Century Plyboards (India) Limited (CENTURYPLY.NS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to Century Plyboards (India) Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head Institutional Equities, SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentleman. I'm pleased 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. Arun Julasaria, CFO; Mr. Sumant Wattas, CEO, MDF and Particle Boards business; and Mr. Vishu Goel, CEO, Laminates Business. We have the opening remarks from Mr. Sanjay Agarwal, followed by a Q&A session. Thank you, and over to you, Sanjay-ji.

Thank you. Good afternoon, everyone, and a very warm welcome to our Q2 FY '25 earnings conference call. Before we begin, please note the standard disclaimer. Today's discussion will cover the company's past performance and future outlook and is not intended as a solicitation to invest. The earnings results and analytical presentation have been shared with you and are also available on the stock exchange website. The company delivered a strong and broad-based performance during the quarter, with growth across all key business segments. Our performance underscores the resilience of our business model, the strength of our brands and the success of our ongoing initiatives to enhance productivity and operational efficiency. At the consolidated level, the company delivered a robust performance with ever highest quarterly revenue of INR 1,386 crores, up 17.1% year-on-year. This growth was driven by healthy demand pull of our products and robust performance from our newly commissioned limits. On a half yearly basis, H1 revenue was 16.7% higher over the same period last year, demonstrating our ability to sustain momentum despite a challenging macroeconomic backdrop. In terms of profitability, again, at the consolidated level, the company delivered given ever highest EBITDA ex ForEx of INR 181.7 crores. EBITDA margin ex ForEx improved to 13.1% versus 10.3% in Q2 FY '24. This improvement was primarily supported by higher volumes and the benefits of our ongoing cost optimization programs. We have also taken meaningful steps to strengthen our balance sheet efficiency. On a stand-alone basis, our working capital cycle reduced to 63 days as compared to 76 days at the end of FY '24. On consolidated level, it has improved to 70 days from 74 days. This was achieved through tighter inventory management, improved payable management and efficient cash flow discipline across divisions. Overall, the quarter reflects not just growth, but also improving quality of earnings. Segmental performance. Let me now take you through the detailed performance of each of our business segments. Plywood segment. The plywood business delivered an exceptional quarter, achieving its highest-ever quarterly revenue of INR 760 crores, registering a 16% growth year-on-year and 17.5% sequential growth quarter-on-quarter. This performance was supported by healthy volume growth and improved distribution reach. EBITDA margin stood at 14.2%, supported by higher volumes and stable input prices. Laminate segment. The laminate division continued to improve its performance trajectory. Revenue, which is at ever highest quarterly revenue at INR 188 crores, at the consolidated level grew by 16.6% year-on-year and 8.4% quarter-over-quarter. We are witnessing encouraging demand both in the domestic market and exports, especially from design-driven and premium SKUs. The EBITDA margin expanded to 9.5% supported by better cost absorption, favorable product mix and internal efficiency initiatives. Going ahead, we expect steady improvement in both volumes and profitability as the segment continues to benefit from the brand's strong recall and enhanced manufacturing scale. Now I will move to MDF segment. Our MDF business continues to deliver robust growth with revenue increasing 27.9% year-on-year and 32.4% sequentially and clocking ever highest quarterly revenue at INR 343 crores. The growth was primarily driven by higher volumes of tech and improved plant utilization across units. While EBITDA margin stood at 13.6% against 14.3% in the previous quarter, a slight moderation was due to temporary cost pressure. Now to Particle Board segment. We are pleased to inform you the new Particle Board plant commenced commercial production and sales during the quarter. As expected, EBITDA for this business remains under pressure due to higher fixed costs during the ramp-up phase. Financial overview. From a financial perspective, Q2 reflects consistent improvement in both scale and quality of earnings. Our continued focus on operational excellence and disciplined capital allocation has helped us maintain healthy return ratios. We also remain committed to investing in brand building, technology upgrades and distribution enhancement to support long-term growth. Cash flows from operations have improved to INR 269.4 crores in H1 against negative INR 2.73 crores in FY '24-'25, enabling us to fund CapEx requirement and largely through internal accruals. Looking ahead, we expect the growth momentum to continue across all major business segments. The medium-term outlook for the building material and interior solution industry remains positive, supported by rising urbanization, higher disposable income and increased consumer preference for branded and premium products. With a diversified product portfolio, a strong brand, expanding distribution network and upcoming capacity additions, Century Plyboards is well positioned to deliver sustainable revenue growth in the coming quarters. We will continue to focus on value creation through operational efficiency, prudent financial management and responsible growth, keeping shareholder return at the core of our strategy. That concludes our management commentary. We will now open the floor for questions.

[Operator Instructions] We'll take our first question from the line of Keshav Lahoti from HDFC Securities.

Firstly, congratulation on a strong set of numbers in all segments. I want to understand, firstly, laminates, you are planning for a debottlenecking. If I see this quarter, I was saying in MDF, you are planning for debottlenecking, right, in H2 in earlier call, you highlighted. So is that running on track? Do you plan to do it in H2? Any change?

So we're talking about MDF or laminates?

Yes, MDF.

This is Sumant here. we are planning for an extension -- line extension on our South plant, which will increase capacity of the South plant by about 25%. We will not do it in H2 of this year. It will most likely happen in H1 of next year.

Understood. Got it. As I can see this quarter, your MDF plant would be operating at 85% utilization, which you say is the peak utilization in Q2. So do you feel you will face capacity constraint in this segment when you talk about demand is growing by 20%, 25%. And even after line extension, overall at the group level, the capacity will just increase by 10%. So how do you feel to service the demand for next 2 to 3 years? What is the view on that?

So, you're correct. I mean as of now, we have healthy utilization levels. It's about 80% across both our plants, North and South. In H1, like I mentioned, we'll take a line extension, which will take our capacity from the current 5 lakh -- 5.25 lakh cubic meters to about 6 lakh cubic meters next year. So that's a bit of capacity [relief] as of now, we are bullish on the industry. The industry will grow by 15%, 20%, and that's our outlook as well. With the current capacity, we'll continue to optimize for product mix, value added, so on and so forth. And internally, we are deliberately [indiscernible] on how to think about future capacity expansion, but nothing concrete at this point in time.

Understood. Got it. But anything you can say from initial discussion, what are the thoughts. You want to put up a new plant, whether it will be brownfield possibly when you are planning maybe in FY '28, we will do something because maybe till FY '27, we'll have the capacity maybe in FY '28 peak quarter, you might face capacity constraint?

Look, all options are open on the table. It's a bit too early to comment.

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

So sir, my question is related to laminate. Definitely, like revenue growth is there, but it's largely due to a realization improvement. So can you give some color on how mix has changed, which product or which market basically the expansion and which led to the realization improvement and how it is sustainable?

Thanks for the question. So I think 2, 3 areas, okay? One, to the question of how the product mix has changed. So this is a broad-based kind of recovery we are seeing, okay? And this actually expands both for our domestic as well as our international operations. So at this stage, it is not a specific geography or the set of geographies wherein we are working towards the improvement of the product mix. However, this is a more broad-based strategy change which we are looking at wherein the premium mix is something which we are pushing and that actually is impacting our realizations in a positive way. So that's where we are working on.

And that's sustainable in the nature way forward, we will see continued such kind of realization.

Yes. So it should be sustainable because as we move forward, we are now proactively looking at avenues in terms of the entire ecosystem, specifically the influencers, including the architects, some of the premium markets as far as exports are concerned and a certain conscious effort to look at a high premium product mix, both for our international as well as our domestic markets. So we strongly believe that as we move forward, the premiumization on the category is something which will continue.

See basically, the train of laminate had derailed for the experiments very serious, very deep experiments we were doing, and they were not really working. So it was like a train which derailed. But now actually, it has come on the rails that you can see, it is progressing. Now very soon, in a year or so, you will see we'll be back absolutely on the full swing. That is [indiscernible] derailed.

Good, sir. Sir, next question is related to particle board, even though that contribution is very low, but your guidance is 40% for our sales growth. But in the first half, there is a decline in the revenue. So how in the second half, you are looking at very exponential growth?

Yes. Thank you for the question. In the sort of Q2 revenue and volume numbers that you see, there's a footnote about 10,000, 11,000 million cubic meters of sales we actually capitalized, which is about INR 23 crores of sales. If you take that into account, these are trial sales of trial material, which [indiscernible] need to be capitalized. So if you take that into account, Q2 actually has seen expansion and growth as compared to Q1. And hence, we are quite confident of the 40% guidance that we've given. The 40% growth potentially means ending the year at about INR 200-odd crores, if I take the trial sales into account because we already at INR 54 crores, INR 55 crores quarter for Q2. Even if I maintain the same run rate, which we are quite hopeful of surpassing, we should be able to hit that 40% guidance.

Next question is from the line of Sneha Talreja from Nuvama.

Sir, just 2 questions from my end. Actually, I just wanted to understand, if I'm not wrong you've already spoken about this particular quarter, we have seen some impact on the MDF side of it.

I can't hear clearly, actually. Hello? Your voice is not very clear.

just wanted to understand the raw material cost impact on the MDF front, although I understand we have seen some increase in prices. Have you already started seeing decline there or that's still on an elevated level? If yes, by when can we see easing out of those raw material prices? And what impact did it have on our margin level?

Yes. So Sneha, thanks for your question. Look, this quarter, there was pressure on raw materials on both wood and chemicals. Let me take it one by one. On wood, especially in North, there was a pressure on account of supply shortage in Punjab where our plant is, there were significant rains and floods. And as a result of it, there was availability constraint and cost pressure on timber in North. However, having said that, South continues to stabilize and maybe even soften a bit. This is a temporary phenomenon. It is stabilizing he on the wood front. On chemicals, again, we don't see the cost pressure to sustain. It's a temporary blip. As you are aware, most of our chemicals are basic chemicals linked to global commodity movements and global freight movements, be it natural gas or be it crude. We believe this will also stabilize in a month or so.

Understood, sir. Secondly, just wanted to get a clarity on your particle board decision in this particular quarter, of course, we capitalized everything and you have made trial runs. How is the response in the market? And how do we see gradual run rate improving from here?

Yes. So, there's this plant that we've commissioned is a top-of-the-line [indiscernible] and the technology is actually quite cutting edge. The board that have come out has received very good feedback from the market. The board quality, the surface quality, et cetera, is very, very robust. So we're very hopeful of a good response in the coming quarters and a good scale up.

Sneha, the quality of the particle board has come out so that we are very, very confident that selling it will not be difficult for us. Of course, the market prices will prevail, but selling it will not be very difficult, and we'll be able to ramp up soon.

We'll take our next question from the line of Amit Purohit from Elara.

Sir, just on the segmental wise, if you could help us in, one, any price increase that you would have taken in the plywood or MDF segment and also the cost pressure in terms of the timber pricing for plywood and MDF?

As far as plywood is concerned, there are no cost pressures. A little bit of prices have softened in India. So some of the manufacturers, the small ones are using more of local material. And it's good for us because we want to manage quality and the pressure which was there on imports is a little bit reducing. So neither there is any increase of prices nor there is any reduction in prices. And that's why we have also not increased any prices on our products. Whether we are getting benefit because of the volumes increase, the automatic cost reduction happens a little [indiscernible]. That's how the EBITDA is a little better.

On MDF, sir?

On MDF, pricing, [indiscernible] we haven't taken any structural price increases nor have we taken any structural price decrease. So Q-o-Q on realization that you see is mostly on account of product mix [indiscernible] and we expect going forward as well prices to remain stable. On cost pressures, like I mentioned, there have been temporary pressure this quarter, both on timber on account of monsoon floods, especially in North and also temporary pressure on account of global fuels in crude and natural gas as well as shipping on the chemical side. However, these are temporary blips. We expect things to stabilize this quarter.

Okay. And generally, sir, on the demand environment, many of the companies have talked about that there has been extended monsoon, which had an impact on the consumption in general. But when I see our numbers, we don't see anything -- any impact. In fact, there has been a bit of an improvement only sequentially, if I look at even plywood volumes or even for that matter, MDF volumes. So what would you ascribe it to? Is it -- I mean, the thing that earlier was talked about that after 2, 3 years of real estate cycle or the plywood or the decorative segment starts to do well. Is that the benefit? Or this is something to do with the internal initiatives that we have taken on with distribution as well as on the intermediary side focus that is helping us to gain. What is the market environment now?

I don't think that there is much change in the market. And you have to see that we are in an industry in plywood, we hardly have any market share. It is below 10%. So there is a huge possibility. So in such situation where you are below 10%, even if the total growth is not very good, still we have a lot of space headroom to actually achieve. But we see that there is a good demand in the market. And you have to -- again, remember that the quality assurance order has stopped all the imports of whether it is MDF or whether plywood by 80%, 10%, 20% is still getting imported. So that is helping MDF also and that is helping plywood also. So I don't see that for us because we are doing everything possible under the sun, whether it is branding or expansion of people, no new measures to gain market share, always we are there in the market totally. So -- and it has worked earlier. It is working now, and we certainly hope that it will work in the future also.

[Operator Instructions] Next question is from the line of Hrishikesh from Kotak Mutual Fund.

Sir, just if I look at your MDF margin probably this 13.5% is at a reasonable utilization of 70% plus. So obviously, we can't take a call on the pricing, but how much is the scope on the product mix side do we have to improve? Because utilization, if I look at it, there's very little runway considering we are now almost close to high-density MDF also we are selling. So how much on the product mix side or customer mix side do we have in terms of to get the margin up further?

Hrishikesh, thanks for your question. I think while we are [indiscernible] on value-added products I think there's a lot more scope. And as a company, we endeavor to really push the [indiscernible] on high-margin value-added products. So I think there's significant way to go there in terms of both geography mix and product mix from our perspective. If you look at the current margin number, you also have to factor in a little bit of temporary blip on account of RM that I spoke about. So I think going forward, we at least endeavor to really up our game further on value-added and also therefore see improvement in margins. But this takes time. I mean this is a long-term game, and we have to invest behind marketing, R&D and a lot of other focused programs on the influencer side as well. But we believe there's sufficient room to grow there.

Do you feel that potentially 20% margin is possible, assuming at the current realization without much price hikes based on the improvement in product mix or whatever you spoke about, let's say, at the exit of March or probably next year?

Look, it's hard to put the timelines to when we take those margin levels, but it is in a steady state with value-added maxed out and all temporary [indiscernible] out of the way, maybe high-teens is a possibility.