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

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Century Plyboards hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Baid from ICICI Securities Limited. Thank you, and over to you, sir.

Good evening all. On behalf of ICICI Securities, I welcome you to the Q4 FY '22 results con call of Century Plyboards. We have the top management of the company with us who will give their opening remarks, after which the floor will open for question and answers. Before that, I would just like to highlight the safe harbor, which was given by the company in the [ PPT ], which is [indiscernible]. Over to you, Sanjay, sir.

Thank you. Thank you, everyone, for taking your valuable time out of -- for attending the Q4 FY '22 Century Plyboards Investor Conference Call. I am Sanjay Agarwal, Managing Director of Century Plyboards India Limited. I have alongside me, Mr. Keshav Bhajanka; Ms. Nikita Bansal both Directors, Executive Directors. Mr. Sajjan Bhajanka, Chairman; our CFO, Mr. Arun Julasaria; Mr. Nehal Shah, the Chief Executive Officer (sic) [ Chief Strategy Officer ] and Head of Investor Relations, are with me. I presume that every one of you would have gone through our numbers in detail. Let me still brief you on the key highlights of Q4. After delivering a good record sale in Q2 and Q3 this year, it gives me real pleasure to say that we have achieved the new record once again of achieving INR 895 crores revenue in the single quarter. And INR 3,000 crores top line in a financial year, which is the highest ever to date. While January sales got impacted due to COVID third wave, revenue in March '22 bounced back strongly to register the highest ever revenue in Q4. Our plywood and particle board segment recorded a double-digit year-on-year volume growth, while Laminate and MDF segment delivered single-digit year-on-year growth for the quarter. Our MDF and particle board segments delivered highest ever EBITDA margin to date with MDF and particle board reporting margins of 32% and 29%, respectively, for the quarter. This was largely driven by robust demand across both the categories. Despite the sustained input cost pressure in core segment of plywood and laminate, we have been able to mitigate a large part of our gross margin pressure by taking corresponding price increases. Those with some time lag and also through our operating leverage. Our overall gross margins recovered 40 bps quarter-on-quarter to 35.5% in Q4 FY '22. And the overall EBITDA margin for the quarter stood firm at 18.2% quarter-on-quarter. Despite rising timber prices and our sustained aggression in brand expense, 6% in Q4 versus 4.7% and 3.4% year-on-year. Our plywood margins is 215%, largely driven by operating leverage and our ability to pass on that. The Laminate EBITDA margins were also at 15% for the quarter. Price increases we have taken during the quarter and financial year, plywood 3% to 3.5% in Q4, and 7% to 8% in FY '22, and 2.5% to 3% post-Q4. [indiscernible] in Q4 was 13% to 14% in FY '22, and 3% after post-Q4. MDF mill in Q4 was 20% in FY '22, particle board mill in Q4 were 15% in FY '22 and 5% post-Q4. Our MDF brownfield expansion at Hoshiarpur is as per schedule and is expected to come on stream by end Q2 or beginning of Q3 FY '23. Our South MDF CapEx has received all requisite approvals and nationally has been [ awarded ]. We expect the facility to come on stream in H2 FY '24. Our greenfield laminate manufacturing unit in Andhra would come up in 2 phases. The first phase is expected to become operational in Q2 FY '24. Our working capital stands comfortable at 63 days in FY '22, an improvement of 6 days compared to the last financial year. We remain a net cash positive company with net cash position of INR 175 crores as on 31st March '22. Our Q4 FY '22 ROCE stood at a healthy 35.2%. Now I hand over to our CFO, Arun Julasaria, for his comments, and then it will be open for question and answers.

[indiscernible] [Technical Difficulty]

So sorry to interrupt, but we are unable to hear you, sir, if you can speak closer to the device, please?

Can you hear now?

Yes, sir, please proceed.

So good evening, ladies and gentlemen. I'm Arun Julasaria, CFO of the company. First of all, I would like to speak the customary disclaimer that this call is -- just to discuss company's historical numbers and future perspectives. In no way it should be construed as invitation to invest in the company. Our MD, Mr. Agarwal, has taken you through all the macro and micro figures. So I will not like to add much to it. But I'd like to say that once on this call only, sometimes our MDs say they have a dream of at least INR 1 crore per day. So that dream, we have already surpassed the dream of INR 365 crores. This year, we have earned INR 476 crores. So the dream we already surpassed. Now a new dream will be set. And first time, we have grown our top line to INR 3,000 crores. Blended EBITDA margins have drastically improved from 15.8% to 18.6%. And if you see the overall figure of EBITDA margins, we are up from INR 334 crores to INR 556 crore, so [ with high growth ] around 66.7%. This year, we have made a change in our taxation system. Year-over-year, we are following the old tax design where the tax rate applicable was 30%, availing all Chapter VI deductions. But now we have migrated a new tax system where the applicable tax rate will be 25%, and we will have to cover all applicable deductions. So after making all the comparisons, we found that our tax outflow is almost same. So we have migrated to new tax system, and now we will deal with the new tax system of 25%. And we will not be claiming tax deduction in respect of only 1 unit in Assam. This year, we have also written off the carryforward net credit of INR 30 crores. So after taking the effect of writing off net tax effect is around INR 6 crores more, which would have been if you follow the old taxation. There are [indiscernible] taxation, local times, tax [indiscernible] make [ INR 85 crores, INR 80 crores ]. So now we have INR 30 crores that is crucial for any unjustified issues made by department until last financial year. Almost all segments of the company have done well. And has done exceptionally well and EBITDA margins [ of planned ] have surprisingly improved from 10.8% to 14.1%. So that is significant, in fact. With these words, I make this forum open for discussions and open to answer your questions.

[Operator Instructions] The first question is from the line of Rajesh Kothari from AlfAccurate Advisors.

Congratulations for a great set of numbers. Sir, just 2 questions from my side. One is on the raw material front. Any significant cost increase have you seen currently on the raw material side? And second, on MDF, I missed your 2 lines, by whenever MDF capacity is coming on stream and some update on that?

So as far as raw material is concerned, yes, there is some increases in North India, not in South India, so much in our [ Narendra ] unit also. Or not so much in even [ Narendra ] unit also. But yes, there is an increase in North India. But then overall, whatever increases cost had happened, we have been able to pass it on by the price increases. And yes, there is always a lag that much of burden the company bears, but ultimately, it gains. So that is as far as the price increase is concerned. And as far as MDF capacity is concerned, the Hoshiarpur plant will be up by end of Q2 or beginning of Q3. And Narendra plant should be on by FY '24 H2 end of Q3 beginning [ next year ]. It's all the machineries have been now ordered. The land is in our control, all the approvals have come from the government. So now things are in our control, actually.

So you say it by when it will start, sir, 80?

80 will start by Q2 end of Q3 beginning FY '24.

Oh, I see. Q3 beginning FY '24. Okay. And on the plywood side, since you are seeing very strong demand traction, can you give some details on that, that what is resulting into such a strong growth? Because I think it has been almost like 4 quarters where we are seeing such kind of a growth. So do you think that the import has reduced significantly that is helping? And how do you see the different tax that you might have taken in the last 2, 3, 4 quarters like last time you were just talking about go-to-market approach and many more such strategic decision. So if you can give some color on that, that would be useful.

So actually, plywood demand for us and the same is increasing is because #1, real estate has again started booming. So plywood is increasing for everyone for the industry overall. But we have been doing consistent branding now for 2 years straight. And we are going to continue that for the third year. And branding is really helping and reaping our benefit. Last year, we did branding on Sainik as well as Century. And both brands have benefited from this advertisement. Every year, we try and come up with new attributes and features, like we come up with ViroKill, then we came up with Firewall, and both enhancing the product has helped us. Other than this, I also think that like we mentioned in the past that we've been working continuously on improving the GPM. Definitely, the minute you focus the energy of the field on to channel expansion, onto getting better lead conversion, things improve, and that is what is reaping our benefit. And we hope that we continue to grow this way. We expect next year that we will have a 20% growth.

Okay. And what kind of margins would you like to see in plywood segment? How do you see the margins in that?

Between 13% to 15% EBITDA.

Okay, between 13% to 15% EBITDA. Okay. And what about the Laminate segment? How do you see the growth and margins in Laminate?

Rajesh, Keshav here. I believe in Laminate, our objective has always been a 20% top line growth. And I think with the [ mixes ] we have taken, particularly with BCG coming into play, you can look at a long-term growth of 20% without [ guilt ]. Margins, as you already know, we have given a guidance of 14% to 16%. And we'll be looking to maintain the same.

You are talking about the Laminate segment, am I right, Keshav?

Yes.

Okay. So basically, current margins at 12.8%. So from 12.8%, you are saying that the margins will inch up first to 18% to 20%?

Current margin is actually 12.8%. If you look at it, there is a 2.5% plus inside from the BCG project. So that is more of the nature for long-term investment, but it has been debited as an expense right now. If you consider that we are well within the 14% to 16% range.

Okay. So basically, I think next 3 to 4 quarters, you will continue to see this BCG expense, am I right?

Yes. Yes.

Understood. And the revenue -- so in the volume growth, which has been right now flattish, am I right, fourth quarter also, I think the volume growth is about 1%? So you are saying that will also improve? And what are the reasons for that?

In Q4, after January, we had limited growth in Feb and March, but I think we've been commenting to most manufacturers. Going forward, I'm sure that from Q1 onwards, we'll see much better [ traction ].

The next question is from the line of Kartik Mediratta from Niveshaay.

So let's say MDF realization per CBM has increased for 30% to 40%... [Technical Difficulty]

So sorry to interrupt, your audio is a bit muffled, if you can keep some distance between the phone.

Is it better now?

Yes, sir. Please proceed.

My question is related to MDF. Let's say MDF realization per CBM has increased for 30% to 40% Y-o-Y. Moving forward for the upcoming quarters, can we expect to jump in realization?

I think there is no further jump in the expectation, actually. And there may be whether once the -- all production capacity has come up, we can look at a little bit of softening, but still I think we will be within our -- for the reasons which we have been always projecting that, yes, the 25% margin were actually long-term target. So sometimes when the markets are going well, it may go up and now maybe in a year or maybe a little later, a little bit come down, but still we can only think that, yes, it will still maintain to be more than that 25%, actually. So I don't see a jump anymore. I think this is good enough. Any more jump will be greedy, isn't it?

And sir, what is the current realization, 31,000 of cost per CBM?

Yes, the correct realization of the cost 32,000 -- sorry, 33,000.

Okay. And the margins sustainable for MDF?

So the margin which are currently at around 32, 33 could sustain for probably next 1, 2 quarters and when the capacity gets added, particularly in the north of India, there is increase in timber prices, which if we don't -- if we are not able to increase prices, we might see some softening in margins through the year. So if you look at the overall FY '23 margins, you could estimate margins to be anywhere in the range of 25% to 28% or 25% to 30%? And that's largely with timber prices increasing in north of India. However, timber prices in south of India remained very, very much stable.

And what are the raw materials used in MDF? And what are the costs versus a year ago?

Who you see to tell you the cost is very difficult of every item, but the main items are resin and timber.

So what is the cost of resin and timber?

Cost of?

resin and timber?

No, that's very difficult. This is a different places, different times. There are different price of timber, how can I give you the timber prices and resin prices and all that. I think we will need to appoint a consultant to probably [ discuss all that ]...

Yes. Sanjay, I will just try to explain what is the [indiscernible], North India, presently, we are buying timber at the rate of INR 5. And we consume around 1.6 tonnes of timber in making [indiscernible] MDF. And so timber cost is around INR 8. And similarly, glue cost each, depending on various type of glue because the price is a mix of higher grades and lower grades. So the average price of glue would be around INR 25, and it consumes around 15% glue. So it would be to the tune of INR 3, INR 3.5 or INR 4. So [ INR 4,000 ] per cubic meter of this, so [ INR 8,000 plus INR 4,000 ]. So this timber and glue cost would be INR 12 all-year around. And then manufacturing and other costs are their level electricity. Electricity also in the cost that is again, say, more than INR 2,000 per tonne.

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

Two questions. Firstly, on particle boards. If I look at the volume in last 2 quarters, it has been in the range of 19,000 to 20,000 fee gains, which obviously includes the prelim also. So just want to get your perspective whether further volume growth is possible or do you think there's a capacity constraint and debottlenecking is necessary.

Actually, we are trying -- the plant we have got [indiscernible] 180 cubic meter per day only. So we can actually -- the plant capacity of 5,400, but I think we are manufacturing about 7,200 cubic meters per month. We are leading BCG now to work on it, and maybe we'll get some more on out of it. We are already contemplating as far as capacity is concerned, but until now we have not taken a decision. So yes, still then we can say that we are still capacity constrained.

Yes. Just to add, last year, we did around 72,000 CBM in particle board this year. We are likely to do anywhere between 77,000 to 80,000 kind of a number.

Okay. That's helpful. The second question is on the A&P spend. Obviously, you alluded to different spending for ViroKill and the other campaign. So what was the absolute amount on A&P in FY '22?

So I think the [ PSF ] will be able to provide you with exact details because there's a little bit of variance [indiscernible] a lot of things. So it includes your TV, radio, et cetera. Because of cumulative, I'm sure you'll be able to try new details separately.

Yes, Hrishikesh, just to give you a percentage. In terms of percentage, are A&P spends at least in plywood, which is the largest part of the turnover was 6% compared to 4.7% Q-o-Q and 3.4% Y-o-Y.

The next question is from the line of Jignesh Kamani from GMO & Co.

If you think about MDF volume has declined Q-o-Q. So it's partly because the Omicron in the January or demand has been slightly soften the initial part of the year?

So if you look at our capacity last year, we got the benefit of opening inventory. And as a result, our volume was pretty much higher. Now it's come to a normalized volume for the quarter. So that was, we actually have run out of capacity, so as to say. But otherwise, we'll continue to have this kind of volumes, quarterly volumes until we come up with the brownfield expansion.

So demand continue to remain strong...

Yes, yes, demand continued to remain strong. Yes.

On the Laminate side, our gross margin has declined Q-o-Q. So is there any pressure on the gross margin? What is the issue there? We are able to hold on the EBITDA margin, [indiscernible] that part also.

So Laminate, a number of the key raw materials have seen a substantial increase in costs, including phenol, melamine and kraft paper. We have been able to pass on a bulk of that price increase, but you know that there is a time lag, and it takes some time for the price to be passed on. So because of that gross margins, margins have been under pressure. Having said that, now we are seeing some easing of the raw material costs as well. And going forward, I think we'll be able to maintain margins between 14% to 15%, as I had guided earlier.

Okay. Q-o-Q, gross margin has been under pressure but we are able to maintain our EBITDA margin in the Laminate segment. So have we cut down on the [ price point ] or any other part in Laminate?

No, I think operating leverage as well because we have grown so that has helped us negate the cost to a certain extent.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just if you look at the balance sheet, there is an increase in the amount of inventory buildup. So if you can just broadly help us understand, is it because of supply shortages you want to build up a higher amount of raw material inventory or what is that related if you can just help us with that?

You want to answer, Keshav?

I don't think there is a very substantial buildup in inventory. I think we are preparing for growth spurt in demand in the Q1 of next year and going forward. I think this is all to do the same. We've basically taken a higher [ AOP ] for this year. And in line with the same, we are provisioning for that growth by virtue of having some additional [indiscernible].

Okay. Okay. And just in terms of the broad -- if you look at your broad operating cash flow now, so you're generating broadly about cash in excess of about INR 110 crores, INR 120-odd crores on a quarterly basis. So broadly that INR 500 crores of operating cash flow. So given the kind of CapEx plans that you have, you will not have to pick up any data or anything of that sort? Is that a fair estimate to make?

I think that it depends on the timing of the various CapEx initiative that we have. But even if we do take some debt on the books, we want it substantial. It could be in the form of a short term or a bridge financing, say, a year or so, depending on the timing of cash flow based on all our current CapEx plan in case we go into more CapEx projects, then we'll have to look and reevaluate. But as of now, you are correct, we do not see much debt needed to be taken on, maybe some slight debt for a quarter or two, something of that sort.

Okay. And broadly, since you operate out of multiple segments, if you can just broadly talk about how is the competitive scenario because we are not seeing similar kind of growth for rest of the building material products, is it coming out of market share gains? Or is wood panel a category which is seeing much higher growth in the rest of the building material category. If you can throw some color on that will be helpful.

I think definitely, we have had some market share gains across various segments. We think in particle board and MDF, there is a limitation in terms of the total amount of manufacturing capability in India. And because imports have reduced, the entire industry has [ done ]. So MDF and particle board, it has been very good sailing for all the players to understand. But in plywood, laminate, I think our operational excellence has shown through. I think particularly in plywood, the combination of characteristics such as ViroKill, Firewall and a new GTM have led to sustain the market share improvement. And I think going forward, our objective will be to gain market share in all 4 segments of the [ product ].

Just on the plywood part of it. And in terms of the competition from the unorganized, there we are seeing a lot of stress. Do you think is that also kind of benefiting you guys and kind of sending growing much faster than the rest of the product in the [ next quarter ] ?

So you're putting me in [ a bit of a quarter ], which is kind of wildest answer. But you're right, Arun mentioned that with your question. And definitely, we being market leaders are benefiting. Going forward, I think we'll be able to gain further due to this shift, but we'll have to play by the [indiscernible] and we'll have to wait and see.

Sure. Just one last question, Sanjay, if you can answer this because you have seen much more cycles. The growth for Century has been much better in the last 3 to 4 years with market share gains, very strong balance sheet. Where do you see risks to these going forward given that your CapEx commitment will be far higher than what you've done in the past? What are 1 or 2 risks that you are kind of seeing and you would just want to kind of be wary of that?

The only risk is actually that if -- which I really do not see within a very short period, if MDF and particle board starts. In a big way, they start importing into India. So that is one area I see and that is -- that will -- also will be for South India because North India is [ even earlier ] and even tomorrow because of the distance from the port will be still very much protected. So whatever new capacities are coming even they will be protected. South India may see some problems in future. In plywood, I don't see much of a risk because plywood is a low CapEx plans, and we are actually slowly and very steadily, I must say, we are trying to make inroads into small towns and dealers and sub-dealers and everybody is being watched and directed while -- and partial IT has become so good and these apps and call centers, all these have become so good. And advertisement, we are able to take that risk in our mind and in our assets also. So I really don't see much problem with plywood division. Laminate, we have hired BCG. So again, if there were certain risk of -- you can say a flat or not much of a growth, but with BCG involvement, I'm very sure that new strategies are coming out in maybe next year or 2, things will be really looking better only. So I don't know if anybody else on the call right now may have spoken. I would love to come out with risks so that we are always ready for [ APS ].

The next question is from the line of Sneha Talreja from Edelweiss.

Congratulations on great set of numbers. And in fact, 2 questions from my end. Firstly, could you give us a breakup in terms of what has been the domestic and exports related growth in Laminates division and FY '22 breakup between the domestic and exports division?

So export traditionally has been a much lower value contribution for us. But last year, exports was nominally well. The growth was substantial, at 30% plus. So it's far higher than our domestic growth.

Currently, what's the accounting for in FY '22 proportion would be?

Sorry, could you repeat that?

FY '22 share for exports would be?

Share for exports would be sub-25%.

Got that. And similar question with respect to Sainik and non-Sainik business, what will be the percentage share in each? And what is the kind of growth that we have seen in FY '22 for Sainik as well as the premium segment?

We normally don't share this figure. I'm sure that we will guestimate later on.

Okay. Anything specific related to Laminate segment this quarter that we saw that only 1% volume growth versus -- I know you alluded to the fact that even Jan. Jan was weak and Feb and March didn't pick up that well, but any particular reason of not picking well in laminates versus we saw very strong growth for plywood, MDF as well as even particle board? So just wanted to try and take some sense on the laminates division and what's happening there.

Yes, I think the recovery in Laminate last year, I talked about FY '20, '21 was a little different. Laminate Q4 FY '21 is phenomenal. And the base as part was very high. If you look at the figures, I think the quarter-on-quarter growth between Q3 and Q4 was substantial last year. So I think we are already operating at a higher base. And with that together with a very slow January, we weren't able to [ form the growth ]. But going forward, I think now the base is established, we should be growing well on it as well.

Understood. And lastly, your expectation on the MDF division, you have, of course, given the time line of commissioning of both Hoshiarpur as well as [ our EP plan ]. But what are expectation in terms of realization -- I mean, realization as well as what is the capacity addition that you're looking at, both considering the fact that we are seeing a number of capacity additions happening by -- at the industry level?

As far as MDF is concerned, it's -- we can see that whatever capacity till now has been absorbed very, very well by Indian consumer. And every day, a new OEM is coming up, a lot of export possibilities, a lot of furniture parts are coming up in India. So we see actually consumption of MDF is really going up in India and the growth of MDF is much faster, much better than any other building material in India right now. As far as the prices are concerned and EBITDA are concerned, we have already spoken that EBITDA may soften a little bit once the new capacities come up, but then still, we do not expect it to go below -- [indiscernible] that we will not go below 25%. So I still think that it will not go below 28%, 29% or 30%. Right now, it is much higher than that. So that much of softening may come in after some time.

Understood.

Just to add on to the MDF point, just to add on one small point, we have always been a little better capacity utilization than most ever. So I think you'll give us the benefit of the doubt that we'll be able to exhaust our capacity faster than the industry will otherwise...

Keshav, you can give some idea about our expansion plans also.

Yes. So I think we already addressed it in the call proper, that our expansions are well on track. We're looking at operations commencing in the wholesale expansion from Q3 this year. And we shall have the [ under plant ] up and running by year 2 next year.

The next question is from the line of Jignesh Kamani from GMO & Co.

Just on the demand on the MDF front. Generally, it is a replacement to chief plywood. And if you take about MDF realizing is up around 25% less Y-o-Y. While plywood realizing is increased by around -- price [ realization ] has been around 7% to 8% at much as 10%. So are you seeing some of the low segment where plywood used -- MDF used to replace plywood. Now people are, you can say, using more of plywood because price gap is no more commensurate.

See, MDF is actually much, much cheaper than plywood, even the local plywood, much, much cheaper than local plywood. So still, even after all these increases, still the cheaper plywood will be replaced. That is #1. #2, there is a problem with cheaper plywood, the cheaper plywood actually trying to keep the customer in a way by actually giving wrong brands or by giving wrong declaration, we have come out with Firewall. And now I see that everybody is claiming Firewall. So they are -- these things cannot really stand in the test of time. So this is a number of -- 2 items. So I don't see that this price increase or whatever, 25%, 30% has happened will have any problems. Yes. The other one thing you are seeing that our highest grade of MDF, which is the premium, plus we are saying. So there, yes, we can say that going ahead, if further prices increase or something happens, then that may take some beating, but the percentage of that is not too high. So if that keeps on increasing, yes, that segment may take a little bit of beating. And one more thing which we have to realize there. MDF has a wonderful stability of dimensions. So if somebody says it is 18 and on so, it is mostly 18 and so [ throughout the seat ]. So it is much easier to work on MDF if you're using machines. And to use plywood is a little difficult as far as machine is concerned. So whoever is using a machine will find difficult to replace MDF with a plywood.

Understood. Second thing, all the new capacity which used to come in India is verily common, I think, fully absorbed including the Rushil's last capacity. Now incrementally, only your capacity is coming -- in end of second quarter with -- considering buoyant demand as you highlighted, do you think that it will -- margin might remain elevated at least for next 1 year because no additional supply is coming in, demand continue to remain healthy?

I don't see that in 1 year, any capacity coming up. But yes, then there are, I think, there is a plant by Action, and then our plant is coming up. And certainly, some more few -- smaller plants will come up. We must take it for granted. But just think of it, though, total capacity increase will be hardly maybe 2,000 cubic meter or so in a year or maybe 2,500 cubic meters per day. So it is not going to really make much of a difference. So -- but yes, I still believe that some softening may happen. That is, as an investor to you, I should give you a warning. So that is the point. But still, I don't see much will be happening. I don't see a big scope out there, that I don't see at all.

For a country of our size, the total production and consumption of MDF in the country is very, very meager. It's only 2 million cubic meters. So it is nothing considering our population. The same is more than 50 million cubic meters in China. And again, if you take all the panel products, then also ratio in India is comparatively much lower. So there is a lot of scope for MDF to grow, and it will grow on itself. It will grow at the cost of cheaper plywood, and it will find room for consumption in the organized furniture. And not only plywood, it has potential to replace many other products, like gibson board, other things, for the false ceiling, for the partition. For many things, it can replace. So it will not only replace plywood. So that way, it has better scope. And our present capacity is very, very small. So it has to grow, maybe in another 10 years, to maybe 4, 5 folds.

The next question is from the line of Priyam Khimawat from ASK Investment Managers.

A couple of quick questions from my end. Now that we have already ordered machinery for our Andhra site, can you share some broad direction about what kind of capacity we are looking at? Will it entirely be an MDF plant or are we still contemplating a fungible MDF and particle board capacity?

No, we are not considering a fungible capacity there. It is a dedicated MDF unit, and it will have a capacity of 950 cubic meters, which, of course, we'll try to save it up beyond, but the raised capacity will be 950 cubic meters per day.

Okay. Will it be in 2 lines or initially from the beginning it will be 950 CBM per day?

950 CBM from day 1.

Okay. And sir, due to inflationary pressure witnessed in metals and logistics, are we seeing any substantial increase in overall cost of CapEx than a budgetary estimate?

Definitely, there has been a decent increase in the cost of steel and other structural works, and there's also been a lot of pressure from the European suppliers due to the various inflationary pressures that they are facing. But I think we have been able to navigate through them quite well. As of this point in time, I don't see any substantial increase in the overall CapEx than a budgetary estimate.

Okay. And have you ordered the plant from the similar person in Germany, for which we've used it in Hoshiarpur?

Hoshiarpur, we haven't ordered from a German manufacturer. So Hoshiarpur, we had ordered from 1 of China's manufacturers called Yalian. This time, we have gone for Siempelkamp, which is 1 of the German manufacturers. And yes, it is a plant for only MDF from -- from Siempelkamp, sorry.

Hoshiarpur second plant is from a German company, but -- the 400 capacity, that is German company. And original wise from a Chinese company. And this is again from German company,Siempelkamp. And that -- another thing was -- another company. There are 2 [indiscernible] companies in Germany; Dieffenbacher. So 400 is from Dieffenbacher and 950 is from Siempelkamp. And earlier was from -- But we are highly satisfied with the Yalian plant. That was cost effective, that was very good, giving us very, very steady production, very quality production. But due to this China-India tussle. So that time Indian government was not allowing Chinese to come to India. So seeing all these problems, we had to divert. Otherwise, we are happy with them. Maybe in future if everything is normal, our more plants will come, so most of them maybe from Yalian only.

Okay. Understood. That's what I was wondering because our plant is doing so well and with doing industry-leading margins at 35%, why would we change our vendor? Anyways, it was understood. Sir, 1 last question, you alluded that Action is coming with the new capacity. Can you help me with what per day CBM are they looking at? And when is it coming online on steel?

[indiscernible] again, 800 to 900 cubic meters per day.

Okay. And by when are they looking at commissioning that?

Maybe a year from now.

Just one correction here. This Action line as the 700 projected, will be between 600- to 800 cubic-meter line, and the line would be commenced from mid next year.

The next question is from the line of Udit Gajiwala from YES SECURITIES.

Just 1 clarification about the laminates and the plywood growth that we mentioned. How much will be driven volume growth and what will be the value growth?

So let -- can you repeat that question? You're talking about the guidance for the...

Value growth and volume growth.

Okay. So I'll give you guidance for each of the segments. So plywood, we expect 15% volume growth and 20% value growth. For laminates, we expect 15% volume and value growth. For MDF, we expect 25% plus volume and value growth. And for particle boards, we expect 10% volume growth and 20% value growth for the next fiscal -- for the current fiscal, sorry. And overall, we expect 20% plus volume growth for Century Plyboards for this year.

The next question is from the line of Rajesh Ravi from HDFC Securities.

My question pertains to first on the plywood business. What is the capacity expansion that is happening and by when that is expected?

So this year, we expect another 10% capacity expansion, but that will happen in our existing plants itself. We've been doing this for the last 1.5 years. And there's Hoshiarpur plant that we have spoken about, we are yet to procure the line. So once we procure the land, we'll be able to speak about it in definite terms in terms of timeline.

Okay. So this INR 50 crore is for the existing 10%. So that is around...

No, no, no. The INR 50 crores is for the Hoshiarpur plant.

Okay. And this -- what you're mentioning is normal debottlenecking driven capacity expansion?

Yes, yes.

Okay. So what would be the total capacity post these expansions for your...

Currently it's 3 lakhs CBM. We expect it to be 3.30 lakhs per CBM by the end of the year. And this year, we had about 78% utilization.

Right. And follow-up on this plywood, how much would be your outsourced volume in the plywood segment of total volume or revenue?

It's a data we don't like to share. But majority, I would say, majority for us is in-house.

Okay. So fair to say that at least 80 plus percent.

Yes. 85%.

Yes, because...

All the Century brands are manufactured in our factories only.

Even the Sainik 710.

Also the waterproof grade, we manufacture 100% in our factories. Only the commercial grade of non-Century, part of that we outsource.

And any other business segments where you have outsourced volume other than the ply?

So we outsourced the PVC boards, but that it's sold under the name of Century [ Park ].

Okay. No, in terms of the major segments like the MDF or particle board?

None.

Okay. Second, coming to the particular board...

Two products, we are not manufacturing at all. Totally it's outsourced only.

Okay. Understand. And coming to the particle board, you said that around the current capacity, the volume numbers are much higher ahead of your capacity. So what sort of capacity expansions are there in pipeline in the particle board? You're targeting 10% volume growth, if I heard correct .

10% only from, again, debottlenecking and taking up new measures and all that. We are working on thinking of the new capacity, but still, we have -- we are yet to take a final decision. We are contemplating many ideas and locations, and what kind of machinery, what kind of capacity and all that. Discussions are on, but decision is yet to be taken. [indiscernible] decision and we get it through the Board, we will be certainly informing all of you.

What is holding us from taking an immediate decision is that we foresee a very big market in future for particle board. But at one particular place, to put up a big capacity, sometimes it becomes challenging. So our -- all the research says, we should go for a country place with a capacity of 800 to 900 cubic meters per day for particle board. But like last -- what Associated Decor or what we have seen, we never utilized that capacity. And if you put a big plant at 1 location, then sometimes resourcing raw material, it also becomes difficult. So like these all considerations are going on, and we are doing the market research about the availability of raw material and the market. So we are trying to take decision in favor of a bigger capacity. But we don't want to take risk. So this is taking a little bit time.

And on this plywood -- sorry, particle board and MDF, are the business -- the sales market similar? And in terms of the customer segments similar? Or how different are they?

No. Yes, these are different -- like particle board is solely consumed in the mechanical furniture manufacturing capacity, like OEMs and furniture manufacturers, even IKEA, they mostly use particle boards. And MDF is used in the furniture, like costly furniture or people they want better products, they simply order for that. And then mostly, it is used along with the plywood in tailormade furnitures.

Okay. So retail sales would be much lower for both these products? Is that understanding correct?

Retail sale for particle board?

Plywood. particle board and MDF.

Particle board is not likely to pick up very soon. It would be primarily used by organized manufacturers of furniture. And MDF, yes, it is replacing many existing products, not only plywood, like other boards also it's replacing. So the MDF, I think, has more [ traction ].

Okay. Okay. And last question on the laminates, the 2 phases, the capacity expansion, 2 million shares each. When would the second line expected to be commissioned? And will the capacity spread out between INR 200 crores, INR 100 crores, INR 100 crores each?

Yes, yes. The capacity is spread out a little more towards the first phase than the second phase. It will be looking at about INR 130 crores, INR 135 crores, and around INR 70 crores in the second phase. And remaining some capacity, it will only come in from FY '25 onwards.

FY '25, you mentioned, right?

Yes. Yes, by the end of 2025.

End of FY '25.

The next question is from the line of Gaurav from Bowhead India.

Very wonderful set of numbers again, so congratulations on that. Sir, I've got just [ 3 ] questions. So one is, you shared your revenue guidance. So what would be the EBITDA guidance and PAT guidance for FY '23, if you can share anything?

So margin guidance as we -- so I would again reiterate margin guidance for each segment. Plywood segment, we expect anywhere between 13% to 15%; laminates, we expect 14% to 16%; MDF, we expect 25% plus; and also for particle board, similar 25% plus.

And sir, overall, how does it calculated?

Sorry?

Overall, how....

So this probably translates to 10% plus PAT margin, and you can do your own homework calculating these margins?

Sure. And sir, for laminate segment, we do guide for [indiscernible] FY '23? I missed that number.

Yes. Laminates, we guided for 15% plus volume and value.

The next question is from the line of [ Kanishka Sarkar ], an Individual Investor.

First of all, congratulations for a fantastic performance, and I'm a happy shareholder. So I have got a couple of questions. So first one, I think you guys have done a tremendous job in terms of putting the brand in the minds of people, fantastic advertisements. And so I want to know one thing. First thing first is that, if I want to understand your dealership network pan-India, pre-COVID, just before the COVID struck, how much was that? And how much does it stand today?

So I think in that detail, we'll be able to provide after the call. But when we talk about channel expansion, we have to do channel expansion, especially in plywood in both segments. So in Sainik, pre-COVID, we were pretty much at a number of, say, 200, today we are at a number of 900. But when it comes to Century, we are being able to extract from even the Sainik channel as well as our existing channels. So the channel expansion must have been from a range of the 1,500 to maybe the 2,000, not so substantial increase though. But we've been working aggressively on the subdealer expansion. So those numbers are very high.

Right. So you don't have to give me a number, you can give you a percentage. So what is the plan for this expansion in this financial year?

In this financial year, we want to double our channel presence, whether it be through subdealer, whether it be through dealer, we want to double it.

Okay. So I'll tell you why I asked you this question.

[indiscernible] we should take into account, again, the [indiscernible]. It's not going to be that if we double the dealership, [indiscernible] double. So growth guidance [indiscernible].

Okay. So the reason of me asking you is that, what I understand is the demand that is expected in the real estate because we saw [indiscernible] start sometime around last year onwards. Now I just want to understand you, generally, when the real estate starts moving up in terms of the buying behavior, what is a lag period? So when do you actually see the market getting into the zone of very high demand for building materials, particularly the products which you deliver?

See, for us, there's a bit of a difference. We are not like other building material companies where we go into project. So it's not that the builders purchasing and giving it to customers. Our journey begins when it goes from being a house to a home. When the individual home buyer buys his house or office and start the work of making it into a room with furniture, refurnishing and so on and so forth. So I would certainly come a little bit later. I would come once the inventory starts selling and once people start [indiscernible].

Yes. So I wanted the projections exactly of that part. So when you -- when people move into their -- start building their homes, when do you see that. So sitting in May today and the cycle, real estate cycle moving from last 1 year, do you expect that the bulk of the demand and the upside, that is basically the flight will start somewhere around December or it could be a little later than that?

I think you've already started to see the benefits. If you look at the home registrations, they have been very high for the past year or so. And I think this is already benefiting us. So going forward, I think it is only going to [indiscernible].

Right. So Keshav, 1 big point here. You guys, look, why is it that your capacity is so constrained today? And even though you were putting those plants in, I don't see that we will have too much of a capacity because you're already working at 78%. So what is your plan to kind of mitigate that constraint and actually capture this growth? Because I -- from my point of view, I see your brand doing very well, and it can only go up from here. So what is the plan of getting into the pole position over the next 3 years? So could you put some thought on it?

I think [indiscernible]

[indiscernible] we're already in the pole position as far as this is concerned, [ we are the ] market leader. And when it comes to execution, the quality of execution that CenturyPly has is far better than the rest of the industry. The first MDF plant the company established within 15 months, whereas it took others nearly 2.5 years. So I think that advantage we have on our side -- sorry, can continue.

Okay. And the last question Yes?

Yes. Let me answer to this point. Actually, now any capacity which we are bringing, we are not bringing for a year or 2. So it should be sustainable. So say, any capacity we create now, we're creating it for the next 25 years. So these things, buying land or getting license and erecting a plant. And after 2 years or 3 years, because we had to hire a lot of workers also, so we will not see that we can do it like switch on and switch off. So we have to take a lot of precautions. So once we are sure this trajectory will continue because when we compare to China, we are nowhere. China's plywood consumption is 200 million cubic meters. And whereas our population is more or less same. And so with that 10 million to 200 million, India is 2 million MDF to 50 million of China, 1.5 million of particle board to 35 million of China particle board. So we are nowhere in this. So simply thinking our middle income group is expanding, our -- like the market is expanding. So with that, I don't see any reason that we will not expand at a very, very faster pace. But the ground realities are not so. But I always tell Sanjay -- to Sanjay, this will expand in -- 10 years, it will become 4x, then Sanjay gave me data for the last 20 years. So we have whatever said or done, it is expanding at the rate of that same 10%. So you can calculate now also for next 10 years, it will expand at 10%. So expanding our capacity overnight or very fast, I think may become counterproductive in some time. So we are a little cautious. And the moment, we are fully confident, then we'll expand capacity very rapidly. Because putting up the capacity in plywood doesn't take much time. Within a year, we can set any capacity. MDF takes almost 2 years. Particle board, again, 1.5 years or so.

Right. No, I appreciate, sir, what you said, completely appreciate it. The last question that I have is that this raw material which you have, which completely fluctuates because the availability of wood. Is there any plans of -- I don't know much, actually, that I'm asking you. Is there any plans of structurally to move into plantations so that you can actually have vast plantations, which can actually be used for your captive purposes? Any plans on that?

But there are many limitations in India, like land holding ceiling. So you cannot -- in most of the states, you cannot hold more than 15 acres, 20 acres like restrictions are there. And government lands are there where we can do plantation, but government is very, very conservative because it may be politically counterproductive for them. The people will say they have distributed the land of the country or government land to the industrialists or the old things. So government is wary of that. So these things are there holding us. And then again, these laws, like agriculture, this reform bill [Foreign Language], again are -- backfired. So the law of the land needs to be changed a bit and this plantation, government -- even the for plantation for cutting the trees, for leasing it, there are a lot of customs. So we are very, very strongly pleading with the central government, and we're pleading with them that it should be restricted to agriculture from the forest. For all the practical reasons, plantation is done by a farmer, is done on the farmland only. And so -- and the replacement of the case crop by farmer. So there is no reason that the forest department should take the ownership of the grown up trees. And after that, they regulate putting of the industry and other things, issuing the license. And then the vested restated interest group will go to court and block it. So these games are going on. But I'm very sure that things will change very soon. And when the trajectory is very clear, that time, definitely, we shall enter the plantation. We will enter the plantation, but it would be very, very stable and long-lasting business.

Ladies and gentlemen, due to time constraint, we take one last question from the line of Nikhil Agarwal from VT Capital.

Sir, my question is regarding the laminate segment. Like in Q4 FY '22 and in Q4 FY '21 and quarter 2 of '22, your laminate margins were very -- like they were -- gross margin was around 42%. So like was it because of inventory gains? Or was it because of some price hikes that you had taken, like what was the reason behind that, if you can highlight?

So in quarter 4 of last year, it was due to the fact that raw material prices were substantially subdued. And what is -- what happened that during the second phase of COVID, our Chairman told us that demand is going to be pent up. We are going to continue production to a maximum amount permissible. And at that point in time, raw material prices were further subdued. So due to this bold decision, we are able to enjoy, I think, the highest gross margins in laminate segment in Q2 of this year. After that, raw material prices suddenly shot up. And to the extent, I think, I have mentioned in the previous call that certain raw materials went up by 400%. So [ we see ] tapering of margins going forward.

Okay. Okay. Yes, sir. And sir, just one last question. I'm sorry if I'm asking this again, like, could you just highlight on the margin guidance for each segment? I don't know if you -- someone...

Segment-wise, the margin guidance is: plywood, we are looking at 13% to 15% EBITDA long-term sustainable; laminate, 14% to 15% EBITDA long-term sustainable; MDF and particle board, 25% plus EBITDA margin.

I now hand the conference over to Mr. Arun Baid for closing comments. Over to you, sir.

On behalf of ICICI Securities, I want to thank the management for giving opportunity to hold this call and all the participants for being there. Any closing comments you want to give, Sanjay?

Yes, yes. certainly. I would really like to thank everybody for attending the call and all the questions around focusing next quarter with good numbers and good economy all around India. Thank you.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.