Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenply Industries Limited Q2 FY '24 Earnings Conference Call hosted by Asian Market Securities Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. The statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise cautious while referring to such statements and remarks. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities Limited. Thank you, and over to you, sir.

Thanks, Seema. Hi, everyone. Good evening. On behalf of Asian Market Securities, we thank you for joining us on the Greenply Industries 2Q and First Half FY '24 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, CFO; and Gautam Jain, EVP Strategy and IR. May I now invite Manoj sir to begin the proceedings of the call. Thank you, and over to you.

Thank you, Karan, and good evening, everyone. It is a pleasure to have you all on this call. I will be updating you on Greenply's operating and financial performance for quarter 2 and H1 FY 2024. First of all, I'm happy to share with you that we have crossed INR 600 crores in consolidated revenue in this quarter, which is the highest ever for Greenply in a single quarter. I'm very confident that this trend will continue in the upcoming quarters. And with this, our consolidated sales for this financial year will approximately grew at a CAGR of around 22% over FY '22 and a CAGR of around 15% over FY '20. If we are to compare the performance against the pre-COVID era. Now I'll share some highlights of the business wise performances. In our plywood business, revenue growth was 9.7% on a Y-o-Y basis, majorly driven by 11% sales volume growth. On a half yearly basis, we have achieved approximately 7% volume growth. With this, we are fairly confident of achieving our annual volume growth of 8% to 10% as guided earlier. On the margin front, our adjusted core EBITDA was at 7.9%, which includes a onetime expense related to entry tax amounting to INR 3.2 crores, which is nonrecurring in nature. In addition to that, we have booked major expenses related to our new brand ambassador campaign by NTR. The raw material cost witnessed an increasing trend in the last quarter. However, we see stabilizing timber prices here on. We have taken some price hikes during the last quarter in certain product categories. The full impact of the same would be visible in H2. Considering the above, we expect margin improvement in H2 FY '24. With the increase in turnover -- despite the increase in our turnover, our working capital is at healthy level of 31 days for the plywood business. And we will continue to focus on the same. Moving on to MDF business. I'm extremely happy to share with you all that we have achieved cash positive performance in the first full quarter of operation itself. During this quarter, our EBITDA margin was at 15.5%. We are also confident that we will meet our indicated 1 lakh CPM sales volume for FY '24. More details on the MDF business will be shared by Sanidhya later on. Our Gabon business continued to be under pressure due to severe political unrest in the initial part of the quarter and also supply side challenges. Although we are working hard to come out of the situation and closely aligning with the policies of the newly constituted government, we don't see an immediate turnaround. Hopefully, we should be able to provide better directions by the year-end. On a consolidated basis, our net debt levels are at INR 713 crores, which is well within our guided peak net debt level of INR 750 crores. In the upcoming quarters, we will also be making investments in our furniture hardware JV. However, despite the same, we are confident of remaining below our indicated maximum net debt range of INR 750 crores, including such investments. We are committed to maintaining our brand leadership position. And accordingly, we are still to have Jr. NTR as our brand ambassador. I'm glad to share with you that both Greenply and Jr. NTR share mutual values of sustainability and a deep commitment to the environment. We are confident that his charismatic pan- image will help us reach a wider audience and create greater awareness about the critical role of eco and health friendly products, such as our 0 emission plywood range and MDF range within the home interior space. With this statement, I would like to hand it over to Sanidhya to provide more insights on our MDF business.

Thank you, Manoj ji, and good evening to everyone on the call. In our MDF business, we are progressing well. I'm happy to share that we are a positive cash flow from operations in last quarter, much ahead of our original plans. It's result of meticulous planning and team effort, brand strength and commercial discipline. During the quarter, we have installed a few short size of cases as well for production of pre-lam MDF boards. In addition, we have launched other value-added product categories like CARB and Boil Pro. Being a premium player, we will introduce other innovative products and value engineered products to serve all categories of consumer segments going forward. In the last quarter, we almost sold 31,000 CBMs with a blended realization of INR 28,500 subs. As our last -- as our share of -- sorry, as our share of sales of value-added product increases, the realization should also increase consequently. For the full year perspective, we are well on course of achieving sales volume of 1 lakh plus CBM as guided earlier. With this perspective, I would like to open the floor for Q&A session. Thank you.

[Operator Instructions] We take the first question from Sneha Talreja from Nuvama.

Just a couple of questions from my end. In your opening remarks, you said the timber costs have already started cooling off. Could you highlight this further? And where do we see now on margins going ahead? And have we taken substantial price hike to offset now any further timber costs from you?

So first thing, I'm not saying that the timber prices will start coming down. What we are now feeling is that timber prices will possibly stabilize because it's already very high. And we don't see because to some extent, the popular prices are slightly corrected, which will slightly ease out the pressure on the eucalyptus also going forward. So keeping that in mind, I'm assuming that possibly, the timber prices have been just an assumption, our internal discussions, we may go wrong also on the same. In terms of price increase, we have taken -- as I said in the speech, we have taken price increase on some of the product categories and which was taken in the month of August, partially and on some of the products in September also. So this quarter, it will slightly start reflecting for the full quarter, so that will help my margin to improve and even for quarter 4.

Understood. And secondly, on the MDF front, firstly congrats on achieving a 15% EBITDA margin and being cash positive on the first full quarter of operations itself. You've already specified you would be doing 1 lakh CBM this particular year given that you are already 15% EBITDA margin, now where do you see the EBITDA margin trend given that your overall guidance, if I'm not wrong, was around 30-odd percent with full operations. So where do we see the EBITDA margin standing now given that it's 15% policy?

Sorry, we didn't get your questions...

Your voice is not absolutely clear. So maybe you can just repeat the question.

I was saying that you already achieved 15% EBITDA margin, which is phenomenal in the first quarter of full operations. Just wanted to understand, given that now utilizations will be further increasing, where do you see this trend going forward? Do will you maintain the earlier guidance? Or do you want to inch it up from here?

I think I don't remember mentioning 22%, but our basic focus was whatever others are making, we will be making very, very similar margins compared to any other branded clear in the sector. So we are still very confident that going forward, once we are at full scale, we will be making the same margins anybody else is making because currently, there's a lot of import market is an oversupply. You don't know how much fight or what the pricing tomorrow will be. But I'm very sure and confident that whatever the market is making or other players are making, we are definitely going to make as much as they are going to make.

And I think they are -- just to add to this 22% you would have said when we are doing a full trade operations, you may expect that type of a margin maybe next full year of operations or around that number. Okay, don't hold us again next year first quarter itself, that you said 22%. But I think a full year of operations, where maybe once we are targeting around INR 700-odd crores of sales, that type of a market, assuming that similar margin trend continues as the market is today, will be possible. And in H2, definitely our margin profile will be better than quarter 2 also. So there will be some incremental margin performance in H2 also.

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

Congratulations on great set of numbers. Sir, firstly, on plywood, we have grown. Could you let us know what is the demand scenario? Is the demand more or in the premium end or it is -- in which of the brand have you seen the major growth coming in?

Udit, thank you, first of all. No, the premium end side, demand we have not been able to see. There has been a drag on the premium end. Maximum, the total growth, what has happened is in the value segment only.

Got it. Got it. Sir, do you see in this mix also improving, would that ail to plywood margins as well with the change in product mix?

Well, look, to some extent, slightly it is also reflecting in this quarter itself, okay? Of course, we had some one-off expenses. Of course, we are also doing a higher spend on marketing side, which I think I mentioned around a couple of quarters back that we would be investing more on the marketing side. But yes, there is some impact on the product mix change already reflected on the margins. Now as I said that we have taken some amount of price increase in the value segment only, okay? That will help us to slightly improve the margins. If there is some pull off in the raw material prices, it will further help us to that extent. And yes, our efforts on growing premium still continues. Yes, maybe I can say that as a team, we have not been successful in the same. But there is a decent amount of effort which is going on to improve and bring growth in the premium segment. So the moment, if it happens, then that will also add up to my incremental margin profile.

Understood. Understood. And sir, in MDF coming to it, specifically right now, our value-add portion is lower, of course, because we have just started. So are we getting what is the placement of prices versus the imports or the current domestic players in the like-to-like products?

So I think I'll answer this. We are very much priced at par with current domestic players. In certain markets, as an entry strategy, we have priced ourselves about 2% to 2.5% cheaper than competition. However, that is for a very short period as an entry strategy for this financial year. From next year, our strategy will be to sell all products at par as competition is not higher, because Greenply is a player who always believed in selling the value-added and branded goods. So we don't believe in selling cheap. However, MDF, we are selling 2% to 2.5% on an average cheaper, which is our entry strategy.

Okay. And what would be the same versus the import pricing currently?

I think import pricing will be substantially lower than -- we believe around INR 19,000, INR 20,000 per CBM is a landed cost at importers warehouse. And our average realization and interior grade, which is like to like when we say INR 19,000, INR 20,000 per ton is selling in the trade for about INR 25,000, INR 26,000. And the other value-added products are selling it even higher. So -- and we are very, very clear and focused on the value-added segment. So as we grow the value-added segment, you will see our blended realization also pretty much at par with the competition by the end of the year, you'll see us getting there.

Got it. Got it. And sir, lastly, on the furniture hardware business that you mentioned in the opening commentary, could you explain what is the business strategy or any plans over here? And what would be the size of investment?

So this -- I think we announced previously also, we have signed of a JV with a Turkish partner, Samet. They are the leaders in the category in Turkey and have exports in more than 22 countries from Turkey itself, it's a 50-50 JV. And so we'll bring in the products on an 80-20 concept, the 80% selling -- part selling product is first where we will start manufacturing those products in India and the 15% to 20% the slow moving will continue to import from them until we see a level of liability. The whole project will come over the period of next 4 years. I mean, in terms of Phase 1, Phase 2 and Phase 3. And as of now, the estimates what we have put together, we would be closely investing around INR 300 crores to INR 350 crores together between the 2 partners equally with a portion of equity and debt. And next year, sometime in quarter 1, we're trying to see that if we are able to commission the plant in end of quarter 1.

We'll take the next question from the line of [indiscernible] from ICRA.

Sir, your sale has been increased from 23% from the last year. So can you just let me know what is the increase in price and volume?

Sorry, sorry.

The sale has been increased by 23% from the last year. So can you just breakdown into surprise any volume growth.

Sale has been increased by 23%.

Yes, over last year on a consolidated basis.

Okay, on a consol basis. So I think that is [Keshav] not the right way of looking at it because one -- last year was, we didn't have MDF business. MDF business only started in first quarter of this year. And in quarter 2, we have done close around to 90-odd to INR 39 crores okay? Quarter 2, we have done around INR 89 crores, which is straightaway addition to the overall number, which is reflected in the growth. And in the plywood business, the total growth, which we have done is close to around 7% in H1. And the Gabon business has actually not shown any growth. So that number to some extent, maybe it's slightly lower when you compare to last year's H1.

And sir, what is the percentage of A&P as compared to last year?

Percentage of?

Advertisement.

Okay. So on the A&P side, we have, in the first 6 months, our total expenditure is close to around 4.1%, which for the last full year was at around 3.1%.

We take the next question from the line of Mr. [indiscernible] from Fair Value Capital.

Sir, I just wanted to ask that do you compete with the paper industry for your raw materials that is wood that comes from key plantations and if yes, then how do you see that competition playing out in the future? Like will it lead to higher prices for all or will it lead to more area under plantation, which will lead to lower prices in the future?

I think I'll answer this. So yes, we do compete with paper mills to buy raw material. But however, with the given knowledge I have about paper industry, they can use only the bark material. So for them, it becomes slightly more challenged to source the plain material directly from the farmer compared to us when we, in MDF, can use materials with bark. And also, as far as tissues are available in the market, I think paper industry has a limitation in the number of tissues. We are slightly more open towards other tissues as well. So I think our pricing will always be slightly lower than paper industries. But yes, we are competing with them in different areas to buy the material.

And just to add to that, the whole timber forestry farming also depends on a cycle. We are today at the worst end of the cycle, and I think the cycle looks like it may continue for another 12 to 15 months. And then you will have good crop coming back. The moment that happens, then the supply side on the timber will improve significantly that's the assumption and which happens once every 8 to 10 years. So we are almost at the end of the cycle, maybe last 12 to 15 months, we might have to face this challenge of higher timber price and then possibly it will come down. Yes, it may not come down to the level what it was around 4 or 5 years back. But definitely, we feel that it will correct a lot as the supply side improved significantly.

Next question is from the line of Ritesh Shah from Investec India.

First, congratulation for commendable performance on the MDF side. Sir, just wanted to have some more details on the distribution. Basically reason why sales, if you can help with something you did indicate on our pricing strategy to start with. But how we are making this successful, just wanted to understand that. That's the first question.

On MDF?

Yes, sir.

I think our focus, obviously, is primarily West because our plant is there. However, looking at north India as well because NCR is one of the largest markets of MDF, and it is also not very far from the Gujarat facility. So yes, the second focus area becomes north and upper north and NCR. And obviously, since the brand has its own network in east and south as well and set of their own loyal dealers, so yes certain percentage of sale is coming to south and east also. But our focus on south and east is much lower, compared to western north. Our main market is western north. If you want to split today, I would say, 75% of our material is getting sold in western north, 25% is getting sold in eastern south. And our prices also in eastern south are much higher compared to western north, obviously, to compensate the extra freight we pay.

Sure. Sir, would it be possible for you to quantify how many distributor dealer network that we have? And what is the overlap right now, which is the existing network versus new appointed distributor dealers?

I can give you an approximation. I can't give you an exact number. I think roughly we'll be working in like 300-plus...

Yes 300 plus.

300-plus direct customers, those who are already established and are working regularly with us. Number one, number two, what is the other question you said?

The overlap by the existing network, when we say 300?

Overlap with the existing network, that's a hardly 20% and 20% dealers must be common out of this 300 and the rest 80% are new and unique who have joined hands with the brand, yes.

That's encouraging. Just a related question, sir, how have we got this volume growth and the market share gains, how should we understand that? So...

You're talking about MDF again?

MDF, yes, only MDF.

So I think Greenply is a very well-known brand. And I think because we are a well-known brand and the product is absolutely at par with any other manufacturer in terms of quality. And we have a brand edge and because of our geographical location, which is West and which is a unique location and nobody is in and around West and because of our aggressive marketing activities and our strategy, I think that is the reason why we've been able to probably eaten too the shares. Other side, I don't think market has grown so much, especially when imports are coming in so much and people are putting new capacities. I don't think the growth has happened. But yes, definitely, we must have eaten somebody's share or the other.

Add to that, ultimately, the strength for us is 1 brand. Second, our presence in West, which clearly gives us an edge in terms of our distribution and third service. So one of the reasons also that we went into West was that there is no clutter there, and we will be able to get straightaway business from the western part of the country.

Sure, sir. And sir, my second question was on working capital. Again, the performance has been pretty good. Sir, how should we look at this specifically if you look at inventory days since June to September, it has reduced, receivable days has also reduced by around 6% from 48% to 42%. Possible for you to segregate it between ply and MDF which is to appreciate your performance?

So working capital days, what we have given in my opening speech is primarily on the plywood, I would say. And I think it's 31 days, which I mentioned there. See, depending on a quarter-to-quarter run rate also, that will somehow change. So maybe quarter 3 performance may not be as good as quarter 2 because quarter 3 are always subdued. So the same 31 days, maintaining the same principle, which we have and the commercial tightness, which we exhibited, it can go to maybe 37 or 38 days because of, again, a lower sales base. And quarter 4, again, it can again come back to 32, 33 days. So I think plywood business, we should now book that on an average anything between 35 to 40 days that's the ideal number, which we feel if we are able to operate, it will be a good number. For the MDF, I think it is too early because we just started operations. We just started even launching some value-added products. And we are expecting that the sales will improve in quarter 3 and quarter 4. I would rather say -- I don't know Sanidhya comment, but I think we should wait for some more time for things to stabilize and we can give you a better picture for next year, maybe sometime in quarter 4.

Also like our commercial policies on MDF is very much at par of the competition. So I think almost -- I don't know the exact number, but almost 40% of our total sales is also a [indiscernible] sales. and the 7-day sales and the 14 day the 21 days, our credit quality is pretty much at par of the industry. So in credit, there's for relaxation.

That's great. Sir, if I just squeeze in 1 was on -- specific to again MDF, will we be looking at exports? And if at all, what is the margin profile that we would be looking at? Or will we continue to focus only on the domestic sales relying on our brand and distribution. That's one. And the second question is on sourcing on timber. Basically, for the Gujarat plant, I think we had earlier indicated at the very start that will source something from south and gradually over time that will reduce. So is that an incremental margin driver? What's the time line that we should look at over here?

So on the timber front, we are very, very clear. If you look at our timber cost even in the last quarter for MDF, it is pretty much at par with any manufacturer of MDF in northern India. So hence, we have no problem to compete in terms of our costing in north and in West and it is true that at the moment, we are not only sourcing from south, but we are sourcing from some other parts of India also and sourcing from Gujarat. But the way our plantation drive and with the way we have been working since before the plant started since financial year even before the plant started, we are very confident that we'll be self-sustaining. So we have almost planted about 2.7 crores saplings before the plant started. And this financial itself, we are planting approximately 1.5 crores saplings in a 150-kilometer radius of our plant. So we are working hard enough to ensure our own raw material sustainability and a better future. I see pricing is all demand, supply basis. It'll be very unfair for me to comment on that because I will keep thinking. But as far as sustainability is concerned, raw material availability and running of plant is concerned, I'm not worried about choosing Gujarat. In fact from the market point of view, we feel that we've done a very, very good decision that putting up the facility in Gujarat. One because of ease of working and second, all the big markets are very, very close to us.

And Exports?

Exports, we do not have any export liability as a company. And in the MDF segment, given the domestic realizations, I feel exporting with the best of line in my opinion. So we'll continue to sell in the trade. If we are unable to sell and we still want to achieve our capacities, we can always sell plain material in the market slightly higher than in export prices through domestic importer.

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

Just carrying on the MDF front, we already have 1 quarter of revenues. Sir, ballpark what's our gross margins in this business for now, because in Q2, we will mainly have the nonpre-lam business, just to understand how the gross margins were there?

I think it's too early Arun, this is too early to comment. I think going forward, with the pre-lam added, et cetera, and once down full scale, I think then things will really change for us. At this moment, it's very difficult, but if you still want to know for the last quarter, I'm sure quarter 1, I think we can give you the number as to how much the gross margin was.

Because the idea to ask that question, I hope Gautam will get back to me with the data, but the idea of the question was because when pre-lam comes in, margins should be really better because the relations are a massive right, compared to your industrial rate. I'm just trying to get that because if your Q2 numbers are pretty good on the MDF front, so Q3, you should get some incremental revenues from pre-lam and Q4 should be much bumper, which is typically the better quarter across the board. So just trying to get that because then your guidance -- margins with our pre-lam is at 15%, 16%, we should be way better than that. It's this year itself, so just an idea to understand?

Quarter 3 also in September, we had sold -- we have Arun, we have sold the value-added products in the whole of September, okay? So yes, you are right that -- and that's what we said that in quarter 3, the margins according to us, will improve further and further in quarter 4. But look, ultimately, we have to test the water. We're just a very new player and initially, everything looks good, but we have to be there. We have to be consistent in supply, distribution, service, everything. So let's wait for a few quarters. Of course, yes, the margins improve, and we'll come back to you and rotate the numbers actually.

So the idea because you said you sold something -- pre-lam in Q2 itself because the realization, if I look on quarter-on-quarter Q1, obviously, you had very low sales, but still your realization there was INR 28,546 and if I look at this quarter, it is INR 28,540, so there was no increase. So that's why I assume pre-lam here has not happened. That was my assumption.

Because, see, I mean also that you have to see the other mix also much of the interiors got sold in quarter 2. So what Sanidhya was trying to say that maybe 1 or 2 more quarters, we will also get a lot of clarity in terms of the mix what we are able to sell, how the market is panning out. Not many questions will get answered to us also internally. But your concern is right, and we are also hoping the same thing that quarter 3 margin will be better than 2 and 4 should be better than 3.

Yes. And just 1 more question was you mentioned about INR 350 crores of investment in that new venture. Just how much would that move in FY '24 and FY '25 from an equity perspective?

I'll tell you on the...

INR 300..

INR 300 crores over the entire suite...

INR 34 crores is the equity contribution...

INR 300 crores, I just mentioned, we keep the total investments on -- under 3 or 4 sales will be around INR 300 crores, okay? Out of which it is first 50-50. So our share is somewhere around, let's say, 150 to 175. And of that, 20% is our equity, let's say, 20%, 25%. So roughly, we are estimating over a period of next 3 to 4 years, INR 40 crores is the equity which we need to infuse. Most of it, however, may be around INR 25 crores to INR 30 crores, maybe INR 25, maybe INR 30 crores will go in the next 12 months.

And just to get some more sense in this business -- I have no clue of businesses, but in this business, assuming we put INR 30-odd crores and the partner puts INR 30-odd crores. First full year operations can give what kind of numbers? How do you look at this business?

So first year, you said or you are seeing overall capacity what it will generate out of this investment?

My first question was first year, then I'll come to the...

Look, first year, we are assuming right now that possibly we'll be able to commission the plant by the end of quarter 1 of next year, which means, let's say, June, okay? The balance 9 months, we are hoping maybe we will be able to do a turnover of around INR 100 crores or so in the beginning. And balance 9 months, INR 100 crores, yes, that's the maximum which we look at in year 1. And since it's a 50-50 JV, the consolidation will be a line item consolidation. So the top line, the sales will not get added. It will not get consolidated.

And how profitable this business would be, sir, assuming...

Actually, maybe by the second or third year of operations, the EBITDA margin can be extremely, extremely healthy. It can even go up to for sure, 20% plus, it can even range 25% plus.

And just a follow-up there, sir, full assuming INR 300 crores of the CapEx -- INR 350 crores of CapEx, how much can the revenues make from that business?

INR 800 crore of capacities is what it will lead to, okay? But this is not something, which is scalable like any other business. So incrementally, we can assume like in 3 years' time, we should be able to reach 3 years of full operation, we should be able to reach to around INR 300 crores, which can be a great number -- in year 3.

And sir, do you -- competition do you have right now in the market?

Competition for this business?

Yes.

So the competition is Hettich, Hafele and a few Indian companies like Ebco, Dorset, Godrej, a small player, but Godrej also. And a few more international brands, but there are too miniscule. See, we will clearly get the advantage of being the second player in the country after Hettich to have a full manufacturing facility. And that will be a big advantage for us to get traction. And second, again, in our existing channel itself there is a good possibility that we'll be able to create distributors because our existing channel is very bullish and very [indiscernible] on this new product line, which we have spoken to them.

And just one thing on the plywood business. Do you expect that obviously, you have numbers for the month of October. But do you expect a typically a premium share to go back to normalization in second half of this year?

Well, I mentioned this and I mentioned even in my earlier call that as a company we still believe that we have the right products, okay. We are the innovators and our 0 emission category is something which is really we want to push this into the market, and we are seeing some new players also getting added with 0 emission plywood. But last 3-4 quarters, we have seen that the market has slightly moved towards the value segment, okay? So that remains a challenge because the more we are able to improve it, it will help our margin to grow. That's a clear belief and Greenply brand has always been the leader in the premium category. Though we still maintain the leadership, but we need to grow. I can only say at this point of time, it's a desired statement. There are efforts but we have not seen that result in the last 3 quarters for sure.

Any geography which did really well in Q2 for us, in plywood business? Any particular geography, which did really well.

No. I think no, it's actually -- no, we have almost grown well in most of the areas. 1% here or there, but the growth has been very similar across the country.

And the trend continues in October?

Well, again, quarter 3, as you know, is a festival period. And traditionally, quarter 3 will be slightly subdued compared to quarter 2. But I think when you look at the macroeconomics at this point of time, things looks good. I have always been advocating this that things look good for Building Materials segment. Yes, some glitches would be there depending on some economic news and other things. But overall, things look good for branded players. If we continue to do the right things, we'll continue to grow in this business.

The next question is from the line of Mr. Mohit Agrawal from IIFL.

I had a couple of questions. So firstly, a clarification on the MDF segment. You mentioned about the value-added products. Could you quantify during second quarter, what was the share of value-added products in the 31,000 volume that you did? And where would you like to take it? I understand it will take a few quarters for you to realize that, but where would you ideally want to take it on a steady state basis? And by when do you think you'll be able to achieve it, the share of value added in MDF?

I think at this point, it will not be fair to share. I mean, we were wanted to be 100% ideally speaking, but that's not practical. So it totally depends on what the sales team can achieve, how much the brand can attract and how much we can focus on our value-added sales. I think time is going to say and our hard work to speak how much we'll be able to achieve. For the last quarter what we achieve -- we can -- the team can share the data with you. You can get in touch Mr. Nitin Kalani. He'll share the data -- the share of value added for quarter 2. But going forward, I think it will be unfair to decide how much it will be. I mean, our aim is for the highest like whatever we can maximum, we don't want to stop on that.

But any ballpark, Sanidhya, any like a 50%, 60% share is what you want to achieve at least?

I mean, ideally speaking, yes, but I will -- I think times should say whether we can achieve it or not. But ideally speaking, yes, 50% should be exterior, HMR, boilo, pre-lam put together.

Okay. Understood. My second question is on the plywood business. You mentioned premium -- so we have 11% growth this quarter and 7% growth for first half. And you mentioned that the growth is coming in from value segment, is it -- is it possible to kind of quantify how much is the value segment growing and how much is premium growing? Just want to understand the divergence between the growth rates of premium and value.

So the premium segment has not grown. As I mentioned in the beginning, the whole growth is in the value segment itself. And our mix was almost earlier was what, 57%, 43%, earlier premium to value -- was 57%, 43%, earlier?

Premium...

Premium to value...

Value term..

Was 57%, 43%.

Value term 57% and now, earlier it was 58%. The prior quarter it was 58% [indiscernible] quarter it is 56%, and mid segment is 41% last quarter and Q2 it's 43%. So 2% increase in...

Okay. Have you got the numbers?

43% is the value segment, right?

Right. Yes, yes. One year or maybe 4 quarters back, it was 37%. So you can see the shift from 37% to 43% over last 2 quarters.

The next question is from the line of Balaji Vaidyanath from NAFA Asset Managers.

Hello. Yes. Just wanted to understand there is a metric that you track in terms of the pricing differential between the value ply versus the top-end MDF and if so how the pricing differential has moved? Because you mentioned that the value ply is doing much better in your overall ply segment. So at what point, as it becomes -- the customer becomes indifferent between top-end MDF versus value ply?

I think, I would say this. I think value ply is growing because the overall -- if you see the pyramid of the plywood industry, the value segment is much larger. And the premium segment is very small, and we are already having a significant share in the premium segment. Hence, the value is growing much faster than the premium that is the plywood story because of the market. And I think MDF and Plywood are clearly different needs of the consumers and depending on different needs and the consumer chooses or the furniture manufacturer chooses or the converter chooses depending on the need. I think there are very different needs when it's coming in to buy value plywood is coming into the different mindset when he's coming in to buy MDF, which is premium or the cheaper MDF doesn't matter. He's coming into the different mindset because I think the end use according to an end customer might be okay at the end of the day, furniture going to be made. But the type of furniture, the use of furniture, the finish, the carpenter or the contractor or the designer wants to achieve on a given furniture in MDF is different to plywood. So it varies, the need varies.

Yes. And also, as Sanidhya is saying, depending on the end consumer needs. So one clear differentiation still which remains in the country is whether you are using it for your personal use and in residential versus if you are using it in any of your investment properties or commercial needs. So in commercial needs, more of MDF gets sold, for the region because most of these OEMs or the high-end contractors were set up a shop for making furniture. They want something where the thickness variations and nothing should become obstruction to them. So for them, it is like mass production. But still, in terms of the product, per se, there is a lot of difference between plywood and MDF. So the home users and everyone who wants a good longevity in their products, and this still relies a lot on plywood only. Second, MDF, again, there are different uses also because MDF is much beyond furniture as an industry. So it has many other usages. Ply is purely furniture usage only.

So you are saying that the effect of cannibalization is very minimum in terms of sales?

Well, let's see, to some extent, that cannibalization is going to happen, as I said, because for OEM, you will see slightly higher traction from -- on the MDF side because in plywood, it's a very natural product. And whatever one can do, but you may still see some level of thickness variation. Of course, that goes into micro MM. But that is not something which a machine understands. So when it comes to OEM, people still prefer MDF because they get better productivity, the machine understands that. But when it comes to carpentry work, when it comes to labor, when it comes to reliability, strength, durability, then people still look at plywood as an option. And that in this country will continue for sure for long.

Sir, the actual reason that I'm asking you is, I'm wondering why that when there is a raw material price hike, timber price hike, why is it that you are able to regularly take a price hike in the end products considering that the region where you are present doesn't have any imports present, at least in the southern region, the threat of imports, et cetera. But being invested in north, there is very minimal imports. So there is a raw material pressure. You can right now at least take a price hike.

Well, we are talking about plywood, MDF.

Sorry, can you please repeat your question?

He's saying that why can't you take the price increase further in MDF?

I think at this moment, price increase in MDF is not a question because there's a lot of imports, number one. Number two, there are many people who already added capacity or are in the process of adding capacity. So I think everybody is wanting to secure their own market share, secure their own customers, secure their own volumes. And at this given point, I don't think it is possible to further increase prices, impact to hold on to prices will be a challenge...

I think if you really ask us our priority at this point of time is to scale up business, okay, without disturbing the price which already others are able to get into the market. So that we maximize our throughput and we maximize our margin also.

So the import of MDF is a threat even for your region, western region as well?

Yes, of course, report of MDF just threat to everyone. We are also very near to the port to that extent, but it's okay. It's all on the interior grid only. This also we have mentioned earlier that the whole import takes place only on the interior grid. And the imports, if you see last couple of years of data, maybe if it was around 10% or 11% of the total MDF business in country, it is around maybe 13% to 14% today, if you really look at the total MDF consumption into the country. And that's mainly interior grid. So that's where somebody earlier asked that what is our plan on the VAPs products mix and sales. And that is where most of the MDF players in this country, they concentrate at.

Okay. My last related question on this is -- in terms of this Bureau of Indian Standards, there are new rules that are coming in back...

Sorry to interrupt you, Mr. Balaji, we're unable to hear you sir. Your audio is breaking.

You're not clearly audible.

Is it better now?

Maybe yes, please.

Sir, I was just asking in terms of the Bureau of Indian Standards coming up with a new notification for import of wood products, what -- wanted your views on that in terms of how difficult it will make the life for importers?

I think it will definitely make the importer's life slightly difficult. I think, however, this is applicable from the end of the year. So it's still a wait and watch and how will that help us, time will say. And it's good that the government is taking such measures to make sure that Indian manufacturers are getting protected.

[Operator Instructions] The next question is from the line of Keshav Lahoti from HDFC Securities.

Sir, as you highlighted in the call, the timber prices are on par with north price, but north price is currently 30% higher than south prices. So how will you be able to compete to importing western market when you have a higher timber prices? And what is the timber price per kg in quarter 2.

We'll give you the exact number of quarter 2 and different timber prices...

See, the prices of timber in north and west are almost similar. In south, also the prices have gone up. And today, if you really see, they are only cheaper by around INR 1 kilo price, which would be in terms of percentage, maybe around 14%, 15%, if you take that. So that's -- but between north and west, there is no difference in the landed price.

And we are not trying to compete with the import. We are selling at a much higher realization on import. Import average realization of INR 19,000, INR 20,000 PBM, while as our average realization for interior grade trade is about INR 25,000 PBM. And as you keep going higher with exterior, HMR, boilo, it keeps getting higher. In boilo, for example, our realization would be like, what, INR 65,000 a PBM, though the sales volume is very low, but -- we are the second -- we are the second player in the country to have this category. There is nobody else in the country that has a category.

Got it. No my point was from like when if the import price and your price differential becomes bigger than 20% when people might decide to shift to imported products because of the pricing difference. So possibly, if you have a higher timber price at your end, you need to sell it at a higher realization. So possibly that leads you room for imports to gain market share?

See, to some extent, as I said that we see a 1% or 2% increase as a total percentage of consumption in India on the import side, okay? But you have to also understand that like today, invest, we can even serve a very small quantity. We can serve the quantity to the end user on a daily basis. When it happens to import, we have to carry certain amount of inventory. Also, once the price is decided, maybe they get the consignment after 1 month or 2 months. So the uncertainty over what can be the price after a couple of months. So there are factors. Otherwise, today, imports would have been big time into this country. Yes, it is a decent number, but the traders also understand that there is always a plus and the minus, the pros and cons are always there, but anything which we import into the country.

And mainly on interior grade. The fight with the importers of interior grade, not of other grades.

We'll take the next question from the line of Kushagra from Old Bridge Asset Management.

Just 2 questions. One, given that you're already on 52% utilization levels in the MDF segment, where do you see your cost per CBM settling in for your interior grade MDF? If you can give some color over there, that will be helpful. So we have seen a comparison, I would say we have seen some of the larger players report or sort of clocking around INR 17,000 to INR 18,000 per CBM. I'm just trying to get a sense of where will you settle in once your utilization levels ramp up?

I think it will be too early to say. I think at the end of the year, we'll be in a better position to reply on this because if you look at the number of months from 5th May we started, it's hardly been 5 months of operations in quarter 2 end. So it's still too new to comment on this. We have a -- lot of our costs might be slightly higher today because the volumes are comparatively lower. We have slightly newer player compared to others. So won't be comparable. By the year end or next year quarter 1, we'll be in a position to give you a real picture.

Yes. At this point of time, the overall margin, which we are able to derive from the business for the next few quarters will be relevant, will be the factual thing because we also get to know, and we have to also understand our cost structure, as Sanidhya saying, we might be -- and this is one business where you get better consumption propensity only with maturity. So we will also continue to improve on the cost structure. Those are other 3 points which are still there. And that's what we understand about the industry that it takes around anywhere between 9 months to 12 months minimum to mature on the cost side. There would be breakdown, there would be stoppages, there would be new samples. There would be a lot of things, which initially we would be experimenting with. So I agree with Sanidhya that these questions will become more relevant sometimes next year.

All right. The second question is on capital allocation. So the sense, which you gave on the JV in terms of investment and asset turnover and EBITDA high-peaked revenue. Broad math says that the payback terms should be 5 to 6 years. So if you can confirm to that or something more to it? And a related question is, what are the debt levels, which you are thinking of carrying on your balance sheet over the medium term as well, given the amount of cash flows, which you will be able to generate henceforth.

So first question on the hardware as much, I've just given a ballpark number. You never know, maybe in the first 12 months itself because we have a good distribution strength, okay. And the product qualities are very good and cost-wise, we would be definitely much better because we will be manufacturing. I said INR 100 crores, we might even look at maybe doing INR 200 crores in year 1 itself. So it's too early. There's no point right now commenting on payback and all those. I have given you the ballpark thing, yes, the margin profile is good. It's more than 25% because these are all high-end engineered products. And the total investments over the phases, what we have agreed with the JV partners is anything between INR 300 crores, INR 350 crores. And that can give us a capacity of INR 800 crores in terms of manufacturing. So these are the facts at this point of time, as we mature maybe next year, we'll be able to share a better perspective on the same. It's too early. I mean -- I mean what is the point of commenting on this thing at this point of time?

All right. Just on debt.

On the debt side. On the debt side, like we have given a guidance that one, as an organization, we want to be within the equity of 1 at any point of time. We also said that we will peak out our debt somewhere around INR 750 crores. We still maintain that. And the whole idea is finally to be within that this 1:1 level.

We'll take the next question from the line of Akshay Chheda from Canara Robeco.

Yes, Sir, just 1 question. Sir, how should we look at this 11% volume growth number, sir? Is it that finally demand is coming back in plywood? Of course, you did mention that the third quarter because of seasonality would be weak. But would it be that the fourth quarter would be better than second quarter and then FY '25 will be better than FY '24? So do you think that things are improving from here on or too early to comment?

Well, for this year is, yes, quarter 3 as like any other year because of a lot of activity is always a subdued quarter. So the quarter 3 numbers possibly will be -- and I mean it should be lower than the quarter 2 numbers. But quarter 4, again, the number improves because that's a good season. So for the full year, as I said, we are at 7% right now in H1. We are hoping that if we're able to clock around 9% in H2, then for sure, we are at 8% volume growth. And as I've always maintained, in plywood business, if we do the things in the right perspective. And if we have the -- if we don't have any supply side challenges, then we always will try to grow the volume between 8% to 10% for next few years for sure. Even though the market doesn't grows, but I think the shift from unorganized to organized and our own better working, our own performance will help us to grow to that extent, for sure, between 8% and 10%.

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.

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. Nitin Kalani. Thanks again, and goodbye.

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