Greenply Industries Limited (GREENPLY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Greenply Industries Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Markets. Over to you.

Welcome to 1Q FY '27 Investor Call of Greenply Industries. From the management, we have Mr. Sanidhya Mittal, the MD; and Mr. Sanjiv, CFO. I now hand over the call to Sanidhya for his opening remarks, post which we can open up for Q&A. Over to you, Sanidhya.

Thank you, Karan, and good evening, everyone. It is a pleasure to welcome you all to Greenply Industries earnings call -- earnings conference call to discuss our performance for the first quarter of financial year '27. As highlighted during our previous earnings call, we were witnessing encouraging demand momentum across our businesses, and I'm pleased to share that this trend continued through the first quarter. In Q1 FY '27, we delivered double-digit volume growth in both segments, in line with our guidance. On the marketing front, we continue to strengthen our brand presence and reinforce our commitment to sustainability during the quarter. We launched our One Sheet, One Tree campaign, a long-term sustainability commitment under which we plant one tree for every plywood sheet supplied for infrastructure and interior projects across India. This is not a time-bound campaign, but a continuing promise that reflects our vision of contributing to a greener India alongside our business growth. The ongoing geopolitical tensions and the recent conflict in the Middle East resulted in elevated imported chemical prices, extending the sharp cost pressures observed towards the end of Q4 FY '26. This price increase across the industry, as this situation gradually improved and supply chains normalized during the second half of first quarter FY '27, input costs began to moderate. Consequently, the effective price increase currently stands at approximately 7% to 9% in the MDF business and 3% to 5% in the plywood business. We are regularly monitoring the situation and will take corrective measures as required. Now I would like to update you on Greenply Q1 FY '27 financial and operational performance. Consolidated revenue for Q1 FY '27 stood at INR 724.9 crores, registering a robust 20.7% Y-o-Y increase. Our consolidated core EBITDA was INR 78.3 crores, with a core EBITDA margin of 10.8%, representing an expansion of 50 basis points year-on-year. Let me share the highlights of our individual business segments. In our plywood business segment, we have achieved a volume growth of 13.8% on a Y-o-Y basis in Q1 FY '27, with a revenue of INR 526.6 crores, value growth of about 16% on a Y-o-Y basis. Realization stood at INR 265 per square meter, a growth of 4.3% on a Q-on-Q basis. On the margin front, our core EBITDA margin stood at 8.4% for Q1 FY '27, a growth of 50 basis points Y-o-Y. Moving to MDF business, we've achieved a quarterly revenue of INR 195.7 crores with volumes reaching approximately 58,000 cubic meters. This reflects a strong Y-o-Y growth of 32.8% in value and 24.7% in volume terms. This realization improvement -- the realization improved from INR 33,525 per CBM, a growth of 9.9% on a Q-on-Q basis. Margins for the quarter stood at 17.3%, supported by higher sales and operating leverage. Moving on to the furniture and fittings JV. We achieved a sale of INR 13.61 crores in Q1 FY '27. The JV reported a PAT loss of INR 11.48 crores in Q1 FY '27, with our share of loss amounting to INR 5.74 crores. I'm pleased to announce that the MDF segment commercial production of new [ flooring ] manufacturing line commenced successfully on 20 July 2026. This is marking another significant milestone in our growth journey. Our expansion projects, including the new MDF facility at [ Vadodara ] and the new greenfield plywood manufacturing facility in [ Orissa ] are progressing as planned and remain on track for commissioning within the committed time lines. On the balance sheet front, we continue to maintain a prudent financial position while investing for future growth. As of the end of the quarter, our consolidated net debt stood at INR 533 crores with a debt equity of 0.57x. This remains well within our guidance for the range of 0.7 to 0.75, reflecting our strong, disciplined capital allocation and healthy financial position even as we continue to execute our planned capital expenditure program. Overall, we remain optimistic about the demand outlook and the momentum across our businesses. With our expanding manufacturing footprint, strengthened brand portfolio and unwavering focus on operational excellence, we are confident of sustaining our growth trajectory. We are confident to achieve the target of 10% volume growth in plywood and 25% to 30% volume growth in MDF segment for the full year, and remain committed to delivering consistent profitable growth while creating a long-term value for all stakeholders. With this, I would like to open the floor for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Sneha from Nuvama.

Just a couple of questions from my end. Firstly, just wanted to understand on the plywood margin front, while your gross margins have improved on a quarter-on-quarter basis, what would be the reason for a drop in your EBITDA margins? That's first.

I think the major reason for a drop is even though the volume growth we've been able to achieve, but I think the absolute number was very low. And the base in Q1 FY '26 was kind of low. So even though we achieved the volume, but the absolute number is far away from the number we did in Q4. So the moment we start reaching the Q4 number, which is anywhere close to 600 and 600-plus every quarter, I think 10% plus is very easily achievable.

So the impact from coming quarter or annual number, or are you comfortable giving 10% as a margin guidance?

I think we still are very confident on the 10% margin guidance that we've given. The only challenge that we had in Q1 was that we lost out on sales. If you look at our utilization level in the capacity of the plant [indiscernible] only at 92%, 93%, which last quarter was about 98%, 99%. [Technical Difficulty] So yes, sorry, we were answering Sneha's question as the line got disconnected. So the absolute number in this quarter was much lower than Q4. And I'm quite confident that once we do the numbers, much higher numbers in coming quarters, I think we'll easily be able to achieve 10% guidance. Also, typically, April, May, there's always plywood being a very manual business, I think the labor cost availability in April, May is lower. And there was election this time, so that's the reason our plant availability was -- utilization was lower and even outsourced utilizations were lower. So that kind of did not help us achieve [indiscernible]. We could have done much better number. Going forward, I think we will get this 10%.

Similarly on MDF business, while your volumes now have again dropped on a quarter-on-quarter basis, definitely doesn't increase, your gross margins have actually improved and your EBITDA margins -- I think your gross margins have fallen and your EBITDA margins have improved. Can I get the connection here also in the MDF side?

I think Sanjiv has -- I think if you compare from the previous quarter last year, we were sitting at about 46,000. So against that, I think we've done 57,805 cubic meters, right?

Yes.

So our volume has kind of gone up by 24.7% Y-o-Y.

Again trying to compare quarter-on-quarter. Quarter-on-quarter, definitely there's a dip in MDF, which is seasonality, I understand. But if I look at your gross margins, they have gone up, and we are a bit -- so basically, let me just put it other way. In case of your EBITDA percentage margins of MDF, with whatever value-added share that you are doing, what could be the EBITDA margin movement that could -- that we can see even from these levels?

It's very difficult to tell you, but I think Sanjiv will come back to you that what would be the range.

See, sort of capacity right now we have, the EBITDA margin will be around the 16% to 17% on a sustainable basis. Once the other line will come up where we are doing around 70% extra capacity we are adding, so there will we get some operating leverage on that time. The EBITDA margin may increase by 1% further.

Understood. So that time, it can actually reach up to even 18%, is what you're trying to say?

Yes, because [indiscernible] manufacturing location, people are not going to double with the capacity doubling. So the cost won't double in that [ tune ].

The next question is from the line of Dhiral Shah from [ VVD Asset Managers ].

Could you please provide us an update for the trending both prices particularly on the timber [indiscernible] South India?

Can you please repeat?

Can you provide us an update on the trending both prices, particularly from the timber [indiscernible] from South India?

So Greenply is honestly not very heavy in South. And we are hardly procuring anything from South India. So it's very difficult for me to comment about the South Indian timber prices. But very soon, once we have the Orissa facility up and ready, we are very physically close to [indiscernible]. So there will be some amount of influence of the South Indian pricing on the pricing in Orissa also, that part of Orissa we are going. But today, we have no connection to the South India timber prices because we are not treating that as [ catchment ] to source timber.

The next question is from the line of [ Vishal Shamia ] from [ Trini ] Asset Managers.

My question was about [indiscernible] margin growth. [indiscernible] versus how much was actually from the market share gain from the unorganized products?

So I think if you look at the overall plywood numbers, I think 13.8% was the volume growth and value growth was about 16%. I think this is whatever green shoots we are seeing as a category post-COVID, I think definitely, we are eating the share of the unorganized, and that's why we are seeing these green shoots. And our numbers would have been much better than this. As I mentioned earlier in Sneha's question that, A, there was a lot of disruption because of elections in manpower across all plants. So April, May, the utilization levels were lower than expected. And also the outsourcing didn't work very well for us in Q1. So honestly, if these 2 things work, the numbers would have been even better. So to be very honest, I think we've lost sales in Q1. So we are very seriously building Orissa, and probably even after that, we will stop. We'll yet again build another plywood facility.

Okay. And another was on the plant. You said the company will be starting from 20 July. Am I right?

Yes. 20 July, we did the first production for the flooring, for the [ HDF ] flooring. And from this month-end, I think it will be in the market. So there should be some revenues in the MDF numbers starting this month for the flooring segment.

Okay. And if I can get the utilization level that you see for the next quarters or maybe H2 FY '27, how do you [indiscernible] going on?

You're talking about the plywood business or the MDF business utilization levels?

Both, sir. Both, sir.

I think in plywood, honestly, we've even gone up to 98%, 99 or 100%. So obviously, the target will be to max out our available capacity. And in MDF, I don't think it's practical to go above 82%. So that will be the kind of target that -- this year, we want to operate our plant at full capacity, assuming that next year will be the new capacity addition and we should be already ready to kind of sell the new capacity we're able to bring in.

Okay. So the demand is really strong [indiscernible] a bit of the demand this year -- this quarter? And the [indiscernible]?

Sorry, you're not very clear. Your voice is a little muffled. Can you please repeat?

Yes. So my question was that this year -- I mean, this quarter, we kind of missed out demand, and from the next quarter, with the upcoming capacity, we will also cater to the demand that we missed, and the utilization [indiscernible]?

Right. Right.

The next question is from the line of [ Visha Mehta ] from [ Green Edge Wealth ].

So first, just a clarification. I think you called out some numbers, ply 3% to 5% and MDF some 7% to 9%. So what was that being referred to, the price hikes taken?

The effective price hikes taken. So in MDF industry, the industry has taken about a 15% price rise. And in Q1, I think we've enjoyed about 7% to 9% rise and the balance got passed on in the form of schemes. So that was the reference to MDF. And in plywood category, about 3% to 5% was the price hike from different product categories and brands.

Understood. And then what is the reason for the 0 decline in gross margins in MDF? If I look at Q2, there's a 300 bps decline.

Rise in the timber cost. Typically, when there's monsoon and [indiscernible] the timber you start getting wet and the cutting stops happening. There's also a slight price rise that happens during this period. So that's the reason.

Please go ahead with your question.

Yes. The other bit was on the ROCEs for MDF. So I think last year, FY '26, we were at around 8% kind of ROCE based on the capital employed numbers and the margins that you gave, right? So how do we go to 17%, 18% targeted ROCEs for the MDF segment?

I think it is a multiple approach that we are trying to take at Greenply. So we are trying to be very cautious of the CapEx that we're doing in -- for the Line 2. So over there, we are working on improving the asset turn ratio. So the CapEx that we've announced for the second plant is much lower CapEx per cubic meter compared to the CapEx we've done for Line 1. So that on a long-term basis will help us achieve better numbers. Also, the first 2, 3 years, we were kind of setting up our business. So the numbers are very bad. And right when we started, I think there's a lot of competition. But I think Greenply is a very strong player. We've been around for 4 decades and ready for the next 4. And I think on a long-term and a medium-term basis, I'm very confident that we'll do 17%, 18%. Also, when Greenply was one entity, we've seen MDF business perform between 2008 and '18 till Greenply demerged. And on a long-term period, we've seen great ROCEs in this business. So there will be times when people will be putting too much capacity, then [indiscernible] will get demotivated, industry -- the market is going to catch up with the capacity, everybody will make money. And again, bad times, good times. But every 5-year, 7-year period, this year, I'm very confident that we will be at that 17%, 18% level. And honestly, that's not like the best level. It's a basic, acceptable level.

So what margins, at what utilization, what are the 3, 4 milestones which we will hit will lead to the 17%, 18% ROCE you're targeting?

I think we'll have to sell 100% of our capacity profitably and then only we can get closer to that number. And we have to be very careful in all the CapEx initiatives that we are doing in the future so that there is scale in this business today, this business is very small for us. Eventually, the scale of this business should make sense.

Right. And I think you did mention that you are being cautious in your capital outlays for future CapEx in MDF. And I think for this newer plant, we are -- we've gone ahead with the Chinese machinery. So if Chinese machinery were cheaper and probably it had lesser downtime, then why wouldn't we have gone ahead with the Chinese machinery back in the day when we actually set up our greenfield MDF facility?

I think it is honestly -- being very honest to the learning curve for the organization, number one. And number two, also the first time around, we didn't want to take a chance. We were announcing Greenply entry into this category. The day we were investing into the MDF line, our network and the investment are the same. So we wanted to be very, very careful. We wanted to go for a sure, sure thing. And honestly, technology is changing every day. So in the last 2, 3 years, honestly, there's been a better development on the Chinese machine side. And even the new line is a combination of Chinese and European. So where the heart of the plant is where we manufacture the fiber, that's still 100% European. And [ the press ] is converted from German to Chinese because, honestly, we found better merits in the Chinese press. Yes. Specifically on the [indiscernible] line which we are investing in currently.

Right. And on the ply side, right, so just a legacy question here. So if I look back at your last 3 years, ply growth, your average ply growth for us has been around 8%. And for Century, that's been at around 13% CAGR, right? So what have been the reasons for this gap? And have we tried and fixed those? Because I see that, of course, since the last 2, 3 quarters, our ply volumes are up with our focus on [ Ecotec ]. But historically, like what were the reasons for lower revenue growth in ply versus, let's say, the [ leader ] years?

So honestly, I think we were busy implementing and setting up an MDF business. We were getting into furniture JV, and we were expanding categories and trying to make a big change from Kolkata to Mumbai. And when we were doing all of this, I think they were busy in planning their hyper growth in plywood. So our growth straight planning or the hyper growth planning, I think we missed that out by 2 years. Honestly, we paid that price in the last 3 years. But I'm quite confident that going forward, we're not going to pay that price.

And lastly, on the ply margins, again, if I compare our margins with Century, right, we have been at around 8.5% average EBITDA margins over the last 3 years and versus Century at 13.5%, 14%. So now we are guiding for around 10% margins. But do we think that with scale, with the kind of INR 600 crore quarterly revenue run rate that we are targeting, can we also reach 13%, 14% kind of EBITDA margin?

Honestly, I mean, if I do Century type of number, I would do probably higher than even 13%, 14%. But anything INR 600 plus, if I'm doing at today's cost base, I will be in double digit for sure, 10 plus. If I start doing INR 800 crore number in plywood for the quarter, even I would do about 13%, 14%, 15%. It's not a challenge. So beyond the point, I think we're getting the advantage of scale. Also for us, the businesses got demerged long ago. So all the cost gets loaded into the largest business, plywood, on turnover basis. So once the scale in the MDF business and we enter newer categories and there's enough scale there, automatically, the apportionment of cost would improve on the plywood side, and 1% or 2% should improve from there as well.

[Operator Instructions] The next question is from the line of from Parth Bhavsar from Investec.

Sir, I had a couple of questions. The first one related to employee cost. If we look at our employee cost on quarter-on-quarter basis, both in terms of absolute number as well as a percentage of sales, it has gone up substantially. So what has -- can you throw some color on this, like what has led to this?

I think -- I don't think there's a substantial increase. I think the main will be the provision for increment that will be given from 1 April onwards. So that's the provision. And lower sales. So I think these are the reasons why percentage terms, the cost is looking out. In absolute terms, the cost is higher because we've taken the provision for increment already.

So sir, what would be the normalized number? Again, it would be INR 89 crores sort of a number? Or what would be the provision that you've made and if that is available?

So this quarter, we have given around 98.88. So this INR 100 crores would be the, I think for the year, is the quarterly number would be.