Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenply Industries Limited's Q4 FY '21 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Gautam Jain from Greenply Industries Limited. Thank you, and over to you, Mr. Gautam.

Good morning, everyone, and thank you for joining us on the Greenply Industries Q4 FY 2021 Earnings Call. We have with us today Mr. Sanidhya Mittal, Joint Managing Director; Mr. Manoj Tulsian, Joint Managing Director and CEO; and Mr. Mukesh Agarwal, Chief Financial Officer of the company. 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 results presentation that was made available on our website and provided to stock exchanges. I would now like to invite Mr. Manoj Tulsian to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Gautam. Good morning, everyone, and a very warm welcome and thank you very much for joining us today to discuss Greenply's operating and financial performance for Q4 and FY 2021. Hope everyone is safe and healthy. From an overall business perspective, we have witnessed strong brand demand uptick in Q4 of last year. The growth factors could be mix of pent-up demand, upswing in realty sector and consumer demand and shift towards organized players. At Greenply, we are very confident on industry growth trends, especially in the organized market, where we have a leadership presence. Our latest capacity expansion plan announcement in Lucknow is a testament on this belief. On a full operational basis, we can generate approximately INR 250 crores of revenue from this plant with some incremental margin profile. And assuming no further COVID-related lockdowns, this plant should be operational by end of Q4 of this year. In the last reported quarter, on a consolidated basis, we have achieved top line growth of 15% with gross margin improvement of 94 basis points on a Y-o-Y basis. Although it's not a like-to-like comparison as we had almost 15 days of business loss during last quarter of FY '20 due to COVID-related restrictions and lockdowns. Still it's a decent performance on all parameters considering continued headwinds. Similarly, on a consolidated basis, our net working capital has reduced significantly by 25 days to reach 53 days for FY '21. I feel there is a further scope reduction by 4 to 5 days during this year. Our consolidated ROEs have increased by 140 basis points to reach around 14% level now. In Gabon operations, we have achieved significant scale of operations with efficient improvement during the previous year. However, current business environment remains challenging due to nonavailability of containers and vessels. We believe normalcy will return for our Gabon operations after such issues would be resolved. As an industry leader, we are committed to stay ahead in the industry curve by providing innovative and environment-friendly products with focus on sustainability. And I'm very happy to inform that Greenply became the first and the only company in the country to introduce zero-emission plywood products. Greenply also became the first company to have successfully achieved the FSC-FM certificate in the interior infrastructure segment in India. This certification achieved for our Tizit plant, and it confirms that the forest is being managed in a way that preserves biological diversity and benefits the lives of local people and workers while ensuring it sustains economic viability. The above initiatives and investments are expected to yield risks in the long run for the company in terms of growth, profitability and sustainability. I would now like to hand over the call to Mr. Mukesh Agarwal to discuss our financial performance. Over to you, Mukeshji.

Thank you, Manojji. Good morning, everyone. I thank everybody for joining us to discuss Q4 and FY '21 financial performance of Greenply Industries. I am happy to say that despite several operating challenges, we have achieved decent performance in last quarter and full year. I do hope that all of you and your loved ones are safe and healthy. Our consolidated entity's net sales for the quarter stood at INR 395.6 crores compared to INR 343.8 crores in Q4 FY '20, an increase of 15.1% on Y-o-Y basis. Consolidated gross margin for the quarter improved by 94 basis points to 39.8% on a Y-o-Y basis. Consolidated operating margins also improved to 12.5% versus 9.1% in the previous corresponding quarter. Stand-alone net sales in Q4 FY '21 stood at INR 358.3 crores versus INR 296.3 crores in Q4 FY '20, an increase of 20.9% on a Y-o-Y basis. Stand-alone gross margins for the quarter improved by 204 basis points to 39.1% on a Y-o-Y basis. Stand-alone Q4 FY '20 EBITDA margin is relatively strong at 13%, an improvement of 419 basis points on a Y-o-Y basis. And PAT stood at INR 28.2 crores (sic) [ INR 28.8 crores ] versus loss of INR 24.6 crores in Q4 FY '20 due to exceptional item. Our average realizations in plywood have improved to INR 222 per square meter in Q4 FY '21 against INR 219 per square meter in the corresponding period last year. On a full year consolidated basis, receivables days has reduced sharply to 61 days in FY '21 as compared to 90 days in FY '20, although the inventory days have increased to 50 days -- 56 days from 46 days in FY '20. The net working capital days has reduced to 53 days as compared to 78 days in FY '20. The improvement reflects improved collections and discipline across our supply chain. In FY '21, on a consolidated basis, we have done maintenance CapEx of around INR 23 crores and expecting similar maintenance CapEx in the next year as well. In addition, planning for further CapEx of INR 90 crores for our new Lucknow plant. Our balance sheet continues to be robust. Consolidated debt has reduced to INR 191.7 crores as on March '21 from INR 267.4 crores as on March 2020. On a stand-alone basis, Greenply is now completely net debt free with total debt of INR 58.5 crores and cash and cash balance of around INR 124 crores as on March 31, 2021. Consolidated debt equity ratio also continues to decline and standing at 0.44 as on March 21 as compared to 0.71 as on March 2020. The Board of Directors has recommended dividend at the rate of INR 0.40 per equity share subject to the shareholders' approval at the ensuing Annual General Meeting. I would like to hand over the call to the moderator to open the floor for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Shanti Patel from Shanti Patel Investment Advisory.

What is our capacity utilization in the year 2021? And what are you -- how much you are expecting in the current ensuing year? And who are our main competitors in the industry? And the last question, what is the return on capital employed and return on equity? And in the future, in the ensuring year, what will it be?

Good morning, Shantiji. Our capacity utilization in the previous year is close to around 107% to 108%. And this -- actually, we are saying 107% because we have done improvements -- progressive improvements in our plant in balancing the equipments in the last 5 to 6 years. But that certification we have still not got from a chartered engineer. So basis the same, it actually crosses 100%. But we still had capacities to produce further. Normally, in a normal year, we go up to 140%, 145% in terms of our capacity utilization. In terms of competition, of course, today for us, we look at Century being our competitor. And both of us are in the listed space. And then there are many small players. And what was the other question?

Return on capital employed and return on equity in the current year, that is, 2021? And how much we are expecting in the coming year?

Okay. Mukeshji, how much is the ROE?

So Mr. Shanti, ROE for the stand-alone entity is 14%, and ROCE pretax is around 19% for the full year and ROCE post-tax is around 14.7%. And in the current year, we are expecting...

Sir, consolidated, not stand-alone. Consolidated return on capital and return on equity.

So return on equity on consol basis is around 14%. And pretax ROCE on consol basis is around 15.6% and post-tax is around 12.34%.

Okay. And the current year, how much you are expecting?

Well, current year, Shantiji, we had good plans. If you really see Q4, we closed very well. And we started the year with the same level of momentum. But as you see, quarter 1 has been a disappointment and will be a disappointment for most of the businesses in the country because of lockdowns, I mean, only leaving the essential ones. So we have to slightly wait and see that when do we really get into the full groove of normal business. But assuming that everything gets over by June and from July, we are back to the normalcy. In any case, there will be an improvement of 1% to 1.5% on both these parameters during the year. That's what we expect.

The next question is from the line of Sonali Kohela (sic) [ Sonaal Kohli ] from Bowhead Investment. [Operator Instructions]. As there's no response from the current participant, we proceed to the next question from the line of [ Udit Gajiwala ] from YES Securities.

Sir, can you just give more details on your CapEx plan? I understand it is INR 90 crores for 13.5 m sqm, if I'm not wrong.

That's correct.

Yes, yes, yes.

It is for Lucknow plant, which we proposed for plywood product.

So that is for our Lucknow plant. And other than that, we'll have our normal operating CapEx, which will be close to around INR 20 crores.

Okay, sir. And by what period do we expect to utilize it fully? Say, for example, we began the commercial production as per your expectations of Q4 this year. So by what quarter will it be fully operationalized, the Lucknow plant?

Well, look, in Q4, actually, what we felt that the demand was so good that somewhere maybe we actually slightly missed out on the sales, okay? And keeping that in mind, since we had land, we felt that, let's quickly put up this facility. We -- basis the way the things are in the country and -- even we feel that the demand will remain good in our segment. In FY '23, by quarter 3, we should be in a position to utilize almost 85% to 90% of the capacity.

That's helpful. And sir, last question will be, sir, we have seen from the industry point of view that the organized is gaining share. So how far do you think that this is sustainable? And do we still expect in this coming 2 years or whatever time, organized will be gaining more market share?

Well, look, as we have been mentioning this, and I'm sure the other players also keep mentioning, that there are no organized data on the same. We also keep getting a lot of feelers from the market, from our trade community on this. Having said that, for sure, there is a shift which is happening from unorganized to organized. And the way the GST implementation in the country is improving every day, every passing day, plus also these 2 pandemic waves have accentuated the entire process of shift. So the dealers also are now more comfortable dealing with more organized players, whoever have steady balance sheet, where the supplies are not getting disrupted, there are no other issues. So -- and this we have heard from even other businesses, similar consumer-driven businesses, building material segments. So I think it is going to stay here. And going forward, this will be a momentum and which will be good for all organized businesses.

That's great to hear. Sir, last one question, can you give us the premium mix of sales in terms of volumes and value for the quarter and full year?

Well, in terms of value, it was 70-30. And in terms of volume, it was somewhere around 64-36.

This is for the quarter or full year?

For the quarter.

And same for the full year as well?

Full year, Mukeshji?

So for the premium, around 5% -- 4% was there from our outsourcing unit, okay? So premium was around 72%, 73% in the value term, and balance was from the trading division.

The next question is from the line of Sonaal Kohli from Bowhead Investment.

I have 3 questions. Firstly, as far as your Bharosa and Jeevansathi (sic) [ Jansathi ] brands are concerned, are you pan-India currently with these products? And what are the challenges to scale these up? And any plans you have to aggressively grow in this considering consolidation in the sector? That's my first question. The second one is, in terms of your growth plans, any plans over the next 1, 2 years to enter into new extensions like laminates, MDF, exports or other building materials? And the third is, in terms of margins, how -- what kind of margins one can expect in a steady state whenever these COVID issues are over?

See, your first question is on Bharosa, Jansathi, right?

Yes.

Yes. So see, we are already pan-India present, okay? And we started the concept of Bharosa and Jansathi with a certain detailing in mind. But if you really see in the last 12 to 15 months, one, there has been unprecedented raw material price increase also, which has happened, okay? Second thing, the pandemic off and on, so some markets opening, again closing and all those. So what we found that we grew up to level and then somewhere we were getting stagnated on the same. And because of so much of change in the raw material prices, which also led to a lot of pressure on the selling price, we are reworking our strategy in terms of future growth. If you ask me personally, I see a lot of potential in terms of growing this brand. But we will have to do some course corrections, which we are internally deliberating. And let's hope so that we are able to get a good growth in Bharosa brand in the next 2 to 3 years. As far as other businesses are concerned, as we mentioned in the last call also that our first objective was to strengthen the balance sheet, which we have been able to do a certain level. And then the second objective, of course, was to make sure that our bread-and-butter brand and business, which is plywood, we have a sustainable growth. Because of that, we felt the need of setting up another facility. So we are doing that. And then of course, we will continue to look at new opportunities into the building segment. And as and when we find something which is interesting, we will try to work out something. We'll take the board approvals and come back in the public domain for the same. As far as margin is concerned, I think last year has been a year of challenge for most of the businesses, including our business. And there has been unprecedented price increase on the raw material side. Despite the same, we have been able to improve upon our margins, which was one of our promises made to the investor community around 6 to 9 months back. We'll continue to work upon the same. Barring these aberrations, which is happening because of like Q1, suddenly, there is so much of pressure. May was not at all good. Even June, it's now picking up. So these type of aberrations do hit the margin profile for the full year basis. But yes, if you look at my Q4 performance and if we are able to maintain that steady state of affair of Q4 going forward then 12% to 12.5% to 13% margin is something which we can look at. And I can only tell you that there is a continuous focus of the company, every senior management, to make sure that we continue to work hard towards improving this margin.

Sir, just a follow-up. Is there any -- because the company [indiscernible] in the past. Is there any agreement which prohibits you from entering into MDF, et cetera, which may prevent your entry from -- entering into this specific segment?

Look, as I said, we are looking at overall building materials segment. And as far as MDF is concerned, I think there is some mutual agreement, which is there, that on a mutual consent basis, both the companies are allowed to get into each other's product. So as and when if it is required, then only we'll get into that discussion also.

But nothing prohibits you from entering into MDF if there is an opportunity available to you that you feel is right for you?

Well, as I said that there is a mutual consent which is there in the arrangement. So those mutual consent has to be taken. And once that is in place, then I don't think that if we really think about going into that, there should be any problem.

And sir, let me rephrase my question then. Do you think there will be a challenge in taking a mutual consent?

Sorry?

Do you think there will be a challenge in taking a mutual consent in case you would want to get into this?

Well, actually, we are jumping the gun. Let the stage come. How do I mention anything about it? I don't see per se in the family any such issues, right? So if you ask me as of today, I would say I don't see any challenges. But, I mean, how do I really say at this point of time? Only when we travel the path, we'll be able to tell you.

The next question is from the line of Sneha Talreja from Edelweiss Securities.

My question is related to the margins actually. Sir, basically, how much is the raw material cost that we have already seen an increase? And how much of it we were able to pass on? If I probably can get some sense on that?

See, raw material increase has been phenomenal in the whole of last year, okay? And most of the material has gone through an increase of 40%, 45%, if I have to compare a price on a like-to-like basis over a period of 12 months. So we tried to take multiple price increase in the previous year, but I think we still could not pass on everything to the market when I was looking at the numbers, right? And that is what most of the people have done. So the rest of the improvements what has happened is because of the internal efficiencies, which we have tried to build up in the last 9 to 12 months. So if you look at both of them together, then we have been able to marginalize the raw material cost increase.

Sure. Got that, sir. So how much would have been the total price increase that we should have taken in, let's say, FY '21?

See, last year, we have taken 2 price increases, which combined was around 3% to 3.5%. And this year further, we have taken a price increase of anything between 1.5% to 2%.

Sure. And that's across your product categories, including Bharosa and Jansathi?

Well, not -- I would say, not across the product categories. But yes, overall increase, if you will see, it will come to around 1.5% to 2%.

Sure. That's helpful. Sir, my second question is broadly related to the industry growth. We definitely had seen a very challenging year. Any sense that you could give us how much, according to you, the industry would have degrown in this particular year?

No...

Any broad numbers there should be helpful, just to get a sense that we are definitely not seeing a big shift happening from unorganized to organized. But just to get a sense that how much could have been the benefit of that particular shift.

Actually, see, it's too early to get into since there are no published data on all these things. We also keep gathering information from here and there. In fact, I would request some of you to help us out to get these numbers for better clarity, okay? So we look at all of you to get our understanding improved. So actually putting any number won't be fair from my side because we don't get -- and as long as we don't get some concrete information, it's not fair to share.

The next question is from the line of Venkat Samala from Tata AMC.

My first question is, I mean, if we compare our growth year-on-year, with Q4 FY '19 levels because, I mean, that's the way to look at it, right, in a normalized environment. So our growth was largely flattish compared to some of our competitors who grew in strong double digits. So could you help us understand what were we missing here?

Well, look, we actually were traveling a different journey if you really look at in the last 9 to 12 months, okay? We have been doing a lot of correction also. We have made a lot of changes in our policies with the trade. And that will always have an effect because things which we have been doing for years and ages and if we want to change that, we have to give enough time to our trade also to settle down with the new set of policies. So -- and you can see the impact of those things happening in terms of our balance sheet, in terms of reducing the receivables. See, our idea was clearly to get into a different mindset where we want to help not only the organization but every stakeholder who is attached to the organization in terms of improving their ROE. So this is something which we have even worked with our dealers. And you know that when we do that, when you reduce your receivables, okay, finally, there is a correction which happens in the channel inventory. So we have allowed that time to happen because, look, the idea is not to show numbers in the short run only. Of course, we are too much bound and there is always a pressure to perform every quarter, right? But the strategy is long drawn. The idea is that we have to take people along. We have to take our trade community along with us and create a sustainable and profitable business going forward. So all our steps in the last year, though, despite being a very, very tough year from all the sites, we continue to be convinced about what we are trying to do from a long-term perspective, and we started working on the same, right? So even in Q4, to some extent, channel inventory has got corrected, and we have allowed that to happen. We're not looking at this point of time about what the competition numbers are doing or not because if my channel inventory has got corrected, that means my secondaries are happening. So I'm not worried about the same, right? If you see between the last 12 months, our receivables have come down by almost INR 170 crores to INR 180 crores. So we all understand that, that is the amount of channel inventory, which gets corrected, correct? So if you add up those numbers, and even if you add up 60%, 70% of that number, you get the right assessment.

Understood. Understood. Sir, I mean, now that bulk of that heavy lifting is done, so to speak, so I mean, can we expect a normalized growth hereon, I mean, whenever the industry recovers?

Well, of course, look, as I said...

I'm just trying to understand when can we start comparing ourselves with the peers in terms of growth?

I think even starting this year, okay, barring a few aberrations, but I think now it's a good time to actually look at that if you want to compare. Of course, every company has a different way of looking at it slightly different markets, which we cater to, okay? But from this year, you can do that because most of the corrections, which we were trying to do in the channel inventory, has taken place. Still, we know that certain part of the country, there are trade partners who are carrying excess inventories, and we are telling them to further reduce their inventories and help them improve their ROE, okay? So we are trying to work with our trade community finally to give them a better return on their capital employed, okay, help them with some automated platforms on the digital side so that they also invest a lot of their time in growing their business. So it's a continuous journey. It's a long journey. We don't see results happening immediately. But I can tell you that we are on a journey where we'll only continue to improve on a quarter-to-quarter basis.

Right, right. Sir, is it fair enough, I mean, in H2, we can start expecting -- so what I'm trying to understand is where -- when can we expect growth, which would be commensurate to the potential of our growth?

Well, if you ask me, I have the desire even to do it in the month of June also.

Right. No, no, I'm just talking about when the demand environment improves. Obviously, it will improve, right? It's just a question of when. So I'm just trying to understand that if that happens in a period of time, so when can we expect to -- that our growth number hits the potential that we can achieve? And bulk of this exercise is largely done with. I mean...

Yes. So I think, look, you can understand -- you can get the pulse that we have even gone ahead with a new investment, okay, in the plywood segment. That clearly speaks about our own bullishness on the business front, okay? And I'm sure that the demand side is good. This is what is a feeler which we are getting from our trade partners also. But after the second wave, to some extent, and the challenges again have come back in terms of labor running away. So even if there is a trade wants inventory, at times they are into a problem how to unload the stock, okay, how to deliver it to their end consumers. So a lot of the challenges are there, which are very, I would say, short term in nature. Hopefully from quarter 2 itself, we will start seeing good traction because demand per se is there, okay? Everyone is just opening up for -- waiting for things to open up. And we -- and I can tell you, even though we were very bullish about the month of June, we felt everything will be back on track from the first week itself, but it's taking its time.

Right, right. And how do things stand now, sir?

Sorry?

How do things stand now, I mean, as on today versus what we would have been expecting pre-COVID?

No, no. So that's what I'm saying that in -- May, in any case, was like bad, okay, because everything was under lockdown technically. And even in June, we felt that we will be able to start shipping good material from the first week itself. But then there are virtual lockdowns, which is still there. Labor is not there with the trade community. And they are slightly circumvent at this point of time. They want the market to open up. They have orders -- they have placed orders on us, but they have restricted the dispatches at this point of time. So I'm assuming June slightly -- we'll have to wait and see how the last 10 or 15 days go. But possibly from July, most of the businesses, I'm just not talking about my business, I think -- and I've checked with other people, there is similar state of affairs even for other companies. Possibly from July, we are all back on track assuming that there are no more surprises which the God has for us in terms of any further third wave and all those challenges.

Right, right. We've had enough already.

Well, yes, and this time it was slightly more painful.

True that, sir. Sir, one thing is, what would be the normalized growth expectation for the company that investors should expect hereon in your core bread-and-butter business?

Well, on a volume basis, for sure -- so this year, definitely, if you would have given a full year performance and if the momentum of quarter 4 would have continued, we would have done a decent growth over last year, but that is also because last year, quarter 1 was almost like a washed-out quarter. Now again, we are in a similar stage where if you really look at it, most of the companies will have a similar state of affair like last year Q1. So in the last year, most of the companies only started selling in June. This year April, people sold. May and June have gone bad, okay? So looking at the same, this year, still, we feel that, yes, we'll have a double-digit growth. I'm assuming that from July, we work full-fledged, right? Things are back to normal. And then from next year onwards, a 10%, 12% volume growth is, for sure, something which we will be targeting.

Understood. Understood. So that's the steady-state growth that you're expecting in a normalized scenario at least?

Absolutely. That's the minimum which we have to do.

Understood. Understood. Sure, sir. And one last thing, I just wanted to understand, when you said that you are internally deliberating about the growth prospects of Bharosa and Jansathi, are you thinking about moderating your growth aspirations hereon?

No, no, no. As I said, actually, we personally see that there is a humongous opportunity. But because of too many things happening at the same point of time in the last 12 months, we'll have to slightly rework every point -- every nook and corner of how we started, what has happened. So there are a few things which are course correction where we feel we need to change our way. And the second, the challenges, which have been posed on us in the last 12 months in terms of raw material price increases and how the other brands and other products in the market have behaved in terms of their pricing strategy, and then work out a strategy again and get going. We're also looking at change in our distribution plan for the same. So there are a number of things which we have also learned in the last 2 years. And we are reworking the model to again see because from a potential perspective, I personally feel that there is humongous potential. Somehow, we need to work in the right way. And for that, maybe in the next [ couple of ] months also, we might have to experiment a few things, a few models, give some time and see whether that is working or not. And possibly in 12 months' time, we'll be able to establish a better model and then grow well on that [ model ].

Okay. Okay. Sure, sir. And last thing, revenue mix, if you could just share between your Greenply brand, Ecotec and Bharosa, Jansathi in terms of value?

See, Bharosa Jansathi, we are doing last year INR 1,000 crores. We have done somewhere around...

Yes, Mr. Venkat. So for the full year, Bharosa, Jansathi contributed around INR 40 crores, and PVC contributed around INR 41.5 crores. And Ecotec contributed around INR 230 crores, and the balance was from the premium and the decorative business, which is around INR 686 crores.

The next question is from the line of Arun Agarwal from Kotak.

Sir, my first question is on the demand side. You talked about like April we did some sales, May was bad and June we are sort of moving up gradually. If you were to put some numbers here, could you help how this first quarter -- because it's almost like we are at the end of the quarter now. So how the first quarter is panning out vis-à-vis our earlier targeted numbers that we would have thought about pre-COVID -- pre-second wave?

No. I don't see exact numbers. So I don't want to share at this point of time, but I've given enough fillers, okay? As I said, April for us was almost normal, barring the last 4 or 5 days when we could feel the impact. We could have done better. May was almost like a lockdown. We still did some sales, okay? And June, we are definitely looking at doing better sales than -- much better sales than May. So that's how the stuff would be. But it will be nowhere near what we had assumed for quarter one after a very bullish quarter 4.

Okay. And sir, on demand side, could you also just help us out because I think we had ventured into the rural side as well. So how that particular decision is panning out now?

So rural side has done well. But this time, during quarter 1, rural is actually hit badly, even more than the urban. So the wave is very different this time compared to the wave which was in pandemic one, okay. Having said that, our work has yielded us results. So almost 6% to 7% of our business has now started coming from our rural penetration. That is a new segment of penetration, which we have done in the last 8 to 9 months.

Yes. Okay. And sir, we expect this segment to grow faster than the other geographies going forward for us, given anyway the base is low for us?

Well, that was the idea. But as I said that initially, when you kickstart something, you get a momentum and then you get stability and then you have to, again, course correct it and go to the next step. So I think next 3 to 6 months, we will see that first thing we are able to sustain the 6% to 8% volume of business, right, because the mindset of rural is very, very different than the mindset of urban. And we are also learning the same. And then, of course, I think there's a very large opportunity there. So we'll continue to work on the same. And if we work, then why would we not get the results.

Sure, sir. Sir, on the margins front, we had aspiration of a relatively higher margin than what we are doing currently. So -- and we are also in a scenario where we are facing cost material -- raw material increases. And we are -- it's being difficult, as you talked about, passing the entire cost to the customers. How do you see other cost-saving initiatives that you would have last year, some of those costs might come back and some new cost initiatives that you would have this year? So could you just throw some light on that?

Well, look, as I said, we have worked a lot internally in the last 12 months. A lot of internal efficiencies have been built up on the plant cost. And we have done major substantial savings improvements there. We have done savings in some of the other costs like rationalizing people also. We have done -- and then there were certain core savings like on the area of travel. We have also tried to look at the branch models and whether we need so many physical branches. So we have cut down on a few branches also. So wherever we could save something, we have done that. So there was an opportunity for us to cut down on certain costs, which we felt we can during this period. At the same time, there would be new costs also, which we'll be entering. So we have been working now on our digital platform. We are working on IT automations. We are working on our distribution model, which is a supply chain model, okay? We are also working now extensively on further augmenting our branding initiatives. So there will be new costs, which will be coming, and we'll continue to invest on people also. But keeping all those things in mind also, we had felt last year that there was an opportunity to grow the margin by 300 to 400 basis points over a period of 24 to 30 months. The initial signs are good. As I mentioned to someone else that despite significant increase in the raw material cost and we not being able to pass on that entire thing to the market, we were still able to improve upon our margin profile. So with some better time, better traction, and all these automations, what we are trying to do, branding initiatives on which we are working, supply chain management, which we are trying to strengthen further through a lot of automation processes, we will still get some more benefit going forward. And then the rest would be operating leverage. So if things go right from here another 12 to 18 months, we will see further improvement in margins. This year looks challenging because we'll be reinvesting a lot of money. But by next year, you will see further improvement in margin.

The next question is from the line of Shrenik Bachhawat from JM Financial.

My first question is we have done some channel system, Yamunanagar, around April, May, and we got to know that almost 40%, 50% plant there were shut, as the demand market, Central and West India, was shut due to COVID and also raw material cost pressure there. So could you help us understand how is the scenario there and whether these plants that are shutting down will be able to come back so we can get some tangible sense about the shift from unorganized to organized?

See, we have seen many such cycles in the past. We have all assumed that, yes, this is the time now when the organized will really bounce back, okay, and it will dent the unorganized in a big way. But every time we also find that this unorganized segment bounces back. So whatever you said today is more or less a reality in terms of the last 2, 3 months, we have also heard the same. Some of them will be in a difficult situation, the way we look at business today for them to bounce back. So you will see further cutting down on some of the manufacturing units and some of them will bounce back. So that, for sure, is going to help businesses establish businesses like ours.

And also, sir, what I was getting a sense that, sir, the newer players that have entered, the ROCE in the businesses have reduced in plywood over the last few years. So the newer businesses that have entered at the newer CapEx are facing issues in surviving. Can that also be an issue for newer plants?

I'm not very clear on your -- this question. What exactly are you trying to ask?

The return on capital in plywood business has declined over the years. So the industry people have been telling you that the newer players who have started new plants are facing issue as the cost of plants is much more than the legacy players. Do you think that can also be an entry barrier for new players?

If you're asking for us or you're asking for others?

For the newer players. .

For the newer players, yes, I will agree with you, okay? Because see, ultimately, we have to reflect experiences which we gain over a period of time, okay? So we understand, we learn, we do course correction and then we again get going. For a new player, yes, there can be challenge because if they have to set up businesses at this point of time, the way the steel prices have gone up, the other commodity prices have gone up, so cost of putting a plant will further go up for them. Established players like us, we understand. We know that if my cost is slightly going up here, tactically, what do I need to make sure that this is a short-term thing, and I have these initiatives and advantages on which I will play. For a new player, yes, it will be difficult. It's not going to be easy for at least in the next 12 to 24 months the way things are. And a lot of things will also depend upon the type of consolidation, which will happen post the second wave. There's definitely a consolidation which will happen in the market, which is going to benefit the organized players.

And sir, as you think that unorganized to organized shift is taking place at a slow and steady pace. But also other organized players are looking at the wood panel and plywood space in aggressive manner like Kajarias and Century Plyboards or Skylam is putting up a plant of plywood. So do you think the competition within the organized can increase over the next 2, 3 years?

So I have a very different way of looking at it. So I would not like to comment on any individual names, but I have a different way of looking at it. More the organized players, faster would be the shift from unorganized to organized. This is how I look at things, okay? Because when you have more organized players, you have better branding, better visibility, okay. The difference between the type of products which we bring in versus the unorganized people understand that. And then -- so there is a level of education which happened amongst the people, amongst the consumers. And you automatically start seeing a shift, which takes place. So I would presume more than a year, okay. I don't see that as a threat.

[Operator Instructions] The next question is from the line of Ashish Poddar from Anand Rathi.

Congratulations on good recovery in your core business. So I have 2 questions. One is on the Gabon margin. So last year, it was very suppressed. How is the situation now? And how are you looking at in coming years? Because in earlier periods, we have seen almost 18%, 20% kind of margin there. My second question is on the CapEx. So in -- so far, we were focusing more on the outsourcing model. We have always talked about asset-light model following. And now we are also expanding on building in-house capacity. So what is our strategy there in the next 3, 5 years?

Okay. So Ashish, first question is on Gabon. See, in terms of Gabon, I slightly covered in my opening speech. But I'll tell you that, as an organization, whatever we could have done, we have tried to do it in the last 2 to 3 quarters in terms of cost rationalization, in terms of building up efficiencies. The plants are operating at a very efficient level at this point of time. We have good visibility even on the order book. The challenges remains is that of shipment. And we have been facing this challenge since the lockdown has opened up. So almost last -- we are sitting in June. I would say, starting October only, we started facing this as a challenge in terms of getting the vessels. And you all know that, one, the sea freights have gone up. I mean, that's crazy, the way the sea freights have gone up across the world. And second is the availability of the vessel also. Both these things have posed a challenge on us in terms of growing that business at this point of time. So whatever we could have done from our side, we have done. We have worked on the cost. We have kept everything ready. The team is there. Order book is there. But we are trying to cut down to some extent. We are -- at this point of time, I would even say that we are rejecting some of the new orders because we are not able to service it. So if things don't change -- and I presume that this crisis of vessels, which is there, looking at the pandemic situation, this can continue for 2 to 3 quarters. If it continues, then we are where we are at this point of time. We will have to wait for that portion of the supply chain to improve. And if it improves, then, for sure, we will be on a much better margin trajectory. But at this point of time, it's very difficult to really give a picture. So you can assume next few quarters we will be somewhere around what we have been doing or what we have done in quarter 4. Quarter-to-quarter, there can be slightly some -- a few better quarters or a few quarters which might be slightly subdued. But not the type of performance which we are getting around 18 to 24 months back. So this year slightly may remain subdued on Gabon operations.

And our CapEx strategy, sir?

The CapEx strategy, of course, we wanted to work on an asset-light model. And so we had 2 such relationships, which we have started working. One has started working. The other 1 will get operationalized maybe by the end of June or maybe in the first -- in the second quarter. But finding such partners also at times is not easy. You -- it's like a marriage. You have to get the right set of people who understands our mindset -- our branding mindset. So that is one. And second, of course, as I mentioned that in quarter 4, somewhere we felt that if we could have produced more, we could have sold more. And then we had this land in place, and it is in Lucknow. So strategically, the land is at a very good pace. We'll get certain advantages on the raw material, okay, being in the heart of the raw material belt. So we felt that, okay, why not we do 1 investment from our side. And then we look at it. So this gives us a good feed for next 2 to 3 years. And then we look at it. In between, of course, our -- these 2 relationships also mature. We learn from it. And if these are on the right directions, we are able to get partners in future, then we will again look at developing new partnerships.

So in INR 90 crore Lucknow CapEx, how much have we already spent in Q4? And what is due in FY '22? And then what is the plan for FY '23?

So we have hardly spent money other than the land which we had procured earlier, okay. We are going to use the same land. The -- almost the entire CapEx will happen from now onwards up to, let's say, January, February. That's the plan and be operational in the month of, let's say, March.

So again, FY '23 will be lean in terms of CapEx?

Yes. At least in the plywood, we are not seeing any more CapEx in the near future. Of course, the regular CapEx operating -- operational CapEx of INR 18 crores to INR 20 crores is something, which will continue to happen.

The next question is from the line of Karan Bhatelia from Asian Markets Securities.

Congratulations for a good set of numbers. Sir, just to take the conversation ahead from the previous participant. Just wanted to understand the ROCE profile when we look at own manufacturing compared to when you look at the outsourcing. So can you throw some light to that?

Mukeshji?

So you're right, Karan. The return profile from own manufacturing is less as compared to the outsourcing, what we do from our new relationship in UP. So -- and, in fact, the return on capital is better in case of trading division like Ecotec, Bharosa, Jansathi because there is no investment in fixed cost and the only investment we have to do in receivables and some in inventory. So return profile from the outsourcing business is more than, you can say, 28% or in the range of 28% to 32% as compared to the own manufacturing product.

Right. And own could be somewhere ballpark number, if you can share, if I have to make some comparison between the own manufacturing and the outsourcing ROCE?

So ROCE at stand-alone level, if you see, our stand-alone ROCE pretax was around 19%. So for this year, because Q1 and Q2 -- Q1 was a complete washout, Q1 (sic) [ Q2 ] was a recovery quarter. So ROCE from the own manufacturing could be anything between, you can say, 13% to 14%.

13%.

Got it. That was very helpful. And sir, we also had sent our consignment to U.S. market and we were kind of positive. So any concrete update from there?

Well, Gabon operations, as I said, we are facing a different challenge today, okay? We are rejecting the orders. So even we are not able to fulfill our requirement for Europe at this point of time. At any point of time, I have at least 70, 80 containers which is waiting at the dock for the shipment. So that's the type of challenges which we are facing. U.S. first consignment, yes, it -- first of all, it took a lot of time to reach there, but we got good feedback. But in a situation like this, we are also not trying to pursue that too much, and we are waiting for -- because we are not able to even serve our regular customers. And U.S. is a huge market. But the response on the first consignment was good. We got our payments. Everything is done. Let's hope so -- I think first thing would be to bring back the business to a good level of margins. And then we can always look at growth. Growth opportunities are there. Let me put it that way. Today, if you really look at even Southeast Asian markets, we are hardly getting orders. They are also going through a situation of lockdowns, okay. Despite of that, what you see in quarter 4 is a decent number. So business opportunities are there, okay? The manufacturing facility is working at a good efficiency level. We're quite confident about that, once things improve, we can improve our business there. The potential is there. But as I said, that I'm also painting a picture that if you ask me, personally next 6 to 9 months, I don't see this -- the vessel thing improving. The way I've been reading articles, the way I've been talking to many of the CHAs, to some of the freight forwarders, those scenario, if it changes, it will be very good for us, but doesn't seems to be changing that much. So we might have to live with a few quarters with the things the way they are. And then possibly, we'll see better year. The next year, for sure, we are hopeful will be much, much better than this year.

[Operator Instructions] The next question is from the line of Romil Jain from Electrum Portfolio.

Congrats on the improvement in margins and the working capital, which you had earlier alluded to. My question is, one, on the raw material side, which you had mentioned that has gone up. So which are the materials that we are seeing the increase in the cost? And what are the trends going ahead? That is one. And second, on the reading on the real estate as a house view, I mean, because yours is direct complementary to the real estate. So just some understanding on that.

See, raw material -- the basic timber prices as well as all the chemicals, be it phenol or formalin or melamine, they have all increased substantially, okay. So every raw material actually has gone up. And like melamine has gone up almost by 100%, if you see on a year-to-year basis in a 12- to 15-months period. So that's the type of increase which has happened, okay. As far as the real estate sector and our linkage is concerned, I think, real estate going forward will improve, okay, in terms of traction. Because what is happening, 1 change which we, for sure, will see, a shift which will happen, is this culture of work from home. And when I'm talking to some of my friends, industry friends and in the IT businesses in this, I'm finding that those companies have become very comfortable now with their team working from home. And when I'm trying to understand the model from them, what looks like most of the IT companies, the matured IT companies who can actually really think out of the box, who can take bold decisions, the larger ones, they've started realizing that they don't need their 100% people to shift -- to sit in office. So you may see a scenario where 40% of this workforce, they operate from home. And once that happens -- which means that you will see more and more requirement of residential homes. And the second thing would be that if you have to sit at home and most of us -- I know, in your particular industry, you guys are operating from home only, you understand the type of challenges which every family is facing. You have kids. They need 1 room to sit and do online classes. You need to occupy some space. So what you will see is people will start graduating from 1 BHK to 2 BHK and 2 BHK to 3 BHK, and even a 3 BHK going to a 4 BHK. So everybody will need to add 1 room, okay, going forward. Second, once you do that, you will be more comfortable doing something with a nice buildup furniture and furnishing because you would be seeing and spending time in that particular room almost 8 to 10 hours every day. So then you will see also a good amount of traction and requirement for our type of business. So I personally think that things will be better only for our type of businesses going forward.

And what is the view on advertising and marketing from hereon? How much are we going to do? Are we going to increase that?

Well, look, again, this year, as I said, quarter 1 has been disappointing. And so we have to be slightly careful in terms of our spend. But as a strategy, I can tell you that we will continue to invest on our branding initiatives, okay. Because that is 1 of the important pillars for businesses like us to continue to do well. I'm not throwing any number at this point of time till things become very normal. But this -- you will see that maybe going forward, we might actually even add up a percent in terms of our spend from our existing levels. So we earn better and we continue to spend on our brands.

The next question is from the line of Sonaal Kohli from Bowhead Investment.

I wanted to understand what was your advertising spend in Q3 versus Q4 because we started seeing more of your ads in television? Secondly, were there any one-off costs like employee cost or director cost or any other cost or commissions which you had reduced in the next quarters. But in Q4, as you started seeing better traction, you loaded the quarter with more costs. So I'm just trying to understand the true profitability in case there's any one-off cost in the Q4.

So Sonaal, the second question, actually, you have answered. I can only say, yes, okay. Because when -- in terms of the director commission and all those, first 2 quarters actually up to H1, if you really see there were hardly any profits. So there was no approval of commission at that point of time. Only with the performance of Q3 and Q4, those numbers have come into picture, okay. So you have answered it right. And in terms of ad spend, actually, how you should look at it is on an annualized basis, we can give -- Mukeshji, you can give him the quarter numbers.

So Sonaal, just to give you the quarter numbers on ad and promotion. So quarter 4 was around 2.8% on stand-alone basis, whereas in quarter 3, it was at 4.2%.

So quarter 3, actually, we invested in terms of the filmmaking and other things, some of those costs, which had gone there. Quarter 4, we started our advertisement and which continued to -- in quarter 1 also. So you will see costs coming in this year also.

Sir, if I have to see, is there any 1 [Technical Difficulty] we can understand your 2 recurring profitability for a Q4 future kind of question where some of the past quarters cost got loaded in Q4. If you can give any broad number, so that -- the reason I'm asking is, let's say, you have a similar quarter, 2 or 3 quarters down the line. So what would be a recurring EBITDA margin or a profit just for a like-to-like comparison for our analysis purpose? If it's possible for you to share.

See, there are 2 ways of looking at it, Sonaal. One way is we earn slightly better and we leave everything on the table and show that we have improved largely on the organization. Second way is to look at a long-term sustainable business growth. So my idea is, I understand what you're trying to say, a similar Q4 because of some loadings here. If you remove some of them, maybe the margin would have looked better by 0.5% to 75 basis points in quarter 4 itself, right? That's what you're trying to say, correct?

[Technical Difficulty] what that number would be?

Sorry. Your voice is breaking.

I was trying to understand what that number -- what happens?

So what I'm trying to say is that, yes, if we are able to replicate our performance of Q4 going forward in many of the quarters, the margin can be slightly better also. But then we will reinvest a lot back into the business. Because, see, if I have to get a sustainable growth of 10% to 12% on volume basis, we'll have to reinvest on a lot of initiatives. So keeping the margins at existing level, again, there is a need to reinvest onto the business. So 1 way is that we look at a short-term approach and pass on the entire margin on the P&L account and show that, yes, we have arrived. The second way is to continue to reinvest certain portion of it. So looking at all those things on a steady state of run of Q4, we might be at these margins. And if we are able to get better margins, we would like to reinvest into the business.

Understood. And secondly, in terms of...

Mr. Kohli, I'm so sorry to interrupt. But may I please request you to rejoin the queue for your follow-up as we have people waiting for the turn, please? Well, ladies and gentlemen, due to paucity of time, we would take the last question from the line of Arun Baid from BOB Capital Markets.

Just 1 clarification. We had this guidance of 13% to 14% EBITDA margins by FY '23 for our India business. Is that on or how is it going?

Well, Arun, I think it's very much on. The only thing which I was trying to mention to the previous query was we are also reinvesting back into the business, okay. So -- and that is what we have to only factor in. I am not going to look at things only from a short-term perspective, yes. And I also mentioned that last year was an increase of -- was a year of unprecedented increase on raw material costs. We could not pass on the entire burden. Despite of that, we were able to protect our margin. And you know that we were almost 20% down on sales, okay. So on a year-to-year basis, you see a similar margin. On a quarter 4 basis, you see a much improved margin. So definitely, there are pockets where we can see, where we are very optimistic that things are on the right track. But I would love to reinvest on the business also. Keeping that also in mind, I think, despite all those plans also, hitting 12.5%, 13% margin next year should not be a challenge, maybe even slightly better than 13%.

And just 1 more point to this. Because when you said Gabon is having its own issues, so you said broadly like Q4 should be extra for the full year. So we did roughly INR 150 crores in FY '21 from Gabon. Are you trying to say that, that is the right number to look at for the full year, for FY '22?

Well, yes. The way we look at things, I think, INR 150 crores, INR 160 crores is something for sure we can look at. I'm not seeing a challenge in doing that number, okay. We can definitely do much better than that. So my point is because of these issues, we are getting stuck. Otherwise, even doing INR 170 crores, INR 175 crores should not be a challenge.

And that would be at current margins because the margins right now reported for the full year is about 13.2%. That should be your margins we should think about in FY '22 also, for the full year?

Well, I would say that we should look at Q4 margins. Q4 exact margins is around about 11.5%.

So without other income, it's 9.3%.

Q4 margin, 11.5%.

Gabon was around 8%.

8.6%. 8.6%, right, for Q4. Yes. But I think we can look at a margin profile of 11% to 12%, for sure, and it can be better only. See, I'm very bullish. If you really ask me, I'm very bullish from the internal improvements, what we have done, okay. If the market supports us, if some of these logistics things supports us, then we will do much better. But I'm only trying to give a picture, which is the reality today.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Sanidhya Mittal from Greenply Industries Limited for closing comments.

I would like to thank you all for taking the time to participate in this call. We are making -- we are happy with the progress we are making across our businesses and the result of our various initiatives. We are looking forward to speaking with you in our next con call. Thank you.

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