Century Plyboards - Core segments to witness steady recovery - ICICI Securities

Within building materials space, Century Plyboards (CPBI) has been one of the top performers (stock up 84% since 1st May'20) post Covid-19 (CPBI was also our top pick in the space - as highlighted in the report dated July'20). This is largely due to faster-than-expected recovery in volumes/earnings (driven by MDF and CFS segment in particular) and superior balance sheet strengthening amid stricter working capital management and implementation of 'out of box' initiatives like Sales Force Automation (SFA) and Theory of Constraints (TOC). We expect the momentum to continue going forward with 1) recovery in plywood and laminate segments to gain traction from Q3FY21; 2) MDF/PB expected to deliver double-digit growth and margin improvement amid buoyancy in demand; and 3) expected improvement in EBITDA margins driven by superior product mix, operating leverage and cost rationalisation. Maintain BUY.

- Valuation and outlook. Adjusting slower-than-expected recovery in laminates but better-than-expected recovery in plywood and MDF segments, we marginally cut our earnings estimates by 4.3% for FY22. Rolling over our numbers to FY23, we now expect the company to report revenue/PAT CAGR of 18.6%/43.4% over FY21-FY23E. We maintain BUY on the stock with a revised TP of Rs283 (25x Sep'22 earnings) vs Rs234 (22xFY22 earnings) earlier.

- After strong recovery in MDF/PB in Q2, plywood and laminate segments to witness steady recovery in H2FY21. CPBI reported strong recovery in MDF/PB segments in Q2FY21. Plywood and laminate segments, however, reported revenue decline of 15% and 25%, respectively in Q2. We now expect plywood to stage a steady recovery post Q2 while laminate segment can recover post Q3FY21. The recovery in these core segments may be driven by a strong traction recently seen in secondary real estate market and increased traction in its recently launched virus-free (Virokill) range of plywood and laminate products. Also, recently introduced ILP and SFA-led initiatives may also lead to significant improvement in productivity and aid volume traction over the next 2 years.

- EBITDA margin will improve led by superior mix and cost rationalisation. CBPI reported strong EBITDA margin of 16.5% in Q2FY21, largely driven by strong margins in MDF/PB segments and cost rationalisation. We expect EBITDA margin to improve further led by superior product mix, operating leverage in plywood & laminates segments in particular and sustained cost rationalisation. We, thus, expect CPBI's overall EBITDA margin to improve considerably to 17.5% in FY23E from 14.3% in FY20.

- Strict balance sheet discipline holds CPBI in good stead despite likely capex for the upcoming MDF/PB plant in South India. Impressive profitability and strict working capital management is expected to drive strong FCF in FY21E, which in turn will be utilised to further pare down its debt (Sep'20 debt at Rs850mn). Hence, despite a sizeable capex to the tune of Rs4bn for setting up a greenfield MDF/PB plant in South India in FY23E, we expect its RoCEs to improve to ~23% by FY23E from 18.5% in FY20 driven by higher profitability and stricter working capital discipline.

Shares of CENTURY PLYBOARDS (I) LTD. was last trading in BSE at Rs.224.2 as compared to the previous close of Rs. 221.1. The total number of shares traded during the day was 26542 in over 1296 trades.

The stock hit an intraday high of Rs. 227.55 and intraday low of 219.85. The net turnover during the day was Rs. 5946871.

Source : Equity Bulls

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