Century Plyboards (India) Ltd (CPBIL) may finally decide against expanding the capacity of its Hoshiarpur unit in Punjab and instead set up a greenfield MDF manufacturing unit in Uttar Pradesh. Earlier the company was contemplating an expansion of MDF capacity from 600 CBM to 1000 CBM by spending Rs 150 crore to meet the anticipated growth in the demand for MDF.
According to CPBIL, capacity utilisation of its MDF plant is likely to touch 85–90% by the end of this financial year. The company feels that the next leg of growth would come from greenfield MDF and particle board unit. Both these industries are logging 20%-plus CAGR amid rising use of readymade furniture in India.
However, the company is apprehensive in further expanding its capacity in Punjab as it expects difficulties in procuring raw material in Punjab. The company feels that the increase in capacity in Punjab itself can push up prices of raw material, thereby significantly impacting returns on the project. Further, there are certain benefits in setting up units in UP like a tax holiday by the state government and low transportation cost in the region. In addition to this, there is huge market available in the state.
Though the nitty-gritty of the project is yet to be finalised, the capex is likely to be about Rs 400-500 crore and would be incurred over the next 18 months. It is expected that the company may opt for a fungible plant (for MDF and particle board) with capacity of 700–800CBM.
Though the MDF manufacturing capacity is in excess than the existing capacity demand scenario may change for the better with the entry of IKEA who will be mainly using MDF for its furniture. Further, price of Indian MDF can become attractive in international market if the rupee depreciation continues. Also, this can prevent the Chinese MDF flooding the market.