Greenply Industries Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Plywood delivered, MDF just arrived: Plywood volumes grew 15% in FY23, beating the original 15% value-growth estimate, while the MDF plant began commercial production on 5 May 2023, a record 15-month commissioning.
• MDF is the FY24 story, but it starts small: Management committed to 100,000 CBM of MDF volume in year one, implying ~INR 275–300 crores of revenue at a 14–15% margin, well below mature peers but "much better than 10%."
• Timber cost is the persistent margin villain: Timber cost has doubled in three years and every expected crop-led price drop has failed to materialize; management sees the challenge continuing through FY24.
• Blended margins should inch up, not leap: Operating leverage from plywood growth plus MDF ramp-up should lift blended margins "slightly" in FY24, with improvement spread over the next 2–3 years.
• What to watch next quarter: The pace of MDF ramp-up beyond interior grade into exterior and HDMR, any movement in timber prices, and whether the furniture fittings JV is formally signed.

MDF: The New Growth Engine

• Plant commissioned in record time: The Vadodara, Gujarat MDF unit achieved commercial production on 5 May 2023, just 15 months from start, which management calls the fastest launch in the Indian wood panel industry.
• Year-one utilization and margin: First-year utilization is expected at 40–45%, with a ballpark EBITDA margin of 14–15%, depending on market conditions and prices. Cash breakeven sits at 45–50% utilization.
• Volume commitment: Management is "committed to producing 1 lakh CBM this year and committed to making sure that it sells," which at current mix would translate to roughly INR 275–300 crores of revenue.
• Ramp-up strategy rests on value-added products: The winning statement, per management, is how fast the plant can move beyond interior grade into exterior, HDMR and other value-added categories where import competition is minimal and realizations are better.
• Import competition is real but manageable: Imports affect the West and South primarily, but roughly 90% of imports are interior E2 grade; Greenply is focusing on exterior and HDMR, which are not imported, and pricing at par with competition while leveraging its premium brand.
• Long-term margin ambition: On a sustainable basis, management targets 20–22% EBITDA for the MDF business, though everything was designed at 17% for cash flow, payback and banking conservatism.
• Raw material moat: With three major consumers now operating in the region (Greenply, Merino, JK Paper Mill), management sees no space for another large MDF capacity and is working hard to ensure sustainable raw material availability, having planted over 2 crores saplings in the last two financial years.

Sanidhya Mittal: "I think we should -- we are committed to producing 1 lakh CBM this year, and we're committed to making sure that, that sells."

Plywood: The Steady Anchor

• FY23 beat the plan: Plywood delivered 21% sales growth and 15% volume growth for the full year, surpassing the original estimate of 15% value growth discussed at the beginning of the year.
• FY24 volume target: Management expects double-digit volume growth of 10–12% for the next 2–3 years, with FY24 revenue growth assumed to be similar to volume growth since price increases taken in Q4 FY23 had not yet been passed on as of May.
• Sandila ramp-up: The Sandila plywood capacity expansion, commissioned at the start of FY23, was operating at almost 60% utilization by Q4 FY23, and additional utilization from this plant will cater to future growth with slightly better margins than some other plants.
• Premium mix dipped, but commitment holds: Premium plywood volumes declined from 54% to 51% of overall volumes YoY because the company is also growing in the mid segment where mass volume increase is taking place; management reiterated its commitment to brand leadership through continuous premium product launches.
• Margin trajectory: Plywood segment margins are expected to remain on a similar trajectory, with efforts to improve further; adjusted core EBITDA margin for FY23 was 10.4%, a slight improvement from the previous year despite ongoing raw material cost escalation.

Raw Material & Margin Pressures

• Timber cost has doubled in three years: The 100% increase in timber cost over the last three years is the single largest margin headwind, and every few quarters the expected crop-led price drop has failed to materialize. Management expects the challenge to continue through this fiscal year, with a possible price decline only next year if the crop is better.
• No near-term RM relief: The company is not seeing much benefit on the raw material side, and with the market slightly subdued, management is not even talking about price increases at this point in time.
• Operating leverage as partial offset: Growth may provide some advantage of operating leverage to mitigate potential raw material cost increases, but the net effect is expected to be gradual margin improvement spread over 2–3 years at the blended level.

Manoj Tulsian: "And every few quarters, I get to hear that now the timber production will improve, the new crop will come and the prices will drop down. But it has not happened in the last four quarters or eight quarters."

Balance Sheet & Capital Allocation

• Debt has peaked: Current debt levels are expected to represent peak debt, keeping committed MDF costs and maintenance capex in mind. MDF loan repayments of INR 40–50 crores will begin around October/November.
• Remaining MDF capex: Committed costs of around INR 50–60 crores on the MDF side remain where cash flow has not yet taken place; capitalization to that extent may happen during the year and might show as CWIP.
• Maintenance capex: Regular plywood business maintenance capex runs at around INR 20–25 crores annually.
• MDF working capital: The company is not offering anything extraordinary on credit terms; once full capacity is achieved and sold, working capital metrics will be absolutely comparable with competition, not higher.

Other Businesses & Bets

• Gabon subsidiary: The Gabon business continued to face challenges but saw some demand recovery in Q4 FY23, with sales of around INR 42 crores. A decent order book for the current quarter supports an expectation of replicating Q4 performance, with cost rationalization measures already completed.
• Furniture fittings JV: Greenply has found a Turkey-based partner for a hardware/furniture fitting business; the partner wants to set up a manufacturing facility in India with a strong local partner. Final JV papers were expected within a week of the call. The business carries high EBITDA potential, much better than plywood, but meaningful traction is expected only from year 3 once the full manufacturing facility is set up and the team is trained.
• Bareli JV challenges: Volume dipped on a YoY basis due to challenges in ramping up one facility; management acknowledged it has not been able to get the best traction from the Bareli units.

Manoj Tulsian: "But I would say that first 2 years, we should not be looking at anything very great coming from this business. But from year 3, it looks like once we have a full manufacturing facility set up here and also that the team is well trained, we will be able to see some good traction from this business also."

MDF Competitive Positioning

• Pricing at par, not below: Greenply is trying to price at par with competition because it is a premium brand, and has positioned its team to capture closer markets to maintain profitability. On a short-run quarterly basis, realization might look slightly different versus competition because more B-grade may be produced than A-grade during ramp-up, but on a full-year, long-term basis, prices will not be lower than competition.
• Planning without ADD: The company is planning its MDF strategy assuming no anti-dumping duty, focusing on producing more exterior and HDMR where the import challenge is very low, and trying to grow in the value-added segment for better top line and realization while leveraging the Greenply brand.
• Margin comparability: Management is confident that over time, Greenply's MDF margins and realizations will be similar to organized peers like Greenpanel, Century and Action, though it is very difficult to predict margins over the next four years given external variables like ADD, freight rates and imports.
• Geographic focus: West and Central India will be the primary focus; the South has loyal dealers and is a huge consuming market; NCR is one of the largest MDF markets and very viable despite huge competition. The plant started five months ahead of Merino, establishing buying relationships with farmers and the local community before the competitor could.

Sanidhya Mittal: "But for now, for our planning, we are considering the value in our ADD. So rather it will be as is and we need to sail through in the tough time."

Guidance & Commitments

Key Metrics