IGI Logo

Robust outlook amid emerging industry tailwinds

CPBI delivered an impressive Q3FY21 beat on all counts: a) sharp volume growth recovery across all verticals; b) sharp margin improvement particularly in the core plywood and laminate segments; c) record quarterly revenues, EBITDA and PAT; and d) strong balance sheet strengthening led by stricter working capital discipline thereby enabling it to become a net cash company. Management outlook too remains upbeat with: 1) the sharp revival in secondary real estate market likely to sustain in the near term; 2) margins likely to improve further across its product portfolio driven by recent price hikes, cost optimisation and operating leverage; and 3) much-needed incremental capacities (particularly in MDF and PB) likely to come on stream by end-FY22. Maintain BUY.

* Valuation and outlook: Factoring-in the sharp Q3 beat, we revise our revenue and earnings estimates by 5.1% / 4.9% / 8.4% and 24.2% / 20.5% / 15.6% for FY21E / FY22E / FY23E respectively. We now expect CPBI to report revenue and adjusted PAT CAGRs of 20.3% and 32.4% respectively over FY21E-FY23E. Rolling over valuation to FY23E, we maintain our BUY rating on the stock with a revised target price of Rs432 (earlier: Rs283) valuing it at 30x FY23E earnings. Downside risks: Sudden decline in secondary real estate sales and aggressive capacity addition in MDF segment by existing/new players.

* Core product (plywood and laminates) segments revive sharply. Better than expected volume recovery in the core plywood and laminate segments (up 17% / 2.4% YoY respectively) was a key positive surprise. Segmental (adjusted) margins improved 250bps / 530bps YoY for plywood / laminate segments driven largely by cost optimisation and operating leverage. Management expects both the core segments to sustain their growth momentum in the near term driven by considerable improvement in secondary real estate sales market and expected increased traction from the recently launched virus-free range of plywood and laminate products.

* MDF segment delivers 21% YoY growth with impressive margins. MDF reported 18%/21% YoY volume/revenue growth in Q3FY21. Segmental EBITDA margin too improved 100bps YoY to 27% largely due to operating leverage and improved pricing. The impressive MDF growth was largely driven by higher OEM demand, which is likely to sustain in the medium term. The Board has also approved a brownfield expansion (from 600 to 1,000 CBM/day) at its Hoshiarpur MDF plant (at a capex of Rs2bn), which is likely to come on stream by Mar’22. It also plans to put up a greenfield plant in South India, which is targeted to commence operations by Mar’24.

* Company becomes debt-free. CPBI, which guided for becoming a debt-free company by end-FY21, achieved the feat in Q3FY21 itself. This was driven largely by its impressive profitability, stricter working capital management, and muted capex post Covid.

To Read Complete Report & Disclaimer Click Here