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Century Plyboards (Century) reported a strong quarter. Revenue/ EBITDA was 8%/29% above JMFe respectively. Revenue grew 7% YoY (+10% QoQ, +13% 4-year CAGR) mainly led by Ply (+19% YoY /18% QoQ) while MDF/ Laminates/ PB reported a decline of 1%/ 6%/20% YoY (+21%/ 7%/11% 4-year CAGR). Core plywood volume growth surprised positively with significant 15% growth YoY (+13% QoQ, 11% above JMFe) while realisation too improved 6% YoY (+4% QoQ) on account of price hike and product mix. MDF volume declined 3% YoY (+7% 4-year CAGR, 3% below JMFe) on account of the high base (95% CU in 4QFY23). Timber prices remained high; however, softening in key chemical prices coupled with price hikes in Nov’22 and Jan’23 led to gross margin expansion of 160bps QoQ to 47%. EBITDA at INR 1.6bn was flat YoY/ 24% QoQ (+27% 4-year CAGR; 29% above JMFe). The company’s capacity expansion programmes are on track, though it has revised a) the capex outlay for its greenfield expansion in MDF from INR 6bn to INR 7bn, and b) capacity for its greenfield PB unit from 1,200 CBM per day to 800 CBM per day, entailing capex of INR 5.0bn (earlier INR 5.5bn). We broadly maintain FY24/FY25 estimates. We maintain BUY with Mar’24TP of INR 670, basis 32xFY’25EPS. Lower-than-expected ply/MDF volume is a key risk.

* 4QFY23 summary: Revenue grew 7% YoY (+13%, 4-year CAGR; 8% above JMFe) mainly led by Ply revenue growth of 19% YoY (18% QoQ, +15% 4 year CAGR). However, MDF/ Particle board revenue fell 1% YoY /20% YoY (-3% QoQ). Gross margin expanded 160bps QoQ (-160bps YoY, 140bps above JMFe) to 47% as higher timber prices were offset by softening in chemical cost and price hikes in 3QFY23. EBITDA margin contracted 120bps YoY to 16.6% (270bps above JMFe). EBITDA was flat YoY/24% QoQ (+27% 4- year CAGR) to INR 1.6bn (29% above JMFe). Adj. PAT declined 3% YoY/32% QoQ (+37%, 4-year CAGR) to INR 1.1bn (43% above JMFe).

* Plywood volume growth continues to surprise positively (+12% YoY; 9% above JMFe): Plywood revenue grew 19% YoY (+15% 4-year CAGR, 14% above JMFe) as volume/realisation grew by 12%/6% YoY (12%/5% QoQ). EBITDA grew 28% YoY (53% QoQ, +32% 4-year CAGR), and margin expanded by110bps/370bps YoY/QoQ to 15.9% on account of superior product mix (strong growth in premium segment) and operating leverage. While key chemical prices have softened during the quarter and are expected to fall further, timber prices remained elevated and are expected to stay that way in the coming quarters. The company hiked prices by 2% across products except on Sainik MR (in Sainik MR, it hiked price by c.4% in Nov’22 in south India). The management has guided for 13% volume growth and 15% revenue growth) but moderated its margin guidance of 13-15% to 12-14% as sustainable EBITDA margin for FY24 in this segment.

* MDF volume lower YoY on high base (-3% YoY, 3% below JMFe): MDF revenue fell 1% YoY (+21% 4-year CAGR; 1% below JMFe) as volume declined by 3% YoY on account of capacity constraints (-3% QoQ, 7% 4-year CAGR; 95%CU in 4Q). Realisation grew 1% YoY/ flat% QoQ (+12% 4-year CAGR). Higher timber prices led to EBITDA margin contracting 570bps YoY; however, it expanded 450bps QoQ to 27.1%. Century’s brownfield expansion at Hoshiarpur (350cbm per day) commenced production in Mar’23. However, its greenfield south India plant has seen an increase in capex outlay (from INR 6bn to INR 7bn) and is expected to be commissioned in end-3QFY24 or early 4QFY24. The management has guided for 30% volume and value growth and 20-25% EBITDA margin for FY24 for the MDF segment.

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