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

Good day, ladies and gentlemen. Welcome to the Century Plyboards India Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you. And over to you, sir.

Good afternoon, ladies and gentlemen. It's my pleasure to welcome you to this financial results conference call on behalf of Century Plyboards and SKP Securities. We have with us Mr. Sanjay Agarwal, Managing Director and CEO; along with Mr. Keshav Bhajanka, Executive Director; Nikita Bansal, Executive Director; and Mr. Arun Julasaria, Chief Financial Officer. We'll have the opening remarks from Mr. Sanjay Agarwal, followed by Q&A session. Thank you, and over to you Sanjayji.

Thank you, Navinji for hosting the con call for Century Plyboards. Good afternoon, friends. Thank you, everyone, for taking out your valuable time for attending the Q1 FY '24 investor conference call for Century Plyboards India Limited. I am Sanjay Agarwal, MD and CEO of the company. I have alongside with me, Sri Sajjan Bhajanka. Sajjan Bhajanka is not there. Mr. Keshav Bhajanka, Ms. Nikita Bansal, executive directors, and Mr. Arun Julasaria, CFO of the company. I presume that every one of you would've gone through our numbers in detail. Let still brief you on the key highlights for Q1 FY '24. Results for Q1 of FY '24 are in line with prevailing market scenario. On year-on-year basis, we could hold up our top line. Results are not comparable quarter-on-quarter basis as fourth quarter is typically best quarter. On year-on-year basis, the top line is almost maintained at INR 882.39 crore against INR 881.48 crore. Blended EBIDTA margin stood at 15.9% against 17.2%. Profit after tax was INR 84.11 crore against INR 96.47 crore. Despite difficult market situation plywood has done well with improvement in top line as well as EBIDTA margins. On year-on-year basis the top line improved from INR 474.75 crore to INR 488.57 crore and EBIDTA margins improved from 10.4% to 13.6%. With expected 6% to 7% volume and approximately 2.5% planned price hike, we expect 8% to 10% growth with sustained EBIDTA margin of 13% to 14% approximately, after taking care of increase in raw material prices. [indiscernible] Laminate for addressing need of high-end market we have partnered with celebrity designer Manish Malhotra and have launched new range designed by him. For economy market we have introduced Sainik Laminate. In current quarter we incurred expenses for launching these new ranges, benefits of which will come in coming quarters. While gross profit on year-on-year basis was almost flattish, the EBIDTA margins reduced from 13.4% to 10% mainly on account of aforesaid launching expenses. With introduction of new ranges for targeting specific new market segments, the overall performance of Laminate division will improve in coming quarters. We expect annual growth of 12% to 15% and EBIDTA margin in the range of 13% to 15%. On Y-o-Y basis, MDF revenue improved from INR 155.60 crore to INR 166.77 crore. And EBIDTA margins are reduced from 34.9% to 26.2%. The margins are reduced mainly due to increase in raw material prices, which could not be passed on. In order to improve profitability, company is focusing on value added products. The volume of premium MDF is planned to increase by 40%. We shall also be launching fire resistant MDF, which apart from all other features like borer proof, termite proof of premium MDF will be ultimate MDF in terms of quality and features. Our second line at Hoshiarpur is now stabilized. With aforesaid planning, we expect volume growth of 20% in coming quarters. With increased share of premium products margins are likely to remain stable and take care of further increase in cost. Particle Board is suffering both on revenue and profitability. On Y-o-Y basis revenue is down from INR 51.07 crore to INR 39.46 crore. And EBITA from 36.1% to 22.7%. We are trying to combat erosion in profitability caused by increase in raw material prices and market conditions. On Q-on-Q basis while revenue slightly increased from INR 37.25 crore to INR 39.46 crore, EBIDTA margins improved from 18.1% to 22.7%. We expect improvements both in revenue and margins in coming quarters. The scheme of hiving off of Logistic CFS Division to SPV is still to be finally approved by NCLT and hence effect of the scheme will be given once the scheme is approved. Scheme once approved will be retrospectively effective from appointed date 1st April, '22. With these remarks, I will open up to all the questions and answers to all the people online. Thank you.

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

Sir, 2 questions. Firstly, on the CapEx update. Could you update us on across your plants I think for plywood, there is a plant expected for in Northern India expansion plant and within South the Laminate and MDF, please. That's my first question.

So basically in Laminate in South India, they are slightly delayed. Our target was to complete the expansion in H1. But now it is looking more likely that we'll commission the line in Q3. And this is the reason why we have had to temper our growth projections in Laminates. For MDF, our objective was to have the plant operational by H2 of this year. We are more than on line with the same. So I think we have production, commercial production for the new MDF line in the South within this current financial year.

And for the ply expansion in Hoshiarpur?

Time line.

Hi, so the time line for that is probably by Q1 of next year we will be, right.

Okay. Okay. Got it. And MDF, Keshav, if you could just be more specific, like second half are we expecting it to happen in 3Q or 4Q?

I'm trying to get it operational as soon as possible. But yes, we should have it early Q2 -- Q4, sorry.

Okay. Got it. And secondly, on margins. So when I look at margins, ex laminates gross margins are down. I'm assuming this is largely on account of timber. And if I look at EBITDA margin, ex particle board, I think most of them are down. Laminate, as you explained, it's more because of one-off expenses this quarter, but just wanted to know will that sustain in terms of expenses, recurring expenses in the balance of the year on Laminate. And on plywood, full year, if you could help us with margin estimates across all segments, that will be really helpful.

Okay. So in Laminates, so you see the expenses are going to stay because we have created like the [indiscernible] and new brand in Sainik Laminates, which we have just launched. We have also launched a new catalogue with a lot of advertisement behind it with the tie-up with Manish Malhotra being the first such in the industry. But having said that, the volumes are going to be looking up going forward. And I'm sure that we will get back on track towards 13% to 15% EBITDA margin over the course of the year. In plywood we have guided for 13% to 15%, and I think we are very well on track.

And MDF and particle board?

In MDF and particle board, MDF we have guided that we should be at 25%. We have tempered it to 22%, 25%, but I think that we will be able to maintain the same. And in particle board, we have given a guidance of 20%, which we remain to achieve.

Get it. And if we can squeeze in just one small question on the demand, right? I mean, last we spoke on the earnings call of May, it looked like ply and laminates were all on okay. But what has really changed apart from timber going up? And I understand the delay in new expansion, but from the existing plants, purely from a demand perspective, what has really changed here? Demand overall, overall demand.

So basically, I think this interest rate increase, the series of interest rate increases have somewhere hit the ability to transform from a house to home. What I mean is real estate sales are good, but people are deferring the decision to do our houses perhaps because of the additional burden that increased interest rates is causing. And I think that has led to a little bit of the [indiscernible] that was there in the economy or in the real estate segment to go away as far as building material products are concerned. But I think this is a short-term phenomena. It should come back on track sooner rather than later.

We have our next question from the line of Achal Lohade from JM Financial.

Sorry if the question is repetitive. If I look at the last call, May 2023, mid-May actually, we were talking about, say, plywood, 13% volume growth, but now we're slashing it to 6% to 7%. So what I was trying to figure out is, is this the new guidance is going to the extreme conservativeness? That's why 6%, 7%? Otherwise, have things really materially changed in the last couple of months as much to have such a sharp cut in the volume growth guidance across the segments, actually?

So whenever we give guidance, we give a guidance of value. So when we've given the guidance of 14%, this time we are saying 10%, and that is for the overall year basis because of a mute Q1. But our efforts will be to achieve 13% because we are trying to make up the shortfall that we've had in Q1 compared to our expectations. I think we've done good in Q1. But to our expectations, we're far better. So in order to meet up those expectations, Q2, Q3, Q4 is going to help us bridge the gap. All endeavors are on, we already seeing positive signs, but we have to see how the rest of the year plays out. So in order to compensate the Q1, we have mentioned 10%, not 6% to 7%. I think 6% to 7% was in terms of volume plus values. If you combine that, it's 10%.

Yes, yes. So 6% to 7% is the current volume growth guidance for full year. While it was 13% in the last call, actually, for FY '24. So that's why I said substantial cut in the volume growth. If I look at laminate, we had talked about 25% volume growth. We have not given volume growth guidance, at least in the press release for laminates. That's the reason I'm asking. The same is the case with MDF, 30% to 17% volume growth, implied volume growth for FY '24. So I'm just trying to figure out, A, obviously you said that the first quarter performance is not as good as what you were expecting. But what I'm trying to understand is the underlying reasons why it is -- because in last few quarters we have done substantially -- a substantial performance compared to peers. So I'm just trying to figure out, was that due to certain levers which are kind of exhausted and that's why this seemed to be a new normal?

See, in Laminates, the basic reason for this lower guidance is because we have expected the new capacity to come on board a little earlier and that capacity has now been deferred. In MDF as well, the reason for the tempered expectation is because our line has taken a little longer to streamline. We have certain issues. But now the line is cleaner. So that has impacted and it has deferred our ability to look at higher sales because 1 quarter we have suffered. So I think this, the impact that you are talking about is predominantly due to the fact that, yes, there is a slight sluggishness, but our capacities have also gotten slightly deferred, which is hindering our growth. I don't think it is a systemic issue at all. I think it has more to do with individual instances.

And I will also tell you one more thing. I must assert that we had an excellent performance in the Q4. So once the performance is excellent and too good, everybody goes into a little bit of hibernation. So we took some time to recover. So I think we lost a lot in the month of April. But from now onwards, we have started giving us and we have really gained that. And I can see that the better [indiscernible]. So I am very clear that we will be able to recover. I think this quarter itself we should be able to recover whatever unit lost. So there is no [indiscernible] or any change in the story or [Foreign Language].

Momentum.

Any momentum downwards or something. But yes, the markets are a little tight and we are trying our best. But I'm sure we will be able to recover and go to whatever we have been thinking of so 13% growth. But 10% we are revising because the first quarter has really gone below our expectation.

Understood. And just specifically on plywood, since we have seen a low single-digit growth in terms of volume. Has the industry also seen or industries actually declined in terms of volume on a Y-o-Y basis, what's your --

Very frankly, there are no industry data. Whatever we are talking or anybody is talking [indiscernible] I don't think I would like to give you [indiscernible]. But our game is not to go by that. Our deal is basically to gain market share from the [indiscernible] actually we are working on that part itself actually. So I really don't see any big reason for any bid difference.

We have a next question from the line of Jojo Shaju from Alpha Invesco Research.

So my question is what has really changed in this particle board segment so that the biggest players are starting investing in this space? And seeing these investments happen, what is the outlook in terms of demand and supply in the near term and the long term?

I think particle board has been promising area for quite some time. However, the CapExs have been in the core [indiscernible], which are relatively more economical. And because of the same, it hasn't been highlighted too much. Now with continuous pressures being established by 3 players, earlier there was only 1 continuous stretch by a company called Associated Decor. I think it has been highlighted a little more. If you look at it, there is already substantial capacity. The reason for the continuous stresses is because they are more economical. The operating costs are far lower. The standing losses are lower and the ability to give different thicknesses and different sizes is far higher. So now with the increase in the organized market within particle board, the number of continuous presses are coming up, and we all see that this is going to be a product category which keeps growing going forward, especially with office furniture and commercial uses.

Okay. So my second question is like on the strategy part. You have mentioned that demand will be coming from the large furniture manufacturer. So when we are looking, the players like Merino, they have tied up with a larger furniture manufacturer. So what is your strategy specifically on this one? So is it any talks going on with the furniture manufacturers? And on products side, are you planning just for the plain particleboard or you're focusing more on value-added products?

In India, there is tremendous opportunity in all across. It is not just the large manufacturer. There are now a number of OEMs that are getting established and growing in size. Earlier, the scale of some of these manufacturers were far smaller. But today, they have grown substantially, and they act as good customers to us. So while we don't have a formal tie-up with any one large manufacturer per se, we are supplying to most of the large manufacturers pan India. As such, I think that going forward the demand for the product category is going to continue to rise. Our focus will of course be on premiumization, including prelaminated and other product categories. And we are actively exploring within the particle board space. So this is going to be our endeavor now and going ahead.

Okay. Okay. on Laminate segment, sir, what is the kind of growth you're expecting for mid- to long-term business? And any guidance on like a long-term sustainable margin you are expecting?

I think long-term margin, we have always stated as 14% to 16%. And going forward, you see this is a year of transformation because like I said, we have launched a new branded laminate category in the form of CenturyLaminates by Manish Malhotra. We have launched our economy range in the form of Sainik Laminates. We are about to launch our [indiscernible] range when the new [indiscernible], and we are about to launch a 10-feet tile which is more towards exports to Europe. So we are entering into a lot of diverse markets. It will take some to stabilize. But I'm very bullish on a robust growth for laminates going forward. Our attempt will be to achieve a 20% per CAGR as early as next year onwards.

We have our next question from the line of Aniket Kulkarni from BMSPL Capital.

Sir, a question regarding the overall industry supply in the MDF industry, right. So can you give an idea on how the supply is currently? And how much is going to come up in the next couple of years with all the players making addition capacity? So that is first question.

You are asking about the total capacity increase in India?

Yes, yes, India.

You see, there are a number of presses that are coming up. There are going to be smaller presses, [ multi-ply ] presses that are coming up [indiscernible] meaningful capacity is being added [indiscernible] has already commenced [indiscernible] new capacity. We are expanding with new capacity in the South. And Greenpanel is expanding with another capacity in their plant in Srikalahasti. So with all of these, the total capacity for MDF in India is like increased by more than 50% over the course of next year, 1.5 years. So I think that while this is a very steep increase in capacity, however the market has also grown. And as we have said a number of times before, setting up the capacity and utilizing that capacity are 2 different propositions. So we are confident that we'll be able to gain market share and ramp up our capacity utilization faster than others.

Okay. Okay. And second question. And secondly, can you -- is it possible to give any sort of data points as to what is the current demand and supply in terms of cubic meters, like what is the current situation right now as of today? And how will these figures be when the additional supply comes in, in the next couple of years? So can you, is it possible to give some data?

Are you asking for numbers for the whole India?

Yes. Yes. In terms of cubic meters.

You see this is an approximately, I don't have exact number, but approximately it is about 2.1 million cubic meter [indiscernible] capacity. And I think within next 1 year time, it will become about 3 million.

3 million, right?

Yes, about, from 2.1 million it will go to about 3 million, but these are not exact capacities, there will be a little bit of here and there, but yes that is what --

We have our next question from the line of Praveen Sahay from Prabhudas Lilladher.

The first question is related to the MDF. In the press release, you had mentioned about the volume of a premium MDF plan to increase by 40%. And I can see that's the --

There was a mistake actually, it is actually -- instead of [indiscernible] it should be 2. So there was a reading mistake actually. So presently we are at 34% premium for that, it is will go to 40%.

Okay. Okay. So actually 34% will increase to 40%. By when actually, sir? By this year?

Yes, yes, please --

Yes. So by when, sir, this 40% contribution from premium?

We have already started working on that. But then, yes, it's a journey, so I think we should be seeing this kind of result within a year's time. So it will go from 32% to maybe 33%, 34%, 35%, that is how high it will rise. But yes, we will try to reach 40% within a year's time.

Okay. The next question is related to the laminate. So can you quantify the expenses, what you had mentioned about the new launches. Due to new launches there is expenses and will lead to a correction in the margin in [ lam tan ]. So how much is that?

There are two type of expenses. The first expense is going to be in the form of new case spends, in the form of branding, in the form of advertisement. And the second is in terms of recurring expenses, such as teams, such as hiring additional space. So I would say that the onetime expenses would be the tune of INR 3 crore to INR 4 crores. However, most of this, even though this one-time is going to be repeated in the form of higher ad spend because in the last quarter we only advertised for about 15 days. This quarter onwards we're going to advertise for the entire quarter for the next 2 quarters. In terms of manpower spend, et cetera, I think it is going to be INR 1 crore, INR 1.5 crore which is going to be a recurring spend.

Okay. Just to add on this laminate business. I can see that the realization has also -- average realization has gone down. Any specific reason for that?

Yes. That's going to change in the product mix from domestic towards export and our export realizations are lower than our domestic realization. And there has been a fall in the overall realization. Going forward, as domestic gains more traction with the new catalog in the [indiscernible] range, I'm sure realization shall also continue to increase.

Currently what is the contribution of exports, sir?

Today the contribution of exports will be 30% plus.

We have our next question from the line of Keshav Lahoti from HDFC Securities.

Sir, if I see your presentation, I can see there is increase in partial board capacity of INR 550 crore. So this is the second quarter when the CapEx has increased for particle board, like last quarter you have decreased the capacity, but the CapEx has not decreased substantially. So what is the reason for that? Have the equipment costs increased substantially?

Your voice is not so clear. Could you use the phone directly?

Mr. Lahoti, please use your handset.

So I was asking on the particle both side. So again, we see a increase in our CapEx amount in this quarter also. So whether the equipment costs have again increased. This is the second quarter of increase.

So the earlier was an estimate, now this is a frozen cost. And yet due to the increase in euro, there have been certain exclusions in the price machinery. As you know, the currency rates have fluctuated and we are provisioning for a slight higher currency [indiscernible] compared to earlier.

Okay. Got it. Like we have used our plant proposition in laminate also the Sainik brand, whether same thing should be expect in MDF because the industry leader is planning to cut the prices by 5% to 10% on the OEM side by decreasing the raw material cost to you. So are we also have some strategy in place for that? Are you following? Or do we have plan for it?

Sorry, but your voice is not so clear. Could you repeat?

So my question is the industry leader is planning to cut the MDF price by 5% to 10% on an OEM side.

Industry leader means?

Of MDF, I mean Greenpanel. So changing the raw material --

I have not hear they are going to cut the price, I have not heard this still in the market [indiscernible] expect that they will cut the prices.

[indiscernible] cutting by 5% to 10%, what they mentioned that they will change their raw material compositions, accordingly the costs will reduce, so will their selling price. So they plan to maintain their margin. So are we also planning something, some similar strategy on that side?

Which is what I believe that they might have little more competition in the southern zone because [ Greenply ] has come up with this new plant. So they might have reduced some prices in the south, whereas we have not reduced any prices neither in north nor in south. And we are able to hold. As far as you are seeing the raw material mix change, frankly there is no miracle as far as raw material mix change is concerned. If it is 1 or 2 species of timber being used by all of us, and we all buy from the same market because none of us have our own plantation. We certainly help the agriculturists to plant more trees, but no one of us actually own any plantation because I don't think that there is any way of reducing the cost of raw materials. There is no other way. The only way is to reduce the density of the board. So it is possible that they are coming out with a new range which has a bit less density. So if you have a little lesser density in MDF board, the usage will change. So maybe we pull into certain uses, but it will not be useful into at least the furniture side of it or many other usage. So we will see when it will start, whenever it happens. But we are presently we do not have any plans to introduce any lighter MDF. At the moment we do not have. Because it is very difficult in a plant of that size to really reduce and have 2 or 3 types. You already have, you see the premium size and then we have the regular size. Now if you start manufacturing another, it will add to cost actually in a way because the production will reduce, we will have change more often. We will have to -- inventory will go up in all the different sizes and the type. So it is not necessary that the small change of change in density of say maybe 40, 50 kg will really reduce the cost.

Okay. Okay. Got it. One last question from my side. Have you seen any sign of demand revival in July or early August?

See, I think that demand is already revising a little bit, but we have -- still the rains are very, very heavy. So I believe that, yes, but the licensees happen [Foreign Language] [indiscernible] demand actually in these markets. And I believe in the month of -- by end of August or in the September it will actually be [indiscernible] demand actually. We are doing quite well.

We have our next question from the line of Raj Mehta from RoboCapital.in.

Yes, I just wanted to know that by when can we see your margin revival. Like, can I get any time line for the same?

Yes, can you please repeat?

Just my question is that when can we see the margin recovery by? Like can I get any early expectations that that the margin --

For which category? For which category --

Overall, overall strategy.

Because for plywood, like we said, we're already in line with 13%, 15%. In MDF our target is 25%, and we are there or a little higher. In Laminates, we have said that by the end of the year we should be at 13%, 15% again. And in particleboard, we're already doing 20% plus. So this is the guidance that we have given.

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

Sir, I wanted like to know about the -- if you could throw some light on the international MDF prices.

So international prices are down and India has started importing some quantity. I believe about 25,000 to 30,000 cubic meter of MDF is now coming into India for a month. But that happens mostly in the south region, that is why we in the North India is, we are not affected so much till now because international markets are not very good at the moment. [indiscernible] mostly because of the freight, the freight has really gone up and now the freight have already come down. So not really a big jump as far as the prices are concerned in the international market. They particularly are there where they used to be. The freight had gone up, now the freight has come down.

Okay. Sir, if I recall, in the last quarter you had mentioned that international prices were up by about 7% or something. It has gone up all of a sudden. So that --

See 5%, 7% here and there, I must say that 5%, 7% here and there but even 7% price rise is good. Maybe the import would have gone from 30,000 cubic meter to [indiscernible] gone up to that and then the 30,000 cubic meters, just 7% is nominal [indiscernible] as far as India is concerned.

So basically, whatever increase was there in that -- during that time, it has lapsed, it has come down to those previous levels, right?

Yes. But the 7% increase after the, even after the call, and that has been maintained in the international market. But the most of the quantity comes only into the Southern India because the local domestic transport cost from South India or West India to Northern India is very high. So that's why you can see -- we are still not affected at all.

Okay. Understood, sir. And also I think I missed out on the volume and the value growth, if you could repeat it or if you could just mention it again. What you --

For which category?

All categories for FY '24.

So [indiscernible] in plywood we're looking at a 10% growth in home ply value. In Laminate we'll be looking at a 13% growth. In MDF we will be looking at a 20% plus growth. And particle board we will be trying to maintain the same volumes as last year. Realizations could be slightly down due to the fact that we have taken a price correction.

Okay. 20% plus growth in MDF and 15% in Laminates, these are valued growth?

Yes.

Okay. And, sir, like lastly, I just wanted to understand, like now we have Greenply which has come up --

Laminate, like Laminate, 1 second, sorry. MDF 20% is volume growth. And Laminate also the 15% we're targeting is both value and volume.

Okay. So sir, like 25% to 15%, the decrease in the revision in the guidance is just because of the delay in the new capacity.

[indiscernible] there is a slight weakening in terms of the market scenario. It is not as robust as we had earlier expected and the first quarter has been a little weak. But it is mainly due to the deferment in the capacity addition.

Okay. And you maintain your margin guidance, right all across?

Yes.

Okay. Great. And sir, just one last question, if I may. Sir, now we have Greenply which has come up with their capacity. We have [ Action ] also coming up with the capacity. So of course there is some pressure on the supply, like there is an excess supply in the market. Do you feel the need to cut prices going forward?

I think at the end of it, a price war leads to a disaster for most of the players involved. And I think we have the strongest balance sheet in the [indiscernible] industry. So we are the ones [indiscernible]. But having said that, right now we are not really seeing too much of a threat. We will have to pay by the year and see how things continue. But setting up a capacity and utilizing a capacity are 2 separate things. The ability to reduce price is something that everyone has, but at the end of it, everyone needs to service that and again you should be profitable. So we will [indiscernible] year.

Okay. Because the feedback I got from the market was that Greenply, they are selling at about 4% to 5% lower than the normal prices by Century and Greenpanel.

So any newcomer will sell a little bit lower, that’s a very normal thing to do. Otherwise, they will not be able to make a mark within the market. But you see, we already have set buyers. We already have our set people in the team, in the market, the relationships, the brand, so everything matters. They will take their time. And once they reach there, they will also have to increase price. If they don't increase price, how will they maintain their EBITDA and profits. Initial time, everybody will do it. When we came into the market initially maybe we would also have sold, I don't remember now, but we must have sold 3% cheaper to everybody else at that time.

[Operator Instructions] We'll take our next question from the line of Udit Gajiwala from Yes Securities.

Sir, after last results on one of the interviews you were stating that you all are positive that there will be some countervailing duty on MDF, which might come in. Just wanted to check what are the current progress going on for the same?

There is no progress there in that [indiscernible] we are also not making much efforts about it in the quarter.

You got it?

Yes, we have actually got it approved from the Commerce Ministry and the proposal in lined with the [indiscernible] and if it happens, it happens, if it doesn’t, it doesn’t.

We have our next question from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

The first question is if you can help me with the outlook on timber cost, especially in Northern India. How do you see -- do you think because our press release does talk about, still talks about price hikes in -- so do you feel that it's just catching up with earlier timber cost?

Sorry, I didn't get your last part, sir, did you say catching up with --

The price hikes. So is it just catching up with the earlier in the sense covering of the earlier cost increase?

So actually around April there was a price drop in raw material cost. We were planning on price increase around them, but we delayed it because of the drop and the market wasn't favorable to take a price hike then. Price started rising from June, and it has massively gone up in July. Currently there's a lot of shortage of material. It is now -- a lot of material is also getting imported. So there is a dependency on import as well as domestic. So currently the next few months you'll see this happen particularly during rainy season. So we expect the next few months to continue like this, and we have already taken a price increase in July. And we are planning we will -- and it's not possible to take such large increases in one go. So we are dividing it into 1 or 2 parts. So we will take a second part of price increase also. But having said that, to answer your second question, we are only being able to take what is being increased. We are not being able to take more increase than what the raw material is increasing. That's pretty much matching up to the cost increases.

Yes, that's helpful. The second question is related to MDF. Now was our Hoshiarpur, the expanded capacity, was it fully available for this quarter? And where I'm coming from is the 6% volume growth seems tad lower if it was fully available and considering one of our closest comp, our largest payer was also under shutdown.

Hrishikesh, the capacity was not really up and running. We have faced certain challenges even though the first board was up a running last quarter itself, we have taken a little time to stabilize. You will see the benefit of that capacity from this quarter onwards.

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

Sir, just wanted to know the OEM mix in the MDF segment currently.

See, ultimately, all the premium products, the 34% we are talking is going directly to the consumer. And the rest of it is mostly going to OEM either directly or indirectly through the dealer. To tell you exactly is not possible because there is no study. But we know that [indiscernible]. So all the premium items that you buy now, every carpenter, every interior designer is using all these products and they are used [indiscernible].

Got it. Got it, sir. And sir, just to clarify again, you had mentioned that the international prices which had gone up earlier before the last call, that has held up till now, right?

They are mostly holding, yes.

[Operator Instructions] We'll take our next question from the line of Praveen Sahay from Prabhudas Lilladher.

So ma'am, can you quantify the timber price increase in the month of July?

One second. So it has gone up by around 5%, but we have also seen [indiscernible] costs going down. And timber cost is not the entire cost of the raw materials. So it's about 50% of our total raw material costs. And there are other costs also.

Okay. And is there any -- we did any import as well --

Yes. We did. We are about importing -- hello? Yes, sorry, I don't have the exact figure, but we can get back to you on it. But we started importing in the last few months.

Okay. Next question is related to the commercial veneer. So what exactly happened there because in the plywood section, the commercial new section we are seeing down in the volume, so.

So the thing is earlier we used to run the commercial veneer as a segment. We used to actually sell it to a lot of vendors across and manufacturers across India. Since the last few years, and we have repeated this on previous con calls as well, that now this business is only to feed our plywood business. So that is why we club it more under the plywood segment because it is more for the raw material and the security of that a material is why we are still into this. So we only sell the lower grade ones out into the market. The rest is all [indiscernible].

Okay. Okay. And last one on the MDF. So the growth guidance for FY '24 hasn't reduced because of the delay in the plant but by the next year we will start with the south plant. So we will see a strong growth in the MDF the way forward, the '25 onwards?

See, this year we have given a growth of 20%, and I'm sure we will be able to achieve it. Next year when the plant comes in, I think the production should come by the beginning of Q4. And by the time we stabilize, we can really make a big impact in the market. It will be this financial year. And yes, once it comes into production, it will give a very big boost to us because right now house is not our market. We try to sell the minimum possible because it costs us to fill into the house market. Green has reduced maybe some prices and we still sell at our prices, at our higher prices. Whatever small we can sell. Next year then we will be in competition in south and we will take it head on. Yes, it is going to make a big difference. And you will be able to export from south also. So that will also add to the growth. Exports may not have much profitability, but it will still be a contributor.

So export right now is there in the MDF right now?

Yes, yes. Green family, we still export --

No, no, for you, for Century.

We don’t export. We don't, no, we don’t -- we cannot export. This is from north plant, it is impossible to export. It is impossible for an importer to actually bring imports and take it to North India. They cannot compete with us. And similarly, we cannot actually export because of the domestic transport cost.

Yes, sir, related question, sir, in the south you are coming up with the plant in the fourth quarter. So have you explored the export market where you are going to go with the south plant, which locations?

See, actually export is not our target. Yes, we have explored the market. We are already in the process of setting up our team and meeting customers and all that are certainly going on because the plant will be in production very soon as for us. But actually, export is not our target. Our target is to consume the whole production within India, which will take some time. So only for that period we will be exporting.

We have our next question from the line of Harsh Shah from Dalal & Broacha Stock Broking.

So I have just one question. So as you said that both the industries, particleboard and MDF will be growing. So what gives you the confidence that in the next couple of years, both of these plants that you have set up would be utilized optimally? And so where I'm coming from is that, I wanted to understand whether any sort of cannibalization that might take place because the applications of both the particleboard and MDF are not much different. So if you could kind of give some sort of a color on it.

So, you see, one, the reason that we are so confident is because we have successfully been able to ramp up our capacity in the past. As you have seen, we have struggled in the last couple of years because of the lack of capacity. We've been running at 100%. And going forward, the demand scenario in India remains robust. If you look at [indiscernible] yes, for wood panel industry right now the demand might not be great, but the scale of residential real estate and real estate in general gives us a lot of confidence. And the cycle is not about to turn [indiscernible]. Secondly, MDF and particleboard, the usages are different. Today, particleboard the majority of usage is for commercial purposes. You will see office furniture being made majorly from particleboard. Whereas residential furniture and other residential users, high end offices and other such usages use MDF. So both of these have distinct markets and both the market are growing. And cannibalization does take place, but actually MDF and particleboard are cannibalizing the lowest end of plywood rather than each other. Earlier, for both those purposes people are using cheap [indiscernible] plywood which is low in quality, but that was the only option available. Now MDF and particle board are giving people options at lower price points and better quality.

Yes. And one related question, so what would be the market size of the lowest end of plywood.

We say that 70% of the plywood industry is unorganized. And considering that the industry is anywhere between INR 20,000 crores to INR 25,000 crores, that gives you a huge figure for the lower [indiscernible]. It can be anywhere within that INR 15,000 crore to INR 17,000 crore.

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

So my first question pertains to the particleboard. Could you let us know what is the total market size and then consumption market size and how much of this is being met through imports currently, particleboard?

We don’t have the data on our side now, but our CFO will get back to you with the data.

Okay. Sure. Because the import numbers that we track from the government websites, they are hardly any numbers. And given the recent inflows, even that number when it increase, that led to a correction in the domestic prices and margins for place because you are the only player which is reporting particleboard numbers. And there we saw the margin softening. So there was a concern like big CapEx from 3 players, yourself, Merino and then Greenpanel. So how would this lead to the margin and the return ratios for the project that you are -- major CapEx that you're doing. So that was the thought. And second, in the MDF side --

Let me answer your particleboard first. You see, you must have read in newspapers that government of India has been considering to bring CLI in [indiscernible]. They have not yet approved, they are thinking because they know furniture is the next big possibility from India. After China and maybe after Vietnam probably, India can become the third or fourth largest exporters of furniture in times to come. So all the exports which will happen will be using mostly either MDF or particleboard. So whatever capacities we are building up, we know that even if the PLI does not come, India had hardly, if I talk say, 5 years back, there may be only 50 or 100 OEMs in the countries [indiscernible]. Today, if you see, there may be more than some 2,500 or 3,000 OEMs are there across the country. And we expect that this 2,000 or 3,000 will go to 5,000 in next 4 to 5 years' time actually. So there will be no [indiscernible] as far as consumption is concerned. Yes particleboard is the [indiscernible] imported, even exported some particleboard and without any losses and particularly the similar kind of prices to neighboring countries, even that is also happening. And not too much of capacity is coming, only just 2 or 3 manufacturers are adding up. So in the next 2 years' time or maybe maximum 2.5 years' time, we will see that all these will start getting consumed. Not very huge capacity is not really coming.

Because what we understand that in this segment, there are multiple small, small players and none of the existing players are around more than 5%, 6% of the total market size. Is this understanding correct?

You see, there are [indiscernible], but the costing of the smaller payer as far as the operating costs are concerned, are about 8% to 10% higher than us. So when the competition start maybe we are investing a little higher, but the operating costs are much lower as far as the glue is concerned or timber consumption is concerned or whether the [indiscernible] are concerned. So all those are actually -- they cannot control. And in these automatic plants, they are controlled very, very finely. So ultimately there is the -- the quality, the overall quality of the product is also different. So if a OEM is going to export their product, they will have to buy from automatic plants then.

We'll take our last question from the line of Sneha Talreja from Edelweiss Securities.

Just 2 questions. I'm sorry if I may be repetitive here. Just would you like to understand the time line for the particle board unit? And secondly, in the laminates division, of course you spent a lot because of the new launches. So what would be [indiscernible] one-off and what could be the normalized level of margins here?

Hi, Sneha. So, Sneha, as I have already stated in the Laminate division, a part of the expense is one thing, but it will be replicated by higher advertisement costs. And the second part in terms of manpower cost is going to be repetitive. So the advantage you gain over time is going to be in the form of higher volumes, higher turnovers, and that will help offset these costs. For particleboard, we are expecting commercial production within FY '25. Obviously towards the end of FY '23 but within FY '25 nonetheless.

So I just wanted to understand the one-off expenses here. I know you said it's partially repetitive and partial one-off. But still what would that be in-between?

Close to INR 4 crores as launch cost towards Sainik, towards the Manish Malhotra branded new catalog and towards foraying to exports in new geography.

And rest of that increase would be employee cost.

Yes.

So friends, while I'm quite excited about the new things being done in Laminate division and I'm sure this year will belong to our Laminate division. Thank you so much for joining us on this call and taking your time for listening to us and asking all the questions. Looking forward to see you next time for our Q2 earnings call. Thank you.

Thank you very much. On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.

Thank you.