Sajjan Bhajanka, Chairman, Century Plyboards, speaks about growth prospects of the company, shift from plywood to MDF and particleboard and expansion plans during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: Sales for the last 5 years have been really good but its impact is not reflected in profits. Let us know the segment that is driving it and why its impact is not reflected on the profit?
A: Five years ago, plywood had a maximum contribution to our profits. At that time, we had products like plywood, veneer and laminates (in a small quantity). However, laminate capacity has grown by almost 60% by now, even plywood has grown well. We have set up a new plant for particleboard and MDF and they are a completely new capacity and will have a new contribution. When it comes to laminate then it has also grown well. Our EBITDA level profits in these two segments, particleboard and laminates, has increased significantly. A lot of capital investment has been made on these new plants. There was a lot of pressure on interest depreciation, the growth on EBITDA level has been very good. In the case of the net profit, lot investments have been made due to depreciation. However, our profit has increased and the last quarter has been the all-time best quarter for us to date. 

Q: There are reports that the Indian furniture market is undergoing a major shift in which customers choice is shifting towards readymade furniture, which means more demand is for MDF MDF (Medium-density fiberboard) over plywood. How is the demand scenario in the two segments?
A: MDF and particle board are a new product across the world and have been introduced after a long gap from plywood. So, it first started in Europe and today, MDF and particleboard have a market share of around 75% in Europe against 25% of plywood, which one had its monopoly. Similarly, in the case of China, plywood has a market share of around 50% and the remaining 50% is shared jointly by particleboard MDF. MDF and particle board has a share of 85 million cubic meters and plywood also have the same market share. And in the case of India, plywood has a market share of just around 10 million cubic meters while MDF and particle board have the market share of around 1 million cubic meters each. Thus, there is a big gap between the two.

So, the consumption of particleboard and MDF will increase considerably in India in the next 5-10 years as it has happened in Europe and China. Thus, people affection/likeliness towards readymade furniture will go up in the time to come because hiring carpenters is becoming an expensive task and tailor-made furniture are quite expensive. Secondly, people don't have ample time in which they can wait for the next 5-6 months in taking possession of the flat by investing in making new furniture before shifting into them. Thus slowly, the new generations have more inclination towards readymade furniture and it will go up in the time to come. But the introduction of MDF and particleboard in China hasn't decreased plywood consumption but its consumption has grown simultaneously with the two others. That's why consumption of plywood in India will also go up in India but particleboard and MDF consumption will level with the consumption of the plywood and the big gap of 10 million and 2 million will come to an end. 

Q: You have plans to set up a plant in Uttar Pradesh. How the set up will add up to your revenue and EBITDA? 
A: It will take a year to stabilize itself and we are expecting that we will get an EBITDA of about Rs100 crore in the second year. The total revenue will be around Rs500 crore. 

Q: You are leading supplier of face veneer to Indian plywood industry. Thus, what are your plans to invest in Gabon, the African unit where you have plans to set up a new unit? Will you export goods from that plant to India and what is your strategy for it?
A: It is more towards raw material security. Earlier, we used to import a lot of timber and were the largest producer of veneer and controlled almost 30% of the veneer market after completing our requirements. Later, availability of timber - like Gazan timber which was imported from Malaysia, Burma and Indonesia - slowly became limited or came to an end. Post that we installed the largest veneer unit in Burma. Then a plant was set up in Laos, however, the Laos government at the later stage imposed a ban on the export of veneer, which means we can't bring veneer from the country. Currently, we are running our plant in Burma and importing Gazan veneer from the country. As far as Gabon is concerned then wood is available at cheap rates in the country when compared to Burma, i.e. a cubic meter of wood that cost around $400 in Burma is available at just $200 or less in Gabon. We are the largest plywood producer in India and that's why we need to face veneer in last quantity for our work and that is why we have installed a plant in Gabon. Veneer from Gabon will be used in cheap products of our company, however, Gazan veneer from Burma will be used on costlier products that are sold under the Century brand name.

Q: What is your expansion plans in particleboard and MDF segment and how you will fund those plans?
A: I think, the demand for particleboard and MDF will increase in the coming time. Thus, after 5 years from today, I feel the total production of plywood in India, which is around 10 million cubic meters at present, will go up to 13-14 cubic meter. Similarly, the production of MDF and particleboard will also go up from the current 2 million cubic meters to 5 million cubic meters. So, we will continue to grow our participation in MDF and particleboard concerning the kind of growth that comes in the segment. Right now, we have a particleboard plant in Chennai and an MDF plant in Hoshiarpur. Similarly, both the products will be manufactured in a single plant in Uttar Pradesh. Further expansions plans will be made in accordance with the requirement on MDF and particleboard. These expansions activities will be made in other parts of India.

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Q: Slight pressure has been seen on the financial year (FY)19 margins, which stood at 13% when compared to 16% of FY 18. Going ahead, what is your margin outlook?
A: Our growth figures generally remain in double-digit, i.e. it resides between 10-20%, but the ongoing slowdown is putting pressure on sales of almost every product. Demand for our products comes in demand at a time when homes are completed and delivered as there resident make plans to make furniture. However, the real estate sector market is sluggish, at present, and sales are very low. So, demand for plywood, MDF and particleboard will increase after the market for real estate will pick up. We are expecting double-digit growth this year as well. Our last year's sale stood around Rs2,300 crore and we are expecting to take it up to Rs2,500 crore in this FY and the numbers will go up by at least 15% in the next financial year.