by Suhani Adilabadkar

Greenply is among the leading plywood brands in the highly fragmented Indian plywood industry. With a product portfolio for both the commercial and residential sector, Greenply Industries Ltd (GIL) boasts some popular names, including Greenply Plywood, Green Club, Club Plus Premium Plywood, Optima G and Ecotec. 

The company has one overseas facility in Gabon, West Africa and 3 state of the art manufacturing facilities in Nagaland, West Bengal and Gujarat, with a  presence in over 300 cities spread across 25 states. GIL is the preferred plywood solution provider with a presence across all price points, premium, mid and low segments addressing the requirements of both individuals and OEMs.

The company has demerged its MDF (medium density fibre plywood) business of pre-laminated MDF, wood floors, decorative veneers and allied products into Greenpanel Industries, which would constitute its manufacturing unit at Chittoor in AP and another at Pantnagar Uttarakhand. 

Quick Takes:

• Greenply is a leading brand in a highly fragmented Indian plywood industry. Though GST implementation, e-way bill introduction and ecommerce are enlarging organized share in the furniture sector, 85% of plywood revenue still accrues from the unorganized segment.
• Aided by lower taxation and reined in expenditure, PAT rose to Rs. 23 crore compared to Rs. 18 crore in the corresponding September quarter FY19, up 28% YoY.
• The contribution from JVs would be around Rs. 200-230 crore at peak utilization level from FY22. 
• Current outsourcing proportion expected to increase to 35% in value terms from the current 28% over the next three years.
• Greenply aims to achieve ROCE of 30% in the next three years. 

Greenply reported stable volume and sales growth in  Q2FY20 

Greenply reported standalone revenues of Rs. 345 crore in Q2FY20 against Rs. 340 crore in the same period last year, growing 1.5% YoY. Aided by lower taxation and reined in expenditure, PAT rose to Rs. 23 crore compared to Rs. 18 crore in the corresponding September quarter FY19, up 28% YoY. Operating profit for the quarter stood at Rs. 38 crore in Q2FY20 rising 6% YoY compared to Rs. 35.9 crore in September quarter FY19. Operating margin stood at 11% expanding 50 bps YoY. 

According to management, Greenply has reported strong and stable numbers in a slowing economy as a result of significant efforts towards brand building, strengthening its distribution presence and enhancing cost efficiencies. Commenting on the Q2 results, Mr Rajesh Mittal, chairman and MD of Greenply Industries said, “We are seeing a gradual improvement in the macro environment. We are also excited about the prospects of our Gabon veneer facility and the expansion there is progressing well”. 

Analysis: Expansion through outsourcing and joint ventures

Plywood in India is primarily used for manufacturing furniture, which accounts for about 60-65% of its consumption. Rising urbanization, increasing consumer inclination towards premium furniture, expanding middle class, higher access to branded furniture, government policies such as PMAY, affordable housing and 100 smart cities are major growth drivers for the Rs. 20,000 crore plywood segment, and part of the Rs. 28 bn furniture and fittings retail industry in India.

Though GST implementation, e-way bill introduction and ecommerce are enlarging organized share in the overall furniture sector, 85% of plywood revenue still accrues from unorganized segment. The plywood industry in India is dominated by two major players in the organized space, Century Plyboards and Greenply together accounting for about 51% with the latter boasting 26% individual market share in the organized plywood industry. 

The industry as a whole is segmented into premium, mass and low-end plywood with Greenply having 20%, 51% and 29% market share in these segments respectively. Highly fragmented, capital intensive and characterized with high competitive intensity, industry players require frequent debt injections for capacity enhancements. As for Greenply, debt equity ratio stood at 1.6 in 2012 but has been pared down over the years currently at 0.47 as on 30^th September 2019. To augment growth in an industry requiring frequent capex to ramp up capacity, Greenply has been following a middle path over the past few years to achieve long term sustainable growth through its outsourcing model.  

In simple words, GIL follows a differentiated asset-light model to balance growth and expansion for its mid-segment through outsourcing. It has also recently entered JVs for manufacturing related products. This would help Greenply to improve its revenues, margins and at the same time increase capacity utilization of existing units without incurring huge capex in the long run. With respect to outsourcing, management expects the current outsourcing proportion to increase to 35% in value terms from the current 28% over the next three years. 

Moving on to its JVs, the company has entered into a JV for premium products with a 30% ownership stake with production commencement in Q3FY20 and expected a turnover of about Rs. 110-115 crore at peak utilisation. Another JV has also been initiated mainly for Ecotech and film face plywood which is expected to enhance GIL’s turnover by another Rs. 110 crore. So, on the whole from FY22, both the JVs would increase Greenply turnover by Rs. 200-230 crore at peak utilization level. 

Apart from JV revenue growth driver, Greenply’s Gabon unit is expected to enhance its growth trajectory further. The company boasts strong backward integration through its commercial veneer operations in Gabon, West Africa with an annual peeling capacity of 96,000 CBM per annum recently expanded from 36000 CBM in October 2019. At present, 10-15% of Gabon unit’s face veneer requirement is utilized by GIL and balance is sold to customers in India, South East Asia and Europe. Gabon unit with 166% capacity utilization in Q2 and 178% in H1FY20 has reported Rs. 35 crore revenues in September quarter and Rs. 79 crore in H1FY20. Revenues are expected to jump to the tune of Rs. 200 crore with a blended margin of 18% for FY20 with capacity expansion. The company is also targeting peak revenues of Rs. 300-350 crore from Gabon by FY23. 

Though plywood is growing at the rate of 3-5% in India, Greenply has outlined strong revenue plan amidst slowing domestic scenario and uncertain global environment through strategically investing in JVs and utilizing the Gabon plant for export revenue generation. 

GIL aims to achieve 8-10% growth for its plywood business in H2FY20 and in the long run, management has set a target of ROCE of 30% in the next three years. The promoters have increased their stake in the September quarter while the institutional holding has risen by 185 bps YoY, as they believe in ‘Greenply chalta rahega’.