• Shekhar Yadav

Greenpanel Industries Ltd | Meghmani Finechem Ltd- Q2FY22 Analysis- the power of Operating Leverage

Updated: Nov 13


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Greenpanel Industries Ltd | Meghmani Finechem Ltd- Q2FY22 Analysis- the power of Operating Leverage

Greenpanel Industries Ltd- Q2FY22 Analysis


Greenpanel is one of the largest integrated MDF(Medium Density Fiberboard) manufacturing companies in the country. MDF finds application primarily in furniture.


I have covered Greenpanel in one of my previous blog: Greenpanel Industries Ltd- Analysis

You can read to get the details about the company.


The prices of MDF has gone through the roof rising by more than 22%.

Q2FY22 was the best ever quarterly revenue for Greenpanel where sales grew by 88%, which was split into volume growth of 66% and value growth of 22%. But the value growth of 22% was totally negated by increase in raw material cost as is visible in the change of Gross margin of 57.5% in Q2FY21 to just 57.9% in Q2FY22.


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MDF Board constituents

While the increase in prices of Wood was marginal, the increase in prices of various Chemical resins was between 25% to 100%.

When you look at the EBITDA, it grew from 21% to 27% YoY despite gross margin remaining the same primarily on account of Operating leverage and some amount of process efficiency by way of focus on wastages reduction.

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Greenpanel Industries Ltd-Q2FY22 Analysis
Coming to the demand-supply situation, the management mentioned that there is a Substantial Shortages of MDF across the World. European mills are filled with order books of about 2 years.

The same point was echoed by the management of HIL Ltd where they are not able to procure enough MDF/HDF for their flooring solution sold under the brand name 'Parador' due to very high prices as well as unavailability. According to them, due to low price realization of MDF in the past 4 years, many capacitates have been closed down. Now with demand revival, it has led to increase in prices.


Some pointers from Greenpanel Industries Concall:


  • Reduced working capital days from 35 to 14 days in Q2FY22.

  • Reduced debt by 129cr.

  • Domestic MDF realization increased by 19% to ₹27,167/m3

  • Export MDF realization increased by 31% to ₹18,863/m3

  • Demand is quite strong which is able to absorb the increased price hikes

  • Due to increased shipping costs, not witnessing any imports coming into the country

  • Demand has improved month on month

  • Will be able to maintain the margins

  • During H1FY22, the company has added 250 dealers

  • Earlier the prices of product sold to OEMs(Furniture manufacturer) was 8-10% lesser than what was sold to retail customers. (Given that OEMs buy in bulk, they ask for discounts). Greenpanel in this quarter has reduced that to 4-5%, thus helping increase the realization.

  • During Q2FY22, retail contributed to 68% of sales whereas OEMs share was 32%.

  • Company is adding capacity by 1,20,000 cubic meter by Q3FY22 from the existing capacity of 5,40,000 cubic meter.


Meghmani Finechem Ltd- Q2FY22 Analysis


Meghmani Finechem is the 4th largest manufacturer of Caustic Soda in India. Other products include Caustic Potash, Chloromethane, and Hydrogen Peroxide. Company's product are used in a number of sectors such as : Alumina, Crop-Protection, Textile, Healthcare, Cosmetic, Fuel, Dyes and Dyes intermediates and a variety of other everyday products


Just to add, Chlorine and hydrogen are co-products of caustic soda, i.e., generation of one automatically leads to generation of another. With the production of 1 MT of caustic soda, 0.89 MT of chlorine and 25 kg of hydrogen gas is produced. That's where company's other products such as Chloromethane, Hydrogen Peroxide comes into play.


During the quarter the company was faced with unprecedented input cost pressure. Two key raw material i.e. 'Coal' (40% of costs- Power is the highest cost here) witnessed price increase of 88% and the other key raw material 'Brine' saw the prices increase by 33%. On the other hand the end product of the company 'Caustic soda' prices rose only by 28%. It was not sufficient to counter the increase in raw material cost.


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Greenpanel Industries Ltd | Meghmani Finechem Ltd- Q2FY22 Analysis- the power of Operating Leverage
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Meghmani Finechem- Quarterly Margin Profile

If you look at the numbers in the table above, the Gross margins declined from 55.4% in Q2FY21 & 50.1% in Q1FY22 to 45.5% in Q2FY22. This is a 10% decline in margin on a year on year basis(YoY). But when you look at the EBITDA margin, the EBITDA margin declined only from 33.9% to 29.6% YoY which is a decline of just 4.3%. Here comes the power of Operating leverage.

Company has been adding capacities aggressively to the tune of 955cr in the last 3 years. Now, with the capacities moving towards higher capacity utilization is leading to better operating leverage. In simple terms operating leverage means that the fixed cost of power, employee etc gets spread over larger volume, thus leading to increase in margin.


Some pointers from the Meghmani Finechem's Concall:

  • Demand is very strong in the end consumer industries which is able to absorb the increase in cost. In particular, demand for Alumina has gone up substantially.

  • Demand for all other products are moving up.

  • The prices of coal have increased further but the availability is not a concern. Coal port is just 5 km from the company's facility.

  • Due to logistical challenges, the domestic demand fetches better realizations. Also, very limited/no imports are coming into the country.

  • Company further added ₹138cr of debt taking the total debt to ₹600cr.

  • Incurred a CAPEX of ₹260cr in H1FY22.

  • ECU(European electrochemical unit) prices of Caustic Soda which was at ₹27,201/MT towards end sept has now crossed 60,000/MT

  • Increase in caustic soda prices have not been reflected in this quarter due to the company being working on 15-30 days of order book.

  • Will be easily able to maintain the current EBITDA

  • Q3FY22 will be much better. Spread between the commodity prices and raw material prices have further widened implying higher margin

From other concalls, I have picked up the below,


Due to curbs in China, most power consuming companies in China are now operating at just 3 days a week and those with close connections with govt are working about 5 days a week. China being the global supply hub, this is a drastic dent to the supply situation.

The situation is likely to continue till Feb 2022 when China hosts the Winter Olympics 2022.


Caustic Soda :


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Caustic Soda Flakes Prices

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Caustic Soda Lye

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International Coal Prices

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