CENTURY PLYBOARDS INDIA LIMITED - Leveraged Growth ...

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CENTURY PLYBOARDS INDIA LIMITED

A Pioneer in the Wood Industry Started in 1986, Century Plyboards (India) Limited (“CENTURYPLY” or “the Company”), with only its Plyboard division has now expanded itself into Medium Density Fibre (MDF) Boards, Veneer, Face Veneers, Block Boards, Laminates, Doors, Pre-Lams, PVC Sheets, Fibre Cement Board and Container Freight Station (CFS) services. The Company has 12 manufacturing units which are located across India and abroad. CENTURYPLY enjoys more than 25% share in the organized plywood market in India.

The different brands under some of the aforementioned segments are:

Plyboard

• Centuryply• Centuryply Architect

• Centuryply Marine

• Centuryply Elasto

• Centuryply 710+

• BWP Marine• Sharonply• Maxima• Century Win MR

• Sainik• Technopine• Fire Safe• Bond 710

Doors

• Architect Door

• Club Prime• Pro• Sainik• Hector WPC Doorframes

• Technopine

Block Boards

• Sainik• Century Club Prime

• Century 710+

• Maxima• Technopine

MDF

• Century MDF

• Prowud• Century Premium Plus

• Century HDF

Laminates

• Century Laminates

• Starline• Monocore C Century Ven Lam

Veneer

• Natzura Woods

• Senzura Styles

https://leveragedgrowth.in/


The Birth of Centuryply

CENTURYPLY was incorporated on January 5, 1982. The Company was promoted by first-generation entrepreneurs - Sajjan Bhajanka, Sanjay Agarwal and Hari Prasad Agarwal. Sajjan Bhajanka has a business and industrial experience of more than 25 years in the Plywood, Ferron Silicon and Granite industry. Currently, he serves as the Chairman of the Company. He also holds executive directorship in Star Cement Limited and non-executive directorship in Shyam Century Ferrous Limited. On the other hand, Sanjay Agarwal serves as the Managing Director of the company. His excellent knowledge of the plywood related business has been the driving force behind the Company. He also holds executive directorship in Star Cement Limited and independent directorship in Linc Pen & Plastics Limited.

In 1997, the Company was the first to introduce the borer proof plywood in India. In 2002, the Company introduced Flexoply, the only flexible plywood variety. Also, the Company introduced Architect Ply and the Fantasy range of decorative veneer in India. In 2004, the Company's laminate plant started operations. Since the incorporation, the Company has taken giant strides and is today, the largest seller of multi-use plywood and decorative veneers in the Indian organized plywood market.

Indian Wood Industry • India’s wood industry has been heavily dependent on plywood which has now started shifting towards

more new-age products like MDF, Particle Boards, etc. The ratio of plywood to other panels in India is 80:20 whereas it is just the opposite in various developed and matured markets. The shift has been mainly due to the change in preferences of consumers towards more ready-made, modern furniture and also the growing disposable income which enables them to spend more on the designer products which provide aesthetics besides the basic need for furniture.

• According to the International Market Analysis Research and Consulting Group (IMARC Group), the Indian Plywood market was valued at $4.5 billion in 2019. Although plywood is being substituted by different panel products, it still accounts for 2/3rd of wood consumption in India.

• The Laminate and Decorative Veneer market of India was valued at ₹7,000 Crore in 2019. The ratio of organized to the unorganized sector in this industry stood at approximately 70:30. The rise in demand in this industry is basically due to the reallocation of the population from remote rural areas to urban cities which led to an increase in demand for furniture and other wood products.

• The MDF industry in India is valued at ₹1,800 Crore with a capacity of 2,400 cubic meters (CBM) per day. The increasing use of MDF is attributed to the increasing use by the architects for creating unique and creative designs, surface décor, etc. The Government of India has also been supporting the industry by levying anti-dumping duty on imports from countries like Vietnam, China, Indonesia, etc. This will also result in increasing the prospects of Make in India.

• The furniture industry of India is expected to be valued at $27 billion by 2023. It is dominated by small and unorganized players in the market. However, the traditional model of purchasing furniture through shops is being substituted by shopping online through various platforms such as Pepperfry, etc.

• The implementation of GST has made the pricing gap between the organized and the unorganized sector narrow from 25%-30% to 10%-15% which has resulted in the companies being able to provide more competitive prices to the consumers.

Mr. Sajjan Bhajanka, Chairman



Business Model CENTURYPLY has 5 main segments with the installed capacity as follows:

CENTURYPLY has emerged from being heavily dependent on its plywood segment to diversifying into other products as well, to cater to the specific needs of the customer. The customer base of CENTURYPLY includes sales to the small customers, Original Equipment Manufacturers (OEMs), and very little to large real estate projects.

CENTURYPLY has 11 subsidiaries and 3 step-down subsidiaries. The Company has been practising backward integration by having its subsidiaries in different countries for sourcing the raw material at the lowest possible price. For instance, The Company has set up a subsidiary in Laos, Asia for taking the advantage of Okoume timber available there for its face veneer requirements and has done similar backward integration in Myanmar as well. The Company is also trying to set up a greenfield manufacturing unit for Particle Board in Uttar Pradesh, where the cost of timber is very low and has the advantage of market proximity reducing transportation cost.

The Company has 6 factories and 30 warehouses, the goods travel from the factory to the nearest warehouse and then they are distributed to the dealers and then to sub-dealers or directly to the customers. The Company has a strong dealer network of 2100 dealers and 25000 retailers.

Impact of COVID-19 CENTURYPLY had to completely shut down its operations except for the CFS segment in the wake of the pandemic and also due to the lockdown imposed by the Government as the other segments did not qualify under essential services. Hence, the Company was affected by the pandemic due to loss of sales. Moreover, the end of the financial year is a crucial time during which dealers tend to buy maximum products for availing maximum discounts. After the lifting of the lockdown, the sales of the Company have been under pressure and are at an average level of around 35% and are expected to return to normal by Q3FY21.

Differentiating Strategies

1. Innovation

CENTURYPLY with the help of its R&D unit has been a frontrunner at innovating new products and introducing them in the market. For example, CENTURYPLY was the first company in India to use nano-technology to introduce anti-bacterial and fingerprint resistant laminates. Even amid the pandemic, CENTURYPLY excelled at innovation and introduced Virokill technology which kills all the viruses on the surface of plywood and laminates.

2. Multi-year Warranty The Company was the first to offer a multi-year warranty on its Plywood, MDF to strengthen the trust of customers on its products. CENTURYPLY previously offered a seven-year warranty on its products. But when the products were undamaged for 20 years, it extended the warranty to 21 years.

3. Product Diversity

CENTURYPLY which started from only its Plywood division has successfully diversified itself into other segments as well. This has reduced its dependency on only one segment. It not only supplies multiple

Plywood

239000 CBM

Laminate

7.5 Million Sheets

MDF

198000 CBM

Particle Boards

54000 CBM

CFS

156000 Twenty

foot equivalent

unit



products but also has different price ranges for each segment serving customers from all income levels, this further increases its diversification benefit. The Company aims to keep expanding its portfolio with new products and also improving their existing products and making them more efficient.

4. Capacity Expansion CENTURYPLY has the strategy of expanding its capacities after reaching the stage of optimum capacity utilization. The Company has invested in increasing the capacity of its Laminate segment after reaching the capacity utilization of over 100% for the past 2 years, it achieved capacity utilization of 82% in the MDF segment that is one of the highest among the industry’s organized segment, it is planning to do greenfield expansion in UP for its Particle Board segment after achieving more than 100% capacity utilization for the past 2 years.

Capacity Utilization (%)

Source: Company, Leveraged Growth

77

104

65

107

79

102

82

116

0

20

40

60

80

100

120

140

Plywood Laminates MDF Particle Boards

FY19 FY20

As a result of diversification, the % of revenue (FY20) is as follows

Source: The Company, Leveraged Growth

4654

Non-Plywood Segment Plywood Segment



SWOT Analysis 1. Strengths

Strong Dealership Network: CENTURYPLY with its strong dealer network of 2100 dealers, 630 trade partners, and 25000 retailers, has been able to penetrate deep into the market. As a result, The Company was able to sell an average of ₹43,500 worth of products every minute across India. The Company has its presence across Tier 1 and Tier 2 cities and even export products like Laminates to over 20 countries. It is now strengthening its presence in Tier 3 cities also. Quick Upscale of Capacity: The Company can quickly set up a new capacity (known as green expansion) in 18 months or more as the existing capacity reaches full capacity utilization. Diverse Product Portfolio: CENTURYPLY offers a diverse range of products at different price points which helps the Company in serving every customer. Also, it has transformed itself from a mere supplier of Plywood to a one-stop-shop for customer’s interior infrastructure needs.

2. Weaknesses Volatile Raw Material Prices: The Company’s margins are affected by the volatile raw material prices like phenol, timber, which they, later on, pass to the customer by increasing the price of their products but have to bear the effect on their results in the meantime. Influence of Architects and Carpenters: For interior infrastructure products, most of the consumers’ decision making is still influenced by architects and carpenters.

3. Opportunities Cross-Selling: As the customer base of CENTURYPLY is large, it has been successful in capturing a 25% market share in the Plywood segment. The Company can cross-sell different products to its customers, thereby increasing its sales and profits.

CENTURYPLY is the first:

Manufacturer to invest in nano-technology led plywood.

Introduce a platform where customer can browse and shop the brand’s products.

To provide multi-year warranty on its products.

Invest in state-of-the-art R&D unit.

To introduce fire-retardant, water-resistant and borer-proof plywood.

Commission rooftop solar panel across all 7 manufacturing units in India.



Goods and Services Tax (GST): The implementation of GST has led to the difference between the prices of the organized and unorganized sector getting narrower. Thus, the customers now find branded products less expensive than the local products offered by the unorganized segment. Make in India: The Make in India campaign can provide an opportunity to the Company in the different product segments by discouraging imports from different Asian Countries. International Market: CENTURYPLY is exporting very little to the other countries. However, it can easily make a strong foothold in the other markets as it is a trusted and well-established brand in India.

4. Threats Threat from Imports: There exists high competition from imports especially in Southern India because of the ease of importing through the ports available. Hence, any sharp price increase quickly encourages the dealers to import the product from Asian Countries like Vietnam, Indonesia, Malaysia, and Thailand, and sell it at comparatively lower prices. Floods: Floods disrupt the market temporarily due to difficulty in supply, transportation. But, after the flood, there is usually a higher demand for the Company’s products as people change/repair their furniture, beds, etc. which are damaged due to it. Subdued Real Estate market: The suppressed real estate market affects the Company as well because the products of the Company are used in making end products that can be used in houses of other people. If the demand for new houses goes down so does the demand for the Company’s products.

Michael Porter’s 5-Force Analysis

1. Barriers to Entry The industry is divided into the organized and unorganized sector. However, the nature of the industry in which the Company belongs is extremely capital intensive. Hence, the barrier to entry remains high.

2. Bargaining Power of Buyers

The bargaining power of buyers is high as several companies are offering similar products. The unorganized sector is very developed and can easily compete in the pricing of the product. However, the unorganized sector cannot compete with renowned brands like CENTURYPLY in terms of innovation and the quality of the product. To overcome this, CENTURYPLY is the first to offer a multi-period warranty with which the unorganized sector might not be able to compete.

3. Bargaining Power of Suppliers The few raw materials used by the Company are timber, residual of hardwood and softwood, woodchip, sawmill shavings, sawdust, etc. The availability and sustainability of timber in the future cannot be guaranteed. Therefore, the Company depends on several places to source timber depending on its availability and prices. Hence, the bargaining power of suppliers is very high.

4. Rivalry among Competitors

As discussed above, the wood industry is fragmented into the organized and unorganized sector. Hence, there exists high competition, and price hike can result in customers shifting away to other brands.

5. Threat of Substitutes

There exists a high threat to the Company of substitutes from other companies existing in the industry and also the imports which can easily be arranged if there is an extraordinary price hike by the Company.



Branding and Other Initiatives

1. Branding CENTURYPLY spent a healthy 4% of the gross revenue in FY20 on brand building. The Company uses a mix of mediums such as Above the Line media vehicles (TV Commercial, Print, Radio, Outdoor) and Below the Line media vehicles (Point of sale activation initiatives) to promote its brand. However, most of the spending was focused on the digital medium in FY20 due to the ease of connectivity, affordability, and accessibility.

2. Century Heroes This is an initiative started by CENTURYPLY in 2014 to pay tribute to the hardworking carpenter community that works behind the scene in making the large and complex projects possible. The tribute was given through the medium of a film based on real-life instances to enhance the awareness in the need to respect the carpenter’s competence. The film was well-liked on social media and received 60 million hits, it was also recognized by Social Samosa among the 50 most impactful campaigns.

3. The 4Rs CENTURYPLY is deeply committed to the 4Rs (reduce, recycle, reuse, and replace). It is continuously investing in technology to reduce its resource consumption and has increased recycling in compliance with the regulatory requirements, invested in renewable energy, and replaced inputs that had high carbon footprints with cleaner alternatives.

4. Collaboration The Company collaborated with the Tamil Nadu agricultural university, industry players, farmers, bankers, and insurance companies to encourage farmers to grow plantation timber. CENTURYPLY hosted the tree growers fair and educated the farmers about the benefit of this collaboration, they also distributed the saplings of the Melia Dubia variety of timber with assured buyback in the future.

5. Influencer Loyalty Program CENTURYPLY introduced the Century Pro Club for carpenters who can now aggregate points by scanning the QR code available at the plywood in exchange for a commission, or gifts. This program is based on the Theory of Constraints and is aimed at increasing sales.

6. QR Code CENTURYPLY introduced QR codes on its products to enhance product traceability, validating the authenticity, sales management, and strengthening inventory.

Financial Analysis 1. Debt-to-Equity

As we know that the industry in which CENTURYPLY belongs is very capital intensive. Hence, it has been raising debt to finance its expansion. The Company’s strategy of raising debt is 50% through outside institutions and 50% from internal accruals. In FY13 the Company had the highest Debt-to-equity ratio as it implemented aggressive expansion plans for increasing its capacity. If we look at the Company’s ratio, it has been taking a good amount of debt but has also been paying it off in the subsequent years through the internal accruals. It has reduced its debt severely in FY20 by repaying its loan earlier than scheduled.



Debt-to-Equity (x times)


2. Net Profit Margin The Net Profit Margin of the Company is very sensitive to the fluctuating raw material prices, which are subject to the availability. Hence, the margins are so volatile. However, due to COVID-19 many expenses such as travel, etc. are expected to come down and contribute to increasing the margins.

3. Segmental Analysis

CENTURYPLY has been exporting its products to many countries abroad but it is still very much dependent on the Indian market for the majority of their revenue. The Company can increase its exports to other countries and reduce its dependence on the Indian market.

Net Profit Margin (%)


0.5

0.9

1.4

2.12.0

1.31.1

1.3

0.70.5

0.2

0.0

0.5

1.0

1.5

2.0

2.5

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

12.311.3

7.3

4.6 4.5

9.3 9.5 9.7

8.0

6.55.4

0

2

4

6

8

10

12

14

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20



Risk Analysis

1. Cost Risk As we discussed above, the volatile raw material prices affect the Company’s margins which makes it difficult for them to sustain the level of desirable margins.

2. Legal Risk The raw material used by the Company is subject to availability and sustainability in the future. Since the main component they require is timber, many countries might ban the Company from cutting the plantation and using it. However, the Company has been making efforts in ensuring the availability of timber, but some issues are expected to exist in the future as well. For example, tree felling got banned in 1996 which challenged the business model, the Company had set up a plant in Myanmar for exporting timber after which cutting of timber got banned in 2014 and the Company had to explore other options, the Company then set up a plant in Laos but in 2017 the Laos Government also banned the export of timber due to which the unit had to shut down. Thus, obtaining the raw material in the future remains a question for the Company.

3. Foreign Exchange Risk CENTURYPLY exports its products to various countries like Singapore, Indonesia, Mexico, UAE, Thailand, Venezuela, Canada, UAE, Vietnam, Israel, etc. which makes it exposed to the changes in the value of the foreign currency.

Geographical Segment (% of Gross Revenue)


Summary of Rating Action Instrument Existing Rating Revised Rating Remarks Fund Based

Bank Facilities (184.44 Cr)

CRISIL BBB+/ Stable

Withdrawn Issuer Not Cooperating

94.1

5.9

India Overseas



73.1

5.9

10.6

10.5

Promoters FIIs DIIs Public

Corporate Governance

• The Company’s Board consisted of 16 Directors out of which 8 were Independent Directors and 2 Women directors.

• Sri Keshav Bhajanka, Executive Director of the Company is the son of Sri Sajjan Bhajanka, Chairman and Managing Director. Smt. Nikita Bansal, Executive Director is the daughter of Sri Sanjay Agarwal, CEO and Managing Director, except for these, none of the other Directors are related to any other directors on the Board.

• The below table shows the directorship of the Company’s directors in other Listed/Unlisted/Other Companies.

Name Number of Directorships Listed

Companies Unlisted

Companies Others

Sri Sajjan Bhajanka 2 4 7 Sri Sanjay Agarwal 2 4 7 Sri Prem Kumar Bhajanka 1 4 2 Sri Santanu Ray 6 3 - Smt. Mamta Binani 4 2 - Sri JP Dua 1 2 - Sri Vijay Chhiber 1 1 4 Sri Debanjan Mandal 2 4 2 Sri Sunil Mitra 4 5 - Sri Probir Roy 2 3 - Sri Mangal Lal Jain 2 5 -

• 4 Board meetings were held in the year FY20.

• The Company has various familiarization programs through which it aims to educate the Independent Directors of the Company on their roles, rights, responsibilities within the Company, nature of the industry during which the Company operates, the business model of the Company, etc.

• The promoters have 0% of the shares pledged out of the 73.05% shares held by them.

Shareholding Pattern as on 30th September 2020 (%)




The EndNote 1. CENTURYPLY has been in the industry for the past 34 years and has a strong foothold with a 25% share

in the Plywood market. It is difficult for any company to survive in the market with competition from both the organized and the unorganized sector let alone seize such a market share in the industry.

2. The Company has brought diversification by producing and introducing new products in the market, time and again. It deeply invests in its R&D unit and brings innovative products to the market.

3. However, the margins of the company keep getting impacted due to the volatile raw material prices, and subsequent price hikes that end up affecting the sales. The declining RoE and RoCE due to this is an alarming factor to consider.

4. The Company recovered better than expected in Q2FY21 from COVID-19 disruption having achieved 88% of the Q2FY20 revenue and almost the same PAT. Moreover, as per the management of the company, it posted an all-time high revenue figure in October 2020.

5. Going forward, the Company will be focussing more towards MDF and Particle Board segments, which could be major growth drivers in the long term.

Performance of CENTURYPLY in last 10 years

Source: NSE, Company, Leveraged Growth

0

100

200

300

400

500

600

2010 2012 2014 2016 2018 2020

CENTURYPLY NIFTY50



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