Greenlam Industries Ltd

NSE:GREENLAM

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good afternoon, and a very warm welcome to the Investor and Analyst Meet 2022 of Greenlam Industries Limited. Today, we have with us on the dial, Mr. Saurabh Mittal, Managing Director and Chief Executive Officer; Mr. Ashok Sharma, Chief Financial Officer from Greenlam Industries Limited through the presentation to discuss our business model, key strategic initiatives and growth drivers. Apart from the audience in the room, we also have our phone lines connected to investors and analysts who are unable to join the meet today. The management would first start with an overview of the business, post which we would take questions from the audience.

I would now request Mr. Saurabh Mittal kindly address the audience. Thank you, and over to you, sir.

[Saurabh Mittal, executive]

Thank you, everyone, and very good afternoon. Thank you for joining us. And as mentioned, I'll take you through information of the company, and post which, we'll be happy to answer your queries and questions.

Big 5, the big messages of this presentation are Greenlam too is embarked on a decisive investments of about INR 1,000 crores across 3 manufacturing facilities. Company is expanding its market opportunity in both domestic and international markets and will emerge larger, stronger, more profitable, and we're graduating from 1 orbit into another.

Part 1 of [indiscernible]. So the background has a snapshot. We commenced operations in 1993. We have 2 manufacturing plants at the moment at Rajasthan and Himachal Pradesh. We have experienced team. Management bandwidth is there to implement the projects. The products are marketed through 9 distribution centers, 21 offices, 5 warehouses, 14-odd dealer distributors, retailers in the country. Nationally, we are present across 100 countries, supported by 4 international distribution centers, 15 offices and 8 subsidiaries and over 100 team members working in various parts of the world. Currently, we have a strength of about 5,000 team members across the world. We have various certifications across manufacturing decorative products, which are both domestically and globally. We listed on the BSE and NSE. The market capitalization as of 31st March was INR 4,386 crores.

The discipline that got us here has been focused on the portfolio. Ever since we became an independent company, we've deepened our focus on decorative products and related solutions across the wood pile industry. We focus on brand premiumization and working on superior terms of trade with the channel. We've created capacities ahead of the demand curve. We've enhanced manufacturing capacities at relatively low infrastructure costs. We've strengthened the capital costs. We've invested through prudent mix of debt and internal accruals, and we've moderated debt using cash flows and enhancing shareholder value.

The values by which the Greenlam aspire, trust performance, learning, speed, agility and [indiscernible]. The current manufacturing capacity is about 15.62 million sheets across Behror and Nalagarh, which is at Himachal. 4.2 million meters square of Decorative Veneer capacity, 1 million square meters of engine good flooring capacity and about 120,000 doors and door sets capacity.

[indiscernible] on the product portfolio once again, so we have laminates here where we do commodity to specialty products. There are compact panels, which are also called compact laminates used for bathroom partitions, medical furniture, which is the Lab Guardian, restroom and locker solutions, [indiscernible] panels are used on exteriors. [indiscernible] solutions are compact components for kitchen slabs and back slabs et cetera, mostly for the international market where we have melamine base chip board, emitted particle board matching with the laminate color.

On the Veneer & Allied category, we have Decorative Veneer, which is with the brand decor, would do natural engineered -- in the engineering wood decoring category, we have the product called Mikasa real wood floors, with the engineered wood flooring products with matching accessories. And in the door category, we have the brand, Mikasa doors and frames, which are engineered doors and door sets basically with the frames. So these are the product categories we are currently -- products and service categories we are present.

This is our core business. We have installed capacity at the moment of 15.62 million sheets. FY '22, the revenues from this business was about INR 1,556 crores. And these are the number of products, number of SKUs, colors, species, which we do. Products are done across various dimensions, starting from 3 feet by 7 feet up to 5 feet by 12 feet. I think this is across 0.5 millimeter to 1.5 millimeters. Several specialty products are there with high gloss, anti-fingerprint, [indiscernible], which are 1 color, top grade products, market grade products, et cetera. Products are sensibly use across hospitality, health, education, retail spaces.

On the compact laminate, again, a reasonably large range of design, species, dimensions, thicknesses and usage, which is again mostly Façade laminates. Most of the compact laminates are used mostly in commercial spaces. In Façade laminates, 42 decors in interior -- Façade interior laminates about 100 decors. We have all these samples placed out and our teams are here to show you, explain you how the products are used, how they look and feel because customer engagement is still low in our category. And we have just 2 cubicles, which are basically apart from partition products, locker room solutions. You probably have seen it in airports and public spaces, most of the toilet partitions are now made with compact laminates. And we have melamine chipboard, which matches the laminate. So projects use laminate and prelam particle boards combination. So here, we have 2 million square meter capacity.

Overview of the laminates market. So it's about a INR 9,000 crore industry, INR 2,500 crores comes in from external, INR 6,500 crores is from the domestic market. Of the INR 6,500 crores, approximately INR 4,000 crores is the organized market and INR 2,500 crores is unorganized market. This is in value. Now in quantities, the unorganized market share is larger in percent.

On the veneer side, this was a capacity 4.2 million meters square. Last year, we did INR 83 crores. Again, I mean, a vast variety of items available with 360 species in boutique engineered. We have 13 and 49 each. So again, mostly residential and commercial spaces products come in natural engineered various textures, various treatments, various dimensions.

The next product is the engineered wood flooring, 1 million square meter capacity. Last year's revenue was about INR 36.7 crores. We have 2 products here, Atmos and Pristine. Over 72 and 10 SKUs in each collections. Again, various kinds of flooring with long planks, chevron, herringbone, weather collections, all those samples are there for you all to just kind of glance through. The next product is the engineered wooden doors. 120,000 door sets per annum. Last year's revenue was INR 26.7 crores. So we do pirated and non-pirated specialty doors for hospitals, exquisite doors. So the idea here is to do -- produce doors in the factory and install them on the sites versus the conventional method of door fabrication on the site.

Just a little bit of the technology integration we are trying to do across the business. So with visualizes certifications, videos, product details, product trading details, there's a visualizable for the flooring business. Just to give you a glimpse of what we're doing on the technology side for the interface with customers. Credentials across products are green credentials actually with green guard for indoor air quality with green label FSC certifications. NSF is for the food certification in the U.S., ISO certifications, IGB. In our laminates processes, we don't use any urea. While most unorganized and other places also use urea in the production.

Just the domestic footprint of the company. So 2 plants, Behror and Nalagarh, and we've marked 3, 1 in Gujarat, Andhra Pradesh and Tamil Nadu. So these 3 sites are upcoming and they'll be coming up at various times, which we'll explain them. And so Behror plant does laminates veneer flooring doors. Andhra Pradesh plant will do laminates and particle boards. Himachal will do -- is doing laminates and compact laminates. The Gujarat plant will do only laminates, and the Tamil Nadu do only plywood. And these are the capacities, which we have and which we are installing.

The blue dot shows all the plants opens across the country. Sales teams are present across 150 towns. Corporate office in Delhi. So red dot shows all the distribution points, and we have 1 experienced set in Calcutta, and we're building one in [indiscernible] facility, the Gujurat facility will be operational in quarter 2 of this financial year, which is within September. The Andhra Pradesh plant for laminates will be operational in quarter 4 FY '23. Particle boards will be operational in quarter 4 FY '24. So plywood plant at Tamil Nadu would be operational quarter 4 FY '23.

So just internationally, all these areas we marked is where we have subsidiary offices, warehouses or branch offices in these countries. Otherwise, the products are available across 100 countries worldwide. We have teams in various other parts of the world. So U.S., Miami is the office. We have a warehouse in Philadelphia. U.K., there's a subsidiary company. Basically, there's a warehouse. Switzerland as a subsidiary company. Dubai is a branch. Poland, Russia are subsidiary companies. Nepal is a first subsidiary company. Hong Kong, Thailand, Philippines, all those places are branch offices, and Singapore is the operating subsidiary company there, including -- sorry, even we have a warehouse there. So present across 100 countries worldwide.

So what has Greenlam achieved as a result? The value we've created until 31st March 2022 is INR 4,300 crores. We counted amongst the [indiscernible] plants. We have built a distribution set up across 100 countries globally. We comprise India's first engineered wood flooring and door is the first one to pioneer the -- actually, we are the only producers in flooring right now, and we're the first organized producers in the door segment.

We turned the business into a cash flow positive. We ran a tight shift with strong working capital hygiene across the market cycles with various disruptiveness across the last couple of years. We still managed an improved capital cycle. And we're sitting on cash as on 31st March of INR 176 crores. We became an independent company in financial year '15.

Just a few numbers on how revenues moved ever since we became an indifferent company, how has EBITDA moved profitability, net working capital cycle, ROC, equity, ROE, net debt-to-equity, net debt-to-EBITDA. If you see ever since we became an independent company, on the receivables side, we've improved from 65 days to 28 days. Interest cover has improved. Ratings have improved. Net debt-to-equity has improved. Average cost of interest in FY '22 was 3.4% for the company. Short-term rating has also improved. So across most financial parameters, despite the challenges, we have kind of installed ever since we became an independent company.

We successfully counted in FY '22. For FY '22 at revenues of INR 1,700 crores or despite the loss of production and sales at the Behror plant, where we -- plant lost operational days and had restricted working hours for -- in the month of December and Jan, a little bit of Feb also. We had an extremely volatile and high raw material increases, which industries never seen before across raw materials. All chemicals, paper, input cost, base supply, veneers, every cost was at the peak, which we've never experienced in the past.

There were significant logistical challenges in both inward movement of containers and outward movement of containers. We end up importing nearly 80% of raw materials and 50% of revenues get exported. So with significantly large amount of containers moving in and out, so on both sides, there were challenges on inventory and supply chain.

So despite the challenges, what did we achieve in FY '22? We believe we did a decent performance despite all challenges. We overcame 2 COVID closures in FY '22. We kind of embarked on the next journey of our growth, and we announced 2 new projects. We overcame disruption at Behror plant last year.

If you look at the FY '22 performance, revenues were at INR 1,700 crores, grew 42%. So about INR 1,200 crores were the revenue in FY '21. EBITDA grew 7.9%. It grew in value, reduced in percent because of the higher raw material loss. And we could only pass on this to the market, and there was a time lag for it. PAT grew in value, 22.9%, after exceptional losses. Net working capital cycle improved despite the logistical challenges.

On the laminate business, revenues has grew 46% to INR 1,556 crores. The veneer business grew 6.5% to INR 83 crores. So flooring, doors also grew. Although the base was smaller, but we didn't grow much. So INR 36.7 crores was revenues in the flooring and INR 26.8 crores in the door business.

So what's Greenlam -- the next part of Greenlam as part 2. So what's the macro? As we see in our current population, urbanization, demographic dividend, replacement demand and rise in home demand, online retail sector, mechanized monitor manufacturers going. Basically, a lot of OEM culture is expanding in the country with ready-to-fit kitchen, wardrobes, doors, panels, shop it out. The GST and the e-way bill is favoring growth price, clearly putting more pressure on the unorganized industrial, winding market for new homes. The trend towards formalization and organized players, we believe will win.

On the customer side, first of all, organized sector products. Consumer price sensitivity is declining. We believe consumers seeking a single brand solution. Increased online furniture offtake and preference for environmentally friendly products. So the unprecedented opportunity which we see organized as a branded business to take off and grow faster, widening -- wider opportunity in branded and [indiscernible]. So our goals in the next chapter of our journey is to emerge as India's leading wood panel player to graduate from only doing surfacing products to also doing substrate products, and so we have a full solution of surface and substrate to secure sustainable access.

So while we build these wood-based industries, we also want to focus on building a sustainable raw material supply chain with plantation being driven by the company in coordination with the farmers. Create a platform of sustainable outperformance to deepen financial environmental certification and compliance discipline to position ourselves as a comprehensive substrate and equity player. So these are the segments we are currently present in laminate, flooring, doors with the expansions and the particle boards and the plywood to it and laminates continue to remain our core business.

So the initiatives Greenlam 2.0, expansion, acquisition, balance sheet rightsizing, prudent debt mobilization, portfolio widening and the source security, especially in the wood-based industry. From a market opportunity perspective, so currently, the businesses we are present in have a market opportunity of 11,000. With the addition of plywood and particleboards, overall pie goes to 46,000. Although not all plywood market is addressable with a new production will only be in the mid- to premium category, but just generally, the category is far larger. So that's about how the market size in our industry is. So clearly, MDF is an industry we are not present right at the moment. So it's MDF plywood at INR 30,000 crores, laminates at INR 9,000 crores, veneer segment and particle board industry size of INR 5,000 crores.

So just generally how things are going to move. So from INR 11,000 crores market opportunity, we moved to INR 46,000 crores. It took us nearly 29, 30 years to get to INR 1,700 crores. And we believe in the next 5 year with the base of FY '21, we should more than triple our revenues with the investments we are doing right now. The outcomes of second part of our journey as independent more than tripling our revenues from the base of FY '21 by FY '27. Cross-selling product across because there's a lot of channel overlap between all the across distribution network, retail network, architects, IDs, OEMs, developers, builders, so we can cross-sell various products. We become a one-stop solution across all wood panel industry requirements. We built a long platform. We've broadened our portfolio, and we strengthened the Greenlam brand.

On the greenfield expansion, so investment in greenfield manufacturing facility is for laminates, plywood and [indiscernible]. So 2 greenfield plants are coming up, as I said earlier, 1 is in Andhra Pradesh, 1 is in Tamil Nadu. So Andhra Pradesh is 231,000, which will be meet the particle board capacity. It's a oracle line, which we are building to be operational by FY '24 Q4. The laminates capacities -- laminates and boards, which is laminated boards to be operational by Q4 FY '23. And Tamil Nadu is for plywood, 8-point meter square plywood to be operational by Q4 FY '23. Total investments in the south is about INR 950 crores.

On the acquisitions, we just acquired a Gujarat-based laminate plant. So cost of acquisition is about INR 36 crores. We'll be spending approximately under INR 15 crores to upgrade the plant, and this plant should be operational within this quarter. Current installed capacity is 3.4 million sheets per year, and we'll upgrade the plant to 5.4 million sheets. So this plant largely will be focused on servicing the commodity market of laminates, which is nearly 50% of India's market in terms of volume terms, which we cannot service efficiently because of capacity restrictions and the way the plant has been designed in our existing 2 plants, and including Naidupeta will not be able to do it. So the idea is to build focus on that category and gain market share there, which helps us kind of cross-sell other Greenlam products and also widen our reach across many markets in the country.

On the acquisition, so funded from internal accruals, the annual revenue potential at 5.4 million sheets will be INR 250 crores and revenue generation will be quick. So because currently, we are already running at 110% utilization. So I think the moment we started a plant, we should be up and running immediately actually speaking. And the SKUs will be fewer. Working capital requirements will be smaller than existing because the range is smaller. Advantages of the location is, Gujurat is a hub for most raw materials with ports being close by. So availability of paper, chemicals is all quite easy. So clearly, the idea will be to ramp up fairly quickly from this plant.

So now post the expansion and the acquisition, we're adding 8.9 million sheets of laminates capacity, sheets and board, 18.9 million meter square of plywood capacity, 231,000 cubic meter of particle board capacity. Total investment across these 3 plants estimated to be about INR 1,000 crores within some investments already happened in FY '22. So FY '22, FY '23 and FY '24, 3 financial years. Projected revenues from these investments is about INR 1,750 crores. 65% is to be funded by debt, 35% should be funded by internal accruals. And repayment of debt because the majority of the debt will come in from the European Bank, which funds the European exports of capital machines. So repayments are be between 7 to 12 years.

On the balance sheet side, issued -- we've raised provincial -- on provincial basis, INR 195 crores of equity, and this was issued at INR 309, which -- with a dilution of 4.97% post issue of capital. So clearly, the idea of raising capital was to support the balance sheet, and -- so that's on the balance sheet side.

On the resource side, we talked about focusing on sustainable raw material supply for the wood-based industry. And so that's an initiative we have begun, and clearly, I think that's something we want to focus on from a long-term perspective helps us bring raw material at an efficient price. And there will be no mispatch in terms of where the raw material comes in from where the markets are. So that's something we are hoping to pay more attention to.

So how we strengthened our marketing and sales over the years? We've plugged category gaps, widened portfolio, provided solutions from just a product offering. We've leveraged digital platforms that are -- still are leveraging digital platforms to engage customer -- to increase customer engagements, introduce data designs and trends across product portfolio. We believe the Greenlam brand can enter new segments and commercial larger capacities in the existing segments, and its time -- time has come for us to kind of move out from just being a niche decorative player to a decorative and a subset player. And clearly, I think we believe that this whole initiative of adding more capacities, moving quicker into particle boards will help us build in leadership in the wood panel industry.

So this is a value creation opportunity, significant business growth within our comprehensive timeframe, mobilizing funds through prudent mix of debt and internal accruals and equity. Somebody of higher margins through synergies and positive cash flows from the existing business will drive sustainable growth. The existing business really doesn't need any more cash. It just needs routine maintenance capital expenditure. Probably we're entering a new orbit, which will make us larger, more profitable, more sustainable, and we are laying the foundation of a more valuable Greenlam. This is just a snapshot of where the capacities are coming up, what capacities, what investment, what sort of venue potential and the expected date of commercial production.

I'll move on this. This is a table which shows all the capacities of laminates, so -- and other products. So laminates will move from 15.62% to 24.52% across 4 locations. Veneer flooring doors will remain at Behror plant with no capacity expansion. Plywood will come at Tamil Nadu. Particle boards will come at Andhra Pradesh.

Just a quick run on the FY '22 and Q1 FY '23 numbers. FY '22 revenues, wonder which I already told you. You probably know that, right? EBITDA at INR 187 crores, PAT at INR 90.6 crores. Q1 was INR 470 crores of revenue. Revenues could have been higher, but despite the logistical challenges and exports, we still have -- we probably laid the entry while production was at 110% utilization.

The gross margin, by and large, remained flattish versus Q4. It is by and large flattish. On the laminates side, capacity utilization realizations have improved from INR 782 to INR 1,002. Multiple price tags have been taken large shares as well as value additions happened. On the wood sector -- wood segment, last year, we did INR 47 crores. Q1 was INR 40.4 crores. EBITDA losses have come down in the wood segment. So here too, we had challenges on raw material cost, plywood cost, veneer cost, timber costs. I think we're still a bit off from what we should be.

Net revenue was at INR 25.3 crores in Q1. Flooring did far better this quarter at INR 11.5 crores. I think the floor business is struggling with the numbers. Capital employed has come down in the wood veneer segment as inventories have reduced. That's just on the Decorative Veneer panel business.

On the working capital side. For FY '22, we were on 81 days versus FY '21. Q1, we were at 77 days. Inventory number of days seems to be a bit elevated. It's also because of the export challenges of containers and goods still in the plant it not reaching the ports of the destinations and import site. Otherwise debtors payables, by and large, everything is moving quite well.

The value has gone up of inventory because of raw metal costs going up. So in quarterly terms, it's absolutely under control, but because most of the RM costs have gone up, so that shows elevated value. On the debt side. Net debt FY '22 was INR 168 crores. Q1 was INR 222 crores. On the return ratio side. ROCs are largely -- on the veneer side, the laminates ROCs are nearly touching 30%, 31%. I'm sure there's still also improved, but at the moment, this is what it is. 15% -- ex-projects was 15.9%. ROE at 14.4%.

That is it all from my side. We'd be happy to take questions.

[Operator]

[Operator Instructions]

[Unknown Analyst]

This is Pratish Vohra from Business [indiscernible] India. My question is, our asset turnover ratio is close to 2.5x, 3x, if you consider the existing plants. And now you are showing INR 1,000 crores investment and INR 1,750 crores revenue potential. So why there is a decrease in asset turnover or we are investing into another plywood or something else which requires higher asset?

[Saurabh Mittal, executive]

The new investment on the particle board side, the asset turnover is lower, while operating margins would be higher. So in the plywood laminate side, the asset turnovers we've been doing, they will be maintained rather than plywood asset turnover is slightly higher, but in particle boards will be lower. It's more like a 1:1 guidance, but operating profits will be in the 25% to 28%.

[Bhavin Chheda, analyst]

This is Bhavin from Enam Holdings. Always exciting like to see next growth plans from the company. It looks to be a good one. So few questions. First, on the current plans, what you're planning? And you also gave the guidance of tripling revenues -- FY '21 revenues by FY '27. So how do you include both domestic market and global markets? So these new expansion plans, including our existing laminate expansion also, would the global market and to increase the global market business are there in the plans? Or you think still domestic market opportunities is large enough than this expansion plans, you will be able to sell more in domestic market itself? That would be my first question.

[Saurabh Mittal, executive]

So on the new investments, the plywood and particle board business will be largely or nearly all domestic markets. On the laminates expansion at Naidupeta and the Gujarat factory, if you could assume, we'll have the same ratio of 50% domestic, 50% export market. So I think that -- so the laminate mix, as we see things now, we see opportunity in export market. So I think that probably work with the same trajectory of both the markets growing. So wood-based industry will be largely domestic market.

[Bhavin Chheda, analyst]

My second question is, leaving out MDF, and if I see that industry's number looks very exciting, the companies are growing at very high growth. I think that segment in overall wood panel is growing while EBITDA margin is high. But I have left it out because it looks to be capital intensive. So is that the reason you left out MDF from this growth phase? Or there apprehensions that you have not considered MDF when you want to project yourself as a leading wood panel player?

[Saurabh Mittal, executive]

Right. So the idea was, first, to invest into particle boards line because we clearly see, there is a gap in that segment. It's like what I think MDF was 10, 12 years ago, there is no organized use of particle boards. Most of the factories are subscale revenues of INR 50 crores, INR 100 crores, inefficient equipment, higher cost of operation and particle boards largely sold as [ prelamination ] products. They're not sold as pair boards unlike MDF. So alignment with the laminate business, which is also a decorative business, was far higher. So we thought of that or we believe and seeing learnings from our understanding of the international market, having laminates, compact laminates, prelam particle board, oblique melamine chipboard, which are all decorative in nature, was the first step for us to kind of move space rather than moving into an MDF space.

So clearly, particle board, we -- I feel that there's more opportunity in terms of the gap there and alignment with the existing laminate plant. And you can probably give a better solution to the customers. You can go to architects with laminates, compact laminates, prelam boards, edge band, all matching colors for various applications, which you cannot do with MDF. Also, I think in MDF, whatever we understand with the limited understanding on that space, there's a lot of new capacities coming up, which is not the case in particle boards. So I think that was the second consideration. So clearly, we are open to that segment, but at the moment, we don't have a plan on that.

[Bhavin Chheda, analyst]

Saurabh, one more continuation to that question would be, understanding is that an MDF in fact, is cannibalizing the plywood industry and the growth in the plywood industry would be less than the MDF industry. That's 1 of competitors are not adding capacity in plywood, but you have chosen to invest in plywood. So can you counter that when others are hearing volumes declining to be replaced by MDF and you will be making new investments in plywood?

[Saurabh Mittal, executive]

So if you look at where are the volumes are declining of plywood is mostly in the lower end of the plywood market, which is the unorganized cheaper plywood market, commercial side of the market. And the plywood we will be producing will not be in that segment, it'll be in the mid- to premium segment. So clearly, we will not be competing in that space with the MDF. So lower end of the plywood market is being replaced by MDF, which is absolutely correct, but the plywood production and the positioning we are doing is not in that segment idea.

Also, we have a large customer base of residential customers, which use laminates, veneers, flooring in their homes. So our plywood production, our plywood model is 100% self production -- in-house production and mid- to premium quality, aimed at the residential market and not at the commercial market. So MDF is replacing plywood in the commercial market for ease of usage. People don't want too much of durability. They're okay with a acceptable quality, fine with a limited durability, which MDF does offer. So that was a rationale of having a plywood plant for us.

[Bhavin Chheda, analyst]

Yes, that's logical. And the last one, any tax incentives on this INR 950 crores CapEx?

[Ashok Sharma, executive]

Yes. The unit, which is in the Naidupeta, that will have the lower tax of against 25% for the company as a whole.

[Jeetu Panjabi, analyst]

Jeetu Panjabi from EM Capital. Sir, 3 questions, high-level. One, how do you define your core competitive advantage? You talk of tripling turnover in 3 years. What gives you the right to get there and the advantage to scale up over 3 years?

[Saurabh Mittal, executive]

So we've talked about more than tripling the turnover on the basis of FY '21 revenues, which is INR 100 crores over -- till FY '27, right? So like last year, we already added INR 550 crores into the turnover. So if you ask me what gives us the confidence, I think the net, which we've created both in domestic and international market gives us the confidence that we can get the materials to the market. With the credibility of high-quality product, clean approach, solid relationship with channel partners, architecture, IDs, we think that.

In the laminate space, clearly, we are running short of capacity. We're actually running nearly 1 year behind in capacity creation. We had gone to some other states, there were some challenges. And COVID came, there were some delays. So laminates, as we talked about right now, even like last quarter, we were at 110% utilization. So on the laminates side, for both domestic and export market, I think we're still at in the markets where markets want more material from us. That's on the laminates side.

On the particle board and plywood side, again, if you see our business model in the last few years, we've been a decorative-based industry because of other compressions we could move out to the core category. So it was a lot of heavy lifting has gone in terms of expanding the category, creating the category in all our existing laminate for that matter. We've added new products. We're focused on category expansion, whether it's Façade laminate, bathroom partition, specialty products, we were the first companies to [indiscernible] brand laminates in international markets.

So really, it's been hard for us to kind of scale up the business. So we never had a bulk moving product like a particle board or a plywood in a category. And clearly, there's a gap in plywood, we believe. There's no third player in the market. Customers and dealers want another player in the market who's focused, and it was reliable in terms of quality production. Particle board is already a INR 5,000 crore market. So we don't need to go create a market. Unlike parts of our laminate business of veneer flooring doors, we were also challenged to kind of expand the category. So recent plywood particle board, so I think the market exists. We have to go out and execute correctly and take market share and take the growth. So I think our competitive advantage on the front end is where we think we can kind of do this actually.

[Jeetu Panjabi, analyst]

The second question reasonably linked is, I looked at your 16 quarter numbers and saw that EBITDA structurally come up by a couple of hundred basis points. So the profit pool has not expanded internally for you to commensurate to revenue growth. What gives you the confidence that triple the revenues or INR 3,500 crores, INR 3,700 crores revenues. You see a defined profit pool where you think you'd be set and you'll be comfortable getting there?

[Saurabh Mittal, executive]

Can you put that second -- what did you notice in the 16 quarters?

[Jeetu Panjabi, analyst]

Sorry, it went from INR 12 crores to INR 10 crores or ballpark INR 38 crore to INR 40 crore EBITDA per quarter have gone to INR 48 crore to INR 50 crore EBITDA for the 16 quarters. That's the growth there.

[Saurabh Mittal, executive]

Right. Right. So clearly, if you see capacity of laminates, unfortunately, has not grown over the last 2 odd years. And we've been faced with significant raw material cost increases and market have already been exceeded, and we don't have enough capacity at the moment to go and sell. So to move ahead, I think more capacity will help us sell more, and our fixed costs will not increase, possibly go up at the contribution level. And RM costs will also -- have already started softening at least on the chemical side. So clearly, I think as we scale revenues, we feel margins will also improve in value and percent, where we see things at the moment.

[Jeetu Panjabi, analyst]

And do you feel comfortable about the new segments you're getting into? You feel comfortable about the profit pool there as well?

[Saurabh Mittal, executive]

So let's put it this way. In particle boards, no, every other companies are not so significant player. And the people who report numbers, their EBITDA margins are in the range of 28%, 30%, with a smaller production base with a lower capacity with lower efficiency of machines. So I think with the right efficiencies, with the right operating costs, we believe it may achieved.

[Jeetu Panjabi, analyst]

Okay. And then last question. If for whatever -- I mean we wish you well, but if for whatever those targets don't get achieved, where do you see the source of -- for potential risk to get to those numbers?

[Saurabh Mittal, executive]

Where do I see the source of risk is that?

[Jeetu Panjabi, analyst]

Yes. So I'm saying, God forbid, if you're sitting 3 or 4 years from now and those numbers aren't there, right? What do you think could be the reason for that?

[Saurabh Mittal, executive]

So as we see things now, we're expanding in 3 categories: laminates, plywood and particle boards. And laminates has been our core business. We're not really going out and doing something new in terms of newer products or newer markets. It's already operating at a certain parameter. We've done that at that parameter. So really, obviously, there are risks in anything and everything you do. Nothing is completely risk-free ever, but we feel confident that we can get there.

Plywood too, market size is large. There is no meaningful third player in the country. And we're setting our factory in South India. South India is the #1 market for branded plywood and for waterproof plywood, and that's a segment we want to enter. And again, our understanding of the market network is fairly decent, I would say that.

And particle board also, again, this is not a new category. We're not going to invent the category because the market already exists, right? We have to go and take market share and increasing furniture manufacturing is kind of going up in India. You have more and more OEMs. We've seen numbers out of machinery sales to the furniture fabricators of kitchen, wardrobes, doors, shop fit out. I think they are on the rise that there's a huge push being given by the government also to expand furniture manufacturing. Really -- and the machines we are getting are, again, top quality. So really we're not innovating with technology. So I don't know why we shouldn't get there. Could be just a bad luck or poor execution. I think that's what a good plywood do.

[Unknown Analyst]

This is Keshav from HDFC Securities. Sir, I want to understand whatever your new expansions are coming, so what kind of ROC and what kind of ramp up you have in your mind?

[Saurabh Mittal, executive]

Yes. So in terms of ramp-up, we're third year as the industry in all the 3 categories will reach the fair amount of utilization, near to 100% of utilization. So for the laminate and plywood, we are [indiscernible] by the '26 because the production will start in Q4. And for the particle board, we have [indiscernible] in '27. And what was the -- and ROC, laminate will have the same ROC what it is as presumably currently we have. And for particle board, we will have in the range of around -- as of now, we are vesting based upon [indiscernible] said. There is 25% to 28% within that, it will be in the range of 20% to 24%. And for the plywood also, it will be in the range of around 20%, 22%.

[Unknown Analyst]

One of your comp is also expanding in particle board. What we have heard is, they will have some like 2x turnover. So what is the difference between your and their's capacity?

[Saurabh Mittal, executive]

I haven't heard that. I can't say much on that because our match doesn't says 2x unless one kind of forward integrates into making furniture components or kitchen components and then the value can go up. But if you -- for the investments we are doing on particle boards and lamination of particles board, and if you were to take a reasonable mix of prelamination and bareboats [indiscernible]. So I'm not sure where you've got this number from.

[Unknown Analyst]

Okay. I will take this on one-on-one. And your veneer capacity is very low sub par, which is also dragging the ROC. Same is the case for the door business. So what has went wrong for you? And how you plan for this business in the future?

[Saurabh Mittal, executive]

So on the veneer plant, any which ways, the model is on a 24-hours capacity like laminates. But clearly, I think we can do better on the veneer flooring and [indiscernible] all these segments. So I think last few years have just been hard with COVID and with the residential sales dropping in between GST, demonetization. And because all these products are mostly essential or home market products, so we have a little bit of a difficult time there.

If you look at Q1, the numbers of flooring have kind of inched up. Realizations have improved. Revenues have improved. Losses have come down. And veneers, too, we had challenges on the raw material side, some competitive pressures. So -- but we believe that the numbers can come up. At the peak, we've gone up to 17%, 18% operating margin in the only veneer panel business. I think it will take some more time to kind of come to that segment.

On the door side, we're still struggling with the model just to put the whole program in place. There's a lot of interest, a lot of demand, but clearly, on the execution side of pricing, installation, measurement, finishing, I think it's still something we haven't been able to completely get a handle on. So we are working on that to put that up. These 3 segments don't need any more capital. As you can see, capital employed has actually reduced in these 3 segments. We don't need more capacities. We don't need more working capital. We just need to focus on executing and that's what we're trying to do.

[Sneha Talreja, analyst]

Sneha here from Edelweiss. Sir, just a couple of questions from my end. You definitely have mentioned a 3-year plan and tripling in the revenue is something that you guided for in recently in the 20% to 25% revenue growth. Just wanted to understand, what will be your realization as well as volume breakup, given that you have mentioned in your presentation that you were running at optimum utilization in the current plan, and your new facility required one, which will start only by Q2? So I just wanted to get on the volume as well as the realization breakup.

[Saurabh Mittal, executive]

So 20%, 25%, we mentioned for FY '23. In terms of volume growth from last year's production, last year, we did about 16.7 million sheets approximately. So we will have the Gujarat plant's production up and running within this quarter. We'll get about 6 months of H2 and maybe some part of this quarter. And last year, we had a disruption of the Behror plant, where we lost literally 1 month of production. So if all goes well, I think on the laminate side, quantity growth should be like a 12%, 15% type.

[Sneha Talreja, analyst]

It's an equal mix that you're targeting?

[Saurabh Mittal, executive]

As it?

[Sneha Talreja, analyst]

I mean revenue is -- I mean volume as well as realization, all will increase?

[Saurabh Mittal, executive]

Realization will also go up versus last year because prices have got -- prices have increased at different stages. And Q1 too, we raised some prices. Although that's not reflected on the realization because the mix got a bit changed in Q1. So I think there will be value growth also of about the similar percent -- realization growth, sorry. So quantity 12%, 15%, and realization will also be similar.

[Sneha Talreja, analyst]

Sir, next question was on your margins. Sir, I think you already answered with respect to raw material prices cooling off and that could add some amount of margin. I was just observing your employee cost that's been increasing steadily and I believe in last in detailed presentation, again, you introduced us to the entire new teams, which you've hired for other divisions. Is that too something which is taking a hit on margin, and when your new segment rating, which is your particle board, plywood that will in tester margins? Is that one of the reasons? I just want to understand that.

[Saurabh Mittal, executive]

So clearly, the cost structure. Currently, because we're into an expansion phase across categories. So we've built in a certain new team last year itself for the laminates. There have been some hiring internationally to open a subsidiary in Poland and Russia, by. So we do have a structure we can -- which can sell more in terms of quantity and value. So clearly, with capacity is getting aligned, and I said that our fixed cost, we believe, will not go up in a proportion, and it'll only be the contribution cost ex-factory or up to the freight to the market, which will go up. So clearly, I think the structure, the sales marketing setup has been created in a little bit in advance. And I think as we get the Gujarat capacity and Andhra capacity later this year, I think we should see some sort of percentage normalizing for certain costs.

[Sneha Talreja, analyst]

Sure. Last article, both unit, which you are adding. A lot of things have actually changed. Your competitors have started reporting much, much higher margins on a much lower base. Is there anything changing on that front? Do you think it's changing positive? And also one more concerning fact in the MDF segment, which has started emerging, is imports slightly coming back according to our checks. Where do you think this industry is going? And any changes in the margins that you were observing for your new units?

[Saurabh Mittal, executive]

So what was the second question? What was the margin of particle...

[Sneha Talreja, analyst]

Particle board margin itself and the scenario is changing in terms of weather imports are coming back or do you think it is only changing for the vendor?

[Saurabh Mittal, executive]

What is coming back?

[Sneha Talreja, analyst]

Imports.

[Saurabh Mittal, executive]

Imports. So on the particle board side, we said 25%, 26%, 27% of operating margin. So at the moment, because every month, we're upgrading our cost sheets and our sales prices and all, so it looks in the same range. Competitions report higher margin on a lower base. Now whether that is really relevant because you don't have enough capacity in the market, right? There's a shortage of particle boards. There is no one who can really produce boards, so maybe it's probably a temporary blip we have to the market. Maybe the margins kind of come down to some extent, I guess. So -- and so really, I'm not so sure when we enter the market, where is the raw material cost, what's up with the sales prices, but as we see things now, with the math we have, it probably will be in the plan. 1% or 2% here or there depends on cost relative to value add, which might take some time to reach a certain stage of value addition, but that's on the margin front.

On the imports, I haven't heard much with imports coming back. Although I have heard that some of the larger laminators have tried to import MDF and particle boards in brick bulk, which we believe is not sustainable. The feedback I have is that it's not something which is sustainable at the moment. If tomorrow freight costs come down -- at one point shipping from Thailand and Malaysia into India was $50, $100. If that happens, so clearly, imports get some more competitiveness in terms of the freight costs, right?

So as we talk right now, I don't see much changes. And with this whole war situation also would costs have gone up in Europe, a lot of wood works coming in from Russia and from Ukraine because that's also stopped. So I'm not able to clearly say what's going to happen. So as we see things now, not much has changed on the import situation. But even if imports happen and you have raw material plants. All the wood we are using is our plantation-based wood. In particle boards, unlike MDF to pitch it against them, but just as a product understanding, you can use mixed wood species. You don't need to use only one species. You can use all kind of wood waste, formal waste, mixed woods can be used. So clearly, your ability to arrange raw material at a reasonable cost is quite high.

[Aadesh Mehta, analyst]

This is Aadesh from Motilal Oswal AMC. Sir, just wanted to understand, in laminates, especially in exports, how is the competitive landscape, especially after the Ukraine situation in Europe? And what right to win you have over there?

[Saurabh Mittal, executive]

So competition in exports, if you talk vis-a-vis Indian exporters, if you talk vis-a-vis the local producers in those geographies. Is there a specific question or...

[Aadesh Mehta, analyst]

Both Indian as well as the local producers.

[Saurabh Mittal, executive]

Right. So clearly, there is a high competition, especially in the commodity segment of the market, which is a commodity white liners as I say, which I just used as the backing products inside furniture cabinet production. But in the branded segment, which is more specification-led distributor -- range-led there the competition is not so much from the [indiscernible], where we end up competing with the international producers based on the geographies.

As far as export demand is concerned, the demand seems to be quite robust right now. Now the consumption of laminates has gone up. We believe production in Europe has kind of reduced or there are temporary challenges with the European producers in terms of raw material availability, people availability, water availability. So I think -- so there is a situation right now where we believe the export demand is quite decent, which also means the European exporters can't export to other markets. Certain European sports were shipping throughout Western Europe, Eastern Europe, Russia, North Africa, Israel, Middle East. So I think their exports to these countries have also kind of come under pressure, which gives us an opportunity to take some market shift from that.

As to when is concerned, so clearly, for the last 15, 17 years, we've -- our model and exports have been more based on a long-term business model rather than a contract or price-based or dispatch-based model. So we worked towards building distribution demand generation with architects, designers, OEM furniture producers. I think in terms of customer base, distribution, people on ground, specifications across the bigger parts of the market, we believe we're in a good position to kind of capitalize on the export.

[Aadesh Mehta, analyst]

Sir, how big is in terms of global laminate is trade?

[Saurabh Mittal, executive]

I don't have that right away. But clearly, Europe, if you would take Western and Eastern Europe, it will be the largest market worldwide. For actually all wood panel industry. Even for us, if I were to combine U.K., Eastern Europe, Western Europe, will be our largest market now.

[Unknown Analyst]

[indiscernible] I had 2 questions. One is that if there is a trend of prelam in MDF and other segments, how does that change our demand profitable, we might not be supplying the laminates where there is a prelam facility, right?

And second is that the gap, which is there in the particle board industry is known since long. So why aren't other players or the bigger players also thinking of a particle board? Or is it that people might be planning for particle board facilities, the larger MDF guys, and they might be charting for their expansion in particle board also, if you could clarify?

[Saurabh Mittal, executive]

So answering your first question, will prelam particle board MDF take away market share from laminate. Is that what you're trying to say?

[Aadesh Mehta, analyst]

Yes.

[Saurabh Mittal, executive]

So clearly, all laminated products compete with each other for certain surfaces, certain categories or certain applications. And those decisions are taken basis the requirement of the product, depending on the physical properties, the performance. Lastly, we've seen prelam MDF particle board gain more traction on the OEM side of the business, which is organized furniture manufacturing. On the carpentry side, we believe laminates is still the core product to be used by customers either on plywood or in MDF.

Also, the range of particle boards prelam and MDF is always going to be limited because it works in a 30-40 SKU. Just because products are -- when you say prelaminated, you have decor paper on a board, right? The board could be 12 ml, 18 ml, 25 ml. So options of color range, texture product and the whole logistics of manufacturing, inventory management, stocking on the market is nearly impossible with regards to MDF for the day-to-day retail home improvement distribution business.

Laminates a 1-millimeter thick, one can stock 10,000 sheets, 20,000 sheets in the smalls and move it very quickly. Stocking 10,000 boards of 18 millimeters and moving it is extremely hard. So our learning has been OEMs, which are buying directly from the factory or OEMs who are located in outskirts, mostly fabricators buying from stockists in a limited color pattern. That market is going to be particle boards and prelam MDF, mostly prelam particle board because 85%, 90% of boards of the particle board sold as prelam boards. And the distribution model, retail model going to a lot of carpenters, dealers, distributors, color options is going to be a laminates market. So that's our understanding.

On the other companies doing what they're doing. So 1 of our nearest competitor of laminate is also putting a particle board capacity so that we are aware of. What are the other players doing? So like Action is a competitor, they offer certain particle board capacity. So does CenturyPly, but the capacities are smaller with a different model of production and machinery. So I'm not aware of what exactly they are doing on the particle board. But as we see things now, we see that more people are -- most companies are focused on expanding and creating capacities on the MDF side, larger players midsized plywood players. They could have different formats. Some could do continuous lines. Some could do multi trade lines. Some could even have smaller lines. That's our understanding. And why they're not expanded? I'm not sure on that, but clearly, somebody has to do it. Somebody does it at one point and other people follow it, right?

[Aadesh Mehta, analyst]

Because Action, I guess, would be hitting the markets. They are also, I guess, coming to the capital markets next year. So they might -- I don't know whether they're raising money for the particle board or...

[Saurabh Mittal, executive]

I'm not so aware of it, but I do know they have a particle board plant, but the capacities are smaller, like I said earlier, and the machines they have are slightly -- their operating costs will be higher than the new wage continuous lines.

[Aadesh Mehta, analyst]

Sir, also, there's a plant in South, I guess, which is not, I mean, operational right now. So what are the chances that it might take operational or can take that facility? Because there's a huge gap between the demand and supply. That's why our facility also makes more since. So any understanding why that is not being taken up?

[Saurabh Mittal, executive]

So there are several issues in that plant, and I believe you refer to the plant in Bangalore, right? Near Bangalore, [indiscernible]. So there are several issues with the plant with ownerships and bankruptcies and NCLTs and all that. So I don't know why that's not getting sorted out, but I believe it's more complicated than we think it is. So I'm not sure how, when, if that gets resolved or not.

[Abhishek Vora, analyst]

This is Abhishek Vora from Ambit Asset. My first question was on the domestic and exports volume breakup, if you could give during the quarter and how it panned out? And how do you see that going ahead?

[Saurabh Mittal, executive]

You wanted the data for Q1?

[Abhishek Vora, analyst]

Yes.

[Saurabh Mittal, executive]

For the domestic export, both eventually in this quarter are nearly the same and that is 2.06 million sheets. Growth for the domestic was 41% in volume and export was down 13% in volume.

[Abhishek Vora, analyst]

Right, sir. Sir, because you just mentioned about good tailwinds with exports, but how do you see that going ahead? Is this bump in the quarter? Or do you expect Q2 exports to be better than Q1?

[Saurabh Mittal, executive]

As far as the exports, we are not doing well. So we said, we've had a higher inventory in transit of exports. So production side, factories run 110% utilization, right? And there is only so much we can produce, right? And you can't produce beyond that. So approximately INR 18 crores to INR 20 crores worth of exports, which is in transit, which is not in the factory, which has dispatched from the factory is between plant and seaport. It's between plant and in the port and in port to the clients' customer destination ports. Then March. March also was elevated. So clearly, I think the logistical challenges are showing up in terms of the numbers of exports.

In Q1 last year, there was COVID, right? And domestic market was by and large at a very subdued level, and we had the whole export market. So largely, all production was pushed to exports and our downfall in Q1 last year was very, very small versus every other player in our industry. So from a trajectory of exports, backlog exports, there is no problem on that.

[Abhishek Vora, analyst]

Right. So is there a sequential volume growth number handy with you with regards to both domestic?

[Saurabh Mittal, executive]

I'll share with you later.

[Abhishek Vora, analyst]

Sure. One more question I had on the capacity utilization, if you can share for the wooden floors and doors and your plans ahead on that part.

[Saurabh Mittal, executive]

So wooden floor and doors did about INR 40 crores in Q1. So clearly, utilizations in all the 3 categories are far from any satisfactory level. And obviously, the numbers for this year, we set about 20%, 25% growth of the overall revenues of the company. So wood, veneer, flooring, door business will also hopefully grow well this year.

[Abhishek Vora, analyst]

Right. Is there a utilization number that you would like to share because you shared the veneer...

[Saurabh Mittal, executive]

We can share the number.

[Ashok Sharma, executive]

Yes. Veneer is 26%, floors are 13% and doors are 8.5%, 9%.

[Abhishek Vora, analyst]

Sure, sir. Sir, just one last question, if I may squeeze in, with regards to if you can give some risks that you see with regards to the imports of the wood panels if the other countries would like to venture into the Indian markets where they see some dry space. And these companies that may take time to ramp up the CapEx, in the meanwhile, is there anything that I would like to mention on that front?

[Saurabh Mittal, executive]

When you say wood panels, I'm assuming you're meaning particle boards and MDF. Is that right?

[Abhishek Vora, analyst]

Yes.

[Saurabh Mittal, executive]

So if you see the last maybe a decade or so, the international companies have used India as a dumping ground. So wherever there's been an additional production or capacity, they've kind of pushed goods into India. And they haven't really marketed the product or created a brand or a set up here. And whenever this happens, if this does happen, it's mostly limited on the port side, right? So till the port, let's say, Chennai or -- mostly Chennai or some other parts, there is viability. The moment the goods start moving inward, the freight cost kind of eats up the competitive advantage.

So do we see that as a risk? Obviously, anything can happen tomorrow to see if it's again collapse, all collapses, the world can change, right? So I can't say much on that, but if that does happen, it's more from a commodity on a commodity pricing limited to certain markets and geographies. If you have to laminate the product, create a brand, go to customers, create specification, then you don't face these pressures so much.

[Operator]

We have one question from the online participants. It's from Mr. Kumar. The question is, what price hikes were taken during the quarter across products?

[Saurabh Mittal, executive]

So in the domestic laminates market, we increased prices by about 3% and exports was raised by about 5%, which got implemented through the quarter. On the wood, veneer, flooring side, there was no price increase implemented in quarter 1.

[Unknown Analyst]

This is Dhanush from JM Financial. Sir, the capacities that are coming up, post that, I wanted to understand, the customers or the clients you are catering in terms of pyramid. So if we can say plywood, we are coming into -- we can say the premium and maybe the mask category, and the mid level ones -- or the lower category is not our...

[Saurabh Mittal, executive]

In plywood, right?

[Unknown Analyst]

Yes.

[Saurabh Mittal, executive]

Yes, correct.

[Unknown Analyst]

But at the same, we're also doing particle boards. So particle boards would cater the economic segment. Is that understanding correct?

[Saurabh Mittal, executive]

So particle boards, the plywood will be more residential market. Particle board will be more the OEM market. Basically, the whole furniture fabricator segment, which also uses laminates, right? So you have kitchen producers, door producers, wardrobe producers, shop fit outs. So these fabricators, organized carpentry or mechanized furniture manufacturers will be customer base for particle boards, and plywood will be more destination while particle boards will be largely more commercial. And will also -- certain fabricators also focus on home furniture, which is kitchens and some of the loose items of particle board, which would be catered through the OEMs.

[Unknown Analyst]

So basically, could just throw some light. So what kind of furniture IKEA makes? I mean, they have more into particle board, if I'm not wrong?

[Saurabh Mittal, executive]

So IKEA, what we understand about, 18% of the raw materials is based on particle boards.

[Operator]

Do we have any further questions? No further questions. I would hand over the call to Mr. Saurabh Mittal for closing remarks.

[Saurabh Mittal, executive]

We thank all of you all for your time and for your questions. If there are more questions to be responded to, Ashok can take it offline. Thank you, everyone.

[Ashok Sharma, executive]

Thank you, everyone.

[Operator]

Thank you. Now I would request everyone to please join us for the high tea.