Ladies and gentlemen, good day and welcome to Greenpanel Industries Limited Q2 FY 2027 earnings conference call. 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 this conference call, please signal an operator by pressing star and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.
Thank you, Neeraj. Good day, everyone, and thank you for joining us on Greenpanel Industries Q2 and H1 FY 2027 earnings conference call. We have with us today Mr. Shobhan Mittal, the Managing Director, and Mr. Himanshu Jindal, the CFO. Before we begin, I would like to state that all statements made during the discussion will be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation which was shared with you earlier. I would now like to invite Mr. Shobhan Mittal to begin the call. Over to you, Shobhan.
Thank you. Good evening, ladies and gentlemen, and welcome to our quarter two and first half earnings call for FY 2027. Our endeavor continues to be towards enhancing our sales volume across categories, and results of these initiatives are gradually becoming visible. On the retail front, volume growth remains both for MDF and ply, building on the momentum of quarter one. The retail MDF sales made during Q2 were the highest ever for Greenpanel in a single quarter. Furthermore, if the pre-festive season pickup is anything to go by, we look forward to a much improved third quarter and second half of the current fiscal.
Our annual foreign trip scheme meet with our top 150 plus channel partners in Hong Kong and Macau in August has helped to further reinforce our connect with our partners and gives me confidence in our ability to further drive this growth as we enter the second half of the year. Price-sensitive OEM segment was slow to respond initially. Also, due to price increases taken in quarter one, many OEMs had made alternate import arrangements, impact of which continued into Q2. But pricing realignment with major counterpart parties has been undertaken, which has helped volume recovery month on month. Abnormal conditions in the Middle East continue to persist, impacting the availability of containers and vessels, leading to higher delivery costs for our end consumers. Export sales still grew month on month, despite further hikes in sea freight at the end of September.
Our opening export order pipeline as of start of October is higher versus the total sales made during Q2, reflecting the increasing inclination of customers in the region to again view us to be their dependable partners from both a price and volume perspective. The spiraling freight costs have also made imports a less feasible proposition for the domestic markets. Consequent to the late recovery in OEM sales and export sales remaining neutral due to the geopolitical situation and sea freight challenges, despite retail sales growing 17% year-on-year, the total volume grew by 3.4%, while sequentially versus quarter one, growth was 23%. Ply sales also remained strong, growing 8.4% year-on-year, while sequentially the growth was 16.5% versus quarter one. The total revenue for quarter two FY 2027 was INR 407 crore, which implies growth of 4.6% versus last year and 16.4% sequentially over quarter one FY 2027.
For the first half of year, our total revenues grew by 6.3% year-on-year to INR 757 crore. Moving to expectations, domestic demand drivers are intact. We expect 15%-17% CAGR to continue for MDF. The recent implementation of Furniture (Quality Control) Order, 2025 is expected to further support growth of wood panel demand in the country. The QCO is now in place for more than six months. The transitional relief period provided for imports and the exemption period granted to MSMEs has also lapsed in quarter two. Large furniture makers have already commenced or announced fresh capacity additions to fill the potential vacuum created due to restrictions imposed by the QCO on import of substandard furniture. With our line three at Andhra already in operation, there is sufficient organic headroom available to Greenpanel to capitalize on this opportunity.
We also expect the current supply-demand gap to reduce as well going forward. Cost-inefficient multi-daylight lines are increasingly becoming unviable in the present pricing conditions. The pace of capacity additions hereon is also expected to moderate as well going forward. Imports too are no longer cheaper versus domestic supplies. Recent container freight increases has added to the complexity. Greenpanel will continue to drive on picking up relative market share. Greenpanel, we are aiming to achieve mid-teen MDF volume growth for the full year. Retail MDF business is expected to grow strong year-on-year, while we aim to recover the first half shortfall of OEM and export MDF volume during the balance half of the year.
On the margin front, while pricing challenges are still impacting margins temporarily due to the current competitive pressures, chemical cost inflation is expected to moderate in the second half, while cost efficiencies and operating leverage advantage should play out as well with additional volumes to support margin expansion going forward. Additionally, we are focused on minimizing gaps and inefficiencies, enabling us to be leaner and better prepared to leverage our scale and capabilities. With this, I request our CFO, Himanshu Jindal, for the financial and other updates. Thank you.
Hi. Thank you, Shobhan. Good evening, all. I am sure you have seen the numbers in our earnings presentation. There are a few points I would like to highlight. First, on the margin front.
While the prices were realized to counter competition and gain our market share, on the back of the softening of the chemical cost, our cost of production also reduced sequentially by 5%. However, considering that quarter two still had the disadvantage of more expensive opening inventory from quarter one, the full impact of the reduced cost is yet not visible on the quarter two results. Price reduction with the cost of goods staying a bit elevated optically is what led to margin contraction in quarter two. Some portion of this was obviously offset by the better fixed cost absorption sequentially, given the thrust in volumes. As a result of this, the consolidated operating EBITDA margin for the quarter was 7.5% versus 9.6% in quarter one and 10.2% last year. For the first half, operating EBITDA margin improved though by 100 basis points to 8.4%.
Second, on the balance sheet front, we continue to remain disciplined with both working capital and leverage in check. The working capital cycle has improved by five days versus the 30th of June numbers, while the net debt has further reduced to INR 133 crores. We can open the questions, the floor for questions, please. May I request the moderator to open the flow for questions, please?
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. Participants, you may press star and one to ask a question. First question is from line of Praveen Sahay from PL Capital. Please go ahead.
Yeah. Hi, sir. Thank you for opportunity. My question is related to the domestic volume. As you had mentioned, retail has done well, but it is still like OEM not picked up. So can you give the reason for OEM volume impact, and do you believe this OEM volume to improve from the rest of the year?
Yes, Praveen. If you look year-on-year, Q2 last year, we had taken substantial corrective measures in terms of pricing to push OEM volumes. From Q1 of last year to Q2, we had almost doubled our OEM volumes. The base Q2 last year was almost 28,000 m³. Then, Q1 this year, we took a substantial price increase. Any benefit that the OEMs were getting in terms of pricing was removed, and they were brought at par to the retail price levels, primarily on account of the war and the chemical costs going up. That did hamper the OEM volumes. OEMs, because they also do long-term planning in case a supplier is no longer viable for them, did go ahead and place orders for imports, et cetera, which has affected the Q2 volumes also.
Going forward, of course, our hope and strategy is to regain as much market share back from the OEMs. We are hoping Q3 to be a lot better than the Q2 numbers in terms of OEM volumes.
Have you seen this reflection so far in October?
It's moving in that direction, I would say. It's not to the levels that we hope it to be, but it's moving in that direction.
Okay. So coming to the growth of a full year. So as you are asking us, given the 15%-17% CAGR in the domestic volume, if your OEM is not picking up, your number would be below than that. Is it fair to say?
Well, yeah, we want to make that up from the retail side and also pick up the OEM volumes again. Also, we want to have renewed focus on the export side as well. I mean, the company's objective at this point of time is to at least grow in line with the market size.
Okay. Next question is on the margin, sir. Because as Himanshu Jindal has highlighted that the 5% of the chemical correction, which has not reflected. Do we expect this in the coming Q3, Q4, this 5% of the correction in the chemical will reflect in our gross margin improvement?
See, in my opinion, the situation still remains quite volatile. Crude prices have again gone up. People are expecting the geopolitical situation to get disturbed again very soon. So it's very hard to say where the chemical prices will stand at this point of time. It's impossible to predict that. But, I mean,
Or, you know, say, Yeah, sir. So, other way, sir, if your utilization is improving, that's also not reflecting in your margin.
Of course. So, I mean, if the utilization is improving, the operating leverage will come to play, and that will definitely improve margins. No doubt about that.
But Q1 to Q2, it's not reflected. From 51% to 55% of the utilization which has improved, your margin has gone down.
But Q1 to Q2 also, please understand that there was some, across the industry, price correction as well.
May I add something here, Praveen?
Yes, sir.
See, Praveen, you will see, please appreciate quarter one, we had a very steep increase coming into play, right? We increased our prices by close to 15%. If you see my domestic ASPs also, they moved up by 13.5% sequentially, yeah? Now, I also had an opening inventory advantage, yeah? So anything which was produced or procured till quarter four end, right, which was substantial. I was sitting on 50,000 cubes of inventory, right, which was consumed, in a way, in quarter one, right? So the full cost impact was not visible in quarter one. The price increase was definitely visible, because of which, there was a gross margin going up very, very clearly by almost 5%. Now, on the contrary, in this quarter, what is happening is, you've seen a sharp decline in pricing, right? Our ASPs have contracted by 6%, 7%.
But more importantly, also along with that, the full cost of production piece is still missing. Why? Because I was still carrying 50,000 cubes from the last quarter to this quarter, which was, in a way, manufactured at a higher cost, right? So those are the reasons because of which optically you can't see differences, or you see these kind of variations, very, very honestly. Operating leverage is playing out. If you look at our fixed cost per cubic meter, that has come down for sure. But it's not enough. We need to do more volume.
Thank you, sir. Yeah, yeah. Thank you, sir. Thank you for answering.
Thank you. Next question is from line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.
Sir, I'm trying to understand that despite being the market leader, it seems that our realizations are lower than the competitors who are smaller than us. For example, if we look at Greenply, who has also given Q2 numbers, their MDF realizations seem to be significantly higher than our realizations. Sir, so why is there this dichotomy that despite being market leader
Yeah, I will tell you. I understand what you're asking. You see, that situation prevails primarily because there is a certain value-added mix that everyone is chasing. Because I have a larger base of sales, my value-added mix of the higher-priced product will be smaller as a percentage. It doesn't go in tandem based on your capacity or your sales volume. The HDHMR grade or the HDWR grade, as we call it, everyone has a finite volume that they are first targeting. That's a priority. Greenply, with a lower base of capacity, obviously has a much higher percentage of that particular product compared to the percentage that we will enjoy of that product. On a sort of average basis, my per cubic meter realizations would look different. But if you take a specific product-to-product realization, I'm at par or even better than what Greenply would be.
Understood. Is it safe to say that for the like-to-like product, our base product versus competition's base product, and our value added versus competitor's value added, are we at a premium or are we selling at par versus Greenply and Century?
It depends which competitor you are talking about. I would like to say that I think we are at par with a player like Action. With Greenply, I believe that we are definitely at a premium. With Century also, we are at premium in most markets, on an apple-to-apple, like-to-like product basis. Of course, I am not going to compare with the tier 2 companies because I am very sure we are at a much higher premium than those also.
Sure, of course. Sir, but if we look at especially Century, they have been really been able to scale up their MDF revenues so much so as that in the first quarter, their volumes were marginally higher than our margin. Their volumes are marginally higher than our volumes. I am talking only of MDF. And despite that, their realizations were higher than us.
Yeah, you see, we, as a large player, we have always had a bigger mix of, let us say, OEMs and interior-grade products. We are servicing the entire country in that format. We had a much larger share of the OEMs also compared to what a Century has. And that is why you see now our focus has increased also on the retail side. And we are trying to get growth from the retail side to improve the overall cubic meter realization.
Right. But sir, even
But it is basically a play of value mix, I would say.
Sir, so but even if I consider the past five years, our absolute volume growth in the domestic market has been lower than a smaller competitor like Rushil Decor. So, where are we losing this? Because our competitors are scaling up their volumes at a much faster rate than us. So, where is these leakages coming from, if you can help us understand?
Well, as I said, for a few quarters, I have been maintaining that at one point of time, we were undercut in terms of pricing, but now we have taken a decision to be price aggressive. And which is what you are seeing for the past couple of quarters, resulting in volume growth for us as well.
Got it. When we consider our cost of production versus any player, how much cheaper would cost of production for Greenpanel be versus any other player in this industry?
I wouldn't know the cost of production of the others, but for example, my cost of production between the two different plants is very different as well, because raw material costs vary quite drastically zone to zone.
Got it. And sir, just one final question was, sir, how is the imports of MDF panel from Thailand and other geographies post the BIS that was implemented few years ago?
I don't think-
Are we
I think what has impacted the imports in recent quarters is basically the more the freight side and the chemical cost going up due to the geopolitical situation. I don't think BIS, to a very large extent, has supported restriction of volumes also. Post BIS, what also happened was domestic pricing became competitive enough to stop imports coming in because of the internal domestic competition. So, to pinpoint that how much has BIS benefited the domestic industry is very hard to say, because many of the larger suppliers are already BIS certified as well, the importers, the import companies.
Got it. Sir, that was from mine. Thank you so much and all the best.
Thank you.
Thank you very much. Next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi, thank you for the opportunity. Sir, I want to understand one thing. In Q1 call, you guided OEM things are settling. We have done the pricing realignment in last con call, but still OEM numbers are weak. Just want to understand how confident we are OEM seems to pick up in next Q1 onwards.
You see, OEM business will always be more threatened from what the import prices are prevailing also because it's in the OEM business, it's a very commoditized business. Quality is not of the prime concern. A tier 2 or a tier 3 company also is able to undercut and enter that business. It is a business that is threatened by many more factors as opposed to the retail business. It has always been like, you see, we took some pricing correction last year between quarter one and quarter two, we were able to double the volumes. It is an opportunistic and I would say a cyclical business in that manner.
But we are confident and focusing on bringing I mean, of course, retail continues to be the prime focus, but OEM business also we are putting back into trying to bring back the volumes there what we were enjoying last year. But as I mentioned earlier in the call, quarter one, OEM got affected because of the price increases we took in the market, removing the benefits of the OEM pricing. And quarter two, of course, was a lingering effect because they had already planned from alternate sources the volumes that they required. Especially when it comes to importing products, it's a longer term planning, larger volumes are placed into order. That's why, and with the freight situation, their arrivals were not as planned as they had thought it would be. The effect was lingering on for a longer period.
In this quarter, where MDF margin is 8%, can you give us some sense what is the margin you would be making in retail business? What sort of margin in export and what would be the margin in OEM business? Broadly in general.
[inaudible], do you want to take that?
Obviously depends on the geography, the product, the size, thickness, all of these factors count in. On a broader basis, yes, retail makes more money. This is very, very clear. The margin differentials can be anything between 5%-20% also, depending on how the pricing is and the costs are. Very difficult to answer in a single sentence, Keshav Lahoti. It all depends on how much volumes am I getting. When I do OEMs or export, one good thing which happens is I get a very consistent run, right? These are large bulk orders which are getting serviced out of our lines. There is an operating efficiency play also which comes into play. But still I make more money on retail. This is super clear.
Normally OEM is for domestic or export also? When you use the word OEM?
No, OEMs would be primarily for domestic. These are basically converters who are buying local material and processing it in some way. They are not allowed to. I mean, as per our company policy, they are not allowed to trade our material. They have to process it in some way and value add to it. They might be selling their value-added products in the export market. That is possible. There are certain OEMs who do that.
Okay. One last question from my side. I understand things are quite volatile, but possibly is it fair to assume MDF margin will be at least double digit in the upcoming quarters?
Well, yeah, that is definitely our aim and our hope, and we are hopeful that will happen, yes.
Okay. Got it. Thank you so much. All the best.
Thank you.
Thank you very much. Next question is from the line of Vishal Shah from Pravin Ratilal Wealth. Please go ahead.
Thanks for giving me an opportunity. Am I audible, sir?
Yes. Hi, Vishal.
Sir, can you please quantify the October 1 export order book in terms of the cubic meter value and market, and what will be our H2 export volume expectation? What share now goes outside the Middle East for exports?
I would say about 85% of the exports is going into the Middle East at this point of time. We do have certain exports to Southeast Asia and also to Sri Lanka, but the volume of that is not so large. If I give you a number to what my opening order book at the beginning of October was, I had about 13,000 m³ of export orders that were pending. Because of the freight situation being volatile on a week-to-week basis, and apart from the fact that the customers are willing to pay higher freight, availabilities are even a bigger concern. The container situation changes on a very drastic basis, and availability has been a bigger concern than just the cost of the freight.
Even if the customer is willing to avail or accept the higher sea freight, we have not been able to source the containers from the shipping lines. Because of that, we have not been able to execute the entire quantity that we had at the beginning of the month in October. Does that sort of answer your question?
Yeah. In terms of value, so volume mentioned 13,000 m³, but have we seen any further price increase post Q2?
Sorry, can you repeat that?
In terms of that export order book, you have mentioned 13,000 m³ as in October 1, but in terms of value, if you could quantify per m³.
You are talking about value?
Yes.
Value on a per cubic meter basis, I mean, I will tell you on an FOB basis. Again, there is a product mix involved and et cetera, but let us say basic product, 18mL interior grade, today's market price would be anywhere between about $200-$220 per cubic meter, FOB.
Okay. What will be the EBITDA per cubic meter for export versus domestic for Q2?
I do not, I mean, Himanshu, I do not think we have a separate number for that, right?
No, no, no, not at this point in time. See, the dynamics are very different, Vishal. There is also, you get export incentives coming into play, you get an EPCG benefit, et cetera. More importantly, you are able to run your lines, like I said, consistently. So, it is a value-added proposition, and with the pricing where it is today, I think we are making sufficient amount of money there on export. So that is fine.
But in terms of margin, if you can quantify, sir.
I don't think I would want to do that at this point in time, but yeah, I think it's relatively better than where we were, let's say, in Q4. The markets are changing, the costs are changing every day. As Shobhan, you mentioned, it's also product-specific, region-specific. Certain regions making more money, certain not. A lot has to be looked into. There's no blended answer specifically on this at this point in time.
Okay. Thanks. Thank you so much, sir.
Thank you. Next question is from the line of Saurabh Beria from Sameeksha Capital. Please go ahead.
Hi. Thanks for the opportunity. From the CapEx point of view, I know the fact that for the next two years, we don't have any CapEx in line, but on a sustainable basis, if you can guide us what is the GFA or the net asset turns that you think would be in the business going forward? So, you can give a like a-
Yeah, Saurabh, I think optimistically with the current product mix, and optimizing a little bit with the value addition coming into play and operating leverage coming into play, I think we should be able to reach a 1.3 - 1.5 number, I would say.
GFA or net asset turn number?
I would say net asset turn.
Okay, 1.5. Okay. This is a sustainable number that you speak of, right?
Yeah, at capacity.
Okay, perfect. Do you have any number on what is our current market share in the mix that we operate in? Do we do any working on that?
I would say, I mean, I think our market share should be anywhere around, I would say around 23% - 25% at this point of time.
Okay, perfect. Just one last.
You are talking domestic, right? I am assuming you are talking domestic. Yeah.
Yeah, domestic. Right. Just a last question on the part of, what is the CapEx that the other players are bringing in both in the organized and unorganized space, like for the next two to three years, if you have a
I had done a calculation. A very concrete number, I would say, over the next two years is an additional When you say CapEx, I am going to answer in volumes.
Yeah.
According to me, there would be an addition of about 800,000 - 900,000, which is over the next two years, cubic meters per year.
Perfect. Do you see any beat on the realization as a whole, given the massive supply which comes in?
See, I would say, because realizations are already at such a low level that it is not going to be sustainable for price reductions further by anyone to that matter. Especially with a new company entering, with probably a debt load to service, I do not think selling at lower prices beyond today would be practical. Also, I think what has happened over the past two years is the capacity addition has been at astronomical sort of levels, right? But now that is sort of slowing down. It is not going to be in the same way. Yes, there will be oversupply for the next, I would say, next two years at least, which will result in pricing pressures or oversupply. But the pace, that gap is going to narrow down as we go forward.
Okay. Thank you, and all the best.
Thank you.
Thank you. Next question is from the line of Sneha from Nuvama Wealth Management. Please go ahead.
Hi, good evening, Shobhan. Thank you also for the opportunity. Just couple of questions from my end. One is with respect to industry. Specifically, you are already seeing the bottom. You just said that you don't see this pricing sustaining beyond more couple of quarters. But despite that, in Q2, we saw steep correction in prices. Whatever pricing increases we saw in Q1, that was almost passed on. How do we read this industry study? Are you even seeing any exits happen by the smaller players? Or there is still a balance sheet strength which can poke up for a couple of more quarters? How should we read into it?
Sneha, I would say smaller multi-daylight lines are finding it increasingly difficult to sustain. There are some sort of malpractices in the industry, especially with the unorganized segment where they're simply adding color to a standard grade product and selling it as moisture-resistant or high-density product, which in turn is helping them survive at this point of time, right? But with the various initiatives the industry is taking, with BIS coming into play, these are not long-term sustainable sort of practices. This will result in certain players either getting absorbed by the bigger players or going out of business. But outright, if you're asking me, I know examples, like for example, a company which has a multi-daylight press and a continuous press at the same time has chosen to stop production in the multi-daylight press and continuous production in the continuous press. So, instances like that are happening.
Was that your question? Is that what you were asking me?
Somewhat yes, but still trying to picture that how long this can further take for those capacities to completely get out of the system, and by when can we expect some stability in terms of pricing? I mean, even if I look at the top players, I still see competitive intensity very high. At what percentage of utilization can we actually see that evening out is the primary thing that we all are trying to look for.
Sneha, also multiple different companies have different sort of, I would say, break-even levels. My utilization levels, even with the mix that I have today of customers, OEMs, and exports, which are less lucrative, I am at about a 50%-55% utilization, right, with whatever margins I am enjoying. Certain companies at a much higher utilization are not that far off for that matter, in terms of margins.
Got that, sir. Any impact of cyclone that you could actually quantify in terms of sales number here for us?
Sorry, any impact of what?
Of the cyclone which had hit us. Any impact?
No, the only thing that it impacted us was that the quantity of raw material that we had planned to purchase this month, in order to build inventory, we were not able to achieve because of disturbance in supplies.
But no impact on sales?
No, no impact on sales, I would say. It did not affect our production in any which way. We were lucky enough to be holding enough inventory.
Understood. Got that, sir. All the best, sir.
Thank you.
Thank you very much. Next question is from line of Anup Parikh from Anand Rathi. Please go ahead.
Yeah. Hi, sir. I just have one question. What is the share of OEM in Q2 FY 2027, and where do you see the share of OEM going in H2 FY 2027 and FY 2028?
Himanshu, you want to answer that?
Yeah, I can. So, see, last year, OEMs were between 25%-30%, right? In this particular year, the first half, OEMs were at 15% only, yeah?
How we see it, maybe we should get back to the normalized numbers pretty soon, with the focus around on tightening, et cetera. Does that answer, Anup?
Yes, sir. Last year you said for H1 FY 2026 was 25%.
Yes. It was 25%, even a little higher in certain quarters, and I think we can get back to those normalized numbers. Today, we are at 15%, with retail growing the way it is. I think 20%-25% is something which is possible.
Understood, sir. Thank you so much.
Thank you. Next question is from the line of Arun Baid from ICICI Securities. Please go ahead.
Hi, Shobhan . Just wanted to have this clarity. When can we see the volume growth being equal to industry growth? Because this price allocation between OEM and the retail business comes up when numbers are not in line with expectations. It is very important for us to understand when we tell our counterparts, "Look at the stock." As a company, when can we see that 15% at least the industry growth? I am not going to limit it.
I mean, Arun Baid, our hope is that next quarter or the quarter subsequent to that, we should be at that level. We have been focusing strongly on the retail side. OEM, there were multiple factors why there was a degrowth, which we mentioned earlier. But of course, aim is hopefully this coming quarter or the next quarter, we should be able to. The ongoing quarter, the next quarter, we should be at those levels.
Assuming we are there, at 15% growth, and today's pricing scenario and raw mat, because wood is not going to go up much, and chemical hopefully comes up, or at least stays stable the way it is. Then at that 15%, can we expect the margins to be at least be the teens?
Sorry, margins to be what?
In the teens, if we do that 15% volume growth.
I will not say very high teens, but yes, we can.
At least the teens, early teens.
Yes.
That would feel good.
Yes.
Second thing is, from the OEM side, because 15% of the business is getting affected, do you see at least by end of this quarter that number to show growth? I do not have numbers of Q3 last year of OEM business, so I do not know the base, which is not there.
Actually, Arun, last year, the OEM numbers starting quarter two were substantial. We were at 28,000 in quarter two. We were at, I think, if I am not wrong, 25000 - 26,000 in quarter three. The numbers were substantial last year.
So, as I said, last year it would be 15%-20% of sales, right? Am I correct?
I think Himanshu just mentioned we were close to 25% of sales last year.
No, no, that was Q2.
Yeah.
You mentioned that for Q2, if I am correct.
Yeah.
What I am trying to say is, Shobhan, last year, our volumes in Q3 was 114,000 tons, 40,000 m³.
Yeah.
Assuming we did 25, 30 in that range, we will be doing 20, 25%. Am I correct?
Yeah.
In that case, can we expect that number, the growth or the degrowth there to be zero, or rather, we don't
I would You see, what has also happened is, now, for example, new entrants coming into South of India with new plants coming up, they are also vying for this business, right. So, there is definitely increased competition in that segment. So, for me to tell you that we will be back at that level, I think, is a bit hard to predict at this point of time.
Fair point. Fair point, Shobhan. Shobhan, just on the realization front, I just saw that our realizations from Q1, I am talking of domestic business only, were down by about 7.5 % as per the PPT. Against the price fall of 15%. Do you understand, with any particular reason. Because looks to be decent. Is the value-
I think blended lower percentage of OEM sales has contributed towards that. We have grown in the retail side.
But I guess even Q1, the OEM would be similar, right. Or the OEM was much different. Because our degrowth in Q1 was 15%.
But Q1, we were also having that price increase, Arun?
No, I am just trying to say the fall between Q1 and Q2 is just about 6% or 8%, where the prices came down by about ballpark 15%, let us say 10% on a blended basis.
Arun, that is also a function of, I would say, product mix. We have been focusing on increasing prelam sales.
Exactly.
Multiple things have gone on.
Okay. Great. Thanks a lot, Shobhan. Thank you.
Thank you so much.
Thank you. Next question is from the line of Anubhav Goel from Cosma Ventures. Please go ahead.
Sir, you mentioned more competition in South, like we always had Rushil Decor's plant next door, and now we have Action TESA's plant commissioned in Vizag in October. Sir, this would mean like pressure for us specifically would be higher than what we have faced so far. I mean, that pressure will get much harder for us in Q3 and Q4.
Not just for us, it will be for everyone. I mean, yes, increased volume in a certain zone would definitely mean pressure. No doubt about that.
Correct.
Will that translate to pricing pressure? I mean, I do not know yet because of the current levels that we are at, and I mean, I generally feel Action TESA is not a company that engages much into undercutting, et cetera.
Price is fair enough, but volumes probably now will take some time for us to get these volumes.
Yeah, correct.
and numbers.
Correct.
Okay, sir.
But see, even today, we are at 50, certain companies are at 60, 70. So oversupply is prevailing even today for that matter. Volume pressure is across the country everywhere, even today for that matter.
And sir, what would be your share currently of VAP volumes, like HDHMR, pre-laminated? Like I think
Pre-laminated?
because from what I understand, cracking these channels of architects and contractors, it takes time and is a little hard to do.
You see, today, as a company, we are not saying Of course, our focus is let's increase value-added products. But today, the focus is increase anything we can in terms of volumes, because as a company, we have surplus volumes. Everything that gives me contribution, I want to sell. That's my focus at this point of time as a company.
So sir, right now, this number would be like maybe 30%-40% of our
Manas, can you share please?
Yeah. For the first half, Anubhav, this was 43%, 44% by volume. By value, this must have been close to 55%.
Okay, perfect. And sir, this number will probably stay here. We expect this 55% number to stay.
The volume number to stay, yes.
Okay. Okay, sir. Thank you so much.
Or improve, yeah. Stay or improve.
Got it. Thank you.
Thank you. Next question is from Praveen Agarwal, individual investor. Please go ahead.
Hi, sir. Just wanted to ask you a couple of questions. I just wanted to understand even where, if somebody would set up a capacity of facility, what would be the cost of setting up this kind of facility? I am just trying to understand what is the replacement cost of the asset.
So-
we have on.
Okay. When you say our capacity, we are today currently at almost, I would say about 2,800 m³ -2,900 m³ per day, which translates to almost 900,000 m³ per annum. What I hear at this point of time, for example, the plant that a company like Elixrr has recently set up for about 300,000 m³, has set up for about 250,000 m³. That has costed them about INR 800 crores-INR 850 crores.
Okay. Would 3x be a good number to think, say, for 900 or two and a half at least, at the minimum?
Sorry, I didn't understand. 3X means?
Something basically for every 100,000 m³, 2.5x number of crores.
It also depends on the configuration of your line, right? If you make a single line larger, then the cost doesn't go up on a pro-rata basis. For example, my 1,200 m³ line , as opposed to my 600 m ³ line, did not cost me double. It may have costed me about 25%, 30% more on, let's say, at the same time of the year.
Understood.
The larger the production line gets, the, let's say, the cheaper per unit of output it gets.
Understood.
Am I making sense?
Yeah. Are you saying because of the economies of scale, is that why that happens?
Yes.
So, okay. So that's one part of the question. The second part, if we would just compare ourselves to larger players, may not be large in terms of their MDF capacity, but say, larger overall and reasonably the organized players.
Yeah.
Some of their margins haven't fallen as much as ours. Even Greenply reported results last year, just last week, and they were still at 15% margins at EBITDA level.
So-
Why would so much variation? I can understand 1% or 2% here and there, but why would that be so much of a gap?
The gap is on two accounts, I would say. Much higher capacity utilizations for Greenply, and B, a much higher percentage of value-added products as opposed to me. Because, end of the day, they're at about 70 m ³ - 18,000 m³ per month, if I remember the numbers correctly. So, for example, if I'm selling 15,000 m³ of HDWR theoretically, right, out of the 40 domestically which I'm selling. Compared to them selling 8,000 and 9,000 of their 18, that makes a big difference in terms of margins. And of course, they're enjoying their operating leverage because it's a smaller plant, so they're running at a higher capacity.
Can I add something, Praveen?
Yes.
Yeah. Praveen, you see, apart from the player that you named, there are two more players within the listed space, yeah?
Yeah.
For which the results come in. If you look at quarter 1 numbers, this is what has come out. While we reported what we reported for India, which was 10.5%, these other two players with larger capacities than the player that you mentioned, were operating at 7, 8%, 8.5% EBITDA margins on India. This is what is there in their own investor presentations. There is definitely some bit of a pressure which is there, on account of the costs, which are fairly elevated at this point in time. Please do remember, all the other three players that are there in the listed space are operating at a much higher capacity utilization than us.
Even with that, if we were there, and now with things happening now more in quarter two in terms of price drops, et cetera, there is obviously some pressure on margins, which we hope to negate via additional volumes, and whatever we can do at RM in terms of consumption parameters, efficiencies, et cetera. Does this answer your question, Praveen?
Yeah, it does. Can I ask one more question?
Yes, please.
Yeah. This is more in terms of industry volumes as a whole. I understand that once somebody plans a facility, it takes a couple of years at least to set it up. All these, whether it is Crossbond or Elixrr, these facilities must have been planned at the peak of the cycle. Now, since we are closer to the bottom of the cycle, do you see anybody, I mean, if I do the simple math to me, ROCE, I cannot even see 10%. I do not see anybody put up new facilities.
I think everyone is scratching their heads and thinking, "Why did we set up plants?" To be honest with you, at this point of time, even guys who are coming online. So you are right to assume that at this point of time, people will think multiple times before deciding to set up an India plant.
Just on the continuation of that, say if we do not see, in terms of next two years, let us say if we take a slightly two years view, what do you think the industry utilization levels would get to? I would imagine right now we are at 3.5 million m³ annually, something like that.
Yes.
For the industry as a whole.
Yes.
Can we expect 15%-20% growth in volumes to continue
Correct
in the industry?
Yes, I think that is sustainable.
The volume which is coming from industry, I understand is, you mentioned the 800,000 m³ new is coming. Apart from that, anything else coming in next 2 years?
I would say nothing substantial.
Thank you. That answers my question. Thank you.
Thanks, Praveen.
Thank you. Next follow-up question is from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.
Sir, thank you for the opportunity. Sir, just one clarification. At what capacity utilization is the industry operating right now?
I would assume that on an average, it should be somewhere around the 70% levels.
Got it. Sir, on the imports, which countries is India importing MDF from?
Mostly from Southeast Asia, Thailand, and Vietnam.
Got it. Sir, how is the raw material sourcing there versus what it is in India? Because what I understand is, post-COVID, there was a lot of hardwood pulp that was planted in India, and that benefit should come out by this year or next year. So, how should we look at gross margin for Greenpanel going forward? Can we reach the previous mid-40s, like high 40s cost of goods sold, if you can help us understand?
Raw materials, we are noticing that it has stabilized over the past few months. Also, the fact that the industry has moved on to different species of raw materials and moved away from the dependency on a singular species like eucalyptus, which has also resulted in sort of lesser price escalation of raw material in general. So, our estimation is that going forward, raw material prices should remain stable or even to a certain extent, start correcting a little bit. That's what our estimation is. I do not know if you asked me about raw material situation for the import companies or the exporting countries.
No, sir. So you answered my question, sir. It seems that the imports from Thailand, their raw material is rubber plant. So, how is that? Is there an issue there, or if you can help me understand that?
No. See, I don't think Thailand has abundance of rubber plantations and acacia and things like that. And it's been fairly sustainable, their raw material supply. There's not been any substantial capacity additions in terms of manufacturing. Hence, their prices have been relatively stable compared to the volatility that we see in India, or we've seen in India, rather.
Got it. Sir, that was from my end. Thank you so much and all the best.
Thank you.
Thank you. We take the next follow-up question from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Sir, I just need some data points.
Keshav, sorry, can you speak louder, please?
Yeah. I just need a data point. What is the OEM sales for H1 and in quarter two, and what is the EPCG benefit for this quarter?
Himanshu, I will let you answer that.
Yeah. As I mentioned, it is 15% of the domestic volume. You have the domestic volume for both the quarter two and the first half, which is 100,000 for quarter one, 113,000. So total 223. Of that, 15% is OEM. The second question was what?
EPCG benefit for this quarter.
EPCG. EPCG for the quarter was roughly INR 4 crores.
Got it. That is it. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you, everyone, for joining this call. We look forward to speaking to everyone in the next call. If anyone has any further questions or clarifications, please do feel free to reach out to us. Thank you, and happy Diwali to everyone.
Thank you very much. On behalf of Greenpanel Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.