Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Greenply Industries Q4 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 the beliefs, opinions and expectations of the company as so on date of this call. These statements are not 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 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 Market Securities Limited. Thank you, and over to you Mr. Karan.

Thanks, [ Manogya ]. Hi, everyone. On behalf of Asian Market Securities, we thank you for joining us to the Greenply Industries Fourth Quarter and 12 months FY '24 Conference Call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO; Mr. Sanidhya Mittal, Joint Managing Director; and Nitin Kalani, CFO. May I now invite Manoj ji to begin the proceedings of the call. Thank you, and over to you.

Thanks, Karan, and good morning, everyone. It's a pleasure to have you all in this call. I'll be updating you on Greenply's operating and financial performance for quarter 4 and FY 2024. First of all, I'm very happy to share with you all that we have achieved a consolidated revenue of INR 600 crores during the quarter, excluding revenue from discontinued operations, a growth of 40.4%. The discontinued operations refer to our Africa business operations controlled by our Middle East entity, GMEL, in which we have given a majority control during the last quarter. We have received the purchase consideration and effectively deconsolidated the operations as we move into the new year. We are referring to all the numbers, whether for this year or the comparable numbers for last year, in this communication without GMEL, unless specifically called out. Our revenue CAGR in FY '24 over the financial year '22 is almost 26% on a comparable basis, much ahead of our earlier guided revenue CAGR number of 22% for this period. During the quarter, our consolidated EBITDA has also grown by 22.8% on a Y-o-Y basis to INR 59 crores, and the margin during the quarter was at 9.9%. The full year consolidated EBITDA, excluding the discontinued operations, is at INR 191 crores, an increase of 12.6% Y-o-Y on a comparable basis. Now I'll share some highlights of business side performances. In our plywood business, our growth for the quarter was 9.4% Y-o-Y. We have achieved our annual guided target growth rate with a Y-o-Y volume growth rate of 8.6% for FY '24. We guided a volume growth rate of anything between 8% to 10%. On the margin front, our adjusted core EBITDA margin for the plywood business for quarter 4 was at 8.6% as against 11.5% in quarter 4 of FY '23. The margin declined on a Y-o-Y basis by almost 290 basis points due to increase in raw material prices by almost around 1% and higher advertisement expenses by around 1.8%. The EBITDA margin, however, improved by 60 basis points on a Q-o-Q basis. Our profit after tax for the quarter was at [ INR 29 crores ] which includes the impact of gain on sale of 51% investment in GMEL to the extent of INR 4.5 crores. Moving on to MDF business. Our revenue in quarter 4 was at INR 131 crores and volume at 45,764 CBM. I'm happy to share with you all that we have also improved our EBITDA margins during the quarter to 14.1% as against 13.5% in the previous quarter, and we have delivered a PAT positive performance during the quarter. This is practically the third full operating quarter. So we are very much on our guidance and our hard work that within the first year of operations, we will make this PAT positive. Of course, more details on the MDF business will be shared by Sanidhya. On a consolidated basis, our net debt level are at INR 502 crores against previous quarter debt level of INR 497 crores, excluding the GMEL, which is well within our guided peak net debt level of INR 540 crores as mentioned earlier. During the year, we have also made investments in our hardware JV amounting to INR 25 crores, and the commercial operation of the JV started in the month of March. The JV is likely to commence full Phase 1 operations by end of June, mid-July and is expected to benefit from upcoming [ BIS ] implementation of certain furniture hardware products. With this statement, I would like to hand it over to Sanidhya to provide more insight on our MDF business.

Thank you, Manoj-ji, and good morning 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 131 crores, and also having a PAT -- positive PAT in this quarter, ahead of our original plan. It is a result of our meticulous planning, team effort, brand strength and commercial discipline. During the quarter, we've installed a few short cycle presses as well as ramped up production of our pre-lam MDF boards. Being a premium player, we'll be introducing other innovative value engineered products to serve all categories of customer segments going forward. We are also confident of achieving better margin profile in the business as we enter the new financial year. The full year volume of approximate 1,25,000 CBM was 25% more than what we guided for volume targets as we had guided 1 lakh CBM for FY '24. In the last quarter, we have sold 45,764 with a blended realization of INR 28,640 per CBM. On a year-to-date basis, our sales realization per CBM is 29,279. As we progress in the new year, we'll be focusing on capacity building for value-added products, working on operational efficiencies and improving yields. With this perspective, I would like to open the floor for Q&A session. Thank you.

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

Congratulations for a good set of numbers. Sir, my first question is more data keeping. If you could please help on the volume split on the Ply side between premium and others on volume as well as value basis for Q4 this year, last year, and if you can help the full year number also, that would be great.

Ritesh, good morning. Nitin, you have the numbers volume and value numbers? See the mix has not changed. I was looking at the mix between Q3 and Q4. The mix, I think, is almost same, it does give you the volume value numbers. You can speak out Nitin.

Sir, meanwhile, can I just have a few other questions until Nitinji has the data.

Sorry.

Meanwhile, can I ask you other questions, till we have the data points.

Yes, yes, yes. I think we'll get back on this volume value data. It is very similar to quarter 3, which I had seen. I don't -- I'm not carrying the numbers right now. We'll get back to you on the same. Please go ahead with other questions.

Right. Right. So the reason to ask this question, basically, if you look at the Q3 data, we see a steep jump on it's premium as a category. I think it was upwards of 23%, 24% whereas for premium there was a decline. So just wanted to ascertain, is the trend something which is the new normal that we are looking at? Whether we have reached our strategy on placement on economy side to actually drive more volumes. So that was the question that I was coming to.

Okay. Okay. So I think, Ritesh, if you clearly see the trend is the growth has come on the mid-segment, okay? This year, the volume growth, whatever has come, is purely because of the growth in the mid-segment. The premium segment has hardly grown. I mean if you fully ask me, I think it is around the 1% growth what we have registered there. So going forward, we might see a similar trend. So we have a team, a separate team which works on the premium side of the product. There is a separate team which works on the midsize of the products. So growth is something for, in any case, we are going to taper it -- I mean we are going to work on the growth. We are not going to leave any of these segments. We have product lines. Yes, as a company, of course, anyone would desire that the premium segment should grow because that clearly helps the margin also to improve. There is a team which is working. We have been increasing our ad spend. We have been doing a lot of things strategically also to see how we are able to get more into the market with our good set of products in the premium category. But yes, last year, we didn't see any success. Maybe the silver lining is, at least, we have not degrown on the premium segment in absolute terms. And the data on value volume is now there with Nitin. He will just...

Ritesh, good morning, the volume for premium brand was flat year-on-year, basically for the quarter. And for our economy segment, it was plus 13% in terms of volume, and value was plus 12%. This is only for Ply. And other segments grew more than, I would say, high teens basically.

Sure. This is helpful. My second question is on MDF. Sir, would you like to put some volume guidance number for the next fiscal, along with some color on value-added products, along with something on the margin profile? And how do you see the macro evolving over say next 6 to 9 months? That's the second question. And third question is more pertaining to furniture fittings, I will come to that.

So Ritesh, see, in terms of overall volume growth, we have taken an internal target of trying to achieve 200,000 CBM volume for the full year, okay? And -- but the rest of the thing, I'll request Sanidhya actually to ask in terms of -- between value-added products and how he is looking at the market? So these questions, Sanidhya?

I think market, as far as the realization of the competition is, it is challenging. But our advantage at Greenply that our capacity is very limited compared to other players in the market. So we have the power to say no, and we're trying to focus more on trade and less on OEM. So we've kind of restricted our overall OEM business at about 13%, 14% of our top line. And the balance, 85%, 86% is now coming from -- or maybe 87% close to is coming from trade. So I think this will really help us for -- as a strategy for the first line till we have only one line up and running. And this way, we can ensure that even in tough times, we can maintain our margins, and we can maintain our paybacks, et cetera.

The market overall looks good in MDF. We continue to assume that the market will grow at a pace around 15%. So that surely gives us a lot of tailwind in the MDF business. And for us, what we need to concentrate is that, one, we are able to consistently produce and deliver. Second, as we have said earlier in our call, that we continue to buildup on the internal efficiencies because that is the key. And we have always maintained that, that takes time, but I think we are on the right path, and that's how you will see that almost every quarter, you will see our margins improving.

That was helpful. And sir, last question on furniture fittings. On the last call, you had indicated a revenue of INR 300 crores in 3 to 4 years with margins of around 20%. Would you want to revisit those numbers? Or if you can give some specific color for the fiscal ahead, what we have looked to target along this margin profile, ROCE profile?

No, there is nothing actually revisiting those numbers, okay? First year, we actually -- first thing we have set up the plant at a very rapid speed in 6 months. Yes, when you do so many things in such -- at such a rapid pace, there are a few machines, other things which we were expecting to come by March or April. Because of free shipment and other things, a few of them has got delayed. That's why we are assuming that come July, we should be in a position to start manufacturing the products, what we had put in our business plan. And in terms of the other preparation, like getting the team in place, we have most of the teams in place. I mean, at least the head of functions, the team below them are getting recruited. Most of it are in line. They will get completed within June. So from quarter 2 of this year, our sales will start on that business. First year, we are not expecting any big numbers. And the first year, maybe we will slightly be incurring some loss also because initially, we'll have to invest also on the marketing side to showcase this product to the whole of the market in trade. So first year, in any case in our business plan, there is a miniscule loss possibly, which will be there. Next year, we can see a major ramp-up in terms of numbers. And next year, we will also try to see thought it is slightly early, but we'll try to see that at least next year, we are not at all at PAT level, we are at least a quits or if we are able to generate some profits. Year third, which will be actually after 18 months, we definitely expect this business to get ramped up to anything beyond INR 200 crores as annualized revenue with healthy EBITDA. What I've also said is this business, the type of capacity what we are going to set up in phases, which will be with a total investment of close to around [ INR 250 crores ] can give us a revenue of almost INR 800 crores. And as and when we are able to reach to a level of INR 500 crore plus, the margin profile, can even further improve to 25% and above because these are purely high-end engineered products.

This was very helpful. Sir, I'll just squeeze in last one. You can take it in the forthcoming questions. Sir, the CapEx guidance for the next 2 years, and do we have any balance sheet targets in place?

Mr. Ritesh, I request you to rejoin the queue. The next question is from the line of Udit Gajiwala from Yes Securities.

Congratulations on a good set of numbers. Firstly, on the MDF front, I mean you have displayed a good resilience but we have seen our ASPs coming down with the industry. So how do you see this price movement panning out with imports likely to go up again from this month and of course, the capacities are coming up.

I think we mentioned earlier also the fact that we have only one line, which is up and running, we have the power to say no because we have limited capacity. And we want to focus -- being a premium player and a branded player, we want to focus on the value-added segment and the trade distribution network, which is pretty flat, and month-on-month, we're getting progress there. And we are kind of restricting our plain board sales and our OEM sales to ensure that our bottom line is not impacted, and we can grow healthily, sell our production into the market. So as far as our capacity is there, we are not worried to sell it.

Understood. Understood. And sir, secondly, like Ritesh was asking previously, what will be the CapEx plan and the debt reduction that you'll have in mind for the next 2 years?

So Udit I think this year, in terms of whatever visibility right now, what we have created, we might look at a CapEx of anything around INR 70 crores to INR 80 crores as a company. And subsequent years, we have still not chalked out our plan. So maybe we'll get back to you in quarter 2 or quarter 3. And in terms of debt profile, I think this year from INR 500 crores, we might look at a reduction of INR 50-odd crores. So maybe a net debt of INR 450 crores by the year-end is what we are targeting, which clearly will further strengthen our debt equity to maybe around 0.55 or -- between 0.55 to 0.6.

Understood. And sir, just a follow-up, this INR 70 crores, INR 80 crores of CapEx includes your any further investment that will be required into this SAMET JV.

SAMET JV, yes, our total capital commitment is close to around INR 40-odd crores. We have invested INR 25 crores till 31st March. While we speak, we have put another INR 5 crores or INR 6-odd crores. And so the balance, INR 9 crores or INR 10 crores, will come during this year only. If there are any other cost overruns or something, a few cost overruns we have envisaged as for the first project, first phase, not big numbers. So that might be incremental because initially what is happening is a lot of money is also going into GST credits, another thing which we'll be able to recover over a period of time. So we might have to put maybe extra INR 4 crore, INR 5 crores every JV partner. So INR 15 crores to INR 20 crores is what we are going to put.

More than INR 70 crores, INR 80 crores...

Of course, that is investment side. So INR 15 crores to INR 20 crores is something what we are assuming that we'll be funding this year further.

Got it. And lastly, sir, on the forefront, if you would like to give any guidance for '25, what kind of a growth in volume terms are you looking at with the margin profile?

So as I've been maintaining previously, also 8% to 10% is what now we have taken as an internal target. Given the situation right now, yes, last few quarters have not been so great in terms of any tailwinds. Even when you look at quarter 1, quarter 1 might remain subdued. Like last year also, quarter 1 was subdued. This year, quarter 1 is -- might remain subdued, not only from a demand perspective, but also from this general elections, which is going on, which will slightly maybe dampen the spirit at this point of time. But my assumption is from quarter 2, and if we are able to see a stable government, there will be a big tailwind, which I'm envisaging from quarter 2. And if that happens, then 8% to 10% volume growth for us as a company should not be difficult.

And the margins we'll be able to maintain -- in fact 8% to 10% volume comes up in the current margins, do you see any improvement with the product mix changes or something like that?

So I'll not commit at this point of time, but we are taking again a lot of internal initiatives to see every rupee what we are spending. There was a challenge in the previous year in terms of truly taking a price increase from the market. But this year, in phases, in markets, we would be looking at doing some corrections, which can help our margin to improve. As I said, there is a significant thrust on the premium and also to improve the volumes there. So if that happens, that also will help us to slightly improve our margins. Our ad spend last year by -- was almost high by 1.1% on an annualized basis. So that is another factor also which brought down the margins. But if we need to invest in the business and we want to create this business for future, then I think those type of initiatives and strategic calls, we'll have to live with. So that was the type of investment which went last year. This year also, we have planned that in absolute value, our marketing spend is only going to go up. But maybe as a percentage of the total business, it might be at the same level or it might slightly come down. So with these initiatives, for sure, I'm very hopeful that our margins on the plywood business only should improve by 50 to 75 basis points, if not more.

Got it, sir. Got it. And just, sir, to clarify, this 1.1% of advertisement that was up. So what was the total percentage to revenue your ad spend for the year?

What's it?

During our presentation, the overall ad spend was 3 point...

3.7 [Foreign Language]. It's there in our presentation, Udit.

Okay and noted sir.

3.4.

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

Sir, can you help us with the timber prices for the fourth quarter FY '24? What was it for the plywood business, I'm asking first. And what was it like in same time last year?

Achal, I don't have the numbers right now, but...

It was around INR 9,500 for plywood.

No, previous year he is asking.

Previous year about [ INR 8,000 ].

I think, Achal, this year, so it was around INR 9.5 in that range. But look, we buy this material at different places in this. So on an average, this was the price. If I recall, I think last year, similar time, it was somewhere around maybe INR 7.7 to INR 8.

Okay. Okay. And how has it moved in this quarter, first quarter FY '25? Has it further gone up, stabilized? And how do you...

It has not really gone up further. It is in the same range. And -- but I also don't see any chance of this coming down during this financial year.

Okay. And if I see from, let's say, a 3- or 4-year perspective, because we are seeing this timber shortage or scarcity for last few years now. How do you see this? Has that been passed on by the peers, especially the unorganized? What has been the price increase given the mix? Obviously, we are unable to figure out. But like-to-like product, how much have we taken price increase over the last, let's say, 3 years? Would you have that number?

Ballpark, I can tell you, if I remember, I had seen some data. So maybe if you really see the realizations have almost gone up by around 10-odd percent in the last 3 to 4 years. Okay? So that is the type of increase, which I can say has happened more or less broadly. But the last year was, I think, a difficult year in terms of pass-on, and even unorganized faced a lot of challenge because of the increasing prices. So these are good signs if you truly see for the large branded players, national players. Second, you asked about the trend. I think in terms of the trend, I'm extremely hopeful that we are nearing this end of the cycle in next 12 to 15 months in terms of this higher price. We'll see good amount of volumes coming back into the market. And then that will happen, we'll see the prices to drop. So next year, means FY '26, somewhere in the second half, we'll definitely come across a reduction in these prices of raw material.

Understood. Nitin, if you could help with the mix of the premium, you have talked about the Y-o-Y change, but would it be possible to get that number? How much was the mix of premium plywood in terms of volume and value...

[ 53%, 57% ], if I recall, Nitin. You can just check.

43%, 57%.

43%, 57%? Yes, It is 43, 57, Q4. Q3 was almost...

Volume 43%, 57%.

Sorry. 43% is premium volume. And how much is value?

No, no, 43% is the economy brand basically 43%, and 57% [ manufacture ] which is the premium brand.

And this is volume. How much would be economy as a percentage of value?

Value would be 35% economy, 35%, 36%. And 64% premium.

Correct. And this is for fourth quarter or for the full year, Nitin?

It's only for the fourth quarter.

And would you have that for the full year?

Full year, I'll get back to you.

Sure. One more question I had was with respect to ESOP charge, would you be able to quantify how much was that for fourth quarter FY '24? And...

Full year was around INR 3.5 crores. I was reading it somewhere. And quarter 4 was very, very miniscule.

INR 30 lakhs.

INR 30 lakhs, yes.

Okay. And it will remain kind of this for coming quarters? Or is there a change?

At this point in time, I think it will have this run rate only.

Okay. Okay. Understood. I wanted to check on the MDF with respect to -- while obviously you are focusing on the retail part of it. But the pricing part, how do you see that evolving? Do you see a good 5%, 7%, 10% kind of a drop likely. And in that case, because you've talked about improvement in margins, would that still remain? And what will drive that margin improvement?

I think if you see our realization quarter-on-quarter, I think our realization dropped from quarter 3 to quarter 4. And in spite of the realization drop, there's an improvement in margin. I think it's mainly because of improving a lot of operational efficiencies at the plant level. That is one reason why the profitability has improved and will continue to improve, I think, number one. Number two, going forward, one has to really focus on the value-added products and the right mix. So if we are focusing on the right mix on the average, our realization for CBM should not be further affected. At least that's what we're wanting. And another reason why we feel that there won't be further price drops is because the entire industry, the raw material prices are going up. So in this kind of a scenario, I don't think any of us have room to actually take a price cut further.

Right. Sanidhya, sorry, if you could elaborate a bit with respect to the RM price for the MDF, how much was that for us Q-o-Q? What has changed? How much has it changed? And how do you see it?

Q-o-Q, it's slightly come down, but it's kind of flattish only, I would say, it's around INR 6,000 per tonne. I think it was slightly higher in the prior quarter.

Okay. And with respect to value-added mix, would you be able to share what is the current number? What is like medium-term target?

I think the current number is mentioned in the presentation, right? Nitin, what is the number? Pre-lam how much are we doing?

Pre-lam woods are about 12%.

12% of the overall sales within pre-lam. And within the plain boards, even today, I think, almost 65% -- 70% of plain board -- 65%, 70% of plain board is still interior grade. We need to work more on the HDF side. We are already working and trying to sell more of that. So we feel that in the year to come, we'll really improve in that segment.

Just to give you the numbers on the volume and value. The volume for this year, 12 months, premium is 43 and mid is 57. And value is reverse, 57 and 43. For the previous year, it was 48 and 52 volume mix, and value mix was 61 and 38.

Understood. This is very helpful.

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

Just a couple of questions from my end. When I look at the your inventory days, it's up Y-o-Y. Also, your payables are slightly up. May I know the reason for this change in trend both on the inventory and the payables side?