Greenply Industries Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record revenue, mixed quality: Consolidated revenue crossed ₹600 Crores for the first time, but plywood growth came almost entirely from the value segment while the premium segment remained a drag.
• MDF turned cash-positive in its first full quarter: The new MDF plant delivered a 15.5% EBITDA margin, though management warned that holding prices will be a challenge given imports and new capacity.
• Plywood margins were optically weak but cleanable: Core EBITDA of 7.9% included a one-time ₹3.2 Crore entry tax hit and a brand campaign spend; price hikes taken in August and September should lift H2.
• A new furniture-hardware JV was announced: The 50:50 partnership with Turkey's Samet targets ₹800 Crores of manufacturing capacity with a phased ₹300–350 Crore investment, and management sees a path to 25%+ EBITDA margins by year two or three.
• What to watch next quarter: Whether the plywood price hikes actually expand H2 margins, the pace of MDF's ramp toward the 1 lakh CBM annual sales target, and any sign that the premium plywood segment is recovering.

Plywood: Volume Up, Premium Down

• Volume growth on track: Plywood revenue grew 9.7% YoY on 11% volume growth, and management remains confident of hitting the 8%–10% annual volume growth target for the full year and for the next several years, driven by the shift from unorganized to organized players even if the market itself does not grow.
• The mix shift is the margin story: The premium segment has not grown for three to four quarters, while the value segment's share of Greenply's plywood mix rose from 37% to 43% over the last four quarters. Management acknowledged that efforts to grow the premium segment have not shown results in the last three quarters.
• Margins should improve in H2: The 7.9% adjusted core EBITDA margin included a one-time entry tax expense of ₹3.2 Crores and spending on the new brand ambassador campaign and TV ads. Price hikes taken in August and September will have their full impact in H2, and management expects margin improvements for Q4.
• Timber costs may have peaked: Management's assumption is that timber prices have peaked, with popular prices already correcting slightly, which may ease pressure on eucalyptus. However, the timber forestry cycle may stay tight for another 12 to 15 months before a good crop arrives, and management acknowledged they could be wrong on the peak call.
• Q3 will be seasonally subdued: The festival period traditionally brings lower plywood sales than Q2, though the macro environment for building materials looks good. Q4 is the strong season.

Manoj Tulsian: "I am assuming that possibly the timber prices have peaked, just an assumption our internal discussions we may go wrong also on the same."

MDF: Cash-Positive Start, Pricing Pressure Ahead

• First full quarter, first cash-positive result: The MDF plant achieved a 15.5% EBITDA margin in Q2, its first full quarter of operations since commissioning on May 5, 2023. Management expects margins to improve sequentially in Q3 and further in Q4.
• Volume target intact: Management is confident of meeting the indicated 1 lakh CBM sales volume for FY2024. Value-added products like CARB, Boil Pro, and pre-lam boards were launched during the quarter.
• Pricing is the hard part: Management stated plainly that price increases are not possible currently due to imports, new capacity additions, and competitors prioritizing market share. Holding current prices will itself be a challenge. Greenply prices at par with domestic players in most markets, and 2%–2.5% cheaper in the South as an entry strategy for this financial year only.
• Imports are a growing threat: MDF imports have risen from ~10%–11% of total domestic consumption to ~13%–14%, mainly in interior grade. Greenply does not compete with imports on price: its interior-grade trade realization is ~₹25,000/CBM versus ~₹19,000–₹20,000/CBM for imports. Domestic players retain an edge by serving small daily quantities without the inventory and price-uncertainty risk that imports carry over a 1–2 month lead time.
• Market share was taken, not given: Management believes the market has not grown much given imports and new capacities, so Greenply's volumes must have come at the expense of competitors. The plant's unique location in the West, where there is no other MDF manufacturer, gives a distribution edge.
• Exports are not on the table: Given strong domestic realizations, management considers exporting a waste of time. If unable to sell domestically, the fallback is to sell plain material to domestic importers at prices slightly above export levels.
• Cost position is still evolving: Management declined to give a cost-per-CBM settling point, calling it too early after only five months of operations. Costs are higher today because volumes are lower and the plant is still going through stoppages, sampling, and experimentation. A better answer is expected by year-end or Q1 next year.

Sanidhya Mittal: "I do not think it is possible to further increase prices, in fact to hold on to prices will be a challenge."

New Venture: Furniture Hardware JV with Samet

• The deal: A 50:50 joint venture with Turkish firm Samet, a leader in its category in Turkey with exports to over 22 countries. Greenply will be the second player in India after Hettich to have a full manufacturing facility in this space, competing with Hettich, Hafele, Ebco, Dorset, and Godrej.
• Phased investment: Total investment of ₹300–350 Crores over phases, shared equally between partners with a mix of equity and debt. That investment is expected to support ₹800 Crores of manufacturing capacity.
• Revenue ramp: The plant is targeted for commissioning at the end of Q1 next year. In the first year (balance nine months), turnover of around ₹100 Crores is expected. By year three of full operations, revenue could reach around ₹300 Crores.
• Margin ambition: Management sees EBITDA margins reaching 20%+ and potentially 25%+ by the second or third year of operations, reflecting the high-end engineered nature of the products.
• 80-20 operating model: 80% of products will be manufactured in India, with 15%–20% of slow-moving SKUs imported from Turkey.

Manoj Tulsian: "Actually, maybe by the second or third year of operations the EBITDA margin can be extremely, extremely healthy. It can even go up to 20% plus, it can even range 25% plus."

Gabon & Other Headwinds

• Gabon remains under pressure: The overseas business continues to suffer from severe political unrest and supply-side challenges. No immediate turnaround is expected, though management hopes to provide better direction by year-end.
• BIS standard change may help: A new Bureau of Indian Standards norm, applicable from the end of the year, is expected to make life slightly more difficult for importers, potentially offering some relief to domestic MDF players.
• Raw material competition with paper: Greenply can use timber with bark and a wider range of species than the paper industry, which requires debarked material and has species limitations. This means Greenply's timber pricing will always be slightly lower than what paper mills pay.

Balance Sheet & Capital Allocation

• Net debt comfort: Management is confident of remaining below the indicated maximum net debt range of ₹750 Crores, including the furniture hardware JV investments. Debt-to-equity will stay within 1:1 at any point.
• Plywood working capital: Q3 may see debtor days rise to 37–38 days because of lower sales in the festival period, with Q4 returning to 32–33 days. An average of 35–40 days is considered ideal.
• MDF margin target, not a promise: Management walked back any firm 22% margin commitment for MDF, clarifying that 22% was discussed as a possibility only at full-scale operations with around ₹700 Crores of sales in a full year, and asked not to be held to that number in the near term.

Sanidhya Mittal: "Do not hold us again next year first quarter itself that we said 22%, but I think a full year of operations where maybe once we are targeting around 700 odd Crores of sales that type of a margin assuming that similar margin trend continues as the market is today will be possible."

Guidance & Commitments

Key Metrics