Century Plyboards - MDF/PB segment gains impressive traction - ICICI Securities

While Q1FY21 result was largely in-line with our expectations, the key silver lining for Century Plyboards (CPBI) was impressive recovery in MDF/PB segment which delivered positive growth in Jul'20. The core segments - plywood and laminate on the other hand are expected to achieve 70-75% of Q2FY20 sales in Q2FY21 and normalcy (100%) in Q4FY21. While debt has risen in Q1 due to extended credit offering to dealers and honouring vendor payments on time, the company remains hopeful of paring it down in coming quarters. Maintain BUY.

- Valuation and outlook: Factoring in-line Q1 numbers, we revise our revenue and earnings estimates by 3%/1.4% and -18.9%/5.8% for FY21/FY22E, respectively. We now expect CPBI to report revenue and adjusted PAT CAGRs of -1.8% and 6.5%, respectively, over FY20-FY22E. We maintain our BUY rating on CPBI with a revised target price of Rs209 (Rs198 earlier) valuing the stock at 22x FY21E earnings.

- Core product segment (plywood and laminates) revenue declined 60-70% due to lockdown. Countrywide lockdown on account of Covid-19 breakout led to a sharp decline in plywood/laminate revenue, which declined 68.7%/62.8% respectively for the quarter. While plywood realisations remained firm, laminate realisations' growth declined 7.8% YoY due to higher contribution from exports (export mix stood at 40% vs 20-25% normally). Sustained decline in commercial veneer sales led to a sharper decline in plywood sales. Segmental margins decline sharply for both plywood and laminate segments largely due to operating deleverage. The management expects both the segments to recover progressively with Q2/Q3 likely to witness 25%/20% decline in revenues and Q4 to achieve normalcy in sales for both the product segments.

- MDF/PB segment witnesses a sharp recovery in Jul'20. MDF/PB, too, reported a volume decline of 66%/64% YoY for the quarter. Realisations for the quarter, however, remained firm with MDF realisations inching up 9% YoY at Rs24,256 per CBM largely driven by favourable product mix. Segmental EBITDA margin, too, declined sharply to 7.5%/10.5% for MDF/PB segment largely due to operating deleverage. Recovery in both these segments, however, seems sharper with both these segments delivering growth in Jul'20 largely driven by higher OEM demand. The management is likely to take a call on its Sitapur greenfield project by Dec'20 depending on the clarity by obtaining the license from UP Government.

- Gross debt increases QoQ but has started coming down in Q2 already. Higher credit offering to its dealers and timely vendor payments in Q1 led to an increase in working capital requirements which in turn led to a rise in overall debt levels to Rs2.43bn (vs Rs1.88bn in Mar'20). The management indicated that debt has already started descending with strong cash collections witnessed in Jul'20.

Shares of CENTURY PLYBOARDS (I) LTD. was last trading in BSE at Rs.131.6 as compared to the previous close of Rs. 135.7. The total number of shares traded during the day was 15063 in over 516 trades.

The stock hit an intraday high of Rs. 138 and intraday low of 130.4. The net turnover during the day was Rs. 2017397.

Source : Equity Bulls

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