Century Plyboards India : Earnings CON CALL Transcript Q3 FY 21-22

"Century Plyboards (India) Limited Q3 FY2022 Earnings Conference Call"

January 31, 2022

ANALYST: MR. NAVIN AGRAWAL - HEAD, INSTITUTIONAL EQUITIES - SKP SECURITIES LIMITED

MANAGEMENT: MR. SAJJAN BHAJANKA - CHAIRMAN - CENTURY

PLYBOARDS (INDIA) LIMITED

MR. SANJAY AGARWAL - MANAGING DIRECTOR AND

CHIEF EXECUTIVE OFFICER - CENTURY PLYBOARDS

(INDIA) LIMITED

MR. KESHAV BHAJANKA - EXECUTIVE DIRECTOR -

CENTURY PLYBOARDS (INDIA) LIMITED

MR. ABHISHEK RATHI - DEPUTY GENERAL MANAGER -

CENTURY PLYBOARDS (INDIA) LIMITED

MR. NEHAL SHAH - CSO AND HEAD, INVESTOR

RELATIONS - CENTURY PLYBOARDS (INDIA) LIMITED

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Century Plyboards (India) Limited

January 31, 2022

Moderator:Good day, Ladies, and gentlemen, welcome to Century Plyboards (India) Limited's Q3 FY2022 Earnings Conference Call. As a reminder, all participant lines will be in the listen- only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note, that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal - Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, Sir!

Navin Agarwal:Good afternoon ladies and gentlemen. On behalf of all of us at Century Plyboards and SKP Securities, it is my pleasure to welcome you to this financial results conference of Century Plyboards India Limited. We have with us Mr. Sanjay Agarwal - Managing Director and CEO along with his colleagues Mr. Keshav Bhajanka - Executive Director and Mr. Nehal Shah - CSO and Head, Investor Relations. We will have the opening remarks from Mr. Sanjay Agarwal followed by a Q&A. Thank you and over to you Mr. Agarwal!

Sanjay Agarwal: Thank you for taking your valuable time out for attending the Q3 FY2022 Century Plyboards Investor Conference Call. I am Sanjay Agarwal - Managing Director of Century Plyboards India Limited. I have alongside me Mr. Keshav Bhajanka and Mr. Nehal Shah - CSO and Head of Investor Relations.

I presume that every one of you would have gone through our numbers in detail. Let me still brief you on the key highlight for Q3, and I also wish and hope that everybody is fine during this COVID pandemic and we hope that this is no more a pandemic but an endemic now.

Let me start with the CFS segment first. Earlier our commentary was that we would hive off our CFS in a wholly owned subsidiary and we are happy to share now we are taking a step further and have decided to demerge this business all together that means we are committed to exit out of this business within next 18 to 24 months. The reason for this easier exit is the current bid, which we want, which will transform this division from a slow going CFS business into an integrated port operation business. After we have won the bid, we have been receiving interest from national and international investors already, and hence we presume that the exit will be much easier and beneficial.

Besides this we assure you that as a company we stay invested into our earlier commitment that our focus will stay on the businesses, on the lines we are into, and we assure all of our investors so for coming at least three years.

Coming to our key focus area, which is wood panel business. After delivering a record Q2 numbers, it gives me immense pleasure to share that we have achieved a new record once again of achieving 845 Crores revenue in a single quarter. While October 2021 sales were

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Century Plyboards (India) Limited

January 31, 2022

strong, November sales got impacted due to festive holidays and extended marriage season. However December 2021 bounced back beyond our expectation. Within bracket I must say that it was the best month ever in CPL's history, which gives us enough confidence of good times to continue. This also gives us confidence into all the efforts we have undertaken that they are resulting positively for the company. Pleased to share that our December volume in plywood and MDF segments were double digit higher compared to the earlier best September month indicating the buoyancy in demand in both the segments. While laminate December volumes were a tad lower compared to September, particle board volumes were lower by double digit due to floods in Tamil Nadu, which impacted timber availability very badly. The business is now backing into its usual glory.

Despite the sustained input cost pressure, we have been able to migrate large part of our gross margin pressure by taking corresponding price increases. Now that happens with a little lag across product segments and also through operating leverages while our gross margins were down by 230 BPS year-on-year to 47.6% in Q3 FY2022. Our overall EBITDA margin for the quarter stood firm at 17.9% a contraction of near 70 BPS year-on-year.

Price increases we have taken considerable price increases in Q3 across product segments, 3% to 4% in plywood, 4% in laminate, 18% in MDF, and 12% in particle board. As some price increases were taken in second half of the quarter. The full impact of those price increases will get reflected only in Q4. Our MDF Brownfield expansion at Hoshiarpur is as per schedule and is expected to come on stream in Q2 FY2023. Our south MDF Capex has received all requisite approvals, and the groundbreaking also happened in Q3. We have finalized capacity of 950 CBM per day at a Capex outlay of 600 Crores, and we expect the facility to come on stream by S2 FY2024, and here I must mention that Keshav Bhajanka has been handling this project single-handedly, and he even got the Chief Minister to come for groundbreaking and the negotiation with the machinery supplier SimpleCam has brought down the total Capex for a 950 CBM project.

We are also putting up a Greenfield laminate manufacturing unit in Andhra Pradesh in two phases with an installed capacity of 4 million sheets and a capital outlay of 200 Crores. Our working capital stands reduced to 48 days in Q3 versus 68 days in Q2 FY2022, but I must say that we should still not expect this to stay exactly like this, but we will be trying our best to keep it as usual within whatever we had 50 or 54 days or something, we will like try to keep it within that.

We remain a net cash positive company with net cash position of 217 Crores. Our Q3 FY2022 ROCE stood at a healthy 35.6%. Outlook, while we enter into Q4 with COVID third wave impacting January 2021 sales. We expect the lost sales to be covered in February and March

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	Century Plyboards (India) Limited
	January 31, 2022
	as our production has not been hurt at all. We also believe our gross and EBITDA margin are
	likely to see sequential improvement across the product segment driven by recent price
	increases and expected operating leverages, but we still maintain our guidance as usual for
	ply at 13% to 14%, laminate 14% to 15%, MDF 27% to 28%, particle board 24% to 25%.
	So ladies and gentlemen I hope I have been able to touch all the points, which concern our
	investor, and now I open the question lines, so that anybody can ask a question he or she
	wishes.
Moderator:	Thank you very much Sir. We will now begin the question-and-answer session. The first
	question is from the line of Rahul Agarwal from Incred Capital. Please go ahead.
Rahul Agarwal:	Good afternoon and thank you for the opportunity. First question was on laminate margin.
	The way to understand this was essentially this is a temporary number 12.8% EBITDA
	margin for laminates in third quarter and purely because of higher input prices in price hikes
	a bit which we have highlighted that there was some lag effect. So broadly we should assume
	that fourth quarter should come back to the normal 14%, 15% range, is that understanding
	correct.
Sanjay Agarwal:	Yes, the understanding is correct. These margins going to be taking with a pinch of salt
	because we also have close to 5 Crores expenditure on Boston Consulting Group who have
	been taken on as a consultant to grow sales in the laminate division, this is an expense that
	will last for another couple of quarters and post that, which is no longer than the balance
	sheet, if we remove this expense, margins in this quarter were also closer to 16%.
Rahul Agarwal:	This is 5 Crores per quarter, right.
Sanjay Agarwal:	Yes, per quarter.
Rahul Agarwal:	And Sir, second question then I will come back in the queue was on the port development
	contract. Would you explain as you mentioned a 200 Crores total Capex, I would imagine
	there will be a debt equity here and plus obviously this will be spread out over three to four
	years, but as you have highlighted that you will want to exit the overall business including
	the CFS over 24 months. Could you highlight what is the commitment from CenturyPly and
	why has this come as a negative surprise to us because essentially I thought we are not really
	planning to invest into the CFS business. Thank you. That is my second question.
Keshav Bhajanka:	It is a very, very good question. You see, this is something which we are doing with the
	viewpoint to demerge the business going forward. The objective here is very simple. We will
	only be focusing on our core businesses, if you look at this business individually today it is
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	Century Plyboards (India) Limited
	January 31, 2022
	not performing very well. With this new development this becomes a very good value
	proposition and as such the business will be demerged and there will be other entities who
	will be coming into the same country's involvement in this is going to be minimal, the total
	Capex required is 200 Crores over two phases, right now we are not even discussing phase
	two the Capex requirement is only 95 Crores over the course of the next three years and that
	is what we are looking at. I think the entire demerger process should be completed within
	next 24 months and Century is again I would like to re-emphasize we are focused on our core
	sectors only. This development will inch, so that we could define this as a strong equity
	investment and this business will no longer when we have had the Century.
Sanjay Agarwal:	And just to add what Keshav said the capital commitments in Century Plyboards would be
	only limited to 35 Crores.
Rahul Agarwal:	That is the equity competent, right.
Sanjay Agarwal:	Yes.
Rahul Agarwal:	Okay got it. I will come back in the queue. Thank you so much for answering my questions.
Moderator:	Thank you. The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.
	Please go ahead.
Rajesh Kothari:	Good afternoon Sir, thanks for providing the opportunity. First of all congratulations for a
	great set of numbers. Sir, in this overall when you look at the outlook of this industry
	considering that real estate overall industry is doing really very well, which actually comes
	for your kind of a product whether it is styles or plywood probably about two, three years
	after the sales or registration happens. So currently kind of demand environment what we are
	seeing which is very robust there is primarily it is driven by what factor.
Sanjay Agarwal:	You see, you all know that a lot of actually work in progress or there was a lot of real estate
	which was actually lying and sold also and we know that the record number of registrations
	happening in a City like Mumbai when some special discounts were given by the local
	government for registration so all those things are making the difference that is number one.
	The second thing why a Century Plyboard kind of a company is getting special growth there
	are number of measures we have undertaken over the last two, two and a half years and all
	those measures are actually resulting we have involved BCG, we have involved Vector, we
	have our GTM has totally changed the go to market or whether it is plywood or whether it is
	laminate or whether it is MDF also is not like what it used to be in the olden days everything
	every person is being monitored and it is very, very, only focused on growth not on the
	maintenance so much. Maintenance part is only just 30%, 70% focus has shifted to growth.
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