GREENLAM - Greenlam Industries Ltd Share Price

Management provided an optimistic outlook for Greenlam Industries, projecting a revenue growth rate of 18% to 20% for the upcoming fiscal year. The company aims to generate revenues of approximately INR 4,500 crores over the next three to four years, building on a FY25 revenue of INR 2,569 crores. The firm anticipates earnings before interest, taxes, depreciation, and amortization (EBITDA) margins to improve significantly as plants reach optimal utilization.

Key forward-looking points from management include:

1. Growing Market Presence: Greenlam has expanded its operations to 120 countries from 100, while increasing its dealer and distributor network from 12,000 to approximately 40,000. They aim to become India's leading wood panel player and one of the world's foremost laminate providers.

2. Investment and Capacity Expansion: Since FY23, the company has operationalized four manufacturing plants, with an investment of around INR 1,450 crores. These expansions are designed to support the increased production capacity, which is poised to yield benefits over the coming years.

3. Focus on Sustainability: Greenlam is targeting net-zero carbon emissions at manufacturing by 2030, and aims to achieve 50% of paper requirements from recycled sources by 2027.

4. Product and Market Strengthening: The introduction of engineered wood products and the development of a high moisture-resistant particle board are expected to enhance product offerings and potentially cannibalize the MDF market. EBITDA margins for chipboards are anticipated to range between 18% and 22% as production scales up.

5. Incentives and Financial Decisions: The Andhra Pradesh government has sanctioned incentive packages which include capital subsidies projected to be around INR 40 crores over 7-10 years. Management also mentioned an intention to stabilize and potentially reduce debt in the upcoming years.

6. Global Footprint and Export Potential: While the international revenue stands at $138 million, the firm sees significant opportunities in new markets, especially for its newly introduced chipboard product line, which is anticipated to gain traction due to existing brand recognition in laminate exports.

Overall, Greenlam is positioning itself for substantial growth while focusing on sustainability and efficiency in its operations.

1. Question: "So my question was the revenue growth guidance which you have given 18% to 20% for this year that holds?"

   Answer: Yes, that's right. We saw Q1 domestic growth over 20%. Exports faced challenges in Q1, but we're optimistic about Q2, aiming to maintain our growth trajectory. July has been decent, and while I can't disclose specific numbers, we are working hard to meet that 18% to 20% growth target unless something significant changes.

2. Question: "How is the particle board return profile looking like? What revenue margin and return ratios will this make when this plant is at optimum utilization?"

   Answer: The EBITDA margins are expected to be between 18% to 22% at near full capacity, which becomes achievable as we optimize utilization. As capacity increases beyond 70%, production costs should decrease, improving our overall return on capital employed to around 18% to 20%. We're also focused on enhancing value by innovating product designs, similar to our laminates strategy.

3. Question: "Could you just speak about the incentives from the government for chipboard and how it will benefit margins?"

   Answer: The government incentives are spread over 7 to 10 years and will include capital and employment subsidies along with power benefits, estimated to be around INR 40 crores annually. These will positively impact our margins and potentially lower our operating costs, enhancing our competitiveness in both domestic and export markets.

4. Question: "Will exports from chipboard become as large as laminates, or is it too early to say?"

   Answer: It's still early to predict the scale, but we're starting exports to four countries. Chipboard pricing will depend on local wood costs and competition. Our presence in international markets is already established via our laminates, which gives an advantage. However, we need to specify designs to gain traction; plain boards may not yield significant growth.

5. Question: "When do you expect the plywood business to break even?"

   Answer: We anticipate breakeven in EBITDA this year, not net profit, as increasing revenues are expected. We initially focused on the premium market, and while we've expanded into more regions, we're still developing our brand nationally. Achieving targeted budgets should lead us to this breakeven point this fiscal year.

6. Question: "How much growth do you foresee in the export contribution to the US, and what has been the impact of tariffs?"

   Answer: Exports to the US currently account for about 4-5% of total exports. The recent 10% tariff increase has been absorbed by the market, but we are still assessing the new 25% increases. It's a small segment for us, so the immediate impact should be manageable as we continue observing precautions on pricing.

7. Question: "What do you see as a reasonable debt-to-equity ratio in the next two to five years?"

   Answer: While our current ratio is approximately one, we expect improvements as growth continues and operating expenses stabilize, allowing us to manage debt effectively. Forecasts indicate a reduction over the next two to three years, especially if revenue aligns with our target of INR 4,500 crores over this period.

8. Question: "How is the pricing environment for laminates currently?"

   Answer: Laminate prices have remained stable, with a recent price increase implemented last year enhancing our margins. We're seeing stable raw material costs, and while unorganized competitors might fluctuate pricing, our adherence to quality and value has maintained our selling prices effectively.

9. Question: "What top line and utilization level are you looking for the particle board segment this fiscal?"

   Answer: We expect top line growth aligning with utilization levels between 40% to 50% this fiscal. The breakeven point is closely tied to raw material price stability, and as production ramps up, we will monitor cost fluctuations to ensure profitability.

10. Question: "When do you think chipboard will cannibalize MDF markets?"

    Answer: It's difficult to predict exact outcomes, but melamine chipboard could take market share from MDF, especially in commercial applications where it demonstrates cost-effectiveness. The price difference of 30-35% lower than MDF makes it attractive for furniture makers, which may shift demand over time.