Greenpanel Industries Ltd Management Discussions

Economic Overview

Global Economy

The global economy surpassed expectations in 2023 after a turbulent year. It continues to navigate a dynamic landscape marked by a blend of opportunities and challenges. According to the International Monetary Fund (IMF), global growth maintained stability, holding at a modest rate of 3.2% in 2023.

Despite several major economies demonstrating remarkable resilience, underlying risks and vulnerabilities persist due to simmering geopolitical tensions, the growing intensity and frequency of extreme weather events, volatility in energy and food markets, and higher-for-longer interest rates.

Global inflation, a key concern over the past three years, continues to recede faster than expected. It declined from 8.7% in 2022 to 6.8% in 2023 and is expected to decrease further to 5.9% in 2024 and 4.5% in 2025. Despite headline inflation experiencing a decline from its unprecedented peaks, core inflation has remained persistent and is expected to decline gradually.

Economic expansion in several emerging markets and developing economies (EMDEs) has outperformed initial projections in 2023. The US economy has experienced the strongest recovery among major economies and its GDP increased to 2.5% in 2023. The European Union (EU) has demonstrated resilience in navigating through unprecedented shocks from the prolonged Russia-Ukraine war and higher interest rates. Although its GDP growth contracted to 0.6% in 2023, the EU managed to avoid the recession in 2023. The growth rate of Asia stood at 5.0% in 2023, with India and China as major contributors. Despite a sluggish recovery in China, policy stimulus and increased spending on disaster recovery supported growth, while India showcased impressive performance. Its robust domestic demand and substantial public investment primarily contributed to its impressive growth trajectory.

Outlook

The global economy is expected to sustain its resilience in 2024. The IMF forecasts global growth of 3.2% in both 2024 and 2025. Asia is expected to again contribute significantly to global growth in 2024, echoing its impact in 2023.

Region-wise economic growth (%)

(P- Projections, E- Estimates) (Source: International Monetary Fund) (Source: IMF Economic Outlook, April 2024)

The global economic outlook for 2024 will be impacted by higher interest rates, carrying the risk of a resurgence in inflation and shifts in the anticipated monetary stance. Furthermore, the ongoing Russia-Ukraine conflict has the potential to dampen the overall economic outlook of the EU. Additionally, an escalation in geopolitical tensions in West Asia and Red Sea route could elevate energy and commodity prices, reduce energy supply, increase the risks of supply disruptions, and pose downside risks for the disinflationary trend and the overall global economy. However, with faster disinflation and steady growth, the possibility of a severe economic downturn has decreased. Positive factors, such as the stronger-than-expected economic performance of the US and several large emerging market and developing economies, economic stimulus in China, and Europes resilience will bolster the outlook of the global economy.

Indian Economy

Despite the volatile global economic environment, India shines as a beacon of optimism, proudly holding its position as the worlds fifth-largest economy and expected to continue leading as the fastest-growing major economy. As per the Second Advance Estimates of National Income, 2023-24, Indias GDP growth remained strong at 7.6% in FY24 as against 7% in FY23, supported by buoyant domestic demand, moderate inflation, a stable interest rate environment, and strong foreign exchange reserves. Furthermore, a double-digit growth rate of 10.7% in the Construction sector and an 8.5% growth rate in the Manufacturing sector have contributed to the GDP growth in FY24. Furthermore, the IIP growth rate for FY23-24 shows a 5.8% increase compared to the previous year. The Mining sector recorded the highest growth at 7.5%, followed by Electricity with a growth of 7.1% and the Manufacturing sector at 5.5%.

Indias GDP Growth Rate

CPI inflationis on a downward trajectory and eased to 4.85% in March 2024. Headline inflation is expected to gradually decline to the target although it remains volatile due to repetitive food price shocks. According to the RBI, CPI inflation is estimated at 5.4% for FY23-24. The RBI maintains the policy repo rate at 6.50% and remains prepared to implement effective measures to achieve the target of 4% inflation.

Outlook

According to the IMF, the Indian economy is anticipated to progress steadily at 6.5% in FY25. However, the RBIs forecast is more optimistic, projecting a higher GDP growth of 7.0% for FY25. Indias economic outlook remains positive, supported by stronger consumer demand, increased capital expenditure, and physical and digital infrastructure enhancements. Private and government investments are expected to be the primary drivers of economic growth in 2024, backed by improving prospects of rural consumption due to the easing of inflation, increased spending in an election year, and proactive government policy measures.

Global Furniture Market

The global furniture market size was valued at USD 660.5 billion in 2023 and is expected to reach USD 701.7 billion by 2032. The key factors propelling the market growth include rapid urbanisation, the expansion of residential and commercial buildings, the rising demand for sustainable, ergonomic furniture, and the increasing disposable income of millennial and Gen Z consumers. Furthermore, e-commerce has brought a revolution in the industry. The rapid expansion of online retail channels and the continuous rise of the e-commerce industry are supporting the market growth. The integration of technologies like virtual and augmented reality (VR/AR) is supporting online sales of furniture. These technologies enable e-commerce platforms and furniture retailers to showcase a virtual arrangement of a diverse range of furniture, offer personalised recommendations, and provide engaging and seamless shopping experiences to customers.

Global Medium Density Fibreboard (MDF) Market

The global medium-density fibreboard (MDF) market size was valued at USD 25.8 billion in 2023 and is expected to grow at a CAGR of 5.9% during 2024-32, reaching USD 43.5 billion by 2032. Growth in infrastructure and construction activities across the globe, the increasing demand for affordable and customisable furniture solutions, and the rising popularity of laminated flooring in residential settings are some of the major factors bolstering the growth of the market. MDF has become a popular alternative to natural wood and the preferred material for ready-made and mass manufacturing of furniture due to its consistent quality, affordability, stability, and workability. Additionally, the introduction of new MDF products with improved properties, such as fire resistance and moisture resistance, is supporting the expansion of the market. Furthermore, the growing environmental awareness among consumers and the rising demand for durable and cost-effective wood products are positively influencing the market, offering lucrative growth prospects to the industry.

Global Plywood Market

The global plywood market size reached USD 48 billion in 2023 and is poised to achieve USD 73.3 billion by 2032, showcasing a CAGR of 4.7% during the forecast period. There is a rise in the demand for plywood for manufacturing furniture and construction materials across the globe. The increasing utilisation of plywood in residential and commercial spaces is driven by its benefitssuch as enhanced stability, high strength, and improved impact resistance. manufacturingPlywood also walls finds and . The increasing floor adoption of plywood, propelled by rising living standards and growing individual income levels, is driving the growth of the market. This growth is further propelled by factors such as increasing urbanisation, a surge in residential and commercial developments, and a preference for branded plywood.

Indian Furniture Market

The Indian furniture market size was valued at USD 32 billion in 2023 and is expected to achieve USD 38 billion by 2026, exhibiting a growth rate of 6% during 2024-32. Several factors contribute to the growth of the Indian furniture industry. The rapidly growing population in the country, rising demand for residential and commercial infrastructure, the governments support for affordable housing, rapid urbanisation, and the meteoric rise of e-commerce platforms are the key factors driving the market growth. Additionally, the market is expanding due to increasing demand from young consumers for versatile, ergonomic, space-saving modular, and contemporary furniture. Urban regions are witnessing steady consumption growth in luxury and contemporary furniture, driven by affluence,accessibility, western influence, strong demand for interior designs, and evolving lifestyles and preferences of urban residents. The growth of the market is further propelledbytheflourishingtourism and hospitality industry along with the corporate sector. The proliferation of hotels and business offices in the country contributes significantly to the increasing need for furniture.

Among the materials utilised, the wood-based furniture category dominates the furniture market with the largest share. Indias per capita annual expenditure on furniture products stands at just USD 5, significantly lower than that of other countries. The evolving lifestyle and aspirations among Indians are poised to boost per capita consumption, leading to substantial opportunities for the furniture industry.

The central and state governments have introduced several incentives and initiatives to promote the holistic development of the furniture industry. Furthermore, the development of furniture hubs such as the International Furniture Park in

Tamil Nadu, along with the upcoming International Furniture Clusters/Parks in Karnataka, Madhya Pradesh, Uttar Pradesh, and Andhra Pradesh aims to provide manufacturing, marketing, testing, and certification facilities to boost the capacity and scale of indigenous furniture manufacturers.

Indian MDF Market

The Indian MDF market, with a valuation of Rs 50 billion in FY23, is projected to reach Rs 60 billion by FY25, with a projected growth rate of 15-20%. The MDF market in India is still in its nascent stage and has tremendous potential for growth. Industry estimations indicate that the share of MDF within the total wood panel industry will increase from the current 5% to 50% by 2030. Consumption of MDF is expected to rise due to its sustainable nature, affordability, flexibility, and its function as a substitute for low-end plywood.

Furthermore, automation is poised to drive higher growth rates for the MDF industry.

The MDF industrys growth is driven by increasing construction activities, a consistent upswing in demand for residential and commercial spaces, and the growing trend of using MDF for interior applications. Additionally, shorter replacement cycles for furniture, a shift in customer preferences, and rising demand for ready-made and low-maintenance furniture featuring sleek and modern designs along with value-added products like pre-laminated MDF, laminated floorings, and

UV-coated boards, play a crucial role in fuelling the growth of the market. However, the delay in implementing Bureau of Indian Standards (BIS) rules for MDF and particleboard could adversely impact the industrys growth trajectory. The new date of implementation is February 11, 2025 as per DPIIT, Ministry of Commerce. This one-year delay might result in increased imports, thereby limiting the volume and margins of domestic manufacturers in the short term.

Indian Plywood Market

According to IMARC Group, the Indian plywood market is projected to achieve Rs 222.3 billion in FY24 and is expected to reach Rs 372.5 billion by FY33, growing at a CAGR of 5.7% during the forecast period. Indian plywood market is flourishing due to various factors, including increased demand for plywood due to the governments emphasis on infrastructure development and housing projects, the expansion of distribution networks and exclusive outlets for furniture, and changing interior design trends coupled with increasing renovation activities.

Advanced production techniques, leading to innovative plywood variants such as flexible plywood, are key drivers of market expansion. Additionally, the growing utilisation of plywood for partitions and false ceilings in houses and offices, the production of diverse lightweight and easy-to-assemble furniture, and its appeal in DIY projects are all contributing to the growth of the market.

Opportunities

• Emphasis on infrastructure and housing development: The governments thrust for infrastructure development and the outlay of Rs 80,671 crore for the Pradhan Mantri Awas Yojana (PMAY) in the Interim Budget 2024-25 are expected to drive domestic demand for furniture. The governments flagship programmes, including the Smart Cities

Mission, PMAY, NTR and DDA Housing Scheme, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Make in India will continue to create immense opportunities for the industry.

• Rising number of residential and commercial projects: Population surge, urbanisation in Tier I and Tier II cities, the trend of a nuclear family, and the burgeoning middle class with higher disposable income have led to increased demand for residential and commercial spaces, as well as other real estate properties.Thisissignificantfactor fuelling demand for contemporary, premium, and branded furniture.

• Trends in commercial spaces: Commercial organisations are striving to create more adaptable and agile work environments with open floor designs and activity-based workstations etc. which boosts the demand for modular and ergonomic office furniture.

• Rising adoption of e-commerce: Due to the popularity and accessibility of e-commerce channels, there is a surge in demand for modern and affordable furniture in Tier II and Tier III cities of India through online platforms.

• _BIS_Certification: The mandatory BIS Certification rule is expected to be implemented in February 2025, which will require all domestic as well as imported plywood and wood-based panel products sold into

India to be BIS certified. This would benefit domestic

MDF manufacturers and ease competition from imports as BIS regulation may deter imports as foreign manufacturers will have to incur additional costs in complying with Indian BIS certification.

• Opportunities in international markets: The India-Australia Economic Cooperation and Trade Agreement (ECTA) and India-UAE Comprehensive Economic Partnership Agreement (CEPA) would provide favourable opportunities to Indian furniture manufacturers with zero-duty market access to these international markets.

• Diversification_from_China: While China remains the leading global furniture exporter, countries seek to lessen reliance on it by exploring alternative sources. Diversification from China presents promising prospects for Indian industry players. Leveraging its manufacturing prowess, skilled and adaptable workforce, and cost advantages, India emerges as a promising destination for furniture sourcing. The country takes pride in its rich heritage of craftsmanship, woodwork, carpentry, and furniture production.

Threats

• Rising input costs: Rising prices of raw materials, especially timber, volatility in energy costs, and varying import and customs duties on the fixture products may suppress margins and hinder industry growth.

• Macroeconomic challenges: Global economic slowdown and higher inflation are influencing consumer sentiments, potentially leading to restrictions in household consumption on non-essential expenditures and could act as a dampener for the export market and overall industry growth.

• Trade disruptions: Elevated freight costs and delays in transit time due to the Red Sea crisis and the possibility of supply chain issues resurfacing in the future may adversely impact exports.

• Highly competitive industry: The furniture market is highly competitive with a wide range of players in the market including domestic and multinational behemoths and local unorganised players, vying for market share. Intense competition from unorganised players is limiting the expansion of organised players.

• Imports of MDF: MDF products manufactured in India face fierce competition from cheaper imports which curtail the growth of domestic players. The pricing difference between imported MDF products and domestic products has widened to 20-25% from 9-10% earlier, resulting in increased volatility in the margins of domestic players.

• Stringent regulations: Stringent regulations and standards related to environmental concerns and emissions present potential challenges for the growth of the MDF market.

• Changing consumer preferences: The furniture market undergoes continuous evolution driven by the swiftly changing preferences of consumers. This dynamic environment necessitates constant adaptation and innovation within the industry to meet the evolving demands of customers.

Company Overview

Greenpanel Industries Limited (hereinafter referred to as "Greenpanel" or "the Company") is Indias leading manufacturer of Medium Density Fibreboard (MDF) wood panels with a 21% market share. The Company offers a wide range of panel products, including high-quality Medium Density Fibreboard (MDF), High Density Fibreboard (HDF), Fire resistant MDF, Block boards, Prelaminated MDF/

Plywood, flooring, and doors, etc. The Company also manufactures an extensive range of plywood with a focus on premium-grade plywood.

The Companys state-of-the-art manufacturing facilities are located in Rudrapur, Udham Singh Nagar district (Uttarakhand) and Srikalahasti, Tirupati district (Andhra Pradesh). The facility in Andhra Pradesh is the largest MDF plant in Asia. These facilities are equipped with state-of-the-art machinery, including the renowned Dieffenbacher continuous press line, ensuring unparalleled quality and performance. The Company prioritises innovation and sustainability and takes pride in producing Greenpanel MDF, utilising 100% renewable agroforestry wood. its supplier

The Company has a capacity of 10.5 million square metres of plywood and 6,60,000 cubic metres of MDF. It is currently expanding its MDF capacity by an additional 2,31,000 CBM.

MDF Segment

During FY24, the MDF segments sales decreased by 8.7%, which contributed around 90% of the Companys total revenue. MDF domestic volumes increased by 23% and export volumes fell by 75% YoY. The Company made a conscious decision to decrease exports as exporting at current wood priceswasfinanciallyunviable, exacerbated by the decline in international MDF prices. MDF EBITDA at 16.4% were impacted by reduction in domestic realisations due to launch of volume-based schemes in Q4, higher wood prices, amplified brand investment, and dumping of MDF into

India by countries like Vietnam and Thailand.

Plywood Segment

Plywood volumes fell by 30% YoY, primarily due to lower volumes and increased raw material costs, leading to a decrease in operating margin to 10.5%.

During the fiscal year, the Company demonstrated agility in addressing challenges related to higher prices of wood, supply chain disruptions,fluctuatingmarket demands. Itdiversified bolstered inventory reserves, and improved demand forecasting models. Additionally, it launched a cost-effective new product (Interior Commercial) to absorb the market disruptions.

Financial Performance

Key Financial Ratios

Outlook

As the industry undergoes a transition from plywood to MDF, aligning with global trends, the Company is strategically positioned to emerge as a key beneficiary.

With its robust product portfolio and omni-channel presence, it is poised to capitalise on emerging opportunities across key markets.

The Companys primary focus areas in the next year include broadening its distribution network, increasing domestic volumes, and elevating the proportion of value-added products within its offerings. It aims to enhance the Greenpanel brand value through its innovative 3H (Hero/ Hub/Hygiene) approach and prioritise the expansion of its plantations. Alongside its emphasis on MDF, it is also committed to fostering growth in the plywood segment. Adopting an omni-channel and transparent strategy, the Company remains committed to responding to changing consumer sentiments within the dynamic retail landscape. Furthermore, in line with its expansion plans, the Company is set to establish a new MDF plant at Tirupati district in Andhra Pradesh, adding an installed capacity of 2,31,000 CBM. This expansion will increase the MDF production capacity from 6,60,000 CBM to 8,91,000 CBM, a growth of ~35%. Commercial production of the plant is expected to commence in FY25. With structural tailwinds supporting growth in the real estate sector, the Company maintains an optimistic outlook for its growth trajectory. With inflation moderating and gradual improvements in the economic landscape, the Company is confident about expanding its customer base and improving profitability. While the Middle East remains a major export market, the Company anticipates an increase in export orders from other regions. Moving forward, its goal is to maintain its leadership position in the industry by consistently providing high-quality products to its customers.

Risks and Their Mitigation

The Company is exposed to various risks and volatility in the external operating environment. It acknowledges that effective management of risks is crucial for attaining its strategic objectives and constitutes a fundamental aspect of business operations. Its comprehensive risk management framework enables it to proactively identify, assess, and manage the risks associated with its business and operational activities. It also aims to ensure that management makes informed decisions and necessary steps to mitigate both actual and prospective risks. The Risk Management Committee of the Board is responsible for the oversight of the Companys risk management framework.

Material Developments in Human Resources

The Companys human resources are critical in achieving sustainable growth and play a vital role in reinforcing its market leadership. The Company is focussed on building a high-performance culture with a growth mindset. It prioritises developing and strengthening capabilities for all its employees and continues to invest in training, aiming to enhance their knowledge, skills, productivity, and teamwork. It also emphasises effective employee engagement by creating a conducive work environment to nurture the growth and success of the employees and helps in better employee retention. The Company has a leadership development programme that fosters leaders from within the organisation. As on March 31, 2024, the Companys total employee strength stood at 1,846.

Technology Initiatives

Technology is a key business enabler for Greenpanel. The Company has been consistently investing in various technologies including data analytics, ERP software, people management systems, faster business processes, and increased operational efficiency. The Company uses the SAP platform which enables it to effortlessly handle tasks such as order management, invoice generation, payment collection, and credit note issuance. Furthermore, it has integrated advanced AI-based automation and leveraged automation in condition monitoring for Predictive Maintenance. It has also implemented Total Productive Maintenance (TPM) to enhance equipment reliability.

Internal Control Systems and their Adequacy

The Company has a robust and dynamic internal control framework commensurate with the size and nature of its operations. The Audit Committee of the Board of Directors of the Company is responsible to evaluate and implement internal control system. They review and verify its adequacy, effectiveness, and application from time to time. The internal control system is designed to ensure management efficiency, the accuracy of accounting and management information, compliance with all applicable laws and regulations, and the safety of the Companys assets. Additionally, it is responsible for the timely identification and mitigation of the Companys operational, compliance, economic, and financial risks.

Cautionary Statement

The statements made in this section that describe the Companys objectives, projections, expectations, and estimations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those either expressed or implied.Keyfactorsinfluencingthe Companys operations include but are not limited to, economic conditions impacting demand, supply and price conditions, fluctuations in raw material prices, changes in government regulations and tax policies, economic trends, and other incidental factors.