Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of Greenply Industries hosted by Asian Market Securities Limited. This conference may contain forward-looking statements about the company, which are basis on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance, 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 caution 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 Markets Securities Limited. Thank you, and over to you, sir.

Thanks, Susan. Hi, everyone. On behalf of Asian Market Securities, we thank you for joining us on the Greenply Industries 3Q and 9-month FY '24 Earnings Conference Call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO; Sanidhya Mittal, Joint Managing Director; and Nitin Kalani, CFO. May I now invite Manoj ji to begin the proceedings of the call. Thank you. 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 Q3 and 9 months FY 2024. First of all, I'm very happy to share with you that we have achieved a consolidated revenue of INR 621 crores during this quarter, which is the new highest ever for the company in any single quarter. I'm also excited to share with you that on a consolidated basis, our revenue has grown by 45% on a Y-o-Y basis; and on a 9-month basis, a growth of 24%. With this, I'm very confident that this trend will continue in the upcoming quarters, and this also corroborates to the 22% CAGR for FY '24 over FY '22, which was mentioned earlier in my last quarter speech. Please note that actual numbers will have to be looked at on a like-to-like basis, excluding Gabon revenue once the transaction is approved by the shareholders. During the quarter, our consolidated EBITDA has grown by 56.5% on a Y-o-Y basis. Now I'll share some highlights of business-wise performance. In our Plywood business, revenue growth was 11.9% on a Y-o-Y basis, majorly driven by 11% volume growth. On a 9-month basis, we have achieved approximately 8% volume growth. With this, we are very confident of achieving our annual volume growth target of 8% to 10% as guided earlier. On the margin front, our adjusted core EBITDA margin was at 8%. The raw material costs continued to show an increasing trend seen during this year. During the quarter, we continued to invest in building the brand equity and continued with PVCs to leverage our partnership with Jr. NTR whom we appointed as our brand ambassador earlier this year. This also had an additional impact on the quarter's margin. Our PAT for the quarter was at INR 27 crores. The PAT includes onetime impact of reversal of interest provision in matter pertaining to area-based exemption under central excise to the tune of INR 8.9 crores as a result of favorable orders received from the department. Moving on to MDF business. So our revenue in the third quarter was at INR 128 crores and a volume of 41,928 CBM, which was better than our expectations, and we are confident that we will well exceed our guided 1 lakh CBM volume during this financial year. I'm happy to share with you all that we have started selling our value-added products during the quarter and we are also planning to add more VAP in our portfolio in the near future. During the quarter, our EBITDA without ForEx was at 13.5% as against 13.4% in the previous quarter. We realized that our EBITDA in quarter 2 included positive impact of ForEx income on the loan outstanding, which during the current period reversed and turned negative due to adverse currency movement. These items distort the quarterly performance. We have now corrected the EBITDA calculation to exclude such income or expenses, which are noncash items, and significantly fluctuating quarter-over-quarter and not a part of operating EBITDA performance. Since we are still in the phase of stabilizing the plant, trial runs of new products as well as ramping up our overall capacities, cost optimization, we believe that the true level of EBITDA will be visible in the coming financial year only. More details on the same will be shared by Sanidhya later on. Our revenue in Gabon business were almost similar to last quarter, and we continue to make losses in that business during the current quarter. We are happy to share with you that we have reached an agreement to give us a majority stake and management control in our Gabon business. The business had been loss-making for past several quarters, and the company was finding it difficult to manage the operations of Gabon and one after another challenges were getting posed while running the business. Since pandemic, the Gabon operations have not shown any signs of stability and the debt levels kept on increasing. Subject to shareholder approval, the transaction should be completed within quarter 4. On a consol basis, our net debt levels are at INR 732 crores against the previous quarter debt level of INR 713 crores, which is well within our guided peak net debt level of INR 750 crores. This increase in debt is due to 2 main reasons: firstly, we made an investment in our hardware JV amounting to INR 10 crores during the quarter; and secondly, our working capital levels in absolute terms increased, both in MDF as well as Plywood business. We have accumulated additional inventory of timber as well as coal, which is typical in this quarter, to meet our requirements in the fourth quarter. However, if we have to compare with quarter 3 FY '23, our working capital days for the Plywood business are at a level of 36 days as compared to 38 days in the third quarter last year. In January, we have already made additional investments of INR 15 crores in the JV and are also likely to make additional investment to our VAP in our MDF business going forward. However, we are confident that we'll remain below the guided net debt level of INR 750 crores. After the completion of Gabon transaction, which is subject to shareholder approval, the consolidated net debt at the year-end will be somewhere around INR 525 crores. 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 have achieved a revenue of INR 128 crores, also having a positive cash flow from operations and at net 0 at PBT level in this quarter as well, ahead of our original plans. It is a result of our meticulous planning, team effort, brand strength and commercial discipline. During the quarter, we have installed a few short-cycle presses as well as ramped up production of our 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 be introducing other innovative value-engineering products to serve all categories of customer segments going forward. In the last quarter, we sold 41,928 CBM with a blended realization of INR 30,629 per CBM. On a year-to-date basis, our sales volume has been 79,009 CBM with a sales realization per CBM of INR 29,649. As our share of sales of value-added products increases, the realization should also increase. From the full year perspective, we are confident of well exceeding our sales volume guidance of 1 lakh CBM. With this perspective, I would like to open the floor for the Q&A session.

[Operator Instructions] And the first question is from the line of Ritesh Shah from Investec.

First on Gabon -- hello? Am I audible?

Yes.

Congratulations on a good set of numbers. A couple of questions, first on Gabon. Any particular rationale to take out 51% stake, that is one. What impact would it have on both the balance sheet and P&L that's related to Gabon? Probably I'll come with the other questions after you answer, if that's fine.

So Ritesh, I mean, let me again ask you a question when you are saying the rationale behind the 51%, right?

That's right.

So I mean what exactly is you are trying to understand? It is more, it is less or what exactly you're trying to figure out?

So why not 100%?

Okay, okay, okay. So Ritesh, simple reason, we were actually trying to get a buyer since almost last 2 years. And it was not at all easy to find anyone who could have taken over the business, right? Our intent up here was that if we are able to fully hive off this business, but we could not. Because what happens is the other parties still felt that we still have so much of experience in this. And there is a huge risk, I can only tell you this much, for the buyers at 51%, whatever they have taken. And they felt that they are not interested in taking anything more at this point of time. Second thing, in terms of balance sheet and P&L, once the shareholder approval is in place, which I think would be there in quarter 4, yes, by February end, for quarter 4 results, when we will declare from quarter 4, one, only this consolidation will not happen. So debt and all other assets and everything of Gabon, which were getting consolidated will no more get consolidated. And in terms of P&L, only one line item will start reflecting as our share of profit or loss from the JV going forward. The control, of course, will move away to the buyers.

Right. Sir, should one assume INR 150 crores, INR 200 crores of delta on that because of this? Or is the number higher than that?

So I mentioned that we have a debt of close to around INR 35 crores to INR 37 crores, which will not get consolidated in the year-end balance sheet, which means that our debt profile will somewhere come down to around INR 520 crores, INR 525 crores.

Perfect. This is helpful. Sir, my second question is congratulations on MDF ramp-up and margin profile. You did indicate that we will have incremental investment in value-added products going forward. Possible to give some time lines and CapEx numbers and incremental benefit that will draw out of this?

Yes. Sanidhya?

For next financial year, we plan to spend almost -- close to INR 40 crores on CapEx in MDF and this is mainly on 2 grounds: one is to increase production capability to manufacture value-added products and the other is to increase our existing line capacity from 800 CBM to 1,000 CBM. So all our balancing machines in the plant is planned for 1,000 CBM from day 1. The press, however, will get extended and we will be able to churn out 1,000 CBM from this line instead of 800 CBM. So this INR 40 crore includes both line extension as well as value-added products.

So when do we see the -- so this will happen in FY '25. So should we presume these benefits will come, say, from FY '26 on the P&L?

For sure, yes. Yes. Absolutely.

The next question is from the line of Sneha from Nuvama.

Congrats on good set of numbers. Just a couple of questions from my end. If I look at your MDF segment, there are a couple of questions on that particular segment. If I say this quarter you have started value-added segment, but ex of ForEx your margins have remained same. Could you clarify on that particular point that why have your margins remained stable, ideally, it should have moved upwards? Secondly, can you speak about raw material sourcing at what timing is it, what's the mix and have your raw materials sourcing improved?

Sneha, your voice is cracking. So I think the first question we were able to understand, but the second one was not clear. Maybe Sanidhya, you can answer the first question.

What was the first question?

That despite increase in sales, the margins are same.

So there are a couple of reasons for that. So when we started the line, we started buying timber right from March. So if you see -- and if you see the timber trend from March to now, there's been a continuous increase. So in quarter 2, we were consuming the older raw material, obviously, because we cannot carry that forward. So the raw material side, the cost was low. Also, when we started value-added products in this quarter, there were some losses, which we made while producing value-added. These are just start-up losses or losses related to production and inefficiencies in terms of consumption parameters. And then followed by that, there was another drag, which was the marketing cost. How much of that, Nitin ji?

Was INR 3 crores.

Yes. So in quarter 2, there was almost nil marketing cost. And in quarter 3, it was INR 3 crores. So after that effect, it is -- the margin is remaining same.

Understood. And your raw material supplies are coming from where? And if at all, you could mention those older inventory has gone away, what's the kind of timber pricing are you receiving? Some sense there would be helpful.

You want a number?

Yes.

Nitin ji, you have the average number?

The prices currently are about INR 6,500 a tonne essentially. INR 6,500, INR 6,700 a tonne on an average, which was around INR 5,500 when the initial stock was built up.

Understood. So that initial stock has gone away, right? We are now building up those inventory as and when required.

Yes. Absolutely. Absolutely. Yes.

Understood. And what would be your current regional mix in terms of sales? And where are we exactly targeting in this?

Obviously, we are trying to sell most of our capacity in West and we are selling a little bit in the North as well and very little in the East and very little in South. And being placed in Gujarat would give us a great advantage because not only do we use road transport, we also use sea transport to domestically send our material to South India, which is really cost effective.

Understood. And do you have any share of exports at this point of time? I understand you don't have obligations, but are you exporting some of that given that you have a port, which is close to you?

I mean, it's not making economic sense to export and we have only one line. And as a company and our philosophy, it's very clear that we want to focus on value-added products. So we want to use our brand name, we want to focus on that and pump value-added product to the market. And as of now, we are just sitting with one line. And we are quite confident that we can sell this in the trade itself. We don't need to look at exports.

Understood. And lastly, on your pricing, in case you can just mention where are we versus our peers and imports at this point of time?

Quarter 3 -- if this question is pertaining to quarter 3, we were probably 1% or 2% cheaper depending on market and product to product compared to peers. If you talk about today, I think we are -- everybody is at the same level because, I guess, the scenario is very competitive at the moment.

And how much were the imports cheaper at this point of time, sir?

See, imports is mainly industrial grade and of a lower density. And honestly, that is not our segment at all. We are neither trying to match that, neither are we trying to focus there. We are very clear that we want to make -- even on the interior grade, we are making much higher density than import. We are trying to leverage our brand. We're trying to leverage our distribution strength and we're trying to play there. So we're not trying to compete with import because given the size we have in terms of just one line and that much material to sell, we are quite confident that we have to sell only domestically at our prices. We should not get into this price war of matching with import. We'll not be able to survive.

Understood. And last question, if I may. If you could speak about BIS norm implementation, what's your take on that? Do you think it's getting implemented in time? Or are you expecting some delays around? And what's the kind of impact that you see on your business because of BIS?

I think it's a great step that the government is taking. And we definitely need to bring the standards in and protect the domestic manufacturer from cheaper quality imports that are coming in. And with this, then the field becomes level play. And obviously, for any organized player like us, it's going to be great because with BIS, definitely in the short run, the imports will be greatly affected. And fingers crossed, hoping that it comes in and all of us start doing very well in MDF.

I think -- yes, just to add, I think there are representations, possibly that's why you're asking this question. We have also had that there are representations to delay this. But if you really the intent paper, it very clearly says that one, that the government wants the basic standards to be maintained in the wood panel industry. And second, they also are trying to see that the domestic industry that the Make in India concept, actually it gets a boost. So it remains to be seen. But if you were to ask me if that is the intent, it's kind of difficult to see that this will get extended and this will not get implemented from 1st of March. Even if it happens, maybe the government might give a leeway of 2, 3 months, not more than that.

Understood. And what's the cost of getting a BIS license? I'm sorry, that's last.

So BIS license, we as an organized player, we already have licenses. Okay. So for us, it's not going to make a major difference. Yes, except in some of the categories where we were not putting the BIS mark, there also we'll start putting the BIS mark. It's a cost, but it's very miniscule compared to the overall turnover of the business. And it's different for different grades also of standards. So it's very difficult to quantify it that way.

No. By this, what I wanted to understand was, will it be difficult for smaller players to get the license or for exporting players to get the license? Or is it not the cost impact, it's time and effort or changes in the process, which is more of an impact?

I think the change -- I don't see it the smaller players having a challenge of not getting the license, to be honest. I think, in India everybody will get the license. As far as foreign players are concerned, it is time consuming and it's a difficult process, more than cost I feel. Because all the foreign players who are exporting material, they're not small players. So I don't think costs at all is a challenge for them.

See, domestically, the quality, what we produce in India, okay, leave aside the organized players like us, even the unorganized players, what I have seen that most of the other places, those qualities are not as good as what we produce and consume in India. So what Sanidhya is trying to say is that, yes, domestically, anyone who follows the standard in this will be able to get the license. And I think the authorities will be more than willing to do that also because they also want that the material, which gets sold in this country, everything should be compliant and should be a proper standard. Internationally, yes, there can be a challenge for them to get it so fast.

Understood. Sir, just one basic question since you ask this, I know I'm just having a lot of questions. Internationally, also I think global players are [indiscernible] Indian market. Why is it that their quality would be largely different and would be very difficult for them to comply with our quality standards?

No. It's not a question of difficulty of this, okay. It's a question of, one, their mindset because they also have to undergo their change, their economics, right? And when -- then we don't know that in terms of cost and everything, the competitiveness, which today they might be finding for the Indian market. And second, as I said that if you look at the intent paper, whatever we have read, it's very clear that the reason also -- one of the reasons of doing this is that the Make In India concept is being given a boost. So rest, you understand.

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

My question was with respect to the Plywood volume growth. How do you look at it for FY '25, '26? And how has been the -- I mean, obviously, it's 11% growth on a Y-o-Y basis, but how the momentum has been? Is it picking up? Is it the same as we speak?

So Achal, I think for the journey what Greenply is traveling, the type of things what we have done in the past 2, 3 years, our confidence in terms of volume growth has increased. And if you really see, in terms of our spend has also gone up further. That -- one of the prime reasons as a part of that strategy is that we can get better traction both in terms of the premium and the mass category. Okay. Going forward also, we are very much willing to make sure that we grow in this volume range, 8% to 10%. Now this is something which, as I keep mentioning, is more of the growth within. It's the intrinsic growth. Irrespective whether the market is growing by that volume or not, I'm assuming, as a company, the type of efforts what we are taking and the reach and distribution, what we have and the product stack-up, we should be able to grow in that range of 8% to 10% in terms of volume. From the industry perspective, I think if you really look at it, I don't see anything negative happening now for the country in the next 5 to 10 years. The things are looking better only. I was just looking at some residential house sales data. First time in H2 of last year, I'm sure you guys would have also looked at that report, first time it has happened that in H2 of last year, the premium sales of housing is much more than the mid-level. It has crossed that level. So these are very encouraging signs. Of course, they define the premium level as anything above INR 1 crore as the ticket size. So these are very encouraging signs. And the housing sales trend also is growing. Last year also, it has grown by around 5% to 6%. The previous also, it grew. So these are all encouraging signs. And over and out of that, if the GST rationalization takes place, which I feel that now after these elections, whose ever the government comes, there is a likely chance to curve the unorganized market and to improve compliance in this. There will be a level of GST rationalization. And if that happens, then for sure, this type of a growth in plywood looks very much feasible at 8% to 10%.

Understood. Would you be able to talk about what is the mix we have in terms of the premium, mid- and the low end?

So in terms of the volume, premium is almost similar like the last quarter, we are close to around 43% and the mid value is around 57%.

In terms of volume and in terms of value, sir?

Value is 56%-44% .

This is for third quarter, right?

Yes. And this was very similar for the second quarter also -- I mean, the same number for the second quarter.

Understood. Another question I had in mind is with respect to the timber prices for the Plywood business. Can you help us understand how that has changed on a Y-o-Y as well as Q-o-Q basis, what is the price, I mean, for the third quarter and the change?

See, timber prices this year again has only gone up. And if you really see -- if I recall from the beginning of the year till date, there would be almost maybe 8% to 10% of increase in the prices. Okay. We try to do our best to see that how we are able to cut it down by trying to source material not only domestically, but even now internationally. So we have been importing material also to try and see how the costs are under control to the extent possible because on the sales side, I have seen that the elasticity is very high. And this year, if you really see on the Plywood business, we are not seeing anyone taking any major price increase. And that is one of the reasons also that we have seen that the margins overall are slightly under pressure for most of the players. Going forward also next 12 to 15 months from hereon also, it looks like that the prices will remain in the zone. It can slightly move up also, it may slightly come down also, but would be in this range. And then in FY '26, we are hoping and expecting now that the supply side will improve and the prices may come down to some extent.

So what kind of margins one should look at, I mean, on a reported basis? I know there is an ESOP charge. But on a reported basis, how do we see the Plywood EBITDA margins for next 2 years, sir?

Well, see, I think we are at near 8% level, okay, plus or minus 0.2%, 0.3% because of the ESOP charges. See, we can only improve from here. I can only tell you maybe 0.5% drop in the next 6 months of this, but I mostly see that from here at this level -- from this level, we have all the chances only to improve on our margin profile. See our market also we have slightly increased, okay? And I'm not disturbed at all despite slightly being pressure on the margin front, we have not reduced that because that's a part of our strategy. The company, on the Plywood business, is almost nearing around INR 2,000 crores-plus by next year. And this was high time that after doing so much of our internal corrections, we needed to up our investments on the brand equity also because, as of today, we are still the leader in the premium category. And that is one category in our case, which has not been growing. You all know that. So we still have all our efforts there. Of course, in the mid- segment, we have been growing. So overall growth we are able to get, but we also need to work to see that how we are able to grow our premium category, which, if that happens, then clearly, you will see upswing in the margin.

Got it. Sorry, just a clarification, sir. With respect to the mix, you talked about 2Q and 3Q FY '24. Can you help us with the 3Q FY '23 mix, if you have it?

Yes, yes, yes. 3Q FY '23 on volume basis, premium was 49%. And so the balance, mid, 51%. And in terms of -- volume. On volume, 49% and 51%. 49%, premium, 51% mid. Value is 61% premium and 39% mid.

What it means is that the premium has actually declined and the entire growth is driven by the mid?

Absolutely. So the premium is almost stagnant and the growth -- whatever has happened in the last 1 year has happened in the mid-value segment.

And you think this is for the industry also premium has declined? Or you think it is more to do with our own strategy and we will be able to recover that?

No, there is a significant pressure on the premium for the industry, okay? And since we had a larger chunk of premium, I feel that we have also seen the pressure on our margin. But as I clearly mentioned that, one, we have -- we are taking all our efforts to see that how we are able to improve this and grow not -- maybe the company may grow at 11%, 12%. The premium, if it grows at 5%, 6% also within the same, you will see that the margin starts improving further on account of this also. It's an effort, which we have to take, but the industry today there is clearly a challenge. See what has happened in the last 3 years, what we look at, the price points have moved up. The sweet spot today in the industry looks somewhere around INR 100 and INR 110. And most of our premium products is from INR 120 and plus. So every such INR 10 or INR 20 is making a difference. Okay. And this is all resultant of the continuous pressure on the cost side in the last 3 years on timber. So the other thing, which can also happen, as I said, in FY '26 when you see that the raw material prices starts coming down and maybe there would be some level of correction for sure in this industry on the price side, you will see my premium picking up automatically also. So one, the trust which we are trying to build upon in terms of our marketing activity, in terms of distribution, in terms of E-Zero as a property, 0 emission, CARB-certified product. And second, maybe from the market side, if the raw material costs start coming down, then also you will see better traction again happening in the premium side.

Understood, understood. Just one clarification. With respect to Gabon, how much have we actually invested in the form of equity till date? And we -- against this 51% stake, what is the consideration we are getting? Sorry, I missed that detail in the press release, if there was any.

See, so the enterprise value today of that business was close to around INR 270-odd crores.

INR 270-odd crores.

INR 270-odd crores. So that is the value almost what we have got. Nitin, you can...

Yes. More than that.

Slightly more than that.

The transition has happened at enterprise value of around INR 270 crores.

INR 270 crores.

INR 265 crores, INR 270 crores Whereas the equity value was somewhat, I think, INR 21 crores, INR 22 crores basically plus debt so INR 250 crores, INR 260 crores.

Okay. So the enterprise value is somewhere around INR 250-odd crores, and we have been able to do the transaction somewhere around INR 265-odd crores.

Okay. No, my question was -- yes.

Yes, yes. The equity portion in this was only to the tune of around INR 30 crores, right or INR 25 crores.

INR 22 crores, INR 23 crores.

INR 23 crores was the equity. For our 51%, we are getting somewhere around INR 15.5 crores. Nitin [Foreign Language]

Capital employed was INR 248 crores, which included an equity of...

[Foreign Language]

As on 31st December, the equity value was INR 18.2 crores in the books.

Are you able to hear him?

Yes, yes. But Nitin, because of the losses, this would have got reduced to 18.2%, right? I mean...

This is the net value. This is the net value. So the net value after considering losses still quarter 3, 31st December.

Yes, yes, yes.

So actual investment would be more than that, right?

No. That may not be true because first 3 years, we made profit in Gabon. If you really see, I think, 2016 or '15, we invested basically. And for 3 years, we made profit, 3 or 4 years we made profit. Only in financial year '21, '22, we made losses. The initial losses were very small. So that got offset by the profits, which we made in earlier years basically.

The reserve was...

Net-net, I don't think we have lost anything from the equity.

We have not lost anything on the equity value, that much I remember.

About 2 million of investment was made.

Perfect. Last, what was the line last? Nitin, I couldn't hear that.

Yes. The share capital, if you -- was about 2.2 million we had invested so far.

And 2.7 million was invested long back.

Long back at an exchange rate of INR 66 basically. So net investment was only 18.2. And it was a profit, which got eroded over the last 2, 3 years.

It seems a lot of investment, how much is the...

We have sold it at full value of about INR 29 crores now.

Okay. So now let me give you the numbers. The equity value, which we had invested was INR 18 crores, and the transaction has happened on the equity value side only, leave aside the debt side, around INR 29 crores.

Understood. I think this is very, very helpful.

The next question is from the line of Keshav Lahoti from HDFC Securities.

Sir, congratulation on healthy ramp-up of MDF plant. Just wanted to understand how is the distribution network on MDF side? What sort of network you have right now? And where do you want to reach? And is the -- how much is the distribution between MDF and Ply?

Yes. So I think the first question was the current market split. Currently, we are doing maximum. Most of our business, like almost close to 40%. These are approximate numbers, 35% -- maybe 35%, 40% in West; around 25%, 30% in North; and the balance in pockets like Northeast, East and a little bit in South. Also being in Gujarat, we have a huge advantage in the Western markets in terms of the smaller deliveries and in terms of the better suppliers for the channel. So that has given us a huge edge. And also being in Gujarat with great infrastructure, they are being able to send material to South India now via sea. Even domestic dispatches are happening through -- via containers and the freights are very low. So that has given us a huge advantage.

Okay. Got it. Just wanted to understand one thing. You highlighted you are selling in North and South market. But if I look at the timber prices, what you have reported for this quarter, it's 15% higher versus North prices, what it is right now and maybe around 30% versus South. So clearly, the other player would have advantage in North and South market, the local players.

Sorry, I didn't get your question. Can you repeat?

Your voice was not very clear.

So I'm saying your timber prices per kg is INR 6.5 per kg for this quarter while in North, the industry leaders have reported its number at 15% lower timber prices. Southeast may be low your timber prices. So how you have a right to win in North and South market taken like West you will clearly have upper edge over other players?

So I think this price, what we quoted, is also actually eucalyptus prices. And the way other players are now slightly mixing other species, we are also open to that. So my blended rates are also pretty much at par with any North India player. So Nitin, you can share the exact number also of our blended cost of timber for Q3.

Okay. Got it. And how much will be the transportation cost in this?

What is our transportation net cost. Whatever we ported is the net cost, delivered cost to Gujarat to our plant. Landed cost at the door.

Are you saying on the buying side or the selling side?

I'm saying on the buying side. So earlier you said your timber price is INR 6.5.

INR 6.5 is all inclusive.

All inclusive.

Yes.

So all inclusive, how much would be the transportation cost broadly in this?

It depends because, at this moment, like most -- maybe say 50%, 60% of our raw material is being sourced from Gujarat itself. Maybe 5%, 10% from neighboring states and balance from North as well as South. So this is a blended cost, INR 6.5, so it's very difficult to give you freight. So in Gujarat the freight is very low and the rates are around like maybe INR 5,900, INR 6,000. In South, you know what the rates are plus transportation from there to us.

See, actually even in our system, we track it as the cost of acquisition. So maybe we'll have to find that out, but we just look at our final landed cost. Whichever market we go to buy, we just see that it is our final landed cost delivered at our plant.

And not only do we get like outward from Gujarat for the market we dispatch the material, but we also get incoming via ships. So our cost from South to Gujarat is also very viable because of the Gujarat ports being so efficient and the infrastructure development being so good.

Okay. Understood. Got it. And how much is your OEM mix right now? And in MDF, everything is sold under Greenply brand?

Absolutely. We sell everything under Greenply brand. And the OEM mix is hardly 13%, 14% of our total sales. And we intend to keep it under 15% because Greenply, even in the Plywood segment, our focus is always value-added. So we want to focus on value-added products. We want to focus on the trade network. We want to focus on leveraging our brand value and distribution strength. And we are just sitting with one line, so we have to learn to sell this capacity at better prices and not keep running to OEMs.

Got it. Last question from my side. Any guidance on FY '25 for volume and margin? And lastly, as you highlighted, because of value-added mix, your margin has been on the lower side. Is it possible to quantify the loss because of value-added ramp-up?

I think at this moment, it will be very difficult to quantify it exactly, but on 3 grounds: INR 3 crore incremental marketing spend, value-added start-up losses and higher timber costs compared to the previous quarter. So on these 3 grounds the costs were higher. At this moment, I cannot give you the exact number, but you can later get in touch with Mr. Nitin Kalani, he'll definitely give you the numbers.

It is a very initial stage, okay, I'm saying for the MDF. And there are a lot of efficiency buildup, which will happen. The first thing for us was to make sure that we are able to ramp up and do the distribution. And so now from this quarter, there is a focus into -- focus now to look at the efficiencies also. So once that is built up, next year, for sure, you will be able to see on a similar volume also better margins. And in any case, our volumes will be much higher than this in the coming year.

Sure. Want to give any guidance for FY '25 for volume MDF side or Ply?

I think it's too early. We'll share it -- maybe at the annual results, we'll be a better position to tell you. And it also depends how much these BIS effects. The BIS effects, I think volumes can be substantially higher.

[Operator Instructions] The next question is from the line of Utkarsh Nopany from BOB Capital.

Sir, first, I just need clarification for your furniture cutting business. There were some news report that our JV partner, Samet, was already having a partnership with another player called Dorset in 2019. So what is the status of that partnership at present?

No, it is no more there and that is the reason that Samet found this to be one good market. They know that India is a place. Second, at that point in time, their arrangement with Dorset was only of supply and distribution. And when we met them and we discussed with them, we also were very clear that we cannot make a brand if you are just going to look at distribution or to look at us as a distribution agent in India, we are not all interested. That's how the whole thing and they were also having a mindset that, yes, if we get a good partner, will set up the facility here and become a serious player here over a longer period of time. So that arrangement is already null and void long back.

Okay. And sir, for your Plywood business, sir, can you give some sense of what is the reason for a sharp decline in our JV plywood volume for the past 3 consecutive quarters, and we see that our traded volume has gone up substantially? And what kind of a sales mix we would like to have going forward of own JV and traded volume.

So 2 things, when you look at the JV volumes going down, one, I think the cost parameters were very high. They were not able to stabilize the production at the prices, what either we can own manufacture or we can get it from other trade partners. We tried our best, but I think there was surely a mindset issue and that is where their volumes have got hit. And yes, this was the question, right?

Yes, yes. And how come like we have increased our traded volume when we are not able to source the plywood at a reasonable cost from our JV partners, how we are able to source at a reasonable price from other players?

That is precisely the question, which we raised to our JV partner that if the other sourcing partners are able to give us at this price, why is that you are not able to stabilize your cost side, okay. This was the entire reason.

Okay. And whether the current mix is likely to be maintained going forward? Or there is going to be a shift in the mix?

Well, it's very difficult to say this. It all depends on the volume growth. It all depends on the geographies because, one, we have our own multiple facilities; second, the credit partners have also spread out. So it all depends on which area, which geography, which product line we are growing. And accordingly, these numbers keep on changing.

Okay. And sir, lastly on MDF, can you give some sense of that, what would be the share of value-added product, say, going forward in FY '25 and '26, which we are targeting?.

I mean, ideally, we would want to set a very high number, but I think we should first achieve and then boast about it. So I mean our hope is that we'll do it 50%, 60%, maybe 70% also. But I think we should not comment on any such number. We should first perform and then come out and speak about it.

The next question is from the line of Kushagra from Old Bridge Asset Management.

Congrats on good set of numbers. A few questions, one is on your capital allocation. So now this INR 237 crores of debt is out of your consol balance sheet and the risk part is also reduced. So net debt is going to be sub INR 500 crores and cash generation is also going to be strong. So what are you planning towards capital allocation? Let's say, between debt repayment, future capacity expansions and M&A, what are your preferences? Any color on that?

So see, at this point of time, what we are looking at is, one, stabilizing the MDF business ramp-up and see the type of growth and volumes, which we need to do there, so there's a lot of focus. Plywood itself is one business where we see traction going forward because of both internal and external reasons. And third, we have also taken this JV investments of Samet. So the hardware business also needs to be grown going forward. So I think next 12 months for us clearly is a time when we need to work on all these 3 businesses, stabilize them, try and work on improving the margins. Yes, there can be some amount of CapEx other than what Sanidhya said for MDF, which, for sure, is planned. The other CapEx-es can be some line balancing or maybe a few small investments here or there. But more or less, we believe that for the next 12 months, we should only concentrate on these 3 lines of businesses and make them stable and make them grow. And yes, that will also help our debt equity to improve further. And by the time, we'll have our next level of plan for those.

All right. So majority of it will be then towards stabilizing and debt repayments for the next 12 to 15 months.

Yes.

All right. The second question is really on MDF. So how much you can play around with the utilization levels given it's a continuous manufacturing and your already reported number is 70% in Q3. So I believe that because of the continuous manufacturing, switching off and on is not very easy so you will continue to ramp it up. But between, let's say, the volumes and the pricing, what would be your preferences considering you are ramping up the capacity? The others are also ramping up the capacity in the domestic market. So let's say, if you have to take a call somewhere in middle of FY '25 between volumes and pricing, how are you thinking about it for the MDF segment? Yes.

See, in MDF, pricing is a determination of a market factor, okay? And we are no different. The only way, what Sanidhya said, we are looking to improve our margins and realization by trying to sell more and more of value-added products. And ramp-up, for sure, is important and that is what is the whole concentration. At a given capacity, plus he also mentioned to someone else on the call, that next year, we'll be working on the line extension also. So one, it will take the whole capacity to 1,000 CBM. And second, for next year, when we do our full year numbers, yes, doing around 50,000 CBM per quarter looks to be possible because this year, now we are close to around 40,000, 41,000. So doing around 50,000 CBM per quarter seems to be possible from a production side also. And then the subsequent year, I will have another level of ramp-up growth because by the time the line will be extended to a capacity of 1,000 CBM. So we can continuously see a road map of next 2 years of growth from the existing business, I don't see any challenge. Two years, for sure, and maybe even 3 years. And as I said that after 12 months, we will again start looking at our next investment cycles. And depending on the market situation, depending on the product line, where we need to invest and how we need to grow after FY '26. Up to FY '26, we have absolutely no challenge of even growing at around 20%-plus for the next 2 years.

Right. Just that's quickly -- last question, a quick one. Now with your utilization about 20%, where is your cost per CBM for non-value-added product is settling for the MDF segment? Just a broad number will be helpful.

I think right now, I think we still need to work a lot on efficiencies. We are still a very new MDF player. The line is still hardly 7, 8 months old after we've announced commercial production. So I think a fair evaluation could happen sometime in quarter 1 where we start reaching our desired -- even consumables, there are some consumables, which we are consuming extra. There are some efficiency losses. So all these things will start stabilizing quarter 1 onwards, if we see that cost, I think that will be a fair evaluation.

The next question is from the line of Ritesh Shah from Investec.

Just 2 questions. One is, sir, you indicated that we have different sizing of our products from the line that we have. This is something different versus what we see for imports.

Sorry, come again, different?.

Sir, I think you indicated that the sizing of MDF, what we have from the line that we have, it's something different from imports. Can you just quantify basically what thicknesses we have and where do we see most of the imports from the thickness standpoint?

We mentioned in the call saying that the import product is much inferior compared to the products, which have been sold in India. And the product usage in India is totally different. And the only unique size we have compared to anybody else is a 1.5-mm thickness, which others do not have. Our line has capabilities to produce 1.5-mm thickness. And we mentioned on the call that the import material is much inferior, much lower density. And to focus on our brand and to build our brands, we don't want to sell cheaper products. We don't want to go to OEMs. We don't want to make those kind of things. We want to focus more on trade and grow our trade network and brand.

So most of our sales volumes will be 1.5-mm thickness, would that be a fair thing?

Not at all, not at all, not at all. Hardly. Not even 1%, 2% of the volume. That is just a unique product that we have and others don't have. Once others start putting up the new generation line, probably they will also be able to make.

That's just a machine capability at this point of time.

Okay, okay, okay. And other thing, I think there was an earlier question. We did give numbers on both volume as well as value terms. Specifically on the ex premium category, volumes have increased. So what is the motivation over here? Is it like we acknowledge that the market demands more of ex premium and that is where we would like to move to? Or if I have to put it the other way around, if we had to spend INR 100, would you focus more on middle economic range as compared to premium? Just trying to understand the thought process.

Look, today, if you really see the good part in our Plywood business is we have capability to change the product mix at any point of time. From a production side, there are no challenges. These are all feature-based products, okay? So basically the demand, we can always produce and sell, whether it is premium or mass. Yes. Our intent was that premium has always been something, which was the forte of Greenply. But as I said in the last 2, 3 years, because of so much of cost increase and the pass-on, which has happened, the product prices have moved to a level where we see, I mean, that's my assumption and that's what I have seen, even the other players talking about that everyone -- whatever little they were selling in the premium segment has taken a beating. So the market growth, yes, if the price point remains at this level seems to be in the mid and mass segment only.

Sure. That's helpful. And just last question. Can you put some numbers on the furniture hardware JV incremental investments? What sort of ROCE do we look at? And any numbers on top line and margins?

Okay. So I can give you a very ballpark number and I will request that don't hold us on these numbers because we'll be doing our P&L in detail after some time. Okay, I can give you some very broad numbers in terms of the total CapEx, what we have seen, there will be CapEx in phases. But what we have seen is we have an initial plan of investing somewhere around INR 225 crores to INR 250 crores and in which there will be an equity component. I'm talking of the JV as a whole. Out of which, the equity component would be somewhere around INR 80 CR. Out of that INR 80 crores, INR 40 crores is our share and INR 40 is Samet. In that INR 40, INR 10 crores we had invested in quarter 3 and equity and INR 15 crores we have put during this quarter. I think from the equity side, we don't need to put any further money during this quarter. The balance, INR 15 crores, mostly will get invested in the coming financial year. So that completes our equity side of investments. I told you the total approximately CapEx, but these numbers can change. Secondly, in terms of the top line, we are assuming that if everything goes well, this business can be scaled to approximately around INR 300 crores in 3 to 4 operational years at which -- at that point, is at INR 300 crores on today's pricing and today's everything, we look at a high EBITDA margin of 20%-plus in this business.

And working capital investment over here would be how much, sir?

Yes, around a month to 45 days.

The next question is from the line of Manan Shah from [ Electrum PMS ].

Am I audible?

Yes, Manan.

Okay. I had a couple of questions regarding MDF facility. So I know it's too early, but can we get any sustainable EBITDA margin number percentage?

I think industry is operating at anything between 18% and 21%. And by quarter 1, we should also be pretty much in that level -- at that level. Total comparable to anybody who has a plant in North. South will still continue to have a slight advantage.

Okay. And since our peers, everyone is doing CapEx in this facility. So do we see any oversupply or margin pressure because of that?

I feel, yes, it can -- depends what happens with the BIS. Do the foreign players get licenses? They don't get licenses. A lot will depend on that. And I feel this is like a double-edged sword. Where you do more CapEx, you have more capacity to sell, you have to run to OEM and probably sell cheap. When you have 1 plant, I think we should only focus on trade and on selling more value products. While I would have 2 or 3 lines at this moment, I would have to probably drop my prices further and change much strategy tactic further to enter OEMs.

You have to understand that all credit also goes to the brand Greenply, okay, which has a very strong equity. And because of the same also, the ramp-up has been good so far. So one is on the production side, the other is on the sales side also that we have been able to generate this type of volumes. There's a lot of respect for the brand. And because of that, creating this relationship in trade and entering into trade has been slightly maybe easier than what we would have assumed. And we just need to be -- we thank that entire trade fraternity for showing so much of faith on us all along. And as Sanidhya is saying, the whole idea is that since we have one plant only, we'll try to see and maximize this equity value, what we have, because of this Greenply association and the brand also selling under Greenply banner. We'll try to see that how we are able to maximize on the value-added product. I'm sure all similar companies also must be talking of the same. But we get this clear slight edge because of the Greenply brand and the association what we have with trade for more than 3 decades.

Okay. That was helpful. And one last question. So -- this is on a macro level. So do we see anything from China like China dumping something or MDF related?

China is never an MDF exporter. So they are one of the largest manufacturers of MDF in the world, but they export finished goods. I have never heard MDF coming in from China. Whatever disturbance happens because of imports is mainly Thailand, Vietnam and countries like that.

The next question is from the line of Arun Baid from ICICI Securities.

Just a few questions actually. On that -- your fitting business, which will the first year of revenues we'll see from that business?

Which one?

Fitting business, the furniture fitting business, which we're getting into. Hardware business.

Hardware. Telling on the hardware business, Arun?

Yes, yes, yes.

Coming year, FY '25.

So the plant will be operational by when? Which quarter?

The plant mostly will be operational by quarter 1.

And I'm sure you must have a figure there in mind. Roughly how much in the first year were looking revenue-wise in that business roughly?

Well, this is totally a new business for us, okay, and at this point of time we were totally concentrating on, first, again, setting up the facility. That is where the whole discussion is also happening between us and Samet because you all know that we just conceptualized this sometime in quarter 2 and the construction started in quarter 3. So the whole focus right now is again to see that how fast we are able to bring up this plant. Our discussion on sales, volume, realization, distribution, everything is now going to happen. Give it a couple of months or maybe by the next call, we will be able to give you better visibility on the same.

Sure, sure. And second thing is, Sanidhya, with regards to the MDF distribution. Can you just let us to how many distributors, dealers we have right now? And how should we look at over the next 12 to 18 months?

So right now, our distributor dealer base and MDF direct distributor dealer base is 350-plus. And we definitely look at doubling this number by the next financial year-end.

And that number would be sufficient for us to utilize this 1,000 CBM per day, right, I'm sure.

Absolutely. I think it will be more than sufficient. If we are able to make 700 channel partners, we probably don't need to run to OEM at all, you know.

Sir, just on that value-add part of the business, you mentioned...

Sorry to interrupt. Actually further participants are waiting for their turn. So the next question is from the line of Tushar from Kamaya Wealth Management.

Congratulations for good performance in the MDF business. Sir, my question is more on the industry specific. I could see in the realization tonnes per CBM, we rank in the third place, first being Century, second being your group company third we and fourth, the company in Southern India. So I just want to understand, like on the realization front, where do we look at? You're just near to the second player, near to, I think, 30,000 CBM. So in order to add the value add and to increase the CBM realization, so what is our focus going forward?

So see, on a long run, definitely, the focus is to keep adding value-add and to keep taking our per-CBM realization higher. But in the short run, everybody is trying to sell their capacity. So in the short run, there might be some changes. But on a long run, when you see us over next 4 to 6 quarters, definitely, you will see an upward trend where we will try to pump more and more value-added and drive our per-CBM realization higher.

Fair enough. And sir, in your peer con call, they mentioned that the BIS will have more effect on the southern and western part because the more imported MDF was on these ports. So are this -- do you see that the effect of BIS will be major on the Western region that you cater to?

Yes. I think that's quite logical. The import is definitely coming in mainly in West and South. So obviously, the players in Western and South will gain more. And the good part is that we have a monopoly kind of a situation in West where we are the only player present. So our delivery, the facility, the customer gets and the service the customer gets from us in West is unparallel to anybody else.

Okay, sir. Sir, I could see that there is a structural change in your business like from the -- from your Ply business, you're moving towards the higher margin MDF and also you're adding the hardware business. So for the midterm, how do you see maybe FY '25, FY '26? In terms of margin, how do you see your business -- till what margin your business can achieve?

See, our margins from here, the blended margins can only be better because, one, the growth in MDF and even the new business, because the new business is add-on, will always be higher than the growth which will happen in Plywood business, mostly the way I look at it, which means that my blended margin is only going to continuously improve from here. Because the other 2, both the hardware business, as I said, that is the business, for sure, which will start making more than 20% EBITDA. And even MDF business is something, which will sustain at around 20% or plus where Plywood still remains maybe at the range of 10% or something. So the blended margin will only continue to improve from here because the growth will be higher on those 2 business lines.

Fair enough, sir. And sir, what would be utilization in your MDF and Ply factory?

Tushar, sorry to interrupt as other participants are waiting. So I just request you to follow in the queue. The next participant is Hrishikesh Bhagat from Kotak Mutual Fund.

It's Hrishikesh Bhagat. So the question is so when I look at your MDF unitary EBITDA per CBM and probably the number reported by one of your peers also for their Southern market or their unitary EBITDA, more specifically on the Southern side, now where the current profitability lies? Clearly, even if I look at your capital employed in this business, we -- it's not a respectable ROCE that we are accruing currently. Even at the low -- even if I assume that utilization moves up, probably we'll see some improvement. But clearly, at this profitability it is not. So a respectable ROCE, that industry will accrue. So do you feel that very likely that supply could abate considering where the profitability lies for the industry and the current because of these imports and everything?

I think this is really too early to judge. We are hardly 8, 9 months into this business and we are just reporting the second full quarter results. So I think this is not fair at this moment to judge the ROCE. I think a fair judgment should start from quarter 1 next FY, where we should be at par in terms of our EBITDA with the North India players and then we will start making decent ROCEs.

We have been maintaining this since last 2 quarters that please look at our numbers next year. I can tell you that there will be substantial improvements, which will happen in the margin profile because we can see that we are not -- yes, we have ramped up the production. But in terms of cost efficiencies, there is way ahead possibilities on which we need to work. So the margins will be substantially different from what you are seeing at this point of time.

Sir, I get your point, I'm asking more from the industry standpoint because, let's say, at 70% utilization, I do agree that probably cost efficiency will play. But say, for any new entrant, does it make any sense for the incremental capacity? I think because at 70%, if INR 5,000 per CBM is also industry is not able to generate, then clearly I don't think so that the industry is really that attractive despite the growth. So that's what the question is. Do you feel that industry supply could get pushed back?

I think this schedule in the MDF space keeps changing. Now for example, from 1st March, actually, because of BIS next 6 months, there's 0 imports on the imports are close to nil. Their EBITDAs can really change. After COVID where imports were not there, the EBITDAs were at another level. So I think it will really depend. And people who are in the panel space, to continue the growth and to continue getting their market share, will probably keep investing because this is definitely a future line of product, which is here to stay for the long run.

And look, one has to clearly understand that if in case the industry-level margins dropped to around, as you are saying, around INR 5,000, INR 5,500 per CBM okay, then you will again see that there is a lot of resistance in the industries to build up new capacity and also not see new players coming. So again, you will see maybe yes, there may be a 6-month, 12-month period and then again, you'll see the numbers going up. Okay. And this is a hypothetical case. But the other corollary, which I have to give on this is the way the MDF business is growing in this country, okay. I, for sure, see that there is a place at this point of time for whatever capacities have been coming will get consumed. And with some level of support from the government like the BI standards and other things, for sure, we'll continue -- I mean the industry will continue to make a decent level of margin. I also maintained earlier that those 30% margins and what the industry made was like dream. That is not the margin because the moment you are at that level of margin, you will see so many new players trying to enter. And that's when you will have over -- situation of overcapacity for some time and then you will see margins stabilizing around 20%, 22%. I mean if your question is that can somebody see again a consistent margin of 30%, 35%...

No. My question -- my question is more related to potential supply. Can it get deferred because at least it has been fairly -- in the since last 6 months where we have seen the margins at least for the coastal-based players like West or South has been significantly lower, where probably the returns are below cost of capital. So from that standpoint, probably when I look at the South-based MDF plants are probably, for us, Western plant also. So the question is more from that perspective that even at 70% utilization, if there's such a big challenge, can it then push back the potential supply that is likely from probably non-wood panel player? Is it likely a scenario that could work out?

Anyone's guess. But even if it is there, it will be there for a temporary phase. And then again, you will see things again getting better. My sense is that there are growth, which is happening. There are new OEMs, which is coming. The furniture market is developing like in Tamil Nadu, this is a furniture market, which is coming with lots of new incentives. So the demand will also go up. And once the demand is there, then the capacity utilization for everyone at a decent price and decent EBITDA will be there in this business.

As this was the last question, I would now hand the conference over to Mr. Sanidhya for closing comments.

Thank you all for taking time to participate in this call. In case of any further clarifications or queries, please feel free to reach out to us. Thanks again, and goodbye.

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