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Improving capacity utilisation across all divisions

Capacity Utilization (CU) for all the product divisions has generally been comfortable over the years and witnessed furtherimprovements in FY13 primarily driven by higher demand supported by higher marketing support. CU of the MDF division (unitcommissioned in November 2010), which was low (31.86%) in FY11 in view of teething trouble, improved to 66.7% in FY12and further improved to 87.8% in FY13 with gradual stabilization of operation. In the laminates division, both the Behror and

Nalagarh units witnessed a considerable improvement in CU, aiding the growth in the overall CU of the laminate division. CU ofthe plywood division continued to remain highly satisfactory and was high at more than 100% during the period.

Improvement in the financial risk profile over the last three years especially in FY13 on the back ofstabilization of operations of MDF unit

The net sales have grown at a CAGR of about 28.2% over the last three years on the back of continuous product developmentinitiatives and wider marketing & distribution network. In FY13, the net sales increased by about 22% in FY13 over FY12 in linewith greater penetration in new territories in domestic and export market, coupled with increase in realizations. Apart fromincreasing penetration in the existing product portfolio, the stabilization of operations of the MDF unit in FY13 led to notableincrease in y-o-y sales of MDF. Accordingly, improved performance of the MDF division was the main diver for growth in salesfor GIL in FY13. The PBILDT margin improved by about 184 bps in FY13 over FY12 in view of higher sales price realization forall its product categories coupled with increased CU at all its product facilities (especially MDF division) leading to higherabsorption of fixed overhead expenses. PAT (after defd tax), more or less, doubled during the even period in view of higherPBILDT level, coupled with stable capital charge.

Both, debt-equity and overall gearing ratios, improved as on March 31, 2013, over the previous account closing date due toscheduled repayment of term loans for the recently completed projects, coupled with accretion of higher levels of profits toreserves. Furthermore, the debt coverage indicators like term debt/GCA and total debt/GCA also witnessed improvements ason March 31, 2013, due to higher level of profits.

Forest Stewardship Council (FSC) Certification and empanelment with MES for supply of MDF products

GIL has received the FSC chain of custody certification for its units at Kriparampur and Rajkot. This translates into an easy accessfor the company to highly environmentally sensitive markets (European countries) and also strengthens its brand value.Currently, the governments and other organizations in European countries are insisting on FSC-certified products in theirpurchasing policies.

GIL has received the approval from Military Engineers Services (MES) for use of Green Panel Max MDF in defence works.

Extensive distribution network and marketing supportGIL has a pan-India marketing network with 46 branch offices and more than 14,000 distributors, dealers, sub-dealers andretailers across 21 states. It has one of the largest distribution networks in the interior infrastructure industry of the country. Ithas two subsidiary companies in Singapore and the USA to explore the market opportunities for laminates in south-east Asia andthe USA, respectively. Further, the company has set-up another subsidiary in the UK for marketing of its products in Europe.

GILs extensive distribution network is supported by various marketing and branding exercises across the three product divisions.The company engages in several brand building initiatives through a mix of Above the Line (ATL) and Below the Line (BTL)marketing initiatives. While the company primarily focuses on ATL activities like television commercials for plywood andlaminates division, branding in the MDF division is focused on product education through BTL activities like carpenters,architects, interior designers, real estate and construction industry meets. The company is targeting the key B2B influencergroups through advertisements in trade journals and carpenter magazines as well as carpenter education programmes. On anaverage, the company spends about 2.5-3% of its net sales towards marketing and branding activities across the three divisions.

Increasing presence in the export marketGIL has an extensive presence in the quality stringent export market and the same has increased over the last three years. GILsexport stood at Rs.255.6 crore (about 11% of total sales) in FY13 as against Rs.183.8 crore in FY12 GIL primarily exportslaminates to countries like Thailand, Indonesia, Taiwan, Hong Kong, Malaysia, Singapore, Russia, the USA, Australia, Mexico,China, etc. Over the last few years, the company is continuously focussing on increasing its export presence in line with higherdemand for its various premium laminate brands. Accordingly, to cater to the growing demand in south-east Asian countries andAmerica, GIL has set up two subsidiaries (Greenlam Asia Pacific Pte Ltd & Greenlam America, Inc.) as foreign marketing outfits.In FY13, the company has set-up another subsidiary in the UK for marketing of its products in Europe.

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Cost-efficient sourcing and locational advantage

GIL has strategic advantage vis--vis its competitors as most of its units are located adjacent to the ports or market or source ofmajor raw materials. This enables it to save cost on transportation, as both raw materials & finished goods are bulk products.Moreover, most of its units enjoy various fiscal benefits.

Foreign exchange fluctuation riskGIL sources about 42% of its raw material requirement (decorative paper, top veneer wood, phenol, etc Rs.462.8 crore inFY13) through import, for which, the company uses buyers credit facility. However, as the company exports about 11% of itsgross sales (Rs.255.6 crore in FY13), it is partially insulated against foreign exchange fluctuation by way of natural hedging. InFY13, GIL booked foreign exchange loss to the tune of Rs.7 crore. GIL also takes forward cover to hedge its forex payables forminimising the exchange fluctuation risk. At any given point of time, the company is generally hedged to the extent of 85-90% ofits total exposure.

Moreover, to part fund its recently completed capex programme GIL had availed ECBs, the principal and interest payments ofwhich remain partially hedged (in some cases interest payments remain hedged while in some cases the principal remains hedgedupto a certain rupee dollar rate and in some cases both interest and principal remain un-hedged). This exposes the company toforeign exchange fluctuation risk to a certain extent.

Risk associated with extension into value-added product segment and increase in manufacturing capacity of

MDF

In order to cater to the growing demand for value added product segments (HDF flooring, UV coated panels, Veneered MDF) inMDF division and to tap the huge market potential for such products in urban and semi urban markets, GIL is in the process ofsetting up a unit for the manufacturing of such products at its existing plant at Pantnagar (Uttarakhand). The aggregate cost of theaforesaid project of Rs.41.3 crore was financed at a debt-equity ratio of 3.98:1. The debt has been availed as envisaged and theproject is near completion. It is expected to commence commercial operation from Q3FY14 onwards.

Furthermore, in order to cater to the growing demand for veneered wooden flooring and Pre-laminated particle board, thecompany is setting up a Engineered Veneered Wooden Flooring (capacity of 8 lakh square metres p.a) and Pre-laminatedParticle Board (capacity of 7.5 lacs CBM) unit at its manufacturing unit at Behror, Rajasthan. The aggregate project cost ofRs.119.3 crore is expected to be financed at a debt-equity ratio of 2.3:1 (internal accruals of Rs.36.3 crore and term loans ofRs.83 crore). The company has already received a sanction of 6 million USD from Standard Chartered Bank for the project. Forthe balance amount, the proposal is in advanced stage and the sanction is expected to be received soon. The commercial

production from the unit is expected to commence from July 2014.Given the fact that all the three divisions of the company are operating at satisfactory CU levels, the demand for MDF has beengrowing and GILs MDF has been well-accepted in the market, the company is planning to set up a new MDF plant in AndhraPradesh. However, the project is in nascent stage and, thus, the capacity and the cost is yet to be firmed up. Any additional debtavailed for the project is expected to result in deterioration in the capital structure of GIL.

Initiatives taken to ensure availability of raw materials

The company also plans to float a local subsidiary in Myanmar for setting up a veneer-cum-plywood unit. The Government ofMyanmar has been discouraging exports of wood and is likely to ban exports of wood from 2014. The company plans to procurewood from the local markets in Myanmar and make some value addition to the product, which would then by transported toIndia, thus, ensuring steady supply of raw materials. The company is yet to finalise on the total project cost.

Prospects

GIL enjoys good brand recognition in the organised plywood as well as laminates segment. However, the prospects of thecompany will be primarily driven by the demand from sectors like hospitality, healthcare, commercial office space and retailspace. Furthermore, going forward, the ability of the company to complete its ongoing projects on time and without any costoverruns and maintain its capital structure shall be crucial.

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Financial Results(Rs. Cr)

Y.E/As on Mar.31, 2011 2012 2013

(12m, A) (12m, A) (12m, A)

Working Results

Net Sales 1,216.10 1,642.3 1,997.7

Total income 1,217.9 1,643.7 2,007.3

PBILDT 123.7 195.3 275.4

Depreciation 41.0 46.8 52.0

Interest & finance charges 42.5 64.0 63.7

Profit before tax 30.9 64.9 151.4

PAT - after defd. tax 25.1 53.4 114.2

Gross Cash Accruals 74.5 98.7 173.1

Financial Position

Equity share capital 12.1 12.1 12.1

Tangible networth 346.7 404.7 517.5Total capital employed 866.5 1,116.4 1,200.5

Ratios

Growth

Growth in total income (%) 38.31 34.96 22.12

Growth in PBILDT (%) 26.16 57.92 41.01

Growth in PAT (after defd tax) (%) (49.38) 112.88 113.75

Profitability

PBILDT margin (%) 10.17 11.89 13.73

PAT margin - after defd tax (%) 2.06 3.79 5.69

ROCE (%) 10.8 14.60 20.21

RONW (%) 10.52 18.62 26.21Leverage

Debt equity ratio 1.19 0.99 0.67

Overall gearing ratio 2.05 1.99 1.63

Interest coverage 2.91 3.05 4.32

Long term debt/GCA 5.55 4.05 2.12

Total debt/ GCA 9.55 8.14 4.88

Liquidity

Current ratio 1.23 1.20 1.06

Quick Ratio 0.70 0.72 0.63

Turnover

Average collection period (days) 51 57 61Average creditors period (days) 40 33 43

Average inventory period (days) 77 68 69

Working capital cycle (days) 88 93 87

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DISCLAIMER

CAREs ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy,sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not,however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtainedfrom the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount andtype of bank facilities/instruments.

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