Earnings review: Greenpanel EBITDA margins take a hit on higher input cost; what's the road ahead?

Greenpanel Industries, India's prominent wood panel player, recently announced its fourth quarter results (Q4FY23) with the earnings before interest, taxes, depreciation, and amortization (EBITDA) margins hit by factors such as higher raw material cost, price cut in exports and more.

Greenpanel Industries has a national leadership in Medium Density Fibreboard (MDF). The company is headquartered in Kolkata (West Bengal), with supporting offices in Gurgaon and Singapore and state-of-the-art manufacturing facilities in Rudrapur (Uttarakhand) and Srikalahasti (Andhra Pradesh); the latter is arguably the largest MDF plant in Asia.

In the fourth quarter of the financial year 2023 (Q4FY23), "MDF export volumes rose by 89% while domestic volumes fell by 7%, overall MDF volumes grew by 10%. MDF EBITDA margins at 22% were impacted by -

a) higher export volumes,

b) steep increase in raw material cost

c) higher brand spends

d) price cuts taken in exports.

The company maintained working capital discipline in a challenging quarter with net working capital at 17 days of turnover," it said.

Plywood volumes fell by 17.1% YoY while operating margins at 0.4% were impacted by lower volumes and increase in raw material costs.

"Consolidated operating margins at 19.2% were impacted due to reasons mentioned above," it said.

Cash generated was ₹ 53 crores during Q4FY23 and net debt reduced to negative ₹ 187 crores as on 31st March, 2023.

The company is also increasing the Greenpanel Brand Value, by associating with Delhi Capitals, an IPL franchise, as principal sponsor for 3 years.

Widening distribution reach and increasing domestic volumes and proportion of value-added products will be its major focus areas in future quarters.

As per the management, the industry demand continues to be good, but higher imports have taken away growth from the organised sector.

Uttarakhand MDF plant operated at 85% while Andhra Pradesh MDF plant operated at 77% with blended capacity utilisation at 80% on enhanced capacity of 6,60,000CBM.

The management has guided for 12-15% YoY volume growth for MDF for FY24 with domestic volume growing in low double digits and exports growing at ~20% YoY. It has guided margin to be in the range of 23-25%.

For plywood, the management has guided double digit volume growth YoY for FY24 and expects margin to be in the range of 8-10%.

The management did not take any price cuts in domestic market and does not intend to take any price cuts going forward.

For exports, the company indicated realisation has increased 8-10% in Q1FY24 and this will be reflective from Q2FY24.

While RM prices have largely stabilised, they remain at elevated levels. The management expects them to remain stable in FY24.

The company expects the new MDF plant with capacity of 231,000CBM to be operational by Q2FY25.

The company expects gross debt of ₹3 billion in FY24 and expects to be net debt free in FY25 again.

The management has indicated that it is undertaking a replacement exercise with old dealers and bringing in new dealers who align with GREENP's business model. The dealer count stands at over 2,300 as of FY23.

Value-added products formed 51% of sales volumes and 62% of revenue for Q4FY23. GREENP spent ₹70 million on branding activities in Q4FY23 and it has guided to spend ~2.5% of revenue on branding in FY24 (vs ~1.3% in FY23).

Retail sales formed 90% of revenue in Q4FY23 and 83-85% of sales in FY23.

The management expects a rebound in ply revenue and margin in FY24E, amid its increased segmental focus.

However, the key downside risks are:

• Slowdown in housing and commercial real estate sectors.

• Fall in international MDF prices, resulting in higher imports and pressure on domestic markets.

• Lower capacity utilisation in domestic MDF markets, resulting in price cuts by competition, thus, hurting the company's profitability.

• Resurgence of Covid-19 pandemic, which may temporarily affect utilisation, hence, profitability too.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related investment-related decision.

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