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Firing on all cylinders

Century Plyboards (CPBI) reported strong recovery in its plywood and laminates segments with sequential revenue growth of 11.8% and 27.4% respectively, leading to overall revenue beat at Rs7.4bn (I-Sec: Rs6.9bn), up 13% QoQ. EBITDA margin at 17.2%, 80bps lower than our estimate, was led largely by a few one-offs in ‘other expenses’ in Q4FY21. Expecting sectoral tailwinds to sustain, the management too has given robust guidance for the medium term: a) overall operational cost savings to the tune of Rs300mn over next 2 years; b) doubling of plywood capacity over next 3 years with >10% revenue CAGR and sustainable EBITDA margin at 14-15%; c) >15% revenue CAGR and EBITDA margin range of 16-18% in laminate segment; d) tripling of MDF revenues over next 3-4 years with capex of Rs7bn scheduled over FY22-FY23 while margins are likely to remain firm. With superior cashflow management over the next 2 years, we expect RoCEs to trend higher at ~26% in FY23E (vs ~21% in FY21 despite aggressive capex initiatives).

Valuation and outlook:

Factoring-in the Q4FY21 beat, we revise our revenue and earnings estimates by -2.5%/-2.8% and -7.7%/6.1% for FY22E/FY23E respectively. We now expect CPBI to report revenue and adjusted PAT CAGRs of 15.2% and 30.2% respectively over FY21-FY23E. With the recent surge in stock price, we downgrade it to ADD (vs Buy earlier) with a revised target price of Rs460 (earlier: Rs432) valuing it at 30x FY23E earnings. Key risk to upside is: muted demand in core segments, and higher competition in MDF space.

Core product (plywood and laminates) segments report strong recovery.

Better than expected revenue recovery in the core plywood and laminate segments (up 11.8% and 27.4% QoQ respectively) was a key positive surprise in Q4FY21. Segmental EBITDA margins too improved 100bps/400bps QoQ for plywood/laminate segments driven largely by inventory gains in laminates, cost optimisation and operating leverage. Management expects both the core segments to sustain their growth momentum in the medium term. It expects EBITDA margin for plywood segment to be in the range of 14-15% and that for laminate segment 16-18%.

Aggressive capex of Rs7bn to drive strong MDF growth over FY22E-FY25E.

MDF segment reported 2.2% QoQ revenue growth in Q4FY21. Realisations rose sharply by 9.4% QoQ on better mix. Segmental EBITDA margin at 26.8% was down 90bps QoQ but remained healthy. The impressive MDF growth was driven largely by higher OEM demand, which is likely to sustain in the medium term. Company has plans to triple MDF revenues over next 3-4 years with expected brownfield/greenfield expansions, which would enhance its MDF capacity by 1,100CBM/day.

CPBI to report strong RoCE despite large capex.

CPBI has already become a net cash company. With superior mix and significant operating cashflow generation, it will be able to meet its aggressive capex largely through internal accruals, which in turn would drive RoCE higher to 26% by FY23E.

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