Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Greenply hosted by Asian Market Securities Limited. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities. Thank you, and over to you, sir.

Thanks, Jacob. A very good morning, everyone, and thank you for joining us on the Greenply Industries 2Q FY '22 Conference Call. In the panel today, we have Mr. Manoj Tulsian, Joint MD and CEO; Mr. Sanidhya Mittal, Joint Managing Director; and Mr. Mukesh Agarwal, CFO. Before we begin, I would like to say that some statements made in today's discussion may be forward-looking in each year and may involve risk and uncertainty, please A detailed statement in this regard is available in the presentation that was sent to you earlier. So now I would like to invite Mr. Manoj Tulsian to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Karan. A very warm welcome to everyone listening, and thank you very much for joining us today to discuss Greenply's operating and financial performance for quarter 2 FY '22. After the slow uptake in quarter 1 due to second wave of COVID, we have bounced back in quarter 2 and achieved highest ever quarterly sales. Assuming no major shock in external environment, we are more than confident to continue this trend for second half as well. The improvements were all across the operating parameters, that is improvement in operating margins, working capital management and even debt reduction. The reported margins has also absorbed noncash cost of ESOP of around close to INR 3 crores. Due to the same, reported margins got impacted by 70 basis points. As per the accounting policy, this cost would continue for another 6 to 8 quarters. However, the quantum may vary. During the previous year, we have taken further price increase to pass on cost increases but we all know due to continuous increase in raw material cost price, it's not fully reflecting in the reported numbers. Assuming all set variations gets stabilized, we should report improved margins in the coming quarters. To achieve long-term growth plans, we are investing heavily and enhancing our efficiency by strengthening management bandwidth, making strong processes and systems through IT and automations. Including these additional costs, noncash ESOP cost and raw material cost price pressures, we are committed to achieve 13% to 14% level of operating margins by the end of next fiscal. I'm glad to announce that we are on the fast track mode in implementing our new projects. Construction activity at Greenfield plywood plant in Lucknow is under full swing. We should be able to achieve COD by quarter 4 this year. In our new India plant in Vadodara, all the major machineries has been ordered, land has been acquired, and preliminary civil activities has also started. The project should achieve COD by quarter 4 of next year, as promised. In our asset-light model, we have 2 JVs for manufacturing of plywood and allied products. The first project has started production of plywood in last year, and now we are fully utilizing this capacity. The second project has started partial production in the last quarter and balance will start in Q4 of this fiscal. These capacity additions will provide flip to our growth journey in the next few years. On the overall sustainability of the demand outlook, there might be some pent-up demand. But structurally, we are witnessing a long uptrend in housing and related financial industry. The other macro economic details also, which we have seen, are all positive, and we feel the market will remain very buoyant for our industry. In addition, the supply side bottlenecks reducing business visibility for unorganized players and consumer shift towards branded products, leading to growth of organized segment at the cost of unorganized segment, is also another positive parameter. We see improved outlook of infrastructure sectors, along with improving consumer optimism will support and enhance business growth in the next few years. With this, I would like to hand over the call to Mr. Mukesh to discuss our financial performance. Mukesh?

Thank you, sir. Good morning, everyone. I thank everybody for joining us to discuss the Q2 FY '22 financial performance of Greenply Industries Limited. To continue with Manoj's remarks, we have achieved very strong business traction in previous quarter. Our consolidated entities' net sales for the quarter stood at INR 430.8 crores compared to INR 294.6 crores in Q2 FY '21, an increase of 46.2% on Y-o-Y basis and up by 65.6% on Q-o-Q basis. Consolidated gross margins remained at similar level with Q2 FY '21 at 39.6% and EBITDA margin stood at 12.0% versus 11.4% in Q2 FY '21. Revenue includes GST refund of INR 1.6 crore in the quarter. For H1 FY '22, revenue includes GST refund of INR 2.3 crores. This is from one of the units, which is in operating income. Net sales for the half year ended September 21 stood at INR 690.9 crores, compared to INR 426.8 crores in H1 FY '21, an increase of 61.9%. Consolidated gross margin stood at 41% in H1 FY '22, compared to 41.7% in H1 FY '21, with a marginal decline of 78 bps on Y-o-Y basis. EBITDA margins stood at 9.7% as compared to 7.2% in H1 FY '21. Stand-alone net sales in Q2 FY '22 stood at INR 374.6 crores versus INR 237.4 crores in Q2 FY '21, an increase of 57.8% on Y-o-Y basis and up by 76.1% on Q-on-Q basis. Stand-alone gross margin for the quarter declined by 133 bps on to 38.3% on Y-o-Y basis, and EBITDA margin stood at 12.8% as compared to 10.6% in Q2 FY '21. PAT stood at INR 29.5 crores as against INR 14.3 crores in Q2 FY '21. Our average realization in Plywood came at INR 233 per square meters in Q2 FY '22 as against INR 211 per square meters in corresponding period last year. Stand-alone net sales in H1 FY '22 stood at INR 587.3 crores, as against INR 344.5 crores in H1 FY '21, an increase of 70.4%. Gross margin stood at 40% in H1 FY '22 compared to 40.1% in H1 FY '21 with a marginal decline of 13 bps on Y-o-Y basis. EBITDA margin stood at 9.8%, as compared to 5.8% in H1 FY '21. On consolidated basis, [indiscernible] days have reduced to 48 days from 53 days as on June 2021 and 90 days as on September 2020. Working capital days reduced to 38 days when compared to 63 days and 80 days at the end of the sequential and corresponding quarters, respectively. Quarterly sales for our subsidiary Green Tire Middle East declined marginally by 1.7% on Y-o-Y basis. For half year ended September 2021, net sales for our subsidiary increased by 25.9%. With expectation of improvement in freight cost and container availability, we are expecting better results than posted. We hope normalcy continue -- will return for our Gabon operations in coming quarters. We incurred maintenance CapEx of INR 8.17 crores for India business and maintenance CapEx of INR 1.7 crores for Gabon business in H1 FY '22. Our balance sheet continues to be robust. Consolidated total debt is at INR 186 crores as on September 2021 from INR 186.8 crores as on June 2021. Consolidated net debt ratio continues to decline and standing at 0.12 as on September 2021 from 0.19 as on June 2021. I would like to hand over the call to the moderator to open the floor for Q&A session. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [indiscernible] from Quest Investment Advisors.

Congrats on a good set of numbers. Just wanted to understand...

Your voice is not very clear. Can you be near to your handset?

Hello. Can you hear me now?

We can't hear you. But anyway, carry on. It's better, but...

Yes. So just wanted some sense on the industry. Large market is unorganized. So could you help us understand on how the unorganized players are behaving? Is there any comeback from them? Or do you think a large part of the growth is market share gains as well?

Well, yes, I think if you look at quarter 2 per se, there's some pent-up demand, which is like of follow-up demand because we all know quarter 1, there was a disturbance. But more so, I would agree to your second point that there is definitely a shift which is happening from unorganized to organized market. There was an IMF report also, which tracks how the Indian economy is performing on an informal economy basis, which I think SBI is somewhere and use those data to publish sometime in early this year. That clearly shows that there is a big shift, which has happened in the last 10 years. And in the last 4 years itself, if you look at construction business, which used to be at around 75% informal is around now 35% to 40% informal. That shows there's a big shift from informal to formal. And if you see the real estate side of it, their data shows that 53% informal in '17, '18 is now close to around only 20%, 25% in 2021. So these are lead indicators, which clearly shows that. Now coming to the ground level, I can only say that one of the market, which is a hub of manufacturing for these small players. There, we found out that there is a 30% reduction or shutdown of manufacturing units. Now whether they bounce back because they open is something which remains to be seen, but that is where we stand today after the second wave.

Okay. So continuing, do you think -- so FY '22 will be going on a lower base of FY '21. So do you think this kind of growth rate will be sustainable going ahead? Like so you've given your commentary for H2. But what I'm going to understand is FY '23, FY '24, do you think these kind of growth rates can sustain? Or do we try to taper down our expectations?

These kind of growth rate means what number you are talking about, the growth what we have got in quarter 2?

Yes.

No, of course not, because these are numbers, which also, as I said, is also because of the pent-up demand and a follow-up of what we could not sell in quarter 1. So it's a mix of both. But I think, yes, it looks like if you look at organized players, the way things are changing, a good double-digit growth is very much possible. If we do the things in the right perspective, companies which do the things in the right perspective, can continue to grow at double digit, even if the overall business does not expand in double digit. So we are very bullish to that extent, and we are gearing up our sales on a daily basis. We are keeping track of all the parameters, which can affect us or which can affect our future growth. And we are working on all the dimensions to make sure that, yes, if the opportunity is there, we do grab that opportunity. That's why if you see, we started our Sandila plant also, we announced it around almost 6 to 8 months back with the clear intention that by the time, we are able to use our entire capacity for this year, we have another capacity of another 20%, 25% in our hand to cater to the demand for next year and next to next year. And of course, we don't stop there. We continue to still look at what we need to do in terms of enhancing our supply side capacity going forward.

Okay. So not trying to get any guidance. But just a rough cut basis, if I do your trailing 12 months top line, it comes to about INR 1,500-odd crores. Then now next your UP plant also comes into operation. So I think that could do about INR 2 crores, INR 2.5 crores -- INR 250-odd crores. So is my understanding correct when I try to think that we could do about INR 1,800 crores to INR 2,000 crores of top line for FY '22?

I wish we do these numbers. All our efforts would be in that direction. But it is slightly early. I'm sure that we will be planning things that way. But it is still early days. We have to see quarter-by-quarter. And -- but we are geared up from the supply side at least to cater to a demand like that.

Okay. And sir, last year, Q3, you had spoken about improving your margins by about 300 to 400 basis points, and that is visible, so just want to understand the sustainability of that front in COVID. So we have improved some of our expenses. Do you think that is sustainable going ahead? In the sense that when I'm looking at your staff cost, there's not much operating leverage that's coming into play. Your staff cost levels have gone up by 40-odd percent Y-o-Y and 13%, 14-odd percent Q-o-Q. So just wanting to get some sense on the sustainability of the margin.

See, there are 2, 3 things in that. One, for sure, we mentioned that we'll improve our margin by 3% to 4%. We are still very gung-ho about the same, but it's a sustainable improvement which can happen by the next -- end of next fiscal. And having said that, I also mentioned at that point of time that we are investing. So investing does not only mean CapEx. It also means a lot of OpEx expenditure, which is going on. Hiring of new talent investment, a lot of investment on OpEx is going on the IT platform also. Even on our -- on the marketing side, on product innovation. So all the fronts, we are spending money also. And that's what you're trying to refer. Despite all those, we clearly still feel that reaching around 13% plus by next fiscal end and sustaining that margin should not be difficult.

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

Just to clarity to the margins part that you mentioned. You're talking about 14% plus by FY '23 and not for the complete year?

Yes. So we are talking about a stable margin base of around 13% to 14% in Q4 of next FY, which means the subsequent year for the full year, we can see that type of margin.

Right, right. And eventually, you want to take this to around 14% to 15%, which was your previous guidance.

Well, the wish list is always there. And I think we are taking baby steps. And I said that we continue to invest on our business, and then the whole idea is to be future prepared for next 10-year cycle, okay. There's humongous opportunities, which we are able to see, and I'm sure you people are able to see it across the sector for the branded goods. So maybe I can still compromise 0.5% on the margin. But on the initiatives which we need to take and reinvest in the business, those will all continue. So this is a guidance where if my expenditure side improves further, it may happen that I'm still short of maybe 50 basis points or something. But to protect that guidance, we will not stop taking any initiatives which we need to take to build up the organization.

Got it, sir. So just wanted to understand one thing. After a long time, we have started seeing capacity additions happening in the plywood space, whether it be you or the leader or, in fact, there were some even smaller guys that we are hearing of. And you also mentioned that one part of the place, which is a hub for plywood manufacturing, around 30% of the production is impacted. Are you seeing some smaller players also trying to, in that case, do some CapEx? Or are they absolutely impacted and no CapEx going on there?

We have not heard anything major as of this time. And it's actually very fragmented. So at least, I have not heard any such things on the larger platform.

0 Sure. Sir, and what part...

There's always a difference in the risk-taking ability also for those people because they are not selling branded goods. And when they've seen that market that there are already closures, which is happening. And what is that with differentiates between the organized players and unorganized players. We all know that it is a cash economy, which majorly differentiates. And I have been advocating this, the way things are transforming in our country, including the GST compliances and the other IT platforms, which the government has been adopting everywhere, I only see the iota of correction going forward, which means that the differential pricing what they were enjoying will only cut down and which does not really give them a reason to increase their production output unless they also mentally try to converse themselves and start building everything on a full price basis.

Sure. Got that. Sir, anything that you're hearing on the MDF front apart from you and the major leaders who have already announced capacity additions, sir. Are you also seeing some aggression happening from the smaller players side? We already have seen a huge amount of capacity additions come off from even smaller players this particular year, which accounts to maybe closer to 25% to 30% of the overall capacity already. Are you seeing some amount of aggression even coming from there or some other larger players trying to enter the industry, some insights on that?

Look, there are limitations which we really look at on the MDF business in terms of scaling up operations, either there is German technology or there is Chinese technology. So most of the major players are trying to use the German technology only. And I think now that we are into this and we are already in touch with one of the major German suppliers, all their lines and capacities are full up to FY '24, okay? So we don't see anything major coming up. Something small in bits and pieces may come up, but that technology can be very, very different and are nowhere near the technology, which the major players are using. So that can be some small quantities in a few pockets, but we don't see any major thing coming. At least in the public domain, we don't have any such knowledge.

[Operator Instructions] The next question is from the line of Venkat Samala from Tata AMC.

Sir, just looking at the volume wise and compare it with FY '20 numbers, we see a volume growth of about 2% in the ply segment, right? And [Technical Difficulty] start an entity like this. So when do we expect to get...

Sorry to interrupt. Sir, your audio is not clear.

Volume numbers?

Yes, yes, yes.

Just a second. Hello? Better now?

Yes, we can hear you.

So I'm just trying to understand, if I compare the volume numbers with FY '22 figures [Technical Difficulty].

Sir, again, your voice is breaking. May we request you to come into a reception area? Sir, your voice is breaking in between.

I will just join back in the queue then.

Yes, please. The next question is from the line of Akshay Chheda from Canara Robeco.

Sir, my question will be, sir, you did mention that the differential pricing between the organized and the unorganized player is coming down. So can you...

Sorry to interrupt. May we request you to speak louder or come closer to the phone?

Yes. So you did mention about the big differential between the unorganized and the organized sector coming down. So can you quantify it like how it was, say, 5 years back, 2 years back? And what is it currently?

Well, I think if you look at around 5 years back, that gap was almost around 20% to 25%, okay, which today post the GST implementations and everything and other structures, which has happened, it has reduced to somewhere around 8% to 10% now.

The next question is from the line of Achal Lohade from JM Financial.

Yes. Sir, my first question was just a clarification. You mentioned that the German vendors have indicated that the capacities are booked till FY '24. Did I hear it right?

Yes, yes. That's what we have been given an impression. With all the orders which are already there in the hand, I mean, I'm not talking only from an India perspective, right? But that is what they are trying to mention to us, that we are full till FY '24. Whatever orders have come, they are full up to FY '24.

Got it. My second question was, I think Venkat was asking the same. While on a Y-o-Y, it appears massive growth, if I look at compared to FY '20, 2Q FY '20, the growth is just 2%. So what I wanted to check is that in terms of the backdrop of significant reduction in the ready-made furniture imports, a significant pickup in terms of real estate inventory absorption and a significant impact on the unorganized. Do you see that this is probably the rock bottom number, and we can only improve significantly from here on and go back to double-digit growth?

Yes. The indicator shows that, yes, we can go to double-digit growth and which is actually -- so we are, again, not talking about the market expansion. We are talking about growth for the organized players. That is one. Second, when you are saying ready-made furniture, ready-made furniture is still -- a lot of business is shifting to MDF, right, rather than ply. So -- and that is the category, which -- where we are getting entry and maybe from FY '24, we are also there. And so yes, I would say that a double-digit volume growth is possible. We were also talking about 6% to 7% growth. That is what internally we were targeting. Looking at the way the things are, we can even target a double-digit growth.

Understood. And if I compare last over the, whatever, 12 to 18 months cumulatively, would we say that we have gained market share compared to the other organized players? Or it could be the static or modest market share loss? I'm talking within the organized players, sir.

No. I think how we are looking at it is, as I said, we are looking at it is the opportunity, which is here the time for conversion of the market from informal to formal, okay? And they are there only a few large players into that. I think there is a good opportunity for all of us to do the right things and grow and gain share from the informal economy.

Understood. If you could just help us with the mix in terms of the mid- and the low-end volume mix for the quarter and the same time last year?

With a 4% shift, if I recall, it's there in the presentation, no.

So Achal, In quarter 2 FY '22, in the volume terms, we have -- from the manufacturing, we have 56% and from the trading activity, we have 44% in the volume term. And in the value term, 65% contributed by the manufacturing facility and trading facility contributed around 35% for the quarter. And for the half year ended, 58% from the manufacturing in terms of volume and 42% in terms of trading activity and in terms of value, 67% contributed by manufacturing facility and 33% contributed by the trading activities.

And I would offer one clarification, which I think is a change which we'll make from our next time presentation. The trading number also includes the contribution of the JV sales?

Already included. So that will differentiate because JV is...

Trading activities.

I know it is in trading activity. But within trading activity, we should differentiate between what we are buying from our JV because they are 100% for us, right? So it's like a back-to-back full manufacturing. So this trading number what you are seeing, also includes the impact of the buying what we do from JV which is 100% back-to-back arrangement?

Right. And the entire mid and the low end is trading. Is that understood? Just a clarification on that.

[Operator Instructions] The next question is from the line of Hrishikesh Bhagat from Kotak AMC.

Just on the employee cost increase, I believe there was some impact of the ESOP. What was the ESOP charges in this quarter? And how long will they continue?

INR 3 crores is the cost for this quarter, and it's a variable number, which is calculated basis the market price and other factors. And this will taper down going forward. This year, I think it will continue at a run rate of INR 3 crores per annum. Next year, it will be slightly lower. And the year subsequent it will be lower. And that is basis the existing ESOP what has been given and new ESOP which will be given will again bring in new costs. So the existing one will continue for another 8 quarters.

This quarter, as Manoj said, it's INR 3 crores and full year, it will be around INR 12 crores, and next year, it will be around INR 5 crores. In subsequent year, around INR 2 crores to INR 3 crores.

But by the time, if you really see new ESOPs also will get issued. So that number will be there in that range itself.

Okay. Okay. Another clarification is on just on margin. This margin guidance is largely should be read as like plywood plus Gabon operation, what you take 13%, 14%, right? It doesn't include MDF or anything?

No, no.

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

Sir, when you're talking about the double-digit growth rate possibility because of so many base and tax extra, I just wanted to really clarify it in the absolute terms. So should I analyze this INR 375 crore number and then take a double-digit growth on that? So basically from a INR 1,500 crore base, a double-digit growth possibility. Is that what you are referring in the answers to the previous participants?

Well, we are already growing at around 3% to 4%, and I would say that the 3% to 4% growth can go up to 10% growth.

Sir, by that you mean revenue or do you mean volume because you have been taking continuous price hikes?

Sorry?

Do you -- are you referring to volume or value growth when you talk about this growth?

Volume growth.

On the base of Q2, right?

Yes, you can take that. That opportunity, I'm sure will open up. And we definitely are looking at that type of an opportunity.

Our growth rates has been greatly lower in competition. And a few quarters back, you said that because of your credit policy, we are seeing an impact of that and there's enough demand in the market and you could have shown much more. Does that still continue? And if so, when do you see the impact of that relatively reducing? Are you tightening further? Have you tightened further in the last 1, 2 quarters? Or has it been stable? And when do we stop seeing the impact of this if this is still continuing and you will see on a steady sales basis? And lastly, what will be your fixed debt at the end of 2023 and end of 2024, net debt post cash, considering your CapEx needs of MDF and your working capital needs.

Sorry, what was your first question? On -- no. So I think that correction, most of that correction has already happened, Okay. And today, whatever performance you see in quarter 2 has not got influenced at all by any such corrective actions. We have done most of those things. So basis the same, we stand where we stand. And in terms of debt profile, I think by next year end, FY '23, our debt equity can be somewhere around 0.75, 0.8. What we look at is the maximum debt equity ratio we'll reach to, that will be the peak, and then we again start coming down. So at 0.8, we are assuming that it can be close to around INR 500 crores of debt, max.

So this is net debt or gross debt are you referring to, just to be clear.

Net debt, net, net.

Gross debt.

No, this is net because the -- in the next 12 plus 6, 18 months or 16 months, we will also be investing on the equity side close to around INR 150 crores to INR 160-odd crores.

And sir, considering the credit policy is stopped, why are we growing lower than completion? Do we have any capacity constraint or what is it -- I mean, considering there are only 2 large online players? And if I compare your revenues, the other player has grown much faster. Is there something we need to do? Or is it something you're doing about it to reduce the gap because the gap has increased considerably in last few quarters, we thought was credit policy. But as you yourself said that has no more having any incremental impact. Some -- if you could tell us what's happening on that front and what are we doing about it?

Look, look, every company has their own way of looking at their own strategy, okay? So it is not fair enough for us to really comment on the other players. They have their own strategy, how they want to grow, whether they want to -- because they have different line of businesses also and on which business, what strategy they adopt is something which remains with them. In terms of our own business, we were definitely after doing so much of correction, you should know that there is always a pressure, which is still there. So it's a hidden pressure, which continues. There are people who are still watching us because old habits die hard type situation. When you have done something for ages and when you change those things, you are always being challenged on every moment. Keeping those things in mind, I think the type of numbers what we have done in Q2 gives us a good reflection that we are on the right direction. And the way we are working on major parameters, which I said, whether it is technology, whether it is innovation, whether it is IT, whether it is logistics, whether it is marketing, branding and distribution. So I think we are on the right path. And 2 large players, we have enough opportunity to grow. So if you really ask me, it is actually organized versus unorganized rather than looking. It's a smaller pie itself in the organized market. We should look beyond and we should see that how we can grow at a healthy pace. And then like we are doing many things, which we are trying to correct now. So I'm sure that these things will reflect in the future. Our outgrowth can be phenomenally different. So I would not look at very short termish things and jeopardize my own strategy.

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

Am I audible now?

Yes, yes.

Yes, yes, yes. So it is just a follow-up of the previous participant's question. It's just that if I compare our growth in FY -- Q2 FY '21 versus Q2 FY '20, Q2 FY '22 versus Q2 FY '20, in volume terms, we have grown up/down 4%, 5% versus competitor, we've grown upwards versus 40%. So there's a large divergence, right? And in terms of opportunity size, it's the same, right, for both of us. So I've been just trying to understand, so broadly what you're saying is this divergence should narrow down moving forward?

Well, actually, I don't know about the other number, what you are talking. I know about my number, for sure.

Right, right. No, I'm just talking about the ply growth, whatever is the reported number, I'm just quoting that.

Yes, yes, yes. So we have not looked at it that way. And once now that you have given this feedback, we'll -- still maybe we'll look at it. We can come back to you. But I for sure see that if you really see a trend of plywood industry in the last 10 years, the growth has been minimalistic, if you see in terms of volume. If I see our own numbers, we have just grown at around 1%, 1.5% CAGR, okay. From there now, certainly, and I also know that people were just writing off plywood as an industry by saying all the growth will come in MDF only, whereas we definitely had the view that plywood is such a large business and the way if you see the product differentiation between plywood and MDF, still today the stability and the strength of plywood is much above MDF, except for MDF has varied applications, which is an advantage when you look at MDF as a product, it goes beyond furniture also. And so I think this is the industry, which is there to grow. And with corrections, which is happening within the country and the macro economy also showing many of those parameters, which is very positive. Like real estate, where we are seeing some of the data of real estate. Real estate is also bouncing back. It's showing good -- I think maybe a growth of 25%, 30% is something, which we are assuming. Now that growth will also happen because maybe in Tier 2, Tier 3 cities, that growth will happen. Second, the growth will also happen there possibly because the prices have stabilized. The prices will not move the way it was moving upwardly in the last 1 or 2 phases.,, So which means more volume gain there also. It gives us an opportunity to see more sale of plywood. Then this work-from-home concept also, which is getting traction, especially in the IT, is also something which will push house sales and will push better furbishment and better furnishing, where again plywood will be an application rather than maybe MDF because when you try to do something long term in your house, you will always prefer plywood over MDF. When you look at a short-termish thing or when you are trying to furbish your rental house or investment house, you will try to look at MDF. So there is an opportunity clearly, which is visible. But look, we cannot really foresee everything. I mean, then we would have been God. Actually, it would have been fully furbished, right? It's an optimism, and it is getting reflected. And then there are those indicators basis which we feel that the opportunities are going to be humungous. We are preparing ourselves for all those opportunities. We may still miss out on a few, but we are trying to see that we try to grab maximum opportunity, which we get in the next 3 to 4 years.

Right, right. Fair enough. So the double-digit growth that you're foreseeing to grow in the near term, near to medium term at least versus the pre-COVID number. So would that be visible starting next quarter, meaning would there be an acceleration now in the growth that you are seeing?

No. I would say that we will be able to see that next year, okay. Because suddenly, when you see that everything is so gung ho, and I said we are also trying to do too many things at the same point of time. We are on a transformation journey, right? We are preparing ourselves for the next decade. So when you do so many things, at times you will miss out on a few things in the short run. But as a unit, we are all happy because directionally we are right.

Understood. Understood. Right, right. And we've added a lot of new dealers, right, in the last 12 to 18 months. So could you quantify what could be the contribution from these new dealers added in the current revenue?

Well, see, we have done around, I would say, around 6% to 7% additional sales from the new dealers, which we have added. While we have done that, we have also had a lot of learnings that though we did so, there were some operational issues which we faced. We are correcting many of those things. So we also realize other challenges while we were doing so. So we are correcting some of those operational issues. I think it's a good job, which our team has done in the past 12 to 15 months. And with those corrective actions, we can improve that percentage further going forward.

Understood. Understood. And my last question would be now we are expecting the MDF plant a little earlier than what we had originally planned, right?

No, no. We initially also given a guidance that we'll do it in Q4 of FY '23 and we did...

Okay. Okay. I was thinking H1 FY '24. So then the plant will be operational for the entire '24? Is that right?

Well, yes. But it actually -- there is a ramp-up always which happens in the same. So day 1, we cannot run at full capacity. So if minimum, takes anything between 6 to 9 months to ramp up properly, so it moves from a 50%, 60% utilization to around 80%, 85% utilization if everything goes well over a period of 6 to 9 months.

Right. So what could be the effective capacity utilization level that we can expect for F '24 for MDF and the margins?

Well, margin is very difficult to say right now. We have done all our projections on a margin, which was much lower than what the industry is today getting, okay. We had seen all our viability basis of margin, which was almost 1 year back. Today, if you really see, I think these are the golden period for MDF business. So if the same trend continues, I think our decision will be more than correct and justified and getting into MDF at the right point of time. And in terms of capacity utilization, I think, year 1, for full year, if you will really look at, we should be at around 50% to 60% capacity utilization. If it will reach by quarter 4 of that year, we might reach to around 80%, but for the full year, it will only be around 50% to 60%.

Understood. Understood. And by the -- for the full year, will a mid single-digit EBITDA be possible? Or it will be close to breakeven only?

In the first year at 50%, 60% utilization, we will only be a breakeven.

The next question is from the line of Romil Jain from Electrum Portfolio Managers.

Yes, hello. Sir, can you hear me?

Yes.

Yes. Sir, my question is, we were doing some channel checks across Mumbai. So what we are seeing is that the retailers, which are the -- they don't seem to kind of sell branded products, be it your company or be it any other branded products and they are still selling a lot of unorganized products, and they are trying to somehow persuade the customers to buy those. And I think people are kind of buying that. So any reason why they are not selling these products in spite of better product aesthetics, better product, usability, quality, everything? Because, I mean, obviously, there's a big price difference which we see. So any thoughts how we can change that perception?

Look, the answer is simple. I mean, I'm sure you would have done such channel check even for other products where the unorganized market is much, much larger than the organized market. It's a basic tendency, which you will always see. So the branded goods pull basis the consumer demand. Because in any case, they see slightly better margin when they look at -- in terms of percentage when they look at they find that they are making better margin by selling unorganized. When they will look at price [indiscernible] conceptually, they will find that they are making almost similar margins with less hassles dealing with the organized players. So that's a mindset issue, right?

Correct. Correct.

That is where -- today where we stand? I mean if we talk about our industry, it's all about consumer demand generation. If you know or if you are convinced that you only need to buy a branded plywood for your next house furnishing, whatever the dealer may say, you will still stick to your own wisdom.

Correct. Correct. Correct. You are right. You are right.

[Technical Difficulty] something, then they will always push because they see better margins there.

Right, right. So yes, of course, I mean, from the organized players, I think there needs to be a lot of more push on the retailer side that they also sell these products.

Well, absolutely, this happened. The industry is so large, okay. If you totally see, what is the size of the organized market to the total market. That is the reason it is miniscule. So your analysis is absolutely right. If out of 10 counters you will visit, you will find in 8 counters today also, which the same sample size that 80% of the market is unorganized. So you will see 8 counters persuade you to buy the unorganized stuff what they are carrying. And only 2 of those counters are branded ones.

Right. And sir, the commissions that they earn, are they really different between, let's say, organized or unorganized player?

So as I said that there are lots of ifs and buts everything, so I cannot tell you here on such a large forum. But there are lots of ifs and buts which they've tried to play with to add some additional margins. The way things are happening in this country, GST regulations, other things which is happening, a, you will see slowly and the last hit to them can be a reduction of GST rates, which I'm sure will happen, whether in the next 12 months or 24 months, we see that the GST rate reduction is possible. Once that happens, then the differential gap reduces significantly. And then that realizes the industry shrinks further. It will still remain, but it will shrink further.

Got it. Got it. Sir, second question is on the MDF side. So I just want to understand your thoughts on branding because obviously once we split and we formed a green panel, so they are also there. So how -- what are your thoughts on how the brand, will it be Greenply MDF or some other name? And won't there be any confusion later on? Any thoughts on that, sir?

So there's no confusion on that. We are allowed to use Greenply as a brand also. That's a clear understanding in the family. However, we are still not basically contemplating what is the brand name, which we are going to use. But there are no restrictions and no conclusions either in the family or within the house.

Okay. And lastly, on the blended margins post the MDF comes through and operates at maybe 60%, 70% utilization in '24, any sense you can guide on that?

Well, look, today, if you really look at MDF is throwing a margin of 30% plus to the players, okay? And we are in plywood category, which is throwing us a margin of, let's say, around 12% today 12%, 12.5%, we are looking at 13% to 14%. So blended margins, in any case, after the MDF almost 80%, 90%, will improve further only. At this point of time, we have not done those calculations. I think in future also, it is always better to look at...

Yes, it would improve. It's a more higher margin business but a higher CapEx business also, right? And the ROCE also incrementally will improve, right?

So ROCE, I think even plywood business will throw very good ROCE. If we look at standard then, I'm sure today, we are close to around 28%, 30%.

Even today, we are at around 28%, 30% ROCE. And at that EBITDA margin, if the EBITDA margin continues at 30%, I'm sure even that business will throw us a similar type of ROCE.

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

Sir, sir, on MDF CapEx, do we see any cost escalation as we've seen all commodities peaking the roof?

Very interesting question was you have had some calls. Okay. We are trying our best to do everything within the number, which we have given to the Street and to all of you. we are trying our best. I think still there are no major surprises, which we see. In fact, we were trying to cut down on the same that we would be able to save something, which for sure doesn't look like any possibility. And some of the commodities, we all know has gone crazy. Even the manufacturers, machine manufacturers are slightly risk averse, how the international market works. It's a challenge, but I think we'll be able to manage with no major surprises on the upside.

Right, right. That was very helpful. And sir, one more thing. We've seen solid advertisement for our products like 0 emission or firewall for that matter. So how has been the contribution for first half if you can quantify compared to 2 years back?

Can you repeat the question?

Sir, we've seen a good acceptance of technologically superior products like a firewall technology or zero emission kind of products. So how has been our premium portfolio growth rate compared to the mid and the lower category growth rates?

So in terms of mix, if you will see, there is a shift which we set our trading mix has gone up. So these are certain things, which when your unorganized market is so huge, these are certain things which has to be pushed continuously because there is a humungous amount of dealer voice, which is the unorganized market is so big, retailer voice. And when a customer goes half heartedly with not that conviction and wisdom, as I mentioned some time back, they can always tell them that these are nothing. I'm telling you, I'm sitting here. I'm giving you the feedback. So this is something which has to be hammered over a period of time. It's a sea change, which some of the large organized players are bringing into this industry. I would say that we have to continue to strive on the same, and we will see changes happening in the next 12 months, 18 months. We can't see a big large change, though the impact is very positive. Today, when we talk to the architect community, they are very, very gung ho that Greenply has done a great thing by bringing in zero emission as the first company in the country in plywood as a segment. And so this conversion will happen slowly. You will not see a major impact of this in a quarter. It's an incremental advantage, which we will keep building on.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.

Sir, on the ply side, what is the capacity utilizations that we have? And are we constrained by any chance by any capacity, which will get resolved post Lucknow capacity coming in?

We are almost, today, if you see our numbers on paper, we are 100%, okay. But then we are doing some more line balancing because we could foresee this situation. So for the next 2 quarters, we don't see a real challenge. And by that time, we will have our new facility in place. So for next year, again, also, we don't see any major challenge to cater to our requirements.

So this line balancing and all can add what, 10-odd percent to your run rates of 370?

Yes. So as you know, opening speech, I mentioned one of my JVs, the second JV has just started production in quarter 2. And that also only on 50% line, that -- so the balance 50% line will become operational in Q4. Maybe it might be December by the time. So we'll at Q3. So by the time we get the impact of the same, it will be Q4 in terms of production. So we have that as the additional capacity. We also have additional capacity -- unused capacity of the second plant first line and then some more balancing what we are doing intermittently. So we can still grow by 10% to 12% in these 2 quarters if the demand is there.

Okay, okay. And the ply expansion for...

Sorry to interrupt. May we request you to return to the queue for...

Sir, it is the same question, I have to just -- it's the capacity utilization.

Yes, please, allow him, please, please. Yes, please carry on.

Sir, so you mentioned this INR 250 crore revenue potential for the ply expansion. So the asset turn there around the CapEx rate you are doing is how much?

See, if you look at, on the PNM base, other than the land, it will be like 3 to 3.5x.

But what is the CapEx number for that?

INR 70 crores to INR 80 crores other than land.

Other than land. But you had the land or is it...

See, this land chunk, we already had since many years. And that's a large chunk of land. We are hardly using maybe only 20%, 25% of the land, 30%. So 25% to 30% right now only for this production line.

The next question is from the line of Nikhil Agrawal from VT Capital.

Sir, you have given the volume growth guidance. So anything on the revenue growth guidance with the price hikes you are expected to take going forward?

Look, I think enough price hike has happened this year, and we don't see raw material prices further going up. So as it looks like today for next year, we don't see that there will be further price hikes, okay, 1% or 2%, maybe depending on how the market behaves. So the overall growth will be double digit, as we said, anything between 10% to 12%, 13%, right, anything between 10% to 15% for sure.

Okay, sir. So this is for the second half of '22 as well?

No, second half of quarter this year, you're saying H2?

Yes, H2 FY '22.

H2, as I said that we are trying to see that if we can replicate Q2, multiplied by 2 at H2. That is what we are trying to request.

Okay. So there's one more question. Can I ask?

Yes, yes.

Sir, so can you help me with the cost of wood back like -- that you have to pay for like for 1 kg wood, what is the cost that you're paying now and what you paid in Q1?

No, your voice is not clear.

Hello. Mr. Nikhil, may we request you to speak louder? Come closer to the phone.

Am I audible?

Yes, you're audible, sir.

Sir, I wanted to understand that the cost of wood. What is the cost of wood that you're paying now? And what was the cost that you were paying in Q1?

There's a 6% to 7% increase, which we are seeing between Q1 and Q2.

Okay. So could you help me with the cost per kg right now?

Well, I don't have the exact numbers at this point of time. We can get back to you on this.

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

Sir, in answer to one of the questions, you've mentioned that you expect to break even in MDF in 2024. My query was when you were saying breakeven did you imply EBITDA, EBIT or PBT?

Just one second. That is PBT breakeven.

Including the working capital needs for the plant?

See -- and actually speaking, again, what we are talking is basis 22%, 23% EBITDA margin. If it continues at 30%, at maybe 60% also will end up being positive on PBT.

Sir, secondly, sir, what will be the average debt cost you're expecting? You said your peak that would be INR 500 crores, but what will be the average interest cost based on today's rates do you expect for this debt?

Blended rate can be anywhere around 7% to 7.5%. 7%, I would say. But I think these rates will also go up in next 6 quarters or so. So by the time we get our entire funding and this, maybe slightly the rates will go up. That's why I'm saying around 7%, 7.5%. We are adding the ForEx fluctuation. So for this MDF project, we will take foreign borrowing also. So we are considering the fluctuation in ForEx cost.

And sir, between now, since your balance sheet is out now and end of 2023, what is the total CapEx, cash you are going to spend on your CapEx?

What is the total?

CapEx you are going to do between 30 September, 2021 and 31 March, 2023, what is the total CapEx you're going to spend?

Well, see, INR 550-odd crores we set for our MDF. For Sandila, most of the CapEx will go now, which is close to around another INR 70-odd crores, right? So INR 620 crores. And then my regular maintenance CapEx of around INR 20 crores to INR 30 crores...

For India business and Gabon business.

So around INR 650-odd crores, I think, will be the CapEx as of DATE plans what we have in hand.

And we haven't spent much on MDF as of now. So INR 550 crores is the incremental CapEx on MDF, not the total CapEx?

No, I'm saying the total CapEx. What we have invested right now is only around INR 20 crores, INR 25 crores.

Yes. That is for land only.

That is only for land because we have ordered the machineries in this. We've given some advances only. Most of it will go through LC initially.

So sir, considering kind of cash flows you are making, why would your net debt be INR 500 crores? Wouldn't it be a little lower than that? Or you are taking into account the working capital needs and therefore, the INR 500 crores?

Yes. Because see, if today you look at it, our gross debt is close to around INR 180 crores.

Yes, INR 186 crores.

INR 186 crores and we also have a cash of around INR 100 to INR 120 crores to INR 130 crores. Now all this cash will get absorbed in terms of my equity investment in these 2 projects. So there won't be any cash, let's say, so INR 130 crores of cash, which is there today plus the incremental cash, which we'll make in the next 2 quarters is like the equity investment, which will go from our side in both these plants. So next year, whatever cash accumulation I'll have is the cash which I have in hand. And the debt will be somewhere around -- if you take INR 180 crores plus around INR 370 and INR 80 crores, INR 450, plus INR 180 crores, so it's around INR 650 crores of debt, INR 650 crores of debt minus around INR 120 crores, INR 130 crores of cash. So that's what we are talking around INR 500 crores, INR 520 crores of net debt.

So this net debt, what Manojji is saying, includes working capital also, for Lucknow plant and for MDF probably.

The next question is from the line of Vijay Karpe, an individual investor.

I will quickly congratulate the Greenply management. I think you all have done a very nice job on the working capital side, and now we are on track to double our gross block in the next 2 years. My first question is our current plywood capacity is 35 million square meters. Is there any scope of debottlenecking here? If any, what can the capacity go to by modernizing the equipment? The second question is, what is the rationale of going for the new UP plant? Because in our own manufacturing plants, we have a lower ROCE versus outsourcing plan? That is the second question. The third question is what will be the outsourcing mix post the operationalization of the UP plant?

Vijay, one, your voice was not totally audible. So we have not been able to totally follow all your queries. First question, which I understand you are saying is by doing some line balancing and all those, how much we can add to my existing 35 million of capacity, right?

Correct.

Yes. So I think it will not be something major basis the projects that we have, we can add maybe around 2 million to 3 million at best, not -- nothing beyond that. And your second question, we could not follow.

I think I heard the second question. I'll answer the second question. I think your second question was that what's the rationale behind us putting our own capacity in UP when the ROCE is higher in outsource, right?

Yes.

Yes. So the idea behind that was that the outsourced facility where we have equity participation, it's only been 2 years since we've started this activity, and it's still too early to decide that how successful it is. In another year or 2, we will understand that. And also rather than determining the success, it is also very important for us to find the right outsource partner because at the end of the day, we are putting our brand there. And it's a third-party location where the facility is managed by an outsource partner. So it's very important for us to get the right stock. And we could foresee this demand and this is a good fair for the industry, the growth phase to come. So we couldn't wait but invest in the capacity because we couldn't compromise on our growth plans.

Yes. And just to add to that, there is always a learning curve because first time it is also...

[Operator Instructions] The next question is from the line of Gaurav from Bowhead.

Sir, the debt which you mentioned of 500 shares, that is on the consol level you have said, right, including that amount of debt?

Yes, yes, yes.

Okay. Okay. And sir, if I were to ask you on standalone only for the India business. So should I just...

Just let me clarify again, net debt.

Yes, the net debt. So sir, for the stand-alone, how much would that be if you just take the India business?

Well, net debt, if you will look at it, you can reduce it by around INR 110-odd crores from the sale. So actually, stand-alone when you will look at it -- sorry, it will be slightly different because see we have opened 2 new subsidiaries.

No, sir, I understood. That's why I've mentioned India business. So I'm not talking about standalone, it's the India business I'm talking about. Okay. And sir, there's another clarification.

Including the 2 new Indian subsidiaries.

Yes. And sir, just a small clarification on the cash flow statement, 6 monthly. So in the cash flow from investing activities, there is an item of INR 31 crores, which is the investment in acquisition, acquisition of investments. So this INR 31 crores is for the Gujarat subsidiary that we have acquired, is that correct?

No. So we have acquired land. So basically, the company was very small and new company. So the acquisition cost of company was not much. It was in less only. But after that, we acquired the land in the company.

So that growth pertains to that, right?

Yes.

Yes.

The last question is from the line of Nikhil Agrawal from VT Capital.

Yes. So sir, your plywood realization has gone down. Is it because of the increasing mix of your trading activities?

Mr. Nikhil Agrawal, may we request you to speak louder

No, no, we have heard the question. Yes, you are right, Nikhil.

Okay. It's because of the mix of trading activity. And so -- and sir, you said that the German vendors, they have -- their capacities are full completely booked for FY '24. So because of that, you said the organized players, the major players use German vendors for their plans. So does this mean that we cannot -- we can't expect any more capacity to come up by the -- from the organized players?

Well, look, I mean, ultimately, these are words what we have heard from them and what is the real truth, that we don't know. But this, for sure, we feel gives us that comfort, that whatever capacities are already announced by all the major players is something which will come by that time and the new capacities after that can only come in FY '25 or '26.

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

Sir, just wanted your views with respect to Gabon business. So how are things shaping up there with respect to your logistics? And how do we see margins shaping up because we are still far from the historic highs. So what is the update over there?

So Karan, 2 things, the historic high has actually become historical only because after that, there was a big drop in the operating price itself. So looking at or thinking about a margin of 18%, 20% looks to be like a distant dream. And currently, the challenges are almost similar as of what we were -- we are talking in the last 3 to 4 quarters. The challenge is only from the shipment side, not getting the vessels. And we always have a good amount of containers, which is waiting for the vessel. So keeping that in mind and working capital involvement though the order book is very good from Europe and even India and out there, we are limiting ourselves so that we don't end up blocking too much of working capital also. There is a risk factor. Keeping all these things in mind, we also assume that our H2 performance will also be something similar like H1 performance, which means we'll not be able to fully utilize our capacities also. And in terms of margin, I think the margin can be slightly better in H2. That's what we see. Because in H1 also, as you know, the freight costs have gone up significantly. We were also caught on the long foot in some of our arrangements where there were CIF orders. We have negotiated some of them to convert them into FOB. I hope that there are no fresh incremental costs, which comes in the interest there. So we might slightly improve in margins in H2 there. And the sales may almost remain similar as H1 sales or slightly better.

Right. Right. Right. And just one thing. We would like to send our FOB shipment to U.S. So any concrete signal from them?

Well, the feedback -- initial feedback was good, but then that was just before the pandemic. And then as I said, that there are so many limiting factors now, especially the shipment side. So that first on time range itself took us almost more than 6 to 7 months for them to even receive it. So we are slightly not very gung ho at this point of time. Let things stabilize. We definitely see that also as a market. But today, if you really ask me, we are full of orders even from Europe. As I said, we are cutting down on our order book, so that we don't get caught on the wrong side of adding up too much of production and then all of them lying somewhere at the docking station.

Any follow-ups, Jacob?

No.

Okay. With this, we conclude the call. Thanks, the management team of Greenply for answering each question in detail. With this, we conclude the call. Any closing remarks, management going to make?

Yes. Yes. Just to reinforce whatever has been discussed on this call until now, the entire industry at the cusp of transformation in terms of technology, product adaptation, consumer behavior, consolidation, et cetera. As an industry leader, we are gearing up ourselves to stay ahead in this journey by several initiatives, like product innovation, business sustainability, product category expansions, IT infrastructure and automation, et cetera. With this perspective, I would like to thank you all for taking the time to participate in this call. In case of any further clarifications or queries, please feel free to reach Mr. Gautam or Mr. Mukesh. We look forward to speaking to you in the next con call post our Q3 FY '22 result announcement. Thank you.

Thank you. On behalf of Asian Market Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.