Greenpanel Industries Limited (GREENPANEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenpanel Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you.

Thank you. Good day, everyone, and thank you for joining us on Greenpanel Industries' Q1 FY '27 earnings conference call. We have with us today Mr. Shobhan Mittal, the Managing Director; and Mr. Himanshu Jindal, the CFO. Before we begin, I would like to state that some statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation which was shared to you earlier -- with you earlier. I would now like to invite Mr. Shobhan Mittal to begin the call. Over to you, Shobhan.

Thank you. Good afternoon, ladies and gentlemen, and welcome to our Q1 FY '27 earnings call. As you are all aware, the quarter commenced amidst increased volatility post the war in Middle East. The chemical costs increased significantly, forcing us and the industry to implement price hikes of around 15% in a phased manner in April to safeguard our margins. In between, there were rollbacks by some of our peers and we had no option but to react as well. Despite these challenges, we continue to focus on expanding our more sustainable and value-accretive revenue stream, which is retail MDF, which grew by around 20% year-on-year. In continuation with our drive on new products and trade engagements, we stepped up investments to further strengthen our brand during Q1. We participated at Bharat Buildcon, relaunched our new website to deliver a premium digital experience for our customers, and also entered into strategic television partnerships with six leading news channels of the country to improve our retail connect. However, the high volatility on cost, both chemicals and container freight, on account of the geopolitical developments in Middle East, did impact our OEM and export sales. OEM degrew by 14% year-on-year, while the exports reduced to 0 in the quarter. These, as you know, are largely opportunistic low-margin sales driven by pricing and credit, decisions we choose to stay cautious on, especially in the initial half of the quarter, given the overall macro situation. As a result, our domestic MDF volumes grew by 12% year-on-year, something we have demonstrated consistently for the last 4 quarters now. Counting in the absence of exports this time, our total MDF volumes degrew by 2.3% year-on-year, but the price hikes coming into play, our total MDF revenues still grew by 8% year-on-year. On the ply side, our volumes increased by 10.4% year-on-year, while revenues increased by 5% year-on-year. On a combined basis, revenues for the quarter grew to INR 350 crores, a growth of 8.5% over the last year, while the consolidated operating EBITDA, excluding the impact of currency movement on the euro borrowing for the new plant, was INR 33.5 crores or 9.6% of revenues in Q1. MDF -- in Q1. MDF operating EBITDA margin expanded to 10.3% versus 4.4% for quarter 1 last year. Moving to the current scenario on what to expect here on. On the raw material side, while the timber costs are largely stable, chemical costs have corrected from the peak, but are still higher than pre-war levels and they are still volatile. On the other hand, competition continues to stay aggressive on offering discounts. We're continuously monitoring this and are realigning our discounts wherever needed, to protect and grow volumes. Thus, we are simultaneously treading two moving grounds currently, both cost and discounts, which change daily basis based on news flows from the Middle East. Given the overall situation, providing figurative guidance continues to be challenging. However, we would continue to ramp up domestic volumes over the remaining 9 months of this fiscal, to improve our relative market share over our peers for the full year. Once the condition in the Middle East returns to normal, we can also expect the export flows to gradually improve as well. With this, I request our CFO, Himanshu Jindal, for the financial and other updates. Thank you.

Thank you, Shobhan ji. Good evening to you all. We've already covered revenues in detail. On the margin side, our gross margins improved both sequentially and on a Y-o-Y basis as well between 5% to 6%, now in the quarter at 52.7%. And this is on account of multiple factors. So the first one very clearly was the timely implementation of the price hikes post the escalation on the chemical cost front. As Shobhan ji mentioned, our OEMs segment degrew and even our exports were 0. So there's a change in distribution product salience also, which is coming into play. The third reason was basically lower timber costs. So as you know, we worked on the wood species that we use. So there's a reduction on a Y-o-Y basis. And there's also improvement in our production efficiencies versus quarter 1 last year. Beyond that, there was also availability of the low-cost inventory coming in from the last fiscal. Despite the increase in marketing investments, our reported EBITDA expanded to INR 32.5 crores versus a loss of INR 12.4 crores last year same period, while the PBT was INR 2.1 crores and PAT was INR 1.2 crores. On the balance sheet side, our working capital requirements, they increased slightly by 5 days -- by 4 days, primarily more inventory now, both on account of finished goods and timber, to factor seasonality. Despite this, we are still 5 days leaner versus the same period last year. We continue to use our cash flows to deleverage. So our gross debt reduced further to INR 317 crores versus INR 353 crores at the beginning of the quarter. Also, our credit ratings from ICRA were recently reaffirmed as A+. I think we can now request the moderator to open the Q&A, please.

[Operator Instructions] We take the first question from the line of Shubhi Gupta from Trinetra Asset Managers.

Sir, my first question is, since we are seeing such a drop in exports due to this ongoing war, do we plan to diversify into other international markets to mitigate all of this?

Sure. So Shubhi, we are looking at alternate options for exports. Unfortunately, the freight volatility continues to be present in most parts of the country. Middle East is a unique situation where they don't have their own manufacturing. But most of the foreign -- other foreign markets already have their own MDF manufacturing. And with the freight volatility in place, it's also difficult to be competitive factoring in. So I would say about 80% to 85% of our exports earlier used to be Middle East. We are exploring other options. We're trying to expand supplies to the other markets. But of course, to make up for the lost volumes from the Middle East, that's not going to be enough. But we are in the process of exploring other markets.

Sure. Sir, my second question is, sir, if you would like to give some guidance regarding the margins for the full year, and capacity also?

Shubhi, it's too -- at this point of time, because of the uncertainties, we'd like to refrain from it. We are not in control of what is happening with regards to the chemical costs. It's moving on a day-to-day basis. Pricing is also quite challenging with many of the competition actively passing on discounts on a regular basis. So we -- at this point of time, we're not in a position to give you a long-term sort of guidance.

And sir, capacity utilization, do we expect it to maintain at about 51% or any color on that?

No, we -- the plan is to definitely enhance capacity utilization this year, subject to market volume. But again, because exports is uncertain, so we're not in a position to give you an accurate number on that when exports would restart and what the whole year's utilization would look like.

We take the next question from the line of Praveen Sahay from PL Capital.

My first question is related to the price hike, which you had mentioned that rolled back by the peers and as you also had -- So this 7.4% of ASP increase, it's largely due to a channel mix change towards the retail?

Well, in the first quarter, we did have some benefit of the price hikes as well. But a large part of that was also because of the change, because we had removed any additional discounts that we were giving to the OEMs because of the costs going up. So we had bought them at par, which resulted in -- whatever OEM sales did happen were almost at retail levels. So you can say that because of the movement of the consumer sector from OEM to retail price levels, we saw this ASP going up as well.

So this rollback is because of overcapacity we have as a industry? Is that the main reason?

Well, yes. I mean, in principle, yes. There was also some amount of corrections on account of the chemical costs, which were immediately passed on by the -- by some of our competitors. But yes, I mean, I think the primary reason for that is overcapacity and lack of enough orders for various customers -- various companies, which is resulting in them reacting in this manner.

Second question is related to the OEM because, as you highlighted a 14% reduction there. If you can give some color how much is the OEM contribution to your business right now versus the others -- earlier quarters?

Himanshu, do you have some accurate numbers, I mean last year's historical?

Yes, yes. So Praveen, we do something like 75%, 80% retail and the balance is OEMs. This obviously fluctuates with the way things happen in the market space, right? But historically, this is how we have been doing retail versus OEM.

Okay. And still we are facing the challenges related to OEM demand?

No. So now that the prices have been corrected, Praveen, so the OEM demand should come back into play this quarter.

Okay. And also if you can...

You see what is happening with OEMs is imports always remain an option, right? So if we outprice ourselves with imports, then the OEMs find an alternate source by importing materials. But now that majority of the price hikes have been rolled back, so we're again back to competitive levels and hence, we should see the OEM demand coming back in.

Just to comparison to the -- some peers related to the realization. On the sequential basis, if I look at, the peers also has taken some realization benefit. So when this price -- whatever the taken has rolled back, when it's happened in the quarter?

It's happened over multiple phases. So firstly, there was a delay on account of certain peers in implementing. It was supposed to be implemented in April, but a lot of people did not implement it fully till May. Then there were certain rollbacks taken towards the end of May, June. And then again, some rollbacks were taken in July as well.

Got it. Sir, last question on the numbers. ForEx loss, how much is that?

That was INR 2.5 crores. Only for the ECBs that INR 1.8 crores, which is partly either other expenses or in -- as part of the interest income -- yes, interest expense for that matter.

So it's INR 1.8 crores you said?

On the ECB. Overall, INR 2.5 crores. Yes.

We take the next question from the line of Resha Mehta from GreenEdge Wealth.

So the first question is on the price hike. So I think at the very outset, when [Technical Difficulty] we had taken somewhere around [Technical Difficulty] price hikes in MDF...

Sorry, Resha, I -- we -- you're cutting out a little bit. Can you try to speak a little louder, please?

Yes. Is this better? Am I audible?

Yes. Yes.

Yes. So I think we had taken around 15% price hikes in MDF. And -- but effectively, because we were offering trade discounts due to competitive pressures, it used to be effectively 7% to 8% kind of price hike that had transmitted in the market. But now you are saying that with all the rollbacks, basically, we are back to the old level. So there's no price hike effectively...

In place, yes.

[indiscernible] right?

Yes, we can say that. I mean, maybe in certain segments, 1% to 2% of certain markets because rollbacks have been sort of modified geographically as well given the market condition and competition. So certain places, the rollbacks have been higher, certain places, we've tried to keep some of the price hikes in place. So it's a mix. But yes, it's almost all of it has been rolled back, I would say.

And this channel destocking scenario would have also played out because of these rollbacks? Do we see that on ground?

Sorry, what destocking? Can you repeat that?

Channel destocking.

So it seems like because of these sort of rapid rollbacks, market sentiments have also come to a point where no one is willing to hold material, because everyone has sort of gotten this impression -- the channel has gotten this impression that there may be further price hikes, so let's keep stocks on a hand-to-mouth level because, of course, if someone is holding stocks and the companies choose to rollback prices, not necessarily they pass on the benefit on the stocks that are being held by the channel partners. So even the channel partners are not buying to stock, but they're sort of only buying to -- on a hand-to-mouth kind of a situation to continue supplies to their customers.

Understood. And now with these rollbacks, do we see demand kind of coming back with...

Resha, I'm sorry to interrupt you. Could you please stay connected? Ladies and gentlemen, we have lost the line of Mr. Shobhan Mittal. [Operator Instructions] So ladies and gentlemen, we have the line of Mr. Mittal connected. Resha, can you please repeat the question?

Sorry, my line just dropped off. Yes.

Yes. So I was asking that now with the rollbacks happening, are we seeing the OEM demand kind of coming back?

Yes. As I mentioned in my previous answer, we are expecting the OEM demand to come back this quarter, hopefully, with -- in active sort of discussions with all OEMs and sort of trying to get back our supply agreements with them.

And now with this inflation -- the raw material is pretty volatile. Let's say if we were on an index of 100 pre-war, what would we be at, at a blended raw material inflation level for the company?

So at this point of time, this is so volatile, Resha, on a daily basis, this is moving. So -- in fact, it's safe to say that if this moves further, there might again be a price hike that might come into play. So we're monitoring this quite closely. So chemical price hikes are also being negated by certain corrections by us on the timber side, where we are playing with the mix, where we're using more of mixed wood compared to eucalyptus, trying to negate the effect because price hikes are not singularly in our control. Cost controls are definitely more sort of singularly in our control. So we're monitoring this on a regular basis. But I would say on a raw mat side, at this point of time, I think there's at least a, let's say, pre-war levels 4% to 5% upward trend on the chemical side.

Got it. And how much has timber cost reduced by, for us year-on-year or maybe quarter-on-quarter...?

Himanshu, can you answer that? I -- [Technical Difficulty]

So different -- Yes, yes. So...

Because again, both plants again vary.

Hello?

Yes, Himanshu.

So I was saying -- see, you rightly said, Shobhan ji, I think it varies on the species, it varies on the mixes that we use and it's very different on the product, right? It's a product-to-product alteration that we do. On a combined basis for quarter 1, I can share with you that we saved -- between timber and the efficiencies, we were able to save 6%, 7% overall.

Okay. And just the last one on the ply business. So ply, despite quarter-on-quarter us maintaining similar capacity utilization, why would the ply margins drop from 7.5% to 2.7% quarter-on-quarter?