Greenply Industries Limited (GREENPLY.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenply Industries' Q2 and H1 FY '26 Earnings Conference Call hosted by Asian Market Securities Private Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to sir Karan from Asian Market Securities Private Limited. Thank you, and over to you, sir.

Thank you, Iman. Hi, everyone. Good evening. On behalf of Asian Market Securities, we thank you for joining us on the Greenply Industries 2Q and First Half FY '26 Conference Call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO; Sanidhya Mittal, Joint Managing Director; and CFO, Mr. Sanjiv. May I now invite Manojji to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Karan, and good evening, everyone. It's a pleasure to have you all on the call. I will be updating to you on Greenply's operating and financial performance for quarter 2 and H1 FY 2026. As communicated during our last call, we have been able to grow over Q1 FY '26 in both our segments. Also during the quarter, we have achieved revenue growth on a Y-o-Y basis, and we are confident that the same momentum will continue in H2 also. The gradual progress in BIS implementation and steady timber prices continue to provide a favorable environment for organized and branded players like us. On the marketing strategy, I would like to share that Greenply campaigns primarily focused on the premium green range. However, communication has now been extended to the value segment with Ecotec effectively addressing the affordability-driven consumer base. The latest campaign, Kaam Sahi. Daam Sahi., has actually positioned the brand effectively. With a focus on practicality and smart spending, the campaign has witnessed remarkable traction, driving strong brand recall and reinforcing Ecotec's standing in the mid-price category. We have also commenced advertising for this fast-growing MDF category, focusing on building stronger awareness. Through this 3 brand communication approach, Greenply has strategically enhanced the visibility of its product portfolio across key market segments, spanning the premium green range, value-focused Ecotec products and the growing MDF category. I would like to share with you that we have achieved a consolidated quarterly revenue of INR 688.6 crores, which is a growth of 7.5% on a Y-o-Y basis. Our consolidated core EBITDA for the quarter was INR 56.8 crores with a core EBITDA margin of 8.2% compared to 9% in corresponding quarter, a decline of 80 basis points. On a half yearly basis, our consolidated revenue was at INR 1,289.4 crores, which is a growth of 5.3% on a Y-o-Y basis. Our consolidated EBITDA was at INR 118.4 crores, which is a growth of 2.5% on a Y-o-Y basis. The EBITDA margin was at 9.2% as compared to 9.4% in H1 FY '25. PBT before the losses on equity accounted investees, foreign exchange gain/loss as an adjustment to finance costs and exceptional item is at INR 83 crores for H1 FY '26, which is a 15% Y-o-Y growth as against PBT of INR 72 crores in H1 FY '25. The profit after tax was INR 44.4 crores. Let me now share the highlights of our individual business segments. We observed a significant demand for mid-value segments during the quarter, resulting in an average realization per square meter of INR 242, a 3.5% decrease year-on-year. On the margin front, our core EBITDA margin for Q2 FY '26 was 8.2% compared to 7.9% in previous quarter. The margin improved on a quarterly basis by 30 basis points. On a half yearly basis, we have achieved a revenue of INR 995.5 crores, a growth of 3.1% on a Y-o-Y basis. Our volume growth for the first half of the year is 2.5% Y-o-Y. Our core EBITDA grew by 2.9% on a Y-o-Y basis to INR 80.6 crores in H1 FY 2026, and EBITDA margin stood at 8.1%. Moving on to MDF business. Our revenue in Q2 FY '26 was INR 146.8 crores and volume at 47,018 CBM, which is a growth of 16.1% and 15.9% on a Y-o-Y basis. We successfully expanded our manufacturing capacity from 800 CBM per day to 1,000 CBM per day during this quarter. Production during the quarter was temporarily impacted by the expansion-related shutdown, as mentioned above, resulting in moderate margins of 8.3%. The margin decline during the quarter is one-off and is primarily due to 3 factors: reduction in finished goods inventory, resulting in under absorption of overheads, liquidation of old and nonmoving inventory at a higher discount, resulting in lower realization and outsourced material consumption to temporarily balance the market needs. However, with operations now fully normalized with enhanced production capacity, we are confident of a strong rebound in the second half and expect to return to double-digit margin levels as well as double-digit volume growth. More details on the MDF business will be shared by Sanidhya. Moving on to our furniture and fitting JV. We have achieved sales of INR 11.4 crores in Q2 FY '26, achieving half yearly revenue of INR 17.9 crores. The JV reported a PAT loss of INR 11.8 crores in Q2 FY '26 with our share of the loss amounting to INR 5.9 crores and half yearly PAT loss of INR 22.6 crores with our share of the loss amounting to INR 11.3 crores. As these are initial period and the brand has to be built up to compete with the premium brands in the country, we'll continue to invest significantly in brand building also. Our consolidated net debt stood at INR 510 crores at the end of quarter -- current quarter. As previously communicated, this will further reduce with the liquidation of excess inventory, which started from this quarter onwards. And hence, we remain confident that our debt-equity ratio will be in the range of 0.5x despite further CapEx in H2. With respect to our operations at Greenply Middle East Limited, we have further reduced exposure from -- of our guarantees from USD 3.8 million to USD 2.7 million. As a result, our contingent liability has also decreased from INR 32 crores to almost INR 24 crores. With this statement, I would like to hand it over to Sanidhya to provide some more insights on the MDF business. Over to you, Sanidhya.

Thank you, Manojji, and good evening to everyone on the call. Our sales in this quarter showed a 16.1% year-on-year improvement over the last quarter in terms of value terms. While during the quarter, our EBITDA margins were lower for the reasons highlighted earlier by Mr. Tulsian. However, we remain confident of achieving double-digit margins in the range of 16% in H2 FY '26. We are confident that the second half of the year will see stronger revenue growth with improved operating efficiencies and driven by our focus on selling more value-added products. With this, I would like to open the floor for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Arpit Kumar from Unifi Mutual Fund.

So I have a couple of questions. Firstly, on the BIS norms. So have you -- after the implementation of the BIS norms for the industry, have you seen any noticeable shift in demand from organized players to -- unorganized players to organized players? And also, if you could highlight the benefits of BIS implementation for Greenply?

Okay. This is the first question?

Yes, this is the first question.

So can you also talk about the second question and then we can reply.

Yes, sure. So the second question is, just wanted to know your demand and supply outlook for MDF and plywood industry over the next 12 to 24 months, specifically how you see the demand momentum for the MDF industry and the capacity utilization?

Okay. So your first question is on BIS. So we can only tell you about how we are able to see things happening. It's a continuous process. So it's not like something that it's been done across the country and everyone has become BIS compliant. We think it's still miles to travel, but the initial signs are very good, encouraging. And we keep reading and we keep also coming to know from the industry that BIS is continuously conducting such, not only at the manufacturing location, but also at the dealer point. And in a way, it's sending a very strong message to the trade and the manufacturers that people have to comply to BIS norms. The biggest benefit, if you really see, has come because the imports have reduced significantly. So like if you have to compare last year's versus this year's numbers, so imports this year compared to last year, both in MDF and plywood is like 3% to 4% of last year's number. So that itself clearly says, as the first level of improvement, which is there. And most of that was getting used at the level of OEM or the key manufacturers. So that traction is visible clearly. But as I said, it's a continuous process. It will take some time for this to really show up even larger benefits for the branded goods player. And we are very, very hopeful that this will continue to benefit companies like us. In terms of the demand scenario on plywood, see, despite -- if you really see -- when you look at the real estate data, the residential data, there is a degrowth compared to last year, both in quarter 1 as well as quarter 2. But still, if you really look at us, we have grown by around 7% in terms of volume. And we are very optimistic that in quarter 3 and quarter 4 also of this year, we'll be actually able to grow at 10% plus in volume, a, because of, of course, this BIS, which is helping, the trade, which is helping us; b, also because we have done a lot of improvements in our own process. We have hired a consulting service around a year back. And we started systematically, first of all, correcting the back end, which was our own supply chain, our production availability and then getting into a lot of initiative on the sales side management and this. That has also started showing a very disciplined approach, which is also resulting into higher traction into the market. So we are very confident that from here on, we will be able to see better growth on Greenply even in plywood as a business. In terms of outlook, look, the Indian story remains very, very strong overall. These are few quarters where, again, as I said, the chips are slightly down, but I'm very much sure that with the type of growth which all of us are talking about, this sector is still to really fire the residential sector again. And once that happens, then we can look at a much larger growth. We are very much prepared for the same. Sanidhya, do you want to say anything on MDF outlook and...

I think demand in the MDF industry also remains strong. I think the imports are really down, even though the domestic competition is really tightened and significant today, which was a couple of years ago, it didn't exist that many domestic players. But with our brand and with our approach, I think we are very confident that we'll be able to sell our entire capacity. And we've already expanded our capacity, which Manojji mentioned in his speech, I've mentioned and now we are looking to quickly utilize the entire capacity. And I think H2 should be a display of that if things go as per plan.

Yes, 100%.

Okay. So what is the current capacity utilization you are at for Q2?

For MDF...

Yes, MDF.

So MDF actually in Q2, we took a shutdown also, right? So -- but if you look at it, whatever turnover we have achieved in Q2, that will utilize maybe around 70% of our capacity. So we are now good at capacity after this expansion on MDF.

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

Sir, in terms of MDF margin, you mentioned that H2 will be 16%. So given that if there were no shutdown, was it just one-off? And how are you seeing the competitive behavior since they are taking a lot of price correction to push volumes? How is that rubbing off to the margins?

That is true. There are competitors sitting with large capacities to sell their capacities, they are undercutting. But that is in a particular segment to achieve a volume. I think competitors with very, very large capacities, their focus is to sell the industrial grade or the interior grade in which they are mainly cutting prices. If you look at our realizations also, our realizations have also slightly gone down. But we are very confident that we can still maintain a 16% margin for H2, given that now there will be operating efficiencies in this plant. The 25% of the capacity has gone up, but the fixed cost remains almost the same, hardly any change there. So a little bit of reduction in the realization, a little bit of cost increase, a little bit of efficiency increase, I think the back to square one. So whatever we were displaying or speaking about in Q1, I think we are maintaining the same. Obviously, Q2 was a one-off quarter because we originally shut down the plant for a month, but we took more than 40 days to actually get it up and running again. So we lost out on that, and that's the reason why you see these margins.

Quarter 2 is just a one-off case, right? So you should look at us how we did in quarter 1. I think the scenario was almost similar in quarter 1 also. There's not much change which has happened on the pricing or the realization side post quarter 1. And so quarter 2, like as we mentioned in the opening speech, that gave us an opportunity also to liquidate some of our nonmoving inventory because sales definitely had the target which they had to achieve. So in a way, it was good that, yes, some of those materials went at a very heavy discount, which reflected in the margin also, which dropped to single-digit, but good that we were able to feed those as a capital. And in any case, it was either a nonmoving or very slow moving. And I think there is -- and we are talking of now in H2 almost a higher double-digit growth. So you will see larger operating efficiency also getting into play because this 800 CBM going into 1,000 CBM, we are not adding any costs. It's just that my production level goes up with almost the same level of people, manpower and everything, all my fixed cost. So we are pretty confident that if we are able to achieve our higher double-digit growth, which also is visible, we will be able to get a margin also of 16% plus.

Okay, sir. So fair to assume you are not assuming any price hikes. So if any of the industry price hikes comes up, that will be over and above what these margins could be. Is that a fair understanding or you are all factoring some price hikes?

We are not factoring any price increase at this point of time.

Okay. And sir, post this expansion, what will be the split of capacity in the incremental specifically, how much more value-added products can we produce?

So I think this is the mainline capacity. So our fresh is going from 800 CBM to 1,000 CBM and all our balancing equipments were already designed as per 1,000 CBM. So, I mean, it totally depends on our selling skills and our sales team's efficiency to go out there and look for more value-added sales. So I think product mix is pretty much defined on sales, not because of the fresh.

So there's no differentiation in terms of the capacity within 800 CBM or 1,000 CBM that we can only produce up to this much of value-added products. It's like what Sanidhya is saying, it's totally dependent on our sales orders and our strong work in the -- on the street.

Sure, sir. And just lastly, in plywoods working capital, we have seen some increase in the debtors. So is this just for -- with the spends or the -- your efforts you're making for the Ecotec brand and how -- when can we expect it to normalize?

No, I think sales is also higher. If you see compared to quarter 1, if you're just comparing it with that. Our overdue status has not gone up significantly between quarter 1 and quarter 2. However, there is -- there will be an effort to bring down our overdue in quarter 3 and quarter 4. So maybe there will be some amount of working capital release, which internally we are targeting.

Okay. And sir, just last question to specify the 10% volume growth for H2 from that volume growth, can we achieve this 10% EBITDA margin that we are still eagerly waiting for the company to deliver?

See, raw material prices, which also we -- actually we perceive that it will soften by quarter 3. We at least still maintain that this year, the raw material prices are very stable. And there is a most likely chance that the raw material prices may drop also. It can be end of quarter 3, it may be in quarter 4. And if that happens, then there will be an incremental margin accretion which will happen. In any case, our H2 plywood targets are much better compared to our H1 numbers. So some level of operating efficiency will play. That's why we have said our H2 margin will be better than H1. Our investments on the marketing spend is also quite high because we have also started now, as I said, we have started investing on Ecotec as a brand when it comes to plywood as a segment. And we continue to even invest on our premium brand Greenply. So we are not cutting down anything on the marketing spend also. So keeping these things in mind, yes, 10% may or may not happen. But at this point of time, for sure, we don't want to promise 10%. Yes, if we get very good growth, if we get a growth which is more than 15% for H2, then for sure, our internal working says that we can even touch 10% plus margin for H2.

[Operator Instructions] The next question is from the line of Kaushal Sharma from Equinox Capital Ventures Private Limited.

Yes. So my first question on your HDF flooring, like we are doing CapEx on our HDF flooring. So when can we expect to operationalize this?

Currently, we are conducting trials. The machine is fully installed, and we are in the process of making samples and displays for the entire market. Early December, I think we should start selling commercially.

So what is the CapEx in this involved and the capacity are we looking for?

I think the CFO can share that. I don't have that number handy, and I don't want to give you a wrong number. Maybe...

Maybe we can share it afterwards. If it's not there, maybe he will also not have at this point of time. It's not a major CapEx.

It's a very small CapEx.

It's a very small CapEx, but maybe we can give the numbers afterwards to you.

Okay, sir. My second question is on your plywood business. Like earlier in the last call, you said our target is around double-digit growth in this segment with double-digit margin. But currently, we are getting 3.1% year-on-year increase in H1 financial '26 with core EBITDA 8.1%. So are we aligned with our target?

So as I mentioned, first thing in quarter 2, we got a volume growth of 7%. Our initial guidance was a 10% volume growth and also 10% margin for the full year. We have definitely missed out on the margin front in H1 because we could not register a growth of 10%. So somewhere this 10% margin is also related to our volume growth. And since we missed out on the volume growth, we have clearly missed out on our EBITDA guidance also. For H2, we are very, very comfortable, as we mentioned that, one, things like better BIS implementation, lower imports, raw material prices slightly more stable. And then as we said internally, we have done a lot of work taking support of a consulting firm also, which has now started showing results from the last quarter. I mean, one that internally building up a lot of better controls and processes, better measuring systems, as well as this getting into branding investment on Ecotec as a brand, which is the value of the plywood business is also showing us rich signs in the market. So we are very confident now that double-digit growth in volume in H2 is doable. And if it goes to a higher double-digit, then maybe we can even surprise the market by actually giving a 10% plus EBITDA in H2. But we don't want to promise that at this point of time. And if we are able to achieve a 10% plus EBITDA this year in H2, then for sure, we are in double-digit margins in plywood business for next year.

And my last question, just want to know one clarification. I have seen your consolidated results, and we have generated some exceptional gain around INR 4.43 crores by selling 30% stake in our Greenply Middle East Limited. But the overall consideration is around INR 4.25 crores, but we have generated gain of INR 4.43 crores. So why the amount is not -- there is some mismatch in this amount?

Actually, this happened in quarter 1. And whoever asked for, we provided a full reconciliation because there are actually 5, 6 adjustment entries because of the stand-alone and then it gets consolidated and then the way the ForEx thing gets reinstated and treated. So in case you want that detail, please reach out to our IR person, Mr. Jay, and he will be able to provide you that entire reconciliation.

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

Sir, on the MDF, I just wanted to clarify, there are no one-offs related to plant shutdown or restart in this quarter. If there's a number, if you could give that, that would be quite helpful.