CONFERENCE CALL - from Capital Markets
Margins to improve by 150-180 bps in FY16
The company has conducted a conference call on 19th January 2016 to discuss the financial performance for the third quarter and nine months ended December 2015 and way forward. Mr. Shobhan Mittal, Executive Director, and Mr. V. Venkatramani, CFO, of the Company addressed the conference call.
Greenply Industries has continued to deliver a stable financial and operating performance in Q3FY16, in a sluggish macro environment, chiefly driven by two pronged strategy of gaining market share from the unorganised segment and enhancing operational efficiencies through an improved product mix.
The Companyis optimistic that MDF business will be a key growth driver going forward. However, the increase in working capital investments remains a matter of concern and the company plans to strive for better cash management in the coming quarters"
The company has registered net revenues of Rs 421.74 crore in Q3FY16, up8% from Rs 390.50 crore in corresponding quarter. Plywood revenues were up by 4.4% YoY to Rs. 290.70 crores, contributing 69% of net sales. MDF revenues grew by 15.3% YoY to Rs 129.07 crores, contributing 31% to net sales. New product Wallpaper contributed Rs 1.97 crores. The Company plywood plants utilization stood at 97% and further demand catered through outsourcing. MDF plants utilization was at 98%. Gross margins expanded by 190 bps YoY to 44.3%, led by better product mix. EBITDA margin was up 260 bps YoY to 15.3%. EBITDA was up by 29.9% at Rs 64.51 crore compared to Rs 49.68 crore. PBT rose by 47.1% at Rs 46.27 crore. PAT gained by 35.2% at Rs 35.34 crore.
The Company working capital cycle increased by 8 days yoy and 7 days qoq to 56 days in Q3FY16, led by better inventory and debtor management. Net debt to equity stood at 0.47x as on 31st December, 2015 as compared to 0.77x as on 31st December, 2014
The Company Ad expenditure to sales stood at 3.7% in Q3FY16. The Company plans to continue investments in increasing brand visibility pan-India, with Ad spends at around 3% of Net Sales.
.Plywood: (A) Plywood production declined by 2.8% to 7.86 million square meters (million sqm). (B) Average capacity utilisations wereat 97% as compared 100% corresponding previous quarter. Sales volumes grew by 6.8% to 11.80 million sqm. © Average net realisation of Plywood decreased by 1.2% to Rs 242per sqm. (D) EBITDA Marginrose to 9.4% from 8.1% corresponding previous quarter.
The company holds largest pan-India player with 26% share of organised plywood market and 30% share of domestic MDF market. The company has 4 state–of-the-art manufacturing facilities for Plywood and 1 facility for MDF –largest in the country. With Plywood industry size of ~ Rs. 180 billion and MDF industry size of ~Rs. 14 billion, the company expects industry likely to benefit from rising residential/ commercial construction, increasing urbanization, high disposable incomes and Government Announcement regarding construction of 100 smart cities.
The Company hopes rising demand from the real estate sector, increasing urbanization, higher disposable incomes and growing middle class will be key industry driver going forward. Meanwhile government announcement regarding construction of 100 smart cities would facilitate further to boost to the industry. The Company expects rollout of GST helps the industry to facilitate faster shift from unorganised to organised players.
The company guides to increase the number of distributors and retailers going forward. Presently, the company has around 1170 plywood and 600 MDF distributors/stockist and 6000 plywood and 4000 MDF retailers. Also, serviced by 33 branches for ply and 15 branches for MDF pan-India.
On expansionplans- The Company plansto optimise utilisation of plywood plants in existing facilities and increase outsourcing proportion to 30% from 20% presently over the next 3 years. Also, with plans to setting up new MDF plant in Andhra Pradesh over FY16-19 to cater to future demand.
The Company has continued upgrading IT infrastructure – implemented SAP Hana to strengthen overall supply chain and implemented Microsoft CRM Module.
The Company plans to undertake greenfield expansion of MDF in Andhra Pradesh over FY16-19 to cater to future demand.
The Company guides a capex of ~Rs 100-150 crore for FY17 and maintenancecapex of ~10-15 crore for FY17-18.
For raw material sustainability, the Company has continued focused on plantation of fast growing and improved species of clonal plantations to improve quality of wood availability and plywood manufactured. Also, concentrated on backward integration through 50% JV in Myanmar for production of face veneers.
The Company expects plywood EBIDTA margin to improve to ~10.5-11% from 9.4% in Q3FY16. Also, guides to maintain MDF operating margin of ~27-28%.
The Company expects a ~5-7% growth in FY16. Margins expected to improve by 150-180 bps in FY16 driven by better product mix and cost control.