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Growth momentum to continue

Century Plyboards (CPBI) has reported better than expected standalone revenue growth of 21.2% YoY in Q4FY22 with plywood/laminate/MDF revenue growing at 19.4%/13.5%/36.7% YoY and volume growing at 13%/1.1/4.8% YoY, respectively. Operating margin increased 81bps YoY to 18% due to lower employee/other expenses resulting in EBIDTA growth of 26.9% YoY. Management stated demand conditions remain healthy and has guided for overall 20% volume growth for FY23 with growth across segments. The expansion plans across segments are on track, which will enable strong growth going ahead. We largely maintain our estimates and upgrade the stock to BUY from ADD post the recent stock price correction with an unchanged Mar’23E target price of Rs747.

* Strong revenue led by growth across segments: CPBI has reported standalone revenue growth of 21.2% YoY with plywood/laminate/MDF segment reporting revenue growth of 19.4%/13.5%/36.7% YoY. Plywood/laminate/MDF had volume growth of 13%/1.1%/4.8% YoY, respectively. Laminate growth was tepid YoY due to high base YoY whereas MDF volume growth was low due to full utilisation of existing capacities. As per the management, there was strong demand in Feb-Mar’22 after a soft Jan’22 (impacted by covid third wave). It expects demand momentum to continue driven by increasing traction in the housing market. For FY23, management has guided for volume growth of 15% YoY for plywood (20% in value terms), 15% YoY for laminate and 25% YoY for MDF segment. Working capital days for FY22 declined by 6 days YoY to 63 and the company remained net-debt free.

* Operating margin expands: CPBI’s standalone operating margin increased 81bps YoY to 18% primarily due to lower employee/other expenses of 110bps/17bps YoY whereas gross margin declined 46bps YoY, which resulted in EBIDTA growth of 26.9% YoY. Plywood margin increased 238bps YoY whereas MDF margin expanded 595bps due to price hikes undertaken in Q3FY22. Laminate segment margin declined 11.1% YoY (- 101bps QoQ) due to raw material inflation. The company has taken a price hike in plywood/laminate in Q1FY23 which may protect its margins going forward. Management has guided for sustainable (EBITDA) margin of 13-15% in plywood segment, 14-16% in laminate and 25%+ (each) for MDF and particle board segments.

* Capacity expansion on track: CPBI’s MDF brownfield capacity expansion at Hoshiarpur, Punjab is ongoing. It is expected to commission by Oct’22 whereas the greenfield MDF project in Andhra Pradesh is expected to commission by H2FY24. The greenfield laminate expansion in A.P. is expected to commission its 1st of 2 phases in Q2FY24. The company plans to fund most of its capex through internal accruals.

* Valuations and view: CPBI’s Q4FY22 result has been in-line with estimates. We largely maintain estimates and upgrade the stock to BUY from ADD due to the recent correction in stock price with an unchanged Mar’23 target price of Rs747. We continue to like CPBI due to its comprehensive wood panel product portfolio, wide distribution network and strong brand.

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