Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenply Industries Limited Q4 FY '23 Post Results Earnings Conference Call hosted by SMIFS Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Ginodia from SMIFS Limited. Thank you, and over to you, sir.

Yes. Thank you, Aman. Good afternoon, everyone, and thank you for joining us today on the Greenply Industries Q4 FY '23 post results earnings conference call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO; Mr. Sanidhya Mittal, Joint Managing Director; Mr. Nitin Kalani, Chief Financial Officer; and Mr. Gautam Jain, AVP, Strategy and Investor Relations. Before we begin the 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 results presentation that was sent to you earlier. May I now invite Mr. Manoj Tulsian to begin the proceedings of the call. Thank you, and over to you, sir.

Thank you, Saurabh. Good afternoon, and a very warm welcome to everyone, and thank you very much for joining us today to discuss Greenply's operating and financial performance for Q4 FY '23 and full year FY '23. We began the year on a very positive trajectory in our plywood business with slightly subdued performance in the second half, however, concluded the year on a satisfying note. We have surpassed our original estimate of 15% value growth discussed during the beginning of the year by achieving our overall sales growth of 21% and a volume growth of 15% in FY '23 versus the previous full year. On the margin front, we achieved an adjusted core EBITDA margin of 10.4% in FY '23, a slight improvement from the previous year. This has been achieved despite ongoing raw material cost escalation, particularly in timber. Our working capital days stood at 36 days for the year. At the end of the financial year, our consolidated net debt amounted to INR 632 crores. We were able to maintain our overall guidance of net debt equity ratio to remain within 1 with a large part of our investments completed and projects commissioned -- commissioning concluded. The recent expansion of our plywood capacity at [ vanilla ] commissioned at the beginning of FY '23 is now operating at almost 60% utilization level in Q4 FY '23. As the utilization of this unit improves further, it will support our overall growth. Looking ahead, we maintain a positive outlook for the plywood industry, driven by the ongoing recovery in the real estate sector and consumer shift towards the branded products. While the upward trajectory of timber price is a concern, we remain confident in achieving double-digit volume growth in our plywood business, which we have been giving as a guidance in the last couple of years. Furthermore, we anticipate some improvement in our margin profile also. We are committed to capitalizing on market opportunities and sustaining growth in the face of these challenges. Our Gabon business has continued to face challenges, although we saw some recovery in demand in the last quarter. In Q4 FY '23, we achieved the sales of around INR 42 crores. At Greenply, we continue to be optimistic, supported by resilient demand in the residential sector, our strong presence in the premium category, significant investments in high-growth areas and the continuous enhancement of our brand value. With the commissioning of our MDF segment, our major growth driver, we expect much higher growth trajectory for the company in the next [ few ] years. With this statement, I would like to hand it over to Sanidhya to update in larger details on the MDF business.

Thank you, Manoj ji, and good afternoon to everyone on the call. We are proud to announce a significant milestone achieved at Greenply with the successful commencement of commercial production of our MDF unit at Vadodara Gujarat on 5th May 2023. The achievement was accomplished with a record time of 15 months, making it the fastest launch in the entire wood panel industry as well. The initial dispatches received positive responses to our products from all the customer segments. The MDF unit will cater to all product categories and subcategories within the Indian market to meet the diverse needs of our customers. Currently, the production is focused on interior grade, exterior grade and HDMR. But as the unit stabilizes, we will gradually expand production into other categories as well. We have completed all our brand-building exercises, and our sales team is strategically positioned across different regions. Additionally, we are actively building our dealer distribution network in various locations to ensure efficient product availability and customer satisfaction. This achievement underscores our commitment to technological advancement, operational excellence and meeting the evolving demand of the market. We are confident that the MDF unit will play a pivotal role in driving our growth, expanding our product rate and solidifying our position as a leading player in the wood panel industry. With this perspective, I would like to open the floor for Q&A session.

[Operator Instructions] The first question is from the line of Pranav from Equirus Securities.

Yes. I just wanted to understand on your EBITDA margins for FY '24 and FY '25, now with the MDF also becoming operational. So are you expecting any initial losses in that business? And what kind of consolidated margins we can work with for the next 2 years? That was my first question.

Pranav, see, in the plywood segment, I think we will be on a similar margin trajectory. We, of course, will try to improve further, but I think our focus at this point of time and that's how we have discussed even at our Board level is that we must try and achieve a double-digit volume growth for the next few years, which is also backed on, which I always maintained is that there is a shift which is happening from the unbranded to the branded segment. So volume growth is important. And at the same point of time, we're also looking at can we further improve our margin at this point of time on the plywood business. As far as MDF business is concerned, as we maintained in the last call, this is our first year. But despite being first year, where I think our utilization may be to the extent of 40%, 45%. The margins cannot be in the range of what the established players are today earning, but it is definitely much better than 10%. In which case, the blended margin will slightly look better during this year, and this will further improve when the utilization of MDF business goes up to the level of 75%, 80% in the next year. So we see a margin improvement taking place for the next 2 years, 3 years, for sure at the blended level.

Okay, sir. And sir, my next question was, can you throw some light and you can discuss the strategy on your JV in the furnished -- furniture fitting segment? So what is your thought process in the same? And how do you want to take this forward, let's say, over the next 4 years to 5 years?

See, it's very early days. As an organization and also our Board, we have been discussing that we must look at a few products, which completes our overall basket and which gives us the leverage in terms of the brand value what Greenply has created and the distribution network, which is the next strength of Greenply that how do we leverage this, right? And we were always looking at some opportunity outside the panel industry where we get a very strong partner. So fortunately, this hardware business where we see that there is a larger opportunity the way the market is also shifting to the high-end product category, we got a good partner. And we feel that the partner is serious because they also want to set up a manufacturing facility in India along with the Indian strong partner. So a lot of these things look good from both sides. Very early days, but I think in 2 years' time, 3 years' time, this business will start doing and showing good results. And it will help us in overall leveraging our -- the brand strength in this country and the distribution network, which we already have.

Okay, sir. Sure, sir. And sir, any numbers you will want to share on this segment, any margins and everything?

Too early, Pranav. I think first thing first, we are looking at now that we are still yet to find, I think the final JV papers maybe today, tomorrow or maybe in a week, Nitin will be able to tell you. And once that is done, then our whole focus, again, would be to see that how fast one we are able to create a team jointly, and second, again, establishing this manufacturing facility. These are the 2 tasks, first thing. And then in between, of course, as time goes by in the next 6 months to 8 months, we start looking at the sales plan and other things. But I would say that first 2 years, we should not be looking at anything very great coming from this business. But from year 3, it looks like once we have a full manufacturing facility set up here and also that the team is well trained, we will be able to see some good traction from this business also. It's a high EBITDA business, much better than what we are earning in plywood. And for sure, overall, this will help us going forward. This will also be a good learning for Greenply as a company because this is a very high engineering precision product. And this is a Turkey-based company, very systematic in their approach, and they have a great R&D center. So I think there will be a lot of cross learning also, which also we are looking at as one of the objectives going forward for our organization to look at our future growth prospects.

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

Yes. Sir, firstly, you said that volume growth would be in double-digit. Would you highlight some numbers that what kind of volume growth you're looking at for '24 and '25?

See, I would maintain that we are looking at a double-digit growth, 10% to 12% volume growth is what -- for sure, we are trying to achieve in our plywood business. And if consistently, we are able to do that, I think it will be good numbers. Looking at the type of challenges in plywood business overall, where the growth is suboptimal. It's mainly, I would say, distribution and again, the shift of consumer preferences from the unorganized to organized. So we are banking on these 2 things. Of course, we are building up our internal organization also. And so looking at these 2, 3 factors, we assume that we should grow at 10% to 12% for the next 2 years, 3 years on the volume front.

Got it. And sir, could you throw some light more on the timber cost escalation, what has been the same in Q4? And how do you foresee it in next fiscal?

Well, very difficult because since I have joined, the timber cost is today, if you really look at in the 3 years' time, the timber cost is more than 100% increase. And every few quarters, I get to hear that less -- now the timber production will improve, the new crop will come and the prices will drop down. But it has not happened in the last 4 quarters or 8 quarters. So -- and now I hear that this year also, this challenge will continue, possibly next year, the prices will again come down when the crop is better. So that's what we are assuming that for this fiscal year, it will possibly continue at these levels. It's going to be challenging.

Got it. So sir, on EBITDA margin front, like you said you will be able to maintain at this level. So is it possible that you could change some product mix or that you are forcing in the market with the shift happening towards organized. So could that EBITDA margin improve because of the RM pressure you are assuming it to be at similar level?

No. So 2 things. I think very, very good question. But on the RM side, for sure, I'm not seeing that we will get much benefit. That is point number one. Second, we are already a very strong player in the premium segment. And whatever we may say, but there is today a pressure on the premium segment. So I'm not seeing a big growth within my own distribution, which goes in favor of the premium segment. So when I don't see that, I don't even get that leverage. The third leverage, of course, is growth. So once I have the growth, I get some advantage of operating leverage. That's what I'm trying to see if that is able to mitigate my -- if there is some increase in cost on the raw material side. Market is slightly subdued. So we have even not -- we are not even talking about the price increase also at this point of time in the market.

Got it. And sir, just last question, if I may squeeze on the net debt front at INR 632 crores. How does it move in coming fiscal? And any CapEx due for this year or all is done?

No. So I think we still have a committed cost of around INR 50 crores to INR 60 crores, which is on the MDF side, where the cash flow has still not taken place, but they are committed costs. So the cash flows will go during this year on that front, maybe even the capitalization to that extent will also happen maybe during the year. It might be showing as a CWIP part of it. Second, on our regular plywood business, we will be looking at the maintenance CapEx of around INR 20 crores, INR 25 crores. These are the 2 plants, which are there from the CapEx front. In terms of debt, I think keeping these 2 also in mind, this looks to be our peak debt.

Okay. So repayment we may assume from '25, if not '24?

No, there are repayments in '24 also, maybe Nitin can exactly share the number afterwards. But I think there are repayments to the extent of INR 40 crores, INR 50 crores during the year.

Yes, yes. So we'll start repaying the MDF loan starting October, November.

Okay, sir, this is helpful.

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

Yes. Sir, just a clarification -- hello.

Yes, Nikhil.

Yes. Yes. So sir, just a clarification. You have said that you'll be maintaining about 10% margins in the MDF segment this year, right?

No, no, no, no. 10% margin is for the plywood business. The MDF business today operates on a margin, which is in upward of 20% for the established players. Ours in the first year, where the utilization will only be around, let's say, 40%, 45%. We might end up doing a 14%, 15% margin. I'm just giving a ballpark number, all depends on how the market will remain and how the prices will remain. But we still see that we will be in that profile if the present situation is being maintained for the full year.

Okay. Got it.

So the blended margin can be slightly -- will be slightly better.

Okay. The blended, you mean MDF as well as plywood?

True.

Okay. And sir, you -- in the last call, you had mentioned that you'll be targeting INR 300 crores of revenue from the MDF segment -- so -- in FY '24. So you still maintain that?

Look, as I said, price for sure is something which we'll have to see how it pans out. How we are looking at is a volume of around 1 lakh CBM, 100,000 CBM during this first year, because it's a ramp-up period, like the way Sanidhya mentioned that first thing first, we were able to do the commissioning of the plant in the record time. And now the next challenge which as an organization we have taken is how fast we can ramp up and how fast we can bring all the product lines which is there in the market. Those are the things which we are looking at. Keeping that in mind, our internal estimates are that if we do around 100,000 CBM in the full year, it will be a great ramp-up. And if we do 100,000 CBM, then the numbers can range between anything around [ 275 to 300 ], Sanidhya?

Yes. I think it depends on the product mix since we are a new player, and we will be supplying all the types of products and we'll slowly start focusing on the value-added and we'll try to increase our value-added mix, I think the top line will be judged on what value-added products we are able to sell because products today are ranging in the Indian market right from almost approximately INR 27,000 a CBM to INR 40,000 a CBM. It really depends that what volume are we able to sell in which category, so that will define our top line. I think we should -- we are committed to producing 1 lakh CBM this year, and we're committed to making sure that, that sells.

Yes.

Obviously in line with the competition at the realization levels they have.

Yes. And within this 100,000 CBM, what we are also looking at the value-added products, how fast we are able to produce and stabilize that. So the more we are able to do it, the better can be the turnover, the better can be the margin.

Okay. Got it. Sir, any light on the realizations currently, I mean, average realizations, any roundabout figure?

I think it's too early for us to comment.

Okay.

We're trying to make sure that we are priced because Greenply is a premium brand. We're trying to price ourselves at par with the competition. And we're trying to make sure that we're doing everything right to get the sales network. And obviously, we are located in that, so we want to capture the best market. So we've positioned our team also in that fashion that we are able to capture the closer markets to maintain our profitability.

Okay. Sir, a little bit on what you said just now, like what is the scenario in the Western market in the West, like are imports flooding the market out there as well as we've heard in the South?

Imports are affecting West and South primarily and other parts of the country, imports are not there. But every grade is not being imported in India and every size are not coming in India. And also, if you see the density of the imported product is slightly interior. So a lot of things are not possible in the imported product. So we are trying to focus more on exterior, more on HDMR, which is not imported. And we're trying to leverage our brand name in a big way, and we're trying to create more and more customers who can keep buying our products sustainably from us. And ahead when imports have opened up, it is difficult, but we are confident of the volume we are committing.

Okay. Got it. Sir, just one last question. Sir, your cost of raw materials quarter-on-quarter, they've fallen down. So if you could help in explaining that, how is that possible?

Cost of?

Materials consumed as a percentage of top line and even in absolute numbers, it's fallen down on a quarterly basis.

No. Are you looking at the plywood business or...

No, I'm looking at the consolidated numbers?

Consolidated numbers also have today Gabon and other businesses. So I would say that we should look at the Gabon business separately because that is another very different [ RMC ] and very different business.

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

Yes. Am I audible, sir?

Yes.

Yes, Achal, you are.

Yes. Yes. Yes. Sir, a couple of questions. One is first on the plywood business. Yes, I mean, we have double-digit growth for FY '23 as a full year, but if I look at 4-year CAGR prior to COVID and where we are, our CAGR is substantially lower than the [ year ]. Now what I'm trying to understand a, have we gained market share? Have we just maintained market share? Or is there any marginal market share loss we have seen over the last 4 years I'm trying to figure out?

See, Achal, I'll tell you 2 things. One, how we have to look at is that where do we stand as an organization today. So every organization has their own challenges, capacities, where are those capacities and where is the demand coming, the product lines. So within that same industry also different companies have a different way of dealing. Our thinking process and our business plans are different than maybe many of the other companies which is there in the same business. So what we have to see is whether we are able to deliver basis the business plan what we make. That is point number one, which we have been able to do in the last few years. Second, when it comes to market share, I would presumably say that all the branded goods players are gaining market share of the overall market. Because if you really see whatever we as an organization have also grown in the last 2, 3 -- 2 years, I would say, mostly is not the type of growth, which has happened in the overall plywood industry. So the branded goods players are gaining the market share of the total pie, and this is a very healthy sign.

Okay. Can you elaborate a bit with respect to the premium and non-premium mix for us, for the industry? And how it has changed over last year for us?

I don't have the number for the industry, but I would say that in the premium segment -- just one second, Nitin, can you tell me exactly the numbers? Where we stand, Nitin, for the last year?

One second, sir.

So we are almost at around 50%.

Yes. Yes.

Okay. And also it is between 50%...

Premium will be 51% of our overall volumes as against 54% in the prior year.

Yes. So we are also growing in the mid segment, okay, because that is where the mass volume increase is taking place. But we are also committed to make sure that Greenply maintains its brand leadership through its -- through continuously launching products in the premium segment. That's what Greenply is always known for.

Got it. Sir, you talked about volume mix. Can you just give some sense about the value mix as well for [ FY '23 and FY '22 ]?

Value-wise, we're at -- I mean, last year, we were 64% premium brands. This year, we are at 61.3%.

Understood. The second question I had, can you help us understand what is the A&P spend in 4Q FY '22 and 4Q FY '23 in absolute numbers, sir?

A&P spend?

Yes, advertisement spend.

A&P spend, we have done in FY '22, we were close to around, if I'm not wrong, 3.8%, and this year, we were at around 3.1%.

Possible to give for the fourth quarter as well, sir?

Fourth quarter numbers, I don't have with me.

It's 1.6% for this quarter and the corresponding quarter is at 4%, 5.6%.

[Technical Difficulty] and 5.6%, right?

Yes.

Now the other question I had with respect to MDF business. Is that -- can you give us some sense in terms of what are the imports? Like you mentioned that not all grades are imported. What's the typical import mix you are seeing? And like how do we face evolving given the freight rates have come off, global MDF prices are down, and what's the expectation on the [ ADB ] front? How soon, what quantum can the industry possibly look at?

I think at Greenply, we are just looking at the challenges are the challenges. If they may come obviously, we'll try all our efforts and we'll put all our representations in place and we'll try to make sure as a company that ADB comes and it's going to be a very beneficial scenario. But for now, for our planning, we are considering the value in our ADB. So rather it will be [indiscernible] and we need to sail through in the tough time. So in the tough time, the major challenges in the low density interior E2, which comes into the country and mainly in West and South. So we are trying to build a market in the West. We're trying to build a market in the South. We're trying to build a market in NCR, which is the largest consuming market for MDF, and obviously, in other parts of the country also. And we're trying to focus that we produce more of exterior and more of HDMR when the challenges in import is very, very low, because that product is like import is 100%, my estimation is that 90% is interior E2, 10% is all other categories put together. So we're trying to grow in the value-added segment, where we can make better top line, where we can make better realization, and we can leverage the world Greenply and the brand Greenply, which is our strength. And so it will be tough times. And once the ADB is in place, the government realizes it needs to protect the Indian manufacturers who are investing on facilities in India. Once that happens, we will definitely see great numbers like how we were seeing in COVID times with all the competition.

Got it.

We have got our payments without the ADB thing, okay, that's what we are clearly looking at, at this point of time. ADB will definitely -- the industry, whole industry, I understand is working on that. Whenever it happens, it can be definitely beneficial. And as Sanidhya is saying, ultimately, the imports today is only the interior rate, and that's what we maintain that we will try to see how fast we can ramp up beyond the interior rate into our exterior and HDMR and the other value-added products. That's a winning statement for us. That's how fast we can ramp up and stabilize those production.

And also one more thing, as a company, we do not have any export liabilities on this plant. So we are not bound to keep exporting at a lower realization. So that gives us advantage that we have no export liability. So we will want to focus only on the Indian market and grow that. However, we might export 3% to 4% of our production just to have an alternate backup for our business.

Got it. Just at PBT level, what -- at the current rate, what utilization do we breakeven?

Sorry, come again?

At what utilization does this MDF plant breakeven assuming the current rate of current realization level?

I think it should be -- the cash breakeven can happen around 45%, 50% utilization. So it will just be -- as Sanidhya said, it will depend on the product mix, which we are able to sell within this 100,000 CBM. But there is a possibility that if the product mix is slightly better, we'll be able to, for sure, cash breakeven by selling 100,000 CBM.

Got it. And just one last clarification if you could, sir, in terms of the total market size for the West and South market, where we would be far more competitive given the price advantage. Can you give us some sense a, the site, and b, how it will grow in this? Have you seen some flatness out there as well or it's going very well?

Sorry, can you please repeat the question?

South and West, he's saying.

South and West...

Sorry, can you please repeat your question?