Greenlam expects margins to go up from second-half

Abishek Law | | Updated on: Nov 11, 2021
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Impact of price hike, change in product mix to play out soon

Surfacing solutions company Greenlam Industries is expecting an improvement in margins from the second half of this fiscal as the impact of price increases and change in product mix plays out. Market share gains from the unorganised sector continue, primarily because the latter has been grappling with cash flow issues.

According to Saurabh Mittal, MD and CEO, Greenlam Industries, the impact of price rises — announced mostly in the quarter ended September 30 — are expected to be seen in the quarters ending December onwards. However, even the 7 per cent price rise announced previously is unlikely to restore gross margin levels to earlier 50 per cent highs, he added.

Gross margins — indicative of raw material costs — fell by 540 basis points to 43.5 per cent in Q2FY22 from 48.9 per cent a year-ago. EBITDA margins — indicative of profitability and expenses — saw a 390 basis point decline year-on-year (YoY) to 10.1 per cent.

Raw material costs rise

Raw material costs continue to be northward bound —– up 75 per cent YoY for wood veneer, 10-12 per cent for wood, 100 per cent for chemicals and 100-300 per cent for freight rates (depending on container availability).

Nearly 80 per cent of the company’s requirements — paper, wood products, chemicals, etc — are met through imports.

“If second quarter topline is an indicator and demand remains steady on the domestic front, we are confident of maintaining the run-rate. However, margins are a little lower than historic highs and price rise in domestic markets have been taken. Their impact will be visible in the next two quarters,” Mittal told BusinessLine .

“On top of that, we’ll be looking at changing the value-mix (push towards premium offerings in some segments). So, price hikes, change in value mix, and gaining market share from unorganised players will see our margins improve. But, again I say, not to historic highs because raw material price rise continues,” he added.

Consolidated net revenue for the quarter grew 57 per cent YoY to ₹454 crore (approximately).

Laminate revenue grew by over 60 per cent YoY, the decorative veneer business’ grew 70.3 per cent YoY, engineered wood flooring business’ fell 11.9 per cent and that from the engineered door business fell 8.8 per YoY.

“In the domestic business, we have achieved pre-Covid sales numbers,” he said.

International business

According to Mittal, growth in the international business — a little below 50 per cent of the topline — has been slower, primarily because of logistics and supply chain issues.

International laminates revenues grew by 6 per cent sequentially and by 50.3 per cent YoY. Volume growth stood at 30.9 per cent YoY. As of now, cost increases have been fully passed on — in phases — across the international markets.

“Different economies opened up at different times, thereby impacting supply chains. Now container freight availability and turnaround time of cargo is slowing down international operations. Maybe in another 9-12 months time, there will be some stability there,” he said.

Published on November 11, 2021

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