Key highlights

• Demonetisation has had a strong negative impact on performance during Q3FY17. The Company topline fell by 14% overall. Impact on Plywood business was much lower at 6% (the balance 3% impact on plywood topline was due to end of excise exemption at the Rudrapur Plywood Unit) whereas it had a negative impact of 26% on MDF topline. However, the Company able to maintain our Gross Margins and Working Capital days during the quarter.

• Demonetisation effects on Building materials industry- The Real estate segment is seen to have been impacted reflected in a correction in prices and anticipation by buyers of further downside. Replacement market which primarily is in cash has been impacted to a larger extent than the primary market. These two factors have led to a slowdown for Building materials too. Greenply's performance for the quarter under review has consequently been impacted across both its operating segments. Plywood has witnessed a relatively lower impact. MDF on the other hand has been more severely impacted and has recorded a significant de-growth. This is believed to be a result of demonetisation combined with price cuts being offered across the industry.

• The Company expects a better performance in Q4FY17, however, trims down topline guidance from 6-8% to 1-2% for FY 2017. The Company expects margins to improve by 50-70 bps in FY17 driven by better product mix and cost control.

• Expansion Plans:- The Company plans to optimise utilisation in existing facilities and increase outsourcing proportion to 30% from 22% presently over the next 3 years for Plywood division. For MDF- The Company is setting up of a new plant in Andhra Pradesh over FY16-19. Also, the Company plans to set-up a new unit adjacent to the existing unit of the company in Bamanbore, Gujarat, for manufacturing of Decorative Plywood / Decorative Veneers.

• Gross margins expanded 47.8% from 43.7% corresponding previous quarter led by better product mix. EBITDA margins decreased by 130 bps to 14.3% as notably due to rise in operating costs. Logistics cost / Net Sales rose 40 bps to 6% and Staff Cost/ Net Sales grew 110 bps to 1.2% in Q3FY17.

• Ad expenditure to sales grew 30 bps to 3.1%, as the Company continued investments in increasing brand visibility pan-India. Company plans to maintain Ad spends at around 3% of Net Sales.

• The Company working capital cycle decreased by 9 days YOY to 53 days. Net debt to equity at 0.4 as on 31 December 2016 as compared to 0.53 as on 31 December 2015.

• Plywood: (A) Plywood production declined by 2% to 7.70 million square meters (million sqm). (B) Average capacity utilisations stood at 95% as compared 97% corresponding previous quarter. Sales volumes decreased by 6.8% to 11 million sqm. (C) Average net realisation of Plywood decreased to Rs 233 per sqm from Rs 242 per sqm corresponding previous quarter. (D) EBITDA Margin rose to 12.6% from 9.6% corresponding previous quarter.

• MDF: (A) MDF production declined 16.7% to 41673 cubic metres. (B) Average capacity utilisations were at 93% as compared 111% corresponding previous quarter. Sales volumes dropped 22.9% to 37764 cubic metres. (C) Average net realisation of MDF reduced to Rs 35348 per cubic metres from Rs 26334 corresponding previous quarter.

• PRODUCTION MODEL-Plywood – 70% in-house, moving towards an asset light set-up by increasing proportion of outsourcing. MDF – 100% in-house.

• RAW MATERIAL SUSTAINABILITY- Plantation of fast growing and improved species of clonal plantations to improve quality of wood availability and plywood manufactured. Backward integration through 50% JV in Myanmar for production of face veneers.

• 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. 16 billion, the company expects industry likely to benefit from rising residential/ commercial construction, increasing urbanization, high disposable incomes, GST Implementation and Government Announcement regarding construction of 100 smart cities.

• 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 29 branches for ply and 14 branches for MDF pan-India.