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Edited Transcript of CENTURYPLY.NSE earnings conference call or presentation 4-Feb-20 10:00am GMT

Q3 2020 Century Plyboards (India) Ltd Earnings Call

Kolkata Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Century Plyboards (India) Ltd earnings conference call or presentation Tuesday, February 4, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arun Kumar Julasaria

Century Plyboards (India) Limited - CFO

* Keshav Bhajanka

Century Plyboards (India) Limited - Executive Director

* Sanjay Agarwal

Century Plyboards (India) Limited - MD, CEO & Executive Director

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Conference Call Participants

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* Aasim Bharde

IDFC Securities Limited, Research Division - Research Analyst

* Abhishek Joshi

CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst

* Ashish Kumar;Infinity Alternatives;Managing Partner

* Bhavesh Chauhan

IDBI Capital Markets & Securities Ltd., Research Division - Analyst

* Karan Bhatelia

Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials

* Manoj Bahety

Carnelian Asset Management LLP - Co-Founder

* Pankaj Tibrewal

Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager

* Pranav Mehta

Equirus Securities Private Limited, Research Division - Associate

* Prashant Kutty

Sundaram Asset Management Company Ltd. - Research Analyst

* Shrenik Bachhawat;JM Financial;Analyst

* Sneha Talreja

Edelweiss Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day. And welcome to Century Plyboards India Limited Q3 FY '20 Earnings Conference Call hosted by Asian Market Securities Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities. Thank you, and over to you, sir.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [2]

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Thanks, Nirav. Good afternoon, everyone. On behalf of Asian Markets, we welcome you all to the 3Q FY '20 Earnings Conference Call of Century Plyboards India Limited. We have with us today Mr. Sanjay Agarwal, Managing Director and CEO; Mr. Keshav Bhajanka, Executive Director; and Mr. Arun Julasaria, CFO, representing the company.

I would request Mr. Sanjay Agarwal to take us through an overview of the quarterly numbers, and then we can begin the question-and-answer session. Over to you, sir.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [3]

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Thank you. Thank you. So good afternoon, friends. I am Sanjay Agarwal, MD and CEO of the company. I'm joined by Keshav Bhajanka, our Executive Director; Nikita Bansal, Executive Director; and Mr. Arun Julasaria, CFO of the company. We all join together to welcome you to this conference call for our third quarter result.

I will start with a very different note today. As informed earlier, due to regulation changes by our Laos government, our Laos facilities became unoperational. It's known to all of you. Although we are making all efforts to make it operational and viable again, we thought it prudent to take impairment in current quarter. This impairment loss has adversely affected our stand-alone result by INR 45.63 crores. As you all know, the end-use of our almost all products is for furnishing, for doing interior of apartments and mostly new apartments.

The situation of real estate is continuing to remain subdued. In such situation, we face double challenge of booking growth and maintaining profitability. In subdued market, booking growth and maintaining profitability go against each other. We have tried to balance between 2. We are trying to maintain or improve our profitability with best possible growth. Barring impairment loss, as mentioned above or earlier, during the quarter under review, if we see our year-on-year performance, we had a low growth of about 3%. But the silver lining is our EBITDA margins improved from 13.4% to 16%. As major part financial year is now past, for the whole financial, we expect to achieve 5% to 6% top line.

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Operator [4]

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Sir, sorry to interrupt you. This is the operator. Hello?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [5]

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Yes.

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Operator [6]

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Sir, your voice is breaking slightly.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [7]

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Okay. A major part of financial part, for the whole financial year we expect to achieve 5% to 6% top line growth and EBITDA margin of 16% against 13.5% in FY '19.

Now I hand over to our CFO, Mr. Arun Julasaria, to take you with macros for current quarter, post which we are open for question-and-answer session. Thank you.

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [8]

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Good afternoon, ladies and gentlemen. First of all, I would like to mention customary disclaimer that this con call is just to disclose company's historical numbers and future outlook. In no way this should be construed as an invitation to invest in the company. Results for the quarter along with detailed analysis is already mailed to you and also posted on company's and stock exchange websites. So I'll not take much of your time to take you through and take you through only macros.

Comparing year-on-year results, our net revenue, including other operating income, for the quarter has increased by 3% from INR 578.89 crore to INR 595.42 crores. Blended EBITDA margins were lower at 8.4% due to impairment loss taken. Barring impairment loss for Laos assets, our EBITDA margins for the quarter are significantly high at 16% compared to 13.4% in last corresponding quarter. Despite taking impairment loss of about INR 46 crore, our profit before tax for the whole year will be higher than FY '19.

For the full 9 months, despite foreign exchange fluctuations and liquidity prices in the market, we have optimally managed our treasury and working capital cycle. We are continuously reducing our debt from operational cash flow. We have already prepaid our term loans taken for recently setup MDF plant. Our total debt level, excluding current maturities, which was INR 468 crore in the beginning of the year, is likely to go down to INR 200 crore by year-end. Despite making CapEx of around INR 800 crore in last 5 years, we are likely to pay all our existing debts by next financial year end. Any new debt will come for financing new CapEx only.

With these words, I open the conference call for questions and answers. As promoters of the company are on call, I'll interest you to focus more on quality questions. Query relating to number, et cetera, can always be mailed to myself or Mr. Rathi separately. Please go ahead with your questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Sneha Talreja from Edelweiss Broking Limited.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [2]

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Sir, first question is actually related to the Laminates division. In case you can highlight that why our volume growth has slowed down in the particular quarter along with some margin cooling off? Secondly, we've also seen your realization slowing down in this particular segment. Any specific reason for the same?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [3]

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Yes. This is Keshav. Yes. I'd like to take that. You see last year we had deferred our catalog launch. As such, our catalog launch, which normally year-after-year takes place in July, took place in September. As such, we saw a slow Q2 but a very good Q3. Here, the base effect has, therefore, played a role. And as such, you're not seeing very high growth in terms of turnover. However, I think this will be corrected in Q4. Alongside that, the EBITDA figures are substantially better than last year. We've done a 14% EBITDA as compared to 9% in the same quarter last year. And we are going to look to improve upon the same going forward.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [4]

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Keshav, you also mentioned in your presentation that you're looking out for around 13% of value growth in this particular division for whole of this year. So actually, if you speak, I think Q4 guidance would also remain muted if I just adjust for this number?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [5]

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No. If you look at as on date, we have 13% growth in terms of volume. And I believe that we're going to maintain this. So Q4 growth should again look at around 13% -- 13% to 15%.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [6]

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That's the value growth that we're talking about?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [7]

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Yes, yes, value growth.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [8]

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And what is the current mix in the Laminates division? Like how much is exports and how much is domestics?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [9]

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Exports would be close to 25%. Domestic would be 75%.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [10]

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And any specific reason for fallen realizations in the particular quarter because, I think, for your peer we've been seeing increase in realization now?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [11]

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So we had increased the share of 0.8 mm as a total of our -- as a percentage of our total basket. So the profitability in 0.8 mm is quite good, but 0.8 mm sells at a lower price. Even though the profitability is good, it will bring down average realizations.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [12]

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So that's just a product mix change?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [13]

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Yes.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [14]

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Okay. Also if at all, you could just give some highlight that what's happening in the plywood front? We have thankfully seen volumes growth coming back. So if at all you could give some update with your loyalty program, where have we reached in terms of acceptance across pan-India level?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [15]

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In plywood, actually, we are really not doing as well as we really want to. So the growth is still -- yes, there is some growth, but I will not claim that, yes, we are doing really well. But I really look forward. We have started loyalty programs with our dealers, with our -- everybody in the system. And I think these royalty programs take a lot of time -- a long time to really mature and deliver something for the company. So going ahead, I think we will see better times in next year. But right now, I really don't see and I don't claim that we will really do better than what we are doing as far as this year is concerned.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [16]

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Sure. So I mean no specific green shoots that are visible in this particular segment? I think it will more or less remain here is what you're suggesting.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [17]

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You see if you look at this quarter, we have grown by close to 8% to 9% in terms of our core Plywood segment. I think that in the last quarter we should be looking at a similar growth. So for the entire year, our growth should be 4%-plus.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [18]

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Right. I mean I just wanted to know your visibility beyond this next quarter in the sense are you seeing that demand is coming back? Or the strategy that you were adopting of implementing this program is over and now can we see the growth coming back from next year onwards?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [19]

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Yes. I think that the market does not show any signs of investor spike, but we are fighting our way to a higher market share. And as such, the program that we have tried, we cannot give you a definitive answer, but it is starting to yield some results. So going forward, I can definitely see a double-digit growth in the near future.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [20]

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Sure. That's helpful. Just one last question, if at all I can squeeze in. For the MDF segment, now that you've, I think, finalized the plan, could you give some color? What is the kind of a CapEx that we're looking out for? You've also mentioned fungible capacity. So how much is the capacity for MDF and particle board? And what's the time line that you're looking at?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [21]

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We have practically finalized the plan. The total capital outlay should be anywhere between INR 250 crores to INR 500 crores. It will be a combination line, which will have the ability to produce both particle board and MDF. The capacity for particle board will be 900 cubic meters per day vis-à-vis the capacity for MDF, close to 600 cubic meters per day.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [22]

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And what's the expected time line that we're looking at for this plant because we are almost running at optimum in both the cases?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [23]

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You see what happened is that there is a stay order that has been put against all the licenses that had been issued by the UP state government by the NGT because of a petition that has been filed by certain local NGOs. The UP state government has taken this up very strongly, and they are now having the seniors also represent them in the NGT. The next hearing is on the 13th of February. So we have shortlisted a line. We have already finalized the machinery, but we are waiting for the stay order to be lifted. And once it is lifted, we can go full steam ahead. I think it will take us 15 to 16 months post the date of the order being lifted to start production from this unit.

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Operator [24]

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The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [25]

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Just one question. I do not know if you highlighted this about the laminates in the starting or not. But growth in laminates seems to have come off this quarter. We were very confident of maintaining a double-digit growth rate in laminates for the last few quarters. Could you give us some sense as to why this growth has come off? And secondly, how is our domestic and exports growth rate be at first?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [26]

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Okay. So like I just explained, basically, last year, we had a very strong Q3 because the catalog launch -- the catalog was launched just before Q3. As such, the base effect has resulted in a lower growth in this quarter. But yes, we should be back to a double-digit growth in the next quarter itself. And we'll be looking to maintain a 13%-plus growth for the entire year. The exports are about 25% of our total portfolio. Domestic is 75%.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [27]

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So you said -- sorry, the reason as to why I asked this is while I understand you said the base was very high, but if I actually look at it from a sequential perspective also, that is, versus the previous quarter, our revenue numbers have fallen. So INR 135 crore revenue number was fallen to, what, INR 115-odd crores. So just wanted to understand that is it just base or has domestic moderated more? If you could just give us a sense in terms of how much has domestic grown at? And how much has the exports grown at?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [28]

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It is basically just base. Because if you look at it, every year, quarter 3 is lower than quarter 2. Quarter 2 before Diwali is normally the time when everybody looks to finish off their homes. And as such, the demand for laminates, plywood, all our products increases significantly. So Q2 for us is always a strong quarter and Q3 is a slightly weaker quarter. Like I explained to you, last year there was a difference. Last year Q3 was very strong, and it was an exception to the norm rather than the norm. I think domestic and exports both have been flattish. I will get back to you with the exact numbers going forward or Abhishek can update you obviously.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [29]

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Okay. They both were flat you are saying, okay.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [30]

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Yes.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [31]

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Second question is on the MDF side of the business. You've said that you will take about 15, 16 months to commission this. But typically, from a capital outlay perspective, INR 500 crores of top line, what is the kind of top line? Should we assume similar kind of asset turns? Or are you probably expecting it to be a little better in terms of both MDF and particle board? Because you said it's a combination line, and I'm assuming that you will have a relatively better machinery and so on and so forth. So are we looking at a relatively better asset turn in these facilities?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [32]

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You see the asset turnover was likely to be very similar to what we have in MDF at the moment. However, one thing that we should take note of is particle board in terms of realization is slightly lower than MDF. So that will change the dynamics. But the capacity utilization from this unit should be far better than what we have seen from our Hoshiarpur plant for the simple reason as it can produce both MDF and particle board. We can run the plant for half the month with 300 cubic meters of MDF and for half the month with 450 cubic meters of particle board. So the capacity utilization or 100% capacity utilization should be reached much faster than our existing unit.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [33]

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Okay. Okay. And the last part is in terms of the MDF demand side and probably, how is the demand-supply dynamics right now? I mean we were probably running still a little short in terms of supply. I think is that now largely complete? I mean, are we probably hearing any other players also kind of getting into the market? Or how is that situation panning out in terms of demand/supply for MDF?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [34]

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There is a plant coming up by Rushil in the South in -- out of this (inaudible) if I'm not wrong. [2 is more] coming up in North. Just the market (inaudible) as far as MDF is concerned. And even we have grown since last year, good growth. Looking ahead, (inaudible) I think we'll...

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Operator [35]

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Mr. Agarwal, sorry to cut you off once again. Sir, your voice is breaking once again. I'll just -- yes, I'll just queue you up. One moment, sir.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [36]

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Hello?

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Operator [37]

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Yes, sir. Go ahead. You're connected back to the call.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [38]

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Yes. Can you hear clearly? Hello?

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [39]

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Yes, yes, yes, please.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [40]

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Okay, great. So the [upper] growth is, again (inaudible). It's not as good as I or we expected.

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Operator [41]

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(technical difficulty). Sir, go ahead.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [42]

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Hello? Hello?

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [43]

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Yes, sir. Go ahead.

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Operator [44]

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Yes, sir. Go ahead.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [45]

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Yes, yes, yes. So actually, the growth we were expecting was much, much better, but still, yes, the growth in MDF segment is quite good. And we have grown. The others have also grown. I think you will find similar kind of a growth in other manufacturers also. But due to these 2, 3 new manufacturers coming in the South, we are not so related to it, doesn't affect us much. In North, there are very small capacity coming up. So I don't think that we will have a problem. But yes, they will lap up some of the market maybe because I think these 2 plants are 200 cubic meter each. So they will lap up some of the growth which is coming in. I really expect -- in MDF, I really expect the market to grow much, much better in coming times if the economy improves and whatever the figure for the January manufacturing index is much better. So if it continues, I'm sure that it will help us.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [46]

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And just one last point. The Laos -- as of now, we've provided it for completely -- the entire impairment is provided, right? Just a clarification on that part.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [47]

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Julasariaji (foreign language).

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [48]

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Hello?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [49]

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Just a second, Julasariaji. Julasariaji, Laos (foreign language) complete impairment (foreign language).

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [50]

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In fact we have taken on the basis of...

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Operator [51]

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Sir, sorry, to cut you off. You're not audible, sir.

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [52]

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Hello? Am I audible now?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [53]

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(foreign language)

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [54]

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Hello? Can you listen me now? Hello?

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Operator [55]

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Yes, sir. It's better. Go ahead.

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Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [56]

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Yes, sir. Yes, sir. Please.

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [57]

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In fact, we have taken the impairment on the basis of realizable market value of the assets. So this is we have estimated what we could realize by selling all the assets. So on the basis of that, we have taken on higher side, but we can't say. There may be -- in fact out of our INR 75 crore investment, we have taken about INR 46 crore. Finally, there may be INR 5 crore here or there when we finally dispose of the assets. As we said in the beginning, we are trying to revive. So we have taken on the -- I mean to say higher side, you could say.

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Operator [58]

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(Operator Instructions) Next question is from the line of Manoj Bahety from Carnelian Capital Advisors.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [59]

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I have a couple of questions. First one is on MDF. Considering the stay order in UP, is there a plan B, like if this stay order doesn't -- remains for next 3 to 6 months? In fact, the thing is that already, I think, we are late in terms of putting new capacity. Already, I think we are at optimum capacity utilization. So I just wanted to understand like for next 16 to 18 months, how you are seeing the growth considering MDF, like already we are at optimum capacity utilization? So this is my first question.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [60]

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Shall I? This is -- when we came into MDF in the year 2017 everyone said you're 7 years too late. So while I do agree that we are close to optimal capacity utilization, but we are figuring out ways to increase capacity utilization even for the -- this plant can be run at 115% to 120% of the optimum -- of the rated capacity. So we're figuring out ways of how to do that. We have hired a very senior consultant called [Renoir], and they are working with us in the journey of how to increase capacity utilization further. When it comes to Uttar Pradesh, there are, of course, a lot of plan B. But the reason we are focused on Sitapur and on Uttar Pradesh is because it has the lowest cost of timber and it has the lowest cost of transportation to our primary catchment, which is the North and Central India. We had a license in the South, but setting our plant in the South today is not very economical. We have a shed already created in Hoshiarpur, but again, ramping up capacity in Hoshiarpur where the price of timber is higher than the price of timber in Uttar Pradesh did not make the economic sense to us. As this is a long-term decision, it is not a decision for 6 months or let's say for 1 year. It is a decision for the next decade and more. We have decided that we will wait for the outcome of the Sitapur -- the Hoshiarpur -- the UP case. I do not think it will extend beyond 6 months. But if it does, definitely, we do have plan B and a plan C as well. But at the moment, we are focused on plan A.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [61]

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And this 20% expansion, whether it will require some CapEx or brownfield CapEx?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [62]

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No, 0. This is all going to be due to operational efficiency and a reduction in the overall unplanned downtime of the plant.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [63]

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Okay. And means based on like initial discussions with the consultant, what is the probability that this 20% kind of efficiency can be achieved?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [64]

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The consultant says 100%. We need to wait and see, but let us work it out and we'll get back to you as and when results come out.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [65]

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Okay, okay. And my second question is like -- just it's a bookkeeping question. I was looking at like fund flow summary. In fact like our balance sheet has seen significant improvement in terms of reduction in debt as well as containment of working capital. But there is one line item which says that increase in loan from related party of INR 95 crores. What it is? And why it was required when the company was generating good amount of operating cash flows?

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [66]

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Hello. In fact whenever promoter save extra money, they give to the company, and I borrow from them at lowest interest rate. I replace it with higher interest, which I'm borrowing from bankers. I borrow it at the lowest interest rate I pay to any third-party. So this is just only replacement of higher loan with lower interest loan.

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Operator [67]

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(Operator Instructions) Next question is from the line of Ashish Kumar from Infinity Alternatives.

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Ashish Kumar;Infinity Alternatives;Managing Partner, [68]

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I think I had a question regarding -- 2 questions. One was in regarding to face veneer from Gabon and other sources. Where are we on -- in terms of sourcing of that? And has the Gurjan fiber from Burma started to come back again for us?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [69]

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Okay. So let me break this into 2 parts. With regards to Gabon, there is a lot of oversupply in the market because there have been end number of units that have been set up in the markets. As such, what we have observed is the realization has fallen and the cost of raw material has remained the same. The Gabon units right now are not profitable. So our unit is on the cusp of beginning production. We have deferred it by, say, a quarter. We should start production around April. We are going to rely on Gabon and Myanmar both for our own in captive demand and whatever material is produced as B and C grade other than our captive demand is going to be sold into the market. So what we are doing is we are consciously reducing our veneering activity because at this point in time there is a lot of fluctuation in the market. There's a lot of uncertainty. So we are only going to manufacture so much as is relevant for our in-house domestic capacity. And whatever excess B and C grade is generated we'll be selling to the market. So our stake in commercial veneer will continue to remain small.

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Ashish Kumar;Infinity Alternatives;Managing Partner, [70]

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So we've been seeing this 50% dip in commercial veneer, in fact, for the last few quarters. Do you think it will go down to almost near 0? Or we are at the bottom of where we should be?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [71]

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I think we are close to the bottom of where we should be. Once the Gabon plant starts operations, maybe it will increase slightly, but that is just going to be a replacement of the commercial veneer we are buying from market. We are going to be sourcing from our own units, and the remnants are going to be sold into the market. So there's going to be no substantial increase. Yes, there could be a slight increase once Gabon starts.

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Ashish Kumar;Infinity Alternatives;Managing Partner, [72]

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Okay. And what about Gurjan, the Burmese veneer -- face veneer?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [73]

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So now in Myanmar, because all the manufacturing units are actually shut down, so the cost of timber has fallen drastically. We are sourcing Gurjan for our own unit. And again, the excess that is produced, the B and C grade, is being sold to the market. We are going to limit our activities to the same in the near future as well.

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Ashish Kumar;Infinity Alternatives;Managing Partner, [74]

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Okay. But do you have no problems in terms of what you require for your own capacities currently?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [75]

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No. We have no issues. In fact, currently, considering the supply glut in the market, we were doing a calculation where purchasing from the market might be a better option than sourcing from Gabon, at least for the next quarter.

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Ashish Kumar;Infinity Alternatives;Managing Partner, [76]

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Okay. And in terms of the plywood demand at the middle and upper end, you said that you continue to see it to continue to remain sluggish. Any green shoots that you are seeing? Some of the people kind of seem to indicate that there are some green shoots, but any green shoots that you see?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [77]

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Green shoots?

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Ashish Kumar;Infinity Alternatives;Managing Partner, [78]

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Sorry?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [79]

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Okay. Okay. Okay. I think one thing plywood industry has never (inaudible). So I think it has put everybody in the (inaudible) at its [base]. So everybody's trying -- hello? Can you hear clearly?

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Ashish Kumar;Infinity Alternatives;Managing Partner, [80]

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Yes, yes, yes.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [81]

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Okay. So I think one thing, which has really happened and which is really good, is that everybody in plywood industry is now more alert, are trying much, much harder, at least I can speak about CenturyPly. And everybody in the whole system has become so active, and now we are trying to go deeper in the next phase. So all these things will certainly come up -- come out with a great result. But yes, whenever a change -- such kind of a change happens, it's going to take some time. So I still do not really project too high a growth. I had been always telling that we'll be about at 6%, 7%, 8%, 9% growth. So I think that is the growth I still expect today and I will say at the moment, which is too good. Rather I now believe that we have been saying that it will be good, it will be good. Now let it happen, and then we come out to you and say that yes, we have done it. I think that's the better way to do it.

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Operator [82]

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(Operator Instructions) Next question is from the line of Mr. Karan Bhatelia from Asian Market Securities.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [83]

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Sir, when do we see the real benefits of GST, E-Way Bill on the plywood industry? Because if you see the other building material verticals, their growth has been way better than what we are doing in the plywood segment. So at the industry level, where can we expect the benefit to really kick in? Because if you see the share of unorganized, in plywood it's still where it was 3 years back.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [84]

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Absolutely. And the reason is also very clear, you see. The unorganized is still doing what it used to do. There's no change in the modus operandi. So yes, the -- if the difference between us and them was 40% to 45%, it has reduced maybe to 35%. But then still that is really not helping because still the gap is too big. And they are still resorting to all kinds of methods which they used to do earlier. But the way the government is going, I'm sure it will take some more time, yes, but then I'm sure that they will plug in all the loopholes, and the benefits will come. But yes, it's a slow road. It's a long trek.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [85]

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Okay, okay. And sir, on...

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [86]

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But I'm telling you we are not now no more dependent on -- and we are not waiting for this GSTs to give us result. Whatever will come will come slowly. So it will be factored in, and it will not be like that overnight some changes are happening. No, that is not will happen. But the way now we are working in our processes and in the markets and with the consumer, with our influencers, with our distribution system, I'm sure all these things will have to give results. But yes, any such change takes time. So it has been about a year on we have been on this, about a year or maybe a little more on this. And I don't want to promise you that yes, this and this time something will happen, but yes, something will happen. That much I'm sure.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [87]

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And how are things on the underbilling side because in tiles we've seen some dip in the underbilling invoices. So do we see similar thing for plywood?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [88]

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You see in plywood, what has happened, people are still delivering without invoice. People are still delivering at 30% invoice. People are still delivering 2 trucks on the same invoice. So everything, which was happening earlier, is happening today. Even they are paying less wages to labor. They are not paying full electricity bills. So everything, whatever was being done earlier, is being done today. The only difference is we have -- our duty has become lesser -- little lesser than earlier. It was 28%, 29%. Compared we are now paying 18%, so that much difference has come down. That's all.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [89]

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Okay, okay. And sir, on particle board, are we looking at similar debottlenecking exercise like we are doing in MDF until the UP capacity is up and running?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [90]

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Yes, we are. We're looking at a similar exercise. And in particle board, I'm very confident that we'll be able to unlock at least 20% or 25% additional capacity within the next 2 quarters as such.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [91]

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And with what [engagement] our CapEx is this?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [92]

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This is going to be nominal CapEx. You can say it will be less than INR 4 crores.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [93]

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Okay. And what is the number for MDF capacity expansion?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [94]

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0. MDF, it is just a process change, like I mentioned earlier. It is going to be debottlenecking and a reduction in the number of unplanned shutdowns.

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Operator [95]

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(technical difficulty) The line was disconnected for Mr. Bhatelia. Sir, your lines are connected back.

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Karan Bhatelia, Asian Markets Securities Private Limited, Research Division - Associate Analyst of Consumer Discretionary and Building Materials [96]

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Yes. How much CapEx are we looking for MDF for the small capacity expansion?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [97]

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0.

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Operator [98]

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(Operator Instructions) Next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [99]

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My first question is on MDF. On the margin front, we have seen a yo-yo in terms of earlier we were at higher level then we dipped down and then we have again come back to 23%, 24%. How much confidence you guys can give us in terms of sustainability of the margins on MDF?

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [100]

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The MDF -- you can hear me clearly?

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [101]

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Yes, I can hear you.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [102]

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Okay. So in MDF, you know that earlier, there were problems when the new capacities of Green and new capacities of [Exxon] had come. At that time, the prices have dipped. Every month it was dipping. And that's how the price -- actually the profitability went down at that time. And after that, it stabilized. And now whatever benefits or more better profitability you are seeing is only because of the better capacity utilization and a little more efficiency in the plant. So these are the 2 things which are happening. So now if I can actually reach 100% capacity utilization or 105% capacity utilization, which we, of course, are trying, the profitability certainly go up. And you will see that in the particular month -- our -- I think last year, January, our plant had shut down for some time, and the profitability has really gone down. So right now, it's all the game of actually higher capacity utilization, more are more...

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [103]

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So you believe that 24%, 25% margin is sustainable? Or does it have an upside bias looking at the environment today?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [104]

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Upside I will not say because there are always chances of price falling, competition, but then I can see that, yes, we can sustain this, if something really drastic does not happen. Until then, I think we will certainly sustain this.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [105]

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Okay. And my second question, Sanjay, is that on the plywood side this is the almost the sixth year as the profitability of this division is in the range of INR 180 crores to INR 200 crores. Yes, growth has been anemic, but the surprise has been the margins, which have been dipping down for the last 5 years. And this quarter it made a new low of 12% almost. So just trying to understand that what are the efforts you all are doing as a management team to make sure that, yes, growth is a little anemic, but at least profitability, which was very strong at 16%, 17%, which has now dipped to 12%, can revert back? The job you guys have done on laminate, the job you guys have done on MDF is really commendable, coming back to the profitability normalization. But the same thing has not been seen in plywood. So can you help us understand...

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [106]

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Let Keshav take this one.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [107]

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So as you said, in this quarter, the profitability was quite low, about 12.5%. The basic reason behind low profitability in plywood for this particular quarter was that our cost of goods sold went up slightly by about 0.3%, 0.4%. Decorative plywood, which is a considerable chunk of our profit, reduced in profitability impacting about 0.5% of the EBITDA. Commercial veneer, I've told you, has gone from a lucrative business to a loss-making business. As such, we are curtailing our activity. So the 15%, 16% EBITDA margins that would see in plywood earlier, they also had the contribution from commercial veneer, which, as a segment now, we are trying to distance ourselves from. So I'm very confident that we'll be able to revert to at least a 13%-plus EBITDA level by the end of this quarter itself. But going forward, it is going to be a slow and a consistent journey to get back to 14%, 15%. Maybe over the course of the whole of next year, we should be targeting a 14% EBITDA margin. But at the moment, this quarter, the visibility I can give you would be closer to 13%.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [108]

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Okay. And from a growth perspective...

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [109]

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And I would like to tell one more thing. If you [will recall] maybe our earlier recordings, when we were doing 15.5% or whatever, at that time, even our comments was that we will be very happy to retain and sustain at about 14%. That was our comment at that time also. So we were never very -- too aggressive on these things. So we do not want to really promise you and then go really -- do really bad. So if you look at our past recordings, you will find that, that is what we have always tried to tell you.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [110]

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And what efforts -- I know ultimately proof will lay on the execution.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [111]

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Yes. Yes.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [112]

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But what efforts you guys are putting in as a management team to make sure the growth revise back? Because the brand is strong. Distribution is strong. What are you guys doing? Can you help us understand a bit of it, please?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [113]

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Yes. We are -- actually, we have been away from branding. And I believe that in last 3, 4 years over (inaudible). So we'll be probably going in for a little more branding. The second thing we are getting into is actually purposes -- say, our most important thing we are doing is the distribution network. And the distribution network is the one thing which we have been working for more than a year, and I've been speaking about it, I think, in every conference. I guess we see that, yes, we are going deeper, we are doing better, but still there seems a lot of work is to be done. And we find that we are quite popular in the cities and the bigger towns versus the smaller town people really so aware about us. So even that is, again, another challenge we are seeing at the moment. So yes, the work is happening. This kind of a work I don't think what we have been doing in last about a years' time we have ever done in our life actually.

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Pankaj Tibrewal, Kotak Mahindra Asset Management Company Limited - VP and Equity Fund Manager [114]

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Okay. So ultimately, something should come out.

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Operator [115]

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Next question is from the line of Sneha Talreja from Edelweiss Broking Limited.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [116]

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Sir, for the follow-up, just wanted to understand a bit about the laminates industry. Our bit of a channel checks and everything suggests that there have been new capacity additions taking place. There are a lot of plants, which have got commissioned. Can you just highlight? Are you seeing those kind of plants impacting you? And how many of such plants would have been added? And at what scale are they operating?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [117]

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So 100%, yes. There have been a lot of capacity additions in the recent past. I cannot give you authenticated data because, honestly, we are not ready to do the same. But they are definitely creating an impact in the market. A lot of the lower-end segments are now flooded with material that keeps reducing it by month-after-month. But frankly, we are not present in that segment, in 0.6 mm or in 0.55 mm. That grade of material isn't cheap. Would not be -- we are not -- we never will process. So I think it has not impacted us to that extent. But yes, in the overall market, there are new capacities that have come in. And when new capacities come in, the first tool that they use is price, try and offer cheaper prices to the market. As of now, it has impacted demand slightly, but I don't think it is a very, very big -- it has had a big impact on the branded sales yet.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [118]

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Sure, sir. That was helpful. And are these players also into exports market like dumping into exports? Or are they just present until now in the domestic market as such?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [119]

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You see, there are 2 kinds of export markets. One is where you export liners, liners you would be exporting at maybe $3.5 to $4, which would be a very low realization where you're not making any money. It is just about maintaining and recovering your overhead. So a lot of these players may have moved into the liner market, which is a mass market. But when it comes to export of decorative laminates, you'll need to maintain certain quality standards. That is not the capability of all the players that are there in the market. New entrants will particularly find it quite challenging. So I think some new entrants may have entered into the exports but again, they are limited in the segments that they would have entered and they are limited by the quality they can produce.

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Operator [120]

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Next question is from the line of Pranav Mehta from Equirus Securities Private Limited.

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Pranav Mehta, Equirus Securities Private Limited, Research Division - Associate [121]

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Sir, just wanted to understand on this acquisition that you have done on the plywood side. So what was the capacity? And how much have you spent on the same?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [122]

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In fact, this acquisition is made by our subsidiary, Auro Sundram Ply & Doors Private Limited. This was a unit, which was quite adjusting to our existing unit of Auro Sundram. So our main interest was acquisition of that land for future expansions. As such, this unit can produce around 4,000 CBM of plywood as and when demand picks up. But our main interest was the acquisition of that land.

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Pranav Mehta, Equirus Securities Private Limited, Research Division - Associate [123]

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Okay. And any further acquisitions that you're looking at plywood or any other divisions?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [124]

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No. In fact, we are not looking at, and it depends upon the opportunity which comes to the table. We are not looking at any acquisition in plywood. But again, it depends upon the opportunity when it comes on the table.

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Operator [125]

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(Operator Instructions) Next question is from the line of Aasim Bharde from IDFC.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [126]

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Just a couple of questions. Sir, first question, your particle board revenue has fallen in this quarter, but margins are still sharply up. Hello? Can you hear me?

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Operator [127]

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Yes, sir. Go ahead. You're audible.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [128]

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Yes. I'll just repeat my question just in case. So particle board revenue has fallen in Q3, but margins are still up Y-o-Y. So is this purely due to operating leverage benefits and capacity versus the Y-o-Y quarter? Or is it something else that has driven margin expansion?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [129]

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Can you please repeat the question once?

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [130]

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Yes. So just I was looking at your Q3 performance in particle board. Your revenue has declined by 6%, but your EBITDA has grown sharply. So that's a pure margin expansion play over years. So I just wanted to know what drove that margin expansion in Q3.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [131]

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Okay. So there are other factors that led to that. You see, the reason that our turnover was less was because the plant had to go through shutdowns for about 15 to 18 days. And because of that, the quantity of material that was produced was less. The reason behind the shutdown, basically, that we are trying to augment capacity, as I mentioned to you earlier, and that will require a few tweaks in the machinery. Having said that, EBITDA margins for particle board look quite still at the moment. We had margin of close to 28% for the entire 9 months. I think in Q4 as well, we should be targeting this similar 27%, 28% margin.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [132]

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Yes, but I was just wondering, how did this margin expansion happen despite the fact that you took a shutdown of 15 to 18 days. That's actually what I was looking at.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [133]

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You see, if you look at last quarter as well or if you look at the entire year, our margins have been fairly stable. Last year, margins were lower. But after that, margins have picked up. Last quarter our turnover is INR 26 crores. This quarter, our turnover is INR 25 crores. Again, a margin of 29.7% EBITDA last quarter. We're at 27.1% this quarter. So margins have been fairly stable. I think you were referring year-on-year.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [134]

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Year-on-year, yes, sir. So is it a factor of just your capacity utilizing that has improved year-on-year? Is that what has driven margin expansion?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [135]

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Basically margin expansion is due to expansion of [cheap] gross profit margins. You will find that gross profit margins have gone up by almost 5%, if you compare Y-o-Y. So that is due to multiple reasons. In fact, efficiency in running the plant, a little bit correction in resin prices, okay, then better capacity utilization. Then day-by-day plant is also becoming stable.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [136]

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Okay. Sure. Sir, second question, the 8% core plywood volume growth that you have reported in this quarter, is that also purely a market share gain story? And could you also break this up between growth in premium and mid-market segments?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [137]

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As far as the breakup between the 2, it's not available at this moment, but then I'm sure Rathi can give you by tomorrow or so. That's not a problem at all. And this 8% growth is actually maybe the result -- I don't see much movement in the market very frankly. There has not been much changes in the market. But whatever efforts probably we are trying to put in then -- in some months I see that it's getting better. In some months I find that, yes, [we are only doing] -- I will not comment that whether we are doing it sustainably. Is it going to give us result? Yes.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [138]

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Would you be able to comment on the whole plywood industry? Has that seen a decline in Q3 as well? Or is it more flattish versus...

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [139]

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That will be actually just giving you a data by thinking, yes, this is right. We have no data, absolutely not at that level, very frankly. It is said that there are about some 100 units in Yamunanagar has closed down. But then there are no data absolutely. So comment on that I don't think is really proper actually. No data, absolutely zero data.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [140]

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Sure, sir. Sir, finally, just another bookkeeping question. In Q3, your minority interest is a big negative number. This is entirely because of the Laos impairment, right?

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [141]

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Yes, basically due to Laos impairment. INR 46 crores is impairment figure. So that have made the figures haywire completely.

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Operator [142]

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Next question is from the line of Bhavesh Chauhan from IDBI Capital Markets.

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Bhavesh Chauhan, IDBI Capital Markets & Securities Ltd., Research Division - Analyst [143]

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Sir, just wanted to ask about the competitiveness of India in MDF. MDF seems to be imported at INR 14,000, INR 15,000 per CBM. And our cost of production, if you consider 25% EBITDA margins, would be around INR 16,000, INR 17,000 per CBM. So why are we not -- I mean, what is the difference between the competitiveness or cost of production between global companies and Indian companies?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [144]

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See for India, basically, there are 2 -- only 2 factors in this. One is the cost of [our bill] and another is logistic. So any plant in the north it is absolutely impossible for us to export. So if the plant is somewhere near the port like Green today is exporting quite a bit of their production, but they are exporting because they're unable to sell in India. So they have to export. So actually, India is still not that capable to export, but yes, under duress because you have no choice or maybe we have some export obligations we need to export. The reason is mostly logistic. In other countries, the logistic things are so well organized and with large, huge volumes, their costs are so low that it is viable for them to export. If you make even $5, $7, it is yes, we will set up plants and we will export. It does not matter. But then even that is not possible.

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Bhavesh Chauhan, IDBI Capital Markets & Securities Ltd., Research Division - Analyst [145]

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Okay. So basically you're saying that there's a huge scale at which the operations run globally, and that's why they're able to export even at INR 12,000, INR 13,000?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [146]

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Not only that. The more important is the logistics. If the logistics are right, if you are at the right place, if you have the right kind of cost for moving the goods. So in Malaysia or say in Vietnam, the factories and the timber are very near to the port, so that's how actually they are able to manage all the logistic costs very well.

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Operator [147]

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Next question is from the line of Achal Lohade from JM Financial Limited.

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Shrenik Bachhawat;JM Financial;Analyst, [148]

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This is Shrenik from JM Financial. Sir, my first question is even I did some channel checks in Yamunanagar, and I got to know that some 20% of the plants have shut down and more will be shutting down in March. Sir, I wanted to know if these plants are actually shutting down, will it benefit the organized base or the customer base is different for Yamunanagar and branded players like us?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [149]

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Ultimately, the customer is same. There is no difference. The story what you hear that Yamunanagar plants have closed down, even I just spoke about a minute back. And there is another corollary to that. Earlier, you see because of the excise exemptions, people used to set up one plant, and then they will have some other plant next to their existing plant just to show that there is a separate plant, but which will really not operate. They will actually take out the material from the first plant itself. So all the units, which are they're saying that they are closing down, are these plants, which are actually, you can say, kitchen plants, most of them. So they are not actually closing down the main plant. The main plant is still operating. And the kitchen plants are getting closed. So it may be 100. It may be 200. There are supposed to be 3,300 units across the country. So out of that, maybe 500, 700 will be like these kitchen plants or maybe 1,000 may be like these kitchen plants actually.

So I don't think -- and plywood market is vast, about, say, INR 28,000 crores, INR 30,000 crores is the total -- the industry. So out of that, even closing down 5, 10 units will -- is not going to make a difference. But the units are too small. Ultimately, the government has to really come out with the proper thing. They are trying out RFID thing in trucks. I don't know how much they have succeeded. And then they are trying now this invoices from online from their portal. I think this will actually bring in some solution, but then this one is actually to bring down to the smaller players is going to take a lot of time. They are going to bring in, I think, INR 100 crore plus units from 1st of April. But getting it down to INR 10 crore plus is going to take, I think, 2 years.

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Shrenik Bachhawat;JM Financial;Analyst, [150]

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And sir, do you think the rise in the timber costs would have made these small plants unviable?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [151]

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See, rise in timber costs is there a little bit, but it is not really too much. The rise in timber has been basically for poplar. But the prices of eucalyptus has not really risen. So yes, it makes a difference. Those who are accustomed to making plywood of only poplar, yes, it will make some difference to them. But I think poplar or even eucalyptus is not that difficult to handle. I don't think that is the reason.

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Shrenik Bachhawat;JM Financial;Analyst, [152]

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Okay. And sir, assuming if we start the construction of the new UP plant in the next 6 months, what will be the CapEx mix for FY '21 and '22? And what will be the debt/equity mix?

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [153]

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I think the CFO will be able to answer the debt/equity mix. But the total CapEx will be around INR 400 crores, INR 450 crores -- I would say INR 450 crores for the Sitapur plant. And considering our cash accruals are very strong, within 6 months, we are actively looking at overall debt figure less than INR 100 crores. So I don't think there's going to be a drastic increase in that. CFO?

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [154]

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Regarding debt/equity mix, usually, we'll go for 75% of plant cost by way of debt. That's usually we'll go for. But what happened last time when we set up Hoshiarpur plant, we got, I think, some close to 25%. But by the time plant was getting set up, we had done a case of accruals. So we have drawn only 55%, 60% only. Balance we have forgone. And we were supposed to pay the whole term loan in 7 years. In our case, accrual was so strong, so we have prepaid within 3.5 years only. That will depend -- usually, we go for 75%. But if our cash accrual is more, then we can go for less also.

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Shrenik Bachhawat;JM Financial;Analyst, [155]

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And sir, this INR 450 crore of CapEx will be -- how much can we factor in FY '21, if we start the production -- start the construction in the next 6 months?

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Arun Kumar Julasaria, Century Plyboards (India) Limited - CFO [156]

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In fact, for first 6 months, we have to pay only advances to plant suppliers, and we helped to pay for land and part of civil court. So around 1/3 is spent in first 6 months. And then balance is within 2, 3 [years.]

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Operator [157]

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(Operator Instructions) Next question is from the line of Manoj Bahety from Carnelian Capital Advisors.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [158]

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I just wanted to understand like the way we are seeing the growth in MDF and the kind of subdued growth in plywood, it is like it shows clearly the trend that MDF is taking away the market from the plywood the way it has happened in other countries of the world. So is the similar trend you are seeing in India? And if that is the case, are we like in terms of -- if I look at like next 3 to 5 years growth parameters for Century as a whole, so still I think we are saying that INR 450 crores of CapEx for the new plant. Again, like 2, 3, 4 years down the line, we'll be again facing this kind of situation like where our topmost growing segment we are running short of capacity. So how do you tackle this? So first of all, my first question, like is it happening that MDF is taking away the overall market share from plywood?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [159]

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I will answer it like this. You need to understand that in plywood, there are 2 segments. One is the deluxe segment or the higher segment and one is the lower segment. The MDF is actually replacing -- MDF and particle board is replacing the lower segment for making the cheaper furniture. As far as if you think that the plywood growth is stunted or it will be taken over by MDF totally, so I will tell you a story about China. I don't have the figures exactly. Our Chairman is today not online, otherwise, he would have given you the figures also. He remembers much, much better than us. The plywood growth in China is now bigger than MDF growth. Particle board growth is better than MDF growth. So there was a time when MDF grew lot faster, did much better, but now particle board and plywood, both are doing much, much better. So plywood has his own advantages. And in a country like India, where actually -- I'll just ask you a question. I think I've asked 2, 3 years back this same question. The richest people in the world, how do they get their furniture? Suppose somebody on Fifth Avenue, he wants his furniture. He does not go to IKEA. He goes to a designer and the designer makes his furniture for -- as per his requirement. Isn't it?

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [160]

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Correct.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [161]

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But the same facility in India is available to everybody because we have many contractors and designers available across in every town. So why will people go for readymade furnitures so much? So that is why you will see that the furniture industry in India is growing, but not to that extent. Similarly, that is why I can say very, very -- with a lot of surety in my mind that plywood will not suffer, yes? There are a lot of -- whatever growth in the total panel industry is coming, a lot of it will be taken by MDF. And some of the lower quality plywood, which actually are not good plywood, will be replaced by MDF and particle board.

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Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [162]

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Okay, okay, okay. And sir, my second question, like, does it make sense to go a little bit more aggressive on CapEx, at least, means need to have like surplus brownfield expansion bandwidth in our upcoming CapEx facility? Like so next time, whenever there is this kind of situation like where we don't have capacity, but the demand is there.

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Keshav Bhajanka, Century Plyboards (India) Limited - Executive Director [163]

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So like I told you, this is going to be a combination. This is going to have particle board and MDF. Maybe 2, 2.5 years down the line when it is running at 100%, we will have the option to just add another hard press, another continuous press and double the capacity of the line. That entire turnaround time would be less than 9 months.

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Operator [164]

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(Operator Instructions) Next question is from the line of Abhishek Joshi from CGS-CIMB.

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Abhishek Joshi, CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst [165]

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My questions have been already answered. Thank you.

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Operator [166]

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The next question is from the line of [Suyash Rane] from ITI Capital Limited.

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Unidentified Analyst, [167]

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So I have a couple of questions. One question is, is there a breakup which we have in terms of revenue based on sales through B2C and B2B, like B2B2C sales to the large furniture manufacturers or maybe the real estate player? And my second question is, are we affected largely or positively or negatively by IKEAs of the world?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [168]

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As far as the bigger, larger projects are concerned, the whole company sale to these bigger projects is hardly 8% or 9%. So Century has always been focused on channel sales to consumer sales, not much on project sales because there the outstandings are bigger and larger time period. And secondly, the prices are lower. So we have never focused into that segment actually. And OEMs, yes, we are supplying our -- most of our particle board is going into OEMs. Basically nothing of plywood is going -- only maybe some 0.5% or 1% may be going into OEMs as far as plywood is concerned. And then the similar figures are for laminates also. What was your second question?

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Unidentified Analyst, [169]

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Second question is, are we positively, negatively, how largely are we affected by IKEA or other online sellers or -- yes?

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [170]

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So I still believe you see that IKEA is yet to make an impact. Yes, it will make an impact, but it will make an impact into maybe one city, 2 city, 3 city. It is going to be still many, many, many years before it really makes an impact. And by then, the growth is there. And India is a very typical market. I know Turkey, where actually in Turkey when MDF came, within 3 years' or 4 years' time, from a 0% to 75% of the total panel sales were MDF and particle boards, within 3 years. In India, the first MDF plant came into being, I think, sometime in 1985. And we all know the results of that Mangalam Timber and the other plant actually. And still also whatever plants have come, they are actually not very, very comfortable, I must say. So India is a different -- being different country, we have different systems. So you cannot remove plywood from our blood. Plywood is going to be the most important product they will use. Yes, MDF will make its place. Even IKEA will make its place into it somewhere a little bit. But in a country like India, how one store may be selling INR 100 crore or whatever, it is not going to make much of a difference very frankly.

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Operator [171]

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As there are no further questions, I will now hand the conference over to Mr. Sanjay Agarwal for closing comments.

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Sanjay Agarwal, Century Plyboards (India) Limited - MD, CEO & Executive Director [172]

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So thank you. It was really wonderful to have support from all of you and for your time. We -- of course, yes, we are working very hard. We are using everything possible under the sun to improve the performance of your company. And I am, I think, as MD of the company, as the CEO of the company or a person involved in the day-to-day business, I am more hopeful than I ever was. I see much more possibility of things to come than I used to see earlier. So I'm -- yes, Laos was a little bit of a negative area. But then I think at one of the best possible times, we have been able to write it off. You look at our debt, they are wonderful, and we are not even trembling also, even a little bit. (inaudible) is there to go in for an (inaudible). So I can assure you that, yes, this company will be doing better and better in (inaudible) company. But yes, I think, in these times, a little bit of conservatism is better than a bigger aggression. Thank you.