Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenply Industries Limited Q3 and 9 Months FY 2020 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 Greenply Industries Q3 and 9 Months FY 2020 Conference Call. We have with us today, Mr. Rajesh Mittal, Chairman and Managing Director; Mr. Sanidhya Mittal, Joint Managing Director; Mr. Manoj Tulsian, Joint Managing Director and CEO; and Chief Financial Officer, Mr. Mukesh Agarwal. 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. Sanidhya Mittal to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Rishab. A very warm welcome to everyone present, and thank you for joining us today to discuss Greenply's operating and financial performance for quarter 3, 9-month FY '20. Let me commence by welcoming Mr. Manoj Tulsian, our newly appointed CEO. Manoj's appointment represents our endeavor towards having in place a professional management that will put in place suitable processes and systems. We are very sure with this, we will be able to reach greater heights. We are happy by the response to our mid- and low-price brands, which have enabled us to obtain considerably expanded market access in a very efficient way. We have completed our Phase 3 expansion facility in Gabon in November 2019. On the domestic policy front, with the government making efforts and plans for stricter implementation of the GST and e-way bill, we are optimistic that things will slowly and steadily begin to favor the organized market. We feel that there will be an improvement in the real estate market conditions in the near future, and this will flow down to the building materials sector in time as well. Stand-alone net sales of Greenply Industries for the quarter ended December 2019 stood at INR 318.4 crores compared to INR 310.9 crores in quarter 3 FY '19, an increase of 2.4%. Overall, gross margins have been down by 18 bps at 38.2%. Our average realizations in quarter 3 FY '20 in plywood decreased from to INR 225 in quarter 3 FY '19 to INR 219 per square meter in quarter 3 FY '20. Stand-alone EBITDA margins for the quarter increased by 77 bps year-on-year to 11%. Consolidated EBITDA margins for the quarter increased by 3 bps year-on-year to 11.6%. I would now like to hand over the call to Mr. Mukesh Agarwal for the financial numbers.

Good afternoon, everyone. I thank everybody for joining us to discuss Q3 FY '20 financial performance of Greenply Industries. In quarter 3 FY '20, our consolidated top line was down by 1% as compared to the year-on-year quarter. In Q3 FY '20, consolidated margins down marginally by 7 bps year-on-year at 40.9%. And consolidated EBITDA stood at INR 39.9 crores and stand-alone EBITDA stood at INR 35.1 crores. Consolidated PAT was up by 2.3% at INR 21.3 crores compared to INR 20.8 crores in Q3 FY '19. Stand-alone PAT in Q3 FY '20 increased by 22.7% to INR 18.6 crore as compared to INR 15.2 crore in Q3 FY '19. Consolidated working capital cycle as on December is at 70 days, which is same as compared to December '18. Stand-alone working capital cycle as on December '19 is at 63 days, which is higher by 1 day as compared to December '18. Stand-alone working capital cycle as on December '19 improved by 5 days as compared to September '19. This is mainly due to 4 days improvement in debtor days as -- on Q-on-Q basis. Stand-alone debt-to-equity ratio is at 0.4 as on December '19 and 0.55 as on December '18. Consolidated debt-to-equity ratio is at 0.65 as on December '19 and 0.90 as on December '18. CapEx incurred in 9 months in Indian plywood business amounted to INR 12.08 crores and CapEx incurred during 9 months FY '20 in Gabon was INR 14.75 crores. Our performance in this quarter has been encouraging in an economy wherein the building material space continued to face challenges. I would like to hand over the call to the moderator to open the floor for the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Sneha Talreja from Edelweiss.

Sir, it is pertaining to -- sir, what would have been the mix in the current quarter for you, project versus the retail sales?

Can you please repeat the question?

Sir, what would have been the sales mix for you, project versus the retail sales?

Project versus retail.

So basically, if you see then the premium segment, in the volume terms, we achieved around 62%. And in the trading segment, we're around 38%. And in the value terms, our sales in the premium plywood, including decorative veneer, was 72% and trading was 28%. And we supply mainly from the trading division, which is our outsourcing mid and low segment to the project sales.

Sir, roughly around 28% to 30% is your -- I mean project sales?

Not exactly 28% to 30% because direct sales to the project is around 7% to 8% from the company, but we route major sales from the dealer to the project.

Sure, sir. And sir, what has been the reason for increase in receivables in this particular quarter for us?

So we have taken a lot of commercial corrections in this quarter, and our target was to reduce the debtor days. In Q2 FY '20, if you see our debtor days was 93 days, and we reduced this in this quarter by 4 days. So we tightened our working capital. We reduced our credit days in this quarter. And we collected the whole outstanding also in this quarter.

Sure, sir. Sir, could you also comment on the demand scenario?

So demand scenario at the moment, I wouldn't say is the best, but at Greenply, we've realized that this is how it's going to be. So in this, we have to look for an opportunity, and considering that scenario is going to be like this, we have to keep going. So if you see our projections also for this year were much higher than what we've done. So we realized that the demand scenario overall is not very good and [indiscernible]. So that's the reason we've decided that we'll tighten our working capital and we'll improve things this year, so that when the demand scenario improves, we will be in a better position next year.

So in this quarter, we improved our debtors by INR 20 crores, and we have taken a decision, and that was the reason why we had a 2.5% growth in the stand-alone sales. And if you would have the same debtor number, then the growth would have been anything 8% to 9% in the quarter. But we have taken a call on the working capital days and the debtor days.

Sure, sir. And I think you will be continuing with the same tightening of the working capital days. In that case, what is the growth outlook? I mean what are you looking out for in Q4 as well as next year?

Next year, we're still in the process of doing our budgeting. So next year, we will -- we are not in a position to tell you right now. But quarter 4 looks pretty much on the lines of quarter 3 only. So for the year, we are targeting in the plywood business around 4%, 4.5% growth for the year.

The next question is from the line of Pranav Mehta from Equirus Securities.

Sir, I wanted to understand on the Gabon subsidiary. So how the things are looking for Okoume veneer compared to, let's say, Gurjan and other veneers? And are the prices still correcting or have they more or less been stable?

So I'll first answer Okoume versus Gurjan. So if you see what we are trying to do in Gabon, we're not only focusing on the Indian market, we're focusing on the rest of the world, which means mainly Europe and Southeast Asia. So other markets, Okoume was always very well accepted. So it is still accepted and is doing very, very well. In India, Okoume got a lot of acceptance in the beginning. Lately, after Gurjan prices falling again, there has been some shift in the domestic market towards Gurjan. But as far as we are considered and our brands right from our flagship brand, Club Plus until our low end, we only promote Okoume. And there's a huge, I think like, [ block ] plywood manufacturers in India who are accepting Okoume. And as far as the price, you were talking about the price, yes, there is some price corrections. Because in the beginning, quarter 1, quarter 2, there were a lot of issues for shipment also from Gabon. So in India, in quarter 3, a lot of shipment came together, because of which everyone had overstocking of Okoume, so that -- so the demand for Okoume was low in quarter 3. And also because of Gurjan prices falling down, there was a price fall in Okoume prices in the domestic market, but the global market, there's no price fall.

Okay. And sir, what could be the breakup for Indian, Europe and rest of the world for face veneer business?

So we will give you the exact numbers.

So in quarter 3, this quarter, Europe was 13%. India other than Greenply was 36%. Greenply India, we source -- captive consumption was 24%. Southeast Asia was 27%. Whereas in the corresponding quarter last year, Europe was only 1%, India was 73%. So again, 73%, we sold only 36% in the India market in the current quarter. And Southeast Asia was 4% in the corresponding quarter last year. And this quarter, we sold around 26 -- 27% of our face veneers.

Okay, sir. And sir, just one -- can you give some clarity on the deco veneer business? So is the industry seeing growth? Or are you capturing some market share? How the things are moving in that segment?

So I don't think that the industry is growing at a very big pace. It must be growing at 3% to 5%. But I think we are capturing market share. So we are -- if you see the -- our plant is only 1, 1.5 years old. And now we are available across. And I think whatever incremental sales we're getting from decorative veneer, I think we are capturing market share.

The next question is from the line of Ashish Poddar from Anand Rathi Research.

It seems that the revenue from Gabon this quarter was very low. It's what, about INR 25 crore, while I think in the last quarter, it was a higher number, and in coming quarters, we were expecting even a higher number. If you can quantify the number? And how do you see that -- along with the margin? And how do you see both the elements going forward?

So Mr. Ashish, in the current quarter, the turnover from Gabon was INR 26.5 crores, out of which INR 21.3 crores came from the face veneer business, and we have other business on timber and log that contributed around INR 5.5 crore -- INR 5.2 crores. So total was INR 26.5 crores in the quarter. And from the margin side, we expected margin of around 18%. And in quarter 3 and in 9 months, our margins was close to 17.5%. And we are hopeful that in Q4 also, we will achieve that 17.5% to 18% margin.

So this INR 26.5 crore revenue in the quarter, was it -- is this on the expected line? Or is what -- it was lower? Because according to my number and what you were guiding earlier, it should be around INR 45 crore, INR 50 crore for the quarter.

Yes. Our target was initially high, but because of the Indian market -- correction in Indian market, we lost volume. So we shifted our focus on Europe market and Southeast Asia market. And that is the reason in quarter 3, the corresponding quarter, we had 74% supplies to other customers in India. And in this quarter, it was low as compared to the earlier corresponding quarter.

So what is the guidance for full year now and for '21?

So till 9 months, we have achieved on a consolidated basis INR 105 crore of turnover. And for the full year, we are guiding anything INR 145 crores to INR 150 crores.

And for the next year, if you have any number?

Next year, we have not yet freezed because we want to see the performance in the quarter 4 in the Indian market and the European market, which is also new. And so after that, we will guide for the next year.

[Operator Instructions] The next question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, what CapEx spends are we looking out for current year and next year?

So current year from the Indian business, we have only normal maintenance CapEx, which is INR 16 crore, out of which, in 9 months, we incurred INR 12.08 crores and balance will be close to INR 4 crore in quarter 4. And in the Gabon business, we have around INR 22 crore, out of which INR 14.7 crores we incurred in 9 months and balance INR 6 crore in quarter 4 -- in the current year.

Right. Sir, is my assessment right to say that whatever degrowth we've had at the Gabon level is purely realization dip? Because if we see, we've done INR 26.5 crores for 3Q compared to INR 37.5 crores for Y-o-Y and INR 35 crores for Q-o-Q. So because we've expanded capacities from 36,000 to 96,000. So how has the realization shaped up?

So realizations are not degrowing in Gabon in quarter 3. It's actually the volume loss. So in the last corresponding quarter, we sold to Indian market and to Greenply. But whereas in this quarter, considering the face veneer market in India, we shifted our focus to Europe and Southeast Asia. And Europe, we started after our new expansion, which happened on 6th of November 2019. So we had only 1 month for the European supplies. During December, we supplied to European market. And in current quarter also, we are targeting mainly European market and the Southeast Asian market.

And how is the difference between the realization when you supply to India and when you supply to Southeast Asia and Europe? So is it that those markets are premium end of products?

So Indian and Southeast Asian market are almost 2% to 3% difference in realization. But in Europe, if we supply to Europe, we get a premium of 8% to 10%.

Okay. And even going ahead, we would like to -- so how much of sales are we expecting from Southeast Asia and Europe in coming 2 to 3 years?

So 2 to 3 years, we will guide you after the end of quarter 4. But in current quarter, we are seeing that we'll be close to INR 145 crore to INR 150 crore. And in 9 months, we achieved INR 105 crore. So Balance INR 40 crores, INR 45 crores, what we are seeing in this quarter will be mainly from European market and Southeast Asian market.

Right. And how are things shaping in the Myanmar market? How are the operations over there?

So if you can repeat your question?

How has been our performance in Myanmar for 9 months? Do you see some improvement there?

So in Myanmar, 9 months, we were -- if you see the JV -- we have a JV company at Singapore, and there, on a profit and loss basis, we have a loss of -- our share was INR 1 crore, okay? So for the year, we are guiding -- there should be some improvement in quarter 4. So we are hopeful that we will be able to recover this loss, whatever we have in 9 months.