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Century Plyboards’ (Century) Revenue/ EBITDA /PBT was 13%/8%/8% above JMFe respectively. Core plywood volume grew 14% (3-year CAGR) on the back of a pick-up in real estate absorption and market share gains while MDF volume posted 3% CAGR in volume due to capacity constraints (CU@98% in 1Q). Gross margin contracted 150bps QoQ on RM cost inflation (timber and chemical costs in plywood and laminate segment respectively) while EBITDA margin shrank 130bps on account of higher A&P spend and professional charges. The management maintains its guidance for 20% revenue growth in FY23 led by Ply/ Laminates/ MDF / Particle board volume growth of 15%/15%/25%/10% respectively. The MDF brownfield expansion is expected to be commissioned by end of Oct’22 while the greenfield south India plant is expected to start operations by 2HFY24. We broadly maintain our estimate and roll forward to Sep’23TP of INR 790, basis 32xSep’24EPS. Maintain BUY. Lower-than-expected ply/MDF volume is a key risk.

* 1QFY23 summary: Revenue grew 15% on a 3-year CAGR basis (13% above JMFe and 12% above Consensus) led by Ply/laminate/MDF volume growth of 12%/9%/3% (3-year CAGR) and realisation growth of 2%/15%/5% respectively. Gross margin contracted by 150bps QoQ to 47.2% (180bps below JMFe) due to raw material cost inflation, though it was partially offset by price hikes. EBITDA margin contracted 130bps QoQ to 16.5% (80bps below JMFe) due to higher A&P spend (frontloaded in IPL event). EBITDA grew by 17% 3-year CAGR, to INR 1.5bn (8% above JMFe). Adj. PAT grew 27% (3-year CAGR) to INR 964mn (8% above JMFe).

* Strong volume growth in Plywood; higher A&P spends hurt margins: Plywood revenue grew 15% on a 3-year CAGR basis (16% above JMFe), as volume/realisation grew by 12%/2% on 3-year CAGR respectively. The company hiked prices by c. 2% in 1QFY22 (3% in premium and mid-category, 7% in economy). EBITDA grew 3% on a 3-year CAGR basis, while margins contracted by 470bps QoQ to 10.4% (360bps below JMFe) on account of higher A&P spends (c.150bps impact) and delay in price hikes to pass on the cost inflation in timber prices (+5% QoQ; typically constitute 50-55% of RM cost). While Century continues to focus on the premium segment, the mid-end segment is expected to continue to grow faster than the premium segment. The management maintained its 20% revenue growth guidance (including 15% volume growth) and c.13-15% as sustainable EBITDA margin in this segment. It also highlighted 10% capacity enhancement in the plywood segment in FY23 through the debottlenecking exercise.

* MDF volume steady on capacity constraints; margins continue to surprise positively: MDF revenue grew by 21% on a 3-year CAGR basis (8% above JMFe) as volume/realisation grew by 3%/15% on 3-year CAGR basis respectively. Century Ply hasn’t undertaken any price hike in 1QFY23 (last hike in Nov’22 by c.18% in order to offset raw material cost inflation). And it believes realisation could be sustained for the next 1 year given no material threat of imports/new capacity additions for at least 1 year. EBITDA margin remains at elevated levels (35% for 1Q) on account of product mix, thanks to operating leverage. Century’s brownfield expansion at Hoshiarpur (400cbm per day) is expected to start operations by end of Oct’22 while its greenfield south India plant is expected to be

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