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Company Background

Century Plyboards (India) Ltd (CPIL), promoted by Mr. Sajjan Bhajanka, Mr. Sanjay Agarwal and Late Mr. H P Agarwal, is India’s largest manufacturer of plywood with ~25% of organised market share. It has a production capacity of 300,000 CBM plywood; 8.77 mn units laminate sheets, 54,000 CBM particle boards and 600 CBM/day Medium Density Fibre Board (MDF) spread across 13 manufacturing units in India and abroad. It also has two Container Freight Stations (CFS) near Kolkata Port

Investment Rationale

Robust topline growth with rise in volumes due to positive consumer sentiments

* During Q1FY23, net sales improved by 96.4% y-o-y at Rs 8,814.8 mn led by significant growth in volumes due to positive consumer sentiments and low base of Q1FY22 which was hit by second wave of COVID-19. Plywood, laminates, MDF and particle board segments witnessed volume growth of ~106%, ~60%, ~42% and ~72% y-o-y at 88,015 CBM, 1.85 mn sheets, 45,309 CBM and 21,537 CBM respectively. However, sales de-grew marginally by ~1.5% q-o-q due to Q1 being the leanest quarter vs. Q4 which is the peak quarter of the financial year. Segment wise realisation (y-o-y) also witnessed a jump of ~3.6%, ~16%, ~20% and ~25% at Rs 53,940/CBM, Rs 885/sheet, Rs 34,343/CBM and Rs 23,713/CBM respectively for plywood, laminates, MDF and particle board.

* The prices of kraft paper and phenol continued its surge whereas prices of timber stabilised during the quarter; but, remaining at elevated levels. In order to mitigate rise in raw material (RM) cost, the Company has taken a price hike of ~2% and 3% in premium and non-premium plywood (Sainik 710) and 7% in Sainik MR (affordable grade water resistant plywood), ~3% and 4% in 1 mm and 0.8 mm laminates, and ~9% in particle board. Above price hikes have factored in rise in timber cost but phenol price increase in not accounted for, as it is expected to get corrected, going ahead. Full impact of the above price hikes is expected to be seen from Q2FY22 onwards. CPIL has not taken any price hike in MDF segment during the quarter.

* CPIL is well positioned for growth in coming years. We have built in revenue growth of ~27% and 16% in FY23E and FY24E keeping in view CPIL’s robust track record and rise in demand inspite of rising input and interest costs

Margins to improve at ~18% by FY24E

* Inspite of continued trend of rising cost and aggressive brand spending during Q1FY23, EBITDA margin increased by 285 bps y-o-y to ~16.5% on account of record robust performance by MDF and particle board segments. EBIDTA margins from both segments stood at ~34% and ~35% respectively. Margins from laminates segment remained stable at 13.4%. However, the segment reported 16.4% EBIDTA margins after adjusting for BCG expenses. Plywood margins declined by 560 bps q-o-q at 10.5% on the back of higher advertisement spending, higher demand from non-premium segment vis-à-vis premium segment and lag in product price hike impact. Management expects margins from plywood segment to get normalised going forward in the range of 13-15%. The PAT for the quarter increased by ~185% y-o-y to Rs 964.8 mn mainly on account of higher operating margin and low base effect of Q1FY22.

* Going forward, we expect EBIDTA margin to improve to ~18% by FY24E, on the back of prudent management of operating efficiencies, better cost control and structural shift towards organised players, which is further expected to generate traction in the industry.

* On the balance sheet front, net working capital decreased by 5 days y-o-y to 58 days. CPIL remained a net cash positive Company with net cash of Rs 1.84 bn as on June 30, 2022. The Company reported healthy ROCE of 29.3% during the quarter.

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