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

Ladies and gentlemen, good day and welcome to Century Plyboards (India) Limited Q2 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, MD and CEO; along with Mr. Keshav Bhajanka, executive director; Mrs. Nikita Bansal, executive director; and Mr. Arun Julasaria, Chief Financial Officer. Kindly note that, during the course of this discussion, there may be certain forward-looking statements which must be viewed in conjunction with the risks that the company faces. We'll have the opening remarks from Mr. Keshav Bhajanka, followed by a Q&A session. Thank you. And over to you, Keshav.

Good afternoon, friends. First and foremost, I wish you a very happy Dipawali. Thank you, everyone, for taking out your valuable time for attending the Q2 FY '24 Investor Conference Call for Century Plyboards (India) Limited. I am Keshav Bhajanka, executive director. And I have alongside me Mr. Sanjay Agarwal, MD and CEO; Mrs. Nikita Bansal, executive director; and Mr. Arun Julasaria, CFO of the company. I presume that every one of you would have gone through our numbers in detail. Let me still brief you on the highlights for Q2 FY '24. The financial results for the second quarter have surpassed the previous quarter both in terms of revenue and profit despite a very challenging market situation and an upward trend in prices for key raw materials. Going forward, we expect to continue to upscale our revenue and profit growth. On Y-o-Y basis, the top line increased to INR 987.9 crores, against INR 900.2 crores. Blended EBITDA margins stood at 15.1%, against 13.7%. And profit after tax was INR 90.33 crores, against INR 76.22 crores last year. Despite difficult market situation, plywood has done well with improvements in top line as well as EBITDA margin. On Y-o-Y basis, the top line improved from INR 487 crores to INR 541 crores. And EBITDA margins improved from 4.3% to 13.5%. We continue to maintain our previous guidelines of overall 10% revenue growth and sustained EBITDA margin of 13% to 14% for the second half of the year. In laminate, for addressing the need of the high-end market, we've partnered with celebrity designer Mr. Manish Malhotra and have launched a new range designed by him. For the economy market, we have introduced Sainik Laminates, buoyed by the huge success that we have received in Sainik plywood. In the current quarter, we had revenue growth of almost 10% over the previous quarter. EBITDA margins also slightly improved to 11.7%. With introduction of the new ranges for targeting specific market segments, the overall performance of the laminate division will improve in the coming quarters. We expect to maintain quarter-on-quarter double-digit growth and improve EBITDA margins [ directionally ], year-on-year double-digit growth and improve EBITDA margins. On Y-o-Y basis, MDF revenue improved from INR 156 crores to INR 196 crores, and EBITDA margins are increased from 25.2% to 26.5%. The EBITDA margins for the current quarter included [ INR 7.5 crores ] on account of arrears for electricity subsidy. After taking out the effect of this [ INR 7.5 crores ], EBITDA margins were 23%. Our second line at Hoshiarpur is now stabilized. With the aforesaid planning, we revise our growth target to 25% for the second half of the year. With increased share of premium products, margins are likely to remain stable or continuing in line with our guidance of 25%. Particle board is suffering both on revenue and profitability. On Y-o-Y basis, revenue is down from INR 47 crores to INR 38 crores, and EBITDA from 28.5% to 22.6%. We are trying to combat erosion in profitability caused by increase in raw material prices. On quarter-on-quarter basis, while revenue slightly decreased from INR 39 crores to INR 38 crores, EBITDA margins were flattish. We expect to maintain revenue and margins in coming quarters along the lines of what we achieved in Q2. The scheme of hiving off of logistics division to our SPV is approved by NCLT, and certified copy of order is awaited. On filing of certified copy of order with the Registrar of Companies, the scheme will be retrospectively effective from appointment date, 1st April 2022. The ongoing project of MDF and laminate at Andhra Pradesh will commence operations within the current financial year. With these remarks, I will open up to all the questions. Thank you so much.

[Operator Instructions] First question is from the line of Abhishek from DSP.

Sir, just a couple of questions in terms of the plywood part of it while you have seen decent volume growth, if you can help us understand. Is it because of better demand, or is it market share gain? And also if you can touch upon the trend in the underlying timber prices.

Yes. So actually, with respect to if you saw Q1, I think the growth was muted because the market was muted. So there was definitely recovery of market in Q2 as well as our -- we immediately made some corrections in June, [ et cetera, everything ], where we were facing some degrowth in certain branches. Or we weren't growing as per our expectation in certain products, so even the strategy, that helped us recover. That is why we were at 11% growth [ YTD ]. So I think it's both demand as well as some level of market share, but like we said in previous calls, it's very difficult for me to say or quantify the market share gain, et cetera because data in plywood industry is almost difficult to capture. So yes. And as far the timber prices go: So Q2 saw a major rise in timber. Because of that, we even started importing coal. In fact, our long-term plan is that we will probably import [ 50% ] of our coal requirement from other countries like Brazil, et cetera, but we were able to do it quickly. And that has also helped us actually ensure that the rates of coal does not increase massively. And in Q3, coal rates have started falling in India. So I think that is where the timber prices lie today.

So Nikita, just on the timber prices, 3Q would have seen something like a 3% to 5% correction. Would that be a fair estimate? Or is the quantum higher already in 3Q?

In Q2 -- sorry. Did you say Q2 or Q3? I missed that.

Q3. You mentioned Q2 was increased, but you substituted it by import. But 3Q, I thought [ you mentioned that ] you have seen already some price decline, so I just wanted to understand...

So it's been about INR 0.05. In terms of percentage, INR 0.05, almost [ INR 2 is 2%, 3% ], yes.

2% [indiscernible].

Yes, yes.

Okay, okay. That's helpful. Just coming on to the MDF part of it, if you can just help us understand in terms of you've increased your overall top line volume growth guidance to about 25%; just in terms of how is Hoshiarpur shaping up, overall demand-supply economics. And the margin deterioration ex of the electricity charges that we have seen, how should we look at it given that timber prices are beginning to kind of correct?

So basically, as we have stated earlier, as you know, we will ramp up capacity utilization relatively faster. And we have received a very good response from the market from our second line. Earlier, as you are very well aware, that we were facing demand overrun and we had a supply shortage -- so now that has been addressed, and we are slowly being able to gain our market share. Now I think that, going forward, even without the electricity subsidy, we will be able to maintain margins closer to the tune of 25% [ due to ] operating leverage. However, having said that, raw material price increases remain a concern, although they have [ flashed for ] over the course of the current quarter.

Okay, but like how you're seeing, in case of plywood, some correction. What about MDF? Is something that also on cards over the next second half -- or how should we look at it for the MDF part of the business?

There is no meaningful correction, but we are hopeful that it has plateaued out now.

Okay, okay. And just one last thing, on the MDF part given the overall new supply that we are seeing being put up by our peers, how is the competitive landscape in terms of the underlying price scenario, as far as MDF is concerned?

I think the competitive landscape has been intensive and will continue to remain intense with the new capacities coming in. However, I think we are well placed by virtue of our brand, by virtue of our efficiency in terms of both production and sales, so I think that, going forward, we shall be able to scale up faster than the industry. And we are eagerly looking forward to our Andhra plant commencing operations over the course of the next quarter. We should get the benefit of the same over the course of the next financial year.

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

If you can help me understand this increase in inventory. It pertains to which segment? And when should we expect normalization? Your fair bit of cash generation is impacted because of this inventory increase.

If you look at it, the raw material inventory has actually come down from Q1 to Q2. And finished goods inventory has come down as well, so what part of inventory are you referring to?

I'm referring to cash statement, cash flow. So there's an increase in inventory that is getting reflected in cash flow statement...

That [ will be related ] to the total turnover, right, because our turnover has also increased compared to last quarter. So if you look at inventory days, we have actually reduced inventory days.

Okay, okay, okay. And the second question is on particle board new CapEx. Now one of your peers, rather new entrant, Greenlam, has recently increased the CapEx for this particle board from 600-odd crore to 770 crore, but their capacity is more or less at the same level, 2,35,000, 2,40,000 CBM. In our presentation, we have maintained at that, so we are fairly confident that we will be able to execute at 550-odd crore CapEx this entire particle board capacity.

I think that it will be unfair of me to comment on the competition, but if you look at the way that -- commodity prices that are very relevant for any new CapEx in our industry, [ such as ] steel and others, the peak, hopefully, is behind us. And we have faced increase in the CapEx for another project because of the timing of the project, so to speak, so I am hopeful that, yes, we will be in line with our guidance. We see no shocks as of now. We'll be very happy to...

Sure, yes, [ no shocks from you ]. I have -- about -- we only have more concern about your project...

Of course, but I wanted you to also know that the Chennai project is proceeding very well. And we will, hopefully, begin sooner than expected.

Next question is from the line of Rahul Agarwal from InCred Capital.

Keshav, first question was on MDF and particle board actually for South India plants. Given this raw material problem and availability and pricing for large capacities which we are setting it up, could you just give us some sense on how have you tied up on raw material sourcing and pricing, let's say, for 12 months or 24 months? What are outlook you can share, please?

Sure, sure. I think that, if you look, raw material in India, it is not really very possible at this point in time to go to your own plantation, but what we are doing is we are rapidly promoting plantation in the districts adjoining to our plants. So if you look at Kadapa District, we have already started distribution of saplings. And going forward, we are educating farmers. Due to the higher raw material prices, agroforestry actually becomes a much more viable alternative. You can imagine like earlier when the price of timber was INR 2.5 in Punjab when we were starting. And today, the price of timber has shot to INR 6 plus. The remuneration for the farmers has drastically changed, so I think that the supply is going to catch up with the lag. In the short term, there will be challenges, but like I've stated a number of times earlier, we are the most efficient executor, whether it be production or sales, in this industry, so that bodes well for us.

So should I assume that, once these plants start, let's say, around [ fourth ] quarter of this year, 12 months from there, the availability of raw material should suffice and we should not face any supply problem? Is that taken care of?

Yes. I think it is more a question of price than availability because the demand in -- sorry. The supply is ramping up very fast. You will see that, in the short term, there will be spike, but that spike [ is required ]. We need to promote agroforestry. And the best way -- because no matter how much you subsidize, no matter what rate you [ give saplings for ], even if companies start getting more fertilizer, the end result has to be a sale, that the farmer makes a lucrative income. So at the current raw material prices, agroforestry is increasing, which is a very positive step for the long term. And we are hoping that, yes, it stays, it does not increase too much, but I'm hoping that timber prices don't reduce much further also.

Got it. Second question was again on MDF, the subsidy of -- on electricity. Is this a recurring thing? How does this really work for the plant?

Yes, it is a recurring thing, but now we will get it in bill. What we have gotten till now has been the arrears since the plant started, till now. So that is a onetime payment, but now this amount will come to us in bill, so it will not come as an exceptional item. It is going to reflect in the form of a lower [indiscernible].

I get it. So annually, this number should be like -- does it really distort the EBITDA margins, what you report? Or is -- it's...

[indiscernible]. It's a 6 years accumulated subsidy, so annually, it is not going to be so meaningful. You can calculate 7.5 x 6. So it's about [ 1.25 crores, 1.5 crores ] a year, so it is not going to be too meaningful. Yes, the quantum will increase a little bit while production goes up, but it's not going to be disproportionate. It's not going to be like some 3 crores, 4 crores a year or something.

Got it. Then it should be fine. And just one small question to Arun-ji, on other expenses: The quarter number looks like 200 crores, but does it include any onetime expenses here?

Basically, increase is on account of spending in advertisement. Now we are on movie theaters also, so we're spending there also. Apart from this, in this quarter, we settled a contingent liability. In fact, there was a case going on [ investment of government for entry test which was import in ] [indiscernible]. So our total liability on that account was 14-point-some crore, and after adding interest and penalty to that, it will have gone around 30 crore, 35 crore. So [ spending of ] government came out with an active scheme whereby they offered a very lucrative scheme that [ covered the interest for ] the penalty, just paid 50% of original demand and settled it. So we paid around 7.5 crores on that account, so that is included in this expenditure. [ So in the ] account of this onetime effect plus increased spending [ over the current revenue ].

[Operator Instructions] Next question is from the line of Sneha Talreja from Nuvama.

Congratulations on strong set of numbers. A couple of questions, sir. Firstly, what's changed between Q1 to Q2? The reason I'm asking is, Q1, you decided to downgrade the guidance for MDF division to around 20% and this quarter with stability coming back. And of course, that we have seen strong quarter with respect to demand and volumes, you again decided to upgrade the MDF guidance, so what has changed between Q2 and Q1?

Sneha, we are a conservative company, as you are well aware, and we believe that we should give bad news at the earliest. However, at this time, we believe that we'll be able to definitely overachieve this 25% and [ revision in guidance ]. Nothing has changed very meaningfully, but to be honest: We were fairly confident that the ramp-up will take place Q1 despite a slightly -- hence, we have revised the guidance. Now we realize that, that was actually just a one-off 1-quarter exercise, so we believe that, for the second half of the year, 25% is realistically possible. And hence, we're [ all the way to the same ].

So second half, 25% growth in both the quarters is easily possible is what you are guiding for.

I won't say easy, but yes, it's possible.

Understood. Secondly, I wanted to understand. Even in the plywood division, you're seeing 10% sort of a volume growth. Was that expected? Or were we expecting to see it -- because I was reading my earlier notes, and we were anticipating most of the demand to come in post Diwali. And surprisingly, it's 10% growth now, so was this expected? Or has it come meaningfully early?

We are targeting 10% revenue growth. It's not volume growth. I would request Nikita to clarify.

So the thing is, if you see, that Q1 was little muted, so that was unexpected for us. We have to recover that. Definitely, we didn't know how markets will behave. If we really see -- last quarter, we actually reduced our overall revenue growth expectations on plywood. And that was because of the muted Q1, but [ if you see ], the recovery is good and because of which -- and if you see historically -- I mean this was pre-COVID times. If you really go back to pre-COVID times, Q2 has always been a strong quarter. It's only during these COVID years is where things changed a little bit and you had different quarters wherein -- the volume better than [ even ] Q2, but historically, Q2 has always been a very strong quarter. And Q4 is definitely one of our best quarters [ that we've remained for years ]. I hope I've answered your question.

Understood. Sir, lastly, on your other expenses where you've seen ad spends have increased. How much, sir, was the ad spend this particular quarter's as a percentage of sales versus last year same quarter and last quarter? And also was there any one-off in the laminates division as well, like with related to marketing expenses, which you've done additionally this quarter?

I think we have invested in marketing [ fairly ] over quite some time now. I don't have the exact figures with me, but I'd request CFO to get back to you. And in laminates, no, there is no major one-off, but we have increased our ad spend in line with the launches that we have done.

That's all right. And ad spend for the quarter, percentage terms...

I would request the CFO to get back to you on that with the details offline.

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

One question, Keshav, was on the container freight business. So where are we in terms of divestment? I understand the demerger approvals. The EBITDA number for the quarter also looks distorted at 1 crore. Could you explain that as well as the direction in terms of how we should think about the divestment and getting the balance sheet delevered, please?

I think it is one-off arrears for rental that we have paid. I'll request CFO to explain that later, but as far as [ divestment is concerned ], our objective will always be to maximize value for our shareholders, so at this point in time, considering the current performance of the division, we are not going to get [ a pound of flesh ] if we go for a divestment. We are waiting to start with the [ port ] operations, which as you know is going to add tremendous value both in terms of top line and bottom line to the segment. And then once we get a correct pricing for the division, a correct value for the division, then we'll look at divestment. So it is taking slightly longer than expected to get capacity operational, but once that happens, I'm sure that we will be looking at a lucrative payoff from the division. I'll request CFO to please explain the onetime revenue accrued payment -- the rent accrued payment.

In fact, in this quarter, [indiscernible] sometimes, port will increase rents retrospectively also, so...

Sir, I'm sorry, but I'm not able to hear you clearly. Could you pardon me, please?

Can you hear now...

Yes, this is better, a bit better.

Yes. In fact, in this quarter, we have paid INR 3 crores around additional [ fees from ] Kolkata port authority which relates to earlier years. Port have revised the rent [ of the land ] they have given to us retrospectively and we had to pay it.

Okay, okay, I get it. Second question was on laminate realizations. I think there is some decline quarter-on-quarter basis. What could be a reason for that?

The reason is that in our premium product segment we have been unable to grow. And we have, at the same time, increased sales of the lower segment, so we are trying to arrest this as early as H2 itself with the new catalog launch and with the launch of Sainik Laminates. As you know, Sainik Laminates has a far higher price point [ in 0.8 mm and lower ] category. We should be able to post a higher realization in the current quarter and beyond.

Got it. So it should basically recover back in second half, right?

It will recover. Whether it recovers back to last year levels or not, it could take a little longer.

Got it. Should we worry about the same thing for plywood? Because even Sainik plywood, I hear -- obviously everybody knows. It's done very well, but I also hear Club Prime sales, the severe amount of down trading there. And that sales for Century, a few dealers also tell me that they're down like 15%, 20%. Any truth to that? And would -- should we also worry about plywood margins? I know you've guided for second half, so I take that guidance...

I would like -- I would request Nikita to take this over. I think the noise is around the rest of the industry reducing in terms of realizations, but I'm very happy to mention that, year-on-year and quarter-on-quarter, our realization is actually up. But I will just request Nikita to take this, please.

So see. In the past, we've always said that the growth in Sainik will be far higher than the growth in the premium segment. Having said that, our endeavor is always to grow. I don't think -- I'm sure you might be hearing this from other companies, or seeing, but we are not -- there is no degrowth. See. There is growth, but growth is definitely not as high as when we compare it to Sainik, so at the end, my job is to ensure that our average realization keeps increasing and our EBITDA is maintained. I think that is what we've been delivering quarter-on-quarter, so I don't think -- I do not see that as a problem even in the future.

In fact, if you look at it from FY '20, '21 onwards, in plywood, our realization has steadily gone up year after year. Today, it stands at about 53,900; and it was 47,000 in 2020, '21.

Next question is from the line of [ Keshav Bijayratan Lahoti ] from HDFC Securities.

Sir, congratulation on decent performance. I just want to know whether you want to change anything on the guidance side of volume growth and EBITDA margin, especially on the laminate segment.

In the second half of the year, the objective in the laminate segment will be to achieve double-digit-plus growth. And we are going to try to hit our guidance of 13% to 15%. So currently, that is the visibility that we have. For the rest of the divisions, I think we have already given our guidance both in terms of revenue and in terms of EBITDA. If you'd like me to recap the same, I can.

Okay. So laminate, for the first half, margin is something like 10%. So you plan to end the year by 13% to 15% margin as per your guidance.

No. I plan to do 13% to 15% margin in H2.

Okay, you're talking about H2, got it, sir.

Yes.

So why haven't we seen the recovery in laminate segment margin yet. Like it's still like 11%, so -- and how is the...

We have launched...

Have you seen any increase in sale in Sainik Laminates sale?

Your voice is a little unclear. Could you just repeat the last part again?

Just wanted to get a sense about the Sainik Laminates sales. So have -- any meaningful things happening on that side? And why is your margin still a bit subpar in this quarter also, like 11%? We do understand Q1 was like a one-off quarter, but still margin has not picked up in Q2.

So I think our -- because we've launched our new catalog, [ whereas we ] have launched [ new slots ]. Sainik Laminates, like we have mentioned, was launched very recently. So these take some time to stabilize. Due to that, our margin will be affected. Last quarter also, it was affected. Even during current quarter's, our guidance is 13% to 15%. Now once we scale up, once the new catalog is fully accepted, once we see that spike in sales and once we look at a better contribution from Sainik as well -- because right now Sainik [ panes ] has been launched only in the West and North predominantly and maybe one part of the South. So we haven't rolled it out nationally. We are going conservative with it because we don't want it to impact our [ higher-income ] Century laminates. So because of these two, I think, as we scale up across the new 1 mm catalog and in Sainik, you will see margin recovery being better. Alongside the same, next year, once we have the benefit of our Andhra capacity, exports should also scale up rapidly, so medium term, I'm very bullish that margins and turnover is going to grow up -- go up [ swiftly ], but yes, short term, there have been challenges. And next 2 quarters, we'll see recovery but not in the pace at which we had thought it could be.

Understood. Got it. Sir, I just want to understand one thing, your particle board CapEx which has increased during the last 2 quarters. So how will the return ratios look in particle board? And what is your assessment of particle board industry size? And how much is the import in this industry...

Your voice is very unclear. Could you please just come closer to the microphone or something? Because there's a lot of static. I can't hear you properly.

Is it better now?

Yes, slightly better.

Yes. So I just want to understand. The particle board CapEx has increased for you not this but initially in the last 2 quarters, so how will the return ratios look in this segment? And what is the revenue potential of this segment? And in your assessment, what is the industry size? And how much is the import in this industry? Because it's a very CapEx-heavy business.

Okay. So I think in particle board we should be able to do 1:1 in terms of asset turnover ratio based on the current realizations that we have. In any of our new investments, our objective is always to deliver 20%-plus ROCE, and the particle board plant is no different. In the new capacity as well, we will definitely attempt to deliver 20%-plus ROCE.

Okay. So what's the industry size and import in the industry?

I think CFO can connect with you and give you those details offline. I don't have the data on me.

Okay, got it. One last question from my side: What was the capacity utilization of Hoshiarpur plant in this quarter, and the exit rate?

See. We are at 25,000 plus in terms of -- 25,000 cubic meters in terms of total capacity, so I think we would be close to 70% utilization as of the previous quarter. And going forward, our objective is to hit 80% plus over the course of H2.

Next question is from the line of Nikhil Agrawal from VT Capital.

Sir, if you could help me with the volume, value and margin guidance for FY '24 and '25. I think I missed it.

'24, '25, we haven't given guidance yet, [ but ] our objective has been to maintain margin alongside 13% to 15% for plywood and for laminates and 20% for particle board, 25% for MDF. Our overall objective will always be to attempt to hit a 20% run rate of growth [ for the company ].

All right. Sir, this is, this was for FY '25, right?

Yes.

Yes. For FY '24...

I have already given the guidance for '24. Would you like me to recap...

Yes, yes. I mean that, yes.

Okay. So for H2, our guidance is that we will be doing -- the H1 numbers are already with you. H2, we will be looking at doing a 13% to 15% EBITDA in plywood with a double-digit growth. In laminates, we will be looking at a double-digit growth; and moving back towards a 13%, 15% EBITDA. In MDF, we'll be attempting to maintain 25%-plus EBITDA with a 25% growth. And in particle board, results are likely to be similar to the previous quarter, where we have had 20% plus in terms of EBITDA and where volumes have been around 18,000 for the quarter.

All right. And sir, any -- is there any revision in the CapEx or, like, CapEx plans or anything? You had a laminates plant which is supposed to come up in Q3, in Andhra at least, so is that on track? Or is there any other...

Yes. I have already mentioned -- as I've already mentioned, we are hopeful that laminate will commence production within this quarter itself. And the MDF capacity in Andhra will commence production from next quarter.

All right. And sir, lastly, on the BIS norms which are kicking in, in the -- for MDF imports -- for MDF as a whole. So do we see anything major on this front? Like will it have some major impacts on imports? Or is it -- will it be negligible?

I think in, any form of professionalization of the industry, whether it's in terms of BIS or earlier [ where the GST was being ] introduced, it's always going to be beneficial for players such as ourselves, so while the proofs of the pudding is in eating, I'm hopeful that, yes, definitely it will help domestic manufacturers.

Next question is from the line of Bhavin Rupani from Investec.

My first question is related to laminates. Sir, how should one understand the pricing and margins of Sainik Laminates versus our existing [ blended ] pricing and margins?

The pricing of Sainik Laminates is higher than our existing [ blended ] pricing. And the margin for Sainik laminate: You see. Any new product, when it is introduced, takes time to scale up. Once Sainik Laminates scales up, I think the EBITDA margin should be along the lines or slightly better than our overall EBITDA margins.

Okay. And sir, how do you intend to grow this? And I mean what percentage of sales it could be 1 or 2 years down the line.

You see our objective will always be to grow both Century laminates and Sainik Laminates at double digits. Having said that, I think that for Sainik Laminates it is reasonable to understand that we will be at least 40% in terms of the volume of Century laminates over the course of the next 2 to 3 years.

Sir, did I hear it correct? You said 40% in next 2 to 3 years.

40% of the sales volume of Century laminates 1 mm, yes.

Got it, got it. Also, sir, if you could specify similar thing for the laminates designed by Manish Malhotra. What will be the pricing and margins over there?

Manish Malhotra, the objective is to elevate the brand. The pricing is substantially higher, but as you know, we do not normally give out any volume guidelines per product category.

All right, okay. And sir, next question is related to MDF. So your MDF margins per CBM have declined 6% after adjusting for the one-offs. 6% year-on-year is what I'm telling. However, when we look at the margins of competitors, it has declined quite sharply. Could it be due to better pricing in North India and possible raw material cost differential in North versus South India?

Unfortunately, I don't comment on competitor activity, but like I said, our objective will be to maintain 25% of EBITDA margins at the 25% growth.

Okay. So sir, is it possible for you to specify, what is the pricing differential in North India and South India, on both the realization and the raw material cost pricing?

The raw material cost pricing in South India would be anywhere between INR 4 to INR 4.5 per kg, whereas in North India it is INR 6.5 flat. And the realization in South India would also be lower than North India, but I don't have exact numbers on me right now. I would request the CFO to share the numbers or provide it offline. As the CFO has indicated, he will provide to you offline.

All right. And sir, last question is the existing CapEx that we are doing. Do we have any state incentive or central incentives for any of our projects?

Yes, we do.

Can you quantify it, sir?

We have -- state incentive is for the Andhra Pradesh project, where we have electricity subsidy; where we have a transportation subsidy, although [ the common trade ]; and where we have [ perceived landed potential ] cost.

Is it possible to quantify, sir?

I think CFO can, again, share those details with you. I don't have it with me offhand.

Next question is from the line of Amit Purohit from Elara Capital.

I wanted to understand about your carpentry loyalty program, how many additions of carpenters you will have done. And how does it work? I mean, last FY, '23, what will be the addition? And first half. If you could tell me what is the base...

Because of competitive reasons, we don't share this data, unfortunately. It is a trade secret and it is a big asset that we have, so we don't share any data on this program, but what I can tell you is it's growing from strength to strength.

10%, okay. And would you be able to share at least...

No, no, no, strength to strength. I cannot share percentages, unfortunately. It is growing from strength to strength.

Sorry. So just wanted to know: What would be the spend on loyalty, [ say, probably ] last year? And what would be the -- in first half? Is that possible to share?

Again, we don't share any data on this. And you understand why, but having said that, despite this, our margin profile continues to remain robust. And the guidance remains unchanged.

Okay. And second question, on just laminates. I mean, if I look at last 5 years, our capacity expansion in laminates has been lower than when I compare it with the -- any other segments that we have. And now we endeavor to actually get into this, launching the Sainik Laminates; and also drive the premium segment as well, so any capacity plans would be there -- or would you look to stabilize first on the margin side and then plan out capacities...

We have already announced a substantial CapEx in the form of the new unit in Andhra Pradesh, so the first is to execute that and utilize that capacity. And post that, we will plan for the CapEx, but for the time being, our focus is only on the Andhra capacity, as far as the laminate division is concerned.

Okay, okay. And this -- I mean, from a switch, is there -- I mean, I'm sorry, new to this, but I just wanted to understand when you look at laminate as a category. I understand there's a lot of thinners, which is significant in terms of volumes, so when you launch a Sainik brand, do -- there would be a shift in product mix, right, still for you. That's why you're saying that Sainik will be premium than our average right now for you.

You see export realization for us is lower because we are right now not in the larger sizes. Once we get into the larger sizes, then export realizations will also start to go up. And at the same time, we do have a component of 0.8 mm, so because of that, 1 mm realizations will always be higher than our average realizations. Since we are only in the 1 mm category in Sainik, I am [ guiding ] that, once Sainik volumes start coming up, it will push up the realizations [ and not trend lower ].

Next question is from the line of Nikhil Agrawal from VT Capital.

Sir, is it possible for you to quantify the impact of the BIS norms that are coming in? And...

Your guess is as good as mine, but all I can say is that it will be beneficial because, again, once it became [indiscernible] GST was there, we're all very confident. And we thought it could change the very industry functions, et cetera, et cetera. And while it did help, the impact was nowhere close to what we had expected, so I think it is better to go in with muted expectations and see a better result.

All right. And sir, like, I was tracking the -- from the data that we get for imports. Sir, your Q2 imports had -- if the -- if I'm not wrong, it has fallen down by 1% quarter-on-quarter, but for India as a whole, exports have increased by 7%, so was there any one, any issue in the exports? Or were you focusing on the domestic markets more?

Sorry. Could you repeat that one?

Like, your exports in quarter 2, they had fallen down by about 1% in -- 1% quarter-on-quarter, according to the data [ that we cast ], but India exports were up by about 7%, so was there any issue in the exports? Or was it just a quarter where you were focusing more on the domestic markets?

To the best of my knowledge, there have been no reductions. I think -- I don't know what data you have, but no, we have not seen any reduction in exports.

All right -- like India -- though India's exports grew by about 7% quarter-on-quarter. So what was your quarter-on-quarter...

We don't share domestic-versus-export data.

Next, we have our next follow-up question from the line of [ Keshav Bijayratan Lahoti ] from HDFC Securities.

For the ply side, CapEx seems to be a bit slow -- whether the Hoshiarpur ply commissioning might get pushed to quarter 2 instead of Q1.

Yes. So actually we are taking that plant a little bit slow because, in Q1, we had [ a little bit of like a ] muted growth [ slippages that ] we were taking the plant a little bit slow. So currently, I see maybe shifts to Q2, but we are on track. We're procuring machines, et cetera, as we're seeing, yes. This plant is much [ easier ] and faster with the machines, so as of now, I will stick to Q1, but if anything changes, I will update in the next quarter.

Understood. Sir, one thing we always say, timber supply is going to increase, which will possibly...

[indiscernible] we -- so now you are not clear at all. I'm unable to understand your question.

Is it better now?

Yes.

Yes. So one thing we always say, timber supply is going to increase in upcoming quarters, so which will lead to stable timber prices. Or possibly, the timber price might cool off, so any sense what sort of increase in timber supplies will happen? Like what sort of plantation are happening [ to better sense ]?

[indiscernible] to a certain -- I mean there is a forest service India report that you can go through which will give you some light on it, but the reason that we say that supply will increase is it will -- it is [ improved a little bit ]. If the price of timber is going up, the incentive to the farmer for going to agroforestry increases. Today when the prices are INR 2.5, then the incentive to the farmer for agroforestry was highly muted, so even though it is far easier crop to grow than a rice or a wheat or some other cash crop, still the farmer was dis-incentivized to move towards agroforestry. Today when the prices in the North have shot up to INR 6.5 -- so we are talking about a 160% increase in the price. Because of the same, there is huge incentive. And the quantum of plantation that has taken place -- when I go to the plant in Andhra Pradesh and when I go to the plant in Hoshiarpur, the quantum of new planation taking place is truly [ heartening. Thankfully, say ], the supply of timber is likely to go up. And this is the same trend that has been observed in China, in other developed countries as well, so this is what gives us confidence that agroforestry is here to stay and will only grow with time to come.

Understood. And sir, will it be -- I know it's very difficult -- but to give me some sense of ballpark number or broader range. What sort of plantation [indiscernible]?

In the [ agrible ] land of India, if 5% of that is converted to agroforestry, then the supply of timber will double. So that is the sort of math. In the total arable land of India, 5% of the total area that is currently being used up by cash crops, as per the ministry, if that is converted to agroforestry, we can then double the quantum of agroforestry in India. I hope that gives you a sense of the potential [indiscernible].

Next question is from the line of Shubham Aggarwal from Axis Capital.

Okay, am I audible?

Yes.

Okay, great. So just one question here. On the plywood segment, I, we saw the gross margins expand Q-o-Q. We have good growth as well in the segment. However, the EBITDA margins of the segment contracted. So about 100 bps Q-o-Q in -- of expansion in gross margin and 15 bps Q-o-Q contraction in the EBITDA margin. I just wanted to get a sense like what relates to this contraction in EBITDA despite the gross margin expansion.

Can you repeat? Because actually your voice was very mumbled.

Okay, hold on. I'll repeat the same. I think this should be better.

Yes.

Yes. So I was just saying the gross margin for the plywood segment has expanded Q-o-Q by about 100 bps. However, the EBITDA margin for the plywood segment has contracted Q-o-Q by about 15 bps. I just wanted to get a sense. And a similar trend is also being seen on a year-on-year scenario, so I just wanted to get a sense. I mean, what has led to this disparity? Like the gross margin has increased. The growth is good. I mean the revenue growth is good. Still, EBITDA margins have come down. That's...

So basically, as we have guided earlier [ ourselves ], we are very, very bullish on the medium to long term. We have already seen that, peers in the building material industry which come earlier, for instance, pipes and other products that go in earlier stage when the building is being constructed or a house is being constructed, they have been doing very well. And new launches have shown a significant uptick. Going forward, we are very bullish that the cycle for our products is going to be fairly robust, so we have continued to advertise and we have continued to invest in marketing. And I think that this slightly higher-than-expected marketing income -- or this slightly elevated marketing income perhaps justifies to a large extent the delta that you're referring to.

Okay. So Keshav, would you be able to give a sense that this is majorly -- like what are you focusing on, TV advertising? Or is it generally in the form of discounts or retail activities at the ground...

Cinema and TV are our 2 predominant medium. And alongside that, we have also ramped up our digital spend. Nikita, would you like to -- or I think that, [ in that context, Nikita will give ]...

We never give out, we don't give out exact value of how much we spend, but this is the first year that we are spending substantial amounts in digital and for the brand awareness and campaign awareness. This was not done in the past. We've always been [ digitalizing ] [indiscernible], so this year, there has been an increase in overall online spend of -- and cinema, which we didn't do in the previous years.

Okay. So all I was actually indirectly asking was this is not because of higher [ R&Rs ] for our dealers and distributors [ to book building ] material from us. That's what I was trying to...

No. So -- no.

Next question is from the line of Bhavin Rupani from Investec.

Just one -- clarifications. First is on plywood. Have we taken any price hikes during Q1 and Q2? And are there any plans to increase in Q3?

So we took one price rise in July. Post that -- the [indiscernible] raw material pricing was really increased [ because we were posted with a ] price increase then. Post that, the market scenario was such that [ we weren't able ] to absorb any more price increases currently. And given that the raw material prices are coming down, I don't think currently we [ are in the mood ] for a price rise in the near future.

Is it possible to quantify the price hike in July?

I think it was 2%, if I'm not wrong, in July. Different products [ have ] different [ things ]. It could be 3% in one and 2% in something, so average, it was roughly 2%, 2.5%.

All right. And just one more clarification: The guidance that you just provided, it was for second half, right, sir?

Yes, the guidance that I provided was for the second half.

We will take the last question for the afternoon from the line of Ritesh Shah, an individual investor.

This is Ritesh. I'm calling from Investec Capital. I'm not an individual investor. I had a couple of questions on laminates. You have indicated a new range of (sic) [ for ] targeting specific new market segments. This is the text which is there on the slide. Keshav, can you please elaborate this a little more? Are we looking at particular sizes which were absent in the product basket? Or is it the new designs? So that's the first question.

So the first thing that -- to clarify is we were present in indeed the premium segment of essentially laminates. What we mean to say is that there is a further value-added segment, which is higher-priced decorative laminates. And to this end, we have tied up with Mr. Manish Malhotra and we have launched a range. At the same time, in the economy range of the 1 mm category, we were absent, so that is where we are targeting through Sainik Laminates. Alongside the above, with the launch of the larger sizes, that opens us for the opportunity of exporting to geographies in Europe and other geographies where we are not present yet due to lack of the larger sizes. So this is what I mean by new ranges.

Perfect. And what were the sizes which were launched which we now have?

The sizes that we are going to launch with the new [ cases ] being commissioned this quarter will be 14x6 and 10x4 [indiscernible].

Okay, this is helpful. And second, related question to laminates is how are we looking at the distribution specifically for the premium laminates or what you just mentioned. Will the distribution be different? How should we look at that?

The distribution is going to ride on the same network that we have created over years. And the advantage that we have is a presence in over 20,000 retail points across India, so we are piggybacking on the same for even the premium range.

Sure. That's helpful. And lastly, on MDF, what would your thoughts be on the competitive intensity in the marketplace? Demand is good, but there is incremental local supply. And the imports, at times, also create a havoc. We have seen larger listed players actually pushing material to the export market just to ensure that the utilization levels are fine and they maintain a fine balance, so it's a bit precarious. Would you be worried about this? How would you look at this particular scenario?

Again, I do not normally comment on competition, but what I can say is that our ability to scale up and our ability to utilize our capacity have been better than the industry in general. And the guidance that I have given on the call, we are fairly confident of achieving the same.

Thank you. That was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Keshav Bhajanka for the closing comments.

Thank you, everyone, for attending our call. I wish you all a very happy Diwali.

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