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Greenlam Industries Ltd
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Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q1 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Saurabh Mittal, Managing Director and Chief Executive Officer, Greenlam Industries Limited. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and a very warm welcome to the Greenlam Quarter 1 FY '24 Earnings Call. I hope you all have had the time to look at our results. They've been up on the websites of the company. And I will take this opportunity to brief you on the key developments in the quarter gone by and how we see what's happening on ground in both the domestic and international business.
So in the quarter 1, we commenced production of the third plant at Prantij, Gujarat factory for laminates, which takes the capacity to 21 million sheets and boards per annum. We also commenced commercial production at the plywood factory in Tamil Nadu, which is 18.9 million square meter capacity. It's single-site largest plywood capacity as of now and the most modern plant of plywood in the country. The CapEx at the Andhra Pradesh project is going on and hoping that within Q2, we will commence the laminate capacity and within Q4, the particle board capacity will be up and running. So that's on the capital expenditure and the start-ups of the greenfield and brownfield lines.
On the operations side, in the Q1, we built our teams for the plywood business in both manufacturing and sales marketing, expanded teams in the domestic market for our existing business lines of laminates, vinyl flooring and doors. We had product launches of Greenlam, the flagship brand in the domestic market. We also launched the plywood brand in Q1.
On the sales side, the domestic business grew about 12%, 13% in Q1. The export business grew by 5%, 6% though production of laminates was the highest we've done till date in the quarter. Lots of it couldn't get converted to sales about INR 20-odd crores of revenues were pushed to Q2 on the export front due to the cyclone issues and containers not being shipped out in the port and rail service getting disrupted.
The initial launch of the plywood with the set of dealers in South India has been quite encouraging. We've got good feedback from the market. We started shipping out products to the market, and the response has been pretty good. So we are hoping that in this quarter, you'll see a ramp-up of the plywood business too.
On the demand side, in the domestic market, obviously, we hear from people that market is a bit slow, et cetera. As far as we are concerned with our expanded teams, refresh product portfolios, ranges being refreshed and the push we're giving to expand sales, expand channel, expand into smaller towns, geographies, extensive working on influencers with carpenters, architecture, IDs. We think we should be able to use this situation to our advantage and take more market share from the market. So I think we should be able to do fine in the market.
On the international market, too, I think with the range of products we have and the reach we have, here too, we think our numbers should be aligned to the broad communication we've given on the growth for this year. And like we've said earlier, FY '24, we should be looking at a 20%-25% of top line growth. So we think despite what we hear and see, we should be able to make this number considering our existing product lines and the new capacities, a few of which have already gone into production in Q1 and some will go into production in Q2. So that's a sense we have on the market. So as always, we are more focused on what we are doing, and we still see a large opportunity of the unorganized market in India to be taken and to be gained market share by our company.
In the international market, too, there's not much growth, but we think it's also an opportunity to take market share from the regional and international companies operating in various markets. And so I think overall, with the direction we've set in, we think we should be running well. Raw material costs are more or less being stable in Q2, and we did see a reduction in Q1. I think on the raw material cost, sea freight both inward and outwards, we think this will be more stable -- will be stable in Q2 on the lines of what was in Q1.
There is some competitive pressures on the people dropping prices, et cetera. As we talk right now, we haven't dropped prices in our category although we have corrected case to case in certain segments, certain geographies. But by and large, we've gained the pricing. And as we always work on doing product development and improving the value mix, given if there is some drop in prices somewhere, we think that will be offset by improved value mix. And so that's on the raw material cost side.
So I think probably that's it from my side. Ashok will take you through the financial highlights. And hopefully, we'll be happy to answer your queries and questions, if any. Ashok, over to you.
Thank you, sir. Good afternoon, friends. I'll take you through the financial performance.
For the quarter 1 this year, on a consolidated basis, our net revenue grew by 9.5% on Y-o-Y basis and degrew by 3.5% on sequential basis to INR 515 crores. Gross margin grew by 730 basis points to 52.3% this quarter from 45% in quarter 1 last year. On a sequential basis, gross margin grew by 350 basis points. Gross margin in absolute terms grew by 27% to INR 269 crores in this quarter as compared to INR 212 crores Q1 FY '23.
EBITDA margin was up by 180 basis points and stood at 12.5% in this quarter as compared to 10.7% corresponding quarter last year. On a sequential basis, EBITDA margin was down by 140 basis points. EBITDA in absolute terms grew by around 28% to INR 64 crores in this quarter as compared to INR 50.4 crores in Q1 FY '23. Net profit for the quarter stood at INR 32 crores in this quarter as against INR 24.6 crores in Q1 FY '23.
I'll move on to segmental performance, Laminate, which is a major segment. For this quarter, Laminate revenue grew by 9.7% on a year-on-year basis. However, it degrew by 4% on a sequential basis and stood at INR 472 crores in this quarter. Volume growth stood at 5.8% on a year-on-year basis.
Moving on to -- in this, domestic laminate revenue grew by 13% on a year-on-year basis and remained flat on a sequential basis in value terms. Volume growth in domestic market stood at 18.4% on a year-on-year basis. International laminate revenue grew by 6.4% on year-on-year and degrew by 7.9% sequentially in value term. Volume degrew by 8.1% on a year-on-year basis, this degrowth was mainly on account of disruption at port services. EBITDA margin stood at 14.8%, a growth of 240 basis points on a year-on-year basis and a degrowth of 80 basis points on quarter-on-quarter basis.
Production volume was highest in this quarter and stood at 4.68 million sheets at a utilization level of 89% on enhanced capacity of 21 million. Sales volume for the quarter stood at 4.17 million sheets. Our average realization for the quarter was INR 1,086 per sheet. This is up by 4.7% on a year-on-year basis and 7.7% on a quarter-on-quarter basis.
I'll move on to decorative veneer and allied. This consists of decored veneer, engineered floors and engineered doors. In the Decorative Veneer segment, business were flat on a year-on-year basis and we grew by 7.5% on a sequential basis and stood at INR 25.3 crores. Volume degrew by 8.1% on a year-on-year basis. Sales volume this quarter stood at 0.27 million square meters and capacity utilization in this quarter stood at 25%. Average realization in this quarter stood at INR 916 per square meter.
Moving on to engineered wood flooring. Revenue degrew by 10.7% on a year-on-year basis and grew by 20.7% on a sequential basis to INR 10.3 crores this quarter. Capacity utilization was at 10% in this quarter.
Moving on to engineered doors. Revenue grew by 92.6% on a year-on-year basis and grew by 9.5% on a sequential basis to INR 7 crores in this quarter. Capacity utilization of doors in this quarter was 14%.
Now I'll move on to the new segment, which is plywood. We have started commercial production on 9th June in this quarter. The revenue -- we started with a small revenue of INR 0.8 crore in this quarter. Sales volume was 0.03 million square meters and average realization for this quarter stood at INR 233 per square meter.
Net debt for the quarter stood at INR 522 crores as against INR 312 crores at the end of last quarter. Net working capital for -- in this quarter stood at 72 days, which is higher by 6 days on a sequential basis primarily on account of higher inventory due to higher stock at ports, inventory being built up for plywood unit and laminate unit at new plant.
That's all from my side. I will now like to open the floor for the question and answer. Thank you.
[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment Managers.
Yes, sir, your line was not audible. So for the exports in laminate, what was the value and the volume growth Y-o-Y and Q-o-Q?
And second, when I was going through your presentation, there is a large expansion in the gross margin in the laminate business. So if you could give color on the average for the paper, phenol and melamine prices that you would have experienced between quarter 4 and quarter 1 and what it is now for us to better understand the gross margin expansion? Because there is realization increase as well, which is there in the quarter. So if you can give these comments on these 2 areas.
Yes. So in terms of value of export was INR 235 crores in this quarter. This is for the company as a whole, out of which INR 234 crores was laminate.
INR 234 crores worth of laminates was exported?
Yes. In terms of volume, it was 1.73 million.
What is the growth Y-o-Y and Q-o-Q?
It was -- volume degrew by 8% on a Y-o-Y basis.
And revenue by plus 5% or plus 8% whatever number?
Yes.
Okay. And the second question on the averages for the phenol, paper and melamine prices between quarter 4 and quarter 1 and what it is now? So for us to understand the GM expansion.
That probably we will have -- do this offering.
But is the GM expansion because of raw material or is it because of the realization?
It's both. It's in terms of raw material prices also, some of the raw material prices corrected and as well as the improvement in the value mix also.
And should I -- and will they correct more is what you are seeing in the current quarter or now it's stagnated?
As we mentioned at the beginning of the call, this is -- now it is stabilized in terms of that. So what we see from here is more or less similar to what it was there in the Q1.
The next question is from the line of Rajesh Ravi from HDFC Securities.
My first question pertains to, again, the gross margin. And you mentioned that this has improved on both forms, value gain as well as softening of raw materials. With the blended realization, we were expecting that the contribution from the Prantij Plant going up, the blended realizations may look down, but that is not the case. So can you explain and is the current margin sustainable gross margin I'm talking about on what could be the redirection for the full year?
On the sustainability of the gross margin, it depends on how things go. Some -- there could be 1% or 2% movement here or there because we also have not been able to sell, as we said, maybe INR 20 crores worth of exports have not got invoiced on sales. So maybe the gross margin could eventually come down by 1% or 2%, I can't say that so clearly. RM costs are stable. So on the question of the Gujarat plant and the existing product mix, so we always have the trend of pushing up the value mix and having some product development, adding new customers, expanding markets in categories where the volume mix can be superior. So the push in the future and now always has been, while we drive for the commodity program from Gujarat factory, we're also upselling and pumicing the other categories and other products.
So I'm not sure how much will the Gujarat plant reduce the realization, it might just keep it stable or there could be some minor correction. When the Andhra Pradesh factory starts there, as you probably know, we're putting 2 lines for larger-sized laminates, which primarily will be exported and some of those -- some of the products will be sold in South India, which probably will have a better price mix, better value mix. So this could again get altered.
So despite having higher quantity in the commodity segment, we may be able to maintain or even improve the realization. But it really depends on how it goes in the future.
Rajesh Ravi? As there is no response from the current participant. We'll move on to the next. [Operator Instructions] The next question is from the line of Achal Lohade from JM Financial.
What I wanted to check was with respect to the gross margins again. Can you help us understand in terms of the product mix, is there a change from fourth quarter to first quarter?
And secondly, if I see the gross margins have improved by close to 400 basis points, but the EBITDA margins actually saw a contraction. So if you could elaborate, how do we explain this? Is there any one-off costs, one-off incomes, et cetera, if you could help us understand that?
So with my limited understanding, the contraction of EBITDA is also due to higher employee costs, some higher marketing costs in this quarter. We're talking laminates, I guess, right now, right?
Yes, I'm talking about laminates.
[indiscernible]
Only laminates.
So only laminates, you see EBITDA margin has come down by about 0.8% which is, I would say, largely because the un-invoiced or unbilled revenue, if we had billed INR 20 crores more sales of exports, I think probably would have come to -- I think you can see that better, really similar numbers, Ashok Ji?
Achal, in terms of this from the quarter 4 to this year, as you mentioned in the previous time also during the quarter 4 earnings call also, that the -- that one of the TV ad burst, which was moved from quarter 4 to quarter 1. So some of the expense has moved in this. And as usual, in the quarter 1, you will have some additional cost in terms of employee cost -- increase in the employee cost, and we are building up the team, also in the build up the team. So those costs some were on additional in terms of that. So otherwise, if you see from 0.8%, we'll be like INR 20 crores sales has been not come in this quarter. That could have been the impact on this.
Understood. Understood. So in terms of the product mix, any change in that? Given...
Not much of the change, not much of the change, except that this quarter, we have launched our flagship 1 mm catalog. So there might be few percentage -- some percentage, there might be some increase in this. But otherwise, we are not seeing any huge change in the product mix.
The next question is from the line of Parth from Investec.
I just had one question regarding volumes. If I see your Q1 FY '23 presentation. As per the presentation, the volumes are 4.12 and those have been corrected to 3.94, it's like 5% variation. So can you just help me understand why -- what could be the reason behind this?
We can probably come back to you on this. It is looking the same only.
Can you please explain the question again? Can you come again?
Q1 FY '23 presentation...
Parth, we are unable to hear you clearly. Can you use the handset mode while speaking?
Yes, sure. So as per Q1 FY '23 presentation, our laminates volumes were approximately 4.12 and as per the latest presentation, it is 3.94. So there's a like 5% variation.
I think it has changed. Q1 is 3.9-something.
We will come back to you on this.
The next question is from the line of Harsh Shah from Dalal and Broacha Stock Broking Private Limited.
Two questions from my side. Firstly, in the export market, on an industry level, are the volumes of the laminates increasing? Or is it just a case that the Indian players are gaining market share?
My guess is that Indian players are getting more market share is more relevant.
Okay. So if you would -- okay. Yes. And secondly, in terms of sales, would you be able to quantify how much we lost due to the cyclone in terms of sheets?
Will be close to around 150,000, 160,000 sheets, which is not lost. It has been postponed from, let's say, the metal which was stuck at the port and which is getting shipped -- which is shipped in this month, July.
The next question is from the line of Udit Gajiwala from Yes Securities.
Sir, firstly, if you could elaborate what is the domestic demand panning out currently? And how do you see this in shape for the rest of the year?
This is hard to say that to you. I just said that we hear markets have been a bit sluggish. They're a bit challenging and like we said, we still think we have to do our stuff and not complain about what's happening in the market. So with our new revamped product portfolio, added team members, advertising, promotion, market share expansion. We said earlier, we should be looking at overall 20% to 25% kind of a top line number. That's what I can say exactly how it will pan out, I don't know.
Understood, understood sir. And sir, when we say that from here, the input cost is likely to be stable. So should we assume that for the rest of the year, your Q1 margins will be what will be reflected for the annual basis as well?
So this is what we see as we see things now, at least, we have a visibility of the RM cost of July, August, September. And if something dramatic happens, costs can again change. And on the margins, are we talking gross margins or EBITDA margins?
EBITDA front.
Yes, I think it should be okay. I think -- we also have lower sales in Q1, sales got pushed to July. So things go well with Gujarat factory also got operational towards third week of May. So that runs well. We have some plywood losses also in Q1 of about INR 4 crores, EBITDA loss of plywood because we did not operate the factory for 15, 20 days, and the sales team is all built up. So that's also incorporated in the Q1 losses. So I think if all these things keep improving, we should be able to maintain or better the margins for the year.
Okay, sir. And sir, just lastly, on the particle board's front. So I understand that we'll be commencing in Q4 of this fiscal, so '25 will be our first full year of operations. So how do you see those numbers panning? Do we see the EPS accreted from what year?
This -- next year will be the first year and we plan, as per our estimate, we will be able to do a sales of close to around 50% odd and then it will be increasing. So I think it will become more visibility will come in the second, third year in terms of that -- in that.
So first 2 years, it will be, of course, at a loss on the PAT level?
May not be, depending upon -- it breaks even at the nearly at the first year level at EBITDA. So there might be slight loss at the PBT level. But in the second year, we are hopeful that this should start adding at PBT level.
[Operator Instructions] The next question is from the line of Rajesh Ravi from HDFC Securities.
Sorry, my line was disconnected earlier. And in line with what the earlier participant was asking. Could you recheck your volume numbers which you have shared because even the full year number, even after your setting the Q1 numbers which you have the full year number don't match with the quarterly and the annual numbers from the latest presentation.
We'll come back to you on this.
[Operator Instructions] The next question is from the line of Sneha Talreja from Nuvama.
Just a few questions from my end. Firstly, on the margin front, or the realization front, you have actually seen raw material prices moving down because of which you've seen gross margins expanding. But at the same time, when I look at your realization, especially on the export front, they've have gone up roughly by around 20-odd percent. I would like a lot of reason for that, why there's a difference? Because as we understand it, it's too competitive an industry, realization ideally should be falling when raw material prices are falling. So is it expected to come with a lag? Or is it a product mix, which will continue to help you?
I think 2 ways to look at it, Sneha. One is because the entire production could not be more or less not be invoiced, the denominator in terms of quantity could be different. So assuming INR 40 crores, what was booked as revenue, maybe the realization would have come down, that's one.
Second, as we said earlier, we continuously work on product development and expanding space in the value mix business. We've also not been large commodity oriented player. So our segment of liner as a commodity, obviously, we have a segment. That's not a very large part of our business. So we have not seen much correction of prices on the export front.
The INR to EUR conversion, INR to GBP conversion has also got altered and [indiscernible] EUR and the GBP I think has also contributed to the realization. So what happens as we go ahead? Not so sure. But really, one -- I think because the denominator has not been normalized, that's also showing a slightly higher realization. It might be corrected, but it's also pushing to improve the value mix as we always do.
Understood. Just another question in that regard...
Sneha, there's a lot of background disturbance from your line.
Is it better now?
Yes, it's better. I'll request from you to mute your line when you are not speaking.
Sure. I'll do that. Just an extension to the question that I asked regarding the realization. So given that there was a product mix impact, there was the impact of not booking the sales, I mean, some backlog now, which will be taken in Q2. How do you see realizations going on from here? I do understand volumes will come back, but can realization see a sharp dip from here given that Q1 was an extraordinary quarter in terms of realization?
Sure. Actually, I'm not sure on that, the math on that. Because if you see Q4, we were like INR 1,008, if you see export, if you're talking exports right, right now? or overall?
Right now only exports because that's where we've seen the major jump.
Yes. Yes. So exports was INR 1,246 in Q4 and now it's INR 1290.
So from the quarter 4, if you see, Sneha, there is not much of a difference. Of course, from 1 year, it looks to be different. But on a quarter 4 basis, 3%, 4% gap in terms of that. So we are not seeing any major change, except that last quarter -- this quarter, there is some INR 20 crores sale pushback. Apart from that, there may be some minor correction might happen, but we are not seeing any major change in this.
The next question is from the line of Achal Lohade from JM Financial.
I got disconnected. What I wanted to check, I think, Sneha asked about the export realization. Sir, can you help us with the domestic and the export realization for the fourth quarter and the first quarter?
Achal, we will do this off-line.
Sure. Where I'm coming from, is there a change in the -- because if I see the average realization for the fourth quarter was about INR 1,008, it's gone up by almost 8% Q-o-Q and you said that export realization, 3%, 4% increase. So is there a substantial increase in the realization for the domestic market? And if yes, can you help us understand if there is a change in the mix? And how do you see it playing out over the next few quarters?
Yes. The domestic realization has gone up by around 11% in that and not much change in the product mix as we said that except maybe a couple of percentage, as we said, that we have launched the -- our flagship 1 mm catalog in this quarter. And during the launch, normally some amount of percent -- some amount of additional sales might come. But we are not seeing a major change in the product mix.
So this 11% increase is effectively the price hike? Just to reiterate that.
We didn't do any price hike in terms of that from the quarter 4 to this year. It will be majorly in terms of the product mix up.
Understood. Okay. And any update on how do you see -- how soon do you see this turnaround in the door and the flooring business?
So on the door, floor and veneer business too. One is the RM costs have stabilized, or they got corrected because most of the raw materials of the segment is imported. I think those benefits should flow in towards the end of this quarter, early next quarter. The loss versus Q4, I think, has reduced -- versus Q4 has come down by about some [indiscernible] EBITDA loss to INR 1.6 crores. So I don't think we're too far from at least becoming EBITDA positive in this category.
[Operator Instructions] The next question is from the line of Jigar Shah from AK Advisors.
Sir, I have a couple of questions. So what kind of strategy level changes are you making in laminates? Let's say, in order to grab incremental market share?
That's a big one. So I don't think much strategic level changes are being done. It's more execution, which is happening on strategies and directions we have already -- we are already moving on right from expansion of the market with the Gujarat facility being bought, adding products in the liner commodity segment, also revamping ranges in a certain periodicity. So over the last 3 to 4 months, the product ranges of Greenlam, ranges of pointed category. We've just -- actually in the month of July revamped the bathroom cubicle range, which is a partnership business, where the range is designed by British architects and our team.
So I think -- so it's a continuous program. So right on product range expansion into various subcategories of the business, expanding reach in geographies, adding more dealers, intensive working -- increasingly working with architects, IDs, carpenters, contractors for the home segment. So I think it's just like routine addition and expansion and more execution across every customer segment and on the product side.
Sure, sir. My second question was like, can you give the geographical mix of our overall export business? And how is demand shaping up in specific markets?
As a strategy, we don't discuss about the -- we don't share this geographical reach, but more or less, if you can see that the rate is divided into several segment kind of a thing and that as a percentage, we don't want to give too much details, which is not there in the public domain.
[Operator Instructions] The next question is from the line of Prachi Sharma from [ Ace Capital ].
Sir, I just have a couple of questions. If you can just throw some light on the product pricing and how are the pricing of the relaunched Mikasa ply?
Yes. So we are -- in the Mikasa ply, this will be more mid- to premium kind of thing and we will be having our pricing. There are mostly in the South. We have launched only in the southern state of the 5 states, which we have launched and we will peg our price to the 2 national players in the zone only plus/minus a couple of -- plus/minus 2% to 4%.
Okay 2% to 4%, okay. Got it. Also, sir, if you can give some view on the plywood market segment demand. How do you see it shaping? I mean what is your view in the, say, next few coming quarters?
So on the plywood segment, it was too early to give you a sense on how -- what's happening on the overall market as compared to -- as in our perspective or as relevant to our situation. So in plywood, as we talk right now because it's very early days, we just made -- we've appointed about 300-odd dealers and we've got good response from them because primary orders have come in. You still have to streamline the secondary demand, create demand in the market, get secondary sales out. So -- as we talk right now, it's all going as per -- broadly as per our plan.
South is the largest market for planning plywood. And like we said earlier, too, we have a good network in South India for our plan and products. So setting the network up, we feel fairly confident to do that. And clearly, I think there is competition in the market, we have to work hard to take the market share.
[Operator Instructions] As there are no further questions, I now hand the conference over to the management for the closing comments.
Thank you, everyone, for joining the call today. For any further query, you may get in touch with us or to the SGA, our Investor Relations adviser. Thank you.
Thank you, everyone.
Thank you, everyone.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Greenlam Industries Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.