Greenply Q4FY17 Concall Summary

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 Financial Highlights

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  • Top line was marginally lower by 0.3% compared to the y-o-y quarter
  • Expected 5-7% growth in top   line in FY18
  • Marginal decrease in realization for the quarter and the year-end due to competition and higher exports
  • Gross margins have expanded owing to a better product mix, improvement in yield and fall in raw material prices
  • Exports were 4,770.43 cubic meters at an average realization of Rs. 17,824
  • Ad expenditure was 5.1% compared to 2.5% y-o-y quarter and 3.5% Q-o-Q
  • Ad expenditure improved from 3% to 3.8% on a yearly basis
  • EBITDA margins were up by 60 basis points at 16.8% owing to healthy gross margins
  • PAT was higher by 0.5% at Rs. 41.87 crore due to increase in tax rate from 24% to 29%
  • Working capital days have decreased by 9 days to 40 days compared to the y-o-y quarter
  • Expected tax rate of 29% for FY18
  • Rs. 416 crore CAPEX by March, 2017: Rs. 393 crores in Andhra and Rs. 23 crores in Gabon plant
  • Rs 393 crores raised for MDF unit: Rs. 190 crores as debt, Rs.200 crore from internal accruals, and the QIP of Rs.50 crore
  • Overall cost of Debt would be 7.5% to 8%
  • Increase in freight cost as only 15 tonnes of timber can be transported per truck instead of 20 tonnes earlier
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Impact of Demonetization and GST implementation

  • The performance has improved since Demonetization with earlier recovery than expected
  • South has seen the fastest recovery
  • No major impact of Demonetization on unorganized sector
  • GST should have a very nominal impact
  • Since wood is under GST, the unorganized sector will have to pay GST on raw material even if they evade on final product
  • Tax rate has increased from 26% to 28%, and cost might shift to consumers
  • Refund mechanism would be clear after meeting of the GST Council on 3rd June

Segmentwise Performance

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Plywood Segment

  • Plywood business delivered performance in-line with pre-demonetization levels.
  • The full recovery will happen when real estate pick-up
  • Revenues were lower by 3.9% and contributed 68.6% of the net revenues
  • 3.5% de-growth can be attributed to the end of the excise exemption at plywood unit in Pantnagar, Uttarakhand
  • Average realizations were lower by Rs. 7 per square meter from Rs. 238 to Rs. 231 per sq. meter
  • 110% capacity utilization as compared to 109% y-o-y quarter
  • Small de-growth as dealers are resistant to lift material due to upcoming GST
  • Raw Material prices have gone up 5% from Rs. 580 to Rs. 605 and selling price increase of 2%
  • Margins of 47-48% would be sustainable
  • Plywood will grow at about 5% to 6% for next 10 years

MDF Segment

  • Revenues grew by 8.4% and contributed to 30.8% of the net revenues
  • Margins reduced from 30% to 27.15% which would improve after exports move to the new unit
  • Gross margins improved by 470 basis points y-o-y to 47.9% due to better product mix, improvement in yield and fall in raw material prices
  • Realizations were lower by 3.5% from Rs. 26,673 to Rs. 25,737 per cu. meter in Q4'17 due to exports
  • 110% capacity utilization as compared to 109% y-o-y quarter
  • Price increase of 5% in April due to 8% increase in wood prices from Rs. 3 per kg to Rs. 3.25 per kg
  • Price increase implemented in May which resulted in additional orders at old prices
  • Margins would stabilize at 23-24% in 2-3 years due to competition
  • Low expected growth for FY18 due to capacity restrictions
  • MDF will grow at a faster rate of about 12% to 15% for next 10 years

Future Prospects and Strategy

  • MDF and plywood would move to 50-50 ratio
  • Excise exemption at the MDF unit and partial refund of excise duty at the Nagaland factory
  • MDF plant in Andhra Pradesh will get commissioned by third quarter of FY2019
  • Price Reduction by competitors Century and Action would not affect the company as they would save freight cost by upcoming plant in Andhra
  • Expected 5% to 7% growth in top line during FY18 and improvement in operating margins by 50 bps
  • Smaller players Artisan are setting up plant however it would not affect the company
  • 500 licenses for plywood to be given by Haryana Government would depend on the raw material and capacity, and small players would not enter due to narrowed prices and GST
  • Further Rs. 350 crores CAPEX in FY18 and FY19
  • For Gujarat unit, CAPEX of Rs. 40 crores in FY18 and revenue of Rs. 125-130 crores at capacity
  • For UP unit, CAPEX of Rs. 115 crores in FY18 and revenue of Rs. 300-350 crores at capacity
  • Gabon commercial veneer plant should start operations in June at 50% capacity
  • Gabon veneer prices would be lower as compared to Myanmar and Indonesia which would help margins
  • Only 1/3rd production of Gabon plant would be consumed internally after being fully operational
  • There would be no major impact on Plywood industry, however, MDF would grow substantially after 7-10 years
  • Cheap plywood would get substituted by MDF, however, no impact on premium plywood