Century Plyboards (India) Ltd Management Discussions

Global economic overview

The global economy grew an estimated 5.9% in 2021 compared to a de-growth of 3.3% in 2020. This improvement was largely due to increased vaccination rollout the world over and a revival in economic activity based on catch-up consumption.

The global economic recovery is attributed to accelerated vaccine rollout across 4.4 billion people, around 56% of the global population (single dose). Global FDI reported an increase from US$ 929 billion in 2020 to an estimated US$ 1.65 trillion in 2021.

The global economy was affected by prohibitive shipping freight rates, a shortage of shipping containers and semiconductor chips in 2021, affecting global economic recovery. Inflation was at its highest since 2011, especially in the advanced economies, catalysed by a run up in commodity prices. Some emerging and developing economies were positioned to withdraw policy support to contain inflation even as the economic recovery was still incomplete.

The prominent feature of the global economic activity during the year under review was a sharp revival in commodity prices to record levels following the drop at the time of pandemic outbreak. The commodities that reported a sharp increase in prices comprised steel, coal, oil, copper, foodgrains, fertilisers and gold.

The global economy is projected to grow at a modest 2.6% in 2022 following the Russia-Ukraine crisis. A higher interest rate environment could affect emerging markets and developing economies with large foreign currency borrowings and external financing needs in 2022.

Regional growth (%)	2021	2020
World output	5.9	(3.3)
Advanced economies	5.0	(4.9)
Emerging and developing economies	6.3	(2.4)

Performance of major economies

United States: The country reported GDP growth of 5.7% in 2021 compared to a de-growth of 3.4% in 2020, following the governments investment of trillions of dollars in COVID relief.

China: The countrys GDP grew 8.1% in 2021 compared to 2.3% in 2020 despite it being the novel coronavirus epicentre.

United Kingdom: The countrys GDP grew 7.5% in 2021 compared to a 9.9% de-growth in 2020.

Japan: The country reported growth of 1.7% in 2021 following a contraction in the previous year.

Germany: The country reported a GDP growth of 2.9% in 2021 compared to a decline of 4.9% in 2020.

Indian economic overview

The Indian economy reported an attractive recovery in 2021-22, its GDP rebounding from a de-growth of 7.3 per cent in 2020-21 to a growth of 8.7 per cent in 2021-22. By the close of 2021-22, India was among the six largest global economies, its economic growth rate was the fastest among major economies (save China), its market size at around 1.40 billion the second most populous in the world and its rural under-consumed population arguably the largest in the world.

Y-o-Y growth of the Indian economy

	FY19 FY20		FY21	FY22
Real GDP growth (%)	6.1	4.2	(6.6)	8.7

Growth of the Indian economy, 2021-22

 

	Q1, FY22	Q2, FY22	Q3, FY22	Q4, FY22
Real GDP	20.3	8.5	5.4	4.1
growth (%)

The Indian economy was affected by the second wave of the pandemic that affected economic growth towards the fag end of the previous financial year and across the first quarter of the financial year under review. The result is that after a growth of 1.6% in the last quarter of 2020-21, the Indian economy grew 20.3% in the first quarter of FY 2021-22 due to the relatively small economic base during the corresponding period of the previous year.

Indias monsoon was abundant in 2021 as the country received 99.32% of a normal monsoon, lower though than in the previous year. The estimated production of rice and pulses recorded volumes of 127.93 million tonnes and 26.96 million tonnes respectively. The total oilseeds production of the country recorded a volume of 371.47 million tonnes. Moreover, based on the spatial and temporal distribution of the 2021 monsoon rainfall, the agricultural gross value added (GVA) growth in FY22 is anticipated to be 3-3.5%. The countrys manufacturing sector grew an estimated 10.5%, the agriculture sector 3.3%, mining and quarrying by 12.6%, construction by 10.0% and electricity, gas and water supply by 7.8% in FY 2021-22.

There were positive features of the Indian economy during the year under review.

Foreign direct investments (FDI) in India was the highest at US$ 83.57 billion in FY22, a validation of global investing confidence in Indias growth story. The government approved 100% FDI for insurance intermediaries and increased FDI limit in the insurance sector from 49% to 74% in Union Budget 2021-22.

India surpassed the H88,000 crore target set for asset monetisation in 2021-22, raising over H 97,000 crore with roads, power, coal, mining and minerals accounting for a large chunk of the transactions.

The Indian government launched a four-year H 6 lakh crore asset monetisation plan (roads and highways, pipelines, power transmission lines, telecom towers, railways station redevelopment, private trains, tracks, goods sheds, dedicated freight corridor, railways stadiums, airports, projects in major ports, coal mining projects, mineral mining blocks, national stadia, redevelopment of colonies and hospitality assets).

In 2021, India was the largest recipient of global remittances. The country received US$ 87 billion during 2021, with the US being the largest source (20%). Indias foreign exchange reserves stood at an all-time high of US$ 642.45 billion as on September 3, 2021, crossing US$ 600 billion in forex reserves for the first time.

Indias currency weakened 3.59% from H 73.28 to H 75.91 to a US dollar through FY 22. The consumer price index (CPI) of India stood at an estimated 5.3% in FY 2021-22. India reported improving Goods and Services Tax (GST) collections month-on-month in the second half of 2021-22 following the relaxation of the lockdown, validating the consumption-driven improvement in the economy. The country recorded its all-time highest GST collections in March 2022 standing at H 1.42 lakh crore, which is 15% higher than the corresponding period in 2021.

India ranked 62 in the 2020 World Banks Ease of Doing Business ranking. The country received positive FPIs worth H 51,000 crore in 2021 as the country ranked fifth among the worlds top leading stock markets with a market capitalisation of US$ 3.21 trillion in March 2022.

The fiscal deficit was estimated at ~H 15.91 trillion for the year ending March 31, 2022 on account of a higher government expenditure during the year under review.

Indias per capita income was estimated to have increased 16.28% from H 1.29 lakh in 2020-21 to H 1.50 lakh in 2021-22 following a relaxation in lockdowns and increased vaccine rollout.

Indias tax collections increased to a record H 27.07 lakh crore in FY 2021-22 compared with a budget estimate of H 22.17 lakh crore. While direct taxes increased 49 per cent, indirect tax collections increased 30 per cent. The tax-to-GDP ratio jumped from 10.3 per cent in FY21 to 11.7 per cent in FY22, the highest since 1999.

Retail inflation in March at 6.95 per cent was above the RBIs tolerance level of 6 per cent but fuel prices played no part in this surge. Retail inflation spiked to a 17-month high in March 2022, above the upper limit of the RBIs tolerance band for the third straight month.

Indian economic reforms and Budget 2022-23 provisions

The Budget 2022-23 seeks to lay the foundation of the Indian economy over the ‘Amrit Kaal period of the next 25 years leading to 100 years of independence in 2047. The government is emphasizing the role of PM GatiShakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments.

The capital expenditure target of the Indian government expanded by 35.4% from H 5.54 lakh crore to H 7.50 lakh crore. The effective capital expenditure for FY23 is seen at H 10.7 lakh crore. An outlay of H 5.25 lakh crore was made to the Ministry of Defence, which is 13.31% of the total budget outlay. A boost was provided to Indias electric vehicle policy ‘Scheme for Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle in India. An announcement of nearly H 20,000 crore was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An expansion of 25,000 km was initiated for 2022-23 for the national highways network. To boost the agricultural sector, an allocation of H 2.37 lakh crore was made towards the procurement of wheat and paddy under MSP operations. An outlay of H 1.97 lakh crore was announced for the Production Linked Incentive (PLI) schemes across 13 sectors.

Outlook

The Indian economy is projected to grow by a little more than 7% in FY23, buoyed by tailwinds of consistent agricultural performance, flattening of the COVID-19 infection curve, increase in government spending, favourable reforms and an efficient roll-out of the vaccine leading to a revival in economic activity.

Across the next three years, capital expenditure in core sectors - cement, metal, oil refining and power - should be about H 5 trillion. Besides, the governments production linked incentives (PLI)–led capex should generate an incremental H 1.4 trillion in sectors like consumer durables, pharmaceuticals and automobiles.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Indian furniture industry overview

The revenue in the Indian furniture industry is estimated to have reached a value of US$ 216 billion in 2021. The market is projected to grow annually at a rate of 4.71% (CAGR 2021-2025). The largest segment in the market is living room and dining room furniture, with the segment recording a market value of US$ 66.68 billion in 2021.

Revenues by segment

India is recognised for its unique and exceptional furniture design. On account of its rich handcraft and appealing traditional art and style, the Indian furniture business is well-recognised in India and across the globe. Through the decades, the Indian furniture market has progressed. The market has expanded way beyond chairs and tables, including designed interiors such as wardrobes and sofas. In addition to furniture, which has been a significant part of households a growing middle-class population, rising disposable incomes and increasing number of urban houses are major factors driving the growth of the Indian furniture market. The market is dominated by small unorganised local firms. This dominance has started to reduce with the organised players increasing their contribution to the Indian furniture sector over the last few years. With the arrival of MNCs like IKEA, the share of the organised players in the market is estimated to expand further.

The increasing need for state-of-the-art and adjustable furniture among individuals living in urban areas, accompanied by growing urbanisation in the country and hybrid furniture are key drivers of the Indian furniture market. Besides, the growing trend of online and mobile shopping in the country is anticipated to boost the demand for Indian furniture. Moreover, this demand is also driven by the tourism and hospitality industry as well as the corporate sector. The rising number of hotels and business offices are further driving the demand of the industry.

However, the onset of the COVID-19 pandemic brought about a heavy negative impact on the industry due to the lockdown and restrictions in the beginning days. Moreover, this was indicated by a manufacturing index that showed a drastic decline in the numbers for March, April and May 2020. The pandemic has also resulted for a need of privacy and personalised space within the house as well for work and study purposes, which resulted in further rise in furniture demand in the country.

Indian plywood sector overview

This plywood business accounted for 53% of the revenues of Century Plyboards in 2021-22. The Indian plywood sector is estimated to have reached a value of US$ 300 billion in 2021. Over the years, demand for plywood has risen immensely on account of structural strength, flexibility, resistance to chemicals and fire as well as insulation against sound and excessive heat. The result is that it has emerged the preferred choice for doors, stairs, external cladding, flooring, framing, interior rails, balustrades, internal panels and timber joinery products. Based on this product acceptability, plywood market is anticipated to grow to a value of US$ 408 billion by 2025.

The Indian plywood sector is priority driven by the rising demand for the product from the residential segment. This is facilitated by rising population, shift in lifestyle patterns and increasing number of nuclear families across India. In alignment, there has been an immense rise in the refurbishment and renovation of the existing residential areas, supported by rapid urbanisation, inflation in disposable income and improvement in the living standards of the working population. A majority of this population prefers apartments that are semi-furnished or fully furnished, owing to the associated convenience, which, in turn, will push the demand for plywood in the Indian market.

Indian laminate sector overview

The decorative laminates market of India achieved a value of US$ 0.7 Billion in 2021. It is predicted to reach US$ 1.1 Billion by 2026, indicating a CAGR of 10% during 2022-26.

By application, the laminate sector of India is segmented into furniture, building interior and construction, packaging and others. The building interior and construction segment is the main segment that is driving the growth of the laminate sector of India.

In 2021, about 40 million square feet of real estate units was delivered. By 2022, this number is expected to rise to 46 million square feet, due to the growing traction in construction industry. Increasing urbanisation and industrialization have catalysed the growth in construction sector. Laminates, with its new technological advancements and innovations, have emerged as on eco-friendly alternative to timber and this is expected to further drive the growth of laminates.

The Indian laminate industry requested NITI Aayog and the Department for Promotion of Industry and Internal Trade (DPIIT) to incorporate the laminate industry in the production linked incentive (PLI) scheme.

India medium density fibre (MDF) board overview

The MDF segment of the Company accounted for 19% of the revenues of Century Plyboards in 2021-22. The nations population is gradually getting attracted towards ready-made and easy-to-install furniture due to the rising disposable incomes and rapid urbanisation. This has led to an increased demand for MDF over plywood, defining new-age homes.

The Asia-Pacific region is anticipated to provide enhanced growth opportunities to the MDF industry. The MDF segment has been on a rise in the Chinese and Indian market on account of rising construction activity in regions supported by rapid industrialisation and increasing initiatives by the government, encouraging development of the residential section. The growth of this residential sector, coupled with that of the green building construction, is expected to assist in the rise of the MDF industry. India is a significant player of MDF, where the product is one of the leading materials used in the country. With the consumers aiming to get a low carbon footprint and modern offices searching for LEED certification, the MDF segment is anticipated to witness an additional growth in the country. This growth will also be driven through rising urbanisation and increase in number of nuclear family households.

Indian particle board market overview

The particle board market of India was estimated to be around US$ 400 million in 2021. It is further predicted to grow at a CAGR of more than 15% till 2026. Particle boards are extensively utilized in manufacturing furniture for office spaces, hotels, restaurants, cafes and lodging spaces. Rent for office spaces have grown to approximately 22% in 2021. This, in turn, will create an opportunity for the growth of particle board industry. Many international hotels are expanding their business by making their presence strong in India which will contribute approximately 47% of the Indian tourism and hospitality sector. This will create a demand for the particleboard industry. The production capacity of Indian particle board industry ranges from 100 to 250 cubic meters per day.

Indian logistics industry overview

This business accounted for 2.6% of the revenues of Century Plyboards in 2021-22. The estimated size of the Indian logistics market is valued at US$ 215 billion, growing at a CAGR of 10.5% and only 10-15% of the overall market is owned by the organised players. Out of the aforementioned amount, the online vertical is estimated between US$ 20 and US$ 30 billion by 2025. The COVID-19 pandemic has brought about significant changes in the corporate landscape having urged various companies and individuals to reinvent themselves in order to maintain relevance. For instance, the traditional logistics industry was pretty unorganised half a decade back but it is now witnessing a significant shift towards digitisation and contactless operations. While on the demand side, a number of customers that traditionally operated offline have now gone online resulting in a huge explosion of direct-to-consume (D2C) brands seeking to deliver the best of "Made in India" products directly to the customers doorsteps. The logistics sector is expected to witness a rise post-COVID as the focus will progressively shift on the entire supply chain of doorstep delivery. This implies an increased focus on warehousing and packing/packaging to enable the smooth flow of goods. Warehousing will see a push mainly on account of higher amount of farm produce to the market. The development of eNAM (National Agriculture Market)predicts well for building more warehousing space as farmers move to the market.

Moreover, the domestic logistics industry is highly segmented and comprising of more than a thousand active players, including large scale domestic players, leading global entities, the express arm of the government postal service and the emerging start-ups specialising in e-commerce deliveries.

Indian real estate sector overview

The Indian real estate sector is estimated to reach a market size of US$ 1 trillion by 2030, contributing approximately 18-20% of Indias GDP. The demand of real estates by data centres will go up by 15-18 million sq. ft. by 2025.

Indian firms are anticipated to raise more than H 3.5 trillion (US$ 48 billion) through infrastructure and Real Estate Investment Trusts (REIT) in 2022.

The total FDI inflow in the construction sector stood at US$ 52.48 billion between April 2000 to December 2021.

In 2021, approximately 40 million square feet were delivered in India and is expected to deliver 46 million square feet in 2022.

According to the union budget 2022-23, the government focused on affordable housing segment by increasing allocation to the flagship Pradhan Mantri Awas Yojana (PMAY) according to the revised estimates for FY2022 and budget estimates for FY2023. The government targets to complete 80 lakh houses in FY2023 with an allocation of Part H 48,000 crore.

SEBI approved REIT platform to allow investments in this sector which will create an opportunity worth H 1.25 trillion (US$ 19.65 billion) in the Indian market in the years ahead.

Growth drivers

Rising population: The population of India stands at 1.39 billion in 2021 and is expected to surpass that of China by the year 2023. This rise in population is anticipated to have a positive effect on the Indian plywood segment, pushing forward the demand of the same.

Urbanisation: The countrys urban regions are witnessing a shift from the rural areas. This shift in population will be complemented by a rise in demand for houses and furniture accordingly.

Demographic dividend: The Indian populations median age is expected to reach 28 years in 2022 as against 30 years of global average. A younger generation is expected to generate a higher demand for ready-made products like wood panel compared to traditional carpentry.

Growing replacement demand: With the disposable income of India rising on account of an economy rebound, the standards of living in the country are shifting more towards modern ways of living. This has led to a rise for wood panel demand in India.

Rise in demand for houses: The Indian real estate market is expected to reach a value of US$ 1 trillion by 2030. This will, in turn, drive the demand for Indian furniture.

Online retail sector: With houses transfering into new offices since the onset of the pandemic, the employees are now investing in home office furniture. This includes study tables, laptop tables and office chairs, among others. The Indian e-commerce sector which was earlier estimated to reach US$ 200 billion by 2026 is now expected to hit this target earlier than the estimated time frame.

Rental furniture: Due to rise in financial uncertainty and economic contraction on account of the COVID-19 pandemic, a rising trend was noticed for renting of furniture through online portals instead of buying the furniture for lifetime.

Strengths, Weaknesses, Opportunities and Threats (SWOT)

Strengths

• The Company has a widespread network across India.

• The Company possesses a variety of products which satisfies various customer needs.

• The Companys well-penetrated distribution channel secures sustained product availability.

• The Companys profit depends on its brand value as well as its leadership in the organized market.

• The Companys well-established geographic location of its manufacturing plants, accelerates product turnaround.

• The Company is present in businesses marked by a high entry cost for intending entrants

Weaknesses

• The Company faces tough rivalry in the market mainly from the unorganised players, except in the MDF segment, which is largely an organized market.

• The Company depends on the opinion and recommendation of carpenters, architects and others.

• The Companys profits might get disrupted due to excess supply over demand in various product segments.

Opportunities

• The national per capita income has increased.

• There is a rise in the requirement for organized wood products.

• The millennial population in India is higher than the global average.

• With the launch of GST, there has been a growth of the organised furniture sector.

Threats

• The unorganised players might sell their products at a low price.

• Insufficiency of raw materials.

• Hesitance of timber-rich countries to permit exports without value-addition .

• A steep increase in the prices of raw materials.

Segment overview, 2021-22

Plywood

• The Company retained its leadership in this segment, effectively widening the gap between first and second rank.

• Revenue of the segment increased by 41% during the year under review, valued at H 1,583.81 crore in comparison to H 1,123.17 crore during FY 2020-21.

• EBITDA margin stood at 14.1% as against 10.8% in FY 2020-21.

• Average realisations per unit of the end product strengthened 5.7% over the last year.

• Capacity utilisation was 77.6%.

Laminates

• Revenue of the segment increased from H 415.02 crore in FY 2020-21 to H 574.66 crore.

• EBITDA margin of the segment decreased from 17.9% in FY 2020-21 to 15.7%.

• Average realisations per unit of the end product increased 13.5% compared to last year.

• Capacity utilization was 83.9%.

Medium Density Fibre board

• Revenue from the segment increased 56.1% to H 560.89 crore in comparison to H 359.40 crore in FY 2020-21.

• EBITDA margin stood at 31.7% as against 25.8% in FY 2020-21.

• Total volume witnessed an increase of 20.8% during the year under review, with the current level standing at 177,936 cbm.

• Capacity utilization was 90.6%.

Particle board

• Revenue from the segment increased 67.1% to H 150.81 crore as against H 90.08 crore in FY 2020-21.

• EBITDA margin was 27.0% as against 20.1% in FY 2020-21.

• Total volume increased 32.7% to 72,934 cbm.

• Capacity utilization was 102%.

Logistics

• Revenues declined from H 82.33 crore in FY 2020-21 to H 77.62 crore in FY 2021-22.

• EBITDA margin was 24% in FY 2021-22 as against 29.4% in FY 2020-21.

Discussion on performance, FY 2021-22

Balance Sheet

• Total borrowings including buyers credit for FY 2021-22 stood at H 196.37 crore compared to H 124.53 crore during FY 2020-21.

• Total net fixed assets for FY 2021-22 stood at H 695.98 crore compared to H 681.72 crore in FY 2020-21.

• Net worth stood at H 1,561.20 crore as on 31^st March, 2022 compared to H 1,261.21 crore as on 31^st March, 2021, an increase of 24%.

• Inventories increased by 48% from H 330.16 crore as on 31^st March, 2021 to H 489.53 crore as on 31^st March 2022.

Profit and loss statement

<p >• Revenues from operations increased by 42% from H 2,113.48 crore in FY 2020-21 to H 3,000.88 crore in FY 2021-22.

• EBITDA increased to H 557.33 crore in FY 2021-22 compared to H 334.25 crore in FY 2020-21.

• Profit after tax was witnessed at H 325.27 crore in FY 2021-22, with an increase of 69%.

• Depreciation and amortisation stood at H 67.53 crore in FY 2021-22 compared to H 62.63 crore in FY 2020-21.

Key financial ratio - Significant changes and explanations

Ratio	FY 2021-22	FY 2020-21
Debtors Turnover (Days)	42	51
Inventory Turnover Interest Coverage Ratio	60 (31 days for raw material and 29 days for finished goods) 50.96 times	57 (34 days for raw material and 23 days for finished goods) 25.17 times
Current Ratio (with short term borrowings)	1.92	1.87
Debt Equity Ratio	0.13	0.09
Operating Profit Margin	16.32%	12.85%
(%) (EBIT Margin)
Net Profit Margin (%) / PAT	10.84%	9.09%
Return on Net Worth/ Average Equity	22.99%	16.43%
EBITDA Margin	18.57%	15.82%
Earnings per share (H)	14.64	8.64
Fixed Asset Turnover	3.49	3.01
Ratio
Return on Average capital employed	31.09%	20%

Details of significant changes in the key financial ratios:

• Interest coverage ratio: The ratio has significantly improved due to substantial reduction in debt resulting in lower interest payment and increase in profitability.

• Operating profit margin: This has increased significantly due to higher profits resulting out of cost reduction, operating leverage and improved realizations

• Return on net worth/average equity: This has improved due to increased profitability.

• Return on average capital employed: This has improved due to increased profitability and improvement in working capital.

• Earnings per share: This has improved due to increased profitability.

Risks management

A sound risk management framework is imperative to the smooth running of the business. The features of a sound risk management framework include lowering chances of surprises, dynamic change management, better change management, optimal resource utilisation and efficient trouble-shooting. The Company aims to enhance shareholder value within the scope of its Board-determined risk appetite, so as to safeguard the interests of all stakeholders.

Century Plyboards has created a progressively de-risked model

Overview

The recent global and national events have underlined the importance of profit protection over linear growth. This is where an effective risk management framework plays a key role. The primary goal of a de-risked business model is safeguarding business interests during periods of economic uncertainty and bringing about a rebound at the time of rebound.

The Company has benefited from the multi-decade experience of the Century Plyboards management to frame an all-encompassing de-risked business model with the following objectives:

• Growth at optimal costs while enhancing competitiveness across market cycles

• Growth with checks and balances

• Engagement with interior infrastructure products

• Significant presence in product segments that allow a wide operating headroom

• Recognition that growth and potent de-risking must go hand-in-hand

• Sustainable growth even during economic sluggishness

Speed and security

Century Plyboards risk management framework promotes growth (assets, revenues, profits and cash flows) with sustainability.

The Company aims to achieve great growth without compromising on its business security which is why the Company functions with the parameter of its robust processes and systems. The Companys moderating debt cost, perpetuation long-term profitability and credit rating validates its ‘growth with governance approach.

How we manage risks in our business

CenturyPlys risk management begins with the identification of potential business downsides and their proactive de-risking, which is instrumental in mitigating risks at an early stage.

The effectiveness of our risk management system is determined by the Companys ability to survive market cycles and unexpected calamities. Consistency in risk management process is the result of corporate consistency: the announcement of a stable corporate strategy, focus on long-term business sustainability over short-term profitability and a clear understanding across all stakeholders of the doables and non-doables within the Companys operating matrix.

Our risk management practices are derived from our guiding principles, which we consistently strive for application across all risk categories. The objective of the Companys Risk Management Committee is to ascertain that the executive management teams risk management framework includes policy, procedures and assessment methodologies that enable the Company to track and manage organizational risks effectively.

This predictability has brought an improvement in the stability of the process, effort outcomes and strengthened corporate sustainability. In view of this, risk management is not peripheral to the Companys existence but integral to it; it is not just a short-term priority but a long-term essential.

Blueprint

An extensively documented framework is the soul of our governance commitment. The documented framework details what we believe in and how we intend to conduct business. Over the years, this intent was reflected in the various policies addressing all our stakeholders. We have created comprehensive conduct framework on how we – collectively and individually – will engage across a range of operations. Besides, we have dovetailed this process roadmap with an extensive documentation discipline that has not only increased traceability but also strengthened a review process that has aided in corrected deviations with speed, reduced the learning curve, enhanced process predictability and identified benchmarks leading to sustainable improvement. The outcome is that CenturyPly is systems-driven organization, enhancing business sustainability.

Strategic implementation and the risk management cycle

The Company risk management framework covers all aspects of risk right from the strategic to the operational level - risk identification, measurement, analysis and assessment; our risk reporting, limitation (reduction to a level we have deemed appropriate) and monitoring allows us to closely monitor all major risks.

Risk identification: At Century Plyboards, there are numerous systems and indicators (quantitative component) to identify risks. Apart from this, our inherent reporting protocol empowers our executives to report risks as and when they recognize.

Risk measurement: We routinely apply our risk measurement tools for each business function. The risks are measured at different levels depending on the risk definition of the departments.

Analysis and assessment: At Century Plyboards, our risk management practices must contribute to enhancing our financial performance. In this way our financial performance is a validation of the efficiency of our risk management and operating model.

Risk reporting: At Century Plyboards, we periodically evaluate and report the effectiveness of our risk management to the Risk Management and other Committees covering category wise risk and the overall risks. This will potentially generate early alerts that make it possible to engage proactively in initiatives to counter the risks.

Risk management system

In 2021-22, Century Plyboards continued enhance its risk management system for quick identification of risks, evaluation of their materiality and taking measures to reduce their likelihood and losses. Risk management was applied across all management levels and functional areas.

Risk management framework objectives

Our risk management framework recommends protocols for business conduct to ascertain that the risks affecting our business are adequately addressed to achieve our objectives.

• Catalyse executive management in decision-making

• Mitigate the impact of threats and adverse impacts on the business

• Capitalise with speed on opportunities

Implementation

During the period under review, the Risk Management Committee held two meetings.

The Companys Board-approved Risk Management Policy included material risks faced by the Company that were recognised and evaluated. The Company set up a policy framework for prudent project profile management.

The Company adopted efficient project (conceptualization, implementation and sustenance) practices, putting in place sufficient risk mitigation measures.

The risk management framework of Century Plyboards sought to reduce the adverse impact of risks on key business objectives and enabled the Company to recognise and avail opportunities.

The mitigation of our prominent risks, 2021-22

Risks		Potential consequences		Likelihood of sustained risk occurrence	External stimulus and our strategic response
Macro-economic risk: The plywood business and other relevant businesses of the Company are affected by economic factors – national and regional, which in beyond our governance.		• The Companys growth may face a bottleneck		Low	• The Indian economy is one of the fastest growing out of major economies
		• This can affect the Companys competitiveness			• The consumption-driven Indian economy is under-consumed across the products and resources especially related to interior infrastructure
		• This can affect the Companys relevance within the region and the sector			• The Company has consistently established its presence as an outperformer, accounting for the largest share of the organised market in India
Political risk: The risk of a change in the government that could change existing policies		• A rethink of the existing government policies could affect the prospects of all the related players		Low	• Announcements of long-term policies have been made by the Indian government that have enhanced the relevance of the housing and interior infrastructure sector in the country
		• This could affect the credit rating of the Company, which represents the highlight of its corporate standing			• The government enunciated the need to boost housing for all, which provides the Company with a robust foundation on which it has to grow in a sustainable manner
Regulatory risk: The business is subjected to permissions and restrictions when it comes to raw materials and resources.		• This could potentially transform into censure and slowdown in the operations		Low	• The Company is positioned across products, customers and markets in a way that address a growth in humankinds needs for better living
		• This could affect the credit-rating of the Company			• We believe that regulation in a core industry can streamline a largely unorganised sector, resulting in a widened market size and opportunity
					• The Companys strategies are parallel with the national direction as far as interior infrastructure investments are concerned
Risks	Potential consequences		Likelihood of sustained risk occurrence		External stimulus and our strategic response
Locational risk: The company could invest in the wrong manufacturing location, a risk that cannot be corrected easily	• The Company could be affected by a downfall in the payback of its investments. This could further affect the overall margins		Low		• The Company conducts extensive studies across locations for port proximity, land costs and hinterland demand to arrive at an informed decision
	• The risk could affect the companys brand and organisational morale				• The robustness of the Companys decision making capability is indicated by each of its plants being profitable and growing year-on- year
Demand risk: There is a risk that the demand prediction for emerging products may not prove to be correct	• Irregular patterns in demand may affect plant utilisation and revenue predictability		Low		• Each of the Companys product segments was selected based on a relatively less explored demand pattern that has only grown over time
					• The Company has selected to deal in a product mix, whose relevance is only likely to grow in a growing India
Competition risk: The business may attract an increase in competitive ports for cargo	• Rising competition could affect the growth of the Company and hence, its margins		Low		• Century Plyboards is the largest player in the Indian interior infrastructure market on account of strength of the largest capacity and the lowest operating costs
					• The Company has established a respect for enhancing the appearance and longevity of customers interiors
Geographic focus risk: The business focus on few geographies could cause risks of volatility in weather patterns, affecting access to resources.	• This could moderate the Companys operational and logistical competitiveness		Low		• The Company made years of investments in data-based research before it came to the selection of the geographies of its presence (manufacturing and resource access)
	• This, in turn, could affect the confidence of the stakeholders				• The Company is yet to face any decline in its productivity based on irregular (though fleeting) weather patterns
					• The Company had invested in seven manufacturing locations across seven States at the close of 2021-22, including one through its Subsidiary. The Company has initiated material investment in its Subsidiarys upcoming project at Andhra Pradesh and majority of which will be made starting FY 2022-23.
Project management risk: The inability to commission projects on schedule, may adversely affect the Companys reputation in the market	• This could result in a decine in revenue inflow • This could cause a rise in the project cost and affect long-term project viability		Low		• The Company coordinated across various functions of resource assessment, land acquisition, construction readiness, technical studies and supply chain management, which resulted in projects being implemented faster than the sectorial benchmark
					• The Company drew on its management experience from its long-standing projects to commission projects on schedule and within the budgeted cost
Risks	Potential consequences		Likelihood of sustained risk occurrence		External stimulus and our strategic response
Receivables risk: An inability to sell products to the credible customers could have a negative impact on the receivables and revenues.	• Low quality sales could result in slower inflows and probable default, mandating provisions and write-offs		Low		• The Company worked with credible customers who ensured cash flows on time and virtually no default in payments
	• A low revenue visibility could improve the risk quotient of sales				• The Company worked with a receivables cycle of 42 days in 2021-22 compared with 51 days in 2020-21
Debt repayment risk: A failure in repayment or servicing could affect reputation and prospects of the Company	• This could affect the possibility of additional debt to be raised		Low		• The Company worked with virtually no debt on its books
	• This could affect the Companys credit and its prospects in debt mobilisation at a low cost for future expansion				• The Company did not miss any payment to lenders in almost thirty years of business existence
					• The interest cover of the Company was high at 50.96 in 2021-22, indicating virtually the absence of debt
People risk: The company could fail to retain or attract competent professionals	• This could affect the Companys ability to leverage knowledge, affecting its brand, and reducing productivity and profitability		Low		• The Company is a preferred employer in the industry
					• The Company has among the highest talent retention rates within its sector
					• The Company offers unmatched professional and personal growth opportunities within the sector
Environment risk: The Company may find it exhausting to match the tightening global ESG standards	• This could invite censure, criticism and the possibility of some environmentally- conscious OEM customers shifting their business towards competing companies		Low		• The Company has made huge investments in the moderation its carbon footprint and extension beyond the regulatory requirements of the day
					• The Company anticipates to derive 25% of its electricity requirements from renewable energy by FY 2022-23
Safety risk: The business of manufacturing and transportation could be affected by low safety standards	• Low safety could affect the companys respect		Low		• The Company has made extensive investments in mechanisation to enhance physical safety
	• Human injury could affect worker morale				• The Company deepened its safety orientation in an overarching culture, training and SOP-based processes
Liquidity risk: The Balance Sheet of the Company may be stretched due to greater investment requirements	• This risk may affect the liquidity and gearing of the Company		Low		• The Company possesses adequate liquidity to fund the existing growth needs without withdrawal of debt or any bargaining of Balance Sheet integrity
	• This may, in turn, affect the Companys credit rating and its capacity of low cost resource mobilisation for future investment				• The Company is virtually debt-free, which is fiscally prudent and comfortable

Risks	Potential consequences	Likelihood of sustained risk occurrence	External stimulus and our strategic response
Innovation risk: The Companys brand could suffer in case of no new product launch	• Slow portfolio rejuvenation could have a negative impact on the Companys brand among trade partners, resulting in lower engagement	Low	The R&D team of the Company consistently introduces new products that keep trade channels energised and the end consumer engaged.
Distribution risk: Dependence on one geographic region could affect the Companys growth if that particular region faces sluggish demand.	• This could affect the PAN-India presence of the Company	Low	Century Plys products benefit from availability throughout the nation through 28 marketing offices, covering almost all the cities and townships. The Company enjoys a presence in over 12 countries.
	• This could in turn and over time affect the Companys ability to capitalise on an increase in demand
Forex fluctuation risk: Volatility in foreign currency exchange rates.	• Any volatility in currency valuations could have an impact on the bottom-line.	Medium	The Company manages the currency risk by monitoring exposures and then hedging the forex exposure. It avails Short-term Loan by way of Cross Currency Interest Rate Swap (STL- CCIRS) in place of buyers credit as the same is a cheaper mode of working capital financing while managing forex fluctuations.

Human resources and industrial relations

The Company is one of the most sought-after employers in the industry as it gives employees an opportunity to take their career to the next level. The Companys manpower comprises both freshers as well as experienced professionals. During FY22, the Company conducted both competency related and soft skills training programmes for its workers and employees. The Companys employee strength stood at 6339 as on 31^st March 2022.

Internal control systems and their adequacy

The Company has already put in place an effective internal control system which undergoes continuous review. The findings of internal reviews are actioned and additional corrective measures are taken to enhance efficiency levels, if and when required. During last year, the Company has initiated several digital transformation projects to automate and bring in efficiency. As part of overall digitalization, the Company has decided to rebuild the Digital Core and to upgrade existing SAP (Suite on HANA) to the latest S4 HANA, which offers key out-of-box business solutions, mobility – allows users to access

SAP from mobile phones, real-time analytics on transactional data, unmatched flexibility of changing reporting structures and even instantaneous simulation of business scenarios. The Company has partnered with IBM to execute the S4 HANA Project. The Company is also exploring the possibility of partnering with IBM for Digital Transformation projects.

Cautionary statement

The statements in the ‘management discussion and analysis section describing the Companys objectives, projections, estimates and prediction may be considered as forward looking statements. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent developments, information or events.