Capitaline

Analyst Meet / AGM 25-Oct-16

Conference Call

Greenply Industries

Sees a 6-8% revenue growth in FY17

The company has conducted a conference call on 24^thOctober2016 to discuss the financial performance for the second quarter and way forward. Mr. Shobhan Mittal, Executive Director, and Mr. V. Venkatramani, CFO, of the Company addressed the conference call.
Key highlights

Greenply Industries have delivered a stable Q2FY17 performance in a challenging environment. The Company operating performance and margins have improved through controlling costs and reducing wastage. Plywood business has improved both in topline and operating margins and guides to maintain the growth achieved in this quarter. Price reduction by competition has impacted topline growth in the MDF Segment. Work on the new MDF Plant in the state of Andhra Pradesh is on schedule and Company have tied up the entire funding for this project. Cash Management remains an area of concern and Company will continue to strive for better cash management in the coming quarters"

Greenply Industries posted a 28.3% jump in YoY net profit to Rs 35.09 crore on the back of 8.5% gain in net sales to 434.63 crore for the quarter ended September (Plywood revenues up by 7% to Rs. 308.03 crores, contributing 70.9% of net sales; MDF revenues grew by 9.5% to Rs 123.61 crores, contributing 28.4% to net sales; New product Wallpaper contributed Rs 2.99 crores).

Gross margins expanded 100 bps to 46.0% led by improved capacity utilisations and better product mix. EBITDA margins increased by 130 bps to 15.5% as ad expenditure to sales at 3.5% in Q2FY17 compared to 3.9%.

The Company working capital cycle decreased by 3 days YOY to 52 days. Net debt to equity at 0.34 as on 30th September, 2016 as compared to 0.60 as on 30th September 2015.

The Company Ad expenditure to sales decreased to 3.5% in Q2FY17 compared to 3.9% corresponding previous quarter. The Company guides to continued investments in increasing brand visibility pan-India, with Ad spend at around 3% of Net Sales.

Plywood: (A) Plywood production inclined by 13.5% to 9.36 million square meters (million sqm). (B) Average capacity utilisations stood at 116% as compared 102% corresponding previous quarter. Sales volumes grew by 8.4% to 13.04 million sqm. (C) Average net realisation of Plywood decreased marginally to Rs 233 per sqm from Rs 236 per sqm corresponding previous quarter. (D) EBITDA Margin rose to 10.4% from 9.2% corresponding previous quarter.

MDF: (A) MDF production surged 19.6% to 49067 cubic metres. (B) Average capacity utilisations were at 1009 as compared 91% corresponding previous quarter. Sales volumes grew 13.8% to 47860 cubic metres. (C) Average net realisation of MDF reduced to Rs 25802 per cubic metres from Rs 26783 corresponding previous quarter.

PRODUCTION MODEL-Plywood â€“ 70% in-house, moving towards an asset light set-up by increasing proportion of outsourcing. MDF â€“ 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 stateâ€“of-the-art manufacturing facilities for Plywood and 1 facility for MDF â€“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 rising demand from the real estate sector, increasing urbanization, higher disposable incomes and growing middle class will be key industry driver going forward. The Company expects rollout of GST helps the industry to facilitate faster shift from unorganised to organised plywood players.

The company guides to increase the number of distributors and retailers going forward. Presently, the company has around 1200 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.

The Company plans to optimise utilisation of plywood plants in existing facilities and increase outsourcing proportion to 30% from 22% 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 guides MDF pricing continues to be a challenge with more capacities and more competition from the imports. The Company guides a higher utilisations and higher volume that will contribute to the growth.

The Company maintains growth guidance of ~6-8% growth in FY17. Margins expected to improve by 50-70 bps in FY17 driven by better product mix and cost control.

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