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

Ladies and gentlemen, good day, and welcome to the Century Plyboards (India) Limited Q4 FY '21 Post Results Analyst Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from AMBIT Capital. Thank you, and over to you, sir.

Thank you. On behalf of AMBIT, we welcome everyone to CenturyPly's 4Q FY '21 Earnings Call. From the management today, we have with us Mr. Sanjay Agarwal, Managing Director and CEO; Mr. Keshav Bhajanka, Executive Director; Mr. Arun Kumar Julasaria, the CFO of the company; and Ms. Nikita Bansal, Executive Director. Thank you team, and over to you for your opening remarks.

Good afternoon, everybody. This is Sanjay Agarwal, MD and CEO of the company. Hi, Dhruv. I am here along with Keshav Bhajanka, Executive Director; Ms. Nikita Bansal, Executive Director; Mr. Arun Julasaria, CFO of the company. And we all join together to welcome you to the Fourth Quarter FY '21 Results Call of Century Plyboards (India) Limited. Friends, although the year started with a lot of economic turbulence, but gradually, every quarter, it became better and better. And Q4, the quarter under review, was best in the history of CenturyPly, both in terms of revenue and profits. All the segments did very well. Laminate division has shown a very good performance as margins have increased substantially. Various cost-control initiative across company led to higher profits. Company's expansion plan on MDF is under progress. And hopefully, it will be completed on time. As you are aware that various initiatives like Salesforce, ViroKill branding, fire-proof ply, Vector that are ongoing in the company since last 1 year or more. One of the important and crucial decision was taken to engage BCG, Boston Consulting Group, in our company for cost reduction, throughput enhancement, and that has given opportunities of savings in MDF division, followed by logistics, power and procurement. Overall, BCG has helped the company to identify possibilities of cost reduction by about INR 30 crores annually. Now we will be working on to implement these identified possibilities, and we hope that this will help the company in times to come. Seeing their valuable contribution, management had decided to engage them further in boosting sales and production and cost reduction in laminate division for next 1 year. Although Q4 was excellent, and we thought the same momentum would continue in first quarter, entire financial year, but due to second wave of corona, Q1 has been affected badly as most of the states went into lockdown. Both April and May sales have suffered owing to second wave of pandemic, May was worst as most of the states were under complete lockdown. However, as seen last year also, economy will rebound very soon. And we are very hopeful that we will enter second quarter with full energy and show better numbers as vaccination drive across the country is in full swing and number of cases have also come down now. Slowly, country will unlock in phased manner and so will be the economic activities will enter into normal or aggressive phase. With these remarks, I hand over to our CFO, Mr. Arun Julasaria, to take you through key financial figures, post which we are open to your queries. Thank you.

Good afternoon, ladies and gentlemen. First of all, I would 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 an invitation to invest in the company. Results for the quarter, along with detailed analysis, has already been mailed to you and also hosted on stock exchange and company websites. So just taking you through the macro numbers. For the quarter, our top line Y-o-Y has grown up by 41% to INR 738.6 crores against INR 524.19 crores last year. EBITDA margin was 17.7% at INR 130.48 crores, against INR 70.18 crores in the same quarter last year. The profit after tax was INR 83.23 crores against INR 38.79 crores. All the segments work well and laminate had done exceptionally well. On an annual basis, although our top line was 7.4% less compared to last year due to COVID effect, our EBITDA bearing exceptional item was 15.8%, and our net profit margin of INR 192.07 crores, which is all-time highest. On balance sheet front, our net worth is now back at INR 1,264.8 crores. All the ratios are favorable and improved compared to last year. So far debt is concerned, our trading assets are more than debt. So practically, we can say we are debt-free. We are not repaying our debt because the cost of borrowing is less than the income from treasury. Our working capital cycle is now comfortable at 69 days. With these words, I open this conference call for questions and answers. Please go ahead with your questions.

[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.

Congratulations for a very good set of results. I had 2 questions. Firstly, on the capacity and its utilization, the way I'm looking at your fourth quarter run rate, it looks like broadly you're above 100% utilization. Could you help me understand existing capacity across your 4 main segments: ply, MDF, particle board and laminate? And what is the peak production we should look at on an annualized basis? That's my first question.

Rahul, so basically, if you look at capacity, overall segment-wise, plywood, we have seen that we have been able to ramp up capacity very quickly post the pandemic because in the few months, initial few months, we suffered. But after that, we are able to ramp up capacity to 100% plus, as you correctly pointed out. Having said that, we have undertaken numerous exercises to add balancing equipment in a number of plants. And I believe that this can easily give us 10% to or a little higher in further capacity. And this will aid us in the current financial year. We are also in aggressive discussions and advanced discussions to increase our capacity by adding a new location. And we will update you on the same when we are able to come up -- when we come with the conclusion. In laminate, we are not close to capacity utilization yet. I actually feel that there is more scope. And as the MD had already mentioned, we are partnering with Boston Consulting Group, which I believe will enable us to unlock further capacity from the existing line. But definitely, next year onwards, we will be looking to expand our laminate capacity as well. As far as MDF, you are well aware that we are already pursuing 2 capacity expansions, one in the North in our existing units in Hoshiarpur and 1 in the South in a location in Uttar Pradesh. So with all the major segments, we do have CapEx plans. Some of them are very low CapEx plans, as in the case of plywood, where we will just be adding balancing equipment. And some of them, such as MDF will be higher capital cost expansion.

And particle board?

Particle board, we have taken up an exercise to add certain balancing equipment and increase capacity, and we have already seen the fruits of that in the last quarter. Again, having said that, it will take some time to stabilize. But from Q2 onwards, you should see additional capacity being unlocked in particle board.

Got it. And related question was you were talking about CapEx on the TV interview of about INR 700 crores over the next 2 years. Broadly, I understand 1,100 CBM is going to get added purely in MDF in fiscal '23. Another 400 CBM, which is Hoshiarpur will get added in April, May, and 700 maybe in second half of fiscal '23, overall. But on the plywood and laminate side, could you quantify, I mean, what kind of capacity addition are you adding up? Because we don't -- I'm not sure about the units supposed to be added in those 2 segments.

We are looking at close to 35% to 40% capacity expansion in plywood with the new unit that we are thinking about and the balancing equipment being added in the existing unit. In laminate, there is headroom. And I think we can expand by 15% to 20% easily in the current infrastructure. And as I already told you, for next year, we are already looking at a capacity expansion.

Got it. One small thing, if I can squeeze in, Sainik revenue share, if you could help for the full year for fiscal '21, that will be great.

I think Nikita can take that question.

So the Sainik, we are at around usually 30% of our overall. And we are hoping that this coming year our Sainik brand will grow as equal to our Century, and Century will continue growing. But the growth in Sainik will be higher.

Alright. 30% is revenue or in volume?

Revenue.

[Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss Securities.

Congratulations on great set of numbers. Just a couple of questions on my end. Firstly, with regards to laminates business, there is substantial improvement, and congratulations for that. I just wanted to know the basic reasons for these improvements. One is that you said that you have, of course, brought into picture -- BCG was brought in a lot of cost control measures. Apart from that, is there any one-off element which is there in the laminates business?

So Sneha, BCG, the majority of the benefit is not in laminate. What we are doing in laminate will actually start only from next quarter. The reason why laminate had an EBITDA of 23% last quarter was primarily lower raw material costs. And this was a onetime benefit that we have gotten. So these are not sustainable margins by any stretch of the imagination. As I mentioned earlier, for us, sustainable margin should look anywhere between 15% and 18%. But last quarter, due to the fact that there was substantial increase in raw material costs, and we took price increases, but we had inventory of raw materials, we were able to generate an additional EBITDA. This is a onetime exceptional result. Going forward, we'll be looking to maintain 15% to 18% EBITDA margin.

Sure. That was helpful. And with regards to other segments, too, we have seen margins improving. Like for example, in plywood also we have seen improvement. Is that also related to some kind of a low-cost inventory? Or is that something to do with the cost-saving measures which can continue? And if at all, there also you can highlight what would be more sustainable thing to look at?

In plywood, our attempt has always been to be between 14%, 15% in terms of EBITDA margin. And I think we are slowly working our way towards that. Long term, that is the base that we want to look at. And I think, in the current financial year, we should be looking to take that.

Sure. That was helpful. Okay, just one more thing from my end with respect to MDF. I mean we are already operating at more than 100% utilization rate. Of course, given that there is a second wave, and I'm pretty sure that you also said that demand is impacted, firstly, are we utilizing this time to build up inventory given that whenever demand comes back and we'll be able to supply material? And second most important thing, when will we be ready with the newer capacity addition. So that if there is any kind of pent-up demand and are we ready to capitalize on that?

Sneha, throughout this pandemic closures and all we have been running the plant fully except some time we have taken up for maintenance, which we would have taken later on. So we are building a lot of good stocks already so that we can -- but then all those stocks, I think, will be less what kind of demand we are going to see. And we'll be seeing throughout some time until the new production capacity comes into being before the next -- by end of this financial year, actually. So I don't think we will have any possibility of meeting the demand, per se. After that expansion comes in, too, yes, I see some relief coming into. And the second plant, which we are talking in the South, I think Keshav can update on that matter.

I just want to make one addition. Last year, we did about 147,000 cubic meters of MDF. Our capacity is 180,000 plus. So even in the current financial year, while our MD said we will in no way be able to meet demand, which is far, far higher for our product, we have enough headroom to grow. With regards to the MDF expansion, next year, we will be able to feel the full benefit of the Hoshiarpur expansion. And the year after that, because after the new line is set up in a new location, it normally takes a few months to stabilize. So in FY '24, we will see the full benefit of the South expansion as well.

Okay. So that was very helpful. One last one, if at all, I may ask with regard to laminates actually. What is the current proportion of export business in the laminate business? And if I'm not wrong, the domestic business might have definitely taken a hit because of COVID impact. How are our exports doing in laminate? Is there any significant improvement that we are seeing with regard to shift in market share from other countries than India?

So last year, as you said, domestic was far more impacted than export. As such, exports was about 25% of our total basket. But going forward, we are looking at exports being close to 20% because domestic, I believe, will have a massive recovery in the current financial year.

The next question is from the line of Hrishikesh Bhagat from Kotak KMC.

Congratulations to the team for good performance. So my first question is related to what will be the revised time line for the expansion? Will there be any delay because of this, I think, COVID second wave, any delay in ordering and labor force availability? So that's my first question. And secondly, is it -- my question is more to Sanjay, sir. I think in multiple interaction in the past, there was this aspiration of company of INR 1 crore profit per day. And is it fair to assume that the macro tailwind that we had in Q4, if that continues, we are fairly on our way to meet that aspiration?

Mr. Keshav reply to the first question. I will reply then.

So we pride ourselves on our execution ability, and I'm very happy to tell you that even though the second wave has dire consequences, we have been able to continue work on the expansion in our Hoshiarpur unit. Hopefully, we will be able to begin commercial production within the Hoshiarpur unit within Q1 next year. Having said that, yes, we were hoping, prior to this, that we would have started production in Q4 itself. So there has been a delay. And that will not be more than a couple of months. With regards to the south plant, the delay seems to be a little bit more severe. Because, as you know, the government is right now fully involved in firefighting with regards to COVID. And as such, the process of land acquisition, et cetera, is taking a little bit longer. We are still completely hopeful that we will definitely back to market commercial production within H2 of next year.

Okay.

So regarding your question regarding INR 1 crore per day, you see there always would be something we need to aspire for. And CenturyPly has started very, very small. And we used to aspire for a INR 25 crores per annum turnover. So from there, it was INR 100 crores, then it was INR 1 crore per day turnover. And from there now, we are looking at INR 1 crore profit per day. And you can see that, yes, with --when we say with people and what grace and hard work of our team, I think we are reaching there. And it seems that probably we will reach there ahead of my target probably. I was thinking in a little longer term. But when it seems that it will -- we'll reach the target even quicker and I can see a big smile on the face of Keshav.

Congratulations to this.

Yes. Thank you. Thank you for all your good wishes.

The next question is from the line of Priyam Khimawat from Infinity Alternatives.

I want to understand…

Sorry to interrupt you. The audio is breaking from your line, sir.

Is it better now?

Yes.

So while you've done exceptionally well in other categories like MDF and laminate over the last 4, 5 years, our plywood revenues have largely been flattish over the last 4, 5 years. While I appreciate there was a general slowdown in real estate. But now that it is picking up, and we've done around INR 400 crore plywood sales in 1 quarter, do we think that in FY '23, when full recovery comes, we can reach that 1,600, 1,700 plywood turnover itself?

Yes. Nikita reply this.

So the thing is we were completely geared for replicating even higher growth than what we did in Q4 from Q1 itself. So definitely, to answer your question, yes, we were geared. But given corona, we may -- there might be a delay to our plan. There is a lot of pent-up demand. There is a lot of shift that we are feeling -- there is a continuous shift happening towards our brand because of the brand-building activities that we are doing. And both these factors are really resulting in us getting more market share. So I think, going forward, the future for plywood is very positive. We are doing a lot of other initiatives that will help us grow plywood more. Given but this year, maybe that is not possible because Q1 has been pretty much a lower sale than we anticipated.

Yes, completely understandable about this year. But going forward from, say, FY '23 onwards, are we confident of achieving the 12% to 15% growth in plywood itself?

Yes, yes. Very much, yes.

Don't you think other categories like MDF will have a cannibalizing effect on the overall plywood turnover?

No, not at all. So actually, MDF is at a -- so there is a segment for each of these products. And I don't think that they cannibalize each other. A person who wants to use the MDF furniture usually does not go for a plywood furniture. So I don't think -- and I think the entire India is growing. And there is -- we are a very small percentage that is using plywood. So the growth is immense in the future. I don't think there is any scope, at least in the next 10 to 15 years that I see, that there could be any cannibalization.

My next question is on MDF. So Keshav we've done around 25,000 CBM of prelam MDF this year, which is the highest, and a percentage of overall has increased. So do you think going forward, when we commission our new capacity, when we are at 1,700 CBM capacity, prelam would be much higher than the current level as a percentage of total?

You see prelam, as far as particle board is concerned, the prelam percentages are much, much higher because most of the particle board is used by OEM. But MDF is used by furniture maker. And MDF is used in many other products like packing, photo-framing and many other products actually. So it is used in furniture also. So that's why actually the percentage of prelam in MDF will not go up really too much. It will remain that about that 20%, I think, is the usual prelam, MDF being consumed usually. Here and there, a little bit 2%, 3%, 4% here and there is a different thing. So I really don't think that prelam percentage will go up. Yes, overall volume as MDF -- plain MDF goes up, the overall volume will go up, but not the percentage.

Okay, okay. So even at this current 15%, 17% of prelam, India, are we confident of maintaining that 27%, 28% EBITDA margin? Because our newer brownfield capacity will be at a lower gross margin, I suppose, as we had alluded earlier.

You see, overall, if you look at MDF, third location plays a big role because the transportation cost is a very substantial part of the overall cost. As such, in the south the unit that we are looking at, it could be 2 percentage points lesser in terms of EBITDA margins, but I don't think the difference will be more than that.

The next question is from the line of Chirag Lodaya from Valuequest Investment Advisors.

Sir, my question was on India. Firstly, if you can help us understand how is the situation of import front? And what kind of margins do you expect this year? Is there any raw material inflation further? Or we would have taken price increase?

See, imports, of course, are practically nil at the moment because of the logistic issues and there is a price rise across the world. So imports at present are practically nil. Going forward, I believe that government of India -- we are working very hard with them and I see there will be import antidumping duties coming in. If they come in, then I really don't expect much of imports happening in India. And even if they come up, even if import happens, it affects -- it does not affect the northern market at all. So our -- presently for the next, at least, we can say next about 18 months at least, I'm really not bothered about our North Indian factory and the expansion actually. And the next question you asked?

What about pricing and margins?

The pricing and margin, yes, the raw material costs. Yes, raw material costs have risen a little bit, yes, a little bit it has risen. And whatever pricing we had added actually, it has most probably gone back to the original costs. So the EBITDA we were now expecting a higher EBITDA this year, which I don't think will come up. It will remain at the level we were at. And we have, actually, in MDF, BCG has found out certain things and have suggested. We are implementing them in the plant and in our selling practices also. So that will help us maintain at least our EBITDA margin.

So sir, you did about 26.8% margins in Q4 in India? So is this margin sustainable? Or you are expecting higher margins for FY '22?

No. At least we are not expecting higher margins. We should be able to maintain or maybe a 2% some here and there. It all depends on the cost of raw materials and then cost of melamine and then cost of all these raw materials actually most. So here and there, a little bit, but I don't see much changes in those prices also because not many plants are coming, obviously. So the production is not really increasing too much. And we will be able to pick up the price increase as much as at least the costs increase. So I don't see much change.

And sir, just lastly, with this Hoshiarpur capacity coming in, in Q1 how quickly we'll be able to ramp up given the demand/supply situation in the market? Is it fair to assume that Q1 itself will be able to scale it up to 70%, 80% kind of utilization? Or it will be a gradual thing?

Keshav?

We are talking about Q1 next year. So what we believe is that in the interim, the demand that we have, there will be a lot of latent demand that is going to be on service. So that is definitely going to give us a push. But having said that, you cannot ramp any capacity to 100% from the first month itself. But what I can assure you is, considering our expertise, we will be able to ramp up capacity far faster than what others may have been able to do.

The next question is from the line of Pranav Mehta from Equirus Securities.

Congratulations, sir, on a very good set of numbers. Sir, I wanted to understand on how the competitive scenario is playing out in plywood and laminate? If you can throw some light on the unorganized to organized shift, which I think is definitely going to play out over the next 2 years. So can you throw some light on that?

See, as far as the plywood segment is concerned, the unorganized, people are taking a bigger hit because of the working capital issues because of the raw material procurement issues Because there are a lot of raw material which is being imported also. So all those are hurting them very badly. So the kind of growth you are seeing in organized sector like CenturyPly and others, we're seeing because our unorganized sector is taking a hit. So going forward, I believe that yes, slowly, I don't say it in a very quick and very fast change. But yes, the change will stay and this conversion from unorganized to organized will keep on happening at its own pace actually.

Sure, sir. And sir, what about laminates? Are you seeing the same pressure playing out in laminates as well because of the steep price increase in the raw materials of imported craft paper and even on the chemical side?

Keshav?

So as the MD said, we have been waiting on this for a few years now. And of course, we do believe that the organized sector is going to continuously grow. And the unorganized has been impacted far worse than the organized due to the pandemic and lockdown version 1 and lockdown version 2. So lockdown version 2 I mean the last couple of months. The one difference between last year and this year, as you have rightly pointed out, the raw material costs last year were at the perhaps lowest in 5 years. The raw material costs at this point in time for a number of raw materials at the highest level I've ever seen or the industry has ever seen. This is likely to hit the unorganized sector far more than us because we have been able to take the prerequisite price increases. We have been able to secure our inventories, whereas most people were unable to do so. So going forward, I'm bullish on the organized sector.

Okay. And sir, can you throw some light on what the government is doing on the ready-made furniture infrastructure creation in India? Because I think that's a far bigger opportunity for India to capitalize on export opportunity that is there.

So we have all been hearing rumors of this for quite some time and years actually. However, one thing I can tell you is that, in the past, the sort of interaction that we have had with the government and the sort of pressure we are seeing from the government on Atma Nirbhar Bharat making furniture is very, very substantial. It is far, far higher than anything I have seen in the past. While I've not seen any concrete benefit on the ground yet, I'm sure the government will [indiscernible] this focus. Then the next few years, we have -- we are going to get a substantial benefit from the same.

Sure, sir. And sir, one last question on your -- so what changes you have made on your, let's say, product portfolio in the laminate segment? And what kind of distribution channel strategy you have been implementing in, let's say, last year, 1.5, 2 years? Can you just throw some light on how it would help you in further gaining market share and consolidating your position in your core markets?

So the MD focus is always on market share, and that is calculated down to the team. The first thing that you need to get market share is to have a distribution channel in place. And every year, we look at consolidating our existing channel and expanding to new locations, to new geographies and to new counters that we have not been able to serve. So this is a continuous focus. And this journey began a decade ago. And it is still continuing today. But yes, at this point in time, the opportunity to gain share from the unorganized because of the reason that there is a lack of availability of unorganized is far higher, and we are putting a lot of focus on the same. Hopefully, you will see the benefit of that going forward.

Sure, sir. And sir, just a quick question on this Myanmar and Gabon. So is the supply of our face veneer from Myanmar getting impacted because of the changes in the political scenario there? Or are you seeing that, that will not have a major impact? As Gabon is also starting…

Myanmar is getting impacted. Absolutely, it is getting impacted. Nikita, you have more knowledge?

Yes. But we actually build up stock and there is some stock that we have, and we are trying to secure from few other channels. So we are safe for the next few months, and we are expecting that things will stabilize and we will not have a problem with the raw material as of now. In case there is a problem, we do have opportunities that we could shift to.

The next question is from the line of Venkat Samala from Tata AMC.

Congratulations on a good set of numbers. Sir, firstly, I just wanted to understand, if I just take a 3- to 5-year view, how the revenue profile or the mix of the company could look like. Like for example, now if I look at the company, around 50%, 55% of the revenue mix comes from plywood; 15%, 20% comes from MDF; around 20% comes from laminate, right? So just want to understand now that you are deploying more capital into MDF, right, since the growth opportunity is higher, so I just wanted to understand, I mean, how, as a company, are you thinking about this? I mean how the revenue mix could look like 3 to 5 year hence?

So you see instead of talking of percentages, let me give you the broad vision plan that we have. With regards to plywood, and Nikita has already stressed out, we are looking at a rate of growth between 10% and 15%. And I think this is sustainable, and I think this is easily achievable. So going forward, plywood will continue to grow. And considering it is our largest segment, that growth is going to be substantial in terms of overall numbers. Laminates we are achieving -- or we are trying to achieve a 15%-plus growth in the same time period. But in the case of MDF, we are looking to more or less triple our revenue over the course of the next 3 years. It's not exactly triple. I would say 2.75x. So because of that, in the next 3 years, you will definitely see a shift towards MDF, but the percentage of MDF in terms of turnover compared to the rest of products will be higher. However, I think plywood will continue to remain our largest segment, but MDF will soon become our second largest.

Understood, understood. Sure, sure, sure. So sir, now that you are scaling up on MDF, right, so then you'll get some more benefit out of the operating leverage, right? So maybe 3 years? And will the margins be any different? Or do you think that you expect the margins to be similar to what it is currently?

I must tell you that 3 years hence what will be the situation, I don't think anybody can say them. So I don't think this question actually…

Yes. Sure.

And we certainly look for one that yes, we will be -- it is not a question of margin. margins…

I just want to understand that if there…

We are looking at -- no, we are looking at being the best, the biggest in the industry in our country. And in industry, these things will keep on changing. It's like the -- it goes up and then comes down. It goes up and comes down. You have seen in the steel industry. So the times are very, very good for the last 7 years, it was very bad. So if you have the capacity, the time will come, and it will give you the return. So you need to be -- we need to be ready with our canons and tanks and missiles and everything. Then we will get in those 2 years' time and at that time, we will make the gear actually, that is how it works. So there will be times in the industry when the EBITDA will go down, and it may not be even whatever 20% also at times. But yes, the time will come when we will make 27% or 28% also.

Understood, understood.

Actually, depends on so many factors.

Right, right, right. And the new south plant that you're planning, sir, would that be largely only for domestic consumption? Or initially, you would also look at exports out of that factory?

You see, we are planning absolutely and only for domestic consumption. The rest will depend on the situation of the market. Like Green actually started it only for domestic consumption, but they had to export a lot of quantities for a long time. And now they are again going -- coming back to domestic area. So same will be our position. But yes, we are planning absolutely only for domestic.

Understood, sir. And one last question, if I may. So if I look at the working capital, sequentially, it has gone up. I know year-on-year it is flattish. But I just want to understand, I mean, what should we expect in terms of the range that working capital could look like?

It was 70 days?

Yes, yes. 61 days, right, in the last quarter? So now it is around 70?

last quarter was exceptional and if you can see -- right so far or last quarter, we said this is exceptional. And we expect to maintain at about 70 days. That's all correct.

The next question is from the line of Achal Lohade from JM Financial.

My first question is just a clarification. If I see the segmental reporting in the results. We have a un-allocable expense of almost INR 22 crores, INR 23 crores. Can you help us understand? Because typically, that used to be INR 5 crores, INR 6 crores per quarter. That is about INR 22 crores in the fourth quarter. Can you help us understand what is it pertaining to?

You see there have been certain expenses, which actually have been booked in the quarter 4 only. So like the commissions to directors. And there are certain CSR and donations, which has happened in Q4 and have been booked in Q4 only. So they actually belong to the whole year, but have happened in the Q4, so we are debited in Q4 only. So now whatever way you may take it, but yes. So that has actually depreciated the EBITDA a little bit, absolutely. The EBITDA, say, like plywood, if you take it, is 12.8%. Actually, it will be more than 15%. And similarly in other divisions also actually.

So if you look at it, the incentivization is basically for the entire year, but this year due to disruption, due to other things, we had to book the entire expense in Q4 because it was a very uncertain time period.

Understood, understood. And the allocation is basis for revenue mix, right?

We did not actually know whether we would make profit this year or not. So initially, it's very difficult to provision.

Got it. So it is unallocated basis, the revenue mix, is that right?

No. There are 2 priorities. Yes, some are allocated as per revenue mix. Others are allocated on the basis of where the expense has been generated by revenue.

Understood. My second question, Keshav, is with respect to the MDF. What is the total industry capacity as of March '21 given we are adding capacity -- Rushil has just added capacity [indiscernible] will also be adding some more capacities? So how do you see like…

Let me tackle it this way. India's total capacity is less than 1.5 million cubic meters at this point in time. With the new additions, it will head towards 2 million cubic meter. China is at 50 million plus. So going forward, we have a lot of scope for capacity addition and, this market will continue to grow. The capacity addition by Rushil I think is going to be absorbed into the market without much -- without much -- still because there is latent demand. And I'm sure that we will face a similar scenario when our expansion come on board.

Right, right. And given -- you said imports are negligible. Would you have the number for FY '21? How much is import?

I don't have any authenticated numbers for the same, but I'm sure our team will get back to you with the same.

Understood. And just one more question, if I may. With respect to the margin improvement, if one were to look at -- if you look at the gross margins is there, it's not in that 49% kind of a range for a while. And the margin improvement is kind of driven by the cost reduction. So if you could help us understand what kind of cost reductions have been done in FY '21 where the scope is? You kind of highlighted the BCG, which can result into about INR 30 crores of savings. So if you could give some clarity in the heads, which segments we can see the cost reductions and to what extent?

So you're talking about MDF?

No. Aggregate companies.

You're talking about aggregate company, so in aggregate company, overall, there have been reductions on the cost on account of travel. There has been reductions on account of employee expenses. And we have taken a number of steps, whereby we have been able to wean out expenses where we think that they won't required. Some branch offices have been cut down. And there are a number of steps that have been taken in the factory to optimize, for instance, in laminate we've seen over 3% improvement or 3% reduction in rejections, which is very substantial. So there has been steps that have been taken all across, and these have helped us in improving our overall returns.

And most of these are sustainable in your view? They are like -- they are not likely to reverse, so to say, over next couple of years?

Some of these expenses, as things open up, maybe the travel costs will increase, but most of the expenses, in my opinion, most of the reductions are sustainable going forward. Once we have improved quality to, say, 98%, we are not going to let it slip to 95%, right?

Fair point. And just last clarification with respect to -- in the PPT, we have mentioned ply CapEx at INR 50 crore. If you could give some mix-up in terms of where we're looking to add capacity and what number -- the capacity addition we could have.

What we are doing right now is actually gear-up certain blanks in our qualities and quantity both kinds of maturities with the existing plant. So we are adding up some machineries in Karnal and we are adding up some capacity in our South India plant. So it's an approximate CapEx we have taken up actually. And this will actually increase our, I think, total output by more than the existing plant.

Sorry I couldn't hear you, Sanjay. Can you please…

Just a second. Just a second. I'm consulting with CFO. Let Nikita answer this. Nikita?

So the INR 50 crores that is given in the thing is for the plant that we are putting up in Punjab for plywood. And the other additional that we have taken is within our existing green asset It's a very small amount, probably INR 4 crores to INR 5 crores somewhere that we must have spent. And at each plant level, and we're expecting in this year that existing capacity will grow by 125% as in by another 25%. This Punjab plant will take time, and that investment of another 20%, 30% for capacity.

Sorry I'm bit lost. So you were saying 25% increase through whatever small addition at across the other plants and another 25% from Punjab plant, have I got it right?

Yes. So currently -- so actually, what is happening is we have a lot of capacity within our plant, but they are not 100% utilized because of one machinery not being there or another machinery that is needed is missing. So we are adding those machineries, so making our current capacity to be actually 100% at this level. And then it will go up to 120% or 125% in our existing plant. By -- and we're spending will need INR 4 crores, INR 5 crores for that overall.

Okay, okay. And your plant…

And the Punjab plant is a separate plant that is coming up, which is INR 51 crore investment. That will add another capacity, but there is a chance in the future at one of our plants, which is the Karnal plant may come in an area, which is a residential area. So there might be a chance that we don't technically end up adding capacity. So we are planning this plant only for Karnal.

That's kind of a replacing Karnal effectively at the aggregate level.

So what happens to Karnal?

No. So I'd like to add a caveat here. What Nikita is talking about when the plywood capacity for Punjab comes up, our license is for the largest plant in the country by threefold. Right now we're only going to go for a CapEx of about INR 50 crores, and we are setting up a limited capacity unit. But we are leaving provision to add on the capacity of Karnal because in case going forward, the land prices [indiscernible] of it there to the extent that they are doing right now. And that is a problem because it is coming more and more closer to a residential area. We will have the option of moving this. But right now, the capacity that we are setting up is an additional capacity.

Understood. And what happens to the Karnal, let's say, theoretically, it was to move out, what happens to the land and plant and machinery. Plant and machinery gets moved and the land is available for sale?

So you see, this is a point that we have been debating for quite some time now. And as part of our risk management strategy, what we have thought of this, there is a scope to continue running the existing plant by switching it from existing source of firewood, et cetera, to natural gas. If you switch it to national gas, there is no problem in running it even in the residential area. We will have to do the cost/benefit analysis at that point in time. And then we'll need to decide based on the impact on cost. So it is very premature to discuss this right now. But because we need to provision in case something happens, we are ready with it.

Understood. That's very helpful, Keshav.

This scenario might be, say, 4 years down the line, approximately, or 3 to 4 years down the line.

The next question is from the line of Sonaal Kohli from Bowhead Investment Advisors.

Sir, congratulation on excellent numbers. My question pertains to one-off costs in the quarter. I'm just trying to understand the clean PBT or PAT numbers. So you mentioned that the -- there's a lot of one-offs like CSR and the employee -- the directors' commission for the full year being given in this quarter. So is it fair to assume that since your [ unviable ] costs went up by INR 18 crores, your clean PBT numbers would be INR 18 crores above this quarter, had these one-offs not happened? Or if you can give some idea of the quantum of these one-off costs, whether you write-off multiple divisions, [ consumable editions ] in your state or any other one-off activities or director commissions, what will be the total impact of all of these things?

No. Usually, every year, we made provision for these all things in all the quarters. The expenditure may be incurred in particular quarter, in the end of the quarter like commission, incentive of employees. We keep on making provision in every quarter. But this time, because all these incentives are based on achievement of certain numbers. But this time for quarter 1, quarter 2 everything was impacted. In quarter 3, recovery started. So we have no provision because we are not sure whether we'll be paying same or not. But in quarter 4, we achieved everything. So we have [indiscernible].

Sir, I understand. I understand the rationale. And I'm trying to understand is you had too similar numbers, let's say, another quarter. Let's talk about Q2 hypothetically, just to give you the rationale why I'm asking this question. At that point of time because many of these one-off costs would not happen pertaining to the previous quarters, what would be your recurring PBT? So that's why I'm trying to understand the impact of these one-off costs, for this particular quarter.

Understood. So let me put it this way, that a large chunk of this was due to the incentivized -- due to the incentivization or the incentives or whatever you would call it. So that would be split towards 3 quarters because the second quarter, third quarter and first quarter was a write-off. So that could be split between 3 quarters, but 2 quarters loading has been done in this quarter. I think if the INR 18 crores were to be analyzed, which is the higher or the rather differential, out of that INR 10-odd crores would be from early expenses and INR 8 crores would be towards this quarter as it was the largest sales quarter in the year.

So are you seeing the PBT growth under reported by INR 8 crores because of this? Is that what you're trying to say? Or am I missing something?

So I'm saying it got underreported by INR 10 crores, and it would have been higher by INR 10 crores if we had provisioned these expenses earlier. But due to the uncertainty of this year, that has not happened.

And sir, you're also making out a CSR cost sector. So the total impact is INR 10 crores? Or it's only the salary impact of INR 10 crores?

There are multiple expenses. And I think some of these, for instance, there were elections in a number of states that we are participating in. I don't know how we classify them, but the breakup that I have given you is more or less in line with what you will see going forward.

So about the INR 10 crore impact at PBT level?

Yes.

The next question is from the line of Aasim Bharde from DAM Capital.

Sir, you mentioned that working capital will be steady at about 70 days. But I wanted to ask about your thought process on debtor days in particular. I think many companies in this space are focused sharply on this metric all through the year. But for CenturyPly, that is not the case. Even if I assume FY '20 was an aberration, but even in FY '21, debtor days is higher than what we did in FY '19. So would you be looking to tighten this going forward? Or would we want to keep it at these levels and focus more on growth?

See, as far as debtors are concerned, we have a very standard policy, and we do not allow to grow it beyond those norms at all. But what happens like during last -- the first wave of the epidemic, we have to allow an extra outstanding for those 60 to 90 days to everybody. Similarly, right now, if it is happening, again, you will see that this will go a little bit of haywire. But it will come into control within our parameters and all these parameters are auto set. Nobody in the company can do anything about that. Nobody can change them. Nobody can supply material to a person who is beyond those few days. So it will come fall back into the norms every time.

Can I -- I'd like to add one thing, '19/'20 was actually an exception. And I think you're very well aware with the last 10 days there are no sales. So that is what impacted debtor days. Otherwise, we are extremely focused on this metric. And you will see it has varied only from 47 to 51 days despite whatever the case or recourse in the last 2 years. I think that this 50-days benchmark is something that we target every year, and we are going to be maintaining this, regardless of what happened. Having said that, going forward, our MDF has lower debtor days than our other product range. As the MDF sales increase as a percentage of our turnover, this number will naturally fall. It depends on the product mix as well.

Okay sure. Got that. And secondly, can you talk about what hits our particle board margins in Q4 despite a very sharp improvement in realization?

A lot of the cost in particle board…

Volume was…

Yes. Yes, I'm actually getting to that. In particle board, the impact of the cost of melamine, which increased drastically, and as MD has already stated, that particle board the quantum of pre-laminated is close to 65%, 67%. That has been the case of MDF, only 20%, 25%. The increase in the cost of melamine really impacted us. We have now provisioned to take increases going forward, and you will see EBITDA recovering, but the basic cause of the same was the sharp cost in raw material prices.

Okay, okay, okay. And sir, lastly, just like can you just talk about this Gabon [indiscernible] veneer project? Would you be looking to use it internally only? Or would you want to start third-party commercial veneer sales again like you used to do like 3, 4 years ago?

So now earlier, commercial veneer used to be a very, very lucrative area. And as such, it was a focus product for us. But if you look at the past few years, we have consciously reduced our percentage in commercial veneer or our sales in commercial veneer to a fraction of what they used to do. If you look at, say, 3 years ago or 4 years ago, in FY '16, '17, we had INR 184 crores sale of commercial veneer. Last year, the same was INR 26 crores. This was because there is no profitability. The profit margins are very low. It will become out and out commodity market. And we don't see a lot of potential in keeping this as a profitable business center. So our focus is going to be solely on internal consumption. And whatever excess we generate, because we are only going to be taking the top grade of veneer and you're very well aware that in veneer, there are multiple grades, the lower grades are going to be sold to the market.

Sure. Okay. Congratulations on a very good performance. I wish you all the best.

[Operator Instructions] The next question is from the line of Udit Gajiwala from SMC Securities.

Just one follow-up at the laminate that we are talking about the CapEx over there of increasing our capacity, what would be the time line for the same?

Since this is not a frozen CapEx right now, it is difficult to give you a lot mainly, but we are looking at next financial year. You see the capacity that we have had currently. We are looking to ramp up sales as a case of 15%-plus. This year, we will be able to sustain the same. However, going forward, from next year onwards, we will not have enough capacity or spare capacity left towards the end of the year. So towards that, we are looking at a CapEx whether it is going to be a greenfield or brownfield. Most likely, it will be a greenfield. Maybe in Q3 to Q4 next year, we should be looking at that CapEx becoming functional.

The next question is from the line of Karan Bhatelia from AMSEC.

And congratulations for a strong set of numbers. Sir, one question from my end. What kind of price hikes we've taken across the portfolio starting from 1st April?

From 1st April this year or from 1st April last year?

No, no. Current, current quarter. From 1st of April this year.

Okay, okay, okay. You see, these are corona times. So I don't think there is much possibility of taking price increases. But yes, in plywood, we have taken on different thicknesses, we have taken 2% to 3%, which have been implemented. We have taken some increases in MDF also, but very, very little actually. And laminate, I think Keshav can tell better.

We have taken between 3% to 4% price increase in laminate from the 1st of April.

The next question is from the line of Rahul Agarwal from InCred Capital.

Yes. I have a follow up. Just one clarification, Keshav. On the CapEx You mentioned INR 700 crores over the next 2 years. In the PowerPoint presentation, it says INR 250 crores for next year. I'm assuming that INR 700 crores includes the CapEx for the greenfield in Andhra for MDF. And the estimated CapEx for the entire plant, I believe, was about INR 600 crores. Could you please clarify this?

No, no, no. The CapEx for the Andhra plant is between INR 450 crores to INR 500 crores, it's not INR7 00 crores.

Okay. Got it. So INR 700 crore is basically INR 250 crore plus INR 500 crore, so that's about 700 750 over next 2 years? Is that correct?

Keeping a bit of contingency because I don't know that steel prices going where they are, vendors are renegotiating. There's a little bit of turmoil right now. But yes, ballpark, those are the figures.

The next question is from the line of Sonaal Kohli from Bowhead Investment Advisors.

So what I wanted to understand is that we had a target of INR 1 crore profit per day. When do we see a new target of INR 1.5 crores per day? Is it possible in a period of 2024 to 2025? If the payment to the real estate industry continues?

I don't know. I really don't know how to -- what we -- my mind works is about the mountain in front of you right now. So the mountain in front of us right now is actually INR 1 crore per day. And it seems that, yes, we are on the right track, actually. When we are actually in a position to see that mountain being conquered at that time, I think it is better to set up the next target, the next mountain. No point in going on taking new targets, which do not have much foundation. And in the meantime, we are, of course, laying the foundation for the future, increasing whatever you are asking or thinking or dreaming. Yes, we are working on that, and that's why all these CapEx plans have been taken. So yes, maybe very soon, you will hear about what is our next mountain or the next target, of course.

I do understand. Sure. Sir, another hypothetical question. Assuming everything was to become normal and new MDF capacities of Punjab will be there, wouldn't it be fair to assume that this INR 1 crore profit per target would easily be met in that situation?

It will be met. Actually, last year, only last financial year, we have achieved INR 240 crores, INR 250 crore CBP actually. So to reach the INR 365 crores is not far at all. But then all the plant in Hoshiarpur will start by end of this financial year and the next year, we'll ramp it up and we will utilize the capacity. Then in the next financial year, the second plant will start. In the meantime, the plywood expansion capacity will start, too. So you see anytime in FY '23, this should happen. That is what we believe or maybe -- sometime in '24 because you don't have to do the whole year actually, maybe even if we do a quarter to that, and that means we have achieved this is. Thank you. But thank you for being with us, and thank you for thinking like this, and to seeing this hard work.

The next question is from the line of Venkat Samala from Tata AMC.

Just one clarification. So the INR 30 crore-odd savings that were -- the plant which was revised, is that already reflecting in the numbers? Or is that yet to get reflected?

No, no, no. That is actually they have identified and now we have started implementation. But we can see that, yes, and there is a lot of possibility, but this INR 30 crore does not mean really INR 30 crores will be achieved. But yes, the possibility is there. We can see it and the corona has to end and we have to get back to -- on our fastest wheels, and I'm sure we will keep most of it.

Right, right, right. Sure. And if you could highlight which specific segment are we talking about here, is it across the board in the company or is it…

No. You see, I have actually specified in my speech also which are the areas we have undertaken some part of it, it is actually logistics. Some part of it is in procurement. And a lot of it is in actually MDF division, where a better utilization of our capacity and a better connection between the sales and manufacturing and what are the items which actually give us better profits or lesser profit, so maybe focus on that, focus on a particular kind of market or the focus on a particular buyer who are not giving us profits and were giving us some profit. There are too much into it. But yes, these are the main areas where actually they will make impact.

Understood. And one last question. So now that you did mention that you are seeing -- essentially gained market share from the unorganized players, if you could specifically highlight which segments of ply are we seeing incrementally higher growth? Is it largely the mid and lower or even premium? And also, we do have a scope for growth because of this conversion from unorganized to organized? That will be my last question.

Yes. So when you say unorganized to organized, I think majority of that is happening at the Sainik level, where it is water-proof as well in the water-resistant that we give. We give 2 types of plywood and Sainik. But at the same time, we are also seeing that there are a lot of these B brands, which are organized, but there is a lot of movement from them to our brand at Century also that is happening. So there might be a very small chunk of unorganized going to Century, but the larger chunk will definitely be at the Sainik level.

Okay, okay. And how will the margins be for Sainik compared to the overall ply segment margin?

I wouldn't want to share that. But it is definitely lesser, but I wouldn't want to share that because we always compensate our Sainik brand with that, but we definitely ensure that we have a good margin that we've set -- the target that we set, we achieved that for sure.

A little bit of a strategy here, actually. We are looking at a long term, you see that is the big fat belly of the market that is Sainik. So the total of -- I think about 15% of the market is lying with the higher cost branded market, but that 40% to 45% is the belly of the market and which is this mid-segment, actually. So we expect that in times to come in the Sainik market will be much, much larger, and it will give us much, much more profit because of our larger turnovers. But this was an area where we were very, very skeptical that it will be -- it will cannibalize us actually. So for a few years or many years, we were really looking at over it will really cannibalize us. But now we are sure that the Sainik does not cannibalize CenturyPly. So that's why now we are going all come into it. The future is very good for this sector. Yes, it may have a little less percentage, but overall profit ultimately will be higher. Yes, it will take a few years to reach there.

Sure, sir. Sure, sir. And a large portion of the demand that we're tapering here, is this to outsourcing model?

So the Sainik MR which is the water-resistant plywood is outsourced. But again, with outsourcing this Century, We have a complete quality control that we do. We do daily testing and we do not sell any product which is below the testing parameters. And the Sainik water-proof is 100% in-house from our factories.

Okay, okay. And what will be the mix between the 2?

they are currently, if I just talk about March, they have now reached 50%, 50%, like I mean, 50% is Sainik MR, now 50% is Sainik. So Sainik 710 is definitely having a much larger growth because India is a country which prefers water-proof plywood over water-resistant plywood. And that is why you see, we were also in television for a very brief time in IPL before it was suspended. And this year, you will see Sainik 710 even on television because it's something that we believe we need to advertise and create a brand of Sainik.

The next question is from the line of Chirag Lodaya from Valuequest Investment Advisors.

So I had a question on plywood. So you mentioned that you will grow plywood business around 10%, 15%. So if I look at FY '21 numbers, it was obviously disrupted because of Q1 being impacted. So now with the second wave, et cetera, you are guiding for 10%, 15% growth, which is like normalized sales which you used to do in FY '19, FY '20. Is that understanding correct?

So this came the last time again also…

You used to do INR 250 crores to INR 1,300 crores kind of top line in plywood business for last few years. This year, you have done around INR 1,120 crores. And if I take 10% kind of revenue guidance, which you have given 10% to 15%, so you are saying that we'll be able to do INR 1,250 crores to INR 1,300 crores top line in FY '22?

Yes.

So just trying to get a sense because there is very good demand for housing products, et cetera. So that bullishness is not translating into numbers?

No, sir, actually, our aim for this year was around 1,500-plus. But because of the first quarter, obviously, there will be a setback. I think that is the only factor that will come in. But otherwise, we were looking at least our A&P planning was 1,500-plus.

Okay. And secondly is similar on margins. So Keshav you said that endeavor is to do 14% to 15% kind of margins in plywood business. And if I look last 2 years, our margins were in the range of, say, 10% to 11%. So FY '22, you are seeing EBITDA margin should be in the range of 14% to 15%? Is that understanding correct?

Yes. 13.5% to 14%. Because the plywood is a chunk of our business. So majority of all our expenses also comes from plywood. So because of that, I think 13.5% to 14% is something that we can expect going forward.

Okay. And if I have to understand, what would be the driver for this margin?

Sorry?

If i have to understand what would be the margin driver basically the 300 to 400 basis point improvement? What will drive this?

So one thing I'd like to add, we never had 10%, 11%. I think, if you look at last year, if you take out the extraordinary items, we were at 12.4%. And this year, despite what happened in Q1, which was a washout, we are at 11.8%. So we are not talking about the 300, 400 basis point improvement. So you're talking about 100 to 150 basis point improvement, which, as you know, that operations leverage will automatically come. It is not something that -- the margins that you are referring to, those margins are due to exceptional circumstances last year, then they were washed out -- last year, 10 days were washed out, which is a pure loss to the company. This is last month. So you're looking at a substantial half a month being wiped out. If you look at the year gone by, I don't need to tell you it was a difficult year. So overall, I don't think that this 13.5% plus is a very big change that is going to take place.

Got it. Got it. Okay. In the initial part, you mentioned, I think 14% to 15% is the long-term sustainable margins in plywood business, just referring…

I'm very, very optimistic that we will beat that within this year itself. But since, again, the first quarter has been impacted, right? There's no 2 ways of that. So I don't know whether we will hit that. Long term, 14%, 15%, in my opinion, is the bare minimum that we will be doing.

So on basically run rate basis, will exit here by say 14%, 15%? Is that understanding correct? I understand there's a disruption from Q1 or Q2.

Definitely. If you look at the second quarter, we will be at that. Even in Q3, Q4, we will definitely be in that.

And in terms of capacity, whatever additions you are doing in existing plant as well as new plant coming up in Punjab, what is the peak revenues you can generate in plywood business with recent upcoming capacities you're adding in Punjab?

I think we will be able to do INR 500 crores turnover in plywood considering the outsourcing module that we have in place and considering the expansion that we are doing quarterly.

So INR 500 crores quarterly revenues, yes, right?

Yes.

So INR 2,000 crores is…

Yes, that is the peak volume. But again, in this business, there will be seasonality. So you will see certain quarters doing better on certain quarters doing a little lesser.

And I would just like to add one thing. In plywood, we are actually now not looking at a 1-year plan or anything. We are looking at a very long-term plan where we want to double our capacity, whether it be through outsourcing or through our factory over the next 3-year period. So we will be taking -- because we think that the future in plywood is very bright, so we will be taking more capacities in the future. But as of now is this, it's tough to really say to how much this will add because we are looking at a very holistic picture.

So with that doubling in 3 years, can that number would be like in excess of INR 3,000 crores? Is that understanding correct?

That is what we want to work towards. I'm not saying we have a current plan, but this is something we want to work towards.

And if I want to understand what is driving this bullishness?

Sorry?

If I have to understand what is driving this bullishness?

Success -- the fact that we have been able to do it, if you look at the last quarter before lockdown, we were 10% growth. And you are seeing the growth in the last 2 quarters. The proof of the pudding is in the eating. The fact that we have been able to do it gives us a lot of confidence that we will be able to do it going forward as well.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

So friends, it was wonderful talking to all of you. And thank you so much for joining us on the call and taking your time out looking and listening to us and to seeing us more for future. Looking forward to see you next time on Q1 earnings calls. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.