Century Plyboards (India) Limited (532548) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Century Plyboards India Limited Q1 FY '21 Earnings Conference Call, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nehal Shah from ICICI securities. Thank you, and over to you, Mr. Shah.

Yes. Thank you, Nirav. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you all to the conference call of Century Plyboards India limited to discuss the Q1 FY '21 results. From the management, we have Mr. Sanjay Agarwal, MD and CEO; Mr. Keshav Bhajanka, ED; and Mr. Arun Julasaria, the CFO of the company. We also have Abhishek Rathi to -- along with the panel. I would request Mr. Sanjay Agarwal to start the call with his opening remarks, post which we can then proceed with the Q&A session. Over to you, sir.

Thank you. Thank you, Nehal. Thank you, Nirav. Good afternoon, friends. I am Sanjay Agarwal, MD and CEO of the company. Mr. Keshav Bhajanka, Executive Director; Nikita Bansal, Executive Director; Mr. Arun Julasaria, CFO of the company, have joined me to welcome you for the first quarter results call of CenturyPly. I'm sure none of us had seen such a washout, and I really wish from the bottom of my heart that God's grace be on us and we never see such a quarter again in this lifetime at least. April was fully closed, except our CFS division, which comes under essential services. So it operated. In May, we all know India started opening up a little bit, but then everybody was very hesitant. So even May was particularly -- or a major part of it was a washout. But yes, sales has started picking up. June, we did about 60%. And that's how actually, April, May, June, the first quarter, we achieved an average of 35%, which actually was a little more than what we expected because we expected about 25% in that quarter. I believe that we Indians are a very learning people, and we adjust with things very fast. And we can see that we Indians have learned to live with corona. And most of the places have opened. And I believe that this will not -- the situation in April will never be repeated at least very soon. On the other side, it has crossed INR 2 million, and we are approaching INR 3 million. And we all are actually hopeful on only one thing, that a vaccine is around the corner or maybe October or November or by December, we will have the vaccine. The channel has no stocks at the moment. The sale is distributed across the month. So that's a new thing which has happened with us. Otherwise, month-end selling was a norm. Payments, we all thought that there will be a lot of bad debts. But we came out with the policy with advice of our Chairman, that 55 days were given as a blank day. Everybody were given a 55-day moratorium without -- on everything. And then we adjusted with -- a little bit with other -- whatever was required at the moment. So we see that a lot of payments have really come in, and we now really don't expect the bad debts to be as bad as we had thought earlier actually. You will love to know, and we are very excited about a new innovation which CenturyPly has done, has already introduced in the market. You must have seen the advertisements. We have already started the advertisement also. It is the VIROKILL technology. We have applied for registration -- patent registration also for this. I will request Keshav to speak more once I finish, then he will speak more about the VIROKILL technology. This innovation shows our commitment towards business. In spite of all the problems going on, Century could still achieve it. Our sustained effort to automize and reach the consumer and influencer is on. But success, of course, will come in parts and it will take some time -- really some time before we reach where we want to reach. Salary and many other expenses has been cut, and that has helped us in keeping the losses under control. The numbers will also show that very, very clearly. That is why you will see that we have still -- even in all the circumstances, with only 35% sale, Century is still not in cash loss. As spoken earlier, we expect normal numbers in the fourth quarter, but we are quite positive that our achievements will be -- will keep improving from month-on-month. The MDF expansion presently is on a pause due to COVID and some government issues. But we are very excited about the project, and we are very hopeful that soon we will be able to make progress. Our debt, which has really come down and we expected that in this month, by August 2020, we will be able to become a debt-free company. But now we will have to wait for quite some time, maybe a year. But our long-term debts are reduced to only INR 45 crores now. So first, I will ask Keshav to speak on VIROKILL. And after that, I will request Arun Julasaria, our CFO, to take you through key financial data and current quarter costs, which we are -- after that, we will be open to question-and-answer session. Thank you. Thank you, ladies and gentlemen.

Good afternoon, everyone. My name is Keshav Bhajanka. And as the MD had just said, I would like to take you through what this technology is. You see Century Plywoods has always been a company since inception that looks to provide the best in quality product. We have had numerous innovations, I think, more than 100 innovations since our inception. But I would rank this as the second biggest innovation that we have ever created, after only the borer-proof, termite-proof technology that we brought into the market in '96, '97. What we have done is we have seen the fear that this virus, this pandemic had created amongst our consumers, and we tried to address it by providing them with some sense of security in them. We have developed, rigorously tested and got in accreditation and certification for our product, which now is 99.99% virus-safe. What this means is that any virus that falls on the surface of our plywood or our laminates, the cell gets ruptured and the virus starts dying instantly. It could take a few minutes or a few hours. But the efficacy is 99.99%. We have been tested rigorously in-house, and we have been tested by the Biotech Testing Services, which is one of the most renowned testing laboratories for these kind of material properties in the country. We have used a nanoparticle-based Self-Doctoring Surface Treatment. And although there is no test available for COVID-19 in the country because government has not certified, we have used a virus or the testing service that used a virus, which is positive set single-stranded RNA virus, which is very close to COVID-19. So although I cannot claim today that we are corona free and the product is corona free, the day that the testing becomes available, I'm sure we will certify the same as well. So this is the step that we have taken on, and we are very bullish that this is going to help us further differentiate from the rest of the market and maintain and enhance our position as market leader. Thank you.

[Operator Instructions] sorry, please go ahead.

First, I will request Arun Julasaria, our CFO, to explain everybody with the data.

Good afternoon, ladies and gentlemen. First of all, I'd like to mention customary disclaimer that this con call is just to discuss company's historical numbers and future outlook. In no way, this should be construed as invitation to invest in the company. Results for the quarter, along with detailed analysis are already mailed to you and also obtained on the stock exchange and company websites. So I will not take much of your time and take you through. During the quarter, the COVID-19 pandemic and consequent nationwide lockdown has subsequently disrupted the economic activities with high uncertainty. In accordance with central government guidelines, the company's old units and offices were completely closed for the whole of the April month, and started to open from 4th May onward. Even after 4th May, there were intermittent area-specific full or partial lockdowns at the units and offices of the company. As April was completely washout and May was almost washout, the activity started to pick up from late May. In such situation, our company could not be an exception and our operations also suffered accordingly. Apart from these companies, plywood unit at Kolkata was also closed for almost 30 days due to damages caused by Amphan cyclone in West Bengal in the month of May. On an overall basis, the revenue for the quarter is almost 35% of revenue with corresponding quarter last year. However, despite such major disruptions, company is EBITDA positive and heavy cash profit. Year-on-year basis, overall blended EBITDA was 2.7% compared to 16.3% in corresponding last quarter. Company continued to all its commitment to all stakeholders and to all vendors were made as per originally agreed schedules, and all order materials were accepted. In case of our customers, we extended credit period with originally agreed cash discount for a period of around 55 days. Although we could have delayed vendor payments, but we kept our commitments in line with the reputation of CenturyPly. These have resulted in slight increase of our debt level and inventory level, but all have come down to a normal level by the end of July month. The revenue in all reported segments was down in the range of 60% to 75%, except in case of logistic segments, where it was down only by 10%. Company's container service stations were falling under essential services, so were not subject to lockdown closure. Business of companies measure domestic and overseas subsidiary is dependent on operations of the company. So their performance is also impacted. Laos units are still closed, and the viability will again be explored once operations in India are normalized. Company is looking future with optimism. July 2020 revenue was almost 75% of July 2019 revenue. Correction from debtors is normalizing and debt level is again coming down. Loss caused by Amphan at Kolkata factory is fully covered with insurance. Company's conservative ownership low gearing and lower credit score is keeping company a very comfortable position. Our rating agency, ICRA, has maintained our long-term rating of AA- in its recent surveillance exercise. Company is also spending on advertisement of its newly added feature of VIROKILL technology in plywood and laminates. This technology kills all viruses on the surfaces of plywood and laminates, and this is well taken by consumers. Company is continuing to invest in balance sheet equipment and innovations wherever possible. Plant greenfield capacity of MDF and particle board is still kept in abeyance, but will be taken off very soon. With these words, I open this conference call for questions and answers.

[Operator Instructions] First question is from the line of [ Vikrant Shah ] from [ Credit Capital ].

I would just like to one thing. What would be -- what would be your take on the industry overcapacity as of this movement? And secondly, what would be the take of the company on Reliance entering in the plywood business?

You see over-capacity, capacity utilization in our industry is very, very difficult to actually measure. The reason I'm saying this is that the 70% of the industry is actually unorganized. Having said that, what we have seen in the market is the supply chain for the unorganized sector is disrupted more even for the organized sector. As we say, the cycles are somewhat stopped, and we have seen issues in terms of working capital and other issues as well. So I think that the utilization level for organized sector would be better than for the unorganized sector.

All right. And regarding the Reliance part of the question?

Pardon?

Yes, what would be your take on that, like on Reliance entering the category?

Relwood. So Reliance has not entered the plywood business. You see Relwood is a product that has been the market for 3 years plus. The timing of that particular tweet or that particular announcement was very, very good. I think we need to look -- have a look at their marketing agency because they've done a phenomenal job. But this has been in the market for quite some time, and it is similar to the star moment we currently have, which is good polymer composite. And I think it is a far higher price point product. It is definitely useful for certain applications, but the cost is prohibitive.

Next question is from Sonaal Kohli from Bowhead.

I have a couple of questions. Firstly, thanks to the new policies by government of India, where they are discouraging imports and increasing the domestic industry. If you could give some idea about how much of imports currently in India happen from China as far as the furniture is concerned? And whether you would contemplate entering into the furniture industry yourself as a part of -- for the integration? Secondly…

Let me answer this question. I think, otherwise, you will get mixed up. So you can tell the second question later. As far as this Atmanirbhar thing is concerned, it is really, really going to help our MDFs. Because of the duties or licensing happening on the furniture, it's going to help MDF in a big way. And we expect that Indian -- the growth of MDF industry was stunted because of imports MDF and imports of too much of furniture from outside. So I think Government of India this time has taken it really seriously, and we can see that a lot of discussions and seminars and even the minister himself, Piyush Goyal or others, are really engaging with all the stakeholders. So this is going to help MDF mostly. Other sides, like plywood, there is not much of import for plywood in India. So it's -- I don't think it will make a difference. As far as timber import is concerned, as it is already -- I think it is 5% duty right now, so it is not going to really make much of a difference. As far as laminate is concerned, again, there is not much of import of laminates into the country. So all those things I don't think will make much of a difference. The most important difference will be for MDF and particle board. You can ask the second question.

So sir, what I already asked was, would you have any plans to enter into the furniture industry in terms of manufacturing furniture yourself?

No. Right now, the very clear answer is no. I can get into a lot of detailed discussion why no and why yes, so I don't think that we can discuss right now actually.

And sir, my remaining questions were pertaining to what kind of measures you have taken for cost cutting? What is sustainable? What kind of measures have you taken in last 1, 2 years, which you think would help you to grow faster than the industry? And lastly, are there any capacities available in MDFs? So by the time you freeze your plans and enter into the Indian category, considering the balance sheet if we don't take a shorter-term view and the liquidity of the promoters, do you think that -- are there any assets you could acquire in the MDF industry?

See, the first one cost cutting. For the COVID thing, we have already told that we have cut salaries and which we have promised to our people in writing. At the moment, we cross 80% in the quarter, we'll reimburse their salaries. You know that travel costs have actually become 0 for the moment. And so all these costs have really helped in maintaining stability within the company for this moment. Your next part of this question was sustainability of this. I believe that the salary cut cannot stay. It has to be reimbursed ASAP. Every one of them are in actually very -- a lot of worried, all the people are. So it has to be reinstated as fast as possible. The traveling part, I believe that it will not come back very soon. And even if it comes back, people have really learned to use Zoom and others. So it will cut down a lot. And travel costs were not small in any company. So I think this is one area where I think the whole -- every company, including Century Plywood will benefit out of it. The next part was availability of MDF capacity. I will request you, if somebody -- something comes across, please let us know. Otherwise, we are flexible on our part. But I really don't know of any capacity available at this moment.

And sir, my last question was pertaining to measures to grow above the industry and I had also initially inquired, what part of furniture would be imported from China? If you have an idea about that?

Right now, you see a lot of furniture is being imported from China. So -- and India does not have any branding, India does not have very good finishing, India does not have a designing. So -- but the way things are now government is taking up, you will see a change in next 3 to 5 years. So right now, China exports everything, including part of furniture, full furniture. Even a millionaire, billionaire goes there and he buys the most expensive furniture, even a middle class goes there and he can buy in 1 container or 2 container of very cheap or middle type of furniture, everything is available. But I am sure that India will develop its own capacity very soon. One part, I'm just forgetting you asked one more question.

Sir, you have taken -- what kind of measures have you taken to grow above the industry company? And what do you expect, by 2022, you'll be back to 2020 numbers?

Yes, yes, yes. That I have already spoken in my speech that we should be achieving in the quarter 4. Quarter 4, we will be actually near to or we will certainly reach the 100% mark of last year. So that we are very confident of. And after that, the next year, '21, '22 will be a growth year, actually. After all these issues -- whenever I've seen whether it's 2008 or even before that, whenever the situations were really bad, after that, the industry and especially Century Plywood have seen -- has done really, really well. The next thing you said that, what are we doing? Let me answer on what are we doing to stay ahead of our competition.

So I would like to divide it into 3, 4 steps we've taken over the last 1, 2 years. One is that we had implemented constraints in our supply chain. This has improved availability by 30% and reduced our inventory also by 30%. So that is something that we are seeing ahead of the curve than the industry. Number two is that we have gone into e-commerce. We -- all our products are available on our e-commerce website, and now we are also listed in Amazon and Flipkart in certain cities. And soon, we will be there Pan-India. And we are the first in our industry to do so. So again, we are -- especially given the circumstances of COVID, people are not going to the shops. So this is another medium for them to purchase. Number three, we have implemented SFE throughout our sales force. And we had implemented this during lockdown. So it is something that will really help us sell better. And then this -- I think that we are a very digitally transformed for those -- even though we were from the day 1, we were on Lifesize, which is a software, which is used for video. We are now moving into Google. So I feel -- we believe that digitalization is what is going to keep us ahead. Whether it be within our HR, whether it be in a purchase, we are digitalizing in each and every department of ours. So I would say these are the few steps that keep us ahead of the industry.

[Operator Instructions] Next participant is Sneha Talreja from Edelweiss Securities.

Sir, I just want to understand from you, we have already reached 75% of the sales in the month of July, which is quite -- I mean, significantly higher than what we've done in May and June. I just wanted to understand where is the strong growth now coming from. Is it on the OEM segment that you've started seeing higher amount of growth? And what would be the breakup? I mean which is a segment which is seeing higher amount of utilization? I believe it would be higher for MDF. So if at all, you can give some segment-wise clarity and which areas you are seeing higher growth, example, Tier 2, Tier 3? In case you can provide some drop on that.

So let me break this into 2 parts. If you look at segments, yes, MDF has done better. In MDF, we have done more than 100% of last July. And you rightly pointed out, this is mostly due to the fact that OEMs are still going strong. The demand for readymade furniture has increased. And this is a trend that is going to serve the MDF and particle board division going forward as well. On the other segments, I think most of the other segments have been at 70% plus, including plywood and laminates. What is important to remember is that, most of these segments have shown a growth month after month. So going forward also, I believe that this trend is likely to continue. And there were a lot of lockdowns in the city, because in our trade, it isn't very easy to define what exactly constitutes a metro and what constitutes up-country market. There's a lot of overlap. But from the trend we have seen, up-country markets are performing better compared to metro markets. Metro markets have been a little subdued. This has been, of course, made more prominent by the amount of lockdowns that we have had in metro markets. But definitely up-country markets are performing well.

And how much of sales would be from metros versus Tier 2, Tier 3? Do we have some amount of break on that?

Like I said, it is a very difficult definition because if you look at Kolkata, Kolkata itself can have 3 geography. It can be Kolkata, Kolkata municipal and Kolkata larger. So we have now done the breakup in that particular manner. But definitely, once we have some data, we'll get back to you.

Sure, sir. Sir, my second question was relating to a cost cutting. So of course, we have seen sharp amount of cost-cutting as MD also mentioned that most of it was related to, I mean, salary cuts, which would be reversed at a later stage. How much -- and, let's say, traveling expenses, which will continue for some more time, savings on that. Which are the cost savings -- which are permanent in nature and kind of the one that we have really worked on, which should even help us margin expansion or will help in margins beyond FY '21? Can you quantify some of these aspects?

You see, there are N number of areas where we have retrospectively worked on and we have tried to reduce costs. So if you look like during the first 2 months, that was the entire exercise. Once that we have taken is an implemented an SFA for the country. What that should lead to is an increase in sales activity at a lower cost per quantity of sales that is generated. In addition to this, on a lot of areas, such as warehousing, such as logistics, we have taken numerous steps. I cannot quantify it exactly right now, but these will give us long-term benefits. It is a continuous process. But yes, it has been focused on, and it is something that we should see results sooner rather than later.

Sure, sir. Sir, one just last question, if I may just squeeze in. With your laminate segment, how much of the current quarter's volumes would be related to exports? And what is the growth in domestic versus export market in your laminates division?

The export market has done considerably better from the domestic market. I think this is primarily due to the fact that we export substantially to the South Asian countries. And the South Asian countries, in particular, have been a little, I would say, more resistant towards corona or have fared a little better against corona. Having said that, I think out of our total volume in the quarter, close to 40% would have come from exports, whereas in the normal course, it would have been substantially lower. It would have been to the tune of 20%, 25%.

Next question is from Siddharth Rajpurohit from JHP Securities.

Sir…

Sorry, you're not audible. May I request you to speak a little louder?

Am I audible now?

Yes, sir.

On the ad side, sir, where we have substantially increased our ad expenditures, sir. So one I understand is the message for VIROKILL. But do you see any other pockets or in terms of demand that is picking up, we can capture more market? What is the whole strategy behind more ad expenditures, sir, when we see that demand is not yet to the mark?

You see branding is never a short-term exercise. Today, the reason why we are developing and the reason why we are perhaps the largest [ margin in non-standard ] countries because systematically over a duration. In this quarter, the main reason for a higher spend, I'm talking about the current quarter, not the last quarter, on branding will be because this vital property is a very unique property that we are the first to develop, not just in India, but perhaps in the world. And it was very necessary to put this out to consumer if such a product does exist. So it might not lead to an instant increase in sales. But over the long-term or even over the medium to short term, it should definitely result in growth in sales volume faster than what you would have seen otherwise. I hope that answers your question.

Yes, sir. So -- but -- okay. In the near term, do we see any opportunities for capturing more market share?

This entire exercise is designed towards this thing. But again, like I said, the scenario right now is very volatile. So I would refrain from commenting on that. But yes, that is definitely the objective in my bottleneck.

Okay. And sir, can you guide more in terms of demand. How do you see demand? How it's improving across our 3 key segments in ply, lam and MDF?

So I think MDF will continue to perform well going forward as well. Like I said, last month was about 100%. And I believe that MDF should see a sustained high volume and a high value performance for the entire year -- the remainder of the year. For laminate, we are looking at close to 70% at the moment. And I think going forward, this should increase next quarter and the quarter after that. I think like MD has already said, by Q4, we'll be back on track. But this quarter, we'll be looking at 70%, 75%; and next Quarter at 80% plus. For plywood, I think the scenario is similar, where we'll be looking at 70%, 75% for this quarter, 80% plus for next quarter and 100% in Q4.

Okay, sir. And on the unorganized sector, sir, do you see -- although it could be a short-term also, but what is your answer that how is the unorganized sector placed now? Is there a lot of squeeze there? And lot of people will go out of business?

You see, this is a question that has been asked repeatedly to every company in the cloud space over the course of the past decade, I believe. So the resilience of the Indian small manufacturer cannot be rejected. There is a lot of pressure right now, as we know. The working capital cycle, considering the fact that plywood is very heavy on working capital, that has been stretched. There is a stop. The rotation is not happening. So I think unorganized is under a lot of pressure, but we'll have to wait and see.

Next question is from Shrenik from JM Financial Service.

Sir, I believe 40% of exports on laminates, is that the reason for drop in realization, was laminates?

Yes.

Okay. And sir, could you please explain the reason for improvement in realizations for MDF on quarter-on-quarter basis?

I don't think -- I can't relate to the improvement. According to me, there cannot be any substantial change in the realization. We are just checking the data right now. There cannot be any substantial change. The little bit of realization changes because, right now, we are selling a little bit more of pre-lam. So that particle board and MDF selling has picked up faster than the plain one. So that may make a small difference. But that small difference cannot be very noticeable.

Next question is from Achal Lohade from JM Financial Services.

My first question is with respect to -- you've mentioned that July is kind of 70% of last year. Is there a seasonality in terms of the month? Could June be -- June, July, August monsoon months, could they be usually softer as such?

Only Q2 and Q4 for us are the best quarters of the year. So there is actually no softness in the monsoon season for us. Primarily, it stems from the fact that there is Diwali in either late October, early November. And most people want to move into the household before Diwali. Otherwise, they lose a 6-month period because of shagun and pooja and all of that. So for us, Q2 is normally a very strong, very good quarter.

Understood. With respect to MDF, you mentioned that you're already at 100%. Now what I'm curious to understand is, A, there is, obviously the COVID situation, which could have an impact on the approvals part. But would it be -- wouldn't it be a good alternative to look at the brownfield expansion for the time being in order to capture the incremental growth, as you mentioned that there could be a lot of demand which could come account of Atmanirbhar plan?

So you are looking -- you are saying regarding acquisition of MDF capacities?

No, no. Brownfield expansion, sir, at our existing plants.

Okay. Okay. Okay. So you see in MDF, to really expand our plant or put up a new plant is, of course, there is some difference. But our existing site of Hoshiarpur, we believe that, that area is, for the moment, for some time, we do not feel that we should expand there. Our expansions would happen in an area where we have better raw material prices and where access to the markets are better. So I still believe that this expansion, as far MDF is concerned, we do not want to expand in our existing plant for the moment. But yes, thinkings can change and if we have problem from the government for the new plant, then yes we may go in for a brownfield expansion in our existing place. And as far as is laminate is concerned, we have -- I think, about 1.5 years back, we have expanded the capacity by 50%. And in plywood, it is a continuous development happening. We are replacing our old machineries from 10 daylight hot presses to 20 or 30 daylight hot presses is going on. Quality improvement, machines now we have practically installed all the quality improvement machines, automated machines across the country. So that is regularly going on. So in plywood, we are still not satisfied because we are still unable to use 100% of our capacity. So we don't need to increase our capacity right now.

Right. Just a clarification on the MDF. Is there a plan B if the approvals from the government keeps on getting delayed for the UP proposed site?

You see, we always had the option of the brownfield expansion. And I think I've mentioned this in the past as well. In, the shed -- the same shed can actually accommodate a second line because it was designed in that manner. The reason why we are focusing -- or we are focusing so extensively on Uttar Pradesh is because the EBITDA in Uttar Pradesh is going to be higher than the EBITDA that we'll get from brownfield expansion in. The reason being the cost of timber in Uttar Pradesh is going to be lower. Having said that, the option of that brownfield expansion is always there. It is just that this is a long-term project. I mean there is a EBITDA gain that we can get by setting it up in Sitapur, and that is not a very long delay when Sitapur makes more sense.

Right. And if you could come…

[Operator Instructions] Next question is from Prashant from Sundaram Mutual Fund.

So just extending on this -- on the expansion you just spoke about. Is there a time line you're keeping, sir, in terms of when you're waiting for the approvals before you probably look at any other opportunity? Let's say like expanding Hoshiarpur or probably any other acquisitions? Is there any time line keeping for this new plant?

You see, by now, we would have actually already reached a threshold level that we would have to decide within a month or so. But because of the pandemic, certain changes have taken place. And I think December would be the cutoff point, by when we decide between the brownfield expansion or the expansion in Sitapur. We are still very hopeful that we proceed. But I would like to stress that both plans have been laid out in detail. The machinery has been shortlisted for both expansions. We are at a stage where when we decide, the entire project can be fast track for the country.

And this is largely not because you are right now constrained, but because probably the government approval has not yet come in, right?

You see, the Supreme -- the National Tribunal has cut down all the licenses that were issued by the Uttar Pradesh government. So every single license that was issued has been canceled. And that is now being held -- is being heard in the Supreme Court. There's a judgment that is likely to come on the 17th. But I think that, yes, this matter is going to be held up till there is a final verdict from the Supreme Court. So till then, our hands are tied.

Okay. Okay. So at this point of time, sir, when you're talking about that MDF is probably operating at about 100% and probably month-on-month you've seen improvement. To what extent can the existing capacity utilization go? Because I think when you're talking about 100%, you may almost, let's say, close to 90% utilization. So to what extent can that utilization go up to?

The plant weighted capacity is 180,000 cubic meters plus. I'm sure that we can produce 200,000 cubic meters from its existing capacity. Last year, our total sales was 1.5 lakh cubic meters. So I think we can definitely try to extract close to 2 lakh cubic meters out of the same facility.

Which means you should be able to at least go for another 2 quarters without looking at how the trends are picking?

Yes. I think even the next 3 quarters, should the existing capacity.

Okay. Okay. Okay. Second one is on the laminate part of the business, sir. In terms of laminate part, you said that export realizations are lower. Typically, how different is margins also over here? And incrementally, what are our thoughts on probably expanding export business? Is it going to be a continuous affair for us? Or is it just going to be a like positive one-off affair of focusing on the export business?

You see we have always grown our exports. But again, for Century, the channel has little turnover is cash as real. That is how we operate. So we look at businesses where the returns are good. The export business, the returns are better than the domestic business. I would say, the EBITDA in exports would be closer to, say, 18%, 20%. And it is lower in the case of the domestic business. Going forward, yes, year-on-year, we are growing our export business. This has actually with a good opportunity to leverage on our strength and perhaps increase our growth in exports slightly. And I think this is going to be a long-term benefit that we get out of it.

Next question is from Madhav from Fidelity Investments.

So my question was on the MDF sector. What I'm just trying to understand is that this sector will be is going to grow at good pace in India and that seems to be very lined up? How does the industry evolve from here in terms of the industry structure? Right now, competition is probably between 3 players, which are of any good site. Do you think there can be players outside of plywood, who can come and sort of capacity you are seeing the growth opportunities? How does that grow? Because in terms of margins, can they sustain at these average? That's what I'm trying to understand.

You see, most of the organized sector is between probably 3 of us, Green, Century and. But there are 2 other smaller manufacturers coming up who are trying to get second-hand machinery and maybe reduce the total project cost by 20%, 30%. So they, I think, hold about 25% of the total market and the rest of the market is in the hands of the organized sector. And I think that's true for most of the good industries in India. Going ahead -- outgoing serve, actually. Can you repeat the question, so it will help…

Sure, sir. So my question would be this. Basically it MDF category because of imported furniture, et cetera, coming down and furniture industry in India, MDF grows in line. Century, obviously, is one of the few people to start off earlier…

So you are talking about is if other people can come to this industry…

Yes. Yes. Basically…

Stay with only the plywood people. Yes, there is always a chance that people from outside will come. But I think that presently being an overcapacity as far as the industry is concerned, which we all know. After the Green's large expansion, there is like South India, they are unable to really achieve their 100% capacity. Then even in the Northern India, you can see that there is a capacity lying idle with a few other manufacturers. So anybody else coming in is actually a very difficult thing to do. And in the meantime, again, our one plant will come then within that sometime than somebody else within system will, again, try to come up with some more capacity. So I don't think that people within the industry will give a chance to outsiders to come into this industry. I don't think at all. But yes, the industry is always open and anybody is welcome from outside. There's nothing wrong about it.

Sir, because -- if I understand right -- sir, would it be fair to think that MDF is something similar to lines of cement where you add capacity, you can't travel very long distance to sell the MDF because transport cost becomes a barrier? Can it evolve in that fashion? Is that the right way to think? Because putting up the technology for the production is not anything which is protected, right, so…

It all depends on what kind of area for raw material costing is there. So today, North India has very good pricing for the raw material. So we are extending it out from North India to South India, Western India and Eastern India. But yes, with time, what will happen, that capacity in each and every zone will come up. The cost of transportation in case of plywood is a little lesser, maybe about 3% to 4%. But in case of MDF, it goes much higher. But still it is not so high, in range of 10% or 20% or 30% that it cannot be transported. But yes, slowly, it will become a zonal industry, mostly. If you are in North, we would like to say at least 80% of our production in North. Presently, I think we sell about 70% around of our production into North only. So it will not become -- it will become a zonal industry with time. And the basic difference between cement and MDF is, in cement, everybody particularly owns the raw material source. But in MDF, none of the people actually own the raw material source. We are planning in some ways a little bit here and there, but not much. We cannot say that it is substantial or it will make a difference. So you cannot equal both the industries actually. Will Keshav want to say something?

Yes. Sorry. Just to add on one point. You say when you're talking about plywood, in plywood, the CapEx cost is very low. In MDF, there is a view, whereas you can invest by second-hand machinery and then start a unit, but there are distinct disadvantages. The first and foremost disadvantage is you cannot get all resource. So today, MDF manufacturing lower than a fixed amount capacity is not possible in a lower plant. You need a continuous stress for this, which is an expensive proposition. And secondly, the wastage in a multi life press, which again is the cheaper proposition, is far higher. So I don't think that MDF will see too many smaller companies because for them to sustain and operate it will be very difficult as compared to the larger.

[Operator Instructions] Next question is from Sonaal Kohli from Bowhead Investment Advisors.

Sir, as far as your MDF plans are concerned, if you were to do a brownfield, let's say, on 31st December is you cut off and you decide to go ahead, how much time will it take for you to start the production? And if you do a greenfield, how much time will it take to -- for you to capacity? Secondly, you mentioned that there are a lot of new entrants in the industry with small capacities. If the demand explodes and you don't want to lose market share, can't you outsource production and have your branding in place or take over the plant on a lease or do a short-term 1, 2-year arrangement where you don't lose your market share or demand, in case you're unable to meet demand?

You see, answering the second part first. In the case of MDF, like I have already said, there are distinct disadvantages with smaller capacity. So there are 3 large players who are -- sorry, who have continuous stressors. The continuous stress provides a better quality and it as the entire range. So there are only 3 players. And I think any of the other players, they will struggle to buy the materials that we are providing. The quality will become an issue, and I don't think that is a very workable cut either today or in the future. Secondly, if you look at a brownfield expansion, the time that we had initially taken for it would have been 12 months. However, there is one difference now with this entire India-China scenario. We just need to see how the inter technical team from China will be coming to India. What are the arrangements? I think if there is no change from the earlier scenario, we can operate or we can take trial production from the brownfield capacity 12 months from the day, which we decide.

Sir, greenfield is concerned, how much time will it take for you to do the greenfield?

The greenfield, we would say it would take at least 18 months. I think within 18 months, we'll be able to take out the trial production. We told you a 15-month earlier. But as you know, now things are a little different. They are a little slower to process. So in the greenfield, I think, 18 months will definitely be in the first trial tile production, at least.

So sir, you have done a lot of initiatives and congratulations for that. We've seen that every market leader who continues to grow in downward period takes 2 or more measures, which enable to gain share in the future. Is there any wish list of what you still need to do to accelerate the growth over the industry that we haven't done so far? Or you would like to do over the next 1, 2 years?

There is a very huge wish list. You'll have to spend a day with me to share all of it. But yes, there are a lot of things that we are working on in the short term. And most of these -- see, we, I believe, are the efficient in our industry, but we have a lot to learn from other companies and other industries. And from companies that are taking -- that are performing well within our industry, maybe a growth. There are a few things that we are trying to implement now, such as the SFA, which Nikita had mentioned earlier. So the sales force automation tool that we are trying to bring in, it should bring in a lot of energy. The supply chain, we are continuously improving and I think we are getting the results of that also. It is a continuous process. But yes, we are trying many firsts in the industry. And I'm sure you'll see your results in the near future.

Next question is from Anand Bhavnani from Unifi Capital.

You mentioned about the raw material or MDF being cheaper in UP compared to our current facility. So I remember distinctly when we for this about a couple of years back, we have plenty -- plantation availability in Hoshiarpur [Audio Gap] price of timber has fallen to historic lows due to as far as…

Your voice was lost. Your voice was lost for 10 seconds. Yes. Can you repeat after the entire discussion?

Yes. So when this plant was being built, we had a discussion that the overall capital supply of timber would be one of the advantages for the Hoshiarpur plant because there's some social afforestation scheme that government has taken, and the overall availability of timber has improved in that geography. So -- and I think timber has fallen to historic lows in 2018 in Punjab, is around 33 or something like that. So when you say it will be cheaper, it has anything changed in Punjab for timber prices to rise? Or is it that the Uttar Pradesh prices are still lower than Punjab?

You see, when we were comparing earlier, we used to compare with Haryana and Uttaranchal, which also majority of that from Uttar Pradesh. Earlier, the possibility of producing in Uttar Pradesh wasn't there because there were no licenses. The government has initiated licensing process only in the year 2018. And when we are comparing to Uttar Pradesh, Uttar Pradesh is cheaper.

So what will be the difference, sir, roughly?

It will be close to between INR 750 to INR 1,000 a kg (sic) [ tonne ].

Okay, INR 700 to INR 1,000 tonne.

Sorry, sorry, tonne. It's tonne.

Yes. Yes. So INR 2 per kg in Punjab. In Uttar Pradesh, it will be INR 1 a kg something like that?

It is INR 3 in Punjab, it will be INR 2.25, INR 2.3, INR 2.1, something like that in UP.

Okay. And we are expecting this to get resolved in the next 6 months, the UP cancellation of licenses?

I was expecting this to get resolved last October. But unfortunately, you see it went to the NGT, the passing order. The state of Uttar Pradesh filed in the Supreme Court. Now it is invoicing. It should have been done much earlier. But let's see. Because this is now a competes matter in the Supreme Court, so there's no point in me commenting on it.

So if I were to see mix, couple of years, until FY '20, only MDF is the CapEx that you might do. There's no other CapEx that you'll do, whether in ply or laminate. Is that understanding correct?

See, we are already doing the CapEx in laminates, but it is the regional CapEx where are setting up a 7/3 line in Kolkata at the CapEx of, I think, INR 7 crores to INR 8 crores, which is not going to be much, I think, that's about it.

Okay. So INR 78 crores plus MDF CapEx, that's the only CapEx for…

No, no. INR 7 crores to INR 8 crores, not 78 crores. INR 7 crores or INR 8 crores. INR 7 crores or INR 8 crores, not INR 78 crores.

Next question is from Karan Bhatelia from Asian Markets Securities.

Sir, how are things shaping the face in your side? How are things in Laos and Myanmar? If I see our quarterly run rate, revenues have come up significantly from like INR 50 crores a quarter about INR 2 crores to INR 5 crores now. So how do we see that?

So you see earlier, this be a segment which was profitable for us. Not directly profitable, but we would get a raw material revenue costs and by selling the remainder of the market, there was still some realization. There are still some meaningful gains to the company. Now the entire market situation has evolved. Myanmar, the cost of timber went up exponentially. And because of that, the viability of [indiscernible] reduced. Everybody went to Gabon. And now if you look at Gabon, the -- I think 95% of units there will be making off because there is an oversupply. And right now, the market is depressed and we are seeing very low values because of the COVID. But even otherwise, I believe that the segment for us is not going to go back to the levels that you have seen maybe 3 years before or 4 years before, like INR 150, INR 180 turnover I don't think that is [ inclusive ]. Now our focus on this business, at least with the visibility we have today, is going to be for raw material security. And in order to obtain raw material security, whatever B-grade and C-grade material we get, we will be selling that into the market. So I don't see any substantial in this business. I think it will stay around the same. In a normal year, I think it will stay around the same INR 50 crores, INR 60 crores pick up.

So are we seeing like smooth supplies from both Myanmar and Laos currently for our…

There is no supply from Laos. But yes, supplies from Myanmar are sent.

Okay. And sir, also, we were looking at Gabon for more of a sustainable kind of banking here. So we had also trimmed down on the CapEx plan. So how are things currently shaping up?

It was not actually due to a more sustained pacing. The reason we're looking at Gabon was because the exclusive document that was used like manufactured -- that is manufactured in Gabon is cheaper cost. And as such, in the lower qualities of our plywood, such as Sainik, et cetera, it would help us be more cost competitive. So we still have -- we have the land and the project is being delayed by us only because right now by commissioning the project also, there is nothing that is going to be gained. Like I told you already, 95% of the unit at a loss. So we are in on that project. When things recover, I think we can set up that project within 1 quarter because the land is already there, I think the check is ready and I think it is about establishing the machine and starting production.

Okay. Okay. And sir, last bit of question. So the MDF and particle board would be a rolling CapEx, right? So we won't really put the entire money in FY '21/'22, right?

Yes, it is going to be a rolling CapEx. And by the looks of it, it will largely be funded in-house.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing comments. Sir, would you like to give any closing comments?

Yes, yes, yes. Okay. So friends, thank you so much for joining us on this call and taking out your time to listen to us and being interested in our company or your company, I must say. And hopefully, we will see you next time in Q2 FY '21 earnings call with better performance, with better hope and with a vaccine in front of us. Thank you.

Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.