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

Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of Century Plyboards India Limited hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital (India) Private Limited. Thank you, and over to you, Mr. Agarwal.

Thanks. Good afternoon, everyone. On behalf of PhillipCapital (India) Private Limited, I welcome you all to Century Plyboards India Limited Q4 FY '23 Earnings Conference Call. Today, we have with us senior management represented by Mr. Sajjan Bhajanka, Chairman; Mr. Sanjay Agarwal, MD and CEO; Mr. Keshav Bhajanka, Executive Director; Ms. Nikita Bansal, Executive Director; Mr. Arun Julasaria, Chief Financial Officer; and Mr. Nehal Shah, CSO and Head Investor Relations. I'll hand over the floor to the management for their opening remarks, post which we will open the floor for Q&A. Thanks, and over to you, sir.

Thank you, Deepakji. Thank you. And thank you for hosting this call also. Gentlemen, thank you, everyone, for taking your valuable time out for attending the Q4 FY '23 Century Plyboards Investor Conference Call. I am Sanjay Agarwal, MD of Century Plyboards India Limited. I have alongside me, Shri. Sajjan Bhajanka, Chairman; Mr. Keshav Bhajanka; and Ms. Nikita Bansal, Executive Director; Mr. Arun Julasaria, our CFO; and Mr. Nehal Shah, CSO and Head of Investor Relations. 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. Despite the challenging demand scenario and sustained inflationary environment, CPIL managed to achieve the highest-ever quarterly revenue of INR 962 crores, EBITDA of INR 176 crore, PAT of INR 113 crore for Q4 FY '23. Despite the sustained input cost pressure in timber prices in particular, CPIL's overall gross margins were higher by 220 bps on a quarter-on-quarter basis to 34.2%. The company's EBITDA margin too were higher by 340 bps quarter-on-quarter to 18.3%. The strong operational performance in Q4 was largely driven by plywood division, which registered strong volume uptake in premium segment, along with the semi segment, of course, thereby driving superior product mix and higher realization quarter-on-quarter. Our plywood and laminate segment revenue recorded 17.5% and 1.6% quarter-on-quarter growth, while MDF and particleboard segment revenue de-grew 3.5% and 3.3% quarter-on-quarter for the quarter. Despite the surging timber prices, plywood EBITDA margin improved 42 bps quarter-on-quarter largely driven by superior product mix quarter-on-quarter and operating leverage. Laminate margins, excluding BCG costs remained steady at 15.7% in Q4. While MDF margins gained 460 bps in Q4 driven by softening of chemical prices and ForEx gains. Particleboard margins were down 230 bps Q-on-Q, driven by higher timber prices and lower realizations. Timber prices continue to remain at elevated levels, while chemical prices, particularly phenol, melamine, UF resin have softened a bit in the last 3, 4 months and are likely to further soften in near-term. Price increase taken in Q3 FY '23 -- Q3 and Q4 FY '23. Plywood 2% price increase across all products, except Sainik in January '23, laminate mill, MDF particleboard mill. Our MDF brownfield expansion at Hoshiarpur commenced operation in March '23, and we expect the plant to see substantial ramp-up in production over the next 2 quarters. Our South MDF CapEx is running as per schedule and is expected to come on the stream in second half of FY '24. While our first stage of greenfield laminate manufacturing unit in AP is expected to become operational in October-November '23. The greenfield plywood project is likely to come on the stream by Q4 FY '24. The upcoming greenfield particleboard project in Chennai with a revised capacity of 800 CBM per annum with an investment outlay of INR 500 crore is expected to come on stream by Q4 FY '25. Our working capital stands reduced by 2 more days to 50 days in Q4 FY '23 on a sequential basis. FY '23 working capital days down to 53 days from 63 days in FY '22. We remain a net cash positive company with net cash position of INR 145 crore as on 31 March '23. Our Q4 ROC stood firm at 30.33%. Despite the challenging business environment, the segment-wise growth guidance is as follows: Plywood 13% volume and 15% value growth, Laminate 25% volume and value growth, MDF 30% volume and value growth, particleboard flat volume or maybe some de-growth in revenue. We maintain our near-term margin guidance for our business segment [indiscernible] Plywood 12% to 14%, Laminate 12% to 14%, MDF 20% to 25%, particleboard 20%. Thank you, ladies and gentlemen. I now open the floor for question-and-answer.

[Operator Instructions] The first question is from the line of Pranav from Equirus Securities.

Congratulations on very good set of numbers. Sir, I just wanted to understand on the plywood side. So what drove the growth in plywood? And are we actually seeing market share gain coming in plywood, let's say, from the unorganized side? And even on the realization front, you have performed well in the segment. So if you can throw some light on how the premium plywood had performed? That was my first question.

Yes. Thank you, and I'll answer this question. So see, plywood, the growth that has come has come because of the growth that we've been driving in Sainik as well as in Century. We said it in the past as well that both products will continue to grow. And Sainik, the growth will be faster because there is explain in a larger market because it's the belly is about 40% to 45% were [ Mixpac ], which is between INR 80 to INR 100 ply, where essentially plays in a smaller market. So -- but both will continue to grow. We have been doing various strategies over the past few years. And in Q4, definitely, we saw this all these strategies finally coming to [ fruition ] and we saw good performance. And we hope -- to continue with this performance even in this year, but definitely not with the type of growth that we saw between Q3 to Q4, that was a very big jump because overall, Q3 is a lower quarter for us because of festivities, et cetera, everything. So yes, I hope I have answered your question. And in terms of EBITDA, because -- to realize that our fixed costs remain the same. And because we did exponential sales, we were able to give a very good EBITDA for this quarter, but it is not a sustainable EBITDA because seasonality comes into play. And we continue to maintain that we are going to try and deliver 12% to 14% EBITDA. So the -- as you know, the product mix of premium has improved in Q4, we hope that this continues even this year.

Okay. And then my second question was related to laminate. So what kind of strategic level changes you are making in laminates, let's say, in order to grab the incremental market share? And are you also looking at now going after export opportunity as well?

Definitely. In laminates, you had a very tough year. And this has enabled us to introspect and look at what are the growth levers that we should be activating. So we have already, as you correctly mentioned out, looked at a huge export market, which we are not catering to due to a lack of sizes and we have taken the decision to go for 2 new sizes, 14x6 and 10x4. These larger size presses will be commissioned along with our which Andhra unit which is going to add to our overall turnover and export substantially. Alongside that, in the domestic market, we are seeing the strength that our Sainik brand has got to plywood and the fact that it has catered to the belly of the market. Similarly, in Laminates, we are now launching -- or we have earlier launched in this month launched Sainik laminates. And we are sure this will be a growth lever for us going forward. Alongside the same, we are also launching our new catalog next month, which is going to be industry first and has a number of innovations. So all of these put together, we are confident of robust growth for the current year.

Sure, sir. And sir, my last question was related to MDF. So what gives you the confidence that you'll be able to grow at 30% on volume and value in FY '24? So basically, some import challenges are impacting the industry, though the overall consumption continues to remain good. But the 30% kind of volume growth implies that you are expecting some market share gain. So if you can throw some light on how this how this volume...

Yes, yes. You see, you have seen that in the last 6 months, the international prices have come down, and the particleboard industry has been badly affected. The particleboard prices have gone down. So you have seen the impact in the results also. But there has not been any change as far as MDF industry is concerned. The prices have gone down, but the MDF industry in India has not buzzed even 1%. The only change, I believe, is actually in times to come, our product has already come into the market -- our expanded capacity. Green plywoods, new capacity has come into production. I think, by July or by August, I think [indiscernible] plant will come into production. And there may be 1-or-so, I think some small plants also will come into production. So all these are going to throw a challenge, but because we have the capacity and the market is growing by 25% per annum. So that is where actually -- because we have the capacity, everybody else does not have the capacity available to them. So that is why I believe that we will be able to grow by 30%. And look, I expect that by the end of this year, financial year, we will be able to utilize the full expanded capacity, but the average capacity utilization, I think, will be giving us this growth of around, say, 30%. We are quite confident. Otherwise, you see we are a person -- you have seen that we are really not very too [indiscernible] person. We are quite conservative in our approach usually. About this, I believe that, yes, we will be able to maybe in some quarter here or there that might happen. But yes, we will.

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

Congratulations for a good set. I think those panels were going through a bad phase, plywood performance actually gives a lot of motivation.

Thank you. Thank you. Yes.

Firstly, one clarification on plywood, so there is no capacity increase done in fourth quarter, right?

You see, we have been continuously improving our processes and few bad machines in our existing plants, and that's how we still have capacities available in our existing plants. But yes, now a big expansion in Hoshiarpur has been taken. And presently, also, we have some capacity. Even for this year, we are absolutely ready, whatever growth is coming we are ready with that capacity within our existing plants. This is a continuous -- you know plywood is not a very capital-intensive project. So this is continuously going on projects in our company. This investments, probably we, at times, we do not even plan in a big way and some small machine or some compensating machines installed in plants and we get that benefit.

So what I wanted to understand is the explanation given for plywood performance was more because of the sales mix was more from a demand perspective, was more because you were pretty strategic in terms of balancing out Century and Sainik both put together. So I'm assuming that the capacity what you had at the start of January was not higher than what you had in 3Q, right? And so the entire volume growth, whatever we have seen has come from organic, and there is no debottlenecking capacity addition has happened in plywood. Is that correct?

Yes. So even if you see in Q3, we were not at 100% capacity utilization. So we have capacity that is already installed, which we are utilizing. We also have a very strong SPM, which enables us to be able to cater to such spikes in demand. So because of that, we did not have an issue with respect to capacity, we are definitely taking expansion within our existing plants right now, we are taking for expansion example, our Chennai plant is going through a massive expansion, which will be probably ready by the end of this year. Hoshiarpur is a complete new setup that we are having. So yes, I don't think -- you can say capacity remains the same. Utilization has improved.

Got it. And on the price hike, you mentioned 2% from January except Sainik and I think...

No. Actually, that was a mistake. Sainik also went through a price increase. Sainik went through equal price increase as Century.

I thought last quarter, you guys mentioned 4% in January for Sainik MR, that was only in South India, isn't that correct?

South India, there was -- so there are 2 products in Sainik, one is Sainik 710, which is waterproof product; and then there is Sainik MR, which we outsource. So Sainik waterproof is in-house. So in January, we took a price increase in all our product range. In South, especially in the Q3, we had to take 1 because of raw material pressure that we faced, particularly in South. And in South, we have not taken a price increase since a very long time because South never came under a price pressure -- not had come in a price pressure last year massively. So we were able to balance out the pricing there.

It was my mistake, actually, what written here is very clear, Plywood 2% price increase across all products, except Sainik MR. That was my mistake that I did not read out the word MR. So that is how it got you confused.

No problem, sir. And lastly, on laminates, again, a clarification. So the Andhra first phase is going to be larger sizes more for exports. You mentioned about how you want to grow the volumes for next year. But just a clarification on the margins. Sir, you mentioned 12% to 14% is the band you look for fiscal '24, is that correct?

Yes. That is correct. You see, we're launching a second brand and initially, it will be ramped up to say, 1 lakh sheet-plus per month. There will be a lower margin in the Sainik brand. So for this year, our guidance was slightly lower. But this is short-term. I think for next year onwards, we'll again be back to the same 14% to 16% trajectory.

Perfect. Got it. And lastly, on the CapEx, there is some revision. So just to get this right, particleboard was early at 1,200 CVM, now it is 800, but the CapEx remains the same at INR 500 crores, is that correct?

Yes. The CapEx was INR 550 crores. You see in these plants, just by reducing the price slightly and [indiscernible] the price slightly, you will not get too much of an effect, but after a lot of discussion after the current inflation environment, after studying what the market requires, we have fixed the size of 800 cubic meters. We feel that this is going to be the best for us in the long-term.

[Operator Instructions] The next question is from the line of Venkatesh Balasubramaniam from Axis Capital.

Can I request you to repeat your guidance once again? I seem to have missed a few numbers. That is the first question. The second question is, can you give segment-wise what was your capacity at the end of FY '23?

Yes. So for the guidance, plywood, we're saying 13% volume growth and 15% value growth for the year. Laminate, 25% volume as well as value growth. MDF, 30% volume and value growth. Particleboard, flat volumes and a little bit of decline in revenue. And in terms of margins, we're guiding for 12% to 14% in Plywood and Laminate division, MDF 20% to 25% and Particleboard 20%.

Okay. Fine. The second thing was on the capacity which you have if you could just say what is the capacity at the end of FY '23? And what is the capacity increase you're expecting in FY '24 and '25 in each of the segments?

So FY '23, plywood capacity would be close to around 3,30,000 CBM. Laminate is 8.8 million sheets. MDF is 3,13,500 CBM and particleboard is 72,000 CBM.

MDF can you repeat, please?

3,13,500 CBM.

Okay. And particleboard, you mentioned...

72,000 CBM.

What is the increase which is happening in each of these segments over '24 and '25? That is the last question.

Yes. So '24, we'll have, as Nikita also said, we are having capacity enhancements in a few of our existing factories. So that will add up another close to 15,000, 20,000 CBM for the year. Then apart from that, we'll have the Hoshiarpur capacity, which will come in, which will show up 60,000 CBM for the year, which will come in by the end of this year. Laminate, the new press -- the new export press, which will come in, which will add another close to 8,55,000 sheets per annum. And MDF, as you know, the greenfield capacity will add another -- in South will add another 3,13,500 CBM in south of India.

The next question is from the line of Girish Choudhary from Avendus Stock.

Firstly, on the MDF, if you can give some color on the imports currently and in terms of price discounts the imports if one compares with organized players where are we? That is the first part of the question. Second part of the question is again on MDF, if I look at your guidance, the pricing assumption is essentially flattish for FY '24, but in light of the capacities which we have been talking of on imports how confident are you of maintaining our flat pricing?

Yes. So MDF, as far as the import is concerned, yes, about 20,000 cubic meters of MDF is getting imported, 20,000 to 30,000 cubic meter is getting imported in India right now. But you will see and whether we are also watching that there has not been any impact as far as the prices are concerned in the country, and there is not much of a pressure. So that's why we maintain that there will not be a price decline or price cuts as far as immediate market is concerned. But as and when the new plants will be coming up, our plant will come up, which may be the end of this year [indiscernible] plant will come up [ Greens plant ] has already come in. So all this will create some challenges. So we'll have to see how it goes. But I really don't see because this market is growing by 25% per annum and I really don't see big challenges. But yes, you are right in a way that, yes, there might be some challenges in the market. And we will decide as and when things comes. So this is as far as the MDF pricing is concerned. And yes, I understand very recently, the international prices have gone up by 7% again in last about a month's time. Your second question was?

So essentially on the pricing outlook only, but what we have already seen is that while some of the domestic organized in, including you have been able to maintain prices, but that has also come at the cost of volumes, right? We are seeing a lower volume trajectory for some of you. So -- but incrementally, like you said, you have 30% volume growth guidance, like some of the other companies also have a strong volume growth guidance. So beyond the point, just wanted to understand that at what point that pricing decision will have to...

See, as far as volume is concerned, I really don't see that in March there was an effect on volume. April is usually a month the whole year, people have worked in a April somehow and there is a psychological thing, all the salespeople, they relax themselves and they go and enjoy -- they do their annual meetings, et cetera. So all those things happen. So April maybe a little bit of a concern. Everywhere you can see in the whole industry, I think the same thing will happen. But in March, there was no volume issues. And in coming time, you see, I don't see because the most of the MDF manufactured in India is totally consumed in India. So I really don't see much of a problem as far as the volume is concerned. But yes, in a way, you are right, so much of capacity is coming, yes, there will be some challenges and challenges should be there, isn't it?

Fair enough. Secondly, I also see, just a clarification, that your MDF CapEx for the [ Southland ] has seen an increase of around INR 100-odd crores. So any reason for the same?

Yes. There are a couple of reasons for the same. First, of course, is the overall inflation environment, the cost of a number of commodities, steel, cement, et cetera, have gone up substantially. Secondly, we designed the unit so as to that a lot of economies of scale when the second line comes up. We have taken some costs in phase 1, which will reduce the cost of the second line as and when it comes up. So because of this, this cost has been front-loaded. But in the long-term, it will save us substantially when Line 2 comes up in Andhra.

The next question is from the line of Ritesh Shah from Investec.

Couple of questions. First is, sir, I just wanted to check on Sainik laminates. I think I believe it has been launched in a few markets. So how should we look at the positioning of this new brand? That's the first question.

So Sainik laminates, the thought process behind Sainik laminates with the tremendous success we have had in Sainik ply. Through Sainik ply, we have been able to enter the value of the market, so to speak, and gain volume traction in the category in which we were never present in plywood earlier. So Sainik laminates we've launched with the same objective. And I think the response has been fantastic, but we are taking it slow. As you correctly mentioned, we have been growing market by market. We have not done it in a full launch, so to speak. The reason behind this is we want to gradually scale up, and we want to ensure that there are no issues with regards to service, with regards to product, et cetera, et cetera. But I think towards the end of the year, you will see Sainik's value is [ getting up ] as far as laminates is concerned.

Sure. Would it be possible to provide some color from a pricing differential standpoint. And basically, like historically, we have seen Sainik ply do actually wonders for the company. So is the thought process something similar over here as well?

We are launching going in a slightly different module to the current module of Century laminates. So while that is more of a distribution this module, this will be [ pays ] more out of a dealer module. And the pricing will be very different because the margin structures are completely different. But I think that you can assume that there will be 10% to 15% pricing difference at the minimum.

Okay. This is helpful. And my second question is on CapEx. I think if you could detail a little more. You indicated like the CapEx has increased for the AP MDF plant from INR 600 crores to INR 700 crores. Is there some breakup which is possible? Or is it -- are we looking at the optionality like in phase of expansion, which is going to be far more? I'm just trying to understand it from a CapEx intensity on a per CBM basis as to makes sense of the increase in CapEx?

Definitely. So initially, we had planned for a [ shed ] that was somewhat smaller than when we went for the layout designing and we went for a reworking we saw that by increasing the shed area by close to 10%, 12%, we could save on 30% of overall shed area than Line 2. So because of this it was redesigned. If you look at the dispatch structure all this current shed of a Line 1 will take into account Line 2 comfortably as well. So we are looking at a cost saving in the long-term. But short-term for the same capacity that we have, there has been a cost [ exploration ].

Sure. And there has been a little bit of change in the particleboard CapEx as well from INR 5.5 billion to INR 5 billion. Any specific thoughts over there? That would be my last question.

Yes. In particleboard, see, you need to look at the availability of timber in any particular location. [indiscernible] and other capacity then this will lead to an issue for us in terms of timber availability and lead to a higher overall cost of production. As such, we optimize a vastly to 800 cubic meters. Of course, with this 800 cubic meters rated capacity, the objective will be to produce in excess of 900 and pass even reach 1,000. Regarding the CapEx, as I've already mentioned, due to the overall inflationary environment, the CapEx is higher, if the raw material prices had been lower as they were say earlier, 1, 1.5 years ago, the CapEx would have been limited to slightly lower, but we will be well within the overall approved budget of INR 550 crores.

[Operator Instructions] We have the next question from the line of Achal Lohade from JM Financial.

My question was on the MDF. Given the brownfield expansion is done, 313,500 capacity now for the full year in addition to the new greenfield. The 30% volume growth seems to be conservative. So does it mean that we're going to operate at 65%, 70% significantly below what we operated in, let's say, in third quarter or fourth quarter? And second question I had with respect to market. If you could give what was the FY '23 industry volume? When you talk about a 25%, 30% growth, if you could talk about industry volume as well. And apart from that, the 30% volume growth for MDF segment for FY '24 for us?

So I think, with regards to new capacity, you see any new capacity -- it's not very easy to do 100% within the virtue of operations itself. You're correct, you're looking at 65%, 70% utilization of the expanded capacity of the second line that is coming in, the first line will be continuing at 100%-plus. So overall, we will be consuming close to 50%, 60% of the expanded capacity plus 100% of the first capacity. And by next year, we should be looking at a far higher overall capacity utilization for both lines put together. Regarding the overall size of the market, I think Nehal can take it down.

Yes, the size of the MDF market by the time we ended the last year should be near to 2.5 million CBM.

And what would that be, Nehal, in FY '22?

That would have been close to 1.9 million CBM or so.

Got it. And this 2.5 million will include the imports or imports are in addition to this?

No, no, that will include imports as well.

Understood.

Which is not much because the imports came handy only after September onwards.

Right, right. Understood. And the second question I had was with respect to Sainik. Can you share some more sense in terms of the mix in terms of volume, value or the growth what you have seen in FY '23?

So this is a data we don't like to share. So yes, thank you for the question.

The next question is from the line of [ Kuber Chauhan ] from Anand Rathi.

Congratulations on good set of numbers. A couple of questions, though. I mean on a sequential basis, we have seen the MDF revenue has been declined, but on margin and if you look at margins, it has expanded. So what has led to that expansion? Because if we compare with our competitors, they have de-grown, right? So what is new to that expansion? And second is on the Andhra will be coming in second half of FY '24, which is this year, so what would be the utilization for that plant? And thirdly, what is your outlook on timber crisis right now? Because the competitors are saying that it will increase further. So how we are going to -- how we are looking at it and how we are going to mitigate it? Yes.