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Growth driven by Plywood & MDF; strong demand outlook ahead

In Q1FY25, Century Plyboards (CPBI) posted a Rev of INR 10bn, up 13% YoY (5 year CAGR of +12%) which was In-line JMFe mainly driven by strong growth in Ply boards and MDF. EBITDA was at INR 1bn down 17% YoY (5 year CAGR at +5%) while OPM at 11.1% vs. 14.9% YoY and 12.9% QoQ and was below JMFe mainly due to margins under pressure for MDF followed by laminates. Net profit was at INR 341mn down 61% YoY and Includes loss of INR 133mn relating to disposal of investment in foreign subsidiaries.

* Strong growth in Ply boards: Revenue was up 14% YoY to INR 5.6bn (5 years CAGR of +12%, Greenply +8%) mainly driven by strong volume growth of c.13% YoY and improved mix + aggressive channel strategies along with better RM sourcing led to EBIT margin of 15.1% up 199bps YoY (Greenply EBITM +6.3%). CPBI has taken price hike of c.2% in August and c.2% in May’24 in order to pass on the RM prices. Currently Plywood utilisation is c.75%; management expects Revenue/Margins of c.10%/12-14% respectively in FY25.

* Strong volumes in MDF but with a drag on profitability: MDF revenue was up 26% YoY to INR 2.1bn (5 years +18%, Greenpanel +18%) on the back of strong volume growth of c.47% however EBITDA margins (incl. AP plant) were at 7.6% vs. 26.2% YoY and 16.5% QoQ mainly due to intense competition, lower utilisation at AP and higher timber cost. However on Standalone basis OPM was at 14.1% vs 26.2% YoY. Timber prices in North was 6.5-7/kg while in South was c.5.5-6/kg. Management expects with Andhra MDF to ramp up from Q2 (Q1 at <20% utilisation); margins to come back to 15%. Also; the AP plant will focus more on Pre-lam MDF which will result in better margins going ahead. Guided for revenue/margins of 40%/15% respectively for FY25. (JMFe OPM of c.14%)

* Muted demand impacted laminate performance: Revenue was down 1% YoY to INR 1.5bn (5 years CAGR of +8) and volumes were down c.6% mainly due to soft demand. However OPM (inc AP plant) was at 10.8% vs 10% YoY, margins improved due to value added laminate been produced at AP however due to lower utilisation the overall margins capped (SA OPM at 13.0%). Guided revenue/margins of c.20%/10-12% in FY25.

* Outlook & Valuation:

Overall we expect CPBI to deliver a revenue CAGR of c.15% over FY24-26 backed by: (1) Growth in real estate projects and pickup in private capex,, (2) CPBI’s focus on increasing the share of value-added products across categories, (3) shift in demand to branded players from unbranded ones, (4) CPBI’s core focus on increasing dealer/distributor throughput and (5) expanding the Sainik brand in tier-2 and below cities. In MDF we expect revenue CAGR of c.26% along with margins of 14%/18% over next 2 years mainly driven by (1) improving share of value –added, (2) not much capacity addition in the industry, (3) increasing use of readymade furniture and (4) ramp in AP MDF plant. Overall, we expect an earning CAGR of 26% over FY24-FY26. At CMP stock is trading at a PE of 48x/31x on FY25/FY26E earnings. We value CPBI at 35x on FY26 earning, to arrive at our target price of INR 810 upside of 15% and hence maintain BUY

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