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Century Ply’s Q3FY24 standalone EBITDA declined 16% YoY/24% QoQ to Rs1.1bn (consensus est. Rs1.5bn). EBITDA margins contracted 307bps/275bps YoY and QoQ, respectively, to 11.5%. Sharp decline in profitability for MDF segment and heightened spending on branding activities for plywood (dealers meet) and laminates segment impacted profitability. Management expects demand weakness to continue for the next 1-2 quarters, after which demand will pick up. Factoring-in the Q3FY24 performance and near-term sluggish demand, we trim our EBITDA estimates by 6-13% for FY25-26. We continue to like Century Ply given its integrated business model, leadership position, and higher growth visibility, underpinned by expansion plans and likely implementation of BIS norms. We maintain BUY with revised Dec-24E TP of Rs850/sh (34x P/E vs earlier 32x), post quarterly rollover.

Result Summary: Overall revenue growth was muted at 7% YoY (down 5% QoQ) to Rs9.3bn (est. Rs9.7bn). Plywood division reported volume growth of 3% YoY (down 4% QoQ) to 90K CBM, whereas EBITDA margins declined 200bps YoY/382bps QoQ to 9.7% on account of higher dealer meet expense of Rs70mn (every 2 years), and appointment of McKinsey for advising on enhancement of prime products. MDF segment suffered the most, as EBITDA margins contracted 335bps YoY to 19.2%. Though MDF volumes grew 15% YoY to 55K CBM, realizations continued to remain under pressure (down 4% QoQ) owing to higher MDF imports (100K CBM imported in Q3FY24). For laminates segment, revenue grew 2% YoY (down 6% QoQ) to Rs1.6bn, whereas EBITDA margins declined 202 bps YoY to 12.4%, owing to increase in employee cost for newly-launched ‘Sainik’ laminate. Particle board EBITDA declined 26% YoY/33% QoQ to Rs58mn

What we liked: Steady volume growth across segments (except Plywood segment)

What we do not like: Significant EBTDA decline in Q3

Key Concall Takeaways: i) Management indicated that demand weakness may continue for the next couple of quarters, with recovery anticipated from Q2FY25 onwards, driven by upcoming capacities (MDF & Laminates) and implementation of BIS norms. ii) Plywood segment may report single-digit YoY growth in Q4FY24 with margins in the range of 12-14%. MDF segment is expected to register more than 20% growth in Q4, however, EBITDA margins will likely dip owing to weak realizations (down 7-8% in Q3 and Q4). Laminates segment will probably witness single-digit YoY growth in Q4. Iii) Indian manufacturers can avail BIS licenses with nominal costs. Importers may face challenges in procuring BIS licenses (for 6-7 months). Iv) The company has commissioned phase one laminate press, the second press will be installed in FY25 with major capex to be spent in Q4FY24/Q1FY25.

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