Ladies and gentlemen, good day and welcome to Greenlam Industries Limited Q2 and H1 FY 2023 earnings conference call. 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 the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in 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.
Thanks. Good afternoon, friends. A very warm welcome to all of you on this call. I'm joined by Ashok, our CFO, Samarth from the finance team, and AJ, our investor relations advisor. The results and presentations have been available on the stock exchanges on the company websites. I hope you got a chance to look again. I will give you a few key highlights for the quarter gone by and updates on the new projects. The Gujarat factory at Prantij started the commissioning work in August, and we started the plant in a record time. The refurbishing work for the expanded capacity is going on, and it's going on as per schedule. This should happen, it should come into production by Q4 of this financial year.
We completed our equity raise in this quarter. We completed all the debt closures for the projects at Andhra Pradesh and Tamil Nadu. Noteworthy is that IFC has agreed to part-fund the debt for our Andhra Pradesh project. The start-up of the plywood and laminate expanded capacity at Tamil Nadu and Andhra Pradesh respectively will be in Q4 of FY 2023. The start-up of the particle board line will be in Q4 of FY 2024. Most of the important equipment, et cetera, have all been placed. Project is moving, you know, as per plan with some challenges due to rains, et cetera, in Tamil Nadu and Andhra. By and large, it's moving on schedule.
The team set up for the new plywood business is underway, and that's also progressing fairly well. From here in the existing business in last quarter, on the export front, we did reasonably well in the markets of U.S., Europe, Asia, U.K. You know, I think those markets did well. We had challenges in few of our emerging markets because of the currency crisis in those countries, and few of them are normalizing as we talk. In the domestic market too, there was little bit of a challenge in terms of demand, but overall, we could grow each segment in value terms sequentially and year-on-year on the domestic front. By and large, these were the you know key points from my side. I will have Ashok take you through the financial performance. Post which we'll be happy to address your questions and queries if any. Ashok, over to you.
Thank you, sir. Good afternoon, friends. I'll take you through the financial performance. For the Q2 FY 2023 on a consolidated, our net revenue grew by 14% on year-on-year basis and grew by 10.1% on sequential basis and stood at INR 518 crore in this quarter as compared to INR 464 crore last year's same quarter. Gross margin grew by 110 basis points to 44.6% in Q2 FY 2023 from 43.5% in Q2 FY 2022. On a sequential basis, gross margin was down by 40 basis points. Gross margin in absolute terms grew by 16.8% to INR 231 crore in this quarter as compared to INR 198 crore in Q2 last year.
EBITDA margin was up by 30 basis points and stood at 10.4% in Q2 FY 2023 as compared to 10.1% in Q2 FY 2022. On a sequential basis, EBITDA margin was down by 30 basis points. EBITDA in absolute terms grew by 17% to INR 53.7 crores as compared to INR 45.9 crores in Q2 FY 2022. Net profit for the quarter stood at 29.2% as against 20.7% in the Q2 last year. Consolidated. Moving on to half-yearly performance. Consolidated net revenue for this half year grew by 25.1% on year-on-year basis and stood at INR 989 crores as compared to INR 790 crores last year's same period.
Gross margin was up by 30 basis points to 44.8% in this half year from 44.5% last year. Gross margin in absolute terms grew by 25.8% to INR 443 crore as compared to INR 352 crore last year's same period. EBITDA margin during the half year period remained flat at 10.5%. EBITDA in absolute terms grew by 23.7% to INR 104 crore as compared to INR 84 crore previous year. Net margin grew by 41% to INR 53.8 crore in this half year, as against INR 38 crore last year. Now I'll move on to the segmental performance. Laminate, which is the major segment.
For this quarter, our revenue grew by 13.7% on year-on-year basis and 9.5% on a sequential basis, and stood at INR 471 crore as against INR 414.6 crore Q2 FY 2022. Our volume degrew by 10.2% on year-on-year basis. Domestic laminate revenue grew by 15.8% on year-on-year basis and grew by 11.5% sequentially in value terms. Volume degrowth on year-on-year basis stood at 8.5%. International laminate revenue grew by 11.5% on year-on-year basis and 7.6% on sequential basis in value terms. Volume degrew by 12% on year-on-year basis. EBITDA margin stood at 12.1%, a growth of 60 basis points on year-on-year basis, and a degrowth of 30 basis points on quarter-on-quarter basis.
Production volume were at 4.2 million, 22 million sheets at a utilization of 99%. Sales volume for the quarter stood at 4.26 million sheets and our average realization INR 1,059 per sheet. Moving on to half yearly performance. Laminate revenue grew by 24.5% to INR 901 crore this year as against INR 724 crore last year. Volume degrew by 4.2% on year-on-year basis. Domestic laminate revenue grew by 42.4% in value terms, and volume growth stood at 9.6%. International laminate revenue grew by 10.8% in value terms. Our volume degrew by 16.2%. EBITDA margin stood at 12.2%, a degrowth of 10 basis points.
Production volume were at 8.51 million sheets and at a utilization level of 104%. Sales volume for this half year stood at 8.19 million sheets. Our average realization during this period was 1,049 per sheet. Now moving on to decorative veneer and allied segment, which consists of decorative veneer, engineered floors, and engineered doors. In the decorative veneer segment, revenue grew by 18% on year-on-year basis and 17.4% on sequential basis to INR 29.17 crore from INR 25.1 crore in Q2 last year. Volume grew by 11.8% on year-on-year basis. Revenue of decorative veneer business grew by 47% on year-on-year basis and to INR 54.9 crore in this half year from INR 37 crore last year. Volume grew by 25%.
Volume in this quarter stood at 0.39 million square meters, and for the half year stood at 0.64 million square meters. Capacity utilization in the quarter stood at 37%, and for the half year it was 32%. Average realization for the quarter stood at INR 746, and for the half year stood at INR 851. Moving on to engineered wood and flooring. Revenue grew by 47% on year-on-year basis and grew by 3% on a sequential basis to INR 11.8 crore in this quarter from INR 8 crore last quarter. Revenue of engineered wood flooring grew by 51% in this half year to INR 23 crore as against INR 15.4 crore last half year. Our capacity utilization were at 11% in this quarter and 12% for the half year.
In the engineered doors segment, revenue degrew by 17.6% on year-on-year basis and grew by 46% on sequential basis to INR 5.3 crore in this quarter as against INR 6.4 crore Q2 FY 2022. For the half year, revenue degrew by 33% to INR 8.9 crore as against INR 13.3 crore last year. Capacity utilization in this quarter stood at 17%, and for the half year it was 4%. Net debt for the quarter ended stood at INR 75.5 crore as against INR 220 crore since we have raised INR 195 crore by way of preferential share issue of equity share. Net working capital for this quarter stood at 69 days, and for the half year stood at 72 days. That's all from my side. I would now like to open the floor for the question and answer. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. First question is from the line of Harsh Shah from Dalal and Broacha Stock Broking. Please go ahead.
Yeah. Thanks for the opportunity. My question is on the export market. How is the situation right now shaping up in your key geographies? Going forward, do you believe that the export market will grow faster than the domestic market? Meaning whether the ratio of exports to domestic will it be 50/50? What will be the value-added mix currently in the laminate segment?
Hi, the export market will continue to grow and the challenges being faced by our competition, which is production costs in Europe and some other markets, we see that as an opportunity, so we think export market will continue to grow. Over a longer period of time, we believe in laminates, the mix between domestic and exports will be very similar, you know, considering the Gujarat factory and considering the other new plant also. You know, so I already think both will grow at a similar percent, you know, and the mix between the two will also be, you know, 50% each, nearly plus minus, depending on the quarter here or there. By and large that's how we expect on this front.
Okay. The margins, would it be better in exports?
You know, we've said this in the past also, that we, you know, it depends when you say exports, because we operate in several geographies and some markets we are still building an export market, some we are well-settled. You know, so it very depends market to market, geography to geography. It's very hard to give you a you know a fair you know answer on this. We believe more or less on an average basis it'll be very similar. You know, there could be some export markets which are more profitable, there could be you know some export markets which are less profitable. Considering the mix of production, sizes, dimensions, you know we have to be across geographies, so it'll be very similar.
Okay. What will be the value-added mix for this quarter, the laminates?
When you say value added, what do you mean by that? Because we've given our average realization, which is 1059 feet of sheet, right?
Yeah.
If you compare it should be how much it is. When you say value added, very hard to because we don't map that independently.
Okay. Yeah, no issues. One last question. Is it that do you have any exclusive distributors for our laminate segment and will it take on our payrolls?
I'm so sorry. Can you come again, please?
Yeah. In the laminate segment, do we have any exclusive distributors for our products and whether they reflect on our payroll?
No. We have distributors who exclusively work with our brand and products in both domestic and international markets. What was the question about the payroll, please?
Uh, so.
Your voice is cracking. I'm so sorry.
Yeah, yeah.
Harsh, may I request you to come on network area, please? Not very clear.
Mm-hmm. Is it clear now?
It is well.
Yeah. These exclusive distributors, do they come on our payroll? That meaning, do we pay them the salary, so that we get.
They don't come on our payroll. These are third-party distributors, and you know, so they don't come on our payroll. They are distributors.
Okay. Yeah. Okay. Thank you. That's it from my end.
Thank you. Thank you.
Thank you. The next question is from the line of Sneha Talreja from Edelweiss. Please go ahead.
Thank you so much for the.
Sorry, Sneha.
Are you able to hear me?
We are not able to hear you very clear. Please clear that sound. Thank you.
Is it better?
Yes. Thank you.
Yeah, it's better.
Yeah. Firstly, thanks for the opportunity. Just couple of questions from my end. What I wanted to understand was with this recent diversification that the management is going through in particle board or plywood, any thoughts that you have that you will be reevaluating your investments in doors and flooring business? What I want to understand is, although the losses at this point in time are small, but they do must be consuming some amount of management bandwidth here.
Flooring and doors, if you see the business has grown in this quarter, the consolidated all the veneer categories are at 17%-18%. We've reduced working capital days in this category. The business doesn't need any more, you know, fixed capital and doesn't need any further working capital also. I think we're on a certain trajectory, you know, and sometimes it takes more time to settle the business. We're looking at continuing with these businesses.
Understood. Secondly, what I wanted to understand is this time, if I look at your exports business that has taken a hit, one of the factors that you mentioned is emerging markets, you face certain currency related issues. Are those issues sorted out? When do we see that normalizing? Secondly, to do with the realization, we have seen very significant changes in realization. I mean, your export realization have grown up significantly versus domestic. Reasons for the same?
Like I said earlier, several markets we've had, those markets facing currency problems of dollars not being available or banks not able to open letters of credit on time, et cetera, while we have good demand and give orders in those markets. A few of those markets might get stabilized within this, you know, quarter that's in. I guess one or two will move to next quarter, maybe even beyond that. That doesn't mean, you know, we are trying to build the other markets, so we should be okay on that front. As far as export revenue growth is concerned, because the volumes are down in some of these emerging markets, the denominator has changed, and that shows a high revenue growth per sheet.
If those volumes were there, maybe the revenue per sheet, the growth would have been slightly lower. Yeah. Otherwise nothing substantially has changed between exports and domestic, you know, in terms of the valuation.
What I wanted to understand is we are taking similar price hikes in both the markets to pass on the raw material costs.
Yes, correct. Like I said, because volumes are down, so the denominator, the markets which, you know, where we are not able to ship it out, you know, and those probably are not high-value markets, and that's why your revenue growth, you know, seems to be higher.
Okay, understood. I think it's to do with the emerging market. Okay.
Yeah. Yeah, as for the price hikes are concerned, Q2 we have not taken any price hikes. We took a price hike in Q1.
Okay. Are the raw material costs now completely absorbed in because we are yet to see any kind of improvement in trajectory with respect to margins. Last quarter or before that, we understood that we are sitting with somewhat of high-cost inventory. Just trying to understand is that high-cost inventory impact done with, and from now on, can we see gradual impact without any increase in prices?
Clearly we're not raising any prices. If you see Q2, chemical costs have softened, but paper costs, kraft costs, cost of veneer, ply haven't softened. I think they've gone up versus Q1 or, you know, Q2 of last year. As we talk right now, we believe chemical costs will soften further.
Right.
Paper costs, you know, haven't really gone down. It also depends on the, you know, currencies probably going up a bit. We also had some initial, you know, stabilization losses of the Gujarat factory, which has also been factored in the EBITDA. You know, although we started production on twentieth of August. We just started two lines. The third line is still, you know, being readied for production. J ust two presses while, you know, the costs have been a bit. There have been unabsorbed costs, so we had some small losses there too. T hese are the factors. A small percent of profit before the raw material. Yeah, I mean, good afternoon. In terms of these freight rates, prices are increased in the quarter two also, which has slightly gone up.
In this quarter also, it is looking to be slightly going up. Of course, the benefit of whatever benefit of ocean freight improvement that is coming, but still the price of these paper or design paper still is slightly up.
Any plans of taking any further price hike to absorb the same, sir?
No. We are not looking any further price hikes. I think just better utilization of all the plants and the product mix we have, you know, should. Because we are about 12.2% or something utilization margin in laminates. While you see the margin suffering, you cannot not see the working capital cycle and ROCE in that business. We are operating at between 15%+ range working capital cycle and about 33%-34% of ROCEs before taxes, obviously. Margins also, of course, move in tandem with the capital investment and the ROCE. We are not taking any price hikes, but we think with the value mix of something, we should be okay.
Understood. Small loss that you mentioned on the Gujarat plant side, can we have that number also in, please?
We cannot have a number right now.
Oh, sure. No worries. I'll get back in with you. Thanks a lot, sir, and all the very best.
Thank you.
Thank you. A reminder to our participants, please press star and one to ask a question. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you, sir, for the opportunity. I wanted to get a trend, like what's happening on the particle board. Is the imports picking up?
Keshav, on the import, what I know is that not much imports are happening. There's some freight reduction. You know, I don't have a major update on what is the rate right now. The mass of particle boards has picked up. N ot that I know of. I still believe there's a shortage of good quality boards in the market. Boards are available. Th e right quality boards which are laminatable boards with the right physical properties and technical properties, I still believe there's a shortage of that material.
Okay. From the Gujarat plant, can we expect any stabilization loss to continue in Q3 also?
I think, you know, if any, it will be very small, you know. If any, it will be very small. Because effectively, the capacity, the effective production capacity will be in place in Q4. If any, it will be small.
Okay. What was the capacity utilization for veneer, floor and door segment?
Did you ask veneer and door?
Yeah.
For the veneer, it was around 37%. For the floor, it was 11%. For the door, it was 17% in this quarter.
Okay. One last question from my side. I might have missed in the opening commentary. What is your growth in Q2 year-over-year for domestic and export?
Sorry. Could you please repeat? That's not clear, Keshav. Sorry.
Hello. Yeah. My question is-
Bit louder.
Yeah. One last question from my side. What is your revenue growth in Q2 for export and domestic market separately?
Okay. In this quarter?
Yeah.
Yeah. It was 17.9% on the domestic market and on quarter-over-quarter basis, and 9.8% in export.
Okay. Got it. Thank you.
Thank you.
Thank you. Any participants who wish to ask a question at this time, you may please press star and one. Next question is from the line of Anand Venugopal from BMSPL. Please go ahead.
Yeah. Thanks for the opportunity. Just I have one question. How does the unorganized competition in the domestic market affect the demand for organized players like Greenlam, et cetera? Because I would assume these are different products with different type of customer profile.
Unorganized market would impact the demand in the sense they will have cheaper products, non-compliant products because of poor product quality, you know. I think that impacts the demand mostly on the price to channel partner, dealers, distributors will be lower than organized price. Yeah.
Okay. Got it. Thanks.
Thank you. The next question is in the line of Pranav from Equirus Securities . Please go ahead.
Yeah. Thank you for taking the question. Sir, I wanted to understand how you are seeing things on the export side, particularly with major consumers facing kind of inflationary pressure, and because of that, the housing new construction and renovation demand getting impacted. Any thoughts on how the market could evolve going forward?
On the export front, we see freights reducing. The customers' cost of our products is, you know, coming down because we were charging them for the additional freights. Freights have got corrected, and that cost reduction is being passed on to the customers because we were charging them in the previous time. Non-emerging markets, we think it's an opportunity for us to take market share from the international players. Emerging markets have their own problems where demand is there, but there are currency challenges. Overall, they will take some markets, you know, there could be some challenges. Some markets will keep growing. I think we should be pretty okay with the export business. Did I answer your question?
Yes, sir. It does. Sir, any thoughts on how veneer segment is expected to do going forward? Because from understanding competition has increased in last two years and the EBITDA margins as of now remain severely impacted. How will this segment do going forward?
The veneer segment alone, we had cost pressures in Q2. We have taken some price increases in veneer and the flooring segment. As we talk, you know, I think probably the trajectory of volume value, you know, will grow over the next, you know, next period also. Competitive pressure still remains, especially in the veneer segment. That still remains there.
Okay, sir. Sir, on the debt front, how are things shaping up or what will be a peak debt? I think it could be reached by FY 2025 end. What will be the peak debt and how are you planning to delever the balance sheet after that?
Regarding the peak debt we are expecting to reach by end of FY 2024. By then most of the project which we've announced as of now will be over. We expect peak debt, net debt in the range of around INR 800 crore to INR 1,500 crore in that range only. That all I think will depend upon the cash flow also. We have already deleveraged in terms of we have raised INR 200 crore of equity, and we think that we will be able to manage with the peak debt.
Okay, sir. Thank you very much.
Thank you. The next question is in the line of Ronald Siyoni from Sharekhan Limited. Please go ahead.
Good morning, sir. One question on the demand side, like, how have you seen the demand, you know, post-quarterly, especially when there was a festive season in October? Post-October, how has been the demand? Has there been difference in demand uptake, especially in domestic markets?
Domestic market, October-December was slow because of all these holidays and festivals, and both the festivals are happening in the same month as it turns out, you know, demand. To that extent, yes, markets were shut for good, depending on the geography, but five to seven years were.
Okay. Have you as a company outlined a strategy over the next three to five years timeline, you know, where does the company want to reach in terms of top line or margins or profitability, anything of that sort over a longer period?
Sure. I think, you know, with the investments we are doing, you know, there is a plan of the investments and the categories of products, you know, we are expanding into and capacity expansion happening in the core business. There is a plan of, you know, in the direction you just said in terms of utilization targets or revenue numbers, margins, et cetera.
You would not want to, you know, highlight the numbers or anything of that sort?
At least on the call, yeah. We have, when we worked the strategy out last year, while we agreed to expand into the particle board space and build a plywood plant, we did give some indication on what the revenues should be. That's on the company's website, you know. Maybe you can connect with Ashok at a later time.
Okay.
We can give you.
Okay, that would be maintained more or less.
Yes. Yes.
Okay.
The Gujarat factory addition, I can close that to that extent, that number would added on, but maybe, Ashok can refresh you on those numbers.
Sure, sure. Anything over, you know, organized players capacity additions, you know, taking place over the next two years, especially, when most people say 15-18 months down the line or two years down the line, capacities are going to come on stream, in supply of particle board. How do you see, you know, organized market, you know, playing out in terms of capacity additions and supply in the market?
Clearly, you know, in the plywood, laminates, veneer space, the capacity is more than the utilization in general, right? The challenge is not the capacity. The challenge is the product development, sales, marketing, demand generation. I think those are the typical challenges. While even today as we talk, the overall theoretical installed capacity in the laminates business is very high, but besides one or two companies, I think, you know, most of them can't utilize capacities at any respectable level. It's not only the capacity which needs to be in place, and you know, just adding capacity, you can't necessarily go and sell, right? You also need the right products and the right distribution and sales marketing setup. I think that's not unusual, you know, in our category, especially in plywood and laminates.
As far as particle board is concerned, you have capacity right now also in the market. You have lot of these, bagasse-based, wood waste-based factories which have poor quality technologies. The quality of boards they end up producing in terms of their laminatable quality, screw holding quality. These are all very inferior quality boards. As far as the capacity expansion, the right quality board, it is in particle board is us and another company which is also undergoing capacity addition of this model. This is what it is. As far as the market scenario is concerned, the whole OEM segment of machine furniture fabricators segment is growing. The furniture consumption will probably grow in the country.
Lot of, you know, woodworking is happening in plants and off the site and installation happening on the site. We think from a capacity, you know, even if one more plant comes in or two more plants come in, we really think from a country and capacity perspective, we don't believe it could be a mid- to long-term challenge. There could be some short-term challenges if just capacity comes in particle board.
Okay. Thank you very much. Best of luck.
Thank you.
Thank you. A reminder to our participants, please press star and one to ask a question. Next question is from the line of Abhishek Dave from Bright Securities. Please go ahead.
Am I audible?
Yes, Abhishek, please go ahead.
Firstly, congratulations on the good set of numbers, and thank you for the opportunity. I would like to ask, how is the doors and floors business performance this quarter? Also, can you, how do you expect the performance in upcoming quarters?
In terms of doors and floors, Abhishek, if you see the numbers in this quarter has improved in comparison to previous quarter. It was impacted in last two years due to pandemic. Now we hope to rebuild this business and this is very much visible on our quarterly performance. We hope that going forward this will further improve. From the numbers, flooring business did about INR 11.7 crores. It was about 50 odd percent value growth versus Q2 of previous year, and about 3% growth than Q1 of this year, which I know was communication. On the realization front too, there's a growth of about, you know, 28 odd percent versus Q2 of last year and about 7.5%, 8% versus Q1 of FY 2023.
The door business split a bit in Q2 versus last year's Q2. That's primarily because we had some exports in the past, and exports of doors and floors have virtually, you know, stopped right now because of the high sea rates. All the numbers we see is of the domestic market only. Yeah. Versus Q o Q versus Q1, the door business also grown in value by about, on the basis that is small, by about 50-odd%. As we talk, the efforts are on to improve both the businesses, and we should get on to it. Okay. Thank you for the information. It was helpful.
Thank you. Next question is in the line of Milind Muchhala from Julius Baer. Please go ahead.
Yeah, thanks for taking my question and good afternoon, Saurabh-ji and Ashok-ji. I had a couple of questions. First, what we have seen is the realizations on a sequential basis has moved up well, it's up by almost 5.5% on laminates. Despite this, the gross margins are lower by 40 basis points. What raw material head is kind of hitting the profitability?
Yeah, in terms of this, our realization is going on just on mix of both these. The price is high in comparison to what we had taken in the previous year. In quarter-on-quarter it will not have much impact because we have taken in the beginning of the quarter. The raw material price hike, as we have mentioned earlier in the call, chemical prices are softening, but there was still a pricing hike in the cost of raw material in terms of paper, both in decorative and the kraft paper.
Further, since we maintain a stock level, so the high priced raw material was there at the beginning of the quarter too, which going forward we feel that this will have a softening impact on the overall gross margin. Also to add to it though, the production, the sales from the Behror plant will have a lower gross margin because that's focused on the commodity segment of the domestic laminate market. T hat's why there are lower gross margin on the, you know, products we're producing at the Bhadohi and the Nalagarh factory.
I believe that then would have got reflected in the realizations as well to some extent, assuming that the Behror plant will have lower realizations.
Yes, sir. If you see realization, if you would isolate it as domestic and exports, the domestic realization is up by only 0.4% on a sequential basis. Right? While, normally with the growth we do, it's probably a bit higher. That's a bit lower. On the export front, realization is bit better. We lost out on the volume of some emerging markets. That's why you see a higher realization because the denominator, you know, absolute quantity is lower. If the denominator was larger, realization there would have also been a bit lower. Rupee also depreciated against the dollar, you know, which also shows in rupee term realization, you know, improvement.
While rupee appreciating versus the euro and the pound and yen, you know, we end up having some realization gain if the rupee depreciation has followed. I think all these factors have kind of contributed to what you are seeing.
Okay. For the laminate business per se then, what is the sustainable EBITDA margin that we kind of can target? And how soon do we think we can achieve that? Can we go back to that, say a 14% kind of a trajectory?
We were last quarter at about 1.2 or something like that in terms of EBITDA. I think gradually we should inch up with better outputs and some softening of RM costs with continued focus on value mix. You know, it should happen over a period of time.
Okay. Just last one on the veneer business. Year-on-year again, if I just look at the realization, YOY it was good, but sequentially again it's fallen quite a bit. It's down by like 11.5%. What is leading to this volatility in the realization for veneers?
It's probably, you know, because the base is not so large, so maybe it's a species mix. There's been some commodity sales on the volumes of natural veneer has gone up by 29%-30%. The realizations have come down. It probably will be that the mix of the species or the value mix has altered between these two quarters. While if you see versus last year, it's a slight improvement on the realizations. We've also taken some price hikes, you know, which will be reflected in Q3, at least part of Q3. Between, you know, business of value mix versus non-value mix, you know, orders being serviced at that point.
For this veneer and allied segment, can you kind of target an EBITDA breakeven kind of a level sometime in next quarter?
That is the target, you know, but you know, like this quarter, if you see the numbers, revenues went up, but costs also went up for this plywood and veneers. Here all the raw materials imported and all the sales are domestic market. The currency devaluation, you know, to the segment overall as a company, we are net the same. In this segment, that also impacted, so gross margins could improve despite, you know, value mix improving and volume improving. Yes, we could target.
Okay, great.
We are targeting that, yes.
Thank you.
Thank you. Next question is in the line of Nikhil Gada from AMC. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, I just have one question. You mentioned about the situation in Europe regarding the exports market and you know, some disruption over there emerges as an opportunity for players like us to get some benefits out of it. Can you explain the situation in a further detail and how we can benefit from this?
It's not much we can explain here, but you know, typically the local manufacturing costs have gone up there in Europe in terms of electricity and you know, energy and which kind of increases the cost of production. Because we are present there with our resources in terms of warehousing, people, distribution, not so much still in the specification market. They have challenges of servicing. You know, certain manufacturing plants have challenges. We believe with our inventory and distribution players, this could help us take some market share over a medium-term period.
There is nothing immediate per se, as in we are not getting any major shift in inquiries or such.
No, no. I mean, it doesn't happen immediately. You know, it just takes time because the whole distribution cycle, you know, because they, you know, companies should also have inventory on ground, and that also gets consumed. They will have their own specifications which will not turn tomorrow. Yes, you know, over a medium to long term, I believe this is a possibility for us to, you know, take more market share, which we have been taking over the last several years. I think this will only help us, you know, further in that direction.
Got it, sir. This was really helpful. Thank you.
Yeah.
Thank you. Next question is in the line of Hitesh Agarwal from India Insights Value Funds. Please go ahead.
Yeah. Thanks for the opportunity. In the particle board segment, I wanted to know, like, in the next two years, what is the revenue growth rate and the EBITDA margins we can see?
Yeah. Thank you. You know, particle board, as of now, we don't have this business or this, the premium particle board is very small component of the overall business. The particle board project which we are, as of now under implementation, that will come, the commercial production is expected to start by Q4 of next year, which means FY 2024. It will take some time in terms of that, for that big business to build in. What we have told in the previous presentation, at a full utilization, which can take around three to four years, which can have a EBITDA in the range of around 25%.
25%? Okay.
Yeah. As and when it reaches the full utilization.
Okay. Just to have an color on the particle board industry as such, like what is the percentage share of the organized players and the unorganized players in particle board segment presently?
Currently, considering so-called two organized players, and the revenues are not very large. Mostly at the moment, you know, dominated by unorganized players who have smaller plants in their part of the country. You know, but clearly new capacity is coming in, and we think.
Oh.
Organized companies will take more market share. I think on a value, you know, might be like 15%-20% organized numbers at the moment, I guess, approximately.
Okay. Imports would be forming what part in this segment?
In the last year and a half, we believe imports have come down. It will be probably whatever data available, I think it will be in the range of around 15%-20% as of now.
Okay. Thank you, sir. That's from my side.
Thank you.
Thank you. Next question is in the line of Abhishek Getam from Alpha Invesco . Please go ahead.
Hello. Can you hear me?
Yes, Abhishek. Please go ahead.
Yeah. The question was on particle board. Just wanted to have a flavor on what sort of customer base would we be targeting? I mean, you just mentioned like the OEM. Would we be targeting the branded furniture players sort of the customer base? And if that's so, how does the working capital work out apart from our regular business? I mean, given it's B2B, then would it be stretched? And another second question was, what is so you didn't mention most of the current particle board players, unorganized players are poor quality, low quality, and one more player will be going for a high quality. What will be the differential in realization? Just a ballpark.
I'll take the question of customer base. The customer base will be OEMs, people who are doing office furniture, kitchen furniture, wardrobes, paneling, and sales will move through the channel for all the smaller OEMs who may be directly from the comparable large OEMs. This will be, you know, the sales pattern. As far as the working capital pattern is concerned, as we talk right now, particle board MDF has a shorter working capital cycle, you know, than the existing business. One, because with most of the RM, not all, but most of the RM is locally sourced. The debtors are in the domestic market, you know, it will be what we do or even lower. Also because the number of SKUs in particle board is fewer than laminates.
Inventory carrying at the market gets reduced. On the working capital cycle, we budget for lower working capital cycle than our existing business. Ashu can give you the exact number. We have taken around close to 45 days here in terms of working capital cycles et cetera. There are another question in terms of premium difference between the organized and unorganized. It will all depend upon the people, how much percentage of particle board we will be able to sell in the premium condition. What we believe that with the better quality which is available, we will be able to sell more of our premium particle board where the significant difference is there in comparison to plain particle.
Sort of plain particle board and premium particle board, so what will be the difference out of realization?
The premium, the difference normally is in the range of around INR 10,000 per cubic meter.
Okay.
Around INR 9,000-INR 10,000 per cubic meter.
Okay, okay. Understood. Sorry, I missed. For particle board, we will be having roughly 45 days working capital. Is that right?
Yeah.
45 days. In terms of like working capital to sales, you mentioned laminates is 15%. Basically particle board will be lower than that.
Exactly. Yeah, maybe slightly lower.
Okay, okay. Understood. Thank you.
Yeah.
That's it.
Thank you. The next question is from the line of Manish Mahawar from Antique Stock Broking. Please go ahead.
Yeah, just in terms of export market perspective, are we seeing any slowdown in terms of demand? Because I think earlier in opening comments you have mentioned like there's some currency headwinds in terms of emerging market industries facing. Are we facing any demand slowdowns?
We said that several emerging markets have had a challenge in the Q2 period of currency availability, dollar availability to the customer's end and opening of LC and paying the advances, et cetera. The challenges have been there. One or two markets have got reasonably streamlined, you know, in this quarter. We believe this could continue over the next maybe three to six months. As far as the demand is concerned, the emerging markets which have a challenge, while there is demand for our brand and our products there, but due to the currency challenges and due to discipline of working capital which we keep, we are not able to ship there.
Okay.
Overall, you know, some markets will be minus, some will be more, some also will be fairly okay. On an overall we are looking fine.
Okay. Things are stable basically. Yeah. Okay.
Things are like. Yes, it could be better always but yeah.
Okay, sure. Ashok, is it possible to repeat the numbers for domestic and export revenue growth for 2Q. I think you mentioned 17.9% and export is 8.9%, I think for the quarter, right?
Yeah.
That's right number. That is on last Q2 to Q2 year-to-date, right? YOY.
Yeah.
Okay. Is it possible to share the number in terms of volume growth in the domestic and export?
We will share the numbers.
Yeah, sure, sir. No issue. I'll take it up from here. Thank you, sir. Thanks, and all the best. Bye.
Thank you. A reminder to participants, please press star and one to ask a question. We'll take the last question from the line of Hemant, an individual investor. Please go ahead.
Hello. Another good set of numbers, and thank you for providing this opportunity. Sir, you have mentioned, I guess, that when particle board capacity can be fully utilized, it can generate 25% of EBITDA margins, and it will take around two to three years for it to get fully utilized?
Three to four years.
Three to four years. Okay. What kind of revenue potential are you targeting in FY 2024? Because we have our plywood plant coming, which will be operational, I think by Q4 of this year, and the laminate, the enhanced capacity in the Bulandshahr factory which you have acquired, it will also be contributing. What kind of, sir, revenue potential we are targeting in FY 2024? And if you can throw some light on maybe the margins on the plywood category as well.
In terms of revenue potential or the revenue target for that, the entire capacity will be available. It depends upon how much we can able to sell in the next year, in the very first year. We believe from this year there will be a potential around 20% in the next year, in terms of that. In terms of margin, that will all depend upon what kind of volume we able to reach in it and what kind of utilization level we able to reach in the next year.
Sorry to cut you short. I was talking about the revenue potential, not from the plywood business, but on the whole, I mean, the consolidated level as a company.
That part. Apart from the existing businesses which is there in this year, next year we will have plywood business and the laminate new unit and for the franchise which we are right now going to upgrade it. All these put together have a product revenue potential of close to around INR 1,100 crore-INR 1,200 crore, that around full potential is there. That will all depend upon how much we can able to grow the volume out of this in next year.
You mean to say INR 1,100-INR 1,200 of incremental revenue, right?
Yeah. Yes.
Okay. Okay.
That's on full potential and on full capacity of the new assets.
Okay. We won't be getting full capacity next year. You know, probably it'll happen over a period of two to three years.
Apart from this, the particle board that will come in the Q4 of next year, so that capacity will be available for sale only in the FY 2025 only.
Okay, sir. Thanks a lot, sir. Bye.
Thank you.
Thank you. We have one more question from the line of, Hena from Dam Capital. Hena, please go ahead.
Hello. Yeah, thank you so much for the opportunity. I just wanted to know on laminates, on an annual basis we've seen an expansion in the margins. Anything specific here that has led to this expansion?
Hena, the expansion of margin in the current scenario is as we have. We are going through the project phase. We believe that expansion in the margin will come first. It will come in the existing business on a gradual basis, and it will be visible once we able to complete the project and reach up to a certain level of utilization.
Sure. Only what I was trying to ask is in Q2, compared to Q2 last year, we've seen an expansion in the margins for laminates. Anything specific here which has led to the expansion?
Expansion, like the cost have come down versus last year and some, you know, we've taken price hikes. Nothing specific.
Sure. Nothing specific. Okay. All right. Thank you.
Thank you.
Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference back to the management for the closing comments. Thank you, and over to you.
Thank you everyone for joining the call today. If you have any other query, you may get in touch with us or and see our investor relations member. Thank you.
Thank you everyone.
Thank you very much. Ladies and gentlemen, on behalf of Greenlam Industries Limited, that concludes today's call. Thank you all for joining us. You may now disconnect your lines.
Thank you.