Ladies and gentlemen, good day, and welcome to the Greenply Industries Limited Q2 FY 2024 earnings conference call, hosted by Asian Markets Securities Private Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as on date of this call. The statements are not, are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. 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. Karan Bhatelia from Asian Markets Securities Private Limited. Thank you, and over to you, sir.
Thanks, Seema. Hi, everyone. Good evening. On behalf of Asian Markets Securities, we thank you for joining us on the Greenply Industries 2Q and first half FY 2024 conference call. In the panel today, we have Mr. Manoj Tulsian, Joint Managing Director and CEO; Mr. Sanidhya Mittal, Joint Managing Director; Mr. Nitin Kalani, CFO; and Gautam Jain, AVP, Strategy and IR. May I now invite Manoj, sir, to begin the proceedings, first of all. Thank you, and over to you.
Thank you, Karan, and good evening, everyone. It is a pleasure to have you all on this call. I will be updating you on Greenply's operating and financial performance for quarter two and H1 FY 2024. First of all, I'm happy to share with you that we have crossed INR 600 crore in consolidated revenue in this quarter, which is the highest ever for Greenply in a single quarter. I'm very confident that this trend will continue in the upcoming quarters, and with this, our consolidated sales for this financial year will approximately grow at a CAGR of around 22% over FY 2022 and a CAGR of around 15% over FY 2020, if we are to compare the performance against the pre-COVID era. Now, I'll share some highlights of the business-wide performances.
In our plywood business, revenue growth was 9.7% on a YOY basis, majorly driven by 11% sales volume growth. On a half-yearly basis, we have achieved approximately 7% volume growth. With this, we are fairly confident of achieving our annual volume growth of 8%-10%, as guided earlier. On the margin front, our adjusted core EBITDA was at 7.9%, which includes a one-time expense related to entry tax amounting to INR 3.2 crore, which is non-recurring in nature. In addition to that, we have booked major expenses related to our new brand ambassador campaign and TV ads. The raw material cost witnessed an increasing trend in the last quarter. However, we see stabilizing timber prices hereon. We have taken some price hikes during the last quarter in certain product categories.
The full impact of the same would be visible in H2. Considering the above, we expect margin improvements in H2 FY 2024. With the increase in turnover, despite the increase in our turnover, our working capital is at healthy level of 31 days for the plywood business, and we will continue to focus on the same. Moving on to MDF business, I am extremely happy to share with you all that we have achieved cash positive performance in the first full quarter of operation itself. During this quarter, our EBITDA margin was at 15.5%. We are also confident that we will meet our indicated 100,000 CBM sales volume for FY 2024. More details on the MDF business will be shared by Sanidhya later on.
Our Gabon business continued to be under pressure due to severe political unrest in the initial part of the quarter and also supply side challenges. Although we are working hard to come out of the situation and closely aligning with the policies of the newly constituted government, we don't see an immediate turnaround. Hopefully, we should be able to provide you better directions by the year end. On a consolidated basis, our net debt levels are at INR 713 crores, which is well within our guided peak net debt level of 750 crores. In the upcoming quarters, we will also be making investments in our furniture hardware JV. However, despite the same, we are confident of remaining below our indicated maximum net debt range of INR 750 crores, including such investments.
We are committed to maintaining our brand leadership position, and accordingly, we are thrilled to have Junior NTR as our brand ambassador. I'm glad to share with you that both Greenply and Junior NTR share mutual values of sustainability and a deep commitment to the environment. We are confident that his charismatic pan-India image will help us reach a wider audience and create greater awareness about the critical role of eco and health-friendly products, such as our zero-emission plywood range and MDF range within the home interior space. With this statement, I would like to hand it over to Sanidhya to provide more insights on our MDF business.
Thank you, Manojji, and good evening to everyone on the call. In our MDF business, we are progressing well. I'm happy to share that. We are at positive cash flow for op from operations in last quarter, much ahead of our original plans. It's result of meticulous planning and team effort, brand strength and commercial discipline. During the quarter, we have installed a few short cycle presses as well for production of Prelam MDF boards. In addition, we have launched other value-added product categories like CARB and Boilo. Being a premium player, we will introduce other innovative products and value engineered products to serve all categories of consumer segments going forward. In the last quarter, we almost sold 31,000 CBM with a blended realization of INR 28,500+.
As our share of sales of value-added product increases, the realization should also increase consequently. For the full year perspective, we are well on course of achieving sales volume of 100,000+ CBM, as guided earlier. With this perspective, I would like to open the floor for Q&A session. Thank you.
Thank you very much, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on the 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. Thank you. We take the first question from the line of Sneha Talreja from Nuvama. Please go ahead.
Hi, so, good evening, and thanks a lot for the opportunity. Just couple of questions from my end. In your opening remarks, you said that timber costs have already started cooling off. Could you highlight this further, and where do we see now our margins going ahead? And have we taken, you know, substantial price hike to offset now any further timber costs from here?
Hi, good evening, Sneha. So first thing, you know, I'm not saying that, you know, the timber prices will start coming down. What we are now feeling is that timber prices will possibly stabilize because it's already very high. You know, we don't see, because to some extent, you know, the poplar prices have slightly corrected, which will slightly ease out the pressure on the Eucalyptus also going forward. So keeping that in mind, you know, I'm assuming that, possibly the timber prices have peaked. This is just an assumption, our internal discussions. We may go wrong also on the same.
In terms of price increase, you know, we have taken, as I said in the speech, we have taken price increase on some of the product categories, and, which, which was taken in the month of, August, partially, and on some of the products in September also. So this quarter, you know, it will slightly start reflecting for the full quarter, so that will help my margin to improve, and even for, you know, quarter four.
Understood. Understood. And secondly, on the MDF front, firstly, congrats for achieving a 15% EBITDA margin and being cash positive in the first full quarter of operations itself. You've already specified you will be, you know, doing 100,000 CBM this particular year. Given that you're already 15% EBITDA margin, now where do you see the EBITDA margin trend, given that your overall guidance, if I'm not wrong, was around 22-odd% with full operation. So where do we see the EBITDA margin trending now, given that it's 15% already?
Sorry, we didn't get your question. Could you please-
Your voice is not absolutely clear, so maybe you will just repeat the question.
I was saying, that you've already achieved 15% EBITDA margins, which is phenomenal, in the first quarter, of full year, full operation. Just wanted to understand, given that now utilizations will be further increasing, where do you see this trend going forward? Do you maintain the earlier guidance, or do you want to inch it up from here?
I think, you know, I don't remember mentioning 22%, but our basic focus was that, you know, whatever others are making, you know, we will be making very, very, you know, similar margins compared to any other branded player in the, in the, you know, in the sector. So we are still very confident that going forward, once we are at full scale, we will be making the same margins anybody else is making. Because, you know, currently the, there's a lot of import, the market is in oversupply, you know, we don't know how much price or, you know, what the pricing tomorrow will be. But I'm very sure and confident that whatever the market is making or other players are making, we are definitely going to make as much as they are gonna make.
I think, Sneha, just to add to this 22%, you would have said, you know, when we are doing full-fledged operations, you may expect that type of a margin maybe next full year of operations or around that number. Okay, don't hold us again next year, first quarter itself, that we said 22%. But, I think a full year of operations where, maybe once we are targeting around, you know, INR 700-odd crore of sales, that type of a margin, assuming that, you know, similar margin trend continues as the market is today, will be possible. And in H2, definitely our margins, profile will be better than, you know, quarter two also. So there would be some incremental margin performance in, H2 also.
Understood, sir. Thanks. Thanks a lot, sir. This will help. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Udit Kanjiwala from Yes Securities. Please go ahead.
...Yeah. Hi, sir. Congratulations on a great set of numbers. So firstly, on the plywood, we have grown. Could you, you know, let us know what is the demand scenario? Is the demand more in the premium end, or it is in which of the brands have we seen the major growth coming in?
Hi, Udit. Thank you, first of all. No, the premium end side, demand we have not been able to see. There has been a drag on the premium end. Maximum, the total growth, what has happened is in the value segment only.
Got it. Got it. So, so do you see when this mix also improving, would it aid to the plywood margins as well with the change in product mix?
Well, look, you know, to some extent, slightly it is also reflecting in this quarter itself, okay? Of course, we had some one-off expenses. Of course, we are also doing a higher spend on marketing side, which I think I mentioned around a couple of quarters back that, you know, we would be investing more on the marketing side. But, yes, there is some impact of the product mix change already reflected on the margins. Now, as I said that we have taken some amount of price increase in the value segment only, okay? That will, help us to slightly improve the margins. If there is some cool off in the raw material prices, it will further help us to that extent. And yes, our, our efforts on growing premium still continues.
Yes, maybe I can say that as a team, we have not been successful in the same, but there is a decent amount of effort which is going on to improve and bring growth in the premium segment. So the moment if it happens, then that will also add up to my incremental margin profile.
Understood. Understood. And, sir, in MDF coming to it, you know, specifically right now, our value-added portion is lower, of course, because we have just started. So are we getting, you know, what is our placement of prices versus the imports or the current domestic players in the like-for-like products?
So I think I'll answer this. We are very much, you know, priced at par with current domestic players. In certain markets, as an entry strategy, we have priced ourselves about 2%-2.5% cheaper than competition. However, that is for a very short period, you know, as an entry strategy for this financial year. From next year, our strategy will be to sell all products at par with competition, if not higher. You know, because Greenply as a player, we've always believed in selling the value added and the branded goods, so we don't believe in selling cheap. However, MDF, we are selling 2%-2.5% on an average cheaper, which is our entry strategy.
Okay. What would be the same versus the import pricing currently?
I think, import pricing will be substantially lower than, you know, we believe around INR 19,000-20,000 per CBM is the landed cost, at the importer's warehouse. You know, our average realization in interior grade, which is like to like when we say 19,000-20,000 for them, is selling in the trade for about INR 25,000-26,000. And, you know, the other value-added products are selling at even higher. So... We are very, very clear and focused on the value-added segment. So as we grow the value-added segment, you will see our blended realization also pretty much at par with the competition by the end of the year. You'll see us getting that.
Got it. Got it. And so lastly, on the furniture hardware business that you mentioned in the opening commentary, could you explain what is the business strategy or, you know, any plans over here and what would be the size of investment?
So, you know, this, I think we announced previously also. We have signed off a JV with a Turkish partner, Samet. They are the leaders in their category in Turkey and have, you know, exports in more than 22 countries from Turkey itself. So it's a 50/50 JV. And, so we, so we'll bring in the products on a 80/20 concept. The 80% selling, you know, fast-selling products is first, where we will start manufacturing those products in India. And the 15%-20%, the slow-moving, we'll continue to import from them till we see a level of viability. The whole project will come over the period of next 4 years in, I mean, in terms of, you know, phase one, phase two, phase three.
As of now, the estimates, what we have put together, we would be closely investing around INR 300 crore-INR 350 crore, together between the two partners equally, with a portion of equity and debt. Next year, you know, sometime, in quarter one, we're trying to see that if we are able to, you know, commission the plant in end of quarter one.
Got it. That's very good. I'll call back in the queue. Thank you.
Thanks.
Thank you, sir. We'll take the next question from the line of Keshawani Karan from ICRA. Please go ahead, sir.
Hello.
Yeah, Keshu.
Yeah. Sir, your sale has been increased from 23% from the last year. So can you just let me know, what is the increase in price and volume?
Sorry, sorry?
The sale has been increased by 23% from the last year. Can you just break down into the price and the volume growth?
Sales has been increased by 23%?
Yeah, from the last year. On a consolidated.
Okay, on a consolidated. So I think that is, you know, Keshu, not the right way of looking at it, because one, you know, last year base, we didn't have MDF business. MDF business only started in first quarter of this year. And, in quarter two, we have done close to around ninety odd crores, eighty-nine crores? Okay. Quarter two, we have done around eighty-nine crores, which is straight away addition to the overall number, which is reflected in the growth. And, in the plywood business, the total growth which we have done is close to around 7%.
Okay.
7% in H1.
H1.
The Gabon business has actually not shown any growth, so you know, that number-
Okay.
to some extent, maybe it's slightly lower only compared to last year, H1.
Sir, what is your percentage of ANSP as compared to last year?
Percentage of?
Advertisement.
Advertisement. Okay, so, on the AMP side, we have in the first six months, our total expenditure is close to around 4.1%, which for the last full year was around 3.1%.
Got it. Okay, thank you.
Thanks.
Thank you. We take the next question from the line of Mr. Kunal Tokas from Fair Value Capital. Please go ahead, sir.
Hello, sir. Can you hear me?
Yes, yes, we can.
So I just wanted to ask that, do you compete with the paper industry for your raw material, that is, wood that comes from tree plantations? And if yes, then how do you see that competition playing out in the future? Like, will it lead to higher prices for all, or will it lead to more area under plantation, which will lead to lower prices in the future?
I think I'll answer this. So yes, we do compete with paper mills to buy raw material, but however, with the given knowledge I have about paper industry, they can use only debarked material. So for them, it becomes a slightly more challenge to source the same material directly from the farmer, compared to us. Well, we in MDF can use material with bark. And also, as far as species are available in the market, I think paper industry has a limitation in the number of species. We are slightly more open towards other species as well. So I think our pricing will always be slightly lower than paper industries, but yes, we are competing with them in different areas to buy the material.
You know, just to add to that, you know, the old timber forestry farming also depends on a cycle. We are today at the worst end of the cycle, and I think this cycle looks like may continue for another 12-15 months. And then you will have good crop coming back. The moment that happens, then the supply side on the timber will improve significantly. That's the assumption, and which happens once every 8-10 years. So we are almost at the end of the cycle, maybe last 12-15 months. We might have to face this challenge of a higher timber price, and then possibly it will come down.
Yeah, it may not come down to the level what it was around four or five years back, but definitely we feel that it will correct a lot as the supply side improves significantly.
Understood, sir. That was my only question. Thank you.
Thank you. Next question is from the line of Ritesh Shah from Investec India. Please go ahead, sir.
Yeah. Hi, sir. Thanks for the opportunity. First, congratulations for commendable performance on the MDF side. So I just wanted to have some more details on the distribution, basically region-wide sales, if you can help with something. You did indicate on our five-year strategy to start with, but how we are making this successful, just wanted to understand that. That's the first question.
On MDF?
Yes, sir.
I think our focus obviously is primarily West because our plant is there. However, looking at, North India as well, because, you know, NCR is one of the largest markets of MDF, and it is also not very far from the Gujarat facility. So yes, the second focus area becomes North, and, upper North and NCR. And, obviously, the, since the brand has its own network in East and South as well, and a set of their own loyal dealers, so yes, certain percentage of sale is coming to South and East also. But our focus in South and East is much lower compared to West and North. Our main markets is West and North. If you want the split today, I would say 75% of our material is getting sold in West and North, 25% is getting sold in East and South.
Our prices also in east and south are much higher compared to west and north, obviously, to compensate the extra freight we pay.
Sure. So would it be possible for you to quantify how many distributor dealer networks that we have, and what is the overlap right now, versus the existing network versus new appointed distributor dealers?
I think I can give you an approximation. I can't give you an exact number. I think, roughly we'll be working with, like 300 plus-
300+.
Yeah, 300+ direct customers, who are already established and are working regularly with us, number one. Number two, what was the other question you said?
The overlap with the existing network, when you say 300+?
Overlap with the existing network, I'd say hardly 20%.
Yeah.
I think 20% dealers must be common out of this 300, and rest 80% are new and unique, who have joined hands with the brand, yes.
That's encouraging. Just a related question, sir. How have we got this volume growth? Is it market share gains? How should we understand that so-
You're talking about MDF again?
MDF, yes. Only MDF.
...So I think, I think, you know, Greenply is a very well-known brand, you know, and I think, because we are a well-known brand and the product is absolutely at par with any other manufacturer in terms of quality, and we have a brand edge. And because of our geographical location, which is west, and this is a unique location, and nobody's in and around west, and because of our aggressive marketing activities and our strategies, I think that is the reason why we've been able to probably eat into the shares others had. I don't think the market has grown so much, especially when imports are coming in so much and people are putting new capacities. I don't think the growth has happened, but yes, definitely, we must have eaten somebody's share or the other.
To that, you know, ultimately, the strength for us is one, brand. Second, you know, our presence in west, which clearly gives us an edge in terms of our distribution, and third, service. So one of the reason also that, you know, we went into west, was that there is no clutter there, and we will be able to get straight away business from, you know, the western part of the country.
Sure, sir. Sir, my second question was on working capital. Again, the performance has been pretty good. Sir, how should we look at this, specifically, if you look at inventory days since June to September, it has reduced. Receivable days has also reduced by around 6, from 48 to 42. Possible for you to segregate it between ply and MDF just to, appreciate, your performance? Thank you.
So, working capital days, what we have given in my opening speech is, primarily on the plywood, I would say. And, and I think it's 31 days, which I mentioned there. See, depending on a quarter-to-quarter run rate also, that will, you know, somewhat change. So maybe, you know, quarter three performance may not be as good as quarter two, because quarter three are always subdued. So the same 31 days, maintaining the same principle, you know, which we have and the commercial tightness which we exhibit, it can go up to maybe 37 or 38 days because of, you know, again, a lower sales base. And quarter four, again, it can, again come back to 32, 33 days.
So I think plywood business, we should now look at on an average, anything between 35-40 days. That's the ideal number which we feel if we are able to operate, it will be a good number. For the MDF, I think it is too early, you know, because we just started operations, we just started, you know, even launching some value-added products. And we are expecting that, you know, the sales will improve in quarter three and quarter four. I would rather say, I don't know, Sanidhya may comment, but I think we should wait for some more time for things to stabilize, and we can give you a better picture for next year, maybe sometime in quarter four.
Also, like, our commercial policies on MDF is very much at par with the competition. So I think, you know, almost, I don't know the exact number, but almost 40% of our total sales is also APP sales. And, you know, the 7-day sales and the 14-day and the 21-day are credit policies pretty much at par with the industry. So in credit, there's more relaxation.
That's quite encouraging. Sir, if I just squeeze in, one was on, specific to again, MDF. Will we be looking at exports, and if at all, what is the margin profile that we would be looking at? Or will we continue to focus only on the domestic sales, relying on our brand and distribution? That's one. And, the second question is on sourcing on timber. Basically, for the Gujarat plant, I think we had earlier indicated, at the very start that we'll source something from south and gradually, over time, that will reduce. So is that an incremental margin driver? What's the timeline that we should look at over here? Thank you.
So, on the timber front, you know, we, we are very, very clear that, you know, if you look at our timber cost, even in the last quarter, for MDF, it is pretty much at par with any manufacturer of MDF in Northern India. So hence, we have no problem to, you know, compete in terms of our costing in North and in West. And it is true that at the moment, we are not only sourcing from South, but we are sourcing from some other parts of India also, and sourcing from Gujarat. But the way our plantation drive and with the way we have been working since before the plant started, since the financial year, even before the plant started, we are very confident that it is self-sustaining, you know.
So we have almost planted about 2.7 crore saplings before the plant started. And this financial year itself, we are planning, you know, approximately 1.5 crore saplings in a 150-kilometer radius of our plant. So we are working hard enough to ensure our own raw material, sustainability and a better future. And see, pricing is all demand, supply driven, you know. It will be very unfair for me to comment on that because that will keep changing. But as far as sustainability is concerned and raw material availability and running of plant is concerned, I'm not worried about choosing Gujarat. In fact, from the market point of view, we feel that we've done a very, very good decision by putting up the facility in Gujarat.
One, because of ease of working, and second, you know, all the big markets are very, very close to us.
And exports?
Exports, we do not have any export liability as a company, and in the MDF segment, given the domestic realizations, I feel exporting is a waste of time, in my opinion. So, you know, we'll continue to sell in the trade. If we are unable to sell and we still want to achieve our, our capacities, we can always sell plain material in the market, you know, slightly higher than in the export prices to domestic importers.
Sure. That's very useful. Thank you so much. All the very best.
Thank you. Thank you.
...Thank you, sir. Before we take the next question, a reminder to all the participants, if you wish to ask a question, you may press star and one on your touchtone telephone. The next question is from the line of Arun Bed from ICICI Securities. Please go ahead, sir.
Yeah, so just carrying on the MDF front, you know, we already have one quarter of revenues. So ballpark, what are gross margins in this business for now? Because we in Q2 will mainly have the non prelam business, just to understand how the gross margins were there, sir.
I think it's too early, Arunji, this is too early to comment. I think, you know, going forward with the prelam added, et cetera, and once they're on full scale, I think then things will really change for us. At this moment, it's very difficult, but if you still want to know for the last quarter, I'm sure Gautam or Nitin can give you the number as to how much the gross margin was.
Because the idea to ask that question, I hope Gautam will get back to the data. But the idea of this question was because when prelam comes in, our margin should be way, way better because the relations are massive, right, compared to your industrial rate. So just try to get that, you know, because if you know, your Q2 numbers are pretty good on the MDF front, so Q3, you should get some incremental revenues from prelam, and Q4 should be much bumper, which is typically the better quarter for across the board. So just trying to get that, because then your guide, you know, margins with without prelam, is at 15%-16%, we should be way better than that. It's this year itself. So that was the idea to understand.
Quarter three also, in September, we have sold, Arun, you know, the value-added products, the whole of September. Okay? So, yes, you are right that, you know, and that's what we said, that, in quarter three, the margins, according to us, will improve further and further in quarter four.
Okay.
Look, you know, ultimately, we have to test the water. We're just a very new player, and initially everything looks good, but, you know, we have to be there, we have to be consistent in supply, distribution, service, everything. So, you know, let's wait for a few quarters. Of course, yes, the margins improve, and we'll come back to you and we'll share the numbers happily.
Yeah. No, the idea, sir, because you said you sold something, prelam, in Q2 itself, because the realization, if I look on quarter-on-quarter Q1, obviously you had very low sales, but still your realization there was INR 28,546. And if I look at this quarter, it's INR 28,540, so there was no increase. So that's why I assumed prelam sales has not happened. That was my assumption. But-
No, because, see, I mean, also that you have to see the other mix also, you know, how much of the interior got sold in quarter two. So what Sanjit is trying to say that, maybe one or two more quarters, you know, we will also get a lot of clarity in terms of the mix, what we are able to sell, how, the market is panning out. So not many questions, will get answered to us also internally.
Sure.
But your concern is right, and we are also hoping the same thing, that quarter three margin will be better than two, and four should be better than three.
Yeah. Just one more question was, you know, you mentioned about INR 300-350 crores of investment in that new venture. Just how much would that go in FY 2024 and FY 2025 from an equity perspective?
See, I'll tell you on the,
INR 300 crore.
Nai, INR 300 crore over the entire phase.
54 crore is the equity contribution.
INR 300 crore, I just mentioned, na. We keep the total investments on under 3 or 4 phase will be around INR 300 crores.
Mm.
Okay, out of which it is first 50/50. So our share is somewhere around, let's say, 150-175.
Yeah.
Of that, 20% is our equity, let's say 20-25%. So roughly, we are estimating over a period of next 3-4 years, INR 40 crore is the equity which we need to infuse. Most of it, however, maybe around INR 25 crore-INR 30 crore, maybe INR 25 crore, maybe INR 30 crore, will go in the next 12 months.
Just to get some more sense, in this business, I have no clue of this business, but in this business, you know, assuming, you know, we, we put INR 30 odd crore and the partner puts INR 30 odd crore, first full year operations can give what kind of numbers, how do you look at this business?
So, first year you said, or you are saying overall capacity, what it will generate out of this investment?
My first question was first year, then I'll come to the full utilization.
Well, look, you know, first year, we are assuming right now that, possibly we'll be able to commission the plant at by the end of quarter one of next year.
Yeah.
Which means, let's say June, okay? The balance nine months, we are hoping maybe we will be able to do a turnover of around INR 100 crore or so in the beginning. You know, balance nine months, INR 100 crore. Yeah, that's the maximum which we look at in year one.
Mm-hmm.
Since it's a 50/50 JV, you know, the consolidation will be a line item consolidation. The top line, the sales will not get added, it will not get consolidated.
Yes. And how profitable, this business would be, sir, as you-
Wow! Actually, actually, you know, maybe by the second or third year of operations, the EBITDA margin can be extremely, extremely healthy. It can even go up to, for sure, 20% plus. It can even range 25% plus.
Just a follow-up here, sir. At full, assuming INR 300 crore of CapEx, INR 50 crore of CapEx is done, how much can the revenues be for that business?
INR 800 crore of, you know, capacity is what it will lead to.
Okay.
Okay? But this is not something which is scalable like, you know, any other business. So incrementally, we can assume like, you know, in three years' time, we should be able to reach, to three years of full operations, we should be able to reach to around INR 300 crore, which can be a great number. And year three.
Okay, and who is their competition there right now in the market?
Competition for this business?
Yes.
So the competition is Hettich, Hafele, and a few Indian companies like Epco, Dorset.
Godrej.
Godrej, a small player, but Godrej also.
Right.
A few more international brands, but they are too minuscule.
Mm.
See, we will clearly get the advantage of, being the second player in the country after Hettich, to have a full manufacturing facility, and that will be a big advantage for us to get traction. And second, you know, again, in our existing channel itself, there is a good possibility that we'll be able to create distributors, because, our existing channel is, very bullish and very gung ho on, on this new product line, which we have spoken to them.
Sir, and just one thing on the plywood business. Do you expect, like, you obviously have numbers for the month of October, but do you expect typically our premium share to go back to normalization in second half of this year?
Well, you know, I mentioned this, and I mentioned even in my earlier calls that, as a company, we still believe that we have the right products.
Mm.
Okay? We are the innovators and, you know, our zero emission category is something which is really we want to push this into the market, and we are seeing some new players also getting added with zero emission plywood. But at last three, four quarters, we have seen that, you know, the market has slightly moved towards the value segment. Okay, so that remains a challenge because the more we are able to improve it, it will help our margin to grow. That's a clear belief, and Greenply brand has always been the leader in the premium category, though we still maintain the leadership. But we need to grow. I can only say at this point of time, it's a desired statement.
There are efforts, but we have not seen that result in the last three quarters for sure.
Sir, any geography which did really well in Q2 for us in plywood business, between the quarter?
Hmm.
Any particular geography which did really well?
No, I think, you know, no, it, it's actually. No, no, we have almost grown, well, in most of the areas. You know, 1% here or there, but, the growth has been very similar across the country.
The trend continues in October?
Well, again, quarter three, as you know, is a festival period.
Yes.
Traditionally, quarter three will be slightly subdued compared to quarter two. But I think, you know, when you look at the macroeconomics at this point of time, things looks good. I have always been advocating this, that things look good for building material segment. Yes, some glitches would be there depending on some economic news and other things, but overall, things look good for branded players. If we continue to do the right things, we will continue to grow in this business.
Okay. Thank you very much. Best of luck.
Thank you.
Thank you. The next question is from the line of Mr. Mohit Agarwal from IIFL. Please go ahead, sir.
Yeah, thanks a lot for the opportunity. I had a couple of questions. Firstly, a clarification on the MDF segment. You mentioned about the value-added products. Could you quantify, during second quarter, what was the share of value-added products in the 31,000 volume that you did? And where would you like to take it? I understand it'll take a few quarters for you to realize that, but where would you ideally want to take it on a steady state basis, and by when do you think you'll be able to achieve it, the share of value added in MDF?
I think, you know, at this point it will not be fair to share. You know, I mean, we would want it to be 100%, ideally speaking, but that's not practical. So, you know, totally depends on what the sales team can achieve, how much the brand can attract, and how much we can focus on our value-added sales. I think, you know, time is going to say, and our hard work is going to speak, that you know, how much we'll be able to achieve. For the last quarter, what we achieved, we can, the team can share the data with you. You have it, right? You should, you should share it. You can get in touch with Mr. Nitin Kalani, he'll share the data, the share of value added for quarter two.
Going forward, I think it'll be unfair to decide how much it will be. I mean, our aim is for the highest, like, you know, whatever we can maximum, we don't want to stop on that.
But any ballpark, Sanjit, any, like a 50-60% share is what you'd want to achieve, at least?
I mean, ideally speaking, yes, but time will, I think time should say whether, you know, we can achieve it or not. But ideally speaking, yes, 50% should be exterior, HMR, Boilo, Prelam, put together.
Okay, understood. My second question is on the plywood business. You mentioned, you know, so we have eleven percent growth this quarter and seven percent growth for South. And you mentioned that the growth is coming in from value segment. Is it, is it possible to kind of quantify how much is the value segment growing and how much is premium growing? Just want to understand the divergence between the growth rates of premium and value.
So the premium segment has not grown, as I, as I mentioned in the beginning. The whole growth is in the value segment itself. And, our mix was almost earlier was, what, 57, 43, earlier?
Premium.
Premium to, premium to, value.
Value term.
Was 57, 43?
Value term, 50, 57. And now, earlier it was 58. The prior quarter, it was 58%.
Okay.
Quarter it is 56%.
Mm.
Mid segment is 41% last quarter, and Q2 is 43. So 2% increase in mid segment.
Okay.
...And you got the number?
43% is the value segment, right?
Right, right. Yes, yes.
Okay, understood. That's-
One year, one year or maybe four quarters back, it was 37. It was 37. So you can see the shift, from 37 to 43 over last four quarters.
Understood. Perfect. That's all from my side.
Thank you.
Thank you, sir. The next question is from the line of Balaji Vidyanath from Nafa Asset Managers. Please go ahead, sir.
Hello?
Yes.
Good evening. Just wanted to understand, you know, there is a metric that you track, in terms of the pricing differential between the, value ply versus the top-end MDF, and if so, how the pricing differential has moved? Because you mentioned that the value ply is doing, much better in your overall ply segment. So at what point does it becomes, the customer becomes indifferent between, you know, top-end MDF, versus value ply?
I think I would say this: I think, value ply is growing because, you know, the overall, if you see the pyramid of the plywood industry, the value segment is much larger, and the premium segment is very small, and, you know, we are already having a significant share in the premium segment. Hence, the value is growing much faster than the premium. That is the plywood story because of the market. And I think MDF and plywood are clearly different needs of the consumers, and depending on different need and, the consumer chooses, you know, or the furniture manufacturer chooses or the converter chooses, you know, depending on the need. I think they're very different needs.
You know, when he's coming in to buy value plywood, he's coming in with a different mindset than when he's coming in to buy MDF, which is premium or the cheaper MDF, doesn't matter. He's coming in with a different mindset because I think the end use, according to an end customer, might be, okay, at the end of the day, a furniture is going to be made, but the type of furniture, the use of furniture, the finish, the carpenter or the contractor or the designer wants to achieve on a given furniture in MDF is different to plywood. So yeah, it varies, the need varies.
Yeah, and also, you know, as Sanidhya is saying, when depending on the end consumer needs. So one clear differentiation still which remains in the country is, you know, whether you are using it for your personal use and in residential versus, you know, if you are using it in any of your investment properties or commercial needs. So in commercial needs, you know, more of MDF gets sold for the reason because most of these OEMs or the high-end contractors who have set up a shop for making furniture, they want something where the thickness variations and nothing should become an obstruction to them. So for them, it is like mass production. But still, in terms of the product per se, there is a lot of difference between plywood and MDF.
So the home users and everyone who wants a good longevity in their products, and they still rely a lot on plywood only. Second, MDF, again, there are different, different uses also, because MDF is much beyond furniture as an industry. So, it has many other usages. Ply is purely furniture usage only.
So you are saying that the effect of cannibalization is very minimum in terms of sales?
Well, see, to some extent, that cannibalization is going to happen, as I said, because, for OEM, you know, you will see slightly higher traction from on, on the MDF side, because, in plywood, it's a very natural product and whatever one can do, but you may still see some level of, you know, thickness variation. Of course, that goes into, you know, micro mm. But that is not something which a machine understands. So, when it comes to OEM, people still prefer MDF because they get better productivity, the machine understands that. But when it comes to carpentry work, when it comes to, labor, when it comes to, reliability, strength, durability, then people still look at, plywood as an option. And that in this country will continue for sure, for long.
Sir, the actual reason that I'm asking is, I'm wondering why that, you know, when there is a raw material price hike, timber price hike, why is it that, you know, you're not able to right away take your price hike in the end products, considering that the region where you're present doesn't have any import threat, you know, at least in the southern region, there is threat of imports, et cetera. But being in West Chennai, there is very minimum import. So if there is a raw material pressure, you can right away take a price hike.
Well, you're talking about plywood, MDF.
MDF.
Sorry? Sorry, could you repeat your question?
He's saying that, you know, why can't you take the price increase further in MDF?
I think, at this moment, price increase in MDF is out of question because, you know, there's a lot of imports, number one. Number two, there are many people who already added capacity or are in the process of adding capacity. So I think everybody's wanting to secure their own market share, secure their own customers, secure their own volumes. And at this given point, I don't think it is possible to further increase prices. In fact, to hold on to prices, will be, you know, a challenge.
I think if you really, you know, ask us, our priority at this point of time is to scale up business, okay, without disturbing the price, which already, you know, others are able to get into the market, so that we maximize, you know, our throughput and we maximize our margin also.
So, this import of MDF is a threat even for your region, western region also?
Yes, of course, import of MDF is a threat to everyone. We are also very near to the port to that extent, but it's okay, it's all on the interior grade only. This also we have mentioned earlier, that the whole import takes place only on the interior grade. And the imports of, you know, if you see last couple of years of data, maybe if it was around 10 or 11% of the total, MDF business in country, it is around maybe 13%-14% today, if you really look at of the total MDF, you know, consumption into the country. And that's mainly interior grade. So that's where somebody, earlier asked that, you know, what is our plan on the, on the wrap products, you know, mix and sell.
That is where most of the MDF players in this country, they concentrate at.
Okay. My last related question on this is, you know, if in terms of this Bureau of Indian Standards, you know, there's new rules that are coming in terms of import of wood products and their quality, et cetera. So I just want to-
Sorry to interrupt you, Mr. Banaji. We are unable to hear you, sir. Your audio is breaking.
Hello? Hello.
We are not, you are not, clearly audible.
Is it better now? Hello.
Maybe, yeah, please.
So I was just asking, sir, in terms of, you know, the Bureau of Indian Standards coming up with a new notification for import of wood products, what are, what are your views on that in terms of how difficult it will make the life for importers?
I think it will definitely make the importer's life slightly difficult. I think, however, this is applicable from the end of the year, so it's still a wait and watch, and how much will that help us? Time will say. And it's good that the government is taking such measures to make sure that, you know, Indian manufacturers are getting protected.
Thank you so much, and thank you all.
Thank you.
Thank you, sir. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your question to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead, sir.
Hi. Thank you for the opportunity. Sir, as you highlighted in call, the timber prices are on par with North prices, but North price is currently, you know, 30% higher than South prices. So how will you be able to compete with imports in Western market when you have a higher timber prices? And what is your timber price per kg in quarter two?
We'll give you the exact number of quarter two and give the timber price number as well.
See, you know, the prices of timber in north and west are almost similar. In south, also the prices have gone up, and today, if you really see, they are only cheaper by around, you know, INR 1 a kilo type, which would be in terms of percentage, maybe, you know, around 14%-15%, if you take that. So that's but, but between north and west, there is no difference in the landed price.
And we are not trying to compete with the import, you know. We are selling at a much higher realization than import, you know. Import average realization is INR 19,000-20,000 a CBM, whereas our average realization for interior grade is trading about INR 25,000 a CBM. And as you keep going higher, exterior, HMR, Boilo, it keeps getting higher, you know. In Boilo, for example, you know, our realization would be like what? INR 65,000 a CBM, though the sales volume is very low, but you know, we are the second player in the country to have this category, you know. There's nobody else in the country which has this category.
Got it, got it. No, my point was more from like, you know, when the import price and your price differential becomes, you know, so bigger than 20%, then people might, you know, decide to shift to imported products because of the pricing difference. So possibly, if you have a higher timber price at your end, you need to sell it at a higher realization. So possibly that leaves room for import to gain market share.
See, to some extent, as I said, that, you know, we see a 1%-2% increase as a total percentage of consumption in India on the import side. But you have to also understand that, like today, in West Bengal, we can even serve a very small quantity. We can serve the quantity to the end user on a daily basis. When it happens to import, you know, they have to carry certain amount of inventories. Also, once the price is decided, maybe they get the consignment after one month or two months. So the uncertainty over, you know, what can be the price after a couple of months. So there are factors, otherwise, you know, today, imports would have been big time into this country.
Yes, it is a decent number, but, the traders also understand that there is always a plus and a minus. The pros and cons are always there for anything which we import into the country.
Mainly on interior grade, you know. The fight with import is on interior grade, it's not on other grades.
Understood. Got it. One last question from my side-
Sorry to interrupt you, sir. May we request you to join the question queue?
Yes.
Thank you. We'll take the next question from the line of Kushagra from Old Bridge Asset Management. Please go ahead.
Yeah, hi, thanks for the opportunity. Just two questions. One, given that you are already on 52% utilization levels, in MDF segment, where do you see your cost per CBM settling in for your interior grade MDF? If you can give some color over there, that will be helpful. So we have seen a comparison, I would say, we have seen some of the larger players report or sort of clocking around INR 17,000-INR 18,000 per CBM. I'm just trying to get a sense of where, where will you settle in once your utilization levels ramp up?
I think it will be too early to say. I think at the end of the year, we'll be in a better position to reply on this. Because, you know, if you look at the number of months, you know, from fifth May, we started. So you know, there's hardly been, you know, five months of operations in quarter two end. So it's still too new to comment on this. You know, a lot of our costs might be slightly higher today because the volumes are comparatively lower. You know, we are slightly a newer player compared to others, so it won't be comparable. By the year end or next year, quarter one, we'll be in a position to give you a real picture.
Yeah, at this point in time, the overall margin which we are able to derive from the business for the next few quarters will be relevant, will be the factual thing. Because we also get to know and we have to also understand our cost structure, as Sanidhya is saying. We might be... And this is one business where you know, you get better consumption propensity only with maturity. So we will also continue to improve on the cost structure. Those are other you know, sweet points which are still there. And that's what we understand about the industry, that it takes around anywhere between 9-12 months minimum to mature on the cost side.
There would be breakdowns, there would be stoppages, there would be, you know, new samples, there would be a lot of things which initially we would be experimenting with. So, I agree with Sanidhya, that, you know, these questions will become more relevant sometimes, next year.
All right. The second question is on capital allocation. So, the sense which you gave on the JV, in terms of investments and asset turnovers and EBITDA at peak revenue, the broad match says that the payback terms should be 5-6 years. So if you can confirm to that or, something more to it. And a related question is, what are the debt levels which you are thinking of carrying on your balance sheet over the medium term as well, given the amount of cash flows which you will be able to generate henceforth?
So first question on the, on the hardware, I've just given a ballpark number. You know, you never know, maybe in the first 12 months itself, because we have a good distribution strength, okay? And, and the product qualities are very good and cost-wise, we would be definitely much better because we will be manufacturing. I said INR 100 crore, we might even look at maybe doing INR 200 crore in year 1 itself. So it's too early, there's no point right now commenting on payback and all those. I've given you the ballpark thing. Yes, the margin profile is good. It's, it's more than 25% because these are, these are all high-end, you know, engineered products.
The total investments over the phases, what we have agreed with the JV partners, is anything between INR 300-INR 50 crores, and that can give us a capacity of INR 800 crores in terms of manufacturing. These are the facts at this point of time. As we mature, maybe next year, we'll be able to share better perspective on the same. It's too early, you know, I mean, I mean, what is the point of commenting on this thing at this point of time?
All right. Just on debt and, thanks. All the best.
On the debt side, on the debt side, like we have given a guidance that, you know, one, as an organization, we want to be within a debt equity of 1 at any point of time. We also said that we will peak out our debt somewhere around INR 750 crore. We still maintain that, and the whole idea is finally to be within that, this 1:1 level.
Sure. All right. Thank you. All the best.
Thank you.
Thank you. We'll take the next question from the line of Akshay Chheda from Canara Robeco. Please go ahead, sir.
Yes, sir. Thank you for the opportunity. Just one question. How should we look at this 9% volume growth number, sir? Is it that finally, demand is coming back in plywood? Of course, you did mention that the third quarter, because of seasonality, would be weak, but would it be that fourth quarter would be better than second quarter, and then FY 2025 will be better than FY 2024? Do you think that things are improving from here on or too early to call?
Well, you know, for this year first, yes, quarter three, as like any other year, because of, lot of festivity, is always a subdued quarter. So the quarter three numbers, you know, possibly will be, and, I mean, should be lower than the quarter two numbers. But quarter four, again, the number improves, because that's, that's a good season. So for the full year, as I said, we are at 7% right now in H1. We are hoping that, you know, if we are able to clock around 9% in H2, then, for sure, we are at 8%, volume growth.
As I've always maintained, in plywood business, if we do the things in the right perspective, and if we don't have any supply side challenges, then, you know, we always will try to grow the volume between 8%-10% for next few years for sure. Even though the market doesn't grow, but I think the shift from unorganized to organized and our own better working, our own, you know, performance, will help us to grow to that extent for sure, between 8% and 10%.
Okay, sir. Okay.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Thank you all for taking time to participate in this call. In case of any further clarifications or queries, please feel free to reach Mr. Nitin Kalani. Thanks again and goodbye.
Thank you. On behalf of Asian Markets Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.