Welcome to the 94th edition of The Chatter — a newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to.
We’re always eager to improve—please share your ideas on how else we can innovate “The Chatter” format to better serve your needs.
In this edition, we have covered 4 companies across 4 industries and a Regulator’s interview.
Regulator
IRDAI Chairman
Automobile
Bajaj Auto
Financial Services
State Bank Of India
FMCG
Emami Agrotech
Building Material
Century Plyboards (India)
Regulator
Insurance Regulatory and Development Authority of India | Insurance Decommissioned
The Insurance Regulatory and Development Authority of India is the statutory body tasked with regulating and licensing the insurance and reinsurance industries in India. It focuses on protecting policyholder rights and maintaining the financial stability of the insurance sector through comprehensive policy frameworks.
The regulator is framing new rules not just to cut costs, but to overhaul the entire efficiency of the Indian insurance ecosystem. Investors should view this as a structural shift that will force all industry participants to justify their cost structures.
“To clarify a key point: this consultation paper is not merely about distribution costs. It lays the foundation for a far more efficient insurance sector positioned to support India’s Viksit Bharat journey. Every stakeholder across the value chain—insurers, distributors, and the regulator—must become more productive and cost-efficient.”
— Ajay Seth, Chairman, IRDAI
Management is highlighting a significant spike in operating costs across both life and general insurance sectors over the last few years. The regulator expects companies to slash these expenses back to historical norms, which could pressure short-term earnings for high-cost insurers.
“To look at the numbers: Life Insurance: In FY21, the industry’s cost of doing business was around 16.5%. Today, it has escalated to 22%. We are asking the industry to return to the 15% efficiency levels achieved five to six years ago. General Insurance: Operating costs were historically 30% plus, declined to around 26% between FY17 and FY19, but have now spiked back to 32%. Our expectation is simple: regain the efficiency levels achieved seven to eight years ago, and then build further productivity milestones from there.”
— Ajay Seth, Chairman, IRDAI
The Chairman expressed concern that mature insurance companies have allowed their expense ratios to balloon rather than achieving scale benefits. This indicates that established players will no longer be given leeway for high costs and must transition to leaner, tech-driven operations.
“However, we observe companies that have been operating for 15 to 25 years with cost-of-doing-business metrics as high as 25% to 30% or more. They are no longer startups; they have relied on market information asymmetry to sustain high-cost operating models. For example, one major private life insurer previously operated at an expense ratio below 12%, but that metric has escalated to 18% today. Insurers must cut operational flab and focus on digital efficiency and technology adoption.”
— Ajay Seth, Chairman, IRDAI
The regulator is favouring an ‘open architecture’ model where distributors offer products from multiple companies rather than just one. This shift will likely increase competition and could impact the high-margin ‘tied-agent’ networks that many traditional insurers rely on.
“It comes down to open versus closed architecture rather than IDE versus IDP. IDEs operate on an open architecture, offering competing products across multiple insurers or bank partners. IDPs—specifically tied agents—can only sell the products of the single insurer with whom they are affiliated. In a closed architecture, an agent presents a single choice that may or may not fit the customer’s specific financial needs. In an open architecture, an intermediary offers a range of options across multiple entities, making product suitability easier for the customer to evaluate.”
— Ajay Seth, Chairman, IRDAI
The regulator is allowing individual distributors to sell a wider range of financial products, including complex insurance and mutual funds, to boost their total income. This change aims to expand insurance reach into rural India while making the distributor role more financially viable through volume rather than high commissions.
“First, the framework provides additional commission incentives for smaller towns (defined liberally as towns with a population below 50,000) and smaller cities (population below 10 lakh). This covers underserved geographies. Second, we are significantly expanding the operational scope for POSPs. Previously, POSPs were restricted to selling simple, low-ticket products like basic motor or term insurance. Under the proposed framework, POSPs who complete online training and pass an on-demand test can sell the full suite of insurance products, including ULIPs and complex policies, without ticket-size limits. Third, we are enabling distribution cross-selling. Insurance intermediaries and POSPs will be permitted to sell non-insurance financial products (such as pension products and mutual funds) as well as non-financial products. Furthermore, over five lakh Common Service Centres (CSCs) and Banking Correspondents (BCs) in rural areas are being integrated into the insurance distribution ecosystem. By enabling individual distributors to earn across multiple financial products, volume expansion and higher overall productivity will offset lower per-product percentage margins.”
— Ajay Seth, Chairman, IRDAI
IRDAI has identified excessive profit margins and commission rates among top distributors that it believes should instead be returned to customers. This signals an impending squeeze on the margins of large, listed insurance distribution platforms and bank-led distributors.
“To provide a concrete data point: one major insurance distributor currently generates a post-tax profit margin of 44% on its top-line commission income. Another major distributor saw its effective commission rate rise from 6%–7% a few years ago to 38% today. When distribution margins reach these levels, value is being diverted away from policyholders. The savings achieved through commission caps and EOM rationalisation must be passed directly to policyholders through better pricing and improved product value.”
— Ajay Seth, Chairman, IRDAI
New rules will force brokers to disclose their commissions on large corporate deals worth over ₹50 crore to ensure transparency. This is likely to push the corporate insurance market toward a fee-based model, potentially reducing commission income for brokers in the high-ticket commercial segment.
“The mandatory disclosure requirement applies specifically to large commercial policies where the sum insured exceeds ₹50 crore (representing medium-to-large corporate risks) and large corporate group health policies. It does not apply to retail policies or small enterprise policies below ₹50 crore. Corporate buyers purchasing large-scale commercial covers have the sophistication to evaluate risk-advisory fee structures versus commission payouts. In group health insurance, we observed counterintuitive data where commission percentages on large corporate group policies were sometimes higher than on retail policies. Mandating transparency for large commercial covers encourages a shift toward fee-based risk advisory and allows corporate buyers to evaluate whether distribution costs are justified.”
— Ajay Seth, Chairman, IRDAI
The regulator is banning digital platforms from collecting customer data before showing product quotes, viewing this as a ‘dark pattern’. This will force digital aggregators to change their lead-generation tactics and could affect their customer conversion rates.
“Under Central Consumer Protection Authority guidelines and general market principles, dark patterns—including forcing consumers to surrender personal data before displaying product pricing—are prohibited. In a competitive market, consumers have an absolute right to view product features, coverage details, and pricing upfront before deciding whether to share personal information for KYC and underwriting purposes. Restricting price transparency behind a paywall or data-collection wall violates basic market principles.”
— Ajay Seth, Chairman, IRDAI
IRDAI plans to lower renewal commissions for health insurance because renewals require less work than new sales. This change is intended to stop agents from unnecessarily moving customers between companies just to earn higher commissions.
“Health Insurance Renewals: Data shows that policyholders naturally persist with health insurance due to cumulative benefits like No-Claim Bonuses. Selling a health policy for the first time requires substantial advisory effort, whereas servicing a renewal requires a reminder prompt. First-year commissions reflect that initial acquisition effort, whereas lower renewal commissions align with actual servicing costs and discourage commission-driven churning or forced portability.”
— Ajay Seth, Chairman, IRDAI
The regulator is unbundling motor insurance costs and setting very low commissions for mandatory third-party covers on new cars. Investors should note that this will improve pricing for consumers but may lower the revenue profile of motor insurance for many distributors.
“Motor Insurance: Motor Third-Party (TP) cover is mandatory by law. First-year TP insurance on new vehicles involves zero selling effort, so commission limits are set at minimal levels. Subsequent renewals after the initial multi-year policy period require active agent outreach, which is why higher commission allowances apply to renewal servicing. Furthermore, line items across Third-Party cover, Own Damage (OD), legal liability, and personal accident cover must be unbundled and clearly itemised.”
— Ajay Seth, Chairman, IRDAI
The regulator is moving toward a Risk-Based Capital model by April 2025 and is incentivising ‘term’ insurance over investment-linked products (ULIPs). This strategic shift will favour companies with strong protection portfolios and could require capital adjustments across the industry.
“We are actively working toward implementing the Risk-Based Capital (RBC) framework, targeting a rollout timeline around April 1st. The consultation paper deliberately allows higher commission flexibilities for pure protection (term) products, which require greater distribution effort to sell, compared to market-linked investment products like ULIPs where lower commission structures preserve underlying policyholder yields. Expanding pure protection coverage is vital for national financial resilience, and our capital and distribution frameworks are being calibrated to support that objective.”
— Ajay Seth, Chairman, IRDAI
Automobiles
Bajaj Auto | Large Cap
Bajaj Auto is a leading global manufacturer of two-wheelers and three-wheelers, renowned for brands like Pulsar and the Chetak electric scooter. The company maintains a strong export presence in over 70 countries and is a significant player in the transition to electric mobility.
Management clarified that the recent sales miss was due to specific supply chain issues rather than a drop in buyer interest. This helps investors understand that the volume drop is a temporary logistics hurdle rather than a long-term demand problem.
“While we delivered a strong quarter overall, our internal monthly target was approximately 570,000 units. We ended up about 40,000 units short of our plans, driven entirely by supply chain constraints—some unfortunate component delays and some stemming from a rapid ramp-up in demand for new products. Breaking down that 40,000-unit shortfall: 1. Chetak EV (20,000 units): Inbound shipment delays for critical components prevented us from maxing out production. Instead of hitting over 60,000 units, we completed only 42,000 units. Channel inventory remains extremely low, and we are working to convert existing bookings into retail sales. 2. Exports (15,000 units): Outbound logistics constraints impacted shipments. Operating at our scale—where a container leaves our plants every 10 minutes, 24/7—any shipping availability disruption causes severe deferrals. 3. New Launches & Component Bottlenecks (5,000–7,000 units): Market reception for our 10 new Q2 launches across Pulsar, Triumph, and KTM ranges exceeded expectations. Channel stock for these models sits at only 9–10 days, particularly for sporty 150cc+ models like the Pulsar N160. Rapid volume growth led to shortages of key electronic components like Electronic Fuel Injections (EFIs). Without these supply disruptions, total monthly volume would have reached 570,000 units, representing around 13% growth.”
— Rakesh Sharma, Joint Managing Director
Component issues for the electric scooter segment have been fixed, and production is now ramping up to meet strong demand. Investors should watch for a significant volume jump in the coming month as backlogged orders are fulfilled.
“The primary bottleneck on Chetak was resolved over the last few days of the month. Our total Chetak production capacity ranges between 60,000 and 65,000 units, while underlying demand exceeds 65,000 units. We expect Chetak volumes to climb from 42,000 units in September to over 62,000 units in October.”
— Rakesh Sharma, Joint Managing Director
The company expects a strong recovery in total sales for October, supported by record-breaking performance in the three-wheeler segment. This signal suggests that the infrastructure for both electric and traditional engines is operating at high utilisation.
“Overall, October sales should comfortably exceed 5.7 lakh units. There is no underlying demand weakness. The recent shortfall was entirely driven by supply chain constraints and component shortages. In fact, three-wheeler volumes hit an all-time high of 90,000 units in a single month, with strong demand across electric and ICE autos challenging our production capacity.”
— Rakesh Sharma, Joint Managing Director
Global container shortages are currently making it difficult to ship products to international markets despite healthy demand. The company is actively diversifying its port usage to bypass these bottlenecks and protect its export revenues.
“The export shortfall was not geography-led or demand-driven; it was purely caused by container availability and shipping line constraints. Global shipping lines have diverted container capacity toward China-Europe and China-US trade routes. To mitigate this, we scrambled logistics across JNPT, South Indian, and Gujarat ports.”
— Rakesh Sharma, Joint Managing Director
Sales in Nigeria, a critical export market for the company, are showing signs of stabilisation and recovery. This growth reduces a major risk factor that has historically impacted the company’s international earnings.
“Regarding Nigeria: demand is recovering well. September sales in Nigeria crossed 35,000 units, landing between 35,000 and 37,000 units.”
— Rakesh Sharma, Joint Managing Director
Management expects a predictable 40% surge in volumes during the festive period based on historical seasonal trends. This transparency allows investors to benchmark the company’s performance against historical peaks during the high-stakes holiday season.
“Festive demand remains structurally healthy. Looking at seasonal trends over a 3-to-4-year window, Q3 volumes typically expand to 1.4 times pre-festive run rates. Year-to-date total volume growth stands at 13%, while our premium 150cc+ motorcycle segment grew at 28% from April to August. We see no underlying weakness in consumer demand heading into the festive season.”
— Rakesh Sharma, Joint Managing Director
The premium motorcycle category is growing twice as fast as the overall business, driven by strong interest in high-end models. This shift toward a more expensive product mix generally supports better profit margins for the company.
“Year-to-date total volume growth stands at 13%, while our premium 150cc+ motorcycle segment grew at 28% from April to August. We see no underlying weakness in consumer demand heading into the festive season.”
— Rakesh Sharma, Joint Managing Director
While markets like the Philippines are doing well, economic or regulatory issues in neighbouring countries are weighing on the Asian export numbers. Investors can see that the company’s geographic diversification helps offset localised regional slowdowns.
“Asia remains a mixed bag and our most underperforming export region. We are witnessing rapid growth across Latin America and Africa, while the Middle East and North Africa remain soft due to geopolitical factors. Within Asia, markets like the Philippines and Sri Lanka are performing well, whereas Nepal and Bangladesh continue to underperform.”
— Rakesh Sharma, Joint Managing Director
Financial Services
State Bank of India | Large Cap
State Bank of India is the country’s largest public sector lender, commanding a dominant market share in domestic remittances and digital payments. The bank provides a comprehensive suite of financial services through its extensive branch network and digital platforms like YONO.
SBI has confirmed it is technically ready to implement the new merchant discount charges on UPI transactions starting October 15. This indicates that the bank’s core systems can already handle the complex task of split-fee distribution across the payment network.
“From an operational and technical preparedness standpoint, collecting and distributing MDR across payment ecosystem participants is a well-established process within banks. When the framework kicks off on October 15th, SBI will have the full technical capability to operationalise it in close coordination with the National Payments Corporation of India (NPCI).”
— Rama Mohan Rao Amara, Managing Director
Management is focusing on educating the public to prevent concerns that small transactions or consumers will be taxed. This clarity is important because it protects high-volume, low-value digital payment habits while targeting a specific merchant segment for revenue.
“Right now, the primary focus across banks and regulators is creating stakeholder awareness—among consumers, merchants, and technology providers—to dispel misconceptions: 1. Consumer Protection: P2M transactions under ₹2,000—which account for 96% of total UPI transaction volumes—remain completely exempt. Furthermore, retail consumers incur zero charges regardless of transaction size; the cost is strictly a merchant-side discount rate. 2. Targeted Merchant Application: The charge applies to a small subset of large merchants handling transactions above ₹2,000. 3. Caps and Exemptions: Critical and essential utility payments (such as fuel and railway ticketing) carry a flat ₹5 MDR rather than a percentage fee. Across all applicable P2M transactions, MDR is capped at a maximum of ₹300 per transaction.”
— Rama Mohan Rao Amara, Managing Director
The bank believes that introducing these fees is necessary to fund the expensive technology and security upgrades required to keep the payments system safe. Investors should see this as a move toward making digital banking infrastructure a self-sustaining business rather than a sunk cost.
“From an industry perspective, MDR revenues will partly offset the substantial, ongoing capital investments banks make in underlying payment infrastructure—specifically in upgrading cybersecurity, strengthening fraud risk management, and expanding server capacity. It creates a far more equitable and financially sustainable model for digital payments.”
— Rama Mohan Rao Amara, Managing Director
The management clarified that the vast majority of their transaction volume will not be affected by the new fee structure. This suggests that the immediate revenue impact will be limited to a small, high-value tier of their merchant network.
“While I cannot share specific internal merchant metrics, industry-wide data indicates that 96% of all UPI transactions are exempt. A similar ratio applies to our merchant base, meaning only around 4% of total transaction volume will be subject to MDR.”
— Rama Mohan Rao Amara, Managing Director
SBI plans to use the new revenue stream to expand its presence in merchant services, where it has traditionally been less active. This shift could diversify the bank’s digital income beyond its current dominance in processing payments for individual users.
“Historically, SBI’s primary strength has been on the remitter (payer) side, where we hold a dominant 27% market share. On the beneficiary and merchant acquisition side, our footprint is relatively smaller, managed partly through our joint venture, SBI Payments. However, introducing a modest MDR stream creates a clear financial incentive for SBI to play a far more active role across the merchant acquiring value chain. We will evaluate specific segments where SBI can deliver distinct value-added services to merchants rather than simply replicating existing market players.”
— Rama Mohan Rao Amara, Managing Director
The improved economics of digital payments are driving the bank to scale up its technical services for merchants and payment apps. This suggests that SBI is looking for profitable growth in the digital ecosystem rather than just chasing transaction volume.
“Definitely. Rebalancing the economics encourages us to expand beyond our traditional remitter dominance into merchant acquisition, PSP services, and our proprietary digital applications. However, revenue is only one element. We will expand into new segments of the payments value chain only where we can deliver tangible technology and operational value to merchants and ecosystem partners.”
— Rama Mohan Rao Amara, Managing Director
While the fees will help cover the massive costs of maintaining the UPI network, they are not expected to be a major profit centre for now. Investors should view this as a way to reduce the financial burden of digital operations rather than a massive boost to net interest margins.
“UPI infrastructure operates as a shared technology stack within the bank, supporting multiple digital banking services, so we do not isolate a standalone cost figure. However, broader industry estimates place the total annual system-wide infrastructure and maintenance cost between ₹15,000 crore and ₹20,000 crore. While actual MDR collections will depend on consumer and merchant transaction behaviour post-rollout, we expect the revenue to largely offset core infrastructure costs rather than act as a net profit driver. It provides the financial foundation to continue investing in digital innovation and value-added merchant features.”
— Rama Mohan Rao Amara, Managing Director
SBI chose not to partner with Apple Pay for its India launch after reviewing the business terms. This reflects a disciplined approach to partnerships where the bank prioritises its own strategic interests and commercial viability over simply joining global platforms.
“Apple Pay did approach SBI, and we had the opportunity to evaluate their commercial proposition and technical framework. After a thorough internal evaluation, SBI took a strategic decision not to participate in that specific ecosystem at this stage. We continually evaluate global payment partnerships, and our position may evolve as commercial and operational terms shift over time.”
— Rama Mohan Rao Amara, Managing Director
FMCG
Emami Agrotech | Small Cap
Emami Agrotech is a prominent Indian edible oil and food products manufacturer under the Emami Group. The company produces a variety of branded oils, spices, and snacks, leveraging an extensive national distribution network.
The government’s decision to lower import duties has helped stabilise domestic supply and cap international price increases during the peak festive season. This move has cleared distribution bottlenecks and restored consumer demand that was previously stalled by high costs.
“Following a significant multi-month rally driven by geopolitical tensions, elevated energy prices, rising input costs, and rupee depreciation, the government’s duty cut was timely and welcome. It arrived right as consumer festive demand builds up, balancing the needs of farmers alongside consumer affordability in conjunction with recent Minimum Support Price (MSP) increases. Demand is picking up now that duty certainty has returned. Products are moving steadily from ports into distribution pipelines that had run dry in anticipation of the announcement. Interestingly, following India’s duty cut, international edible oil prices actually moderated. The 10% duty reduction on sunflower oil created an artificial ceiling on price surges, keeping soybean oil and palm oil prices in check.”
— Sudhakar Desai, CEO
Short-term supply growth in Southeast Asia is currently managing palm oil availability, but future markets are forecasting higher prices. Investors should note that increasing biofuel requirements and potential weather disruptions are expected to tighten supply in the first quarter of 2025.
“While palm oil faces near-term origin supply pressure from increased production in Malaysia and Indonesia, forward markets for Q4 (January–March) are pricing in higher biofuel demand and potential El Niño impacts on palm yields.”
— Sudhakar Desai, CEO
Recent price reductions are reaching institutional and bulk buyers quickly, though retail consumers will see the benefits after existing stocks clear. Rapid price adjustments in mass-market brands indicate high competitive intensity within the sector.
“While packaged shelf inventory typically takes about 15 days to reflect price cuts due to pipeline stock, the immediate impact was felt in loose oil sales to Horeca (Hotels, Restaurants, and Catering) institutional buyers and popular mass-market brands. Prices for popular brands dropped immediately due to competitive selling.”
— Sudhakar Desai, CEO
The company is overhauling its product packaging to meet new regulatory standards for food safety and transparent labelling. This initiative is critical as they diversify their product mix into value-added categories like spices and snacks.
“Yes, absolutely. In compliance with FSSAI front-of-pack labelling regulations, we are updating packaging across our portfolio. Beyond edible oils, Emami Agrotech is expanding into food products—including Mantra spices, snacks, and chocolate spreads—so strict adherence to FSSAI clean-label guidelines is a top priority.”
— Sudhakar Desai, CEO
Emami Agrotech is utilising its established edible oil logistics to drive growth in higher-margin food categories. This diversification strategy aims to improve overall profitability by spreading distribution costs across a wider variety of consumer goods.
“Once we established a robust distribution network and pipeline, it made strategic sense to leverage our supply chain efficiencies to market adjacent food categories. We have launched chocolate spreads, snacks, chips, wheat products ( atta, maida, suji ), soya nuggets, and a complete range of spices under the Mantra brand.”
— Sudhakar Desai, CEO
Edible oil volume growth slowed significantly due to high prices but is expected to return to its historical growth rate as costs stabilise. A recovery in the broader packaged food and snack industry is a key driver for this anticipated demand rebound.
“Historically, Indian edible oil consumption grew by 3% to 4% annually. However, elevated prices over recent months temporarily dampened demand, holding volume growth to a modest 1% to 1.5%. As prices stabilise over the next three to four months, we expect consumption to rebound. Edible oil demand is directly linked to the broader food service sector—including biscuits, packaged snacks, and sweetmeat items—all of which were impacted by higher input costs but are now recovering.”
— Sudhakar Desai, CEO
Despite earlier concerns about agricultural yields, the summer harvest has exceeded expectations across the country. This stable crop output provides a better outlook for domestic raw material availability and pricing.
“While localised agricultural income stress in specific geographies warrants caution, the overall Kharif crop output has turned out far better than originally feared.”
— Sudhakar Desai, CEO
Management is optimistic about the winter oilseed harvest because key crops like mustard are less reliant on inconsistent monsoon rains. Higher government support prices and favourable market conditions are incentivising farmers to increase planting.
“It is too early to give a definitive ground assessment, as October rainfall will determine soil moisture levels for November and December planting. However, mustard and rapeseed crops are largely irrigated rather than purely monsoon-dependent. Supported by favourable market prices and higher government MSPs, we expect a strong Rabi oilseed harvest, provided the monsoon’s ending phase holds up reasonably well.”
— Sudhakar Desai, CEO
Building Materials
Century Plyboards (India) Limited | Small Cap
Century Plyboards (India) Limited is a leading Indian manufacturer of wood-panel products, specialising in plywood, laminates, and medium-density fiberboard (MDF). The company operates several production facilities across India and is currently expanding its presence in the high-growth MDF and value-added laminate segments.
Management reports that the business is successfully passing on cost increases to customers while seeing a recovery in MDF profit margins. This suggests that the company’s profitability is stabilising and could see further expansion in the second half of the year.
“MDF margins are actively recovering. Demand traction across all product segments has been robust in Q2, and we have successfully passed on most raw material price increases. Consequently, Q2 margins should look similar to or slightly better than Q1. Looking into H2, we expect further demand improvement alongside potential margin expansion as raw material costs ease, although some system volatility remains.”
— Keshav Bhajanka, Executive Director
The company intends to keep a larger share of savings from falling raw material costs rather than lowering prices for customers. Investors should note this strategy as a clear lever for boosting gross margins, particularly in the MDF and Particle Board segments.
“If crude derivative prices cool off, we will retain a portion of those cost savings to expand gross margins rather than passing them through entirely. In Plywood and Laminates, price pass-through is smaller, whereas in MDF and Particle Board, partial cost pass-through will occur while retaining a margin cushion.”
— Keshav Bhajanka, Executive Director
Export challenges in the Laminates division are being characterised as temporary shipping delays rather than a loss of customer interest. This clarifies that any short-term revenue misses in exports are timing issues and do not reflect a deterioration in structural demand.
“In Laminates, container constraints represent timing deferrals rather than demand destruction—a shipment moving from the 27th of one month to the 1st of the next simply shifts revenue recognition between quarters. The operational recovery in Laminates is well underway, and we expect sequential quarterly improvements.”
— Keshav Bhajanka, Executive Director
The Plywood division achieved record sales in July, prompting management to prepare an upward revision of their growth targets. With existing plants full, the upcoming Hoshiarpur facility is critical for meeting this excess demand and driving the next leg of volume growth.
“Our official guidance will be updated upward when released. Following 30%+ growth in Q1, the month of July marked the highest monthly Plywood sales volume in our company’s history. Our existing Plywood capacity has been operating near 100% utilisation. The commissioning of our Hoshiarpur capacity next month will provide a significant operational boost.”
— Keshav Bhajanka, Executive Director
Strong growth in the Plywood segment has temporarily increased debt levels because the company needs more cash to fund its daily operations. Investors should monitor this as a sign that leverage is being driven by operational scale rather than poor financial health.
“We are currently at peak debt. The rapid top-line growth—such as 30% growth in Plywood—requires a 45-to-60-day working capital cycle, driving incremental short-term borrowings.”
— Keshav Bhajanka, Executive Director
The company is transitioning to a lower capital expenditure phase by focusing on plywood units rather than more expensive MDF plants. This shift is expected to turn strong earnings into cash that will be used to systematically pay down debt and improve the balance sheet.
“Following the Hoshiarpur plant commissioning, our next major expansion is a Plywood unit in Uttar Pradesh late next year. Because Plywood capex is significantly lower than MDF or Particle Board, and with no new greenfield MDF or Particle Board plants currently planned, strong operating cash flows will drive sequential debt reduction. Our long-term financial policy is to maintain long-term debt below 1.0x EBITDA.”
— Keshav Bhajanka, Executive Director
Management has committed to a specific target to keep long-term debt levels well within safe limits by the end of the fiscal year. This commitment provides a clear benchmark for investors to track the company’s financial discipline as it exits a heavy investment cycle.
“Deleveraging has already begun. By the end of this fiscal year, our long-term debt-to-EBITDA ratio will sit comfortably below 1.0x.”
— Keshav Bhajanka, Executive Director
The company expects its efficiency in using capital to improve gradually over the next few years as new investments begin to generate returns. Reaching the 20% hurdle rate by FY29 would signal that the current aggressive expansion phase has successfully created shareholder value.
“On ROCE, we expect steady quarterly recovery, crossing our internal 20%+ ROCE hurdle rate within two years (by FY29).”
— Keshav Bhajanka, Executive Director
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Quotes in this newsletter were curated by Shahid Barmare.
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