Century Plyboards (India) Ltd. — Call Transcript 2022

Nov 15, 2022

Date: 14th November, 2022

BSE Ltd.	National Stock Exchange of India Ltd.
Phiroze Jeejeebhoy Towers	Exchange Plaza, Bandra Kurla Complex,
Dalal Street	Bandra (E)
Mumbai-400 001	Mumbai-400 051
Scrip Code: 532548	Scrip Name-Centuryply

Dear Sir(s)/ Madam(s)

Sub: Transcript of the conference call for Unaudited Financial Results for the Quarter and half year ended 30th September, 2022

In terms of Regulation 30 read with Schedule III of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we forward herewith the transcript of the conference call with Investors and analysts held on Friday, 11th November, 2022 for Unaudited Financial Results for the quarter and half year ended 30th September, 2022.

This is for your information and record.

Thanking you, Yours faithfully, For Century Plyboards (India) Ltd.

Sundeep Jhunjhunwala Digitally signed by Sundeep Jhunjhunwala Date: 2022.11.15 13:36:22 +05'30'

Company Secretary

"Century Plyboards Limited Q2 FY 23 Earnings Conference Call"

November 11, 2022

MANAGEMENT:	MR.KESHAV BHAJANKA -EXECUTIVE DIRECTOR
	OF CENTURY PLYBOARD
	MS.NIKITA BANSAL -EXECUTIVE DIRECTOR
	MR.ARUN JULASARIA–CFO
	MR.NEHAL SHAH -CSO.
MODERATOR:	MR.AASIM BHARDE -DAMCAPITAL ADVISORS

LIMITED

Moderator:	Ladies and gentlemen, good day, and welcome to the Q2 FY'23Earnings Conference Call of Century Ply hosted by DAM CapitalAdvisors Limited. Before the call, I would like to give a disclaimer thatthis call is just to discuss the company's historical numbers andfuture perspectives and in no way this should be constitute as aninvitation to invest in the shares of the company. As a reminder, allparticipant lines will be in the listen only mode. And there will be anopportunity for you to ask questions after the presentation concludes.Should you need assistance during the conference call please signalan operator by pressing '*' then '0' on your touchtone phone. Pleasenote that this conference is being recorded.
	I now hand the conference over to Mr. Aasim Bharde from DAMCapital Advisors Limited. Thank you, and over to you, sir.
Aasim Bharde:	Thanks, Vivian, and good evening, everyone. On behalf of DAMCapital Advisors, I welcome you all to Century Plyboards Q2 FY'23earnings call. We have the senior management from the companywith us on the line. I will now hand over the floor to Mr. KeshavBhajanka, Executive Director. Thank you, and over to you, Keshav.
Keshav Bhajanka:	Thank you, everyone, for taking your valuable time out for attendingthe Q2 FY'23 Century Plyboards Investor Conference Call. I amKeshav Bhajanka, Executive Director of Century Plyboard. I havealongside me, Ms. Nikita Bansal, Executive Director; Mr. ArunJulasaria, CFO; and Mr. Nehal Shah, CSO. I presume that every oneof you would have gone through our numbers in detail. Let me stillbrief you on the key highlights of Q2.
	At the onset, it gives me immense pleasure to share that we havedone very strong cash flow generation of INR223 crore for the firsthalf of the fiscal, despite huge inflationary pressure that the industryhas seen in the recent past. After delivering record sales in Q2, Q3and Q4 of last year, we have achieved another record sales of overINR900 crorerevenue in the second quarter. Our plywood andlaminate segment revenue recorded 9% and 8% growth Y-o-Y, whileMDF and particle board segment revenue grew 23% and 24% Y-o-Yfor the quarter. With the sustained input cost pressure in most of thewood panel segment, our overall gross margins were impacted by 90basis points on a sequential basis to 33.15%.
	The company, however, was able to improve its overall adjustedEBITDA margin marginally by 20 basis points to 17.3% on asequential basis. While our plywood and laminate EBITDA marginsimproved, we saw a considerable drop in EBITDA margin on asequential basis in our MDF and particle board segment. This hasbeen driven by steadily rising timber and select chemical prices andoperating deleverage. The reported margins in these segments were,however, are still higher than our guided EBITDA margins of 25%from both the success. It may be noted that the input cost inflationhas softened a bit post Q2, while core revenue prices have come offslightly over the past few days, chemical prices, particularly phenol,

melamine have softened a bit in Q2 and are likely to further soften in the next couple of months.

For MDF, in particular, the timber prices, however, continue to remain slightly elevated. We have taken no price increases in any of our segments over the course of this quarter. Our India brownfield expansion at Hoshiarpur is as per schedule and is expected to come on stream by November 2022. Our South MDF CapEx has received all requisite of approvals and the machinery has been ordered. We expect the facility to come on stream in H2 FY'24.

Our greenfield laminate manufacturing unit in AP will come up in 2 phases. The first phase is expected to become operational in Q2 FY'24. Our greenfield particle board project in Chennai, the Board has approved investing in a large particle board project with a capacity of 1,200 cubic meters with an investment outlay of INR550 crore. We expect the plan to commission in Q4 FY'25. Our working capital stands reduced by 3 more days to 55 days in Q2. We remain a net cash positive company with net cash position of INR176 crore as of 30th of September.

Our Q2 ROCE stood at 22.22%, but adjusted for one-offs, the impairment loss in Myanmar and the entry tax reversal, the ROCE for the quarter stand at 29% plus. We have taken an impairment on our investments in Myanmar subsidiary to the extent of INR47 crore in Q2. This would reduce losses to the extent of INR5 crore to INR 6 crore per annum on the consolidated books year-on-year as it has become nearly impossible to conduct business in Myanmar due to the change in regime.

We have written back our earlier provided entry tax was INR14.25 crore relating to prior year after favorable verdict. Despite the challenging business environment, we continue to maintain our FY'23 revenue growth guidance of 20% plus for the company. The segment-wise growth rising is plywood 15% volume and 20% value growth, laminate 15% volume and value growth, MDF 20% volume and value growth, particle board 10% volume and 20% value growth. We also maintained our margin guidance for our business segments, plywood 13% to 15%, laminate 14% to 16%; and MDF and particle board 25%. Thank you.

Moderator: The first question is from the line of Rahul Agarwal from InCred Capital.

Rahul Agarwal: Keshav, 3 questions. Firstly, companies getting into a very high CapEx mode. It's obviously positive as you see sustained demand and opportunities there, but the execution risks are increasing in terms of land acquisition delay cost, overrun, labor requirement, deployment, stuff like that. Any thoughts in terms of how do you basically manage this risk going into next 3 years because we're going to be into high CapEx mode for almost 2 years from now. That's my first question.

Keshav Bhajanka: So you are absolutely right. We are going to a high CapEx mode. And you see we are taking a number of initiatives, for instance, the particle board plant that you have just heard. We already have

	acquired the land. We've got the land from SIPCOT in Tamil Nadu.And that is a big release because, as you know, acquisitional landbecomes a substantial challenge. As for delays and cost overruns,you're completely,there is a cost overrun environment todaybecause of the high steel prices and high prices so on and so forth.But I think we able to provision for that to whatever extent possible,the ROCs on the unit even considering the higher CapEx costs arestill fairly healthy. And one way that we are managing to this is bycreating a very strong execution fee. I think this has helped us in thepast and even today, it is helping us in set up the most economicaland viable unit possible.
Rahul Agarwal:	So in terms of manpower deployment, both at senior leadership plusmiddle management because you have so many plants coming up,how's that really going on right now?
Keshav Bhajanka:	That is actually our first and top most priority, and we have expandedthe team substantially over the course of the past few months. Thiswas the first thought that came into our mind as to who is going toexecute.Butthankfully,we'vebeenabletoonboardseniormanagement and very, very good resources. I would say. This hasgiven us a lot of confidence that we'll be able to deliver on our CapXprojects on time.
Rahul Agarwal:	Got that. Secondly, you mentioned, MDF particle board margin is25% plus. That is for the current year. But if you could just sharewhat is really happening from an industry perspective, going into next12 months? And what do you think about margins going into '24 andfiscal '25, like sustainable, I know the range is 2025, but if you couldgive any indication please?
Keshav Bhajanka:	You see, the reason we say 25%, even though the previous quartermay have been 30% plus something that quarter, because there willbe ups and downs. Right now there is pressure because importprices have come down due to shipping rates reducing. But despitethat, we are being able to maintain decent margins. Going forward,again, there is going to be a scenario in the industry, say 12 or 18months down the line, where there's going to be a overcapacity andat that point in time, margins might get squeezed temporarily. Butgoing forward long term, I think sustainable margins for us would be25% or there about, because I believe that with our brand, with oursupply chain excellence, we'll be able to generate substantiallyhigher margins compared to the rest of the industry. And I think 20%is somewhat of a requirement if you want to set up a very high CapExplant in either of these two products.
Rahul Agarwal:	So 25% is applicable both to MDF and particle board going into likelong term, right, sustainable?
Keshav Bhajanka:	Yes, there could be phases where margins are slightly lower andthere will be phases where margins are definitely higher, but longterm sustainable margins or are looking at 25%.
Rahul Agarwal:	I understand that. And lastly if I may, just on the overall EBITDAmargins, obviously there are a lot of moving parts now, given yournew capacities largely coming up in fiscal '24, and lot of that are also

value added. Next 3 years, I would imagine purely because assuming that MDF particle would also normalize between this 25% band, the company should make about 15 to 16% at a company level. Is that fair to assume? I know there is no perfect answer to this, but just as a range next 3 years is that okay?

• Keshav Bhajanka: Very good question was making me think. But see, we have all these cases that our objective is that we will attempt for 13% to 15% in the ply, 14 to 16% in laminates, and will attempt for 25% in both MDF and particle board. That is continuing our endeavor. That is what we are targeting. If we achieve all of these, then definitely we should have 16%, 17% margin for the company.
• Moderator: The next question is from the line of Venkatesh Balasubramaniam from Axis Capital. Kindly proceed.
• Venkatesh Balasubramaniam: One simple bookkeeping question. The Myanmar subsidiary write-off of INR47 crore that is very clear in the standalone numbers, right? It's put out an exceptional or an extraordinary item. Now where is the adjustment in the consolidated numbers for this onetime write-off? Actually, first of all, is the write-off for INR47 crore in the consolidated numbers, or it is INR29.8 crore if you could clarify? And where is this actually being booked in the consolidated numbers?
• Arun Julasaria: No, in case of consolidation of accounts, we have two aid line by line items. In case of consolidation, our investment value is adjusted with the loss shown in that subsidiary. So it'll not appear as write-off or impairment account in consolidation because loss has already been factored in line by line consolidation.

Venkatesh Balasubramaniam: So line by line consolidation, so you're basically, this is all items.

• Arun Julasaria: Because the networth of that company is now reduced to INR12 crore only. So INR47 crore plus INR12 crore, INR59 crore was the total capital invested. So in line by line consolidation, I have taken care of that INR47 crore loss.
• Venkatesh Balasubramaniam: So there is INR47 crore of loss across various line items, right, from raw material costs, employee costs, other expenses?
• Arun Julasaria: Yes. That is line by line consolidation. So there they'll not appear as impairment loss.
• Venkatesh Balasubramaniam: Understood. Now is it possible for you to repeat your FY'23 guidance in terms of value, volume and margins for each of those segments? And also request you to repeat it a little slowly so that we can take it down.
• Keshav Bhajanka: The guidance is 15% volume and 20% value growth for plywood. 15% volume and value growth for laminates, 20% volume and value growth for MDF, 10% volume and 20% value growth for particle board.

Venkatesh Balasubramaniam: What about margins?

• Keshav Bhajanka: For margin guidance for plywood, we will attempt for EBITDA margin 13% to 15%, for laminate between 14% and 16%. And MDF and particle board 25% plus.
• Venkatesh Balasubramaniam: Okay. Now I guess for the first time I heard a 20% number for MDF, I guess till the last number, last quarter, what was being communicated was you will definitely do 25% or more longer term. That is a sustainable margin. But I don't know in the previous participants question it said that, short term it could go to 20% to 25%. Have you communicated anything like that?
• Keshav Bhajanka: No, I don't think we have communicated anything like that. I was talking about 20% volume and value growth in terms of margins, guidance still is 25%. So you believe even if there is over capacity in let's say FY'24, you can still do 25%?
• Arun Julasaria: In the short term, there could be an impact, but we did not anticipate doing 35% in Q1 either. So long term guidance is 25%.
• Venkatesh Balasubramaniam: Okay. See this is the reason I'm again belaboring on this point is, this is a question which keeps coming up when we discuss Century Plyboards with the buy side is where do you get this confidence that it'll not go below 25% because imports have already reached the ports and in port cities, MDF prices for imports are around 8% to 10% below the prices of that of the domestic market. So why 25%? What is so sacrosanct about 25%? Why can't it go to 20% or 18% if there is an oversupply is something which we are and we don't know really know how to answer it. So if you could throw some light on it, it would be very helpful?
• Keshav Bhajanka: Definitely. So you see today our capacity right now is based in the north. Our capacity in the south is going to come onboard only end of next year. In the north the freight cost gives us a major advantage because from the south to the north transporting from a port location to say Delhi is not a very cheap affair, and in the case of MDF, you know, that is not a very high cost per kg. The transportation and trade cost there is a large growth. So that is one.

Secondly, the capacity that we are commissioning right now in the north is being commissioned, taking into account a lot of synergies that we will get from our existing unit. A lot of synergy use in sales and marketing, and we will benefit from operating levels. And you've seen in the past when operating leverages come into place margins have tended to rise. So this is for the north. As far as south is concerned, we are setting up our capacity in the hub of timber. We are setting up in a market where the timber price today is INR3.15 as compared to INR5.5 to INR6 in the north. This going to be a substantial benefit that we have and with this we believe that we'll be able to do good EBITDA margins in the south itself.

Moderator: The next question is from the line of Achal Lohade from JM Financial. Kindly proceed.

Achal Lohade: My first question was, if you could just clarify on this MDF margin Qo-Q they are down almost 10 percentage points. I see the realizations are fairly same. If you can give a clarity as to what is

	driven this margin impact in terms of each of the items in terms ofraw material or chemicals cetera?
Keshav Bhajanka:	So that two factors are come into play for MDF. First, gross marginsare down because of raw cost pressure; and secondly, we have hadoperating deleverage in this quarter because it'll break down in theplant. It was a scheduled maintenance that took longer than expectedand it was a breakdown, but in the current quarter, we're expectingboth the benefit of operating leverage as well as a slight easing out ofraw material prices, and I think that our EBITDA margin shouldimprove from this quarter onwards.
Achal Lohade:	But if I see your 25% margin guidance, actually it appears that it'll beless than that in the second half. How do we explain that then?
Keshav Bhajanka:	So we have given 25% guidance even prior to the beginning of theyear. So we did 35% in Q1 with 25% guidance. 25% is the long termmargin guidance. The reason what we comment on short term isbecause there are lot of fluctuations that can take place as you havealready observed.
Arun Julasaria:	And Achal, even if you look at the current Q2 margins in MDF, if youadjust for ForEx loss, which is around INR2.45 crore, which isrelating to CapEx for bias credit with respect to MDF, your marginsadjusted for it, comes to around 26.7%. So that is one. And secondly,on the operating leverage site, our capacity utilization was 80% forQ2 compared to 89% in the first quarter. So these two things will helpus at least maintain our 25% plus margins. That is what we areseeing.
Achal Lohade:	Understood. Can you help us understand, how are the current pricesof MDF in south and what is the import parity price? And also interms of import quantum, if you can give some clarity as to how theimports have been in terms of quantity in last 2,3 months?
Keshav Bhajanka:	So imports have increased. The reason behind that is lower cost ofrate. Exact numbers, Nehal can get back to you. I don't have theexact numbers on me right now, but definitely there has beenincreased in imports due to lower shipping in freight costs. This hasaffected South India to a certain extent, but as of now, it does not putmeaningful pressure on the domestic market.
Achal Lohade:	Understood. And in terms of the particle board, can you help usunderstand, what is the market size? How much is organized, howmuch is imports? What is import parity there? I know you have givena bottom line in terms of the margin expectation, but if you can givesome color on the industry dynamics as well?
Keshav Bhajanka:	Definitely. You see in particle board, the total capacity would be 1.5billion cubic meters plus. Most of the market is unorganized. Thereare virtually no organized and perhaps an associated decor. Most ofthe lines that are operating today are multi delight lines. So even ourline is a multi-delight line. Now, there are a number of disadvantagesthat a multi-delight have. For instance, firstly, we have higher blueconsumption. We have a higher density than what we could operateat multi-delight, and we have higher standing loss. So taking all of

	these into account, there are numerous advantages will bring to thetable. Hence, the vision to go for a 1,200 cubic meter continuouspress line, particle board is a far lower price product compared toeven MDF. So freight becomes a major issue.
	South India is the largest hub because South India has the largestOEMs in the country and these OEMs have accepted particle board.If you look at the acceptance of MDF is higher in the north, whereasthe acceptance of particle board is higher in South India. So as such,we believe that the market is going to do very well long term. Wehave over 2.5 years that we will set up a new capacity and I think bythe time that the capacity operates, considering all the advantagesthat we'll be having, it is going to be a highly look to product for.
Achal Lohade:	If I recall earlier you were talking about flexi capacity in terms of MDFand particle board. So this particle board capacity there is no suchflexibility. Is that understanding, right?
Keshav Bhajanka:	Yes, absolutely correct. This is a pure particle board capacity. Onepoint that I forgot to mention, sorry, was that now in this capacity,because today we are limited by virtue being a multi-delight, we canonly manufacture either 9x6 or 8x6 sizes. And that too, we can onlymanufacture 9 mm and above. Once we have a contiguous press, wewill have a much wider range. So that is going to be another majoradvantage going forward.
Achal Lohade:	Understood. And in terms of the cost, the A&P spent in this quarterand the BCG cost, if any?
Keshav Bhajanka:	Yes, we have BCG costs. So BCG has started working, they wereworking on laminate as well, and they started working on particleboard. In particle board they have already identified substantialsavings. This could lead to 2%, 2.5% bump in EBITDA going forward.A&P spend has come down because in quarter 1 we had the IPL,and that is a substantial part of our overall marketing budget. So thatkind was front loaded.
Achal Lohade:	Would you be able to quantify how much is the A&P in the secondquarter?
Nikita Bansal:	It's 2% lower than what it was in Q1.
Arun Julasaria:	So if you look at the overall company, it's 1% lower as far ascompany as a whole is concerned. And for plywood division, it'salmost like 2%.
Achal Lohade:	As a percentage of revenue you're talking about, right?
Keshav Bhajanka:	Yes.
Achal Lohade:	Okay. I understand. Thank you. And one more question I had. Interms of the plywood segment, obviously given the high base the Yo-Y numbers appear muted, but can you help us understand how isthe demand scenario out there for the plywood segment? And canwe expect a similar run rate in terms of volumes?

Nikita Bansal:	Yes. So in terms of expectation, we expect a single-digit growth in H2over lat H2. See the demand that we were seeing during COVID,definitely the growth run rate is not the same as that this year, butwe've been able to sustain numbers and we are growing. We had ahigh base, like you said. So because of that Q2 number growth isseeming little low, but overall, I think we are quite happy with ourperformance and we expect to grow over in H2 as well, and Q3definitely being effective quarter will be lesser growth and Q4 will bewhere we'll have a higher growth.
Achal Lohade:	So when you're talking about growth that you meaning from a Y-o-Yperspective, because you will have festivals even in the base quarter,right?
Nikita Bansal:	Yes. Y-o-Y perspective, we will definitely have single-digit growth, asI mentioned in H2.
Achal Lohade:	Right. And can you also give some sense about how the premiumsegment is doing? How non-premium is doing in terms of the growthand the outlook?
Keshav Bhajanka:	We don't specifically give numbers.
Nikita Bansal:	Like Keshav mentioned, they don't give specific numbers betweenSainik and our Century brand. But just to give a idea, overall freeSainik operates in a much more larger base because majority of themarket today in plywood lies at that INR80 to INR100 that is whereSainik operates because Sainik is supposed to convert local intobranded. So definitely the growth rate of Sainik is going to be higherbecause it started from a very low base. We started the product only3 to 4 years back. So hence the growth rate will always be higher inSainik for the next few years. Andhaving said that, we do havegrowth even in our premium segment, and that is purely because ofthe innovation that we are doing and the brand awareness and thebrand campaigns that we are doing is really helping us grow in ourpremium segment as well.
Moderator:	The next question is from the line of Sneha Talreja from Edelweiss.Kindly proceed.
Sneha Talreja:	And just a couple of questions from my end. Firstly, relating todemand actually, what led to this kind of a slow moment in demand,in your sense? And extending to that question, is that the reason weare not able to take any increase in MDF, although the raw materialprices are on an increasing trend? Or is it the fear of import due towhich the entire industry is unable to take any price hike?
Keshav Bhajanka:	So you see regarding MDF definitely we have taken substantial priceincrease over the course of the past year, year and a half. And inMDF there is not just a if you import, but if you increase pricesdisproportionately, you come closer to the lowest end of plywoodwhere I think the entire equation of ply or MDF will move a little bittowards plywood, even though that plywood is of lower quality. Sothat was one point.

Sneha Talreja:	Just regarding the in general slowdown and demand that we haveright now in raw material and where do you get optimism that that'sgoing to increase, I mean that's going to get better?
Keshav Bhajanka:	So I think that in the last quarter you saw the impact of all the inflationpressure that was created in the system. It was prices of a lot ofcommodities had skyrocketed and I think this had an impact on thehome building space as well. Going forward, I think they're all verybullish, especially pertaining the registration number and the propertysales numbers that are coming in, that the market is going to do.There could be minor hiccup in the short-term, but we remain veryoptimistic and very bullish, and I'm expecting a good recovery in theH2 as such.
Arun Julasaria:	Sneha, just to add on this, a couple of things here. So if you look atthe base also, base for entire build material industry going into Q2and Q3 was very, very significantly high because post COVID thenumbers were very, very strong. So that's again, a reason whypeople are looking this or realizing this as a very, very mutedmoderate growth. So I think that is one. And second is the inflationaryenvironment, which is also led to the situation. And now if you look atthe inflationary environment that's beenalmost likely to probablymove down a bit. So this will again help regain the growth momentumgoing forward.
Nikita Bansal:	One more thing I would like to add. The reason we are so optimisticis because as a brand we are continuously investing in building ourbrand. I think we have amongst the only brand who continuouslythroughout the year spends money on branding as well as onimprovement in terms of technological improvement. So I think aninnovation. So because of that, I think we are extremely positive thatwe will keep, even if the market is muted, we will grow the way weare expecting to grow. And having said that, I think we are alsoworking continuously on improving our cost structure and improvingour market GTMs, et cetera. So I think that is where our optimismcomes from.
Sneha Talreja:	And that was pretty helpful team. The last question was actuallyrelated to your margins. We've seen good amount of improvement inyourplywood and laminates margin and laminates despite the BCGexpenses coming in. And in fact, both these places you are higherthan your guidance. So what has led to this higher margins? Is thereany exceptional item here or these are like now sustainable levels.Although I know the long-term guidance is 13% to 15% and 14% and16%.
Nikita Bansal:	Yes, so I'll take on the plywood part. So actually we are within the13% to 15 %. Q1 actually our EBITDA margin was below becausethe IPL, like Keshav said at the beginning . IPL cost was taken in Q1and because of that the loading came in Q1 and that loading wasn'tthere in Q2, number one. Numbertwo, we took a lot of priceincreases consecutively in Q1. So there was a price increase in April,there was a price increase in May end, there was some part increaseeven in June. So Q2 was a pure quarter where all the price increaseshad come into full effect. Because of that, our EBITDA is actuallycome back to what we expected, which is 14%.

Keshav Bhajanka:	With regards to laminate, I think the current margin, yes, we haveworked very hard to ensure our product mix in domestic as well asexport improves. And going forward, like I said, we will attempt to do14% to 16%, but yes, we may be doing slightly better.
Moderator:	The next question is from the line of Shubham Agarwal from AxisCapital. Kindly proceed.
Shubham Agarwal:	Just on following on the comment of MDF and freight, which youwould have already emphasized much on. I just wanted tounderstand what is the realization for truckload for ply and MDF, howdifferent is it? And let's say, what is the freight cost if you apply thevehicle from say Hoshiarpur to Amritsar?
Keshav Bhajanka:	Amritsar would not be a very major cost. I think the freight cost wouldbe, say maybe a INR1,000, but I don't have data with me. Nehal cangive you data later. Plywood in general, our plywood would be atleast 2x the cost of our MDF, so I think that is thumb rule that wefollow. But again, Nehal can get back to you with exact number.
Shubham Agarwal:	Okay. I'll get that separately. Secondly, what is the price difference inimports and domestic realizations right now? The price difference inimports and domestic MDF?
Keshav Bhajanka:	It actually depends on the location because if you look into the north,the landed cost to import, goes up substantially. In the south, I thinkthat MDF is currently being exported at about $220 per CBM. But ontop of that, you need to add the cost of freight. You need to add thecost. It varies from location to location.
Shubham Agarwal:	Imports, price of imports and domestic in south, how different?
Keshav Bhajanka:	In $220 is FOB. After that you have to do a lot of loading, et cetera. Ithink the difference between domestic and imported prices, ballpark,because south is not really our focus area, but it would be of 10%,15%
Moderator:	The next question is from the line of Hitesh Agarwal from India InsideValue Fund. Kindly proceed.
Hitesh Agarwal:	In particle Board, I wanted to ask, what will be the asset turnover forour CapEx of INR550 crore for the new plant?
Keshav Bhajanka:	The turnover for the new capacity will be in excess of INR600 crore,
Hitesh Agarwal:	Excess of INR600 crore. And what will be the kind of time gapbetween the commencement of the plant and its full utilization?
Keshav Bhajanka:	I think you take about 2.5 to 3 years to utilize the plant.
Hitesh Agarwal:	Okay. One question, like in the particle board segment, could you tellme of the industry as such, what will be the percentage of imports assuch, and how is the price difference between the import and the likedomestic prices?

Keshav Bhajanka:	Again, it's a very fluid scenario right now, today imports FOB wouldbe at about $120. I think will be at about $150 and domestic pricesthat is then we need to take into account all the other costs. But Iwould say again, that we would be at least 10% to 15% higher. Thedomestic prices would be 10% to 15% higher than imports, butdomestic OEMs got a lot more flexibility from us because they canprocure material virtually overnight. Whereas if you look at theseimported competition, the lead time is substantially higher. Also for aunit, it does not have a prelam facility for them to rely on importbecomes next to impossible because you cannot really select adesign for once in a one. It is a very difficult proposition. Heredomestic manufacturers give them that flexibility.
Hitesh Agarwal:	Okay. Coming to the MDF segment as such, could you give a coloron the rise in the timber and the chemical prices sequentially?
Nehal Shah:	Yes. Hi, Hitesh, Nehal here. So if you look at the raw material pricemovement in MDF segment, timber per se has gone up by almostsay 10%, 12% since the start of the year. So that is one which hasimpactedthe gross margins. And secondly, chemical, again, hasgone up substantially. So one of the chemicals what we use hasgone up almost by 20%, 25% So that has what has led to almost650 bps, 700 bps gross margin deterioration.
Hitesh Agarwal:	Okay. And should we consider kind of softening of the chemicalpasses going forward as such?
Nehal Shah:	So timber prices are still elevated, but as far as chemical prices areconcerned, which had actually seen a very drastic move, they havestarted coming off a bit. So that is what will help us give a cushion toour margins.
Moderator:	The next question is from the line of Parth Bhavsar from InvestecIndia. Kindly proceed.
Parth Bhavsar:	Sir I have this question, so you guys are setting up a laminate plant inWest Bengal and then there's an upcoming plant in south. So what isa brownfield optionality at both these places, like over and above thecapacity that you're setting up, is there any option to increase yourcapacity beyond this?
Keshav Bhajanka:	Further increases in Calcutta would be difficult because we are nowspace constraint. And in the existing premises, I don't think we'll beable to set up any more units. In Andhra, in Phase 1 we are comingup with two hot presses, and in Phase 2 we'll be coming up with afurther 2. And we have created enough provision to come up with 4units in Phase 3. But that as of now is something that we have notthought too much about. Right now it is about Phase 1 and Phase 2,but definitely we can set up to 8 lines if we are comfortable.
Parth Bhavsar:	Okay. So in Phase 1 and Phase 2, you'll be adding 4?
Keshav Bhajanka:	Yes.
Parth Bhavsar:	Okay. And sir one other thing that, what is the rational to go afterparticle board and not plywood, could just elaborate a little bit on that.

Keshav Bhajanka:	We always go onto plywood. We are definitely looking to grow inplywood and we have taken up a lot of investment in balancingequipment across plywood, first to increase our capacity. So it is notthat particle board is coming at the expense of plywood.
Nikita Bansal:	And I'll add to that so that, that we had announced that we will set upa unit in Hoshiarpur for plywood. So we're in a search for land rightnow, so we have some land options. So I think hopefully soon, we'llbe able to close something.
Moderator:	The next question is from the line of Nikhil Agrawal from VT Capital.Kindly proceed.
Nikhil Agrawal:	Sir, I wanted to know like what is the per tonne timber consumptionfor 1 CVM production of particle board?
Keshav Bhajanka:	It would be close to 1,100 kgs.
Nikhil Agrawal:	And sir coming to your MDF segment time, missed to what you saidabout to the earlier participant's call. The rise in timber, what was therise sequence, rise in timber cost and chemical prices?
Keshav Bhajanka:	Timber cost has gone up by 10% to 12% over the course of thecurrent year for MDF in particular in the north of India. And chemicalprices had increased by in excess of 25%, but now they are showingfinally correction.
Nikhil Agrawal:	This is in 2022 or in this fiscal?
Keshav Bhajanka:	In this fiscal.
Nikhil Agrawal:	Okay. And sir, about your greenfield expansion for MDF, you saidthat, it recommends production from H2 FY'24?
Keshav Bhajanka:	Yes.
Nikhil Agrawal:	Okay. So that means there has been a delay of 2 quarters?
Keshav Bhajanka:	No, for H2 FY'24, there is a 0 delay in the project.
Moderator:	The next question is from the line of Udit from ES Securities. Kindlyproceed.
Udit:	So this is 2 parts. One is that when we mentioned about 15% overallgrowth for '23. So just basically what we have done in H1 and thebalance in H2, what would be expected. So are we looking at adecline year-on-year for H2?
Keshav Bhajanka:	No, we are definitely not looking at any decline. But having said that,we are not getting overly excited by good performance in H1.
Udit:	Understood. And sir, just fundamentally on the product side, like youmentioned that in south the OEMs have accepted the particle board.So do you see any threat to MDF, like we are coming up with CapExin both is understandable and in south, we are coming up with MDF

as well. So what explains that part like particle board can take market
share of MDF structurally just wanting to know on the category?

Keshav Bhajanka: You see, I think we have to look at it from a little more holistic point of view. If you look at particle Board, the usability in OEMs is excellent. It's a highly valuable product and for H1, it is a product that is durable because it is not as heavy usage as domestic furniture would be. For domestic furniture MDF usage is still very strong. In the south, the acceptance of particle board has been there for quite some time now, whereas in the north particle board has really not been accepted as a very strong or very good product because MDF penetrated much earlier.

So I think both are going to grow substantially. As we have mentioned earlier, the particle board capacity in India would be about 1.5 million cubic meter, whereas the particle board capacity in China is 50 million cubic meter. So we're still 1/30 of their size. There's a lot of room for growth and in MBF as well, our capacity will be 2 million, whereas China's, I think would be around 55 million or 60 million. So again, there is substantial room for growth in both. I don't think growth in category will come at the cost of the other, but definitely both are going to be high growth categories going forward.

Udit: Got it, sir. And just lastly following up on particle boards, what kind of industry growth are you expecting? And like you mentioned, it is a highly fragmented and organized industry. Will we be able to get any pricing power or you'll be just stay the industry dynamics on this one.

Keshav Bhajanka: I think more than pricing power, we will be able to give a range of products that only few limited number of players will be able to offer. So the unorganized players would actually not be able to compete considering certain products they cannot manufacture. So for instance, less than 9 mm could not be manufactured in any multidelight. Today, even we cannot manufacture less than 9 mm. But going forward only 3 or I think 4 players who will have continuous stress lines will be able to offer these products. So that gives us a substantial advantage in the market. And once these products come into play, once they accepted, then we'll have pricing power because the threat of competition is going to be far lower.

Moderator: The next question is from the line of Pranav from Equirus Securities. Kindly proceed.

Pranav Mehta: Sir, I wanted to understand, if you can throw some light on how the MDF prices are moving globally? That was my first question. And the second question was, how long do you think the timber availability issue is going to be a major problem for the industry? Because just for my understanding, at least for next 2 years, things are going to impact on the timber availability issue in India?

Keshav Bhajanka: So I'll answer the second part first. Definitely there is a crunch of timber and that is something that we are all facing, but the result of this is a much higher timber price, which has led to tremendous amount of plantation. Now, if you drive from Chandigarh from Hoshiarpur or from Amritsar to Hoshiarpur, you'll see the quantum of agro policy that is taking place. So you are right. For a couple of

	years, they might be under pressure, but after that the quantum oftimber that will be available in Punjab, Punjab itself will be a net plus.And I'm sure that this is happening in practically all other parts alsobecause with this higher timber price for farmers, this becomes avery lucrative proposition, especially considering that they don't needto give as much time to eucalyptus as we need to give to a wheat orto rice. And the cycle with these higher prices really moves in theirfavor, particularly for land that are not very addable, land that are notvery fertile. This becomes a very viable option.
	Secondly, internationally, yes, prices have softened for MDF, butwhat has also happened as rupee has depreciated from INR72,INR73 levels to INR80 levels. So that is a 10% increase in cost,right? So overall, this softening has been cushioned by this impact ofthe rupee depreciating.
Pranav Mehta:	Okay, sir. And sir, how are the laminate exports for us are shapingup? Because industry seems to be doing quite well on the exportfront. So are we aggressively targeting exports as a growthopportunity for us, because we have also a lot of room to catch up inthe domestic market? Or we are going to focus on domestic quality?
Keshav Bhajanka:	No, we are going to be focusing on both. You see in exports, highersizes are required till now laminates, we only operate at 8x4 sizes.For exports, we have requirement for 10x4 sizes and 14x4 or 12x6sizes. In Andhra, we are coming up with 1 14x6 and 1 10x4, post it, alot of international markets a lot of export markets will be open to us,but till now have not been. So definitely we are exports, you areabsolutely right, there's a lot of headroom there and we are focusingon the same.
Moderator:	The next question is from the line of Ashish Kumar from InfinityAlternatives. Kindly proceed.
Ashish Kumar:	And congratulations for a good steady set of numbers. So a couple ofquestions. One, a near-term kind of question and the second is alonger term. On the near term, from the way we stand in terms of theEBITDA margins and the revenues, do you see any sequentialpressure point over the next 2, 3, 4 quarters? Or should we assumethis to be a base number with the new revenues being added fromnew capacity expansion. Is that a fair way to look at it?
Nehal Shah:	So basically if you look at the raw material cost, as I said earlier,some of the raw material prices are definitely on their way down, atleast over the next couple of months, which you can see at themoment. So to that extent, the pressure would be easing out,particularly with respect to those chemicals. Even as far as plywoodis concerned, core medium prices have dropped a bit possiblyaround 2.5% to 35. So finally there's a respite to that because thosewere the prices which were consistently increasing gradually over thelast 4 to 6 quarters. So to that extent, yes, we should get benefited tothat extent. And as far as growth is concerned, obviously with thenew capacities coming up on stream, we should be able to takeadvantage of those coming on time.

Ashish Kumar:	And second one was from a slightly longer term. We've announcedmassive CapEx in businesses which are a 25% EBITDA margin, let'ssay,basedonlonger-termguidance.Sofromacompanyperspective, today, if you look at it, particle board plus MDF isroughly around 21%, 22% of revenues. But let's say, 3 years out,would it be fair to assume that, that proportion could be more like40%. And if I assume, let's say, 15% for your plywood plus laminatebusiness and 25% for this business, would that mean that from acompany perspective, we could be starting to hit margins, which arecloser to the 20% mark rather than the 15% mark?
Keshav Bhajanka:	I think you've hitted the nail on the head. Definitely, that is the reasonwhy we're investing so substantially in these areas. Having said that,because of the fact that MBF and particle board are part of ourindustry, we have the opportunity to reinvest our tax flows in highROCE businesses. So this is a very, very, I would say, good time anda good opportunity for us. Going forward, yes, we are looking at ahigher percentage of the mix coming from MDF and particle boarddespite a good growth in plywood and laminate. So this should pushthe margins like we have. One more point that you need tounderstand is, the working capital requirements in both particle boardand MBF are substantially lower. So again, this is our quest forhigher ROCs.
Ashish Kumar:	Sure. Only one thing, Keshav, that if you're guiding for a 25%EBITDA margin and that's your revenue to CapEx of 1.3x, then onecould be looking at, let's say, mid-20s kind of an ROC as comparedto, let's say, significantly higher for ply business. Is that a fair way tolook at it?
Keshav Bhajanka:	At this point in time, what we are seeing is that the asset turnoverratio has actually been far better than the numbers that you have justsuggested. So I think what we are targeting is 20% plus ROC. Thathas been the objective from day 1, and both these businesses shouldbe able to give us that. But yes, I am hopeful that the numbers shouldbe slightly better than that.
Ashish Kumar:	Sure. Okay, given the fact that you're closer to currently the 30%mark, that's a huge wind down.
Keshav Bhajanka:	Today say, we are very lucky that we have been able to deliver onsustained basis. But going forward, you see, you need avenues forgrowth and these two products represent avenues for growth. So Ithink that long term margins will be good. Long term, they willgenerate good ROC, maybe not as high as plywood or laminate. Youcould be correct.
Moderator:	The next question is from the line of Shrenik Bachhawat from LIC.Kindly proceed.
Shrenik Bachhawat:	Sir, my first question is I wanted to understand that we are doingplanning of INR550 crore CapEx for particle board and alsoGreenlam and Merino are planning a similar CapEx. So as all the 3players are increasing the capacities in particle board, how is thepricing scenario for us? Like are the organized players selling at a

premium versus unorganized or at the same pricing?

Keshav Bhajanka:

See, Century command the premium over the unorganized playersand going forward like I mentioned, in a comment, there are a lot ofadvantages that you'll get. So definitely product quality will improve,which should get you further pricing premium. But beyond the same,you'll also get the benefit of substantially lower operating costs. Sogoing forward, I think, the organized players will have a substantialbenefit over the unorganized sector, particularly in the particle boardspace.

Shrenik Bachhawat:

Okay. And particle board how much of the sales is B2B and B2C?

• Keshav Bhajanka: For particle board, the majority sale is B2B.
• Shrenik Bachhawat: Okay. And sir, I understand that readymade policy that sold on Internet. Normally, we say that rationale for MDF is the growth in the readymade furniture market, but most of the online funds that is being sold is made of particle board, I was just going through the online websites. So what is your take? Like, what is the proportion of MDF versus particle board for the online furniture that is sold?
• Keshav Bhajanka: This is very difficult to club online furniture into 1 category because there are so many options. But see for instance, IKEA uses more than 80% of particle board and a very small and significant part of MDF. But in India for residential furniture, MDF is the preferred third generation wood panel product. Whereas for office furniture, particle board is currently the preferred product. On price particle board would be 1/3 the price of plywood, whereas MDF would be half the price. So particle board has a distinct advantage, hence when you look at lower price furniture, you will more often than not see particle board. But for residential furniture, most of the readymade residential furniture is showing a trend of being leaning towards MBF rather than particle board.
• Shrenik Bachhawat: Got it. And just last question, wanted to understand that as we highlighted that the second half of this year we will see single-digit growth in plywood. So what gives us the confidence for FY'24 to deliver 15% volume growth and 20% revenue growth?
• Keshav Bhajanka: I think, we have done a lot of things, as Nikita has mentioned, we have implemented our salesforce automation tool, which I think is a first in the industry to do. We have changed the entire GPM. We have invested substantially in branding. So I think all of these initiatives put together have put us in a very good space. Now, slowly we will see the benefit of these initiatives coming because it does not happen overnight, hence, we are confident that going forward, we will be able to deliver good sustain numbers.
• Shrenik Bachhawat: So 15% volume growth in plywood you're telling on a sustainable you can deliver?
• Nikita Bansal: That is what we would want to achieve, yes.
• Shrenik Bachhawat: The industry is far lower than that, right? And Century is already a brand in India and well-known and everything. So can we deliver so much as for industry growth rate?

Keshav Bhajanka:	Just one thing. What we also must factor in is that there is a changefrom the unorganized to the organize that is really taking place andthat is really aiding our goals. You must realize in plywood, only 30%of the market rate is organized. Now if this changes, say even by 1%or 2%, that gives a substantial boost to every single organized player.And we as market leaders only intend to cash in on the same.
Nikita Bansal:	So just to add to that, we are currently 5% to 6% of the entireplywood industry. So the reason why we have launched Sainik in theamount of money we are spending behind Sainik is because we seenthe opportunity lies in converting this unbranded to branded. So evenif the industry is growing at a certain pace, we want to grow morethan the industry because we want to capture more market share. Sohence that is where the 15% comes from.
Moderator:	The next question is from the line of Rajesh Kumar from HDFCSecurities. Kindly proceed.
Rajesh Kumar:	My question is, first, on this particle board project. Is it the existinglocation or a greenfield one nearby?
Keshav Bhajanka:	It is a greenfield location nearby.
Rajesh Kumar:	Okay. And this CapEx, which we are incurring, does it have anoptionality of increasing the capacity 2 to 3 years hence?
Keshav Bhajanka:	For the finish capacity is 2 years.
Rajesh Kumar:	Sorry, I missed it. The existing capacity, which you are putting up 3.6lakh, can it be increased further? Or is the land and other?
Keshav Bhajanka:	Yes, land is there, but the current line and the current shared, etcetera, everything that is being designed is being designed for the3.6 lakh. Going forward, of course, in the same location, we can setup another unit.
Rajesh Kumar:	Okay. And sir, you don't have a laminate facility nearby. So will thathave an impact on your prelam sales from this plant?
Keshav Bhajanka:	No, we didn't have a laminate facility in Chennai earlier either, right?So prelam the paper inventory management is not as difficult aslaminate because it is for sell there. So that is not a challengeanywhere, whether it is Hoshiarpur, whether it is Chennai, whether itis any other location. With the particle board facility, we will becoming up.
Rajesh Kumar:	Okay. And second in the MDF, you mentioned that the import anddomestic price difference is 15%. So historically, maybe please, whathas been the sustainable pricing difference between imports anddomestic prices?
Keshav Bhajanka:	I don't have numbers with me at this point. I'll get back to you on thesame.

Rajesh Kumar:	Okay. Just wanting to assess that, when you are looking at from 30%to 25%, what more pressure can on a sustainable basis it lead to,because the domestic capacity is more. So the purpose of me askingthis question was to assess that when you're factoring in the marginsto pull off to 25%, if the margins have to sustain, let's say, 10%, 15%level, so can it lead to higher compression on a sustainable basis,say 20%. So this is what I wanted to asses. We'll talk on this later.
Moderator:	Ladies and gentlemen that was the last question. I now hand theconference over to the management for closing comments.
Keshav Bhajanka:	So thank you so much to all of you for taking out your valuable timeto attend this call. The one point I'd like to make is, as always, yourmanagement is going to try to their level best to deliver as good aperformance as we can. And hopefully with all your support, we'll beable to achieve it. Thank you.
Moderator:	Thank you. On behalf of DAM Capital Advisors Limited, thatconcludes this conference. Thank you for joining us. You may nowdisconnect your lines.