After demerging its MDF biz, Greenply may cut costs and time to market

Greenply Industries, a leading manufacturer of wood panels is going big on its MDF (medium density fiberboard) business. In July this year, the company — which closed last financial year with a turnover of Rs 16.5 billion (profit of Rs 1.35 billion) — announced the demerger of its MDF division to its wholly owned subsidiary Greenpanel Industries Ltd. The company has now expanded capacity by setting up its second MDF plant in Chittoor, Andhra Pradesh. It already has an MDF plant in Uttarakhand which has been operating since 2010. With the addition of the new plant, Greenpanel has almost tripled its MDF manufacturing capacity from 180,000 cubic metre (CBM) to 540,000 CBM per annum. 

Going ahead, the new plant in the south will help the company lower logistics costs and achieve shorter time to market. Even though some part of the MDF will continue to be manufactured in its facility in the north, in the long term, Greenpanel is looking to meet local demand in the south through its Chittoor plant. 

MDF is a high volume and low value product, so the cost of freight plays an important role in determining the profitability of the business. 

“We have been transporting material from Rudrapur (Uttarakhand) in north to south. Logistics costs can be as high as 11 to 12 per cent of the total value of the product. There is high demand for MDF in the south and owing to close proximity to the ports, import is cheaper. For domestic players, it is uncompetitive to sell from the north to the south,” says Shobhan Mittal, chief executive officer and joint managing director, Greenply. 

South India is the biggest market for MDF. The region has a lot of original equipment manufacturers and institutional players and small businesses. The new plant will help Greenply service the large market and compete with imported MDF more effectively. It will also cut down on its logistics cost by 5/6 per cent. 

So far, the company has been moving 30 per cent of the products required by the southern markets from its northern production centre. With a new manufacturing facility, it will be able to widen its footprint and benefit from an improved working capital cycle. According to Abhishek Bansal, co-founder and chief executive officer, Shadowfax, the country’s largest plug-and-play logistics platform, logistics costs vary based on the product profile of the company. Typically for large businesses, logistics costs comprise 10-15 per cent of the overall costs. 

“With a facility in the south and in the absence of the need to move products from north to south, a player like Greenply would be able to reduce damages that might occur when products are in transit, and it will be able to achieve faster fulfilment rates. The company will also see the number of compliances required under the Goods and Services Tax regime for interstate movement come down,” says  Bansal.

Going forward, Mittal says the company would also benefit from lower inventory levels. The stock keeping units in the north and the south vary in size and in the form of the product held at its depots. It is now in a position to reduce the number of stock keeping units. Over the next few months, the company is looking to bring down inventory levels for both semi-finished and finished goods from 15 days to eight days. This will help in making available finished goods at shorter lead time. 

Eighty per cent of the wood panels consumed globally comprise MDF and particle board; plywood accounts for only 15-20 per cent. In India, it is just the reverse. This is expected to change in favour of MDF, which is cheaper. With close to 2,200 CBM of manufacturing capacity per day — which the company claims is the largest in the country — Greenply is hopeful of cornernering a big chunk of the growing demand.