Century Ply expects margins to improve on capacity expansion

Kolkata, Feb 13

Century Plyboards (India) Ltd, which saw margins coming under pressure in the third quarter of this fiscal on the back of higher raw material prices, expects profitability to improve in Q4 and the subsequent quarters supported by an expansion of capacity both in MDF and laminate businesses.  

The company has invested close to ₹250 crore so far on the expansion of MDF (medium density fibre) plant at Hoshiarpur and commercial production is likely to begin by the end of this month, Keshav Bhajanka, Executive Director, Century Ply said.  

The total estimated investment on the project is close to ₹1,000 crore over a period of three years between FY-23 and FY-25. The upcoming greenfield MDF project in Andhra Pradesh is likely to be commissioned in H2FY24.

There is a very good demand for MDF in India at present but the company was not able to grow as its capacity did not come into production. However, with the current capacity addition coming onstream, it expects the segment to contribute to a good growth moving forward.

The company has also planned capacity addition in the laminate segment and is expecting a good growth coming in from the segment moving forward. The laminate greenfield project in Andhra Pradesh is also expected to come on stream in Q2FY24.

“Commercial production at the Hoshiarpur plant is expected to start by the end of this month or early next month. So there might not be a substantial improvement in the fourth quarter but moving forward we see a good growth coming in from this segment. The new capacity for laminate will come onstream by Q2 of next fiscal,” Bhajanka told BusinessLine.

The company is working on multiple offerings on the laminates front. The larger size press will be commissioned by Q2 of next fiscal and will add to the overall growth in top line. It is also contemplating on other products in the segment but nothing has been finalized as yet, he said.The laminate greenfield project in Andhra Pradesh is also expected to come on stream in Q2FY24.

Margins to improve

With the sustained input cost pressure in timber prices, in particular, the company’s overall growth margins were adversely impacted by 310 basis points on a year-on-year basis and 90 basis points on a sequential basis to 32 per cent.

While plywood and laminate EBITDA margins contracted by 188 basis points and 310 basis points quarter-on-quarter, there was EBITDA margin contraction of 280 basis points and 810 basis points on sequential basis in the MDF and particle board segment.

Timber prices continue to remain at elevated levels and is expected to trend higher over the next quarter. Chemical prices, particularly phenol, melamine and UF resin have softened a bit in last three-to-four months and are likely to further soften over the next two-to-three months, the company said in the earnings call transcript.

 “In Q3 there was a lingering impact due to inflation so the momentum was not as high. Margins were depressed due to raw material price inflation. We expect the margins to be much better next year,” Bhajanka said.

For the quarter ended December 31, 2022, net profit was down by nearly 16 per cent at Rs 81 crore as compared to Rs 97 crore same period last year. Net revenue from operations was up by nearly three per cent at Rs 877 crore over same period last year.

For the quarter ended December 31, 2022, net profit was down by nearly 16 per cent at ₹81 crore as compared to ₹97 crore same period last year. Net revenue from operations was up by nearly three per cent at ₹877 crore over same period last year.

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