Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q3 FY 2022 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Mittal, Managing Director and Chief Executive Officer, Greenlam Industries Limited. Thank you, and over to you, sir.
Thank you. Good afternoon, friends, and a very warm welcome to all of you. I hope you all have been safe and healthy through the third wave. I'm joined on the call by Ashok, our CFO; Samarth from the finance team; and SGA, our investor relations advisor. The results and presentations are available in stock exchanges, and I hope you've had a chance to review the results. As far as the business is concerned, I'll just focus on what happened in the last quarter. The business grew in terms of revenues by about 34% year-on-year, and we were nearly flattish sequentially versus Q2 of this financial year.
We had a disruption at the Behror factory, our Rajasthan plant, where we were temporarily closed 100% for about six to seven days, and then we had restricted working days as per the guideline of the CAQM. This resulted in saleable production and sales loss of approximately INR 40 crore-INR 50 crore in Q3, which in turn obviously kept raw materials at an elevated level because we could convert them to sales and also impacted profitability. Most of our costs were by and large fixed in this period while the factory was not operating at the necessary capacity. The restrictions continued in the month of January. In January, we had about 8 fewer working days as far as Behror factory is concerned.
With effect from fourth of February, the restrictions have been removed, and we've been allowed to run the plant seven days a week. On the price hikes, because this has been an important discussion in the past also. As we talk now, we've been able to pass on all the raw material costs increase to the customers in both domestic and export markets and in the wood and veneer business. The increase has been implemented through Q3, so most of the domestic increase became effective first of November, and export increases have happened through the quarter. As we talk right now, all raw material cost increase have been passed on. Currently, raw material costs by and large remain in a certain range, with few costs coming down and few still, you know, increasing. By and large, it's moving within a range.
That's on the raw material cost front. International logistics, both inward and outward, continues to remain difficult. Availability of containers, setting time, ship vessels availability, costs on the sea freight still remain challenging, and not much has improved on that front. The impact of Omicron, the third wave, has been marginal to the business. In last quarter, we also announced our expansion CapEx plans and entry into adjacent spaces of plywoods and particleboards. I hope you all have had a chance to see the presentation on the next topic. The plans for the new plants are moving more or less as per schedule. Work has commenced at the Andhra plant.
Necessary approvals have by and large come in, and we're moving in a certain speed, you know, with as far as under the recent Tamil Nadu plant is concerned. This is by and large from my side, and I'll be happy to answer your questions post Ashok completes his presentation. Ashok, over to you. Thank you, sir. Good evening, friends. I'll take you through the financial performance. For the Q3 FY 2022 on a consolidated basis, net revenue for the quarter grew by 34% on year-on-year basis. However, it de-grew by 1% on sequential basis and stood at INR 450 crore in this quarter as compared to INR 335 crore in Q3 last year. Sequential de-growth in revenue is due to disruption at our Behror plant, just now explained by our gross.
Gross margin was down by 780 basis points to 44.3% in Q3 FY 2022 from 52.1% in Q3 FY 2021, primarily due to rising raw material costs. On a sequential basis, gross margin was up by 80 basis points. Gross margin in absolute terms grew by 14% to INR 199 crore as compared to INR 174 crore in Q3 last year. EBITDA margin was down by 540 basis points and it stood at 11.9% in Q3 this year as compared to 17.3% in Q3 last year. On a sequential basis, EBITDA margin was up by 180 basis points. EBITDA in absolute terms de-grew by around 8% to INR 53.4 crore in Q3 this year as compared to INR 57.9 crore in Q3 last year.
Net profit for the quarter stood at INR 26.9 crore in Q3 this year as compared to INR 32 crore in Q3 last year. Moving on to nine months of performance. Consolidated net revenue for the nine-month period ending 31 December grew by 58% and it stood at INR 1,240 crore as compared to INR 784 crore in the nine months previous year. Gross margin was down by 590 basis points to 44.5% this year from 50.4% last year, primarily due to rising commodity cost. Gross margin in absolute terms grew by 39% to INR 551 crore in this year as compared to INR 395 crore in nine months last year.
EBITDA margin was down by 240 basis points to 11.1% in this year from 13.5% last year. EBITDA in absolute terms grew by 29% to INR 137.5 crore in nine months this year as compared to INR 106 crore in nine months last year. Net profit grew by 51.7% to INR 64.9 crore in nine months this year as against INR 42.8 crore in nine months last year. Moving on to segmental performance. Laminate business grew by 38% on year-on-year basis and de-grew by 1.6% sequentially to INR 40.08 crore from INR 295 crore in Q3 last year. Volume growth stood at 1.7% on year-on-year basis.
Domestic laminate revenue grew by 52.5% year-on-year and grew by 1.3% sequentially in value term. Volume growth stood at 19.2% year-on-year. Moving on to international laminate revenue, which grew by 26% year-on-year and de-grew by 4% sequentially in value term. Our volume de-grew by 13% year-on-year. EBITDA margin stood at 13.3%, a de-growth of 650 basis points year-on-year and a growth of 180 basis points on Q1 FY22. The production volumes were at 3.88 million sheets and utilization level of 99%. Sales volume for the quarter stood at 3.98 million sheets.
Our average realization for the quarter was at INR 984 per sheet. For the nine months, laminate revenue grew by 61.8% on year-on-year basis to INR 1,132 crore from INR 700 crore in nine months previous year. Volume growth stood at 41% on year-on-year basis. Domestic laminate revenue grew by 74.7% in value terms on year-on-year basis. Volume growth stood at 56.4% on year-on-year basis. International laminate revenue grew by 52.4% in value terms on year-on-year basis. Volume growth stood at 30.4% on year-on-year basis. EBITDA margin stood at 12.6%, a de-growth of 350 basis points. Production volume were at 12.63 million sheets, and utilization level were at 108%.
Sales volume for the nine months stood at 12.59 million sheets, and average realization for nine-month period was 862 per sheet. Moving on to decorative veneer and allied segment, which consists of decorative wood veneer, engineered floors, and engineered doors. In the decorative veneer segment, revenue de-grew by 5.3% on year-on-year basis and de-grew by 3.1% on sequential basis to INR 24.4 crore from INR 25.7 crore in Q3 last year. Volume de-grew by 17.2% on year-on-year basis. Revenue of decorative veneer business grew by 32% to INR 61.7 crore in nine months from 46.7 crore in nine months last year. Volume growth stood at 27.3% on year-on-year basis.
Volume de-grew by 17% in Q3 on year-over-year basis, and volume grew by 27% in nine months. Sales volume for quarter three stood at 0.3 million sq m. However, sales volume for the nine months were at 0.83 million sq m. Capacity utilization for the quarter were at 29%, and for the nine months it is 26%. Average realization for this quarter was INR 808 per sq m. For nine months it stood at INR 736 per sq m. Moving on to engineered wood flooring. Revenue grew by around 28% on year-over-year basis and grew by 34% on sequential basis to INR 10.8 crore in this quarter as against INR 8.4 crore in Q3 FY 2021.
Revenue for the engineered wood flooring business grew by 24%-25% on YoY and stood at INR 26 crore in nine months as against INR 21 crore in nine months last year. Our capacity utilization were at 11% in this quarter and 10% for the nine months. Moving on to engineered doors. Revenue for the engineered doors business grew by 33% for this quarter on year-on-year basis and grew by 2.4% on sequential basis and stood at INR 6.5 crore as against INR 4.9 crore in Q3 last year. Revenue for the engineered door business grew by 17% in this nine months and stood at INR 19.8 crore as against INR 17 crore in nine months last year. Capacity utilization for Q3 were at 19%, and for the nine months stood at 20%.
Moving on to debt. Net debt for the quarter ended December 31 stood at INR 178.5 crore as against INR 179.5 crore last year. Net working capital days for Q3 stood at 76 days as against 83 days in Q3 last year. That's all from my side. I would now like to open the floor for question and answer. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Ajit from YES SECURITIES. Please go ahead.
Yes. Hi, sir. Thank you for taking up my question. The first question is that how can you comment on the demand? How is it panning out post January? Because we have seen that the prices of laminates have been surging, and they are almost at record high. Does it hamper the demand, and what is the outlook going forward?
I'll take your question. Demand side, by and large is looking good, actually. In the month of January also we had more of a supply side restriction. Demand side is fine. The record high laminate realization is a function of price hikes and our continued focus on premiumizing the products and, you know, doing more value-added sales. You know, it's a combination of both, right? Which we think as we move ahead will it still improve a bit. That's on the demand side, yeah. What was your second question, please?
Sir, secondly, can you explain that in the international markets, are we able to pass on? Like you mentioned that we are able to pass on the rising raw material costs, but what about the freight costs? Are we passing it on completely or we are absorbing some?
Your voice is echoing. Can you go again, please?
Yeah. Is it good now?
Yes, better now. It's better.
The question pertains to the international prices. There also are we able to pass on the complete incremental cost related to freight as well?
Yes. By and large internationally too. Freight we passed on actually from January 2021, all the additional freight, right? Internationally also with the increases we've done over Q3, you know, various markets have happened in different months. By and large we passed on all the raw material cost increase and the incremental freight to the customers in the market.
Got it. Thank you, sir. I'll come back in the line for questions. Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question may please press star and one. The next question is on the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, good evening. Thank you for the opportunity. You know, my question, first question was with respect to realization. If I hear correctly, the realization, the revenue for international laminates grew by 26% while volumes declined 13% YY. That means the realizations have gone up fairly significantly. Is it possible to break this down in terms of the freight and extra freight? What is the change?
I'll take part of your question, and I'll have Ashok take the other part. Exports volume reduction is also a function of loss of production at the Behror factory, right? Because we had disruption, and plant operated at literally, I think, below 50% in the month of December.
Sir, your voice is sounding a little muffled.
I'm so sorry. I don't know what to do now. Is that better? Is it better?
A little better, sir. Please proceed. Thank you.
Yeah. The volume reduction is a function of lower production at the factory. Also we have shipments in transit, which, because of the shipping delays, the vessel delays, arrival delays at the seaport, you know, the volume reduction is visible. As far as the price reduction is concerned, it's a function of volume mix and price increases. Ashok, are you there? Yes, you can take the second part of the question on the freight topics. Yes. Actually, the freight part is not considered in this. Whatever, as we have any incremental freight that has been collected from the customer on their behalf, that is not considered in this.
You're saying that realization does not include. This is like FOB sales, you know?
No, no. This, what we have done, as mentioned by sir, from January 2021, whatever incremental freight that was recovered from the customer. This keeps on varying depending upon what the freight for that shipment. That has been recovered, and that has been adjusted with the additional freight paid by the company. That's not considered in this. The normal freight which was applicable prior to this, prior to the freight hikes or problem in the freight, that is only considered. It's a CIF in most of the cases, but additional freight is recovered from the customer and not considered in the sales.
You are saying it's not part-
Sorry.
Yeah. Sorry, sir. Please go ahead. Yeah.
The price realization you have seen is not inclusive of the additional freight, right? The price is basis price closure, freight closure on December 20, right? Incremental freight is not forming part of the improved realization. I think that's what you are asking.
Yeah, yeah.
Correct.
Is there a freight account or something where it gets adjusted, so the collection and the incremental freight? Would that have an impact on the margin? Because the recovery and the payment would be with a lag, right?
That's already accounted in the P&L. Expense which you're seeing, it's already sort of, you know, that's already accounted in the books.
Okay. I'll probably take it offline. It's a little confusing, so I'll take it offline. The second question I had, Saurabh, if you could talk a little bit about, you know, from the exports perspective or international markets perspective, what are the top three to four countries for us, and where are we in those respective countries among top three, four or top layer, and how do we plan to scale up there? If you could talk a little bit more on that would be of great help. Thank you.
The export business, you know, needs to be in decent shape. Like I said earlier, currently it's more of a supply side challenge and the disruption of the factory that has impacted export revenues as well as some part of domestic revenues. I said this earlier too, in most of the export markets, we are not number one, number two in those local markets. We might be number one from India, but otherwise, you know, depending on which region, which market, you know, we talk about. We believe there is good, you know, headroom available for us to improve volume, improve volume mix, improve price realization in most of the export markets we're present in.
Top three, you know, Thailand, you know, UAE, U.K., U.S., three, five. I think these are the top markets for us right now.
Understood. Just last question, if I may, with respect to the margins, you know, if you could give some sense, you know, assuming a normalized scenario in terms of RM cost or freight, you know, what kind of margins we are looking at from a, you know, from next two to three-year perspective, given the product mix what we would have? The volume growth, in a normal scenario, I know. You can talk about in a normal scenario, what usually is the volume growth in the domestic and the export market.
Tough to give you a sense of next two, three years, because next two, three years, the new plants will also come into production, Achal. What I can say is that if you see Q3, you know, our volumes, our revenues and our margins could all have been better if the disruption was not there. Price increases was implemented through the quarter. We didn't have a full quarter with the price increase, which hopefully we will have in Q4. You know, as far as volumes are concerned, until the new capacities, you know, come in, which probably is like Q4 of FY 2023, we're talking more laminates right now.
You know, the plants are really running at full capacity despite other than the disruption we've had in the [Sundram factory] in, you know, January.
Right. I mean, I was more asking from a two to three-year perspective, you know, what kind of growth one would be okay to look at, you know? Would that be high single digit, double digit in terms of volume growth and the margins?
No, that's what I'm trying to say. When you take a two to three-year view, FY 2023 we will have a new capacity of laminates if things go well in the Q4 of FY 2023, right? In FY 2024, we will have the new capacity for the full year. I think this will depend on how the capacities, you know, come up. We believe when the new capacity comes up, you know, I think it's targeted in about three years, three odd years, it should come to near full capacity. I'll have to run the math, but you know, as we see things now, you know, we think the ability to grow the business to sell, you know, is quite decent for us, and we've seen it in many markets, you know, both domestically and internationally.
This is what I can say right now, Achal Lohade.
Got it. Thank you so much.
Thanks. Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question may please press star and one. The next question is on the line of Vijay Karpe from Bryanston Investments . Please go ahead.
Yeah. Thank you for giving me this opportunity. Am I audible?
Yes, you are.
My first question is, I just wanted to understand what is the management's view of the demand supply dynamics in the medium term? Because there has been a lot of announcements on the expansion side across the board in plywood, MDF, particle board, laminate. There are a lot of capacities which are coming up by the end of financial year 2024. What is your view on this?
Our response would be, we are adding capacities in laminates and currently two to three were in operation because of the disruption of the plant. We're already operating 150% utilization, so we clearly need more capacity. The capacities we are bringing are in three different sizes. We don't see much challenges there. We need more capacities. The next capacity we're bringing is particle boards and not MDF. If you look at particle boards, there are two meaningful capacities coming up. One is ours and one is another competitor of ours who's coming up in the state of Gujarat, right?
Really from a market size, approximately in terms of quantity of the market, imports not coming in, most of the other local players being subscale, poor quality of boards. There is a significant supply demand gap in particle boards. We think with our you know understanding of the business and its close correlation between laminates and Compact Laminate, we should be good with that. If you look up the company's site, we will have the next Investor Presentation where all of this will be laid out, but you can also get in touch with our team offline. On the plywoods, we said that the market size is you know somewhere in the band of INR 30,000 crore. The capacities we are bringing in you know is again not so high.
It's still a rationale why we chose South India as the location. South India has the largest branded market for plywood, and there is no meaningful branded capacity in South India. Really from that point, we don't see much challenges on that capacity. The significant capacity addition which is happening is actually in the MDF business and none of the businesses we are in right now or we are intending to get into.
Will not particle board also indirectly compete with MDF?
Particle board, some products, some usages are replaceable. Let's put it this way, we believe that because there are no quality particle boards available right now, customers have to buy MDF, right? The quantity of particle board market or potential market at the moment we see is larger than MDF. There is no quality producer of particle board in the market. While in MDF you have, you know, four, five companies or three, four companies who are of a certain size and scale, right? Particle boards business is largely sold as pre-laminated boards and not as bare boards. It is very much aligned to the decorative laminate business we are in, as most OEM customers, you know, most commercial market customers buy laminates and particle boards both, right? Pre-lam particle board.
Yeah, to answer your question, they are replaceable systems application and sourcing there.
Got it. Can you state the plywood capacity which is 18.9 million sq m in terms of CBM?
I don't have the math with me right now. Ashok ji, would you have the math, Ashok ji?
Yeah. You need to divide it by 250. This is simple mathematics. This is based on cost basis.
Okay. Divide it by 250.
Yes.
Okay. My next question is, will not our plywood capacity compete with the organized players because ours is a premium plywood capacity that we'll be putting? Additionally, will our particle board plant also receive the lower tax benefit because in the budget that now has been pushed up to end of March 2024?
Yes, we will call the on that also it will be available. The tax benefit will be available on the plywood project and plywood will compete, yes, will be more mid to premium. Will it compete with the branded players or not? We believe that there is a space for, you know, a branded player, another branded player in the plywood segment, because of the, you know, formalization happening in the category. All the plywood we produce will be, you know, calibrated plywood, the most superior plywood, which today the branded players have an option of, calibrated plywood. Our entire production will be calibrated, and we believe the quality will be, you know, best in class, and we will be able to hopefully set up our network and our demand side pretty well. Great.
Thank you so much, and that's all from my side. Thank you.
Thank you. The next question is from the line of Aadesh Mehta from Motilal Oswal AMC. Please go ahead.
Hello sir. Thanks for the opportunity. Sir, you know, I wanted to understand that now that we are getting into plywood, you know, and there are also similarly named companies in the same segment. How would we be differentiating in terms of our branding and marketing? Any thoughts on that, sir, would be very useful.
Our idea of a brand, we will be creating, you know, potentially a new brand for plywood, which will come from Greenlam Industries. We will not use the word green in the plywood brand, and we're just kind of working on the final marketing strategy and the sales strategy. The number of dealers in the plywood market, the counters, the spread is so high with just two national brands. Really, I don't think we'll end up competing, you know, with the two national brands or with the company with a, you know, with a similar, you know, corporate brand name. We don't believe that'll be an issue. You know, every town, every city has multiple, you know, counters and dealers, and with just two national brands and few regional brands servicing them.
We believe, you know, without head-on competition, we'll be able to find a space. We already ship through directly and through sub-distribution from our distributors to most of the, you know, district level towns, taluka, tehsil towns, you know, our laminate products. Our reach of our products directly or through distributors is already there in the market. Really I think from that point, we don't see a significant challenge on that front. Some cannibalization or challenges might come, but we think on the overall scheme of things, it will not be a big problem.
Right, sir. If I may ask, how many of our, you know, domestic distributors in terms of laminates we can also cross-sell, you know, plyboard?
Laminate model is a company distributor dealer model because number of SKUs are very high. The need to carry inventory across the entire catalog is high. Laminate follows more of a distribution-based model, where there's a large distributor, number of smaller sub-dealers or medium-sized dealers. The plywood model is more of a company to a direct dealer format. Most of, not most, actually all of the sub-dealers of our laminate products which are buying from distributors are potentially plywood dealers also, or carry plywood already.
Right. Got it, sir. Wish you all the best.
Thank you.
Thank you. We'll move on to the next question. That is on the line of Rishab Bothra from Anand Rathi. Please go ahead. Rishab, your line is in the talk mode. Please go ahead. As there's no response from the current participant, we'll move on to the next. That is on the line of Akshay Chheda from Canara Robeco. Please go ahead.
Yeah, sir. Thank you for the opportunity. Two questions from my side. Just wanted to understand what is the maximum capacity utilization that we can go from our existing capacity in laminates of around 15.62 million sheets. I mean, the reason I'm asking is that in spite of the challenges that we had in our Rajasthan factory, still we were operating at around 99%. What max we can go there? That was my first question. Secondly, sir, you did talk about that the new laminates factory that you are talking, so that you expect to ramp it up to full capacity in three years.
If you can talk on the similar lines for the plywood also, like, since it will be starting its production in FY 2024, so by what time you look to ramp it up to the full capacity? Yeah. These are the two questions. Thank you.
You will take it, Shiv? Yeah, yeah. For the laminate existing capacity, previously also we have taken this up to 115%-118%, depending upon the product mix and all this. We believe that very briefly it can go up to that level also. In terms of new third laminate plant, it is in the third year we are expecting 100% capacity utilization. In terms of your next question on plywood, the expected commercial production for that is Q4 of FY 2023, not FY 2024. Q4 of FY 2024 is for the particle board plant. For the plywood also, we are expecting 100% utilization in the third year of operation.
Okay, got it. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Rishab Bothra from Anand Rathi. Please go ahead.
Sir, what I was trying to ask is, what sort of plan do we have to enhance the utilization level in doors and flooring as well as the veneer segment? Or are we having excess capacity ahead of time? If you could throw some light.
I will take that. If you go one by one, in the veneer partly, you know, obviously, 100% of that kind of utilizations don't work, and we have no excess but just a bare minimum of kind of a capacity we have to put in. We are not expecting anything beyond, you know, like a 45%-50% kind of utilization in that business model. Flooring and doors, you know, again, the ramp-up is happening, right? You know, because of fluctuation of demand, the disturbance, I think it's not happening the way we would have loved it to happen.
From a utilization level, clearly flooring and door can go up, and the plan there will be to consistently keep increasing the utilization, which can happen, you know, in that business model of flooring and door. Yeah. That's my answer to it.
Continuing with the same question, please, forgive me for my ignorance. Does this industry also work on outsourcing model? Can we outsource the capacity to someone else to enhance the profitability?
Flooring, are you talking, or veneers and-
I mean, anywhere if there is an outsourcing model which is in play, and if we can outsource the idle capacity to someone else. In the sense, third party will outsource from us.
Sir, I think that model in our country, you know, or even elsewhere, you know, in this business model is very difficult to create because 100% raw material in the wood veneer section, which is decorative veneer, flooring and doors gets imported, right? There's a product range which you have to create in terms of, you know, the sizes, dimensions, stains, you know, kind of finishes and all that. If you end up, number one, there is no such requirement of potential, you know, customer or potential, you know, company which can take that kind of capacity or even go and market it, because again, to create a brand, set up a distribution, it's quite a challenge.
I don't see that, you know, that we can let out our capacity to somebody else because of the complexity of range, raw material investment, marketing, product differentiation. That's my feedback.
In terms of market, is it more to domestic or overseas, veneer and-
Largely, decorative veneer is 100% domestic by and large. Flooring also, you know, eventually, it's nearly like a 75%-80% domestic market. Doors we do some export, but again, 70%-75% domestic. The wood veneer business will largely be a domestic play because all the raw material is imported and, you know, when you ship, the freights are significantly high, and we until now haven't been able to create a brand in that category. By and large, the attention in terms of sales, marketing effort, will be in the domestic market for these categories.
Lastly, I will come back in the queue. Is there a proposal to merge the subsidiary under which expansion program is going on? Or what was the need to do expansion in that particular subsidiary? Who are the other owners of the entity?
There are two subsidiaries, HGIL Industries, if you're talking in terms of the company owns nearly 75% of the equity, and rest is owned by the general public. This has been acquired since the land is there in that company. That's why it has been acquired. In terms of merging it with Greenlam or any other company, as of now, there is no such discussion or decision has been taken.
That was to avoid.
The another subsidiary in terms of GSM that has been taken because the new expansion is done in that. To take an advantage of tax benefit which was announced by Government of India for new company.
I think, sir, cost-wise, merger would be a better rationale, so both companies operate under one umbrella and synergies could be availed.
Yeah.
I'll come back in the queue.
Taking your feedback.
Taking your feedback. I'll come back in the queue. Thanks.
Sure.
Thank you. We'll move on to the next question. That is from the line of Alisha Mahawla from Envision Capital. Please go ahead.
Hi, sir. Good evening, and thank you for taking my question. Just wanted to understand if you can share with us what is your market share currently in the domestic market in the laminate space?
Ashok, you take it up, Ashok.
This around 12%-13% as of now.
Okay. Because of the capacity limitation that we have over the next few quarters, and some competitors probably with, I'm sure, have surplus capacity, is it fair that we may start losing market share going forward till new capacity comes on stream?
No. I believe the new capacity is already announced, and it has got delayed because of pandemic, because of pandemic situation. We are hopeful that this capacity will be available by Q4 of FY 2023. Till such time, we are as of now at near around 100% capacity, 105%. Around 8-10% capacity still can be used from the existing plant.
Just one last question. The CapEx of about INR 900-950 crores that we announced, when you did the CapEx call, you said that it is still under discussion. Just want to clarify the debt-to-equity ratio, if you can share.
Yeah. It will be debt-to-equity ratio will be 65% from debt and remaining from the internal accrual and equity. You are talking about for this project or for the entire company as a whole?
For the project, for the 954 CapEx that you announced.
It is 65% debt and 35% from the internal accrual and equity.
Sure. Just one last question. Our run rate in our non-laminate business has been sort of flat. Any steps that you're taking to improve the utilization or the run rate in this business?
Sure. You know, steps in terms of, you know, focusing more on adding more channel partners, working with architects, ID. It's more like a routine, you know, operation which we anyway do. What you need to appreciate is that these three categories or these three products are largely renovation market driven. With the renovation market turning around and, we believe that, the demand for veneer flooring doors in the home market will improve. As we go ahead, you know, you'll see better revenues. I must say this again, I might be repetitive, but in Q3, because of the Behror plant, disruption, the veneer business had an impact in terms of revenue, not the flooring door because we had surplus capacity there.
As we move ahead, I think we'll see improvements, you know, in terms of run rate of this category also.
Sure. Just one last question, if I may. While we understand that currently margins in the laminates business are impacted because of the increase in RM prices, et cetera, but when can we revert back to the 15-odd% of margins that we used to speak of for in this segment?
In Q3, I think we were at 13.3%, right?
Yes.
Assuming we lost INR 35-40 crore of sales of laminates in Q3, once you run the math, you know, we'd probably be very close to that number, I think. Yeah.
Hopefully from next quarter, the exit of the margins could be closer to that range or that number.
Well, yes, if you run the math of Q3, if you add 40% top line and with hardly any increase, incremental cost, it'll be very similar to that number. Yeah. It could be.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Dhiral from Phillip Capital. Please go ahead.
Yeah, good afternoon, sir, and thanks for the opportunity. Sir, since we are expanding into newer verticals like plywood and particle boards, but sir, regarding our existing verticals, regarding the veneer, floors and doors, where do you see this vertical, you know, maybe in three years down the line in terms of performance?
Three years down the line, like, you're talking the plywood business or the flooring and door business?
No, no, the existing vertical, which is veneer and floors and doors.
Yeah. Right now we have two verticals, the laminates and the decorative veneer and allied. In decorative veneer and allied, we have three businesses. The veneer panel, the engineered wood flooring, and the engineered door business. Three years down the line, this business will keep going on, right? The plywood business is not impacting the decorative veneer and allied category or business in terms of resources or, you know, marketing or sales efforts. This business, this vertical doesn't need any more capital in terms of, you know, CapEx or working capital. We hope that, you know, we'll keep improving this business as we move ahead.
Any revenue or, you know what, run rate you may not mind to achieve in next maybe 2-3 years in these 3 segments?
Difficult to give you a number, but clearly, what we are doing now, we have adequate capacity across the three businesses, and these are largely renovation-oriented markets. With renovation market doing well, we think we should be able to improve the numbers, you know, in all the three products and under the umbrella of decorative veneer and allied category.
Okay. Sir, does our business have any lever for margin improvement, you know, after entering into this new vertical?
When you say leverage, again, I think those businesses have their own margin profile and margin potential. It'll depend on how we sell, market and run the business, you know, properly and correctly, I think. As we as a company gains size and scale, we believe fixed costs to fixed overheads will, as a percentage, you know, will reduce and hopefully that should improve margin profile as we move ahead.
What kind of margins are we looking in plywood and particleboard, particularly?
Ashok, can you take that one please?
In the particleboard, in the plywood, we are expecting a margin of in the range of around 12%-13%. In terms of particleboard, it's in the range of around 25%.
What kind of ROE, ROCs we are looking in this new CapEx?
I think it will all depend upon how soon we able to ramp up the utilization level.
Typically plywood business, like if you look at the laminate business right now, we probably have a ROC in the band of pre-tax 25%-30%. Plywood typically is in the band of 20%-25%. Particleboard is also probably, you know, similar, you know, 18%-20%. Obviously it depends on, you know, like Ashok mentioned, ability to ramp up, value mix, operationally well-run plants, you know, well-run sales marketing mix.
Okay. Sir, lastly, is there any further room for improvement in our net working capital base?
Pardon?
Room for improvement in our net working capital base, which is, I believe, right now around 76 days.
Yeah. For the current wood business, there is room because like I said earlier, we lost sales and we couldn't convert raw material to sales which have led to elevated inventory levels. Also due to the international supply chain logistics challenges, both inward and outward, that's also, you know, little bit increasing our inventory levels, both inward and outward. I think if that normalizes, there is potential to further improve net working capital base.
Any ballpark figure that we are targeting maybe let's say next one to two years?
No, I can't give you a figure on that, please.
Okay. Thank you so much.
Thank you.
Thank you. The next question is from the line of Nikhil Agarwal from VT Capital. Please go ahead.
Good evening, sir. Thank you for the opportunity. Sir, you said that like in the new capacities that are coming out, they will achieve full capacity utilization in the third year. That was for particleboard and laminates. That was for laminates and plywood. Is that the same for particleboard as well?
Yes. In the particleboard we are expecting this 100% utilization in the fourth year of operation.
In the fourth year. Okay, sir. Like your major raw materials is phenol and melamine. Could you just give some update on the prices? What was it at the end of Q2, and what was it at the end of Q3, and what is the current trend now?
I believe you are talking in terms of for the raw material for laminate. In the laminate-
Yeah
We have paper and chemical both. In the chemical, what you said is the phenol and melamine. Phenol and melamine is the prime material in terms of that. As you said that the prices of this were on a higher side in the Q3, but towards the end of Q3, that started softening. If I say only about the Q3, the price of melamine was around 35% higher in comparison to Q2. For phenol it was higher by around 5%-10%.
In Q3 the prices were higher, but they started softening by the end. Am I understanding correctly?
Your voice is not clear.
Hello?
Can you tell me again?
Hello?
Yeah.
Yes, I'm audible now.
Yes. Yes, you are.
Yes. You said that in Q3 your prices were higher by 35% compared to Q2, but at the end it started softening.
Yes.
Okay, sir. Sir, I think I missed this out at the beginning. Could you just tell me what the export realization and revenue were for the quarter?
Export realization for this quarter was INR 1,028. Overall revenue for export for the company as a whole was INR 207 crore.
Okay. You just export your laminates. You, the decorative veneer segment, that is for the domestic market.
Yeah. Floors and doors also some amount of exports are happening from that. Primarily we export. Primarily the laminates are exported.
Basically 50% of your laminates revenue comes from exports. I mean, veneer.
Absolutely.
Okay. Sir, just one last question, if you may allow.
We can wrap, Mr. Agarwal.
Hello?
Could you return to the question, please? There are participants waiting for the answer.
Okay.
Thank you. We'll move on to the next question. That is on the line of Kartik Mediratta from Nippon. Please go ahead.
Hello, sir. Congratulations on the great set of numbers. My first question was regarding your raw material cost. You had mentioned that they are softening from Q3 end. Do you think these will be passed on to the customers and that would bring down your realization going forward?
My answer was specific to the two raw material which he has mentioned, the previous person mentioned. It was in terms of phenol and melamine. What has happened, some of the raw material constituent cost has come down, whereas some has increased. Let's say in case of paper, the design paper and to some extent, kraft paper prices also has gone. We believe that there will not be much of a difference which need to be passed down into the market. Situation is again volatile. We need to see the clear trend to emerge before taking any call in terms of passing on to the market.
Okay. Understood. Sir, one more question. In the last year, Q3 FY 2021, in laminates you had done an EBITDA margin of around 19.8%. Are these margins achievable again in future?
Difficult to say that was a very sweet spot that time, wherein the raw material prices were crashed before just that, and we had a very favorable raw material prices in that quarter. Difficult to comment whether that 19.8% is achievable in the currency value, even though it looks difficult in terms of achieving 20% margin.
Understood. Sir, just one last question. You had mentioned that one of your competitor is entering into particle board with a plant in Gujarat. Any idea on the capacity and amount of CapEx of that competitor?
I think it'll be very similar to what we are doing in terms of capacity and CapEx, I guess.
Okay. Thank you, sir. All the best for the quarter. Thank you.
Thank you.
Thank you. The next question is on the line of Ronak Satiya from Sharekhan. Please go ahead.
Yeah. Good evening, sir. Thank you for the opportunity. I had only one question with respect to, you know, demand outlook now. Most of the players in building material players are going on an expansion mode. You know, your assessment of that demand, which, I mean to say, what brings so much confidence to, you know, see almost about six to seven years of downright growth going ahead for the wood panel industry? Is it the, you know, slew of launches over the trailing one year in the residential segment? Is it, you know, demand driven from the aftermarket or secondary markets? Or are there some kind of, you know, leading indicators in terms of, you know, cement capacity expansions?
which parameters or indicators you are looking at to, you know, aggressively go ahead with the expansion plan?
Okay. Thanks so much. Yes, I'll take it. I think your question is more general and not particularly about a product we are in right now. If you look at our business model, and I will like to answer this, you know, one by one. If you look at the core business, which is laminates, we already have a certain capacity utilization. We have two market segments, the international market and the domestic market. Like we said earlier, in international market right now we're facing supply side constraints. Because we have opened several markets and seeded several markets over the last 15 odd years. In most of the markets we're operating in, we are still not number one, number two. Internationally, capacities are now coming up.
We've been able to create a good distribution set up in most markets with our own brand, with our own people, with good demand creation. Obviously, this is WIP, it never ends. We think we have decent space, you know, to expand our international business as far as laminates is concerned. With the capacity we are bringing on board, it is not so much. It is actually three production lines more than we have right now, about 11 lines. On the domestic side, you know, one is the demand generally going up in the residential side and commercial side. There is the you know situation of unorganized segment moving to organized segment.
The unorganized segment is only surviving, as we all know, due to inferior product quality, inferior commercial practices, and with regulatory tightening up, you know, most of these factories, companies are becoming subscale and they're gradually getting marginalized within. One is the demand situation in the domestic side. Other is the movement from unorganized to organized. Even internationally it has happened. 50-40 laminate factories have become two or three over a certain period of time. I think that opportunity is there. We've also added several new products, you know, which are category expanders. I think that's also gaining traction. That's on the laminate side, right? The wood veneer business, we've put in a certain capacity. We are not adding more capacity. The business doesn't need more capital as we know.
There again, I think, now if I go one by one, you know, door is a new concept, you know, production and factory installation on site, which really takes off a lot of carpentry load, time saving, et cetera, et cetera. Flooring, again, potentially a large market, but growing at a slow pace because it is a seasonal market. It did not grow well over the last few years, so we think there is space there. Vinyl can only do so much. We do not expect the vinyl business to scale up to much beyond a point. It will keep giving us the margins. On the particle board, we said that in the analyst call when we announced the expansion. Right now, there is no relevant producer or player. The market is about INR 5,000 crore in India.
All smaller factories, poor production, poor product quality. The board quality is not good. Unavailability of particle board is leading to expansion of MDF market share. Companies like IKEA and so many other furniture producers still have 70%, 80% of their raw material as particle boards. There, I think unorganized to organized, you know, this whole work from home, carpentry happening off-site, assembly happening on-site, you know, I think clearly the online players, the e-com players, they mostly will use Greenlam particle boards as a product. There we have a good, you know, space to grow and expand our market. Plywood also is a total INR 30,000 crore market approximately. There are two national players, you know, and a few regional players. Most regional players are either not focused or are very weak.
You know, I think there's a space to create for a third national player eventually to come in, although we're starting a factory in South India. Unorganized to organized story is also panning out there. People, even the kitchen producers use good quality plywood. Good quality plywood is not available because even the larger players resort to lot of outsourcing, which, you know, mostly, restrains them from offering good quality product. Good kitchen producers have to import plywood because calibrated plywood is not available in abundance. I think across our segments, demand situation, unorganized to organized, newer categories, replacement of imports in laminates, international market possibility. Really, I think with all these factors, you know, available, we think we should be able to kind of continuously grow the business.
Uh, one last question was with res-
Yes, please.
Yeah, sir, one last question was with respect to international. You said there is space and room. You know, how do we as in laminate are placed in terms of cost? Are we, you know, cost-effective compared to other South Asian countries and Chinese? How are we placed in that?
Sure. Our export model is not based on cost leadership, although we are cost-effective. The model has been built or is being built on marketing, distribution, specification, brand recall, developing products for, you know, OEMs, as value-added products. Our model of business is being built and has been built in that direction. Obviously, while you were building this, the model was slow, painful, you know, high initial expenditures. That's the model we have built and we are building on the international front. To answer your question on cost leadership, we are cost-effective with others, you know, other manufacturers or South Asian players. Again, there's a difference.
If you play in the commodity space, sometimes the raw material specifications are not the same. The kind of product we produce in a local factory in India or some other players might produce in China or somewhere, the specifications could be different. Then comparison of cost may not be relevant. With the same specification, we really are cost efficient also.
Thank you very much, sir. Best of luck.
Thank you.
Thank you.
Thank you. The next question is from the line of Rishab Bothra from Anand Rathi. Please go ahead.
Sir, just wanted to understand what's the demand side, outlook from, coming from, OEM like real estate players, or how is it shaping up with dealers, with respect to dealers? How is it shaping up with respect to the new age, you can say Urban Ladder or Pepperfry or IKEA stores? Where is the mix exactly, whose demand were coming from, or is it from all sectors?
Very difficult to exactly tell you where the mix is coming or coming from. We think, you know, the demand is coming and will come from, you know, all the segments you mentioned about. The trade, residential, the residential OEMs and the, you know, new age interior design or home fit-out companies.
Do we have a ballpark figure for each of the verticals? Let's say 1 million sq ft of real estate is being developed, be it residential or commercial. What kind of product requirement would be for laminates or veneers or plywood, MDF, anything of that sort? Some ballpark benchmark.
No, I don't have that right now.
Okay. Lastly, sir, going to something to do with the demerger process. I guess Greenply was a single company which housed all the product segments. In 2015, Greenlam was created, and in 2019, Greenpanel was created with different business, three business verticals. Plywood was left with Greenply and laminate came into Greenlam and MDF into Greenpanel. But at this stage, 2022, I think more so everyone is moving in all businesses rather to say, and will be competing with each other. How things work at your end? Because I think cross-holding at promoter level is still there in all the companies. If you could throw some light or can there be a merger going forward in two to three years down the line to have larger synergies at place?
Firstly, there is no cross-holding of promoters as far as Greenlam is concerned. I'm not too clear about Greenply and Greenpanel but cross-holding assets. I guess Saurabh sir is holding in Greenpanel as well as, I think in Greenlam. No, I'm Saurav only, so I'm not. Okay. Greenlam holding is clear. There's no cross-holding with the family members of Greenply and Greenpanel. The chairman holds, I think, about 2% in Greenlam. Otherwise, there's no cross-holding. It's all clean and clear. Greenlam moved in the decorative market, which is the laminates space and the decorative veneer and allied space, right?
Now obviously after seven, eight years, you know, we think that with this, with the surfacing materials, we also need to get into the substrate products because dealers, customers, distributors, architects, IDs want more products. If you look at our space, Greenlam, I can only talk of Greenlam right now. Our expansion from a competition or competitive product is only plywood at the moment, right? Particle boards, you know, Greenply or Greenpanel both don't do. Really, the discussion is more of plywood, which is obviously a smaller investment. We have a decorative veneer business which is aligned with the plywood dealers and those customers who buy decorative veneers also need base ply or plywood to place the decorative veneer on.
That's the reason in a way also, you know, we understand that business and customers' channel is quite common. We're already into the decorative veneer business, and we're getting into the plywood business also. Clearly from a competition point, we said that earlier, the market is so large, you know, you just have two organized players in plywood and few regional players who are all, you know, like four, five regional players with a combined of INR 200-250 crore. There clearly is an opportunity, you know, for one or two more players to enter the space, you know, and gradually, you know, build a business. I don't think that we'll end up taking share from anybody else.
We take from the organized players, we'll end up creating our own market, own market share, and probably take share from the unorganized players but take the growth of the market.
Great, sir. Good to hear that. Thanks.
Thank you.
Thank you. We'll move on to the next question that is on the line of Nikhil Agarwal from VT Capital. Please go ahead.
Hello. Am I audible?
Yes, Nikhil. Go ahead.
Hello. Yeah, just one question from me, sir. Like what was the point of price hike you have taken in Q3 and in Q4 FY?
Ashok, will you go ahead on that?
Yeah. We have taken around 5%-7% in the domestic market and around 5%-6% in the export market, international market. In terms of Q4, there is no price hike as of now planned, since as we mentioned at the beginning of the call, that with this we could able to recover our raw material price hike, cost of the raw material price hike was recovered. As of now, there is no hike planned for the Q4.
Okay. That's it. Thanks.
Thank you.
Thank you. We'll move on to the next question. That is on the line of [Karan Patelia] from Asian Market Securities. Please go ahead.
Hi, Saurabh Mittal.
Yes.
Sir, on the plywood side, you know, so are we looking at, you know, only going ahead with the premium end of plywood or we'll also be manufacturing the standard low end? Or how is the strategy there?
Sorry, can you come again, please? Karan?
On the plywood side, are we only looking to manufacture the premium end of the plywood and go for outsourcing for the other two models? Or we're looking to manufacture all three under our factory?
At the moment, because we're just setting up one plant and we're looking at not going out for outsourcing, and we're looking at self-manufactured plywood, which will be in the, you know, mid to premium or let's say mid premium to high premium in that space. We're not looking at outsourcing model, currently, Karan.
Okay, that was helpful. On the particleboard business, you know, like at peak revenues of INR 600 crore, what kind of working capital requirement can we see? Because this business is more to do with the B2B side. If my understanding is correct on this fact.
Yeah. Ashok, will you take it?
Yeah. Karan, not much of a working capital in this will be expected. Because firstly, number of SKUs will not be that much high. Another will be the import component will not be of that much high as is required in the existing set of businesses. We believe that it will be significantly lower than our existing working capital requirement.
Karan, to add on.
I'll just add, Karan. We don't need to in the plywood business. It's a factory to customer model. You know, like in laminates, we have to have these eight, nine, 10 warehouses in India and abroad where we have to do redistribution. So there's inventory which we are carrying, you know, in the company distribution centers because of the high number of SKUs. So in particleboard model, from factory we ship direct to the customers, so there is no transit inventory, you know, or a storage space in between which is needed to for redistribution.
All right. As per that, much lower working capital is needed compared to the existing business.
Correct. We believe both the new businesses, plywood and particleboards, should have lower working capital requirements versus our existing business. Having said that, existing business also we believe will improve working capital base as volumes and, you know, numbers grow.
Got it. That was very helpful, sir. Thank you. That's in mind.
Thank you. The next question from the line of Kushal Kasliwal from Ideate Capital. Please go ahead.
Thank you for taking my question. Saurabh, sir, this is a question to you. I just wanted to understand what is your vision for the plywood segment, since you are doing this in a separate listed company, HGIL Industries. What do we think, like three to five years down the line? How do we want to do this? Because it's pretty known that, you know, Greenply and Greenpanel. Are we thinking to kind of do this entirely, all the plywood expansion in this, specifically? This is the first question.
Is your question that we house the plywood business in HGIL or not? Is that the question?
Kushal?
Yeah. The main question is basically around the plywood segment, which we are doing with HGIL.
Right.
We have a CapEx of around INR 125 crore. What do we think that, I mean, after we are done with this CapEx, do we want to do entire plywood in HGIL or how does it work going forward?
That's still open. In fact, today in the call, somebody has also recommended that we should merge that with Greenlam Industries at some point. That's something which we will think through more clearly, right? I don't have a very definitive response to you on that. Clearly, you know, we're starting with South India, and we wanna go one step at a time, and then we'll see how the business pans out, then we take necessary decisions.
Just a follow-up on this. I mean, do we expect this kind of TAM in the South Indian market? I understand it's a big market, but what is our expected total addressable market in the South Indian market? Do we think we can capture this meaningfully and maybe a brownfield going forward in the Tamil Nadu plant?
You have just come on, come again on this. You know, the voice is cracking a little, please. You talked about the brownfield expansion in Tamil Nadu. Is that what you said?
Yes.
What was your first question please, Kushal?
Yeah. The first thing was just will we able to, you know, capture the TAM in the plywood industry in South India through this plant?
As you probably do understand, as you can see, the plywood model is by and large a regional model, and logistics costs are important in the plywood business, de-risking and diversifying your raw material base, right? One plant in one part of the country eventually cannot service the country. You will need, you know, reasonable sized plants at a few locations in India eventually, right? The current plan is to start with South India, as you see. The rationale for that is South India is the largest market for branded plywood in the country, and minimum capacity of branded plywoods, at least for the moment, is in South India, right?
We think, if you look at what the capacity we are planning and kind of revenues and the market proportionally, I think South does represent and does offer that opportunity, from a South India plant. Now whether we'll end up selling the entire production in South or some more markets, that is something which I cannot, you know, say much at the moment.
Yeah.
Beyond this, second part was can we do a brownfield in this plant? We can't do a brownfield in this plant. I think we've planned the capacities in a manner that beyond this, beyond the capacity we're putting in, we will not be able to add much more capacity in this location. Rather we don't want to also.
Okay, understood. Okay, sir. Just one last question on the debt and, as you all know.
Kushal, your voice is breaking up.
Saurabh, is it better?
Sir, it's still the same.
Yeah.
Slightly better.
I was just asking about the kind of debt we will take for this INR 125 crore CapEx in HGIL, since we've mentioned 65:35 for debt equity, around INR 8 crore the debt would. How will this debt be served? I mean, will this directly go from Greenlam? Will this be going through HGIL or are we taking a moratorium because HGIL will take around 1-1.5 cash flows to repay the debt, right?
Yeah, in terms of this debt will be taken directly in the HGIL. We will have the moratorium for the initial period from the bank in terms of that. We believe that HGIL will be able to service the debt. However, should the need arises at that moment of time, Greenlam will support.
Okay. By Greenlam support, do you mean you will be infusing more equity in the company or would this be kind of an unsecured loan? How does it work?
It will depend upon that time, the scenario, whether it's needed for the short-term period or whether it's needed for the longer term. Probably that time the call can be taken in terms of this. But infusing equity will not be a possibility since it's a listed company and we are already holding 75% of the equity.
Okay. Just wanted to understand because we own only 75% of the company. Couldn't we have done this entirely in Greenlam or were there any legal or-
Because the land is there in this company. It's because of the land this company was acquired and the project is being put up at that location.
Okay. I presume land could also be, would have been acquired in a kind of scenario. I presume to, a timeline constant we would have done this. Am I right?
Yeah.
Okay, great. Thank you so much for answering my questions, sir. Thank you.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Thank you, everyone. Thank you for your time and your questions. If some of your queries have not been responded or have not been responded completely, or you couldn't get a chance to ask us, you can please reach out to us offline, and we'll try and address them to the best of our ability. Thank you so much. Have a great evening ahead. Thank you.
Thank you, everyone.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Greenlam Industries Limited, that concludes this conference call. We thank you for joining us. You may now disconnect your lines. Thank you.