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Greenlam Industries Ltd
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Ladies and gentlemen, good day, and welcome to Greenlam Industries Limited Q4 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of the call. The 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, Mr. Mittal.
Thank you, Diksha. Good afternoon, friends, and welcome to the call. I'm joined by Ashok, our CFO; Samarth; and by the SGA team, our relationship advisers.
So on the results, I'll give you a brief about the quarter and the year and an update about the new projects, and Ashok will take you through the exact math and the data. So Q4 for us, overall, we think went quite well. And this was despite the challenges at the Behror plant in the month of Jan and few days of February, where we nearly lost about INR 20 crores, INR 25 crores worth of sales.
We also had experienced certain unexpected cost increases in the month of February, for which we've undertaken price hikes again in the market, which have been partially and will be implemented in Q1 of FY '23.
In the last quarter, in Q4, we also had higher finished goods inventory at the plant and at the ports due to unavailability of containers and delays in vessels, which have actually dampened the revenue growth and is showing up on our inventory. But despite all the challenges, I think we've put up a good performance from the company side.
If you look at the financial year '22, revenues went up by about 42%, slightly above INR 1,700 crores. This was again despite the 2 COVIDs, Behror plant being under restricted production, where we lost nearly approximately anything between INR 80 crores to INR 100 crores of sales. The laminates industry and our company, in particular, in the entire wood panel segment had 1 of the hardest year last year in terms of significant RM cost increase across raw materials in the laminates and the wood and allied segment as nearly 80% of our raw materials are imported or pegged to imports.
We have significant amount of containers moving into the plants. And we also have 50% revenues coming from exports, where too we face challenges of supply chain, freight increases, availability of vessels. But despite, I think, all the challenges the industry faced, we probably ended up gaining market share as the Laminates business grew nearly 46%. And I think we added nearly about INR 500 crores of revenue in the Laminates business.
The cash flow management also was quite good considering the challenges industry faced. We were able to reduce debtors value, debtors days. Inventories were on the higher side because RM costs went up. Lead times of decorative paper went up from like 3, 4 months to 9, 10 months. So really, the whole inventory management kind of was challenged in our company. But I think despite all those challenges, I think the cash flow management was quite superior and we've been always focused on the cash flow. So I think that's where we stand on that front.
On the flooring and door business, although revenues went up by about 12% to 15%, although on a smaller base, but we managed to reduce capital employment in that business. Capital employment reduced by about INR 25-odd crores or 15% of the total capital employed. We continue to work towards building the floor and the door business. The flooring business also, we were able to add new products to the range. We've also significantly improved the value mix and price realization in the floor business. And we are hopeful that things will get better in this financial year.
On the 2 new projects in Tamil Nadu and Andhra Pradesh, things are on schedule as we talk, civil construction has begun at the laminates plant in Andhra Pradesh and the plywood factory in Tamil Nadu. All major equipment of laminates, particle boards, and ply have been finalized and orders have been placed to the vendors.
Regarding the funding of the 2 projects, with the investments already done and the cash flows of the company for FY '23, '24, the cash we're sitting on, and with debt, we are good for these 2 projects. So really, I think that seems to be under control.
As far as FY '23 is concerned, we believe that the shift from unorganized to organized will continue in our industry and we stand to benefit with that shift. And even in the exports business, we think we'll end up getting more market share, although we have challenges on capacity. So until the new capacity comes up, there's only so much we can produce and sell. But till such time, if there are no more disruptions this year in terms of COVID or closures, et cetera, we clearly believe revenues, margins will all be superior this year versus what we did in last financial year.
So otherwise, things on ground, as far as we are concerned, look pretty okay with us. The demand side looks good, opportunity for us to gain more market share is clearly visible, and we are continuing on our growth path in FY '23 too. So that's it from my side at the moment.
Ashok will take you through numbers. And then if you have any questions, queries, I'd be happy to talk to you again. Ashok, over to you.
Thank you, sir. Let me take you through the financial performance. Our consolidated net revenue for the quarter grew by 11.6% on Y-o-Y basis and grew by 3% on sequential basis. We stood at INR 463 crores as against INR 415 crores previous year. Gross margin was down by 380 basis points to 44.9% in Q4 from 48.7% in Q4 last year. On a sequential basis, gross margin was up by 60 basis points.
Gross margin in absolute terms grew by 2.7% to INR 208 crores in Q4 as compared to INR 202 crores in Q4 last year. EBITDA margin was down by 540 basis points at 10.7% in Q4 as compared to 16.1% in Q4 FY '21. On a sequential basis, EBITDA margin was down by 120 basis points. EBITDA in absolute terms, degrew by 26% to INR 49.6 crores in Q4 as compared to INR 67 crores Q4 last year.
Net profit for the quarter stood at INR 25.7 crores as against INR 30.9 crore Q4 previous year. For a year as a whole, consolidated net revenue grew by 42% and stood at INR 1,703 crores as against INR 400 crores last year. Gross margin was down by 520 basis points to 44.6% in this year as compared to 49.8% last year. This is primarily due to rising raw material costs and logistics challenges, which we have.
Gross margin in absolute terms grew by 26.9% to INR 759 crores this year as compared to INR 598 crores last year. EBITDA margin was down by 340 basis points to 11% as compared to 14.4% last year. EBITDA in absolute terms grew by 7.9% to INR 187 crores in comparison to INR 173 crores last year.
Net profit this year grew by 23% to INR 90.6 crores as compared to INR 73.7 crores last year.
Moving on to segmental performance. Laminate & allied segment revenue grew by 15.9% this quarter on Y-o-Y basis, and grew by 3.9% on sequential basis to INR 424 crores from INR 365 crores in Q4 FY '21. Volume degrowth stood at 11.5% this quarter. Domestic laminate revenue grew by 23.9% on a Y-o-Y basis and grew by 4.1% on sequential basis. Volume degrowth stood at 4.5% on Y-o-Y basis. International laminate revenue grew by 9% on year-on-year basis and grew by 3.6% on sequential basis in value term. However, in volume terms, it has degrown by 18.5%.
EBITDA margins stood at 12.9%, a degrowth of 500 basis points on year-on-year basis and a degrowth of 40 basis points on quarter-on-quarter basis. Production volume were at 4.14 million sheets at a utilization level of 106%. This is despite of temporary restriction at 1 of our plants in January. Sales volume for the quarter stood at 4 million sheets. It is lower than the production volume because of logistics side challenges which is there on a continuous basis.
Our average realization for the quarter was at INR 1,012 per sheet.
For the year as a whole, laminate revenue grew by 46% to INR 1,556 crores as compared to INR 1,065 crores last year. Volume growth stood at 23%. Domestic laminate revenue grew by 56% in value terms and volume growth stood at 33%. International laminate revenue grew by 38% in value terms and 13.9% in volume terms. EBITDA margin stood at 12.7%, a degrowth of 400 basis points on year-on-year.
Products and volume were at the highest level, 16.77 million sheets this year, and at a utilization level of 107%. Sales volume for FY '22 stood at 16.53 million sheets and average realization for this year was INR 901 per sheet.
Moving on to another segment, veneer & allied segment. This consists of decorative wood veneers, engineered floors, and engineered doors. Revenue for the entire segment degrew by 20.6% on a year-on-year basis and degrew by 5.2% on a sequential basis this quarter to INR 39.5 crores.
Revenue for this segment grew by 9.5% this year to INR 147 crores. EBITDA for the segment was at INR 3.76 crore. EBITDA loss for this segment was INR 3.6 crores in this quarter as against a profit of INR 1.5 crores Q4 last year. For the full year, EBITDA losses stood at INR 9 crores as against a loss of INR 4.86 crores last year.
In this decorative veneer segment, there are 3 segments, decorative veneer segment, engineered wood and engineered doors. In the decorative veneer, the business grew by 6.5% to INR 83.7 crores as against INR 114 crores in this year. Sales volume for quarter 4 stood at 0.29 million sheets and for the year stood at 1.09 million square meter. Capacity utilization for this quarter was 28% and for the year as a whole was 26%. Average realization for this quarter was 750 per square meter, and for the year as a whole, 764 per square meter.
Engineered wood flooring. Revenue for this quarter degrew by 3.1% on a year-on-year basis and 2.5% degrew on sequential basis and stood at INR 10.5 crores. For the year as a whole, revenue from the engineered wood flooring business was INR 36.7 crores as against INR 31.7 crores previous year. Capacity utilization for the quarter was 13% and for the year was 11%.
Moving on to engineered doors. The revenue for this quarter was flat and grew by 6.5% on a sequential basis to INR 6.9 crore. Revenue for the year was at INR 26.8 crores as compared to INR 24 crores previous year. Capacity utilization for this quarter was 12% and for the year stood at 18%.
Net debt for the quarter stood at INR 169 crores as against INR 179 crores previous quarter. Net working capital days for the Q4 stood at 74 days and for the year stood at 81 days. That's all from our side. I would now like to open the floor for questions and answers. Thank you.
[Operator Instructions] We take the first question from the line of Rajesh Kumar Ravi from HDFC Securities.
Yes. If I look at current year, it has been quite healthy in terms of both working capital margins, everything. Now if I look into the numbers, sir, what we understand, your profitability is all being driven by the laminates segment. The decorative and the non-laminate businesses utilization remains low...
Rajesh, you're echoing, please.
Hello. Is this better now?
It's better now. It's better, yes.
Okay. So I see that the laminate business is what is driving the growth for the company, whereas the non-laminate business, be it decoratives or the other wood doors and flooring all remain either in a lower utilization or weak profitability. So what is the outlook for various sectors? And also in terms of the CapEx expenditure for the next 2 years, could you guide on how that will impact your leverage ratios?
And on the third front, the third question would be, the large particular board capacity that you are adding in South, we also understand that there are multiple capacities which are coming up in South market in the particle board, Kerala and nearby markets over the next 1, 2 years. So how do you see the competitive intensity?
So a lot of questions. I'll go one by one. So 1 is, clearly, laminates is our core business and that is driving the growth and this is despite the temporary reduced production or no production last year for nearly about 25, 30 days. So clearly, I think laminates right now we are stretched from a capacity utilization perspective and we need more capacities. And in South, we are adding 3 lines of 3.5 million sheets, which is expected to get into commercial production by Q4 of FY '23. That's one.
On the wood and allied segment, yes, we clearly are aware that the growth is not up to what we expected to do. Clearly, there were challenges in the industry with COVID and restriction of production, et cetera. So that's 1 area. We really want to expand and want to grow the business. It is a long-term attractive business to be in. It is just hard to set up the sales distribution, specification, demand creation for that. So that's on the wood and allied segment. Like we said, the business grew last year, although on a small base.
So capacity utilization in the wood veneer business would not be like laminates, where you can achieve 100% and all that. So that will just show out to say what the installed capacity is. So clearly, those are not the capacity utilization standards in the industry. So that's not really a fair comparison.
On the CapEx of FY '23, '24, the existing manufacturing plants will just need routine CapEx of about INR 20 crores, INR 25 crores annually. The major CapEx will be in the 2 new plants in Andhra Pradesh and Tamil Nadu, where until now we spent about INR 100-odd crores -- slightly over INR 100 crores already. And the CapEx of those 2 plants will be shy of INR 1,000 crores, which will be spent in FY '23 and FY '24, in 2 years.
On your last question about capacities of South, et cetera. So we are expanding into laminates, plywood, and particle boards. As far as we are aware, there are no capacities of particle board coming up in any meaningful manner in South India. And so I think what you're referring to is mostly MDFs, where multiple players are coming into MDF capacities. So as far as particle board is concerned, that does not seem to be correct where multiple companies or capacities are not coming up. It's ourselves and another company, who's putting up a similar sized capacity in the state of Gujarat. So that's where it is.
If you happen to please see our next quarter presentation, we're putting the rationale of why particle boards, why are we entering that space, what value do we see, et cetera. So I think you can probably review that and you'll get a sense of -- we've put in a whole document there on why we are entering the board, what's the sense for that. So these are our responses, Rajesh.
One, just a few follow-ups. First, on the veneer side, if I see, 2, 3 years back you had relatively healthy revenues. And this year, we have seen a sharp decline in the numbers. So it is all because of this COVID impact? Production, if I see, you've picked out at 1.7 million square meters in FY '19. From there, we have come down to almost 1 million square meters in FY '21 and '22. So do you see those numbers can be scaled back to 1.8 million or 2 million square meters in near term?
And on the particle board, how is the CapEx spread out, because I understand you would be looking at this CapEx to be completed by end of FY '24. So is it all in FY '24? Or will it be equally spread between '23 and '24.
So if you let me go one by one. So veneers, veneers our value production has -- quantity growth has come down in FY '20 -- '22 sorry, about 1 million meters square; '21, we were 1.124 million; in '20, we were 1.53 million. You're right on that. So there has been a reduction of the veneer business from a pre-COVID year versus what's happening now. So clearly, I think the objective is to bring back the value of veneer. Veneer is a more premium product, largely used in premium residential market and hospitality industry. So clearly, we think the numbers of veneers can be brought back.
We've had issues on competition and density, we had issues on raw material costs, availability of the base supply, and the veneer. But yes, the intention will be to scale back the business. Last year, again, like we repeated ourselves, we had about 25 days of shutdown of the plant, and that plant incidentally also produces veneer, and with the COVID disturbance. So there were issues. But yes, it can be brought back to that. That's one.
As far as particle board is concerned, the expenses will be spread over FY '23 and '24. Exact percent, maybe Ashok can respond, because the major equipments have been finalized and we have already paid out the initial advances, et cetera. Ashok ji?
On particle board percent?
How much percent in FY '23, how much in '24?
Peak debt you're looking at?
Peak net debt, we are looking at somewhere around INR 750 crores, INR 800 crores, but that might also come by like, let's say, towards end of FY '24. In this, as of now, we are not taking into account any equity, if at all, we raise kind of thing. So this is around INR 750 crores, INR 800 crores in that range. And as the particle board expense will be in 2 years, both the years will be slightly around 45%, 50% in this year and remaining in the next year.
We take the next question from the line of Udit Gajiwala from YES Securities.
Sir, can you guide that how is the demand scenario and what kind of investment growth and company growth in laminates are we looking for '23, '24?
So demand scenario in our industry, as you are aware, there's still a large portion of unorganized share. So the way we are operating right now is we're clearly trying to expand our market share with the capacities we currently have. So as far as we are concerned, the previous month, this month is by and large looking okay with us, and we also have a significant international presence. So I think from that side, we are looking pretty okay with the demand side.
As far as FY '20 -- you asked '23, '24, is it?
Yes, 2 years.
So FY '23, which is going on, I think, because our new capacity will only come in Q4 of FY '23, and considering that last year in the same period we had lost production, so I think we should be able to grow the business in a 15% to 18% kind of a ratio this year. In FY '24, we'll have 3 lines coming up. So I think next year, with newer capacity, and they are of 3 different sizes. So clearly, I think our endeavor will be to bring those new capacities to a meaningful utilization at the earliest. So the growth percent probably would be slightly -- or maybe in the similar range because the base will go up. I think that will also be in the band of 15%, 20%.
Understood. And sir, just a clarification, like the realization as compared to our peers, like we are far ahead in terms of realization. So do we see any kind of losing market share because of this? Because we might have a limited capacity for this year, there might be incremental demand which may go to the peers or kind of a thing.
So our realization being higher is a function of the product mix, constant working towards value rotation and premiumizing the brand in both domestic and international business. And we are already in the month of -- we already at end of May. It's a matter of a few months, maybe 8 months or 7, 8 months types till we get new capacity. So I don't think that's a huge matter of concern. In laminates business, it takes time to go and build sales and revenue, it is not a commodity that you can just go and put into everybody. So I don't think that's a matter of concern.
And sir, lastly, any guidance or any point you would like to put on the laminates margin front going ahead, because we are seeing constant pressure on that front since a few quarters? We are taking price hikes, but...
Yes. So unfortunately, each time we take a price hike, and like in Q3, we were hoping that further RM costs won't go up and by that time we had passed on most of the RM cost increase, which does not mean necessarily that margins can be maintained, because we are only passing on the RM cost increase. So the value of margin gets maintained, but the percentage does come down. So Q4 increases again has been passed on to the market, which probably will be visible in this quarter's per sheet realization, et cetera. If RM costs don't go up any further, and we have no disruption at the plants for COVID or any other matter, clearly, margins should improve in both percentage and value.
We'll take the next question from the line of Sneha Talreja from Edelweiss Securities.
Yes. Just 2 questions from my end. One, sir, in the first part of it, just to answer somebody, you mentioned that demand is good. My question was more relating to Q4 volumes. Although I understand there were container availability issues and because of which your export growth was impacted. What I see is your domestic volume, both in the laminates business, veneer business, and even other parts of the business has not grown. We look at it as a Y-o-Y decline. Could you specify the reasons why we've seen fall in terms of volumes even in the domestic market?
Yes. So number one, we lost production at the Behror plant, right, of about 10 days of production, which is nearly 250,000 sheets, right, so which is nearly about INR 25 crores of value. So I think loss of production was there. What we've produced, we could not ship out completely because of containers availability, et cetera. We've also improved the value mix and that's why you also see a significant realization improvement in domestic business Y-o-Y.
Domestic realization has gone up by about 27.6%. So our per sheet value is INR 952. If you look at the overall realization between Q4 '21 and '22 in laminates, the price realization improvement is about 30%, which is a function of price increases, value mix improvement also, right? So I think it's a factor of loss of production, change in the value mix improvement of realization, and the inability to convert production or inventory to sales because of containers availability in exports.
Right. So given that we have been able to pass on the raw material costs, so fair to assume that inflation or the competition has not been able to take similar kind of price increase, because of which maybe they've got the volumes, but margins for us is better? Is that safe to assume?
No, we haven't lost volumes, I think. Probably, maybe I'm not able to explain the understanding properly, because we lost production, we couldn't produce, the factory was on 5 days working model for all of Jan and partly February. So we haven't like lost volumes or lost market share. And then we couldn't invoice because we had a higher finished goods inventory lying at the factory at the end of March and at the port, which could not be booked at sales because vessels did not come in.
So we've not lost market share or volumes. We've moved the value mix, there has been production of more premium items to negate cost increase, et cetera, which anyway is a constant effort we always take. So that's resulted in the value mix improvement also. And anyway, the plant ran full capacity for the days they were supposed to run, we couldn't have produced more.
Got that. Could you also quantify, I think you mentioned the volume number also, the lost volume, INR 25 crores is the absolute amount that we lost in terms of laminate volumes, what would be that amount that we lost because of the plant?
Loss of production, about 250,000 sheets loss of production was there.
And if you see in terms of production and dispatch volume, our sales volume number is close to around 1.5 lakh sheets. So those are the things which could have been built or converted into sales, but because of challenges, logistics challenges, these were delayed.
Understood, sir. So that actually means that since these plant issues are sorted, we'll be able to see at least volume run rate coming back from Q1 itself.
Yes, yes. Surely. It's already running. It was sorted in February only. So yes, the answer is yes.
Sure. And just to get a perspective from the raw material front. You mentioned that, of course you took the price hike in Q3. And based on that, you were confident that there will be no further price increase, but there was and eventually we see it in the margin. How is the scenario right now? Are we seeing some stability in terms of prices? Is everything passed on? Or are you seeing constant type increases even now?
So we were not counseling the RM cost would not go up. We were hoping it would not go up, right? And some RM costs went down. So as we talk right now -- Ashok is going to tell.
In this also, there are -- again, it's moving up and down here and there. Some weeks it is down and some it's up. And as of now, there is stability in most of the raw materials except that 1 raw material, phenol. This is because of, again, crude has again touched $120, and then the benzene has gone up. So we are constantly reviewing the entire scenario. But on the other side, there is some downwards in some other raw materials, especially in paper and other things. So we are constantly keeping a watch on this. What sir has said that, as on quarter 4, whatever was the increase which we have passed on and which was effective from April onwards. But we are keeping a close watch on this. As of now, nobody with a certainty can say that whether price will go up or down. We are keeping a watch on this and we'll take the action for this if at all anything is required.
Sure. Understood. So that was helpful. And last one, if at all, you can give some update on the particle board unit and plywood unit too. We understand laminates is coming by Q4 FY '23. Just wanted to understand about the particle board and plywood unit had too.
So the time lines are same as we mentioned earlier. So plywoods in Q4 FY '23 and particle boards by Q4 FY '24. The major equipments, like I said earlier, for all 3 businesses have been finalized and placed orders with. The balancing equipments and some other things, those discussions with technical discussions and commercial discussions are going on. Civil construction of laminates and plywood has commenced. So there we are.
We take the next question from the line of Ronak Vora from AUM Advisors. As the line is on hold, we take the next question from the line of Nikhil Agrawal from VT Capital.
Sir, I wanted to understand, like 1 of your competitors is venturing into acrylic solid surfaces, and they say that it is kind of a replacement for laminates, like good quality. It is a superior product compared to laminate. So what is your take on this? And are you also considering to step into this?
So acrylic solid surface and laminates are 2 different products and the usage of both the products are not necessarily, in our view, replaceable. So saying 1 is better and 1 is worse off I don't think is a right comparison. As far as we are concerned, that's not an area we are currently looking at in acrylic solid surface. We want to stick to our wood panel segment and to adjacent spaces. That's not something we are looking at currently.
Okay, sir, perfect. And sir, the growth guidance, the revenue guidance that you gave for FY '23, if you could just repeat that once?
So we said that considering the capacity challenges we had last year, if things go well this year with no major disruptions, we should be able to grow the business about 15%, 18%.
15% to 18%. Okay. And sir, what were the price hikes you had taken in Q4 and in FY '22?
So in the Q4, we will take -- the price hike is implemented from April onwards in the Q1. So we have taken around 3% in domestic market and around 5% in export market.
Okay. And in FY '22?
FY '22 as a whole, we have taken around 10% price hike in both the segments.
In both the markets.
Yes, both the markets.
We take the next question from the line of Ronald from Sharekhan.
Yes. I had a query regarding the passage of raw material prices. I suppose there will be, I think, 1 to 3 months lag in those passing of costs. So is it true that it is 1 month or 3 months price lag to pass on the raw material prices?
So I think both are true. For domestic, it's like 1 to 2 months; for exports, international market, at times it takes up to 3 months also.
Okay. And...
We already have orders in the system, which just takes time to -- so by the time we communicate price increases, we conclude that we already have backlog at the plant of orders in the system actually.
And I suppose there was some kind of easing of container availability during Q4. But you said that there were issues. Can you detail out something and whether the export markets, are they factoring the freight rates or we have to bear the freight rates?
So when we say container issues, because we ship to various destinations, sometimes for certain routes, certain destinations, there might have been easing out, but for certain destinations we still have availability issues of boxes and vessels. As far as the freight rates are concerned, although our contracts are CIF, but since January '21, incremental freight costs have been passed into the market, to our customers. So actually, if you add that to the price rise, the price increases are far higher. So this is the way we operate.
And when you say 15% to 18% business growth means you would mean a higher realization driven by value mix and price increases, because I think capacity wise we are well utilized during FY '22?
So this will be a mix of -- we lost some production days last year, so it will be mix of volume, price improvements and value mix improvements.
Okay. Okay. And if you can break out this CapEx, you said that you spent INR 100 crores till date, right, on CapEx?
Yes. On the new projects, on the 2 new projects of Andhra Pradesh and Tamil Nadu.
Right. So on this INR 1,000 crores CapEx, how you'll be doing, like 80% would be debt? Or what kind of debt-equity you are planning? And are you planning to raise some equity from the market?
So debt-equity, we have planned is 65-35, 65% debt and 35% from internal accrual. Even though we have taken enabling resolution for fund raise, but for these 2 projects, we don't -- the internal accrual will be -- and as we already spent INR 100 crores from our internal accrual, we have some cash on the books, INR 250 crores, which we need to fund in the next 2 years. So we believe that is enough for this project. As regards to fundraise, we are reviewing this entire scenario and we'll take it forward at an appropriate time.
Okay. Great, sir. And last 1 was that this container issues got resolved in February onwards, right? Or is this still logistics issues you are facing?
No, no, there are still issues. And since we ship to so many countries, like I was saying earlier, at times, certain destinations are fine, certain are not okay. So it's still not what it was pre-COVID. And yes, so we still have availability challenges or vessels moving on time challenges. So that still persists.
We take the next question from the line of Rajesh Kumar Ravi from HDFC Securities. Mr. Rajesh Kumar Ravi, your line is unmuted, request you to please go ahead with your questions. As there is no response, we take the next question from the line of Mohit Agrawal from IIFL.
Sir, a couple of clarifications. So in your laminate business, you're already running at more than 100% capacity utilization, about 106%. So how much capacity utilization can you target? What is the maximum limit? Can you go up to 110%, 120%?
So in the past, we've gone up to like 115%, 118% types in individual factories. So we can go up to, let's say, 115% range.
And would you be outsourcing the production? Or will it be purely, all the production will be through your own factories only?
So we don't outsource. All our production is in-house and I think that's the rule we follow.
Okay. And on the margins, you've mentioned that you've been able to pass on the input cost inflation until fourth quarter. So assuming no more further increases in input cost, should the margins revert back to 13%, 15% range in FY '23?
Yes, we said this earlier. Since we lost value of production last year, so with improved volume, price increases being effective in the market, volume mix improvement strategy, which we have adopted towards premiumizing the brand. So margins should improve.
Okay. And then last one, you've mentioned that your CapEx is on -- there's no change in the timelines, but any change in the CapEx number, like because of the entire input cost inflation, has the CapEx number changed? Or does that also remain the same?
There could be certain CapEx numbers related to civil construction, which could change. Although we had kept contingency in the announcements we've done. So that's something we're keeping a watch on. As far as the machinery set is concerned, we don't expect much change at this time.
We have Mr. Rajesh Kumar Ravi from HDFC Securities connected back.
Sorry, my voice was not clear. So 2 questions. First in terms of the plywood business. What sort of revenue traction you are looking in the first year of operations, FY '24? And by when you expect this to ramp up closer to your full utilization?
Yes. In the first year of operation, we have taken around 50% utilization, so close to around INR 200-odd crores -- INR 175 crores to INR 200-odd crores we have projected. And we have taken the full utilization of the 100% level in the third year of operation.
Okay. And is it like a high operating leverage business, and hence, only when you achieve to deliver a 20% sort of plus EBITDA margin, what sort of utilization would be required, sir?
[indiscernible] 20% figure. So supply is not going to be a 20% operating margin business. So on supply, I think we discussed this in the call, I think it was more like a 13%, 15% kind of an operating margin, 13%, 14% kind of an operating margin in our business, not 20%.
Okay. And what utilization will bring you close to that, sir?
For sure, 100% will bring us to that because there's also a function of branding, distribution, et cetera, because we have to get the product out in the market, get the physical distribution in place, to bring the right price points. So it's not only a function of capacity utilization, it's also about strengthening the branding, marketing, distribution, and pricing.
So it would be after 2 to 3 years, you will be looking close to those sort of numbers?
Yes, that's right.
And in terms of cost of debt, what would be your borrowing cost, sir, for the debt you are planning to raise?
Yes, Rajesh, it will be a mix of ECA, since the equipment for particle board will be coming from Europe. So there is a long-term borrowing which is available, which comes at a very competitive cost, and remaining will be from the domestic. So for the external borrowing, in this scenario, it's difficult to comment because interest rates are going up, but we expect that within around 2%, 3% for the external borrowing. And for the domestic will all depend upon what the rate at that moment of time. But as of now, it's in the range of around 7%, 7.5%.
Okay. And sir, this 2% to 3% would be like what portion of your loan at 2%, 3% rate?
It will be around 1/3, around 1/3.
Okay. Super.
We take the next question from the line of Ronil Dalal from [ Museum Capital ].
So I had a few questions around your plywood business. So firstly, you had mentioned there had been INR 100 crores CapEx in Andhra Pradesh and Tamil Nadu. So what portion of that would be dedicated towards Tamil Nadu on the Ply business?
So this INR 100 crores is not the CapEx. Total CapEx is around INR 950 crores, INR 1,000 crores and INR 100 crores is the CapEx which we have already spent till March. So out of this INR 950 crores, which we have announced, around INR 125 crores in the plywood and INR 225 crore in the third laminate plant and around INR 600 crores in particle board.
Right. But I think you had mentioned some civil construction and all has started. So, so far, what was the incurred CapEx in Tamil Nadu?
Tamil Nadu, this has started in this month only, construction has started in this month only. So not much of the expenditure has been done in Tamil Nadu as of now. So this is starting now in this month. So now, from this month onwards, this has started.
Right, right. Because I was actually checking your subsidiary balance sheets and the current work in progress has not yet moved. So that's why I wanted to just...
By March, there won't be much.
Right, right. Okay. So sir, my next question is that in Tamil Nadu, you all have had operations before your acquisition. So what would be, say, the existing plant and machinery which is there within Tamil Nadu state? Maybe what revenue would be coming from that?
No, this is a new plant. There is no plant and machinery there in Tamil Nadu.
Okay. So it was just a land and there was no plant.
Yes. Only the land was there. As far as the revenue is concerned, ply on a full capacity will be more like a INR 400 crore revenue per annum.
Right, right. So there was nothing in any other business also. There was no plant or machinery or anything else at the location of Tamil Nadu?
It was used as a warehousing facility. So there was...
So it was used as a warehousing facility.
Yes, there were some sheds.
Okay. So that will continue to serve for the warehousing as well as your new CapEx, right?
No, no. We have moved the warehousing out of that location because we are going to build a plant and there's not enough space to do both the things. So warehousing has moved close to the plant, about 30, 40 kilometers away. And this site will be used fully as a plywood manufacturing unit.
Right, right. And sir, final question is that, I mean, for Greenlam, I mean, only 75% of that business is owned. So why not 100%?
This is a listed company in terms of that only. So 75% of the shareholding only was there with the promoter, which has been bought by the Greenlam. Remaining is there with the general public.
Right, right. So this particular site had some advantage or maybe you all were already familiar with it, that's why it made sense to buy this?
That's correct. Because plan was ready and the approvals were in place, and we've put this out on The Next Orbit presentation on why we've chosen the site, in terms of raw materials, market, et cetera.
Right, right. So now the CapEx which comes up will show in Greenlam books? I mean, of course, it will show in a consolidated currency, but -- or will it then reflect in the subsidiary as well?
It will reflect in subsidiary because subsidiary is going to spend all the money, so it will be in the books of subsidiaries. On consol basis, yes, it will be a part of Greenlam.
We take the next question from the line of Nikhil Agrawal from VT Capital.
Thank you for the follow-up. Sir, this was on the raw materials front. Like your main raw materials on the chemical side are melamine and phenol, I think. And they have been on a down trend. But what is the trajectory of the paper cost right now, the kraft paper that you purchase, what has been the price trajectory for that?
First of all, there are 3 chemicals, phenol and melamine you said correctly, there is 1 more, methanol. And in terms of that, the price of phenol has not softened, rather it has firmed up. Melamine price, you are correct, melamine and methanol price has corrected from what it was there in the peak, but the price of phenol has not reduced, rather it has firmed up. Post this Russia-Ukraine war, this has firmed up from what it was there previously. And in terms of paper, we use different type of paper. For the domestic paper, kraft paper, which we use, the prices have come down by around 10%, 12% from what it is there in the peak.
From what it is there in?
At the peak, yes. So like you correctly said, so 1 part of the domestic paper price has come down. At the same time, the other part of paper, which typically uses wood pulp and 100% virgin grade kraft paper, their costs have firmed up. So net-net, there's a minor reduction overall.
Okay. And sir, your chemical costs account for about 35% of the cost of production, right?
35% of the RM cost.
Yes.
Okay. Sir, do we see like -- okay, I mean I understand that phenol prices have gone up. And even your kraft paper prices have remained stable, but do you see the realizations going down? Or after the price hike you have taken for the full year, do we see the realizations being at this level, or is there any chance of going down as well?
So we haven't reduced any prices and rational function of pricing and the product mix and value mix. I don't see it coming down at the moment. So the endeavor is to constantly keep improving the value mix and the product mix. And we have [indiscernible] and we are looking in a certain direction on that front.
We take the last question from the line of Vipin Taneja, an individual investor.
I just wanted to understand what is exactly driving the growth in laminates? Is it the pent-up demand due to COVID, which was subdued earlier. And second is, how are we placed with the competitors like Merino and Century, please if you can explain that?
So as far as demand of laminates is concerned, I think there's general growth in both domestic and exports market. In domestic, we believe since there was significant supply chain disruption in our industries, we believe unorganized companies have cut down, curtailed their productions and they have had challenges with availability of raw material, capital, et cetera.
So I think we've ended up taking some market share in the domestic space. As for the export market is concerned, we've been constantly expanding that space and we are restricted in terms of capacity there. So clearly, I think it's a function of market situation or working in the market, products, distribution, reach, et cetera, et cetera.
As far as competition is concerned, so in laminates, clearly our closest competitor is Merino. And, yes, so... You wanted...
I wanted to know how are they doing, because I was checking their distribution channel and like they are targeting mainly architects and that's why they are having a bit of a higher margin and the other leaders. So any new strategies in terms of our marketing and sales, which we have for the current year, sir?
So as far as numbers are concerned. In terms of revenue, we don't have the FY '22 results. But if you look at the last few years' revenues, we do more than them in laminates. In domestic market, they do slightly more than us; exports we do more than them. So that's on the revenues between us and Merino. How are they doing? I think they're doing fairly good also. I don't have access to their numbers because they haven't come to the public domain. So this is where it is.
As far as the targeting of architects, IDs are concerned, I think that's normal course of business, architects, IDs, contractors, OEMs, they play a large part in terms of influencing and specifying the product. So it's a routine effort of working with the influencers to create demand, working with contractors and carpenters and with the channel to create the physical network. We also work with e-comm furniture players and so there's a lot of marketing activity and sales activity which we do.
And sir, margins, like why are they having a higher margin compared to the industry standards?
So I haven't seen the numbers of FY '22, so I can't comment much on that. As far as the previous year's numbers are there in the public domain, I think maybe that can be a separate dialogue and we can discuss that, maybe you can have a chat with Ashok offline and we can see, do they really have higher margins, and what is the ROCE we have, what is the ROCE they have. So at the end, we have to see what is the denominator and which stage of business are we in versus them? So I think that's a dialogue maybe you can have with Ashok. As far as we are -- Ashok, just put the sheet. One second.
Yes. So in the FY '21, overall margin, if you see, they were at around 16.2% margin, we were at around 14.4% margin. And there are reasons for this difference in terms of our marketing spend is higher than them and employee costs are higher than them, because ours is more of a professional setup vis-a-vis a lot of family members working there.
And if you look at the ROCE, I don't know, Ashok, maybe you can have a separate dialogue for that, but that will be very similar, yes.
And sir, just on the laminate as an industry, is it just that the laminates per house or laminates per unit house, is that increasing significantly versus the previous trend because of the aesthetic looks which it provides to the house? Is that the change which we are seeing post COVID, sir?
I don't think that's changed post COVID, but clearly, laminates is a preferred material, increasingly preferred material in the decorative paneling space in kitchens, wardrobes, door shutters, with a lot of choices customers have and at the price point and with the ease of maintenance to keep the laminate. So we believe market share of laminates will gradually keep increasing.
Also then there is laminates, which is being used inside the furniture right, which is called liners, commodity products in kitchens and wardrobes, so I think that's also going well. To say that post COVID laminate use has increased, I can't put that together.
Okay. But you're not seeing that is because of aesthetic looks and people are more conscious about how their house looks now versus earlier trend 2 years back.
Well, yes, obviously. If they are staying more at home, then they want to do better interiors, but I'm sure people have started moving out. So really, I think that's more of a momentary thing. But yes, clearly, as a material, at the price point, with the amount of choices that customers have in terms of colors, textures, wood grain, stone patterns, it's quite a useful material at that price point for the consumers, for them to use this product. It's easy to apply and for maintenance to be done literally.
Okay. Sir, 1 last question, although you have mentioned to see it in the report, the future of ply boards. Sir, just wanted to hear from you, sir. Just a couple of points would be enough, sir.
Future of plywood, is it?
Ply board, because you're expanding in there.
Yes, correct. Probably, you're well informed and it's about a INR 30,000 crore market. And we've put that in the presentation of why we're getting plywood. And we're just 2 branded players across the country. So again, same story, unorganized to organized movement, it's an essential product. And we have products for the domestic markets, carpenters, contractors, homeowners in the form of veneers, flooring, and premium laminates. And we believe this space and there's a possibility of a third player to be stepped in because there is no meaningful third player in the market. So there are players, regional players and certain other national players, but most of them are subscale and they don't have much focus in marketing sales or they don't have the right manufacturing capacities and the capabilities.
So really, we think it will be a profitable business from a perspective of margins and ROCE, et cetera. And it's also adjacent to what we do. Most of the channel partners, architects, IDs, influencers, people are common for this. With leverage and synergy...
Marketing expenditure won't be much there, like sales and marketing?
Marketing expenditure will be there, because it'll be plywood. But clearly, the style of marketing, product development is a bit different from what we do currently in the sense that there's not numerous ranges and launches and displays and all that.
Okay. But the sales channels will be the same or a different profile?
So there will be overlap. There really will be overlap. In laminates, the model is company, distributor, and then to a number of dealers. In plywood, it's more company to direct dealer format.
I was talking about plyboard, right, sir?
Yes, I'm saying about plywood. So in laminates, it's more company, distributor, dealer; In plywoods, it's more company, dealers.
And sir, in plyboard, what would be our margins which we are looking at, EBITDA margins?
So it'll be in the range of, like we said, on a full capacity, like 13%, 15%, yes.
Right. And sir, in that particle board also, we are targeting, sir? Any particle board?
Yes. We've already announced that. Particle board, we are putting up a plant in south, and we'll be spending close to around INR 600 crores on that.
And sir, in particle boards, would we be directly tying up with OEMs, because a lot of new furnitures, which I was reading, is maybe it is Durian, or Nilkamal has also opened a branch. So they are primarily coming up with that particle board furniture these days. So will we be going directly to the OEMs as well for particle board.
So larger OEMs will be served directly. Like you mentioned, Nilkamal or some other larger players, but there will also be, as you probably are so well informed, there are many smaller OEMs doing fabrication, kitchen, home improvement, wardrobes, student furniture. So there'll also be an element of distribution happening to the smaller OEMs through the stockers and dealers or big distributors.
And margins, which we are looking at in particle board?
In the range of around 25%, because the CapEx to sales revenue ratio is around 1:1. So that's how the margin.
Okay. Okay. Actually, that was my next query, but you have already answered. Thank you so much, sir. And all the best because you're coming out with a huge CapEx, it is not easy. And thanks a lot, sir. Good luck to you and your company, sir.
We take the next question from the line of Jenish Karia from Antique Stock Broking Limited.
Sir, I understand that in a volatile environment regarding costs, it's difficult to comment on the margins. But if you can give us any flavor about the EBITDA per sheet or something like that, that it will stay at these levels or it will taper down, or because of the value mix, it will increase, or something around that part, sir?
So in terms of EBITDA per sheet, this quarter it was at around INR 137 per sheet. And last quarter also, it was at similar level. It was INR 136 per sheet.
So going forward also, we plan to maintain that or?
So as we have discussed in the call that price hike what was there in the Q4, we have taken that price hike, which is implemented from April. There was some disruption on the production side, which also got resolved. So if there is no other disruption, which we don't know as of now, then probably the margin should improve. And in case that improves, then obviously, that will have a positive impact on the EBITDA per sheet.
We take the next question from the line of Abhishek Vora from Ambit Asset Management.
Just a clarification on the numbers of domestic exports volume and value numbers, if you could please repeat on that.
Yes, Abhishek, we'll come back to you.
Sir, you had mentioned the numbers in the start of the commentary. I think exports volume declined by 19%. Is that number correct?
Yes.
And domestic volume decline would be?
4.5%.
Sure. And the volume growth in domestic would be? Sorry, value growth in domestic would be?
Value growth in domestic was 22%.
Sure. And the exports value growth was 4%. Is that correct?
So 15.3% was domestic and -- sorry, in laminate, you were talking, 23.9% in the domestic and 8.9% in the export segment value growth.
Sure. 23.9% and 8.9% are the domestic and exports value growth, respectively, on a Y-o-Y basis, right?
Right.
Quickly also, if you can please give a sequential growth number of domestic and exports, it will be helpful.
It was around 4% in both the businesses.
4% each, right? Great.
We take the next question from the line of Rajesh Kumar Ravi from HDFC Securities.
Just wanted to understand, again, on the leverage side, you said that you would be comfortable with the current internal accruals to fund this CapEx and the borrowings in terms of your leverage ratios?
Yes.
Okay. Because if I look at your net debt numbers, which you said it would be close to INR 800 crores, right?
INR 750 crores to INR 800 crores. Yes.
INR 800 crores. And then your EBITDA would be close to INR 2,500-odd crores or less than INR 300 crores sort of a number? So are we not looking at a debt-to-EBITDA ratio of almost 3x or more than 3x type of a number? And given that there is some volatility and ramp-up delays that would have a bearing on your overall performance?
First of all -- yes, this debt which you are talking, this will be towards the end of FY '24, this debt will be toward the end of FY '24. And net debt, as I said, that INR 750 crores to INR 800 crores is there. And if we divide that INR 300 crores, then it will be well below the 3x. And as you know that we have already taken the approval for equity. As of now, that is not yet finalized. So we are reviewing the situation. So good enough time still we have in terms of that.
Understood. So if at all you go for that, that will have a strength factor for you.
Absolutely.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you, friends. Thank you for taking out time and attending the call. In case you have any other questions, you can reach out to us or to SGA team. We'll be happy to answer your queries. Thank you.
Thank you.
On behalf of Greenlam Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.