Greenpanel Industries Ltd - Q3FY22 Analysis
Another excellent quarterly result by 'Greenpanel Industries' ltd despite one of company's plant not being operational for 43 out of 90 days of the quarter. The outperformance is derived by higher realization of MDF and prudent capacity utilization by the management.
GreenPanel Industries Ltd- A brief
Greenpanel Industries Ltd, a demerged entity from Greenply Industries ltd is one of the largest integrated MDF manufacturing companies in the country and commands an established position in the organized MDF market with its quality product and strong brand image. MDF as well as Plywood both find application in furniture. While Plywood needs to be worked on with hand, MDF can be used in factories.
Problem faced by the company in the Q3FY22:
Company's Pantnagar (Uttarakhand) plant remained closed for 43 days, first on account of plant debottlenecking and then for a breakdown of a refiner component. Uttarakhand plant contributes about 33% of company's capacity. They lost revenue worth of ₹58cr due to this disruption.
You might be wondering despite such reduction in capacity, how did the company achieved a revenue growth of 34% in the quarter, these are the excellent steps taken by the management to deal with the setback:
1. Focused on domestic sales with higher realization: In a regular quarter, exports contribute 30-35% of MDF revenue, this quarter company moved the sales more towards domestic market at 84% of MDF sales whereas exports was just 16%. Given that Domestic realization was 46% more than export realization at ₹30,651 compared to ₹21,051 for exports, it helped to compensate for the loss in volumes.
2. Reduced discounts to OEM at 0% : Earlier Institutional buyers or OEMs (Corporate furniture companies) used to get 6% discounts as they used to buy in bulk. Now with demand-supply situation becoming extremely favorable, Greenpanel has removed the discounts and both retail and OEMs are sold at the same pricing.
Retail sales in the quarter stood at 95% compared to 5% for institutional sales.
3. Increased sales of Value added products:
With robust demand, company is pushing in more of value added products in the market where realizations are much higher. For the quarter, 48% of domestic MDF volume sold was of value added products. Value added products include wood floors, exterior grade MDF, club grade MDF, pre-laminated MDF, etc
Veneered MDF sells at a premium of about 40% as compared to the Plain MDF. And flooring MDF sells at almost 300% as compared to the Plain MDF
Given that co is working at a very high capacity utilization, any future growth will be related to capacity increases by the company. Lets look at the current capacities and expansion plans of the company:
Greenpanel has 2 manufacturing plants:
Pantnagar (Uttarakhand): Here the company manufacture both MDF & Plywood. The annual plywood capacity in this plant stands at 10.5MnSqmt whereas MDF capacity 1,80,000 cubic meters (CBM). Post the debottlenecking of Pantnagar(UK) plant taken in Q3FY22, the capacity has been enhanced to 216000 CBM from earlier 1,80,000 CBM, an increase of 20%.
Chittoor(Andhra Pradesh): This plant manufacture only MDF. 3,60,000 cubic meters (CBM) . This plant is spread over 200 acres of land, thus giving enough room for the company to expand capacities in the future. In addition, the plant is just 80km from Krishnapatnam port, enabling export opportunities. From this plant, Greeenpanel export to Middle east, SE Asia, etc where the demand for MDF outstrips that of Plywood.
Uttarakhand MDF plant capacity utilization =56% compared to AP plant capacity utilization at 101%, blended capacity utilization by 86%.
Greenpanel's Andhra plant is built on European technology and can run at 110-115% of capacity.
Given that capacities are running at peak capacity, the management will take a call of new major capacity expansion by the end of Q4FY22. Once decided, the capacities will take 18-24 months to come.
Capacity expansion by competition:
Century Plyboard's brownfield MDF expansion is about to come in Punjab. It is likely to ease supply situation.
Rushil Decor is also expanding MDF capacity in the South.
Key pointers - Q3FY22 GreenPanel Industries ltd
In Q3FY22, co took a price hikes of 17% in three separate price increases for MDF products. Q4 realization would be better. This is primarily to deal with the increase in input costs.
For plywood, co took price increase of 4% starting 1st December 2022.
Raw material prices continue to remain high, wood prices increased by 5% in South & 10% in North. Chemical prices have increased by an average 35%.
Company is taking debottlenecking at its Andhra Pradesh plan
Acute shortage of MDF across the world
Due to high shipping cost, imports also have become very expensive
Vietnam which is a key exporter to India is witnessing a lot of domestic demand as they are replacing China as the major exporter of furniture to the US.
During the quarter company increased its Uttarakhand MDF capacity by 20%. Also in the process of expanding AP capacity by debottlenecking.
During the 9m FY22, company added 316 dealers compared to a target of 400.
Management believes that the MDF realization is at peak, and if the prices increase further, it might hit volumes.
Company served the North India demand from its South plant, leading to increase in logistics cost. It dented the EBITDA margin by 1%.
Greenpanel will undertake Branding in a major way from FY23. Will allot 2-2.5% of sales towards branding.
MDF market continues to grow by a healthy 15%.
Due to breakdown of machinery, co is expecting an insurance payment of 8-10cr.
Takeaway from 'HIL Ltd' Q3FY22 concall: HIL uses MDF for its wooden flooring product(Parador). According to their management, boost in furniture demand in Europe and other developed geographies, is leading to huge demand for MDF & HDF. In the past several years, many of the plant capacities were shut due to unviability of operation. Now, with demand coming back it has creating a supply crunch.
Greenpanel Industries Ltd - Q3FY22 Financial Analysis
Despite the problem faced by the company, net sales of the company increased by 34% to ₹424cr due to the steps taken by the management as mentioned earlier in the blog.
Gross margin improved to 57.7% and EBITDA margin to 26% from 22% YoY.
Company reduced the debt by 85cr in the quarter to ₹144cr. Planning to be debt free by September 2022. The profit margin was aided by substantial decline in interest cost from 14cr to just 1cr YOY.
Greenpanel is operating in a strong supply crunch situation, having the pricing power. It helped them reduce working capital requirement by 20 days YoY to 13 days as on 31st December 2021.
Company continues to pay higher tax rate of 33% to take advantage of some previous accruals. Will move to the new regime of 25% from FY24.
As on 01st Feb 2022, market cap= ₹6343cr.
Revenue in the trailing 12 months= ₹1544cr
Market cap to sales = 4x sales
Price to earning ratio = 29x
The valuation of the company looks a bit on the higher side.
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