- so at the moment, a lot of the -- for example, in the South of India, a lot of the thin panels are being catered to by the North players, and they're not very competitive, for example. So we will be -- our pricing can be slightly better than them with a much better margin as opposed to the North -- northern players supplying to the South. So by also -- our overall fixed costs in the plant will be much lower because we have 2 large lines running in the same location. So keeping that in mind, I think we will be able to have better margins as opposed to our competition. And it's -- we are known for a very high turnaround, very quick turnaround serviceability qualities. So that will also give us an edge.

Next question is from Yug Patel from Anand Rathi Institutional Equities.

Most of my answers -- questions have been answered.

We'll take the next question from Harsh Shah from Dalal & Broacha.

Just wanted a clarification. When you said 150 to 200 basis points of margin improvement, that was H2 versus H1, is that correct?

No. H2 versus quarter 2.

H2 versus quarter 2. Okay. So then for the full year, is the assumption correct that the existing capacity EBITDA margin would be somewhere around 14% to 15% for the full year?

That's correct. That's correct.

And just one thing on the gross margin, okay? So this quarter around, we saw our timber pricing on a sequential basis going down by somewhere around 1% to 1.5%, right? And also our product mix improved sequentially. So what explains the dip in the gross margin then?

Could you please repeat that?

Yes, sure. So what I'm asking is on the gross margin trend. So 2 things happened this quarter. One was the timber sourcing for this quarter was lower by 1% to 1.5% on a sequential basis. And secondly, our product mix in terms of value-added products was much better on a Q-o-Q basis. So what I'm trying to understand is what has led to a dip in...

Okay. I got your question. I got your question. See, the realization may have been higher because of a better product mix. But for the value-added products, the cost is also higher as compared to the normal industrial or commercial materials. So that's the reason why in spite of even higher realization because for the mix of value-added products, the realization is almost 40% higher as compared to the normal product. But that 40% incremental realization does not flow to the margins, okay? So a majority of that is also compensated by higher cost for the value-added product. That is the reason why we saw a dip in the gross margin.

Correct. So then the sourcing, the timber sourcing, so the benefits were not fully flown down to the numbers. Is that correct then?

Yes, that's correct. Because like remember, I mentioned during the call, that although the realization has improved sequentially, but for the industrial and the commercial product, the realization has gone down by 2% quarter-on-quarter.

Okay.

Just to -- we introduced a 4% scheme, it was operational for a part of the quarter.

Okay.

Sorry, I'm just going to step in here to clarify one more thing. Timber is one element of the cost. At the moment, to keep timber prices down, we are buying different species of timber, we're buying mango, we're buying cashew because availability of eucalyptus has gone down drastically. So when we mix different grades or different species of timber, even though we are able to purchase the timber at a lower cost, it could also result in a higher, for example, resin consumption because different species react differently in terms of -- so that could also be a reason why it's not a direct relation to timber cost and gross margins, for example.

And also during the second quarter, which is a monsoon dominated, the wood, which comes to our plants, has a higher moisture content. So that also impacts the raw material because we are consuming more wood to get the same quantity of finished product because the moisture content is higher during the second quarter.

Next question is from as from Parth Bhavsar from Investec.

I have a few questions. So first one on competition. So we believe Infra.Market, he has taken over the capacity of [ Shirdi ] industry. So I wanted to understand what is Shirdi Industry's capacity? And the second thing we highlighted that imports have gone down drastically over the last few quarters. So like if you could throw some numbers, like from December to now, what is like a per month import number? What does it look like?

Okay. The per month import number, I'll share with you separately, could take time. So just to give you an indication, so -- if you look at the last financial year, imports on an average were about 35,000 cubic meters per month. During the first quarter of the year, there were about 18,000 cubic meters per month. And during the second quarter, there were approximately in the range of 8,000 to 10,000 cubic meters per month. And the second question regarding Shirdi Industries and Infra.Market, Shobhan ji, can you please take that?

So as far as I know, Shirdi's capacity was about 200 to 250 cubic meters per day on the MDF side.

Okay. Perfect, sir. And sir, just wanted to know that...

Currently being utilized, I don't know.

No that's fair, I just wanted to understand the capacity. And sir, the other thing related to imports. So I wanted to understand -- I wanted to understand the input parity math. So what would be the landed cost for MDF right now in dollar terms?

Sorry, repeat again. For imports?

Landed cost -- for imports, yes.

I would assume with this freight, it should be somewhere around $195 to $200.

So this is including freight. Sir how much -- if you could just -- like help me with the freight cost separately, it would be really great. It would be like $40 to $50 CBM?

No. No, I don't think it will be that much. I think it would probably be about $25 to $30.

And sir, one other thing, just like on the industry level, I wanted to understand, so we operate at a very low working capital days versus plywood. So if you could help me understand why is that the case? Like what variables what are the variables that pushed down our working capital days versus plywood industry?

So I think -- sorry, Venkat are you getting it?

No, no. You take it.

I think we managed to be disciplined from -- as an early entrant in the industry, although we were still part of a plywood company, I think we were able to sort of define the terms at that point of time being one of the early players and having a separate marketing policy and marketing team. And fortunately, the industry has followed suit, at least the organized players have. So especially on the credit days, the industry has been quite disciplined. I think the fact that there are fewer large players in this industry has also resulted in a little bit more discipline in terms of the credit days, which has resulted in lower working capital investment in the business in general. And I think that's the reason. Because from a point of inventories, from a point of raw materials, from a point of finish wood inventories and raw materials, it's not very different. The major difference comes on the credit days side.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

We thank everyone for joining us on this call. If anyone has any further follow-up questions, we please ask you to reach out to us, and we look forward to speaking to you again at the end of next quarter. Thank you.

Thank you, everyone, and wish you all a very happy and prosperous Diwali in advance. Thank you.

Yes, I wish everyone a Happy Diwali. Thank you.

Thank you very much. On behalf of Greenpanel Industries Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.