Greenlam Industries Limited (GREENLAM) Earnings Call Transcript & Summary

Good afternoon, friends, and a very warm welcome to all of you all. I hope you're all keeping safe and healthy. On the call, I'm joined by Ashok, our CFO; Samarth, from the finance team and SGA, our Investor Relations adviser. The results and presentations are available on the stock exchanges and our company's website, and I hope everyone has had a chance to look at it. The April to June quarter was impacted due to COVID. Due to the lockdown, sales in April were negligible. Towards the end of April, both the factories started, 28 April was the date we started the Behror plant and 26 April was the -- 25th was the date we started the Himachal plant, and the Head Office started from a couple of upsides in the 4th of May. And subsequently, various markets across the country started within the month of May, for which several markets, again, went down with some restrictions and lockdowns, et cetera. So May and June did see recovery in sales. So June, in particular was nearly at a 90% level of what we did in June 2019. May was still at a 45%, 50% kind of a level. So in quarter 1, assuming taking the entire quarter, the domestic businesses operated at a 30%, 35% revenue run rate versus Q1 of FY '20. The International business is at 85%, 90% sales level of Q1 FY '20. So overall, in quarter 1, the business operated at a 55% level versus Q1 of FY '20. As we talk right now, exports have largely come back to normalcy. And domestic business is still more at a 50%, 60% kind of a run rate right now, as still several markets, regions are under the lockdown. In certain markets in the country, there are restrictions of timing, whether we like can operate, there are arisen schemes in certain markets, certain states, weekend shut down and weekend, typically people go out and buy limited products and insurance with dealers, et cetera. So there are still restrictions across most parts of the country. And the momentum for the domestic business has still not come. On the international markets, although most markets now are not under lockdown, but yes, there are some positions in certain markets. But yes, in April to June, most markets have -- most markets have undergone some sort of lockdown, ranging from 30 days to 60 days to 75 days. So it's quite varied actually. So assessing the situation of COVID-19 on our business, and we believe that it has created tremendous pressure on the unorganized and the regional companies. And companies like us are in a superior position to gain more market share and recover from this crisis at a faster pace than the unorganized companies. There several unorganized companies in India haven't still been able to start their plants. Some have started but with very, very minimal manpower, low capacity, issues of manpower, issues of finances, customers, et cetera. Yes. So we think we are in a very good position to expand market share, both in domestic and international market. Greenlam products have been certified by antibacterial over the last 10 years, and this confirms to the international standards and the domestic standards and this year, we started advertising on the antibacterial also in this COVID crisis. We thought it's a good opportunity to recode and communicate to the customers that the products are safe and it's very relevant in the current environment. And we really think that with a good product with a strong balance sheet with a great product portfolio, strong distribution network with a good network in international markets too, we should be able to really come out of this crisis, largely undisturbed and end up actually winning more business post the lock down and gain more market share during this current crisis. So this is what I have to say right now. And I have Ashok, take you through the financial performance data, post of which we'll be happy to answer to your queries any questions that are in. Ashok?

Good afternoon, friends. I'll take you through the financial performance. For the Q1 FY '21, on a consolidated net revenue de-grew by 44.6% to INR 160.4 crore as compared to INR 289.5 crore in Q1 FY '20. Gross margin improved by 20 basis points to 49.7% from 49.5% previous year. Gross margin in absolute term declined by 42% to INR 79.7 crore as compared to INR 143.5 crore previous year. EBITDA margin de-grew by 540 basis points to 4.9% in this quarter from 10.3% in last year. EBITDA de-grew by 73.7% to INR 7.9 crore as comparison to INR 29.9 crore in previous year. This quarter saw a net loss of INR 7.7 crore as against net profit of INR 8.4 crore in corresponding quarter last year. Moving on to segmental performance. Laminates & Allied products formed around 90% of our sales -- our Q1 sales. This is higher than normal of around 85%. For Q1 FY '21 Laminate revenue de-grew by INR 40.7 crore to INR 145.6 crore in this quarter as compared to INR 245.6 crore in last year's same quarter. Domestic laminate revenue de-grew by 65.7% in value terms and volume de-grew by 54.5%. International laminate revenue de-grew by 12.9%, and volume de-grew by 21.1% for this quarter. EBITDA margin for Laminate stood at 8.5% as against 12.6% in the previous year. Products and volume were at 1.99 million sheets and capacity utilization stood at 51%. Sales volume for the quarter was at 1.73 million sheets. Our average realization for the quarter was at INR 110 per sheet as against INR 818 per sheet. Moving on to Decorative Veneer & Allied segment. This has formed around 9% of our Q1 sales. And this segment has impacted more due to COVID as compared to Laminate segment. Total Veneer & Allied revenue stood at INR 14.7 crore, a de-growth of 66.5% year-on-year. In the Decorative Veneer segment, revenue de-grew by 75% to INR 6.2 crore. Capacity utilization was lower at 6% and sales volume were at 0.08 million square meters for this quarter. And average realization stood at INR 741 per square meter. Moving on to engineered wooden flooring. The revenue de-grew by around 71% and stood at INR 3.3 crore. EBITDA loss for this quarter was INR 1.5 crore and capacity utilization was 11%. Moving on to engineered doors. Business, de-grew by 27% to INR 5.2 crore. EBITDA loss for this quarter was INR 0.9 crore, and capacity utilization for this quarter was stood at INR 22 crores -- 24%. On the balance sheet side, gross debt for the quarter stood at INR 332 crore due to higher working capital level during the lock down period. Working capital cycle was restarted and stood at 218 days for the quarter. This is due to severe decline in sales and inventory buildup since most of our raw materials are imported. However, as business improves, we will be able to better our working capital and accordingly pay down our working capital level as well as the debt. In absolute terms, our inventory debtors and creditors have not gone up as what is visible in the days. So inventory was at INR 412 crore, around -- slightly around higher by INR 40 crores. Our debtors was INR 122 crore, down by around INR 14 crores from previous -- from March quarter. And creditors was INR 151 crore. This is all from our side. Now I'd like to open the door for questions and answer. Thank you.

[Operator Instructions] The first question is from the line of Nehal Shah from ICICI Securities.

So one thing on the laminate side, can you throw some light on realizations, both on the domestic as well as on the export side? Because it seems that realizations have come down quite dramatically.

Yes. So the domestic realization Nehal, has come down by around 19%. And this is primarily due to -- due to mix, and export realization has gone up by 12.3%. This is, again, the value mix as well as the depreciation in Rupee. So overall, the laminate realization is more or less same, it's down by around 1%.

Right. But any guess as to how our domestic realization will shape up going forward? Because this is a big quantum dip in realization per share?

So Nehal, I'll take this question. So before change -- we have not reduced pricing or anything that's not. We introduced a commodity line in quarter 1 and because we were not present at that price point in that market. And sensing that [indiscernible] company were not able to supply to that product category we introduced that. And we have got some traction on that sales. Obviously, the endeavor is to be completely focused on the 1 millimeter category clads and the premium category. But I do think it will take us at least for sure, quarter 2 because move to the urban markets which are largely 1 millimeter markets are still struggling like Bombay, [indiscernible], Delhi, Calcutta, [indiscernible], Pune. Chennai was struggling, Bangalore was under a shutdown. So the urban centers, the metro market, the top 15, 20 cities, largely bringing the 1 millimeter of the premium business. And I think that is -- that will surely struggle in this quarter also. And hopefully, it will keep improving post that. And we have actually, to bring in more focus on categories, we have come out with a television campaign, some digital marketing campaign also on the anti-bacterial quality because all our inventory across the pipeline for so many years have all been anti-bacterial. And this just becomes more relevant at this time in the prior end customers or channel partners or architects were not really paying too much attention to it. So there is a complete attention and focus to keep building the 1 millimeter category. But yes, in the short run, those numbers are under pressure.

Right. And sir, can you give more clarity on commodity liner, which is introduced now, what kind of thickness it is? And what is the market size in the segment?

So this is a 0.7 millimeter product, and market size is quite large in terms of quantities. I can't put an exact figure, but comfortably, we think this segment will be a monthly, at least pre-COVID, maybe 3 million to 4 million sheets or even more per month in the domestic market.

The next question is from the line of Cosco Bubna from [ Gerd ] Enterprises.

So I had a question on the demand dynamics. Could you please with the help of some real-life examples give us an idea of what type of demand patterns you have witnessed since the onset of COVID? Let's say -- okay. So let's assume that we won't have any more lockdowns. And this quarter is a good base to grow from sequentially, just an assumption. From what type of customers, real estate segments or avenues will incremental demand come from?

I can give you a general date, so there are still lockdowns in this quarter, right? And before we were in the call, we just came to know that Bihar has extended to down to middle of August. So lockdowns are still happening, and the markets which are not under so-called long-term also have restricted timings. So if you go down to a more granular level, if you go out in districts, the towns, work is still not began. There will be -- there are lockdowns rather. So July clearly over and various disturbance work. So post-COVID, you had this pent-up demand. People who had incompleted -- incomplete projects, they wanted the materials [indiscernible] in these projects. I think that demand has been there. So the OEM sector, the financial producing sector, door producers, wardrobe producers, kitchen producers, office worktop producers, some school projects, some government projects, that demand has been there. So really more, I think jobs which were going on, partially completed. I think they probably bought our products, and moved the projects. And so the OEM segment, I think they've done recently, okay. So that segment because it's a factory production out of the city limits or municipal limits, they were largely open. And then we've seen that Tier 2, Tier 3 markets have done better than the urban markets, so certain markets. Have really done up to their full budgets for part of May and June. But now even those markets are coming under pressure with lockdowns across, restriction on those states. Did I answer your question correctly?

Yes, you did.

[Operator Instructions] The next question is from the line of Neha Talreja from [ Adva ].

Sir my more question is pertaining to the category which you've actually launched. So what is the kind of growth that we've seen in that particular category? I mean -- and what would be the decline in let's say 1 MM category? On a Y-o-Y basis for us?

I think I'll have to ask Ashok to give you the data slide. So it's just to introduce category. So obviously...

I just wanted to understand what is the mix as of now? 0.7 MM versus 1 MM for us?

Should we -- offline, yes?. So Ashok will take your question off-line. He is not prepared to the matter.

Sure. As you also mentioned that we have in your press release, you've mentioned that we were at 30% of the utilize -- I mean 30% versus last year in the domestic market, what would it be now? And as you rightly said that there are lockdowns and everything going on in India, and that's very difficult to quantify. But if at all, you can quantify that where are we versus the month of June right now, at least that would help.

So I think in July, the way things are running now, it seems that we'll be like a 50% of what we did in July 2019. Overall, domestic will be more at a 50%, 60% kind of rate.

So domestic, we are already at 50%, 60% versus exports, we've already reached last year's level?

Yes. I'm thinking July and July. So we -- it seems that will be like an 80% July 2020 versus July 2019. Approximately. And domestic will be at a 50% to 60% level.

Got that. And the realization decline, which we have seen in the domestic market is only pertaining to the mix change? Or is there any other factor also pertaining to, I mean, any other factor contributing to such a sharp decline in terms of realization in your laminate division?

No, it's only the mix change. And like I said, like we responded to Nehal on that because 1 millimeter sales would go, and 1 millimeter was more urban or city-based product. And most of the metal markets who are under shut down or partial operations. So the sales of 1 millimeter was just all the reasons for that.

One last question, sir, as you also mentioned that realization for domestic market may continue to remain under pressure at least for 1 more quarter. We have seen significant improvement in our export's realization. Is that more of a sustainable level? Or you will see some of these things will be passed on in the exports market? And you can you can see some amount of realization falling back again?

So exports realization improvement is also not a function of price increase, it's a function of product mix improvement and rupee depreciation. So I'm not sure the volume goes up because export we lost nearly 30, 35 days of sales. So I'm not sure if it's sustainable, so we'll obviously how it goes actually. So there's no price increase, it's just a mix improvement. That's also not something which you achieved in a short term. So it's basically efforts of the past, which have ended results by its own. So it's not something dramatically, which means change it and this depreciation contributing to the realization improvement.

[Operator Instructions] The next question is from the line of Ashish Poddar from Anand Rathi.

Sir, you mentioned that April was almost 0 for you. So was it true for exports also?

So we started the factory, like I said, one plant around 27 one started on 25th. So domestic obviously was then exports. We had some carryover shipments, which we [indiscernible] in March but sales were not booked in March because [ BLs ] were not because we only booked sales when goods reach the seaport and [ BLs ] come in or all the reach the subsidiary companies when they reach the destination. So there were some carryover dispatches in some finished goods inventory line, which got shipped in, which given us sales. So virtually negligible, not 0 but negligible sales.

Sir, I'm asking because despite one month of sales loss, we are at just 13% Y-o-Y decline on a quarterly basis. So does it mean that if the lockdown was not there, we could see a much higher number on export? Or what is the compensated [indiscernible] in the quarter?

So these are hypothetical questions. I can't respond to it because it also means that several international markets were open while India was shut. So they are still getting the order when nearly 75% of -- to 80% of exports company with our subsidiaries and our teams are still working in the market in the international markets, so they are not based in India. So we're still obtaining -- we were getting orders for many markets. Obviously, you could produce and ship them. So you could say to the detriment of sales. So it could be higher, not, tough to answer that.

[Operator Instructions] The next question is from the line of Pranav Mehta from Equirus Securities.

Sir, just wanted to understand on the export side, which are the reasons that are leading the growth and do you think this should continue? Or are you also seeing some problems because of pandemic from all those markets?

Q1 did not grow. Q1, there's a negative of some 30% over Q1 of FY '20. And if you see there's been a deep decline sequentially. So Q4, we did some INR 164 crore. So I think there's been a really 35%, 40%, if I see exactly. So some growing. It was nearly a 40% decline in exports versus Q4.

Yes. Yes, sir. But compared to domestic market, the export market is, I think, growing because one of your competitors also posted a good set of numbers on the export side. So basically, just wanted to understand on what are the regions which are driving demand for laminates. And will this continue -- can this help in offsetting the domestic degrowth?

[indiscernible]. They can make the numbers look a bit better. So our domestic is a large chunk of the market that exports, hopefully, like I said earlier, too, that in July, we are seeing here normalcy in exports. So we should be able to hopefully do okay in exports also.

Okay. And sir, on the debts -- so in this quarter, the debt has gone up. So can you throw some light on how things would be moving going forward? So with this debt come down? Or for FY '21, we should work with similar numbers?

Yes. Yes. In terms of debt, this has gone up primarily in the April virtually we when we had very [indiscernible] in April and May. And this is -- we have a larger part of our [indiscernible]. So that [indiscernible] that imports were happening, but the receivable side, the collection was not happening. The -- but in this quarter, we believe that's already getting reversed from the June and July onwards when the -- we started getting revenue as well as collection. We believe that most of the almost all will get reversed within this quarter that what the additional limits, which were utilized in the working capital, this should get -- I think reversed I think, within this quarter.

Okay. And sir, on the -- just the Decorative Veneer & Allied products, so how you are looking at things in these segments? So will these continue to face pressure? Or are you seeing some traction from second half in FY '21?

[indiscernible] this quarter.

Okay. For entire FY '21, they would remain under pressure, right?