Greenply Industries Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Plywood margin squeezed by marketing spend, not operations: Gross margin improved 320 bps YoY to 39.5%, but a one-off IPL sponsorship pushed A&P to 4.8% of sales, dragging core EBITDA margin down 50 bps to 8.7%. Management expects full-year A&P to normalize at 3%-3.5%.
• MDF plant is live but deep in the red: The new MDF unit generated a net loss of INR14.8 crores on just INR18.1 crores of sales after only 50-55 operating days. The company targets EBITDA breakeven in Q2 and INR275-300 crores of full-year revenue, but will still post a small PBT loss for the year.
• Plywood volume target looks stretched: Q1 was weak, with June "nowhere near expectations." Hitting the full-year 10% volume growth target now requires ~13% growth over the remaining nine months, a pace management admits is "difficult" but is internally tasked to achieve.
• Gabon remains a drag with no clear catalyst: The overseas subsidiary is still under demand-side pressure with "no sizable visibility." The first US consignment yielded no follow-on business, and the only stated goal is reaching quarterly breakeven.
• What to watch next quarter: Whether the August price hike sticks and lifts plywood margins toward double digits, whether MDF actually hits EBITDA breakeven on ~INR90-100 crores of sales, and any sign that the unexplained Q1 demand slump is reversing.

Plywood: Margin Story Masks Volume Pressure

• Gross margin jump was real: Gross contribution rose to 39.5% from 36.3% YoY, driven by a 3% realization improvement from better product mix and prior-year price hikes, plus manufacturing cost efficiencies.
• A&P spike is temporary but painful: Q1 A&P spend hit 4.8% of sales because the IPL sponsorship fell entirely in the quarter and accounting rules require booking it when spent. The full-year budget remains 3%-3.5%, so the remaining three quarters will run lower.
• Volume shortfall raises the bar: June volumes were well below plan. The 10% full-year growth target now demands ~13% growth for the balance nine months. Management called it "difficult" but said the internal task is set.
• Price hikes are coming: The company plans to take price increases during Q2, with most of the benefit flowing through in the second half. Combined with operating leverage if volumes recover, this is the path back to double-digit margins.
• Bareilly plant disappointment: The facility did not deliver expected additional capacity in certain product lines; one full line for the doors business has still not started, costing business and customers. The JV model used there "has not given very successful results."
• Timber costs keep climbing: Timber prices have been rising for several quarters on supply-side availability challenges and are not expected to come down for another 6-9 months, until a new crop reaches the market.

Manoj Tulsian: "10% for sure is difficult, 13% rightly thing. But we are prepared, and we have taken that as an internal task also, how to make up in these balance 9 months. Let's see."

MDF Ramp-Up: Early Days, Heavy Losses

• Q1 was barely operational: The plant ran only 50-55 days and produced 6,000 CBM. Sales of INR18.1 crores generated a net loss of INR14.8 crores, with additional stabilization costs still being absorbed.
• Full-year revenue target is back-end loaded: Management is confident of INR275-300 crores in sales, implying a steep ramp from Q2's expected INR90-100 crores. Even at that top line, the business will not break even at the PBT level, though it will be cash-positive.
• EBITDA breakeven is the near-term milestone: The target is to hit EBITDA breakeven in Q2, described as "hopefully yes" rather than a firm commitment.
• Distribution build-out is aggressive: Over 250 active dealers, distributors and wholesalers have already completed more than two transactions. The year-end target is 800-900 direct partners, with a focus on the Western region while also supplying South, East and Northeast.
• Pricing strategy is deliberate: In high-competition markets like NCR, Greenply MDF is priced 1%-2% below competitors as an introductory offer. Management expects to reach pricing parity by end-FY24 or early FY25.
• Value-added differentiation is the moat: The line can produce across thicknesses from 1.5 mm to 35 mm. Trial production of Boilo grade (1,050-1,100 density, 100% fire retardant) was successful in the third month, a product only Action Tessa currently supplies domestically.
• Raw material sourcing is local: Over 60% of raw material comes from within 200 km of the factory, keeping costs at par with North Indian competitors. Some imports may be needed mid-year.

Sanidhya Mittal: "People who have multiple capacities should worry. I mean, we are not worried."

Gabon: A Persistent Overhang

• Demand remains weak with no visibility: The business is under continued pressure from demand-side challenges. Performance improved slightly quarter-on-quarter, but management described the market as uncertain with "no sizable visibility."
• US diversification failed to materialize: The first consignment sent to the USA did not generate any subsequent inquiry, and no further business has come from that market.
• The only goal is survival: The stated target is to reach breakeven on a quarterly basis. Management is "not bullish" and is measuring progress quarter-to-quarter.

Manoj Tulsian: "I think how I can place it at this point of time is we are looking at how can we reach to a breakeven level on a quarterly basis. That's the first target. The demand side is not so exciting even now for the Gabon business."

Market Conditions: A Demand Mystery

• Q1 demand vanished without explanation: Market traction was "really poor," and the company was prepared to do better numbers but demand simply was not there. Trade partners cited liquidity issues, but even other building material players could not identify a clear reason.
• Timber inflation is structural for now: Prices have been rising for several quarters on constrained availability. Management expects no relief for another 6-9 months, with a potential softening only after 5-6 quarters when new crop enters the market.
• Institutional business is changing the receivables profile: Institutional receivables run 30 days longer than trade. As that segment grows, higher working capital days become the new norm.

Manoj Tulsian: "nobody is able to give a reason behind it. That is the funniest part of it."

Balance Sheet & Capital Allocation

• Debt is elevated but expected to decline: Consolidated debt rose due to MDF investments and working capital needs. Reduction should begin as MDF generates cash flows.
• Interest cost will step up in Q2: Q1 interest of INR13 crores on ~INR700 crores of debt appears low because borrowings increased over the quarter. Q2 will reflect the true run rate, with full-year consolidated interest around INR52-53 crores.
• Depreciation is also rising: Q2 consolidated depreciation will be INR15.5-16 crores, with the full year around INR62-63 crores as MDF assets come fully on stream.
• Hardware JV is small and long-dated: A 50-50 joint venture will require INR30-40 crores of equity over 2-2.5 years, not a material near-term cash call. Further growth ventures will be commented on after a year or so.
• Working capital target: Expected to stabilize at 38-40 days.

Guidance & Commitments

Key Metrics