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

Good day, ladies and gentlemen, and welcome to the Century Plyboards India Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this 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 all 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; and Mr. Arun Julasaria, CFO. Please note that this conference is being recorded for compliance reasons. And during the 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. Sanjay Agarwal, followed by a Q&A session. Thank you, and over to you, Sanjayji.

Thank you, Navinji. Thank you. Hello? Yes, now it's clear. Good afternoon, friends. Thank you, everyone, for taking out your valuable time for attending the Q3 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 Mr. Keshav Bhajanka, Executive Director; 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 key highlights of Q3 FY '24. The demand for our products is co-related to occupancy of new housing units as our products are used for the interior of house. The demand for our product came only after apartment is ready for occupation. Any real estate project, depending on its size has a time horizon, ranging from 4 to 6 years or, say, average 5 years. Out of these 5 years, first 3 years are for superstructure stage: steel, cement, pipes, bricks, et cetera, are used. After this, once the second stage of completion of house, where tiles, paints, sanitary ware, electricals, doors, windows, glass, elevators, etc., are required. After completion of 5 years when building is completed and apartment is handed over to buyers for occupation, the interior work related materials like plywood, laminate, fitting, drapery and other home improvement products are required. The real estate industry suffered its low demand and high ready-to-occupy inventory until 2019, '20 or before outbreak of COVID. In view of piled inventory, the real estate developers were not launching many new projects. Post-COVID year, the culture of workplace was shifted from office to WFH, I mean work from home, and people realized importance of owning a decent home, which made the sudden spurt in demand for apartments. People started to invest in buying apartments, which, in return, resulted in fast depletion of ready-to-occupy inventory, which lasted until '21, part of '22. The builders started to launch new housing projects post-'21 and most of the projects are in the first or second stage mentioned above. All such projects will start to complete from 2025 onwards. Of course, there are still inventory in this phase from earlier stocks also. We experienced spurt in demand when piled inventory of ready-to-use house were sold and occupied. We again expect such spurt when ongoing large number of projects will start to deliver in '24, in '25. Until then, especially, I must say that maybe from '25, until then market will remain sluggish. But with our brand pool and sales and distribution network, we shall not only maintain our market share but also booked a moderate growth. On an overall basis, the industry is facing increasing trend in raw material costs, which cannot be passed on in lieu of sluggish demand. So profitability also might be slightly impacted. Overall, top line for Q3 on a year-on-year basis was up from INR 872.94 crores to INR 929.89 crores, higher by 6.5%. However, EBITDA was lower from INR 133.47 crores to INR 115.81 crores. The EBITDA margins are marginally lower due to company spending on brand building activities and deputing reputed consultants like McKinsey and BCG for advising companies on capacity building, benefits of which will accrue in the future. On segmental basis, all major segments booked top line growth while plywood profitability was majorly down due to Royal Club Dealer meet expenses of about INR 7 crores once in 2 years, which was booked in Q3, and engagement of McKinsey for advising on listing sale of prime products during Q3. Laminate Division profitability was majorly down due to increase in manpower costs for creating new team of newly launched Sainik Laminate, which will take time to ramp up. MDF profitability is majorly down due to lower average realization and increase of raw material costs. Particle Board profitability is substantially down due to lower average realization caused by import competition and higher raw material costs. As Q3 is period of festivals, when carpenters go home and people are engaged in festivals, the working days on interior sites are reduced and sale is reduced. However, such loss of sale is compensated with increased demand in Q4. We historically had Q4 better than Q3. Both Plywood and Laminate business will have better and increased top line and bottom line compared to Q3. With BIS standard became mandatory from 11th February '24 for both MDF and Particle Board, import competition for these products will substantially reduce and benefit domestic producers, both on sales and profitability. On the scheme of hiving of logistics CFS division to SPV, we are awaiting certified copy of orders sanctioned in the scheme. On filing a certified copy of order with registrar of companies, the scheme will be retrospectively effective from appointed date of April 1, 2022. Greenfield laminate unit at Andhra Pradesh has already commenced operations during this quarter. This is a big announcement now for us. The ongoing project of MDF at Andhra is on a fast track and will commence operations within the current financial year. With these remarks, I will open up to all the question and answers to everyone online. Thank you.

[Operator Instructions] The first question is from the line of Parth Bhavsar from Investec.

Looking at your performance on the MDF and Particle Board -- for both MDF and Particle Board segment, I just wanted to understand what sort of competition is there in the market and who are adding capacity, if you could help me with a number?

You see 2 people have added large capacities. One is Greenply, who have started a plant in Gujarat. And another one is Action Tesa who have extended their capacity from about, I think, 800 cubic meter plant or something they have started about 6 months back. So these are the 2 major capacities which are coming. And there is about 400 cubic meter has been installed by us at our Hoshiarpur plant only. So these are the 3 major capacities. And apart from that, there may be some small manufacturers also, which I'm unable to list at this moment.

Okay. And sir, on the Particle Board side, like we are facing competition from the domestic players? Or is it all imports?

Yes. So the other competition was from importers, the number of imports -- the quantity of import in Q3 is supposed to be about 1 lakh -- around -- about 1 lakh cubic meters, around 1 lakh cubic meter in Q3. Because I think still it is getting imported, after 11th of February, all imports without a BIS will stop. But of course, the material within the system may take some time to dilute. So maybe this FY will go into dilution of that. But after that, yes, at least that competition will -- because that is a competition, which does not have -- there are different input costs. So for them, question of raw material price or maybe other costs are different, and for us, it is different. So that will go away from the system.

Okay. And sir, so considering the competition that is there in the market, both on the MDF and Particle Board side, sir, do you think any players like you or the other guys would delay their CapEx announcement or delay the projects?

Whatever I know, presently our next big plant which is coming into production and that will come into production within this financial year. So there is no delay about that. And after that, we do not have any decision taken until now at the Board level for -- but I think we are in this business, and we will be contemplating taking further decisions. So -- and we believe that the capacity and the markets of MDF and Particle Board in India is huge. And these are small things and temporary things which are happening, and it happens for every product and every time. So I don't think this will deter people like us. But yes, there are -- some time in near future, it may not be as good as it used to be.

Okay. And sir, if you could help me with raw material cost for MDF for your North and South plant or at least an idea where it was in Q2 versus Q3?

You see as far as the prices in North is concerned, yes -- just a second -- Keshav, you have the data in front of you?

Yes, I have the data in front of me. In the North, MDF prices have increased in the past few quarters. Considering last quarter, they would have been at around INR 6.5 to INR 7. We are looking at similar prices continuing for this quarter. Going forward, I don't see a scope for much further increase. At the same time, I don't see any reduction. In the South, while we aren't directly buying anything for our MDF unit, we are buying for our Chennai Particle Board unit. There, we have seen a sharp increase in raw material costs. Compared to last year, the cost has jumped by in excess of 50%, and there could be further raise in this quarter.

Okay. So would it be at like INR 5.5, INR 6?

Yes. South, the cost traditionally is much lower. Last year, the average for the year would have been less than INR 2 to INR 3.

Okay, so INR 4.5, INR 5. Okay, got it.

[Operator Instructions] We take the next question from the line of Sneha Talreja from Nuvama.

Just wanted to understand the impact of BIS implementation. When could we considerably see improvement in margins? Do you think that both will start getting affected from now on? How serious is the government on this implementation? Because earlier, there's a thinking there would be delays. There would be a pushback in terms of at least 3 months, 6 months. There are a lot of petitions being made. So some guidance here would be really helpful.

Plywood BIS has already been delayed. So the impact on plywood, we really do not know when will it come. Because even today, a little bit of plywood is also now getting imported in the country. As far as MDF is concerned, the date is final, 11th of February, it is getting implemented. So no more products can come into the country. The customs will not clear any more material after 11th of February without a BIS stamp. But anybody and everybody in the system might have a material which may last for the next 2 months, may last for 3 months, 2.5 months. So I believe about a 3 months' time before you see better times.

Understood. And sir, given that we also have so many smaller units in MDF based out of North, what's the kind of a cost that they will have to incur to get an -- I mean, to get a license done? Any guidance there? Do you think it will be an easy move for them to basically move to BIS? Or a lot of them would actually face shutdown?

As far as India is concerned, I think the manufacturers in India will get BIS. And it's not costly, it's not very costly. So the Indian manufacturers will get the license. It might take some time, and I'm sure they must have already taken all those steps and they must be nearly ready. So as far as BIS costs are concerned, they are not high.

But will it lead to increase in raw material costs because the kind of raw material that they would be using at this point of time, the smaller units, will that differ with BIS coming into play?

Yes. Yes, there will be a little bit of a shift, but it may not be because their operating costs are already -- we believe, that they are quite competitive as far as costs are concerned, and that is how they have survived in the system. Otherwise, by selling about 8% cheaper to us or 9% cheaper to us, they are already surviving.

The next question is from Rahul Agarwal from InCred Equities.

Sir, first question, just want to understand a bit of range here. What could be a base case for short term? And then where are we headed in terms of recovery across segments in terms of revenue growth and margins? Just a ballpark range would really help.

I think, Keshav?

Sure. I think we can -- if you look at -- I mean, we are more or less in line with what we have given. In terms of growth here, growth has been really slower. Even Q4, looks to be very difficult. But on the margin front, I think we will be more or less in line with guidance. In Laminates again, we will be looking to material margins, but the growth that we're looking at, perhaps we are not going to have a very healthy growth. We can have a single-digit growth in the current quarter. MDF, we're expecting a robust growth, I am sure year-on-year, we will have a 20% plus growth but even in the current circumstance, it is quite dynamic. We will have to wait and see for what the implication of BIS is and how soon that comes into play for me to give you any definitive guidance on margin. For the current quarter, I can safely say that margins for both MDF and Particle Board are likely to be lower. Particle Board, the volumes is likely to be constant, and we are pretty much at capacity utilization. So there will be no major change. Going forward, next year onwards, we are hopeful once BIS is fully implemented, both MDF and Particle Board should see an upside in terms of volumes and margins.

Got it, got it. That helps.

Probably my voice is clear to you?

[Foreign Language] Yes, I know, I know. It's not a problem. Not a problem. So moving on to...

You speak a bit slowly.

[Foreign Language]. Yes, it is not very clear.

You speak a bit slowly, then it will be easy to understand. Okay.

Okay. Sir, second question was on brownfield and greenfield MDF capacities. Typically, how much time does it take to reach 90%, 95% utilization? So if you could help me understand, let's say, you started 400 CBM at the North India plant. What is the capacity utilization today? And how does it ramp up over the next 2, 3 years, like first year, second year, third year? And similarly, based on the greenfield capacity, typically, how would it ramp up? And obviously, the assumption is that demand is okay and competition is variable. In that circumstance, how does it work?

Keshav?

Should I?

Yes.

I think first, we are going to be with -- our basic math is that we'll look at 80% plus capacity utilization towards the second year of operation. That is how we envision a new capacity, whether brownfield or greenfield, if you talk about MDF. You cannot define the market dynamics. But I think going forward, this is going to be the target for both our capacities. And then the ramp-ups in the North part, we have faced certain challenges with some thicknesses in the new line, which we have now overcome. Going forward, I think the 80% capacity we should be able to achieve for the new line capacity onboard and for the Brownfield expansion that we are undertaking.

So if I understood correctly...

[Foreign Language]. This is just a human tendency.

Yes, absolutely. So if I understood it correctly, you said 80% utilization possible to reach within 12 to 18 months, is it?

Yes. Technically...

I said, second year of operation...

We can ramp up within 1 year, provided market is there. So if we can sell 80%, we can produce 80% is very first year.

Okay, okay. Got it. And one question was on -- then I'll come back in to queue, on the premium product. I just wanted to understand for plywood, you obviously had this Royal Club Meet. Just to understand some sales trends over here over the past 2 years, how is the Royal Club Prime and other premium products doing for you? And how much do they account for in the overall plywood sales?

We don't share data breakup between our premium and our non-premium category. That is something that we don't do due to competitive reasons.

We are not doing bad, that much I can tell you. We're not doing bad, but we are not doing excellence also, as far premium is concerned, yes. The company wants to develop and grow mostly into premium product only. But yes -- and that is why you will see that we are trying to consult some time BCG and some time trying to get in McKinsey and Vector, and all those -- every effort is to actually try and do better in premium products, actually.

The next question is from the line of Keshav Lahoti from HDFC Securities.

Am I audible to you?

[Foreign Language]. Yes, now you're audible.

So my question is repetitive, that is the BIS front. Like if you hear the commentary of other management, they are more like, let's wait and watch how will it shape out. The most bullish on the BIS, which I found is Century. So what sort of decrease in import you expect from BIS? Will it possibly this 1 lakh number can come down to below 50,000? What is your take? Like why so bullish?

So we believe that for at least 6 months -- after 3 months from today, for at least 6, 7 months till then nobody will get a license, they will take their time. So at least 6, 8, 9 months will be without any imports practically. Because without BIS, it will not be allowed. And I have checked day before yesterday, the records until now, nobody has got a BIS registration. So I don't think that any quantity can come in. If no quantity can come in, [Foreign Language], that will be a good thing to happen to the industry. Of course, a lot of capacity has come in and the consumption is growing as it was earlier also. But it will take some time to catch up. That's a normal thing to happen.

Just to highlight that the material that has been imported is not consistent with the material that we are producing currently. You see every country has different timbers, every country has a different production [indiscernible] some companies do check on this, others don't. So for these manufacturers, to start manufacturing as per Indian standards also is not going to be very easy. Because the substantial part of the production is not being dedicated towards India. So I think overall, this is going to bring about quite a bit of change hence we are reasonably optimistic.

Okay. Your voice is not a bit clear, Keshav, sir.

Yes, Keshav [Foreign Language].

I'm sorry. I'm on Skype and the connection is not very good. But I would say...

Maybe try to keep the mic a little away or maybe closer, I don't know.

Is it better now? Am I audible?

Yes, now it's better. Yes, it's better actually.

Are you saying that for them to manufacture for -- the international players to manufacture as per Indian standards will...

[Foreign Language]. The speed has to be slowed down [Foreign Language]. I'm sorry.

No problem. I was saying that for these international manufacturers to manufacture as per Indian standards will also need changes, adjustments, and it is not going to be as easy as simply switching on a button and changing. So I think all of this makes us reasonably optimistic.

Okay. Got it. It was quite clear this time. Coming on the CapEx plan side, what we can see is there is some push of CapEx from FY '24 to FY '25. One is on Hoshiarpur ply. So is the expansion running delay? And second one is on the laminates. So laminates project has commissioned, but yet you're -- did not spend INR 50 crores. So whether the CapEx size has decreased, how should we see that?

Keshav, shall I?

Sorry, please continue.

Yes. Regarding laminate, you know the project value increases. Right now, we have started only one line. So further lines will be added in next financial year. Regarding plywood plant at Hoshiarpur, we are going slow because demand of plywood now on the low side.

Okay. Got it. So the second line would cost INR 43 crores. And what would be the size, will it be 2 million sheets?

Keshav?

There is a little bit of confusion here. So I will just clarify. The first 2 lines, will have a total CapEx of INR 200 crores. The first plant is commissioned [indiscernible] within this week itself. The next 2 lines will have a further CapEx cost. The majority of the cost will be recovered within the current quarter or next quarter. This is for laminates.

Sorry, sir. Your voice was again not audible.

For Laminate, we have commissioned the first line. The second line also, production has already started. The majority of the cost should be incurring within this quarter or next quarter I would say. Now the additional 2 lines, additional CapEx, that will be done at a later stage.

Okay. Understood. Got it. Got it. Just coming on the Laminate side, so Laminate, normally, we expect 13% to 15% type of a margin. We have seen some improvement in margin sequentially, but still it is sub-par what Century can deliver. When we would expect Century should be back to normal 13%, 15% type of guidance?

I think right now we are investing in a lot of new trends. If you look at the larger press, we will soon be starting our Sainik physical division. We have already created a separate manpower setup for Sainik Laminates which we have launched, which is taking time to ramp up. So I think you can look at this as a phase of investment where maybe for 2, 3, 4 quarters, the investment is disproportionally high. But after that, like you said, our targets will be 13% to 15% or even 14% to 16% long term. So we will move back towards that maybe in a time lag of a year plus.

The next question is from the line of Praveen Sahay from Prabhudas Liladher.

First question is, sir, related to the MDF. For this quarter, especially, I can see there is a good correction in the realization. So is that due to a competitive intensity, the prices were down and significant correction. And also, if I compare with the peers, that's quite a significant correction. So is that you are going to maintain at this level? And what is the basic reason for this correction?

I think the competition has heated up in the last quarter, and there was not much impact. But I believe that in this quarter, it will be a little higher than even last quarter. So the prices has gone down by about 7% or 8% above that, and that should have an impact on the EBITDA and the overall profitability.

So you are largely in the North India. And in the fourth quarter onwards, you will expand to the South India as well and more of the import are happening there. So fair to assume that whatever the BIS norm implementation, you will get some kind of a benefit in the South. And is it a possibility like whatever the price correction or the overall realization correction you have got so far, to some extent, you will minimize that with this?

See, what I believe because of addition of so much of capacity, this is my assumption because these things are market related so nobody knows. But I believe that we will have better sense starting May, and that will actually help us on improving our efficiency and more profitability. But I don't see prices going up in next 6 months' time. I don't see. But yes, anything can happen. But I don't see because 3 months you have already stocks here. And after that, you have so much of capacity which needs to be consumed till now. So that's why I don't see. But yes, after 6 months, I see there to be a support.

Moving to the Plywood segment. And as you had mentioned that because of a dealer meet and as well as your consultant hire, your margin profile has deteriorated. Can you give a time line? And if possible, the quantum you are paying for the consultant?

Consultant at quantum, we should not tell actually. But we have given the costs we have incurred for our meet of dealers, which costed us INR 7 crores plus. And what I believe that our EBIT -- our -- I think you are mostly concerned about the EBITDA. So our guidance is always between 12% to 14%. I believe that even this quarter, we will be able to give or annualize the EBITDA also should be within 12% to 14%. Yes, on the lower part of it, of course, maybe 12.5%, 12.6%. But yes, we will be somewhere between 12% to 14%.

Okay. So, like we are going to see cost related to the consultants the way forward as well, what I'm trying to understand, sir?

Costs related to consultants, you see these are such things that if you stop learning and when the organizations are at midsize and growing and trying to really grow very hard. At that time, some outsider may be needed, may not be needed. Of course, at some time, even the organization gets tired of outside people working with them. So it will all depend on the situation. I cannot even tell you at the moment that, yes, what will we do because this is not a decision which I personally take. We have a team, we take the decision. So along with the business, along with the executives, the decisions are taken. So if the need is felt, yes, in the benefit of the organization, we will decide, yes. Or in the benefit of the organization, we will decide, no. I'm talking too theoretically, but yes, that is the way it is actually.

Got it, sir. Sir, lastly, on the Laminate. Laminate realization also had gone soft quite a bit. So will that -- the new norm, we can see that such kind of a realization to be maintained over here?

No, in Laminates, there is lucency in the domestic market where we have been facing issues. I think that we have taken strategy and steps in order to fix that. And as I said, it will take a bit of time lag. So this is not the new model. We will be definitely looking at higher realization going forward, but it takes some time for us to bounce back.

Sorry. So this lower realization is account of -- I missed out. I'm really sorry for that.

On account of higher percentage of export.

Okay. Can you quantify how much is the export?

Mr. Sahay, I'm sorry to interrupt. But, may we request you to rejoin the queue as there are several participants waiting their turn.

We don't give a breakup regarding that.

Keshav, I've been asking if you can -- because your voice is actually not very clear and the person cannot...

Is it better now?

Sometimes it is better. But there is something wrong with the place you are sitting, maybe, because you're on a Wi-Fi or you're on a call or a normal call. Let's go to the next question.

[Operator Instructions] We take the next question from the line of Abhishek from DSP.

Sir, just one thought. Over a period of 12 months, you are commissioning almost INR 1,500 crores to INR 1,600 crores of CapEx spread between Particle Board, MDF and Laminate. So at what point in time will you look at your next round of CapEx? Will you expect market to -- like in plywood, you said now the market is weak. So what are a couple of lead indicators if you look at -- which we'll look at looking at the next round of CapEx. How should we look at it, sir?

You see, we have -- I think this is the biggest investment CenturyPly doing in its lifetime. And we are just going to complete within this year, including our Particle Board's capacity. And I don't think that there is anything which we are -- we will pick up within say next 2 months or 3 months or 6 months' time. Yes, we are already planning, we are already thinking about what we can do, and I have seen that the CapEx done when you are down is the best time for the CapEx. At this time, you find you get all your goods cheaper and you can put up a plant, you can bring it up, you can finish all the problems which a plant faces within the first 12 months. It's a very crucial time actually. So yes, I think I clarified your question.

Sir, but this BIS change which is happening first in MDF and Particle Board and maybe in plywood at a later point in time, you think that can be a major trigger point for you, which may...

I don't think for MDF, it is just 50,000 cubic meter maximum per month. So that's one plant actually you can say. And as far as Plywood is concerned, yes, maybe about INR 1,500 crore worth of plywood is coming in a year's time. So even compared to the plywood market, again, it is not too big a capacity. So yes, it makes a difference. It makes a difference as far as the mind of the market is concerned. All those things little bit change the psychology of the market. So everybody in the market today can say [Foreign Language] and there are 20 other sellers in the market. So the number of sellers in the market reduces. That is how it happens mostly. The psychology changes, but it is not very big quantity.

Okay, okay. And sir, just one other thing. In your last cycle, you had aspired to be a INR 1 crore profit per day company, which you have successfully achieved. Anything that you have articulated for your team internally or internally you all have decided for the next cycle.

Keshav is our young Turk. So I think this commitment he should make, not me.

But I thought the guidance has to come from top, he will execute, so that is what our thought was.

Keshav?

I think our mission, Abhishek, as you know is to grow sustainably. And I think that going forward, we have thought of a vision of INR 12,000 crores turnover by FY '31. So that is going to be the outcome. And of course, as you know essentially, it will have to be profitable turnover growth. We will be looking to maintain ROCE up to INR 12,000 crores.

Next question is from V.P. Rajesh from Banyan Capital.

On the supply-demand side, as you were talking, when do you think the extra supply that you are seeing in the system across different products will subside or will get absorbed in the projects?

I think it's very difficult to tell you that when will we be able to absorb all these quantities. And by then, actually before that, we will take up new more quantity actually. We will take up investment for further quantity already at that time. But yes, we must say that whatever we are creating now, it should take about 3 years.

3 years, okay.

I think so, yes, it should take about 3 years to -- I think that's a good thing to do, if we can consume all quantities within 3 years, it will be good. Particle Board huge capacity coming up, MDF huge capacity coming up. Market should open up some time across '24 or maybe in '25. So I think, yes, 3 years is a good period within that. But before that, we will have more quantities, I am sure. Our management and our people substantially ramp up our capacity, we'll decide.

The next question is from Utkarsh Nopany from BOB Capital.

Sir, my first question is that during our last earning call, we were fairly positive and updated the guidance for each of our segment. But if we see the performance for each of our segments, we are pretty weak for December quarter. So I wanted to know what has changed post mid-November that has resulted in such a difference in our performance compared to our expected?

Yes. Very good question, Utkarsh, I would say. You see, if you really see that even during the last call and the performance of Q2, there was not really very good results. We were certainly expecting to do better, isn't it? And in the Q3 also, we expected that, yes, we will be able to cover up and we will be able to, yes, we were little closer, but then, okay, we will -- we were sure that we will be able to do it. But now after 3 quarters and the kind of movement we see in the market, when we see the results every other company giving, the real estate, yes, it's booming and we can see that the real estate has a great, great future at the moment. And we will, as a company, within that space, we will gain. But now it's becoming clear to us that it is not so fast. It's going to take some more time. So the realization -- I think the realization has come to us right now that it is going take some time. Yes, we are very, very positive that future is good, the story -- the India story is also working for us. So yes, midterm, long term, very positive. Short term, yes, there are some headwinds.

Okay. Sir, for MDF segment, I wanted to know that our current operation is basically in North region, which fetches better realization and margin compared to the South players. So -- and if we see for December quarter, our EBITDA margin came almost at par with what Greenpanel has posted for December. So going forward, whether our margin -- MDF segment margin is expected to be further impacted once our South plant becomes operational?

Yes. EBITDA, I believe, because of the price changes also, I think EBITDA will be impacted by maybe 2%, 3% further. And South has a different economy altogether because South's cost of timber and North's cost of timber is also different. So, the EBITDA, I think, will not be big different from South to North because of the prices of raw materials.

Okay. So you mean to say that the margin profile for South and North are almost similar considering the timber prices at the moment?

Should I take, this?

Just a second, just a second. Yes, because of the timber prices and raw material price is different, the South usually will have maybe even at a lower price, it is able to compete and it will have [Foreign Language] the similar kind of an EBITDA in times to come. Because, more the -- actually, the problem is the timber. Because across the country, the timber plantation happens, and at some time, the supply demand thing will happen and there is now less availability of raw material. It was realized about maybe about a year or 2 years back or 2.5 years back, a lot of plantation has started, but it will take 3.5 year minimum to actually to get that round. And for plywood, it will take maybe 5.5 or 6 years to get that round. So until then, the prices might stay a little higher. So it may be another year or 1.5 years generally before timber prices -- and maybe 2 years before the timber prices will start softening.

Sure, sir. And sir, lastly, sir, on the depreciation expense part, we have seen that we have done a lot of CapEx in the last 2 fiscal but our depreciation quarterly run rate has remained stable in the last 3 quarters. So I wanted to get some sense of that what would be the quarterly depreciation run rate for the current March quarter and for FY '24?

I think the CFO will be able to reply this.

In fact, the figures we are giving you in investor presentations are standalone figures. And we have been historically doing because all our subsidiaries were immaterial. Only one operating subsidiary, Auro Sundaram, that goods also were channelized and sold through the parent company. But now it's a new plant is coming in the name of subsidiary. So depreciation of their plant will be booked there only. But that I'm telling of in time to come. Until now, the depreciation is almost on similar side because we have not had major expansions in CenturyPly itself. I think one more line in Hoshiarpur -- yes, please?

Yes, sir, on a controlled basis, what would be the depreciation cost for FY '25?

I mean to say, I can't say you exact figure at the moment because it -- it comes out of computation. It comes out of computation. So we shall get back to you after computing what is likely to be in future.

Next question is from [ Aditya Pal ] from Motilal Oswal.

Sir, post this CapEx, what will be your total capacity in Laminates?

Can you please repeat?

Post this CapEx, what would be the total capacity in Laminates?

So rather than looking at it in Laminates capacity, because the new pressers are going to be different in terms of the quantity will only look at 72,000 sheets for the 14x6 press because the sheets will be on average 12 mm thick and will be a 14x6 sheet. The 2 additional pressers should be able to add INR 200 crores to INR 300 crores to the top line. So I think that is a better yardstick. In terms of volumes, it will not be a like-for-like match.

All right. And sir, I understand that you can't quantify the export business. But if you can just give us in terms of the qualitative metrics that what would be -- which would be our top 3 markets in exports?

Currently, our major markets are Southeast Asian economy and North American economy. Going forward, with the larger sized pressers, we will be targeting both Europe and the Middle East in a bigger way.

All right. And likewise for domestic, which would be our key regions between North, South, East, West?

We are strong in South. We are a pan India company.

I'm sorry, sir. Your voice is not -- it's coming a bit muffled.

We are a pan India company.

But if I were to look at it from a revenue split, is it equally split or there might be like -- there might be a bit more concentrated towards North and South because these are a little bit larger markets?

South is our largest market followed by the North.

The next question is from the line of Nikhil Agarwal from VP Capital.

I wanted to know what would be your FY '25 volume guidance and the margin guidance?

You've seen the numbers for the first 3 quarters. For the fourth quarter, we are looking at single-digit growth in both panels and Laminates. And we've already mentioned, in panels, we are looking at similar margins to what our guidance is 12% to 14%. In Laminates, we'll be attempting to maintain similar margins. However, the expenses for the new South plant could lead to slightly lower margin. In MDF, we should have a volume growth of 20% plus in Q4, but margins are likely to be lower. And in Particle Board, we will have similar top line, but margins again could be a little under pressure due to raw material prices.

Okay. And what about FY '25?

Our attempt will be for far more robust guidance, for more robust growth. But we'll get back to you on this. At this point, we have still the South plant frozen, I don't want to give you figures.

Okay. And sir, what has been the raw material price trend in the Laminate segment in Q3, Q4 now? What has it been? And have the prices been stable -- fairly stable?

There has been an increase in the price of one particular variety of craft paper, the lower end of craft paper, predominantly due to the [indiscernible] but other than that, raw material prices have been fairly stable.

Okay. Got it. And lastly, what is the capacity of your Phase 1 Laminate plant that has been -- that has commenced production? It's 2 million, right?

The capacity, like I had mentioned in the previous answer, it is not going to be possible to be like-for-like because this is going to be 14x6 press that produces 12 mm board. That is going to be the standard equipment. So we can look at a total of INR 300 crores of additional CapEx for utilization from the 2 new lines that have been commissioned.

Sorry, I didn't get the number, INR 300 crores?

From the 2 new lines that have been commissioned at full utilization.

The next question is from the line of Kushagra Bhattar from Old Bridge Asset Management.

Just 2 questions on your prelam MDF segment. So sir, if we understand 25% of your volumes and almost 33%, 34% of your value from the -- within the MDF comes from prelam. Can you give us a similar ballpark number for EBITDA contribution as well from the prelam MDF within your overall MDF EBITDA?

I don't think I have a separate EBITDA for both the things, no. Right now, I don't have, but yes, if you want we can give you later. Kushagra from?

Old Bridge Asset Management. Sure, I will get in touch.

Yes, noted.

Sure. The second question is on your -- again, on prelam MDF. So can you tell us, is there any overlap between your prelam MDF and Prelam Particle Board segment? So basically, Prelam Particle Board is also seeing decent amount of capacity additions by 2 other players. So I just wanted to get a sense like is there a competition between Prelam MDF and Prelam Particle Board segment?

Particle board, practically 100% of particle board is used by OEMs. So these are the small, small factories which make furniture. And 100% of Prelam Particle Board is used by OEMs. They buy it from us or from dealers. As far as MDF is concerned, MDF is going to OEM, but MDF is now being bought -- so Prelam MDF is being bought by contractors who are working at your home or my home also, and they have learned how to use it. Yes, it is going to the OEM also. But I don't think there is a competition because there are 2 different kinds of furniture being made by them and different kinds of resale they have. So I don't think there is a competition between Particle Board and MDF now.

All right. Last question, sir. So you made a remark -- very interesting remark on the CapEx philosophy. Doing it in downtime can actually sort of benefit you a lot. So just wanted to get a sense with some debt buildup already there and -- but still a decent amount of cash generation and net worth to -- equity to debt still down. Let's say, if the opportunity comes up and 6 months down the line, you decide lap up on CapEx, what sort of debt levels you're comfortable on your balance sheet?

You see the debt level that we have as a company, we have been one of the most conservative company as far as debt is concerned. Particularly before taking up the present investments, we were for quite some time a debt-free company. So as our mindset is there, we are really getting to become debt free ASAP. So -- but yes, I think we will always be working on some kind of ratios, which are -- usually people work on -- suppose if you have an EBITDA of, say, INR 500 crores, so we believe that 1:1, 1:2 maximum, I think, should be what we should look into. But yes, all these things keep changing because how are we expecting the demand in the market and how the market will -- we might become more conservative or we may become a little more open. But yes, I think this 1:2 should be related to EBITDA. Otherwise, we are now as far as bank is concerned, we can pay back in about 6 to 7 years' time. So even if you go to 3x to 4x of our EBITDA, we are quite safe. But we are a conservative company. So usually, we will not be in that area. In fact, we believe in maintaining very high DSCR. Apart from debt equity, we also want to make sure that DSCR is on very high side. It should be always more than 2.

The next question is from Shubham Aggarwal from Axis Capital.

Just 2 questions. I'm just trying to sum up whatever we talked about regarding MDF on this call. Just to make sure I've understood it right. So your margins Q-o-Q will decline in Q4, that is the current ongoing quarter, which could be lower by about 200 to 300 bps. Then starting Feb, though there will be implementation of BIS norms for the next 6 to 9 months, we could see realizations not really inching up as much because a lot of domestic capacity is coming up. And about 6 to 9 months from there, probably we could see some realization improvement. Is that understanding correct?

Let me explain. So this quarter, yes, we expect the EBITDA to go down. But if we can improve the capacity utilization, it might still not go down as much as we think. That is the clarification for your number one thing. And number two, we believe that the present import stocks may last till April. So from May onwards, we will be getting the benefit of stoppage of the imports. The prices may not go up 6 months from now. But after 6 months from now, I expect that, yes, we will get the support of the market.

Yes, it is. And MDF realizations have declined by about 7% to 8% Q-o-Q in Q4. That's also what you're seeing right now?

Yes. See, the 7% to 8% is, say, in the -- including the Q3 and Q4.

Right, Q3 to Q4, 7% to 8% decline.

Yes.

Got it. So that's clear. Now coming down to plywood. So -- okay. Just if we didn't have, let's say, the dealer event and the consultant costs this quarter, would we still be in the 12% to 13% range, or let's say, 12% to 12.5% EBITDA margin range for Plywood business?

Plywood, yes. We expect that we end this year, should be about 12.5%, 12.6% somewhere there.

Right, sir. So I was asking in Q4, if we didn't have these 2 costs of INR 70 million and the consultant cost, whatever it is, would we still be in the 12.5% range broadly for Q3 specifically?

I couldn't get you. I'm saying that we will be able to end this FY '24 with an EBITDA of about 12.5% to 12.6%.

Okay, sir. Got it, got it. So I just -- and I'll just move on to...

I think that will clarify the whole thing. If I give you some specific EBITDA for this month, are you looking for that?

No, no, not really, sir. Actually, you've already answered for now. It's good. Okay. On Plywood, let's say, the consultant costs remain in FY '25 as well. So let's -- if the consultant remain, then you'll still be able to achieve 12% to 14%, right, maybe in the lower end or the higher end, we'll see. But that guidance will remain in FY '25.

Yes, yes. For Plywood, that is our...

Okay, that was all. I just wanted to clarify.

Next question is from [ Bhavesh Jain ] from DB Investment Advisors.

So we talked about MDF and the competition all about it. So we can see the increasing trend of MDF across the industry. And since there is slowdown in demand currently, can we expect the margins to remain under pressure for around a year or 2 -- a year or something about?

I think now MDF is at its bottom. So I don't expect any further lowering and I don't think that there is any further possibility for anybody. So this was just -- the markets are like that and there is a knee jerk reaction and there are new capacities coming in. So all those things mixed up, such things has happened, but I don't see any further going down.

Next question is from Vineet Shankar from JM Financials.

Am I audible?

Yes, yes.

Sir, just wanted to ask one question. So in the MDF side, you said that there will be a 7% to 8% decline in the realization going forward in the Q4 and could also be in Q1. So just wanted to understand where this decline will be coming from. Do you see any competition pushing down its prices for volume? So can you highlight on this?

See, this happens every day in the market, every day, and everybody is doing it. Nothing specific that whether Century will do it or somebody else will do it. So this happens like this that one day somebody does and the other day somebody else does and it happens in the market. And everybody wants to secure his own -- the buyers, the permanent buyers. You don't want to get the permanent buyer or the permanent big dealer go off your hand. So this keeps on happening. And whenever the feels are little softer, and you have a feel that, yes, the demands are a little slow, at that time, automatically, you start giving up little bit, little bit. And when the demands are strong, at that time, you start pulling up a little bit, little bit. We go to the dealer and we say [Foreign Language]. Right now, we go and we'll say [Foreign Language]. So then he negotiates a bit or he asks for a larger order. So this is nothing that it happens in one day, and there is nothing like this that it is planned, but, yes, it happens.

Next question is from [ Aditya Pal ] from Motilal Oswal.

Sir, just wanted to double click on the previous figure that you had said, that the incremental capacity from Laminates will generate INR 200 crores to INR 300 crores of top line. So what would be the total revenue capacity for this expansion?

It will be INR 500 crores.

Sorry, sir, your voice is muffled.

It will be INR 500 crores plus.

INR 500 crores plus will be the capacity that it can generate for you?

Yes.

Next question is from Rahul Agarwal from InCred Equities.

Sir, one question I had on the consultant cost. Qualitatively, which project are they working on currently? Could you explain? Because I think if they move from laminates to plywood and then I'm not really sure whether they're working on MDF and Particle Board as well...

No, no. We are working on Plywood and we are working on the premium segment, specifically, this time very specific to the product.

So this is McKinsey, right?

Yes.

So what is BCG working on?

BCG was earlier working on Laminate sales. And now there are certain things which have come up from that program, and they have undertaken that in a very short period of, say, about 3 months to 12 months to complete that. The -- yes, Keshav, you're saying something, yes.

Yes. The BCG project is how to maximize revenue potential from our existing distribution network. So how to leverage the distribution structure that we have to generate maximum revenue potential across categories. It is a project that is likely to benefit the company as a whole, but the McKinsey project as the MD has categorically said is on premiumization in the Plywood segment. Both of these are short-term support, and they will be completed within this quarter with no decision of any extension as of now.

Okay. Got it. And last question on the CFS division, the margin still appear to be low. Are there any one-off there even this quarter?

I think the CFS division is now stable as far as the present situation or the near future is concerned. Some a little bit up and down is okay, but that is where actually we should stay. Arun, do you have anything?

To tell you specifically, margins are still on down side. Because now Kolkata is a river port, so that will continue to reduce. So the margins will not improve.

So we should assume 10% as EBITDA margin for the business, right?

Yes, you can't expect better than what we have shown in quarter 3.

The next question is from Ritesh Shah from Investec.

Sir, my question is pertaining to MDF, sir. [Foreign Language], on one of the prior questions, you indicated [Foreign Language], then basically we give up that particular part of the demand. Sir, how should we understand this? Like basically, you're indicating flattish margins. So is there a sort of understanding that despite new capacities which are there in the market, probably the larger guys will focus on the export market and not pump material into the local market.

No, no, no. There is no possibility of any kind of an understanding. There's no possibility at all. But you see the markets are like that everybody knows everything. And everybody pretends to show that I don't know anything. But in the market, we know what the other guy is doing, how much he is offering. If a guy goes into the market and you offer something, the guy will telephone the other manufacturer, "Sir, this is the situation happening. This is the situation happening." So this is a very big, you can say, a circle, within the market which operates. So there cannot be any understanding in -- but yes, the bottom has come. Everybody understands that at this kind of margins to go below these margins, and you never know that the prices of timber are not in anybody's control. They may still go up. And it seems that, yes, they will go a little bit up further. So -- but, yes, the feeling is always there the prices will go down, that feeling comes. Now the feeling is clear that the prices cannot go down further and BIS will help there actually.

Sir, sir, if I put it the other way around, demand [Foreign Language]. Supply incrementally is going to come. So are we assuming that the imports will actually go down, and that is something which gives us the confidence on pricing and margins?

You see, there are 2 things in imports actually. One is the quantity of, say, 30,000 cubic meter, which practically you can say 1.5 plants, big plants in India. And number two, in import actually, you see, even if it is 1 plant or 2 plants, it is under the control of 1 person or 1.5 person who is selling it in the market. But as far as the import is concerned, there are maybe 30 importers in the country and all 30 importers are fighting into that market. So the number of sellers are too many, and that actually weakens the feel of the market. I hope you're understanding. I will tell you in the say stocks. Suppose some stock is there in the market and there are 100 sellers, 1,000 sellers in the market. Even if the prices are not going down, everybody knows that everybody is a seller, so it's going to go down.

Correct.

So similarly, you see there are 30 sellers in the market, maybe only 30,000 cubic meters, but actually that weakens the market. Now because of the BIS happening, all those will be removed. All those 30 people are being removed from the market. So the moment they are selling -- numbers are not there, number of people selling not there in the market, it will help.

Correct. But sir, will this be a temporary scenario? Because if I am a trader or if I am an exporter out of Thailand, I will definitely work harder and I will get the BIS approval. So probably I will also come back into the market after 3 months or 6 months. Is there a scenario which is possible?

See, what I believe is that this is a kind of thing which will take maybe another 6 months or 8 months' time or 9 months' time before he gets the BIS, that is number one. But now you look at the exporter, he has to take a BIS, he's a large company, he manufacturers say 2,000 cubic meters. Out of that, he exports 300 cubic meter to India or 200 cubic meter to India per day. So for 200 cubic meter, he has to go through all this [Foreign Language] of getting this BIS from India. And the Indian government or the officials you know what kind of people -- how they do all these things. We will really make a very strong effort to get this BIS just for that small quantity? Because for him, it's not a very large quantity. Yes, it is important, but it's not a very large quantity. Will he take so much of [Foreign Language]. So even if 1 or 2 people do, will every exporter do this? No, it's not possible. I hope you get what I'm saying.

Yes, sir. That is very helpful. And sir, just last question. Sir, [Foreign Language], what it was going from Southeast Asia to probably U.S. and Europe, I don't know how much of it was flowing, specifically for MDF. So if I am an exporter/manufacturer out of Thailand, given the Red Sea container freight issues, if I look at my incremental cost, it will be hardly anything. So could there be incremental pressure in India that I will dump material more?

Very frankly, I'm not a person who can comment on this because I have not much of knowledge on this. But, yes, this is an issue. And I think this is mostly applicable to Europe. It's not applicable to U.S.A., I think, so much. So -- but I am a person who should not be relied for a comment on this Red Sea thing, not much of knowledge.

That was the last question in queue. I would now like to hand the conference back to Mr. Sanjay Agarwal for closing comments.

Thank you, everybody, for your patience, hearing and joining us for the Q3 FY '24 results. We look forward to a much better, very exciting features. See you again. 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.