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

Ladies and gentlemen, good day, and welcome to the Century Plyboards India Limited Q1 FY '23 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aasim Bharde from Dam Capital. Thank you, and over to you.

Thank you, Marisa. Good evening. And on behalf of DAM Capital Advisors, I welcome you all to Century Plyboards Q1 FY '23 Conference Call. We have the senior management online with us here. At the onset, I would like to congratulate the team on an excellent Q1 performance and wish them continued success ahead. And now I'll hand over the floor to Mr. Arun Julasaria, CFO of the company. Over to you, sir.

Good afternoon, ladies and gentlemen, and welcome to Q1 conference call of Century Ply. First of all, I'd like to speak the customary disclaimer that this call is just to discuss company's historical numbers and forward-looking statements and in no way it should be pursue to -- pursue the invitation to invest in the sales of the company. Results for the Q1 have already been put on company's website on their site, along with detailed analysis and also [ melt ] separately. So I will not spend more time in repeating those numbers but I'd like to tell you that usually Q1 -- Q4, Q4 of every year is target in bad quarter and the cascading effect of that spill over to Q1 also. But in our case, this time, Q1 is also equally bad quarter compared to Q4 of last year. Turnover is almost same. Negligibly down by only 1.5%. But if you compare it Y-o-Y it is almost double by 96.4%. This Q1 was a challenging quarter because raw material prices were on a higher side, but we could manage our profitability by higher volume. All our segments have done well. MDF has [indiscernible] all its past records. In case of plywood, EBITDA margins are down by almost 4.5%, reasons for which will be explained by MD in due course. With these words, not taking much time, I open the house for question and answers.

I'm sorry. So please go ahead.

Yes, yes. This is Sanjay Agarwal. I would like to make a little bit of a talk to everybody before the question and answers open. So thank you, everyone, for taking their valuable time out for attending the Q1 FY '23 Century Plyboards Investor Conference Call. I'm Sanjay Agarwal, Managing Director of Century Plyboards India Limited. I have alongside me, Mr. [ Sajjan Bhajanka ], Executive Director; Mr. Arun Julasaria, CFO; and Mr. Nehal Shah, CFO and Head of Investor Relations. I presume that every one of them would have gone through our numbers in detail, let me brief you some of the key highlights. After delivering record sales in Q2 to 3 years, Q4 last year, it gives me immense pleasure to say that we have achieved sales of INR 878.35 crores in the first quarter, usually, which is the leanest quarter of the financial year, which is just a tad lower than the Q4 FY '22 sales. Our plywood and particle board segment revenue records 100% year-on-year growth, while Laminate and MDF segment revenue grew 86% and 71% year-on-year, respectively for the quarter. 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 and also through operating leverage. Our overall gross margins were down nearly by 140 bps quarter-on-quarter to 34.1% in Q1 FY '23. Driven by recent price hike and/or a superior product mix, our Laminate, MDF and Particle Board segment reported gross margin improvement in Q1. However, our Core Plywood segment for gross margin contraction of 3.70 bps quarter-on-quarter. Despite the overall growth margin pressure and our aggressive branding expense. The overall EBITDA margin of the quarter stood firm at 17.2%, down nearly 140 bps quarter-on-quarter. While our plywood division reported a 10.4% EBITDA margin in Q1 driven by aggressive brand expense, lag effect of an [indiscernible] of recent price hikes and operating leverage, we still maintain 13% to 15% EBITDA margin guidance for FY '23. This is likely to be driven by front loading of advertisement and promotion expense in Q1. Full absorption of price hikes taken in Q1 and expected operating leverage. While MDF and Particle Board segment reported record high margin of 35% and 36%, respectively. The Laminate EBITDA margin adjusted for BCG expenses stood at impressive 16.4%. It may be noted that input cost inflation has dropped a bit in last quarter. However, craft paper and phenol prices have seen a further surge on a month-on-month basis. Timber prices continue to remain elevated, but the surge hedge settled down. Price increases taken in Q1, plywood 2%, premium plywood 3%, Sainik PF also 3% and 7% in Sainik MR. Laminate 4% to 3% in [ 1 mm ] and [ 0.8 mm ], respectively. MDF, Particle Board about 9%, 5% in April and 4% from 14th of June. Our MDF brownfield expansion at Hoshiarpur is as per schedule and is expected to come onstream by October 2022. Our South MDF CapEx has received all requisite approvals and the machinery has been ordered. We expect the facility to come onstream by second half of 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 58 days in Q1 FY '23, an improvement of about 5 days compared to last financial year. We remain a net cash positive company with net cash position of INR 184 crores as on 30th of June '22. Our Q1 FY '23 ROCE stood at a healthy 29.36%. With this, I welcome you again all to this conference call. We open the conference to questions and answers. Thank you.

[Operator Instructions] We have the first question from the line of Rahul Agarwal from InCred Capital.

Congratulations on a very good set of results, sir. Sir, 2 questions and 1 clarification. Firstly, on the ply gross margins, they're still look depressed at 28% and you've already taken price hikes in 1Q. Would that be sufficient for us to go back on a normalized level?

You see the price hikes have been 2 reasons. One is the timber price hike, so that actually we have already factored in our price increase. And because we took it a little later, it is there is always a lag, so we increased the prices by 2% to 3% but the gain in that quarter may be even less than 1% on the whole. So the whole effect will actually come in this quarter. So that is the first thing. Second price hike is because of phenol. So phenol, yes, we expect phenol to again come down very soon because everything -- all the such products in the world are coming down -- they gradually are coming down. So that we have not taken. We expect that due to leverage of our production quantity and the price coming down, we will be able to take it forward and attain our original EBITDA of 13% to 14%.

You also mentioned some upfronting of A&P spend for plywood. Could you please quantify that? How much was that?

That actually, we had announced in the last quarter also that this year, we are going very aggressive as far as advertisement and promotion is concerned. So we have taken a very heavy budget. And most probably the large part of it has been spent on [indiscernible] that's why the first quarter actually be the biggest brand as far as plywood advertisement and promotion is concerned. So that itself -- that one single item is actually costing 1.5% extra over and above the normal spend actually. So we expect that all these things will normalize in times to come.

Got it, sir. Second question was on MDF and particle board. Now obviously, we have recorded operating margin of 35% plus. We all know that it will not sustain here. Going forward, it should come down. But what is going in their favor, what is going in their favor of these products today right now? Like how long do you think this is customary?

See, we have always maintained that our margin for MDF and particle board will be around 25%. But yes, because of certain factors, the markets are good, imports are not at all there, new products and capacities are not coming up so fast. So all those factors actually the markets are good so we are reaping the harvest actually at the moment. And we expect this to continue for at least a year. And we really don't know what will happen after year. And the second thing we have done is actually the product mix also what we are doing. About 70% of the particle board was being sold like pre-lam and rest of it as a pre-lam. Now we have decided to increase this pre-lam to over 85% to 90%. So that is also making a little bit of a difference. Even in MDF, you will see that [ 2 percentage point ]. So that also affects the margin positive.

Got it, sir. Got it. And lastly, one clarification on the Container Freight business. I thought the slump sale was earlier in November 21, when it was announced, it was about INR 52 crores. The press release yesterday, talked about [ INR 33 crores]. My sense is this slump, sir is done to Century Infra, which is 100% subsidiary. So the pricing really doesn't matter. But just wanted to understand why is the difference here?

You see we have 2 concerns there may be an impact of the income tax but keeping in that -- that in view, we have consulted with all the income tax consultants and chartered accountants and our auditor, and this is what is the best thing to do. So otherwise, we will come into net of some income tax. Why should -- when it is going to be -- it is going from one pocket to another pocket only of the same person?

We have the next question from the line of Praveen Sahay from Edelweiss Securities. Mr. Sahay we are unable to hear you.

Can you hear me?

Yes, Praveen.

So first question is related to the utilization export segment. How much is that and [indiscernible].

Actually your voice is not clear.

Am I clear now? Clear now?

Yes, please go ahead.

Yes. So my question is related to the utilization across the segment, especially the plywood and the MDF. Where we are in the utilization, can you give some numbers?

So capacity utilization in Q1 across product categories as under. Plywood is 82% versus 84% Q-o-Q. Laminate, 89% versus 97% Q-o-Q. MDF 98% was 97% Q-o-Q, and particle board is 120% versus 115% Q-o-Q.

And the next question is, as sir has said about the realization in the MDF, pre-lam MDF. So what's exactly the difference between the pre-lam MDF and the MDF realization?

What is the difference in realization is not there in my hand right now actually. But the profitability is better. And...

How much is that? Sorry.

Just a second. If I have that [indiscernible]. So the realization is plain MDF realization is [ 31,000 ] which is per cubic meter. And the pre-lam MDF is 44,000. But in MDF, the pre-lam sense is only up to 20%. In particle board, it is very high. Most of the particle board is sold as pre-lam actually.

Okay. Okay. And the last question related to the raw materials, as you had said that the timber sizes is still continuing on the higher side. So do you expect price increase in this quarter as well, second quarter?

The price increase in the timber we have already passed on -- the total [ have already ] passed on. The effect has not come in until now because there is -- there is a lag in making up the mind and passing it on to the market, there's always a lag. And we -- and after that, the timber prices are stable now, which I spoke also in my speech. So I don't think that immediately, there will be an increase in timber prices. But historically, whenever there is a price increase in timber, we have very successfully and easily because the whole timber industry, whole plywood industry has affected. So it's passed on, sooner or later, there maybe be just some lag. It will be passed on. If there is any another increase, it will be passed on.

We have the next question from the line of Girish Choudhary from Spark Capital Advisors.

Firstly, can you share the reason for higher A&P spend, but would be helpful if you can share the exact quantum of A&P spend this quarter versus last quarter.

I can't hear clearly actually your voice. Can you please repeat the question?

Yes. Is this clear now?

Yes, better.

I was just wanting to know the exact quantum of the A&P spend this quarter versus last quarter.

And this is if that we would not like to disclose the exact quantum. However, as the MDF has already stated, there was a front-loading of A&P spend that took place in Q1 compared to the rest of the year.

And secondly, any thoughts on setting up or increasing particle board capacity?

Particle board capacity, you see we are yet to take a final decision on because we took a decision that we will be going in for multi-daylight [ portrays ]. And then there, again, in our mind it is still confused as to whether we should go for a continuous line. So still the debate is on technically and commercially, both and thus it is -- the debate is on, I hope we'll be able to decide within next 1, 1.5 months. But the decision of expansion is sure. The area is decided. But of course, the decision is a decision as long as it is not made, it is not made. Yes. And these decisions are actually very long-term, you see putting up a plant that will be affecting this company for the next 50 years. So there is no point in -- no problem in taking another 2 months or 3 months in taking such decisions.

Thank you. We have the next question from the line of Mr. Achal from JM Financial.

Yes. Thank you for the opportunity. Congratulations for the great numbers.

Thank you. Thank you.

What I wanted to check was in terms of the mix, is there any change in the mix Q-o-Q in the plywood business in terms of the premium and Sainik and Sainik MR?

These is what happened. April was normal. June was normal. May, I think, whole country all the products were little affected even plywood was affected in every way, but the numbers came back in the month of June. And again in July it seems to be normal. So yes, it was effective in May a little bit yes, we are back on track.

Right. But specifically in case of plywood is growth in the non-premium higher than the premium segment in terms of the volume growth?

Generally, you have seen that the premium segment growth is lower, the non-premium segment growth is quite high, and that is actually our decision and clarity of the market that the value of the market is where we have to -- we will be able to grow. The top [indiscernible] already filled in by 2, 3 people and none of us are going to relent our market share to anybody else. So the growth there is certainly lower. And the non-premium segment is growing faster and better.

Is it possible to share in terms of the mix? How was it for the first quarter?

Numbers right now is a little difficult. I think you can connect with Nehal later on maybe.

Sure. My second question was with respect to timber price, can you help us in terms of what is the extent of increase on a Y-o-Y basis for the plywood?

The core prices went up by about 5% and which is about 50% or 52% of our plywood cost. So about the price increase was actually the cost increase [ I would say about 2% to 2.5% ] -- and that is what exactly is more than that only we have passed on.

The core timber price is up 5% Y-o-Y for first quarter FY '22?

[indiscernible] that is from [indiscernible].

Okay. But what about Y-o-Y, sir? How much would that be up?

That data is [indiscernible] .

Y-o-Y, we'll get back to you shortly, it's definitely higher but you can connect with Nehal and he will give you the data.

Got it. And just a question on the MDF industry. Obviously, at this point in time, things look great. But if you could help us in terms of what is the -- because we sense that the container freight rates have come down, imports are going up. So can you help us in terms of what is the landed price for import and how does it...

The freight in what rate for MDF particle board has gone down to [ USD 20, USD 23 ] about 3 years back. After that, right now, it is not less than $100 still. There is no chance of any import. A little bit here and there, people may still try and do, but there is no chance of any import at the moment. Especially particle board is absolutely zero. And for MDF, still there is no chance. And especially for the North India, so it's absolutely impossible because once you import and then you now carry forward to the North, it's an impossible task -- impossible thought, actually. And we believe that in times to come, we are becoming very efficient. We are becoming larger in our quantities, whether I expect India to export MDF in 2 years' time. By making some profit, not because that we have to just consume our capacities, but by making some profit, we will be able to export MDF in 2 years' time.

Right. Understood. And just another question with respect to that capacity. Can you help us understand is there any capacity addition, even in the smaller unorganized player segment as well?

There's always one or other, but I don't have the data at this moment. Every year one -- I think -- you see there is always, I think, one small manufacturer comes for every 1 year or 1.5 year, one small manufacturer comes up to maybe 200 cubic meter a day. Some large plants like our plant in South and our 400 cubic meter capacity in North then -- [indiscernible] is also, I think, expanding the capacity. But none of these capacities are due and before -- and next year. So we expect the market to grow by 20% every year in India. So yes, whenever a new capacity comes, there will be little bit of fight in the market. But it's not going to be a big deal because 20% growth in a particular segment is a huge growth actually. So if the present total sale is 5,000 cubic meters, you are already grown in a year by 1,000 cubic meter per day. So in next 2 years' time, I think market will be ready to absorb all the expansions [ which are coming ].

We have the next question from the line of Shrenik Bachhawat from LIC Mutual Fund.

Sir, my first question is regarding the demand scenario. So where are we seeing the demand -- strong demand from MDF is the metros or Tier 2 and below cities?

Actually, we really don't know this. What happens? Any company which of our size has really done quite well within the metros. So our expansion and our growth mostly comes from Tier 2, Tier 3. But is there really the Tier 2, Tier 3 growing more than the metro that I don't think I will be able to answer that question. But yes, as far as our company is concerned, we are growing much more in the Tier 2, Tier 3 at the moment. And that is where we are putting in our expansions for new areas, new towns, new people being hired out there, new dealers being appointed out there. So all those growth inputs are happening in Tier 2, Tier 3.

Sure, sir. And my second question, sir, could you throw some light on how is the unorganized ply sector performing as of now? And the strong volumes that we have delivered, is it the result of market share gains from the unorganized players or the industry is growing at this pace?

Again, you know I have always told that we do not have any reliable steady -- or reliable data. But if you see -- if you have achieved the INR 1,400 crore plywood and if you say that we are still a INR 20,000 crore market, then actually it's 7%. So certainly, our market share has grown and this market share mostly is growing in the non-premium segment. We can see the middle segment of Sainik. The premium segment is growing from whatever right now we were selling, I think we have grown in the last 2, 3 years, we have grown about 3% in that segment also. But the bigger gains, even in terms of the new dealer appointments, everything is happening more in the non-premium segment.

And sir, on the Ply and Laminate segment, we delivered very strong volume growth of around 10%, 12% on a 3-year CAGR basis. So can we take that as an assumption for the next 3 years for the Ply and Laminate segment that we can grow at 10% per CAGR for the next 3 years?

Laminate, we are putting up a plant in South. We have 2 responses coming up one after another [ 2 phases ]. And as far as plywood is concerned, actually, we believe that we can grow faster. We can grow more -- but maybe some mistakes on our part is keeping us, where we are actually that is how we feel. But yes, it's not an organized industry. It's not like cement or it's not like tiles where you get people who really know their businesses. Here, we are actually learning and growing and deciding new innovative ideas of selling and marketing and succeeding. So I believe that we have good possibility. Thank you.

We have the next question from the line of Sneha Talreja from Edelweiss.

Thanks a lot for the opportunity and congratulations, and congratulations sir on great set of numbers. Sir, while you mentioned that the industry scenario is, of course, not known and how much input would be there and how many capacities will be added in the MDF segment over the next 2 years. Just wanted to understand your vision, what is your target this particular time when you're coming up with such of a big capacity in MDF division both brownfield as well as greenfield? Any target utilization that you set yourself for first year, second year or third year [ operation ] or over the period of 2 to 3 years that you would like to mention?

So going forward, if you look at the past, we have been the fastest to utilize our capacities within the MDF for the particle board space. And I think that trend is likely to continue in the near future. Once our capacity is commenced, our target is that within the first 3 years, we'll reach 100% capacity utilization. So I think some of the breakup of that, the staggering of that could differ slightly based on when the plant comes online. But yes, within the first 3 years, we should be able to reach 100% capacity utilization.

That's similar to what you did in the past?

Yes.

And that's why maintaining our 25% plus margin guidance at this point of time?

Yes.

Okay. Understood. Also, I just wanted to understand the amount of price hikes that we've specifically taken only in Q1 FY '23 with regards to all the segments in case someone can help.

Price rise, actually, I spoke about the price rise let me -- I can repeat it. In Q1, we have taken plywood 2% in premium, 3% in Sainik PF and 7% in Sainik MR, Laminate we took 4% in 1 mm, 3% in 0.8 mm. MDF [indiscernible] particle board so two different, one thing for 5%, another is 4%.

We have the next question from the line of Jignesh Kanani from GMO.

Actually, plywood, we took around 3%, 3.5% price hike in the fourth quarter, I think out of 8% pricing we take out of -- in the entire year. And on the top you said that we would come 2.5%, 3% in the first quarter, maybe 1% maybe full impact of that. So almost 4% is price hike in the last 6 months. Despite that, our gross margin Q-o-Q has deteriorated by close to around 190 basis points. So product mix has deteriorated a lot in favor of economic segment or anything other which can probably impact the gross margin?

No, I explained, I think a little bit earlier, that 1.5% is actually because of [ price hike ].

But I'm saying in the fourth quarter, we had to in 3.5% price hike...

Nehal will explain this.

Yes. So sorry, Yes. So gross margins, yes, you're right, that has come down, but that's because of a couple of reasons. One is the lag effect of price increase. And second is, as [ MD ] said, in the month of May because of the slowness in the market, the mix was high towards the non-premium segment and which is what has driven gross margins down. But as we said, June has come back to normalcy, and so we expect the gross margin also to recover subsequently.

So you do not want to expect that product mix will continue to remain more towards the economic segment and hence, which will impact the gross margin structurally?

Sorry, can you repeat?

So you do not expect that product mix will continue to remain more in favor of the economic segment as the growth is more coming from that and which can structurally impact the gross margin?

You see the premium segment is not growing as fast as a non-premium segment and that has been the thing I think we have been telling from the very beginning. This is the belly of the market where actually about 40% of the market live actually. So I don't think -- yes, overall, if you can say that it will come down, but then you see our -- what we have told always that we will be trading between [ 3% to 13% to 14%, 13%, 15% ] total EBITDA margin that can have been seen. So.

So what I'm saying is the downside [ bridge ] to this margin band is more and more see plywood growth is coming from the economic segment?

But with that, you have to understand that by the better utilization of our machinery, our cost, everything is 50% or 55% or 60% is the cost of raw material. The rest of it is actually overhead. The more we sell actually the -- we will have more leverage as far as our profits are concerned. If you can grow more in premium, you don't need an accountant to tell us that, yes, we will get better profits but then to grow in that segment is not that much possible. Yes. The more important is that we don't go down in that segment. So for that, we have taken all our -- the incentive, increments there are lots applied if you don't sell the premium segment, automatically, the supply of non-premium segment gets stopped to that branch. Automatically, these people have to take care of it that they have no choice.

Secondly, on particle board. I think in MDF share, you mentioned that at least for 1 year margin, you may remain elevated then once the new capacity come margin might [ taper up to 25 ] kind of band. Have the demand supply scenario in particle board? Because I think no new capacity is coming as per our knowledge in the particle board. So to what level the margin can remain at a limited level?

You see particle board, small, small plants of the [ 100, 150 cubic meter ] keep on coming mostly [indiscernible] in North India or [indiscernible] so some of them are based upon [ sugarcane ] also. We are the one -- we are very seriously contemplating putting up either a [indiscernible] role manufacturing unit for maybe about 800 cubic meters a day or maybe another plant for 400 cubic meters a day, but we have not taken any decision till now. Presently, yes, the demand is good. That's why in Q1, we have been able to increase the prices to about 9%, which is actually a formidable, unthinkable kind of price rise within the quarter actually. So I don't see that there will be -- even going ahead, I tell you to import particle board because it is a cheaper product. The freight costs are much higher in percentage -- and I don't think the freight cost will go down to those $20, $25 in next 2, 3 years also? So I don't think particle board will be imported anymore in India.

So then margin will remain elevated 35% plus for the entire year, but maybe slightly more than...

I cannot say that -- I cannot say that. I will still maintain that we will do everything to manage the 25%. Everything else is actually we are [ reaping from harvest ] and let's enjoy it. Yes. And we have done some small, small things I told that pre-lam we are increasing the pre-lam things in the market, and we are also looking at selling most of it near our plant. So we are discouraging the sales away from our plants. So that is also increasing a little bit of profit. So all those things are going [ around continuously ].

We have the next question from the line of [ Alisha Mahawla ] from Envision Capital.

Sir, my question was with respect to particle board in the capacity. So you mentioned that you're already at about 120% capacity utilization. You're also -- you also believe that the margins will continue to sit at elevated level. There is no large capacity coming. The only I think other organized players will probably be getting capacity 2 to 3 years down the line. But yet we're not adding capacity in this segment. Can you please elaborate on the same? And it was part of the plan we [ choked out ] and we said that we want to double our revenues in about 5 years?

We have just mentioned that we are definitely going to go for expansion. It is just coming to a decision as to what unit we want to set up, whether continuous press or a multi [indiscernible] like press and you see these investments are not there for a year or 2 years. We sweat our assets for the next 20, 30 years. So I think another couple of months, you will definitely see a decision coming in the particle board segment as well.

And this will be a greenfield or a brownfield or that is what yet to be decided?

We will update you as and when we come to a final decision.

And there's also some capacity expansion for the plywood that has been planned?

Yes. That has more to do with the debottlenecking exercise. So as we said on the last call, our capacity now stands at [ 300,000 CBM ]. And this year, we -- with the kind of debottlenecking exercise we are going through, this capacity would increase to [ 330,000 ]. So straight away, we will have -- will add another 10% to the existing capacity plus we are utilizing almost our utilization levels are at 85%. So we have enough capacity for the next 2 years to service the market.

Sure. And just one last clarification again, based on the capacity utilization, it seems like any volume growth in this year will largely only be in the particle board -- sorry, in the ply or the laminate space because the other 2 segments currently seems to be almost completely utilized.

No, no, MDF, we are putting up that plant of 350 cubic meters, which will be online from September end or in October of this year. So I think we'll be able to utilize the capacity for last 4 months, at least for this year. So that will certainly give us some extra in MDF.

We have the next question from the line of Nikhil Agrawal from VT Capital.

Sir, just a couple of questions. Like, are you facing any kind of timber availability issues for plywood and MDF?

There is no timber availability issue at all. Yes, in last quarter, some of the prices of timber in North India, not in South India, North India increased a little bit which we have passed on. Right now, the prices are stable, even in North India or South India, both they are stable.

Okay. Good. And sir, like have timber prices for plywood increase or is it for MDF as well?

You see our -- it has increased for both -- because these are related in 1 area in [ Northern zone ], the prices have increased. So it has increased for MDF as well as plywood. In Southern India, for our particle board and plywood it has not increased.

Okay, sir. And so -- but we haven't taken any price hikes in the MDF segment. Any reason for that, like because the timber prices have increased, but we haven't taken any price hikes in MDF.

See, the region being maybe that these are -- for MDF, actually, this is not a very good season. That is #1 reason. So the decision for MDF to start even 2 months later. So before that to actually get into the market and try to fight it out is not so good. And I think we have compensated that increase by other ways of by increasing pre-lam, by increasing our capacity utilization, by lowering our cost -- other cost. So I think that -- and that is reflecting in our profit margins also. So we felt that it is not required to increase the prices of MDF, you see. See, the costlier you make that has been -- MDF has been taking away the market share from lower segment plywood. Lower segment plywood become cheaper than MDF then again, MDF will be replaced by plywood.

Sir, and just one clarification. Sir, have you -- has your plywood CapEx been delayed or anything? The plywood plant, which is coming in Punjab?

You see in India, today, everybody in the world is talking about China plus [ 1 theory ], that India is still unable to take the full advantage. The biggest issue in India is to get plants. There are many, many multinationals, I think, want to come to India, and they want to put up plants, manufacturing capabilities. But -- and we are also even being -- we are in Hoshiarpur, we already have a plant for our another plant, we are trying very hard to get the land. [ Twice ] already, we have paid advances and we have got that money back because you could take the deal to the same thing you have seen in our Andhra MDF plant also. The delay was only because of land, once we have got the land, we are moving very fast. The material orders have been finalized. Now the contractors have been finalized. All those things are moving quite fast. [indiscernible] are coming. So the land in India is a huge thing. It is not in our control. I see one single piece of land, you have to buy from 40, 50, 60 different owners. It's a huge.

Okay. So have you procured the land as of now or is it still in the...

No. No. No. Still in the process. And that's why what we have done is actually supposed to suffer, we have increased our capabilities increasing [ little bit ] in all our plants. We have debottlenecked the things and right now we have increased our capacity in our existing plant by 10%.

We have the next question from the line of Rajesh Kumar Ravi from HDFC Securities.

Yes. Sir, my question pertains to first on the laminate. Where is your capacity expansion coming up for you?

We have a capacity expansion that is coming up in South India. It is going to be [ fourth test ] expansion in 2 phases. Phase 1 will be 2 hot presses and Phase 2 will be 2 hot presses.

Okay. And location? Where in South? Is it finalized?

It is going to be alongside our MDF unit in the same [ compound ], which is in the Gopavaram District, Gopavaram region of Kadapa District in Andhra Pradesh.

So among the bigger capacities, you would be one of the -- maybe the only one with big capacities in South? Is that understanding right?

No, there are other players who have capacities in the South. But yes, we are coming up with a big capacity in the south.

Yes. I mean somewhat bigger capacity perspective, okay. And sir, on the particle board, could you let us know what capacities are coming up in India in the next 1, 2 years? By other players in the market?

There are a lot of small capacities that are coming from unorganized players. It is very difficult to quantify it because those decisions are very sporadic and that they buy secondhand plants, et cetera. But yes, there are 2 players who are planning to come up with continuous [ presses ], one being [ Merino Industries ] and second being Greenlam Industries. So these 2 are trying to come with continuous [ presses ] over the course of the next year to 2 years.

Okay. And what would be our -- Merino, what is the capacity they're adding, sir?

I'm not sure.

Okay. And in the laminate business, again, the margin this quarter and with the price hikes that we have taken, do you expect margins to remain strong so as we have seen in Q1?

I think laminates margins are going to be looking similar to or perhaps slightly higher than what they were in Q1.

We have the next question from the line of Rishab Bothra from Anand Rathi.

Basically 2 questions, 1 on the raw material side and the other [indiscernible] side. In raw materials, whom do we compete in terms of acquiring raw material? And how is the process like? Is it building? Is it international size given?

How -- which product are you talking, for MDF or plywood?

I mean the log side, I mean the...

Yes. But for MDF, if we are talking about MDF, then we are fighting with paper manufacturers actively. People like ITC or [ Bhadrachalam ], all those people who manufacture this [indiscernible]. So because the raw material is same and probably...

Same belt? They focus on the same belt, same region?

Because there are paper industries in North and there are paper industries in South. So the people in South procure from the South [indiscernible] and the North procure from the North [indiscernible]. And if you are talking of plywood, then we are competing only with other plywood manufacturers only because it require bigger girth, bigger diameter of the [indiscernible] which is -- which happens in maybe about 6 years or 6 to 7 years, and it becomes cost clear. So no other industry will be [indiscernible] the price but plywood can.

Okay. And how is the pricing derivement international pricing or auction pricing, how is it?

International pricing, actually, we have practically no competition because no logs are coming from anywhere in India now. Neither India is exporting anywhere except some decorative statues. So the decorative statues are not produced in India, except some [ teak ]. So there is no competition, so there is no knowledge also. No need or no knowledge.

And in terms of procurement in [ polymer ] slightly premium product. So are these specialized personal required to visit those forest or how is it? And how is the...

We have our buyer, people who understand this subject very well. So they keep on trading to Europe or America or South of America and -- we know who are the suppliers for which state is. So we keep regularly in touch and we make maybe 2 or 3 visits in a year to procure. So go personally, the buyer goes there, he personally passed his consignment, [ he notes ] around all the details and then it is imported.

And sir, on the [indiscernible] side, can you elaborate on the end who are buying our product, let's say, architect, contractor or is it home buyers or is it institutional buyers?

Which product are you talking again, different products are bought by different people? If plywood you are talking so plywood is bought by the consumer. Mostly by consumer and some for big projects like Parliament -- Indian Parliament is being done. So that plywood will be bought by a big contractor. If you are talking of MDF, MDF is bought by mostly original equipment OEMs, we call them OEMs like Godrej or [indiscernible] and there are thousands of them in the country now. So they are the people who buy particle board and MDF.

So our online retail furniture also your customer type of [indiscernible] and Urban Ladder or the [ IKEA ]?

They are big customers of ours.

Okay. So if some next quarter onward, if you could highlight what proportion of your sales is value-added and how much is this institutional buyers in different segments? I mean you can club it under one row item -- that is -- that would be helpful.

It is actually a business secret. So that data we would not want to discuss.

We have the next question from the line of Aasim Bharde.

Just one question from my side. Given the Q1 performance, would you want to update your volume expectations for FY '23 across segments compared to what we had said in Q4?

I think we maintain the same. I think Nehal can repeat it. Yes.

Yes. So we would reiterate our guidance, which you gave the call last time. So our endeavor is to grow by 20% plus for the company as a whole. For plywood, we expect 15% volume growth and 20% value growth. For laminate would be 15% volume and value. For MDF would be 20% plus volume and value. And for particle board would be 10% volume and 20% value. Having said that, yes, we have grown by 94% in the first quarter. So technically, that means we would grow by almost 7%, but our endeavor would still be to grow in double digits for the rest of the 3 quarters.

I think the 9-month volume expectation would be flattish across segments, if you just maintain your Q4 volume growth? That's -- that's what the question.

Exactly. So that is what I said because we have grown so well in first quarter, our endeavor is to grow by double digits going forward over the next 9 months.

[Operator Instructions] We have the next question from the line of Priyam Khimawat from [ ASK ] Investment Managers.

Two questions from my end. So firstly, on MDF, you alluded that despite the fall in container freight prices, imports are still not feasible and things look good for the next 2 years. But just hypothetically, if you were to take an import start coming in, will it impact the margins to the extent it did in last cycle or because of our various initiatives, like increasing share of pre-lam, et cetera, the impact would not be that much. Because when I look at some volume data, we sold around 20,000 CBM of pre-lam on an annual basis in FY '19 and '20. But now in just 1 quarter, we have sold around 10,000 CBM. So just wanted to understand this from your end.

You see, there is no chance of any import. Why I say because the cost of import, the only logistic cost is USD 100 which is very, very high with [ INR 8,000 ] only [ in terms of per CBM ] is only the import cost. But if you say that, yes, if it is imported, if it is imported, it will start impacting the MDF prices 2 things. If it is imported, that means it's feasible, that means it is coming at a price which is lower than the -- our prices. So the moment that happens, yes, our prices will have to go down a little bit to [ address ].

Okay. So even higher in MDF is impacted in a similar manner if imports start coming?

Very frankly, no. Because the imports are of only plain MDF and premium MDF is only because they are very specific, somebody 100 pieces, somebody wants 50 pieces of a particular color. But what happens, there are people who are only laminator. So they can fill in there. So once the plain MDF starts coming in, it is going to impact everything. But I don't see at all any possibility in near future, at least [indiscernible] rather more as far as logistic costs are concerned, the sitting across the world the way it has changed. I don't think it will settle down in less than next 2 to 3 years because the number of ships required to fill in the requirement is huge and those ships to really be made and put into service is a long-term task. It's not a small 1 year or 2 years.

Fair enough, sir. And for a brownfield of 400 CBM in North, we had earlier highlighted that margins might be slightly lower because we'll have to procure timber at higher levels due to some shortages. Any update on the same?

See, again, look, we expect the moment we go for a higher volume there may be any business should expect this but the way the markets are, maybe we should not -- maybe we will not have to compromise with our prices, but you don't know how the market reacts at that time. Even if it reacts maybe 1% or 2% here and there are already -- whatever we want to achieve is 25%, and you are already at 35%. So I don't think that is a need to worry.

My question was not in terms of selling price. It was more in terms of cost in terms of what we procure our timber.

Yes. But the moment -- you see the more the chances are actually because of the 300 CBM, there is a huge timber market. So that will not increase the prices of timber too much. In fact, it can impact the prices in the market of our finished product. Temporarily, I believe that, that is always usually a temporary thing when a new capacity comes in, the other players are also little doubtful. They want to secure their dealers and their share in the market. So everybody reacts a little bit by 1%, 0.5%, 2% here and there. But it settles down in 3 months to 6 months' time, it settles down and it's okay.

We have the next question from the line of [ Kushagra ] from Old Bridge Capital.

Just one question. So basically, related to your imports, if you remove the container freight cost, which has increased a lot, how competitive would be the prices of domestic players versus let's say import prices? And a related question is, you also made a remark that the Indian players are becoming more and more efficient, right? I just wanted to pick your thoughts on where is the better efficiency coming from? Because some of the largest players out there are basically 2x, 3x size in terms of MDF capacity is right there, right? So isn't the economies of scale better for outside players versus Indian players.

Yes. Yes. That is not a wrong thing at all. But then you see yesterday's manufacturer like green who was manufacturing maybe 500, 600 cubic meters or more. Today, we have a 1,000 cubic meter plant and if he might expand into another so he will be 2,000 cubic meter producer from 600 cubic meter is not it. Then because of these market conditions now, with cost of interest, with cost of operations, everything is now going to go down or has already gone down. So all these things are going to help us and the prices, the prices are not going to be the prices like earlier prices. The prices are higher in the market. So at that time maybe the imports were at [ $220 to $230 ] today, is not available at even [ $300 FOB ]. That's why I believe that both the sides will be becoming more efficient because our size is increasing. We are understanding the business much, much, much better. And I believe that the prices in the international market will not go down to that level. So both sides, we are going to have advantage.

Got it. And if we adjust for the container freight cost, what would be the difference between the prices?

I think container freight costs right now, I don't have the numbers, but -- at that time, say 3 years back, it used to be just USD 25 per cubic meter. And I think Keshav has some idea, Keshav can you please...

I think if you remove container freight then the cost of production for us would be very similar to international players. So we are definitely very competitive.

Ladies and gentlemen, due to time constraints, we will take one last question from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

Congratulations on the great performance.

Thank you.

So a few questions. Firstly, on the laminate capacity expansion, what will be the time line of this expansion that you highlighted?

So in laminate, there are 2 expansions that are taking place. The 1 press that we're adding in Kolkata, which would commence within the course of the next 2 quarters. So that is going to be a capacity expansion of 14% to 15%. Regarding the South capacity, we are expecting products to commence production by Q2 of next financial year.

Second question is on the -- has there been any price correction undertaken post the recent commodity cost correction in any of the product category?

What do you mean by correction? Lowering of the price?

Yes, yes.

We have increased prices in most of our items, except MDF. MDF we have not increased, it is stable. All other products we have taken in plywood, we have taken 2%, 3% and 7% for different products. In laminate also, we have taken 3% to 4%. In particle board, we have taken 9%.

Okay.

Yes, there is no lowering down until now. All these things will keep happening. And sometime in future, we will have to reduce the price at some time.

The other last question on the margin side. I think not taking a -- I don't know the exact margin, but what I wanted to understand is that on the current margin -- current quarter margin. If I have to look at it from the point of view of nonrecurring expenditure when is the nonrecurring from the point of view, probably 1 or 2 years' point of view. It will be largely the ad spends which are above normal? And is there a payment for consultancy BCG engagement that we used to do in this current quarter numbers?

Right now, BCG, we are doing -- most payment is from the decorative portion the laminate side is at most of the [ presence ]. We may engage in BCG in future for our things also, but then that will be again when they come. So when they come at that time, maybe there is some impact on the bottom line. But then we have seen and we are very, very convinced with the results. So that's a long-term gain only.

Sure. It's not a question about whether you're gaining any benefit or not. I understand you have gained the benefit, but just wanted to understand from the point of the normalized margins.

So Hrishikesh, just to end this conversation, you can safely assume INR 11 crores to INR 12 crores which was spent on behalf of additional brand spend and BCG, which adds up almost 1.5% of the total revenue which we posted in Q1.

Okay. So this is not -- I'm talking more from 1 or 2 years' perspective as and when BCG engagement ends and probably this A&P spend normally. So you have these levers internally from marketing point of view?

Yes. Absolutely.

Assuming this inflationary environment sustains.

Right. Right.

Ladies and gentlemen, that was the last question and we will now close the question queue. I would like to hand the floor back to the management for closing comments. Please go ahead.

Thank you. Thank you, ladies and gentlemen, for your questions and attending our Q1 call. We assure you that the management will be trying its best to do better and better in times to come. Thank you. See you during our next call after 3 months.

Thank you, members of the management. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.