Greenply Industries Ltd Management Discussions.

Review of the Indian economy

After registering a growth of 7.2% in FY2018 and 6.8% in FY2019, the Indian economy is expected a GDP growth of around 6.9% in FY2020, as per estimates released in August 2019 by Reserve Bank of India. Domestic economic activity deacclerated for the third consecutive quarter in Q3 of FY2018-19 due to a slowdown in consumption, both public and private. However, gross fixed capital formation (GFCF) growth remained in double digits for the fifth consecutive quarter in Q3, with the GFCF-to-GDP ratio rising to 33.1% in Q3 of FY2018-19 against 31.8% in Q3 of FY2017-18, supported primarily by the governments thrust on the road sector and affordable housing. The drag on aggregate demand from net exports also moderated during Q3.

On the supply side, growth of real gross value-added (GVA) stood at 6.8% in 2018-19 compared with 6.9% in 2017-18. GVA growth slowed down to 6.3% in Q3 due to a deceleration in agriculture output from the record level achieved in the previous year. Industrial GVA growth remained unchanged in Q3, with manufacturing GVA growth slowing somewhat. Services GVA growth also remained unchanged in Q3 while growth in construction activity accelerated. There was some loss of momentum in public administration, defence and other services.

The capital market witnessed a deceleration in growth with one of the major NBFC witnessing meltdown. Retail inflation, measured by y-o-y change in the CPI, rose to 2.6% in February after four months of continuous decline. The uptick in inflation was driven by an increase in prices of items excluding food and fuel and weaker momentum of deflation in the food group. The Indian rupee witnessed high volatility, falling by ~14% between April to October 2018 as investors sold the local currency in wake of global headwinds coupled with widening current account deficit led by higher crude oil prices. Adding to it, strong demand for the US currency from importers and foreign fund outflows also weighed on rupee movement. The Indian currency hit an all-time intra-day low of H74.45 against the US dollar on 11th October 2018.

(Source: CSO)

The plywood sector

Plywood is produced by assembling thin layers of wood veneers and bonding these together using strong adhesives. Softwoods, hardwoods, or a combination of the two or several varieties of mixed hardwood is used in the production of plywood for various applications. Softwood plywood sheets are designed for exterior installations whereas hardwood plywood sheets are used for manufacturing furniture and other interior applications. In India, plywood is mostly used for manufacturing furniture, accounting for 66% of the consumption.

The H19,000 crore plywood market in the country is fragmented with >75% of the market dominated by unorganised players, though GST and e-way bill introduction helped create a level playing ground, which should accelerate the shift in consumption towards organised manufacture.

The plywood industrys value chain (realisation-wise)*

Segment Price CAGR growth between Key numbers FY13 and FY18

Luxury / H100-140 per 10-12% Market size: H38 billion premium square feet Market share: 20% plywood Market leadership: Largely organised

Organised to unorganised market share: 70:30 Medium H70-90 per 5-7% Market size: H97 billion / mass square feet Market share: 51% plywood Market leadership: Largely unorganised Organised to unorganised market share: 15:85 Low-end H40-60 per Flattish growth/ Market size: H55 billion plywood square feet Contraction Market share: 29% Market leadership: Unorganised Organised to unorganised market share: 0:100

*Taking 19-millimetre thickness as base

Indian furniture segment overview

Furniture and furnishings retail in India has grown to become a US$ 28- billion opportunity with ~60% of revenues being accounted by furniture sales (~US$ 17 billion). Over the next few years, segmental growth is expected to accelerate owing to continued urbanisation, increasing access to branded furniture and a growing consumer willingness to upgrade to premium furniture.

The furniture market in India has always been fragmented with ~86% of sales coming from unorganised channels. However, in the aftermath of the e-commerce boom, it is expected that the organised markets share can potentially reach ~20% by 2022. Large products like beds, sofas and wardrobes dominate the market, with little change expected in this mix.

With a value >US$ 2.5 billion, the office furniture sector accounts for a ~17% share of the Indian

Growth drivers

Increasing urbanisation: India is the second-largest urban community in the world after China. It has been estimated that by FY20, 35% of Indias population could be living in urban centres and contributing 70 to 75% of Indias GDP.

Middle-class: Indias middle-class is expected to increase to 58.3 crore people by 2025 and >2.3 crore of them (more than the population of Australia today) among the countrys wealthiest citizens.

PMAY boost: The Pradhan Mantri Awas Yojana (PMAY) was introduced in June 2015 to provide affordable housing to the urban and rural poor. The mission is to provide housing for all by 2022. Under this scheme, affordable houses will be built in select cities and towns using eco-friendly methods. In the furniture market. Demand for office furniture is growing rapidly and currently it is ~50% higher than what it was in 2012. This surge in office furniture consumption has come about on the back of a general improvement in the macroeconomic scenario, which led to a steady growth in the industrial and services sectors, increasing the demand for office spaces. Overall prospects remain reasonable for FY2019-20 and FY2020-21.

Credit Linked Subsidy Scheme, PMAY beneficiaries are eligible for interest subsidy if they avail a loan to purchase or construct a house.

Smart Cities: The Government of India launched the Smart Cities Mission in June 2015 to promote sustainable and inclusive cities that provide core infrastructural facilities and offer clean environment via the application of ‘Smart solutions.

Millennial demand: India is a young country with a median age of 28 years. Millennials account for 34% of the countrys total population and ~50% of the working population. Millennials are well-educated and better-connected with the world, increasingly using the internet as a shopping tool. Armed with higher disposable incomes, they spend a significant amount of their savings on lifestyle products.

E-commerce growth: Furniture retail in India is driven by the unorganised sector owing to a high volume of offline rentals along with challenges related to the consolidation of supply-demand dynamics at a national scale. Over the past few years, e-tailers have brought about a paradigm shift. On the supply side, they have provided organised platforms to suppliers by bringing them onto a well-managed marketplace or by creating private labels. On the demand side, a combination of strategic marketing campaigns and brick-and-mortar experiential stores is driving demand creation. Farsighted investments in supply chain management and quality control have allowed these e-tailers to grown rapidly. Consequently, they are poised to grow their share of the market to ~8% by 2022.

Rural consumption: In FY18, the annual consumption growth in rural India stood at 9.7% compared to 8.6% in urban areas. The rural segment is growing at a rapid pace, boosting the demand for furniture.

Growing nuclearisation: ~74% households have five or fewer members according to the 2011 Census. The fall in the average household size with higher disposable incomes could lead to a higher percentage of spending being channelised towards furniture purchase.

The Companys overview

Greenply Industries Limited is among the foremost plywood manufacturers in India with a 26% share of the organised market. Greenply offers a comprehensive range of panel products including plywood, block boards, decorative veneers, doors and film faced plywood among others.

The plywood segment

Greenply Plywood is made from plantation timber and goes through a stringent five-step preservative treatment, making it termite and borer-resistant. Greenply Plywood possesses high dimensional stability that makes it warp-free. Greenply Plywood is eco-friendly and emission-free (emits lower quantities of formaldehyde as per E1 formaldehyde emission levels). In addition to fire-retardant plywood, all other Greenply products are treated with fire-retardant chemicals.

Greenply was the first Indian player to offer a lifetime guarantee on high-end products like Green Club and Green Club Plus premium plywood, among others. The Companys Green Fire Retardant Plywood was certified by the Central Building Research Institute. Greenply is among the most widely-available plywood brands with a presence in > 300 cities via 1870 dealers/distributors and 25 branch offices across the country.

Operational improvement, FY2018-19 vis--vis FY2017-18

Parameters 2017-18 2018-19
Annual capacity (million square metres) 21.90 24.90
Production (million square metres) 23.62 34.69
Sales volume (million square metres) 40.95 57.13
Capacity utilisation (%) 108 139
Average realisations (H per square metre) 209 219


Growing disposable incomes coupled with increasing shrinking family sizes are driving the demand for housing units. Government projects like Housing for all and the Smart Cities are strengthening the countrys real estate sector. Plywood, one of the most preferred materials for interior infrastructure, is expected to post strong growth across the foreseeable future.

PVC foam boards and sheets

Greenply markets PVC foam boards and sheets under the Green Ndure brand. Since its launch in FY2018, the brand has emerged as one of the preferred plastic panel products used in the construction and engineering industries. The products are preferred because for their sturdiness and mechanical strength, which increases with molecular weight but decreases with rising temperatures. PVC boards are gaining popularity as they are lighter, cheaper and offer a host of performance advantages. PVC panels are easy-to-install, water-proof, and maintenance-free. Besides, they are available in a variety of textures, patterns and designs.


With residential construction growing, especially in the affordable segment, the demand for these products is expected to grow attractively.

Financial analysis

The financial statements of the Company were prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 as amended, notified under Section 133 of the Companies Act, 2013 and other relevant provisions of the Companies Act, 2013.

Balance sheet

Net worth stood at H331.34 crore as on 31st March 2019.

Borrowings as on 31st March 2019 stood at H143.64 crore.

Total non-current assets as on 31st March 2019 stood at H123.19 crore.

Profit and loss statement

Net sales increased by 45.1% from H879.19 crore in FY2017-18 to H1,275.76 crore in FY2018-19.

EBITDA increased to H126.33 crore in FY2018-19 compared to H70.63 crore in FY2017-18.

Profit after tax increased by 74.5% from H35.12 crore in FY2017-18 to H61.29 crore in FY2018-19.

Gross profit margin increased by 111 bps from 36.05% in FY2017-18 to 37.16% in FY2018-19.

Depreciation and amortisation stood at H18.72 crore in FY2018-19 compared to H15.44 crore in FY2017-18.

Working capital management

Current assets as on 31st March 2019 stood at H470.45 crore.

Current ratio as on 31st March 2019 stood at 1.66. Inventories as on 31st March 2019 stood at H141.61 crore.

Short-term loans and advances as on 31st March 2019 stood at H0.45 crore.

Current liabilities stood at H284.16 crore as on 31st March 2019.

Cash and bank balances

Cash and bank balances stood at H18.10 crore as on 31st March 2019.

Key ratios
Particulars FY2018-19
EBIDTA/Turnover (%) 9.9%
EBIDTA/Net interest 8.53
Debt-equity ratio 0.43
Return on equity (%) 18.50%
Book value per share (H) 27.02
Inventory turnover (days) 41
Receivables cycle (days) 81
Earnings per share (H) 5.00

Managing risks at Greenply

Greenply is exposed to various risks that can be divided into external, operational, strategic and financial categories. Over the years, Greenply has undertaken several initiatives to address risks through operational activities performed by business area boards. The Board members, oversee these risk exposures and their mitigation impacts.

Classification of key risks at Greenply

External risks

Weak macroeconomic growth could impact Greenply In 2018-19, India emerged as one of the fastest-growing economies. The countrys economy is expected to grow around 7% over the next two years.
Slowdown in demand from downstream sectors could decelerate growth Burgeoning income levels led to consumption growth. The PMAY catalysed demand in the residential real estate segment, driving furniture sales.
Increased competition could affect profitability Success in the plywood industry is dependent on access to natural resources that raises the entry barrier for intending entrants. Greenplys strong product portfolio and deep market penetration have allowed it to reinforce its market leadership.
Regulatory changes could impact the Companys business The Company conforms to all regulations. It deployed a dedicated team to monitor regulatory compliance and take corrective action whenever required.
Inadequate raw material supply could be detrimental The Company forged ties with many vendors to ensure round-the-year access to raw materials. It invested in a peeling unit in Gabon to enhance resource security. Gabon is one of the few places in the world that offers a large quantity of Okoume timber – a superior hardwood timber harvested under a sustainable forest management plan - naturally durable timber at par with Gurjan wood.

Strategic risks

The Companys new products may not find market acceptance Over the past few years, the Company launched various plywood variants. The Company launched doors and PVC boards to expand its products portfolio.
The Companys marketing strategies may fail to generate desired results The Company adopted a 360 marketing strategy to ensure all-round visibility. The Company continues to account for >26% share of Indias organised plywood market.
Operational risks
Cost overruns could dent profitability The Company has taken several cost optimisation initiatives and emerged as one of the lowest cost Indian plywood manufacturers
Lack of quality manpower could impact business sustainability The Company is a preferred employer in its sector. It undertakes regular training to enhance employee skills and periodic employee engagement programmes to maximise talent retention.
Inferior quality products could affect sales growth The Companys products conform to major global standards like CE, IGBC and BIS, among others. The Company invests in cutting-edge equipment and high-grade raw materials to produce top-notch products. The in- house quality control team ensures that its products conform with the highest qualitative standards.
Violation of environmental norms could lead to censure and closure During FY2018-19, the Company distributed huge saplings as a part of its afforestation commitment. The Company follows best-in-class practices in terms of environmental management and is one of the most respected brands in its industry.
Financial risks
Increased interest rates could affect profits The Companys average debt cost of below 9% was one of the most competitive in the industry in 2018-19. Robust financials and a strong credit rating empowered the Company to negotiate lower debt costs.
Inability to borrow funds could impact expansion plans Greenplys long-term debt-equity ratio stood at 0.15 as on 31st March 2019, reflecting adequate room for additional borrowings should they be needed.
Improper working capital management could hamper operational seamlessness The Companys strong brand equity helped it move to the cash-and-carry business model with an average receivables cycle of 81 days of turnover equivalent and an inventory cycle of 41 days of turnover equivalent.
Foreign currency fluctuations could affect profitability The Companys policy is to take forward cover in respect of its foreign currency exposers in respect of import of raw materials and traded goods.

Health, Safety and Environment (HSE)

Greenply believes health, safety and environment (HSE) management goes a long way in maintaining an organisations sustainability. The Company, thus, demonstrates environmental and social responsibility at every step. We are committed to benefit communities – workforce, public, and environment. Our HSE objectives include complying with all applicable laws relevant to the industry. The management believes in sharing responsibility with even the entry level employees in conforming to the existing laws. Furthermore, we believe in elevating health, safety and environment aspects of people around our facilities.

Health, safety and environment objectives

Complying with all applicable laws and relevant industry standards of practice

Elevating the health, safety and environmental aspects of equipment and services

Making everyone responsible and accountable to HSE, right from entry-level employees to the management team

Health and safety measures

The health and safety of each individual working within the plant area is a prime concern of the management. Therefore, appropriate precautions are taken in the area in accordance with safety norms.

The entire electrical panels operation area is provided with rubber mats. This provides safety against electrical shock during operation and maintenance efforts

The rotating equipment is provided with safety fence and motor guards for human safety. All the hot surface pipes and equipment are provided with appropriate insulation for safety to the human body

Appropriate work platforms and ladders are provided for operation and maintenance of the components located at heights

Precautionary signboards are displayed at specific locations for awareness of the operation staff. Earplugs, safety goggles, shoes, helmets, gloves, masks and safety gadgets (PPE), among others, are provided to the staff

First-aid boxes are made available across the plant for treatment of minor injuries. An ambulance is also available round-the-clock within the plant for the transfer of an injured worker in case of emergency

Human resources

Greenplys prudent human resource practices helped reinforce its sectoral leadership. The Company invested in formal and informal training coupled with on the-job training. Greenply reinforced its employee engagement by providing an amicable workplace, offering challenging responsibilities and maintaining an ongoing dialogue. The Company enjoyed one of the highest employee retention rates in the industry and continues to work on leadership development to drive organisational growth. As on 31st March 2019, the Companys employee base stood at 2,368 (permanent employees).

Internal control systems and their adequacy

The Company has in place strong internal control procedures commensurate with its size and operations. The Company believes that safeguarding of assets and business efficiency can be prolonged by exercising adequate internal controls and standardising operational processes. The internal control and risk management system is structured and applied in accordance with the principles and criteria established in the corporate governance code of the organisation. It is an integral part of the general organisational structure of the Company and Group and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, monitoring and support committees.