Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '22 Earnings Conference Call of Greenply Industries Limited hosted by PhillipCapital PCG Desk. [Operator Instructions] I now hand the conference over to Mr. Dhiral Shah of PhillipCapital.

Thank you, Liza, and good evening, all. Thank you for joining us on the Greenply Industry Q4 FY '22 Conference Call. We sincerely thank the management to allow us to host the call. In the panel today, we have Mr. Manoj Tulsian, the Joint MD and CEO of the company; Mr. Sanidhya Mittal, the Joint Managing Director; Mr. Nitin Kalani, CFO of the company; and Mr. Gautam Jain, AVP, Strategy and Investor Relations. Before we begin this call, I would like to state that some of the 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 recent presentation that was sent to you earlier. I now invite Mr. Manoj Tulsian to begin the proceeding of the call.

Thank you, Dhiral. A very warm welcome to everyone present, and thank you very much for joining us today to discuss Greenply's operating and financial performance for Q4 FY 2022. To start with, let me share some insights on our financial performance in the current quarter. On a standalone basis, we have achieved a volume growth of around 8% and realization growth of around 7% in quarter 4 FY '22 on a Y-o-Y basis. As a result, our top-line increased by over 15% to INR 414 crores in quarter 4. We expect to see the volume growth to continue in the next year as well. The inflationary input costs are creating pressure on the margin, although the increase in wood prices are partially compensated by small declines in the chemical prices. The overall situation is still volatile. On a full year basis, we have achieved adjusted core EBITDA margin of 10.3% in the standalone business and a PAT margin of 6.5%. The rising input costs has impacted the gross contribution despite price hikes taken during the year. At the same time, better economies of scale and reduction in interest costs resulted in PAT improvements. We expect margins to improve further backed by reasonable volume growth and some stabilization in raw material price during the current year. In our Gabon business, on a full year basis, we have achieved revenue growth of 24% with EBITDA margins of 11.7%. Considering improving demand scenario in Europe and Southeast Asia market and resolving logistic challenges, we expect further scale of our business operations during the current year. On working capital front, we have improved further to 29 days on a standalone basis as on 31 March, '22 as compared to 34 days during the previous year. We're also delighted to have partnered with IPL '22 as an associate partner for Lucknow Super Giants. This will surely help us increase the brand visibility in the northern markets. From a macro perspective, after a prolonged period of falling demand, the demand for both residential and office segment has started showing signs of stability. On trailing basis, strong growth momentum was seen across major cities in the residential segment during January to March '22 period. In addition, the China-Plus-One strategy of many global companies would play a key catalyst for Indian wood panel industry. Also the government initiatives like the promotion of furniture clusters will accelerate the growth further. The company is continuously working towards increasing capacities and building capabilities across all facets of the business to capture the growth opportunities that lie ahead. Now I would like to hand over the call to Sanidhya to update on our expansion projects.

Thank you, Manoj, and welcome to everyone on the call. I'm glad to announce that we are on fast track mode in implementing our new project. In our Greenfield Plywood manufacturing unit at Sandila, Lucknow, the financial closure for the project is done and the construction is completed. Commercial operations are expected to start very soon. In our new MDF plant in Vadodara, Gujarat, the financial closure for the project is done and civil construction work is under full swing. The dispatches of imported machinery have just started and are broadly on schedule. As there is a steep increase in raw material and logistics costs, we are struggling to avoid cost over runs. We see a small increase in the range of 5% to 7% over the initial project cost. We can provide further concrete numbers once we will reach a more advanced stage. From a timeline perspective, we are still on our schedule to start commercial production by end of FY '23. In our asset-light model, we have added 2 manufacturing partners -- partner units in Bareilly, UP for manufacturing of plywood and allied products. We are fully utilizing the first unit capacity, and the second project we have started partial production in Q3 FY '22 and expect the remaining to start soon. Our another such plant in Hapur, UP, should be operational by Q4 FY '23. Speaking about the demand scenario in the plywood industry, the organized plywood players are expected to witness higher volume growth going forward due to increase in demand from the real estate and the shift of market away from the unorganized player. With this perspective, I would like to open the floor for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Venkat Samala from Tata Asset Management.

Sir, finally, now we are seeing some kind of volume growth, right, I mean, 8% Y-o-Y. So could you help us understand this strong outlook that you've given in terms of Q4, we see demand was quite strong. So did we...

Sorry to interrupt, Mr. Samala. Sir, your voice is breaking up.

It's not very clear, Venkat.

Is it better now?

Slightly better.

Mr. Venkat, you may please proceed with your question.

Hello. Am I audible?

Yes, yes.

So I just wanted to understand that we've achieved 8% Y-o-Y volume growth given the strong outlook that we've seen in Q4 and that continuing into Q1, Q2 as well. So do you think you performed to the best of abilities or we did face some challenges in Q4? And if you would like to give some kind of an outlook for what we should expect in FY '23?

Venkat, I think in terms of quarter 4, we didn't face much headwinds. Fortunately, most of the things were in place. Of course, as we mentioned, slightly on the raw materials side, that volatility continues. But the momentum is good, as I also mentioned in my opening speech. And we feel the same will continue this year, though there can be again some headwinds in terms of the interest costs started moving up. But nevertheless, we are very bullish that the sentiments will remain very positive. And we again look for a volume growth of anything between 10% to 11% for this full year and maybe an incremental benefit on account of price increase what we have taken in the last year of 3% to 4%. So a 15% plus growth is very much visible for this year also.

And just on the raw material side, we do see an impact on the standalone margins Q-o-Q, right? So could you help us understand, I mean, what kind of price hikes have we taken? And is it sufficient enough to offset the pressure that we're seeing on RM side?

Well, we have been continuously taking price increase. But despite all this, if you really see, there was some pressure on the gross margin I think by around 120 basis points. We have taken another price increase again in this quarter, which is -- which will culminate to anything between 1% to 1.5% on the overall business. And let's see. I think though every time we expect that the raw material prices stabilize or maybe it will start slightly coming down, but that has not happened unfortunately in the last 6 to 8 months. So as of now, I would say we are almost covered. But if there are any further price increases, then again, we will -- we might have to take a call. And whenever that happens, there is always a time lag. So there would be some impact in an increasing price trend of raw material on the margins, but not much I think from here on. And also, if you really see -- just to add to that, in quarter 4, we also had a higher spend on the marketing expenditure by almost 1.7%. Our normal expenditure for the full year is close to around 3.5%, but in quarter 4, we spent around 5.2% because to some extent there was IPL cost and also TVC burst. So all of them came in quarter 4 only. So that is another thing because of which, if you see, to some extent, there was some pressure on the margin.

And just heard you had given some -- I just heard you've given some guidance on the revenue side that you could provide on the margin front, assuming whatever costs are there that kind of stay on?

See, if I'm talking of a 15% growth where 10% to 11% volume growth and I certainly feel that we can improve the margin by 100 basis points during the year, if not more. Of course, as I've always been mentioning, we have been investing a lot of money back into the business in terms of financing our process capabilities everywhere. And -- but given the same -- despite the same, I think on a margin profile, we have been good only. We invested quite a bit of money on the operational side. We'll continue to do so. And over and above that, we still feel that there is a possibility that we can improve the margin by 100 basis points during the year.

So 100 basis points over FY '22 margins, right?

Yes.

So I'm assuming that the exit margins for FY '22, I mean, around Q4 should be meaningfully better, right?

No, I'm saying the full year margin of around 10.3%. I'm looking at anything between 11% to 11.3% for the next -- for this full year.

The next question is from the line of Praveen Sahay from Edelweiss Financial.

[indiscernible]

Sorry to interrupt, Mr. Sahay. Your voice is breaking up.

Am I audible now?

Now it's much better.

So first question is related to your outsourcing volume for the quarter has increased. Is it because of what you had in the initial remarks said about the 2 of your outsource partners? Is it because of that? And is it sustainable over here way forward?

Well, see, we have been missing our existing capacity almost to the full. The new in-house capacities in Sandila is only going to get operational from next month. We're just going to do some trial run in the next one week or so. So the volume growth which is coming is also because of -- to some extent, because of this outsourced model where we have all our tie-ups.

So this quarter we had seen a higher contribution. So those contributions will continue or with the commissioning of your -- the plant this will go back to the previous level?

I think, Praveen, initially, it might slightly dip and then again it will catch up, because we have do a 10% volume growth, both has to move in tandem.

And the next question is related to the GMEL where we had seen there is a volume down and it's also -- the realization were on the higher. So it's because of the higher pricing the volume has been down or the overall the demand were on the lower side?

See, we have been maintaining this even in the past that all those things what we could have done on the cost side or operation side has been done. So we are definitely geared up for growth there. But the headwinds are mainly either sometimes raw material supply, sometimes the domestic logistics and most of the time, not getting the vessels. Those challenges -- not getting the vessels is 1 challenge, which continues still, and to some extent, some challenge on the raw material availability. But having said that, I think what we should look at is the full year margin because there is a lot of play which happens when there is a particular country sale or a particular product mix sale. So I think what we should look at is the full year margin. And that will be a better indicator rather than just looking at quarter 4 margins.

The last question is related to your receivable, which has for a year reduced significantly. So would you maintain this level over here or with the improvement in the volume and the contribution of outsourcing it will likely to increase from here?

So in terms of number of days, I think we have become disciplined. It should not go up. In absolute value, it can go up as the sales grows.

So it will maintain over here?

Yes, that's how it looks like.

The next question is from the line of [ Shrenik ] from LIC Mutual Fund.

So my first question is, could you please throw light on the distribution strategy for MDF? Like, is it completely overlapping with the current channel or have we started working on the distribution for MDF already?

I'll answer this question. So I think 10% of the trade is common and 90% will be new distribution network which we are going to build. And we have already finalized our sales rep. He will be joining us in the next 2 months. And then we'll start building the sales infrastructure and we will start building the network and start working on the network. And as of today, the demand is very, very high. And in Western region, there is no other manufacturer. So without affecting our margins, we feel that we will be able to penetrate material in the West. And yes, in the other regions, we will also be selling some quantity where we'll have to work much harder than the amount we're working in the West.

And sir, what will be our differentiation versus the other Green brand for India?

Differentiation in terms of?

What will be our proposition to the distributor-dealer to keep our product?

What is your population? Partner differentiation?

I don't think there is honestly much product differentiation. I mean, all the MDF in the market is kind of the same. But obviously, at some point, there will be a brand which will play. I mean, the same MDF is available with our brand name versus another brand name. Then they make up the choice at the end of the day for consumer preference also, though the consumer involvement in MDF category is very low.

See, I think we have a strong brand. And we would be also present in all the categories which the other companies are. At Cogent, I think it's the brand play. And with time, for sure, we will also look at whether we can come out with a product, which is something which is missing in the market. But right now, the range will be the regular range which the others are also catering to.

And sir my last question. So our vision was to reach 14% margins. So I believe that would obviously be delayed, but how much delay can we expect on that vision?

Look, if you really ask me, we are continuously improving on the margin front. As I said, we have been investing a lot of money on the business. We are preparing our business for the next 10 years. And if you really ask me, we are very comfortable with the way the progress is happening within the organization in terms of various parameters. I think it is a matter of time. This year, for sure, if we are able to do a 15% plus growth, I am expecting 100 basis points of improvement of margins. And then possibly next year can be much, much better because a good amount of investments have already happened on the operational efficiency side. And next year, growth will possibly bring in some operating leverage also which will add up to the margin. Also when the raw material prices stabilize, I'm sure that, that will also help us to improve margin further.

And sir, just last question. Can you give a light on the Gabon operations? When can we expect normalization as it is experiencing issues since a while?

Well, it's something, which is beyond us. So even since last 4 to 6 quarters, we are maintaining whatever we could have done, we have done. This year slightly looks more promising, and we are also slightly more bullish on the margin improvement front. Maybe we can improve the margin there by 120, 150 basis points for sure during the year. But again, everything depends on the availability of the containers and the shipping line. If that normalizes, then for sure the year can be good, otherwise the year can be very much like previous year.

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

So firstly, I'll just go ahead with first question on demand. Sir, are you seeing any kind of a pullback in terms of demand with cost going up significantly, whether it be in the wood panel space or across the sales with home construction activity taking ahead? So just wanted your overall sense on the demand first.

Nowadays, the demand and the traction is being measured on a weekly basis. So 1 week we see the things doing very well and the other week we see slightly -- there is a slowdown. But having said that, as I mentioned in my opening remarks that we are definitely seeing some positive traction on the homebuilding side. And if that continues, then for sure, the demand will remain bullish. And as I have always been maintaining that there would be a shift which is happening and which will continue to happen from the unorganized to the organized. So of course, none of us have any data for the overall industry. But if you see some of the major peers, the type of growth what we have shown in volumes is not something by which the market overall industry would have grown. So that clearly shows that we are gaining on market share as far as organized player is concerned. So that is another opportunity for organized players like us.

But that should also mean that we should be easily able to pass on the raw material cost inflation given that there's a shift which is happening given that demand also looks decent. Is the understanding correct on the domestic front that you are either...

Well, we have been able to do it. So if you see in the last 1 year, we have almost increased our prices by maybe 10%, out of which 7% almost has reflected in the previous year. And as I mentioned, maybe 3%, around 3% will possibly reflect during this year out of the 10% increase what we have taken. So the pass on has been there. And for sure, you would have seen that we have grown only. It's not that in any of the quarters we have not grown. So with all these things, I think the time is good. It's just that we have to continue to work hard.

Got that answer. And sir, secondly on the MDF front, although you said that, I mean, brand will play a role, but then customer doesn't have much of the maybe decision-making factor. I just wanted to get a sense from you, how much do you think is the proportion of demand in MDF coming in from commercial versus a retail residential, like an OEM versus from the distributor?

Well, I think the market would be around 70-30?

Yes.

And our advantage would be Sneha that we are situated in the west of the country. So that for sure for us will be an advantage.

I would just like to add here that in MDF, outward states will play a very important role because the product cost is very low. And in Western India, as on date, there is no manufacturer of MDF present, neither is anybody putting a capacity in Western India. So without affecting our bottom line, we will be able to pass on the trade benefit to the consumer, which we feel by that way we'll be able to tap at least 50%, 60% of the western market to start with.

So the agenda will be in the first year of operation or sooner or later? At least 50% to 60% of the western market we should be able to get it because of the freight cost advantage?

Yes, exactly. We'll pass that on to the customers.

And anything on the raw material? I mean. I'm sure that you had done your basic study and everything, but whatever is going on in the current scenario with raw material prices escalating. Any availability issue that you foresee after your new plant starts or still it's on the smoother side?

I think as of now we do not see a challenge of raw material availability in Gujarat. But yes, Pan India, the timber prices have gone up and subsequently gone up in Gujarat as well. But there's no availability challenge that we will not get raw material in the future over those.

So just with the higher prices, you should be able to get that raw material in these?

Absolutely.

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

My question was if you look at the volumes, we have been around 56 million, 57 million square meters since FY '19. Now I get FY '21 was impacted because of COVID. So this 11%, 12% volume growth, is it on a lower end given the kind of real estate momentum we are talking about? I just wanted to get a color if this is a base number, realistic number or this is a conservative estimate?

No, I won't say this is a conservative estimate. It is more realistic, because see, somewhere we have to also see from the supply side, as I said, we were running almost our manufacturing facilities at full capacity. Now there is new capacity which is coming. So a 10% to 11% volume growth is something which I think we can meet with the capacities what we have. And definitely, we'll try for something better. But at this point of time, this seems to be the most realistic.

Understood. Sir, also wanted to check, given FY '20 towards the fag end, we were impacted because of the lockdown. From a volume number, I'm just -- again, sorry, I'm hopping on the same 56 million, 57 million square meter number. Is it fair to say that the industry has remained flat over the last 2 years compared to FY '20, FY '22, the industry was flat or you think the kind of distribution rejig-related market share loss what we had, is that the reason why the numbers look flat on a 2-year CAGR basis for FY '22?

Extremely difficult to answer the question. I can only say that there is an opportunity for branded players like us for inclusive growth. So that is what we continue to try to strive for. Industry numbers, we all struggle to really get. It's such a fragmented industry, it's very, very difficult to put any estimation.

Sir, any sense you can talk about in the last 12 months what is the cost inflation in each of the raw material pieces, timber and the chemicals? If you could highlight what is the increase in the pricing of these raw materials over the last 12 months?

See, on the timber side, we have seen a jump of almost around 20%, 25%. On the chemical side, some of the chemicals even became 2x, 2.5x, and then it almost came down to the previous level. And so there are a number of chemicals which we use, right? So like when I'm saying melamine, which was like at the one point of time INR 130, went up to INR 270 and then came down to around again INR 140, INR 135, INR 140. Of course, we don't use currently that much of melamine. Then phenol prices went up significantly in the last one year almost by 35% to 40%. And the formalin prices has also gone up by around 8% to 9%.

And the timber price increase, is it largely in the fourth quarter or it has been up 20%, 25%.

No, no, throughout the year. In fact, we were assuming that at the end of quarter 4, it will start slightly coming down, which is normally the trend, but this year it has not happened.

And the cost inflation will be similar, if not more, for the unorganized player or you think Yamuna Nagar didn't see that kind of cost increase?

No, no, it will be similar only.

Understood. And any color on the Yamuna Nagar market? Like, have you seen plants shutting down or they are reviving or any color on that what your team is talking about?

Well, so whatever we had gathered information post the pandemic, the plants which had shut down, we have not heard too many of those plants opening up and the plants which we are running are jolly well running also. So it's like a status quo in the last 6 to 9 months.

I'll come back in the queue. Just one question, if I may, sir. Sorry, I'm asking about this, the Gabon. If I recall, 2 years back or prior to pandemic we were talking about INR 300 crores, INR 250 crores to INR 300 crores kind of a run rate, annual run rate over 2 years, but obviously, it hasn't panned out. So in terms of the issues, you mentioned certain issues, including vessel availability. Do you think is there an issue with the demand as well globally or it's more to do with the constraints what you have at your end which is impacting the momentum?

No. As I said, there is no concern what we see as of today on the demand side. Europe, the demand is very, very good. Even Southeast Asia demands have picked up. India is always a mixed bag. And so I don't see any challenge on the demand side as of now. Only when we start fulfilling the entire order in the month, then we'll come to know whether the demand side challenge is there or not today. So we are sitting on almost 2 and a half to 3 months of order backlog at any point of time. And also to tell you on this number, what you said INR 250 crores, INR 300 crores, so I think we have reported around INR 185 crores sales for this year?

INR 183 crores.

And there is also domestic sales which happens from the Gabon. We use the same sales in India also for our own consumption, which is around another INR 40 INR 45-odd crores. So if you see from the Gabon perspective, their sales has been around INR 230-odd crores. It's just that, that gets knocked off when we do the consolidation to the extent of whatever we have used for our domestic manufacturing. So reaching to that number of INR 300 crores, as I said, if some of the challenges are taken care of, which is beyond our control, hitting this number is not such a big deal in the next 6 quarters.

Sorry. You were saying we can't touch that number in 6 quarters once things normalize. Is that...

Yes, because see, we are -- technically, we are already doing around INR 230-odd crores of business from there. So what you are talking is INR 250 crores to INR 300 crores, I'm even looking at INR 300 crores as a number, which is like another 20%, 25% from here on, that seems possible. And we have the means to deliver those numbers. It's just that these shipping line challenges has to go away and maybe some amount of luck in terms of availability of raw materials. We faced some challenges in the previous year at times in terms of getting the raw material on time and even the quality of raw material at times, because of which also margin took some beating.

Any particular reason of raw material issue, sir? Sorry, just clarifying on that.

No, no particular issue. It's just that sometimes the extended rainfalls and other type of challenges, which is very normal to our type of business, create some issues.

[Operator Instructions] The next question is from the line of [ Darshil Trivedi ] from Crown Capital.

I just wanted...

Mr. Trivedi, may we request that you speak a bit louder. Your voice is not audible.

Is it better?

Yes.

I just wanted to ask about the new capacity that's coming in Lucknow. So as per the presentation, it shows a revenue potential of INR 250 crores. So assuming it won't run at full capacity in the first year and we might start for 3 quarters. Can you give any color on how much revenue we can come from new capacity this year?

Well, this year, since it will be like a 9-month operations, we are -- for the full 9 months, we are expecting to do somewhere around INR 121 crores, INR 125-odd crores of turnover. And next year, possibly, we would be able to hit anything between INR 220 crores to INR 240 crores for sure.

That helps a lot. So also just 1 more clarification. The 10% growth in volume, does that account for the Lucknow capacity increase or that's just from existing capacity?

No, it takes care -- it also accounts for the Lucknow capacity.

So sir, then that would be a very flattish growth in terms of volume because INR 120 crores could easily come around.

See, those are all premium products. So in terms of volumes, it will be lower. When you look at that, the price composition is higher for the same.

Sorry to clarify. In the Lucknow, price composition is higher, right sir?

Yes, yes, because that is mainly our flagship brand.

And if I may just squeeze in one more question, sir. What is the difference between the margin on own manufacturing and outside manufacturing?

If you take all the costs into account, the difference would be only around 3% to 4%.

Gross profit?

Yes.

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

Am I audible?

Yes, yes, very much.

So sir, just a clarification. Since you mentioned that you were able to largely pass on the price escalation that you've seen on the RM side. So whatever lower margins that you're expecting in FY '23 versus our guidance, would that be largely on account of investments that we've been making?

Lower margins?

Yes, yes.

No, we are not expecting lower margins.

No, I mean, versus the 13% to 14% [indiscernible]. So the difference that you're saying is rising on account of investments? Would that be a right assumption?

Sorry, your voice was not very clear. You might have to repeat it again.

Is it better now?

Yes, yes.

Sir, what I wanted to understand was now that you said that most of the price escalations that you've seen on the RM side, you were able to largely pass it on to price hikes. So the 100 bps increase that we are seeing in margins Y-o-Y in FY '23 over FY '22 that is still meaningfully lower than what we had originally guided for, right? So the differential between what we had guided for and what we're going to be achieving in FY '23, would that be largely on account of investments that we're doing for the longer term? Would that be a right assessment?

See, I'll tell you, first thing when we had mentioned about 4%, it was -- and I think someone had asked me also that some time. It was more out of a gut feel looking at the various ways the way we were working. It was not very scientifically calculated. But as things has been unfolding and as we have been investing into the business, it is finally adding up to my margins also for future. So I mean, 14% when we said, yes, I still stand by it. It very much looks possible over a period of time. But to add 1 plus 1 and make it 11 is something which I may not be able to answer that way. But yes, we will be on an improving trajectory. And this year, we are able to improve 100 basis points. Next year, again, as I said, we'll get economies of scale also. And maybe who knows, next year, we are at around 13.5% type margin.

Understood. So I mean, longer term, that trajectory is still intact, right? I mean timing is...

There is no going back on that. I think 14% is doable. And the way we are working on many aspects of the business, the way we are becoming efficient day by day, that is very much doable.

And with respect to...

Sorry to interrupt, Mr. Samala. May we request that you return to the question queue. There are participants waiting for their turn. The next question is from the line of Rajesh Ravi from HDFC Securities.

Am I audible?

Yes, yes.

My question pertains to first on the growth guidance which you gave. As I see, for the full year, standalone top-line is close to INR 1,400 crores and you are guiding INR 140 crores contribution from the new unit, plywood, implying flattish growth, flattish number from the existing operations. Is this understanding correct?

From the new plant, I'm guiding around INR 120-odd crores, but we will just start the trial production. Sometimes you can even go down for a month or something, right? So this -- I'm giving you the best estimation for this year of INR 120-odd crores. It would still be INR 100 crores.

So the rest INR 20 crores to INR 40 crores incremental is what you're looking at growth from the existing line?

Yes, yes.

And second, if I compare your gross margins with your immediate peer, the market leader, both of you are, I see that despite we delivering 30% gross margin, their EBITDA margin is higher versus yours. So what -- while your gross margin is 37%, 38%, your EBITDA margin comes down to 10% or 10.5%, 11%, vis-a-vis CenturyPly is close to 14%. So would you have any color on why the differential exists at EBITDA level?

See, I think when you're comparing the 2 companies, I have not seen all their numbers for sure. But after the gross margin, possibly we have today one line of business only, right? So all our costs get allocated to this one line of business. And so definitely, I think they we will have an advantage and edge over in terms of allocating their costs, including their marketing overheads and everything. So that might be one of the factors. And the second factor, to some extent, we have different business models. Our target customers and theirs, there will always be a difference also in the business profile. So that also may play a factor. I'm not very sure. So I think these will be the only 2 reasons.

And second, on the MDF, this financial year and you are targeting commercial operations. So first year of FY '24, what sort of revenue you're looking at from the new unit?

INR 350 crores to INR 400 crores.

And by second year, you would be operating at full utilization?

Well, we think that we will be able to reach around not full, but maybe 80%, 85%. So that can be around INR 650-odd crores.

And margin profile, what sort of margins you are looking at sir in that business?

Look, we had done all our projections, everything, this is the margin of 20%. Today, the business is running at a very different margin level. I understand it may be anywhere between 28% to 30%. But as I also understand from my technical team that it takes some time to stabilize production and to improve on efficiencies and improve on margins. So we will take some time to reach the level of margin which the others are making because they have been already into this business and they would have stabilized their plan for last 3, 4, 5 years. It's a continuous journey, but that can be a difference of maybe 3% to 4% max. So if the other mature players are operating at 30% 2 years down the line, I think we will be able to reach around 25%, 26% for sure.

And last question, again on the MDF...

Sorry to interrupt Mr. Ravi. Sir, we have participants in the question queue. The next question is from the line of Chirag Lodaya from ValueQuest.

Sir, my first question was on what could be the peak debt and cost of debt for us this year?

I think our debt -- net debt will be somewhere around INR 600 crores to INR 625 crores. Yes, around INR 625-odd crores. And the cost of the debt, this is mainly all term loan today, if you really see. So the India's debt cost would be in the range of around 6.25% to 6.50% today, depending on -- as the interest rate goes up, this will also move up.

Sir, if you can give us gross debt number, that would be helpful?

Gross can be around INR 700 crores I think.

Okay. And sir this INR 350, INR 400 crores...

Sorry to interrupt Mr. Lodaya. Sir, may we request that you return to the question queue. There are participants waiting for their turn. The next question is from the line of Ishrat Khatri from Omkara Capital.

Sir, I wanted to know -- so we were trying to figure out why there's no capacity for MDF in the West of India? And we heard that the wood cost per ton is significantly higher. So if in the south it's about INR 3,000, in the west it's about INR 4,000 to INR 4,500. So is that true first? And if yes, will we have a higher cost for manufacturing?

So we have not come across any such scenario. Sanidhya?

No, I don't think so we've come across any such scenario. And also, there is no facility in the west because there was not much plantation available in the west. And with our study and the report we've done and all the research we've done before setting up this facility and before going ahead with this investment, we -- our strategy clearly shows that we'll have enough raw material for 1 plant to sustain, and that clearly is a very good market. [indiscernible] higher, all the chemicals are always either manufactured in the west or imported in the west because of being close to the port. So we'll definitely have certain advantages in the inverse trade and the cost of procuring raw materials compared to other manufacturers. So even if our wood cost is slightly higher, I mean, we can compensate a little bit there.

[Operator Instructions] The next question is from the line of Arun Baid from ICICI Securities.

Sir, just one clarification. You said Gabon has issued. So in future, we should not expect any investment from us in Gabon, right?

So we have not been doing any investments per se. And this scenario of this challenge what has actually got built-up is only after the pandemic. So -- but things have been easing out, and that's why I'm slightly bullish, but I'm not putting all the cards on table at this point of time. This shipping line issue, if it gets resolved, we'll definitely give you good numbers for the year.

No, sir, just I'm just clarifying that in future we plan no more CapEx in Gabon, right?

As of now, we have no plans in hand.

Okay. And sir, just one clarification. What was...

Sorry to interrupt Mr. Baid. May we request that you return to the question queue. There are participants waiting for their turn. The next question is from the line of Nikhil Agrawal from VT Capital.

Sir, I just wanted to know out of our total volume -- sales volume, what percentage of…

Sorry to interrupt Mr. Agrawal. Sir, your audio is not clear. Can you use the handset mode while speaking?

Am I audible now?

A little bit.

Yes, much better.

So I just wanted to know like out of our total volume sales generally, what percentage of it belongs to the premium category of plywood and what percentage of it belong to the mid segment and the cheap segment plywood?

See, if you see our own production which is almost I think 50% today, so it's like 50-50 actually.

And in the realizations, the difference between the realization for the premium and the cheap segment?

Realization?

The difference between the realization between the premium segment as and when you sold and the other category of plywood, the mid segment and the cheap segment?

Well, what we manufacture in-house is mostly the realization would be upward of INR 85 to INR 90 would be at the net level. And the mid-level and the lower level is anything between INR 55 to INR 90 type.

The next question is from the line of Aasim Bharde from DAM Capital Advisors.

I just wanted a couple of clarifications. Firstly, on the 10% to 11% volume growth expectation, does that also include the outsourcing component? And if not, how much that would be? And secondly, on the Gabon revenue expectations of INR 250 crores to INR 300 crores, 6 quarters from now, that does not include Greenply India? That's what -- these are the 2 clarifications I want.

No, no, it includes. That's why I mentioned that number of INR 230 crores. That is the type of capacity which is getting used there. And INR 300 crores is with...

No, actually.

Well, look, as I said, 6 quarters or 4 quarters, if the problem gets resolved, even this year can be much better. We have everything. We have a team in place, our productivity numbers are good, order book is there. We have been actually declining because in between there was so much of challenge and we cannot keep adding to our inventory to produce and keep adding to inventory. So we have to decline orders also. So only when the situation normalizes and we have a time period when we are able to serve the order in that particular month only, then we will really come to know also on the demand side of the challenge. Right now, this is very lousy.

And on the outsourcing bid, if you can just talk about that?

Sorry to interrupt Mr. Bharde. May we request that you return to the question queue.

Let me just answer that. That portion is also included.

So overall, we're looking at a 15% value growth, in which 10% to 11% is the volume.

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

Sir, what could be ESOP cost for next 2 years?

This year, it is INR 15 crores, INR 12 crores? And next year? It's INR 15 crores for this year and INR 3 crores for next year.

INR 3 crores from '24?

Yes, yes. This is the grants which has already been issued.

And the growth rate for premium category and mid category...

Sorry to interrupt Mr. Bhatelia. Sir, may we request that you return to the question queue. The next question is from the line of Udit Gajiwala from YES SECURITIES.

Sir, just one clarification. Like, the volume growth that we are talking about of 10% to 11%, it's similar to the trajectory that we saw in Q4 of this year. And with the sense that you are taking that with the industry tailwinds and also the formalization of industries, is it more conservative or how should we look at it?

Quarter 4 is always a better quarter, if you will see from panel business. Despite that, we have grown by around 8% in this quarter 4. So we have grown by around 8% in quarter 4. So taking a full year growth of 10% to 11%, I think is realistic.

Understood. So sir, just one clarification on the same point.

Sorry to interrupt Mr. Gajiwala. Sir, may we request that you return to the question queue. Participants are waiting for their turn. The next question is from the line of Priyam Khimawat from ASK Investment Managers Limited.

Sir, one quick question from my end. If I understand correctly, you were alluding to INR 600 crores to INR 650 crores revenue in MDF on a 240,000 capacity. But right now, you highlighted that in FY '25, at 85% capacity you will be doing a similar kind of revenue. So I think the earlier estimate was of 20,000 -- 27,000 per CBM like kind of revenue. So is that assumption now changed when you're assuming a higher per CBM revenue?

Yes, because see, if the market remains similar, the per CBM realization will be higher. I mean, this is the same assuming that the market -- the prices remain where it is today.

No, but we're talking about 7, 8 quarters down the line in FY '25 with more capacities coming in. Do you think this kind of pricing will sustain?

Well, if you ask me, I sincerely feel that there would be some level of corrections which will happen, but we all have to wait and see it.

Okay. And any kind of exports which you have been making for?

Sir, may we request that you to return to the queue.

And to answer that question, we will be having no export liability as such. But yes, we might export 10% to 15% of our total capacity just to kind of ensure ourselves that in bad times or when there is overcapacity in India, we have another alternate market where we can always dump a little bit of our production. If you look at the margins today in export versus domestic, obviously, it makes more sense to sell 100% of our capacity in domestic.

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

Just a clarification, sir. You mentioned INR 400 crores to INR 450 crores revenue -- INR 350 crores to INR 400 crores revenue in the first year of operation, that is FY '24. Just thought of clarifying, have I got the number right because that assumes that in the first year itself we'll be touching about 65%, 70% utilization? That means not much of teething issues like what you were kind of...

So one, we are getting full year, we are assuming that we'll start our trial production, and maybe to some extent, some very basic level of commercial production also in quarter 4, which means we get the full visibility for the next 12 months. And as is even to understand and as the past experience of some of the other lines, how they've improved on the efficiencies, we think in 6 months' time, the efficiencies can reach to anything around 60% to 70%. So it all depends, but I think that's a doable number.

Achal, just to add. The current pricing actually indicate 100% capacity...

Sorry to interrupt, sir. We're not able to hear you.

So what Nitin is saying that on the current pricing, the same revenue would be around 70%.

And if you -- then we are talking about a 50% utilization not 65%.

Sorry, I'm a bit lost actually. You are saying 50% utilization for the full year?

See, on the current pricing, the same earlier INR 600 crores or INR 650 crores of estimation what we were giving, realistically will be around INR 720 crores to INR 750 crores. So when we are talking of INR 350 to INR 400 crores, we would be only doing around 50% capacity and not 55%.

That INR 700 crores, INR 720 crores is for the full year at full utilization?

Yes, because see, the prices have moved.

The next question is from the line of Rajesh Ravi from HDFC Securities.

Sir, only one question on the -- what is the CapEx amount due for this financial year? And everything will be incurred for the MDF this year? And How much is spending?

We have around INR 420-odd crores -- INR 420 crores, INR 425-odd crores to be spent during this year on MDF.

And this would -- plywood and everything is done In terms of CapEx in FY '22?

No. Plywood, some INR 30 crores of capitalization will happen in the first quarter.

So total would be INR 450-odd crores you are saying?

Yes. And another, let's say, INR 20 crores to INR 25 crores of my maintenance CapEx for my existing facilities. So in total, it can be around INR 475-odd crores.

And for next year, any major CapEx you're looking at currently?

No. As of now, no such major plans.

And in terms, you would have some recurring that this much CapEx we need to keep on adding new capacities and all? This is the only question.

Well, again, at this point of time, we have also announced one -- this associate partner facility, how we call it, is in Hapur. So that will give us some additional turnover or capacity for next year. And we might look at one or 2 more such partnership which may not envisage major CapEx from our side other than our maintenance CapEx. So something -- maybe something which goes into MDF once the line becomes operational, I'm not very sure at this point of time. But maybe if something further goes up into the MDF line next year.

And no thoughts on particleboard business, anything like that, as many players are thinking about?

So we are already doing a large investment what -- let us settle down. So -- and I think the only good thing which we can mention at this point of time that our project is running on time. Our implementing partners are extremely happy with the type of progress what they have seen. In this cost, I think we will be able to come out with our commercial board -- first commercial board in Q4 of this FY.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sanidhya Mittal for his closing comments.

Thank you for taking the time to participate in this call. In case of any further clarification or queries, please feel free to reach out to Mr. Gautam Jain. Thanks again, and good bye.

Thank you. Ladies and gentlemen, on behalf of PhillipCapital PCG Desk that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.