Greenply Industries Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Plywood volume grew 15%, but demand missed expectations: Post-festive pickup was below par and January remained soft, tempering the 8.7% YoY plywood sales growth driven by 2.4% volume and 6% realization gains.
• MDF plant is on the cusp of commercial production: Trial runs start in Q4 FY23, commercial output from mid-May 2023, with a Year 1 sales target of ~INR 300 crores and a cash-breakeven ambition at that level.
• Premium mix lifted realizations to a record INR 249/sqm without price hikes, as premium contribution rose to ~57% of sales, though raw material cost escalations still compressed plywood margins.
• Gabon business remains a drag with no near-term visibility: Severely impacted by the European energy crisis; recent order inflow shows positive traction but management says it is too early for guidance.
• What to watch next quarter: Whether the MDF plant begins trial runs on schedule, the pace of post-festive demand recovery in plywood, and any stabilization in the Gabon/Europe business.

Plywood: Volume, Mix & Margins

• Volume growth rebounded to 15% after years of flat ~56–57k units, as supply constraints that had bogged down growth are easing with the Bareilly ramp-up and the new Hapur line becoming operational in Q1.
• Most volume growth is coming in the economy segment, even as the premium focus is maintained; management is clear that both segments are growing.
• Realization hit a best-ever INR 249/sqm without price hikes, driven by the premium category’s sales contribution rising to ~57% from 55% in trailing quarters.
• Margins declined despite the mix improvement: plywood adjusted operating margin fell 72 bps YoY in Q3 and 30 bps YoY in 9M because cost escalations, particularly in timber, outpaced the 6% and 5.3% realization growth respectively.
• Chemical prices have stabilized after reaching a peak, but timber cost remains elevated to some extent, and wood cost continues to rise across India.
• Procurement cost in West India is now at par with or slightly lower than North India, though not as low as South India, which helps the new Gujarat MDF plant’s input economics.
• Internal volume growth guideline is a minimum 10% annually for the next 2–3 years, a commitment management says it is “very clear” on internally.

Manoj Tulsian: “internally, we are very clear that minimum 10% growth, we'll have to try and achieve in the years to come, at least next 2 to 3 years.”

MDF Plant: Timeline, Economics & Strategy

• The Vadodara, Gujarat plant is mechanically complete: machinery installation and civil construction are finished, trial runs are expected in Q4 FY23, and commercial production is targeted to start from mid-May 2023 after a 30–45 day post-trial shutdown for corrections.
• Total project cost is tracking to ~INR 595–600 crores, up from the initial ~INR 550 crores, with management attributing roughly 6–7% of the increase partly to scope additions during the journey, not purely cost escalation.
• Year 1 sales target is ~INR 300 crores, with the plant aiming for cash breakeven at that level; full-year FY24 utilization is projected at ~40–45%, exiting Q4 FY24 at ~65–70%.
• Margin trajectory is laid out in stages: Year 1 EBITDA margin of ~14–15%; Year 2 roughly 4–5% below competitors’ margins; Year 3 reaching similar levels to other players, with peak utilization EBITDA margin of 20% or better at today’s realization.
• Pricing will match competition, and the freight advantage in Western India will be passed to the local market to capture share faster without disturbing margins; the sales team was onboarded and began induction training on the day of the call.
• Product focus will be premium from day 1, not just plain MDF, with the line fully prepared for that mix; Phase 2 of the sales team ramp-up begins after 6–7 months.
• OEM opportunity in the West is a ready advantage: local OEMs struggling to get timely material from North or South suppliers will “100% prefer” a local supplier, and management sees no acceptability challenge since competitors are already selling enough material in the region.
• Downside planning uses an 18–20% EBITDA margin floor: management notes the industry is cyclical and has seen margins compress to 18–19% at the lowest point historically, so all payback calculations are designed on that worst-case basis, and current projections are ahead of that even with increased costs.

Sanidhya Mittal: “I don't think there's a challenge in terms of acceptability. The competition is already selling enough material today in the west. So I don't think there's any acceptability challenge there's already a ready market, and we are going to address and capture that ready market very soon.”

Manoj Tulsian: “I have always been advocating that margins above 25% in a business like MDF is unreal.”

Gabon & Europe: The Unresolved Drag

• The Gabon business is severely impacted by the energy crisis in European regions, which represent a significant portion of its business; trials to diversify into the US, CIS and Africa did not materialize meaningfully, leaving dependence on Europe high.
• A first consignment to the US was sent last year, but feasibility issues, specifically long transit time, prevented any follow-up, and management noted Europe has started picking up again.
• Recent order inflow shows positive traction, but management explicitly states it is too early to provide any near-term guidance, and the recovery path is conditional on Europe returning “to semblance.”

Manoj Tulsian: “Recently, there has been some positive traction in order inflow, but it's too early to provide any guidance on this in the near-term.”

Asset-Light & Capacity Expansion

• Sandila unit reached almost 60% utilization in Q3 FY23, with competitive timber cost and product premiumization making it a significant contributor; the target is 80–90% utilization from next year onwards.
• First Bareilly asset-light partner unit is fully utilized; the second Bareilly unit has started partial production, with work underway to streamline remaining capacity for doors.
• Hapur asset-light unit construction is progressing well, with trial runs expected in Q4 FY23 and the line becoming operational in Q1, further mitigating the supply constraints that had previously capped plywood volume growth.
• Timber supply is not seen as a challenge: management is confident in plantation activities and farmer initiatives, and the plantation process for MDF’s 3–4 year timber cycle was started 13–14 months ago to de-risk future supply.

Competitive Landscape & Industry Structure

• On Reliance RelWood’s competitive threat, management argues that if Reliance had a pricing advantage or intent to disrupt, it would have done so by now, drawing a parallel to the telecom playbook where scale was bought with low prices first; the fact that this has not happened suggests the threat is contained.
• Branded plywood players stand to gain from two structural tailwinds: improving GST regulations that reduce the unorganized sector’s tax advantage, and a gradual consumer preference shift toward branded goods.
• MDF industry margins are seen as cyclical: periods of capacity shortage drive prices and margins up, followed by capacity additions that compress them; management’s planning assumes this cycle and uses trough margins as the base case.

Sanidhya Mittal: “I don't think a company like Reliance will wait for scale to come. I mean, if they have the price levels, first give the price the product at a much cheaper cost, get the scale and then increase the price. We know what they did in the telecom sector. So if they had that pricing advantage or anything of that sort of the mind, by now they would have done it and finished it.”

Manoj Tulsian: “The way the rules and regulations in this country are changing and the consumer preference, which is also moving towards branded goods player… the regulations, like when I'm saying regulations, I'm clearly talking about the GST regulation as it continues to improve in the country : and second, the consumer preference, which is now slowly moving more towards branded goods. These are 2 good signs for any branded players for future.”

Guidance & Commitments

Key Metrics