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

Good day, ladies and gentlemen, and welcome to Century Plyboards India Limited's Q4 FY '24 and 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; and Mr. Arun Julasaria, Chief Financial Officer. Please note this conference is being recorded for compliance reasons. And during the discussion, there may be certain forward-looking statements. These must be viewed in conjunction with the risk 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. Thank you, Navinji. Thank you. Good afternoon, ladies and gentlemen. I am Sanjay Agarwal, MD and CEO of the company. I welcome you all on the earnings call of Century Plyboards (India) Limited for the year and quarter ended 31 March 2024. Before I proceed with call, I shall like to mention the customary disclaimer that this call is just for discussing company's historical numbers and future guidelines. In no way, it should be construed solicitation for investing in the company. I am accompanied by Mr. Keshav Bhajanka, Executive Director; and Mr. Arun Julasaria, CFO of the company. Results along with analytical presentation were hosted on company and the Stock Exchange website, and I hope you all have gone through the same. I will not like to spend time on repeating the same. Overall, top line for Q4 on quarter-on-quarter basis was up from INR 909.67 crores to INR 1,025.64 crores, higher by 12.7%. EBITDA improved from 12.3% to 15.3% while all segments contributed to top line growth. In this quarter, we have taken impairment of INR 19.60 crores on account of binding contract for disposal of our investment in subsidiary, Century Singapore Private Limited, which was building in operating overseas asset at Laos. Apart from this, we have also taken INR 4.46 crore impairment in respect of one more subsidiary, Century Infotech Limited, as its business is also nonoperational. With these impairments now, company is now not left out with any asset requiring impairment. During the quarter, the scheme of hiving off of CFS division to 100% SPV was finally approved by NCLT and given effect from appointment -- appointed date 1 April '22. During the year, greenfield Laminate and MDF units at Andhra Pradesh set up by company's wholly owned subsidiary, Century Panels Limited, commenced operations. Operations at both the units are gradually picking up. Our industry is facing increasing trend in cost of principal raw material timber, which cannot be passed on fully in view of sluggish demand, so profitability will remain moderate. In case of MDF industry, it's facing oversupply caused by recent addition of capacities, which are still to be absorbed by the market. Going forward, for current financial year, we expect double-digit top line growth across all segments. While Plywood segment is likely to grow nearly by 10% with EBITDA margin ranging between 12% to 14%, other segments will book higher growth by utilizing recently added new capacities. Laminate with the addition of capacity at Andhra is likely to grow at 20%, with EBITDA margins ranging from 10% to 12%. MDF also with addition of capacity at Andhra is likely to grow at 40%, with EBITDA margin of 15%. We expect new ongoing capacity of particle board at Chennai to commence operations by end of current financial year. If it happens early, we may have a better growth. Otherwise, particle board will remain flat. For looking after our MDF and particle board businesses, we have appointed Mr. Sumant Wattas as CEO. Mr. Sumant has been partnered with BCG, Boston Consulting Group, and has been associated with our consultancy projects for the last 4 years. He brings industry as well as professional expertise. With this, I rest my opening remarks and invite questions from you all.

[Operator Instructions] The first question is from the line of Keshav Lahoti from HDFC Securities.

Sir, remember, in last call, the Laminate outlook was we were expecting to be back to 13% to 15% in 2 to 4 quarters, the guidance was. But now laminates margin earlier, you used to guide 12%, you're guiding 10% to 12%. There's a sharp drop in margin guidance. So what has changed in the industry scenario?

Keshav here. I'd like to address that. See in Laminate, there's going to be a gradual ramp-up of the capacity that we have taken up in Andhra Pradesh. If you look at last quarter also, we have been 12% plus. There was a onetime exceptional write-off, which was because of an entry tax rates, which was quite a few years earlier. So because of that, the EBITDA margin is looking at sub-10%. Otherwise, if you take that 2.8% impact, we are 12.4%. However, the Andhra capacity is going to ramp up gradually and towards the same because the capacity has a very high depreciation factor and higher fixed overhead, we have guided for a lower EBITDA margin. In steady-state without Andhra, our margins will be anywhere between 12% to 14%.

Okay. Got it. So H2 should be like 12% to 15% right way to see H2 FY '25?

It will increase as Andhra scales up, but for the entire year, we're looking at 10% to 12%.

Got it. And Andhra would be your export-focused plant, right?

Yes. Andhra will be predominantly export-focused.

Got it. So normally, export margins would be better for you versus domestic?

We would have similar margins, but considering that these are large-sized compact laminates, there is a chance that margins could be slightly better going forward.

Got it. And particle board, in your opening commentary, you said flattish revenue in FY '25.

Particle board we have said flattish revenue because we are hoping or expecting that the new line comes into operation by Q4 of this year. However, as we have seen recently that due to this entire issue of Chinese technicians and engineers not getting visas, plants have been getting deferred by a few months. So if the plant comes into operation, we will definitely have a 25% growth for the year. However, if the plant takes a little time or it comes in operation towards the end of Q4, then this year will be flattish, and we'll get the benefit of the new plant from next year onwards.

Got it. Understood. One last question from my side, what is the ad spend for this year?

We have always had a targeted spend of 2% to 4%, and we are going to be within the same bracket.

[Operator Instructions] Next question is from the line of Praveen Sahay from Prabhudas Lilladher India.

Can you give the capacity for the Laminate right now?

Capacity for laminates. Just give me a second. You are asking for overall capacity?

Yes, overall capacity right now.

So our overall capacity post Andhra would be, just 1 second, this is all on a rated capacity basis. We will get you the data. Mr. Sanjay Agarwal, who is sitting with us, will share the data shortly.

Should I go ahead for second question?

Yes, yes.

Yes, please.

Yes. So the next question is related to the Plywood and in the Plywood, as you have guided for 10% of growth in the revenue, so how is the capacity they are -- capacity and the capacity utilization you are looking at and also the plant capacity at the Punjab when it is expected to come?

So the Punjab plant is still on the hold actually, we are not making much of a progress because of the raw material situation there in Punjab, and the future there also still looks bleak. So Punjab plant may or may not come up. But otherwise, also the load capacity -- so Plywood capacity is actually -- we had at a utilization of 87% in Q4. And for the whole year, we have used 81% of the capacity. So we still have possibility of increasing it by 10% this year. As far as capacity is concerned, there is no problem.

Okay. And related to the margin in this segment itself, if I look at your commentary, it is like facing increased trend in the raw material.

I'm unable to hear you, please speak be a little louder.

Yes. So related to the margin in the Plywood itself, as you had mentioned earlier in the commentary that facing increasing trend in the raw material, still you are guiding for 12% to 14% of a margin profile. So how it's possible with -- you are expecting some price hike or some product mix changes? What exactly you are looking at to deliver on the higher side of the margin?

See as far as our plywood is concerned, we are able to pass on some of the cost rise, like even in this May, even in this market, we have taken a 2% price rise. So -- and even last year, there has been some cost rise as far as the raw material is concerned, but still we have been able to deliver the EBITDA. So -- and because it is a branded product, it's possible we have delivered it in the past. So we are quite confident that within this year also, we'll be quite able to pass -- we'll be able to deliver. There is one more thing. You see our capacity utilization goes higher and higher, it makes a little bit of a difference as far as the costs are also concerned. I hope you understand that. So the capacity utilization from 80%, it goes to say 88% or 89%, that makes a difference to our bottom line.

Okay. And for a full year, how much of the price hike you have taken in the Plywood?

Last year, we have taken just a second. I have the right number.

Praveen, do you have any follow-up question?

I have one...

Last year, we have taken a 2% price rise.

Okay. Okay. Okay, sir. Sir, last question, sir, related to your MDF because if I look at your EBIT margin and EBITDA margin, there is a good amount of a difference. So is it only because of a new plant coming and depreciation numbers is on the higher side?

Can you repeat the question, please?

So for this quarter, if I look at your EBIT margin is nearly around 10% and EBITDA margin is around 16.5%, so there is a good amount of depreciation, is there in this quarter. So is it because of the Andhra unit which has commissioned or how to read these numbers?

Yes. You are talking of this figure. You are talking of consolidated figure or stand-alone?

No, no. I'm talking only about the MDF segment.

MDF figures from our PPT.

Yes. So for MDF figure from you PPT as well as from the result update.

Our PPT figures are stand-alone figures. So any depreciation of new plant is not factored in that.

Next question is from the line of Chirag Jain from Yogya Capital.

I was trying to more understand on the MDF side, which we are expanding into. The other players also are expanding into the same thing which you are trying to do. So what are you looking forward for FY '25 and '26 in terms of MDF segment? That was my first question now.

I think that if you look at MDF, for the coming year, our prime objective is going to be ramp up capacity utilization of the newly commissioned capacity in Andhra Pradesh. And I think we are very well poised to deliver a strong growth in the market because till now, we are focused on only the North market. This was because of our having capacity only in the North. Now with the South plant becoming operational, I think we can rapidly ramp up capacity. Next year, the objective, of course, will be to reach as close to full utilization of the expanded capacity as possible.

So don't you see something of price pressure -- thriving pressure coming up in the market due to a huge capacity coming into the market into the same year and everybody trying to ramp up their capacity in the same year?

I think that, yes, there will be pricing pressure. But given when you look at MDF, you need to look at it with a holistic picture. Today, if you look at the total capacity, I have seen that most people look at total capacity regardless of whether it is a continuous press or to the multi-daylight press. In MDF, as you well know, there is a clear 10% to 15% EBITDA difference between a continuous line and a multi-daylight press. So when we are talking about huge capacity additions, we should also factor in that at current EBITDA margins, it will be very difficult for multi-daylight players to survive. So going forward, if we only count the continuous capacity that is there in India, I think sooner rather than later, we will have equilibrium between demand and supply. So we have to see how it plays out. But for Century, we have always been able to ramp up our capacity faster than the industry. And I'm sure this trend will continue.

Without changing the realizations?

The realizations have dropped and we will change the realizations as and when the market dictates the same. I think that is something beyond your or my control. So going forward, we'll play it by the year. But yes, I'm fairly confident that we'll achieve the guidance like we have given.

Okay. Also second, my second question was on the prelam side. We have higher realizations in the prelam side. So why don't we focus on that side?

I think we do focus on that side. And we don't only have higher realization in prelam, we also have higher realizations across a range of products. For instance, our premium plus, which is a value-added product, has a far higher realization than DIR. So there is a continuous exercise to grow across our value-added products, and we have been growing year after year, quarter after quarter. You will see the trend continuing.

Yes. So what was the margin difference between a plain MDF and the prelam MDF?

We don't share that data.

Okay. Second question was on the Plywood side. The plywood industry of the unorganized segment is very -- it is lying almost 40% idle. So why don't we acquire some of them rather than expanding on our own?

See, the kind of industries with small units [ are ], today the kind of quality we make, it is impossible to manufacture that kind of a quality in these small units. We were discussing even internally that people must be wondering why don't we acquire, but there's no reason for us to acquire anymore.

Okay. Sir, last question before I get back in the queue. Can you please confirm the Andhra plant is coming up with the prelam MDF or the plain MDF?

We are coming up with every form of the MDF, including prelam. So you will see the Andhra plant having every SQ and every type of...

Sir, sorry to interrupt you. May I request you to speak a little louder, please?

Am I audible?

Yes, sir, now better.

The Andhra plant will have prelam and every other possible value-added product in India.

[Operator Instructions] Next question is from the line of Souvik Mohanty from Nuvama Wealth. The line for the participant is dropped. We move on to the next participant. The next question is from the line of [ Aditya Pal ] from MSA Capital Partners.

Am I audible?

Yes, you are.

Just quickly, I wanted to understand the split for laminates revenue between export and domestic.

Currently, our total split will be less than 25% towards exports, 75% domestic.

Okay. And sir, just wanted to get a bit on the qualitative side of things. How is the laminates revenue looking in the domestic market? Do you see a strong pickup, which are the growth pockets and what would be the -- on the competition side, how would things be panning out?

From Q2, we do see a strong growth. Q1, I think, could be a little affected because due to the election season, demand has been a little sluggish in laminates domestically. Q2 onwards, we are definitely seeing a strong growth. We are launching a new catalog with regards to our Laminate segment, which should help us. We are also launching 12 [indiscernible] as a result of the new capacity that has been commissioned in Andhra Pradesh. As such, overall, we are looking at 20% plus growth for the year as a whole with flattish Q1.

Understood. And sir, a bit on the -- how the -- are you seeing an increase in competitive intensity from the existing players? And second, sir, for Century going forward for Laminate segment, do you see exports being a bigger growth lever than domestic?

Currently, considering the base of exports is small, it's just the percentage of growth in exports is likely to be higher. This is also due to the fact that the under-capacity is predominantly dedicated towards exports with 2 larger size presses, but domestic shall also grow at a very healthy click. So we are seeing growth in both, but you're right, the percentage may increase a little more towards export.

Understood. Understood. And sir, any color on the competition?

I think laminate has always been a very competitive industry. But considering the current scenario, it is very similar to what it was earlier. It has not changed too much. But yes, we are working towards further differentiating our product categories to stand out more in the market and gaining some of the market share that we have perhaps lost in the domestic market in the past year.

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

Sir, just one question on the plywood side. One point is just to understand your assumptions of 10% top line growth, what would be the value and volume do you have?

This 10% projection is on the value side.

Yes. So volume would be like 7%, 8% and similar to [indiscernible].

Should be about 8%, 8.5%, yes.

Okay. Okay. And on the Plywood side, you indicated EBITDA margin anywhere between 12% to 14%. The assumption is more to look at the full year numbers of FY '24 when you were building it because Q4 of exit has been -- I know there is a seasonality, but Q4 has been about 15% or so. So it's more broadly...

What happens you see in Q4, there are always some additions, some subtraction, some things will provide it little higher earlier, you may credit or they were not provided a new debit and there were some -- advertisement expenditures were a little lesser in Q4. Production was a little higher than probably usual, but you have seen that for the last so many years, we are maintaining this 12% to 14%, and we have been very consistent. So that's why we believe -- otherwise, that way the things have changed with MDF from where to where the things have come. So market forces can force anybody to accept anything actually. But in plywood because of our brand and all, we have been able to maintain EBITDA. In some quarters, it might be a little higher or lower, but on an average, it will be between 12% to 14%.