GREENLAMNSEQ4 FY22May 31, 2022

Greenlam Industries Limited

9,827words

179turns

14analyst exchanges

3executives

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Management on call

Saurabh Mittal

MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, GREENLAM INDUSTRIES

Ashok Sharma

CHIEF FINANCIAL OFFICER – GREENLAM INDUSTRIES LIMITED

Samarth Agarwal

FINANCE TEAM, GREENLAM INDUSTRIES LIMITED

Key numbers — 40 extracted

Rs.20

es at the Behror plant in the month of Jan and a few days of February, where we nearly lost about Rs.20-25 crores worth of sales. We also had experienced certain unexpected cost increases in the month

25 crore

the Behror plant in the month of Jan and a few days of February, where we nearly lost about Rs.20-25 crores worth of sales. We also had experienced certain unexpected cost increases in the month of Febr

42%

erformance from the company side. If you look at the financial year 22, revenues went up by about 42% slightly above Rs.1700 crores. And this was again despite, the two COVID, Behror plant being unde

Rs.1700 crore

company side. If you look at the financial year 22, revenues went up by about 42% slightly above Rs.1700 crores. And this was again despite, the two COVID, Behror plant being under restricted production, wher

100 crore

lant being under restricted production, where we lost nearly approximately anything between 80 to 100 crores of sales. The laminates industry in our company in particular in the entire wood paneling segmen

80%

nt RM costs increase across raw materials in the laminate and the wooden-allied segment as nearly 80% of our raw materials are imported or peg to imports. We have a significant amount of containers

50%

g to imports. We have a significant amount of containers moving into the plants. And we also have 50% of revenues coming from exports were to we face challenges of the supply chain; freight increases

46%

e industry faced, we probably ended up gaining market share as the laminates business grew nearly 46%. And we added nearly Rs.500 crores of revenue in the laminates business. The cash flo

Rs.500 crore

ably ended up gaining market share as the laminates business grew nearly 46%. And we added nearly Rs.500 crores of revenue in the laminates business. The cash flow management also was quite good con

12%

why 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.

15%

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

Rs.25

we managed to reduce capital employment in that business. Capital employment was reduced by about Rs.25 odd crores or 15% of the total capital employed. We continue to work towards building the floor an

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Guidance — 20 items

Saurabh Mittal

opening

“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 FY23.”

Saurabh Mittal

“Yes, we clearly are aware that the growth is not up to what we expect it to do.”

Saurabh Mittal

“On the CAPEX of FY23-24, the existing manufacturing plants will just need routine CAPEX of about Rs.20, 25 crores annually, the major CAPEX will be the two new plants in Andhra Pradesh and Tamil Nadu.”

Saurabh Mittal

“Where until now we spent about Rs.100 odd crores, say Rs.200 crores already and the CAPEX of those two plants will be shy of Rs.1000 crores which will be spent in FY23 and FY24 in two years.”

Saurabh Mittal

“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.”

Saurabh Mittal

“As far as particleboard is concerned, the expenses will be spread over FY23 and FY24 exact percent maybe Ashok can respond, because the major equipment have been finalized and we’ve already paid out the initial advances, et cetera.”

Saurabh Mittal

“And the particleboard expense will be in two years, both the years will be slightly in this around 45%, 50% in this year and the remaining in the next year.”

Saurabh Mittal

“In FY24, we’ll have three lines coming up so, next year with newer capacity and they are of three different sizes.”

Saurabh Mittal

“So, clearly, our endeavor will be to bring those new capacities to a meaningful utilization at the earliest.”

Udit Gajiwala

“And sir lastly any guidance or any point you’d like to put on the laminates margin front going ahead because we have seen constant pressure on that front since few quarters, we are taking price hikes?”

Risks & concerns — 10 flagged

So, I see that the laminate business is what is driving the growth for the company, whereas the non-laminate business be it decorative or the other wood, and the wooden flooring, doors, and flooring all remain either in a lower utilization or weak profitability.

— Rajesh Kumar Ravi

Just a few follow-ups, first on the veneer side, if I see two, or three years back you had relatively healthy revenues, and this area we have seen a sharp decline in the numbers.

— Rajesh Kumar Ravi

So, I don’t think that’s a huge matter of concern.

— Saurabh Mittal

So, I don’t think that’s a matter of concern.

— Saurabh Mittal

And sir lastly any guidance or any point you’d like to put on the laminates margin front going ahead because we have seen constant pressure on that front since few quarters, we are taking price hikes?

— Udit Gajiwala

We look at it as a Y-o-Y decline, could you specify the reasons why we’ve seen a fall in terms of volumes even in the domestic market?

— Sneha Talreja

So, for the external borrowing that in this scenario it’s difficult to comment on because the interest rates are going up, but we expect that within around 2%, 3% within the external and for the external borrowing and for the domestic will all depend on what the rate at that moment of time, but as of now, it’s in the range of around 7, 7.5.

— Ashok Sharma

phenol and melamine you said correctly there is one more methanol and in terms of that the price of phenol is not soften, whether it is from the melamine price, you are correct melamine and methanol price has corrected from what it was there in peak, but the price of phenol is not reduced or not, rather it has firmed up post these Russia war, Ukraine war this has firmed up from what it was there previously.

— Ashok Sharma

So, this is, and as far as the targeting of architects, IDs is a concern, it’s a normal course of business architects, IDs, contractors, OEMs, they play a large part in terms of influencing and specifying the product.

— Saurabh Mittal

Sir, I understand that in a volatile environment according to cost it’s difficult to comment on the margins.

— Jenish Karia

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Q&A — 14 exchanges

If I look at the current year it has been quite heavy in terms of working capital margins, everything. Now, if I look into the numbers what we understand, the profitability is all been driven by the laminate segment, and decorative and the non-laminate businesses utilization remains low for. So, I see that the laminate business is what is driving the growth for the company, whereas the non-laminate business be it decorative or the other wood, and the wooden flooring, doors, and flooring all remain either in a lower utilization or weak profitability. So, what is the outlook for the various sect

Saurabh Mittal

Lot of question, we will go one by one. So, one is, so clearly, laminates is our core business and that is driving the growth and despite the temporary reduced production, or no production last year for nearly 25, 30 days. So, clearly, laminates right now we’re stretched from a capacity utilization perspective, and we need more capacities. And in South, we are adding three lines of 3.5 million sheets, which is expected to get into commercial production by Q4 of FY23 that’s one. On the wood allied segment. Yes, we clearly are aware that the growth is not up to what we expect it to do. Clearly,

Sir, can you guide that how is the demand scenario and what kind of industry growth and company growth in laminates are we looking for FY23-24?

Saurabh Mittal

So, demand scenario in our industry as you are aware, there’s still a large portion of the unorganized share. So, the way we are operating right now is clearly trying to spend our market share with the capacities we currently have. So, as far as we’re concerned, in the previous month, this one is by and large, looking okay with us and we also have a significant international presence, so from that side, we’re looking pretty okay with the demand side. As far as FY20, you asked FY23-24? Yes. So, FY23 which is going on, because our new capacity will only come in Q4 of FY23 and considering that la

Just two questions from my end One, 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 laminate 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 a fall in terms of volumes even in the domestic market?

Saurabh Mittal

Yes, so number one we lost production at the Behror plant of about 10 days of production which is nearly 250,000 sheets so which is nearly about 25 crores of value. So, loss of production was there, what we 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 if you see Y-o-Y domestic realization has gone up by about 27.6%. So, our per sheet value is 952, if you look at the overall realization between Q421, and 22 in laminate, the price realizatio

Sir, I wanted to understand like one of your competitors is venturing into acrylic solid surfaces and they say that it is a kind of 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?

Saurabh Mittal

So, fixed solid surface and laminates are two different products. And the usage of both the products are not necessarily in our view replaceable, so saying one is better and one is worse. I don’t think it’s the right comparison. As far as we are concerned, that’s not an area we are currently, looking at in a solid surface. We want to stick to our good panel segment and two adjacent spaces that’s not something we’re looking at. Okay, sir perfect. What is the growth guidance, the revenue guidance that you gave for FY23 if you could just repeat that once? No, so we said that considering the capac

I had a query regarding the passage of raw material prices, I suppose there would be a one to three months lag in those passing of costs. So, is it true that it is one month, or is it three months price lag the pass on the raw material prices?

Saurabh Mittal

Both are true, so domestic is like one to two months for exports international market at times it takes up to three months also. And we already have a system, which takes time, so by the time we communicate price increases, we conclude that we already have a backlog at the plant of orders or 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 in detail on something, whether the export markets they factor in the freight rates or we have to bear the freight rate? So, when we say containers issues, because we

Sir, a couple of clarifications. So, your laminate business was already running at more than 100% capacity utilization of about 106%. So, how much capacity utilization can you target, what is the maximum limit can you go up 110% or 120%?

Saurabh Mittal

So, in the past, we have gone up to like 115%, 118% types individual factories, so we can go up to let’s say 115%. 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 productions is in-house and that’s the route we’ll follow. Okay. And on the margins, you’ve mentioned that you’ve been able to pass on the input cost inflation till the fourth quarter. So, assuming no more further increases in input cost, should the margins revert back to the 13%, 15% range in FY23? Yes, whichever is earlier,

So, two questions first on the in terms of the plywood business, what sort of revenue traction, you’re looking in the first year of operations FY24, and by when you expect this to ramp up closer to your full utilization?

Ashok Sharma

Yes, in the first year of operation we have taken around 50% utilization, so close to around 200 odd crores, Rs.175 to 200 odd crores we have projected and we have taken the full utilization over 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? If I am going to be at a 20% operating margin business. Supply, we discussed this in the call, it was more like a 13%, 15% kind of an operating margin, 13%, 14% kind of operat

So, I had a few questions around your plywood business. So, firstly you had mentioned that 100 crore CAPEX in Andhra Pradesh and Tamil Nadu. So, what portion of that would be dedicated towards the Tamil Nadu or the ply business?

Ashok Sharma

So, this Rs.100 crore is not the CAPEX, total CAPEX is around 950,crore - 1000 crores. The CAPEX amount which we have already spent till March is Rs. 100 crs. So, out of these Rs.950 crores which we have announced is around 125 crore in the plywood and 225 crore in the third laminate plant, and around 600 crore in particleboard. Right, but you had mentioned some civil construction, and all has started So, so far what will be incurred CAPEX in Tamil Nadu? This has started in this month only construction is started in this month only. So, not much of the expenditure has been done in Tamil Nadu a

Sir, this was on the raw material front like your main raw materials on the chemical side are melamine and phenol and they’ve been on a downtrend, but what is the trajectory of the paper cost right now, the craft paper that you purchase, what has been the price trajectory for that?

Ashok Sharma

First of all there are three chemicals. phenol and melamine you said correctly there is one more methanol and in terms of that the price of phenol is not soften, whether it is from the melamine price, you are correct melamine and methanol price has corrected from what it was there in peak, but the price of phenol is not reduced or not, rather it has firmed up post these Russia war, Ukraine war this has firmed up from what it was there previously. And in terms of paper, we use different types of paper for the domestic paper, craft paper which we use the prices has come down by around 10%, 12% f

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. Thank you, sir.

Saurabh Mittal

So, as far as the demand of laminate is concerned, it’s general growth in both domestic and export market in domestic we believe, since there was significant supply chain disruption in our industry. We believe unorganized companies have cut down and curtailed their production and they’ve had challenges with the availability of raw material, capital, et cetera. So, they ended up taking some market share in the domestic space. As far as the export market is concerned, we’ve been constantly expanding that space and we are restricted in terms of capacity there. So, clearly, it’s a function of the

Sir, I understand that in a volatile environment according to cost it’s difficult to comment on the margins. But if you can give us any flavor about 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 or it will increase or some flavor on that part sir.

Ashok Sharma

So, in terms of EBITDA per sheet this quarter, it was at around Rs.137 per sheet, and last quarter also it was at similar level it was Rs.136 per sheet. So, going forward also we plan to maintain that? 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 was also get resolved. So, if there is no other disruption which you don’t know as of now, then probably the margin should improve and in case that improves, then obviously that will have a positive im

Quickly, just a clarification on the numbers of domestic exports volume and value numbers. If you could please repeat on that?

Ashok Sharma

Yes, Abhishek on this we will come back to you. Sure. You had mentioned the numbers in the start of the commentary, exports volume declined by 19% is that number correct? It is correct. And domestic volume decline would be? 4.5% Sure, and the 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 23, in laminate you’re 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? Correct,

Just wanted to understand again, on the leverage side, you said that you’d be comfortable with the current internal accruals to fund these CAPEX and the borrowing in terms of your leverage ratios?

Ashok Sharma

Yes. Because, if I look at your net debt numbers which you said it would be close to Rs.800 crore right? Rs.750 to 800 crores. Then your EBITDA would be close to Rs.2500 odd crore or less than Rs.300 crore sort of a number. So, are we not looking debt to EBITDA ratio of almost 3x or more than 3x type of a number, and given there is some volatility and ramp-up delays that would have a bearing on your overall performance? First of all this debt which you are talking this will be towards the end of FY24 and net debt as I said that Rs.752,-Rs.800 crore is there and if we divide that 300 then it wi

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 the SGA team we’ll be happy to answer your queries. Thank you once again.

Saurabh Mittal

Thank you.

Speaking time

Saurabh Mittal

Ashok Sharma

Moderator

Vipin Taneja

Rajesh Kumar Ravi

Ronil Dalal

Nikhil Agrawal

Abhishek Vora

Sneha Talreja

Ronald

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Opening remarks

Saurabh 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 Advisors. So, on the results, I’ll give you a brief about the quarter and the year, 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 a few days of February, where we nearly lost about Rs.20-25 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 FY23. In the last quarter in Q4, we also had higher finished goods inventory at the plant and other ports due to the unavailability of containers and delays in vessels, which have actually dampened the revenue growth and are showing up on our inventory. But despite all

Ashok Sharma

Thank you, sir. Let me take you through the financial performance. For consolidated net revenue for the quarter grew by 11.6% on a Y-o-Y basis and grew by 3% consequently. We stood at Rs.463 crore as against Rs.415 crore previous year. Gross margin was down by 380 basis point, 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 Rs.208 crore in Q4 as compared to Rs.202 crore in Q4 last year. EBITDA margin was down by 540 basis point at 10.7% in Q4 as compared to 16.1% in Q4 FY21. On a sequential basis, EBITDA margin was down by 120 basis point. EBITDA in absolute term de-grew by 26% to Rs.49.6 crore in Q4 as compared to Rs.67 crore Q4 last year. Net profit for the quarter stood at Rs.25.7 crore as against Rs.30.9 crore Q4 previous year. For a year as a whole consolidated net revenue grew by 42% and stood at Rs.1703 crore as against Rs.1200 crores last year. Gross margin was down by 520 basis

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