Kolkata-based ply-board and veneer-maker Greenply Industries is looking to go ahead with an “asset light” business model whereby it will enter into equity participation with regional manufacturers.
This arrangement will ensure guaranteed supply of products like ply-boards and other finished offerings such as shuttering plywood. In fact, the company under its new model is “completely outsourcing its lower end offerings” while for the premium-end, it is eyeing similar tie-ups.
According to Sanidhya Mittal, Joint Managing Director, Greenply Industries as a strategy is not looking to invest in fixed assets, but would rather look at maintenance capex. As a result, it will be looking at equity participation, whereby its partners will be provide the offerings that will subsequently be branded under “Greenply”.
Two arrangements
To this effect, the company has entered into two arrangements at Bareily in Uttar Pradesh with 30 per cent equity in each. Management control of the units will be with the partner (manufacturer in this case).
In one, it has invested around ₹2 crore in Q2 (July to September) of this fiscal and the unit is expected to go on-stream by December. Plans are afoot to enter into a second equity participation arrangement whereby it will invest ₹3.25 crore. The second facility is also under-construction, and expected to go on-stream towards the end of this Q1 (April to June) of FY-21.
Company officials in a recent analyst concall had pointed out that as model delivers, “turnover will increase by ₹110-115 crore from each, at peak levels.” Put together there is expected to be a ₹220-230 crore top-line addition.
“Our focus will be on expanding margins while we look to strengthen our presence in the premium plywood segment. Our main focus will now be on improved return on investments and brand building,” Mittal told BusinessLine .
Greenply Industries reported an improved consolidated EBITDA (which include its business in Gabon in Africa) to 11.9 per cent in Q2 FY-20 (as against 10.3 per cent in Q2 FY-19). The standalone EBITDA margins also increased to 11.4 per cent (during the quarter under review) as against 10.7per cent in the year-ago-period.
The asset light model, he says, will now help the company concentrate on finished offerings such as doors and shuttered plywood. High overhead cost has so far been holding back the segment. As the new business model stabilises, the focus will be to pass on cost benefits and improve margins.
“We will invest in such models where our supply is guaranteed and even after giving healthy margin to the partner; there will be enough sustainable EBITDA margins for Greenply,” Mittal added.