Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Greenlam Industries Ltd (BOM:538979, Financial) reported a consolidated net revenue growth of 17.4% year-on-year for Q1 FY25.
- Export business showed strong performance with a growth of 22-23%, indicating robust international demand.
- The company has been able to pass on most of the increased freight costs to customers, mitigating some impact on margins.
- New projects, including the laminate plant in Andhra Pradesh and the plywood factory in Tamil Nadu, are progressing well and are expected to improve business operations.
- The company is actively working on improving market share and value mix, which has helped maintain gross margins despite cost pressures.
Negative Points
- Domestic business growth was lower than expected at 11.8%, impacted by election-related disruptions and heat issues.
- Gross margin declined by 30 basis points year-on-year and 800 basis points sequentially, indicating cost pressures.
- EBITDA margin decreased by 190 basis points year-on-year and 280 basis points sequentially, reflecting higher operating costs.
- Net profit for the quarter fell to INR 19.9 crores from INR 33 crores in Q1 last year, due to higher depreciation and interest costs from new plants.
- Challenges in container availability and increased freight costs have persisted, affecting export volumes and margins.
Q & A Highlights
Q: Can you elaborate on the impact of rising freight costs on laminate exports and how it affects competitiveness?
A: Rising freight costs have been a challenge. We have agreements with customers to pass on most of the increases, but in some markets, we might need to share the cost. Despite this, we have grown over 20% in value and improved realizations. Our strategy focuses on driving volumes and premiumization to maintain competitiveness. (Saurabh Mittal, CEO)
Q: What is the current situation regarding container availability for exports, and when do you expect it to normalize?
A: Container availability has been a persistent issue, impacting our ability to ship materials. The situation has slightly improved in July, but it's difficult to predict when it will fully normalize due to geopolitical factors. (Ashok Sharma, CFO)
Q: Why haven't you increased prices in the domestic laminate market despite rising costs?
A: We are reviewing the possibility of a price increase in the domestic market. Internationally, we have passed on freight cost increases to customers, making it hard to raise prices further. Our focus remains on pushing volumes and improving the value mix. (Saurabh Mittal, CEO)
Q: How do you see the domestic laminate market evolving post-election and heatwave disruptions?
A: We have seen improvements since June, and July is looking decent. We expect Q2 to be a normalized quarter for domestic demand. (Saurabh Mittal, CEO)
Q: What are the reasons for lower margins in the laminate segment this quarter?
A: Lower margins are due to increased employee costs, higher raw material costs, and unbooked sales due to shipment delays. We are focusing on improving value mix and driving volumes to mitigate these impacts. (Ashok Sharma, CFO)
Q: Can you provide an update on the new particleboard plant and its expected financial impact?
A: The particleboard plant is expected to start in Q3 FY25. We anticipate reaching full utilization in the third or fourth year, with an expected ROCE of 15-18%. (Ashok Sharma, CFO)
Q: What is the long-term outlook for the decorative veneer, flooring, and door segments?
A: We expect improvements in these segments as we proceed. The flooring and door businesses have shown growth, and we are working on ramping up volumes to achieve profitability. (Saurabh Mittal, CEO)
Q: How do you manage raw material cost fluctuations, and what impact do they have on your margins?
A: We actively manage raw material costs through inventory strategies and supplier agreements. While we can't eliminate the impact of cost fluctuations, we aim to mitigate them through efficiency improvements and value mix enhancements. (Ashok Sharma, CFO)
Q: What is the expected revenue potential once all new capacities are operational?
A: With the new particleboard plant and other expansions, we expect to reach a revenue range of INR 4,000-4,200 crores by FY28, assuming optimal utilization. (Ashok Sharma, CFO)
Q: How do you plan to mitigate the impact of external factors like freight costs on your export business?
A: We focus on improving value mix, driving volumes, and enhancing efficiency. Geographical diversification is not a primary strategy due to the need to maintain supply chains and customer relationships. (Saurabh Mittal, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
