Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenply Industries Limited Q1 FY '25 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 on date of this call. These 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 implied or expressed. 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, Neha. Hi, everyone. On behalf of Asian Market Securities, we thank you for joining us on the Greenply Industries 1Q FY '25 conference call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO, Mr. Sanidhya Mittal, Joint Managing Director; Mr. Nitin, CFO. May I now invite Manojji to begin the proceedings of the call? Thank you, and over to you, sir.

Thanks, Karan, and good evening, everyone. It's a pleasure to have you all on this call. I will be updating you on Greenply's operating and financial performance for quarter 1 and FY 2025. I'm happy to share with you that we have achieved a consolidated revenue of INR 584 crores during the quarter, a growth of 35.7% Y-o-Y. During the quarter, our consolidated EBITDA also grew by 101.6% on a Y-o-Y basis to INR 58 crores, and the margin during the quarter was at 10% as compared to 6.7% in quarter 1 FY '24. Our profit after tax for the quarter was at INR 33.2 crores, which includes the impact of income tax refund pertaining to earlier years. Now I'll share highlights of the individual businesses. In our plywood business, our volume grew for the quarter, growth for the quarter was around 8.6% Y-o-Y and value growth for the quarter was around 7.1% Y-o-Y. On the margin front, our adjusted core EBITDA margin for the plywood business for Q1, was 7.9% as against 8.7% in quarter 1 FY '24. The margin decline on a Y-o-Y basis by 80 bps due to increase in raw material prices. Moving on to MDF business. Our revenue in Q1 was at INR 132 crores, very similar to that of quarter 4 FY '24, and volume at 42,724 CBM. However, we improved our realization to INR 38.7 per CBM, which is an increase of 7.6% over the last quarter. I'm also happy to share with you all that we have also improved our EBITDA margins during the quarter, to 16.6% as against 14.1% in the previous quarter. We are confident of continuing this improvement in performance in the coming quarters. More details on the MDF business will be shared by Sanidhyaji later on. On a consolidated basis, our net debt levels are at INR 431 crores against previous quarter, net debt level of INR 502 crores which is a reduction of almost INR 70 crores. The reduction has been possible going to many regions, including reduction in working capital, utilization of GST credit in our MDF business as we continue to ramp up and cash profit generated due to strong profitability during the quarter. We continue to maintain our year-end debt guidance of around INR 450 crores. With this statement, I would like to hand it over to Sanidhya to provide more insights on our MDF business.

Thank you, Manojji and good evening to everyone on the call. In our MDF business, we are progressing well. I'm happy to share with you that our realization has improved substantially during the quarter as we focused on value-added products, such as prelaminated boards. Prelaminated boards contributed to almost 22% of total sales in the quarter. During the quarter, we were able to improve our raw material cost as a percentage of sales. In the current quarter as a significant -- as a result of significant focus on effective sourcing strategies as well as significant process improvements as we continue to learn. Our other expenses have gone up as -- our other expenses have gone up, as we have started putting additional efforts on sales and marketing activities. We have also initiated CapEx program to set up our production capabilities and the value-added products such as MDF flooring, prelaminated boards, et cetera. We are also building the in-house resin production capability and for acquisition of other general fixed assets. 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 Hrishikesh from Kotak Bank.

Sir, just one question. When I look at your MDF profitability, especially comparing Q1 with Q4. Now if I look at it, volumes sequentially are lower your revenue are broadly flattish, but your margins apparently has seen a significant expansion of almost close to -- they're at 17% compared to 14%. So how should we reconcile this in the absence of operating leverage?

I'll answer this question. I think we've sold a better product mix in the market. So even though the absolute number in CBM remains kind of minus only compared to Q4 when you compare Q1, but because the product mix which we've sold is much better, the realization is better and hence, there is better profitability.

Just one clarification. Has there been increase in timber costs sequentially in MDF segment?

So yes, there has been a slight increase in timber cost. It's not that it's not -- there's 0 increase. It's on the upward trend, but compared to the peers, I think we are in a more comfortable situation in Gujarat.

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

Sir, congratulation on good set of numbers. So, I want to understand, because of change in product mix, which we are seeing each quarter improvement in product mix. So how much product mix can bring improved margin from here onwards?

I want to imagine a very big number, but it's very difficult to say the things have worked for us in quarter 1, whatever we were planning. And honestly, last year, our attitude in MDF business was to grab the market share. Greenply's been a branded player selling kind of the most expensive plywood in the country. So our focus in MDF also remains the same where we want to really grow and become big in the value-added segment, whether it is the higher density board, whether it is mould, profile one or it is pre-lam. Our focus is that how much we'll be able to achieve and how continuously, we can keep improving. I think that will be speculating. Internally obviously, we want to archive that maybe 100% of our sales and value added. I don't know how much practical it is.

Understood. Got it. And what is your guidance for this year for MDF volume and ply and margin side?

Manojji?

I think we already gave the guidance on MDF one on the margin side, we said we'll be around 16% this year. So good that in the first quarter itself, we have been able to hit that number. So our confidence has grown further. In terms of overall sales for MDF, we have said that we'll grow at 50% plus in MDF over previous years. And coming to plywood, we said that our volume growth this year would be close to around 8% to 10%. And margin can be flattish or plus/minus 50 basis points here or there. Because right now, if you see first quarter, it has not been great in terms of margin, again, the type of pressure which we have been facing. And I don't see that coming down in quarter 2 also. So I think margin -- though internally, we are feeling that we can improve, but -- at this point of time, it looks slightly as a challenge to improve the margins this year.

Understood. I imply, we have been hearing the industry might take a hike in its prices in the next 1 month. So what is your sense on that? Is the Greenply also planning some sort of high imply segment to pass on the timber cost?

Yes. So I think what you have heard is right. We have already taken 1 price increase during this quarter, but the impact of that will be visible only in the coming quarters. So we took it around June. And looks like we might have to plan another price increase also so -- in the coming quarters.

Okay. And hike was like 3%, 4%?

No, no, no. See, it was different in different product categories, but mainly if you've seen plywood, I would say it was in the range of 1.5% to 2%.

Okay. Got it. One last question from my side. This quarter on already you did 17% margin in MDF and possibly ideally, what we hear from industry, the prices are at its bottom -- so want you like to increase your guidance because it's just the Q1 and the volumes should be better in upcoming quarters also. So that's where the margin guidance is quite conservative?

I don't think so because I mean we've been able to sell this kind of value-added mix in Q1. We hope to improve this mix going forward. But you never know. We don't want to overcome it. I think let us deliver first.

There is a pressure on the raw material side for sure, okay? And I think all the industry players are under pressure, good that at least we have been able to improve our margins. It will also be a factor of how the industry behaves. So if most of the players looks at price increase and possibly we'll also follow the same in which case, we might add delta to our margins further. But on a steady state, I think we assume that if things are the way they are. 16% to 17% margin is now -- looks like something which is doable for us. Maybe we can improve also on the existing one also.

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

Congratulations on a great set of number. Just on an extension on the first question, which was asked, which was regarding your MDF margin [indiscernible] price it positively despite operating deal is just on a Q-o-Q basis. And you've given [indiscernible] I just wanted to compare your peer's product rate, it seems that you've been in a better production of which the prices have moved up for both. Despite that you have shown a sharp decline in margins versus you've shown a sharp decline, if you wanted this kind of an expansion. So I just wanted to get more resins on this. Has there been any price revisions from your end because [indiscernible] from their end. Have you increased any prices? Or are you planning to do anything of that sort?

Honestly, this year, we haven't done any new price cuts or any new schemes. So whatever was continuing last year, we just continued the same. But we were very clear that in our approach that we are going to change the mix itself because of which the average value of every trust will go up, the average value of orders will go up and hence, the realization and eventually the bottom line. So I think our focus work for us. We haven't increased any scheme. There were a lot of people in Q1. I don't want to name any particular company. People have increased their outflows in Q1 further compared to Q4, but Greenply has not increased any outflow in Q1 compared to Q4.

You mean, it's obviously efficiencies that has come into place, sir?

No, Sneha. To add to this, if you all recall last year, we continued to maintain that this MDF plant takes some time for getting better operational efficiency on the production side. Okay. And in the last call also, we mentioned that now we have started working on the internal operational efficiencies to improve and that will add up to the margin percentage because our margin percentage was very low in last quarter. So some of those things have also started working, which is helping us to improve our overall cost of production at the plant level. There is not -- nothing new, nothing -- this is like the industry, the way the industry behaves that after 2, 3 quarters, you are able to get better operating efficiencies at your production side. So that helps you to bring down your cost of production.

Just to continue with the question, what would be your average growth prices for this particular quarter as well as for quarter 4?

Around INR 650 something.

INR 650.

Around INR 650, but yes, around in the range of INR 6.10, INR 6.20.

And largely flattish or 3% to 4% up Q-o-Q?

Slight increase or -- flattish or slight increase, maybe 2% increase.

Understood. Understood. I mean getting back to the question, of course, you already have done 16%, 17% times the margin utilization level is still lower than the peers. Given revenue you see increase in value-added share given that you will also see increase in utilization from here on, what's stopping us to give a higher guidance in terms of margins? And secondly, just to extend the question, it looks like everyone has been speaking about bottoming out situation and pricing at bottom. Any talks on the rate prices given that raw material prices have largely stabilized at this point in time would be really?

The reason we can't commit for a higher margin or give a projection for higher margin is because, in Q1, literally every other month or every other day, whenever we had an internal review that will be realized with the competition is for the cutting prices. And we were very comfortable in the existing volume. We could not grow our volume. But to sell the existing volume and our old prices, whatever we were selling last year, we were very comfortable with our better product mix. So that kind of makes me like I'm not comfortable kind of giving a higher guidance because entire Q1, everybody will get greater cutting prices, including the month of July as well. So I don't know how the industry is going to stop and increase prices. I'm very confident of our working that we've committed 16% plus. That is what we're going to deliver through the year, whether the industry take a rise, does not take a rise somewhere.

See, if the industry takes the rise, Sneha, for sure, our margins will also improve, okay? But you mean at the competition at this point of time, this is what we were looking at, mostly from our own internal operating efficiency buildup. So if you really ask us, we are happy about it that the 2 things which we were able to do. One, we are able to build up on the operating efficiencies internally. And second, as Sanidhya is saying that the product mix is something where we are able to do certain -- something better. Maybe after quarter 2, I say quarter 2 also, we are able to do around 16%, 16.5% or 17%, then maybe we'll be in a better position to even give our revised guidance for the rest of the year.

And -- but volume-wise, whatever guidance you have given, you would want to stick around that?

Yes, yes, yes.

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

Congratulations on a great set of numbers. Sir, barring MDF, if you can comment, I mean, what is the ramp-up at Samet project as well? And what kind of execution do you see for FY '25 and going ahead as well?

Example, which has happened on?

Samet project.

Samet project, okay. So Samet project, we faced a few hurdles in the last quarter, maybe in terms of what we were planning versus how we were able to execute when there were delays in receiving certain machineries, which was important to ramp up the production side. In fact, those machines have still not been shipped. So we have -- there is a delay on account of that. And also to a certain extent, in terms of hiring certain key positions, not the key position, but the team below on the sale side. So because of these 2 reasons, whatever we could have sold also in quarter 1, we really could not do much. Quarter 2, we are assuming that given that some of these factors will get corrected, we'll start selling from the month of September and quarter 3, we will build up on the same because by the time that line will also come and it will get installed also. So from quarter 3, we will be in a better sales position into the market. Most of the other work has been done, all civil work, everything is completed. So the plant is fully ready to produce. It's just that some of the key machine has got filled up.

Got it. Got it, sir. So I mean, where we are planning to ramp it up in the next 3 years, say, by FY '27, you wanted to reach a peak revenue. That still was right on an annual basis?

Yes, I think given our strength of distribution and given the type of response right now, what we have got already, okay, I think that is still doable. We'll be able to catch up for sure.

Got it. And sir, just a couple of clarification in the opening remarks where you stated that being in Gujarat, it's somewhat beneficial right now in terms of timber. So what is the difference between the prices that you're getting in Gujarat versus the North and South average price?

I think when you last is around INR 0.50, more expensive, I think in the South is around INR 0.40, INR 0.35, INR 0.40 and we're still cheaper, that is what is my idea.

Absolutely, North is almost around INR 7.

So North is around INR 0.50 to INR 0.80 expensive than our average and output would -- maybe around INR 0.40 to INR 0.50 cheaper than our average.

Understood, sir. And sir, just on the opening remarks to Mr. Sanidhya, he stated that in the CapEx, you are doing some internal resin thing as well. So what will be the CapEx cost for this year? And what is this resin -- in-house resin that you are planning?

So to set-up in-house resin manufacturing plant, you basically need the environmental clearance. We were waiting for that. In Q1, the company was able to get into clearance. Now, we are building our own capability for producing resin for our MDF plant so that we can maintain the quality, cost, et cetera, on a long-run basis and also to secure the investment. You are running across a big line, you cannot be dependent on a small vendor sourcing our resin. So we wanted to quickly ramp up and start the production, hence, we started even about the resin facility, which was our plan to take permission and then eventually set up. So that's going to be implemented. Along with that, we're implementing flooring line and some other small value-added CapEx.

And the total CapEx as a company for this year, we had estimated around INR 70-odd crores. It will be in that range only, including for MDF these new additions what we are talking and even plywood, the normal CapEx what we will do, a regular maintenance CapEx, everything together.

Understood, sir. And sir, just lastly, if I can squeeze on the in-house capacity for plywood what will that be currently? And going ahead, you plan to add any brownfield expansion here or some other plans to add capacity for plywood, that's the last from me.

Yes. So the existing capacity, I think it's given in the presentation, the 52...

48.4.

48.4. We had done some line balancing, as I mentioned in the last quarter, we are getting that certified and we'll come back with the revised capacity, which will be maybe additional 2.5 million to 3 million square meters. And yes, I don't think this will be adequate enough for us to cater to our next year demand. So we have now started planning one new facility.

Got it. And those plans might be finalized in coming quarters or so? Or is there something on drawing board if that would like to give directional numbers?

So 3 to 6 months is -- I'm sure within which we'll have to finalize everything. And then another 6 to 9 months for the plant facility to come. So I would say, around 15 months from now, we should be able to see a new facility.

The next question is from the line of Bhavin Rupani from Investec.

My first question is related to MDF. Sir, in the press release, you have mentioned that there are some expansions of MDF to be completed by FY '25. Can you please provide what capacity addition that we are planning over here?

So basically, I think we had spoken about the extension provision that we have from the machine supplier that our existing line of the 800 cubic meter MDF line. And this line can be expandable to 1,000 cubic meters. Basically, we can increase the capacity by 200 cubic meters per day. And for this expansion, we have already funded the CapEx through internal accrual, and we've already imported the extension. However, at the moment, we are not in a position to do this because our supply to the market is hand to mouth. So whatever we are producing is what we are selling typically every month. So because of this situation, we are not in a situation to shut down our plant and increase the capacity. So whenever we have the next capacity or if we have a cycle where we get sometimes they want to quickly take a 20-day shutdown or a 25 day shutdown and increase our capacity further, but right now, we're not in a situation to comment when this can happen because we are really hand-to-mouth as far as capacity and market serviceability is concerned.

In the press release, you have mentioned that we are planning to add this capacity by end of FY '25. So this should happen anytime in the next 9 months?

Sorry come again?

In the press release, we have mentioned this capacity to be completed by FY '25, March '25. So should we assume that it will come up in the next 9 months?