Targets volume growth of 7-8% for plywood and 10% for MDF in FY2016

The company has conducted a conference call on 15th July2015 to discuss the financial performance for the first quarter ended June 2015 and way forward. Mr. ShobhanMittal, Executive Director, and Mr. V. Venkatramani, CFO, of the Company addressed the conference call.

• The company holds largest pan-India player with 30% share of organised plywood market and 30% share of domestic MDF market. The company have 4 state–of-the-art manufacturing facilities for Plywood and 1 facility for MDF –largest in the country. The Company plywood plants utilization was at 95% and MDF plants utilization at 92% in Q1FY16.

• Plywood: (A) Plywood production declined by 2.7% to 7.65 million square meters (million sqm). (B) Average capacity utilisations wereat 95% as compared 97% corresponding previous quarter. Sales volumes grew by 7.8% to 11.01 million sqm. (C) Average net realisation of Plywood improved by 3% to Rs 241per sqm. (D) EBITDA Margin decreased to 8.6% from 10.5% corresponding previous quarter.

• Medium Density Fibreboards (MDF): (A) MDF production grew sharply 28% to 41250 Cubic Meters (CBM). Sales volumes stood at 39494 CBM, up by 30.1% from 30350 CBM in Q1FY15. (B) Average Capacity Utilisation was at 92% compared to 72% corresponding previous quarter.(C) Average realisations of MDF increased by 4.2% to Rs 27166 per CBM. (D) EBITDA Margin rose to 30.1% from 23.4% corresponding previous quarter.

Financial performance

• The Company toplinegrew 15.1% YoY to Rs. 380.7 crore in Q1FY16, on the back of a significant improved performance from the MDF Segment. Plywood Segment revenue grew by 8.8% to Rs. 273.40 crore, accounting 72% of net sales. MDF Segment grew by 34.9% to Rs. 107.34 crore, contributing 28% of net sales. Gross margins expanded 260 bps to 44.6% in Q1FY16, led by better product mix. EBITDA margin was up 110 bps to 14.7%, as a resultEBITDA jumped by24.6% to Rs. 55.93 crore. PAT was up 14.8% to Rs. 26.70 crore.

• Working capital cycle rose by 3 days YoY to 57 days in Q1FY16. Net debt to equity at 0.6x as on June 30, 2015 as compared to 0.9x as on June30, 2014.

• The Company targets a plywood volume growth of 7-8% and MDF volume growth of 10% for FY2016. Also targets to achieve operating margin of around 10% for plywood segment in FY2016.

• The Company plans for a small price increase in the range of 4% in current fiscal.

• The Company plans capex of around Rs 600 crore for period of FY16-FY19. Ofthe total capex, the Company plans to utilise Rs50-60 crore in FY16, Rs 100-120 crore in FY17, approx. Rs 350 crore in FY18 and remaining balance in FY19. Thecompany expects to generate 50% of total capex from internal accrual and remaining 50% from debts.

• The Company expects rising demand from the real estate sector, increasing urbanization, higher disposable incomes and growing middle class will be key industry driver going forward. Meanwhile government announcement regarding construction of 100 smart cities would facilitate further to boost to the industry.

• With Plywood industry size of around Rs 160 billion and MDF industry size of around Rs 15 billion, the Company expects rollout of GST helps the industry to facilitate faster shift from unorganised to organised players.

• The company plans to increase the number of distributors and retailers going forward. Presently, the company has around 1170 plywood and 450 MDF distributors/stockist and 6000 plywood and 4000 MDF retailers. Also, serviced by 33 branches for ply and 15 branches for MDF pan-India.

• The company plans to continued its investments in advertisement and promotional spends to increase brand visibility pan-India, with higher Ad spends at around 3% of net sales.

• On expansionplans- The Company plansto optimise utilisation of plywood plants in existing facilities and increase outsourcing proportion to 30% from 20% presently over the next 3 years. Also, with plans to setting up new MDF plant in Andhra Pradesh over FY16-19 to cater to future demand.

• The Company plans to improve mix of plywood through increase in mix of value-added products like Green Defender and Green Gold Prima. Also, the company plans to increase ratio of value added products in MDF like Exterior Grade MDF, Pre-laminated MDF and Laminated Flooring / Veneer flooring.

• The company expects a 10-12% growth in FY16 trough volume utilization and better product mix realisation. Margins expected to improve by 50-70 bps in FY16 driven by better product mix and cost control.