Greenpanel Industries Ltd. (Demerged Entity of Greenply)

GSrikan · May 16, 2021, 5:16am

Greenpanel Industries Earnings Call for Q4FY21 - YouTube

Lot of questions were around capex to expand the capacity and management had difficult time explaining why they are not going for capacity expansion when the demand seems to be growing rapidly (current quarter capacity utilization being 102% on avg). Management’s recent past experiences with high debt probably left some bad scars on their psyche.

The brownfield expansion to increase capacity + new machines to save usage of vax will take care of revenue growth for 1 to 2 years.
Management is looking to sell more MDF to retail customers (less quantity to OEMs) thus improving margins.
An year or 1.5 yrs later , they would be having less net debt, hence might be in good position to increase capacity [my guess]
Even though there seems to be no non competent agreement between Greenpanel & Greenply, Greenpanel management is not keen on taking some ply capacity even on contract basis.

Discl: Invested (i don’t understand the industry well; my novice observations from concall)

zygo23554 · May 16, 2021, 2:44pm

One of the levers the management has handy to improve margins is to change the domestic to export mix in favor of domestic within the MDF business. Per CBM realization in domestic market has historically trended at 21,000+ while realization in export market is closer to 15,000.

The other lever is changing the channel to OEM sales mix, the focus over the past 2 years was to sweat assets in whatever way possible since low utilization was denting both P&L and balance sheet. Now that they have the utilization at a very healthy level, the next logical step is product mix changes to squeeze out better realizations, higher margins and in the process deleverage the balance sheet.

The entire MDF market in India was around 1900 Cr before COVID, we currently have a situation where Greenpanel Ind alone is able to do 1200 Cr annual revenue in MDF. Action Tesa and Century MDF too have improved capacity utilization over the past couple of Q’s, what appears to be under rated right now is the possibility that the domestic MDF market is growing at a healthy rate. As the supply glut of the past 2 years has waned, realizations are expected to go up for all the players.

The biggest risk here continues to be the 400+ Cr of debt with most of it being non unhedged non INR debt which can spike finance charges if the INR were to go into depreciation mode suddenly. A good part of the balance sheet risk will get addressed if they can bring down debt by another 150 Cr over the next 12 months or so.

Overall the strong business performance has surprised even the management, the situation was looking very grim when COVID hit in March 2020. Within one year we are at a situation where everything has improved by leaps and bounds, no wonder the stock price is up 9x+ from the March 2020 lows.

Biggest learnings from this story -

Respect replacement values, the story was trading at 500 Cr when the replacement value of the assets was 1200+ Cr
A few positive possibilities playing out in unison can get such stories out of the trenches within 1 year (though you cannot predict these things precisely, you can anticipate some of them)
Respect businesses that have the best technology, market leadership and a few competitive advantages
A business that can deliver EBITDA margin of 20%+ and grow at 15% during normal times cannot be a low quality business, no matter what the market opinion is
Promoters who have a decent track record of value creation for minority shareholders manage to pull through most of the time (Plywood+laminate+MDF was trading at CMP of 300 in 2014, there on both Greenply and Greenlam made multibagger return for investors before they embarked on the ambitious MDF capex)
Obsessively track supply in market segments that are small. If one had tracked this and acted accordingly one could have avoided a good chunk of the steep fall in stock price from 380 to 120 for the combined Greenply + Greenpanel business in 2018. From there the price is up almost 4x in a matter of 18 months (adding up price of Greenply and Greenpanel)

As of date the business appears to pricing in good prospects over the next few Q’s, it is no longer a question of thinking positive possibilities but one needs to be risk focused as well. Also time to evaluate if there are better opportunities within the building materials segment post the steep stock price run up over the past 12 months.

Disclosure: Invested, SELL transactions over the past month or so. I am a SEBI registered IA

tanishq · May 25, 2021, 2:49am

Hello sir, what do you mean by small market segments? Also, how do you track supply in market segments?

zygo23554 · May 26, 2021, 12:58pm

Small market segment means market segments where the current market size is small, like MDF which is hardly a 2000 Cr annual market across India. On the other hand the annual market size of domestic pharma formulations market is 1.2+ lakh Cr, API is 79,000 Cr. Worldwide IT spend market is in excess of USD 1 Trillion and so forth.

Tracking supply means tracking capex plans of various players. Between 2017 and 2019 the installed capacity for MDF in India went up from < 2,000 Cr to 3,200 Cr at peak utilization. Greenpanel Ind capacity was increased to 540,000 CBM, Action Tesa capacity increased to 400,000 CBM and Century Ply MDF capacity was increased to around 220,000 CBM. When so much of supply comes on board within a short span of time, all players are under pressure to increase volumes and improve utilization to break even on the new capacity. Which is why the domestic price of MDF fell from a range of 25,000 per CBM to a low of around 19,000 CBM as the market was suddenly flooded by increased supply from all the major players.

At the other extreme you have an industry like ERW steel pipes where more than 70% of the incremental capacity expansion over the past 7-8 years has been done by a single player. No wonder that player dominates the market today since the bulk of the incremental market growth has been serviced by this player.

Tracking supply/capacity addition and taking a view on industry pricing over the next few years was one of the key takeaways for me from the 2017 VP Annual Conference from Kenneth Andrade’s talk. I still did not put this to good use in Greenply through the 2018 fall though, goes to prove that knowing is different from doing.

tanishq · May 26, 2021, 3:14pm

Don’t you think this will be happening again sir?
Action is expanding it’s capacity, Rushil is doing the same and even companies like Amazon wood are coming up with considerable capacities. What do you think of this and how does it pan out according to you?

GSrikan · May 26, 2021, 4:28pm

I believe few things playing out here:

At the start of 2020, the MDF was still in great oversupply due to imports & excess capacities in India
All the players suggest that MDF is growing at 15+%, where as ply is growing at 6%+ Year on Year.
The MDF is & was quickly replacing cheap plywood (which was main stay of unorganized players).
a) Century ply management (in 2020) said for the first time after lot many years, the dealers are approaching them for MDF dealership.
The covid seems to have helped in rapid increase of demand in 2 ways
a) As per Greenpanel, the people are wary of allowing carpenters at home, hence buying ready made furniture [cheaper readymade furniture is made of MDF; Ex: IKEA seems to sell 100% MDF based ready made furniture (??)]
b) The imports have come down drastically due to rise in demand elsewhere in the world & container unavailability, drastic rise in freight cost
With the above factors along with general housing improvement etc demand, the capacity utilization across the board has improved to 100%.
Greenpanel management says the efforts & strategy in last few years to spread into rural, tier II & Tier III towns helped them earn better margins. [Not sure whether this acts as differentiating factor or not. Greenpanel spends 1% of revenue on marketing related expenses]
The Rushil decor’s capacity is the only one which is ready & production is getting delayed due to covid, but Greenpanel management expects it to be absorbed easily.
Century ply’s new capacity is at least an year away.
In my opinion, Market participants have recognized that the shift from Ply to MDF from current 80:20 to probably 50-50 in medium term, so might be investing now for long term at this prices. The advantage for MDF would be that there is a shift from ply along with growth in wood related industry itself (i.e. readymade furniture, wood flooring etc)
The thin MDF is where there is huge price difference of 20-25% between imports and domestic manufacturing & I believe 70% of industry is thin MDF (??) [Thick MDF seems to be around 6-10%]. So, once there is a countervailing duty along with anti dumping duty, there could be price parity in thin MDF as well helping the absorption of new capacities. [the countervailing duty seems to have changed fortunes of few industries so far by protecting them from imports, based on history, hence the optimism even at these levels]
There is talk by managements about India becoming a readymade furniture export hub to Europe & US [another speculation]
In India too, the cheap ready made furniture is expected to grow well due to IKEA, pepper fry etc promoting it
So, lot of good things are going on for the industry at least on paper.

Disc: Invested in Greenpanel when price was in 2 digits [was 3% of PF]
I have very limited knowledge of wood/furniture related industry. The above mentioned things are from what I gathered from concalls and posts from other members like Kedar ji
Happy to be corrected, if I made any mistakes.

vikas_sinha · May 27, 2021, 3:28pm

I have used mainly only IKEA furniture, for little over a decade now, very less was MDF, maybe around 10%. Their cheap versions are made of particle-board (about 70%), not fibre-board. Rest they use other materials like wood, metal, plastic and plywood a little bit.

MDF is better than particle-board, it can be dis-assembled and also moved around easier. Particle-board has much less strength and dis-assembly can be destructive.

bhaskarbora67 · June 1, 2021, 2:54am

Concall highlights

Demand: Factories have been running smoothly as of now in 1Q, on the demand front the Int’l market is expected to continue the momentum from 4Q while there is some hit in the domestic market due to lockdown in most of the markets ? Margin: Have guided earlier for EBITDA margins of 15-16% in laminates; however it depends can take a hit in the near term due to uncertain environment and cost inflation (RM cost and shipping cost).

Costs: Paper, chemicals, freight (inward/outward) all are in the upward trend; company is able to pass on the entire RM cost in the domestic market, certain chemical prices have gone up 2x also

Price hike: Has been able to pass on the part of the overall price increase, while some are yet to be passed on. The price hikes taken till now is ~12-14% from Nov’20-Mar’21.
While some are yet to be passed on in few international markets

South Plant: At last stages of getting the approval from the Govt. In the next 2-3 months. I can start the construction work after getting the cabinet approvals etc. It would take around 12-15 months for the laminate plant (2-3 lines) from the date of commencement of the construction for final operations of the plant

Working Capital: The working capital days improved to 64 days in current quarter as compared to 94 days in corresponding quarter last year ? Debt: Net debt reduction of INR1.40bn in FY21 to INR1.23bn from INR2.63bn last year

Capex: Maintenance capex for FY22 would ~INR250-300mn while for the South plant it would be adding ~INR500-600mn in current year.

Exceptional item of INR120mn was due to settling of outstanding entry tax disputes with Rajasthan and HP commercial tax dept

Revenues of decorative veneer business grew by 33.8% YoY to INR 319mn in Q4FY21, volumes growth stood at 44.0%

Revenues of engineered wood flooring business grew by 17.2% on YoY basis to INR 108mn

Revenues of engineered door business declined by 4.5% YoY to INR70mn in Q4FY21.
CU at 23% for FY21 and 24% in 4QFY21.

harshitgoel · June 18, 2021, 4:34am

Greenpanel Industries AR 2021 notes

Greenpanel is a leader within the vast market of India in the manufacture of wood panels. The Company’s principal product is Medium Density Fibreboard (MDF) and is a market leader in this segment. Greenpanel Industries Limited is the largest MDF and allied products manufacturers in India with a 27% share of the organised market

The Company’s plants are located in Rudrapur (Uttarakhand) and Srikalahasti (Andhra Pradesh), the latter being arguably the largest MDF plant in the world.
Product Offerings
Medium Density Fibreboard (MDF)
Greenpneal wood floors
Greenpanel plywood
Veneers
Doors
The company outperformed its MDF sector. Even as the broad MDF market de-grew 37% during the year under review, the company reported a 20% increase in MDF volumes and 27% increase in MDF revenues. The result is that the company strengthened its market share. The company finished the year under review as the leader of the MDF segment of India’s interior infrastructure sector.
We believe that MDF represents the new face of the sector on account of its environment-friendliness, convenience of fabrication and a growing OEM preference for us in furniture fabrication (circumventing fabrication inside one’s premises or the building’s landing)
MDF accounted for 78% of the company’s revenues FY21.
We believe that even as MDF represents the principal product, there is a considerable scope to grow the proportion of revenues from non-MDF products. The proportion of revenues from MDF are quite constant over the years with higher turnover, a trend that is likely to sustain moving ahead. 22% share of non MDF in FY21 compared to 26% in FY20 and 25% in FY19.
The company intends to market a larger proportion of value-added products from within its portfolio mix. For instance, the proportion of revenues from Hi-Density Fibre boards, Club MDF, Exterior Grade MDF and Pre-Laminated MDF increased considerably over the years; the proportion of revenues from value-added veneers also increased significantly over earlier periods.
The company is optimistic of growing the domestic size of MDF business from Rs. 663 crores in 2020-21 to a projected revenue of Rs. 900 crores in 2021-22.
A major portion of the Company’s revenues were from the Northern and Southern geographies where the Company’s manufacturing units are located.
Company touched peak pre-Covid monthly revenues in November 2020; the company reported its highest monthly revenue in March 2021. Besides, the company reported peak quarter revenues and profits from the third quarter onwards
Company extended its footprint from an erstwhile focus on large cities towards smaller population clusters, supported by an increase in the number of dealers (MDF and plywood) on the one hand and the appointment of a larger number of small dealers.
The company deepened its focus on OEM customers, which enhanced revenue per customer, strengthened our institutional accounts, generated follow-on revenues and made Greenpanel integral to their business. This approach had an immediate impact on increased capacity utilisation; the MDF capacity utilisation strengthened from 60% in Q2 to 93% in Q3 and 102% in Q4, strengthening overall profitability.
*** The company increased its MDF capacity utilisation from 47% in FY2018-19 to 60% in FY2019-20 to 69% in FY2020-21**
The company expects to report peak revenues of Rs. 1600 crores in the next couple of years assuming complete capacity utilisation.
The company invested at a capital cost per tonne of MDF capacity that is lower than the prevailing greenfield benchmark. With each expansion, the company has not only emerged larger but has reduced (or at worst maintained) its capital cost and variable cost per tonne of installed capacity. The result is that each successive MDF expansion has not been linear but has strengthened the company’s competitiveness.
The Company engaged in aggressive clonal propagation to secure raw material access from within 100 km. from its manufacturing units.
The Indian government provided adequate protection to Indian manufacturers of interior infrastructure products by raising the customs duty on furniture products. As a result, the import of MDF into India declined in 2020-21.
% of revenues derived from customers of three years or more was 41% in FY21 compared to 35% in FY20 and 30% in FY19.
No. of dealers are 2000+ in FY21 compared to 1000 in FY19.
683 no. of dealers in the Plywood segment.
Company plans to double its flooring business in 1 year time and double it’s Venner business in three years time but both these businesses are very small to make any difference as of right now.
The Indian MDF capacity is projected to have increased to 7000 cbm per day, whereas the capacity utilisation was estimated around ~55-60%
Opportunities
- MDF enjoys a good future for its advantage over solid wood for reasons of strength and water resistance: its use in our resource mix has increased from around 10% a few years ago to 45% today.
- A number of global furniture buyers seek to de-risk their business away from China. This could trigger growth for players in the furniture supply chain.
- About 80% of the global wood panel consumption is that of MDF and other types of particle board while plywood makes up only 15 to 20% of the total mix. In India, the statistics are exactly inverted with plywood still dominating the market with 80 to 85% consumption.
Financials
- Aggregate sales increased 20% to reach Rs. 1,000.22 crores in FY2020-21 due to a widening of the dealer network and focus on individual products
- The Company reported a 420 bps increase in EBIDTA margin during FY2020-21 due to wastage reduction, superior product mix, cost optimization and operational leverage in the MDF and plywood segments
- The company repaid Rs. 49 crores in long-term debt in FY21 and intends to reduce its net debt by Rs. 150 crores during FY22.
- The long-term debt of the Company decreased by 10% to Rs. 425 crores as on March 31, 2021 from Rs. 470 crores as on March 31, 2020, owing to the timely repayment of loans. Shortterm borrowings comprising working capital loans decreased from Rs. 73 crores as on March 31, 2020 to Rs. 16 crores as on March 31, 2021
- Tax paid is Rs. 16.41 cr in Cash Flow statement compared to provision made of Rs. 32 cr in P&L.
- Exports during the year 2020-21 was Rs. 119 cr as against Rs. 136 cr during the previous year, resulting decrease in export by 12% due to COVID-19 and adverse market situation
- Revenue from top 5 customers was 9.64% in FY21 compared to 16.02% in Fy20.
- Revenue Bifurcation
  MDF: Rs. 783 cr (27% growth)
  Plywood: Rs. 217 cr (1% growth)

ajay81 · July 23, 2021, 8:53am

MDF Plain less than 6 MM_duty Rejection Finmin July 2021.pdf (155.9 KB)

Finance Ministry has rejected the anti dumping duty MDF below 6 mm recommended by DGTR

Chandragupta · July 23, 2021, 12:45pm

Any idea why FinMin would do that, given that duty would be positive for government revenues?

ajay81 · July 23, 2021, 6:25pm

I have also started following these for last few months and have realised DGTR recommends dozens of anti dumping duty but Finmin rejects atleast 60%-70% of them so actually DGTR recommending it is not as big a thing as i thought.
As such for every anti dumping duty someone benefits and someone suffers at industry level so Finmin becomes the arbiter to decide that…In this case furniture industry would suffer if MDF is costlier

mohammedpatel · August 25, 2021, 12:37pm

Excerpt from Q1FY22 earnings conference call might help:

mohammedpatel · August 25, 2021, 12:41pm

There is still a chance of CVD getting accepted and the ground of investigation are very different. We can hope some positive response.

Excerpt from the Q1FY22 earnings conference call:

mohammedpatel · August 25, 2021, 12:47pm

Greenply (Promoter group company) forays into MDF business. The greenfield manufacturing plant would be setup in Vadodara Distt., Gujarat with an estimated cost of Rs. 548 Crore. For this purpose, the Board of Directors of the company today announced the acquisition of M/S Baahu Panels Pvt Ltd as a wholly owned subsidiary. Setting-up 800 CBM per day capacity plant in Gujarat (India) Expected COD by Q4FY23.

Link to the press release: https://www.bseindia.com/xml-data/corpfiling/AttachHis/cb73ef41-63e5-473f-8d50-fa5713a50ead.pdf

Excerpt from the Q3FY21 Greenply Industries Conference Call with respect to the 7 year non-compete agreement:

Chaitanya_Ghorpade1 · August 25, 2021, 4:14pm

Basics of Wood Panel Industry and future opportunities:

mohammedpatel · August 28, 2021, 1:01pm

Action Tesa Credit Rating Report 26-08-2021: Capex of 300-500 Cr funded entirely through internal accruals in MDF segment (FY22-23)

Old capex cost: In March 2018, BAB had completed its brownfield capex of INR2,700 million to set up a 660-cubic-metre-per-day MDF capacity in Uttarakhand. Assuming 320 days: 211,200 per year. Per CBM cost: 12,784.

New Capacity Addition: Assuming same cost and 500 Cr capex: 500 Cr / 12,874 = 400,000 CBM additional roughly in FY24-25.

Source: India Ratings and Research Private Limited : India's Most Respected Credit Rating and Research Agency : India Ratings Affirms Balaji Action Buildwell at ‘IND A+’/Stable

kartik_bhat · September 21, 2021, 5:11pm

Greenpanel Industries to consider price increase in plywood segment next quarter

Shawn_Lopes · September 26, 2021, 10:51am

Very Thoughtful analysis on Greenpanel as proxy investing & capacity structure of industry peers.

nirvana_laha · January 25, 2022, 12:15pm

Good results declared by Greenpanel for Q3.

Greenpanel.pdf (2.8 MB)

In spite of the Rudrapur plant being shut down for half the quarter, they have reported very impressive realization, EBITDA and PAT numbers. Export and domestic realizations both have grown significantly Q-o-Q
Management has guided that they are now operating at max margin %s (Except for the Plant shutdown effect) and going forward will focus on maintaining these margins. No more price differences between OEM channel and retail channel in domestic markets, prices have been made equal Dec onwards.
Max capacity they can operate at is close to 7 Lakh CBM for MDF without any greenfield/brownfield capex. MDF new capex plans will be firmed up in March quarter and commission will not happen before Q3-Q4 FY24.
Capacity in India - Capacity at end of FY21 was 1.9mn CBM, which is now up to 2.3 CBM and will go to 2.9 CBM as per announced decisions by FY24 (This excludes Greenpanel fresh capex). Expects demand to grow at 15% Y-o-Y and hover around 75% of capacity by FY24. Management commented saying when industry capex utilization is at 75%, organised large players typically operate at 90%+. So does not anticipate any supply glut from domestic markets.
Imports - Due to elevated global prices and the likes of Vietnam focusing on exports to Western markets, does not expect supply glut from outside markets to India in the immediate future.

Started following Greenpanel recently. I don’t have much experience in entering cyclical stocks. Can anybody who is following Greenpanel for several quarters now, comment on whether the below assumptions for FY23 seem realistic or are too optimistic? I have moderated the realizations a bit considering r/m prices are likely to cool off over the next FY.