GREENLAM - Greenlam Industries Ltd Share Price

During the Q4 FY '25 earnings call, Greenlam Industries Limited's management provided an optimistic outlook, focusing on long-term growth despite current challenges. For FY '25, the company reported a revenue of INR 2,569 crores, reflecting an 11% year-on-year growth. They projected a significant increase in revenues to about INR 4,500 crores over the next three years as they ramp up utilization of recently commissioned plants in Tamil Nadu and Andhra Pradesh.

Key points highlighted by management include:

1. Strategic Investments: They have invested around INR 1,300 crores in new plants, impacting profitability due to elevated depreciation and interest costs. However, these investments are expected to drive substantial growth in the future.

2. Operational Efficiency: The net working capital cycle has improved, with a reduction of 7 days, and a decrease in debtor days also noted.

3. Segment Performance: In laminates, despite a challenging market, domestic laminate revenue grew by 2.6% year-on-year, and exports grew by 11.7%. The company aims to maintain EBITDA margins in the laminates segment around 14%-15% for FY '26.

4. Product Portfolio Expansion: Greenlam aims to enhance its product offerings, with plywood revenue seeing a considerable increase of 112% to INR 123 crores year-on-year. The chipboard plant, which commenced operations in January 2025, is expected to achieve 30%-40% utilization in FY '26.

5. Debt Management: The company expects to gradually reduce its peak debt of INR 989 crores through improved cash flows in the future.

In conclusion, while FY '25 faced challenges like increased operating costs and reduced margins, the management remains confident of long-term growth driven by strategic capacity expansions and improved market positioning.

Question 1: What is the reason for the 450 bps dip in gross margin for the laminate segment? Is it due to a change in mix or cost increases?

Answer: The reduction in gross margin is due to a combination of pricing issues across some segments and the fact that our sales outpaced production. Consequently, a significant amount of material was drawn from stock, which also contributed to the lowered gross margin.

Question 2: Can you provide an update on the raw material costs for Kraft paper and decor paper in Q4 and the outlook for April and May?

Answer: Currently, raw material prices are stable overall. However, I'll need to share more detailed information on specific grades and trends over the next quarters as we analyze supply chain dynamics.

Question 3: Regarding the anticipated INR875 crores capex for the particle board business, has this amount changed and how much has already been spent?

Answer: The capex remains within the anticipated range of INR875 crores. We incurred approximately INR775 crores in the previous year, and additional work is ongoing to complete the project.

Question 4: What ramp-up do you expect in terms of margins for FY '26 and FY '27 for the particle board business?

Answer: Given the current environment, we don't expect breakeven this year, aiming instead for 35-40% capacity utilization. We anticipate reaching breakeven in FY '27 as ramp-up continues.

Question 5: Can you provide guidance on laminates margin for this year?

Answer: We estimate the margin for laminates to be around 14-15%, similar to previous years, as we aim to maintain pricing discipline while responding to market conditions.

Question 6: When do you expect the plywood segment to reach breakeven?

Answer: I expect that we will approach breakeven for the plywood segment on a full-year basis, though specific quarters for achieving this will depend on market dynamics.

Question 7: What is the strategy for the flooring and doors business given the recent performance?

Answer: Our focus is on improving execution. While the flooring business faced setbacks in H2, our door segment has a solid order backlog, and we anticipate continued progress in that area.

Question 8: What factors will delay breakeven in the particle board segment?

Answer: We've indicated that achieving breakeven will be challenging this year due to initial capacity utilization being lower than expected. We now target breakeven in FY '27 instead.

Question 9: What is the current status of raw material pricing for particle boards, specifically timber pricing?

Answer: We've observed some softening in wood costs, which we expect to influence our margins positively in Q2. However, we want to monitor market trends over a more extended period.

Question 10: With the peak debt in FY '25, what debt reduction can we expect in the coming years?

Answer: The debt will likely remain around INR950 crores this year due to ongoing capex spending. However, we anticipate a reduction starting next year as cash flows improve post-capital expenditures.