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

Good day, ladies and gentlemen. Welcome to the Century Plywoods (India) Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities, SKP Securities Limited. Thank you, and over to you.

Good afternoon, ladies and gentlemen. I'm pleased to welcome you to this financial results conference call on behalf of Century Plywoods and SKP Securities. We have with us Mr. Sanjay Agarwal, MD and CEO; Mr. Keshav Bhajanka, Executive Director; Mrs. Nikita Bansal, Executive Director; along with Mr. Arun Julasaria, CFO; Mr. Sumant Wattas, CEO, MDF and Particle Board Business; and Mr. Vishu Goel, CEO, Laminates business. We'll have the opening remarks from Mr. Sanjay Agarwal, followed by a Q&A session. Thank you, and over to you, Mr. Agarwal.

Yes. Thanks, Navin. Good afternoon, everyone, and a very warm welcome to our Q1 FY '26-'27 earnings conference call. Before we begin, I would like to remind everyone that today's discussion may contain forward-looking statements, which are subject to various risks and uncertainties. These statements should not be construed as guarantees of future performance, and I would encourage all participants to refer to our detailed financial disclosures and investor presentation already available on the stock exchange website. I am pleased to share that Century Plyboards has started the new financial year with another quarter of strong execution. We delivered our highest ever quarterly consolidated revenue of INR 1,561 crores, representing a robust 33.5% year-on-year growth. Our EBITDA margin, excluding ForEx losses improved to 13.0% while profit after tax increased by 57% year-on-year to INR 83.3 crores. Now I will speak on individual businesses, plywood business. The company continues to strengthen its plywood business through both capacity expansion and brand building initiatives. The 60,000 CBM per annum greenfield plywood plant at Hoshiarpur is expected to commence operation in Q3 FY '27, while the Chennai brownfield expansion has increased capacity from 8,000 CBM per month in Q1 to 10,000 CBM per month in Q2 with a further increase to 12,500 CBM per month from Q3 FY '27. [indiscernible], the company hosted around 1,000 dealers and sales team members in Kolkata for its Prime Ply Day event, showcasing the superior attributes of Club Prime plywood versus competing products. Further to mitigate the impact of higher chemical input costs arising from geopolitical development, the company implemented about 7% price increase in April in the plywood business, largely passing on the increase in raw material costs. On the financial front, revenue increased by 32.4% year-on-year and 8.9% subsequently, while EBITDA margin improved to 16.9%, which is highest by any player in the industry. Laminates business. The laminates business maintained the strong momentum established in the previous quarter and delivered another robust performance. Revenue grew 14.7% year-on-year, while EBITDA margins remained healthy at 10.2%, reflecting improved product mix, better capacity utilization and operational efficiencies. As consumer preference continue to evolve, innovation remains a key differentiator for us. During the quarter, we launched the Century Laminates LookBook, The Trendz Edit 26-27, introducing a contemporary collection inspired by global design brands. The new catalog has received an encouraging response from architects, interior designers, partners and customers, further reinforcing our premium positioning in the decorative service segment. A new home press was commissioned and planned for export grade manufacturing at the end of July 26. MDF business. The MDF business reported another healthy year-on-year performance, although the quarter was impacted by the planned turnaround required for expansion of our Andhra Pradesh manufacturing facility. During the quarter, we expanded the capacity of our Andhra Pradesh MDF plant from 750 CBM per day to 950 CBM per day. This resulted in lower production and a sequential decline in revenue, the business delivered nearly 29% year-on-year revenue highlighting the strong underlying demand for end products. Particle Board Business. Our Particle Board business continued to sell well during the quarter. The revenue increased by 29% sequentially and 155.7% year-on-year, getting higher capacity utilization and growing acceptance of our products across quality manufacturers and OEM customers. While margins remain at an early stage due to the relatively recent [indiscernible] capacity, we remain confident that the increasing utilization levels, better product mix and operating leverage will continue to improve profitability over the coming quarters. Logistic Business. Our logistic business operated through one of our subsidiary companies continued to strengthen during the quarter. Operations at the Kidderpore Docks terminal had now stabilized and started contributing positively to the group. We continue to witness improving cargo handling volumes and increased customer acceptance. This business not only creates a new avenue for revenue diversification but also strengthens our supply chain capabilities and provides strategic integration benefit for our manufacturing businesses over the long term. Within a few months of start, we have achieved 9,000-plus container in only and product innovation at Century Plywoods. We believe sustainable market leadership is built not only through manufacturing excellence, but also through continuous innovation and stronger consumer engagement. During the quarter, we introduced Century HDF Premium Plus campaign titled Hara Board Ka Asli Boss featuring cricketer Rahul Dravid and actor Saurabh Shukla. The campaign harnesses Rahul Dravid's enduring image as Mr. Dependable to build trust for the product and the brand. It is built on consumer insight that by making long-term investment for their homes, consumers seek trusted quality over all claims. The product has been well received in the market and further enhances our portfolio in the interior infrastructure segment. One of the key highlights of the second quarter is the launch of our industry's first Total Power Assurance Program for Club Prime plywood. This initiative reflects our confidence in product quality and reinforces our commitment to our customer satisfaction and trust. Now if you buy Century Club Prime and Arcade plywood, we will compensate the full cost of that furniture if there is any problem with the furniture. So this is the first time in India, rather maybe first time in the whole world such a guarantee is being placed and we are able to place it because we have the confidence in the quality and we have tested everything in last 2 years. To further strengthen consumer connect, we also launched a new nationwide campaign featuring Amir Khan and Chatur from Three Idiots, highlighting the total cover proposition of Club Prime. The company came up with this concept that reimburses the cost of defective plywood together with the furniture related costs arising from the defect plywood or veneers, adhesive labor and transportation within 10 years of the purchase. This campaign reinforces CenturyPly's positioning as India's most trusted plywood brand. We are becoming increasing customer centric with our efforts focused on making easier for customers to engage with our brands. We have undertaken several specific initiatives to enhance the ease of doing business, simplify customer interaction and deliver a seamless experience across every touch point. Financial overview. From a financial perspective, the quarter reflected improved profitability and disciplined growth. Our ROE improved from 13.1% to 13.5%, while return on capital ROCE increased from 13.4% to 14.4%, respectively. Improvement in this result ratio reflects the benefit of our strategy sweating the assets created over the last few years. As utilization levels across our manufacturing facilities continue to improve, we are witnessing stronger operating leverage resulting in higher profitability and better returns on capital employed. With most of our recent capacity additions now operational, our focus remains on driving higher utilization, improving asset productivity and generating sustainable returns through disciplined capital allocation rather than pursuing aggressive capital expenditure. We believe this approach will continue to enhance shareholder value while supporting profitable long-term growth. I would like to thank all our employees, channel partners, customers, shareholders and other stakeholders for their continued trust and support. With that, I conclude my opening remarks and thanks. We are now open to take any questions from your end.

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

And congratulations on good growth numbers. A couple of questions from my end. I wanted to understand deep down a bit on Plywood segment. Now this is one segment which is surprising us every quarter positively. This quarter, we have seen a 29% growth in terms of your volume. What's really happening here? Is the industry growing at that trend? Or are we still continuing to gain market share? And what's the visibility out here in terms of market share? Where are we right now and till where can we reach? That's first one.

So the thing is we -- in this industry, you know that taking out market share data is very difficult because of how highly unorganized it is. However, this is some internal working that we do. We ended last year at around 9.5% to 10% market share. I'm talking as an industry, not as a branded segment. As an industry, we were at 9.5% to 10%. My goal is to reach 15% in the coming 5 years. Where are we after Q1, very difficult to say because we don't track this data on a quarterly level. And answering the second part of the question that is the industry growing and how have we got this growth? The industry is growing at 5% to 7%. Whatever we are growing today has come on 2 reasons. One, definitely, there was a massive price increase that we had in Q1. It was -- we took a 7% price increase. That definitely a lot of dealers stocked our material. Despite that also, June was a good month as well for us. So I would say it's a combination of all our efforts plus the price increase why we have got the 30% growth.

That was very clear. My second question is pertaining to balance sheet, while Century is clicking all the boxes in terms of growth. And hopefully, margins will also suddenly improve, like I think, Keshav, you have mentioned on the interview today. What I wanted to understand is when are we going to see balance sheet improvement? ROCEs have been under pressure for quite some time. And we have announced additional CapEx as well. So what are our thoughts in terms of deleveraging our balance sheet?

Basically, we have been improving and strengthening our balance sheet. I know it looks like the debt is going up, but that is because when you're growing at 33% in an industry which has 60 days working capital, that does take an impact. However, having said that, our cash flows remain robust. Our ROCE has improved by close to 1 percentage last quarter itself, and we are looking to increase ROCE further. For the short term, I think there is no large CapEx that has been planned. We're talking about plywood unit, which would have a CapEx of close to INR 200 crores. And in Uttar Pradesh as well. Right now, the planning is for the plywood unit in itself. So there's no large CapEx planned. So I think the maximum amount of cash flow that we are going to be generating will go towards repayment of debt. So you should see the balance sheet strengthening. But when you are growing at 30% plus at that point in time, working capital requirements will be there, which is why you have seen a slight increase in the working capital quantum.

Can we expect this to improve in the second half of the year with MDF margins improving like you've mentioned?

Hopefully earlier, but yes, there will definitely be improvement in the second half of the year.

We take the next question from the line of Rahul Agarwal from IKIGAI Asset Manager.

Sir, 3 quick questions. Firstly, on the value-added mix for MDF. Now the presentation you disclosed, it talks about -- you sold about 1 lakh CBM of that 20,000 CBM was prelaminated. But I'm sure you do a much more value-added share into MDF, right? So what is the right number to look at in terms of value-added MDF sold on a full year?

We don't share these numbers, Rahul. So pre-lam that is the only number that we have shared and we have done that over the course of the past many years. But as you know, value-added includes our assembled plus, our Premium Plus category, DWR category and other products as well. So if you combine all of those, the percentage would be much higher, as you have rightly pointed out, but we don't share those numbers. What I can tell you is that right now, the entire focus of the company is on increasing the value-added percentage.

Okay. Got that. But fair to say upwards of 40%, 45%.

So that is an estimate on your part.

Okay. No problem. And just last 2 quick questions. Outlook for MDF in terms of full year revenue growth and margins after this capacity increase. If you could just give some ballpark for revenue growth and margins for...

Currently, we have stopped giving guidance. The reason we have stopped giving guidance is because the situation is very volatile. One week, there is war, 1 week there is peace, the next week, there is I don't know what. So what I can say is that we have guided that we will head towards 15% plus margin. That is our objective. Our objective is to reach towards that as soon as possible, and we are going to be heading towards the same. On the other hand, as far as growth is concerned, I think you have seen a strong growth in Q1 as well. And going forward, we are going to try and keep a good growth trajectory for the current year. The reason we are not giving guidance right now is because the situation remains very volatile. Any guidance you would have given you for Q1, we would have overachieved. So the situation is a little volatile. Hence, we are refraining. But maybe once stability returns, we'll give you proper guidance.

Got it. And just lastly, on CapEx, just the cash outflow CapEx for fiscal '27, if you could just give me that number?

There isn't a substantial fixed outflow CapEx. Right now, we are investing towards the Hoshiarpur plant completion. There is some brownfield CapEx. The new press in laminates would have cost us about INR 25 crores total CapEx. The first 2 presses had costed about INR 200 crores. The third press has taken about INR 25 crores because you know the infrastructure, et cetera, everything is ready, and we have detailed it out. But the incremental brownfield CapEx in plywood and laminate is not -- is never that high usually. For MDF and Particle Board, there is no large CapEx that is currently being planned.

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

Congratulations on good set of numbers. I understand war have sort of created a situation how pricing will move. Possibly, we might not have clue on surely on the margin side. But possibly, surely, we can talk on the volume growth.

Your voice is not very clear.

Is it better now?

Yes, of course, of course.

Yes. So I was saying I understand because of war cost and the prices of the products are quite volatile, but surely, the impact on the demand broadly doesn't look to be much because of war. Is it possible to give volume guidance for your products?

It's very difficult to ascertain whether what you have said is correct or not and whether that is going to last or not. So at this point in time, I don't think we can give any volume guidance. We are refraining from the same because it remains very fluid. However, the objective will be to grow as we have done in the recent few years and perhaps to deliver greater margins quarter after quarter.

Got it. Got it. And one second question on the ply side. We have been seeing a consistent outperformance in ply volume, which is sort of a sustainable number because still, as you correctly highlighted, you are just at 10% market share. So this business can sort of grow by 10%, 15% if we take a next 4, 5 years view?

That is the aim. I believe that if we have to achieve 15% market share over the next 5 years, we have to grow by 12% to 15% year-on-year. So I think that is the aim. And we always look forward to giving little reserved numbers and outperforming those numbers.

Okay. That is good to hear. One last question from my side. How is the channel inventory at June end?

Well, July has been the highest ever month till date. So I think it has been okay only.

We take the next question from the line of Utkarsh Nopany from Anand Rathi Share and Stock Brokers Limited.

Sir, my first question is regarding your greenfield project in UP and Odisha. So like as we are not looking for any large CapEx in the coming quarters, so whether there has been any change in the project time line for UP and Odisha project?

So with respect to UP, we still do not have the land in our hands. We aim to get the land before this year-end. Post that, we will first start with our plywood plant. We're expecting it to go live if we receive the land on time by April '28. So Q1 of '28 is what we are looking at. In terms of Odisha, we are still in the talks with the government. We've still not chosen a land that works for us, et cetera. So that will take time. Once we have more updates on that, I will provide it.

Okay. And for the MDF project in UP, by what time line it is expected to come on stream?

Currently, we have not finalized. We are still in a wait and watch position as far as the timing of the MDF project in UP is concerned. So the project will definitely come, but in all likelihood, it will come with a lag to the plywood unit.

Okay. And sir, like for MDF, like we have increased our capacity in Andhra Pradesh by doing some minor CapEx in this quarter. So wanted to know, is it also possible to increase our Particle Board capacity from 240,000 to around 3 lakh by doing some minor CapEx in future?

No. This was predesigned prior to the line being purchased. We had actually purchased the line in 2 parts so that we could ramp up and take advantage later when the demand started picking up. So this was a single -- it was a different form of CapEx or a different form of brownfield investment, which I don't think can be replicated. Yes, through efficiencies, we should be able to increase our capacity in Particle Board, but I don't think that 20% plus quantum will be likely.

Okay. And sir, lastly, for laminate, like our volume in Q1 has degrown due to the size adjustment. So wanted to know whether the same trend of weak volume and higher realization is likely to continue for the next 3 quarters?

The objective would be to grow across all segments, whether it is HPL or compact. So I think that we are looking to grow both in domestic in the HPL format and in exports in the compact format. So hopefully, you will see increase in both. But large sizes, we are seeing increasing traction because we are late entrants to the market.

Okay. So sir, just wanted to know whether we are going to see positive volume growth in the coming quarters or not in the laminate because of the change in the product mix?

Again, we have stopped giving guidance. So it's very difficult for me to tell you anything further on this. However, like I said, we are looking to grow both in domestic and in exports. Domestic, the growth is more from thin laminate. And export, the growth will be more from compact laminates.

We take the next question from the line of Hrishikesh from Kotak Mutual Fund.