Accumulate Century Plyboards Ltd For Target Rs.850 - Elara Capital
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Bumpy road near-term
Subdued demand environment in Q3 hit growth
Century Plyboards’ (CPBI IN) Q3 net sales rose 6.1% YoY to ~INR 9.37bn, led by strong growth in medium density fiberboard (MDF), up 12.5% YoY, while other segments of plywood (up 5.9% YoY) and laminates (up 2.6% YoY) saw muted growth. Subdued demand for wood panel segment hit plywood and laminates growth. Volumes in MDF (up 15% YoY) and Particle Board (up 18% YoY) were robust but realization was hit by higher import competition. The management anticipates continued slow pace in the wood panel market until the commencement of deliveries for the current surge in new launches in ongoing real estate projects, starting 2025.
MDF/Particle Board – BIS norms to prop up volumes and margin
CPBI anticipatessofter Q4 as plywood and laminates are projected to post single-digit growth, while MDF may exhibit >20% volume growth. However, MDF's realization may decline by 7-8% in H2FY24E due to the presence of cheaper imported products. The implementation of BIS standards for MDF and Particle Board from 11 February 2024, is anticipated to diminish import competition. This is likely to enhance CPBI's volumes, though the positive impact on realizations and margins may be realized with a delay of six to nine months.
Profitability to be under pressure in Q4
Q3 EBITDA margin contracted 320bps YoY to 11.3%, led by contraction in margin across segments. While timber prices may remain firm, higher investment behind the new launch of Sainik laminates and lower realization due to increased competition for MDF and Particle Board will continue to keep margin under pressure for Q4.
Valuation: revise to Accumulate; new TP at INR 850
We cut FY25E/26E earnings estimates 8%/2% to factor in lower revenue and profitability. We revise CPBI to Accumulate from Buy as the stock has run up 19% in the past three months, with higher TP of INR 850 (from INR 800), on 35x FY26E P/E as we roll-forward to FY26E.
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SEBI Registration number is INH000000933
